WE WILL WE WILL REGULATE YOU (F Mercury)

And still the markets surge northwards. Unless company results or news are really shocking, investors appear happy to support share price growth that is far greater than earnings growth. Buyers are tempting sellers to part with their shares by bidding a price higher than the previous trade. The JSE in particular has seen almost no new large companies apply for listings for several years and so the total number of listed shares on the market has been fairly constant. This also must be contributing to the price rises. At some point, however, something will trigger a widespread concern about the disconnect between price and value and a critical number of sellers will offer their shares at the last record high price and the buyers will stand politely back. Matters could then easily turn ugly.

The restrictions on ministers spending public money for personal items are very welcome but the effect is more cosmetic and vote-catching than financial. Remember that the government now whistles through well over one trillion rand a year (that’s a thousand billion), so savings of a few million show up only in the seventh decimal place!  The state’s real budgetary problems are numerous and elsewhere. Not least is the fact that they appear to be running out of people and businesses to tax.  The sponge has been squeezed dry. There are probably now few significant tax evaders and there is not much capacity left to increase the take from those who are irrevocably entered into SARS’s little black book of names. A lot of faith is being placed on the misguided forthcoming Carbon Tax. Please don’t anyone tell the politicians that Oxygen is also very common and dangerous and needs to be controlled.

National Treasury’s now customary praiseworthy and amazing transparency about their planning also reveals worrying developments arising from spending more than they collect. This year the expenditure on State Debt is R100bn. In three years time it is forecast to be R135bn which is annualised growth of more than 10%pa. Not much else in this country is growing at that rate. Except for regulatory authorities. Minister Gordhan squeezed in the news that two new ones for the financial sector are coming soon. Oh dear.

A delightful frostiness is developing around the world as it turns out that President Obama’s spooks have been listening into the phone calls of national leaders who they decided were significant. Firstly there is indignation about their implied minnow status from those who weren’t bugged. Probably Obama had scant interest in JZ’s calls to Nkandla to alert the clan about which wife he would dine with that night. Then there is the outrage from those who were spied on at the arrogance and effrontery of such an unethical and despicable breach of trust. Identical charges made against Mr Snowdon, the alleged US whistleblower who revealed what the spooks were up to, should now be seen in a rather different context.

Even or own leader’s minders failed to steer him away from making a speech about how we should discard our African attitudes and learn to accept the costs of living in a vibrant and exciting world-class city. In particular his comparison between the undeniably fine freeways around Joburg and the supposedly inferior roads in Malawi has gone down very badly. Particularly in Malawi. Pleasingly, however, the gaffe caused the reappearance of presidential spokesman Mac to tell us what JZ really wanted to say. These explanations are always great fun. It seems, however, that JZ meant exactly what he said.

Why won’t the International Cricket Council grasp the concept that test cricket rubbers need to comprise an odd number of matches? Also annoying is their hypocrisy of allowing a country with an unsavoury political regime to host home matches in a third country. The pair of tests being played out against Pakistan by the Proteas at venues around the Persian Gulf is nearly meaningless. Without the ground staff and players’ families, the crowds would number in single figures. Also pretty unsavoury are the people at the ICC responsible for tampering with the test match calendar for matches between SA and India.

James Greener

25^th October 2013

THAT WAS FUN. LET’S DO IT AGAIN SOON

No one really doubted that the American leaders would in the end take the easy option and raise the debt ceiling. The alternative route of reducing the debt by cutting spending and increasing taxes was never going to catch on.  

The ability of governments to spend more than they earn is legendary. No more so than in the case of the fellows in Washington.  So, to cover the deficit between what goes out and what comes in they borrow money to pay the wages, meet the bills and quite importantly to service the debt. Any nation that does not scrupulously attend to this last item gets dealt with harshly by the all-powerful ratings agencies that quickly mark you down from AAA to AA and so on until the dreaded “junk” status. Most national treasuries would feel obliged to take the view that having to borrow too much is a bad thing. The common standpoint is that deficits are merely temporary and that just as soon as the economy improves then tax inflows will surge sufficiently not only to meet the spending requirements but also to have a bit extra to pay off some debt. In the US their commitment to this belief manifests itself as a political act of setting a prudent upper limit (the ceiling) to the total debt. Needless to say reality overtakes hope and before long another opportunity for political grandstanding and brinkmanship is created. Some estimates have suggested that the next ceiling resetting event may arrive no later than February

Only the smartest analysts are able to understand how the policy of spending more than you earn and accumulating ever more debt is wise and sensible. And since markets are steaming ahead on the news it must be concluded that investors are all definitely smart analysts too.

