FLAGGING MARKETS

It is rather difficult to get a clear view of the markets down here in the kingdom this week. There is a miasma of tension drifting over the city as the first test between the ‘bokke and the Lions looms. Biltong and beer futures are a sure bet with cane and Coke not far behind.

It will also be hard not to let anticipation of the weekend’s many sporting fixtures dominate this comment.

The effective working week of about three days provided few memorable market movements. One of those strange “insiders-only welcome” close-out events took place and did nothing to reverse what I think is a bearish tone that is starting to tinge most sectors. Another round of reporting season is creeping up on us and a majority of the trading statements are warning that earnings are slowing. The retail sales numbers for April were dire and a lack of exports is keeping pressure on the current account

My doubt about the sustainability of the share price recoveries since March is getting greater.  Even if the news is reporting slower rates of decline in the some statistics like employment and house prices, the numbers are still of course getting worse. Most of the world’s talking heads (with the notable exception of my fellow scientist Chancellor Merkel of Germany) are wittering on about bailouts and rescuing ducks so lame that drowning is the kindest option. Back home about the only  claims for public money seem to be some state run and owned organizations and the investors in one or two spectacular non-investment schemes.  Of course there many organizations which if not exactly asking for the stuff for themselves have a strong opinion about what should be happening to it. Because most of their members are mired in debt, the unions insist that if Governor Mboweni won’t lower interest rates then they would like to choose someone for the job who will. Never short of ideas, the workers’ representatives also went on about regulating and monitoring capital flows and even muttered about the strength of the currency.

Not to be left out of the game of making confusing economic statements, the Cabinet sent Spokesman  Maseko out to the front room to declare that “cabinet is not calling for a reduction in the price of tickets” (to Confederations Cup matches) but that “… ministers believe that tickets should be offered free, especially to young people.”  No definition of young was offered but the ability to enjoy the buzz of a vuvuzela is essential. Mind you, this does demonstrate that the Cabinet has a better grasp than the fellows running SA rugby that seat prices determine match attendances.

The list of things that one may not take to Kings Park tomorrow includes plastic trumpets, weaponry and outdated flags. Vexillological Association secretary Berry in a letter to the papers points out that so far during the Confederations Cup tournament several outdated versions of the Iraqi flag have been on display (that nation is on its third flag in half a dozen years) and that the presence of the All White New Zealanders as antipodean champions has sometimes been marked by the Australian flag. Not to worry Mr. Berry. Bafana Bafana beat them anyway. Go ‘bokke. Go Bafana. Go Button. Go home Proteas.

James Greener

19^th June 2009.

IS THE BEAR GOING TO COP IT?

Considerable excitement has been caused on Wall Street by the news that the Coppock Index has given a buy signal. This allegedly nearly infallible technical indicator is brewed from a mesmerising mix of market momentum metrics. Only time will tell if the signal is correct but in the meantime two prices that are definitely soaring are oil and long term money (long bond yields). Both these factors are bad news for consumers and are going to interfere with the programs that most governments and central banks are pursuing in order to get the wheels turning as fast as they did before. I remain totally unconvinced that the 2009 bear has been banished.

A professor from the Harvard Business school is reportedly very keen on negative actual interest rates (that is where you pay the bank to keep your money) as an incentive for people to spend cash rather than save it. With negative rates there would presumably be no need to pay off debt because your credit card and mortgage balances would magically decrease each month – but I might have this bit wrong. And what about those stubborn savers who try and keep some money under the mattress? The professor is proud to announce that one of his graduate students has got a plan for them. Once a year the authorities would announce a digit between 0 and 9 and all bank notes ending in that digit would be declared valueless, so imposing an instant 10% penalty on the prudent.  Of what discipline is that student a graduate? Has he mentioned this idea to his grandparents? Where will he get a job?

Designers of our ominous new National Health Insurance must have graduated from an equally suspect local education facility. When it was suggested that collecting R100bn to fund this scheme via a new tax might be a tad difficult they replied that there were plenty of other options for raising this kind of money. Minister Manuel would definitely not be able to call these people cowards. He did however, use that term to label SA business leaders who, he thinks, don’t stand up to the labour unions forcefully enough. I hope that the speechless apoplexy brought on by this challenging comment does not cause any business man so accused to seek National Health care.

Value investors should consider the following choice. Would you like to own all the shares in a successful local fast food chain (Spur) on a pe of 8 and a yield of  5% pa or would you prefer to buy the services of the world’s most expensive soccer player  (Ronaldo). Both will cost you around R1bn. The talented hoofer carries a hefty maintenance contract as well, so if he keeps on playing for even 8 more years, the chance of getting your money back is slim. I guess the yield must be the kicker – or is that vice versa?

