A gentle glow of satisfaction was starting to pervade the bears on Wednesday evening as they watched the money channels on TV. Wall Street was looking very weak and it did appear as if the odd chicken was even coming home to roost. The JSE sagged in sympathy on Thursday morning and buyers were scarce. Then a few minutes before lunchtime, the news broke that BHP Billiton, the largest company on the JSE ranked by market capitalisation, had been spotted trying to persuade Rio Tinto that a merger of the two would be a match made in heaven.
What happened immediately was that the Billiton share price shot up – fast and far. This was followed closely by the Anglo share price. When these two behemoths sprint like that, the earth moves for all investors. The index climbed nearly 1000 points in seconds. Thereafter things got even more messy and complicated and mere words could not describe events. You had to be there, in front of the screens and in earshot of the screams. The talking head industry has seized on this topic with delight. One can now get a complete range of opinions on whether or not a merger would work. Political opinions, jaw-flapping and intervention are confidently expected next. Acres of weekend news print will be assigned to the story. Trees will fall.
The current position is that Anglo is once again the largest share on the JSE, the All Share index less than 400 points off the all time high, and the bears are back in the woods. Potential mega deals like this are of course the reason that investment banks exist and sometimes the deals become one of those rare “black swan” events that can demolish carefully crafted investment strategies. I do not entirely understand the various extreme price reactions to the news. What is certain, however, is that knowledgeable people in the commodities business believe that the demand for their products is not over and that good growth lies ahead.
We are staring to move into company reporting season again. Some of the recently listed ones with construction and building-related business have announced stellar results. In some cases the wonderful earnings have somewhat justified the terrifying valuations that the shares had been wearing. Nevertheless, these sectors still have very few obvious bargains. Ominously, however, it appears to be getting tougher to sell consumer durables to people who have to borrow money. A motor dealer this week complained that cars are not flying out of the showroom as fast as they used to. Credit-dependant furniture retailers are also slowing down quickly. The new money lending legislation is obviously having one of its intended effects of controlling individual indebtedness. The price of fuel is also making the idea of car ownership and indeed most travel unappealing. And that’s before you consider the implications of a plane discarding an engine during take off.
The papers today tell a rather sad little story about the response of the national broadcaster to complaints that the ball-by-ball cricket test commentary was absent from the usual radio channel. The response was “What is ball-by-ball commentary?” I suppose for some people, the appeal of cricket is as low as the appeal to me of televised proceedings of the debating chambers of the provincial and national legislatures. In my view, this is a complete waste of broadcasting bandwidth and at the very least should be tagged as unsuitable viewing for children and anyone who can read without moving their lips.
James Greener
9th November 2007
