It was reported this week that the President of Nigeria has expressed the opinion that compound interest is “the worst thing in the world”. People like me who are fans of that everlasting market commentator, Richard Russell, will know his view that the compound interest tables are just about the best reading one could wish for. One of these gentlemen is a borrower, the other is an investor. Tax free compounding is the only simple and certain way to grow wealthy from investing, which is why I tediously harp on about dividend yields. One really should take every advantage possible from these tax exempt morsels that the tax man throws to us under his table.
Of course buying cheap and selling expensive is also a certain route to investment satisfaction, but it is hard to do properly. It does look and feel easy when much of the market is seized by a bull of the size and longevity of the one that I believe is now tiring. And to quote an old friend, “never confuse genius with a bull market”.
Whether or not it was the threat from Nigeria to default on its USD 34bn foreign debt that caused our own bond yields to rise quite sharply this week, one can’t be sure. There has been some net foreign selling of the bonds; not big amounts, but I suppose the rising yields tell you that locals were not in any hurry to soak up the supply that was appearing from across the water. Yields in fact seem to be on the up in many other places as well; most critically the US, where higher interest rates must be alarming for the world’s largest borrower. So far there have been no significant reactions in the equity markets to these developments. But we need to watch them carefully.
This month the majority of the bigger sector indices are up. However, the really big sector, Other Mining, where both Anglo and Billiton reside (the latter now less than 3% behind the former in size) is down about 4%. This cancels out the nice gains in Richemont, Sasol and SABMiller and the All Share index is pretty flat on the month. The banking sector index is also unchanged despite stellar results from Standard Bank and others. My valuation toy suggests that RMB Holdings and FirstRand are the pick of that bunch. If you fancy a stab at the exporters then Anglo itself seems to me to have done too little for too long and Metorex looks as if it produces many of the minerals that the Chinese need! A slug of rand weakness will do neither of these any harm at all.
The rand is one of the worst performing currencies so far this month, losing almost 0.5% against the USD. This is small stuff, however, compared to the greenback itself which has crumbled almost 1.5% against the Euro and 0.8% against the Swissie in the same period. No wonder Bush took his own kit, fuel and food along with him when he popped over to Euroland to say “Bonjour” recently. I reckon he might also be muttering about the evils of compound interest in Japanese and Mandarin some day soon. It is the kind folk who speak those languages that have lent the States so much money these last few years.
I shall be at Ellis Park tomorrow to see for myself if my hope for the Cats has any foundation. May your weekend be more fun.
James Greener
11th March 2005
*The basic compound interest formula in words.