News emerged of yet another scam where decidedly not cowardly folk fell for the “to good to be true” trick. This again shows that private money can be just as badly used as public. The main difference is that the private fraudster goes to live abroad. The public official gets promoted and moves to a better suburb in the same city.

Soccer fans travelling to Confederations Cup matches in the next couple of weeks will be delighted to find their taxi drivers attired in natty uniforms, knowledgeable about local landmarks and trained in first aid. The latter skill presumably is for treating unwary foreigners unused to the excitement of travelling in the emergency lane and through red lights.

James Greener

12^th June 2009.

KIDS FOR AFRICA

The market was a little jittery this week and held off from breaking out through the 24 000 level on the All Share index. As usual there has been no shortage of items that can be either blamed or praised for causing the indecision among investors. Despite much excitement beforehand, President Zuma’s State of the Nation address has probably had scant effect, however. It contained very little about the state of the nation as it is now. Rather he seemed very keen to tell us what it was that he wanted it to look like. Markets like to think that they all about the future already, so after a while it lost interest and wandered off.

The speech began with no fewer than 20 levels of salutation of which the last was “Fellow South Africans”, preceded by “Distinguished guests, comrades and friends” It is disappointing that a list as long as this failed to give even a small nod of acknowledgement towards “Revered and beleaguered taxpayers”.

As with almost any speech delivered by a politician it left me wondering whether they actually read the stuff before they begin to waffle. For example can his speech writer even count to half a million let alone dream that 3000 people a day are going to find jobs before Christmas? Another strange remark was that The Early Childhood Development Programme will be stepped up …to double “the number of 0-4 year old children by 2014”. This gravely unwise target was I hope an error but then I saw the picture of the President posing proudly after the speech with all three of his impeccably attired wives. He personally is well equipped to attain this target but not all of us have secured the services of a financial advisor able to arrange salary modifications that stretch to families of that size.

Yesterday I watched the large and very beautiful Sun Princess cruise liner enter Durban harbour at dawn. She sailed just 12 hours later but in that time I rather hoped that substantial amounts of forex was tipped into the local exchequer in exchange for artworks made of wire, wood, beads and bits of dead animal; as well as to replenish her obviously capacious cellars and pantries. Let’s hope all the passengers went away with favourable impressions and all their personal possessions

After years of talk, the JSE has just obtained permission from the Competition Tribunal to merge with the Bond Exchange and so the country will have just one exchange. Almost immediately the chairman of that same tribunal appeared in the headlines to say he is pleased to agree that cartel action “will be a crime”. Curious. I wonder which of the bosses of the two exchanges will do the spell in prison.

It is alarming to see that electricity consumption in April was down about 6% year on year. Power usage should have a very good correlation with economic activity so anyone needing to see “green shoots” will probably have to stay out in the herbaceous border for a bit longer yet.

The best thing we as a nation can do for the British and Irish Lions is to give them such a beating that they bury their poor mascot Lenny the Lion in the soil of Africa before they leave. He is a dejected and pathetic piece of yellow synthetic fur and stuffing and does not deserve to cross the equator again.

James Greener

5^th June 2009.

A DELUGE OF DATA, DISCOUNTED

That was quite a week and not just because my old friends over at the Gauteng Enterprise Propeller (honestly) went into reverse thrust by going on strike. Workers there allege that the blades have been screwing themselves into ever higher pay scales while neglecting the cogs and shafts. The media and politicians worked themselves into a great state of excitement as several allegedly significant statistics were released. The market, however, was pretty much unmoved and the JSE All Share sailed on all week just north of the 22 000 mark, suggesting that none of GDP, CPI, PPI, repo rate or the rest are of much interest. Even the rand shimmying to below 8 per US dollar appears to have been expected. Market performance in May will still be in the region of an excellent 8% despite this rather flat week.

Governor Mboweni totally ignored the singing and dancing throng that pitched up at his bank demanding that he open the window and throw out folding money. Reportedly he did not even bother to send out a lackey to collect the demands and instead concentrated on getting just the right nuance to his forthcoming rate cut announcement. A further (and final?) stomp on the “Rates Down” pedal has lowered the price of money to below the level of inflation. The theory says that money this cheap encourages borrowing and that spending will ensue. We will see. A problem is that the Credit Act suggests that lenders deal only with borrowers who have a job. As the aforementioned throng wanted to point out, there are not of lot of jobs going.

The official measure of economic activity is a rather blunt and belated tool. When published just four times per year it reports on a three month period that ended almost two months previously and reveals things that anyone who actually works for a living already knows only too well. And this is that compared to a year ago far fewer customers and clients are buying goods and services. About all the official numbers actually do is to permit economists to shade in their calendars and label the period “Recession”. Officially. Nevertheless it is turning out to be an exceptionally harsh recession and probably did not end in March. Precious few company reports are remarking that the current business environment is looking better. Standard Bank has even seen fit to revise down a previous forecast of their results.

