Thursday 26 April 2007

PRICING THE PROTEAS

Who would have thought that we could go that low? I am talking about our currency of course. This week, the rand improved to less than 7 per US dollar. Not all of this strength is attributable to demand for our “big five”; the greenback itself is getting a mauling as there seems to be a growing global distaste for and distrust of things American. Statesiders themselves, however, have neither noticed nor cared that everyone else thinks they are sliding into an economic morass. They are surging into Wall Street buying anything that is available, so that the Dow popped over 13 000 on Wednesday. This enthusiasm is catching – somewhat giving the lie to the earlier assertion that we don’t care what happens in the US – and index record highs are being recorded all over the place. Our own record high happened on Tuesday (again), but that too may be surpassed today, if the current mood holds.
Today is the last trading day of the “JSE month”. And it is the start of an especially long weekend for most folk. Tomorrow we celebrate our ability to hold elections. The excitement this creates will probably last through until Monday when most of us will decide not to go to work but to use the day to prepare for not working on Tuesday, which is Workers Day. In other words, it will be a long time before markets here in SA will get an opportunity to catch up with and react to whatever happens in the rest of the world.
Did you know that today is IP Day? (No, not Inept Proteas but Intellectual Property!) Biz Day has devoted two pages, apparently sponsored by Microsoft, to alerting us to the terrifying fact that people don’t pay for things that they can get for free. It is ironic that the sponsor’s own software products have been a significant resource for people wishing to create and capture their ideas and achievements in digital form. But then it became cheap and easy to copy and communicate that material and this means that the creator and (oh horror) the taxman fail to reap any benefits! In particular, the entertainment industry, who have until recently been able to control the distribution of their products, are howling loudly and calling in the cops. Using policemen to confiscate fake DVD’s from street vendors for later resale at the backdoor of the police station is a poor use of our resources. Audiences would not buy poor quality “pirated” copies if the originals were priced correctly; which rather suggests that the so-called celebrity entertainers and their entourages have for a century or so been paying themselves much more than their offerings are worth.
Now, I have been a “content provider” (albeit a trivial one) in the investment industry for about 20 years, offering opinions, views and information. Broker’s publications never carry a price tag, in the hope that readers will pay what they think the stuff is worth. It is a salutary lesson to discover what that is. Certainly, the arrival of the internet has probably meant that one’s work swiftly reaches a much wider audience than your own mailing list, so that probably is not a bad thing. It also reaches competitors, and this  causes both worry and delight depending on your point of view. This electronic digital world is taking some getting used to, especially for those who want to keep secrets. Isn’t the market place wonderful?
This leads one to the question of what the Proteas now think they are worth.
James Greener
26th April 2007

Friday 20 April 2007

MADE IN SOUTH AFRICA

This is a fascinating line of business. Change is everything. If it doesn’t change, we are not interested. And when it does change in the way we hadn’t expected we are disgusted. And not only do we watch for things that change we always need to be ready to change the things we watch. Who, for example a few years ago would have known even where to look up Chinese interest rates? Then this week we discovered that the price of money in that country is critical and changing and we should definitely make it a cause for concern, if not stage a mild panic. But the crisis was short-lived. None of us had much idea what it was all about anyway. That’s why we have economists out there to take the full force of the news and to tell us how much to care about it. “Not much”, is the view, and so today, all is calm and the bull is back on board the pedalo, a bottle of something cool in hand. The previous boatman is now back in England.
So that means that there is once again very little to say about this market. This week’s all time high was on Tuesday, just hours before the China syndrome struck, but today we are less than 250 points from doing it again.
The last interest rate hike was foisted upon us in early December. Despite this taking place more than four months ago, it will have had a negligible effect on trading conditions for companies with half-year ends just a few weeks later. These are the only results that have been published so far this year and as already mentioned they were stellar. Currently it is a slow time for company results but in a month or so, we shall begin to see numbers for the period when the higher interest rates might have been making an impact. We will then be able to see if the wicked rumours about stock build ups (particularly in the car market) have any foundation. Thanks to the accountants (who according to the Biz Day report are sitting on top of SA’s company pile (?)), any earnings declines will be neatly camouflaged in a blizzard of figures and huge efforts will be made to maintain and grow dividends for a while. It could even take another round of results in say August and September before the truths emerge. This is not to suggest that there are necessarily any to emerge, but merely to highlight the potentially long hiatus between events and evidence.
Our ever-caring government has now decreed that textile goods will in future carry labels many times larger than some of garments they will be attached to. Astonishingly, they believe that despite the disgracefully low levels of literacy in the land, consumers need more than just the price and their experience to choose a T-shirt. Perhaps this regulation will end the fashion of prominent display of the label on one’s clothing. In future, it will have to show Calvin Klein or Gucci’s date and place of birth and as well as the qualifications of the fellow who unpacked the box the item came in. Uncool!
As you hack at the little plastic loop that joins the ten-page CV of the sheep who provided the wool, with your new pair of socks, give a thought for the “Development of a General Waste Minimisation Plan for Gauteng” that our old friends at GDACE have begun work on. Please eat the label; don’t throw it away; we need less waste.
And I have managed to avoid also any mention of sport. Isn’t that what you have come to expect from the Illovo bear? Late thought: Is it OK if the Made in SA label is itself made in China?
James Greener
20th April 2007

