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