Friday 12 December 2008

THE BUMPY ROAD TO CHRISTMAS

Governor Mboweni seemed rather distracted yesterday when he rambled his way through the speech and finally got to the bit about cutting rates by a half percent. His heart was clearly not in the task and he almost failed to read out the crucial bit. Perhaps he, like the rest of us, has no interest in the long list of meaningless numbers and alleged facts and statistics that someone has laboriously copied onto the page for him. Or maybe he is looking forward to a spell in a garish shirt on the beach close to a supply of drinks with fruit and little umbrellas in them.
In fact no one was that worried by what our central bank governor had to say but strangely later in the day everyone panicked on the news that the US government decided that it was not keen to hand over cash to the chaps who make cars that US citizens don’t buy. The issues about supporting that once great industry are deep and complex and I am sure that other areas of manufacturing will soon also be getting on their bikes to Washington with a hard-luck story. Understandably these metal-bashers are aggrieved that the bankers were right at the front of the queue and received considerable state-support for their anxiety about their vulnerable bonuses. They just can’t understand why no one will send Ben Bernanke to hover over Detroit with large sacks of notes
For most of the week JSE investors chose to declare that the bear was dead and that they could see nothing but value wherever they looked. Resource shares enjoyed particular attention. The All Share index made a determined run at the 22 000 level. But the aforementioned news has reversed things a bit as we start the silly season. Next Tuesday’s public holiday really sets the mood until about the middle of January!
It would be interesting to compile a list of events that are alleged to have caused a noticeable reaction in the markets in these last few months of overall collapse. I suspect that there has been no predictable response in the various markets to items which were apparently broadly similar. One day a failing bank is bullish the next day a flailing regulator is bearish. One day tax collection shortfalls are good news but then the next day the rising government borrowing requirement is bad for interest rates. But through all this noise there shines one crystal clear signal. Business is slowing down quickly and profit growth if not profits themselves are under severe threat.
One day of course this economic cycle will reach the bottom and a recovery will start. It is alleged in some circles that the market’s recent recovery is an example of its ability to forecast the future. In other words the market now judges that the worst is over and it can see that bottom if not the recovery already. We bears are never sure about this. We fret about pessimistic trading statements and rising unemployment and are doubtful that the prime interest rate at 15% rather than 15.5% will have any effect except to make income earners feel poorer and less inclined to spend. We also are horrified by having one’s neighbours dying of thirst and illness and feel that denial is an appalling response. I therefore see no need to rush about buying into this run which I believe will soon become exhausted. Just wait for those pull back periods and new lows and resume the nibbling and topping-up program.
The next edition of Tidemarks will I hope be written while gazing at the Indian Ocean over the keyboard. When that will be is hard to predict, however, as the forthcoming house move is not unfolding as a smooth and well-marked highway. Internet connection is one of the many potholes to be negotiated. Getting the fridge plugged in and the Castle quarts into it enjoys a much higher priority.
James Greener
12th December 2008.

Friday 5 December 2008

SOLID SUPPORT DISCARDED


The UK base rate was crushed down to 2% this week and the pound sterling disappeared into a hole, losing more than 5% of its value against most other currencies including our own battered runt. Dropping interest rates would appear to be the only remedy occurring to central bankers when they watch with horror as people stop spending and start saving. The concept of punishing the wise and encouraging the profligate is rather cruel and unusual and I think that somewhere there are rules against that sort of thing.
But rules are discarded when the leaders sense that they are in great danger of it being found out that they really are powerless against the momentum of the approaching recession. They will of course deny that they and their predecessors of the last few decades were responsible for the endless and numerous small tweaks of policy that have slowly accumulated until the present crisis became inevitable.
My opinion that the political allocation of resources is unsustainable is now getting tested. Suddenly several of the world’s most important economies have reached the point where too many citizens were benefiting while too few were contributing.  It is simply not possible for everyone simultaneously to ignore the boring old saws like “neither a lender nor a borrower be” or “ save for a rainy day” or even “buy cheap and sell expensive, but not necessarily in that order”. It is of course simply splendid if you are one of those who can travel upstream against this wisdom for a while and to do so is one of the great benefits of entering a career in politics.
But now the contributors are losing their jobs and their homes and that will mean that the beneficiaries will soon also start to feel chilly which is why they are frantically yelling at people over at the central bank to turn up the heat. In the USA the president-elect appears to have given Governor Bernanke instructions to get the engines on the helicopter warmed up and the sacks of money loaded. Inauguration Day in Washington will see the crowds showered with dollar bills. No wonder it is a sell-out affair.
Although it might feel as if the JSE has been indulging in a bit of a recovery the truth is that it has been a bad week for most of the big names. The all share index is hovering about midway between its recent high and low points. There is no reason to believe that the bear has been banished to his lair. With next week’s interest rate announcement by Governor Mboweni and futures close out a week after that there are still several matters available in 2008 for investors to fret over. Share volumes have not yet really displayed any sign of slumping into their holiday trough. Stockbrokers are obviously still making a decent living.
The elderly are, however, battling in this environment. Why else would Mr Roderick Stewart be strutting around a large stage last night rasping out his greatest hits? It was wonderful to attend a gathering at Kings Park where the star was older than me but I did rather worry about him slipping on the wet stage and breaking a hip or something as he scrambled about collecting the female undergarments being thrown at him. Given the average age of the audience some of the flimsies looked rather stouter than he might have wished.
This weekend’s ball sport is golf from Sun City. I shall watch if only for the sight of blue skies and the great yellow orb. This Durban overcast weather is getting tiresome.
James Greener
5th December 2008.

