Friday 29 December 2006

END OF THE YEAR. TOP OF THE MARKET?


Apparently, there is a new approach to drawing money from an ATM. In the event that you have forgotten your PIN or perhaps your card or maybe even you do not actually have an account then a wad of explosives comes in handy to get the machine to dispense some cash. This is a much simpler method than the old one where one had first to hijack a bulldozer before digging the ATM out of the wall. I haven’t yet seen the minister’s response to this “bang for a buck” development but presumably it will be the fault of the banks for not installing sufficiently bomb-proof auto tellers.
This is of course the final Tidemarks of the year and the JSE will shut at noon so I shall be brief. Despite the very quiet conditions of this shortened holiday week, the All Share index scored another record high. But in the last few days some really shocking statistics have been published. Money supply growth is soaring again and the massive trade deficit was as unexpected as a tsunami on the beach at Plett. The poor governor of the Reserve Bank. He has repeatedly told us how our profligate spending habits worry him. Doubtless, he is right now pouring himself a stiff one from the selection of bottles received from grateful bankers at Christmas time. Thereafter he will be off to the laptop to peck out the text of a thunderous speech at the end of which he will hike interest rates. Probably by more than 50bp. Fasten your seatbelts.
I would like to wish you a very safe and happy and healthy and prosperous New Year and look forward to continuing this contact between us in 2007.
And just think what awaits the Proteas in the West Indies.
James Greener
29th December 2006

Friday 22 December 2006

REINDEER SIGHTED CHASING A BEAR


The future’s close-out was quite an event and the All Share index scored another new all-time high on the day. The 25 000 level is a mere skip and a jump away now. There’s no doubting that we have enjoyed an exceptionally long and powerful bull market with few missteps along the way. One occurred in May and June of this year when we bears could be seen chanting that the index was about to plunge below 18 000. It never did and so this merry Yule tide is upon us; provided one tries not to pay any attention to the state of Proteas cricket.
I was bemused to read that the auditor general reported that (he) “had found so many significant material deficiencies in the government’s accounting systems that…” (he) was  “unable to express an opinion” on the financial statements. Now this is the season of goodwill so let me tell you this report was about the USA. Terrifying isn’t it? But it does help when you can print the currency that can be used to balance the books.
Just in case you feel that I am going soft on our local legislators, however, may I ask if you know that the local Road Traffic Management Act allows political leaders (now, there’s an oxymoron and a topic for debate) to disobey traffic signals in the execution of their duties? To my knowledge, the only duty a political leader ever has to fulfil is to be somewhere, shake a few hands, deliver a speech and accept a few gifts and of course refreshments. Sometimes a little dancing is called for. Certainly most of the speeches are liable to induce terminal boredom but otherwise there is nothing vaguely life-threatening in those duties and so I do not accept that the rest of us need to face even more peril on the roads than that already provided by the felons and taxi drivers going about their own duties.
Just think, if the political leader, like the rest of us, was stopped at the red traffic light he too could add to his collection of exquisite beaded wire gifts or get the wife some more coat hangers for Christmas. But maybe he is a sensitive soul and he does not wish to have to share my despair at the plight of our fellow citizens begging at the roadside. It is obvious that governments of every kind are totally unable and unsuited, not to say inept at managing and distributing wealth, except to themselves. When it comes to being Robin Hood, they have mastered only the bit about robbing the rich. The skill of giving to the poor evades them. The burden of choosing who to reward is costly and tiresome and just as they select one deserving case, either the cupboard is mysteriously bare or an even poorer relative comes in sight gathering winter fuel and promising not to speak to the press.
The JSE’s Christmas spirit failed it this year and this, the last trading day before the holiday, did not end at noon as in the past, but will trudge on to the bitter end at five. By then though, even the skeleton staffs will be down to just the odd bone or two. Next week there will be just two and a half days of trading and I imagine that only the extreme bargain hunters will be prowling the screens. One of them will be me.
I wish all readers and very safe, happy and merry Christmas.
James Greener
22nd December 2006

Friday 15 December 2006

THE STAR AT THE TOP OF THE TREE


I suppose that by this time next week we will have shut the doors and wandered off in search of Christmas cheer and some last minute panic buying. Of presents that is, not shares. Anyway, it is pretty difficult to find shares to buy when the index is once again probing record highs. Unless Armageddon hits in the next few days, the All Share index is going to deliver a total return for the year of almost 40%. Not as good as last year’s 47%, but still strirring stuff. This will be the fourth year in a row of such excellent performance from the JSE. It is the sort market that makes us all look like investment experts.
Another area of my expertise is the punching of calculator buttons. So I flexed the  digits when I saw that the National Treasury plans to spend not a penny more than R15.1bn on hosting the soccer world cup. This parsimony appears laudable if unlikely. However, if the format is similar to this year’s tournament, we can expect to welcome 32 teams playing between them, 64 games. The taxpayer’s largesse therefore, works out at spending almost R40m per player who is coming here to boot a ball. Or, put another way, we shall be paying around R2.5m per minute of soccer played. Neither of these figures appears to me to be a great bargain.
But I am just an old curmudgeon who is wondering how the business folk of Rosebank are coping with the morass that their precinct has become, now that the digging for the Gautrain has begun in earnest. I still don’t recall seeing which selfless public body committed their ratepayers to guaranteeing that the contractors will get their bills settled, but there needs to be some significant value delivered for all the expenditure and inconvenience we are suffering.
We are at that time of year when bold and foolish analysts succumb to flattery and offer predictions of what the markets have in store. These flights of fancy can do no harm and often generate amusement, particularly when another pundit vehemently rejects the first and supplies his own guess. Such a case unfolded this week when no less an authority than the World Bank (those lenders of last resort to the basket cases of the world) suggested that next year SA would achieve GDP growth of no more than 3.6%. I think this may be rather pessimistic, but if that is all we achieve as we get fully underway with the aforementioned preparations for the footballers, then the share market is going to get messy.
As expected, the US held short term interest rates steady and this put more downward pressure on the US dollar. Our own humble rand improved to better than 7 per USD and the main reaction has been a ratchetting up of the shopping frenzy to gather imported gizmos. By contrast, it will probably be very quiet next Thursday when a particularly late in the year futures close-out event will happen. Many practitioners of this arcane trade will by then be clutching a cool beverage at the braai on the beach and the only close out to worry them will be when the bottle stores shut. Which brings us back to the panic buying story.
I trust that many of you too will be somewhere pleasant and peaceful and friendly by then. Have a great weekend. Do you remember when we called it Dingaan’s Day?
James Greener
15th December 2006

