THE REAL NATURE OF TAX

As the reporting season for December year-end companies draws to a close, those firms who have postponed revealing that things have been rather tough for them are mumbling quietly and publishing the smallest possible so-called short-form announcements. While this could be a reason for the All Share index postponing another attack on the 41 000 level, undoubtedly the rash of public holidays is diverting attention from the markets.

As feared, the roads here in Durban have become infested with cavalcades of BRICS bigwigs. Suppliers of blue lights and sirens are enjoying a bumper season. One convoy I counted had 28 vehicles speeding through the traffic lights. He or she must have been really late for breakfast.

An interesting lesson in market values has been delivered by this conference. During both the World Cup three years ago and the continental kick-about last month, when there were matches here in Durban, a war ship (sometimes even a submarine) would appear in the bay protecting the players and fans. Just what threat was expected from offshore was never explained but clearly someone was nervous about having so many highly priced hoofers of the round ball playing so close to the shore. So far, however, the BRICS leaders and their entourages have merited not even a man with a big stick in a leaky rowboat out there in the briny. Just shows what value we attach to those guys and girls. Or is it just that we don’t have any spare warships right now?

Most of the proceedings of the BRICS knees-up are far too dreary to follow but the subject of forming a development bank is interesting. Where on earth would SA come up with a capital contribution in line with our “partners” in such a venture? The old story of using one horse and one rabbit when making horse and rabbit stew comes to mind. In this case it would be one horse, three asses and a gerbil. Obviously we see ourselves as the borrower in this plan, not the lender.

It’s also pretty hard to understand the Cyprus saga other than getting the idea that yet again there’s a situation developing which could hasten the end of the euro currency. The breathtaking aspect of it all is that nation’s leaders who were responsible for steering the ship right onto well-charted rocks are now confident that they are the only ones capable of getting it off before she sinks. The captains surged up into the crow’s nest and scanned their island for someone else’s loot with which to plug the hole. They quickly spotted the large cash balances lying in the country’s banks and set about deciding how to steal it without actually using that word. Allegedly much of the money they are eyeing may already be stolen as it was deposited by large men with strange accents using dodgy documents. Seemingly this may render the proposed “tax” more acceptable! However, guiltless Cypriots whose savings accounts would also be targeted for the nation’s “bail-out” were not keen on the idea and everything is being rethought. The seed, however, has been planted and bureaucrats, finance ministries and venal administrations world- wide are getting a glint in their eye and thumbing through their own banking records.

It is likely that the US stock market is benefiting from inflows of money from European citizens throughout the continent worried about how this may all turn out. The gold price is probably also healthier as a result.

As the Sharks’ try drought intensified I received requests to reconsider my decision to support them while the Lions suffer their undeserved relegation.  Last Saturday when I was unable to get near a TV and shout for the black and whites, that drought was well and truly broken. I expect this utter coincidence may nevertheless strengthen the cause of my detractors.

Please enjoy a mellow and safe Easter weekend

James Greener

Maundy Thursday 2013

RELUCTANTLY HIBERNATING BEAR

There is absolutely no sign anywhere that investors have the slightest doubt that they want to own shares and are prepared to keep paying more and more to do so. While company fortunes and profits are mostly improving they are certainly not doing so at the rate at which their valuations are increasing and the elastic is getting very stretched. Us bears are cowering behind our spreadsheets waiting for the huge twang we think should happen. These are difficult times to be dubious about the market.

A quite delightful scrap is developing in England about where to re-bury the recently discovered bones of one of their previous kings. For several hundred years he has lain beneath a car park in Leicester. Surprisingly no beaming car guard has pitched up to claim a tip for ensuring that he was safe all this time although his horse was definitely missing and may have been nicked.

The auditor general’s report about how few state-owned and operated entities have a fair grasp of how to run their money is alarming. Equally disturbing is the fact that there are 536 of these organisations. Presumably each one of them has an executive team of worthies all of whom require a corner office, fancy wheels, fact-finding jaunts and programs to launch with appropriate catering arrangements. One of these organisations is a newish government department that claims that their job is “to make the(ir) lives (of former soldiers) much better  after they have ended their careers as ‘soldiers’ rather than force them to choose a life of being dogs of war and missionaries (sic)….” This does nothing to indicate what that department intends to do with the R300m it was granted in the budget. It reckons its beneficiary client base of military veterans could be as many as 56 000 although over at the social grants department the claimants in this category are numbered in hundreds. The sole idea published so far is to erect monuments to those who sadly never got to be veterans.

