Friday 28 September 2007

BEARS CITED FOR UNDERPERFORMANCE


So that’s the end of the month and the third quarter. Was that storm last night a cover-up for Santa’s practice laps around the circuit? The All Share index is skulking around its all-time high and a total return in September of nearly 5% looks likely. That nasty little 15% “correction” that scared us in August has been completely erased along with the credibility of us bears who thought we had spied the beginning of the end.
I was interested to read that the official view on inflation is that it will be tamed only next year. As this statement is so clearly an optimistic wild guess (sorry – considered carefully researched opinion) I wondered why it was offered. Perhaps they too have noticed the sharp upward spiral of commodity prices – especially oil and wheat – and also conclude that bad inflation news is inevitable. Now the approved (but in my opinion, incorrect and ineffective) official weapon in this fight is the cost of money. I think we can expect it to be increased at the next meeting of the MPC in two weeks time. The present strength of the rand may also be anticipating such a move.
The end of September sees the first step in the changes to the way that the tax man seizes a portion of the money that companies pay out as dividends. The rate for the secondary tax on companies (STC) will fall from 12.5% to 10%. In principal that should be good news. Shareholders ought in future to get the loot that in the past was flowing to the National Treasury. Maybe this is one reason for the particularly frisky nature of the bull on the JSE of late.
However, the variable-dividend preference share market would appear to be reacting in the opposite way to this change in the tax. Prices of those shares have softened noticeably in the past few weeks. I am puzzled by this move. This class of pref shares undertakes to pay a specific amount of dividend (related to the prime overdraft rate) per share per year to the shareholders and issuers have had to adjust their prospectus conditions to cater for this tax change. If that amount remains unchanged despite the tax rate decrease, why should the prices now fall? The average implied dividend yield of the shares in this category is now well above 10%pa. Maybe it’s the expected repo rate rise they are anticipating and nothing to do with tax.
I never realised that it was necessary to apply for a job as a member of a provincial sports team. I thought that if you were any good at the game someone would tap you on the shoulder and invite you to pop in for a try-out or something. So I was surprised to see the ad in the paper placed by Western Province Rugby (Pty) Ltd who are apparently in need of a tight-head prop. Perks of the post include a blue and white hooped jersey with your name and the number 3 tastefully embroidered on the back. Perhaps the most surprising part was that the ad felt it necessary to state that academic qualifications are not essential but great natural strength would be useful. My CV will stay in the file.
We can’t be certain that the ‘bokke wont again take the long way round to beat the USA in Montpellier on Sunday evening. It is not easy to watch this sub-prime sort of stuff. And then I suppose we will wake up on Wednesday morning to learn that one of the chaps has been cited for an alleged and unseen misdemeanour just minutes before the cut-off time. Unsettling. Someone out there fears the ‘bokke almost as much as the two McLaren drivers distrust each other.

James Greener
28th September 2007

Friday 21 September 2007

IS A PERMANENT BULL MARKET OUR HERITAGE?

Even though the All Share index has not yet set a record high this week, its impudent younger brother, the Top 40 index, has done so. Once again, bears are sporting egg- splattered faces. The main reason offered for week’s bullishness is that Governor Bernanke chose to drop US interest rates and surprised everyone with the aggression and style of the move.
This is the first time since taking over the job that Helicopter Ben has tugged on the big lever in the corner of his office at the Federal Reserve. He is the man who is on record as saying that dropping dollar bills from a helicopter is also a feasible central bank strategy for addressing monetary problems. He must have been sorely tempted to invite his predecessor Sir Alan for a short chopper flight this week. The aging alleged guru has been seizing the limelight with unhelpful commentary and a book of criticism about his former bosses. Tacky.
Another unappealing idea has turned out to be the system of quasi-government so-called Education and Training Authorities (SETA). Dozens of these things exist and each one feeds on levies raised from real businesses within different industries and sectors. Naturally, the quality of staff running these leech-like entities is highly variable and all too often stories of incompetence, corruption and larceny reach the news. One example appeared recently when the dullards that run the Transport SETA announced that they had written off their R252m investment in the disgraceful Fidentia Asset Management outfit that collapsed. Fair enough, anyone can make a bad call, but firstly to slip into the announcement that a further R2m from an internal fraud was also gone and secondly to claim that the Authority would still be able to meet all its commitments despite this shortfall is breathtaking arrogance. If this is true, why did they need so much money in the first place?
The notable feature of the futures close-out yesterday was that the JSE systems pretty much handled the massive volumes without any serious calamities. No particular price trend emerged during the event and I guess that traders were more focussed on domestic practicalities of getting the deals done than watching the overseas screens for news to panic or exult about. That came later in the day when the Proteas slid ungracefully from the Twenty 20 world cup event. I suggest that we get our money’s worth from these well-paid young men by assigning them to stadium security duties for the rest of the tournament. They should not now be permitted to withdraw to their golf-estates and watch on TV as the Aussies lift the darn trophy. With now only one sports team left in a world cup tournament, SA Breweries are probably correct in their forecast that the country will not run short of beer in the next few weeks.
More bad news for taxpayers appeared this morning in the form of a R70 000 advertising bill to allow the Department of Health to scold us for not appreciating them or their minister enough. Just do the job lads and you’ll get all the appreciation you deserve. And I hope that the Home Affairs department has noted that the Chinese are reportedly solving their problem of jobless rural citizens moving to the cities by sending them to Africa. That’s OK. Just don’t send the planes back empty please. In the markets we call it the switch trade.
The ‘bokke really should be able to make our Heritage Day long weekend and national braai day reasonably happy. Can anyone actually find Tonga on a map?
James Greener
21st September 2007