Friday 8 December 2006

HOT BEAR


I am very fortunate to have spent the last 10 days in and around the Kruger Park. We enjoyed many spectacular sightings of wildlife. A rhino calf and an elephant calf suckling, ground hornbills on a nest, quarrelling hippos and a yellow bill kite attacking a martial eagle are among the more interesting.  Some of the game appeared to be bipedal and with opposable thumbs but their behaviour was not described in any of the books that I had. What I did not spot were any newspapers, internet connections or TV broadcasts and so it was only this morning I began to get in touch with the markets.
The first poster I noticed suggested that the good governor had rewarded us with a Christmas present. For a moment, I was amazed to think he might have cut interest rates, but then it turned out to be just the opposite. Some headline writer’s idea of a joke I suppose. Only savers are likely to regard this move as a present. Some of the variable-rate-dividend preference shares will now be paying a R10 annual dividend. Interest payers are clearly going to much less delighted at the prospect of their debt repayments be going up. Regardless of what the money supply growth numbers say, or the news that retailers have failed to get in enough stock to cope with Christmas demand, there are certain to be many tales of hardship resulting from this increase.
It is reported that even after the governor had doled out this rather dubious “present” he then lectured the banks about their behaviour. It seems that he does not approve of them lending money quite as readily as they have been doing. This waving of the big stick was not a surprise to bank shareholders who have been marking prices down in the last few weeks. The banks index is comparatively weak.
The All Share this week all but set a new high somewhere well above the 24 000 level, but the rate hike has temporarily (?) cooled things off a tad. Cool, however, was a word not much used in the lowvelt at the moment. One fellow tourist sprawled in front of the air conditioner in the bar assured me that he had recorded 45 Celsius on the car thermometer while driving through the park. My own observation was less scientific and relates to the fact that the swimming pool water was warmer than the shower. It’s a tough life here on the southern tip, but someone has to do it. Supporters of the global warming theory gained converts this week, that’s for sure.
Similarly, I suppose that us bears on the US dollar are growing in number as well. That dollar looks like one very vulnerable currency. It has already gone off a cliff versus the euro, even if so far, only a small one. The US 10 year bond yield is also dropping fast. Keep a very careful watch on these developments folks.
There was the usual large number of emails awaiting my return after a few days out of the office. However before attending to them I first need to catch up with the amazing wave of all the new listings that have appeared since I last updated my models and spreadsheets. Some of the newcomers are tiny. There are companies higher up the boards whose annual loss is greater than the total market cap of some of these babies. I do hope none of us have too many of the ones that inevitably will not survive.
Keep Cool
James Greener
8th December 2006

Friday 24 November 2006

FULL LENGTH CARPING


Have you noticed the rise in the number of helicopters clattering through the skies above Joburg these days? I am sure it is related to the growth in the size and immobility of the traffic jams that are forming around the holes in the road that we are assured will one day contain the Gautrain underground system. Those of us unable to find shareholders or taxpayers to chip in for a chopper are obliged to sit and steam in the stationary streets. Some public transport providers have adopted a No Rules format to help them overcome the crush but their dangerous and inconsiderate driving is intolerable and accidents are frequent. Sadly, it was not this violence that Transport Minister Radebe was referring to when he threatened “the full might of the law... should violence erupt (in the taxi industry)”. Rather, he is worried about the reaction of the taxi drivers who are deeply unhappy with the government plan to change the standard brand-name minibuses (admittedly not all roadworthy and usually overloaded – but we already have laws for those problems) for a lumbering bus of new design, unknown make and alarming reputation. The foolish campaign to convert to these new vehicles lurks behind the name of “The Taxi Recapitalisation Project”. Many of us are suspicious about where this capital is going to. I doubt that the poor scared commuters will see any significant benefits.
Safety and Security Minister Nqakula opined that the spate of deadly cash-in-transit heists was really the fault of the security companies who are providing vans that are insufficiently armoured and guards who are under gunned. I therefore expect even more deadly shootouts between the security guards and the robbers as each side will now presumably obediently be upgrading their hardware. Another politician has called upon the “best brains to combat crime.” No further comment needed.
Up the road in Midrand, little is happening at the Pan African Parliament. The 200 computers which we, the hosts, provided the delegates, when they met last year, failed to make it through the recess. MPs are “unable to connect to the internet” and so progress in “developing sustainable and democratic rule across the continent” has ground to a halt. More active, is the market in pre-owned PCs in the Halfway House area.  Africa’s finance ministers, gathered in Yaounde, are making progress, however.  Although the main  topic is the usual  plea for more debt relief.
Mind you, debt relief is very quickly becoming a major topic in the USA. About the only way to provide this would be to drop interest rates and the prospect of this happening may be the reason why the dollar has been getting a hiding. It has lost more than 2% against the major currencies and almost 3% versus gold this week. Even though I shall be away in the game reserve for a while I shall be watching this development closely. I am not impressed that the All Share index climbed back close to its all time high today. That just gives it further to fall.
May I thank those of you who asked for my CV so they could include it in their nomination of me to join “The Gauteng Propeller Board”. Despite on occasion having been accused of being a propeller head, I must decline your invitation. My escape route can be found in clause 2di which insists that candidates possess knowledge and experience in … “finance or economy”. Someone who doesn’t know if the shares will go up or down fails that test immediately.
Why did anyone think that it was a good idea for the ‘bokke to play at Twickenham on two successive Saturdays? There must be some huge incentive cheques flying about.
James Greener
24th November 2006

