Friday 27 February 2009

CRASH AND BURN


Next year’s best male actor Oscar winner is a dead cert. That nice President Barack Obama will take it going away. The calm and confident manner in which he delivers his lines makes one think that he really believes every word of the script that is scrolling up on those neat screens set up to port and starboard of his podium. His audience are with him every step of the way and completely forget that he is simply playing a part. The part of saving America and the world from the excesses that resulted from cheap money and overpriced assets. They are also not yet aware that despite getting in for free they will have to buy tickets to get out and the prices are soaring with every sentence that Obama utters. They will probably have to call the kids sitting outside in the car park to go home and fetch their piggy banks and to ask grandpa to stop taking all those expensive medicines. Two trillion is a lot of anything. Especially a deficit. Even US dollars.
The standard and obvious question for every share market investor is whether the market bottom has yet been reached. My view is that it has not. Amongst the events that I think we will see before we can look for the tunnel let alone the light is acknowledgment that the idea of governments throwing freshly printed and newly borrowed money at the credit crunch is a poor one.  There is simply no point in trying to rescue companies and industries whose business models and management led them into failure. And the greater insult is that the very regulators and legislators who claimed to be in charge while this slide into disaster took place, are the ones who are now going to supervise the rescue operations.   I am not in the least impressed by their pleas that just a few a few more buckets of someone else’s cash will change everything.
Even in the industries with the worst problems, there are thriving and surviving enterprises and citizens who are battling away beneath the radar screens making things that people need and want.  Just look at the crop of company results this week. Some doubled earnings compared to last year while others lost both money and the plot. Within moments of the  collapse of even those businesses that are considered to be too big or too important to fail, survivors will be scrambling through the wreckage risking their own money to snap up worthwhile assets at sensible prices. It is undoubtedly sad and in some cases desperate that some parts of the failed business will find no buyers. For example it may be a while before there is any significant demand for Hummer assembly lines (tough one for SA that) or for teams of traders in financial derivatives. And if indeed the failed company had nothing or no one that a competitor thinks is worth buying or hiring then why should the public own it?
This question is especially painful today, which is the last day to make provisional tax payments. Has no one at SARS yet noted the delightfully apt yet dodgy name they have come up with for their virtual tax man? (s) arse filing? I ask you.
A week or so ago some official in Zimbabwe was reported to have denied any plans for the “randification” of their alleged economy and suggested that it may be necessary to float the Zim dollar. I would suggest that this poor currency is long past floating and has sunk without trace. At the Tongaat Hulett investor presentation this week it was said that the move to allow companies operating in that country to use foreign exchange freely was a very encouraging step and may well signify the turning point for that beleaguered land.
At least Ellis Park might be 10 degrees cooler than Kings Park. Lions are not good in the heat. Shame.
James Greener
27th February 2009.

Thursday 12 February 2009

PUTTING IT IN WRITING


This bear market is getting fiercer. Some indices are now back to levels last seen about 4 years ago and one is quite tempted to do a little buying here and there. But don’t expect immediate gratification. It may well take a year or two before you will be able to congratulate yourself on your clever buying. The conundrum is that most companies who announced results or issued trading statements this week were modestly and occasionally very positive. Retailers enjoyed a pretty good Christmas season and not even the banks have yet unveiled any really frightening stuff.  Bears will of course point out that our recession is starting to hit only now and so we need to wait six months or so before the skeletons tumble out of the cupboards.
 This morning, however, the news that Anglo American will miss its dividend is a big shocker. I wonder to what extent this result is a consequence of that organisation losing many experienced people and also trying to comply with unrealistic government diktats. The company is now in only 4th place in the JSE market capitalisation rankings. Is it melodramatic or premature to wonder if we are seeing the end of an era?
We may get an indication of how badly everyone is hurting when the results of the Soccer World Cup local ticket sales begin to filter through. The cheapest ticket at the earlier matches will be priced at R70, but there are also many which will be dished out for free. The black market prices of those will be a very good indicator of both local interest in the event and the state of economic hardship in the country. I was intrigued to see that unless one has both an internet connection and a credit card, the only other way to lodge an application for tickets was to slap down a pile of the folding stuff at the branch of a local bank that very kindly will open a credit card account for you with the money. Have they found a way around all this time-consuming FICA and Credit Act stuff? In that vein I was amazed to be told by Telkom to hand a certified copy of my ID to the technician when he came to the house to fix a fault. No one was able to explain why this was necessary or useful. But to go back to that ticket thing. FIFA are reportedly using an exchange rate of 7 rand to the dollar for their sums. They may be in for a disappointment when the games are over and they pop in at the bureau de change at the airport on their way home.
Just weeks after they raced off home to Detroit clutching cash from Washington, General Motors are bleating that they will soon need some more. They will probably be in luck. President Obama, who appears to have spent much of the early days of his reign signing things, does not send an upturned hand away empty. He has not yet heard a hard luck story he does not believe and he glides off to the polished table to sign a clutch of cheques in front of an adoring team. Why do they applaud when he finishes? Perhaps it is the thrill of seeing a president who can write. But the result of having to print all this money to cover the bills is eroding the value of the greenback. One of them will now buy only 1/1000th of an ounce of a shiny metal called gold.
It is unsurprising that the UK have decided to impose visitors’ visas on South Africans. No doubt their attitude has been influenced by the national airline’s drug transporting business which no one allegedly in control seems to have any desire to investigate or stop. Despite all these lucrative schemes how come the top party officials always seem to have money problems? And why on earth do we accept them setting out economic policies for us?
The Lions are in Durban this weekend. I may have to keep my celebrations rather low key and private. But I do now have an ND registration plate on the Sani.
James Greener
20th February 2009.

