Friday 29 February 2008

LEAPING TO CONFUSIONS



This will be the last (and sole) Tidemarks that I shall write which can be dated 29th February. The next time this date falls on a Friday, I will definitely be fishing somewhere. So perhaps I should try to be positive and upbeat in this unique edition.
Let’s start with things that have gone up. Inflation certainly has and with today’s fuel price increase announcement there is no way that it will cool off any time soon. Money supply growth is well north of 22% pa and bond market yields are rising quickly too. It is more than a month until Governor Mboweni’s next appointment in front of the hot TV lights but it is hard to identify any possible news between now and then that might be good enough to persuade him to cut the repo rate. So that’s something else that will go up. The trade deficit is also going up but only the biggest optimist would see light at the end of this particular tunnel and one of the biggest importer of things at the moment must be the Gautrain tunnelers. The cost per passenger mile of this project must be starting to make the man on Mars mission look cheap.
Commodity prices have been soaring so fast that even gold has been a laggard in this company. The number of US dollars required to buy a unit of almost every currency in the world, except the rand, has been going up. Share prices on the JSE have also been going up although individual experiences for February performance may vary considerably depending on the weighting of commodity stocks within the portfolio.
Good news in the down direction must include wonderful rains that have been falling and car and house prices (provided you are not a seller like me!). The price of electronic goodies like big screen TVs and computers also seem to be suffering from over supply and under demand.
Buyers of these items might find themselves unable to enjoy them from next week when savage and lengthy power cuts are scheduled to restart. Just how the country has managed to enjoy these past few weeks without needing to shed any loads has not been explained. But something is going to happen in the power generating industry this weekend and the dark ages beckon. I do hope they don’t start tomorrow when I go to Loftus to watch the Bulls/Sharks grudge match under lights. Even the briefest blackout could see some scores being settled while the ref is peering into the gloom.
Sufficient companies have now reported so that most of the indices are starting to reflect the new average earnings. Unsurprisingly, annual growth rates can be seen to be declining in almost every sector. I have not yet seen any sector earnings bases actually falling, but the slowing growth, in tandem with the price recovery of the past few weeks, means that PE ratios are pushing upwards again. This of course makes it again hard to find any value to buy. This is very unfortunate, as suddenly, it looks like a good idea to reduce cash levels. An important consequence of rising inflation is that interest rates after inflation and tax are zero or even negative. Cash is no longer king. This explains the swarms of buyers in the stock market looking for protection from this savings-destroying evil. Time this weekend to go through the share lists with a fine toothcomb again.
I am finding it quite hard to switch between watching the Super 14 matches under the new experimental laws and the Six Nations under the old laws. It must be especially tough on the referees too. I am sure I saw one signal a four last weekend.
James Greener
29th February 2008

Friday 22 February 2008

BUDGET BANISHES BEARS



This was a very bad week to be a bear. The All Share index is now just 4% off the October 2007 highs and is up more than 10% this month so far. Even without its one extra day this year, February 2008 could threaten the record of the best month ever on the JSE. This trophy has been gathering dust in the cabinet since July 1982 at 17.74%. Almost all the work on this awe-inspiring bear-trashing recovery has been done by the resources shares whose sector index is up almost 40% from the late January vale of depression and despondency about the future of the country. Ironically, of course, the currency has vanished into a black hole and this is what has driven the exporters.
Minister Manuel’s Budget Speech on Wednesday was fairly bad news for the few of us in the country who have formal employment, permanent addresses and a few assets. None of the members of this constituency was surprised to learn that they would in future have to pay even more to the fiscus, but some of us are very angry that most of it almost certainly will vanish without trace. The state will spend R121bn (11.5%) of its money on Education and yet the country lies at the foot of almost every international league table in this area. The only skill that most of the children learn appears to be how to become a venal, incompetent and corrupt government official. By the way, Health will receive 10.6% of the budget. Do you know any well paid nurses?
Buried in the fine print of the Budget were a few paragraphs about certain relaxations of exchange control regulations. While this is good news, it has certainly added to the rand’s woes and our currency is starting to look settled above 15 to the British pound. Eight to the US dollar is not far off either and both of these levels are multi-year lows.
In particular, the niggling restriction on inward listed securities was lifted and investors with accounts in the name of companies or trusts will now be able to buy these shares without problems. As if forewarned of this development, a major investment bank just last week launched three new exchange traded funds which provide exposure to the Japanese, US and a Global market via appropriate stock market indices and currencies. These ETFs join the two existing Itrix funds that offer UK and Eurozone exposure. Faithful readers know that in principle I like these instruments (which of course include the Satrix family and NewGold) but I also have reservations about them until they grow in size sufficiently that the originator is not the sole price-maker. Anything below about R1bn market cap can face this problem.
About three dozen companies reported this week and glorious unfettered upward growth in earnings is not a universal theme. Some businesses are certainly finding that things are tougher than a year previously. The nation’s favourite quality food and underwear vendor delivered results which compared very poorly with the supermarket that used to be “just up your street”. Banks, however, seem to be clinging to growth numbers north of the magic 20% level.
The sliding rand is causing dangerous cost overruns in the preparations for the World Cup. That would explain why the FIFA contingent, who were pictured standing in the long-completed Ellis Park stadium, were outfitted in hard hats and reflecting jackets. The budget for this ridiculous and superfluous gear for visiting dignitaries must be enormous. It most cases it serves only to denote that the wearer is on the way to a large lunch paid for by someone else.
Did you see how those magnificent Lions stole the game from the Cheetahs last week? With luck, the Blues will suffer from the altitude tomorrow night.
James Greener
22nd February 2008

