CALL ANGELA AND ASK HER TO SEND US SOME MONEY

Once again the repo rate was left unchanged at 5.5% by Governor Gill and her merry band of experts. It is getting on for two years since it was decided that this was the perfect price for money and despite all that has happened since late 2010, the rate has been held constant. This has provided a great opportunity for testing some theories about the influence of the Reserve Bank’s actions. The repo rate is stated to be one of the Bank’s main tools in controlling inflation, but that particular metric has climbed steadily upwards and out of the target range almost since the start of the no-change period. This suggests that there is little connection between the two. Also despite being at a multi-year low for so long, this allegedly critical interest rate has certainly not promoted any useful economic growth. It also hasn’t prevented the rand from being reasonably strong. Perhaps the low rates may have helped cause equity market dividend yields to have grown thinner in the recent past. The longer the experiment continues the more we will discover about how ineffective intervention probably is.

Because it is always popular to heap derision on the banks, not many people have noticed that the bank that advised Facebook during its recent stock market listing in fact did a terrific job for their client. They managed to sell truck loads of that company’s brand new freshly minted shares at almost the top price they will ever reach. The fact that those buyers are now trying to blame someone for their own greed will now provide a very entertaining sideshow and in the meantime both Facebook and their advisors are buried under piles of cash. Maybe Mr Zuckerberg will also make rockets with his money – a popular geek hobby.  Did you know that the JSE listed a single stock future on Facebook priced in rands? For reasons emanating from almost every word of that last sentence this is not a security you need to buy.

There is still so much anxiety about markets globally that demand for US long dated bonds – assumed to be as safe as it gets – are now trading at miniscule yields of 1.75%, and in 10 years time you get your money back. What a poor investment. If you bought a nugget of gold today the chances are very good that in 10 years time it will still be exchangeable for about the same amount of goods and services that it would buy today. And if we stockbrokers are to be believed, buying a share with a dividend yield of 3.5% will provide at least double the income provided by that bond, plus the reasonable chance that the capital will grow in value by at least the rate of inflation. This investment stuff is easy.

And it is getting easier as the bear roams across the landscape clawing holes in prices. Another few weeks like the last and pretty soon there will be some wonderful bargains around. Just be patient please. Much has happened but a great deal more is still to come.

No one has any solution for the Euro land problems. The rules for the creation of the euro currency are probably silent on the unimaginable situation caused when a country manipulates their books to disguise the fact that they are broke. Now in turn each old idea about what to do is dusted off and put on top of the pile as if this time it will work. This week, folk without any money and unable to borrow any, thought that it would be a splendid idea if their hard-working but slightly boring friends, who can still find lenders, did the borrowing and then gave the cash to them. Pictures of Frau Merkel taken at the various talking shops this week clearly revealed her view of that one. She also does not look that keen on the new chap that France has sent in to bat for them.

Another year and my complimentary ticket to the Monaco Grand Prix has failed to arrive. But I don’t suppose they get SuperSport channel 1 in Monte Carlo, so I would miss the crucial Sharks Stormers game tomorrow night. The bigger problem of course is the clash between the Grand Prix qualifying session and the Lions clash in Perth earlier on. Mind you even 16 points won’t help them now.

James Greener

25^th May 2012

IS THE LONDON WHALE ON FACEBOOK?

This week will be remembered by anyone who tried to trade the market as pretty testing. There were some amazing inter-day moves which were capable of making just about any trade look unwise within a few hours. The All Share has now abandoned its 4 month long flirtation with the 34 000 level and may be setting up a similar tryst with 33 000. That would still make it 1000 points above the 1^st January level and so we cant yet label this year as a bear market. Nevertheless most shares need to fall a lot more before reaching levels that historic comparison would suggest is value.

But even the most confident and experienced investor must be having great pangs of doubt deep down inside. Just what is going on? Is anyone or any region or any business actually getting richer? Well certainly Mr Zuckerberg and his fellow Facebook founders have become a great deal richer now that his company looks as if  it will be valued around $100bn. In good old South African parlance that is “a groot klomp geld” for what is really just a computer program that a billion people use for free. Mr Zuckerberg’s claim that his product is a force for good in the world stuck me as a tad sanctimonious. Particularly, as one of his partners has swiftly changed nationality in order to avoid the US taxes on his windfall profits. Undoubtedly the valuation of that company is nearly impossible to justify but the irrationality of crowds seems to be at work and enormous wealth has been created. I do however share the view that the lucky ones who receive shares ahead of the listing should convert most of them into folding money sooner rather than later.

