Friday 25 July 2008

“PLEASE BE PATIENT, YOUR CALL IS IRRELEVANT TO US”


I hope you are enjoying the spectacle of the delightful squabble that has flared about how much less one can buy this year with R1 compared to last year. Obviously the answer is different for every single person. It depends not only on ones mix of products and services but also on whether or not in the last year you have upgraded to single malts from the blended whiskys or have filled in the pool to grow vegetables. Stats SA’s unenviable task is to try to answer those questions and to compile an average answer. Why anyone should need to do this anyway is also unanswered, except for the fact that, fatally, many prices and wages are now formally linked to this obviously very flaky number.
My joy at witnessing the ebb and flow of nonsense about this inflation topic has been greatly offset by the frustration and anger of trying to get Telkom to install a working broadband connection to my current office. A succession of  amazingly patient and polite call-centre jockeys have in turn assured me that my complaint has been “escalated” to a level of urgency and attention at which I now expect at the very least that Minister Ivy herself will pitch up here in a ladder-topped white van and black tool box. Although I would right now settle for a man with a screwdriver on a bicycle. This week’s revelation that the Telkom CEO is paid R8000 per hour was the end of the road for any idea that I ever had that there must be some value to be unlocked in this massive monopoly. I will never buy the share again.
The All Share index seems keener to explore the space below 27 000 than to climb above 28 000 again. The picture has become very murky, however, with wildly different performances of the different market sectors unfolding in the past few days. Resources are the currently at the back of the peleton, with the banks fighting for the yellow jersey. 
Meanwhile, Jacob Zuma, even if clad in “orange prison gear” will still be fit and able to rule the country. This is the claim of his supporters who are also taking the precaution of planning to shut down Pietermaritzburg during the scheduled trial of their hero in that city. Quite why these actions are in the spirit of the constitution while the court case is not, has not been explained.
There is, however, a reasonable chance that Eskom alone will close down the whole country and not merely one city. Some vital bits of kit like a nuclear power station have gone on the blink and once again electricity supply is within kissing distance of demand. Wouldn’t we all love to be a fly on the wall when the ex gold mining chief gets to the end of his first day in the corner office at Megawatt Park?
Much ink and brainpower is being consumed in worrying about how low the growth rate is going to be. In common with the CPI it is also a very dodgy number imbued with significance way beyond its accuracy. However, I have not yet seen anyone else note that a mathematical consequence of lower inflation numbers is higher growth rates. Now there’s some good news.
The Lions meet The Sharks this weekend. I shall watch with great interest and depending on the company around me, might utter a word or two of support for the team.
James Greener
25th July 2008

Friday 18 July 2008

GO BIG OR GO HOME

This has been an astonishing week for the markets. It is not as if anything especially material happened except that a larger cast than usual of politicians, central bankers, analysts and other assorted talking heads chalked up some satisfying headlines. This obviously encouraged many people to think that the bear market has ended and on Thursday the JSE challenged all kinds of records for turnover, points rise and other statistical trivia. Mind you they did have to make up for Monday when The JSE systems failed completely for most of the day. I trust the suits in Maud Street took note of the little fracas that erupted at the Pakistan Exchange when investors used rocks to express their opinion of developments in the market.
 Among the more spectacular local stories was nothing more than a reheat of an old chestnut that the official inflation figures are incorrect. This time the twist was that they are too high. Most of us are probably unable to judge accurately if the annual increase of the pain in our pocket is 10% (the official number) or 8% (the suggested number). Actually, my inclination is that even the higher number is missing the target. I suggest that a test of the analyst’s work would be for his employer to demand that he immediately refund all previous salary and bonus increases that they have paid him in excess of the adjusted inflation rate that he has so carefully calculated. His biggest challenge may come when he explains to his wife and children about the revised housekeeping and pocket money amounts.
Traditionally, yields on the bond market are supposed to be sensitive to inflation. The way the yields fell in response to the news of a possible glitch in the numbers was rather startling and means that this supposed relationship might be less precise than many would like to think. The owners of hundreds of billions of rands worth of bonds substantially revalued their portfolios following a suggestion made in a single report. What will take place when an opposing opinion is published or the first chap admits to making an error?  Curious.
Fed Governor Bernanke spent a tedious couple of days telling the US legislators everything except the truth that it is now time for the US to accept that there are very large debts to be repaid and juggling with interest rates will do little to make them go away. Market commentators sifted through the tens of thousands of words for anything that might be taken as bullish and for a while succeeded, but the underlying reality remains that the country and its currency are facing some big financial headwinds.
Back home again, any number of organisations have been queuing up with hard luck stories and demands that unless taxpayers money is forthcoming, a dire future awaits the country – or at the very least their staff and management. The national airline, the electricity generator and the trade union movement all had something – in fact a great deal – to say, but my favourite idiocy of the moment came from Safety & Security Minister Nqakula. He told parliament that the recent wave of economic prosperity had resulted in many more cars being bought, which in turn simply provided more targets for the hijackers and thieves and hence the increase in these crimes! A close contender, however, was the fund manager who told his audience that “It is not time to panic on the markets”. This may be useful advice but does seem to imply that eventually there will be such a time, presumably only after he has first taken a graceful exit.
Last week’s ‘bok victory in Dunedin was magical and a follow through in Perth would be fantastic. The Protea captain on the other hand seems to like “follow ons”.
James Greener
18th July 2008

