Thursday 28 June 2007

COLD AND UNHAPPY


There is a small but nevertheless rather savage bear roaming the markets suddenly. Whether he (or she) will grow in size and ferocity, we do not know. But even so, quite a few portfolios have been placed on the danger list and even some hedge funds overseas (and one local one) are reportedly mortally wounded and will never be seen again. I am sure, however, that the pull back is not yet sufficient or developed for any irresistible buying opportunities to have emerged. I am also confident that prudent and conservatively constructed portfolios of dividend paying shares will be able to ride out the storm without the need for any panic selling.
I note with despair that the politicians have again managed to fix something that was not really broken. The new Credit Act may have laudable and understandable motives of trying to protect naïve and ignorant folk from the clutches of the unscrupulous. However, stories are emerging that the Act has resulted in the virtual seizing up of a huge range of potential credit transactions. As usual, the main beneficiaries are the suppliers of paper, photocopying and certification services. This latter service seems to be the main duty of at least one constable (or perhaps even an inspector) at my police station. His conversation with his colleagues continues unabated as he steadily works his way through the piles of paper alternately mashing each page with a large rubber stamp and then flourishing his signature across the imprint. This process converts the photocopy into a sacred document willing accepted by compliance officers across the land, so that they can tick a box and be ready for the dreaded inspection. What I have yet to discover is the risk that this silly process is attempting to mitigate.
It would be so much better if that policeman was freed up and motivated to get out and catch the real criminals like the ones who earlier this week burst into the home of our friend and neighbour. She was bound, gagged and harassed for six hours before the assailants left in her car loaded with all the electronic goods, jewellery, cash and liquor. During her ordeal, she was told by the thugs that the ruling party’s failure to provide them with jobs and income was the reason for their criminal career. I doubt this is really true but it does reveal an interesting attitude among those who have realised that crime does pay these days. This is the second appalling criminal incident in three months that has been endured by a close friend who lives in our suburb. Our own recent brush with a burglar who smashed a large sliding glass door to get into our house took place fortunately while we were not at home. But it is enough, and we are making plans to leave this city.
Ever the analyst I was intrigued to hear that the thieves made off with our friend’s Digital Satellite TV decoder. Because of the encoding and enabling protocols required to make these things work I had always imagined that there was little incentive to steal them. However, with most soccer broadcasts soon moving to the pay channel the criminals must have found a way to overcome the blocking process and so hence the demand for decoders.
Tidemarks is early this week as I am taking a long weekend to go and see the snow. And to look for somewhere else to live.

James Greener
28th June 2007

Friday 22 June 2007

ALL PRESENTS NOW POLITICALLY INCORRECT


MPs may now accept gifts to a value of R1500 without the need to declare them. This amount is perfectly rigged to ensure that a presentation pack of Johnny Walker Blue with matching crystal glasses will slip beneath the radar. This gift price ceiling was last set in 2001 at a mere R350 which demonstrates that the actual as opposed to official rate of inflation these past 6 years has averaged 27%pa. What poor timing to reveal this information as the civil servant’s strike continues to bicker about single digit percentage wage increases.
At least two other organisations made the papers this week with their own sob story about not having enough money. Unlike the teachers and nurses, they both fail to make a convincing case for their existence let alone deserving any more cash, particularly and especially from the taxpayers. Both Business South Africa and Proudly South African seek membership subscriptions for most of their income and clearly their members have come to realise that they were not getting value for money.
THE national broadcaster has been handed a few hard lessons on this topic of value for money recently. In the finest tradition of snoozing and losing which they attempted to disguise with arrogant bluster they failed to acquire broadcast rights for the country’s popular domestic soccer matches. This will not have escaped the attention of the big spending advertisers so I guess a TV licence fee increase won’t be far off. No mention of saving money by firing the hopeless sports staff.
Continuing in the vein of matters which I think are interesting and scary but which the markets are laughing off as irrelevant, comes the USD3.2 bn loan that Bear Sterns (not the most propitious name for a finance house) is borrowing from Peter to pay Paul. This cash, they hope, will prevent Paul from running down to the market with a basket of bonds to see if there are any buyers for the bonds and if so, at what price. Bear Sterns obviously feel that this trip is unwise. The basket might turn out to be worth more than its contents. And if the market hears about this then quite a few houses of cards, might fall down. One of these houses is a hedge fund named “The High-Grade Structured Credit Strategies Enhanced Leverage Fund” that has reportedly already lost wads of money for its investors. Frankly, they really should have known better than to invest in something with a name like that. Watch this space.
During the 100 minute long close out event on Thursday, JSE turnover was running at around R3bn per hour. This rate is more than double the average normal rate and thankfully the systems seem to have survived. I suppose that one really ought to take this as a sign to load up on shares in the JSE itself, but I personally have a few prejudices about this particular monopoly and furthermore it is dreadfully overvalued already. The All Share did indeed set a new high during the futures close-out but has now gone to sleep as the aftermath of the close-out party and the advent of half term and tomorrow’s test match in Durban has cleared many dealing rooms.
As well as being the venue for a Botha family reunion, the test match will be an exciting event. Let’s hope that none of the crowd chooses to repeat history and pop down on to the field and attempt to adjust the ref’s attitude. Did you see Chairman Blatter and the SA Soccer  worthies beaming at the world from beneath their shiny and personalised hard hats at the site of a stadium this week? There didn’t seem to be any construction yet above knee height, so just what was the headgear for? Flying pigs?
James Greener
22nd June 2007