 It seems that the rooms where they store the firearm licences are these days so rat infested that no one wants to work there. Now all we have to do is to get those rats over to the tax collector’s offices. Maybe we can send some of the ex-servicemen along to shoot a few. Rats that is.

For reasons of demographics and a paucity of taxpayers the central government hand-out to the kingdom was far less than hoped for and cost saving measures are being discussed. The one that grabbed the biggest headline locally was the suggestion that councillors should give up drinking bottled water and, like their constituents, rely on what comes out of the tap. While they are about it how about using public transport to travel to work, use public schools and hospitals, cancel their security contracts and put their retirement funds into only local bonds, shares and property. That is, they ought to lead the way by showing that the services they provide and organise are quite capable of supporting everyone’s needs and aspirations.

The yellow-billed kites have departed, the red-winged starlings are calling ceaselessly and the F1 season is about to start. These are sure signs that autumn has arrived. Another is that we are about to enjoy a succession of holidays that tend to develop into 3 day weeks. Productivity gets a hammering. It is unlikely that there will be a “Tidemarks” next week.

James Greener

Ides of March 2013

IS THERE A REASON FOR EVERYTHING?

The story goes that the US and the UK governments’ are creating fresh money (instead of borrowing it) to pay their bills and salaries, and that some of that extra cash is appearing in the share markets where it is driving up prices. This is offered as a reason why our share prices are going up.  There is also a story going around explaining why everyone is selling gold bullion (in both the metal and the ETF form). Apparently the global situation is not as uncertain as it was before. Really?

The poor old runt is getting mauled. No one seems to need or want even the shiny new Mandela notes and so it is collapsing in value relative to the US dollar and even the euro. Presumably these two currencies are the principal ones used by foreign investors, who, it is alleged, have been scared off from SA by our recent outstanding examples of inept government. 

Because of the collapsing currency, the magnitude of the disaffection with bullion has been muted here in SA and both Krugerrands and NewGold are not that far off their all-time highs. The real reason for any market price moves is probably unknowable as they are the outcome of millions of individual decisions, some of which may indeed have a foundation in the phenomena and sentiments mentioned. Personally I am too convinced of the veniality and corruption of governments to not own some gold as insurance. As far as share prices are concerned, the investment decision as always remains trying to estimate whether the likely future cash flows of income and possible sale proceeds are sufficient to warrant the purchase at the current price. Undoubtedly the many of the shares on the JSE today fail that criterion.

It is results season again and of the two dozen or so reports released this week only three might be classified as disappointing. Despite the rafts of regulation and state interference, most of corporate SA seems to be moving along OK. Unfortunately this is not being converted into jobs as it would seem that installing machines is preferable to dealing with staff who are told by self-serving union officials that their labour is worth more than it is. The nation really is in a sorry space at the moment in this regard but still no one in charge seems able to spot the correlation with increasing the rules and regulations. In this industry, the fairly effective method of “know your client” is being supplanted by a blizzard of box ticking and paper trails which frankly still doesn’t seem to catch the determined crooks either. SA seems to have a particular weakness for Ponzi schemes and it is astonishing how large they can grow before the regulators look up from their paper shuffling long enough to spot them.

Among the most important announcements of the week is that Tiger Brands has acquired Mrs Balls Chutney business from Unilever. South Africans worldwide will be pleased that ownership of their favourite relish has been wrested away from a foreigner and is now home again. No word yet on whether Tiger Brands will move its head office to KingWilliamstown to complete the circle.

Apparently the great and good from the BRICS nations are pitching up soon here on the edge of the Indian Ocean for a spot of surfing, game viewing, and sluicing and browsing between bouts of chin wag. Press reports warn that ratepayers are looking at a sizable bill for the privilege of avoiding convoys of wailing blue-light flashing cars speeding through the city. Surely if the countries concerned feel these meetings are worth attending they should be picking up the bar bills that their delegates will run up. Our own mob can use the train to come down from Pretoria and bring packed lunches from home. I hope someone warns the supplicants and salesmen at each traffic light cluster that they are about to get tidied away.

