LION SINGS THE BLUES

Without packing a single suitcase, I have the feeling that I am now living in a country very different from the one I had expected and hoped for when we moved to the Rainbow Nation nearly twenty years ago. It is not that I have left my country but rather that my country has left me. I once read this sentiment written by a US citizen and I now believe it deserves resuscitation for my own experience. Almost nothing remains of the moderately effective services that one expects a government to deliver. In my country there appears not to be a single state or official organisation where the people in charge have the faintest idea of what they should be doing to earn the money we pay them. In some departments, their policies seem to be designed to deliberately reduce and even destroy what already exists to the detriment of every citizen. Compounding this dreadful state of affairs is the torrent of abuse, denial and outright lies that pour forth when even the mildest questioning or criticism is raised. I watched in stunned amazement the ceremony of apology unfold in Australia early this week. But it made me wonder whether the descendants of our current rulers will one day kneel down in front of my great grandchildren and apologise for what their own ancestors did to this country in the early 21^st century.

Although many of us are currently submerged in this trough of bleak depression, it has not stopped the rest clamouring to buy shares on the JSE. Judging by the continuing weakness of the rand, the supply of shares is still coming from offshore. There have been some rather downbeat assessments of the SA situation on prominent overseas TV stations.

Reporting season is now well underway and about two dozen companies published results this week. So far, only a few of the numbers are really disappointing and they came from the mining counters, most of whom are reporting rapidly rising costs. Remember that these figures cover a period before the power cuts began. It is sadly ironic that because of declining mining production, the prices of the minerals are shooting upwards and yet the mines themselves seem unable to capitalise on the bonanza. This is a very difficult sector in which to find stocks to buy.

The trigger for a very welcome price surge in markets world-wide mid-week was the news that Mr Buffet, allegedly the planet’s most skilful investor, had offered truck loads of cash to help bail out one of America’s most recently damaged financial sectors. Unsurprisingly, of course, the small print in the offer revealed that he wished to buy just those parts of the so-called monoline insurance industry that were old, dull, boring and profitable. He was not interested in the parts of the businesses that dealt with things that neither he, nor anyone else it seems, understood. Disappointment has followed the discovery of this condition to the offer.

A little incident reinforced my attitude of sceptical amusement towards the efforts of the “proper” analysts. It was the upgrade of a share from a “sell” to a “hold” recommendation. Now, if the clients have dutifully followed the earlier “sell” advice, just what was it now they were supposed to “hold”? I have licence to mock. I used to write that stuff too.

Super 14 is upon as again. Oh dear. There was a time when I thought I would have to be a Sharks supporter this year, but it looks as if I can remain with the Lions. But will they remain with me?

James Greener

15^th February 2008

BULL TRAPS AND POTHOLES

It has been another hectic week in the market with very wide daily ranges and many puzzling divergences between presumably similar companies. The most concerning problem is the continuing collapse of the rand versus almost every other currency. That is a sure sign that money is looking offshore for ideas and bargains. In principle, the weak currency is good news for anyone exporting stuff, particularly minerals that have been dug out of the ground. For example, a kilogram of gold will now cost you a record setting R222 100. Despite this, the market’s biggest gold mining company who produced 170 000 kg of gold in 2007 reported a loss of more than R4bn. This sort of news makes it hard for investors to know what to do.

New York shopkeepers on the other hand have no doubt that any customers who offer euro notes instead of the local greenback are very welcome! More than any other event so far, this development surely signals the end of the US dollar as the world’s sole reserve currency.

It is clear that people also want very little to do with those businesses that deal in this money stuff. Local banking shares continue to get cheaper and overseas there is no let up in the flow of stories about the bosses along Wall Street opening cupboards and discovering skeletons. The utterly discredited rating agencies that were conned in the first place and failed to see that dross dressed up as gilt was still dross, are now flitting about, down-grading everything in sight. Incredible sums of wealth are still being wiped off portfolio valuations and balance sheets. It is ironic and amazing that organizations that obviously had no idea what was going on in their own dealing rooms, still have clients who clamour for and believe in the investment research that they write about other businesses!

