Friday 25 May 2007

NO RACE FOR THE WICKED


At this time of year Tidemarks should be coming to you from the Jacuzzi deck of a large yacht moored alongside the swimming pool straight in Monaco. Underdressed young women should be plying me with intoxicating drink. Fellow guests would include hedge fund managers begging to be put on the Tidemarks mailing list and asking to hear my investment wisdom. However, for some reason, my tickets to this migration magnet for the rich and sleazy failed to arrive and so the pond outside the office will have to serve as a replacement for the sparkling Mediterranean. I have fetched my own mug of instant coffee and have to say that the traffic in Fricker Road sounds nothing like a Formula 1 practice session.
Some things are going up and others are coming down. The most noticeable down item has been the temperature. Dozens of long-standing lowest ever temperature records have been broken this week, and the global warming story is meeting with a bit of scepticism down here on the southern tip. And are share prices about to go down? After poking its nose above the 29 000 level a day or so ago, the All Share index has retreated with huge intra-day swings testing the skills and wallets of the day-traders.  
Things that are going up in most parts of the world (except Iran where the president has decreed that they go down) include interest rates. Readers will be familiar with my view that the US long bond rate is a sensitive indicator of economic conditions and sentiment. That rate is rising quite sharply and amongst other things is putting even more pressure on the already battered housing loan market in the US. Investors seem to sense that it is going to get more expensive to live and are demanding more yield from their money. Here in SA as well, food prices are experiencing a wicked rate of increase. This fact, together with the bitter weather tends to activate the “gloom gene” in some folk. To cheer myself up I probably need to go shopping for fishing kit and beer again this weekend.
In less than two weeks time, we will be treated to Governor Mboweni’s bimonthly TV appearance. Towards the end of his performance he will make the interest rate announcement. Given the unmistakable inflationary signals that are flashing, I think he will push them up. I also think that the market is wondering what really bad story might come along and blast a hole below the waterline of this bull run. Now if the Governor were to announce a one percent hike instead of the more customary half percent, that might be the torpedo. But then again it might not.
A learned academic has discovered that two thirds of the small businesses that are eligible for a tax amnesty, if they give themselves up to the taxman before the end of the month, will not do so. This is because “most small business owners perceived tax payment and the costs of administration for compliance as an unnecessary expense.” I humbly submit that every current taxpayer feels exactly the same way. Who wouldn’t love to get off SARS’ mailing list?
And that investment wisdom? Just the usual. Buy low and sell high – infrequently. Which is about as useful as Eskom’s current advice not to use power otherwise there won’t be any!
I wonder what impressions of sunny South Africa the English rugby tourists will take away from their close encounters with the frozen ground in Bloemfontein tomorrow. What a tough place to make one’s test rugby debut!
James Greener
25th May 2007

Friday 18 May 2007

GETTING TAKEN FOR A RIDE?


Last week I jotted down the idea that one should be keeping a careful watch on the market. To the extent that this week the All Share index failed to set a new record high I was correct, otherwise, not much happened except the continuing threat that some volatility is imminent. At a level of 16, the overall average PE ratio is high but not terrifyingly so. This is another way of saying that a break-out on the upside is not impossible; but it will cause bears like me to get even more fretful and crabby.
The currency markets have been lurching about with the dollar showing some quite unexpected strength and the rand sagging back above the 7 per USD level. News that the Chinese currency is at its strongest ever versus the USD is probably also important.
Reporting season is hotting up and analysts are flitting from one company presentation to the next. Occasionally someone will ask the CEO a question but this is done mainly to delay and annoy the rival analysts who are eager to get closer to the waiting comestibles outside the auditorium. The poseurs will then grab just a bottle of  water before bolting ostentatiously for the office to report to their clients. While some companies have been trying to inject a note of caution into their reports, the growth that they have been enjoying is still very strong. Wise analysts realise that in these bull market times they need do little more than dutifully regurgitate the wonderful numbers contained in the company handout and so can remain at the bar and buffet until asked to leave! Everyone is a buyer anyway.
People looking for a sign that the good times are going to end soon will note that new listings are coming to the JSE even more frequently than commuter railways are coming to Joburg. Compliance officers world-wide will be using the Gauteng provincial government as a case study on how to keep a secret and not allow inside information to leak ahead of a major announcement. The news is that some very kind gentlemen from Malaysia are going to spend R18bn of their own money to build a sorely needed monorail transport link between Joburg city centre and Soweto. A visibly excited politician proudly declared that peak-time trains would run every three minutes and that there will be 44kms of line servicing 39 stations. I estimate that this level of service will require almost 50 sets of carriages and locomotives. The price sounds like a bargain as does the two year completion date. Clearly, their planners see no problem with servitudes, rights of way, skills and materials shortages. Naturally, critics and sceptics have already appeared. A taxi industry chief has predicted violence if the new service causes his passengers to defect. Laughably the national Department of Transport has complained that they too were surprised by the announcement and want to see if it aligns with their national and local strategic transport plans. Their what? These are the chaps who have installed a computer system that has all but destroyed car registration and driver licensing. 
It seems that the African Development Bank is starting to get suspicious that the main intention of the Chinese in increasing their presence is to exploit the continent’s minerals and not to address poverty. No! You think? Surely not.
The curtain-raiser game ahead of tomorrow’s final will be a demonstration by the management of SA Rugby that they have a very poor grasp of the off-side rule. They are a talentless mob who look pathetic when they strut about in their undeserved  Green and Gold jackets.
Go Bulls.
James Greener
18th May 2007