Friday 17 November 2006

LOTS OF BALLS IN THE AIR


Two million rand. This is the price that the auctioneers expect to achieve when they sell a Pierneef painting next week. If they do, then it will be a record for a South African painting. The sellers will be hoping that there are a couple of oriental art lovers amongst the bidders, who will emulate their countryman who last week purchased a big chunk of Anglo American for a record price. That price was a bit more than two million rand though. I have been thinking about the significance of the founding family deciding that this price was too good not to take the gap. Why should we mere onlookers expect it to go higher even as the rand gets stronger and the commodity prices cool off?
That I am not alone in these thoughts is clear from the All Share index, which perhaps significantly did not set a record high this week and is set to close near its week’s low this evening. Big losers this week are almost exclusively from the resources sectors. Banks and other financial institutions have done all right but not enough to rescue the overall indices. I doubt, however, that the bears need yet to pop down to Arthur Murray and polish up on the footwork for the victory dance. Company results filling the papers this week were crowing about earning growth above 15% pa in most cases and sometime three times that in others!
By the way, I am pleased to see that the JSE appears to have ceased their silly plan to cancel their requirement that companies publish their results in the newspapers. Despite the arrival of the electronic age almost everyone including the big name analysts, still prefer to have the broadsheet format to pore over and scribble on. Somehow, it is also not so easy to hide the provisions and impairments on a printed page.
I never tire of remarking on the buffoonery that the tax consumers spend our money on. This time it is the Reserve Bank’s Labour Market Frontiers Report that attracted my attention. What on earth is a “labour market frontier” and have SARS set up customs desks at the border posts yet? The report relays the news that their surveys discovered that “the higher the level of skill, the higher the monthly wage received by the worker”. This research should have the Nobel Prize selectors in Economics looking up the dialling code for South Africa. The Reserve Bank ferrets are pleased to note sycophantically, however, that government policy will enhance the supply of skilled labour and thereby reduce this wage inequality in the future. But what policy do they possibly envision will encourage people to upgrade their skill, other than the fact that a plumber earns a lot more than the fellow carrying his (or her) toolbox; and usually more than the householder who called him out to fix the leaking loo. No one of course will come close to the earnings of the suits that compiled the report and we all know which side of the labour frontier they are on.
The ‘bokke have also crossed a border this week and many of us are hoping that the bus gets lost in Wales and they never get to Twickenham. That’s probably the only way they’ll be unbeaten. And just imagine my frame of mind next week if the Proteas fail to bowl out India on Sunday. This is going to be a long and tense weekend.
I hope you enjoy parts of it.
James Greener
17th November 2006

Friday 10 November 2006

BULLS vs BEARS AT THE WHITE HOUSE

The rand is now at a two month high versus all of the major currencies. Aside from neatly destroying just about every prediction about its future, this also is apparently the reason why I will not be able to write that the All Share index set another record today. Although of course, it did do so on Tuesday. Even The Star newspaper departed from its usual lurid stories of bloody violence to tell its few remaining readers that the 24 000 level had been broken. The figures of foreign transactions in the bond market allege that substantial net buying is taking place. If this is true, then this would be a good reason for the strengthening currency. The current (well, the last 2 days) fashion in the share market however, is that a strong rand equals a weak JSE market.
For a while, it seemed that investors decided that the sight of President Bush’s party getting a thumping was decidedly bearish and pressed the “sell” buttons. Now, after 24 hours, the world is quite used to the idea and the bull is back. Even though the Democrats’ victory was not a surprise, I have yet to read a commentator that can decide if the new political landscape will be a good thing or a bad thing for the US economy, the dollar and the markets. In the meantime, it is fun to see the president being nice to all his new “best friends’.
If there is a market story, it is the news filtering out of the inquest into banking charges. Certain witnesses it seems have been observed sobbing copiously into their handkerchiefs and allowing the unthinkable to escape their lips. People sitting close enough have heard them whisper that just perhaps some fees may have been a tad ambitious. Without making any promises, the tear-stained faces suggested that when they next meet their competitors under the motorway bridge at midnight, they might discuss this issue. As a result, the banks’ index did retreat a bit. But not by much. Perhaps investors have noticed the signs that suddenly the banks are finding short-term funding not quite as costly as it has been.
Aside from that, there was no real theme to the week except for yet more rather good company results. In particular the cement business is flying. Is there any suburb in the country that does not have heaps of building rubble and materials outside every third house in the street?  Equally as numerous are the new listings that are coming to the market now. Close relatives of the sole owners of these soon-to-be-listed companies should be looking forward to well-stuffed Christmas stockings this year.
The Old Lady raised the UK base rate by 25 basis points to 5%. This move will not have gone unnoticed by our own Ou Vrou in Tshwane and they will be ordering fresh calculator batteries in time for the December meeting of the MPC. One immediate local spin off from the UK increase is the 4% increase in the annual dividend payment paid by the Investec sterling preference share.
The ‘bokke begin their northern hemisphere campaign at Lansdowne Road tomorrow, and I trust that it will all go according to plan. Although some of the lads do seem to have difficulty in remembering it for the full 80 minutes. Firstly, however, they will need to remember that they are not wearing green and gold for this match.
Have a great weekend.
James Greener
10th November 2006

Friday 3 November 2006

PEAK SPENDING AND PEAK MARKETS?


