THE BULL ENJOYS THE COLD SNAP

This week the All Share index soared almost to levels last seen before the March slump and technical signals flared like rockets at an opening ceremony. The bull is showing no mercy towards us cautious pessimists who can’t understand why one should pay more than before for shares in companies whose earnings are going to be lower in the future than they were in the past. Presumably bulls think that they can see beyond the present rather tough times to a period when the economy will recover and jobs and profits will again become plentiful.

I have no doubt that such a recovery will indeed happen one day. But I don’t believe that it is remotely soon or that there is great value on offer at these levels. Of course high liquidity is unappealing in the current tax and inflation environment but so too is the act of buying shares at the wrong price. My approach of taking small bites during periods of weakness – like the March low – remains my recommendation. In my view we are not currently in such a period.

Considerable excitement and plenty of envy is being caused by the quarterly results being published by the Wall Street investment banks. Without a shred of shame or embarrassment they are boasting of the return of massive profits and wheel barrow sized bonuses. This is a clear demonstration of what can be achieved when the taxpayers ply you with bail-out money, buy your toxic assets from you at the wrong price and accept your staff layoff programs. It will surely incense the majority of people in the USA who are still suffering mightily from the collapse in house prices, the disappearance of jobs and the desperate need to pay off debt. Mortgage records indicate that the next season of interest rate resets is about to start and probably another cohort of borrowers will find themselves with higher repayments and less valuable homes. My guess is that the bull will soon start to display the symptoms of bear flu.

The cold spell that reached even our small corner of the southern tip this week caused torrents of hot air to flow. Acres of news print were devoted to reporting speeches that made lavish use of the phrases “We need to …” and “The country must…” Ministers and officials of every stripe were eager to list the remedies for putting the country back on to the road to peace and prosperity. Unfortunately the latest plans seem to take an even stronger line than previously that government is the best and sole agent for getting things going. This requires that even more of the national cake gets eaten by the state, which leaves ever fewer private concerns to bake it. This is even less sustainable than generating the nation’s power with wind mills.

A possibly fake but definitely scary email did the rounds this week warning drivers that traffic cops have adopted a no lee-way policy of enforcement. Broadly one must of course support that program, but the rest of the letter lists the spot fines that will be levied for every infraction and one soon realises that one is looking at a determined revenue collecting program. Presumably the local fellows have seen how the state of California is paying salaries and accounts with IOUs and are very keen to avoid anything like that here. Actually, I think it is a great idea, but only for the plutocrats who spend their days warming parliamentary benches or first class aeroplane seats. The IOUs can be converted to rands when the promises are met and the plans complete!

The sardines never pitched up, the Lions got lost and Brawn were gored by Red Bull. Only Mr Ponting’s face after 5 days provided the week’s cheer.

James Greener

17^th July 2009.

THERE IS NOTHING USEFUL TO SAY ABOUT THE MARKETS

 I was rather startled to see that an outfit called the South African Savings Institute held a shindig this week to declare July to be national savings month. As a bit of a saver myself I could not recall being pestered to join the Institute or to pay a subscription so I wondered who they are. Their website reveals that it has no members at all but it presumably does have staff because there is a board of 14 directors who hopefully direct something. At the launch, held over breakfast somewhere pleasant, the boss man, in support of the apparently novel idea that we should all put away something for a rainy day, offered the view that "Gone are the days of 'I want it all and I want it now", … "Our tune now has to be 'I don't need it all and I don't need it now.' ". This will have sent a chill through the blood of those who are desperately trying to get consumers to borrow and spend us all out of the recession.

Just weeks after the last Scorpion was squashed, the police have released a flock of Hawks. Presumably the phylum change for the name of the elite cops signifies that the government is keen to have these ones flying up in the sky where they can keep an eye on them. The last lot skulked about under rocks and started to sting in all the wrong places. For most of us, the name is irrelevant; we are just desperate to see the baddies get caught. One unexpected downside to efficient policing, however, emerged from a report about the transport difficulties that were experienced during the Confederations Cup. It seems that organisers of these events may not hire anyone with a criminal record, but this resulted in a shortage of taxi drivers. Some of the ones they did use preferred to pioneer their own routes to the stadiums ignoring instructions, road closures and traffic signs.

Construction workers have proudly elevated the country into the big league by going on strike and threatening progress on meeting the deadlines for the World Cup. No less a luminary than an FIFA official noted that strike action before an event like this is an expected and necessary development and dealing with it merely adds to the joys and privileges of playing host to the world’s great sporting occasion. He is of course right and the bid to offer spread on the wages is small enough to be bridged quickly.

I was, however, concerned by the spread between the incomes of members of parliament and those in trades and professions that require rather more training and application than serious sycophancy. Even more annoying is the never ending stream of business and financial advice handed down by these self-important blue-light brigands. The sole experience that most of them have in managing anything is the regular voting for more and better perks, privileges, pay packages and prosecution indemnities for themselves and their cronies. Naturally, the directors of Anglo American managed to find a chairman without having report to the list of candidates so thoughtfully provided by the bureaucrats. Despite the protestations to the contrary about any plan for nationalising the mines, the fact that government thought it should participate in the governance of a mining house is ominous. Those keen on letting the state run anything else should firstly explain how they intend to fix calamities like SABC, Eskom and Telkom.

The previous Springbok coach was fired for winning us the World Cup. Should we not be consistent and fire the present one for beating the Lions? Meanwhile it’s the (other) Lions for the Currie Cup.

