Friday 31 August 2007

THINGS ARE GETTING OLD AND SMELLY


I have had lots of fun catching up with all the market activity that took place while I was away. Prices have been all over the place haven’t they? As expected, the stories from the US of A tell of rapidly growing piles of rotting investments although amazingly, so far, not too much has been unearthed in their equities markets. I am, certain, however, that the soft and nasty stuff is there and will stink all the worse for being left so long in the dark. Nothing especially bad in any market here in SA has yet been reported and hopefully we are in better shape. I do, however, think that we are being rather naïve about our currency.
For several reasons, most of us focus on how many rands we need to buy a US dollar and it has been around the level of just over 7 for so long now that it sort of feels “right”. Against other currencies, however, there is no cause for such misplaced and benign complacency. The rand is a runt.
Although ridiculed by more sophisticated analysts than I, the behaviour of the price of  a well-known metal called gold provides an interesting and frightening measure of what has happened to our money. These days you need more rands than ever before to buy yourself some of this gold. In fact something like R153 000 per kg (and you thought biltong was expensive!) Smart folk will ask why you would want to and my simple reply is that 18 months ago, a kilo of gold cost just R100 000, and it was half that price when we were welcoming the new millennium. Now before you race out and fill your boots with the metal, I should point out that the stock market has performed even better than that in this time. That of course is the same as saying that the JSE has provided a positive return after inflation. This note is just an illustration of the falling worth of our currency.
Talking of stuff that has gone down the drain, what are we to make of the Gauteng Government’s call for tenders to provide a Status Quo Analysis of the Municipal Sewerage Treatment Plants (sic) Capacity? Don’t we have anyone working for those municipalities who can do that as part of their job anyway? Can’t they be trusted to tell us the depth of ordure we are in?
One of the cell phone network operators reported this week and the fact that they have 13.5m subscribers in SA alone is not entirely good news. You may have noticed that the bureaucrats got their way and phone FICA is upon us. In what we are assured is a move to bust crime, every cell phone owner will have to provide the usual nonsense of certified copies of ID, address (so the crooks will know where to go to get which model phone) and doubtless other guff. Chalk up a plus for photocopier and paper and storage suppliers, but a huge minus for the time and cost of this stupidity. Can’t you just see the mess when you take your papers to one shop only to be warned months later by some call centre in India that they have been lost and your phone will be blocked! Who believes this will have any effect on decreasing crime? Not me. In fact I predict an increase in the assault of cell phone shop staff.
Also in need of  some firm clips around the ear are the buffoons who scheduled the Twenty-20 Cricket World Cup at the same time as the Rugby event. Circus Cricket hadn’t even been invented four years ago so could it have been all that hard to have glanced at a calendar and picked something different from 2007?
The trip to see the Namaqua flowers was a great success although it was a bit alarming to look around at one fellow tourists and realise that this trip is a sort of rite of passage for greying empty-nesters!
James Greener
31st August 2007

