Friday 30 September 2011

EMBRACE THE BEAR – HE IS UNCOVERING VALUE


It is both month and quarter end. Neither has been kind to investors. From tonight the wheels at Stats SA start to grind and in about two months time the GDP figure for this period will be revealed. By then the rest of us will be grappling with who knows what other issues including the onset of Christmas. We will have little interest in the Statistician General’s announcement about whether we became richer or poorer in the three months after June. Only the analysts will be attentive because it will provide us with something to talk and write about. Real people already know that it has been a time when most businesses are battling, jobs are scarce, prices are rising and only leaders and their cronies seem to be flush.
Politicians obviously must know things that we mere taxpayers will never be allowed to see. This can be the only reason why a parliament full of them in Germany agreed to send yet more money to the hopelessly bust Greeks when they know full well that their own electorate think it is a very bad idea? And there is our own Minister of Money mumbling about stuffing “a couple of hundred million dollars” into the slotted tins being shaken by the folk whose own tax collectors are unable to do their job. No no. Bad idea. If you and your cabinet colleagues think it is a worth showing support for some dubious and debatable common ideal then go ahead and use your own pension fund. Don’t you dare touch ours. And by the way, “a couple of hundred million dollars” is a great deal of spondulicks
Somewhere down south of here, is a local authority who bask in the charming and evocative name of Hibiscus Coast Municipality. I guess that most of us think of the area as a seaside holiday destination, a wonderful place to retire to or with luck to live in and quite a lot of sugar cane. But there is something big happening down there. They have grand plans to become an aviation centre for the country, for why else would they be calling for tenders for the supply of an aircraft training simulator.  Have the ratepayers been asked about this?
The Department of Labour has been running a large full-colour advertisement reminding businesses in a slightly hectoring tone of an approaching deadline. Owners and managers must yet again devote resources to compiling and submitting a report about some aspect of their firms which you can be sure has nothing to do with enhancing productivity. But the crowning insult for those who employing people and working to cover their tax liabilities, is the large slogan across the panel proclaiming: “Department of Labour, working for you.” Eish!
For a few days I have been experiencing a very annoying intermittent fault on the Telkom line that I use for delivering all the data that I use to pretend that I am a proper stockbroker. My fault report was handled courteously and efficiently and while there is still no sign of improvement – you may receive this letter later than expected – I am reluctant to point out that Telkom has issued a trading statement warning of much lower earnings. With an effective virtual monopoly over large segments of the industry, a fearsome tariff structure  and a seeming tacit government approval to keep the country in the bandwidth dark ages it has been a very disappointing share to own.
That ‘bok performance against Samoa this morning was rather worrying. But the good news is that they need to win only three more matches to become the World Champions. The Lions have further to go to hoist the Currie Cup and the chaps down at the bowling club are suddenly looking rather cocky about the Sharks.
James Greener
30th September 2011

Friday 23 September 2011

GIVE THAT BEAR A CASTLE


It is difficult to agree with the Monetary Policy Committee’s apparent view that the economic situation has remained unchanged in the past 10 months. Or that not much is likely to happen in the next two months either. This presumably was the reason why they left the price of the money they lend to the banks (the repo rate) unchanged at 5.5%. Nevertheless, the recent attraction of SA assets to foreigners evaporated overnight and they sold plenty of their holdings of bonds, shares and currency. The runt is now lower against most major currencies than at any time in the past two years but this might cheer up the exporters.
This week’s bear market has been blamed in part on certain influential people overseas cagily admitting that perhaps things are not getting better as quickly as they intended and that maybe it will help if their previously ineffective remedies for the mess are reintroduced with another name. Operation Twist is QE3 seen from a different angle. It will still result in new dollars being printed and lent to the US government to spend. Slowly the causes of the crisis are being admitted. Far too many entitlements and desires have been provided and fulfilled using too much debt granted or assumed by entities which are unable and now increasingly unwilling to repay it. But rectifying this situation by curtailing entitlements, denying desires and letting imprudent lenders take the consequences of their decisions would cut short the careers of politicians and bureaucrats who know nothing else except how to spend other people’s money. So it just won’t happen soon.
There must be some public employees who are competent, honest, not on a year’s sick leave or about to move on to a better job. These are the folk to whom we must be really grateful that some services and systems are delivered and do work. The rest are dreadful. Take the clowns who think that more regulation is needed to reduce the appalling death toll on the country’s roads. Already in place are laws that specify excellent standards for drivers, vehicles, roads and critically, the traffic police. But compliance is minimal, enforcement is patchy and almost any incident can be ameliorated with a bribe. The irony and tragedy of a Minister begging for help from the experienced professionals that her government were eager to ease into early retirement a decade ago is heartbreaking. The meaningless waffle about what will happen in the future instead of present action is infuriating. One clueless bureaucrat has produced some sums that purport to demonstrate that the ruinously unaffordable National Health Initiative will actually save the country money by making everyone well and able to work. Indeed.
One of the few economic statistics that may be reasonably reliable and possibly accurate is the daily announcement by the Reserve Bank of how much money in the form of notes and coins are in circulation. This amount varies monthly and annually in a fairly regular and explicable manner, and the current value of cash in circulation is around R82billion. This includes the coins that have slipped down the back of the couch and are lost forever. To compensate for this attrition as well as to cater for growth and inflation, the total amount in circulation is allowed to increase slowly over time. In the first half of this year the rate at which fresh notes and coins were being issued into circulation was an average of R33m a day. However in the past three months that rate has accelerated sharply to an average about R60m a day. What is happening? Why the sudden need for so much more cash? Would it be naïve and malicious to suggest that corrupt “leakage” of government money is more useful when converted into untraceable folding money and there has been a big increase in this kind of flow.
Can you imagine the dismay and panic in the Wallaby camp now that it almost inevitable that they will have to meet the ‘bokke in the quarter finals?  And to make matters even worse, SA Breweries has just bought an Aussie beer company. When they get home they will have to drink Castle.
James Greener
23rd September 2011. Vernal Equinox

