Friday 29 July 2011

SECONDS OUT


For the last nine months the All Share index has languished within a narrow range of no more than 3% either side of its current value. This quite unusual behaviour has probably proved pretty poisonous for punters. For investors the problem has been compounded by the fact that during this time valuations have remained historically high and so opportunities for new money are very limited. The situation will of course change at some stage and in my view the correction will be downwards. Also unknown are when this will happen and whether it will be as sharp as the 2008 correction. And it would be really useful to know how far down the market will fall.  In the absence of all this information the best idea is still to sit tight in quality well-managed dividend paying companies, particularly those who have some exposure to mineral exports. This morning’s announcement by Anglo suggests that it might now be back in that category after a very bleak period in its history.
I was a student in England when the politicians there decided that people were incapable of enjoying and organising exercise without interference from the government. A Minister of Sport was appointed and many folk wondered what he was going to do. Would it be unfair to point out that since then England has yet to win another soccer world cup? Naturally here in SA we also have a department and minister to look after sport, recreation and culture with a budget this year of R6.4bn. This week that department plunged into the murky world of SA boxing, promising taxpayer’s money for pugilists who claim that their own governing body has cheated them by allegedly not paying purses or incorrectly withholding taxes on payments. The story is extremely muddled with tales of cancelled bouts, withdrawn boxing licences and stripped titles. Naturally SARS are in the mix too after noting that nothing much appears to have turned up in their coffers either. The best quote so far comes from the head of SA Boxing who complained that his outfit “is not a tax collector.” This could develop into a wonderful drama.
My thanks go to a reader who has pointed out the glaring fact that explains why the government’s anxiety about the merger of Wallmart / Massmart is still dragging on. Presumably it is simply because no palms have been greased and no relatives have been promised mispriced contracts. In the US they have a piece of legislation that forbids any of their companies from paying backhanders and corporate suits are fearful of being caught because the law is enforced and penalties are severe. Local panhandlers have yet to grasp this concept.
Indeed the tide of corruption and inefficiency seems to rise deeper every day. At a rough count almost one half of the stories in the local pages of Business Day are about unusual and unexplained cash flows.  With great reluctance suspected miscreants are suspended or allowed to leave, only to pop up in an even more lucrative and sensitive position elsewhere. Here’s a suggestion that might help. In the state sector especially, immediately stop the practice of suspension on full pay. The accused, if guiltless, will understandably insist on a speedy resolution of the case and when cleared can receive the missing salary. The dodgy will be unlikely to want to face an inquiry and with luck will disappear and the post can speedily be filled.
As well as the weather becoming nasty (again!) there are few reasons to get out of bed tomorrow until at least noon. In this way you will miss having to watch live the clash between the ‘Bokke and the All Blacks down on that soggy island. But you will be able to catch the qualifying session at the Hungarian GP. And of course the Currie Cup matches where, I would remind you, the Golden Lions head the log.

James Greener
29th July 2011

Friday 22 July 2011

JUST KEEP BUYING THOSE LOTTERY TICKETS


In rand terms the gold price is probing new highs and in the scramble to own something trustworthy there are even buyers of short dated US government bills with negative yields. There is growing awareness that the suits and talking heads actually have no ability to bring back the good times that many folk in the west recall from the second half of the 20th century. In his speech recently Fed Governor Bernanke almost admitted as much. He did boast that there were at least three levers he could still adjust to bring about instant happiness but neglected to point out that none of them had actually worked as promised when he pulled them last time. The US Minister of Finance even warned his citizens to prepare for a long period of hard times! The fact is that most old and developed nations have run out of the resources necessary for the all the programs of state employment, handouts and entitlements that have for so long been used to buy votes.
Official response has been mostly to try to gather more resources. Report after report tells of some talentless satrap who has a scheme where everyone bar his cronies and fans will contribute towards either worsening a mess already created or fixing a non-existent problem. This is not just a local issue. The biggest but most boring squabble is happening in the USA where they are having their annual joust about something called a debt ceiling. It will, as always at the eleventh hour, be raised so as to extend the lives of the sacred cows of entitlements and tax cuts, simply because the notion of that nation defaulting  is unacceptable. The notion of the nation being bankrupt is somehow acceptable. In Europe the bureaucrats are going through the most amazing contortions to disguise the fact that many nations there are also bust. Back home the list of who wants more money is endless. From distributing Lotto money to a trade union to hold a party, through hiring more labour inspectors to enforce regulations that destroy employment, and on to scams like RICA and schemes to raise property rates. Although the National Treasury’s exchequer numbers are, on face value, benign enough, the bearish analyst can discern signs that the expenditure side is lacking discipline. For example why the need for the moratorium on state spending for budgeted capital projects? This is killing the construction industry.  Government revenue is taking its time in returning to pre recession levels – another sign that the private sector is still struggling.
And now there is CRISA. This is a set of 5 principles – Code for Responsible Investing - compiled by a very big committee of worthies (many of whom I hoped would know better) -that allegedly ought to be applied by institutional investors and their clients when making decisions. A 13 page guide has been published, but secretly everyone knows that the only thing that counts for every professional investor is that the total return achieved must exceed your competitors. Watch for the term “CRISA Adjusted Returns” to explain poor results. The Code is heavy on the ridiculous fallacy that a portfolio manager or a member of a pension fund or the owner of an endowment fund or unit trust is a deep and knowledgeable source of advice on how to run the companies in which their savings are invested. “Stakeholders” is these days a grossly overused term that I am sure evokes feelings of dread in the average CEO when it appears in his diary.
Why doesn’t the government just come out and say that they do not want anyone to open a business in this country which “doesn’t understand how we do things here”. The poor chaps at Wallmart/Massmart have been told to assemble yet again for questioning as a number of cabinet ministers wish to hear different answers to last time. Good Grief Charlie Brown, has no one seen that company’s estimates of what they plan to spend in order to enter the markets they are targeting? Billions.
We shall soon know if the ‘bok side sent to the antipodes for the Tri-Nations deserves the name and jersey. There’s a great deal of humble pie to be consumed if they do notch up some wins and just think what it will do for the selection pool if these youngsters deliver what we expect Springboks to do.
James Greener
22nd July 2011

