NO GRAVITY ON A COMET OR IN PARLIAMENT

It is puzzling and even rather tiresome how the government keeps trying to seek out presumed malfeasance in various private industries. The state has returned to fret about the alleged collusions in the construction industry half a dozen years ago. Of course when large sums of money are involved not everything is squeaky clean and misuse of public trust and funds does need to be exposed and punished. However, as the industry has wearily explained so many times, the capacity and resources of the nation did need to be allocated carefully in order to meet the expectations of hosting the Soccer World Cup. The JSE data confirms that the industry did enjoy a fourfold increase in earnings in the years before 2010. Shareholders and employees of those companies did benefit. But presumably someone important feels that he or she did not and so the witch hunt continues.

The ironies, however, are ceaseless. Many of the stadium location and design decisions were forced on the nation by FIFA, an organisation that must rank as one of the most corrupt and compromised on the planet. And closer to home our own parliament erupted into a violent uproar when the ruling party refused to allow any opposition to the idea that the nation deserves a president who fails to notice or even be curious when hundreds of millions of rands worth of renovations take place at his private home.

Only serious students of the political scene are able to explain the significance of the rupture between NUMSA and COSATU.  The confusion was compounded when one newspaper referred to the event as a “rapture”. For most of us, this all has much the same import as the news that the bowls club has expelled the croquet club because the members of that section were becoming a bit raucous after tea and threatening to damage the greensward. At its heart the issue is presumably about power and then undoubtedly money. Union leaders can depend upon the reliable cash flow of subscriptions which are deducted automatically from each member’s salary. It would be interesting to see just how numerous union membership would be if employees each month had to prioritise their union subscription against their other spending needs. Unions – and their overarching federation bodies – would truly have to fulfil a need in that worker’s life before he saw any reason to send off the money.

Only politicians and bureaucrats could believe that there will be any real impact from the imminent implementation of the driver’s licence demerit system. There is already a raft of regulations and laws which are ignored and not enforced. A great pity because our roads are very unsafe places these days. What’s the betting that the first drivers to be slapped with a demerit don’t have valid licences anyway?  

The most poignant remark to be aired about the comet landing event this week was a plea to “Jacob and Angie[1]” to at least fix the schools so that our children could learn to read. Deep Space Flight Dynamics could come later. Watching real rocket scientists at work was a deeply emotional experience. It was only when prodded by their fussing and anxious PR staff that they reluctantly faced the cameras and explained to the public – their paymasters – what was happening. Everyone was simply anxious to return to work and apply their enormous personal skills and expertise to the team effort. What a contrast to what is happening elsewhere in the world where ignorance, dogma and superstition are being celebrated and died for.

After last week’s comment about national sides winning went so badly awry it is best I say nothing today.

James Greener

14^th November 2014.

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[1] President Jacob Zuma and Education Minister Angie Motshekga

MEDAL PLAY

Central Banks would appear to be a close-knit lot. No sooner had the US Federal Reserve stopped buying its own government’s debt with freshly minted dollars, when their opposite number in Japan started to do it. This seemingly never ending flow of crisp new money pouring  into the financial systems tempts investors to believe that stock market prices are underpinned and so they set off on another buying frenzy. This is very pleasing for the governors of those banks who can point out to the political decision makers that: “See, everything is just great!” Meanwhile the debts mount – but no one seems to mind. Paying them off will be someone else’s problem.

Quite correctly there has been scant hysteria so far about the announcement by one of the self-important rating agencies that as of last night it has moved SA down a notch on their ludicrously lengthy scale of credit worthiness. However, they also adjusted their outlook on the country from “stable” to “negative” and that deserves notice. Reasonable people will not dispute that view. The tax man published his survey of his “clients” this week and without drowning readers in statistics it can be noted that SA is a nation in which most citizens enjoy representation without taxation. While historically the converse of this has often triggered a violent response, in our case the heavily taxed are seeking quieter unostentatious remedies.

It is unlikely that economic growth and higher employment will return to this country until we are offered a government which doesn’t feel capable of interfering at every level of human activity. Furthermore, we need leaders bold enough to reject the race-based cadre-deployment policies that have plagued this nation for about a century. There are talents, skills and drives aplenty, just leave them alone to find out what works.

