THE RECORD IS RUBBISH

With the exception of Sterling, because of course the UK is fighting its own demons, the little old rand is at its best level in 12 months against most major currencies. Real people (as opposed to us talking heads) are obviously not concerned by political and social developments (see below) and are still buying rands in order to do business here in the sunshine. A similar scenario is unfolding in the USA where despite the moaning about the new president, the share markets are surging. The Dow Jones index has cracked above 20 000 for the first time in history. The JSE all share index is looking set to deliver maybe 5% this month with most of the heavy lifting being done by resources which are supposed to be reflecting the global slow down, but obviously aren’t. Bears get only a few opportunities in a lifetime to be right and this isn’t turning out to be one of them.

The political animal is suffering from a bad plague of fleas. It is scratching incessantly at every nook and cranny on its rather mangy body. There are spats, disagreements, protests, and accusations breaking out everywhere. And the students have yet to reconvene for the new academic year and get their nonsense under way. It’s a noisy mess. Some of the fights are inter-ministry affairs where the bad news is that if the squabble ends up in court, the lawyer’s fee notes for both sides are sent to the yax-payer.  Jaw-dropping claims and assertions abound, with perhaps the week’s best being that Minister Faith Muthambi’s  “… record of delivery in digital migration speaks for itself”. Now South Africa is already 18 months past the internationally agreed deadline for this process, so maybe it’s time for Faith to change the record.

As usual the details of all these issues are complicated and assuredly we never get to hear the full story. Nevertheless, on available information, there are two particularly interesting and worrying battles to watch at present. The most recent is the claim by some mining houses that the Mineral Resources department is unreasonable in the exercise of its powers to close mines in response to certain safety issues. So far claims for revenue lost due to vexatious closures amount to a few tens of millions of rand. But government has no intention of coughing up even that relatively small amount of money, so this will probably be another bonanza for the lawyers.

And then SASSA, the state agency responsible for the monthly distribution of the critically important social grants is bickering with …. well, itself!  If this state cash hand-out program were to collapse for even one month the consequences would be dreadful. Despite many of the inevitable “consultations with stake holders” and the “appointment of task teams” there is widespread doubt that the transfer of this huge practical task from the privately-owned Cash Paymaster Services (considered now to be unsuitable) to SASSA itself will be seamless. Bluntly put there are around 17 million “customers” for this service and who knows how many pay points. Even the slickest profit-incentivised organisation (which SASSA is clearly not) would battle with that switch over. April 1^st may be more than All Fools day on the SA calendar.

The poor standard of maths in our schools is showing up in our limited over cricket performance. The rather vital statistic of runs per over seems a bit of a challenge for lads unaccustomed to long division. Choosing the best 11 players is also proving to be difficult for our national selectors. At times their meetings appear to nothing more than taking slips of paper out of a hat that is filled with names of anyone who has been on a cricket field in the last dozen years. From beating the Aussies at home the Proteas have fallen a long way in a short time.

The news is that ‘bok coach, Allister Coetzee could be fired next week. Bafana Bafana (the soccer ‘boks) fired their boss last month. Maybe the two could swap jobs. Neither side could do any worse than they have managed recently.

James Greener

Friday 27^th January 2017

SOME DON’T LIKE IT HOT

In a few hours, the hoopla will be over and the chair in the Oval Office will have been adjusted for a much larger frame. Now comes the hard part and the markets will be the first to signal public reaction to how the new president is doing, Keep a very keen eye on that US ten-year bond yield in the coming weeks. If it starts to shoot up the verdict is bad.

Meanwhile back home a rather less sensitive indicator is nevertheless starting to signal that the Zuma government is getting into difficulties. Tax revenues are slowing down sharply.This is a new and very worrying development. The 12-month deficit is approaching R200bn compared to the budgeted R154bn. Those fancy #Feesmustfall hash tags are going to be disappointed.

It’s all turning very messy rather quickly. Most of it is very old news but now the events are being revisited in a sea of confusion, bad grammar and indignant vengeance, all fuelled by the vain expectation that the state might be able to get its hands on some sorely needed cash (see above). More than two dozen years ago, the now very extinct Trust Bank was doing what badly run banks have done through the ages. It was lending money to people who were never going to be capable of paying it back. So when Trust Bank’s inevitable sticky end approached, the government, very mindful that many of the bank’s owners (in itself a messy story) and clients were Nationalist Party supporters, made the foolish and probably illegal decision to launch the infamous “lifeboat”. Taxpayers money was loaned to the ailing bank at a very low rate on the condition that it be used to buy much higher yielding government bonds and other instruments. The capital amount was probably therefore never at risk, but the net interest flow was from the lender (the government) to the borrower (Trust Bank). An interesting early example of negative interest rates.

