Friday 27 May 2005

WE ARE MARCHING TO PRETORIA TSHWANE


It must be like travelling to the Himalayas for the first time. Everywhere you look you see a new high. It must be simply lovely up there and you begin to have grave doubts about the sherpa who told you that it was much too dangerous to join the ascent party. It would be far safer, he said, to sit tight here at base camp and watch the whole thing through binoculars. Safe yes, but very unexciting.  
The JSE All Share index looks as if it could record a 10% gain in May, but then of course we have about the same figure for the year-to-date as well. Remember that at the end of April we were back to where we had started in January and we had no inkling of the cliff face ahead.
The heavy lifting on this month’s expedition has been done by the rand hedge stocks which have been gleefully dancing to the increasingly fainter tune from the rand. Its rather dramatic weakness must be very gratifying for the assorted trade unionists, textile manufacturers and miners who have been calling for someone to do something. Just who has done what, we can’t be sure. But our currency has so far this year declined 7% against the Swiss Franc and more than double that versus the US dollar. I think that might be quite far enough for the moment please.
 Like most US economic parameters, the greenback’s strength has defied predictions. Dollar bears are now bleating that a surprise result in the French referendum on Monday will change everything. Maybe even an expected result will also have undreamt of consequences. It may take a while for the euro to regain its potential reputation as a world-beating currency unit.
In a straw poll taken amongst my colleagues this week, the overwhelming view was that the rand will never again get below 6 to the USD, and that 7 will be the next big figure. That sort of seems right to me too, but I can’t help noticing that our long bond yields are now almost 450 basis points higher than the US ones. This is up from a low of 325 basis points and might just entice some foreign buying from investors seeking yield.
Uncertainty about the name of the places we live in is also adding to our stress levels. Recently the President himself berated Grahamstown for using an unsuitable handle. The President believes that Colonel Graham was a pretty bloodthirsty and unsavoury character and quite the wrong person to name a major seat of learning after. Last weekend’s explorations introduced me to a map filled with unfamiliar Ms and Zs and way too many vowels and I am now quite downhearted to think I might soon be unable to pronounce my home town too. I wonder what sort of fellow this Chief Tshwane was.  Peaceable and benevolent, no doubt.
However, if there’s one thing we can be sure of, it’s that just before the test season begins there will be a bust-up in the ranks of those who claim to run SA rugby. What a sorry mess. And the idea that anyone in government can improve matters is utterly terrifying.
James Greener
27th May 2005

Friday 13 May 2005

DESERTING THE RAND


It may have felt as if this week’s market moves were especially hazardous, but as is often the case, the facts can ruin a good story. The All Share index has since Monday spanned a range of just 344 points; historically this is not a large weekly range.  What has of course exacerbated our perceptions that the market has been hairy is the substantially weaker rand. Our mighty currency has lost more than 5% against the dollar and 3% against sterling since last week, before the boys from Barclays said they wished to spend R33bn on buying ABSA. The news that the currency had already been sorted out in a private chat with the SARB and the aside from one of the deputy governors that the rand really was way too strong were the obvious triggers for a spot of selling. But what really puzzles and pains the pundits is that the market has tended to go weaker along with the currency. Nevetheless, so far in May we have managed to recover almost half the losses suffered in the period from the peak levels set during the March close-out to the end of April.
It bears repeating that Africa is not for sissies.
In looking for some light relief from what felt like a torrid market you will have seen the news that one of Cell C’s Black Empowerment shareholders sadly can’t find all the money they need. A big chunk of their allocation might therefore be offered to a Saudi  company which, presumably, does have the cash. Do they, these new investors from the deserts of Arabia, have sufficient melanin to satisfy Cell C’s required shareholder demographic? In the bad old days there was a deeply embarrassing and offensive board of bureaucrats who passed judgement on personal features and subsequent classification. Has it been resurrected?
I was delighted to accept an invitation to chat to a small investment club this week. It is always fun and fascinating to meet the people who are actually battling with the challenge of where to invest their own money. They usually provide totally unexpected insights that have been missed by the professionals. For example this group of ladies were distinctly lukewarm to the idea that NuClicks might be offering value because, they said, the shops were dreadful to go into. This is true.
The Goldfields / Harmony saga does appear to be getting towards the end with the sole winners being the advisors and advertisers and publishers who have waged the battle in the pages of the newspapers. However, as it seems unlikely that the deal will be consummated, the advisors will then miss out on the final juicy plum, a development that has the whole nation weeping in pity for them. They’ll now just have to go and try to arrange the next marriage between a local bank and a foreign suitor, Rumours abound.
There will not be a Tidemarks next week. I plan to be visiting sites for a possible coastal branch office for the household. Requirements? Within casting distance of a decent rock gully and within walking distance of a pleasant public house.  Pleasant, however, does not describe the reception the Stormers can expect at Loftus tomorrow. A last minute hat-trick by them will not be popular.
James Greener
13th May 2005

Friday 6 May 2005

BARCLAYS / ABSA: THE REF CHECKS HIS WATCH


Doubtless this will bring a smile of satisfaction to your lips. The old bear was just last Friday, ranting on about how weak the market was and then in the very next letter he needs to eat his words. We have enjoyed a four day week with the market putting on as much and even more value that we have seen in many a five day one. This business of putting down in writing one’s thoughts and ideas is bound to provide copious amounts of egg on face. Aside from watching prices rise the market spent a great deal of time talking and wondering about the Barclays / ABSA deal. You will have noticed that the rand plummeted below 6 to the US dollar this week and the popular view is that this move is related to that deal. I can’t imagine that Barclays have not already arranged the majority of the rands that they will need for the purchase. If they haven’t, then it’s all getting more and more expensive for them and the decision will correspondingly be getting harder and harder. It will be a calamity for our market if they fail to make a bid and return to London to join in the election celebrations. Consensus view is that the deal will take place. If not, then expect serious price declines in the financial sector.
Thanks to an awesome and record-setting R46bn revenue (tax) inflow in March, the government ended its fiscal year with total income of R348bn. This is 16% more than garnered in the previous year. Most private enterprises would be pretty pleased to report top line growth like that. The boys down at SARS must be very pleased with themselves. Even the sheriff of Nottingham must be envious of that kind of tax take. On the expenditure side (or more correctly, on the distributions to departments line, since some departments seem to have great difficulty in actually spending their allocated loot) the annual figure was R371bn. Growth here was 12% pa. The shortfall (deficit) was a very modest R23bn that they had no difficulty in borrowing. Indeed interest rates even fell throughout the period. If a conservative old bear wanted to complain about anything here, then it will have to be the rapidly growing government share of total GDP. This number is something like R1 500bn a year, so the central government is now about one quarter of the economy. Isn’t this way too high?
And we have not even included local government, which here in Joburg has discovered a miraculous new source of income. The mayor has just assured residents that the decision to write off R1.5bn in unrecoverable rates due would not cost them a cent! So where else did he find that cash then? I think we should be told. In the last year the city has borrowed R2bn in the bond market that is costing them about R240m a year in interest. I wonder why this week’s story about the downgrade of GM’s and Ford’s bonds to “junk” status comes to mind?
I suppose that you too will be scouring the local nurseries this weekend for specimens of the Jatropha Curcas tree, whose seeds, it appears, can be crushed to produce an oil suitable for running the family car. A number of folk in the Kimberly area have seized upon this agricultural venture, no doubt also worried by the price of petrol these days.
Quite a bit of sport to supervise this weekend, although it will take a major epidemic of a temporarily debilitating disease to sweep Australia for an SA side to make the Super 12 semi-finals.
James Greener
6th May 2005