Friday 24 December 2004

COMPLIMENTS OF THE SEASON


I do not want to write and you, certainly, have no interest in reading about the markets today. So I shall just wish you a very happy and peaceful Christmas time and a wonderful, healthy, safe and prosperous 2005.
Thank you for receiving these weekly waffles. I have had lots of fun writing them. For those of you who go so as far as actually to read them, an extra thank you.
Thank you to my friends and clients who supported me this year in my move to Watermark. I trust you have found this firm to be as good as I have.
I shall be away from the office for a few weeks and Tidemarks will not appear for a while. Please contact Paul Davis or Charmaine Marcia by phone (011-325-4228) if you have any queries or orders that you wish to place. Please don’t send emails with these requests as I shall not receive them until I return to the office on the 10th January.
With best wishes.

James Greener
24th December 2004

Friday 17 December 2004

PREDICTING DELIVERANCE?


There is very little to write about in the market this week. Even the expected 25 basis point rise in the US rates has had no noticeable impact on our lives. Yet. As you all know by now, my tedious view – long overdue for fulfilment – is that the spectacularly large US debt position is a millstone that gets heavier with each increase in interest rates. Perhaps my expectation of an enormous splash when the victim (US consumer) topples beneath the surface of the liquidity lake is over-optimistic. Maybe all that we shall see will be expanding circles of ripples with just a faint gurgling noise from the centre. However, it’s those ripples that worry me, as I think they could look like tsunamis by the time they reach our markets.
So far this month the JSE is down a bit, but only because of the mining shares. Almost all the other sectors are still stumbling and lurching upwards. The rand has gained against all currencies except the Pound so far this month and the US dollar has been taking a caning from everyone – particularly these last few days. The price of gold is a very good indicator of how deep in the dollar is.
There is a distinct holiday feel to the market with wide price spreads and negligible volumes. The day before the public holiday we enjoyed quite a bit of turnover because of futures close out. This is an arcane ritual that takes place four times a year, usually on the afternoon of the third Thursday in the month. For 100 minutes the market is dominated by duelling computer trading programs – I’m sure I heard the sound of plucking banjos – and mere mortals watch in horror or glee, depending on their position. These programs should carry age restrictions.
To make up for lack of action, and probably readers, analysts and reporters are now churning out their predictions for 2005. It seems that most are sure that the market will go up, the rand will be strong but unpredictable and the Proteas will beat England. Another of my, hopefully well known, scepticisms is that on average exactly half of one’s forecasts are correct. I have already admitted to one of mine which this year was wrong. This is therefore not a good moment to put down on paper any ideas that I may have. Statistically you will now be expecting it to be accurate. Come to think of it, I have very few ideas at the moment anyway. I know what I’d like to happen but that should not be confused with what should happen or indeed with what will happen.
But enough of this lyrical word play; there’s some test cricket to watch and Christmas presents to wrap. I’ll be in the office next week should you feel the need to impress the folk next to you on the beach with a call to your stockbroker to discuss the portfolio. The week after that, it will be me on the beach next to you.
Remember the hat and the sunscreen.
James Greener
17th December 2004

Friday 10 December 2004

US DOLLAR: FLAVOUR OF THE WEEK

The end of my week in the Kruger Park was somewhat marred by returning to a house that had been burgled. Fortunately an alert neighbour heard the sound of breaking glass and the alarm siren, which prompted him to peer over the boundary wall and spot the felon loitering in the garden waiting to see if there was going to be a response from the security company patrols. The neighbour issued a few good old fashioned threats and imprecations in the so-called language of oppression and the thief vanished in a flash having had very little time other than to make a bit of a mess and pocket a few small items.
With this experience fresh in my mind, it was with some interest that I read that the police themselves make use of private security companies to guard some of their police stations. Since our response guys failed to show up I would suggest that the police ensure that they have good alert and civic-minded neighbours instead. A lot cheaper too. Just a bottle of wine and a note of thanks for each foiled robbery attempt. Of course they must ensure that the wine is not from one of those KWV cellars where they have been adding synthetic flavouring to the fruit of the vine.
There will have been quite a call for relaxing beverages of every flavour in dealing rooms world-wide this week as suddenly everyone fell in love with the US dollar again. This showed up as a 5% correction in the price of gold from its recent 22-year high of USD 457/oz. Our own rand has given up more 3% against the greenback since last Friday. Now all of this was rather unexpected since pundits had been calling the death of the dollar in ever louder and frantic tones. As I have written many times before, the science of predicting the future in financial markets (and probably in other fields as well) has a rather poor track record of success.
Yet another example of this was Thursday’s decision by the SARB not to change the repo rate. I have read at least one commentary which complained that the 15 minute pre-announcement speech seemed to hint strongly that a cut was forthcoming. However, when the Governor turned to the final page and told us that the committee had decided to do nothing, these hints were shown to be mere teasers.  What that commentator must realise is that the speech part of the announcement is surely written some considerable time before the speech and probably even before the meeting of the committee. It therefore has to be pretty agnostic on the decision. I anyway have a suspicion that the final page is picked from the top of a pile of paper containing random “cuts’, “raises” and “do nothings”. It is slipped onto the bottom of the speech as the Governor enters the press conference and the announcement is as much of a surprise to the Governor as it does to the rest of us.
So next week has just four working days, less one for luck, so I would imagine that the market will be pretty quiet, perhaps just drifting south on lack of interest. It’s hard to believe that there are any situations of compelling and outstanding value that are not to be missed right now.
I trust you are getting these good rains too.
James Greener
10th December 2004