A typical example of how socialists fail to understand what investing is about appeared in a report prepared by three parliamentary researchers. After surveying cases of Foreign Direct Investment world-wide they reached the indignant conclusion that the money foreign companies invested can be overtaken by the remittances they send abroad. That, dear researchers, is the point! When you invest, as opposed to donate, you expect not only one day to get your money back but, also to get a return on that money. Frankly, the foreign firms are not that interested in that politically correct stuff like job creation and skills transfer unless they can see how it could make them more profitable. There is nothing wrong with this attitude. After all it creates economic activities that were not there before and, guess what the result is? Employment and taxes happen, and all that remains for you, the government, to do, is to stamp their passports and get out of the way.

A really alarming flyer was delivered to the house recently. Under the banner “You Deserve Better” three local political activists quote a quite terrible national crime statistic and urge the Durban municipality to do something about it.  Quite right too. We do deserve better. The puzzle is that the flyer is published by the present ruling party. Are they suggesting its time to vote for someone else?

National police commissioner Phiyega is surely busy sketching designs for a new medal. This one will be for officers who are attacked while lunching and first recipients will be the two members of her force who, while stopped at a roadside stall purchasing snacks, were robbed of their weapons and locked in the back of their own van. Another benefit is that it will undoubtedly soon  join the rack of undeserved other gongs that she sports on her chest.

Isn’t it fun to watch our national sides winning? Especially against the antipodeans. Any word on why the Aussie T20 side are dressed to look like All Blacks? Certain voices suggest that Ireland at home will not be easy for the ‘boks tomorrow. It’s such a late kick off it will not be easy to be fully alert to be able to watch.

James Greener

7^th November 2014

THE GHOSTLY ECONOMY

Is that it?  Has the bear turned out to nothing more than a cute and cuddly stuffed teddy with a button for a nose and a squeaky tummy?  There’s the All Share index soaring back to 50 000. Last month’s loss of 2.5% seemed to promise that we were in for a good solid October-style walloping. But despite some pretty steep and sharp excursions which must have really scared the day traders, this month’s All Share total return will be pretty much flat; much like the reputation of the pessimistic wing of the investment analyst’s society.  Mind you, the spread between the sectors is huge. The mining indices have been hammered. The Resources index has lost around a fifth of its value in the past three months as the different mining sectors have in turn taken a battering from just about every possible direction including, notoriously, their own government.

Just this week the mines would have been among the major industrial consumers of power who received a call from Eskom instructing them to cut electricity usage by 10%. The magic phrase being thrown about by the utility this time is “outage slips” which is code for “the ratio of engineers to administration staff in this place is way too low”. Naturally the politicians in charge do not appear to have noticed or even remarked on this severe and outlandish impediment to growth.

It also doesn’t help a resource exporter like South Africa that the prices of most commodities both agricultural and mineral are falling. Perhaps the most significant and interesting market at the moment is oil, where a happy and largely unpredicted collision between increasing supply and falling demand has overwhelmed even a powerful producer cartel like OPEC. The oil price is at a four year low in US dollar terms. Since the beginning of the year, oil producers must now sell 30% more barrels of crude oil in order to afford the same amount of gold bullion. Undoubtedly this is having an impact in many decision-making chambers. Pleasingly this is one ratio where SA is on the right side for once. We need less gold to buy the same amount of oil.

We are however not on the right side when it comes to getting people employed The latest official report to reveal this sad and desperate story has and will trigger official reaction and promises “to do more”. These are the same officials and reactions that appeared when the previous report was published and which have had no discernable effect. The sole sensible but rather diffident remarks came from Econometrix, a private sector think tank who suggested that there might be a link between having prescribed minimum wage levels and the number of people being paid those wages. Simple maths, however, is not a strong suite among ideologists.

The postal strike is affording us the opportunity to discover the true cost of getting items delivered. Fees charged by the delighted courier companies offering a replacement service are multiples higher than the price of a stamp. The real debate is not about postal worker’s wages but about the extent to which taxpayers ought to subsidise such a service. It’s a tough one taking place all over the world.

Market forces are indeed savage and indifferent to the needs of an individual or the wishes of a bureaucrat. In the sporting world at the moment there are at least two interesting examples of this. In Formula 1 and in West Indies cricket lethal combinations of regulation and price setting are changing the landscape. This weekend’s Grand Prix in the USA and this summer’s incoming cricket tour are both showing evidence of that.