Friday 28 November 2008

TEA FOR TWO TOO MUCH



I would not be surprised if it turns out that the JSE has just scored its greatest ever one week gain. With a leap of almost 10% in just five trading days it certainly justifies today’s headline that we are enjoying a rally. I do not, however, think that it signals the end of the bear market. Nothing fundamental has changed in the global picture this week. Despite the frantic actions by many overseas central banks, who are hosing down their financial sectors with great streams of cash, the fact remains that the balance sheets of everyone from the city dog catcher to the great Citibank itself are in poor shape. And confidence is in tatters. My belief is that these things will take respectable periods of time to repair and it really doesn’t help anyone (except perhaps banker’s bonus cheques) to see money supply growth soar into the stratosphere. Word has it that the price of cash in the US may fall to zero next year. The only help that will be in the short term probably will be to make the compound interest formulae so much simpler. It may also prove to be a fatal blow for the dollar which perhaps already is showing signs that its 2008 rally has reached the end of the road. Who will want to own a currency that pays no interest?
Back here one can with luck persuade a bank to pay you double digit rates, but that of course is still below inflation and so lacks very much appeal. In less than two weeks the Big Shy Man of Pretoria will plod up to the podium and reveal his final ideas about the repo rate for 2008. Some analysts have claimed that inflation is yesterday’s problem and expect that SA will join the rest of the world in pushing rates down. While I must admit that I seem still to be living in yesterday, I do agree that a rate cut is possible. That would probably cheer up the share market bulls.
It should be noted, however, that the current recovery is not widespread throughout the sectors. There is a distinctly resources-only slant to the bounce and my guess is that BHP Billiton is nearly solely responsible for getting the All Share index from 18 000 to almost 22 000. The market just loved the news that it was giving up on its attempt to buy Rio Tinto.
I am intrigued by the stories that gold coins have become virtually unobtainable. This has had the effect of pushing the price of Krugerrands as much as 10% above their intrinsic value, but the easily traded NewGold exchange-traded securities are at a discount. It is alleged that hedge funds who owned these latter assets are big sellers of them in order to cope with redemption requests from exiting investors. This is a much neglected corner of the market. Sell Krugers and buy NewGold?
The most amazing fact to emerge from an interview conducted at a Sandton hotel with some luminary from the accounting profession, published in today’s paper is that she and her interviewer sat down to a cup of tea and a few eats and coughed up R300 (excluding tip) for the experience! The interviewee’s mission is to attract the young to the profession. Catering like that should have them queuing up.
Thank you to those of you who noted that my birthday must have been far happier than anticipated in view of the wonderful ‘bok performance at Twickenham. Sadly now until the Super 14 starts in February(!) all we can do is stare in horror and amazement as politicians and other malignant organs fret about which breast the ‘bok emblem should grace. Well, how about awarding it to only those who have earned it, who can decide for themselves where to place it and are not inclined to vomit on it? If you want proteas, go to Kirstenbosch.
James Greener
28th November 2008.

Friday 21 November 2008

SINKING MARKETS SINKING PIRATES

This is a bear market. That means that there are more sellers than buyers and at the moment there are actually quite a lot of sellers and buyers have all but become an endangered species. Every participant has their own array of reasons for adopting their position but I would think that for many of the sellers it is a desire to raise cash as quickly as possible because that would seem to be something that is going to become very scarce. For the same reason, buyers are holding on to their money and are not going to spend it on very much more than paying off debt and surviving as economically and frugally as possible. Jobs and income are disappearing.
In my view the seeds of the current crisis were planted when governments began to believe in their ability to interfere constructively in the way that people lived their lives. The most pernicious and lethal of their activities has recently occurred in the financial realm where they hoped to impress voters by instructing people who have wealth to relax their own standards about sharing it with to those who have less. Here on the southern tip the current form of this scheme lurks behind the word “transformation”. An earlier equally appalling system chose the phrase “separate but equal” to disguise the reality.  The political allocation of resources assumes many guises but there can be few success stories. For a short and glorious time it seems that almost everyone is hitching a luxury ride aboard inflating bubbles. But now there is a roar of popping and escaping air.
However, those people with a salary and pension fund paid for from taxes have yet to feel any pain. Therefore they continue to travel and meet and talk and declare that pouring ever more public money into bottomless pits is the solution to restoring people’s confidence about the future. Hampering them a little is the scary sight of declining tax revenues and it looks as if their lifestyles and plans will continue only if they are able to borrow the cash. At the moment there is a happy coincidence of this borrowing requirement and investors’ “flight to quality” in the form of government bonds. This situation may not last long. There is little sense in continuing to lend money at interest rates below inflation. Our own National Treasury think that they will borrow offshore. I sense a foreign road show coming up. What will they answer when asked who the next president will be? The wrong answer could add a few points to the rate!
There is of course some good news in the share market’s pull back. It simply means that one can contemplate taking another small nibble at some of the quality counters that are undoubtedly better value now than they were a few days ago. Have you noticed that Anglo, now only the third biggest share on the JSE (behind BAT and Billton), is in danger of being pushed into fourth place by SAB? Be aware also that the current round of company result announcements is throwing up some disappointments in the form of lower earnings.
Not only are the Indians giving the Aussies and now England a cricket lesson they also won my admiration for sinking the pirate “mother ship” that was operating a little way up the coast from here. Somalia itself might be lawless but out there on the ocean, cannons rule. Yo ho ho. Etc.
I think that I may need to be alone to watch the England game tomorrow. Being in the company of possibly equally outraged and disgruntled fellow ‘bok supporters will be a bad way to spend my last hours in my fifties. Mind you, it might result in SAB securing bronze.
James Greener
21st November 2008.

