SHAKEN BUT NOT STIRRED

This week has provided a degree course in volatility. From a 1-month low last Friday the All Share index today soared through to an all time high. Daily ranges of 400 points have been common but not relaxing for the short term traders. Once again I shall invoke my image of a large, energetic and joyful Golden Retriever bursting out of a lake and giving himself a vigorous and luxuriant shake. Water, weed, fur and slobber are widely and generously distributed. Distant bystanders admire the sight but are grateful not to be too close. So it is with this market which is shedding the less tenacious and determined speculators while investors are starting to worry about the smell of wet dog and paw marks on the carpets.

We are in a quiet spell for company reports but even so there are enough trading statements, cautionary announcements and good old fashioned rumours lurking about to keep the blood pumping. The so-called junior miners have been especially excitable. It is a sector that is suitable for only the fit, the nimble and the financially robust.

Away from the market I think the news is pretty bad and ought not to bullish, although of course I am obviously wrong about this. The civil servant’s strike has deteriorated into entrenched positions and increasingly wild and unsupportable claims on either side. Violence has erupted and as always the sick, poor and young are the greatest losers. It is odd that the so-called people’s government is taking such a hard-line stance. And of course, this is the government that never stops passing laws to enforce their own vision of how the rest of us should behave when we employ people.  

If the rand’s behaviour is any guide, foreigners too appear not to be concerned with developments in the streets, schools and hospitals. Our money has improved against most other currencies except the pound this week, even as the US dollar itself enjoyed a bit of support too.

Once again, the quarterly futures close-out event has come around and is being used by the cognoscenti as another reason for the bull’s health. Admittedly, the market does frequently peak during a close-out session, as mysterious and shadowy forces gather their gammas before thumping the thetas. Or something like that. It will take place next Thursday which I have already highlighted in the diary because it will be the winter solstice. Even though there will be the odd cold snap still to come, at least the days will begin to lengthen again and summer will be inevitable.

The only reason for having winter that I can see is that it is rugby season and the real stuff begins this weekend with the first Tri-Nations happening down in the shadow of The Mountain. With so much depth of talent to select from, Coach White really didn’t need that chat with President Mbeki about how to wallop the Wallabies.

The Gauteng Department of transport must be an unhappy place these days. Their plans for a monorail have been slapped down and now they have discovered that there is a finite number of ways to arrange three letters and three numbers to make up a GP number plate. The number of cars on the roads, however, is not finite. Fortunately the “user pays” principle can be invoked for this problem and car owners will be invited to spend much of 2008 in queues getting new plates. Can it be true that we will be returning to TJ numbers? I think I still have my old ones.

James Greener

15^th June 2007

IS THE BULL ABOUT TO GO ON STRIKE TOO?

Here in deepest Illovo I have been rather distanced from the violence and turmoil that is accompanying the strike by civil servants. Governor Mboweni seems to be similarly immune to the problems. When asked if his 50 bp hike in interest rates had taken into account the possible outcome of the strike, his answer was “No.” It was a good question and a surprising answer. The strike will end when a compromise emerges that will allow both sides to claim victory and save face. However that solution will definitely increase the government wage bill and this usually proves to be inflationary.  And that make the governor’s hand reach for the lever.

I am certain that most of us are very sympathetic to the need to raise substantially the pay levels of many of the categories of worker currently trying to draw our attention to their plight. However, there are also many workers who deserve no increase at all and indeed even their jobs should not exist.

The problem for them and us is that the state has imposed itself as broker and regulator for sizable chunks of the nation’s critical, vital and skilled services. Legislators materialise in multiple layers of administration that make token and futile attempts to ensure that the services are delivered evenly and fairly and that the taxpayer gets value for money. The main success of this morass, however, is to soak up as much of the value as possible as it flows from taxpayer to front line worker. It is well known that per capita this nation spends record amounts on education and health and yet we have little to show for it. I suggest that we should fire 85% of the civil “servants” whose day is not spent in direct contact with the customers and reward the remainder of the staff with 100% pay rises.

Some of the money we save from this exercise can be spent on trying to get some real truths about what the 2010 Soccer World Cup really will cost and what benefits it will deliver. Today’s press carries warning stories that we will not have enough food or fuel in the country to cater for the 330 000 expected sports tourists. Note firstly the distressing news that the unfolding calamity in our northern neighbour could see many times that number of refugees cross the Limpopo in the next few months. Is no one wondering about who will feed and transport these sad folk? As for 2010, I can guarantee that as long as the government doesn’t try to organise it, no one will go with out what they can pay for. My one concern is that the official beer sponsor does not, to my knowledge, actually brew anything deserving of the name. But probably someone will run a speakeasy for those of us deluded enough to need a Castle or two to keep our spirits up while watching the starving visitors walking to the stadium.