Friday 26 November 2004

PARTY TIME FOR THE BULLS


When I arrived at the office this morning there was a largish helium balloon hanging over the busy Jan Smuts Avenue intersection. It was tethered to the handrail of the nearby pedestrian bridge but the gusts of wind were sweeping it perilously low over the traffic. Motorists were being provided with possibly an even greater hazard than the usual suspects that stop in the crossing to offload passengers. I missed catching the advertising message that it carried, but began to think about the possibilities that the blimp might have for this industry.
While a warning about the perils of inflation would be obvious, it is currently unwarranted as the CPI and PPI numbers that came out this week remain pretty benign. The fact that helium is an inert gas, less dense than air, seemed to be a promising metaphor conjuring up images of investors doing nothing but watching their portfolio values climb to the stratosphere. But then what would become of the message if the balloon were to puncture suddenly? Best not to go there.
And on the topic of not arriving, what has become of Barclays’ long awaited bid for ABSA? This saga threatens to run for as long as the second telephone network farce or the arms deal offset mystery. If Barclays have not yet arranged their currency for this trade, then the deal is getting more expensive by the day. Curious.
Whether or not the market is expensive is the key question on everyone’s mind as we come to the end of a month which boosted the all share index by around 6% so that the index dividend yield is now a slender 2.6%. Also perturbing is the index pe ratio at a tad under 15, a level it did not reach even in 2002. But of course the “e” part of this ratio is rising spectacularly as company after company publishes very satisfactory earnings growth figures, so perhaps things are still OK for the moment. I would rate the market as a hold, with precious few buys around.
One of the more frustrating trades at present is the New Gold debentures that continue to be very efficiently priced at almost exactly their theoretical level of 1/100th of the rand price of gold. As the dollar price has soared to $450 and beyond, the rand has surged in sympathy, so that New Gold has done nothing but skulk around 2670cps level since it was issued! One day we gold bulls will reap our reward!
The tide will be out next Friday as I shall be in the Kruger Park for the week. Yes, it will be rather hot! Please remember not to try to contact me by email and call Paul Davis or Charmaine Marcia (011-325-4228) if you have a query about your account or wish to place an order. They do have my cellphone number if you need to contact me directly.
And now we are all leaving the office for a drink or two to wash down the prawns that are to be braaied by the master of seafood, Mr Davis himself. The excuse is that it’s getting close to Christmas, but I think that none of us want to be able to remember to switch on the TV tomorrow afternoon when the ‘bokke meet Scotland.
Have a great weekend also.
James Greener
26th November 2004

Friday 19 November 2004

SUMMERTIME AND THE LIVIN’ AIN’T EASY


There’s both a rugby AND a cricket test tomorrow. And perhaps you are planning to ride a bike all over Joburg on Sunday. I can see that this will not be a relaxing weekend, so I suppose that I should try to give you some pleasant reading here.
I could start by telling you that there was a rumour in the market that Governor Mboweni was going to call a special meeting of the MPC (the worthies that decide interest rates) with the intention of springing a surprise rate cut on us. The problem, it seems, is the rand. You probably saw the report that Minister Manuel expressed some dismay that it now required only six of them to buy a dollar. Good news for those of us shopping for imported goods, but a becoming a bit a problem for the exporters again, despite the short respite afforded by the previous cut in August. And it’s not just dollar weakness that’s the cause. While we are up more than 10% versus the USD this year, we are also more than 7% up on both the Yen and the Euro and up even 4% against the venerable Swissie! People out there want to own the rand. And one reason for this is to buy the equity market. There has been R10bn worth of net foreign buying in the last six weeks. When the American market dividend yield is a skimpy 1.9% pa, yields of around 5% from shares as chunky as Liberty Holdings are seen as a steal.
However, as I write, there is no sign of any truth to the rumour about the meeting and those of us who need interest income to buy biltong, beer and fishing equipment (life’s little essentials) can relax. Actually, if you think about it, the chance of collecting together anyone for a meeting on a Friday summer afternoon is slim. Even if you do promise five star catering.
Another rumour doing the rounds is that some institutional investors have started to take profits, especially in the retail shares. That index is up more than 12% this month alone, so you can sort of see the thinking there. However, the excellent results continue to pour out from these companies and the earnings and dividends in most cases support the prices for a ‘hold” I just wouldn’t want to do a lot of buying here, that’s all. In the meantime I am getting old waiting for the US markets to wake up to the fact that they should be going down. The worse the news, the more they buy. Disturbing.
You may recall me picking on the Fannie Mae mortgage securitization business (second largest financial company in the US) a few weeks ago. Well, they are getting a lot of news coverage recently, with auditors getting sticky and possible losses in the billions. And then this morning we learn that they are down here on the southern tip teaching our chaps how to do things. I wonder who will learn the most?  And while on the topic of people in trouble how about getting an adjusted tax assessment requesting an EXTRA six billion dollars? Aren’t you glad you aren’t Yukos, the Russian oil company?
There, you must be much happier and ready to turn to the sports channels on the TV now. Have a great weekend, and I hope the rain starts only after you pedal across the finish line.
James Greener
19th November 2004