So this weekend we get to se if the Kings really are rugby side or merely a collection of  mercenaries gathered under a flag of convenience in the company of a man who would rather puke on than wear the national jersey.

James Greener

8^th March 2013

COUNTING THE PENNIES

The bears were just about to start celebrating their prescience as the All Share looked set to plunge through 39 000 without pause, when suddenly, with the start of a new month, everything is alright again. The index is 1000 points up and the furry ones are left to wonder what is going on.

Despite being a short month, February certainly delivered a lot to think about. The All Share total return was a dismal -2% but that was due almost entirely to all the mining sectors taking a severe hammering. Banks were lousy as well and the grandly named Fixed-Line index (just Telkom in disguise) destroyed more than 8% of shareholder wealth. With a few exceptions the industrials board had a good month. Are they taking a cue from the US numbers which are starting to show that nation climbing out of recession?

Numbers geeks have had plenty to play with. Principally of course was the Budget, which is a lot more than a speech for the parliamentarians to sleep through. Behind the words are several telephone-book sized documents stuffed with figures. Also there was the quarterly release of GDP data which spawns half a dozen schedules crammed with numbers. And just recently was the monthly trade data, not to mention the various inflation figures (one of which has been delayed for the astonishing reason that Stats SA believes that the Budget will distract us from giving sufficient care and attention to their lovingly prepared statistic!)

Before going on to unpick and carp about some of the developments revealed in this avalanche of data and promises, it is worth remarking how astonishingly open, transparent and efficient this country is at publishing most of its financial data. Within seconds of Minister Pravin trotting up to the microphone, the National Treasury website opens its doors and everything is there, from the text of the entire speech to the colour pamphlets in several languages. All the data are available in friendly instantly downloadable formats for us to ferret through. It is a commendable and praiseworthy aspect of our government and grievously at odds with all the secrecy that shrouds so much else that the state feels too embarrassed to tell its citizens.

The number that has caused the greatest reaction was the trade data which confirmed that our demand for imported goods far outweighs anything we can find to sell to foreigners. This news has given the currency a hiding which will just make all fuel and fripperies we want even more costly. The GDP growth number was unsurprisingly disappointing but still no one will point out that this comes despite the ever growing heap of supervision, guidance and regulation that the largely clueless bureaucracy pile on top of the wealth and job creators. Why don’t they just try not telling people what to do and how to do it and see what happens?

The budget was welcome in that no boats were rocked except for the lefties who as we speak must be throwing darts at the minister’s picture. His virtually unavoidable slowdown in the “rob-the-rich” tactic will infuriate the socialists who insist that government will always spend money more wisely than the people who earned it.  Not only are they wrong but also annoying is their inability to grasp how few really rich folk there are compared to the numbers who believe their government owes them a living. There has been no shortage of grave analysis of the announcements to which I have little to add beyond wondering why the price of Scotch in the “duty-free” doesn’t seem to reflect the fact that the duty on a bottle is now almost R40. I also think the Minister is in cloud-cuckoo land if he thinks that because the civil servants last year agreed to multi-year wage settlements that there won’t be any fuss this strike season.

Scepticism and embarrassment are the main emotions caused by the Kings’ fine victory in the Super 15 opening match which placed them at the top of the local conference log. Disappointment follows the news that the world-beating Proteas will not have another test match for eight month. Something wrong with that calendar.

James Greener

St David’s Day 2013

BEAR IN A BAD HAT?

When something happens or more difficultly when it doesn’t happen in the markets, a reason has to found, presented and discussed. This week’s big downward correction by many prices on the JSE was laid at the door of the US Federal Reserve who, it is feared, may be thinking about doing something. Whatever that may be, there it raises the possibility that companies in SA will make less  money than they currently are able to and so clever folk are selling their shares (to less clever people).  It is the tenuous logic of this reasoning – which equally uses the same excuses for upticks – that makes the short term trading of shares for a living so exciting and terrifying.

