MINES? YOURS![1]

The market is getting a caning. In just a few days the All Share has lost over 5% as it watches developments on Wall Street with wide eyes. Once again I must point out that very few of the results and trading statements released on the JSE this week were upbeat about making profits. The reality is that in the US particularly and crucially, jobs are still being lost and house values are below mortgage loan balances. Nevertheless  spurred on by the sight of  amazing and unprecedented government relief and rescue programs the professional pundits  world-wide feel obliged to bang on about how the worst is over and economies are showing every sign of improving. Remember the green shoots of six months ago? More and more investors are coming round to the idea that someone is crying “wolf’ rather often. I believe that the recession is a really big mess that is not yet finished with us. But in places some value is going to be revealed.

Luckily once again my invitation to join the great and good in the snowy luxury of Davos failed to arrive. The sole downside is that I did not score one of those natty scarves in SA colours that our delegation were sporting, but frankly the weather down here in the kingdom has little call for neck warmers. President Zuma made lavish use of the word “culture” when he was asked rather impertinently to explain his domestic arrangements to an international audience. My guess is that most of the delegates in Davos would be loath to discuss some of their own cultural activities which take place around a glass of gluhwein in a cosy hotel room far from home. Our President is far too engrossed in his calls to Zululand every night to indulge in that sort of thing.

The background hum of muttering about the need to nationalise the mines just does not stop despite some of the big guns denying that the government has any interest in the idea. The current demand is that mines ought to be “thoroughly democratised and controlled by the people”. There is scant evidence that any enterprise, let alone one as technically complex as mining, benefits from this undeniably cumbersome style of management.  That this program could begin with expropriating mines which are not profitable is extra bad news for taxpayers. Pouring money into a bottomless pit, which is both figurative and literal, is even more unappealing than usual. There are plenty of loss-making mining companies on the JSE boards if high risk buying is your game.

On the subject of shareholders, it is puzzling to see that a portion of the rather avaricious golden handshake demanded by the departing Eskom head man comprises shares in that business. If I were the board I would seize the opportunity of his implied valuation and print up a truck load of share certificates worth R85m and send them round by courier pronto. It may not take long to find out if ex-CEO Maroga left behind a solvent business or not.

Departing Protea’s coach Mickey Arthur, will, however, wisely have asked for his package to be paid in folding money with the Reserve Bank Governor’s signature on it. The Cricket Board have confirmed their place amongst the elite and inept cohort of SA sport administrators who would rather destroy their sporting code than tell the government to get lost. The dismissal of the coach and selectors this week was even more disappointing than the news that beer will not be available at any World Cup match. Instead some insipid American brew will be on sale and the suppliers might well be right with their claim that they will not run out despite having to ship tiny cans of the undrinkable stuff in from miles away. In this country gentlemen, a carry pack of beer is a dozen Castle quarts.

James Greener

29^th January 2010.

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[1] In the days of open outcry trading floors a buyer could accept an offer with a shout of “mine” while a seller could satisfy a bid by shouting “yours”.

BEARS AND CROCODILES

It is not yet worrisome, but it is noticeable that the All Share index is now below the level at which it started the year. In fact this is also the case for most of the developed markets except for Japan. What’s going on? Is this the end of the unprecedented bull market bounce within a much larger long term bear market downturn?  No one knows but it is certain that already many shares are not as overvalued as they were just a few days ago. However, this is not yet the buying opportunity that I am waiting for.

The week’s financial pages have been full with ever more bullish forecasts about how this year’s growth in SA will be wonderful. Indeed it may be, but I did notice that only one of the recent company trading statements was really positive about prospects and that was actually from a special situation and the company is about to disappear from the JSE boards. Yet another slap in the face for small investors. Even the mighty SAB Miller reported that folk are not drinking as much beer as they are able to brew. Although I can report that current Durban weather has necessitated some heroic efforts with the bottle opener.

It must be very confusing to be a banker in the USA these days. Their woes began when they decided that it was feasible to lend money to folk who had no chance or intention of repaying it. When the unreasonableness of this strategy began to bite, the President rode into town under a large white hat and doled out huge sacks of almost free cash. Relief and happiness abounded. But it turned out that there were few clients willing to borrow all this money and, keen not to examine the gift horse’s dentures, the bankers awarded themselves large bonuses to celebrate their survival and their “too big to fail” status. This caught the eye of the taxpayers and lenders who had provided the money in the first place and they drew the President’s attention to this practice. Last night Sheriff Obama donned a black hat and handed the banks a rule book as thick as a plank. The bureaucrats have prepared a blueprint for a different and allegedly less risky money lending scene. The market’s knee jerk reaction is to not like it. The rest of us will have to wait and see, but it is rare for a political plan for the allocation of any resource to achieve its stated objective. There is no one more resourceful at loophole location than a banker separated from the spoils.

Our own cabinet will end a three day huddle today. Even allowing for refreshment breaks and the time set aside for President  Zuma to call and whisper terms of endearment to his large and numerous family, there will unfortunately still have been an opportunity for the socialists to have come up with more ways to spend other people’s money with very little effect. Barring, of course, for their own bank accounts. The new-found concern of the ruling party that “too many (of its) members” have a “councillor for life” mentality will be unlikely to alter the rather comfy status quo any time soon.

