SUMMERTIME, AND THE BULL IS EASY

Although some of the short-term traders will disagree, there is some evidence that the market is steadily returning to an upward trend. As I warned you last week, this has occurred because of my suggestion that the bear would amble back into the frame. Naturally, he has not done so. His reluctance may also be due to the rand improving to better than seven per US dollar, which could be taken as evidence that some foreign buying of our markets is taking place. The frenetic turnover that we experienced and enjoyed in June has also tailed off and things do feel a lot calmer.

However, the recovery has not yet been sufficient to allow the overall index to boast a positive performance for July. The gold mining shares in particular have taken a hammering. Company results for the June quarter-end are starting to appear and it will be interesting to see if the record-setting gold price has brought some cheer to the sector.

Very few shareholders, however, will be delighted by the prospect of next month’s seemingly inevitable interest rate rise. The most recent inflation numbers have apparently surprised those pundits who clearly have never been to the shops and tried to buy any of life’s little luxuries lately. So alarmed are they, that predictions of at least a 100 basis point increase are being published. From my own standpoint of economic ignorance I don’t understand why pushing up the cost of money should reverse the impact of the ever-increasing price of energy for everyone on the planet. The strikes in support of higher wages taking place around the country suggest that most people are a bit short of income. It also feels as if there is acceleration in the number of people feeding both informally and officially from the public purse. Not only is crime speeding along unabated and undeterred but officials who could be doing something about it are off to parts north to supervise elections and the like. Don’t those countries already have enough corrupt officials of their own to ensure the appropriate outcome?

I was unsurprised when a global survey of the banking sector showed that their biggest risk is to become submerged in regulation and legislation. My own experience of being informed by my bank of the last three decades that they could not use my passport as proof of my identity is yet another small example of the lunacy swamping us. On Tuesday, another new government organisation will begin its task of checking on the estimated 6000 privately owned organisations that grant credit and lend money. The state believes that they can not be trusted to lend only to folk who can afford to repay the loans. Just who is being protected from whom is unclear. But it is clear that a new tax is being levied on the financial industry.

And it is hard to find any good news in the sports pages either. It seems that the Tour de France this year was won by an American with maybe too much testosterone. For the last seven years, it was won by an American with almost none. The All Blacks’ new haka format is scaring everyone and the Proteas in Sri Lanka are wilting. I wonder if there is any need to renew my season tickets at Wanderers?

It is probable that there will be no Tidemarks next week. I need to go to the coast to see if summer is arriving. Keep safe and happy.

James Greener

28^th July 2006

IT’S ALL IN OUR GENES

For those of us still reeling from last weekend’s rugby result, here is the good news. Since Monday, the rand has improved by 3% against the Aussie dollar. And it is back below seven per US dollar. So there.

Our green and gold money has also put in a great showing against most other currencies and is line for the yellow jersey for the month of July.

This has not necessarily been stunning news for the share market and the All Share once again demonstrated its penchant for roller coasters. The week’s range has been over 700 points, which is not healthy for those of weak disposition. So far the index has remained north of 20 000, at which level it would be just 10% below the May 11^th all-time high. As always, calling the move from here is a foolhardy exercise but with my record, I shall do all the bulls a favour and say that I think that it should go weaker. I am quite amazed that the Middle East conflict does not yet appear to have undermined confidence to any real extent.

Technology allows everyone to follow, in graphic and distressing close-up, the pain and anguish caused by the nasty and brutish conflicts being caused by so-called leaders pursuing their ideologies.

But it is all getting rather pointless as we shall soon be merely provinces of China. An advertisement placed in the local paper by a retail store in Springbok – a small town about 500km north of Cape Town (and we all know how remote that place is) – is seeking a shop assistant fluent in Chinese. And if the Orientals don’t take over the world, the bureaucrats already have.

Another notice, posted by some doubtless already under-funded research institute, warns the public that it is planning to plant some potatoes. Said spuds allegedly boast a rather special pair of genes. Namely, the firefly luciferase gene and the cassava granule bound starch synthase gene. The possibility that this information means anything at all to more than six people and their pet hamster is zero. The only jeans that we could recognise would be Levis or Soviets. However, it seems that we have something called the Genetically Modified Organisms Act on our statute books. This legislation apparently does more than just describe the people who promulgated such nonsense. It gives them powers. And the prospects for the potato planter are poor, because elsewhere in the press I found the news that a similar trial with sorghum has been rejected by government. Some committee has decided that the greenhouse in which the plants were to be reared was not sufficiently secure to prevent the genes escaping. After all, our record with jails is not good either!