Friday 15 June 2007

SHAKEN BUT NOT STIRRED



This week has provided a degree course in volatility. From a 1-month low last Friday the All Share index today soared through to an all time high. Daily ranges of 400 points have been common but not relaxing for the short term traders. Once again I shall invoke my image of a large, energetic and joyful Golden Retriever bursting out of a lake and giving himself a vigorous and luxuriant shake. Water, weed, fur and slobber are widely and generously distributed. Distant bystanders admire the sight but are grateful not to be too close. So it is with this market which is shedding the less tenacious and determined speculators while investors are starting to worry about the smell of wet dog and paw marks on the carpets.
We are in a quiet spell for company reports but even so there are enough trading statements, cautionary announcements and good old fashioned rumours lurking about to keep the blood pumping. The so-called junior miners have been especially excitable. It is a sector that is suitable for only the fit, the nimble and the financially robust.
Away from the market I think the news is pretty bad and ought not to bullish, although of course I am obviously wrong about this. The civil servant’s strike has deteriorated into entrenched positions and increasingly wild and unsupportable claims on either side. Violence has erupted and as always the sick, poor and young are the greatest losers. It is odd that the so-called people’s government is taking such a hard-line stance. And of course, this is the government that never stops passing laws to enforce their own vision of how the rest of us should behave when we employ people.  
If the rand’s behaviour is any guide, foreigners too appear not to be concerned with developments in the streets, schools and hospitals. Our money has improved against most other currencies except the pound this week, even as the US dollar itself enjoyed a bit of support too.
Once again, the quarterly futures close-out event has come around and is being used by the cognoscenti as another reason for the bull’s health. Admittedly, the market does frequently peak during a close-out session, as mysterious and shadowy forces gather their gammas before thumping the thetas. Or something like that. It will take place next Thursday which I have already highlighted in the diary because it will be the winter solstice. Even though there will be the odd cold snap still to come, at least the days will begin to lengthen again and summer will be inevitable.
The only reason for having winter that I can see is that it is rugby season and the real stuff begins this weekend with the first Tri-Nations happening down in the shadow of The Mountain. With so much depth of talent to select from, Coach White really didn’t need that chat with President Mbeki about how to wallop the Wallabies.
The Gauteng Department of transport must be an unhappy place these days. Their plans for a monorail have been slapped down and now they have discovered that there is a finite number of ways to arrange three letters and three numbers to make up a GP number plate. The number of cars on the roads, however, is not finite. Fortunately the “user pays” principle can be invoked for this problem and car owners will be invited to spend much of 2008 in queues getting new plates. Can it be true that we will be returning to TJ numbers? I think I still have my old ones.
James Greener
15th June 2007

Friday 8 June 2007

IS THE BULL ABOUT TO GO ON STRIKE TOO?

