Thursday 21 April 2011

HOLIDAYS ARE HERE AGAIN


Now that the gold price has reached $1500 an ounce, some folk have started to warn that this is far too much of a good thing and disappointment is due.  Perhaps they are right, just like the rating agency that announced this week that they were getting a little concerned about the US government’s ability to repay its debts. Before getting too alarmed, please recall that this is the same agency that a few years ago was plastering triple-A ratings stickers on bundles of particularly toxic sub-prime mortgages. Also please remember that the American government can and does get the Federal Reserve to print all the dollars they need to pay their bills. Is it this last fact that is causing people all over the world to exchange wads of folding stuff for bars and coins of the dense and rare yellow metal? Demand for gold is definitely exceeding supply. Even the US can’t just keep printing their currency without its value declining.
The prices of most commodities, including oil, our most popular consumable, are not displaying any particular panics or spikes when viewed relative to each other. It is merely that we now need more cash to buy the same amount of stuff. Isn’t this phenomenon called “inflation”? It does seem to be seeping back into our lives after many years of being more or less ignored. Interest rates may be over their low phase. In fact the European Central Bank has already taken a baby step upwards.
Despite the majority of companies, particularly locally in SA, releasing decidedly pedestrian results there has been a recent surge in demand for shares,. Equities probably do offer a reasonable hedge against inflation. In the long term, the All Share index does outperform the consumer price index.
Yet another type of exchange traded fund is coming to the JSE boards. The traditional structure and format of Unit Trusts is increasingly feeling outdated.. Readers know that I am a fan of ETFs. It is it very hard consistently to pick individual winning stocks and having a cheap and liquid way to gain exposure to a portfolio of the biggest and best of breed is very attractive. What we don’t need however is the situation where there are more ETFs than individual shares. This happened in the Unit Trust industry and has probably helped fuel its demise.
Anyway this is all too serious on the eve of a four day weekend that is going to be followed by what will probably turn out to be almost a zero day week. Please keep safe and if you live in Joburg the good news is that the garbage collectors have decided to return to work.  Mind you there are now some threats that widespread municipal strikes are likely in the run up to Election Day next month.
By the way, a quick trawl through the websites uncovered just as many pundits forecasting $1600/ oz gold as are promising that the end of the gold bull is nigh. Take your pick. Personally, I think he is healthy but in no hurry at all.
I was baffled to read that one of the objections to using hydraulic fracturing techniques on the deep shale in the Karoo was that it might cause methane leaks into the environment. Well yes. Methane is what the oil companies are looking for. And hopefully not very much will leak because that’s what they want to sell.
I listened to an expert suggesting that Super 15 rugby as a concept and tournament is so good for the game that in a few years time it will expand to include northern hemisphere teams. That may be so but first they will have to do something about the calendar which currently has only 52 weekends on which to hold matches.
James Greener
21st April 2011

Friday 15 April 2011

DOES THE BULL NEED A BODYGUARD?


It looks as if that late March bull market has petered out and the old boy has his eye on a long and quiet spell of rest over all the forthcoming holidays. At least four of the next eleven weekdays are official holidays and lots of people have decided that the month is a dead loss anyway and have already left for the sea or sierra. Not unexpectedly some global economic consequences of the Japanese earthquake tragedy are showing up even in SA with some car assembly plants curtailing production. When the numbers come out, April 2011 could well show up as the end of the rather short recovery phase. On the JSE this week more companies announced or warned of poorer earnings than had good news. The average share price is still almost 16 times larger than the average earnings which seems too high and the most likely source of correction will probably be from falling prices, but there is really no other evidence for that kind of move  There are still buyers everywhere.
Particularly for gold, which is setting new highs in almost every currency – even rands.
Our president is a very busy man. At the start of the week he went off to Libya for a meeting where it turned out that nobody had any intention of doing what they agreed. He did get another photo of himself in dubious company for the family album though. Fortunately this ignominy was soon totally forgotten in the obviously hoped-for uproar that followed the display of arrogance and contempt by the leader of his youth league.  Having earlier been denied an official bodyguard this “leader” appeared in the midst of a squad of well dressed and fearsomely armed gents who ushered him down the pavement to his court appearance. The trial itself is a fantasy show where hours of expensive lawyers are arguing whether or not a chant is a song or vice versa; and everyone is trying to ignore the plain truth that the phrase “Kill the Boer” is impolite, distasteful, and in every case offensive. And now President Zuma is at some sort of gathering of bric(k)layers discussing the correct way to build a fence on which to sit. The SA delegation is mixing the cement.
Several years ago one of the large assurance houses ran an advertising campaign showing a gracefully greying but surprisingly fit couple in sole control of a sizable yacht ploughing the seas of Table Bay in a very stiff breeze. The implication was that this life of bliss, joy and a slightly damp hair-do awaited clients who entrusted their savings to this financial anchor. The truth, of course was that while the yachts do indeed exist, they belong not to the clients but to the people in the assurance company. And so now we have a raft of laws which allow the consumer to spend a few weeks deciding if what he bought was what he wanted or what he was lead to believe it was.
I have not yet read any of the new legislation and for all I know we suppliers of financial services may even be exempt, but it certainly raises doubts about how to answer the question “What should I buy?” In fact official regulation of mining analysts is already underway based on the utterly false premise that a licensed analyst will be better than an unlicensed one at guessing how much valuable stuff lies buried in the ground. Can an investor get state compensation if an officially recommended mining share goes “bang”? Can the buyer of the shares I suggested send them back after a cooling off period? Is no one responsible for their own actions and decisions?
In a quite brilliant decision the soccer ‘bokke have decided not to buy the Bafana Bafana name from someone else who claims to own it. That should see quite a drop in the asking price! Talking of which, I wonder what the Lions are worth now. Certainly not the sum of their expensive parts. Oh dear.
James Greener
15th April 2011