Muttering about interest rates has begun to be heard again. US big bank boss man Bernanke said something that could suggest that he won’t again soon be lifting rates. Or maybe he meant the opposite. Nevertheless, his testimony provided enough ambiguity for traders worldwide to buy, or was it sell? Back home, money market interest rates in particular are ratcheting upwards presumably in anticipation that our own big man Mboweni will tug the UP lever at the next meeting in August.

I hope there’s some beach volleyball on TV tomorrow morning.

James Greener

21^st July 2006

BULLS STILL STORMING THE RAMPARTS

Bastille day. The French are everywhere these days. Bike races, football and tennis champions, grands prix, head butting; it’s all happening for them. But soon the spotlight will move on to our southern tip. SA’s preparation for our own world cup tournament in four years time is reportedly much further along than were the previous hosts at the same point. We have a logo. We have chosen which cities will be used to stage the games Was the selection all that tricky? AND we have negotiated the sponsors and discussed the dreadful crime of ambush marketing with them. As was the case when the cricket shindig was here, spectators can expect to have their persons and parcels frisked for the slightest sign of scorn for the supreme sponsor. Woe betide anyone who dares display the banned brands. I can’t wait to see who will get the job of explaining to a stadium of thirsty Black Label consumers that only Bud Lite is on sale.

That will be worse than explaining to the perma-bears like myself that whatever the oil price, wherever the wars are and whoever is in charge, this market just wants to keep on going up. Sure, there have been a couple of scary down-days when some punters have felt the bear’s breath on their necks. But after each of those sessions, the buyers swarm in, and most prices edge back up. One sector, however, worries me more than the rest. I have often commented on the waves of interference and regulation that keep on crashing onto the shores of the financial sector. Today we had the latest foam- crested breaker, when no less than the Registrar of Banks made free with advice on how the banks should run their boards of directors. The fact that last year he warned them that the good times were over (prematurely as it turned out) and they should brace themselves, reveals that he has little confidence in his customers running their businesses correctly. 

I have also noticed that the industrial share earnings base is now not growing at anywhere the rate it was enjoying just this time last year when companies were boasting of at least 40%pa increases in profits. Now the growth rate is down to just 15%pa. This is of course still a very tidy number. Most of us would be very pleased if our own annual incomes were improving like that. However, the market prefers rising growth rates; so if the forthcoming season of result announcements does not reverse the trend, the price reactions will be worth following.

And yes, I did have a wonderful trip to the arts festival. I managed to avoid those plays where deeply committed actors shout insults and abuse at the (paying) audience and accuse them of being responsible for all the suffering that has and will happen in the evil society we live in. Instead, I enjoyed a lot of music from ABBA to ZZ Top by way of Mozart and Bach. And there was a trip to the Blaaukrantz Bridge where, almost 100 years ago, of one of the country’s worst rail disasters took place. It was disappointing to learn that, even then, brigands appeared on the scene and looted the belongings of the victims and the rescuers.

And talking of victims, who will be brave enough to watch the scenes from Brisbane at noon tomorrow?

James Greener

14^th July 2006

HALF-TIME IN THE YEAR 2006

In Washington, Governor Bernanke showed that he is just as addicted to tugging the lever as was his predecessor, Sir Alan. Right on cue, he popped interest rates up another quarter of a percent but apparently the order of words used in the accompanying statement was music to the bulls. Conveniently and magically, the bad news became good news for equity markets. Here in Joburg at least, the All Share return in the last month of the first half of the year will be positive. As too, will the performance for the quarter. This is surely a huge surprise to just about everybody. And of course it is also an embarrassment to those of us who foolishly have declared in writing that we thought that the end of the world was nigh. In our defence, I will point out that most consumer and financial sectors will be down for the month. It has been only the stellar showings by the exporters that have skewed the overall index above the zero line.

As the week progressed, the market chose to interpret any information as bullish. Even the speculation that our own central bank might call an extraordinary MPC meeting and prod the repo rate up by as much as 150bp was soon discounted and forgotten. Despite the rand remaining north of seven to the US dollar, folk began to push the “Buy” buttons, even for the financial shares which had earlier taken fright when the rand turned runt. My inclination, however, remains that one should be using recovery opportunities such as these to take profits and reduce overweight holdings.