Friday 15 February 2008

LION SINGS THE BLUES


Without packing a single suitcase, I have the feeling that I am now living in a country very different from the one I had expected and hoped for when we moved to the Rainbow Nation nearly twenty years ago. It is not that I have left my country but rather that my country has left me. I once read this sentiment written by a US citizen and I now believe it deserves resuscitation for my own experience. Almost nothing remains of the moderately effective services that one expects a government to deliver. In my country there appears not to be a single state or official organisation where the people in charge have the faintest idea of what they should be doing to earn the money we pay them. In some departments, their policies seem to be designed to deliberately reduce and even destroy what already exists to the detriment of every citizen. Compounding this dreadful state of affairs is the torrent of abuse, denial and outright lies that pour forth when even the mildest questioning or criticism is raised. I watched in stunned amazement the ceremony of apology unfold in Australia early this week. But it made me wonder whether the descendants of our current rulers will one day kneel down in front of my great grandchildren and apologise for what their own ancestors did to this country in the early 21st century.
Although many of us are currently submerged in this trough of bleak depression, it has not stopped the rest clamouring to buy shares on the JSE. Judging by the continuing weakness of the rand, the supply of shares is still coming from offshore. There have been some rather downbeat assessments of the SA situation on prominent overseas TV stations.
Reporting season is now well underway and about two dozen companies published results this week. So far, only a few of the numbers are really disappointing and they came from the mining counters, most of whom are reporting rapidly rising costs. Remember that these figures cover a period before the power cuts began. It is sadly ironic that because of declining mining production, the prices of the minerals are shooting upwards and yet the mines themselves seem unable to capitalise on the bonanza. This is a very difficult sector in which to find stocks to buy.
The trigger for a very welcome price surge in markets world-wide mid-week was the news that Mr Buffet, allegedly the planet’s most skilful investor, had offered truck loads of cash to help bail out one of America’s most recently damaged financial sectors. Unsurprisingly, of course, the small print in the offer revealed that he wished to buy just those parts of the so-called monoline insurance industry that were old, dull, boring and profitable. He was not interested in the parts of the businesses that dealt with things that neither he, nor anyone else it seems, understood. Disappointment has followed the discovery of this condition to the offer.
A little incident reinforced my attitude of sceptical amusement towards the efforts of the “proper” analysts. It was the upgrade of a share from a “sell” to a “hold” recommendation. Now, if the clients have dutifully followed the earlier “sell” advice, just what was it now they were supposed to “hold”? I have licence to mock. I used to write that stuff too.
Super 14 is upon as again. Oh dear. There was a time when I thought I would have to be a Sharks supporter this year, but it looks as if I can remain with the Lions. But will they remain with me?
James Greener
15th February 2008

