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)