Friday, 13 June 2008


I think the most significant development in the markets this week has been the amazing strength of the US dollar. Not only is it now worth more than several  billion Zimbabwe dollars and more than eight South African rand but cash has been flowing steadily out of every major currency into the greenback. I am mystified why people want to own the currency of the world’s most indebted nation as it battles with recession. In what markets are they are they expecting to earn a return? Interest rates in the money market are below the inflation rate – even if you believe Helicopter Ben’s hint that he might raise them – and bond market yields are climbing. The unconvincing little bull that slouched into the equity market in March seems to have been sent packing. And while there are many cheap and empty properties coming on the market it seems likely that there are plenty more to come. I suppose that there must be some very profitable export businesses in the US which are rather cheap but understandably the Americans get twitchy about foreigners owning too much of their capacity.
Back home of course the important news was that Governor Mboweni sold the market a 200bp dummy pass and stepped inside to score under the posts with a mere 50 bp hike. The share and bond markets reacted with a knee-jerk bounce of relief which does, however, look to be short lived. The rand hated the good news and slumped.
I am intrigued by the stories that the oil exploration business is now the employer of choice for science and engineering graduates. For many years, people with number skills have been invading the investment industry and confusing genius with a bull market. Now that the bull is growing tired and it turns out that investment is really just about the fiendishly difficult job of buying cheap and selling expensive, the  disillusioned “quants” are drifting off to look for places to dig holes in the ground. I should declare my own interest here and admit that I was one such escapee from the mineral exploration business many years ago. I have seen a few bear markets too. And I think that the development discussed above is just more evidence that the golden age of banking is heading into one. Yet another bank has admitted that there were some nasty skeletons in the cupboard and that it would like shareholders to send some more money please. Everyone is losing confidence in the trustworthiness and worse, the integrity, of the financial industry. Belief in their skill not to get involved in bad business disappeared long ago. On the JSE, the financial sectors are leading the way down as investors begin to note that the era of steadily growing earnings and dividends is under threat. The fact that the bank index pe ratio is now below 7 is more than just a temporary pricing anomaly.
So what sectors should one think about buying? Areas where the state is spending money seems a good idea. Once again the Gauteng Provincial Government provides the opening by calling for proposals from organizations that can teach municipal councilors on subjects such as Leadership, Management & Governance and Ethics & Public Management. Why should taxpayers have to foot the bill for teaching these people how to do their job? But I suppose it is our fault for electing unsuitable candidates to run our cities, provinces and country in the first place.
I have been sleeping in front of these interminable soccer games from Euro 2008 wondering when they will use a TV ref to banish those players who can make a missed tackle look like a multiple fracture with head wound complications that is cured by an icepack.
James Greener
Friday 13th June 2008