At some point, a trade will take place in every share at a price that will not again be  attained for a very long time – perhaps even years. For some shares, that point may have already happened, for others it may take place even this afternoon. When that price is recognised, the seller will congratulate himself on his skill at spotting the top of the market and the buyer will berate his broker for not warning him that this was the all-time high price. My expectation of the arrival of this mysterious top for most of the shares in the JSE has been around a long time. How wrong I have been. We have not yet experienced anything that could be identified as the start of the “correction” or even the “crash” depending how quickly and how far prices fall. Some will claim that such an event will never happen and that all we will suffer is a “soft landing”. Perhaps.
I draw your attention to the fact that quite a few of the Wall Street indices have been going down steadily this week. It is far too early yet to claim that this is the beginning of the end. But it is interesting to note that even the mainstream press in the USA is starting to mutter about the liquidity problems that consumers are facing as the housing market craters. As we have been told ad nauseam, the world’s economy is apparently rather dependant on the US consumer doing her duty with his credit cards. The US published a surprisingly poor GDP figure this week and Detroit car manufacturers are still looking for ever more outrageous ways to persuade people to buy their cars. However, the bulls are confident that the approaching holiday season will see the American shoppers back saving the planet from recession.
Back home in SA there are few reasons for disquiet on the spending front. Occasionally one notes a result that suggests that consumers are not quite as busy as they were earlier this year. However, the evidence that there has yet been a significant reaction to the recent interest rate rises is not clear. The roads, the shops, the resorts and the jails are all full. Even if the traffic is not, the economy is speeding along. The National Treasury has more money that it needs, but still the taxman pursues his mean-spirited program of seeking ways to squeeze ever more cash from the easy targets. Bureaucrats and politicians will never cease to come up plans to waste the stuff. Like deciding that the word “Union” when applied to a 100-year-old Building has less meaning for the nation than the name of one of their predecessors.
I don’t remember any news about the funding for Gautrain being finalised so I hope that the folk already digging up the streets in this part of Joburg have enough money to see them clean up the mess. Even more chaos is expected later this month when the 94.7 bike race will close the main roads around Wanderers stadium on the same day as the ODI against India takes place! Cricket fans versus men in tight shorts and lurid jerseys? Hmm.
Precious metal prices have made very impressive price gains this week and the shares have improved nicely. Naturally, the Top 40 index has set a new high. After quite a spirited recovery in October, the rand seems to have lost its way. Various talking heads have been up on platforms and behind microphones, saying things that encouraged the rand bears for a while.
As for the rest of the week, we saw the ripening of an airline named Mango, dismal bowling by the Proteas, taxi drivers going slowly and the army disagreeing with its own report that it has lost most of the toys we have given it. Some good rains fell here in Joburg.
James Greener
3rd November 2006

Friday 27 October 2006

HOT BULLS


The 23 000 level does now appear to be somewhat of a barrier for the all share index at last. Except that the index is showing reluctance to drop below that number during the current breather period it is taking. Inflation adjusted earnings of the companies in the index are still growing a rate well above 20% pa. This rate of growth is admittedly about a third less than we were seeing at the beginning of the year but it is still highly acceptable and capable of supporting the current prices. This is yet another way that this bear has found to say that his wait for a market correction and great buying opportunities is not yet over. There are still a few days of the month to go and it looks as if October will deliver a total return of around 4%. This is well above the monthly average figure of 1.8%.
And talking of months, what on earth happened to October? I know that I was not at my desk for every possible day recently, since I needed to make some important site visits to fishing waters and game reserves, but it still went by in a flash. The huge glossy advertising leaflets that slip out of the paper every day, increasingly carry a Christmas theme, with pictures of snow covered fir trees and robins and reindeer. As it is currently hotter in Joburg than it was in the Okavango swamps last weekend, this is deeply incongruous. The rains are now worryingly overdue.
A trip to our local garden rubbish dump recently provided me yet another example of irritating pointless government expenditure. Several skips were filled with substantial plastic-covered ring-binders each loaded with a thick “Participants Handbook” of course material for instruction in the “Implementation of Organisational Performance Management in Local Government”. Clearly, someone had failed to perform in their organisation of this conference. Either too few delegates had turned up or too many handbooks were produced. Nevertheless, I’ll bet the catering did not go to waste. Many thanks to the taxpayers.
Taxpayers are in fact playing their part in the game very nicely it turns out. During his mini-budget speech, Minister Manuel confirmed that these generous souls are going to drop off at the National Treasury around R30bn more cash this year than he previously expected. However, the rest of his speech dwelled on what he and his chums in the cabinet have in mind for this loot. It never for a moment crossed his mind that perhaps not confiscating it from the citizens in the first place might be a far better idea. But that’s a socialist for you; always certain that they can allocate resources far better than those who earn them. Just for starters, there are some government folk who have a heap of legal fees to pay. And what about all the signs to Jan Smuts airport, or whatever it is called, that need to be repainted.
I doubt there will be any surprises at next week’s inquiry by the Competition Commission into banking fees. Are they really expecting anyone except the banks themselves to complain that the present fees are not high enough?  I predict another few skip-fulls of pointless piles of paper.
I can tell you what is definitely not high enough;- the Protea’s scoring rate. But that’s another sad story.
James Greener
27th October 2006

Thursday 19 October 2006

MORE IN THE DARK THAN USUAL


This letter comes to you from darkest Illovo. We are enjoying another total power failure, but hopefully the battery in this laptop will survive long enough for me to arrange a few words in an interesting order. Unfortunately the peace that usually descends when the electricity goes off, is shattered by the roar from the beast of an emergency generator that has kicked in at the building next door. Presumably they have the crucial appliances such as kettle and fridge connected to this supply so we can wander over for a brew if normal service is not resumed soon.
Readers will be hoping that one day I will offer searing insights into the markets. But what else is there to say than that the market is still strong? Extraordinarily strong in fact, with the All Share index becoming quite boring now in the way it sets new highs almost every day. One day it will stop doing so. Perhaps only once the expectations of the R12bn spend on the 2010 World Cup have cooled off.  Or maybe when Wall Street crashes. Have you noticed that almost every day another company gets a listing on the JSE boards? Once upon a time, a rash of new listings was an indicator of the market’s peak. But perhaps not this time. We are all experts in recognising market tops and sell signals, but only long after they have passed.
Consider for a moment that R12bn figure cost of getting the country in shape to host 32 football teams in 2010.  Couple this with the report that FIFA expects SA to be ready for just 55 000 foreign fans and you find that the plan is to spend about R200 000 per visitor. Isn’t this slightly more than we expect them to spend per head on beer, boerewors and a bed? Who, exactly, is going to pick up the tab for all this?
Today is the 19th anniversary of a previous spectacular global market meltdown, but I am sure that the markets care little for such historical precedents. It certainly cares little for series and cycles and patterns and predictions. A recent piece of research attempted to illustrate the uselessness of analyst predictions and found a mere 36% success rate for a well-respected research house over several years. I find that figure very interesting. It means that an investor who did the opposite of every recommendation would now be delighted with his performance, especially against the poor sucker who followed the recommendations faithfully.
Perhaps you too were alarmed by the use of the phrase “Zimbabwe model’ being used in connection with the governments possible plan for an acceleration in their land allocation meddling. Certainly several overseas commentators picked up on it and have been less than bullish on the currency as a result. Where could a South African seek protection from a collapsing currency and the rampant inflation that might result. Well, offshore of course, which explains the strength of the rand hedge shares recently. Krugerrands are also still popular but difficult to store safely, so I still like the New Gold ETF product that is listed on the JSE. Each unit is priced very nearly at the exact value of 1/100th oz of the actual metal.
Tidemarks is appearing a day early this week because I shall very shortly be leaving for the Okavango swamps to hunt tigers among the barbel who are right now indulging in their annual “run”. It’s a tough job, but someone has to catch those fish.
Shout for Schumi on Sunday for me please and for your health’s sake avoid the Proteas for the moment.
James Greener
19th October 2006

