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