Thursday 12 April 2007

SPAGHETTI FUNCTION

So it turns out that the man with a name that sounds like a menu item in the farinaceous section, and who was going to buy Goldfields, does not exist. The bloodhounds from the regulators are now sniffing about for someone to sink their canines into. Some lucky investors will have enjoyed a huge windfall when the rumour about Mr Pastorini first broke. Regulators hate it when people claim a quick profit. It makes them suspicious that someone knew something before someone else. Oddly, however, they are not so worried when people suffer a quick loss from trading on presumed “inside information”.
In the last few months, the following entry will have been laboriously pencilled into the pocket diaries of quite a few central bankers. “Got up; ate breakfast (cornflakes); went to work; changed nothing; came home; watched self on TV; ate supper (beans on toast); went to bed.” Our own governor will have made his entry just last night. World-wide, it seems that the price of money is perfect and there is no need to tinker with interest rates. Naturally, there is incessant speculation in the markets on how much longer these central bankers will be able to bear this inactivity. Eventually one of them will pull the lever and rest will gleefully follow suit. I do wonder why, in these supposedly free-market economies, we need a committee to decide on this important parameter. Several years ago, here in SA, we experimented with a daily auction system to set the repo rate. It had some serious teething troubles and displayed terrifying volatility but it was settling down nicely when the meddling bureaucrats decided that they knew better and returned us to a fixed rate model.
The mayor of Johannesburg has declared that migrants are the lifeblood of the city and has proposed setting up a desk to “advise them on how to access government services, get information on economic opportunities, social networking, counselling, legal advice and shelter.” The likelihood is that the queue in front of that desk could be extremely long, but that would provide ample opportunity for social networking, so he could omit that part of the brief. May I offer His Worship the suggestion that perhaps it is the ratepayers who provide him and his crew with their own particular lifeblood? Perhaps he might ask them if they want to encourage yet more people to the city when the existing desks in his offices already are unable to direct his current citizens to economic opportunities and shelter.
But today’s request by the United Nations Development Programme in South Africa for proposals to provide them with a banking service shows that our local officials lag way behind the global bodies when it comes to milking the masses. The fee for simply going to an office in Pretoria and collecting the necessary form is R8000. The good news is that the UN does promise to try and choose the successful bidder within four months. Until then I suppose they will be keeping their money in a box under the bed. If so, they can expect frequent visits from elements representing the less formal sector of the wealth management profession who pursue their own development programme.
The record market high occurred on a Tuesday this week.
Only the strongest amongst us will be able to watch cricket this weekend.
James Greener
12th April 2007

Wednesday 4 April 2007

RATING A CUT


Earlier this week a train in France set a new speed record of 575 km/hr. It was powered by a 31 000 volt overhead line which stayed live for the whole trip. Most of us admired the first achievement but were more envious of the second. This morning’s news is that “big business and government” have issued a warning to us mere consumers that we need to limit our power consumption and that they thought the forthcoming massive price increase for electricity were both inevitable and a good idea. So too will be power cuts this winter. I foresee little chance that the Gautrain will be setting any records when it gets started. Sitting stationary at Halfway House waiting for the power to come back on will slow things down a tad.
The headline on the news service claims that the experts believe that there is not sufficient evidence to hike rates. There is therefore little point in reading the actual article as it is already clear that it has nothing to say. I would not be surprised if the experts quoted in the piece include a few of the earnest-looking folk we will see when the cameras scan the audience during the press conference next Thursday. Most of them are there in the hope of claiming a few seconds of fame by asking the governor a long and inane question and looking grave and nodding when listening to the equally information-free reply. They forget that us viewers jab the button on the remote and return to the cricket the moment the decision is announced.
I also don’t know what Governor Mboweni and his mates will decide. My ultra short term forecast will rely as usual on the colour of his tie when he ambles up the podium. To see if I am correct I shall need to wait only the ten minutes or so while he regurgitates several pages of meaningless statistics before getting to the last page with the nitty-gritty number. My success rate is about 50%, the same as the experts.
Around the world, market commentators, but notably not the markets themselves, have been working themselves into a panic over interest rates. The focus is of course the USA, where there is a rapidly cooling property market and a soaring number of defaulters in the low quality credit market. It has been amazing to watch people discover that the business model of lending money to someone who has little hope or intention of repaying it, is rather flawed. In order to reduce the impact that these events are having on consumer confidence and spending power, the pundits are sure that the Federal Reserve will need to reduce interest rates this year. But the problem there is that such a move could easily hurt the already sagging US dollar. Just why did Dr Bernanke want Sir Alan’s job? I am sure that all of us will have a much happier long weekend than he will, fretting about this problem.
Have you seen the new beer to be launched in this country to replace the Amstel brand that was removed so suddenly? No doubt in the interests of economy the new brew (branded as Hansa) will appear in the green bottles and gold foil tops that SAB would otherwise have had to discard. I guess the chaps down the at pub will now simply call for a Hamstel. Those European brewers who left in such a huff will find it difficult to regain market share when they finally manage to get back here. They are smart fellows at SAB.
This week the record market high occurred on a Tuesday.
Please have a safe and enjoyable Easter weekend.
James Greener
4th April 2007