Friday 12 November 2004

BEARS ALL OUT FOR A DUCK


It is all quite confusing for an old scientist. It seems that I no longer have a provincial side to support but a “franchise”. Now I always thought that franchises had something to do with battered chicken and a certain colonel from Kentucky but it seems that I am mistaken. These franchise thingies are everywhere. I waltzed off to Wanderers on Wednesday to watch the charity cricket match between what I thought was Transvaal (or even southern Gauteng) and the rest of SA. What I saw was the rainbow nation and very little cricket. The rest of SA players were decked out each in their own franchise set of pyjamas. Very colourful but I was alarmed at how many of the fellows were proclaiming themselves to be Titans. The standard of the cricket didn’t support that! The tour to India could be painful. And on TV last night an assembly of rugby pundits were less that certain that the ’bokke will pummel the Irish tomorrow.
But to return to the battered chicken. That pretty well describes the look and feel of any remaining bears in this market. Outstanding results from most consumer companies continued to fill the press this week. There is no longer any point in asking plaintively where all the money is coming from. Just take a walk through your local mall this weekend and observe our fellow citizens going for gold in the shopping leagues. I’m told that SAB are going at full speed on all their bottling lines and in some places not keeping up with demand. Of course this rather alarming drought and heat wave will have a large part to play in that particular market. Isn’t it infuriating that ABI (the bottler and distributor of Coca-Cola) is being taken off the JSE boards?
The FirstRand preference share debuted on those boards this week at the really quite generous price of 10300 cps. This implies a dividend yield of just more than 7.25% and makes it the cheapest of the big four bank prefs. The markets are certainly not thinking of the holidays yet. Several interesting developments are taking place including the Harmony / Gold Fields tussle that must be providing a very nice little Christmas present for the advisors and media compiling and printing the ever more acerbic salvos from the two sides. The disposal by the quaintly named Thintana consortium of their chunky stake in Telkom has also generated some fire but little warmth unless, of course, you were one of the happy beneficiaries.
As expected, on Wednesday, the US raised their Fed Funds interest rate by 25bps to 2%. This excited the Wall Street bulls but surprisingly (for some) failed to stop the dollar sagging to a record low of 1.3 per euro. I just love reading the complaints on the US websites of how expensive Europe has become for a trip by the people from the land of the free. However, do not gloat too much as there was a report out this week saying that our own Herculean rand is deterring overseas visitors! Does this mean sensible prices for a meal in Cape Town this festive season? Hmmm. Probably not.
Downside of the week for me has been the number of criminal incidents that took place in and around my friends and colleagues. Thankfully no physical injuries have been inflicted but there is a definite increase in these utterly dreadful shocking and disturbing incidents. Please keep aware and safe this weekend.
James Greener
12th November 2004

Friday 5 November 2004

PENNY FOR THE BUY

I was planning all week to start this piece with some lame comment about going off with a bang or shooting up like a rocket or some similar reference to the date. But in the end I decided not to, as we have had more than enough excitement, what with US elections and exploding rands and soaring dollar gold prices.
These last two numbers can be combined to yield the rand price of gold. And this week saw the listing of NewGold. Despite not trading yet in any large volumes, its pricing has been very efficient. It has been consistently at a very small (around 0.5%) premium to the price of the actual metal. The Krugerrand premium is sometimes above 5%, so NewGold should give the coin a bit of competition.
A few months ago a client advised me that we should all be buying shares in Sappi – the paper company. His research was based on looking around any office to see to what extent the so-called paperless society had failed. These last few weeks of trying to comply with the FICA regulations have hammered home the point, and I would add copier supply companies to the list. These days just about everyone that you deal with is obliged by law that you confirm that you are who they think you are and that you live somewhere. Failure to do this will result in all sorts of sanction and freezing of things. In the current heat wave a freeze sounds rather welcome but will doubtless prove inconvenient. So I am just warning you that we here at Watermark – despite our privileged location at the centre of Joburg’s shopping universe  - are also in the hunt for paper and copies of paper that we can collate and file and store. There is no escape.
Now FirstRand have joined the confiscation party. Around March next year they plan to plunder  7.6% of each shareholder’s holding, at a price of 1228cps and pass the booty on to some folk they have identified as worthy of this generosity. Until then of course we won’t know whether this is a good or bad price but I think the idea stinks. Now we know what FirstRand will be doing with the cash they raised from placing their new preference share. Two much smaller pref share issues have also been recently announced by Sasfin and PSG. Unfortunately they are too small to be likely to enjoy much liquidity, but we’ll keep an eye on them.
The Americans have made their choice of President. So what happens next in the markets? Well just this afternoon one of those dreaded non-farm payroll numbers came out much higher than expected and knees jerked everywhere; in particular US interest rates went up. This will just serve to irritate the debt monster and his bulk is making itself felt in a relentlessly weakening dollar. The flip side of this is a stronger rand. As I watched our currency try to get below 6.1, I began to wonder if Governor Mboweni was watching as well. And whether he might not feel moved to spring a surprise interest rate cut upon us before the scheduled meeting of his committee in mid December? Just a thought, but that bang would make the consumer shares rocket even more.
Dragons and leeks for the ‘bokke  tomorrow?
James Greener
5th November 2004

