The Kings of Economic Analysis

IT IS 7:55 AM ON A SUNNY TUESDAY IN JUNE and all’s quiet at Econometrix Treasury Management (ETM), the real-time independent financial market analysts whose commentary South African traders consume daily in massive quantity. It’s library-quiet here, all except for the clatter of keyboards that are being furiously manned by four analysts with furrowed brows, today’s business pages strewn across their desks.

In about five minutes, ETM will send out an email to local traders. It will be their economic espresso, the informational jolt the traders need to start their day – a succinct morning commentary that will arrive on their desktops and assist them in making, or losing, millions of rands today.

A gang of supersized computer screens are spewing numbers, graphs and newsfeeds, blobs of financial data in blue, yellow, red and black, all of which must be crushed, analyzed and explained for a slew of clients, which include most of the top financial institutions – both domestic and international – operating in the country. One beige-coloured 13-inch monitor sits blankly, seemingly out of place. Turns out that old machine which has been sputtering along for years without making much of a fuss is the one that stores the data that the rest of them are running on. That quaint, modest technological antique that’s probably calculated spreadsheets with Lotus 1-2-3, the one that runs quietly in the background, that’s the one that’s running the show.

***

Their offices boast no floor to ceiling windows. No Aeron chairs. No oversized walnut desks. There are no espresso machines and no dramatic sculptures in the lobby. There are, in fact, no lavish accoutrements of any sort at Econometrix, parent company of ETM.

The Econometrix head office in Houghton is a converted house, complete with a pool and braii area – used occasionally for company parties – that works well enough as offices for some of the brightest economic minds in the country. What you see, as they say, is what you get. And what you get is this: a group of independent economists who, for the past 25 years, have been impacting the South African economy in no small way – all without a lot of fanfare or the lush environs that normally come with doing business with big business.

“These guys have been around the block and they are really respected,” says Chris Gilmour, a consumer industrials reporter who recently left the Financial Mail to join ABSA as an analyst. “They’ve all got their specialties and they’ve been working on them for the past 25 years – and they rarely ever get it wrong.”

Well, let’s hope not. Because with the kind of economic information they are churning out on a daily basis, they can, quite directly, affect they way the local economy performs. Do a Google news search on any given day, and you’ll find their economists quoted in publications from the New York Times to Business Day and all those in between. Flip on your TV to find local financial news and there’s a good chance you’ll hear an Econometrix opinion-maker: Dr Azar Jammine, Econometrix’s chief economist and director on everything from the impact of the civil strike to consumer credit, Tony Twine on motoring and retail, and George Glynos from ETM on financial markets..

***

Jonathan Gush talks very fast. He has to. As the head of Investec’s Institutional Trading Desk, he speaks to a lot of people throughout the day and has to get as much information as possible out of each and every one of them. So it’s no small matter that the first person he speaks to every morning is ETM’s Glynos.

“Look,” says Gush, “we all use Reuters and Bloomberg but for local content, they’re more effective. These guys aren’t dummies. George is intimately involved. He understands the jargon and he’ll just tell me ‘I heard rumor but I think it’s a load of crap.’ He’s got this ability to sort through the noise – and he’s not just giving me a sound bite. He tells me ‘this is what’s happening, this is a load of nonsense and bang I’ve got it.’ I’d have to phone five banks to find that out.”

And that’s some good information, especially for someone who watches things like rand fluctuations (the tenth most traded currency in the world) like the rest of us breathe.

ETM started up three and a half years ago to move in on the real-time financial analysis market, with parent company Econometrix holding a 26 percent stake. For years, Glynos ran what was then the local office of Standard & Poor’s MMS International for Econometrix. After the business morphed into Informa Global Markets, Glynos and one of the Econometrix sales guys, Quinten Bertenshaw, who had worked as a trader in London, decided to start up their own service.

They beat Informa at their own game, not only because they were on the ground and not working out of far-off London offices but their user-friendly web-based software allows them to show off commentary with colors, bullets, and highlights, all the while  getting out the information quick, concise and with local understanding that can’t be beat.

