SHOULD THE BULL CARRY A WEALTH WARNING?

The All Share index sliced through the 32 000 barrier without a backward glance. As usual just about any news was taken as a spur for the bull and in fact, some of it, probably actually was mildly bullish. The rand has been showing spells of strength and commodity prices are confident that Chinese demand will never slacken.

On the other hand, how can one possibly be impressed when the biggest bank in the biggest economy in the world announces that about 10% of its assets are not as wonderful as the previous management had promised? Therefore, they would be pleased to hear bids starting at $500 bn for the lot? South Africans thinking about this deal should note that this sum represents well over half of the total value of all the shares on the JSE.

Great store was set by the view from sage Warren Buffett that the worst was over in the US. If anyone gets to hear the inside story first, it has to be that man. The sight of a crowded dealing room with blinking screens and screaming traders is familiar to anyone who has by accident flipped all the way up past the sports channels. Those banks and ranks of flat-screen monitors deliver a soulless and ceaseless flow of information, opinion and conjecture pretty well simultaneously to anyone anywhere on the planet. This is very pleasing for the regulators who blather on about level playing fields. What makes them incandescent with rage, however, is the suspicion that the important news first travels on the phone lines and even worse, on the mobile phone links where call recording is very difficult. Anyone who walks briskly away from their desk with a cell phone pressed to their head is obviously in contact with a trusted source, a saucy tryst, or a steaming spouse. If markets really were transparent and fair and efficient they would not be fun nor deliver profits and would not have much reason to exist.

The headlines that Health Minister Tshabala had become “tough on booze” sadly lead not to a heart-warming tale of self-discipline but to an example of political hypocrisy. Despite the utter failure of printed health warnings on cigarette packs to reduce consumption, it has triumphantly been decided to tell the liquor industry to follow suit and place warnings on their labels. This announcement was accompanied by dark threats about what would happen if the youth failed to heed this stern government action. What’s to fear? Allegedly, even lovable drunks can attain ministerial heights.

I wish that the folk at the SABC would realise that no one cares who sits in which chair and holds what title within that rather nasty organisation. The vicious battle that apparently has broken out amongst the so-called managers and executives of the national broadcaster is of no interest whatsoever to anyone else. In fact, the fewer non-creative people on the payroll of that business the better. All we viewers and listeners want is entertaining and truthful content delivered for a competitive price to our TVs and radios. Would they also please note that not even the shortest clip or sound-bite of any politician what so ever delivering an opinion or lecture qualifies as entertaining or truthful.

My tendency for self harm has no limits. I shall be going to Ellis Park tomorrow to see the Lions, if not in action then at least on the field in person. If you are bored enough to tune in you will easily spot me. I will be half the crowd on the first level of the eastern stand.

James Greener

9^th May 2008

EVERYTHING UP EXCEPT THE TEMPERATURE

I was delighted when someone asked me what the theme of Tidemarks would be this week. It makes me feel like a real analyst. The questioner presumably gets the impression that this letter is the result of a week spent in careful and detailed investigation of the investment scene. That’s marvellous and very flattering but actually, the week was spent as usual in combat with the joys and woes of living on the southern tip.

The important but unsurprising news was that inflation is now in double figures. Anyone who has recently filled a shopping trolley or a petrol tank knew this information long ago. And coming soon are some pretty scary increases in the price of electricity – when available – and in even more basic food stuffs. There can be no doubt that the Reserve Bank interest rate wizards at their June meeting will make things worse by increasing the price of money yet again. Do none of them actually have and service a mortgage?

It is obvious therefore why us bears can reel off a list of reasons why share prices should be a lot lower than they are. The overwhelming weight of evidence is in favour of a slowing economy. The prices of essential goods like fuel, food and money are increasing at a startling rate. This is putting pressure on profit margins of all those business that are involved in the supply and production of these things. It presumably also means that consumers will have less money to spend on items like clothes, toys (machinery) and luxuries. Therefore, company earnings will probably decline, and in fact, they are already doing so. Therefore, share prices should come down. But that, they are not doing! So what is going on? The bulls say that investors are smart. That they already are looking through the slowdown to some happy moment, as soon as early next year perhaps, when all the bad news will be gone and life will be good again. That such halcyon days await us somewhere in the future, I have no doubt. It is just that I want to buy cheap shares now so I can have more fun when we get there.