Friday 8 April 2011

ALL GUMMED UP


It is really all very messy and uninspiring. The state of the world’s finances that is. The government of the world’s largest economy has run out of budget and is trying to decide which state employees are not “essential” and would therefore not be offended if they did not receive a paycheque. Apparently the people in charge who live in Washington and led the country into this mess, most definitely are essential and naturally will be among the first to be paid. However, there is some doubt whether, for example, the lowest ranks in the armed forces qualify as essential. Aren’t they the ones with the guns fighting for democracy in some of the less comfortable spots on the globe? Best you guys in the White House just tell Governor Bernanke to crank up those presses and helicopters again. In Europe, bail-outs of the previously out-bailed continue and this morning on TV I watched as a party of artists and thespians gravely knocked on the British Prime minister’s door to present their arguments why they deserve to receive tax payer’s money. And the Earth beneath Japan is still quaking adding to the woes and costs of those poor folk.
There are a few patches of relative brightness. The South African National Treasury has heroically managed to rein in enough of the government spendthrifts, while squeezing a few more tax payer’s pips to stabilise the deficit. But while the state continues to spend R1.24 for every R1.00 of collected tax, this situation can not last.  Further, insufficient of that spending is going directly to private sector suppliers of goods and services that might be considered infrastructural or of a capital investment nature. Some companies have reported modest and, a few, even exceptional earnings growth, but 67 of the roughly 400 listed companies have reported losses.
I have long maintained that South Africa’s present policy of political allocation of resources is calamitous and will have no good outcome beyond providing prime research material for theses and case studies for future generations. Recently several marriages of inconvenience between approved yet obviously incompatible parties have crumbled because expectations on both sides have not been met. On the JSE one can find one species of Sasol shares on offer at R310 per share. A financially identical share is available at R399 per share. Brokers may buy the cheaper one for their clients only once they have determined that the skin colour of their client is sufficiently dark. This is outrageous and clearly racist.
A local invention that can be used to prevent robbers getting any money from the notorious cash-in-transit hijacking events has been on display. As soon as trouble threatens, the guards trigger the release of quick-setting hard foam that encapsulates and binds everything together. Reportedly only several days of patient chipping at the resulting mass will release the valuables and any guards or robbers who were a bit slow. The stuff is called Pudu.
The last time I wrote Tidemarks, the Proteas were still in the World Cup and looking good. Since then we have discovered that the captain was dreaming of a pair of Irish eyes, and the team had been told by some shrink that it was just a game and what mattered most was that they emerged strengthened by the experience. No. What mattered most was that they won all the matches necessary to bring home the trophy. Just because we went home after the Australians did was not a win. And are you also astonished and frankly underwhelmed by the news that the India pyjama cricket party begins today?
With a Grand Prix in the Far East and the Masters in the Deep South, the couch in the TV room is going to take a beating this weekend. So too I fear will the Lions, although the Sharks have been looking as if a few slugs of Pudu are what they need to keep the ball in hand these days.
James Greener
8th April 2011