And talking of overweight, reminds me of the news that foreign diplomats are becoming anxious about the crime situation. I am unimpressed by the suggestion by Deputy Foreign Minister Pahad that my tax money could be directed towards extra security for this corps. Why should not everyone in this country benefit from official concern for our wellbeing? At least the foreign fellows can retreat to the safety of their home countries if they find it too dangerous in their Pretoria enclaves, VIP lounges and darkened limos.

May’s inflation figures were published this week and the bad but unsurprising news is that life is getting more expensive. The average consumer (whoever he or she may be) is spending about 4% more than a year earlier to keep body and soul together. However, further up the supply chain, manufacturer’s inputs costs were almost 6% higher. These increases inevitably filter down to the consumer in a few months. And today we learned that petrol will go up 25cents per litre next week. So it seems reasonable to predict that spending on non-essentials could come under further pressure in due course. This helps explain why the general retailer sector on the JSE has been under so much pressure recently.

The bitterly cold snap that has draped itself across the country just in time for the National Arts Festival will provide an excellent excuse to stay in front of the TV this weekend and supervise the many different sports events that will take place. Fortunately, the ‘bokke will not be out embarrassing us, but there is plenty to make South Africans anxious. Have you seen the standard of the stadia and organisation in Germany? We have much to do in the next four years.

There will be no “Tidemarks” next week. I shall be in Grahamstown taking my dose of culture and trying to get warm.

James Greener

30^th June 2006

PREPARE THE BUNKER. IT’S TIME TO HIDE

It has been another one of those weeks when the black cloud of disappointment has blown in. It seemed as if everyone had a story of violent criminal events that had occurred close to themselves or someone they cared about. Exacerbating my fear and despair is the feeling I have that those who should be doing something about this are unconcerned that the folk of this country are being overwhelmed by lawlessness. At times, the official indifference verges on hostility as if it is the victim’s fault.

I think that some of the sudden severe collapse in the value of the currency is the result of people both local and offshore deciding that it is time for their money to depart the southern tip where the financial news of the region has deteriorated quite alarmingly recently. In addition to warding off the unofficial felons, businesses in SA are being assailed by regulators and legislators of every stripe. One of the newest targets in the crosshairs of the do-gooders are the pension funds who are supposed to have done their members ill when they indulged in the suddenly reprehensible yet legal practice of “bulking”. Just how the fund’s members and beneficiaries will benefit from having massive fines imposed on the fund has not been explained.

One example of the nonsense that these bureaucrats can dream up appears from time to time in this business when a corporate announcement appears with the stern and capitalised admonishment that the document is not to be published or distributed in a list of certain countries. Someone has decided that the investors in those places are of a far too delicate disposition to be able to cope with the news in the announcement. The irony is that theses items are distributed electronically – precisely the perfect medium for instantaneous and global dissemination. A similar idiocy can be found on the JSE’s own website where their much touted SENS news service appears with a five minute delay! SENS was created to ensure that all investors could get potentially market-moving company announcements simultaneously. Now it seems that only those who subscribe to one of the commercial news distribution services can be so privileged.  But anyone without an internet hook-up will need to wait for the morning newspaper to learn that the CEO of their favourite company has fled with the petty cash and his secretary.

Mind you, being close to the news flows and price feeds is not necessarily a boon. We have seen even more of the extreme see-sawing activity in he markets this week when almost every day provided a daily range for the all share index in excess of 500 points. In these times short-term traders are exciting but difficult people to share a trading-room with. Yet anyone looking at the daily closing levels will have seen quite modest moves of less than 2% and felt that the market was consolidating and firming a tad. This data also fails to reveal the great difference between the resources shares that have surged mightily in the wake of the weak rand and the banking sector which has swooned on the same news. Retailers have also had a bad time, which was not helped when the central bank released discouraging news about our current account deficit. The chief central banker fanned the flames during a parliamentary address with mutterings of further rate hikes.

It is all turning nasty remarkably quickly.

James Greener

23^rd June 2006

SUBSTITUTE: BEAR ON, BULL OFF

I have to say that I have tried pretty hard to see what’s so beautiful about this game. Admittedly, I have not remained glued to the TV for all of the 24 hours of play that has taken place in Germany this week so far. I have personally witnessed no more than half a dozen of the 40 goals scored. Some, I probably missed because I dozed off after being exhausted by the miraculous recoveries from the apparent limb-destroying injuries. I have enjoyed the grand theatre that attends the incidents of yellow-card waving, and I am appalled by the scenes of jersey-biting, leaping, sliding, mobbing and praying that follows one of the rare scoring events. I am however sympathetic towards the astonishing inaccuracy of the hugely acclaimed and remunerated stars. Here in the securities business we have exactly the same thing. Hoofing the ball over the cross-bar is identical to buying stocks just as the market begins to tank.

