22 March 2012: Change in the Mad Markets TV Schedule

The Tuesday evening Mad Markets show has been discontinued.  The Mad Markets segment within the Closing Bell show continues.  Tune in at 17h20 every week day afternoon to see Paul Theron discussing the news highlights of the day with Eleni Giokos (or Samantha Loring on Tuesdays).

Videos of these afternoon Mad Markets segments are posted in Vodpod on the top right of this blog.

Paul is also the ‘resident expert’ on the Hot Stoxx show, which is broadcast daily from 20h00 to 20h30 on CNBC Africa.

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1 March 2012: South African Airways Wants More Money

State owned South African Airways wants bailout money, R6bn, thanks very much. But their chairperson, Cheryl Carolus says that this is not a bailout, its BRIC infrastructure project. Huh?

Public enterprises Minister Malusi Gigaba clarified his thoughts on this matter this week, apparently agreeing with Carolus, suggesting that SAA needs to be re-capitalised, so that it can fulfil its mission as a “national carrier”.

Er, hang on. SAA would have had a capital base, were it not for its disastrous management errors of the past.  Remember ex CEO Coleman Andrews, and his preposterous golden handshake? And what about ex CEO Andre Viljoen? He messed up the hedging up and SAA took a R12 billion bath. Or ex CEO Khaya Ngqula, and the debacle over the Airbusses, SAA ordered and later decided that it didn’t need, but forgot to tell Airbus?

Its poor corporate governance and the soft budget constraints that lead to the losses in the first place. It’s a consequence of public ownership, in my opinion.

And even if SAA were to be a national carrier, as Gigaba says, then their strategy is all wrong. The goal of a national carrier is to bus in as many tourists as possible.  Instead SAA overcharge for long-haul flights to Europe, mess with the travel agents, and fight with SA Tourism. All the while, engaging in predatory pricing on local routes, which devastates the privately-owned local airline businesses.

Ah, no man. I think that we should get the Minister on the show to re-state his case. I’m not buying this argument.

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1 March 2012: This is Why the Gold Price is Going Up

Regular viewers of this show will know that I am no fan of gold. It’s nice and shiny, but really, what’s the attraction as an investment?  As I keep explaining, it has Negative carry. This means that actually costs money to hold (security) and it pays you no interest or dividends.

It’s supposed to be a hedge against inflation, but that doesn’t seem to hold anymore. Its real money, the crazies say, and your paper money will soon be worthless! I say wake up lunatics, take off your tin foil hats and get out of your bunkers!

Ah yes, but my enemies say, but why is it going up then?  Well, that’s true – it went up from $200 per ounce in 1999, to $1773 last week.

Well, here is your answer:

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21 February 2012: People Lose Their Marbles After Fifty

I’m a big fan of young people. The younger the better, I say. That’s why I like Barack Obama, age only 50, better than these ridiculous old 70 year olds still knocking around. I prefer them like Mark Zuckerberg, the Facebook dude, just 28, or that Lindiwe Mazibuko age 31, so what if she speaks Zulu with a private school accent! Or what about Justin Bieber aged 17, damn?

So there you go – nice and fresh, their brains are still working!  Take a look at this:

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21 February 2012: Budget Overview

It’s Budget week in South Africa. Where does the money come from? Where does it get spent?  Check this out, courtesy of some cool charts from Deloittes:

Huge SA Budget Infographic from Deloittes

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14 February 2012: Buy Quality, Get Paid to Hold, and Never Sell!

We received this thought provoking e-mail from a viewer Derick Finlayson two weeks back:

“Given all the erudite advice on what to buy and sell, it would be very useful if you could please reiterate the key tax issues that should be born in mind in executing a bond, property & equity asset allocation strategy.”

I like where he is going with this. He is implying that the vast majority of the “erudite” commentary on shows like this, and in newspapers and magazines appears to be about timing, and the inevitable question: if I buy this asset now, will it go up in value, so that I can sell it later for a profit?

When you think about it, this approach suggests that we are all speculators, buying and selling the whole time, to supplement out incomes.

In reality, this is just not true.  In fact, most of us are investing, in order to turn income into capital.  In other words, we are saving our salaries, bonuses, inheritances, profits from businesses or other inflows, and building up assets.

Assets might be equities, properties, and perhaps even government bonds.