Friday 16 September 2011

ANOTHER TRADING STRATEGY GOES UP IN SMOKE

 In the last few weeks the daily range of the All Share index has usually exceeded 600 points and on at least three days reached 1000 points. This is variability with a capital “ouch” and even the most skilled and aware trader will have had some scary moments. Some will have been carried out (see next story). Private investors have wisely kept away from this market although the odd glimmer of value has emerged at some of the low points. Once again most of the recent company reports are of better earnings than last year, but globally and locally the economic indicators are not pointing to an imminent or even modest recovery. Only governments appear to be taking on staff and that is seldom a good idea.
There will be great disappointment among certain traders in the City of London today.  There has been a fellow over at a Swiss bank who could pretty much be relied upon to buy expensive and then sell cheap. This dealing strategy caused several billions of his employer’s money to be lost to other institutions and traders. Eventually his boss noticed the flaw and he has been taken off the desk. What do the folk who claim to run these banks do all day to deserve their huge salaries? Risk mismanagement on a heroic scale. Reportedly the rogue trader in his blog a few days ago noted that he was in need of a miracle. Indeed.
Earlier this year we were proudly informed that SA had joined the big league and was now the S in BRICS. Together with Brazil, Russia, India and China we were an emerging nation to be noticed and respected.  The fun and bravado has been short lived, however. Some of our club have become worried by the big financial problems developing in Euroland and are proposing to wade in there and help. Perhaps by buying bonds. Whoa! Hang on a bit. That’s not how it works. The money is supposed to flow the other way. No one said anything about helping Europeans. We are Africans. It is our hands which are outstretched. Get us out of here.
A large full-colour advertisement promises that for the rather modest sum of R2550, business owners can spend a day being informed about the “… host of new laws and regulations that will force them to change the way they do business, secure data, report, audit, advertise and interact with customers in the next two years.”  Whatever the alleged merits of the new rules, it is likely that they will increase costs and unlikely that they will increase sales. The state is choosing a really poor moment to “punish” the private sector for trying to make a profit. And an especially infuriating aspect of this regulatory urge is that the state’s own institutions seem exempt from them.
No one would deny that wealth is unevenly distributed in most economies and that here in SA it may be particularly skewed. The demand for redistribution is a sure-fire attention getter frequently used by political and labour leaders. Slogans like “Economic Freedom” and “Living Wage” are satisfyingly emotive but hard to define and so the people who lead these campaigns should be asked to sit down quietly and do some arithmetic. Using actual data of the current situation they must specify firstly the processes of their redistribution ideas. And then, critically, prove that the resulting new distribution is capable of providing sufficient tax to fund their beloved socialist agenda of providing pretty much everything for free. But then again politicians are not much good at sums, except if they are counting votes.
The ‘bokke need to win just the next six games to be certain of winning the World Cup. Oh dear. Thank goodness I had a heart upgrade this year. Now just let me check where the Lions are on the Currie Cup points table. Ah yes, still on top.
James Greener
16th September 2011