Wednesday 15 August 2007

DEAD WOOD, BOUNCING MARKETS & INTERESTING TIMES


I did warn that my leave commitments in August would probably mean a lengthy break in the production of Tidemarks. However, there is so much happening now that I could not resist popping in to the office to jot down a few thoughts.
Naturally, the premier story is about the markets where eye-popping price moves have seized everyone’s attention and some people’s wallets. It seems that my long-standing suspicions that things were going bad in the US housing and debt markets are turning out to be correct. I am a bit embarrassed to admit that I am really enjoying the stories and reports of astonishment, anguish, apoplexy, and arrogance that are increasingly coming to light. Unfortunately, there are innocent victims at the end of the food chain who are now finding out that they had been paying too much attention and far too many fees to investment “experts” who knew no more than anyone else what the future held in store. In an alarming number of examples, it seems that investors were being encouraged to buy instruments of such dazzling complexity that no one knew what they were or especially what they were worth. Almost nothing is the answer to the last question in most cases. And my greatest glee is reserved for those asinine comments from glib spokesman who assure us that the $20bn loss that they have (so far) admitted to have taken in this or that department will have no impact at all on their overall business. If this is so, why were they involved in that area of activity in the first place?  
These announcements display the same level of contempt for their audience that our own state-owned airline did with the news that they would in future not serve any alcohol to passengers on domestic flights before noon. This move, the statement smoothly assured us, “was aimed at improving customer service and comfort”. I beg your pardon? Just how does the denial of a comforting service improve that service? That outfit is doomed.
Why is it that innovative investment instruments are launched in the market at the very moment when most investors are thinking about running away? In the next few weeks, two interesting new Exchange Traded Funds (ETFs) will be listed. One will track the SA Listed Property Index (J253) and the other the Dividend Plus (J259) index. One can spend an unprofitable few hours researching the construction and behaviour of these indices in order to decide whether they suit your portfolio, but the reality is that they will pretty much deliver what they promise. Readers know that I rather like these things, with the proviso that there are occasions when one would choose not to increase exposure to the markets in any way at all. There is an opportunity to climb aboard these funds at their launch and so avoid dealing costs. This is always a tempting offer but should not prevent you first thinking if now is when you want to buy them. For me, the Dividend Plus is the more intriguing of the two, but its price will still fall if, as I think, the present market corrections are still far from over.
Before leaving on my trip to view the living and vibrant spring flowers on the West coast I invite you to consider the following challenge thrown down by a political group yesterday. It concerns the invitation to identify “untouchable deadwood” within the cabinet and “to provide evidence to any dereliction of duty by any deceased or current serving minister.” Might I be so bold as to suggest that any deceased minister is no longer doing a good job and is undoubtedly deadwood? Don’t get me started on the living ones.
James Greener
15th August 2007

Friday 3 August 2007

FLOWERY BEAR

You will not be surprised to learn that the “pain index’ that I calculate for JSE market from time to time is soaring way up towards record highs. This indicator tries to quantify the losses that could be suffered by a short term trader who managed to get the intra-day and day to day market moves utterly wrong. In the past ten trading days there have been seven with a range in the All Share index of more than about 500 points. The first day of August bared its teeth with a massive 986 point range. These are huge and savage moves, especially when superimposed on the absolute decline of almost 2500 points that has hurt even conservative investors. Fortunately, only the insanely unlucky punters will have suffered all of the pain but there have still been enough injuries for the stretcher parties to have been needed here and there. We have yet to see any local reports like those emanating from the US where funds have told their clients not to bother asking for their money back as there isn’t any left!
I think that neither these bouts of massive volatility nor the sharp declines are over. This is the reason for my reluctance to suggest that anyone commit large amounts of new money to the market at this time. Just be patient and wait for the better values that will certainly reappear in due course. Existing portfolios that have reasonably balanced holdings in well-managed dividend-paying companies can sit out this storm. Inevitably investors will see valuations fall for a while but probably not below where they were even two years ago. In my view there is little merit is trying to get too clever and sell off large chunks of the portfolio with the intention of buying it back when the bear has done his worst. Firstly, I note that perfect timing is probably impossible and secondly, capital gains tax and dealing costs are eager supporters of frequent trading strategies! If you are convinced that the market is going to plunge a long way and would like to benefit from that move, then there are derivative products on the JSE that allow you to place that bet. And betting is what it amounts to.
While watching a program about China’s preparations for next year’s Olympic Games I began to wonder why had not yet seen any speculation about will happen in that country when it is over. Down here in SA, we have already expended acres of newsprint and gales of hot air on fretting about post-2010. Might the global slowdown begin when the flame goes out in Beijing next year?
Local slowdown, however, is not evident as the reporting season hots up and double-digit earnings growth rates are being trumpeted by all sectors. Construction company growth rates are even threatening to get into treble figures!
I do not expect to be able to send you Tidemarks for the next three weeks. Firstly, in unison with most of the nation, I have decided that the Women’s Day public holiday next Thursday would be discriminatory unless accompanied by a Man’s Day on Friday. I will be using that long weekend to carry out an experiment into the travelling qualities of Castle lager by transporting several cases to the Umfolozi. This, however, will not be the end of my self-indulgence. Immediately thereafter, I shall be off to Namaqualand. With luck, the spring flowers will be in bloom and shares will be far from my mind. Please keep good care of the markets during my absence and ensure that there will be something for me to write about when I return.
Keep safe.
James Greener
3rd August 2007