We suffered our share of power blackouts this week. Some functionary carefully selected the load known as Illovo Boulevard and shed it from the electrical network for 4 hours on Tuesday. The computers just hate that! The same evening, he selected my home suburb for similar treatment. This morning, the region between home and office was targeted and traffic chaos ensued. This aspect of the electricity crisis is the perhaps the most dangerous that many of us have to cope with. Apart from lengthy fuel-consuming periods of frustrating and unproductive immobility, the suburban side roads become infested with lawless minibus taxis attempting to avoid the failed traffic light-controlled intersections. Arcane matters like pe ratios and discount rates fade from the mind when faced with an approaching wall of three Toyota HiAce grilles side-by-side.

Yet another impediment to growth must be this year’s arrangement of public holidays. With a theoretical working week of just two days coming up, second quarter productivity will likely set new record lows. Certainly, there will be no Tidemarks in your email next week.

May your back-to-back long weekends be safe and happy. And warm. Shouldn’t we ask for the Nobel Prize back from the chap who said it was getting warmer?

The Lions are making the foot of the Super14 league table their own private space.

James Greener

25^th April 2008

MORE TOXIC LIQUIDITY

This morning’s story was that the water coming out of the taps in large parts of the city was unfit to drink. Personally I am unaffected by this dreadful news, having long ago adopted a rehydration method that avoids the stuff. However, for those who do drink this colourless and tasteless compound of two chemicals, Spokesman Baldwin Matsimela of Johannesburg Water advised that boiling before consumption was a good idea. He did not explain how this was to be done if you were enjoying one of the now regular power cuts.

But no matter what the news, the share market takes it all in its stride and treks northwards faster than the Boers escaping British taxes. The All Share index took a good look at the empty space beckoning above the 32 000 level before pulling back to gather its strength. As usual, most of the work has been done by the resources shares with financials and industrials rather idling along. We are, however, starting to see some trading statements and company reports where earnings growth rates are down from previous levels. In most cases, the company has a very reasonable explanation for why things are getting a tad slower but so far, no one big has delivered a shocker that might catch the rest of the market’s attention. Of course, even that might not cause too much damage if we take the Wall Street example of share prices rising in apparent reward for management revealing just how bad it has been. Shareholders seem to be quite cheered with the promise that the sacking of several thousand staff members and the writing off a few billion dollars and the raising of executive bonuses will positively and absolutely fix the problems going forward.

Our own version of that is the squabble about what the word “Crisis” means. As I recall in 1994, certain sticklers for detail were still trying to tally all the votes in our own election even as Mr Mandela was accepting the title of President on the steps of the Union Buildings. The situation in Zimbabwe is sadly very different and the arrival of a consignment of Chinese armaments in Durban en route for our northern neighbour is alarming as well as poor timing. Nevertheless, it does not seem to be deterring foreign money flowing down here. The rand was quickly pushed back well below the 8 per US dollar level when it tried to break out this week as well.

I guess it would have got even firmer if it had been announced that Cuba had repaid the R1bn loan that South Africa had made to it in 1996. Instead, the National Treasury admitted that there was no chance of the miraculous socialist economic model that is Cuba being able to cough up our money and that we taxpayers must write it off. I wonder if this news will decrease the amazing popularity Che Guevara T-shirts? It will certainly have dismayed the folk at local defence manufacturer Denel who, presumably having failed to land the Zimbabwe order, are passing the hat around for a similar sum of money. 

Thanks as always to the Gauteng Provincial Government for yet another baffling request. This time for someone who can upgrade their Waste Information System (WIS). Do they actually keep a record of where the rubbish bins are?