So far the county's newest political party’s biggest impact will have been on the suppliers of those fetching red berets that the leader and his supporters wear. Although the origin of this natty headgear is undoubtedly Eurocentric, presumably they are entirely local in manufacture and so are deemed acceptable and appropriately revolutionary. Speaking at the launch party, Mr. Malema unsurprisingly made promises and demands that delighted his supporters but puzzled some crusty old tax payers. Figuring large among these was the charge that all privately owned land was stolen (from whom is unclear) and must immediately be returned to state ownership. Naturally no one present asked if local governments would interpret this sudden hiatus in rates income as a welcome aspect of Economic Freedom. The country’s mayors would immediately have to scale back on the number of trigger-happy body guards they seem to need when speeding down the freeway to another meeting.

Another threat to government income could emerge from the ban on all liquor advertising. The full ramifications of this asinine “we know what’s best for you” legislation have clearly not been thought through. What about the huge sums of money that the booze industry would no longer be allowed to spend on sponsorship, promotion and advertising? Would they return it to shareholders in which case both SAB and Distillers might be a screaming buy on the JSE. Or alternatively would they slash their product prices so that we could all buy much more. Either way, the jobs and taxes lost from the cutback in those advertising industries will hurt many people. And it is very unlikely that there will be any discernable change among us citizens in those habits and behaviours for which the state has now taken responsibility to modify.

I need both the Golden Lions and the Sharks to win their semi-finals tomorrow so that the Currie Cup will be won by a team I support. Fortunately there is no space left to discuss test cricket.

James Greener

World Vasectomy Day 2013 (truly!)

POSTPONED PAYDAYS PROVING PAINFUL

So what changed? The JSE, which looked as if was just as spooked as Wall Street by the prospect of a US government shutdown suddenly and sharply bounced and the All Share index will end the week near the levels it was at last Friday. That might well go down as one of history’s nastier little bear traps. There has been scant good news in the financial pages. Most concerning is that the politicians’ squabble over the US government’s debt is starting to be sorely felt by the largely blameless wage earners on the federal payroll. Despite the rather astonishing promise that the government will pay them in full once this debacle is over (so how does the “shutdown” save money?) in the meantime workers aren’t getting paid. And that of course immediately affects the retailers and bankers who in turn will not get paid. Wowee. 

Next week there are some critical dates in the US debt calendar when loans and interest need to be repaid to those who lent money to that nation. No one seriously believes the US will renege on its obligations but it is going to be fascinating to see how it works out. This is a great spectacle for economics voyeurs.

With trade union leaders screaming “blackmail” and dismissing severely damaging striker action as “normal” our country is lurching into a damaging phase of failed labour relations. The most dramatic example of this was the decision by BMW not to expand their existing South African plant to produce a new model. Marxist Minister Davies hurried round to the luxury carmaker for a chat but failed to change their mind. They politely pointed out that there are other places in the world they can make their cars where the workers are less truculent and more productive. It’s both tragic and criminal how our leaders still place ideology above reality.

US commentators are getting a bit overexcited about the prospect of having a female governor of their central bank (The Federal Reserve). We've had one for years and she has done a good job changing interest rates down once and criticising the government for ineptitude a few times. It would be fun to be a fly on the wall when they get to meet each other.  Probably there will be high fives just as soon as they are in private. Before long they will be swapping stories about how to tease investors with “forward looking statements”.

The Winter Olympics kicks off in five months time and already the rather tacky and boring business of transporting the Olympic flame from Olympia to Sochi in Russia has begun. The problem is that the darn thing keeps blowing out so alongside every grinning and waving athletic torch bearer there is a podgy man in a suit bearing a very unofficial Bic lighter. Furthermore, its route includes an excursion to the International Space Station, where presumably naked flames are not all that welcome and so the Lighter Bearer will just have to kick his heels out on the rocket landing zone until the torch is returned to earth.