Since the bull went off in early May for his winter break, amazing and unprecedented intra-day volatility has tried to disguise the fact that actually we are now about 15% off the peak. Daily trading ranges in the All Share Index of 500 points or 3% have been common and investors calling for a chat in the morning have often been shocked when checking the closing levels in the evening.

Obviously, a correction of this magnitude has pushed some shares into the limelight of “possibly reasonable valuation” and bargain hunters are starting to get excited. However, I don’t think that this bear is in any way finished with us yet and would prefer to be using moments, such as today’s close-out, when the market is on the up, to ensure that one has taken profits in the overweight holdings and to thin-out the illiquid shares. There is no shame in earning more than 7% tax-free while waiting for the really mouth-watering valuations that I am sure will present themselves in due course.

Diligent readers may be familiar with the so-called BRIC emerging markets. These are Brazil, Russia, India and China and compared to the first three, South Africa’s market correction is an infant. India is more than 35% down from its peak.

For a number of reasons, which would take an article of their own to explain, I have become very suspicious of the figures that purport to show net foreign buying and selling of our share and bond markets. Once upon a time, I was a firm believer in these stats and produced clever charts to look for correlations. But I now think they are deeply compromised and corrupted. Because the financial rand mechanism is long dead and buried, the normal currency market is the sole indicator that we have for foreign investment. And it is in this market where we on the southern-tip have seen particularly large recent declines. In particular, the rand has taken a severe beating versus Sterling and a pint of warm beer will cost the South African tourist 20% more than it did at Christmas time. I reckon that non-residents have done some substantial selling of this market. And they are not yet finished.

Thank goodness for some test rugby to watch this long weekend. And the next time I write Tidemarks, the winter solstice will have passed and we will be on the way to summer. Fantastic.

James Greener

15^th June 2006

PUMPING IRONY

If this letter were to be any use at all, it would list the shares which will next week go up as well as those which will go down. Last Friday I ran out of space before advising you sell Billiton, Sasol and Anglo and put the money into Richemont, Standard Bank and Impala. I hope in this letter that I remember to insert my calls before the 550 words are up.

The market was more placid these last few days, with the largest daily range in the All Share index occurring on Wednesday when there appeared to be some month-end manipulation being attempted. No clear trend has yet emerged, however, and there is a furious tussle for control of the market taking place between the bull and the bear. There are opportunities popping up here and there (witness the list in the previous paragraph) but success is granted only to those with nimble fingers, great vigilance and excellent market intelligence. Physical fitness and stamina will be useful as well.

If, like me, you find these last two hard to achieve than you will also be interested in the search being undertaken by the Gauteng Local Government for someone who can “provide Comprehensive Health & Fitness to the Members of the GSSC”. Presumably, these “members” are the same people who have allowed outstanding rates and taxes in the province to now reach R17.5 bn. But tax payers who object to stumping up for the bureaucrats to burn off some of the calories ingested at the never ending round of receptions and report-backs are just being miserly. Probably these same folk are also moaning about the official contingent of 150 people who are off to Germany to get ideas on how to run a World Cup. Hopefully the party will include at least one person who will learn how to get the national side into the tournament.

The National Credit Regulator opened his doors yesterday, but his job is not to see that the government doesn’t borrow too much money but rather that private sector lenders and borrowers understand and love each other. This sounds to be a dubious proposition and I wonder about phrases like “credit providers have to ensure they have documentary proof that the consumer can afford the loan at the time of application.” Once again, the state is calling for an avalanche of paperwork, not one page of which will make it cheaper and simpler for the age-old wheels of finance and commerce to turn. The irony behind much of this rush to establish each other’s identity, parentage and place of residence is that the requested verifying documents are increasingly being produced neither accurately nor timeously by the same organs of the state that are demanding them. What’s the delay for a new passport these days?

Investors looking for something to fret about will have noted that we are approaching the season for interest rate meetings both here and in the US. June also sees the arrival of a futures close-out event on the JSE. Whether any financial event will have any impact as June unfolds is doubtful. Employers world-wide are accepting that productivity will plummet as the workforce settles down in front of the TV. Pizza and beer suppliers are my pick for the month. Go short the gyms. And watch for Telkom’s results. Monopolies rule OK.

James Greener

2^nd June 2006