Now, what about the issue of taxes?  Well, if you speculate in any asset class, be it listed shares or properties, then the tax authorities will deem you to be a trader, and tax you on your profits (if you have any). Plus, the transaction costs and the paperwork are both a huge pain in the ass!

In addition, many countries have capital gains taxes which kick in on assets which you hold for investment purposes, which you sell in order to realise that gain.  Here in South Africa, the rule is three years. Hold an asset for that long or more, sell it, and CGT kicks in.

Finally, we have the issue of estate duties, otherwise known as death taxes!  This is payable, above a certain threshold, once both you and your surviving spouse have croaked.

So here you go folks, here is my answer to Derick’s rather nuanced question. It’s quite simple. Buy quality, get paid to hold it and never sell.

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14 February 2012: The Year of the Dragon – Good for Markets!

Check this out. The Economist magazine just compared stock markets returns over the past 100 years, with the years of the Chinese Zodiac!

So there you have it. Incontrovertible proof that we are in for a good year on the market!

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10 January 2012: We All Need To Be More Self-critical

I caught this great article in the Wall Street Journal last night, by Carl Bialik, who writes a column called ‘The Numbers Guy’.  In this piece, he notes that many Americans have strong opinions about policy issues shaping the presidential campaign, from immigration to Social Security. But their grasp of numbers that underlie those issues can be tenuous.

Americans vastly overestimate the percentage of fellow residents who are foreign-born, by more than a factor of two, and the percentage who are in the country illegally, by a factor of six or seven. They overestimate spending on foreign aid by a factor of 25, according to a 2010 survey. And more than two-thirds of those who responded to a 2010 Zogby online poll underestimated the part of the federal budget that goes to Social Security or Medicare and Medicaid.

Americans’ numerical misapprehension can be traced to a range of factors, including where they live, the news they consume, the political rhetoric they hear and even the challenges of numbers themselves. And here is the thing: Telling people the right numbers often doesn’t change their views.

What’s the moral of the story? Be more self-critical, and realise that some of your own strongly held views on economic policy issues may be just that strongly held, but wrong!

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10 January 2012: John Paulson Crushed in 2011

You guys know that I hate hedge funds. Overpaid, under-performing fee machines! The biggest robber of 2011 was John Paulson. He is a hedge fund manager famous for making about $10 billion in fees from other people’s money with some ballsy calls on the mortgage crisis of 2008 and market recovery on 2009.  Peak assets under management: $38bn.

Fees of 2 and 20, that’s how he rolls. Fees of 2% of assets per annum, plus 20% of profits. No downside, if they make losses, that’s all yours.

This past year, he stunk.  His flagship Advantage Plus fund performance for 2012 was down 52%.

He bet on the fact that the economy would improve faster than it actually has. He’s also been extremely bullish on gold, which has also slid since hitting a high in September. In addition, he lost hundreds of millions of dollars after share prices for Chinese forestry company Sino-Forest turned out to be a fraud. They had no forest! They were printing up the trees in the back office! Haha!

Couldn’t have happened to a nicer guy.

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10 January 2012: Welcome to the New Year

So what happens in 2012?  Well, I hate those dumbass market projections. Everyone just spouts out the long term market average returns, or worse still, just projects what’s been happening lately.  You know, like “Oh yeah, there will be volatility. Markets will be uncertain. The situation remains fluid. Returns will be modest. Debt levels are high.”

Shut-up. The future is uncertain. D-oh, that’s because it hasn’t happened yet! Those kind of comments are worthless!!

I’m quite bullish for 2012.  Why? Well, the US economy ended 2011 on a roll. Did you see that non-farm payrolls number last week? Europe is dodgy, I know. Japan is nowhere (as usual). But hello, China is roaring ahead. Brazil is on fire, it just overtook the UK or something. India is grinding forward in fits and starts. Africa is growing fast, off a low base.

Global GDP in 2011 was 4% not my preferred 5%. 2012? Well, let’s see. I’m seeing projections of around 4% out there.

US job market (the only stock market indicator that works) is healthier. Americans spent lustily on holiday gifts. A long-awaited turnaround for the depressed housing industry in the US is under way.

A guy called Kauffman once said that “The economy depends about as much on economists as the weather does on weather forecasters”.

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