Friday 13 October 2006

BUFFALO BULLS


I have heard a few mutters about the fact that I seem to be away from the office so much these days. It’s quite true. Just imagine how uncomfortable it would have been for this bear to have been here watching the all share index nudge the 23 000 level after the Governor had cranked the interest rates up by 50 bp again. Just because this was exactly the amount that everyone – except for me – was expecting, there’s no reason   utterly to ignore the fact that the price of money in this country is going up. And will probably continue to go up right through Christmas and the holidays. This should make most people – especially the shopkeepers and their bankers – sad.  It will certainly make the questionably named “Youth League’ mad, since more costly cash will very likely be a reason to escalate the “reckless credit blacklisting of youngsters”. The league do not approve of this practice since it “stifles their further development”. No word, however, on the stifled development of those (doubtless including some youth) who lent the blacklistees the money in the first place.
At first glance, for someone who has been out of touch for several days (the unkind will suggest several years) , the markets all look very rosy. Overseas markets have also done well, and in some cases even better than the JSE. However, it strikes me that the local shares have run with very little improvement in many of the underlying fundamentals. The rand has certainly recovered – but is still not even 5% above its recent lows. The gold price is not in wonderful shape and oil has not strayed far from the USD60 level that is still way too expensive for any prospect of decent relief from inflationary pressures. But then, that’s what being a bear is about.
As well as not being present to witness the bull in this market, the highlights of the bush trip included several prides of lion, an unbelievably large herd of buffalo, and a pair of giant kingfishers teaching their chick to fish from the tree just meters in front of the lodge. He was a reluctant pupil, having for all his life so far, managed to get improbably huge and well-stunned fish delivered to his enormous bill simply by croaking and quivering a bit. One could see his point.
Talking of feeding, I see that the Reserve Bank in Pretoria North is calling for tenders to build a 720 square metre canteen for R6m. Why a call for tenders should mention a price is unclear, but it does seem to be both a large canteen and another large bill. I guess money is not a problem at the SARB. But their notice is a lot clearer than the one from Gauteng Provincial government who would like someone to “supply, deliver and install labour saving devices for three years”. No further details are offered, and so our many questions will have to go unanswered.
Conversely, there can be no question that everything is in place for a Blue Bulls victory in the Currie Cup final. Less certain is what the Proteas will find when they get to India for the ICC Champions trophy. Are we likely to see some of our lads get their collars felt by the local constabulary? Certainly, there is an umpire from Australia who would be wise not to show up.
Have a fine weekend.
James Greener
13th October 2006

Friday 6 October 2006

BEARS BE GONE


This investing business is utterly fascinating but also completely frustrating. It makes me wonder if there is any real value in those serious books and courses in finance and economics that many may have innocently and eagerly read and attended. Dutifully one absorbs the wisdom about the seemingly logical interconnectedness of the colossal amounts of data that our civilisations churn out. There are literally millions of prices, exchange rates and economic statistics that claim to record pretty well everything that we have done with our money. We think we know and can measure how much we have, where we store it and how we use it. The numbers are aggregated, averaged, collated and sorted into every imaginable category and type. Fortunately, the advent of computer memory has preserved numerous forests from being sacrificed to provide the tomes full of numbers with which we used to fill our shelves. Then we pore over these presumed facts and try to detect patterns and trends and relationships that we hope will enable us to foretell what will happen tomorrow. And you know what? We are hardly ever right!
Take, for example, the terrifying flow of apparently negative data that has issued from the USA in the past few years. According to most theories and many pundits, the huge debts and impossible imbalances that that country is supposed to have, should long ago have the caused widespread calamity and destruction of the US currency. However, this time it must be different. Nothing bad has yet happened. The Dow has set new record highs. Bond yields are falling. The US dollar is still the paper money of choice in many parts of the world. What happened to those theories?
The rand, on the other hand has few fans, and even the Reserve Bank may have been exchanging them for dollars, if the latest foreign exchange reserves figures are to be interpreted correctly. Does that imply that they also do not think we will see a stronger rand anytime soon? The SARB is looming large in our lives these days with the Governor reportedly expressing dismay about the outcome of affirmative action. He has also been in the press with hawkish pronouncements ahead of the main event next Thursday when he tells us just how much interest rates will rise. The ECB pushed their rate up this week and the Fed has been muttering that they may not yet be done either.  The sole argument in our markets is about how much we will be stung, (my guess is 100bp) and yet our own stock market also remains unconcerned by this theoretically bearish development. The banks, which I am told should be particularly adversely affected by rising rates, are among the better performers of the moment. Bang goes another model.
I wonder if there will be any bears left standing and able to croak: “I told you so” when it does all finally collapse in a large smouldering heap. Which, if one popular view is correct, will probably not occur until after 2010. But that’s probably wrong too.
Another thing that surprised me was the headline today that a political party has called for corruption to be put on the parliamentary agenda. Surely, this is not necessary. Is it not implicit in every piece of legislation that someone, somewhere will find a way to use the law to tap the public purse?
I hope the Suzuka GP this weekend will be as exciting as the last week’s one, and that the Bulls will give WP a hiding.
James Greener
6th October 2006