Friday 29 October 2004

SAYING BOO TO A BULL

The ghouls and beasties and things that go bump in the night that will be prowling around on Halloween night have never scared me as much as this market can. Just when you think that you have got your portfolio all nicely positioned, out pops a spectre shrieking about interest rate cuts or exchange controls or some other terrifyingly unexpected subject. This week we had a wonderful example of this kind of surprise when we learned that we all have yet another thing to worry about:
Interest rates in China.
Thursday’s news that Governor Zhou Xiaochuan had increased the one-year lending rate by the marvellously perverse amount of 27 basis points to the equally eccentric level of 5.58% would normally have gone unnoticed. But someone was watching and moreover cared and the resource shares swooned. The weakening oil price (mind you, still above $50) also encouraged the commodity bears. The rest of us were still trying to sort out the difference between a remnimbi and yuan but were dimly aware that a slowing Chinese economy is probably a “bad thing”.
Before this event I had been musing on the story where, in the same speech, some worthy attending a conference lamented the foreign perception of poor returns from investment in Africa and then called for debt forgiveness. No interest and then no capital back? I perceive that as a rather poor return on investment.
Talking of returns, it’s month end already, and the All Share’s October performance is running pretty close to zero,  despite having been both 3% up and 1% down at various stages in the month.  In the last few weeks the rand has been one of the strongest currencies in the world while the USD has been one of the weakest. This of course also helped knock the resource shares. October’s winners were the financials and industrials.
Next week will see the listing of the long awaited Gold Bullion Debentures. These amount to shares that simply represent 1/100th of an ounce of gold, so I guess that their price will be around 2800 cps. They are to be called NewGold and will be listed alongside the SATRIX products in the Exchange Traded Funds sector of the JSE. I shall be preparing a short write up and description for distribution to clients once we see how they are doing in the market. I have feeling, however, that these could be very useful additions to the portfolio for gold bugs and rand bears like me!
As an idle aside I wonder if you noticed the details of the foreign exchange amnesty revealed by the minister this week. R65bn in 43 000 applications looks like big money until you realise that’s just R1.5m average per application.
In just a few days, the ghosts and skeletons will have been and gone and we will know who will be haunting the White House for the next four years. The point for the markets is just how long it will take for the winner to spook himself with the reality of the US debt situation and how will he try to deal with it. More scary stuff.
Keep safe.
James Greener
29th October 2004

Friday 22 October 2004

HIGH FIBRE DIET


One day this week I tagged along with some real analysts to visit two manufacturing plants. It was really fascinating, and while they were asking proper questions about earnings and depreciation and top and bottom lines, I was wondering about quite different things. Like why were we there.
Naturally a company invites a bunch of nosy parkers (and feeds them lunch) only when things are going well. And things did seem to be going well.
At Vaal Sanitaryware there were bathroom appliances popping out of moulds and kilns at a fair old rate. Management’s excitement and pride in the new automated moulding and handling line was catching. Elsewhere in the factory, the process of turning clay into containers is still performed by hand using techniques probably as old as civilization. We were, however, assured that the newest urinal design was a first. With 50% of local market share and only one competitor, planned revenue growth for these guys is to come from fighting for more of the upmarket sector. This is currently satisfied largely by imports which, according to our hosts, contained many European second grade rejected items. I asked where their own reject items went and they gestured northwards!
Down the road, at Everite we were relieved and delighted to hear that not a scrap of asbestos has been used at the plant in almost two years. It was difficult when asking questions to remember to refer to the material as “fibre cement’. These days the fibres are cellulose or, increasingly, a smart new plastic material that looks like very fine white hair clippings, imported from China.  A hugely enthusiastic new team has pulled this 60 year old factory from the verge of closure. The growth in this business depends upon the building professions specifying and recommending fibre cement products in preference to alternative materials like wood and steel. Most of the houses on Thesens Island in Knysna are clad and roofed in fibre cement.
The unifying thread is that these two plants form the biggest chunk of the manufacturing division of Group 5.  A brief presentation about prospects for the construction division, revealed the very interesting fact that the World Cup 2010 soccer stadia have to be complete and ready by mid 2007 for a FIFA inspection! This puts the construction phase much earlier than I thought. Some doubt was expressed about whether the industry had sufficient capacity for all the promised projects. From what I could see, however, there is going to be no problem with having enough toilets and garden pots!
With Group 5s earnings growth at almost 20% pa, and sounding like it might even improve, the pe at less than 10 and dividend yield at 3.4% the catch is that all these parameters are at multi-year highs. So buying now is not compelling - to me anyway. But keep an eye on it.
I am indifferent to the outcome of Saturday’s sweatfest in the cauldron at Loftus, but I think the Cheetahs deserve to win. And remember the late start to the Brazilian GP on Sunday.
James Greener
22nd October 2004

Friday 15 October 2004

WET AND WINDY


At last the rain began to fall in Gauteng this week. It is so long since we had wet weather that I have been worrying that my smart new wireless rain gauge might no longer be functioning. I had visions of cobwebs and bird droppings gumming everything up. However, as I watched a particularly hard downpour, the electronic read-out ticked over just fine and reported that it was coming down at a rate of 12mm per hour! So far we have enjoyed more than half an inch of rain. I still measure and think of rain and fish in old money. Who could be pleased with a 1.2 kg trout?
The anemometer picked up a quite strong wind squall that came with the rain. The dial showed 18km/hour gust speed. Yes, I do live in a sheltered spot! The weather station has been faithfully recording all these numbers so I can draw graphs and compare them to history.
It’s not very different from my day job. Collecting the numbers, plotting the graphs and then trying to think what it means. For example the All Share index has been dropping all week and will end today just about where it was a fortnight ago. Is this the turnaround?
The Governor’s shorter than usual TV appearance in which he announced no change to interest rates, caused a barely discernable blip in this trend. The broadcast was notable for the innovation of fifteen minutes of “vox pop”. Hapless pundits, fully aware that the decision had been made even before they spoke, were grilled on their expectations; while interviews with the “man in the street” were also doomed to irrelevance. A cheerful music video would have been much more fun.
Another chart that has caught my attention is the one that shows that the American stock market (as represented by the S & P index) is currently a tad lower than it was 34 months ago (January 2002) while the good old JSE – expressed in US dollars - has doubled in that time. Obviously about three quarters of this performance was provided by our all-powerful currency. Only one quarter of the return came from the market itself. Sadly for our public relations with foreign investors, some other figures show that not too many of them actually managed to benefit from this run. However, the gap between the two indices is what concerns me and I believe that it will get wider still as the US market accelerates its already noticeable bearish trend.  But you are understandably bored with this theme.
For some good US news for a change, have you noticed that SAB has been the best performing share of the week and in second place for the month? It seems that some firm South African management is getting the US operations into shape.
And there will be heaps of firm South African management happening at Loftus and Newlands tomorrow. I shall be watching my barometer for the high pressure zone over Joburg when the Lions thump the Blou Bulle.