Friday 14 November 2008

COPING WITH A DOWNGRADE


So by Monday, the world will be back on track. Lenders will be lending, borrowers will be borrowing, consumers will be consuming and politicians and bureaucrats will be rewarding themselves for having done a good job. The most powerful people on the planet are going to Washington this weekend to sort things out. We mere mortals may relax and leave it to them. Why at any of their many previous meetings the great and good failed to spot or do something about this economic slowdown will not be explained. Presumably they missed some vital factors or needed to break for lunch early or someone had to catch a plane and so nothing effective happened. To be fair I don’t believe that these guys and girls can do very much and what they ought to do, they won’t. This weekend will see gales of hot air, jostling for air time at the podium and a last group photo with the old guy in the White House. There will of course have to be a similar gathering in the New Year so that everyone gets an opportunity to meet the new guy. It will important for the political memoirs to have a picture of oneself shaking hands with him.
What isn’t on track however, is the way that these incompetent and wicked rating agencies are daring to suggest that South Africa might just possibly becoming a less desirable place to send ones money. Now I do have a great deal of sympathy with the fellows at National Treasury who claim to be affronted by these downgrades. I have no faith in the skill of these agencies to forecast the financial future of any entity. Their records contain some delightfully spectacular failures; for example it seems that much of the toxic waste that recently destroyed the investment banks had been accorded top quality status by these agencies. That they are often paid to carry out the rating by the one being rated makes me suspicious, and since they are really trying to signal a simple can pay / wont pay scenario why do they need all those letters  from triple A to double D that remind one of a lingerie department? Nevertheless I don’t remember anyone carping about these agencies when they were doling out upgrades. For all our sakes I really do hope that there is no local borrower about to renege on their foreign debt. It does us all great harm if that were to happen.
The JSE has been causing great harm to most people trying to make a quick profit. The short term gyrations have been huge and as always unpredictable. On average the All Share index remains about 40% off its highs and about 5% off the most recent lows. Resources have been the biggest losers.
Also amazingly unpredictable has been the oil price. Few folk thought it would ever be this low again. I too suggested that the producers had become so pleased with all the extra loot that the high prices were bringing in that they would do everything they could to stop it falling. But now at $60 a barrel I think we might begin to hear sad stories from those people who thought it would be fun to live on an island that looked like a palm tree from space. And us recession-bound westerners hoping for some bale-out cash from their sovereign funds – forget it!
Someone should introduce the founders of our newest political party to that anagram computer program. Just feed in the letters of all the words that they would like to use like congress and Africa and people and South and national and see what pops out. It must be very discouraging when your thrusting new group can come up with nothing better than COPE. That’s a rather weak idea for dealing with the country’s problems.
I am returning to my roots this weekend with a quick trip to Grahamstown. A beer at the Rat watching the Scotland match sounds good.
James Greener
14th November 2008.

Friday 7 November 2008

BARRACK ROOM DRAMA


I am delighted to see the end of the tired and seemingly inept and corrupt dynasty that has been in power in the US for what feels like a very long time. But the gales of waffle about what the new team will do and how they are going to return the world to prosperity and peace by next Thursday put me in mind of an English king getting his trousers soaked by a rising tide.
Many people around the world do not yet realise it, but they are now at the foot of a very long and steep learning curve. The most famous of them all is the US president elect who has begun a series of meetings, where it will be explained to him just what comes with the chair next to the window in the Oval Office. Since neither candidate displayed much grasp of the concept “insolvent” during their campaigns I would just love to be a fly on the wall when the fellows from the treasury show him the empty cash box and the list of foreign creditors. From that meeting he moves on to meet the uniforms who are bursting to bend his ear about bigger and better toys for killing people he didn’t know he was supposed to hate. By the end of these briefings he may well decide that the campaign motto of “change” is more appropriate to changing his mind about wanting the job.
Other folk losing their footing, even on the nursery slopes of their learning curve, are investors who are discovering that however welcome and history-making the new man is, he is also a left-wing politician and believes passionately in the Robin Hood model. This translates into more and bigger taxes and more and bigger government officials who are eager to help distribute the cash to needy cases that they believe they alone can identify. Provided, of course, that their own needs are first addressed with suitable salaries and perks.
And then there are the millions of folk on this continent who believe that because the new chap has relatives here, we can expect Airforce One to appear in our skies at any moment. It will of course be stuffed with sacks of folding money and instructions to the crew to fill the upturned palms that are such a part of the local landscape. Quite a lot of learning going to happen here too I think.
Central bankers world-wide seem to be missing the point. Interest rates are being slashed – has our own man been watching and taking notes – in the hope that people will borrow money and spend it. One article suggests that the planet is moving towards a zero interest rate scenario. As a hungry member of the baby-boomers-now-reliant-on-income-from-savings brigade this is a terrifying prospect! Also terrifying is that the very people who half a dozen years ago sewed the seeds for this mess by encouraging banks to lend without asking questions are now the ones gracing the screens with remedies against recession.
It is always hard to understand share prices, but oddly enough in this turmoil where the indices are 40% and more off their highs it seems reasonable to expect that on a five year view, portfolio returns could be respectable. If they turn out to be negative on that time scale then we are all indeed doomed and I will be long gone. Gentle buying at this time would not be discouraged but don’t expect miracles by Christmas.
Thank goodness there is some rugby to watch this weekend. The cricket has been dire and the wind is blowing so hard down here in the kingdom that any activity on the beach is a non-starter. I am not the shape to consider kite surfing.
James Greener
7th November 2008.

Saturday 1 November 2008

AT LEAST OCTOBER IS NOW OVER


Tonight’s Halloween ghosts, gremlins and ghouls are going to have a hard time finding people to scare. Anyone watching the markets in the last few months has been experiencing the most terrifying times ever seen on the planet. A spot of ectoplasm oozing across the floor, bat wings brushing the face, skeletons in the closet and candle-lit faces inside vegetables are trivial compared to what we have witnessed. This week’s bounce was incredibly sharp and the phones lit up with investors worried that they had missed the bottom. No they have not.  I feel that the bottom is still a long way off in time if not necessarily all that far in price.
But this last conjecture could also be woefully incorrect if any of the dire possible threats gracing the newspapers comes true. Did you see that FIFA have taken out insurance against having to relocate the 2010 world cup tournament from South Africa? That’s alarming. You can be sure that none of the claim money would appear down here if they pulled the plug. And then there’s the matter of the government-in-waiting’s so-called economic policy. While correctly identifying unemployment as the biggest ill their belief that more and bigger government will fix the problem is terrifyingly wrong. You think the rand is weak now? Just wait.
Now let me see if I have this right. The big problem in America is that people were encouraged to borrow money to buy things that they were told to think that they could not do without. In far too many cases the loan was structured to disguise from often naïve customers the unpalatable truth that not only would plenty of interest need to be paid over the life of the loan but that the principal sum would also one day need to be returned. Adding to this alarming situation is the fact that many of the goods bought with this borrowed money quickly became worth substantially less than was paid for it. In dire cases the goods were consumed and now have no value.
On the lending side the footwork was swifter and niftier than any seen on “Come Dancing” The original lenders were all too aware that it would end in tears and shucked their tuxedos and strapless frocks in a heartbeat, to chains of buyers each eager not to be holding the parcel when the music stopped. And stop it did. In the last six months the financial markets and players have been plunged into a process of finding out who amongst them actually has any real money. To answer that question with certainty has in many cases necessitated that paper assets be sold for cash and has also brought to a near dead stop all other normal banking business. Alarmed by this stasis which threatens to derail the best laid plans of the politicians they have come up with a genius plan to make money even cheaper! Not only have they doled the stuff out to anyone with a pulse and a Wall Street address, they have now cut rates to a mere 100bp above zero! They believe that it is their duty to get the merry-go-round to start up again even though the fair-goers are exhausted and bankrupt. Eish.
This business of unearthing academic and other records of your rival has now popped up here on the southern tip. And deeply embarrassing it is going to be. I thought I would get in first by admitting that it took me four years to do a three year degree and that I never made the cut in the Throwing the Cricket Ball event from U9 all the way to U13 at prep school. Fortunately my woodwork was considered too bad for me to consider it as a matric subject so I had to do Latin instead. Malum malus. (Malema?)
I am certainly hoping for a home town victory at the final Grand Prix of the year on Sunday. Last weekend’s one was certainly very popular around here. And cricket season has started. When am I going to get a chance to go fishing?
James Greener
31st October 2008.



