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