I just love the way markets price things. I am yet to be convinced that this Indian Premier League cricket jamboree will be exciting. However, the list of the player pricings is already fascinating. Shaun Pollock and Herschelle Gibbs are both more expensive that Graham Smith who is worth only about half as much as Jacques Kallis. The other irony is that Graham is playing for a side captained by Shane Warne.

James Greener

18^th April 2008

RATES UP. RATS LEAVE

Although the All Share index failed to set a record high this week, the Top 40 did so with ease. It faltered only when Governor Mboweni yesterday glided up to podium in a striking red tie and raised the repo rate half a percent (50 basis points). After a few sessions to take it all in and watch how the US markets are not allowing any bad news to slow them down, I guess the shares on the JSE will resume normal service. Banking sector shares appear to be about the only ones letting the higher cost of money worry them for longer that the obligatory knee-jerk sell off. Not even the currency seems much interested in these higher interest rates. Foreigners probably have more pressing uses for their cash back home than to come grubbing down here on the southern tip for an extra half percent. Sterling holders in particular are currently losing the battle with the euro across the channel to become the preferred alternative to the US dollar which is collapsing in a spectacular way right now. 

Deputy Minister Susan Shabangu’s office has been bombarded with calls from the nation asking for pinup pictures of the courageous lady. Her advice to policemen who come across criminals at work, to “kill the bastards” has struck a great chord of approval amongst the citizens of the land who are very tired of living in fear. The carefully reported reactions of shock and outrage at Susan’s heartfelt speech, totally underestimate the mood of the people. We need and want more ministers like Ms Shabangu,  who tells it like it is.

Governor Mboweni did that yesterday when he yanked firmly on the “Rates Up” lever. He is definitely focussed on killing inflation, although many of us are not at all certain whether he is using the right weapon. Frankly, after filling up the car and the grocery cupboard most people today have little capacity, at any interest rate, to spend on essentials like wide-screen TVs and cases of Dom Perignon.

Talking of weapons, I was saddened to read that Queen Modjadji is on her way home to Simons Town. She is the third and thankfully last of the utterly inappropriate class of warships that resulted from the corruption–riddled arms deal negotiated for us by people who now claim never to have heard of it. I believe that down here, astride one of the world’s busiest and storm-battered sea-lanes, we definitely have a huge need for a well equipped search and rescue fleet. But just what we plan to do with the good ship Queen M baffles me. She is a submarine.

The furore that is following the progress of the Olympic Torch is also rather disappointing. One can understand the temptation for people with a mission to seize upon the high profile event to publicize their own grievances. However, in the end the Games themselves are simply the pinnacle of a sporting career for thousands of dedicated and disciplined athletes. I think that anyone who has for four years or more every day watched the sun rise while flinging lumps of iron or jumping over fences or paddling canoes or prodding someone with a sword ought to be allowed the opportunity to see if they can do it better than anyone else in the world. Fortunately, for them and the rest of us there are plenty of sponsors pleased to pay for the circus and to enable us to watch it from the chair near the fridge at a respectable hour. Don’t we all love the drama of dashed hopes, unexpected success and the ever more intricate medal ceremonies?

The cat family are not at home in the Super 14 environment. If it wasn’t for bonus points, the poor Cheetahs would barely make the bottom of the log.

James Greener

11^th April 2008

ANOTHER ROUND BARMAN. THE GOVERNMENT IS PAYING

The central tenet of technical analysis (charting) is that every piece of information, about a company is distilled into the share price at that moment and that the behaviour of the price reflects the shifting balance of power between those who believe their information is good news and those who think that their knowledge spells trouble. This so-called “language of the market” is presently sending a clear message that the worst is over and most companies on most markets around the world (China excepted) are going to make greater profits in the future. Fusspots like me who fret about incomprehensible debt levels, insolvent banks, and collapsing housing prices obviously misunderstand the language. Careful listeners believe that while those little difficulties do exist, there are sufficiently powerful forces available (generally fuelled by tax money) who will be able to fix all these problems. After all isn’t that what governments are for? To ensure that everyone lives happily ever after?