Saturday 25 October 2008

BULLS ARE BLUE


Even founder member bears like me are startled by the way events are unfolding. I think that one of the big drivers for what is going on is that the US has decided to turn away from the outside world and concentrate on themselves and their own problems. The biggest of these is of course is debt – and lots of it. Despite everything that the so-called authorities can do, there is extreme reluctance and lack of capacity for any more lending to take place. There is now a desperate need for truck loads of dollars to pay off that debt. Americans are apparently selling off everything they own in order to raise dollars. And when they sell foreign assets – including here on the JSE of course – they then need to sell that foreign currency and buy dollars. Hence the present amazing strength of that currency.  
Naturally, selling shares on Wall Street is also a source of dollars and so that helps explain the weakness of that market as well. Anyone idly flicking through the TV channels will invariable chance across a remarkably attractive wide-eyed young lady relaying the latest plunge in the Dow while in the background are scenes of dejected dealers watching screens filled with red numbers. Thanks to these instant communications, the alarm and despondency becomes global in the blink of an eye, and investors everywhere become bearish about even their own local markets. It is an entirely unvirtuous and very vicious circle.
My guess is that the weak dollar gold price is evidence that the US government is selling some of their bullion reserves because they too also need dollars to pay debts. The rate at which the US economy is sliding into an ever deepening pit of economic seizure is quite terrifying. No investor anywhere is immune and there is pretty well nowhere to hide. Even the world’s greatest investor has felt moved to announce loudly that he thinks that on a five year view shares are worth buying now. The problem is that much of the audience are battling with a 5 week horizon of meeting the bills. Mr Buffet’s mortgage is probably paid off.
Mr Buffet is, however, probably correct and even I believe that local investors will probably find that most share prices five years from now will be higher than they are now. Those with the happy but thorny problem of a large amount of cash might think about the following two points. Firstly that the outlook of a positive 5 year return certainly was not true in May (some 40% ago) and secondly it is very likely that share prices will continue to go down even from here. This is a big and persistent bear.
But now consider the following propositions: that no one knows where the bottom will be nor how long it will last; that in the current environment, cash is a very poor asset class; that a buying program should be spaced out over a period of months or perhaps even years and that importantly, buying must be restricted to the highest-quality strong dividend-paying securities that are at multi-year valuation highs. Buyers should also promise to themselves and their advisers that they will not look at the shares prices and portfolio valuations more than once every month after each buying spree.
I have been in Johannesburg for a few days refreshing myself on what a proper traffic jam feels like and on just how beautiful this place is when the Jacarandas and roses are blooming. This evening I shall be home trying to find a place for a quiet beer which is not festooned in black and white bunting and posters portraying a toothy piscatorial predator.
James Greener
24th October 2008.

Saturday 18 October 2008

AND NOW THE CURRENCY CRUNCH


If money had to carry a passport and had to go through customs and immigration when ever it went from one country to another then the queues at Joburg International would be all the way out of the door and into Kempton Park. The stuff is leaving South Africa at one hell of a rate. Both foreigners and locals are deciding that despite the attractive big-five motif on our notes, the artwork alone is no reason to hold the stuff. All of which is a long-winded way of noting that the rand exchange rates are soaring. More and more of our runts are required to purchase a unit of almost any other currency except perhaps for a Zim dollar.
 Presumably much of the foreign money has been down here trying to earn its owners a return in the JSE share market. Now there is a widespread view that it is game over in that particular arena and unfortunately for us all, the non-residents are suffering an extra whammy as they try to get through the narrow rand exit door all at the same time.
Every single foreign seller of JSE shares and South African rands will of course have their own mix of reasons for making these moves and hopefully not all of them are equally alarmed by the dramatic disintegration of the ruling political party. There will also be domestic reasons for taking their money back home. Maybe there is a new-found spirit of fiscal prudence and rectitude that will begin with paying off debt? Actually the good thing about politicians squabbling with each other over the spoils of office is that they then don’t have much time for dreaming up more ways to interfere in our lives and steal our cash. As long as they keep the noise levels down and don’t for a minute believe that anyone in the real world thinks that their opinions of each other is relevant or important, I say go for it.
It has been another week of severe tests of character and patience in the share market. I don’t think that the official interventions being proposed and carried out can have anymore than a brief effect on the still astonishingly large numbers of investors who trust that governments can conjure up a bull market. The bubbles that are being deflated and corrected in the current market actions are numerous, large and in some cases very long lived. Whether there are yet enough conditions being met to declare that we are in a recession or a depression or just having a bad hair day, matters only for the satisfaction of the box tickers. For everyone else, the fact is that their net worth, their standard of living, and their sense of financial security is noticeably less than it was just a short while ago.  Sentiment is deteriorating but I don’t think that it has yet reached a point of widespread capitulation and rejection of the share market as a destination for one’s money. Until that time the bear remains in charge. 
 I have often remarked that one of the most important components of any gathering, meeting or conference is the catering. After watching the world’s big cheeses in government finance gathering to out-bid each other with schemes about which particular black hole to throw money into, it is clear that the group photo session is also an important moment. After hard hours of saving the globe from the mess that they originally created, the delegates eagerly troop out into the sunshine and jostle about on the steps of the palace smiling at the cameras and hoping that the voters back home will see what important friends they have. Presumably there is a pecking order worked out by those smart but nearly invisible young ladies who prod the luminaries into position. It must be getting increasingly difficult to decide to reserve the centre spot for the Washington delegate and to get others who will agree to stand next to him. Folk from the USA are these days prone to asking foreigners for money.
James Greener
17th October 2008.