The independence and integrity of the Econometrix name behind them carried a significant weight. And with a global trading house trend leaning toward independent analysis after US-based scandals like Enron and Merrill Lynch, it’s a position that will only boost their positioning. Not like they are doing too bad, mind you. Within a year of launching in 2004 – they effectively took 90 percent of the market, and now about 1500 morning reports landing in emails throughout the country’s financial industry; up to 200 traders are constantly on their website.

“The trader is busy,” says Glynos. “That’s why what we give them is so short. They need to know if their trade position is going for or against them. We are aimed at keeping them informed in a succinct manner. Our stories are punch and to the point.”

Glynos starts his day at 6 am, with the first report – a currency snapshot – leaving his desk by 7.“We are telling them what to do and that’s why they like us,” says Glynos. “We tell them what’s happened and what to look out for.” Not bad for a guy who’s got a BCom in economics from UNISA – no fancy PhD to tout around heady economist circles. In fact, Glynos says, “Everybody here has a higher degree than me,” gesturing toward his junior analysts who joined ETM fresh out of university. “It’s sort of the old university education versus real time experience. I grew up in the trenches.”

They weren’t such bad trenches to grow up in. After all, for the past 11 years, Glynos has worked with some of brightest economic minds in the country, starting out writing retail analysis for Jammine back in TK. Now he runs ETM out of the Econometrix converted garage offices where all those monitors blare mounds of financial data. “I could always work for a bank,” he says. “But I don’t see myself as a corporate animal. I don’t get a big ego boost from having a big name behind me.”

But the fact is those big names use ETM commentary to find out where the markets are headed, though Glynos pushes back with the signature Econometrix humility gleaned from Jammine, his mentor.

“We don’t move markets,” says Glynos. “Markets move because that’s what markets do.”

***

Jammine’s office is in the corner, overlooking the pool and braii area, in what used to be the home’s master bedroom. Though the group bought the old house in 1995, after moving from their Braamfontein offices, a light rose colour remains on the walls along with mirrored cupboards and corner shelving displaying pictures of Jammine and his kids when they were younger and Jammine with his parents in at his graduation from the London Business School, where he received his PhD in economics before returning to South Africa in 1985. Armed with an education like that, Jammine could have gone anywhere in the world. He chose to return home amid the chaos where he saw heaps of opportunity. Turns out his estimation for impact were spot on.

His first day back, he picked up the Financial Mail and answered an ad for a fledgling company called Econometrix. He joined Brian Nash, an accountant whose partner, economist Frank Shostak was packing his bags for Australia after predicting that the rand was going to plummet from 1 to the dollar to .60 cents – probably just thing that influenced more than a few South Africans to jump ship. Jammine was to work with Shostak for several months before taking over, but within two weeks Shostak was gone. Suddenly Jammine was chief economist in an extremely volatile economic time. He was immediately assaulted by the media.

“I soon realized this position had huge responsibility,” says Jammine. “I had the power to influence the way people thought.”

Jammine was highly critical of apartheid policies, if only because they didn’t make economic sense which made him about as popular in government circles as a Darwinist among evangelical Christians. He was persona non grata with the SABC. But a new radio station took interest in the young economist and started quoting him like crazy. That station was 702, and an economic pundit was born.

Still, more than a handful of companies wanted nothing to do with Econometrix back then; Jammine still didn’t sway.

“I learned early on that independence and integrity are very important attributes,” says Jammine. “We don’t have any big daddy owning us. We live and die by our sword. We have to work hard in order to make it a successful company for our own benefit – that’s the motivation that drives us to provide the best service that we can.”

It was a policy that Econometrix was built on. And regardless of his leanings, Jammine’s client base began to expand. By the early nineties, Jammine was presenting talks overseas about the future of the South African economy. He addressed groups like the Royal Institute of International Affairs and the UN Committee Against Apartheid. He wrote chapters on the state of the economy for books like McGregor’s Economic Alternatives, Trends Transforming South Africa and Mindset for the New Generation on South Africa. After the rand collapsed in 2001, Jammine and Glynos were called to testify at the Rand Commission. With Jammine at the helm, Econometrix had staked its claim in the South African economic landscape.

“We’ve got a little niche,” says Jammine.

