Friday 28 August 2015

GETTING WATERED DOWN



Some rather high profile experts have declared that this is not a bear market but simply a correction. Well maybe. The JSE’s All Share index is still (just) up on the year and has clawed back a shred of decency in that last few days but the currents against it are strong. Probably the biggest headwinds are the weak commodity prices. Given the robust and even frightening growth in the global population the reasonable assumption for years  has been to assume that demand for stuff to eat and materials to fashion into things like shelter and transport would at the very least be steady. The prices say otherwise. In the words of Warren Buffet, “Now that the tide has gone out we can see who has been swimming naked”. Seemingly much of the now absent demand was a result of (principally Chinese) politicians insisting that they could allocate resources better than markets. The alarming development for us is that our politicians here are still getting ever keener to control ownership and set prices.
Adding to the gloom was the publication of one of those numbers that only the really initiated claim to understand while the rest of us display the appropriate knee-jerk reactions. Stats SA revealed that (economically at least) the country went backwards at a rate of 1.3%pa in the second quarter. It is not known if the slightly eccentric, grandly-styled Statistician General had alerted Number 1 to this shocking news before his “All is well” speech a few days ago. Perhaps he ignored it, because proper economists need a second consecutive quarter of negative growth before officially declaring that a recession has been sighted. It would be unsurprising therefore if next time somehow, Stats SA churns out a positive figure. A close and sceptical inspection of the published GDP figures of the past decade makes one uneasy about their integrity. Economies are actually giant lumbering animals difficult to turn around sharply and the published quarterly growth figures are suspiciously volatile when compared to the data sets before about 2008. Collecting data is a boring thankless job and political patronage and recognition is hardly ever lavished on those with a bad story to tell. Just saying.
Despite the news about the skill and powers of some extremely nimble and somewhat dodgy trading rooms, it remains the case that of all the markets, currencies probably most accurately reflect the relative weights of supply and demand. And the poor old runt is still getting hammered which indicates that even all the jetting about by the high and mighty in planes owned by ones dubious friends has not yet encouraged foreigners to accumulate any (rands)!.
There’s something rather odd about a government outfit that builds dams and pipelines calling for tenders for someone to provide professional services to develop and implement a cultural heritage plan. One would think that heritage is something nurtured by individuals who believe their society has something worth remembering and preserving. It’s not the sort of thing that involves meetings and mission statements and action plans and all the other things that sleek and slick consultants will gleefully prepare for a majestic fee.
And on the topic of water and heritage it turns out that the half page full colour advertisement about “Empowering Women in Water” has nothing to do with synchronised swimming. It’s a conference, which amongst other things will see the launch of The Women in Water Entrepreneurship Incubator. That sure ticks lots of boxes. But it’s puzzling that no one has yet noted how condescending and ironic this notion is. Around here, the task of fetching water has always been women’s work. It’s a Heritage thing.
In preparation for tonight’s ‘bok World Cup squad announcement a very clever check list for fans has been published to help them vent their outrage, indignation and despair. The point to remember, however, is that the teams we meet will also have been sent off with the criticisms of their fans ringing in their ears. It’s going to be tough for everyone.
James Greener
28th August 2015