I have spent a good deal of this week in direct contact with my customers bombarding them with items in which my conviction that the market is looking terribly toppy has reached a squeaky crescendo. The story that an offer of a new share that will be listed next week was around 50 times oversubscribed does not dispel my fears that we are at a frothy peak. Don’t think that today’s weakness which has taken the all share index to just 4% off the all-time peak is “the correction”. The real bear market will be ten times more than that.

But even that will not be as torrid as the events that will be taking place between the front rows in the scrums at Ellis Park tomorrow.

James Greener

8^th June 2007

NUMBED BY NUMBERS

Even a small dealing room such as ours is packed with screens that deliver a non-stop flood of numbers, charts, pictures and stories. And when your eyes are tired you can turn up the sound on the TV and bathe your ears in a ceaseless wave of waffle punctuated with deeply irritating melody bites. Everyone has an opinion or a view or an interpretation of what these measurements of past events mean for the future. Some of us even hope that the numbers are sufficiently accurate or robust that they will withstand further manipulation. We slave over hot computers and confidently extract trends and talking points.

This week has delivered a deluge of digits to dissect. The most interesting and probably frightening were the SA inflation results which were much worse than everyone had expected. Bearing in mind that this environment of rapidly rising prices has already developed in the face of several interest rate hikes, I wonder why we are  so certain that the Reserve Bank will give the lever a solid tug upwards on Thursday. Why do we think that an increase in the cost of money will stop the increase in the cost of food or petrol or medicine or civil servants?

I enjoy the quarterly publication of the GDP numbers. There are dozens of fresh figures and reams of revisions of past data. I spend many happy hours loading them into the database and pressing the buttons that set the programs running. This week’s result reveals that in January to March of this year (yes – that long ago) our economy grew at a rather disappointing rate of 4.7%. The theory states that only when the GDP growth rate exceeds the population growth rate do we all get richer. I would guess that this ‘aint happening yet.

Almost a quarter of the 4.7% was provided by the economic sector labelled “finance, real estate and business services”. This is also the largest sector and comprises almost 20% of the economy. Naturally, the headlines were grabbed by the “construction” sector which continued its winning streak and scored 20% plus growth all on its own. (No wonder the average pe ratio of the JSE sector with the same name is very close to 30!). However, it remains a small contributor to the economy and added not even 0.7% to the 4.7% number. The most important result in my opinion is that the mining sector’s contribution was an appalling negative 0.5%. I don’t believe that it is a coincidence that this is the sector that would appear to have suffered the greatest amount of government interference in recent years. According to these figures the mining sector is now just 6% of the economy but still it should be adding to the country’s growth not dragging it down.

The market has seen a huge tussle between people who seem intent on doing some of that dragging down and those who have fresh batteries in the cattle prod that they keep jabbing into the bull. There were 8 days in May when the daily range of the all share index was greater than 400 points. This is character-building stuff. Suddenly we are all looking eastwards for our cue and the Shanghai index is on everyone’s watch list. I wonder when the JSE is going to suggest that they should open the market at 5 am to get some trading time overlap. This would be an unpopular move with people like me and I would remind them that they seem to be having great difficulties in getting their system to operate for the present market hours without adding anymore.

“And after Bloemfontein, gentlemen of the English touring party, we would like to introduce you to Loftus. Have a nice day.”

James Greener

1^st June 2007

NO RACE FOR THE WICKED

At this time of year Tidemarks should be coming to you from the Jacuzzi deck of a large yacht moored alongside the swimming pool straight in Monaco. Underdressed young women should be plying me with intoxicating drink. Fellow guests would include hedge fund managers begging to be put on the Tidemarks mailing list and asking to hear my investment wisdom. However, for some reason, my tickets to this migration magnet for the rich and sleazy failed to arrive and so the pond outside the office will have to serve as a replacement for the sparkling Mediterranean. I have fetched my own mug of instant coffee and have to say that the traffic in Fricker Road sounds nothing like a Formula 1 practice session.

Some things are going up and others are coming down. The most noticeable down item has been the temperature. Dozens of long-standing lowest ever temperature records have been broken this week, and the global warming story is meeting with a bit of scepticism down here on the southern tip. And are share prices about to go down? After poking its nose above the 29 000 level a day or so ago, the All Share index has retreated with huge intra-day swings testing the skills and wallets of the day-traders.  

Things that are going up in most parts of the world (except Iran where the president has decreed that they go down) include interest rates. Readers will be familiar with my view that the US long bond rate is a sensitive indicator of economic conditions and sentiment. That rate is rising quite sharply and amongst other things is putting even more pressure on the already battered housing loan market in the US. Investors seem to sense that it is going to get more expensive to live and are demanding more yield from their money. Here in SA as well, food prices are experiencing a wicked rate of increase. This fact, together with the bitter weather tends to activate the “gloom gene” in some folk. To cheer myself up I probably need to go shopping for fishing kit and beer again this weekend.