Investors, on the other hand are happy merely to increase their holdings in well managed companies during periods of good relative value. Incidentally not even this large correction has yet created such a period.  Selling is largely unnecessary unless it turns out that one’s choice of a company was poor. Large-scale selling to avoid those generational and substantial collapses in the market is very difficult. Analysts who call those moments are more frequently roasted than remembered.

Considerable excitement accompanied the news that the consumer inflation rate released this week and based on a new re-weighted basket, was down from the previous month. What it actually means is that some sheltered number-crunchers in the employ of government have been able to construct a basket of consumer goodies, totally unlike any that you and I would recognise, in which the prices are not going up quite as fast as before. I suppose that a detailed study of the methodology would explain why the official inflation appears to be less sensitive to the terrifying increases in many areas that most of us are experiencing.  It does probably mean, however, that borrowers will enjoy the current low interest rates for a while further. Savers will suffer.

Dr Ramphele reportedly deserves respect for the very many high powered posts that she has held (but apparently not filled for very long). Unfortunately her choice of an ethnic headdress that sported Goofy-like ears detracted quite a lot from the gravitas of her announcement of the formation of a new opposition group in SA. Naming the new party A gang was rather smart though, as it our collective noun of choice for politicians.

Nestling alongside the Joburg city council request for businesses interested in fixing the city’s weighbridges is the far more important invitation for people to provide banqueting for the Office of the Speaker. That word, banqueting, should set off the alarm bells for the ratepayers. Yet again, reports are emerging about the dysfunctional morass into which Joburg’s record keeping has slipped. Like probably many readers I am awaiting a refund from the city but have been told that as all records previously delivered in the prescribed manner are now lost, only a visit in person will suffice. I don’t think I shall try that one. Fortunately the sum is not large and will amount to no more than a glass or two of wine at the next banquet. Very good wine, naturally.

So the Super 15 rugby tournament gets going in SA this weekend and 120 matches – not including the play-offs – loom ahead for dedicated fans. Each of the teams has to play half of their scheduled 16 matches away from home with half again being played in another country very far away. It is puzzling that SAA can’t make a decent business out of all that demand for seats. Sadly they seem to be mired in yet another squabble about who will be next to exit their post with an outrageous payoff for flying the national airline into the ground. The rumour is that the new logo about to appear on the aircraft tail planes is an executive revolving door.

James Greener

22^nd February 2013

HOW MANY NKANDLAS IN A BILLION?

A certain amount of excitement has broken out among the rent-a-quote analysts, some are confident that the current bull market has a long and healthy future. Of course I don’t know if this is so but it may be worth pointing out that the PE ratio of the Financial & Industrial index (i.e the All Share index less the capricious mining and resource shares) has just set a multi-year high of 18. Obviously within that grouping there are shares with ratios that are both higher and lower, but that does look like high-risk territory to me.

First impression for those who unwisely switched on the TV last night was that the SABC was broadcasting a sort of weigh-in session for an upmarket weight-loss club. It turned out to be a gathering of the great and good to listen to President Zuma deliver the poorly-named State of the Nation address. Most of the rest of the nation who did not get an invitation to waddle up the red carpet would have imagined a shortish speech, along the lines of “pretty dire” or “rather dodgy” would have sufficed. However, the president instead used several thousand words to complain that he and his cronies need more money to carry out their plans and that it was from us they were going to get it. The actual details of the mugging methods will be revealed in Minister Gordhan’s Budget speech about 10 days off. This writer thinks that the communists that infest government will be influential in crafting a severe budget that will target anyone who dares to make more profits or acquire more assets than approved of by the comrades.

There is a delightful irony in the protests against imposing tolls on the new roads around Joburg. The collection method relies upon being able to identify each vehicle passing a toll point rather than the more usual toll plaza where drivers (generally) have to stop and fork out the moolah. In order to collect the fees therefore, the tolling authority is supposing many things. These include the presence of a valid or indeed any number plate on every vehicle, that the number on the plate is linked to a valid postal address, that their administration and the post office will not drown in the task of despatching tens of thousands of notices daily and finally that vehicle owners will take a blind bit of notice if and when they get the toll fee invoice. Ignoring traffic fines could easily replace wrestling as a widely enjoyed Olympic sport here in SA. The reason for not using an extra fuel levy to finance these new roads is probably that revenue raised in this way (like almost all special imposts) disappears into the government’s general revenue fund from where a long list of fiercely argued and higher priority spending needs will loot it long before the road maintenance team can claim their share.