Tuesday 26 September 2006

FIRE AT THE END OF THE RAINBOW

This week I went fishing in the depths of Mapumalanga.  All should have been peaceful and calm with only the twittering of the birds and the splash of the lazy rising trout. However, immediately upon our arrival at the picturesque cottage nestled alongside the sparkling stream in the lush and lovely Spekboom valley, we were alarmed by the sight of a rapidly growing pall of smoke on the hill above. All thoughts of unpacking, rigging up and wading the waters were banished, as the enormous bushfire raged down the slope. Huge flames crackled and roared as the fire leapt firebreaks and caused its own windstorm. Miraculously, the wooden cottage that was to be home for the trip was left virtually unscathed, but the fire  moved on to devastate the entire valley for miles in all directions. That day more smoke than beer was inhaled and after establishing that no one had been injured, the next concern was that the trout were now all lightly poached. Indeed they were quite spooked and proved more than usually difficult to catch in the days that followed. All the water’s edge vegetation had been destroyed and it was difficult to surprise them. They certainly showed no interest in any black flies, seeing as how their habitat had been inundated with rather bad-tasting flecks of similar coloured ash and soot.
As you may gather, this event became the focus of the visit. With the satellite TV dish cooked beyond recognition, we were gloriously ignorant of the outside world. We endlessly repeated our war stories about how we had survived even when the fire interrupted the cottage’s water and power supply and we faced the threat of warm beer. In the meantime, of course, out here, the rand was taking another beating and the all share index was setting a new high, well north of 22 500. The inflation numbers were published and in particular the producer price index is growing alarmingly quickly and is not far below double figures – a level it last saw in 2003. The US market has also been behaving as if fleeing from a bush fire as the bond yields in that country plummet. Scenario planning is more becoming as fictitious as a Dan Brown novel.
Who imagined that that the best performing economic groups this month would have been the telecoms (thanks entirely to MTN) and Consumer Goods (understandably boosted by Richemont, the rand hedge star)? The weaker rand, however, failed to help the mining shares as commodity dollar prices softened a lot. It looks as if the overall market will post a very reasonable 2.5% return for September, but I suspect that few portfolios will emulate this number.
Can anyone tell me what the Gauteng provincial government is seeking with its call for tenders to provide a “Bodyshop for the office of the Chief Executive Officer…” Is it a gym for him to work off all those extra kilos gained while selflessly attending all the meetings, receptions, launches and conferences necessary to ensure that the citizens of the province receive only the best government that money can buy? And talking of buying, why does Gautrain need a half-page, full-colour ad in today’s papers? It can’t be just for the factually dubious boast that the train will proudly take Gauteng further. Are we being softened-up for a new cost estimate, now that the rand has crunched into near oblivion?
James Greener
29th September 2006

Friday 22 September 2006

THE BATTLE OF MIDWAY


Tomorrow the Earth passes through an equinox when we will be half way between the shortest and the longest day. For the JSE, however, the longest day ever occurred yesterday when it processed a record massive R19.8bn worth of turnover. This was caused of course by the September closeout event. At one stage almost R100 million’s worth of deals were going through the exchange every minute. That’s huge. Also huge is the bull that has been stampeding through the equity market, taking the All Share index to just 1.5% of its all time high.
This beast has, I think, been stung into action by the equally large bear that has been tearing our poor currency to shreds. So far this month the rand has fallen more than 6% against all the major money units. There are probably quite a few reasons for this dreadful sight and they will include the falling commodity prices; the intemperate remarks from the trade unions’ conference about how they would run the economy; the re-appearance from legal limbo of a man who is keen to be the next president and some more disappointing economic numbers.
Another disappointment was felt by some of the more adventurous investors who have been enjoying the Over The Counter (OTC) market in unlisted shares. This is not a market that is used by novice or uninformed folk, but nevertheless the regulators waded in to close it down, waving platitudes about investor protection. Certainly the settlement procedures are primitive, with actual cheques and certificates changing hands and no big brother with deep pockets promising to step in if something goes awry. However, many of the companies that trade OTC have businesses that are far less risky and much more transparent than some of the gems that appear on the JSE boards. Where was nanny when investors in the JSE-listed JCI group companies went all wobbly?
Then there is another politician telling us all very gravely that it is “difficult to predict the economy on a day to day basis”. Really? And what is her record on any other time scale? About the same as mine, I’ll bet. Unimpressive. Consider that the current dire and deteriorating measures of the health of the US economy were not widely predicted by any of last year’s forecasters.
Today’s discussions are suddenly all about hard versus soft landings. This has nothing to do with the space shuttle, which fortunately enjoyed a soft one, particularly after the scare that bits might have fallen off it and were drifting about in space. What a hard landing economy will look like I have no idea, but apparently, there are a few hedge fund managers who could get the conversation started, having very swiftly just lost several billion dollars in bets on the price of gas. However, even this has failed to worry the Wall Street punters. That market is surging ahead, as the Fed quietly left interest rates unchanged. Our own Governor is more exuberant and has been doing plenty of talking and finger-pointing at various gatherings in recent days. So far, however, he has failed to fulfil my forecast of an unscheduled rate rise.
It is a long weekend here in SA and I am going fishing. I forecast many large fish coming to the net and several bottles opened. Soft landings all round.
James Greener
22nd September 2006

Friday 15 September 2006

LISTEN CAREFULLY PEOPLE. IS THAT A BEAR I SEE?