Saturday 11 October 2008

BALLS DROPPING EVERYWHERE

Now where have all those anti-collusion zealots disappeared to?  Why are they not leaping about and complaining about the cosy calls that the US Federal Reserve made to fellow central bankers this week? Surely it is collusion when all together at one o’clock the price of money pretty much worldwide dropped in unison? Except of course for us folk down here on the southern tip.
It must be pretty embarrassing for Governor Mboweni to realise that he is not on Governor Bernanke’s speed dial list. The first time our chap found out that there had been a club meeting to which he was not invited was when he turned to the front page after finishing the sports section the next morning. But he got his own back two days later and at his very own meeting he dropped the rates in South Africa by precisely zero!
And then, if reports are to be believed, the Governor suggested that hope and prayer were important methods for keeping the currency strong. He really should be looking around for other means as well, because not even these tools are working. Money is clearly flowing out of the country – anecdotally, much of it from residents alarmed by political developments here at home – and the rand is testing multi-year lows against most other currencies. At this rate the expected hordes of 2010 overseas soccer fans will be able to party their lives away on just the loose change in their pockets when they leave home.
However, the main story of the moment is that money is leaving the world’s stock markets. In a big way! Either actually as cash in the pockets of those who have sold or notionally as terrifying declines in portfolio values. This is turning out to be one very serious bear market. The only humour in the situation is that the clowns who have been in charge and lying to everyone that everything would turnout alright  are now the same folk who are claiming to know exactly what to do to solve the problems. Predictably most solutions comprise dishing out new regulations and money in various proportions. I have seen no mention of integrity, honesty or accountability as important requirements for lifting the broken and discredited financial sector even partially back towards respectability and usefulness.
With already so many indicators pointing towards an economic slowdown it will need some inspired and selfless leadership if we are to avoid local and global recession. Current developments on the domestic scene are not hopeful on this score. One faction has already warned the other that they can “pick up their spears”. In the world’s most indebted nation, candidates for the presidency also appear clueless about how capitalism ought to work. That contest seems to have descended to the level of accusing the opposition of being a dog wearing lipstick.
I have before suggested that the choice of a name of a sports team should be the prerogative only of the lads and lasses who have worked and trained to get selected for that team. The same principal should apply to street names. A simply majority of ratepayers who live in that street should be entitled to choose the name and should also be responsible for all costs if they decide to change it. Politicians who can’t tell one ball from another and who have never paid any rates at all are once again meddling. Go and fix the hard stuff please guys.
James Greener
10th October 2008.

Saturday 4 October 2008

WAXING MOON WANING MARKETS


The markets were a terrible place in which to try and keep calm this week as they whipsawed mightily in all directions when each different news story emerged about the status of the so-called US rescue package. Fear and greed way overpowered valuation and analysis. In fact there was little local economic news bad enough to fret about anyway.(Political news was of course a very different story!)  Nevertheless the roller coaster continued its runaway journey and at one stage the all share was more than 30% below the May peak.
Nowhere in the material that is provided for students of investment analysis is there anything about the economic impact of selling rubbish to the taxpayers. The next editions of the textbooks will certainly need to cover this subject with whole chapters devoted to “pricing junk”, “bequeathing debts to the next generations” and “the wisdom of allowing the experts who created the mess to fix the mess”. It seems as if the whole world is waiting for the US Congress in the next few hours to pass legislation that will magically and omnipotently repair the balance sheet, confidence level and wealth of everyone in the world. I can assure them that it is not worth the wait. Before Halloween, the USD 700bn will have vanished like a ghost and the moaning will be louder than before. Quite simply the money is going to go to the wrong place.
Even a fanatical liberationist like me will concede that if there has to be a rescue package using taxpayers’ money it should be used to buy the delinquent and underwater mortgages. In this way, even if after all kinds of clever rescheduling, foreclosure is unavoidable, the taxpayer at least ends up owning a property that will one day likely be worth the price paid for the mortgage. The toxic waste that the current plan expects him to buy from the remaining solvent (?) banks will never be worth what he is going to have to pay for it. Much of it doesn’t even have certificates that can be perforated and rolled up. And on present form the banks will use the money to pay executive bonuses before selling the whole business to the taxpayer anyway!
I have scant sympathy for the poor saps who failed to understand the real cost of the loans that they were being offered in order to buy hugely overpriced houses and flat screen TVs the size of Boksburg. Education should devote more time alerting pupils to the brutal truths of compound interest and venal officialdom than to encouraging them to demand non-existent rights for themselves and polar bears. It is tough out here especially if you can’t read.
I was delighted by the picture of the EU big-wig holding up a candle while announcing the decidedly dodgy reasons for whacking Sasol with an extraordinarily large fine. Presumably the citizens of Europe need to be reminded what a candle made from wax looks like. Even if there is no escape from the penalty, Sasol shareholders can seek amusement from this splendid illustration of pained official indignation.
The internet lit up this morning with the collected wisdom of anyone with a word to say about the very large Impala Platinum deal. The main impetus for the deal seems to be the desire to get a hold of a great mining asset. Unfortunately there is a secondary driver which arises from trying to satisfy the government’s racist policies about asset allocation. This will undoubtedly cause wealth destruction in due course. This is an unhappy sector where apparent mouth-watering valuations have to be viewed through a veil of state interference. The health sector is another one. Maybe the new minister understands this.
James Greener
3rd October 2008.