An equally bewildering idea was offered by Minister Sonjica who launched the National Energy Efficiency Campaign on Tuesday. Sadly, this does not involve decimating the ranks of the civil service but was mainly about confirming that DEPP is still very much in place. This is the “Developmental Electricity Pricing Program” which consists of punishing individuals in order to honour a very foolish promise to provide cheaper power for “electricity-intensive investments”! Locals who believe that they can continue to cook their food, heat their houses and watch TV can look forward to penalties if they use and pay for more power than some bureaucrat thinks they should have.

In what I think must be the stupidest official idea so far this year, the Johannesburg Roads Agency has used our money to buy a half page full colour ad in the paper. The agency begins by claiming to “care for the mobility of our citizens” and declares that “potholes are a nuisance to the road surface and the road users”. I beg your pardon? In what way can a road surface become annoyed with potholes? Half of the advertisement is a high-tech montage of photo and computer graphics illustrating for less educated readers the difference between a trench and a pothole. The accompanying text provides further detail on this topic. The Agency shares with us its five point commitment to repairing these nuisances and Honesty achieves third place. What a relief. Dishonest repair of a pothole is a terrible thing. The Agency is also proud of its “continuous consultation with the Weather Bureau” for forecasts, since apparently, potholes can’t be fixed in the rain! Nowhere is there any mention of spades, picks, wheelbarrows, gravel and asphalt. Any further comment from me would be unwise.

James Greener

8^th February 2008

BERNANKE & MBOWENI GO BEAR SHOOTING

I think that I have cracked the secret of the market. It will move in a direction that will cause the greatest embarrassment to the largest number of people foolish enough to offer an opinion on what it will do. Can the bear market, that I was so sure was going to get deeper and nastier, really now be over? The All Share Index is almost 20% higher than the low point that seemed so vulnerable just a week ago. And it is a mere 10% lower than the October peak. With up days of 5% plus like today, that record is a simple hop skip and a jump away.

What has happened to bring the buyers surging back again? In the US, a plan to rescue the economy from recession has been shifted into a very high gear. The Federal Reserve has slashed the cost of money and the government has decided to reduce and even repay some taxes. I have already seen some commentators who think these measures will work and that soon the US consumers will flood back to the shops and resume spending money they don’t have on things they don’t need. Are we really in an age where deficits don’t matter and debts don’t need to be repaid?

Back home, Governor Mboweni with great reluctance allowed his fingers to be prised off the Interest Rate Up Lever, but refused to go anywhere near the Interest Rate Down Pedal. Rates remain unchanged for the time being, and this has rejuvenated the bull. On the other hand, it has done nothing to help the rand which was already rather wobbly. Against almost all currencies, except the rather sickly US dollar itself, the runt is at levels last seen five years ago. Against the euro, it is at an all time low. The yen is 20% more expensive than it was just a few months ago. This has been a fierce reversal of fortune for our currency.

The story goes that it is non-resident investors who are selling the shares which are so eagerly being sucked up by locals. That would explain the currency weakness. The catalyst for the fleeing foreigners is presumably the extraordinary developments in the electricity generating business. TV pictures at the weekend showed that coal stocks at the major power stations were almost zero. The skills of Eskom’s staff are being equated to the ability of the man who failed to arrange a party in a brewery. The big difference in this simile is of course that the beer-less buffoon did not get to award himself a huge performance bonus. And presumably, he was never again asked to organise anything. I hope you saw the advertisement for home-sized emergency generators which a motor dealer is offering for sale. Buyers are being tempted with a free car to accompany their generator.

Meeting rooms around the country are thronged with complacent officials and enraged consumers being told to save power by switching off their shops, factories and mines and by going to bed early and taking cold baths. I hope that everyone obeyed these instructions and left the TV off and so avoided seeing the ignominious departure of Bafana Bafana from the African Cup.