In less than two weeks time, we will be treated to Governor Mboweni’s bimonthly TV appearance. Towards the end of his performance he will make the interest rate announcement. Given the unmistakable inflationary signals that are flashing, I think he will push them up. I also think that the market is wondering what really bad story might come along and blast a hole below the waterline of this bull run. Now if the Governor were to announce a one percent hike instead of the more customary half percent, that might be the torpedo. But then again it might not.

A learned academic has discovered that two thirds of the small businesses that are eligible for a tax amnesty, if they give themselves up to the taxman before the end of the month, will not do so. This is because “most small business owners perceived tax payment and the costs of administration for compliance as an unnecessary expense.” I humbly submit that every current taxpayer feels exactly the same way. Who wouldn’t love to get off SARS’ mailing list?

And that investment wisdom? Just the usual. Buy low and sell high – infrequently. Which is about as useful as Eskom’s current advice not to use power otherwise there won’t be any!

I wonder what impressions of sunny South Africa the English rugby tourists will take away from their close encounters with the frozen ground in Bloemfontein tomorrow. What a tough place to make one’s test rugby debut!

James Greener

25^th May 2007

GETTING TAKEN FOR A RIDE?

Last week I jotted down the idea that one should be keeping a careful watch on the market. To the extent that this week the All Share index failed to set a new record high I was correct, otherwise, not much happened except the continuing threat that some volatility is imminent. At a level of 16, the overall average PE ratio is high but not terrifyingly so. This is another way of saying that a break-out on the upside is not impossible; but it will cause bears like me to get even more fretful and crabby.

The currency markets have been lurching about with the dollar showing some quite unexpected strength and the rand sagging back above the 7 per USD level. News that the Chinese currency is at its strongest ever versus the USD is probably also important.

Reporting season is hotting up and analysts are flitting from one company presentation to the next. Occasionally someone will ask the CEO a question but this is done mainly to delay and annoy the rival analysts who are eager to get closer to the waiting comestibles outside the auditorium. The poseurs will then grab just a bottle of  water before bolting ostentatiously for the office to report to their clients. While some companies have been trying to inject a note of caution into their reports, the growth that they have been enjoying is still very strong. Wise analysts realise that in these bull market times they need do little more than dutifully regurgitate the wonderful numbers contained in the company handout and so can remain at the bar and buffet until asked to leave! Everyone is a buyer anyway.

People looking for a sign that the good times are going to end soon will note that new listings are coming to the JSE even more frequently than commuter railways are coming to Joburg. Compliance officers world-wide will be using the Gauteng provincial government as a case study on how to keep a secret and not allow inside information to leak ahead of a major announcement. The news is that some very kind gentlemen from Malaysia are going to spend R18bn of their own money to build a sorely needed monorail transport link between Joburg city centre and Soweto. A visibly excited politician proudly declared that peak-time trains would run every three minutes and that there will be 44kms of line servicing 39 stations. I estimate that this level of service will require almost 50 sets of carriages and locomotives. The price sounds like a bargain as does the two year completion date. Clearly, their planners see no problem with servitudes, rights of way, skills and materials shortages. Naturally, critics and sceptics have already appeared. A taxi industry chief has predicted violence if the new service causes his passengers to defect. Laughably the national Department of Transport has complained that they too were surprised by the announcement and want to see if it aligns with their national and local strategic transport plans. Their what? These are the chaps who have installed a computer system that has all but destroyed car registration and driver licensing. 

It seems that the African Development Bank is starting to get suspicious that the main intention of the Chinese in increasing their presence is to exploit the continent’s minerals and not to address poverty. No! You think? Surely not.

The curtain-raiser game ahead of tomorrow’s final will be a demonstration by the management of SA Rugby that they have a very poor grasp of the off-side rule. They are a talentless mob who look pathetic when they strut about in their undeserved  Green and Gold jackets.

Go Bulls.

James Greener

18^th May 2007

HE WHO PAYS THE PIPER DOESN’T GET INVITED

I believe that the chief reason that most of us agree to attend any meeting, function or gathering is the promise of some catering. A useful measure of the likely success of the get-together is determined by the ratio of the lavishness of the event to the cost for the participants. Dry sandwiches and things on sticks with a cash bar in the corner is a definite dud. However, the party in Nelspruit, jewel of Mpumalanga, at which a few hundred self-proclaimed VIPs celebrated the occasion of turning the first sod of the soccer stadium, must rank amongst the best of the year. Almost R1.5m of other people’s money (tax and rate payers I guess) ensured that very few who were there will have any recollection of the sod that was turned. However, all will look forward to the even bigger binge that will doubtless take place on the heady day when the stadium is actually completed (before 2010 we hope).