We all wish the SA Mathematics Foundation every success in raising the money they need to host the International Mathematical Olympiad in South Africa. Their gamble in taking an eye-catching full page advert must pay off. It reveals with polite sorrow that the government (which has just poured unimaginable millions into the black hole of a soccer tournament) is unable to provide them with any funds. Surely private donors will now come forward to fill the professors’ very modest needs? Let’s hope that the Foundation totally refuses to let any minister or state representative anywhere near the proceedings and especially the catered receptions next year until they have passed a test which includes long division without a calculator.

Last weekend they swam. This weekend they paddle. It’s a never-ending fit fest here in the kingdom. The second cricket test against Pakistan is developing into a good contest and the Lions beat the Kings despite the appearance of some interesting names in the PE side. There must have been big cheques changing hands.

James Greener

15^th February 2013

UNEXPECTED BENEFITS FROM PAYING TAX

This morning, the All Share index failed by just 17 points to burst above 41 000. This bull is alive and well and determined to take charge. Buyers are loading up, unconcerned that sellers are demanding and getting ever higher prices. Is there no news that might cause pause or caution? Or is it that being invested in shares beats keeping your cash just anywhere else? It’s this latter reason I think. It certainly makes a mockery or trying to make prudent and sensible stock decisions. Just close your eyes and buy!

Suddenly its budget time again and it feels as if there has been a moratorium placed on cabinet ministers making foolish statements. Are we being prepared for some really bad news? As pointed out last week, the revenue collections are slipping ever further behind the spending programs so the need to find some extra sources of significant cash through taxes is very pressing. Forecasts that Minister Gordhan is going to soak the rich also correctly point out that this would not raise a great deal of money. Reportedly there are just 2 500 taxpayers whom the tax man thinks are really rich. If they each chipped in an extra R1m of tax a year that’s a mere R2.5bn which on current form the lads and lassies at National Treasury would whistle through in less than a day and a half.  However, at least one talking head feels that targeting the rich is still a good idea because it would “creat(e) social cohesion and improv(e) the integrity and morality of the tax system. It is politically the right thing to do.” Well that’s certainly debatable. Isn’t the tax system in place in order to raise money and not to make everyone glow with civic pride? Data shows that like many nations, our budgetary problems lie largely on the expenditure side. The country simply can not afford a government with so many unproductive employees on its payroll, nor supply so much in handouts to the needy. It is indeed a terribly difficult dilemma and perhaps explains why wise people don’t enter politics and attempt to resolve it

Here in the investment industry, already every activity we do (buying, selling and collecting income) attracts a tax of one sort or another, so can we hope to escape the net this time? Probably not. Socialists just love trying to modify behaviour of which they disapprove (in this case trading for profit) with taxes and levies that make no sense. Muttering has been heard about a change to the buying tax. This is alarming and if enacted would substantially threaten liquidity on the JSE in return for a relatively miniscule income. The infamous plastic bag levy is a great example of this type of foolish legislation. It collects a trivial amount of money, which disappears into the general revenue account – at some unknown national administrative cost – and still trees and fences are festooned with the discarded bags and packaging.

It’s alarming to see hints that Eskom may be slipping back into the fantasy realm of thinking that small coal producers armed with a wheelbarrow and two shovels can make a contribution to the coal supply needs of the giant utility. However laudable and understandable supporting small entrepreneurs might be, the fact remains that their customer is a heavily populated country reliant on large extractive and manufacturing businesses who simply can’t tolerate disruptions to the power supply. I wonder what truth there is to the rumour that the last time we suffered rolling blackouts (aka load-shedding) due to similar mishandling of coal supplies, Eskom board members and executives were fitted out at state expense with emergency diesel generators.

Even if this weekend’s Midmar Mile swimming event is the most appropriate sport for the current weather, local rugby kicks off this weekend. The match of greatest interest to me will be the showdown between the Lions – relegated from the Super 15 -- and their replacement the Kings, from my home province in the Albany Thickets. This could get nasty.

James Greener

8^th February 2013