It must be seriously annoying to see your name in one those articles about the world’s rich people.  This week a fellow old Rhodian was revealed as one of Africa’s wealthiest. He will not be pleased. Not only does such exposure demolish any privacy that the more reclusive billionaires might crave but almost certainly the reported value of your nest egg will be way too low or too high and there’s nothing you can do about it.  Now not only do the mendicants and tax men learn where you live but if you have dropped a few billion since last time, you will also have to suffer the sniggers and pity of the others on the list. Shame.

Contrary to popular assumption I am right behind the Sharks in their match with Province at Kings Park tomorrow. I have even snared a ticket and will go along to witness the big men of SA rugby face off. And Sebastian Vettel ought to just about wrap up the F1 championship in Japan on Sunday.

James Greener

11^th October 2013

THIS WAS NATIONAL OLDER PERSONS WEEK

The first page to open on my computer every day is a wonderful “picture of the day” from NASA. Since Tuesday that website has been off line because Washington has decided that it can best save money by sending home all the government employees who actually do something useful and helpful. How about closing down instead those sections of government which made the decisions that landed the country in this mess? Those folk must be among the highest paid on the payroll and on current form are pretty useless at their jobs. Try a year or so without the legislators and see if anyone misses them.

We could use that idea here as well. Send the whole parliamentary circus off on a one year unpaid sabbatical and just leave someone behind to switch the lights on and off and feed the official cat. Is there a single piece of legislation and regulation in the pipeline that would actually make the country work better? Unfortunately, already through the mill, is an act that allows the state to have a lottery license. Clearly the politicians have become jealous of all that lovely lolly going to trivial good causes and charities. Ominous.

The effect on the markets of the US government shutdown is not yet particularly marked. This must be mostly because no one believes it will last. If it did it would mean that the largest borrower on earth would be unable to borrow any more money (except for replacing maturing loans) and that would surely be very good for interest rates in the US at least. In this instance good means won't go up.

The American computer company Apple has $146 bn cash in the bank. That’s enough money to run the entire South African government for a year and leave a lot left over to pay off some of its debt. Isn’t it astonishing what private enterprise can do. Predictably this cash pile has the socialists drooling and whining that life is unfair and they should be given that money to help the poor. Meanwhile Twitter, another “social media” site hopes to raise $1bn in a listing. Might that be the pin that meets the bubble?

In a rather low key announcement Pres Zuma lowered the age for the state pension to 60.  That's a pretty generous move, given that elsewhere in the world the trend is to raise the starting age in order to try and reduce the cost of the benefit. Did he run this idea past the National Treasury? It will cost a fair bit. Mind you they are saving money by for example not having anyone on the defence force staff who can tell them how many working aircraft the nation has. Other economies in the defence force include cutting down on training paratroops. A board of inquiry has reportedly determined that on their eighth jump, paratroopers should be trained to such a standard that they should be able to identify a torn parachute and deploy their reserve ‘chutes successfully. Any one who thinks it would be good to have those skills even before jump 1 is obviously a sissy.

The call for tenders to supply something called Nkandla VIP Sanitation is rather alarming. What are they using now behind that million rand fence?

Hopefully the All Blacks will be deeply intimidated by the Ellis Park venue tomorrow. They ought to be carrying deep institutional memory scars of previous defeats at this ground. Perhaps if I can keep writing like this right up to kick off tomorrow I will steady my nerves and convince myself that it is all going to end well.  Go bokke.

James Greener

National Teachers Day (I believe)

THE SKY IS FALLING

Once again that strange architectural structure called the debt ceiling has appeared in the corridors of power in the USA. Supposedly it sets an upper limit to how much money the government can borrow in order to cover the shortfall between its prodigious spending activity and the less than expected tax receipts. Inevitably of course there is scant political will  to cut spending or raise taxes and so the debt increases and the ceiling gets closer and requires remodelling. This performance of “raising of the debt ceiling” has taken on a near ritualistic nature. Opposing politicians debate and haggle and blame and skirmish right down to the last moments before they take the inevitable decision to borrow “just a wee bit more to tide us over ‘til pay day”. The nation heaves a sigh of relief and nothing changes. The ceiling is way up there out of sight. Until it isn’t.

Those of us who were brought up on the saying “neither a borrower nor a lender be” might wonder why anyone still feels inclined to lend to this nation which is the greatest debtor on the planet. The simple answer is that so far absolutely no nation has the courage or actually the need to call America’s bluff just as long as the US dollar is worth something. Despite being created and distributed by the Federal Reserve through its quaintly named “Quantitative Easing” program at a blistering pace the dollar remains most the world’s preferred currency for international trading and benchmarking.

