SURVIVAL OF THE RICHEST

Only a few brave and agile traders will remember the amazing volatility in August with fondness. Problems were triggered when a ratings agency suggested that the US was not quite as good at servicing its debt as it used to be and dropped it from the AAA club. Opponents of this view rightly pointed out that since the USA actually printed the dollar bills, there was no chance that lenders would not get their money back. The ten year bond yields fell to the ludicrously low level of nearly 2%. What received less publicity, however, was the undeniable fact that the very act of printing those dollars was simultaneously eroding their value and so lenders would definitely be repaid with less value. That seems a fair enough reason for the rating downgrade.

Even before the month is over another potentially market-moving event is taking place in Jackson Hole in Wyoming. This sounds like the venue for a shoot out between the bad guys and the sheriff, and in a way it is. US Federal Reserve Chairman Bernanke has been attending a meeting there and is scheduled to report on its deliberations later today. It is unlikely that the talking heads will have been able to resist the temptation to “fix” things, and indubitably their interventions will provoke the bull and then later the bear.

Mr Warren Buffett, possibly the world’s richest man, has infected his peers and competitors with a very dangerous disease. Its symptom is the demand that they be allowed to pay more tax. This reveals their entirely mistaken assumption that governments will distribute their money to the poor more effectively than they could. Tellingly, the disease has yet to surface in SA. In the meantime, Mr Buffett has arranged for the Bank of America to take a $5bn deposit on which it will pay the astonishing yield of 6%pa. Which of that bank’s other clients are going to be paying for that generosity? Probably it will be the poor ones with overspent credit cards.

It is rumoured that the missing despot from that troubled North African country has been spotted at a traffic light in Pretoria selling flags, naartjies and coat hangers. After all we have been the only country to complain that the manner of his removal from power was undemocratic and it is possible we have offered him tea, sympathy and a job. Noble sentiments, but unlikely to impress the young men wielding those terrifying automatic cannons fitted on the back of a bakkie careering through the streets of Tripoli. With so much weaponry on the loose it may be a while before the ballot box is seen as a practical alternative.

Allegedly the SA Rugby Board is considering a plan where a side in the Currie Cup will lose points merely on the basis of the names on its team list. Just think where this could lead. No longer will it be necessary for coaches to pick the 15 players who they hope will have the best chance of beating the opposition in 90 minutes of physical encounter on a rough or muddy field.  Instead each week they will merely submit a team list of individuals they think will meet the Board’s criteria and await news of how many points they lose. The best actual and aspirant rugby players in the country will drift off to play somewhere where they are required to don a jersey and boots to prove their worth. This of course is a concept and technique becoming all too familiar elsewhere in the nation. Potential ability and skill to fill a post, counts for less than name, gender and ancestry. Sadly the one or two cabinet ministers who have expressed concern about this deeply unfair and hugely inefficient labour policy, have been reprimanded for straying outside their ambits.

James Greener

26^th August 2011

THE BEAR IS GETTING WARMED UP

For many months the JSE share market was stuck in a trading range and the list of factors that were being scrutinised for a sign of which way the breakout might go was getting longer. Frankly I think that we bears had the better and more compelling list. And so it has proved to be although it is quite uncertain what finally pushed matters past the tipping point. Personally I single out the US debt situation but right now it doesn’t matter. All those factors are still there and many of them will be exacerbated by the damage that the bear is doing to share markets around the world. It is not yet anywhere near the time to begin looking for bargains.

Undoubtedly all the usual “experts” like the central bankers, politicians and bureaucrats will soon be barging in and distributing other people’s money in yet another attempt to “fix” things. This fixing is really just about not letting capitalism and markets do their job of culling the weak and sick businesses and ideas and making space for fresh and novel ones. The problem is that in many economies the government and business are mutually dependant for survival and they both hang on long past their usefulness.

Here is SA this does not seem to be the case as there is a growing antagonism within the ruling political class towards the organisations and individuals who probably pay most of the tax. Lead by a so-called “youth league” the kleptocracy are raising their eyes from the tax to the income on which the tax is levied. The demand is for “economic freedom” which as far as I know they have not defined beyond the phrase “nationalisation without compensation”. The core principal, however, appears to be the acquisition of unearned income. Their point is indeed attractive and given just how hard it is to start and run a private enterprise where earnings exceed costs, their marches might attract support from everyone in the country not already dependant on the state for a living. Sustainability is obviously some else’s problem

The latest crop of company reports show a slight bias in favour of disappointing earnings often considerably lower than a year ago. Even MTN, the cell phone company, failed to reach double digit percentage growth. Some niches are doing better, however. The demise of Transnet as a reliable service has certainly helped the trucking industry, and the low profile unglamorous businesses that stock and supply the parts that keep the big machines running are OK for the moment too.

Finally here along side the Indian Ocean the Yellow Billed Kites have returned. For me they are the indicator of the start of summer and it has indeed warmed up considerably. If we have another cold winter like that down here next year I shall have to think about moving! Sutherland, I believe is a poor alternative. Thank goodness I never pursued my idea of a career in astronomy.

SAB are finding the Foster’s defence against their takeover bid as fierce as the Wallabies defence of their try line against the ‘bokke last week. Meanwhile the All Blacks are returning our favour of resting their stars for the test in PE tomorrow. Unfortunately not every ‘bok supporter will be clad in green and gold. In a huge triumph against crime and corruption the police have unearthed and impounded a large consignment of counterfeit ‘bok shirts. It’s hard to see why we should not be allowed to choose to buy them over the genuine article. After all many suggest that even the ‘bok coach is not the real thing. May I once again point out the unbeaten Lions at the top of the Currie Cup log?

James Greener

19^th August 2011

WHO’S TURN FOR THE YO-YO?