Friday 11 May 2007

HE WHO PAYS THE PIPER DOESN’T GET INVITED


I believe that the chief reason that most of us agree to attend any meeting, function or gathering is the promise of some catering. A useful measure of the likely success of the get-together is determined by the ratio of the lavishness of the event to the cost for the participants. Dry sandwiches and things on sticks with a cash bar in the corner is a definite dud. However, the party in Nelspruit, jewel of Mpumalanga, at which a few hundred self-proclaimed VIPs celebrated the occasion of turning the first sod of the soccer stadium, must rank amongst the best of the year. Almost R1.5m of other people’s money (tax and rate payers I guess) ensured that very few who were there will have any recollection of the sod that was turned. However, all will look forward to the even bigger binge that will doubtless take place on the heady day when the stadium is actually completed (before 2010 we hope).
Despite the endorsement of the newly launched “Pimpjuice” by a senior politician from the ruling party, I doubt that there is much call for that particular beverage at these knees-ups. This non-carbonated sports drink is apparently named for “positive intellectually motivated persons”. This interpretation does not spring to mind when categorising the typical guests at a giant freebie of this nature.
I must admit that I thought that the National Treasury would mark the publication of the new tax forms with a glass or two of something fizzy but it seems to have been a laudable low-key event. I shall wait to see the forms before I pop a cork.
With suspicious regularity the All Share Index set another record high this week (it was on Monday) but has actually been range-trading between these new highs and the 28 000 level for almost a month. Whether this is a period of consolidation before another surge or the forming of a top, no one knows. What investors should be aware of is that so far in May the US dollar has firmed by almost 1% against the major European currencies (GBP, EUR & CHF). Against the Yen it has, however, done very little. Wall Street has at last stopped its almost unprecedented sequence of positive days and I am keen to see if this is a significant moment for the invisible whimpering bear. Something is happening, so keep a careful watch please.
Market news and gossip was dominated by two themes this week. Firstly, we enjoyed the story that at least one of the world’s major mining houses or something like that was being considered as a takeover target by one of the other ones or even by the world’s richest ukulele player or someone like that. This is probably another Pastorini event. That is, a market rumour which is characterised by little substance, scant truth and certainly no money. But the share prices ran nicely and alert punters made money. The second talking point was raised in the interim report from one of the country’s major furniture retailers. The increase in their provision for bad debts from within their sizable credit sales book raised eyebrows and fears that maybe this was sign that the South African consumer was starting to flag. Many of the company’s competitors say that they see no such thing so, as usual, confusion reigns.
Tomorrow Sharks and Bulls will be promoted to the status of the “Big Five” and tens of thousands of fans will be able to watch them in their natural habitat. This will be a unique event and it is hoped that it will end with a few dozen kiwis wishing they were not flightless.
James Greener
11th May 2007

Friday 4 May 2007

PREVIOUSLY UNQUALIFIED


Many years ago I failed utterly to make sense of the essay topic “History is Bunk” and earned scorn and rebuke from the teacher. Obviously, I have not forgotten the incident and it popped into my head this week when reading about how the current action of the Dow Jones index is reminiscent of the days prior to the 1929 stock market crash. Is a  market collapse now imminent? Probably not.
Most market forecasting methodologies depend on looking for historical precedent. Popular tools are price patterns, valuation levels, corporate financial health and overall economic conditions. This data and these techniques are used by professional and amateur fund managers alike, but I don’t think that any of them work consistently. Some evidence for this view can be found in a schedule of find manager performance which was published this week. Not one of them beat the All Share index over the past 12 months. Maybe it is time to have another stab at that essay.
Bears and sceptics are adept at compiling long lists of events and situations that are unfolding right now which in the past have caused markets to crash spectacularly. But so far, none of them are working this time. Very puzzling; but of course every time is different or else this would be an easy game.
As I understand it, one of the biggest differences this time is the massive wave of liquidity provided by our central banks. Who hasn’t looked across at well groomed young lady or grubby old man in the luxury car and wondered; “Where does the money come from?” I don’t know the answer to that question either but I do know that some of it is pouring into markets and until that stops the bears will go hungry. The index record high this shortened week looks set to happen today. Resources are pumping despite the strong rand dollar rate. That’s another shattered certainty!
The work being done by an outfit called the SA Qualifications Authority caught my eye. SAQA can spend three months checking the content of a 1982 degree-course in financial management from the University of Suffolk before deciding whether the holder will threaten the educational standards of this country. Presumably the unscrupulous local employer of the potentially untrained foreign job applicant has already decided that 25-odd years of experience is good enough, but thankfully, SAQA have the final say. The good news is that a 1985 Harvard engineering degree (the chaps who put a man on the moon) takes SAQA only days to check.
Here’s a good one. An application to install an urgently needed 24inch fuel pipeline from the coast to Joburg has been turned down by yet another quasi-government body. The reason they give is that it is their task to implement government policy but that “unfortunately the government has not indicated in a public document what its policy is.” That’s comforting.
Zimbabwe does not come to mind when thinking about examples of sustainable development (unless of course it is presidential tenure). It is therefore odd to see that chairmanship of the United Nation’s Commission on Sustainable Development is about to be awarded to our northerly neighbour. The world is neither flat nor round, it’s crooked.
I wonder what SAQA would feel about a 1977 degree in geophysics from the University of Exeter? How long before they conclude: “Ignore this man’s views on markets.”
James Greener
4th May 2007