Despite the endorsement of the newly launched “Pimpjuice” by a senior politician from the ruling party, I doubt that there is much call for that particular beverage at these knees-ups. This non-carbonated sports drink is apparently named for “positive intellectually motivated persons”. This interpretation does not spring to mind when categorising the typical guests at a giant freebie of this nature.

I must admit that I thought that the National Treasury would mark the publication of the new tax forms with a glass or two of something fizzy but it seems to have been a laudable low-key event. I shall wait to see the forms before I pop a cork.

With suspicious regularity the All Share Index set another record high this week (it was on Monday) but has actually been range-trading between these new highs and the 28 000 level for almost a month. Whether this is a period of consolidation before another surge or the forming of a top, no one knows. What investors should be aware of is that so far in May the US dollar has firmed by almost 1% against the major European currencies (GBP, EUR & CHF). Against the Yen it has, however, done very little. Wall Street has at last stopped its almost unprecedented sequence of positive days and I am keen to see if this is a significant moment for the invisible whimpering bear. Something is happening, so keep a careful watch please.

Market news and gossip was dominated by two themes this week. Firstly, we enjoyed the story that at least one of the world’s major mining houses or something like that was being considered as a takeover target by one of the other ones or even by the world’s richest ukulele player or someone like that. This is probably another Pastorini event. That is, a market rumour which is characterised by little substance, scant truth and certainly no money. But the share prices ran nicely and alert punters made money. The second talking point was raised in the interim report from one of the country’s major furniture retailers. The increase in their provision for bad debts from within their sizable credit sales book raised eyebrows and fears that maybe this was sign that the South African consumer was starting to flag. Many of the company’s competitors say that they see no such thing so, as usual, confusion reigns.

Tomorrow Sharks and Bulls will be promoted to the status of the “Big Five” and tens of thousands of fans will be able to watch them in their natural habitat. This will be a unique event and it is hoped that it will end with a few dozen kiwis wishing they were not flightless.

James Greener

11^th May 2007

PREVIOUSLY UNQUALIFIED

Many years ago I failed utterly to make sense of the essay topic “History is Bunk” and earned scorn and rebuke from the teacher. Obviously, I have not forgotten the incident and it popped into my head this week when reading about how the current action of the Dow Jones index is reminiscent of the days prior to the 1929 stock market crash. Is a  market collapse now imminent? Probably not.

Most market forecasting methodologies depend on looking for historical precedent. Popular tools are price patterns, valuation levels, corporate financial health and overall economic conditions. This data and these techniques are used by professional and amateur fund managers alike, but I don’t think that any of them work consistently. Some evidence for this view can be found in a schedule of find manager performance which was published this week. Not one of them beat the All Share index over the past 12 months. Maybe it is time to have another stab at that essay.

Bears and sceptics are adept at compiling long lists of events and situations that are unfolding right now which in the past have caused markets to crash spectacularly. But so far, none of them are working this time. Very puzzling; but of course every time is different or else this would be an easy game.

As I understand it, one of the biggest differences this time is the massive wave of liquidity provided by our central banks. Who hasn’t looked across at well groomed young lady or grubby old man in the luxury car and wondered; “Where does the money come from?” I don’t know the answer to that question either but I do know that some of it is pouring into markets and until that stops the bears will go hungry. The index record high this shortened week looks set to happen today. Resources are pumping despite the strong rand dollar rate. That’s another shattered certainty!

The work being done by an outfit called the SA Qualifications Authority caught my eye. SAQA can spend three months checking the content of a 1982 degree-course in financial management from the University of Suffolk before deciding whether the holder will threaten the educational standards of this country. Presumably the unscrupulous local employer of the potentially untrained foreign job applicant has already decided that 25-odd years of experience is good enough, but thankfully, SAQA have the final say. The good news is that a 1985 Harvard engineering degree (the chaps who put a man on the moon) takes SAQA only days to check.

Here’s a good one. An application to install an urgently needed 24inch fuel pipeline from the coast to Joburg has been turned down by yet another quasi-government body. The reason they give is that it is their task to implement government policy but that “unfortunately the government has not indicated in a public document what its policy is.” That’s comforting.

Zimbabwe does not come to mind when thinking about examples of sustainable development (unless of course it is presidential tenure). It is therefore odd to see that chairmanship of the United Nation’s Commission on Sustainable Development is about to be awarded to our northerly neighbour. The world is neither flat nor round, it’s crooked.

I wonder what SAQA would feel about a 1977 degree in geophysics from the University of Exeter? How long before they conclude: “Ignore this man’s views on markets.”

James Greener

4^th May 2007