It really was quite unnecessary for our Pres to point out that his government is not paying its bills timeously. Far better if he had spent the time knocking heads together in his administration and get them to do their jobs. The difficulty is that many of us suspect that the bills don’t get paid because the money has gone missing and not just because the clerk can’t find the cheque book and a pen.

The half-page full colour advertisement in all the papers yesterday was published rather too late. It appeared only on the first of several days of festivities to be held by the Department of Communication to celebrate World Telecommunications and Information Society Day. It seems that we may all have been expected to share in the joy of the event with the Deputy Minister of Communications who has been dispatched to somewhere called Gadiboe  to preside over a slew of charitable works and tree planting. Now these are admirable things to do to mark this important date in the calendar but one cant but think that proving shady glades for the future should rank behind improving the nation’s access to effective and cheap broadband.

The people at Barclays Bank in London must have put in a call to the fellows at Wal-Mart to compare notes about doing business in SA. Both of them have been told by Pretoria bureaucrats and politicians just how many staff members they need in their South African operations and to rehire any that they might foolishly have recently fired. It will be interesting to watch what happens when Telkom’s new Chinese partner suggests that the payroll is a tad bloated. The age old trick of not understanding the language may be used. A version of this was used by the boss man of SAA who claimed that the R6bn that the taxpayer has given him is not a “bail-out” but something much prettier. Tell you what. Give it back and let’s see if you sink.

The trader  at JP Morgan bank responsible for obliterating $2bn of the bank’s money was known by everyone across the City as The London Whale on account of the size of his positions. That alone ought to have rung a few alarm bells in the executive suite. Someone was definitely not paying attention.

Unlike Sharks supporters in Bloemfontein this weekend.

James Greener

18^th May 2012

TO HELL WITH DEFICITS

Overwhelming numbers of voters in Europe have reached the conclusion that they don’t wish to play this Austerity game anymore. Simply, they want their governments to resume doling out the goodies that everyone was getting used to. The people have no interest in where the money will come from. That’s the government’s problem. Support for this view appeared from Nobel Laureate Joseph Stiglitz who was this week dispensing his wisdom in front of the cameras here on the southern tip. Reportedly he thinks that the SA government should help the nation by printing rands and using them to buy dollars. Just why the state should be able to do something that its citizens are forbidden to do (print their own money) is for proper economists to explain. Maybe they too will win a Nobel Prize. The rest of us are doubtful.

It really does look as if recessionary times are returning. Commodity prices are pretty weak and jobs are getting harder to find – especially in the US where they take that sort of thing very seriously in an election year. It is worth remembering that the superheroes (aka politicians and bureaucrats) leaped into battle last time with whiz-bang remedies and promised that it would all get much better and importantly would never happen again. Predictably the result of people rather than markets allocating resources has caused unanticipated effects, like bankers getting bonuses when they should have got pink slips.

There is something so promising and serene about the name of the Mapungubwe Institute for Strategic Reflection. Hitherto this Institute has been sorely neglected amongst the think tanks of the world but this week it offered a word or two about the battle for the presidency of the ANC youth league where Strategic Reflection is definitely lacking. We look forward to more input from the Limpopo philosophers who bewilderingly are located in an office park in Woodmead. At the very least one imagined robed monks sitting around a carefully raked stone field with baobabs.

Well fancy that. Thousands of small businesses are in flagrant defiance of the new Companies Act by failing to establish a Social and Ethics Committee. Isn’t that just the most pressing thing to do when you are wondering if you will be able to meet this month’s payroll because your customers in turn are ignoring your invoices. Perhaps they are busy setting up their own committees. In the meantime remember to register for The African Renaissance Conference which is happening down here in Durbs later this month. This will be a real blast with several cabinet ministers promised on the speaker’s list. When does anyone have time to do any work?

The Western Cape is in the naughty corner for electing the wrong party but really is it necessary to punish them by sending Massmart to teach the farmers around Polokwane how to make wine? This too of course is part of a punishment on the retailer for daring to merge with Walmart before getting permission. It’s unclear whether or not the fact that Cape Town does not seem to be hosting any of next year’s African Cup matches is also a slap on the wrist or a deliberate choice by the mother city. And why does Cricket SA need to spend buckets of money on legal fees to recover the money that their own officials misallocated (to themselves)? Why not just report a case of theft and let Mr Plod do his job? Oh yes, I see now. Sorry.