BUDGETTING FOR A BAIL_OUT

  I hope it is just a printing error on the front page picture and not his new wife’s cooking that appears to have turned Minister Manuel’s skin a bright yellow colour. I am also alarmed by the way he has his hands in the air in a gesture of surrender. Has he given up the battle? Certainly it looks as if he has with his proposal to spend R105bn more than last year. By increasing the plastic bag levy and taxing allegedly inefficient electric light bulbs he hopes to raise some of the cash needed for all this extra expenditure. However, he conceded that that the state will still need to borrow the record amount of R95bn to balance the books. That’s a lot of money. It is going to be very interesting to see what happens when Governor Mboweni’s determination to reduce interest rates comes up against the need to borrow all this cash. The yield curve is already undergoing some big shifts.
But this terrifyingly large local borrowing requirement is nothing when compared to the new unit of currency that is now being used quite widely overseas. This unit is the Bail-Out and it solves the puzzle of what Zimbabwe’s Central Bank Governor Gono  did with the dozen or so zeros that he lopped off his dollars the other day. He exported them! They have pitched up in the northern hemisphere where President Obama was only too pleased to use them to stick on the end of his brand of dollars to create these Bail-Outs. Our measly deficit of less than 10billion USD would not even earn a thank you note from the CEO of any self respecting failed bank or motor company.
From what I understand the difference between a recession and a depression is spelling, depth and term. The latter is deeper and longer than the former. It is the word that is becoming more common in the commentary about developments in the US and now even in some parts of Europe. Undoubtedly this economic situation is different from any that we have experienced before with the sole exception that like other slow-downs, it will end at some point. This is the factor that causes my view that occasional small forays into the share market to buy fundamentally sound but perhaps currently bombed out companies is a realistic strategy. Do, however, remember my other suggestion which is not even to open the share prices pages for a month following each foray.
Tidemarks is early this week not because I knew that you required another ten thousand word analysis of Trevor’s talk. I am going to wrest myself away from this sea view for a few days to go and sample the mountain parts of the kingdom. I may even attempt to rig a rod and cast a fly. I shall certainly wrestle the top off a bottle. I do hope that I shall not interact with any of these so-called VIP convoys on the roads. The only reason that any politician, bureaucrat or state layabout needs to get somewhere else is to make a speech, sleep in a meeting and have a free meal. There is nothing life or death about their presence. None of these events need anything more than decent diary diligence to ensure that the allegedly very important person arrives no later than 4 hours after the scheduled time, otherwise known as “on time”. Gun-wielding bodyguards prepared to shoot mere citizens out of the path of these convoys are unnecessary and poor form. And poor form is not what the Lions need this weekend.
James Greener
12th February 2009.

Friday 6 February 2009

WHEN PRICES GO BAD

You have to admire the rest of the Monetary Policy Committee for their ability to stand up to someone as large and determined as Governor Mboweni. According to him he was set to stomp the “Down” pedal in his office right to the floor at least twice but somehow the others managed to pull him away before the second lunge. So we got just 100 basis points cut from the repo rate and the banks immediately scurried off to drop prime and other rates by the same amount. The textbooks apparently promise that a bold move like this ensures prosperity for all. Supplied with cheaper money the theory predicts that people will surge back into the shops and businesses can prepare for boom times again.
Everyone is trying hard not to notice that this is not yet actually happening in America, despite the price of money there being virtually zero. In fact a horrifying fashion is emerging where it is cool to pay off debt and spend less than what you earn, while being thankful to have a job. The textbooks have no chapters on frugality and parsimony and prudence. They also are silent on the plight of savers earning less on their investments. It seems that Federal Reserve Governor Bernanke failed to return to the library all the books on how to avoid and survive a recession that he borrowed when preparing his doctoral thesis. He also seems not to have read them.
After dropping interest rates no one seems to know what to do next except ask the government to print more money to hand out to the people who were at the controls when we crashed into this swamp. No heroism on the Hudson here!
Among the more egregious of those decisions, involved banks buying bits of paper at prices that were many times more than they were actually worth. These now near valueless assets are accused of clogging up the channels of credit. One stunningly stupid suggestion is that that governments should set up “Bad Banks” which will then buy these bad assets. So does that mean that good tax payer money will be used to repeat the exercise of the buying bits of paper at the wrong price so that the folk who made the first mistakes will magically be cleansed of their folly and be able to claim large bonuses? Only a politician could invent something like this. Do we not demonstrably already have more than enough “bad banks”?
Gratefully here on the southern tip we have so far neither too much snow nor any bad banks. We do, however, seem to have bad busses. Unsurprisingly an acrimonious squabble is growing out of a government plan to regulate public transport. Taxi drivers are reportedly displaying their contempt of these regulations in their traditional manner. The count-down screen at the airport shows there are now less than 500 days to World Cup kick off. Hopefully that should be enough time to disarm the drivers and teach them about stop signs and red traffic lights. One-way streets can wait.
The pace of the release of company results and trading statements is hotting up. This week around half of them showed or predicted declining profitability but there have also been some pleasant positive surprises. I stay with my suggestion that cash heavy portfolios should be doing selected buying during weak periods. I like the Satrix Fini as it removes from me the problem of choosing which counters in this sector are the most bombed out.
Despite the KZN heat there is a distinct increase in the number of black and white rugby jerseys being worn. Much satisfaction resulted from victory in a warm-up game over a team of school boys from the Transvaal. I shall devote more time to the Super 14 only once I have understood why some English cricketer named KP should be priced at R10m. Has his country just beaten the Aussies at home?
James Greener
6th February 2009.