James Greener
15th October 2004

Friday 8 October 2004

IT’S ALL JUST ROCK AND ROLL


Last weekend I enjoyed a really fascinating excursion exploring the Vredefort dome area. I was delighted to hear that there is a good old fashioned academic squabble taking place about the likely cause of this massive geological event that took place there about 2.3 billion years ago. Our guide and lecturer is a major protagonist for the asteroid impact theory. If his theory is correct then it seems that a very large chunk of space rock thudded into the deck quite close to where Parys was going to be. It was cruising along at something like 20kms a second and landed with a bit of a bang. The next few minutes would have been rather hectic, what with rocks melting, dust rising and a shock wave rolling out in all directions. The neighbourhood quickly became rather inhospitable. The only life forms around in those days were colonies of blue-green pond scum, doing very little except hanging about waiting to evolve. They were fried. And then they were buried under a vast layer of sediment and ash, as what was thrown up from the crater came raining back down to earth. Nasty
The parallels with what has been happening in these markets these last few weeks are obvious. The Governor’s interest rate cut in mid-August landed on Gwen Lane like giant meteor. There was a huge impact. Rand bulls disappeared into the crater. The shock wave blasted the All Share index almost 20% higher. All bear-like life forms got burned. Untidy.
Now we just have to avoid being wiped out by the falling debris.
The surge has rerated the market by quite a significant amount. At a 2.65% dividend yield and 15pe the market is probing valuation heights that have previously proved shaky. But it’s difficult to get off such a fun ride.
Watch for next week’s appearance of Governor Mboweni in front of the lights and cameras after the Monetary Policy Committee’s deliberations. The general view is that he will leave interest rates unchanged. But do remember that this is that same view that completely missed the half percent asteroid in August. I think the more important date in the near future is the US election in November. I doubt that my long expected Wall Street showdown will take place before that event. But I think that the markets will not give the new White House resident much chance to catch his breath before asking a few difficult questions.
Those of us who have been waiting for the FNB preference share issue were disappointed this week to discover that all R3bn worth had been privately placed and that there is to be no public offer. Just shows how much demand there is for anything that’s got some tasty yield. The latest announcement even didn’t bother to hint what the coupon level might be. We’ll just have to buy some in the market when they list next month.
Have a wonderful weekend. And if you plan on some fishing down Parys way …..  tight lines

James Greener
8th October 2004

Friday 1 October 2004

WAITING FOR THE BANG


Sometimes there is never any shortage of material to write about down here on the southern tip.
One could have another pop at PAP who really does seem to believe that even though less than a tenth of the member countries have paid their dues, somehow those of us who actually work for a living deserve to support them and pay their president’s rent. Or I could drone on about the National Gambling Board’s (which is not a big blackjack table in Pretoria) report that that industry’s annual revenue was R8.2bn, but gambling taxes and levies collected amounted to just R764m – which seems like nice work if you can get it.
And then one could surprise everyone and talk about the market and how it delivered 5.7% total return last month. This was thanks to a surging 9.5% from the financial sector which behaved quite coquettishly when it discovered that a foreign suitor was about to ask for ABSA’s hand. Firstly, of course, the eager groom must do the rounds asking permission of the presidency, the unions, the central bank and who knows which other “uncles”, all of whom will doubtless carefully explain the lobola system.
These forthcoming nuptials were cited as the main reason why the rand improved between 2 and 3% against most of the big currencies last month. Official inflation numbers also came out surprisingly low. Hence the “dead cert” bet in the markets for this month is that the Governor will pull the “Interest Rates Down” lever when the MPC meets for the tea and biscuits in a few weeks time. However, perhaps one or two attendees at that gathering will have spotted the following news item and might inject a note of caution into proceedings.
This news was that we South Africans are consuming every gadget and geegaw the world can’t sell elsewhere and this is resulting in a massive trade (im)balance number.
Confirmation of this shopping spree comes from the JSE’s general retailer index that was the best performing industrial index last month and holds a top five position in the third quarter. Lewis Stores will be listed in this sector on Monday and its R2.8bn market cap will be a very welcome addition. I think it will run hard. As, I hope, will Spar, a fortnight later.
Definitely running hard is a pack of US presidential candidates. Perhaps until a winner is declared, Wall Street will continue to ignore the signs that us bears are certain foreshadow a foul-up. One time-bomb that I believe is ticking is the delightfully named Fannie Mae organisation that is a very key player in the US residential mortgage market. The explosives include derivatives and interest rates and accounting rules and suddenly departing employees and so on. I have watched this one carefully for a while and think that the little red numbers are getting very close to zero.
Now for a Lions home semifinal.
James Greener
1st October 2004

(PAP = Pan-African Parliament)