Friday 21 August 2015

THAT’S NO LADY. THAT’S MY BEAR



So far the deterioration (almost 9% since March, with half of that this month) in the All Share is similar to that experienced in 2011.But it’s showing every sign of needing to go down a great deal more. And the weak rand signals that foreign buyers are not showing up. All that’s happening is that locals are swapping scrip for cash at ever lower prices. Only the very nimble and brave should try to squeeze trading profits from the market in these circumstances.
The South African government is now paying anyone prepared to lend them rands for a period of 10 years, a yield which is over 600 basis points greater than the yield that the US government is paying its similar period dollar creditors. Even this record high difference is failing to stop rands fleeing the country at 13 to the dollar and 20-something to the pound. Clearly there is a fear that whatever money is returned to rand investors in 10 years time won’t be worth collecting. Alarming.
Worth noting, however is the fact that despite the dollar gold price plunging more than a third in the past three years or so, the local price of that metal as reflected in Krugerrands and the gold ETF is off only about 5%. Not exactly a perfect store of value but a reasonable defence against the rand’s collapse.
Despite all our deepest scepticism and suspicions it has to be acknowledged that according to the monthly figures published by National Treasury the government is slowly bringing its spending rate down while increasing its collections rate. After applying the friendliest of averaging techniques these growth rates turn out to be 7.9%pa and 10.1%pa respectively. Mathematically at least, and if trends persist, this significant difference implies the elimination of the fiscal deficit within a decade. The resulting surplus could then be directed to extinguishing the rather worrying debt that has accumulated. The list of things that could derail this thesis would run over onto the next page and so we must be content with just keeping an eye on these numbers. Next week the second quarter GDP results will be released and ought to be a little better than the awful March 2015 result of 1.3%pa. Mind you there have been precious few company results published in the last few months that signalled resurgence in growth. Few of our supposed leaders seem to grasp what a tight-rope we are walking.
Hopefully no one boarded a flight to New York from SA on Monday clutching a copy of Business Day. For that news paper carried a financial notice addressed to the shareholders of Oceana, a fishing company. And emblazoned along the top of that “tombstone” advertisement was the curious and pointless injunction that it was not to be seen by any one in the USA, Canada or even Japan. Few people will remember why regulators thought it was important to protect the sensitive investors in those places from news about rights issues here on the southern tip. but anyway the  internet has made those ideas a nonsense.
To the delight of some and consternation of many, “hackers” have breached the security around an internationally used website purporting to offer a service for those seeking a bit of “skelm”. For non-South African readers this is the delightfully evocative local term for an extramarital partner. Fervid reporters are pawing through the now published client lists from the site and it seems that SA civil service email addresses are strongly represented, which confirms what we suspected these folk do with most of their time. Expect a rash of explanations along the lines of “It is not me. I was not there.”
Apparently the decision to send the ‘bokke out to play dressed in white jerseys last week was a “commercial” decision. Excuse me? It was definitely a very stupid one ignoring not only traditions but also the laws of optics. In the fading Argentinean afternoon light the light blue and white hoops were almost indistinguishable from the ‘bokke’s strip. These decision makers display the same understanding of rugby that Number 1 has of finance.
James Greener
Friday 21st August 2015

Friday 14 August 2015

BANGING ON



Although the All Share index has been leaping about a great deal recently it has remained more or less within a 6% range on both the upside and down side this year. This means that we have definitely not yet seen the real bear market. While  a50% correction would not violate historical valuations it is highly unlikely. It remains very worrying, however, that the rand continues to sink and now even against the euro is at the year’s low. Simply no one can see a good reason for owning our currency it seems. Unsurprisingly company earning growth reports have been averaging 10%pa, a great deal less that enjoyed for many years. This too is a reason not to chase share prices higher. It is time for circumspection and caution.
Financial headlines this week have been dominated by the Yuan devaluation. Most of us will never learn either what this means or whether we should be happy or sad. Certainly it has triggered a rash of articles using the word “contagion” and grave talking heads on TV. A far bigger Chinese explosion this week involved actual bangs, loss of life and massive destruction of great quantities of manufacturing capacity and stockpiled goods. This may turn out to be the more important event, although the Chinese are often as reticent about these embarrassing events as our own energy minister is about her “secret” plans to order impossibly expensive nuclear power stations.
The government has obviously become worried that citizens are threatening to reach their own conclusions about the “state of the nation” and so we are being treated to frequent official updates on this subject. Unfortunately these events subject Number 1’s formal speaking skills to a severe test. Better known for a jovial impromptu singing and dancing communication style, these dreary lists of dubious achievements of his government put everyone, including himself, to sleep. It was interesting however, that someone seems to have got him to realize that the new draconian visa requirements are seriously impacting tourist numbers. He also seems to have noticed that not having reliable power supplies is pretty inconvenient as well. And summer is coming. It’s going to be great.
Over-excited Durban city fathers have been seen tearing about the place in blue flashing light cavalcades accompanied by the worthies who decide on the venue for the 2022 Commonwealth Games. Now there is little doubt that this city does already have a wide range of the facilities required for such an event. They are mostly all conveniently located along the Indian Ocean shorefront, and it would indeed be rather exciting to play host to the games like this. However the big issue is the price estimate of R6.4 bn; a number far more easily said than raised and definitely way lower that the final outcome. Glib hand-wafting explanations that the cost will be shared between government, the city and the SA Olympic committee are wildly optimistic. The government has yet to provide the expected and necessary guarantees.
Tonight's away Test against Argentina will be hard to watch for a number of reasons, not least of which is that kick-off is getting a bit past bedtime for some of us. Also it may prove to be even more embarrassing than last week’s calamity here at Kings Park. But never fear, the trade unions have now started to take an interest in rugby. Unfortunately, however, their involvement will probably just result in more pay for fewer players and longer half-time. There should however be a full 11 man Proteas squad on the pitch at Kingsmead this evening as the series against New Zealand begins. The stadium is looking rather splendid these days following a cleanup and a huge fancy multicoloured score board. Now all we need is for Eskom to keep the lights on.
James Greener
14th August 2015

