BEARING UP – OR IS THAT DOWN?

I think that one of the best medium-term investment decisions that I made this year was not to renew my season tickets to the Wanderers cricket ground. Not only are there distressingly few Proteas’ matches scheduled there but the team itself is tending to become uncomfortable to watch.

On the other hand, my long-standing view that the US markets will lead the way down for the rest of the world is proving much harder to claim as a success. There were several occasions when I was sure it was about to happen in a big way, but only single digit percentage “corrections” appeared in 2007 to tease the bears. I have not been surprised by the nature of the woes that so far have crept across the US financial scene. It never seemed to be a good idea to allow people to borrow money against the collateral of massively overpriced homes. Further, everyone seemed to acknowledge happily that the some of the borrowers had little ability and no desire to repay the loans. But the financial engineers, the propellers on their beanies whirring, laundered and packaged this toxic waste and swiftly sold it on, ultimately to naïve investors living next door to the insolvent borrowers. The whammy was doubled, redoubled and definitely vulnerable. I have been surprised by the lack of any large reaction by the markets to these revelations and now I am being surprised and appalled by the levels of deceit and dishonesty that seemingly pervaded the industry. I claim to have international standards in the skill of cynicism but events in 2007 have left me astonished. Bring me my machine gun.

It is the time of year when forests are sacrificed to the meaningless cause of providing space for analysts to list their predictions for 2008. 2007 will be the fifth consecutive year in which the All Share index has delivered a substantial positive total return. Lengthy and strong bull runs like this are rare, but that in no way suggests or ensures that 2008 will be a down year for the JSE. Valuations are near the top end of their historical ranges but then the infrastructural spending and development that is going on in the country is also at record levels. This might underpin the industrial sector activity and sentiment for a while longer.

Miraculously, the government’s National Credit Act seems to have arrived in the nick of time to reduce the possibility that SA suffered a debt debacle like the ones we see elsewhere. This removes at least one reason why 2008 could be a bad year for the financial sector.

There is no doubt that the world is consuming resources at a rate which is generally unmatched by the coming on-stream of new supplies and so prices of most commodities are rising. However, with many of these products priced in US dollars the rises that have been experienced also owe something to the weakness of that currency. To these two factors, add the movements of the rand and the world-wide corporate activity in this sector and you tend to get the feeling that resource share prices might go up rather than down in the next year.

Please note that no trees were harmed in the production and dissemination of these wild guesses – unless of course you printed it out yourself in which case your carbon footprint has gone up one size.

Whatever happens it will be a fascinating, infuriating and entertaining new year in the markets. For you and your family may it also be a healthy, safe and prosperous one.

James Greener

28^th December 2007

MERRY CHRISTMAS

I began this comment determined to try and sort out which of the various wild moves and reactions in the markets were due to the Zuma effect, the amazing bouncing dollar, the futures close out event, inflation worries, holiday indifference, or other mysterious yuletide forces. I soon realised that firstly, it would be an impossible task and secondly no one is really that interested. There have been numerous sightings of a bear in a Santa Claus suit, but he hasn’t yet appeared out in the open. It does, however, look as if December will not be the best month of the year for the JSE. Nevertheless, the year’s overall performance will still be much higher than inflation, showing once again, that it is important always to have a reasonable fraction of one’s investable assets at work in the share market.

But this is getting all too serious and businesslike. It is Christmas time, the offices are almost empty, the fridges are full and I hope your family (well, the ones you like anyway) is gathering around you. Please enjoy a very happy, safe and peaceful holiday.

James Greener

21^st December 2007

BLACKING OUT

This is suddenly starting to look and feel like a proper bear market. The All Share is off almost 2000 points in three days and has tested the November lows. Nothing especially scary has happened at home, so presumably sellers are taking their cue from the amazing developments offshore. US Federal Reserve Governor, Helicopter Ben Bernanke, has cranked up the chopper and is about to begin his promised flight over the country dropping money. He has also arranged to scramble several other members of Central Bank Squadron and even the Swiss have joined the European Central Bank, the Bank of England, and the Bank of Canada in showering their nations with cash at bargain prices. These unprecedented activities are a desperate attempt to unblock the credit squeeze that is slowing things up so badly. Investors are obviously not convinced that this will work and believe that company profits will plunge regardless and they would therefore rather not own any shares. It is all looking very messy.

Recall that the trigger for this crisis was the coming home to roost of  US chickens who unsurprisingly decided that they would prefer to spend their meagre earnings on food before servicing their complicated and newly expensive mortgages. Most of us believed that there was no similar problem of “sub-prime” lending happening down here on the southern tip. However, I was very alarmed to read this week that a local bank had securitised R2.4bn worth of “low-cost” housing loans. These were sold with boastful ease to a number of eager fund managers. The mystery is solved when you learn that these bundles of potential ‘toxic waste” come with a colourful certificate to hang in the foyer and a number of Brownie Points that can be added to the buyer’s financial sector charter obligation scorecard. All this state-allocation of resources is going to end in tears, I am sure.

Without commenting further on the quaint global practice of giving female names to machines that bore, it was fun to see the pictures of hard-hatted and reflecting-jacketed worthies peering into a large hole in Rosebank. They were there to bestow the name Imbokodo on Gautrain’s very own boring machine. Whether or not this is a woman’s name I am not sure and neither it seems does anyone else. There was, however, quite a lot about struggle heroines and striking rocks and I am sure that dear Imbokodo has a lot of both ahead of her.

It was also a struggle doing business in South Africa this week as Eskom decided to show off its inability to supply sufficient power by organising “load shedding” events across the country. Even the aluminium smelting plants in Richards Bay were not immune to being cut off and they are among Eskom’s favoured customers. I am still amazed at the official insistence that another big plant like these will definitely soon be announced for the Coega area. In the meantime, however, the chaps down there in the Eastern Cape have hedged themselves by signing up an American aquaculture outfit who they say will open a prawn farm. I doubt that the reported figure of more than 11 000 employees can be correct, but if so, we should soon all be dining on crustaceans rather than mielies.

Power problems at home this week were  exacerbated when cable thieves ripped several lengths of copper cabling from the distribution poles in the street and left us in candlelight. Fortunately, I was able to transfer the beer to a gas camping fridge so it was not a total catastrophe.

The week in the Kruger was very calm and relaxing. There were no once in a lifetime sightings but I did enjoy a pair of ground hornbills. The Jane Goodall chimpanzee refuge near Nelspruit is fantastic.

James Greener

14^th December 2007