It has been a special week for those whom we have entrusted with the running of the nation. They have not shirked from their duty to tell us how it is. At a stroke, those citizens who choose price before provenance when purchasing clothes were branded as traitors. Painful punishment was promised for anyone stocking and selling too many t-shirts turned out by the Asian Tigers. There was the clock-watching magistrate who released all the baddies that she had not had time to see. In similar petulant mood the Department of Labour published a list of all those companies which it claimed hadn’t properly or timeously filled in the forms that detail the racial mix of their staff. Sadly, no one responded that in the last dozen years they had lost their old South African talent for seeing this difference.
The good news came in the form of an undertaking from the fellows cutting down the trees that are growing too close to intended route of Gautrain. (I thought it was an underground train?) They promise to plant three young trees for every one chopped down. However, why many of the saplings will be located miles away from the newly ravaged suburbs was not explained. The head honcho of the body tasked with overseeing the woefully inadequate supply of bandwidth in the country returned to work after a 10-month suspension. The industry has developed at a fair clip while she was away tending her roses; I trust she gets herself and her staff up to speed quickly. We can afford no further delays in joining the wired world. And then there’s this rather strange concept of “number portability”. I thought that was exactly what a cell phone provided.
The Governor repaid the folk who bought him breakfast on Thursday by warning them that they were buying too many cars and DVDs. This is his way of telling them that they can expect a hefty interest rate rise quite soon.  He also felt that the rand might be a little “out of balance”. Before the coffee in front of his audience got cold, the bond market swooned and the currency plunged. I hope it wasn’t that he got a bad egg.
While normally this would have been good news for the commodity stocks, the dollar prices of many of the commodities themselves are also falling fast. The market’s weaker moments this week have therefore tended to have the mining shares leading at the front. It also did not help that some analysts managed to scratch through Sasol’s results, which were published during the week, and find things to fret over. However,  the end of the world is not yet clearly visible  and the all-share index seemed reluctant to remain below 21 000 for very long. Next week we experience the quarterly futures closeout event.  Sometimes nothing much more than eye-wateringly large volumes go through the market on these occasions, although there is always the potential for fireworks in the prices as well. The market does have a sort of “lull before the storm” feel to it.
Of course, the week was also filled with the inevitable news of squabbles, stupidity and stubbornness on the part of the administrators of the sports we all care so much about. What a dreadful mess. I doubt that the forthcoming trip to Germany by Premier Shilowa and his retinue with the purpose of learning how to run a World Cup will result in anything more than fond memories of beer and wurst.
James Greener
15th September 2006

Friday 8 September 2006

A STING IN THE GOVERNOR’S TAIL ?

The two most recent meetings of the monetary policy committee have ended with   Governor Mboweni gliding up to the microphone and chanting the sacred phrase: “Raise the repo rate by 50 basis points.” Now I thought that this is what was happening. I assumed that the committee, after two days of deep deliberation, wise discussion and frequent comfort and refreshment breaks, had set the precisely perfect price of money for the nation at that moment. However,  Minister Manual told us this week that the Governor was merely “in the signalling phase” and that unless we note, understand and obey his signals, we consumers can expect soon to be “beaten into submission”. Given that most of the population fails to note, understand and obey  even the more obvious signals, such as red traffic lights, we obviously did not appreciate that the large perspiring man in the TV lights and the striped tie was actually waving a grubby red flag. Just what is it that we have to stop doing in order to avoid this threatened beating?  Perhaps they wish us to stop buying imported goods. Or, at the very least, to stop borrowing money to do so. But will that not threaten the growth rate and our transformation? Please tell us. The beating that we get from the taxman already has me submitting and I don’t want any more.
Actually, the rand is already putting the brakes on some spending anyway. A number of items have given the currency a beating of its own. These included the report that we are not as a country as competitive as we used to be or as we need to be. Far too many of our resources are engaged in telling others what to do and how to do it and not actually doing anything productive themselves.
Mind you, it is not always perfect in the free market either. I am assuming that decision by the beverage industry to move to the small 330 ml can, is their own and not some bureaucratically imposed standardisation. I am unimpressed by the claim that the reduced neck diameter will produce a “smoother, more polished finish”. The old 375ml “pint” bottle has also disappeared from the shelves. My glass really is half-empty. This is a very serious matter, and the only way I can think of to counter the problem is to open two cans at once and buy some more SAB Miller shares.
It was another week when the JSE pushed the All Share to a new high, but the effort to do so, has exhausted the bull and a modest correction is taking place as we approach the weekend and the Ellis Park test. The eternal question about whether or not this is the final top will of course remain unanswered for some time. What I do know is that, as always, this time it is different, so to seek guidance from previous times when the market allegedly behaved like this is probably unhelpful. I shall bore and exasperate loyal readers by repeating my view that I think that the most important catalyst for the JSE will be Wall Street. The return to average or lower than average valuations in the US markets could occur at any time,  although these days I tend towards thinking that the correction might not be as steep or severe as some of us would like to see.
What with civil servants threatening to beat us, beer portions getting smaller and our currency weakening, the one point victory over the All Blacks was a highlight. Give us a larger margin of victory tomorrow over the Wallabies please lads. We need a ray of sunshine, especially as our guests will be trying to avoid them. Rays, that is.
James Greener
8th September 2006

Friday 1 September 2006

INTEREST RATE INCREMENTS?

The bull is pumped up with all the joys of Spring Day. The market is flirting with record highs. Almost every company is reporting record profits. The new national soccer coach has landed a deal where the pay slip program will need adjusting to accommodate extra zeros, some of which will go at the end of the salary line and just one will be needed for the tax deducted line. His arrival must not be confused with the appearance of The Lion King on a Joburg stage or with the launch of Neotel. Both will be hoping to make money as much money as he will. Neotel is the name of the new Telkom competitor. During the doubtless lavish launch ceremony they announced that among their customers they are proud to have Cell-C (the mobile phone company that has yet to make a profit), and Telkom itself. Bizarre. Am I alone in wondering about the origin of the name? Might it have something to do with the news that modern day man has some Neanderthal genes coiled up in his DNA?
But us old bears who root through the news for something to worry about have been hitting pay dirt this week and it is all pretty scary. Every economic number published these last few days has led me to wonder if Governor Mboweni might not surprise us with an unscheduled increase of the repo rate. He has told us that he is a keen observer of the inflation numbers and he will not have missed that PPI is above 8% (a three year high). In addition, how about those figures that suggest that the nation has 25% more cash to play with now than it did a year ago? There is no mystery about where the money is going. Imports in the last 12 months have totalled almost R400bn. This is a record, but more worrying, it is about R50bn more than we earned from exports in the same period, despite the record high prices of the commodities we sell. Other upward pressures on the price of money are seeping into the system from the news that Eskom is going to start its long overdue building of a few power stations for which it plans to borrow R3bn.
I have not enjoyed any overseas holidays for a while nor have I needed to add to my fishing rod and reel collections or even to my single malts so my own impression and experience of the current bout of rand weakness was that it was not so far particularly savage. I was therefore astonished to see that against sterling and the euro our currency has in just a few weeks given up more than half the recovery it struggled to compile over the four years following its collapse in the closing weeks of 2001. Although Finance Minister Manual has been telling students that “engineering is more fun than banking”, I would think that any banker on the currency desk would disagree. But someone will soon begin to grumble about building barriers to stop the currency leaking away and so there’s another reason to expect higher interest rates.
Now the theory is that when interest rates go up, the stock market goes down. However, so far that theory is getting a thorough pasting. The All Share index returned 5.4% total return in August with some rate-sensitive sectors, like property, doing particularly well. Bonds, on the other hand did not perform at all in August so it looks as if someone is alert to the looming problems.
Do not panic yet, but it looks as if commodity prices (expect for gold) are on the way down. And the All Blacks have called up the A team to deliver the coup de grace in Rustenburg tomorrow. Is there any good news? Oh yes. It’s Spring Day and summer is a’coming in.
James Greener
1st September 2006