Friday 8 July 2011

EVERYDAY THERE’S A COUNTDOWN

Just a few moments ago some news which was deemed “bad for the markets” was released in the USA. This time it was something to do with fewer Americans having jobs and all sorts of prices all over the globe, including our own All Share Index, swooned. The amount of attention that each analyst will pay to this news is probably inversely proportional to his or her age and experience or if they are unlucky, the age and experience of their boss. Among the driving forces of securities analysis is the belief that not only is there a discernable effect for every cause but also that investors should care about each one. An even more dangerous belief is that numbers are accurate and meaningful and worst of all of course is that expectation that potentially market moving information is live and current and that investors have time to react.
 The short-term anomaly of today’s US jobs data is that the US markets in particular have been behaving in a very bullish manner this week and it looked like nothing would derail them. The alarming valuations of some of the newer dot.com-like issues that are making a reappearance are worth mentioning again. Back here on the southern tip it seems unlikely that most industrial and financial companies will declare greater earnings or pay larger dividends in 2011 than they did in 2010. This might just mean that some investors become disillusioned and buying opportunities will appear. But we shall just have to be patient. In the meantime simply holding on to one’s shares in well-managed companies with great brands and reputation is about all one should be doing. As usual.
I have great sympathy and admiration for anyone managing a business. This week they were faced with the modern equivalent of the medieval sale of indulgences to buy places in paradise or at least the government’s good books. And this came as strike season hotted up with unions promising their members that 2011 will be a year to remember. For all our sakes let’s hope that it wont be the memory of the year they lost their job.
I am pleased to report from Durban that it does not look as if any Olympic Official missed either lunch or dinner while located here for their important meetings. Blue-light escorted motorcades have been wailing up and down the highway between the conference venue and the area’s top hotels throughout the day and night and no one important suffered the indignity of a traffic jam.
On the other hand it seems as if many potential and probable Springboks have suffered injuries during the marathon Super season. And now the Tri-Nations and World Cup are looming. I suppose only the players and teams themselves have the right to challenge the people responsible for this overfull calendar. But like us investors perhaps they are also loath to pass up a chance to make some money by cancelling some games.  Its tough stuff.
I shall be watching the last space shuttle launch tonight. I remember being taken on to Mountain Drive in Grahamstown to see Sputnik.
James Greener
8th July 2011

Friday 1 July 2011

ACKNOWLEDGEMENTS

This is a very sincere and heartfelt thank you to all those readers and fans of Tidemarks who found the time to send me so many kind wishes and messages of support and experience. The chocolates have been great too.
It has been both alarming and reassuring to find that so many of you have also been along this route of bypass surgery. I am surely not alone and thank you all again.
I seem to have made the classic error in underestimating just how long a full recovery might take and I also did myself no favours when I scanned the missing weeks’ headlines to find that the world has become no more honest or sensible while I having been lying looking at the ceiling. I think the “adopt a pothole” program must have altered my prognosis several points. Recovery was even totally stalled for a while when I got to the picture of the thankfully now departed potential Lions business partner and his blonde retinue.
It is going to be a while before normal service will be resumed.

James Greener
1st July 2011