HALF-TIME IN THE YEAR 2006

In Washington, Governor Bernanke showed that he is just as addicted to tugging the lever as was his predecessor, Sir Alan. Right on cue, he popped interest rates up another quarter of a percent but apparently the order of words used in the accompanying statement was music to the bulls. Conveniently and magically, the bad news became good news for equity markets. Here in Joburg at least, the All Share return in the last month of the first half of the year will be positive. As too, will the performance for the quarter. This is surely a huge surprise to just about everybody. And of course it is also an embarrassment to those of us who foolishly have declared in writing that we thought that the end of the world was nigh. In our defence, I will point out that most consumer and financial sectors will be down for the month. It has been only the stellar showings by the exporters that have skewed the overall index above the zero line.

As the week progressed, the market chose to interpret any information as bullish. Even the speculation that our own central bank might call an extraordinary MPC meeting and prod the repo rate up by as much as 150bp was soon discounted and forgotten. Despite the rand remaining north of seven to the US dollar, folk began to push the “Buy” buttons, even for the financial shares which had earlier taken fright when the rand turned runt. My inclination, however, remains that one should be using recovery opportunities such as these to take profits and reduce overweight holdings.

And talking of overweight, reminds me of the news that foreign diplomats are becoming anxious about the crime situation. I am unimpressed by the suggestion by Deputy Foreign Minister Pahad that my tax money could be directed towards extra security for this corps. Why should not everyone in this country benefit from official concern for our wellbeing? At least the foreign fellows can retreat to the safety of their home countries if they find it too dangerous in their Pretoria enclaves, VIP lounges and darkened limos.

May’s inflation figures were published this week and the bad but unsurprising news is that life is getting more expensive. The average consumer (whoever he or she may be) is spending about 4% more than a year earlier to keep body and soul together. However, further up the supply chain, manufacturer’s inputs costs were almost 6% higher. These increases inevitably filter down to the consumer in a few months. And today we learned that petrol will go up 25cents per litre next week. So it seems reasonable to predict that spending on non-essentials could come under further pressure in due course. This helps explain why the general retailer sector on the JSE has been under so much pressure recently.

The bitterly cold snap that has draped itself across the country just in time for the National Arts Festival will provide an excellent excuse to stay in front of the TV this weekend and supervise the many different sports events that will take place. Fortunately, the ‘bokke will not be out embarrassing us, but there is plenty to make South Africans anxious. Have you seen the standard of the stadia and organisation in Germany? We have much to do in the next four years.

There will be no “Tidemarks” next week. I shall be in Grahamstown taking my dose of culture and trying to get warm.

James Greener

30^th June 2006

PREPARE THE BUNKER. IT’S TIME TO HIDE

It has been another one of those weeks when the black cloud of disappointment has blown in. It seemed as if everyone had a story of violent criminal events that had occurred close to themselves or someone they cared about. Exacerbating my fear and despair is the feeling I have that those who should be doing something about this are unconcerned that the folk of this country are being overwhelmed by lawlessness. At times, the official indifference verges on hostility as if it is the victim’s fault.

I think that some of the sudden severe collapse in the value of the currency is the result of people both local and offshore deciding that it is time for their money to depart the southern tip where the financial news of the region has deteriorated quite alarmingly recently. In addition to warding off the unofficial felons, businesses in SA are being assailed by regulators and legislators of every stripe. One of the newest targets in the crosshairs of the do-gooders are the pension funds who are supposed to have done their members ill when they indulged in the suddenly reprehensible yet legal practice of “bulking”. Just how the fund’s members and beneficiaries will benefit from having massive fines imposed on the fund has not been explained.

One example of the nonsense that these bureaucrats can dream up appears from time to time in this business when a corporate announcement appears with the stern and capitalised admonishment that the document is not to be published or distributed in a list of certain countries. Someone has decided that the investors in those places are of a far too delicate disposition to be able to cope with the news in the announcement. The irony is that theses items are distributed electronically – precisely the perfect medium for instantaneous and global dissemination. A similar idiocy can be found on the JSE’s own website where their much touted SENS news service appears with a five minute delay! SENS was created to ensure that all investors could get potentially market-moving company announcements simultaneously. Now it seems that only those who subscribe to one of the commercial news distribution services can be so privileged.  But anyone without an internet hook-up will need to wait for the morning newspaper to learn that the CEO of their favourite company has fled with the petty cash and his secretary.

Mind you, being close to the news flows and price feeds is not necessarily a boon. We have seen even more of the extreme see-sawing activity in he markets this week when almost every day provided a daily range for the all share index in excess of 500 points. In these times short-term traders are exciting but difficult people to share a trading-room with. Yet anyone looking at the daily closing levels will have seen quite modest moves of less than 2% and felt that the market was consolidating and firming a tad. This data also fails to reveal the great difference between the resources shares that have surged mightily in the wake of the weak rand and the banking sector which has swooned on the same news. Retailers have also had a bad time, which was not helped when the central bank released discouraging news about our current account deficit. The chief central banker fanned the flames during a parliamentary address with mutterings of further rate hikes.

It is all turning nasty remarkably quickly.