Friday 17 September 2004

SERVICE ECONOMY


They just don’t get it do they? Governments have developed this quaint notion that taking tax off us is a “service” and we should be grateful and perhaps even proud.
This week, news reached us that The South African Revenue Service (there’s that word again!) had opened a new business centre “to cater for large scale taxpayers”. Picture the ambiance of deep carpets, piped music, potted palms, art by the yard and lurking plush couches.  “Clients” are plied with fake coffee in real cups before being ushered into an inner sanctum where the walletectomy will be performed.
Obviously governments do require money to operate. This fiscal year our chaps look as if they will need something like R375bn (up from R330bn last year) to keep the wheels turning. Odd as it may seem to a tax man, most of as intend very firmly to contribute as little as we can get away with. We believe that spreading what remains of our own money between “services” of our own choice will likely do just as much good as most government departments can manage. It will also be more fun.
There is a world-wide trend for politicians, many with dubious electoral credentials, to tap the public purse for purposes of patronage and reward. What results is a mushrooming establishment of bureaucrats who, like the politicos, believe that they alone have the sole best model for resource allocation and distribution. The assurance that everything is done “in the public interest” is not universally convincing. To raise a faint murmur of concern often brings a swift and furious response. Some examples from just this week come to mind
Here on the southern tip I suspect that most citizens, whether or not they are clients of SARS, would prefer to see more cash being directed towards the real and vital services rendered by the teachers, nurses and policemen and less being spent on Pan African Parliaments and the like. The contrast yesterday between the march of strikers in Pretoria and the sushi and chardonnay shindig in Midrand was stark.
Despite the religious holidays and a fairly uneventful futures close-out, the market steamed northwards this week. Bears like me spent a great deal of the time wiping egg from their faces and closing short positions in anguish and pain. The gap (“disconnect” in dealerspeak) between our All Share index (up 16% in the last six weeks) and the Dow (virtually unchanged in the same period) is noteworthy – but so far meaningless.
Liberty Group have followed the lead of Standard Bank with one of those schemes of arrangements (more correctly termed “confiscations”) which at current prices will see shareholders donating about 1% of their value to those deemed more needful than themselves. Where have we heard that story before?  As we did for the Standard Bank scheme, we shall be voting all the shares which we hold in safe custody against the scheme – but it will not alter the outcome.
May the Lions wallop the Sharks.
James Greener
17 September 2004

Friday 10 September 2004

LOOKING FOR LEFTOVERS


Is it just us or has this market been terribly quiet recently? Taking a look at the turnover figures for the JSE it seems that it is just us. There have already been two days this month when turnover exceeded R4bn and very few days failed to get above R3bn. Much of the turnover, however, has been “professional” in nature as the large derivatives houses prepare themselves for next Thursday’s futures close out event. It would take far more time, space and energy than any of us have on a Friday afternoon to try to understand what that last sentence means. So let’s just accept that I have had a bit of time to dig around the data.
In the past month or so almost 100 different companies have announced results and (with luck) declared a dividend. Whether that dividend has been greater, similar or even lower than what was paid last year provides wonderful material for a calculation or two.
In aggregate, across the whole market, the so-called dividend base (price times dividend yield equals dividend base) has been pretty much flat for almost 18 months. However, there have been huge differences from sector to sector. Most spectacular has been the industrials, where current dividends are running about 23% up on last year. Financial sector dividends have maintained a steady annual growth rate of between 10% and 15% for almost two years. So it comes as no surprise therefore to learn that the resources index dividend base is now 25% lower than a year ago. Something had to be counteracting those other two good numbers.
Some more thoughtful prods at the calculator keys suggest that the resource share prices have not yet declined in complete sympathy with those leaking dividends. Everyone hates selling Anglo and Goldfields and Impala! It seems as if most of us are holding on in the hope of a terrifying collapse in the rand and a consequential leap in the sector. What a dilemma.
This week the banking shares received boosts from a number of sources including stories of foreign suitors. I am puzzled by the idea that anyone would want to operate a retail banking business in South Africa given the looming presence of all those politicians and bureaucrats who appear to have much better ideas about how to run one. The Robin Hood model comes to mind.
Which leaves us scratching through the industrials for shares which have not yet responded to the consumer boom – surely the main driver of all these wonderful results? What do you think of Caxton, Woolies, Metcash, Imperial, Truworths and Bidvest? Let me declare that I bought some Caxtons myself this week. Well, I had to do something about the turnover!
Late night tennis from New York, the Monza Grand Prix and a long expected family reunion will keep me happy and busy this week end. Don’t mention the cricket. I hope you have nice plans too.

James Greener
10 September 2004

Friday 27 August 2004

TESTING POSITIVE for SPENDING

Today one of my colleagues leaves for the Masai Mara to witness the part of the wildebeest migration where the poor beasts have to cross a croc infested river. He plans to take a trip in a hot air balloon over this particular wonder of Africa. Those of us left behind will have to make do with the slightly lesser spectacle of bears being savaged by bulls. There are a few balloons left over from Watermark’s birthday party earlier this week and of course in this business there is never any shortage of hot air.
With just about two more trading days to go before calendar month end, the All Share performance (including dividends) for August is somewhere close to 8.5%. This is chunky and welcome, but not hugely unusual. On average one can reasonably expect this level of monthly return, or better, twice per year. Perhaps you don’t remember but we enjoyed 9.8% last October so this blip was right on schedule!
Now when they lead the bull away for his drug test at the end of this round, the sample will come up blindingly positive. And the lads in the lab will have no difficulty in naming the substance as rand currency. A potent stimulant that itself has been diluted almost 6% against the US dollar this month. And out there, in the full blaze of publicity, brandishing the syringe for all to see is coach Mboweni. Talk about a gold medal effort! Please rise for the playing of the national anthem.
This week saw another batch of good and excellent results announcements. Pretty well anything associated with consumer spending has been enjoying an excellent year. Have you noted the trend I have discussed before of how numerous companies are seeking ways to return money to shareholders? A few months ago I commented on declining dividend cover ratios. The following hypothesis is starting to take shape.
With the exception of domestic property there is a significant trend away from capital investment as companies and individuals choose not to make long term commitments. The companies have been distributing the excess cash. The reasons for this could provide the material for a lengthy, heated and undoubtedly political discussion around the bar counter.
After several years of fiscal prudence government taps are opening and state spending is growing at something like 15% pa. No wonder SARS are trying to hunt down anyone they believe is “read[ing] the law in such a way that there is no taxation at all”.
Much of this loot is now turning up in the hands of those folk who are delighted to discover and prove that they are born to shop. But somewhere ahead there’s a muddy donga full of slashing jaws and the gas in the burner is running out and the balloon can’t keep up for ever!
What will the Athenians have in store for us on Sunday?
James Greener
27th August 2004



Friday 20 August 2004

BULLISH ABOUT THE ‘BOKKE

The bull is clearly rather enamoured by that cute laurel wreath-type headgear that is being dished out to podium places over in Athens at the moment. He wants one and a gold medal too. And his chosen sport seems to be the high jump. He has added about 10% to the bar height since the lows of last month. And not all of that can be put down to the boost he received last week from that interest rate cut.