Friday 14 September 2007

SHOW ME MY MONEY

There’s a photograph whizzing around the internet today which shows an orderly but lengthy queue. The line begins inside the London City branch of one of Britain’s largest mortgage lending companies and winds down the street. This morning the company was reported to have been turned away empty-handed from the Bank of England when it asked if it could borrow a few quid. I doubt that the people in that and other queues reportedly forming elsewhere outside other branches of the company are rallying round to offer bundles of cash to the beleaguered institution. I would rather think they are trying to do the opposite and leave the premises with folding stuff that they will pop under the mattress for the time being. These are amazing scenes. That allegedly “small and contained” sub-prime debacle in the US is spreading its tentacles.
It is now quickly dawning on people who actually have money that considerable numbers of  their fellow citizens who have been borrowing it are really unable to meet the interest payments. More seriously, they are also not in any position to repay the principal amount either. This is because in the worst cases they have consumed it or because the assets they “invested in” have plunged in value. The intermediaries in this whole sorry mess are now suspected of being rather too cavalier in their promises to the lenders and rather sloppy in their evaluation of the borrowers. The fact that many of  those intermediaries have been seen to be standing up to their navels in fees and commissions during these last few years of alleged plenty is not improving tempers. The fear and greed pointer is sliding towards the F word.
In the US, the problems for the savers and investors is compounded by the fact that the dollars themselves that they are extricating from the ruins are falling in value against oil, gold and other currencies. The demand for “safe” US treasury paper has been so large that interest rates have been pushed down and that too is putting pressure on income. It is a mess.
I do believe that I am not being naive and complacent when I claim that domestically in SA there is no crisis of comparable size or severity lurking. Nevertheless, the banking shares on the JSE are being smashed and are leading the whole market away from the local peak it attained this week. The September futures “close-out” event takes place on Thursday afternoon and may be seen as a reason to ratchet up anxiety levels a notch or two. These are exceptionally interesting times.
Only the largest three gold mining companies of the dozen or so that are listed on the JSE seem actually to be making any money. This week I saw news of another one that hopes to get permission to reopen the ancient workings that used to define the southern edge of Johannesburg city. Mining is not for pessimists or sissies.  But I suppose this is another of those opportunities to “Unleash Your Investment Potential’ – whatever that might mean.
As well as trying to cope with unfolding events in the markets there are at last two international sporting tournaments clamouring for my attention. Now let’s get this straight. If England beat Australia this afternoon then the Aussies go home early. Come on England! But tonight we need to beat England ourselves so we don’t meet Australia in the semis. Whew! The marketing geniuses down at SA Breweries have replaced the old six-pack with the eight-pack. Not a moment too soon.
Have a wonderful safe sporting weekend and may your teams win (but not against us).
James Greener
14th September 2007

Friday 7 September 2007

SUMMER IS A’COMING IN. LOUD BLOW THE REF’S WHISTLE


I was not terribly reassured by the news that the banks’ own industry association had paid a quarterly subscription to the wrong organisation. Apparently it took four months before the R360 000 error was discovered. In the meantime, the rightful beneficiary had not noticed the shortfall and the lucky recipient had spent the unexpected loot. Requests from The Banking Association for the cash to be returned have been ignored.  It comes as no surprise that the free-spending outfit is run by politicians, and it is gloriously ironic that it is an organisation which, amongst other things, lobbies against high banking charges. I guess that charges will soon go up again chaps. There’s a loss to cover.
But the theme of carelessness with other people’s money is very strong and widespread at the moment. One fund after another all over the world has been telling their customers that they really should not call up and ask for their money back. It is only when the fund needs to sell their “investments’ in order to pay out those whining customers that everyone learns the awful truth that many of the bits of paper they hold are worth very very much less than they were being valued at. Oh dear.
That “pain index” measure that I have told you about before has recently been dropping back from the record highs it reached at the end of last month. However, this afternoon the USA released some data that has caused panic to break out and the bulls to flee. That number has the unromantic name of “non-farm payrolls” and today’s statistic suggests that Americans are losing their jobs. Now an unemployed American is undoubtedly less able to go shopping or pay off the mortgage and this is bad news for a world that has become dependant on the American population doing both those things with enthusiasm. Markets have swooned, the dollar has tanked and the gold price has broken above both $700 and R5000 per ounce. The pain index is definitely on the way up again. Traders on the wrong side of this move will be thronging the bars tonight seeking comfort in the bottle.
Investors now have a full weekend to absorb and digest this news and I would guess that the market weakness will continue on Monday when they do make that call they have been told not to make! Even conservative good quality portfolios here in SA will fall in value as speculators race for the exits. However, there is still no evidence that good companies are cutting or skipping dividends and so cash flows should remain healthy and can be accumulated for the excellent buying opportunities that I am sure will turn up, but  probably next year only.
Why did it take so long to confirm that the otherwise unprepossessing one and a half kilogram piece of stone was in fact a diamond? As I recall, the country’s first diamond find was confirmed when some clever chap in Grahamstown scratched his name on a windowpane with the gem. Nowadays one probably doesn’t have to travel to Lower Albany to find a suitable window, but the principle remains the same. Now we can look forward to so-called celebrities fighting over who is going to be able to afford to hang this particular bauble around whose neck.
At last, tonight the rugby world cup gets underway. It is a long haul from here and hopefully we will have interest in it right up to and beyond the final whistle. The warm weather has at last returned and the fridge is stocked. What more can we hope for? That the ‘bokke survive the Samoan encounter undamaged?
James Greener
7th September 2007