Friday 8 February 2008

BULL TRAPS AND POTHOLES


It has been another hectic week in the market with very wide daily ranges and many puzzling divergences between presumably similar companies. The most concerning problem is the continuing collapse of the rand versus almost every other currency. That is a sure sign that money is looking offshore for ideas and bargains. In principle, the weak currency is good news for anyone exporting stuff, particularly minerals that have been dug out of the ground. For example, a kilogram of gold will now cost you a record setting R222 100. Despite this, the market’s biggest gold mining company who produced 170 000 kg of gold in 2007 reported a loss of more than R4bn. This sort of news makes it hard for investors to know what to do.
New York shopkeepers on the other hand have no doubt that any customers who offer euro notes instead of the local greenback are very welcome! More than any other event so far, this development surely signals the end of the US dollar as the world’s sole reserve currency.
It is clear that people also want very little to do with those businesses that deal in this money stuff. Local banking shares continue to get cheaper and overseas there is no let up in the flow of stories about the bosses along Wall Street opening cupboards and discovering skeletons. The utterly discredited rating agencies that were conned in the first place and failed to see that dross dressed up as gilt was still dross, are now flitting about, down-grading everything in sight. Incredible sums of wealth are still being wiped off portfolio valuations and balance sheets. It is ironic and amazing that organizations that obviously had no idea what was going on in their own dealing rooms, still have clients who clamour for and believe in the investment research that they write about other businesses!
An equally bewildering idea was offered by Minister Sonjica who launched the National Energy Efficiency Campaign on Tuesday. Sadly, this does not involve decimating the ranks of the civil service but was mainly about confirming that DEPP is still very much in place. This is the “Developmental Electricity Pricing Program” which consists of punishing individuals in order to honour a very foolish promise to provide cheaper power for “electricity-intensive investments”! Locals who believe that they can continue to cook their food, heat their houses and watch TV can look forward to penalties if they use and pay for more power than some bureaucrat thinks they should have.
In what I think must be the stupidest official idea so far this year, the Johannesburg Roads Agency has used our money to buy a half page full colour ad in the paper. The agency begins by claiming to “care for the mobility of our citizens” and declares that “potholes are a nuisance to the road surface and the road users”. I beg your pardon? In what way can a road surface become annoyed with potholes? Half of the advertisement is a high-tech montage of photo and computer graphics illustrating for less educated readers the difference between a trench and a pothole. The accompanying text provides further detail on this topic. The Agency shares with us its five point commitment to repairing these nuisances and Honesty achieves third place. What a relief. Dishonest repair of a pothole is a terrible thing. The Agency is also proud of its “continuous consultation with the Weather Bureau” for forecasts, since apparently, potholes can’t be fixed in the rain! Nowhere is there any mention of spades, picks, wheelbarrows, gravel and asphalt. Any further comment from me would be unwise.
James Greener
8th February 2008

Friday 1 February 2008

BERNANKE & MBOWENI GO BEAR SHOOTING


I think that I have cracked the secret of the market. It will move in a direction that will cause the greatest embarrassment to the largest number of people foolish enough to offer an opinion on what it will do. Can the bear market, that I was so sure was going to get deeper and nastier, really now be over? The All Share Index is almost 20% higher than the low point that seemed so vulnerable just a week ago. And it is a mere 10% lower than the October peak. With up days of 5% plus like today, that record is a simple hop skip and a jump away.
What has happened to bring the buyers surging back again? In the US, a plan to rescue the economy from recession has been shifted into a very high gear. The Federal Reserve has slashed the cost of money and the government has decided to reduce and even repay some taxes. I have already seen some commentators who think these measures will work and that soon the US consumers will flood back to the shops and resume spending money they don’t have on things they don’t need. Are we really in an age where deficits don’t matter and debts don’t need to be repaid?
Back home, Governor Mboweni with great reluctance allowed his fingers to be prised off the Interest Rate Up Lever, but refused to go anywhere near the Interest Rate Down Pedal. Rates remain unchanged for the time being, and this has rejuvenated the bull. On the other hand, it has done nothing to help the rand which was already rather wobbly. Against almost all currencies, except the rather sickly US dollar itself, the runt is at levels last seen five years ago. Against the euro, it is at an all time low. The yen is 20% more expensive than it was just a few months ago. This has been a fierce reversal of fortune for our currency.
The story goes that it is non-resident investors who are selling the shares which are so eagerly being sucked up by locals. That would explain the currency weakness. The catalyst for the fleeing foreigners is presumably the extraordinary developments in the electricity generating business. TV pictures at the weekend showed that coal stocks at the major power stations were almost zero. The skills of Eskom’s staff are being equated to the ability of the man who failed to arrange a party in a brewery. The big difference in this simile is of course that the beer-less buffoon did not get to award himself a huge performance bonus. And presumably, he was never again asked to organise anything. I hope you saw the advertisement for home-sized emergency generators which a motor dealer is offering for sale. Buyers are being tempted with a free car to accompany their generator.
Meeting rooms around the country are thronged with complacent officials and enraged consumers being told to save power by switching off their shops, factories and mines and by going to bed early and taking cold baths. I hope that everyone obeyed these instructions and left the TV off and so avoided seeing the ignominious departure of Bafana Bafana from the African Cup.
There are pieces of evidence cropping up to suggest that growth is slowing. Cement sales have decelerated and brick stock yards are overflowing. Car sales are reportedly rather dire and second hand car lots are becoming as numerous and as large as game farms. The frequent and unannounced disruptions to the electricity supply are very hard to cope with. The only reason to be aggressively buying the market now might be to acquire rand hedges positions. Real pessimists might also be looking for protection from possible hyper-inflation but even I can’t go that far.
Good bye Polly. Thank you for all the entertainment, excitement and days of delight.
James Greener
1st February 2008