Amidst the hectic gyrations of the global share markets, a quite disturbing announcement was delivered in Washington. This was that administered interest rates would remain close to zero at least until 2013. While this is devastating news for those having to live on savings it is also an admission by the largest central bank that its efforts to get the economy going are puny and fruitless. Many commentators are warning that the USA might be echoing what happened in Japan where share prices and businesses have been depressed and slow at least a decade.

Locally it feels that the number and impact of positive company announcements and economic reports and data have been substantially outweighing the less optimistic ones. Certainly there have been days when the JSE quite deliberately moved up when other markets were losing their grip. However, I think that the outgoing tide is probably the stronger and the rand weakness suggests that overseas money is going home. That is, we have not yet seen the bottom, so in due course some tempting valuations will be revealed and prudent buying will then be in order.

I am ashamed and embarrassed to admit that I did not know that here on the southern tip we had more than one recognized king. Reportedly they all (?) converged on Joburg this week for their first ever meeting with each other.  Presumably agenda items will have included the care and maintenance of regal regalia, how to deal with unruly princes, and the terrible cost of appropriate consorts. I don’t think the Swazi king got invited as he would have been tied up ensuring that the “four pillars” of performance required for the disbursement of his R2.5bn loan from SA were in place. The first of these is reportedly that his government needs to undertake “confidence building measures”. What a classic piece of bureaucrat nonsense!

Also in Joburg it was announced that taxis and buses will be exempt from the tolls on the R20bn worth of highway improvements that the city has provided. Whether or not royal entourages and bureaucratic convoys will also be exempted from the impost was not mentioned, but obviously only those vehicle owners with easy to find addresses will be pursued for fees owing. Substantial shouting about and deep dissatisfaction with the proposed tolls has broken out, allegedly on behalf of the poor, who are not, I’d have thought, car owners.

No one would disagree that the health services in SA are in dire need of improvement. Just getting back to the levels and standards of a dozen years ago would be a good idea which the present leaders seem unable to achieve. The proposed National Health Initiative is therefore very unlikely to be a success. The biggest puzzle at this stage is why is it going to be so costly? Presumably just about every doctor, nurse, physio and pharmacist who wants employment is already earning an income whether from private patients or the government, and while increases are always welcome, where else is the money going to go? How many Cuban doctors are we going to be able to attract? Some of the cash could be spent on buildings, equipment and training, but are there not already unspent budget allocations and woeful inefficiencies in those areas? Drugs and consumables are extraordinarily expensive; but even with an increase in the number of professionals surely not that much more can be used up? Not even the most ambitious schemes for larceny, theft and corruption could account for the balance.

The city is filling up with folk wearing green, gold and an air of panic. Tomorrow’s test against the Wallabies is the reason. No further rugby comment can be made except to point out that the Lions are top of the Currie Cup log, unbeaten and probably insolvent.

James Greener

12^th August 2011

FLOCKS OF BEARS SIGHTED

Suddenly it is all looking very messy. In a couple of days the All Share is down almost 10% and is back to where it was a year ago. The news wires and pundits are crackling with excitement and urging people to buy at these wonderful levels. But I am not so keen and think that the bear has a lot more work to do before he gets most investors to the point where they never want to buy another share ever again. Traditionally that’s the signal that rouses the bull. Except for this big fall in equity markets, nothing fundamental has happened elsewhere in the economic landscapes. In the US, where of course they raised their debt ceiling at the eleventh hour to even sillier heights, there is talk of the feds coming in once again with “stimulus money”. The Eurozone is springing leaks everywhere. People are waving and drowning!

One good news story locally comes from the so-called small and medium supermarkets sector which operates mostly in the rural regions. They are reporting sales up 73% compared with 2009. From our desks in the city it is hard to imagine how this can be, but perhaps it is government outflows both formal and illegal that are reaching purses and wallets out there in the sticks.

If these poor souls try to flee to the cities, probably the only job they might get will be to clean stuff like streets and floors. Fortunately for them the Services Seta is right onto their plight, convening Cleaning Services Industry Information Sharing Sessions. The five item agenda for these sessions is astonishing to those of us who have no idea what goes on in this industry. The item about new qualifications and unit standards is particularly fascinating. Who knew that, provided the standards were met, one could become qualified to push a broom or wield a mop?

The Pan South African Language Board spent R5.4 m in legal fees to dismiss its CEO. That seems like a lot of money to say “You’re fired!” but presumably the process had to be conducted in all 11 official languages (and Braille).

And so here it comes. Legislation to regulate the ratings agencies is on the way. They will have to become “registered” – that delight of all bureaucrats. Because there is scant difference between a ratings report on an entity and a research report published by an analyst, registration of pretty well everyone in this industry must be imminent. Mining analysts are already in the net. Presumably the objective of the regulators is that aggrieved investors who follow advice that turns out to be wrong must be able to place the blame and loss elsewhere. Sadly it is true that even professionals, who should know better, fail to understand that the responsibility of an investment decision rests with them alone. Justification for this statement lies in the fact that, especially in the case of company analysis, it is common that respected analysts will have opposing views, thus demonstrating the subjectivity of the exercise.

The government has announced that it is to create two new commissions whose tasks will include fighting red tape.  There is something oh so wrong about this idea!

 “Winning will be high on our list of priorities” was the headline that accompanied the report of the Springbok coach’s response to the nation’s disgust at what happened in Sydney and Wellington. What exactly is at the top of this list then? Ensuring that the sponsor’s cheque arrives on time? Providing properly prepared orange slices for the lads at half time? Or maybe it is to have a training and selection policy that confuses and disappoints as many people as possible while delighting the opposition. Yes, that must be it.

James Greener

5^th August 2011