Just what became of the “lifeboat”, and what its potential recovery value to the state might be has long concerned the curious. In particular, the rash of bank amalgamations that have taken place since those days have complicated the task for at least four investigations into the mystery. The now leaked Public Protector’s is just the latest attempt to follow the money. One investigation even was carried out by a commercial British outfit, who as well as charging a very large upfront fee in pounds, got the new government to agree to pay as much as 10% commission on any “recovered” funds. Fortunately, it seems they recovered nothing, not least because ABSA, which undeniably is a distant descendant of Trust Bank, strenuously insist that they acquired no liabilities arising from that particular wreck. The cold fact is that the money – actually now in today’s terms a rather modest amount – is gone. Yet another memorial to every government’s desire to carry out political allocation of assets.

And now the latest banking mess is just starting to sprout shoots. Following the 2008 financial crisis our regulators were delighted to adopt so-called international best practice which it was claimed would ensure that such things never happened again. FICA was born and box-ticking compliance officers appeared on the scene. Since then there has been no obvious decrease in financial frauds but repositories have been filled with useless certified copies of every document a client could produce (and several they couldn’t!). Sensible prudent organisations had long practiced a far more personal “know your client” policy which was far friendlier and also quite good at spotting risk. Amusingly, however, the FICA axe has recently been wielded to deny banking facilities for a family of Number One’s special friends which the banks claim is dodgy. But no problem.  Friends of the friends may have tracked down a South African banking licence which is for sale and so JZ’s mates may soon be back in the game. Watch that space.

Two puzzles today. What really is happening with AB de Villiers? Will he ever again play for the Proteas? And when will the Aussies grasp that Open doesn’t have to mean no roof on the stadium. Those tennis players are really tough.

James Greener

USA President Trump Inauguration Day 2017

THERE’S THE LIGHT BUT WHERE’S THE TUNNEL?

The main concern in the market about yesterday’s somewhat unexpected weak numbers from Woolworths is that they don’t seem to have been unexpected for some shareholders. The price started falling about a week ago, and so cries of “insider trading” are going up. While the practice is deplorable and in fact illegal, it does happen, and old hands in this business will be spending more time looking for the opportunities created by the price move than in joining the hunt for the perpetrators. The fact is that the deal system records are now so comprehensive that the accounts involved will be swiftly identified. Less swift, however, will be the process that follows. Somehow these thangs are always complicated!

The other fallout from the results is that they are being taken as a sign that most retailers are finding it hard to make money. This is despite the steady stream of other indicators which can in certain lights be taken as showing signs of a recovery. The simplest of these are of course share prices and so far this month some very tidy gains are being chalked up.  The pitfall for the bulls however is that industrial and financial company earnings have been declining and unless a massive turnaround emerges in the December year-end results (for which of course the books are now closed) the headlines will begin to shriek about negative growth. But buyers are known to be able to look far ahead right through noise like that.

And so to the season of university registration and folk who are not yet even students are already looking forward to participating in protests and disruptions. Everyone else particularly taxpayers and other elitist capitalists are very weary of this nonsense and patience has already worn thin. The indignant warrior who converted the money spent by the ANC for their 105^th birthday celebrations into potential university fee payments would be shocked to hear that actually a bus ride to the city, a T-shirt , a large chunk of lurid cake and a stiff drink for several thousand sounds like money well spent. At least it was quickly gone and not supporting an ungrateful innumerate illiterate for months.  

It will be interesting to see how many official delegates we taxpayers will be paying for to attend the snowy talk shop in Davos next week. Whatever else they managed to do there last year, the world’s economic brains-boxes haven’t noticeably improved things for the rest of us since then. With all the hot air that comes out of these gatherings one could almost believe in global warming. This year though some people will leave early – if even to pretend they have cracked the nod to attend the Trump presidential inauguration.

The US president-elect is already very entertaining to watch in action. He is proving to be just as worryingly unconventional as many feared. He shows scant regard for how things “are done in Washington” and is becoming adept at using the internet to speak directly to his audience, bypassing the filtering and interpretation processes of the usual channels. The “main stream media” are livid and pounce on the inevitable mistakes and inconsistencies in his pronouncements. His fans however love it, since it shows that he is a real person! Unfortunately, though he has so far shown no sign of shrinking the size, costs and interventions of government. For a state that has debt of almost $20 trillion one would have hoped that a business man would be doing something about balancing the budget. Maybe in the end, Trump won’t be all that different?

Oh and it seems that Slovakian Maros Kolpak,was a goalkeeper in the second division of the German handball league who managed several years ago to get a European court to allow him to play in Germany after his visa expired. In some convoluted way, this ruling enables the selectors to drop on-form South African born cricketers from the Proteas test side. Really, politicians should get right away from sport. Who are all those suits filling the plush padded seats at Wanderers?  But the good news I am told is that so far this year the ‘bokke have not yet lost a game.

James Greener

Friday 13^th January 2017