In the US, General Motors are also studying the calendar to choose a propitious date on which to declare themselves bust and let the shareholders (including every US taxpayer) kiss their investment goodbye. The smell of burnt fingers could match the aroma that will waft over Swaziland if the reported proposal to brand on the buttock everyone who is found to be HIV positive is carried out. Back home we have our own problems with identifying the fit from the sick. Apparently there might be a reason to think that an admission of guilt for fraud is a less serious barrier to public office than a conviction for the same offence. Nearly as offensive is the news that taxpayers support a Spousal Support Office in the Presidency. The new man’s current spousal complement of three is produced as a reason for the preservation and even growth of this astonishing office.

There is so much sport to follow at the moment that tomorrow I am in danger of tuning to the channel showing the British Lions facing the Chiefs at Roland Garros for the FA Cup. On Sunday, however it should be easier to find the action from Murrayfield as the mini ‘bokke nail the Sevens Series. Go Bulls.

James Greener

29^th May 2009.

THE CADRES MARATHON

The new cabinet are about to traipse off to a lekgotla. This appears to be an ethnic term for an upmarket “off-site”. It will undoubtedly be a source of screeds of socialist solutions. Now the principal beneficiaries of an off-site are the hospitality, motivational and training industries. I hope that they regularly remember and revere whoever it was that first thought it would be a good idea to take the staff away from the distractions of coping with customers and clients to a restrained yet hopefully decadent location for anything between an hour and a week. Threats of excitements such as team building, brain storming, staff training and break-out sessions (my personal favourite) will be made. Naturally the actual reason that anyone attends these things is the promise of opportunities for feeding, drinking and flirting at someone else’s expense. Attendees of an offsite at best hope to return to the office with no more than a shred of dignity and with luck, juicy gossip about someone else. Any work-related outcomes are swiftly ignored. For all our sakes lets hope this lekgotla will be on form.

Next week the first quarter GDP growth numbers will be published. People who are likely to have had a sneak preview are warning that they will confirm what most of us already feel. “Things ain’t like they used to be.” Commentators will wring their hands and wail. But then just two days later the Reserve Bank will announce their interest rate decision, which seems likely to be a further cut. Cue shouts of joy from same commentators. It is all as hard to keep track of as the IPL tournament.

 Pretty well anyone with a view on the market and the economy here on the southern tip seems to believe that the worst is surely over. The All Share index appears to feel comfortable above 22 000. One harbinger of economic recovery that even I can agree with is that the yield curve has recently turned normal and quite steeply so. Can it really be that the decline of the USA as the world’s leading engine of growth will have so little lasting effect on the rest of us? The USD is showing signs of resuming what I believe is an inevitable and long  weakening phase.

My fears that the tax consumers would respond to declining incomes by increasing tax rates are coming true. Tariffs are being adjusted upwards everywhere. The electricity supplier has come up with 34% as a nice price increase to be going on with and metropolitan councils are entering into budget season with a warm calculator and the “rich” suburbs in focus. In the meantime, workers, a class of people who are not in line for R1m sports cars as a thank you present for doing their job (correctly and laudably declined by the politician in question – are you watching in Westminster?) are getting restive. They have little interest in letting the new government have a 100 day warm up period. Strikes are becoming common. Lots of things are going to be made ungovernable.  The struggle continues.

I think that winter may have reached Port Natal. I saw a fellow wearing a jersey, but on the other hand he was still in shorts. No one down here has yet openly declared any support for the Loftus home side tomorrow. It seems they are all still smarting about last week’s loss. And then a whole lot of comrades are going to take part in the annual ritual of protesting the dire state of intercity transport in KZN by running from one to the other. Once again my invitation to watch the Monaco GP from the poop deck of a gin palace failed to arrive, so on Sunday it will just be a cold Castle in front of the TV. Actually that’s great too.

James Greener

22^nd May 2009.

JOBS FOR PALS (AND THEIR PALS ALSO)

It has been decided in the US and in Europe that citizens need to spend themselves out of recession and to borrow their way out of debt. Their governments will lead the way in this endeavour by spending and borrowing lots more than anyone else. The thesis is that this program will gain momentum and accelerate to the stage where sufficient real actual wealth will be created to discharge the debts and absorb the new money that has been minted.  Scouts have been posted to signal the appearance of so-called green shoots of recovery that are confidently expected to result from this clever plan. So far they have reported house prices falling slower than before, fewer people losing their jobs and discount stores reporting higher revenues. Dead and falling leaves are ignored. Thanks to the generosity of the taxpayers, bankers have received bonuses and car manufacturers have staved off bankruptcy for at least a month. Even the stock market is perky.