Friday 25 August 2006

GETTING REVVED UP


The Top 40 index this week came within a whisker of topping the record of 20 260 that it set on 11th May. Whether or not it will soon  actually break out into new territory and whether or not that will be significant I shall leave for real analysts to say. My observation is that this bull seems to be quite determined to erase the memory of the meandering trip of the last few months that took him to the edge of the bear-filled abyss. My view is that he may not yet be able to do that.
With probably indecent delight I comb the media for stories about how the US consumer is starting to feel the pinch. Apparently the future of the world’s economic  growth depends to a very large extent on that fellow spending money. However, for a few years now, most of the money he and she has been spending has been borrowed and not earned. Moreover, it is seems that the US housing market has been the supplier of the credit. But now that market is showing signs of melt-down with all those statistics like “housing starts’ and “new home sales” and “existing homes inventory”, changing direction rapidly and emphatically.
Now the connection between the Top 40 index and the plight of the man in Michigan with a monster mortgage is not obvious. But this bear believes that it exists and involves links such as Wall Street, inflation, commodity prices and indebtedness. I expect, however, that I shall need a bit more patience to see if my belief is true.
In the meantime, I can think about our own statistics like the second quarter GDP growth of 4.9% pa. Total GDP in the last 12 months was R1 606bn. Government expenditure in the same period was R434 bn or 27% of the GDP. At present rates of growth of both these figures, the ratio could be at 28% by the end of this year. Three years ago, this ratio was 24%. The trend is clear and alarming. Government’s share of the economy is getting far too large. Isn’t this another negative for the Top 40?
I believe it is; especially when they spend our money on lunatic ideas like holding an “International (!) Conference to Address Gender Equity in Transport Policies and Planning”. Billed to last three days and boasting a dubiously incorrect logo of a male astride a hermaphrodite bicycle, this is a clear piece of nonsense. It makes about as much sense as declaring that Pluto is not a planet when we all know it is Mickey’s dog. It will be more distressing than usual to send in the provisional tax payment next week knowing that some of it will be used to support “rural freight logistic interventions”.
However, a proper analyst should be focussing instead on all the company reports filling the pages of the paper each morning. Most businesses are steaming along very nicely with earnings and dividend growth in double figure. One of the more interesting facts to catch my eye is that BHP Billiton’s earnings are running at R27.3bn for a pe ratio of 12.2. Anglo American, which is 44% larger by market cap, earned just R25.6bn for a pe of 18.7.  The price of the latter has been running as the result of whispers that a deal may soon take place – but that difference still seems too wide.
I am looking forward to a pleasant day at Loftus tomorrow, provided my hosts allow me to stay at the bar in the marquee and not force me to watch the rugby. And there’s the Instanbul GP on Sunday. I wonder what Mr Ecclestone would have to say about gender equity in Formula 1?
James Greener
25th August 2006

Friday 18 August 2006

OUTSIDE INFORMATION

Loyal readers will have realised that I carefully avoid making any call on a specific share in these notes. The reason for this is that I could not bear having to append a four and half page disclaimer that states what people should already suspect: that in all probability the recommendation is wrong and is potentially dangerous to their wealth. A few analysts do have an excellent knowledge and understanding of various industries and companies and their research is often interesting and revealing. However, I also firmly believe that this insight will never reliably result in an accurate prediction of earnings, dividends or share price behaviour.  Obviously, the idea of tacking a disclaimer on to items of investment research has grown out of an acknowledgement of this chronic unreliability. If we were always right we would not have to say “sorry” and we would also probably not be peddling shares but negotiating to buy another island paradise with his and hers harbours.
Therefore, I shall not mention the name of the bank that has recently published its interim report with which I spent a few minutes and a calculator. I was interested to see that the traditional business of borrowing money at a low interest rate and lending it at a higher one contributes less than a fifth of the bank’s income.  Furthermore, the lending side has proved to be rather dodgy. The bank felt it prudent to set aside well over a billion rand in case the borrowers should prove forgetful about their obligations to repay. This “just-in-case” money is given the wonderfully coy name of an “impairment charge”. Recall, as well, that government a few months ago fretted in public about the spread between these two interest rates and it is little wonder that the bank’s most lucrative arm is the one that does “investment management and life insurance activities”.
I rarely attend those presentations given for the fraternity of proper analysts. However, one company always hosts their affair at a rather grand watering hole high up on the Westcliff ridge. If the weather is fine it is a good opportunity to see the progress of the spring blossom across the suburbs and to hear how the shipping business is doing. Very well, is the answer, but the CEO is puzzled that the investors do not share his optimism and is frustrated that the share suffers a low rating. Maybe we are just not a seafaring nation and prefer buying shares in holes in the ground.
And not just deep holes. The construction sector index has been flying (up more than 10% this month already) as the country pours money into bricks and mortar. One of the shipping company’s busiest routes is bringing cement from China to SA. But have you noticed that the squabble about where the Gautrain money will come from is still going on? In fact minor battles are breaking out all over the place. Eskom appears to be disputing just how dark and cold it was in Cape Town this winter. Telkom is unmoved by complaints about lack of bandwidth. South Africa’s display of beetroot, garlic and African potatoes (what are these?) at the Aids conference in Toronto has raised tempers. And the oil companies are pointing out the age-old fact that if you want less of something you just have to tax it.
Perhaps we need to tax All Black and Wallaby tries. Enjoy the weekend and keep an eye on that currency. It looks skittish.
James Greener
18th August 2006