Yup. And it’s a niche that’s captured more than a little slice of the market. Besides acting as the experts in the business media (the fact that they are independent makes them a favourite on the source list as they are less likely to bias than, say, a financial institution’s analyst that’s got every reason to punt for the home team), more than 400 companies – feel free to multiply that by hundreds of individuals within those companies – receive commentary on a daily, weekly or monthly basis, paying between R21,000 and R39,000 annually on commentary ranging from retail and consumer spending to motor industry analysis, manufacturing, agricultural, tourism or ad spend, as well as ad-hoc consulting access. That’s the bread and butter.

The gravy is things like industry forecasts, corporate presentations and project viability such as estimating the size of casino gaming in Gauteng and its impact on the economy, investigations into the structure of the liquidations industry and the impact of electricity pricing on the economy.

The week I visited their offices, Jammine presented in Pretoria to BMW management about consumer spending, talked to Nedbank Corporate clients on property development issues in Cape Town and discussed interest rates with Al Baraka Bank in Durban.

But despite all that, Jammine and his colleagues would be pulling down a whole lot more cool hard cash if they simply took one of those lucrative top-tier analyst gigs at one of the financial institutions.  “It’s not the most lucrative way to go,” Jammine admits of his business model. But taking a job like that would mean too much restriction. “I want to feel free to say whatever I want.
***
There is a problem in Tony Twine’s model for Eskom. It seems his five-year forecast, which is calculating different price indicators, including things like the Producer Price Index (PPI) and Consumer Price Index (CPI) is a bit out of whack. He’s got a 70-page spread sheet juggling all this data and for some reason that he can’t quite surmise, his numbers aren’t lining up.

From across the room, he instructs his assistant, Monita Kelly, to check the exogenous variables on page one, column b, and she tells him that’s where the problem lies. Excel is reading data from the previous model.

“Oh, I see,” says Twine.

Well, yes and no. In his mind, Twine sees quite clearly exactly what that spreadsheet reads – and he’s got a good idea on how to fix it. But as far as physically looking at that document, he hasn’t seen a spreadsheet for more than 30 years.

“It’s like playing chess,” he says. “I’ve got a view of a chess board and where the important pieces are and what they are doing. You don’t need each and every detail at the top of mind. In this case, it’s like 70 chess boards.”

The mental gymnastics required here, ones that the layman can’t begin to comprehend, are attributes which, Twine assures me, he shares with all of his colleagues. But at least his colleagues have the benefit of staring at data until it seeps into their minds. Twine has no such luxury. In 1981, Twine slowly began losing his vision. The diabetes which he was diagnosed with at seven months old finally started to show the more serious implications it would inflict on his life – it did not take his kidneys or his heart. But by 1983, Twine had all but lost his sight.

At the time, Twine worked for what was then Datsun/Nissan. His life had changed, but Twine saw no reason to change course. He set up his own company, Marketing Environments, which focused on the motoring industry. His business was just down the hall from Econometrix, and it was at about the same time that Jammine had joined the company. Not long after, Twine merged this motoring analysis package, and himself, with Econometrix (Twine is a shareholder, alongside Jammine and Nash, the original founder).

Twine has known from the beginning the precarious position in which he sits.

“All of us here carry a rational fear of misinterpreting information which is dreadfully easy,” says Twine. “Those mistakes can cause people to make chains of decisions that can be disastrous. The easiest mistakes to make are information aimed at short term forecasts like whether interest rates are going to rise or not. You can have the best or worst information and still be right – or wrong.”

And even when you are right, sometimes the media picks up the best sound bite and turns everything you said on its head. Like the time in January 2002 that Jammine was quoted by none other than Trevor Manuel in a speech to Parliament. Seems Manuel took a slice the SABC had run of Jammine commenting on the rand decline which, Manuel attributed to Econometrix, “has nothing to do with government economic policies.” Manuel stopped short of Jammine’s full comment which ended with a big but. And that but was that the decline might have had nothing to do with government policies but everything to do with concerns about the political fallout of land invasions and issues like HIV/AIDS.

Not a surprise that last part was left out. Well, if you are going to get misquoted, it might as well be big. All in a day’s work at the house that Econometrix built.

“We’ve built a solid edifice,” says Twine. “It may be ugly but it’s solid.”

July 2007, Maverick

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