There are pieces of evidence cropping up to suggest that growth is slowing. Cement sales have decelerated and brick stock yards are overflowing. Car sales are reportedly rather dire and second hand car lots are becoming as numerous and as large as game farms. The frequent and unannounced disruptions to the electricity supply are very hard to cope with. The only reason to be aggressively buying the market now might be to acquire rand hedges positions. Real pessimists might also be looking for protection from possible hyper-inflation but even I can’t go that far.

Good bye Polly. Thank you for all the entertainment, excitement and days of delight.

James Greener

1^st February 2008

DARKEN OUR LIGHTNESS

Reportedly, Eskom is presently able to supply less than 80% of its peak capacity. Something big has definitely broken down. Not least of which are the lines of communication. The government has called the mess a “national emergency” and this morning, the big gold and platinum mines in the country shut down their operations. In the meantime, there is news of a private gas turbine generator being constructed that will supply an aluminium smelter yet to be built in Coega. The deal looks as if it will be loss-making for Eskom. We are in real trouble folks. The power situation is way deeper that the euphemistically named Brown Level 3 we are supposed to be in.

One useful way we could save power is to stop spending any time, newsprint or TV broadcasts on the supremely stupid statements issuing from clueless politicians. Their claims that the economy will be unaffected by these blackouts is utterly devoid of reality. These dolts presumably do not get trapped for hours in traffic jams, have tax-payer funded generators installed at work and home and can be certain that their salary will be paid regardless. Most have no experience of earning a living by providing goods or services to customers. They have not yet grasped that the slow down will show up in reduced VAT and income tax collections. And when they do, you can be sure that it will not be their own salary and bonus pool that gets trimmed! I fear that the infant government budget surplus could be turning into a strapping deficit again.

It looked as if it would never stop falling. The rain here in Joburg that is. The market in fact has staged a very robust reversal just when we bears were starting to preen. I do not believe that there is much stamina in this new bull, however. We may be watching no more than a deceased feline, bouncing. At its deepest, the 2007/8 trough has been not even half as deep as the one experienced in the emerging market crisis of 1998/9. I am anxiously awaiting the upcoming season of company reports. Even if results for the period ending December 2007 were respectable, which companies can be expecting good growth into 2008?

The frantic actions by the US authorities to try and reinvigorate their utterly exhausted and indebted consumers are unlikely to work. The patient is beyond recovery and no amount of life-support will avoid the inevitable. I have always been amazed and amused by the arrogance of the rating agencies who loftily declaim on the ability of a financial entity to meet its bills. Once again, they have failed to spot until too late that a number of bond insurance businesses have put up the “Gone Fishing” signs. The ramifications of this latest development have yet to be properly calculated. They will not be trivial.

Another place where the sums were not being done carefully was at a French bank where a single trader is reported to have lost $7bn. I think that it is unfair to describe him as a “rogue”. Deeply talented is more accurate. Even some of the snow-covered talking heads at Davos appear to be impressed by this achievement. None however, appeared to be either shareholders or clients of the stricken bank.

I was delighted to see the national soccer team put the ball in the back of the net (and not their own) during their first match at the Cup of Nations. That’s a good start. Do that again, please chaps. We are in dire need of something to show FIFA that we are worthy hosts of the world cup. Simply renaming the host cities so that the fans get confused and lost is not enough.

James Greener

25^th January 2008

BEARS CAN SEE IN THE DARK

It is time to resuscitate my theory that amongst the huge array of numbers that are available for us to use and analyse, the exchange rate of the currency is just about the most reliable and largely free from sustained manipulation. I think it pretty well tells the story of what is happening in the country, and it is presently telling a rather bleak story. This week it has lost more than 6% against the Japanese yen and it is down almost 3% against even the Australian dollar. Versus most major currencies is has lost somewhere between those two levels. This means simply that there have been considerably more sellers of rands than buyers.