The bear has been relegated to the menial task of cleaning up the grandstand and discarding the naartjie peels and empty bottles.

We are still in the midst of reporting season and there have been some cracking results from many companies. I note with interest that quite a few of them have been looking for ways other than simple dividends with which to get the cash across to their shareholders. At least one was honest enough to say that they (the company) really didn’t want to pay the STC tax that a dividend would attract. This means of course that you and I will probably end up paying capital gains tax on the payout.

On the topic of dividends, have you noted the way that the prices of the three bank preference shares have risen? In the middle of July all three were priced to offer a theoretical dividend yield of round about 7.7%. Then, as if they knew what the rest of us didn’t – that a rate cut was coming – the yields started slipping and took a largish plunge on the Governor’s happy news. Theoretical dividend yields are now very slightly north of 7%. I still believe that most portfolios should have a chunk of these instruments. If you hurry you can still buy the Nedbank one before the 27th and receive a 42.8cps dividend the following Monday. If there are no further interest rate changes the Investecs will pay about 427 cps at the end of November.

The rand has been trending weaker against all major currencies since the SARB’s bombshell.  It is back to roughly the levels we were enjoying when we were all trying to remember the words to Auld Lang Syne. So far this month it is down about 5% against the pound and the dollar and a bit more than that against others – because the dollar itself has slipped a bit too. It’s probably time to saunter casually into the electronics and computer shops and see what bargains are still on offer.

The office – and indeed the city - has emptied noticeably these last few hours as the migration to Durban takes place. Tickets are trading at hefty premia to face value as the need to witness the ‘bokke hoisting the Tri-nations gets ever more urgent. I would guess that celebrations could be a tad less tidy than a handshake, a posy and a funny hat made out of leaves. Wouldn’t it be great?

Go ‘bokke!

James Greener
20th August 2004

Friday 13 August 2004

DANCING TO A DIFFERENT TUNE


Yesterday’s front page carried a picture and a story about a deputation of trade unionists who visited Governor Mboweni with a complaint about the strength of the rand. Unusually for a South African gathering of protest, everyone in the picture including the Governor is wearing a serious expression. There is no one dancing. Mr Mboweni had even stepped out of the monetary policy committee meeting to receive the delegation. Clearly he was impressed by their story. Just one day after their meeting, the Governor stood before the TV cameras and teased us all with a 30 minute speech before turning over to the last page and announcing a 50bp cut in repo rate. Only the lobbyists could have been expecting that news and mayhem resulted in the markets.

First to go was the rand. At its worst so far it has required only an extra 40-odd cents to buy a dollar compared to a week ago. The thought that exporters would be receiving all that extra loot when they sold their dollars, excited the bulls and they went into a frenzy, buying everything that wasn’t nailed down and driving the all share index up 342 points. Contrary to popular memory, there was a marginally larger one-day move as recently as May of this year but before then one needs to go all the way back to the rand crisis of late 2001 for comparable market moves.

While this was all happening, major markets elsewhere in the world were falling as fast as South African wickets in Sri Lanka. This headwind to any sustained firming in our market continues to blow and strengthen. You will have noted that the US interest rates went up a quarter of a percent earlier in the week. Still, it would have been nice to have been extra long these last 24 hours.

Elsewhere, I think the story of the week is the plan to install cellphones in mini-bus taxis for the convenience of the passengers. Concerns that providing this extra service might further distract the driver from his task of steering his vehicle from the outer lane to a dead stop against the kerb in just 25 meters were dismissed as alarmist. However, at 50c for 12 seconds, MTN is clearly onto a good thing.

With any luck the whole nation will be dancing tomorrow after the test against the All Blacks at Ellis Park. One journalist has assured his readers that the ’bokke will walk it, on the rather dubious grounds that the Kiwis never have much luck in Joburg. We will need the exercise, however, as we dig in for a marathon session on the couch supervising the Athens games. And there’s a GP this weekend as well.

Have a safe one.


James Greener
13 August 2004

Friday 6 August 2004

BASED ON THE NUMBERS


Yesterday the All Share index closed down compared to the previous day, bringing to an end a sequence of nine consecutive days when the index had closed up. Such a long series had me reaching for my copy of the Bear Markets Control Act of 1987 (As amended) to see if there was any legal remedy for the harm being caused to my views by this run. The sole advice was to buy put options, but in the fine print was something about good money being thrown after bad.

Talking of good money, the Anglo results were announced this week and I’m sure you also marvelled at half year profits of $1.7bn. This is equal to about 15% of the current level of South Africa’s gold and currency reserves. Perhaps this is not a very meaningful comparison but it has been a bad week for those of us who use numbers. After a huge revision to the official retail sales figures, the head of Stats SA warned that we must all be “ready to ride the wave of continuous change (to statistics coming out of his organisation) over the next 18 months.”