Friday 11 July 2008

ALWAYS BAT FIRST


It seems to have been a week of denials, doubts, warnings and excuses. There is a great deal of bluster about how difficult it is to understand what is happening at the moment and how hard it is to forecast what is going to happen. Therefore it is exactly like any other week when as usual we have no idea why the market did what it did and equally no idea of what it will do next week. I will admit that being the dry season for any kind of company reports does leave us sucking air for facts to hang a story on, There have been the occasional trading statements with what seem like outlandishly excellent expectations for business and earnings but it will be a week or two yet before the big boys start to let us in on their secrets. Right now, I suspect the accounts departments will resemble the witches scene from Macbeth with the eyes of newt being hunted up to bring a lustre to results.
The largest topic of disagreement is obviously about whether or not economic activity is slowing down. I think it matters little to people who are struggling to meet the bills that most significant economies have not yet to reported two successive calendar quarters of negative growth and are therefore technically not in recession. People are less well off than they were a short while ago and that feels pretty darned recessionary to them. Similarly, the argument about whether or not the JSE is in a bear market is academic to those folk who have seen more than 15% wiped off their portfolio values in less than 2 months. That’s bear enough for me. And I don’t think it is over yet because there people around who are trying to buy the bottom. Reportedly, true market bottoms are signalled when there are absolutely no buyers for weeks and months on end. In other words it is marked not by a price or a percentage but by a sentiment.
The news from the US continues to terrify and amaze me in the extent and severity of its awfulness. It seems as if at last the Freddie Mac and Fannie Mae time bombs have reached zero on the clock and the already technically bankrupt US government will need to mount a heroic rescue with money borrowed from their taxpayer’s grandchildren to rescue that nation’s largest housing lenders. Our own Landbank’s problems with missing money are trivial by comparison. The world’s once greatest car maker may be about to go under along with another Wall Street bank. Their bear market too is not yet out of nappies.
Denials and excuses have also flowed from the Gautrain management after a large crater appeared in Oxford Road, exactly over the route of their metro train tunnel. Apparently “adverse geology” is the culprit and astonishingly, no danger or delay will result from the presence of the hole. Aggrieved road users and residents have been unable to locate any of the hordes of camera-friendly champagne-drinking hard-hatted worthies who flocked to witness the start up of the tunnelling process a few months ago.
Here in Durban the effects of the COSATU stay away in protest at high prices were very marked, but as usual what their leadership failed to explain is exactly what remedy they would offer for this global problem of soaring resource prices. The carping on about the alleged cases of price collusion between suppliers is irrelevant to this debate. My advice to anyone who moans about companies who appear to make too much profit is to boycott their goods but buy the share.
I believe it was the great Len Hutton who said that any captain, who won the toss and had any thoughts of fielding first, should think again and then bat. Please will someone read this advice out to our man leading the Proteas into the Lords quagmire?
James Greener
11th July 2008

Friday 4 July 2008

ALL SHARE ALL BLEAK


It is getting fairly nasty. July is just four days old and already the All Share has shed around 6%. The collapse has been pretty evenly spread throughout the market sectors with perhaps some of the resource shares bleeding just a bit more than the rest. When measured in local currencies, the JSE has declined further than most other markets in both the developed and the emerging markets. The astonishing side to the story, however, is that the rand has in fact strengthened against all the major currencies this week which might indicate that if there is any appreciable amount of foreign selling then they are not taking their money out at the same time.
We bears are also measuring the damage against the all time highs set by the indices in May. From there the fall of the overall market is about 15%, but from that peak it is the financial sector that has suffered a disproportionate amount of the selling. The major banking groups will start to report their half-year results from only next month, but it certainly appears as if many investors share my fear that we could be treated to a number unsettling but yet unsurprising tales of how folk are unable to cope with servicing their loans and are either rescheduling or are giving their car keys back to the bank. Vehicle sales figures are sharply down and second-hand car lot areas are sharply up.
I have seen a number of schedules of the fierce rise this year in the dollar prices of most commodities except, oddly, pork bellies! Add to those increases the more than 10% weakness of the rand versus the US dollar since Christmas and it is obvious that there must be a very significant adjustment happening in the spending patterns here on the southern tip. Spare ribs in place of turkey then?
No one is immune and with the second month in a row of state expenditure being greater than income it seems likely that the government borrowing program may need to be beefed up a tad if all our civil servants and MPs are not to go hungry or miss out on a trip to the Olympics. My suggestion that we might dispose of at least a quarter of them and feel no difference in service levels has not yet received a reply. More unfortunate encouragement for Governor Mboweni came from the European central bank which raised their price of money by a quarter of a percent this week. Interest rates at both end of the yield curve are under pressure to move higher. Neither of these developments is good for company earnings and in turn for share prices.
A few exceptions can always be found, however. For example if you are a manufacturer of “corporate merchandise’ – meaning hats, shirts, bags and pens carrying a logo – then the firm that has the monopoly in pumping water from Lesotho to this country would like to hear from you. Presumably without their name being constantly in the public eye, we might all be inclined to do without the stuff. The water that is.
I have been uneasy all day. It is not the winner of tomorrow’s big race in Durban which will, I am sure, be won by a horse that is troubling me. Neither is it the possibility of drugs being discovered in the duffle bag of a cyclist in France, but rather the terrifying matter of the tri-nations meeting against the All Blacks. It could be a bad start to the weekend. Go ‘bokke.
James Greener
4th July 2008