Any one who took the easy option at school of that non-subject Maths Literacy is now really battling with the permutations of the points outcome of Super 15. As I see it the Sharks need to win a lot. The Lions need to consider another sport.

James Greener

11 May 2012

BLUE LIGHT BRIGADE BLASTS OFF ?

The folks over at Virgin Galactic have certainly got the measure of how things work in SA. They have opened a booking office here to sell tickets for their space trips. A spokesman said “he believed that there were enough millionaires or people with access to funds in SA for a space flight.” The second part of that statement is the killer. Boy, do we ever have plenty people with “access to funds”! Note there was no suggestion that it should be their own funds. I can already hear the arguments that using a rocket is the best way to improve service delivery.

The market is trying quite hard to break out upwards from a long period of indecision. The difficulty for anyone looking to climb aboard the bull is that there are very few shares that are priced to offer value.

Now we can see exactly how the dividend tax works. And there’s little evidence that companies are passing on to shareholders their 10% STC rebate. It is therefore puzzling that the market is not drooping to account for the lower actual dividend yields being collected by individuals. Perhaps that is the reason though. The very large majority of shares are held by institutions that are exempt from the dividend tax and so they have no need to cause a market correction. Presumably, on the other hand, most of the variable dividend rate preference shares are held by individuals and that is why the market prices of these instruments are still battling to find a level.

Sadly there might just be a reason for not running a private portfolio in one’s own name emerging here. Tellingly, investing in a dividend paying exchange traded fund is not identical in tax terms to buying a unit trust. Beware politicians seeking money. They can ruin anything.

It is very hard for us outsiders to know if we should be worried or not. The story about unsecured lending is growing in frequency and stridency. Reportedly too much cash has been lent to too many people by lenders who are being cavalier and lax in vetting their clients for ability and intention to repay. The bears claim that this will all blow up in a fully fledged credit crisis and that therefore the banks are soon going to get into even more difficulties. The market does not buy this and the bank sector index has massively outperformed the overall market in the past 6 months or so. Investors clearly don’t think there is a problem looming with these lenders. The individual banks are likely to be pretty much on top of any potential problems After all this is their so-called core business – lending money – and they are repeatedly issuing reassuring statements to this effect. Nevertheless sharp-eyed data ferrets are able to produce scary statistics like there being many more debtors than employed people and it is certain that many borrowers are getting into severe difficulties with servicing their debt. A social problem is certainly unfolding even if it may not yet be a meaningful financial one. What will it take before the government and its trade union allies stop setting impossible standards and conditions for paying someone to perform a task?

The cabinet has formed “a high-level e-tolling committee”, Watch for official-looking suits perched on those gantries. And the word is spreading fast that those gantries are also laden with lashings of the very best copper cabling. This is turning out to be a very entertaining spectacle.

Even if I do now have an official Lions cap the team is making it ever harder to display unquestioning support. Perhaps the problem will be solved next year if some one with sense realises that SA currently can support just four teams in the Super competition. It is getting pitiful. Mind you the Cheetahs are also catching the disease.

James Greener

4^th May 2012

ECONOMIC FREEDOM (DAY) IS NOT CLOSE

Among the many numbers that we analysts can use selectively to boost our current view is one rather optimistically named “the leading indicator”. Allegedly it behaves in a manner that is later is echoed by the dreaded grand poobah of GDP itself. The latest published value for this statistic is down a tad so in simple terms this means that 2012 could turn out to be a slow year. If so, that would count against us enjoying decent market performance for the year as well. In fact the All Share index has been stalled for almost six weeks and the dispersion between the performances of the different sectors has disappeared. This is not the time for large general portfolio investment.

This week the broking industry got its first taste of playing tax-collector for the new dividend withholding tax. It works like this. The full as-declared dividend amount is credited to each client’s income account, whereupon a 15% deduction entry is immediately processed for every account not identified as exempt (basically all individuals and trusts are not exempt). This money is then sent to SARS together with a list of who it was collected from. In cases like Anglo where some clients have chosen to receive shares in lieu of the cash dividend, this after-tax dividend amount is sent back to the company and in due course the extra shares will be added to their portfolio. Any suggestion that SARS ought to pay us a fee for this work has been rejected with scorn and derision. Things are creeping closer to the alleged joke tax return that asked just one question of the taxpayer “How much money have you got?” Send it to us.