The pe ratio of the JSE’s Financial and Industrial index (that is, it leaves out those pesky hard-to-understand mining shares) has been loitering around the 18 level for the last six months and it is starting to feel “normal”. However valuations as rich as this are infrequent and historically are not times to buy. A plausible suggestion is that equity markets in general have been the destination of some of the money created by that QE program in the US and that is why panic ensues whenever there is any suggestion that it might be terminated or tapered. The puzzling part of that theory for the JSE is that for any of those dollars to come here they would need first to be converted to rands. But the ZAR has been one of the globe’s weakest currencies this year.

That tax-payer funded outfit, the National Empowerment Fund, that lends money to folk with a good business idea and even better family contacts, seems surprised with having to announce that it will have to write off R290m in non-performing loans. And over at the National Youth Development Agency they cheerfully admit that they have lent R212m to youths who also are not likely to repay any of it. Here are some ideas. Leave the lending of money to the commercial banks who, after all, are quite good at it. Close down all these tax-payer funded entities who give away cash, thereby saving huge sums of money which can be left in the community by reducing the VAT rate or something.

The collective noun for nuclear power stations is a fleet. This emerges from the report of the announcement of this nation’s most expensive investment program. Some bright spark at the department of energy must have had to search a bit to find that word when preparing the minister’s speech announcing that SA is going to build a bunch of these things. Rather clever really.

Sadly South Africa was not one of the 170 countries able to watch the Americas Cup yacht racing live from Los Angeles on TV. The spectacle of sailing boats (?) going at 80 kph in winds of less than half that speed is awe inspiring, No wonder the crews wear crash helmets. Do the Kiwi team do the haka before each race? It will, I suppose, be some time before SA again finds the time and money to mount a challenge for this trophy.

James Greener

Golden Lions vs Sharks at Ellis Park Day

GENTLEMEN and ladies LIGHT YOUR FIRES

 It probably didn't have anything to do with it being full moon but on the same day the committees of experts both here and in the USA both reached the conclusion their current policies were just exactly right for restoring economic growth in their respective countries. Here on the southern tip the banks can continue to borrow money from the Reserve Bank at 5% and lend it to us much higher up. And in the US, the Federal Reserve will not tamper with its program of injecting huge sums of money into the system. This postponement of the dreaded “taper” utterly delighted investors almost all over the world and share prices soared mightily. The JSE All Share is in new territory above the 44 000 mark. Allegedly, USA investors, now freed from concerns about rising interest rates at home, can return to shopping for higher yields in emerging markets like ours. Those of us worried about all this liquidity one day showing up as inflation are a discredited minority.

Only the wilfully deluded could claim that the government’s attempt to deny market forces by imposing a program of political allocation of resources has achieved its objectives.  No matter how sympathetic and well intentioned the often hideously complex deals and schemes might be, many of them seem to collapse simply because value is lost rather than gained through the deal. Sometimes in order to satisfy all parties a company may resort to an action which looks rather suspect when not seen through the lens of “transformation”. Goldfields, a company that is also listed in New York has been asked by that market’s regulator why a transfer of a parcel of shares to a politically influential individual should not be called a bribe. This may end badly.

As did the recent trip made by Khulubuse Zuma (the president’s nephew) to what he called darkest Africa. Clearly hoping to dupe ignorant tribesman up there, Khulubuse jetted in with a plane load of money and returned with a cargo of what he had been assured by the Central Bank of Guinea were bars of pure gold. Unfortunately the bars later turned out to be copper and zinc.  Interestingly, despite his intimidating bulk and impeccable contacts, Mr Zuma has not returned to seek compensation and reportedly has written the venture off as the price of doing business in Africa. Well, yes, sadly.

Another story from darkest Africa concerns the construction of an airport in Somerset East. When I last saw that dorpie it barely ran to two filling stations and tarred main street. Things must have blossomed there, though it hasn't yet been revealed just which airline will offer a service into this tourist magnet. Now the sunsets are magnificent, rain is infrequent and a flock of sheep clustered around the trough at the foot of the windmill is an iconic sight which is never forgotten, but beyond that, this is all rather puzzling. Perhaps someone’s uncle needed a contract.