James Greener

Halloween 2014

GONE WEST

A chart of the various JSE sector indices for October so far, resembles a bowl of spaghetti with no emerging trends after the sharp decline last month. Despite the mild panic that broke out last month, it is interesting to note that very few prices have lost more than their gains since April this year. Real bears can wipe out years of work. We have yet to learn if this is a real bear.

Although it is customary to wail about the weak rand, the fact is that our currency is presently at just about its best levels this year against all the major currencies. But not of course against the US dollar which continues to be the beneficiary of some form of “flight to safety”. It’s fair to assume that the dollar’s strength is a consequence of the end of the Federal Reserve’s policy of flooding the market with crisp new notes. In the meantime the foreigner’s cash, after being converted to US dollars, is being loaned to the US government, a conclusion that can be drawn from the rather steep fall in bond yields in that country. Investors now have to be content with a 10 year interest rate of less than 2.25%. It’s hard being a saver in this world.

For some unknown reason, what should be a rather simple and low key mid-year update of the fiscal scorecard has blossomed into a grand event that requires the Finance Minister to buy a new tie and plonk down a 63-page “thud report” (plus annexures) on the parliamentary podium. The main Budget speech is only 4 months away so it seems all quite unnecessary. Only the saddest of economics wonks will wade through this tome which Minister Nene promised was full of strategic frameworks and road maps. The fact is that if the numbers can be trusted, out of every R100 that the government collects it spends about R114. The difference is obviously covered by borrowing and if nothing changes the total debt gets ever larger and people begin to notice and point fingers. The worst fingers belong to the ratings agencies who can at the jab of a keyboard alert the world to what’s going on and cause lenders to be more demanding.

A great deal of airtime and newsprint has been sacrificed on the news that the Minister feels he has no option but to make pips squeak all round. Taxes up and state spending down is the message. Very interesting is the threat to cut off at the knees many of the appallingly run parastatals and even sell off the family silver. The Post Office strike may seem like a picnic when the public service unions get the gist of this one.

Strangely, little seems to be made of the fact that while expenditure is increasing at around 8% pa, the revenue figure is showing almost 11%pa growth, so given time (about 7 years) the gap should close anyway. Presumably real economists have reasons for discarding such a simplistic yet optimistic sum. Nevertheless any attempt to curtail state expenditure – particularly the suspected massive sums lost to corruption and inefficiency -- must be welcomed, and we shall all watch Minister Nene’s new career with interest.

Here in Durban a dozen years ago it was decided that ratepayers, residents and anyone wanting to find their way around the city needed to be punished and seriously inconvenienced for their alleged previous crimes against humanity. The street names of most of the important thoroughfares were changed. While the significance of the new names (like indeed the old ones) is generally unknown to anyone except students of local politics, the nominees probably deserve their recognition. However, a wise authority would have allocated them to new developments and not thrust them onto the existing network. Further, it should be expected that the promoters of the new names will take care to get the details of their heroes correct. But Durban’s main city boulevard now requires yet another set of even longer street signs. Research and custom has revealed that Dr Pixley kaSeme Street should correctly be Dr Pixley ka-Isaka Seme Street. Can’t we just find the old West Street signs? Nobody now recalls if it is named after a local worthy or a merely a compass direction. It really is not offensive and is easy to remember.

I think I can safely wear my Lions cap for the Currie Cup final tomorrow.

James Greener

24^th October 2014

BEARING DOWN

The 8% lost by the JSE All Share index is a good start and already there are some who are impatient to be buying again. Be wary though. This bear is probably not nearly finished with us yet. For the JSE market to return to the sort of valuation levels last observed in 2008 or even 2003, the All Share needs to shed at least a further 30% or so, which would take the index to below 35 000. Bears with longer memories can dredge up even harsher events. The market collapse in the mid 1960s took more than a decade to regain the former levels. That these days the markets are so very different is true but not, of course, a guarantee that the unthinkable could not reoccur.