The furore about how to fund the company (SANRAL) that upgraded all those roads around Joburg is raging strongly. Apparently it was made clear when the project started that tolling the roads would be the solution but now the arguments against tolls range from outright defiance to detailed nitpicking of the fine print. An eleventh hour courtroom drama is taking place. Fanning the flames is the recent realisation that the promised exemption from tolls for the already belligerent mini-bus taxi industry is not certain. Here’s a suggestion for those taxi drivers. Just pay the tolls chaps and then claim them back when the exemption comes through. Surely you trust that SANRAL will swiftly refund your money?

At first glance the INet-Bridge headline announcing a new government agency to promote entrepreneurship seemed like a perfect example of oxymoron. Surely by definition anybody who can create wealth would never work in government and so the state could hardly be in a position to offer advice on such a matter. But a moment’s thought reveals the wisdom of the idea. For generations the best way to secure government contracts has been to know the right people in the right departments. This new agency, which will be born out of the consolidation of three existing but obviously ineffective agencies, should merely publish the names and family trees of influential government officials. Entrepreneurs will then pop out of the wood-work as it were. Unfortunately, closer reading reveals that the new scheme will start life already crushed by its name – SA Finance Enterprise Agency (SAFEA). All too predictably it is about allocating money—probably at the wrong price – to small businesses operating in “the 17 infrastructure projects identified by the Presidential Infrastructure Coordination Commission”. Well woo hoo. That doesn’t sound very entrepreneurial. A government committee? Infrastructure projects? Oh dear me no.

Another brace of short weeks has cropped up and all true South Africans have filled up the 4x4 with fuel and beer at R12 per litre and left for the berg or the beach. The markets will go into sleep mode until perhaps next Wednesday. There’s a bit of rugby to watch. One supremely optimistic journalist suggests that the Lions are favourites in their clash with the Brumbies at Ellis Park. That’s nice. In the meantime one does need to sympathise with the Sharks about some very odd decisions that keep going against them (or so I’m told)

James Greener

26^th April 2012

WHO IS KING OF THE (SAND) CASTLE?

Undoubtedly there is plenty of froth in the markets even if most investors can’t see the large bubbles that we bears are sure are there. In the USA, property prices are still falling and a very large number of house owners owe more money on their mortgage than their home is worth. Also in the US, the central bank is lending money at very low interest rates to banks that, without any one very interested in borrowing it in turn, are pleased to buy US government debt and make a bigger profit. In the Euro Zone, the patchwork quilt is unravelling at the seams as communities who believe themselves to be industrious and thrifty, deeply resent supporting others that they feel are spendthrift and idle. And here at home the government begs big business “to come to the party” (i.e. send money) while simultaneously berating them for trying to make that money. The markets have experienced many failed upside break-out attempts, but they are faced with these and other headwinds which blow business from their preferred courses of getting on with what they can do. Rather they have to do what they are told to do.

The ultimate bear’s scenario is of a significant correction that unfortunately will destroy a lot of wealth and probably scar many people but which would result in a new and solid base from where to start again.

The chaps who run the nation’s ports are going to dig a brand new one down on the site where the old Durban airport used to be. It is very exciting and it should create a lot of employment and will need plenty of spades. When finished, the new harbour will be capable of berthing two dozen ships. What is not mentioned, however, is what they plan to do with all the sand that will come out of the hole. There is only a limited market for souvenir packets of the stuff for nostalgia freaks wanting to remember the old runways. The rest is going to require some inventive salesmanship. Maybe someone in Joburg would like to build a beach resort?

Just how many athletes and administrators are we sending to the Olympics and how much will their outfits cost? It must be plenty because out of that amount the Chinese supplier has promised sponsorship of around R30m. It is little wonder that no local supplier of takkies and t-shirts was interested in kitting out the boys and girls in green and gold if this was the level of incentive required. Is this maybe one of those mysterious trades like the notorious arms deal where we expected to benefit from R110bn of so-called “offset investments” in return for buying just R60bn worth of toys for the defence force?