Apparently the section on tackling was omitted from the French translation of the Laws of Rugby. So that clears up that issue. More importantly, however, the provincial department of sport and recreation is calling for nominations to honour sporting champions here in KZN. As an indicator of how a bureaucrat’s mind works, the 16 categories include the province’s best administrator, best federation and best recreation body. Nominations in a Posthumous Category are also expected.

Remember that in effect this is a long weekend with many of us seamlessly sliding Monday into Tuesday’s public holiday in celebration of the braaivleis.

James Greener

Vernal equinox (nearly) 2013

MIDAS TOUCH

A much respected colleague once pointed out that it was so much more fun being a bull and being able just to buy at anytime without too many concerns. Bears on the other hand have very few occasions when they feel that prices have plunged far enough to warrant buying and even then they still fret that things ought really to go a little lower. Here we are, just half way into the month, and already the All Share is nearly 5% up and setting new highs. Bond yields are down and the bears there are being thrashed. We have these concerns about Russia outmanoeuvring the US over Syria, consumers piling up debts, strikes in support of huge wage increases and shares prices at more than 20 year’s worth of earnings. We can’t bring ourselves to buy and yet tomorrow everything is more expensive. It’s not easy.

What is easy, however, is to write a speech for Public Enterprises minister Gigaba that explains yet another turnaround strategy (the ninth in probably as many years?) for SAA. Simply empty the cliché phrase book into the word processor and off you go with sweating assets, complex legal processes,  optimised operational efficiencies, turnaround strategy custodians, growing revenues and of course all of this in the face of the headwinds which are out there. The Minister should have tossed that back to the scribes in embarrassment. The sole thing he didn’t say was how much the taxpayers are in for this year. It is truly time for the government to sell this asset whether sweaty or not. But would the new owner remember to reserve the front seats in business class for VIPs?

Yet another state owned entity was all over the news celebrating 20 years of operating what might be the most expensive airports in the world. Among the fawning advertisements placed by grateful suppliers there was one missing. That should have been from the association of luggage handlers and looters. With two decades of experience ACSA have not yet been able to introduce a system that eliminates the opportunities for the thieves and crooks that work on their premises to open and steal from passenger’s luggage. Astonishing.  Mind you, ACSA are to the thanked for their sponsorship of those brave people who play wheelchair tennis. In particular Lucas Sithole who last weekend won the US Open, wheelchair quad division. What an achievement by this really severely disabled young man

There’s a local government official in Gauteng who is so delighted with her own record and abilities that she claims to be able to turn any post she is given into gold. Exactly what this means is a tad unclear and it may even refer to her ability to extract large sums of money from the public purse. Allegedly this extravagant claim is deliberately targeted at catching the eye of president Zuma when he next has a national cabinet post to fill. Goodness knows there are already plenty of ministers who are already hard at work lining their pockets with gold while turning their posts into dross.

 Just to remind investors that there are securities listed on the JSE that enable an investor to buy what in effect is the value of various market indices. Not just South African indices like the Top 40 or the Resources 20 but also the US, UK, Japanese and European market overall indices. These last are converted to and priced in rands so one gets the double exposure (not always welcome) to a combination of a market move and a currency shift. For some reason the USA one has been particularly popular recently. Buyers are hoping for a simultaneous stronger rand and an improving US share market.

Next week hopefully we can open Tidemarks with the sports section. Today we can do no more than panic and trust that Heyneke Meyer and the lads do the business against the All Blacks tomorrow morning.

James Greener

Friday the Thirteenth

While I am slowly extracting myself from the sharp end of the stock broking business, my fascination about how hard it is consistently to buy cheap and sell expensive will keep me reading and writing for a long time still. “Tidemarks” is a more or less weekly result of that self-indulgence.

Quiet neat really. If the voters are complaining that they can't borrow any money because the records show that they didn't pay back the last amount they borrowed simply tell the banks to erase the records. Happy voters. The numbers here are alarming. 9.5 m consumers currently are having problems with their debts but 1.6 m would be eligible for having. Heir records erased.

At an average price of Rr355 a liter (R.   266 aA bottle) its little wonder mthat the recent Nederburg auction was deemed a success

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It  is notable that the taxman cheerfully accepts that the revenue legislation in t his country is fiendishly complex by insisting that anyone offering tax advice services must belong to a recognized professional  body. Why not just simplify the tax codes so that taxpayers can easily do their own?