However, numbers released this week suggest that the US government will, over the next few years, spend twice as much money as they expect to collect through tax. They will borrow the difference. And it is a very very big difference. Long bond rates world wide (including here) are tending upwards as lenders edge for the exits. What happens if they disappear altogether? Then watch for the best stunt of all. The government instructs the central bank to print more cash in return for hurriedly scribbled IOUs. Where is the large notice warning that these tricks could be bad for your wealth and ought not to be tried at home?

A kind reader alerted me to the fact that our new government has immediately tackled the matter of job creation. The hugely enlarged cabinet will provide gainful employment for dozens of folk who would otherwise battle to find work. Already busy and happy office furniture suppliers are preparing workplaces for all these newcomers and their staff and families. The gleaming new laptops are set to link immediately to the webpage detailing the methods revealed by the British politicians for fiddling expenses claims. It is rumoured that moats are already being dug around several homes in some of Pretoria’s leafier suburbs.

 Governor Mboweni has been wagging his finger at the local banks for lending money at 12% when the repo rate is just 8.5%. This spread, he implies, is too wide, and presumably therefore too profitable. The banks tap into the Reserve Bank’s repo facility only as a last resort and always first try to raise most of their cash requirements at even lower interest rates from you and me. Their profitability is perhaps therefore much greater than he suspects. The market has clearly failed to appreciate this great piece of financial analysis and bank shares are priced quite modestly. Alternatively, investors are alarmed at the Governor’s grumbles and wonder if he is about to offer some less than friendly advice about how banks should run their businesses. After all, elsewhere in the world governments are getting really involved in their banking industries and we would not like to be seen as laggards in following international trends. However, this threat does not yet deter those brave foreigners who are fleeing their own near zero yields to send their money south for the summer. The rand remains pretty robust.

The kingdom is buzzing this week with debate about the strategy for the encounter with the Bulls. Unless they wish to be treated with the same suspicions about match fixing that has made the IPL suddenly so forgettable, local rugby will be best served if the Sharks win. After all aren’t two away semi-finals better than a single one at home?

James Greener

15^th May 2009

THE TSHWANE SHINDIG – NOT ANOTHER IPL TEAM

The market has celebrated its first full length working week in ages by dragging itself back to levels that were ruling at the beginning of the year. There is a growing belief that the first quarter plunge was just a nasty moment and that the bear has been sent packing. The JSE is now about 20% above the low point that was attained at that time. In fact, our excursion to what seemed like the depths of misery was one of the shallowest among the world’s markets. The Russian index has nearly doubled in the past three months and even the London Footsie is up a third. We got off quite lightly.

Nevertheless I can’t ignore the news of economic woe, hardship and slowdown that deluge the screens unceasingly. There is definitely a decline in the level of achievement and expectation appearing in company reports and locally even one of the big banks muttered a bit about how hard it is to run their business these days. Investing bulls claim that the impact of this undeniable downturn is already well known and completely accounted for in the market and that one ought to be looking for the recovery situations. I think I’ll wait a bit thanks.

In the US, the authorities are congratulating themselves that they have now arrived at the number of dollars that the banking system requires in order to be declared wholesome again. It is a very large number and the banks have been sent off to find it. Apparently this is not a difficult task because hordes of shareholders are alleged to be delighted with the opportunity to hand yet more loot over to institutions with atrocious track records in looking after the stuff. “Trust us, we are bankers”, goes the cry.

The European Central Bank set another lethal example for our own team by slicing interest rates again and the cost of cash in most places is now virtually zero. Bureaucrats and politicians with steady incomes and fat pension plans remain puzzled however, at how ungrateful their citizens are for this bounty. They make threatening noises at the banks who they suspect are not trying hard enough to foist more loans onto people who have decided that they already have sufficient debt and, even better, that they will stop paying any of it back now that they no longer have a job. I note with interest the complaint from one mortgage lender that business is being hampered by the requirement that home buyers come up with a sizable deposit before borrowing the rest.

I think that spending R75m on tomorrow’s party to install the country’s first Zulu president is a good and quick way of distributing state money to people in the catering business. Outraged suggestions that it should be spent on the poor fail to grasp that by the time a relatively small sum like that has passed down the long corridors of government, the poor would still receive nothing. The shorter and swifter the chain linking taxpayer to beneficiary, the better; in fact, why not omit the government altogether and let us all spend our own money? Cut my tax and I’ll have an extra Castle and another foot of wors on my own celebration braai tomorrow.

It will be fun to see if Formula 1’s return to the European tracks will revive the reputations of the big names. Ross Brawn is a fly fisherman and deserves his triumphs. May I quietly point out that the Lions have the same number of Super 14 points and have lost just as many games as the Stormers? Fewer wisecracks from the shadow of The Mountain would be in order.

James Greener

8^th May 2009.