This kingdom thing is getting really messy. We might be in for a War of the Hibiscus. It seems that the government knew that something was brewing and took the precaution of setting up a Commission on Traditional Leadership Disputes and Claims. So far at least ten king wannabes have made appointments to meet with the commission who will need the Wisdom of Solomon to sort it all out. Fittingly the venue for the meetings is the Jewish Hall in Durban.

Perhaps the Commission will have representatives at Zuma’s place in Zululand this weekend looking to see if any of the pretenders really are A-list and have scored an invitation to the President’s wedding. This is the sixth time Mr Zuma has taken a bride but a Presidency spokesman has tried to calm tax-payers fears of mounting costs by pointing out that Miss Ngema will become just the fourth official wife. Nevertheless, her two children become eligible for 60 single domestic economy class air tickets a year – paid for by the state. That’s a lot of flying and multiplying that by the whole Zuma youth ensemble it helps explain why flights are so often fully booked. And why the Pres himself travels by private jet. He avoids having a youngster from the back of the plane creeping forward to ask if Dad could advance next month’s pocket money.

You have probably noticed that the Lions are at the foot of the log. Again. But they have won a game; unlike last year. Go Sharks (they need even my support against the Chiefs tomorrow).

James Greener

20^th April 2012

SHOOTING OUT THE LIGHTS

We bears are quite certain that the financial crisis is not yet over and that the various pieces of good data may be misleading. Certainly the US bond yields have fallen back to 2% and the midweek equity market flight is being reeled back in. But Europe is really still in a dreadful mess with many governments being unable to admit that all the disbursements and subsidised services that their citizens have come to expect can frankly no longer be sustained at current levels. Here at home the stories and evidence of the plight of the small enterprise is growing. Whether it is the demolition of manufacturing capacity by cheap imports or the government’s misguided attempt to control everything, turnover and conventional productive employment are under threat. And don’t even mention profits.

The state is currently spending R2.4bn a day, but far too much of that seems to “leak” straight into personal consumption without the government obtaining any services for the payments. It is further worrying that R0.4bn of this daily expenditure is borrowed money. These are shaky foundations on which to build a recovery

One can understand but not condone a government’s desire to keep certain information to itself. Like who has stolen what or which promises have not been kept or how many submarines are “out of order” or how many hours the president spent actually presiding. But how can cement sales be considered so sensitive that their release must be delayed by 3 months? Reportedly this has something to do with preventing collusion and promoting competition, but I doubt that would stand up to analysis. Just wait until the commission responsible for this idiocy hears that the JSE insists that companies reveal their accounts within 3 months to everyone including their competitors. Shocking.

So SANRAL’s campaign for everyone to have one of those electronic e-tags in their car is really born of their concern for your safety. It is not just that it gives them looting rights on your bank account but if you become unwell or suffer a car breakdown on the tolled road they maintain that the tag will enable them to dispatch help swiftly. Does this mean that the motorist without an e-tag who has paid the full undiscounted toll will be ignored if they get into trouble?

Here in the kingdom, preparations are underway at the Royal Natal Yacht Club for suitable celebrations of the other monarch’s 60^th jubilee celebrations. They have wheeled out a number of cannons of varying sizes (some are titchy) and tested them for their boom potential. A 21-gun salute to Queen Elizabeth is planned for June. Undoubtedly this attention-getting ceremony will have caught the attention of those who already feel the need of a blue-light convoy to signal their importance. Expect more bangs.

Newspaper owners must be grateful that this urge for self-promotion remains so strong amongst our politicians and bureaucrats. No matter what the track record might indicate no event or milestone is thought too trivial or embarrassing not to be announced with at least a quarter-page full-colour spread in the press. The latest is published by something mystifyingly called The Department of Human, (sic) and announces awards to honour the role players in the housing value chain. This notice appeared on a public holiday just 24 hours before nominations for the accolades closed, so it is obviously restricted to insiders and not intended to recognise and reward those chains of skilful brick throwers at building sites who appear effortlessly to toss bricks from one floor to another.

Sadly the fifth annual games for members of the Non-Aligned Teachers Unions of Southern Africa received little publicity until the participants failed to pitch up in their classrooms after the weekend of sports. It seems that the journey back from the Windhoek venue was exhausting.  Hopefully organisers of the games for the Aligned Unions will have taken note of this problem and will select somewhere more central. The country really can’t afford exhausted educators.

James Greener

Friday 13^th April 2012