Saturday 27 September 2008

DRIVING IN THE DARK

This all seems to be like the Kubus rotten milk scam. The US government – the largest debtor on earth – is trying to get permission from the politicos to lend money – which it will have to borrow or print – to citizens and organisations who are in trouble because they in turn lent money to citizens and organisations to spend on items which were not worth the prices paid. And delving even deeper into the mess one discovers that the meagre documentation that recorded those loans became the “foundation” for multi-storey castles in the air constructed by so-called financial engineers. The collapse of this folly is now happening rapidly.
I am intrigued that the US politicians are dithering about giving the go-ahead for this latest (but undoubtedly not last) “rescue” plan. Are they also not certain just who deserves to be bailed out? That is definitely a very difficult question. But I suggest that their inclination would be to let the money flow in those directions where it will have the greatest impact on the largest number of voters and also to places from where it will more easily find its way home to their own “fighting funds”. Undoubtedly an amount like USD700bn is spawning advisors and consultants at record speed. Many of these will of course be the people who have just had to leave their previous employer because they helped it to turn belly up.
The markets have been alternately soaring and crashing as each revelation about the status of these rescues and support packages reaches the news. Personally I am unimpressed and can not see how or why the hastening of the slide of the US currency and financial dominance can be bullish. The only real thing that is changing short term is that the massive US debts are being restructured. I was wondering if and when they will send Governor Bernanke down to Fort Knox with the key and a stout trolley? Maybe he already tried that a few weeks ago and that is what caused the gold price to crash.
Against this loud and insistent backdrop we of course have our own market-influencing drama unfolding. The departure of a president under unhappy circumstances is a very significant event especially when followed by a cascade of both principled and opportunistic other high level resignations. Unfortunately, in common with many other nations these days, there are not legions of top calibre replacement candidates waiting in the wings and I suppose that the inevitable “restructuring” that will follow, will detract from the sorely needed service delivery.
It was delightfully ironic that Heritage Day arrived in the middle of all this decidedly ill-tempered squabbling about who had been doing what in the past. Incontrovertibly, however, much time had been spent practicing dancing and hunting leopards. The range of natural fur garments on display was distressing. Personally I failed even to light a braai so my contribution to the holiday was deplorable. For my mother’s sake I suppose I ought to have gone and tossed a few cabers, but I feel nervous in a kilt.
I am so anxious about the prospect of Formula 1 racing in the dark that I am going fishing this weekend at a place that has no TV. What if the Singaporean version of Eskom has a load shedding event at the first corner! Eish. I shall also avoid the game that will take place at the Coca-Cola Stadium, wherever that is.
James Greener
26th September 2008

Saturday 20 September 2008

THROWING LOTS AND LOTS OF MONEY AT THE PROBLEM

Forget the Lippizaners. Check out these central bankers on their huge white steeds. Charging to the rescue, the double edged swords of public money flashing in the sun, saddle bags stuffed with notes and hosing cash on to every little conflagration they can see. Markets just love lashings of liquidity and this lovely loot has brought the bull stampeding full speed into the arena and the vicious bear that was tearing everything to shreds earlier this week has vanished.
This has been a week to remember in the markets. Especially in the USA. The Lehman Brothers ran out of brotherly love and the Thundering Herd went over the cliff. The US taxpayer has become the owner of the insurance company that they expect will meet their claims for rebuilding Texas-by-the-sea; and simultaneously has became a sponsor for a not very good English soccer team. It has been smoke and mirrors of the highest calibre.
Have you noticed that the TV pictures seem to show only the largely blameless low level employees being spat from the revolving doors of their erstwhile employer’s office block? The chaps at the top of these now smelly heaps have firstly ensured that what remains in the treasury has been appropriately redirected to themselves and then purred from the basement garage in the limo. I am wondering at what stage the term “performance bonus” changed its meaning.
An ironic comment has been doing the rounds pointing out that the amount of money paid by bank A for bank B just a few months ago would today be more than enough to add banks C and D to the shopping basket and still have enough spare change to buy a major high street retailer. Even though this story is about the British situation, recall that some far eastern fellows not very long ago bought a chunk of a local bank for a price which is now nearly double the current level. This capitalism stuff is tricky, believe me.
For example why are the survivors sniffing around the corpses and offering large sums for certain organs and entrails that they think are still healthy. After all the principal assets of a functioning division of a bank are mainly the people – who we have already noted are shuffling down the street with their photo of the kids, favourite coffee mug and flash memory stick of models and client phone numbers in a kit bag – and the book of business, whose worth these days is very uncertain.
The financial landscape is undergoing enormous tectonic shifts. As usual the politicians and regulators are swarming all over the place promising to fix things so that it will never happen again. The sole certainty is that they will fail. Already emerging from the wreckage I am sure are ideas and plans to profit from the various rescue programs. Even in soon to be devalued dollars, the amounts of money being talked about are awe-inspiring. Everyone is going to want a piece of that action.
The economic landscape will not be unscathed by these developments and growth will be lower than any of us would like or need. Unfortunately political events can also have an influence in this area, and I think that particularly foreign investors are bewildered by the sight of the local ruling party waging civil war on itself. Ideally, provided they keep to themselves and limit their larceny to reasonable proportions the rest of the nation can ignore government and get on with their own lives. Sadly this is definitely not the case at the moment. 
Several readers complained last week that I had renamed the rugby trophy after a local spice. Will they also moan about the spelling of Umfolozi, which is where I am now going to look at rhinoceros and beer?
James Greener
19th September 2008.

Saturday 13 September 2008

IS THAT A LIGHT OR JUST A BURNING TRUCK?