Friday 7 August 2015

HIGH(?) JUMPS



The prices of most industrial commodities continue to plummet sharply and the companies that make a living from extracting them from the earth are having a very tough time. The problem with trying to call a bottom is that Chinese demand is the key factor and we are learning (although we should probably have guessed) that even if they know the facts themselves, they are not telling anyone else the truth. The JSE All Share index is holding up rather well and that is because mining shares nowadays are making their smallest ever contribution to the overall index.. Smokes and beer are numbers one and two!
Yet again the proceedings at the National Assembly deteriorated into near chaos and demonstrated that this is now a meaningless body in the governance of the country. Ministers and bureaucrats have taken over the business and dictate how things will be done. For example it has emerged that the president was unaware that one of his cabinet had simply withdrawn the operating licence from a mine whose labour policies displeased him.
There is now a well-worn path to the courts from the boardrooms and executive suites of almost every state owned enterprise as a procession of indignant malcontents seek compensation for their alleged unfair dismissal. If it wasn’t for this case load of aggrieved tax eaters the judges would have more time to attend to real crimes. The added insult is that it is the taxpayers who fund the defence of the claims of the almost always over-compensated departing employee. The nation is getting very little value for a great deal of its spending.
Socialists believe that they have the skills to allocate resources. One of their favourite interventions is land ownership. The most recent report from the state body charged with this task, however, is that many beneficiaries are now asking for the money instead of the real estate. Frankly, owning land in some places and circumstances is not always attractive and this decision is understandable but also it signals that it is time to bring this land claim program to an end.
Apparently if you know how and presumably have a suitable internet connection it is possible to watch the TV coverage of sports events for free. Without making too much of a moral judgment on this practice it is worth joining a few dots here. TV rights paid to sporting bodies are a very significant reason why a few athletes and administrators are super rich. But are we now about to see the next industry to be hollowed out by the inexorable power and reach of the internet? Taxi drivers, musicians and bond analysts have all had their lunch stolen by this monster. Why not ball-kickers?
So apparently just about every Olympic medal winner has probably made use of chemical help at some stage in their career. Oddly, the people that seem most worried about this are the commercial sponsors who fret about the damage that could do to their reputations. And of course those competitors who are “clean” also have a gripe. Fans are seemingly not that fussed as long as the contest is exciting and punters presumably are placing bets on who has the better pharmacist! Yesterday’s dismissal of the Australians for 60 runs before lunch on the 1st day of the Test makes one wonder if someone mixed up the potions and handed out the dozy pills to the lads under the “baggy greens”. Fans of the ‘bokke have long known that the coach of the day is smoking his socks and making crazy selections and substitutions. We had better wallop the Argies at Kings Park tomorrow or else save a ton of money and cancel the tickets for the World Cup.
James Greener
7th August 2015 (happy 40th birthday Charlize Theron)