James Greener

10^th July 2009.

TAXES HORSES AND BOURSES

The JSE’s All Share Index is grimly hanging on above the 22 000 level. Weary readers will know that I think that it will fail to do so for very much longer. There is almost no evidence to suggest that the earnings of most companies and people – except for politicians and bureaucrats – are going to rise in the coming months. The government’s income stream has slowed up substantially as more people are laid off from work and everyone is spending less on just about everything. Our new minister of finance must be wondering at the amazing timing of his predecessor’s departure.

Recall however, that Minister Gordhan’s previous job was as chief taxman and it appears that he has already been on the line to his old office telling them to squeeze harder. While I was watching the test last week I received an SMS message from SARS reminding me basically that they knew where I lived. Chilling timing.

The alternative route for balancing the books would be to trim the expenditure side but the rate at which it is growing suggests that the genie is out of the bottle. It is alarming and the bond market knows all about it. Rates of long dated bonds are on the up. What better time to scrap some of the more pointless departments like Sport & Recreation, Arts & Culture and the strangely named Ministry for Women, Youth, Children & People with Disabilities. By the way I am puzzled that the name of this last money sink has not provoked howls of outrage at the potential implied similarities of the alleged beneficiaries of this particular area of state control and help.

Obviously the current upsurge in investigations of industries suspected of price collusion is also related to the hope that some hefty fines will help swell the state coffers. I have before wondered why, if after such a practice is discovered and proven then it is not the victimised consumers who get refunded the cash?

Have you seen the awe inspiring fines that can be levied if a cell phone company fails to write down where every one of its customers lives? This piece of onerous and costly administration is supposedly an important weapon in the war against crime. What, I wonder, will happen when it turns out that the intercepted call by the alleged crook was made from a cardboard box that was washed away by the last floods? Regulators are often so far behind the technology curve that their interventions are senseless.

A potentially serious event for the JSE has popped up.It concerns the classification of certain shares as so-called “Inward Listed”. Currently only a handful of counters are so identified but they include BAT, the largest share by market capitalisation. The classification prevents the shares from contributing to any index (easily solved, however) but more importantly places limits on local investors’s holdings. In the past several of our biggest hitters on the JSE moved their primary listings to London and a debate about whether or not they should have been or should now be declared Inward Listed is taking place. Frankly the sensible thing to do is to scrap the classification altogether as it is a nasty and needless aspect of exchange control. I have no doubt that our corner will be fighting this one very hard.

The rather unwelcome cold spell has departed the kingdom at last and that means that the horses will be wearing more than some of the race goers at the Durban July tomorrow. Despite this I shall remain at home with one eye on the TV and one on the sea. I have probably more chance of seeing the sardines appear than of watching memorable rugby.

James Greener

3^rd July 2009.

BLOWING OUR OWN VUVUZELA

I am just a little suspicious about the fact that we very nearly had what must have been FIFA’s dream final for this Confederations Cup. In the event they have managed to get USA into one of the slots and that will do no harm for TV revenues come next year’s World Cup. Provided, of course that by then, the US Dollar has not collapsed.  Only politicians will be surprised at how quickly support for Bafana Bafana grew, when it turned out that when they put their minds to it, the South African team could play entertaining and skilful football and nearly beat some of the world’s best. The enthusiasm and dedication of sports fans has nothing to do with the supposed previous disadvantages the players may have experienced but has everything to do with the team playing well and sometimes even winning. I believe that the level of interest and excitement about hosting the World Cup here next year has surged enormously.

Excitement about the stock market however, is not currently at a similar fever pitch. While the All Share index has recovered from the 20% dip experienced in March, we are reaching half year with levels just about where we started from and that is 30% below the mid-2008 peaks. Those who were hoping that a further stomp on the “rates down” pedal in Governor Mboweni’s suite would help get us out of this no-mans land were disappointed when the widely predicted cut was not made this week. The governor instead complained about the forthcoming 31.3% increase in the price of electricity and that his refusal to submit to the “daylight robbery” of his utility bill had resulted in his home being plunged into chilly darkness.

Some heat but little light was caused when Xstrata  told Anglo American that a merger between the two companies would be a great idea. This has given mining analysts and the government’s minerals and energy department something quite large to fret about. The latter’s assurance that any decision made will “be in the best interests of the country” makes me wonder where the shareholders rank in all this.

I am completely delighted by the claim of the taxi organizations that they regard the routes they ply to be their own valuable intellectual property. Based on this premise they claim that any proposed bus service using the same public roads to transport passengers owes them presumably a royalty. Everyone is hereby informed that my regular Saturday morning route from this house to the bottle store, butcher and then fishing tackle shop is henceforth my intellectual property. Anyone else using this route will be levied a bag of charcoal and a packet of bread rolls.

The national broadcaster has almost completely sunk into a morass of political backbiting and corruption. Few are surprised at this development but perhaps we should show some sympathy for the management at that organization who have had to deal with a spokesman for the Communications Workers Union named Vulture. What were his parents thinking? Another communications story concerns the gentle backpedaling that is going on about the possibility of internet connection costs going down when the new fiber optic cables come into use. The latest excuse is that pirates have caused delays and so increased the costs of bringing the cable onshore just up the coast from here. Once again I feel suspicious that not everyone is telling the truth.

Tomorrow will see the real truth about the Lions and the ‘bokke. Perhaps their coach will also try the strategy of substituting the players who are making the plays.

James Greener

26^th June 2009.

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.