James Greener

23^rd June 2006

SUBSTITUTE: BEAR ON, BULL OFF

I have to say that I have tried pretty hard to see what’s so beautiful about this game. Admittedly, I have not remained glued to the TV for all of the 24 hours of play that has taken place in Germany this week so far. I have personally witnessed no more than half a dozen of the 40 goals scored. Some, I probably missed because I dozed off after being exhausted by the miraculous recoveries from the apparent limb-destroying injuries. I have enjoyed the grand theatre that attends the incidents of yellow-card waving, and I am appalled by the scenes of jersey-biting, leaping, sliding, mobbing and praying that follows one of the rare scoring events. I am however sympathetic towards the astonishing inaccuracy of the hugely acclaimed and remunerated stars. Here in the securities business we have exactly the same thing. Hoofing the ball over the cross-bar is identical to buying stocks just as the market begins to tank.

Since the bull went off in early May for his winter break, amazing and unprecedented intra-day volatility has tried to disguise the fact that actually we are now about 15% off the peak. Daily trading ranges in the All Share Index of 500 points or 3% have been common and investors calling for a chat in the morning have often been shocked when checking the closing levels in the evening.

Obviously, a correction of this magnitude has pushed some shares into the limelight of “possibly reasonable valuation” and bargain hunters are starting to get excited. However, I don’t think that this bear is in any way finished with us yet and would prefer to be using moments, such as today’s close-out, when the market is on the up, to ensure that one has taken profits in the overweight holdings and to thin-out the illiquid shares. There is no shame in earning more than 7% tax-free while waiting for the really mouth-watering valuations that I am sure will present themselves in due course.

Diligent readers may be familiar with the so-called BRIC emerging markets. These are Brazil, Russia, India and China and compared to the first three, South Africa’s market correction is an infant. India is more than 35% down from its peak.

For a number of reasons, which would take an article of their own to explain, I have become very suspicious of the figures that purport to show net foreign buying and selling of our share and bond markets. Once upon a time, I was a firm believer in these stats and produced clever charts to look for correlations. But I now think they are deeply compromised and corrupted. Because the financial rand mechanism is long dead and buried, the normal currency market is the sole indicator that we have for foreign investment. And it is in this market where we on the southern-tip have seen particularly large recent declines. In particular, the rand has taken a severe beating versus Sterling and a pint of warm beer will cost the South African tourist 20% more than it did at Christmas time. I reckon that non-residents have done some substantial selling of this market. And they are not yet finished.

Thank goodness for some test rugby to watch this long weekend. And the next time I write Tidemarks, the winter solstice will have passed and we will be on the way to summer. Fantastic.

James Greener

15^th June 2006

PUMPING IRONY

If this letter were to be any use at all, it would list the shares which will next week go up as well as those which will go down. Last Friday I ran out of space before advising you sell Billiton, Sasol and Anglo and put the money into Richemont, Standard Bank and Impala. I hope in this letter that I remember to insert my calls before the 550 words are up.

The market was more placid these last few days, with the largest daily range in the All Share index occurring on Wednesday when there appeared to be some month-end manipulation being attempted. No clear trend has yet emerged, however, and there is a furious tussle for control of the market taking place between the bull and the bear. There are opportunities popping up here and there (witness the list in the previous paragraph) but success is granted only to those with nimble fingers, great vigilance and excellent market intelligence. Physical fitness and stamina will be useful as well.

If, like me, you find these last two hard to achieve than you will also be interested in the search being undertaken by the Gauteng Local Government for someone who can “provide Comprehensive Health & Fitness to the Members of the GSSC”. Presumably, these “members” are the same people who have allowed outstanding rates and taxes in the province to now reach R17.5 bn. But tax payers who object to stumping up for the bureaucrats to burn off some of the calories ingested at the never ending round of receptions and report-backs are just being miserly. Probably these same folk are also moaning about the official contingent of 150 people who are off to Germany to get ideas on how to run a World Cup. Hopefully the party will include at least one person who will learn how to get the national side into the tournament.

The National Credit Regulator opened his doors yesterday, but his job is not to see that the government doesn’t borrow too much money but rather that private sector lenders and borrowers understand and love each other. This sounds to be a dubious proposition and I wonder about phrases like “credit providers have to ensure they have documentary proof that the consumer can afford the loan at the time of application.” Once again, the state is calling for an avalanche of paperwork, not one page of which will make it cheaper and simpler for the age-old wheels of finance and commerce to turn. The irony behind much of this rush to establish each other’s identity, parentage and place of residence is that the requested verifying documents are increasingly being produced neither accurately nor timeously by the same organs of the state that are demanding them. What’s the delay for a new passport these days?

Investors looking for something to fret about will have noted that we are approaching the season for interest rate meetings both here and in the US. June also sees the arrival of a futures close-out event on the JSE. Whether any financial event will have any impact as June unfolds is doubtful. Employers world-wide are accepting that productivity will plummet as the workforce settles down in front of the TV. Pizza and beer suppliers are my pick for the month. Go short the gyms. And watch for Telkom’s results. Monopolies rule OK.

James Greener

2^nd June 2006