The last two months have seen an astonishing turnaround in sentiment towards the US dollar. It is now the season’s must-have fashion item for the best dressed portfolio. They must have dollars and lots of them. In just two months the greenback has regained all of the ground lost in the previous ten and is back to where it was a year ago. What are people doing with these dollars? They are not buying shares on Wall Street. The Dow has done very little since mid-year. The recent small declines in US yields do indicate that a bit of cash has gone into the bond market -- but this could not be considered to be a smart decision. As is the case here on the southern tip, the rate of inflation is larger that the yield, and after a while disappointment is bound to result. Property prices do not appear to have bottomed out in the US yet either so there’s probably also negligible money flowing that way.
My guess is that much of the money is being used to repair some extraordinarily unhealthy balance sheets, by repaying debt. And good old fashioned cash is the only thing that can be used to do that. Hence the demand for the currency of the world’s most indebted nation.
The US government showed the way last weekend when it generously stepped in and rescued the two hopelessly insolvent mortgage giants Fannie Mae and Freddie Mac. The debt there is so huge that they are unable to count it until the chaps from the Zimbabwe Central Bank arrive to show them what comes after 999 trillion. Also receiving scant publicity in that mess is the fact that it will take several generations of US taxpayers actually to foot that bill.
They and obviously many other people have been down in the cellar looking for stuff to sell to raise dollars and as a result commodity prices have taken a pasting these last few weeks as well. Emerging market shares have also been well offered and the Chinese and Indian stock markets especially, have experienced a very nasty case of bear infestation. The resources boards of the JSE have been savaged.
Maybe we are seeing the end of an age of exploration and adventure where investors (particularly in the US) forsook the solid boring domestic stuff and instead sent borrowed money off to seek its fortune in exotic climes. That money is now required back home. The mood has changed and perhaps we are in for a spell of domestic simplicity and evenings of hot chocolate and Scrabble by the fireside instead of personalised single malts and internet conversations with distant brokers eager to offload another bucket of toxic waste disguised as acronyms.
The good news about this possibility is that it would suggest that we are getting much closer to the time when securities and markets are declared dangerous and the talking heads demand that something should be done to protect the public. Major financial publications will declare the end of the share market and then you and I will know that it is time to buy!
Now does anyone know who is top of the Curry Cup log? There’s a tremendous fuss going on down here at the moment.
James Greener
12th September 2008.

Saturday 6 September 2008

BIG OIL CHASES BEARS INTO THE MARKETS


There is less than 5% left beneath the All Share if it is not going to set a new low for he year. I think the probability that it will pierce that level is high because at last a few of the familiar relationships have appeared. Like the rand weakening. Like sellers popping up with shares that report disappointing earnings and like the dawning realisation that far too many dangerous socialists are squeezing into the wheel house and tugging at the ship’s wheel. The country is drifting leftwards deeper and deeper into the seas of intervention and control. Pretty soon it won’t just be the Olympic athletes who are being told when to wear what clothing. I may have to go and buy some shoes soon. The FSB are certain to have a view on a dress code for rural stockbrokers. I am disturbed by the mutterings that so far government programs have failed to deliver the required targets of transformation and so the polices need to be toughened up. Fellows, we have a severe shortage of skills in this place. No legislation will ever solve that problem. Only making the country safe and pleasant to live in will retain and grow those skills.
There is a well established precedent for retirees from the local financial regulatory scene to choose a life in Switzerland after they have accepted the gold Rolex and the card filled with illegible messages. A previous minister of finance was pleased to join his money in that Alpine haven just as soon as he could. However, given the Swiss people’s new-found eagerness to blab about some of their clients and also the sudden fragility of previously rock-solid banking names Governor Mboweni might do well to have a chat with Barend about the braai and potjiekos scene on Lac Lucerne before buying a large cowbell and some skis.
I look forward to the day when I will not have to express surprise that the US dollar has enjoyed yet another strong week. This time however, it does not look as if the foreign money was looking for shares on Wall Street. Maybe the cash inflows to the US are flowing to bargains in property and other deeply distressed segments of the economy. Americans themselves are preoccupied with coping with storms with names like Gustav, Ike and Sarah. The first two of these wild and windy phenomena have threatened to close down oil production platforms, while the other one is keen to punch holes for oil wells into every corner of America. Especially in places where there are polar bears. The prices of oil and gold (and probably other stuff) have been swooping and swooning on the slightest excuse and these alternate threats and bounties appear to feed through to investor sentiment in every area.  Interestingly the Japanese Yen is the strongest currency of the moment.
We are right in the heart of results season now and with only a few notable exceptions most businesses are revealing that it has become more difficult to grow profits than a year ago. One banking group has warned that their results yet to come will admit to lower earnings so confirming that not everyone in this industry has managed consistently to buy low and sell high or to lend to folk who can pay you back.
SA Breweries have announced that they will be launching a new brand of beer. To be called “Quart Behind Noscore” it will be the new sponsor for the Proteas.

James Greener
5th September 2008

Saturday 30 August 2008

TICKETS FOR TAX PAYERS


I have just seen the suggestion that the JSE could close the year 20% higher than where it is now. Statistically this sort of rise in just four months is not impossible or unprecedented. I would be interested to know what proportion of this pundit’s personal portfolio is invested in the market today. Anything more than say 10% liquidity and I would suggest that he, like me, actually feels that this kind of move is economically unlikely. You may have noticed that some surprising companies have been blaming consumer spending cutbacks for slower earnings growth and even dividend cuts. Of course there have also been several delightful results and companies have showered their shareholders in money.
I watched the Olympics closing ceremony and stared open mouthed at the scruffy performance put on by London, the next host city. And that was just its mayor, who clearly had not coped with the time zone shift. Still wearing the suit he had slept in, he lurched onto the stage to collect the flag and wave it about in a dazed manner. Elsewhere in the stadium a straggle of equally scruffy alleged thespians did odd things with umbrellas and a badly made model red double-decker bus. An elderly musician survivor from swinging London managed to stay upright for long enough to strum a few chords and an American soccer player emerged from the roof of the bus to kick a ball. However, was it so bad that the pound deserved to be marked down severely this week? Or perhaps it is just the rest of the world noting that it will cost the UK a lot of pounds over the next four years to lift their game?
In contrast, various stories have surfaced about how demand for gold coins has exceeded the supply of even the largest producers and suppliers. That this alleged demand has not really yet shown up in the price of these shiny dense discs leaves me a tad suspicious about the reports, but it is fun for us gold bulls to hear this kind of thing.
What is not fun for tax-payers, however, is the size of the tab that we have been landed with to pay for lawyers to represent the leader of the ruling party at his forthcoming trial. Just why this bill should be handed to the nation has not been made clear and it is especially irritating to see this news today when provisional tax payments are due. It is also hard to reconcile this use of public money with Minister Manuel’s claim that “Tax collecting enables development.” Unless of course, he is referring to the development of those lucky lawyers’ lifestyles.
Another equally banal and foolish statement that “Economic growth (is the) antidote to poverty in Africa” is apparently the conclusion to a study carried out by the World Bank. You really have to wonder what many of these semi-official organisations are for when you encounter this presumably high-priced nonsense.
Thanks to the recent squabble about how to calculate inflation, when this week’s very bad (old style) numbers were published, folks were uncertain whether to whine or blow raspberries. Having just been told that the price of bathroom taps will go up tens of percent on Monday I belong to the whining school and must now dash off to the plumber to see if we can avoid using wooden bungs in the new house.
No matter how you try to do the maths of GDP per ball, or swimming pool per city or medals per mouth we are doing very badly at sport right now. I scored zero fish too. I declare the bar open.
James Greener
29th August 2008