Governor Mboweni has clearly spent a bit of time re-running the tapes of all his previous announcements about the repo rate. He has wisely decided that his obvious discomfort and physical deterioration in front of the TV lights was detracting from the drama of delaying the decision until he had delivered numerous pages of boring econo-waffle. The poor man had probably been told (incorrectly) that this part of the speech enhanced his reputation as a skilled and erudite central banker. Now the important number is released in the first few seconds of the broadcast when he looks fresh and happy. The sycophantic analysts deserve to sit through the rest knowing that we sensible souls have switched the TV over to The Fashion Channel or Sport Fishing

There is furious speculation about next week’s decision, which has been stirred up by the sharp improvement in the rand exchange rate. Money is flowing back to the southern tip. The peaceful and unexpected flowering of democracy in Zimbabwe is fuelling all kinds of over-excited speculation about opportunities. The air is thick with early birds looking for worms. They might well find them. But I don’t think that will distract the Governor from the soaring inflation rate and his determination to attack it. Much like the powers(off)-that-be at Eskom, there is a determination to punish citizens for not heeding the warnings to use less money and electricity.

It is taking much longer than I had expected for the bear to take control of the markets and economies. I am therefore grateful that I have no need to worry about the arrival of the day when I would be sent away with an ugly clock and a ridiculously large greetings card filled with doggerel about enjoying my golden years. I am going to stay put in front of these screens for as long as it takes and see everyone get what they deserve. So those of you who thought that the second absence in three weeks of this letter was the sign of my imminent retirement are happily wrong. A week ago, I was very proudly watching the Chancellor of Rhodes University conferring a degree on my younger daughter. A wonderful but possibly the last such occasion for us.

Load shedding has returned and as ever the Gauteng Provincial Government is on top of their game. The paper today carries a request by them for someone to host the “Passing of the Torch Awards 2008”. I know that fumbling around in the dark after Eskom trips the switch, requires skill but who ever would have thought that my government would have seen fit to pass out prizes for the top performers in this area? Obviously, an electrified venue will not be necessary.

James Greener

4^th April 2008

DEEP IN THE DZONGA

As I write these words, the mysterious futures close-out event is about half-way done. The volumes going through the market are massive but there has been no significant impact on share prices. These were already looking weak before close-out began, driven largely, I suppose, by the rather scary drop in the gold price. This event in turn was probably a result of the gullible and chronically hopeful punters believing that the Fed’s latest dose of rescue remedy will fix the US economy. I am sure that merely reducing the price of money to below the rate of inflation will not remove the waves of suspicion and distrust that are presently washing over the financial beaches. No one who has any cash is remotely interested in lending it to anyone except to someone who will undoubtedly be able to repay it even if they have to crank up the printing presses to do so. Hence short term US government bond yields are plunging but rates for all other categories of borrower are soaring. When one of the best known banks in the world can go from hero to zero in just a day – what other nasties are coming down the road?

Back here on the southern tip, the after-tax-and-inflation rate of return for cash on call is perilously close to zero if not negative. This explains why there is a ceaseless search for something of value in the share market to buy. On the simple raw data, the metrics suggest that there are some tempting offerings in the financial sectors of the JSE. But if another big bank somewhere in the world were to follow Bear Stearns into oblivion, that would surely spark jitters about whether our own money lenders are as safe as they and Governor Mboweni claim. Therefore I would I not yet be betting the farm on this idea but perhaps just a small vegetable patch.

At ten minutes to eight this morning the planet passed through the southern hemisphere autumnal equinox and so it is now decidedly downhill to winter. Here in the big smoke an unusually cold and astonishingly wet spell coincided with the resumption of power blackouts. It is also the season of short working weeks. Yesterday the government caved in to workers (?) pressure and created one of only two working days duration at the end of April. Fortunately, I am a veteran of such events having lived in London during the UK miner’s strike in the early 70s and my advice is to keep a bottle opener, corkscrew and small torch about your person at all times. In South Africa, you can die of many things but boredom and thirst should not be among them.