As a data analysis geek from the natural science world I have often argued with practitioners of the dismal science that many of their conclusions and models seem to rest on pretty rotten foundations. Perhaps that is why so many of the predicted effects never seem to follow the apparent causes. The numbers are just no good. [Maybe the models stink too]

I do think that in this business the numbers which most reliable are prices, especially those that are set by a balance of substantial numbers of buyers and sellers. By this criterion the rand exchange rate comes out at the top of the local heap. It is probably just about the most genuine economic number of all. Now, you may not like the rate and you may harbour suspicions of “intervention” and “manipulation”. But the fact remains that a large number of players both here and overseas watch that market and are able to buy when they think it’s cheap and sell when they think it’s expensive. This so-called speculative activity sits alongside a much larger market of demand for dollars or rands by people who have proper jobs.  An odd consequence of this liquidity is that no one can ever know, in real time, why the market is moving in its current direction.

I would categorise the soundness of the prices of many of the liquid shares and bonds perhaps a notch below the rand. And so on, spreading out like a cone from its apex, each level being less dependable and containing more members than the layer above, until at the base we have the fictional figures that we really shouldn’t use to make decisions. Forecasts of most things – including the weather - fit right in here. As do retail sales figures and rules of thumb like “the market never goes up nine days in a row”.

Have a wonderful long weekend.

James Greener
6 August 2004

Friday 30 July 2004

INVESTING WITH INTENT


Last week we watched fascinated by the sight of a marquee being pitched on the open space beneath our windows. Someone, it seems, had decided that a shopping-centre car park was the ideal place to hold a party. Certainly there was ample parking and Monday’s clean up was quickly effected by means of the fire hose, but it must have been chilly standing on that bleak concrete slab after dark. Stories reached us that it was not a corporate event but some kind of personal celebration. Since none of us in the office “cracked the nod” it must have been a classy event for the rich and famous. Pity. We in this business need some cheering up these days.

There are still no major (or even tiny) themes to seize upon and ride to some sort of satisfying conclusion. The office punters duck and dive, alternately cheering and booing as the rand’s see-saw action makes the pick of the day bounce like one of those superballs one used to play with until it got lost in the hedge. Come to think of it there’s lots of getting lost in the hedge in this game too. Just ask SAA.

My email in-box has been receiving an increasing number of ever more frantic promises of riches for me and my clients. It is probable that somewhere in the list of  exotic and complex derivative products there are instruments that if timed correctly will make us all happier. However, my own tedious combination of age, conservatism and cynicism makes me a bad target market for these toys. I find it hard enough trying to understand just what is going on in the companies themselves without trying to decide what might be the best way to leverage my view.

This week saw the start of the release of the mining company quarterly reports. They seem a pretty mixed bag to me but eight of this week’s top ten movers (increase in market cap.) are resource stocks.  This surge has been enough to drag the all share index to its high point for the month but still a long way off the year’s highs set on 3rd March. Other company announcements included yet another complicated deal involving Mvelaphanda, a timetable for the squashing of Kersaf and SISA into one and a wish from Sappi that the global economy would get a move on.

This wish will face some headwind if the oil price continues to flirt with lifetime highs well north of $40 per barrel. Did you know that an ounce of gold will now buy you only 10 barrels of the black stuff? This is the lowest number in three years and puts the price, in these terms, some 35% higher than the levels we were enjoying at the end of last year. It is hard to see how we will contain the inflation rate here on the gold-producing Southern tip. Perhaps by dropping fuel prices from the equation – as they seem to have done elsewhere?

In deference and terror I refrained last week from mentioning the ‘bokke’s challenges down under. Am I now being now overconfident in suggesting that by tomorrow evening we will all be roaming the streets looking for a marquee to gatecrash and celebrate in?

James Greener
30 July 2004

Friday 23 July 2004

A ROLLING BUFFALO GATHERS….

More Art. Downstairs on the plinth in the atrium between the escalators and the trendy coffee shoppe. Near the pub. Which is why I came to notice it. A bronze bull buffalo. On wheels. With two begoggled and horned (really!) stick-thin maidens perched astride its ample back. No reins or visible means of control. No motor connected to the wheels. This buffalo can move only one way. Downhill. Strong symbolism here. Naïve investors riding a bull market? Hmm.
It’s not the intention of this piece to list the crises and joys of the past week in the market. I hope now and again to make a remark that may help you follow what could be taking place. In front of me I have a number of home-grown models and screens that try to summarise and characterize the deluge of numbers. However, it is, of course, quite useless and probably irritating to be told that a certain index has moved here, when one’s share holding – which in all likelihood is a member of that very index – has travelled, very convincingly, there.  Despite having made a career speciality of describing index historical returns, I must admit to knowing deep down that that sort of info is pretty useless. What we all need to know is what is going to happen.
As I have mentioned before, there is now a growing body of research that is coming to the same conclusion that we physicists have always known. That the future is unknowable and in systems like the markets, the next move is randomly up or down. Certainly there are examples and strategies that seem to contradict this observation and I myself have a fondness for trying to use financial ratios to identify relative value.  It’s difficult to accept that all one’s experience and skills are inferior to plain blind luck! All “proper” research carries a warning along the lines that past performance is no guide to the future. But no analyst putting the final full stop to a brilliant report really believes that. Do they?
So will it help when I tell you that once again the currency was the cause of the screams and yells in the dealing rooms of the nation? My charts suggest that this week the rand’s weakness was almost exactly matched by the dollar’s strength.   Substantial intraday ranges in the market indices, with no discernable trends, caused dismay and confusion. As did the news that an appointment had been made to the chair of the Commission for the Promotion and the Protection of Cultural, Religious and Linguistic Rights. The fortunate incumbent has a doctorate in ethics from the University of Chicago. This also is a dubious proposition. But perhaps he will be able to tell us if the lasses aboard the buffalo are praying, and in which language. Culturally, they are nowhere.

James Greener
23 July 2004