Here in deepest Illovo I have been rather distanced from the violence and turmoil that is accompanying the strike by civil servants. Governor Mboweni seems to be similarly immune to the problems. When asked if his 50 bp hike in interest rates had taken into account the possible outcome of the strike, his answer was “No.” It was a good question and a surprising answer. The strike will end when a compromise emerges that will allow both sides to claim victory and save face. However that solution will definitely increase the government wage bill and this usually proves to be inflationary.  And that make the governor’s hand reach for the lever.
I am certain that most of us are very sympathetic to the need to raise substantially the pay levels of many of the categories of worker currently trying to draw our attention to their plight. However, there are also many workers who deserve no increase at all and indeed even their jobs should not exist.
The problem for them and us is that the state has imposed itself as broker and regulator for sizable chunks of the nation’s critical, vital and skilled services. Legislators materialise in multiple layers of administration that make token and futile attempts to ensure that the services are delivered evenly and fairly and that the taxpayer gets value for money. The main success of this morass, however, is to soak up as much of the value as possible as it flows from taxpayer to front line worker. It is well known that per capita this nation spends record amounts on education and health and yet we have little to show for it. I suggest that we should fire 85% of the civil “servants” whose day is not spent in direct contact with the customers and reward the remainder of the staff with 100% pay rises.
Some of the money we save from this exercise can be spent on trying to get some real truths about what the 2010 Soccer World Cup really will cost and what benefits it will deliver. Today’s press carries warning stories that we will not have enough food or fuel in the country to cater for the 330 000 expected sports tourists. Note firstly the distressing news that the unfolding calamity in our northern neighbour could see many times that number of refugees cross the Limpopo in the next few months. Is no one wondering about who will feed and transport these sad folk? As for 2010, I can guarantee that as long as the government doesn’t try to organise it, no one will go with out what they can pay for. My one concern is that the official beer sponsor does not, to my knowledge, actually brew anything deserving of the name. But probably someone will run a speakeasy for those of us deluded enough to need a Castle or two to keep our spirits up while watching the starving visitors walking to the stadium.
I have spent a good deal of this week in direct contact with my customers bombarding them with items in which my conviction that the market is looking terribly toppy has reached a squeaky crescendo. The story that an offer of a new share that will be listed next week was around 50 times oversubscribed does not dispel my fears that we are at a frothy peak. Don’t think that today’s weakness which has taken the all share index to just 4% off the all-time peak is “the correction”. The real bear market will be ten times more than that.
But even that will not be as torrid as the events that will be taking place between the front rows in the scrums at Ellis Park tomorrow.
James Greener
8th June 2007

Friday 1 June 2007

NUMBED BY NUMBERS


Even a small dealing room such as ours is packed with screens that deliver a non-stop flood of numbers, charts, pictures and stories. And when your eyes are tired you can turn up the sound on the TV and bathe your ears in a ceaseless wave of waffle punctuated with deeply irritating melody bites. Everyone has an opinion or a view or an interpretation of what these measurements of past events mean for the future. Some of us even hope that the numbers are sufficiently accurate or robust that they will withstand further manipulation. We slave over hot computers and confidently extract trends and talking points.
This week has delivered a deluge of digits to dissect. The most interesting and probably frightening were the SA inflation results which were much worse than everyone had expected. Bearing in mind that this environment of rapidly rising prices has already developed in the face of several interest rate hikes, I wonder why we are  so certain that the Reserve Bank will give the lever a solid tug upwards on Thursday. Why do we think that an increase in the cost of money will stop the increase in the cost of food or petrol or medicine or civil servants?
I enjoy the quarterly publication of the GDP numbers. There are dozens of fresh figures and reams of revisions of past data. I spend many happy hours loading them into the database and pressing the buttons that set the programs running. This week’s result reveals that in January to March of this year (yes – that long ago) our economy grew at a rather disappointing rate of 4.7%. The theory states that only when the GDP growth rate exceeds the population growth rate do we all get richer. I would guess that this ‘aint happening yet.
Almost a quarter of the 4.7% was provided by the economic sector labelled “finance, real estate and business services”. This is also the largest sector and comprises almost 20% of the economy. Naturally, the headlines were grabbed by the “construction” sector which continued its winning streak and scored 20% plus growth all on its own. (No wonder the average pe ratio of the JSE sector with the same name is very close to 30!). However, it remains a small contributor to the economy and added not even 0.7% to the 4.7% number. The most important result in my opinion is that the mining sector’s contribution was an appalling negative 0.5%. I don’t believe that it is a coincidence that this is the sector that would appear to have suffered the greatest amount of government interference in recent years. According to these figures the mining sector is now just 6% of the economy but still it should be adding to the country’s growth not dragging it down.
The market has seen a huge tussle between people who seem intent on doing some of that dragging down and those who have fresh batteries in the cattle prod that they keep jabbing into the bull. There were 8 days in May when the daily range of the all share index was greater than 400 points. This is character-building stuff. Suddenly we are all looking eastwards for our cue and the Shanghai index is on everyone’s watch list. I wonder when the JSE is going to suggest that they should open the market at 5 am to get some trading time overlap. This would be an unpopular move with people like me and I would remind them that they seem to be having great difficulties in getting their system to operate for the present market hours without adding anymore.
“And after Bloemfontein, gentlemen of the English touring party, we would like to introduce you to Loftus. Have a nice day.”
James Greener
1st June 2007