Friday 30 January 2009

SNOWBALLS VERSUS BEACHBALLS

There are two quite similar annual migration events that take place in the northern hemisphere. I have long wished that I could have taken part in one of them, but the closest I got was when it was suggested that I really ought to attend the other. Both events require travel to exotic locations where delegates and attendees assure the people that they leave behind, who are usually also the ones footing the bill, that they will behave properly, meet interesting and useful people and get to bed early. At both gatherings hot air and effort goes into putting on a show that will excite and encourage everyone within earshot, especially the powerful, the interesting and the rich to request more details, preferably in a more private setting.  The differences between these two gatherings, however, consists principally in the age of the participants and the number of clothes items they packed.  The World Economic Forum in Davos attracts people who score high in both areas. The Spring Break festivities are famous for the paucity of both. No prizes for guessing which one I wish I had been able to get to and which one I was lucky to escape being sent to.
My sole question about the current proceedings on the snowy Swiss slopes is that if these guys and gals are so good at this economics business why, at last year’s meeting, did they set a program that has lead us into the present economic swamp?
When it comes to programs I must admit to being pretty alarmed at the news that the taxman and the banks have shaken hands upon the latter promising to use the very loopholes that they have exploited in the past to pay more tax in the future.  Leaving aside the implication that this makes about possible prior infringements of the law, it does mean that depositors and shareholders are probably the ones being committed actually to paying for this lofty ideal. I am sure that salary cuts for bank directors will not be the source of funds for this forelock-tugging exercise. But we may never know.
Banking companies are always a very difficult area for investment analysts. The business is intrinsically very simple with only one product, which should make stock taking simple. Naturally in real life where clients, customers, competitors, tax collectors, shareholders and staff all would like to see different things, the accounts are usually a monument to human ingenuity and a delight for the printing company. Standard Bank’s annual report weighed over 1kg last year.
Back here south of the Limpopo, inflation has all but been declared dead. I am not so sure. The fact is that prices for mostly everything except fuel are still way higher than they were a year ago even if they are not going up as fast. Nevertheless, several rent-a-quotes have forecast that Governor Mboweni and his committee are sure to drop the price of money itself by at least 100 basis points when they meet next week. This will certainly be welcomed by the indebted amongst us but I can’t see it staving off the inexorable closing in of the global recession on our sunny (once the rain goes away) shores. Like being a president, being a central banker these days can have very few attractions beyond free catering and a nice entry to have on the CV.
One CV entry that no one should ever be allowed is the boast that they were a minister of sport (or culture or recreation). Government has absolutely no part to play in any of these areas and the reports of intended forthcoming legislation are terrifying. We already know that the selectors of our national teams steadfastly ignore the collected wisdom of millions of us bar room experts some of whom have even played the game. The minister’s sign-off of the team sheet will not guarantee a winning side Or am I naïve in thinking that is what he wants?
James Greener
30th January 2009

Friday 23 January 2009

PRESIDENT PARTY TIME

There can be little doubt that our very own presidential inauguration later this year will be a whole lot more fun and colourful than what we watched in Washington this week. The musical items will definitely be jollier with the president himself doubtless joining in for the choruses. He might even be excited (and unwise) enough to launch into a solo piece about the delivery of automatic weapons. I have yet to grasp Zulu praise singing, so unfortunately the poetry reading will be just as impenetrable. Women’s hats will surely be more numerous, larger and spectacular and the weather in Pretoria should be warm enough to allow for the wearing of both sharp and furry bits of various traditional wildlife species. The platform, however, will not be large enough to accommodate the president’s immediate dependants, which is probably just as well as it will avoid unseemly squabbles about precedence, such as who gets to hold the bible.
The inaugural address at the Union Buildings while not as polished will leave me just as sceptical. There are such impossibly high expectations of what the man in the top spot will achieve that even modest fulfilment of their promises will cause huge disappointment. Their intentions, whether explicit or implied, of carrying out socialist programs of redistributing wealth are going to be very hampered by the rapid disappearance of the alleged wealth and the supposedly wealthy as the recession bites. The US version is particularly odd as many of those laying claim to the handouts were previously wealthy anyway and their downfall and rescue can surely not be the responsibility of the taxpayers and their grandchildren? Is it true that some of the banks who are receiving these bail-out packages are still awarding bonuses to the staff that managed to lose them all the money in the first place? In my day stock broking just didn’t work that way. Anyone who did not put the client’s interest first – and that meant not taking positions for the firm or oneself ahead of the client – was out of the door as soon as it was discovered; even and perhaps especially if there was a profit in the trade. There is much to be said for agency-only dealing in this business.
The trickle of company reports and trading statements is growing every day and with just one exception, there have been no absolute shockers. Earnings growth is generally modestly positive. The puzzling one was a short term insurer who cautioned that earnings could be as much as 120% down. Does this rather unusual maths mean that they are expecting to report a loss 20% as big as last year’s profits?
The markets seem to be inclined to think, as I do, that bad earnings numbers are inevitable and most indices are searching for the bottom. This makes investing very frustrating as what seems like an excellent purchase one day looks pretty silly a week later. Nevertheless, because I know that neither I nor most people will be able to spot the actual bottom, let alone do all my buying there, I continue to suggest a program of top-ups in periods of weakness, like now.
It now seems that suspicion is falling on a member of the SAA cabin crew being responsible for trying to smuggle at least 50kg of Transkei Gold into England. Now I battle to handle my legitimate 20kg suitcase, how did this lass manage with more than double that amount?  This is one stewardess that you would not argue with when it came to getting another drink.
The ODI series is developing satisfactorily. Why have the Aussies adopted camo green for their outfits?  I hope the umpires are checking that there are just 11 of them in the field.
James Greener
23rd January 2009.