For example, did you see that we have added a new word to the English Language this week? Dzonga. The government is calling for people to serve on a Digital Dzonga. It appears that this is a council that will oversee the implementation and monitoring of the switchover to digital broadcasting. As usual, as well as inviting ridicule, the state is way behind private enterprises that actually will make money from this switchover. Last week, in the wilds of KwaZulu Natal, I noticed a cell phone company team laying a fibre-optic cable near the unremarkable and very analogue village of Mtubatuba. Wait until the Dzonga hear about that. And my old friends, the Gauteng Provincial Government, forever in the dark about what they are for, are requesting proposals for Service Providers to develop a Gauteng State of Development Report. It would be all the more funny if I wasn’t paying for this nonsense.

Please enjoy a safe and happy Easter break. Sadly, I think that the Lions will go the way of all the chocolate bunnies this weekend.

James Greener

20^th March 2008

ON THE BRINK OF SOMETHING BIG

Friends who visit the Victoria Falls, often bring back pictures of themselves cavorting in a small pool right at the lip of the 100 m drop. I am unable to get any enjoyment at all from viewing these pictures, or even worse, contemplating splashing around in that supremely foolish venue myself. My vivid imagination worries about things like the outer edge giving way; a surge of water flushing through the pool or perhaps even a testy crocodile or hippo arriving to join them in this unnatural jacuzzi. Buying shares on the JSE at the moment fills me with the same dread. Nevertheless, some folk are doing so and coming out alive and invigorated. I watch in terror.

The Top 40 Index set a new all-time record high this week, although its stouter elder cousin, the All Share Index, has yet to do so. This gives a hint that the market performance is not evenly spread and indeed just a few of the super-sized resources shares are responsible for the fun. Most of these counters are listed on overseas exchanges as well, and so in addition to riding the huge crest of the commodities price wave they are also benefiting enormously from the collapsing rand. This it is doing with style and aplomb and having vaulted over the narrow lip, it is now plummeting into the gorge. We are, however, all certain that it will this time find a ledge to cling to and not continue to the bottom where the Zimbabwe dollar has now worth just one 25 millionth of a US dollar (and that after shedding three zeros on the way as well).

A friend and close neighbour was murdered in his home last weekend and his wife and teenage son sustained possibly fatal wounds. The incompetent bigots who claim to have the nation’s support to run my beloved country refuse to acknowledge the rapid disappearance of the necessary characteristics of a civilised and mature society. I doubt the killer will be found. The police have yet to arrest any of the assailants and intruders who in the past year were responsible for terrifying other friends in the same suburb. They do not even try to prevent so-called taxi-drivers from blockading routes and disrupting traffic that is already grid-locked on the inadequately planned and maintained roads system. The drivers are probably better armed than the police. What possible logic enables authorities to dismiss and discount the dangerous reality of life for ordinary people and visitors in this potentially wonderful land? Just how big are gifts, bribes, perks and incentives that are being offered and taken that they are able to obscure the facts? I am very very disillusioned today. Sorry.

By way of light relief I offer you the wonderful and revealing slogan that was being chanted by a crowd of women who were staging a protest at a taxi rank. Taxi-drivers are never far from the news these days. They are a conservative crowd it seems and have been harassing female passengers and passers-by that were, in their opinion, underdressed. The mini-skirted misses pointed out that “We are not road signs – you need to treat us with respect.”

I believe that we all ought to be treating the news out of the US with respect. It is not trivial when the largest economic and military nation on the planet slides into a morass of deficit, debt and doubt. It can’t even find a credible presidential candidate who might restore its dignity. Its wealth is probably a lost cause.

Tidemarks will not appear next week as I am going to hide from all this craziness in the Umfolozi bush. But not before watching the Lions pile insult on top of the injured Bulls tonight. At least one SA side will not lose this weekend.

James Greener

7^th March 2007