The US Federal Reserve's program of injecting freshly minted cash into the American economy is drawing to a close. Those who managed to reap the biggest benefits from this process (principally the banks) are naturally downcast. However, the individual consumer in the shopping mall and worker in the office or factory hasn’t enjoyed anywhere near all the upside that the keen promoters of this program had predicted. Wal-Mart, that nation’s biggest employer and shopping chain with a turnover that rivals the SA GDP, was this week busy curtailing employee benefits. The technology revolution is conferring prosperity on far fewer people than expected and for most of the planet, living standards are not improving as the politicians and their economic advisors promised. The declining oil price is a very interesting development, which draws attention to the falling demand for many commodities and the resulting price weaknesses. This isn’t at all what was supposed to happen. Expect more and more strident cries for governments to do something. Unfortunately they probably will.

A group of concerned South Africans feel that Number One is doing a really good job and ought not to be pestered with mundane and trivial issues like arranging payment for the multimillion Rand upgrades to his personal home. Accordingly they are going to make the payment for him. National Treasury must be delighted by this news. Firstly, if the muttering of the uncharitable curmudgeons is true, then a possible source of this largesse could be from the earlier overpayments by the state to gravy train passengers. Secondly, monetary gifts to JZ, or indeed anybody, in excess of R100 000 per annum will attract donations tax at a rate of 20%. The national revenue fund is a winner twice over.

A number of people, including deputy president Ramaphosa, who really should know better, have been talking about starting a “State Bank” which will finance projects and people that they, the politicians, think are worthy causes. This is necessary, they say, because the usual lenders, the banks, are reluctant to take on clients selected by politicians in search of a vote. Most of us, including even the fabulously wealthy deputy president have a preference for getting our money back and we are perfectly entitled not to share his view of who or what represents a worthy cause and a good credit risk. Therefore in order to fund itself before lending to its clients, the proposed State Bank will probably have to resort to extracting money with menaces (i.e. taxation). The major benefit of this technique is that it complexly removes all the messy business of managing a liability portfolio and the obligation to pay anything back to depositors and share and bond holders.

It's just as well I ignored medical advice and watched the bokke beat the All Blacks last weekend. The result of that glorious game was undoubtedly superior medicine. As usual the forthcoming final weekend of scheduled Currie Cup games is always prefaced with a blizzard of conditional clauses. Only those skilled in logic can detail the conditions precedent for a Sharks home semi-final. I think they should have just simply lost fewer games earlier in the competition.

James Greener

Friday 10^th October 2014.

THE RAT CATCHER’S RETURN

This bear is growing up rapidly. Just a couple of weeks old and already he is inflicting some terrible damage and has clawed 7% out of the JSE’s All Share. Furthermore he has brothers who are ripping apart other markets including bonds and commodities both here and overseas. The reasons being offered for this change in attitude by investors are as numerous as they are inventive. A particularly interesting one is the sudden fall from grace of a man who managed the world’s largest bond fund in the US. Somewhat inevitably his market timing luck eventually ran out and the departure of both him and very many investors from that fund is said to be weakening the bond markets globally. Less easy to explain is why the dollar price of gold is weakening so swiftly.

In its current mood the market treats just about every published data point as bearish, no matter that a few weeks ago that same number might have been hailed as wonderful news. Against this trend however was the reaction to the news that almost 61 000 new vehicles were sold last month. Intriguingly rental companies absorbed almost a quarter of them. If they are seeing customer growth why can’t our national airline make money flying people to places to rent those cars?

Probably a number of those new vehicles were minibus taxis being delivered to the Western Cape. In that province fines for traffic related offences, such as unroadworthy vehicles have been raised very substantially. Naturally there has been an outcry about this, with claims that the fines will “cripple” the industry. The method that taxi drivers can use to avoid this painful outcome is obvious. However the news that the province has yet to collect R3bn in unpaid fines suggests that most tickets are utterly ignored anyway.

The slew of data this week included the government’s cash flow numbers which revealed that there is still absolutely no attempt being made to trim expenditure and that out of every R100 the state spends, R17 of that has to be borrowed. While on a personal scale that seems rather uncomfortable, economists have a variety of techniques for disguising this fiscal deficit so that it doesn’t appear all that bad. Great store is put on the fact that the government (unlike the rest of us) has no difficulty repaying loans because if needs be it can simply print the interest and capital money – provided of course they are in rands. Foreign loans are far trickier 

Another data point which was definitely worrisome concerned the so-called trade balance. The good news is that the nation’s appetite for imported goods has stabilised a bit, but the income received for exports has contracted. In aggregate over the past 12 months we received about R187bn less than the imports cost and this figure too is growing steadily. It would be so refreshing if for once politicians joined the dots and noted that their interventions are not working and that it was time to try something different. Like not telling everyone what to do and how to do it.