An important cause of this exodus has likely been the warning from the country’s power supplier that it would be unwise for anyone to plan to build any new major project that required a supply of electricity to operate. Now that pretty well rules out everything from aluminium smelting plants, deep mines, metro systems and most factories to probably even floodlit sports events. Our economic growth over the next few years will therefore have to rely on small scale market-gardening and hand-written poetry. Even candle making requires power!

The only good news about this announcement is that it is probably true. Their previous attempts to blame the power shortages on damp coal and misplaced bolts were obviously nonsense. The worrying thing now, however, is that while undoubtedly the growth in electricity demand is pushing up against the inadequately planned supply, the extent of the present program of “load shedding” indicates that something far more serious has happened. Eskom have decided to not to tell us what that is. Even the politicians and bureaucrats have twigged on to this and no one is sure how worried they ought to be! Only the sellers and installers of emergency generating sets are having a good time. The rest of us have been kept in the dark.

Other sellers of the rand have been the foreign shareholders who have decided that the JSE is not immune to the very large bear that is savaging most of the world’s markets. The declines in share prices are substantial and if they continue at their present pace, January 2008 will be in contention for being one of the worst months for the JSE on record. So far, the All Share is down 8% this month. This fails to tell the whole story, however. Savage intraday swings of almost half this size, in each direction, have sent short term-speculators stumbling from their screens, fingers burnt and bleeding. I am sure that the bear is not finished with us yet. While there are pockets of seeming value staring to beckon here and there, I feel that it would be best to wait until the gloom is universal and the headlines proclaim the end of the JSE. Then we shall go shopping for the bargains.

In the meantime, we can occupy ourselves by arranging for our homes to be inspected by the FIFA Bed Police. These people will decide if the accommodation is up to the standard demanded by an English soccer hooligan. Apparently, anyone offering bed and board to visitors to the World Cup, who has not registered with and paid for an inspection and grading by these officially sanctioned busy-bodies will be guilty of some yet to be invented crime. Culpable hospitality?

Have a safe and pleasant weekend and may you not encounter an intersection in the clutches of a metro police officer directing the traffic during a power cut. You will find yourself wondering about the actual meaning of “load shedding.”

James Greener

18^th January 2008

THE BULL HAS LEFT THE BUILDING

Eskom unkindly unloaded our shed here in Illovo from their power supply network for four hours yesterday. These blackouts are not peaceful, however, as most office blocks now have a giant generator that fires up immediately the lights go out. Not everyone was pleased to have backups, however. During some of the more torrid bear market periods this week the idea was expressed that a total and long blackout of the JSE computers would be no bad thing. The share prices of some large companies – notably retailers with potentially toxic credit exposure – are more than 50% off their recent highs. The bear is undeniably in charge and it does not look like he is going away soon. Remarkably, the rand is not doing badly at all. On the other hand, sterling is getting trashed and a UK holiday this winter should be cheaper than last year.

News from the US economy continues to get worse and worse. Many respected commentators have declared that the country is already in recession. The flight to quality had driven US bond yields way down and it is likely that the Fed will drop their interest rates as well. This means that cash returns after inflation are negative and helps me understand why the gold price is chasing $900/oz. Oil too is not getting cheaper. The producers have realised that there is scant fall in demand even at these prices so why should they bother to reduce them.

Years ago, Mad Magazine carried a wonderful cartoon strip entitled Spy vs Spy. I think that sadly, its creator is now dead or else he would be able to see the strip come to life in the shenanigans now engulfing what is laughingly termed the government of this country. Only those people who have lots of time on their hands (i.e. politicians and civil servants) can possible follow the developments as they unfold. Trust, respect and integrity have vanished from the people who we had hoped would create and run a safe and prosperous country for all its citizens. And the horrifying thing is that we tax-payers are paying for these buffoons to play their games.