Friday 9 September 2011

ALREADY I AM BORED WITH NEW ZEALANDER’S TONGUES


Once again the markets were supposed to be poised for a speech by President Obama in which he would reveal solutions to problems. This time it was a lack of jobs and even in the unlikely event that any bureaucracy can create jobs by other than standing back and letting private individuals start businesses, the speech had no lasting or visible impact on markets. The 10th anniversary of that terrible atrocity in the USA may be having a greater effect as folk are nervous that there are many crazies out there who would like to seek infamy by doing something stupid today.
It was another week where many companies revealed and promised good and even excellent earnings growth numbers. FirstRand, the JSE’s second largest bank indicated that its earnings should be more than double last year’s. The nation and the Reserve Bank’s bank supervisory department can be rightly proud that the sector survived the global crisis so well and appears to be ready and able to survive the next one which seems imminent.
Down here in our particular kingdom the cost of berthing a containership in the harbour is causing alarm. Sea traffic is allegedly looking for alternative ports because the harbour costs here are claimed to be among the highest in the world. Now instead of getting the harbourmaster to make a few calls and assemble some facts and come to a decision, the dread hand of delegation has appeared with the call for tenders to “[develop] a pricing strategy and determine charges to be implemented for services and facilities offered by … Ports Authority.”  I detect a hugely expensive contract involving international travel over 3 months and a report which says nothing unwanted. After all there are more than 20 ships sitting out in the roadstead right now waiting for a berth.
There has been a conference this week where one of the topics was about broad-band access to the internet. It was saddening that many voices were raised in favour of improving things in a slow and controlled (i.e. regulated) manner allegedly so as to ensure that all sorts of spurious goals will be met. Like ensuring that people who live in the sticks get exactly the same service as those who live in a city. The communications industry is moving and changing so fast that a near-monopoly part state-owned business like Telkom will never be able to catch up. And of course it does not want to. The response of the puzzled and frightened executives and politicians to demands that we join the 21st century will to appoint commissions and avoid letting the market work.
A long defunct and derelict US satellite is falling back to earth. As much as 500kg of this thing might survive the re-entry into the atmosphere but NASA has stated that the chance of being hit by a piece of this space junk is extremely small. Nevertheless the quoted odds of 1 in 3200 are either hopelessly wrong or worth a bet. Winning the lottery is 5000 times less likely. I must look out my hard hat.
The Rugby World Cup is going to do terrible things for productivity. The car park at the local Mall was almost deserted during the opening ceremony this morning. Beer and boerie roll suppliers are going to be about the only beneficiaries of the excitement of the next few weeks. The trade unions did manage to get a bit of publicity from the news that not every replica ‘bok rugby jersey had been made in SA and wanted to pick a fight over the matter. No one was much interested as pretty much every consumer item that we buy today regrettably is made in China.
On Sunday we will be having leeks on toast for brunch. Go ‘bokke.
James Greener
9th September 2011

Friday 2 September 2011

THE THREAT OF BEING BLACKBALLED


Despite at one point being more than 10% down in August, the All Share Index actually delivered almost flat performance over the whole month.  But today it seems that some or other economic measurement out of the States has disappointed or surprised or worried the talking heads and woosh it is all going down again. In parts of Euroland, the suits decided to ban naked short selling which can at times be just as exciting as it sounds. Watching bears getting stripped by bulls is not advisable for people who are easily shocked. The suits would be appalled to learn how many profit opportunities their ban will have created for the clever and swift.
This kind of meddling with the market by bureaucrats who believe they know what the price of everything like labour and assets ought to be usually has only a short-lived impact, particularly in reasonably liquid markets. Such markets soon adjust prices so that they more exactly reflect the current balance of supply and demand. But because labour markets involve voters, the price discovery process often takes far longer. A huge industry of securities analysts tries to make a living from determining the “appropriate” price for assets and then encouraging clients to buy the cheap ones and sell the expensive ones. Of course the value of a company can and does vary a great deal both because of the state of the business itself and equally importantly because the overall market mood and environment can change its opinion on the asset class or market sector. Much of the current volatility in the share markets today is due to the latter factor.
Even experienced market people are perplexed when the market’s reaction to similar news or data announced perhaps just months apart can have a completely different impact on sentiment and prices. Hence this old bear’s advice to avoid buying when relative valuations are high and to select those companies which are well run (as far as one can tell) and have a record of paying reasonable and regular dividends. Selling from a portfolio constructed over time in this way will be necessary only when it is clear that the management of a company have clearly and irredeemably lost the plot or been seduced by some unrealistic vision of the future.
July was a pretty cold month and for the first time since leaving Joburg we were running heaters and wondering if not building a fireplace had been a good idea. Nevertheless the country used less electricity in July than a year ago which is probably a good indicator that business activity was cool as well. The GDP results for the second quarter confirmed that the manufacturing sector is suffering a dreadful 2011 so far. Even if we and the rest of the world manage to avoid having our economies declared officially to be in recession again, most of us are definitely not feeling better off than at any other time in the recent past.
 Isn’t a political party really similar to a club that you join and pay a subscription to in order to be among other people who wish to share the benefits and ethos of that club? Most of us would never consider joining a political party because they don’t seem to have a clubhouse and well-stocked bar with a big flat-screen TV for watching sport. So what’s the worst thing that your club can do to you if you break the rules? Throw you out? Is that really worth bringing downtown Joburg to a halt for?
The tallest tree in South Africa is a Sydney Bluegum and stands 80m high. This doesn’t upset just the environmentalists trying to rid us of invasive alien species. Haven’t we had quite enough of tall Aussies in the Tri-Nations casting shadows over our line outs? And in all the excitement about the ‘bokke setting off for the World Cup, few will have noticed that the Lions are still clear leaders at the top of the Currie Cup log.
James Greener
2nd September 2011