There are many aspects to the news that Johannesburg wants to introduce owls into areas of their World Class African City to try and control the exploding rat infestation. The first is that the rats must be particularly nasty and unpalatable for if they were not, the owls would long ago have moved in all on their own. Secondly it is disgraceful that the authorities are delinquent in executing this core responsibility of keeping the city clean and free of rubbish. Municipal service is undeniably humdrum and mundane but it is essential which is why the rest of us agree to pay rates and employ someone to do those jobs.

I am so glad I ignored medical advice and watched the final 20 minutes of the Wallaby game last weekend. I’m not sure if there will be an equivalent opportunity to switch on the All Black match tomorrow.

James Greener

World Smile Day 2014

A VERY UNIMPORTANT COMMENT

It’s not just our own poor little runt that is taking a hit. There is a global shift into the US currency. Everyone’s money is losing ground to the US dollar.  The reason for this flight is uncertain. It could even be a sign of approval that the USA is now showing a bit of military might in the Middle East and humanitarian sympathy in West Africa. Adding to our own woes, there is a sprightly and toothy bear at large in the JSE. The average fall this week among the top 20 is almost 5% and this includes horrors like -17% by Kumba, the iron ore miner. Reports of a slowdown in China are being cited as a reason since this would cause a decreased demand for all the minerals that we dig out of the ground to sell to them. All that is really known is that sellers of many shares are starting to queue up and the only way to get to the head of that particular line is to offer a lower price than the current front runner. When that idea catches on we will see a real bear market develop.

Aside from all the usual questions about why so many officials including the president needed to be in New York for yet another pointless talk-fest, the interesting thing to emerge from the furore about the private jet was that it revealed the existence of a sort of Treats Handbook when it comes to flying in chartered aircraft. It seems that there is a caste system for important people, who are classified from being very very, through merely very, down to not very at all. In addition to four suitcases and five coat bags, each VVIP may take 10kg of carry-on luggage, which somewhat explains the need for a muscled bodyguard among the 14 permitted passengers. The boss man gets a private bedroom and en-suite bathroom with a shower on board the plane. Somehow this is not surprising. Everyone on board can expect 4.5kg of food and drink per meal which may not be all that generous after adding the weight of a couple of bottles of Johnny Blue.

Nevertheless all these details merely confirm that we have an obscenely self-important self-indulgent and nearly self-appointed troop of leaders who are rewarding themselves with levels of comfort which greatly exceed the value they provide to their paymasters. A perfect example of this swept the story about the chartered jet into the inside pages when it emerged that the country had been entered into a deal with the Russians for something to do with nuclear power stations. Scant details offered by one side were quickly denied by the other and now the whole affair has been draped with a cloak of secrecy. This immediately confirms that right at the heart of the “deal” there is a price which is egregiously wrong. That almost certainly points to money that will flow in unusual directions. A deeply ironic twist to this tale is that the arrangement which probably involves rands counted in trillions and watts measured in gigas was likely negotiated by a man who battles with numbers that comprise more than about five digits and by a woman who is delightfully unencumbered with any technical training or experience whatsoever. Some commentators are already drawing comparisons with the notorious and still opaque arms deal of almost 20 years ago.

A similar total refusal to reveal the truth concerns the small but heavily used Virginia Airport here in Durban North. Allegedly it is to be closed and moved. Where to? There is still only one runway at the huge new King Shaka facility north of the city.  Undoubtedly someone high up in the municipal structure has plans for an alternative use for the land and the secrecy indicates once again prices will be rigged and money will vanish.

I have only one flagpole and so just before the nerve-racking encounter with the Wallabies tomorrow I shall have a small ceremony to replace the Sharks flag with the ‘bok banner. Once again I am advised not to watch either and so will merely track the scores on Twitter in a quiet room.

James Greener

26^th September 2014.