Friday 22 August 2008

A QUADRILLION IS NOT AN EQUESTRIAN EVENT


It was another week when inflation as a topic captured far more headlines space than it deserves. First off some one announced that prices in Zimbabwe are going up by about 5% a day and a picture of a rubbish bin filled with bank notes in denominations of as much as Z$500 000 was doing the rounds. It makes one wonder just what it is that keeps alive the fragile trust that a citizen has in a piece of paper printed by a central bank. The only good news from that mess is that we have all learned what comes after a trillion. Then from Euroland came mutterings that inflation was starting to get way too high. And finally the National Treasury seems to have decided that they will soon be able to discard the CPIX statistic that was created especially for them several years ago with the sole reason of making an easier target to hit. As we all know their record in hitting that target has become as tattered as the baton-passing record of the relay team.  Presumably between themselves and Stats SA they have hatched a number that might be more obliging, even if it bears no relation to the spending experience of the consumer.
From what I can discover this is a very popular ploy used by governments world-wide. Any suggestion that this constitutes a hefty shift of the goal posts is met with cries of outraged disbelief that they would even think of such a thing. However, it will not be long before you will be able to spot carefully disguised statements pointing out why it would be inappropriate to link senior civil servant salaries to the new CPI.
About two dozen listed JSE companies reported this week and several others released trading statements. Most of those firms which are connected to the business of producing and shipping minerals and commodities delivered satisfyingly increased profits. The main disappointment to catch my eye was from Woolworths where a modest year on year fall in earnings was reported. In contrast, however, fellow retailer Massmart delivered rather good growth in profits.
Earlier this month the all share index was more than 20% below its May all-time high and some commentators felt that such a correction was about all one might expect from a bear market. Certainly since then, that index has experienced a 5% recovery but as is often the case with indices, this statistic conceals disparities as wide and as puzzling as the example of the two retailers quoted above. Despite the suggestion that the commodity boom is over, a careful sifting through the details indicates that financials are still underperforming resources. Patient readers will know where this is leading, which is my fear that the uncomprehendingly large debt levels in the US must inevitably continue to erode the US dollar and the financial edifice that rests on this now very shaky foundation. Not one person a year ago would have believed that we could now be at the point where gold plated banking names from places as solid as Switzerland were announcing write off amounts that grew almost every week. Not only does this suggest that they had been doing business with some very dodgy names but also it was terrifying to realise that their record keeping was so bad that they did not actually have the faintest idea of how much trouble they were in!
Maybe I should try that approach in my provisional tax return to SARS next week and say that my records are in such a mess (in fact, the dog ate them) that I’ll take a tax holiday, change my name and year end and start afresh in 2010 when I don’t feel that any of my tax will be used to subsidise someone else’s conversion to digital TV.
Plenty of sport this weekend with the ‘bokke assured of at least the bronze in the tri-nations. I am going fishing.
James Greener
22nd August 2008.

Friday 15 August 2008

PLAYING TO THE CROWD


 Contrary to popular belief I do consult charts from time to time but only to see the context of the current levels. I have little trust in my ability to project the darn things forward into the wild blue future. One of my favourites shows the daily history of six exchange-traded funds here on the JSE. In August so far it is impossible to discern any trend or signal emerging from what is nothing more than a tangled multicoloured bowl of spaghetti. No one sector or type of share is this month’s current winner or indeed clear loser. There must be some very sorry and also some very exciting tales being told by the fund managers who have been trying to spot and trade this market.
Students of my school of interest-rate prediction will have known the instant that Governor Mboweni tuned to face the microphones that he was not about to change the repo rate. Sure enough, after several minutes of soporific delivery of allegedly important but undoubtedly dubious economic numbers he announced what his cool blue tie had been screaming. In due course as his fear of being photographed deepens he will need only to hoist his tie on the Reserve Bank flagpole and the world will know the decision.
It has been another week when the most eye-catching financial news has been the strength of the US dollar. To bet against the greenback has been such a winning trade for so long that the severity and strength of the recovery must have destroyed many hopes and careers. The only cries of pain I have not yet heard are from American exporters who will surely soon begin to wail for protection? The thing that puzzles all us dollar bears is that there really so far has been not one scrap of news to suggest that the worst is over for that economy. But perhaps that in itself is the signal that the end is nigh.
Finally this country’s largest bank announced their half year results and managed to scrape together double-digit earnings growth and so overshadow the competition. Can this be the time to begin buying the financial shares again?
Look out for mielies and cows in Gauteng sporting short whip antennae. They will be customers for Gauteng’s proposed Geo-Referencing project for high Value Crops and Livestock. Why the country’s least agricultural province needs to use satellites to watch over its few farmers is not explained. Also never explained is why the state finds it necessary to relaunch, at regular intervals, its lamentably ineffective antipoverty campaign. Aside from the obvious attraction of lavish festivities at each event, will it never dawn on socialists that the costs and temptations of any program of sanctioned robbery and distribution has never worked?
I wonder if this coastal lifestyle thing is not starting to soften me up a bit. At half-time in the first tri-nations test I was so wound up that I went outside to breath deeply and watch the sea – and never returned to the TV after realising that whether I watched or not would not affect the result. Although tomorrow’s match is taking place at an hour when soothing chemical help is more palatable I am uncertain if I will switch over to at Newlands. After all I really can not miss a single round of women’s beach volleyball. And have you seen the ferocity of that handball business? Far more bruising than any front row battle. Who knew there were so many ways to work off a good lunch?
James Greener
15th August 2008.