My dismay at this shameful shambles is almost eclipsed by my amazement at the foolishness being displayed at the conference of the world’s tax-collectors gathered in the shadow of The Mountain. In speech after speech to each other, they are bemoaning the fact that their “customers” are unwilling scheming low-lifes who will do anything to evade their grasp. They are in total denial of the reality that for every person in the world, tax is a hateful idea to which we reluctantly accede only because the state has terrible penalties for those who disobey them. Only their families would mourn if The Mountain were to topple over on their proceedings. Please don’t ever again invite them back to these shores. Any future such meetings should be held in a fly and snake-infested desert.

Some reports have complained that French president Sarkozy is spending more time with his new girl friend than he is running the country. The lady concerned is a super-model and time spent with her is undoubtedly much more fun than running a country. Our own putative president-in-waiting tied the knot with another wife last weekend but from the pictures I have seen, Mr Zuma’s swift return to work this week was not surprising.

It is wonderful that for once, there is a big cricketing squabble going on and we are not involved. My aversion to Aussie cricket renders my view suspect, but I do think that their victory dance behaviour is rather childish.

James Greener

11^th January 2008

DIGGING UP THE DIRT

At last we are getting some useful rain here in Joburg. It was terribly dry and hot over the holiday period and those of us who wandered in to work found it difficult to keep alert. The market did jump around a lot but generally, it was on very slim volumes and so some of the prices recorded were probably not all that reliable. Popular market lore has it that the market usually surges in January as people return from the beach refreshed and optimistic. Allegedly, fund managers also begin to plan to invest the forthcoming year’s cash flows. This is a warm and comforting legend that like most “common knowledge” is gloriously unsupported by any evidence

The New Year has so far not been without interest, however, as both the gold price and the oil price have tested record highs. These moves seem to owe less to a declining US dollar than to actual demand for the commodities in the face of uncertainty and scarcity. The oil price often responds short-term quite sharply to data releases about the size of the US fuel stockpile. That this should go up and down from one day to the next does not surprise me at all, but it does appear to cause outbreaks of panic amongst owners of Hummers and other thirsty cars. Actually, I was a bit startled myself this week when my trip to the diesel pump resulted in the card being hit for an amount of more than R500 for the first time. I am entirely the wrong shape for a bicycle.

The outbreak of violence in Kenya is deeply distressing. Some commentators suggest that it is unavoidable that SA will feel fallout from this implosion of a continental neighbour. That is probably true, but there is always a range of factors in play, each of which will cause different reactions in every market player and so it is hard to isolate and identify which price move is due to which event. So far, I don’t think that I can yet detect any sign of an African sell-off.

The market is currently not even 10% off the all time high it achieved three months ago. While this has been unpleasant for a few buyers, it does not yet constitute either a proper bear market or even a good buying opportunity. Please just be patient.

Those of you in need of a more cultural way to find market protection could take note of the woman in Mpumalanga who has been taking handfuls of soil from the grounds of her local police station. It seems that her son has suffered from regular arrests at this time of year and scattering the sample in her own yard will protect him from further attention by the cops. Compared to its previous premises in Diagonal Street, the garden space outside the JSE is very limited, but one might be able to find a scoop of sand to sprinkle on the share portfolio.

Eskom have announced that a “summer of load shedding” is a certainty once the country gets back to work. This is not good news. I wonder if a truck load of their lush indoor horticultural display at Megawatt Park might protect this office from darkness and blank computer screens. This particular feature of life on the southern tip somehow makes me more bearish than usual.

Traffic volume and company announcements will begin to grow in volume from next week. I am looking forward to only one of these. As ever it is fascinating to see what is going on in the economy and who is managing best to take advantage of opportunity. I think that businesses that have customers who don’t need debt to finance their purchases will have a happier new year than others. And cricket teams that can take 20 wickets in a test match will also enjoy more support.

James Greener

4^th January 2008