Friday 16 January 2009

KICKING TO STAY AFLOAT

Which president in waiting has the bigger problems? The one in the US gets to stand in the cold in Washington next week, declare a public holiday and tell his two daughters that they will not be seeing a whole lot of their daddy for at least 4 years. He is going to be really busy doling out money all over the country. Back here on the southern tip the front-running candidate for the top job has run into a spot of legal bother and may also have to tell his children (number in dispute, but a dozen is a fair opening bid) that he could be out of touch for a while if he has to go to prison. Come to think of it neither post should have much attraction for any sensible person. Just about the only incentive for wanting to be on that payroll must be the rapidly growing lines of unemployed people worldwide and the fact that you will not have to bring sandwiches to work for lunch. I guess the opportunity for allowing your constituents to guide your decisions with thoughtful and appropriate tokens of appreciation is also attractive.
Proposing to spend GBP 100m to buy a football player named Kaka will be considered outrageous in some circles. But I rather welcome the news as it provides a useful benchmark in what has become an avalanche of meaningless and massive sums. Firstly note that the buyer of this young man is going to use his own (or rather the shareholders) loot for this purchase. Secondly the proposed deal sets a market level for a pair of feet with a track record of being able to hoof a ball into a net. This contrasts markedly with many of the other schemes where mostly public money, which in many cases has yet to be printed, is being handed out to people who have already demonstrated that they are extraordinarily good at wasting and losing the stuff. You do have to wonder whether the US government guarantee of 2600 Kakas ($400bn) to bail out a bank or two is really value for money. In my view there are quite a few bankers who not only should be eating sandwiches for lunch but would be lucky to get a job making them.
South Africa has been demonstrating its ability to lag the rest of the world in most things when the first of the year’s company reports have included retailers who enjoyed quite reasonable sales growth at Christmas. So far there have been no results which have shocked or scared the markets. Recent dividend declarations have been equal to or greater than last year’s. However, I do think we will in time see bad news which is not expected or discounted in the prices already. That’s fine. That will create opportunities to resume the small buying program that I have suggested people ought to be adopting. I believe that most prices obtained this year will, in three years time, be seen as bargains.
We have also not grasped how to play the shortest of the cricketing codes where division by 20 is the necessary skill. It did take ages to learn the 50 times table. Today’s win was very pleasing. The sky outside is full of small planes practicing tricks. Landing on water is happily not one of them although they will be on hand over the river to welcome the Dusi paddlers when they arrive on Sunday. Other excitement here in the kingdom, is the appearance of a small tree on the crest of a big steel arch to signal that the construction of the soccer stadium has reached its highest point. Sadly the same is probably not true for the national soccer side.
James Greener
16th January 2009

Friday 9 January 2009

KEEP A TIGHT HOLD ON YOUR WALLET IN 2009

This is my first letter of the year and deliberately it is too late to drone with forecasts of performance to the second decimal point. I doubt that anyone a year ago got even the sign of the 2008 performance correct so why should any of us be better today?. I will, however, offer the view that most listed companies will report considerably smaller profits than they boasted of last year and in some cases even the year before that. Dividends may survive a little better but only until the reserves are depleted. The probable official response of reducing interest rates will have no discernable effect. The bull will return when the bear is exhausted.
 Despite the promises of those seeking office in the forthcoming elections, job and wages can not be created by government. Lamp pole poster placers will be almost the sole growth business in 2009 I’m afraid.
I would have thought that now the distraction of the holidays and festivities are long gone, just the smallest bit of sense might return to the markets. The biggest puzzle for me is the enormous esteem in which the world seems to hold the mighty dollar. President-elect Obama has told his nation and the world that his new government will take over the job of spending now that the tapped out consumers of that country have retired hurt. Even reducing the cost of money to zero has not tempted folk back into the stores and car showrooms. People who  are now living with the growing threat if not reality of job losses are grasping the fact that even if there is no interest to pay, any lenders silly enough to loan cash under those conditions will still want to see the capital returned in due course. Paying money back while still servicing existing debts and while possibly out of work is a very unattractive idea.
There are only three places where the young president can get the funds he plans to devote to on huge projects with the aim of getting the country back to work. Income tax in an environment of falling employment is not a good one and anyway he has already won everyone over with a promise to cut taxes. Borrowing is the next possibility but the idea of lending money at these tiny yields is not catching on amongst the folk who do have spare cash. A complicating factor in this route is the annoying fact that much of that cash is in the hands of people who don’t like the US a great deal.
Happily, for the new boy, however, down the street at the Federal Reserve is governor who as a lad was taken on a visitor’s tour around the mint and has never forgotten the excitement and speed with which cash can be printed. Years later Governor Bernanke added a keen insight of logistics to this youthful impression and pointed out that choppers would be the ideal method for rapid distribution of the crisp folding stuff. Barack and Ben, the helicopter men.
The US dollar’s steady decline as the world’s store of value must surely continue. Have you seen the stories about China using their own Yuan for settlement of bills that hitherto were quoted in dollars?
Adding to the investor’s troubles is the worry that despite the annoying requirements for sending the banks and brokers our proof of residence and ID it is still possible to wake up to find that the widely respected Bernie has made off (acknowledgment DGB) with your money. And even if you choose not to, your government is anyway investing your loot in banks, insurers and car makers and their pension funds. What we really need to know is where all those miscreants live.
James Greener
9th January 2009.