The USA announced that in future just about anyone who wants to visit the Land of the Free must first obtain a visa. In an unrelated development came the news that the Abu Thembu nation had seceded from South Africa. The declaration neglected to provide the location of this new country. I rather hope that it is not anywhere near here, since presumably travel to and through King Dalindyebo’s  new realm will require a passport and I am sure to forget to take mine when popping down to the bottle store..

I expect that a larger than usual crowd will gather to watch the end of the Dusi canoe race on Sunday. At least two crocodiles have been sighted in the waters around the final straight and expectations for a thrilling finish are high.

James Greener

22^nd January 2010.

TICKETS PLEASE. PLEASE BUY TICKETS

There is a decided air of optimism about investment prospects for the new year. Forecasts of as much as 25% growth in earnings owe some of their heft to the low base created by last year’s carnage. My view is that the share prices are already discounting that sort of rise. My concern is that in fact there are still very few signs of credible and real – as opposed to state stimulus driven – recovery in most industries world wide. It does seem that the Chinese are off like a rocket and sucking in all the raw materials they can find. My question, however, is who are they going to sell their output to? The citizens of the traditionally big consuming Western nations seem intent on paying off debt and rebuilding balance sheets. Here in SA our imports have slowed down dramatically as well. A handful of trading statements were published this week and the majority of them warned that the second half of 2009 was tough and earnings would be down. The good news from the retailers is that they did enjoy some growth in sales but clearly their costs grew faster.

Although the official numbers indicated that the recession in SA ended in the middle of last year, anecdotal evidence and personal experience here in the kingdom is less convincing. One frustrating development is that local suppliers are not getting their orders filled by overseas manufacturers. Presumably the makers have scaled back production and are letting relatively insignificant markets like ours fall down the queue.

After leaving interest rates low for so long, some central bankers seem to be growing restless and eager to demonstrate that they can make a difference. Market-determined long bond rates are drifting up all over the place as the borrowing needs of governments inexorably ratchet up. The impact of even marginally higher rates will be very damaging on the still severely indebted households in the US, almost half of whom reportedly owe more on their mortgage than the house is worth. Back home newly installed Reserve Bank Governor Marcus has decided to cut back on the bill for biscuits and this year the Monetary Policy Committee will meet only every two months. Opinion is pretty solid that they will not cut or even change the repo rate when they meet in 10 days time. In any case the rand weakened quite a lot all on its own this week.

The soccer bosses are getting a little testy over the news that South Africans are not buying fistfuls of World Cup tickets. Apparently there is even little demand to attend the matches where our own national side will be on the field watching the other guys scoring goals. What the policy makers in suits who believe that talent and ability are not the sole criteria for selection appear to ignore, is that fans like to support winners. Teams or individuals who fail  regularly to hoist the silverware – or at least get very close to it – are really not fun to support.  Ticket pricing for the tournament may indeed be generally affordable but two of Bafana’s matches will kick off in working hours and folk who actually work for a living rather than warm free seats in the executive suite will find it hard for example to get to Bloemfontein on a Tuesday at 4pm. And then the greatest reason of all for not buying tickets yet is that we can  remember how last year, during the Confederations Cup, the organisers, anxious to get the stadiums full, threw open the gates. It is quite likely that we may see similar tactics in June. So why not just loiter outside the grounds as kick-off approaches and wait for the turnstiles to be switched to “auto”. The second best thing that could happen is that you get to watch 90 goalless minutes sitting next to someone who paid several hundred euros for their seat!

Please can we collect all 20 English wickets this time.

James Greener

16^th January 2010.

2010 KICKS OFF

The media have been delighted to soak up all the New Year forecasts pouring from the heated brains of proper economists and analysts and fill their pages with the inevitably different views about what will happen to the price of everything in the coming weeks and months. “Proper” economists and analysts are those who have convinced their employers and their clients that their work is sufficiently prescient or interesting that they should be paid to produce it. Thanks to the internet, however, pretty much the whole world can immediately also access the pearls of wisdom and the so period of exclusivity for the payee of most information is about nil. That business model must be near its end. Old bears like me lumber on in the secure knowledge that half of all investment research is useless and harbour shrewd ideas of which half that is. Which sage, for example, predicted a year ago that the All Share total return would exceed 30% in 2009? Not I for one!

On the face of it, it should be an easy game sifting through all the numbers for a hint of what is hot and what is not. Take the government’s expenditure, currently growing at over 20% per annum as an example. While it is a trifle worrying that the President appears to have chosen the wedding industry – starting with his own enthusiastic and allegedly serial contribution – as one of the main engines of growth, areas of business beyond the provision of leopard skin accoutrements and white dancing shoes must also be benefiting from flows from the public purse. Are the construction counters now all fully priced? Is there any consumer goods share still offering value? Just who will make money from the World Cup?

Regular readers will be disappointed if I did not remind them of the trouble brewing in the Revenue department at that National Treasury where the inflow of funds has been slowing alarmingly. Unsurprisingly there have been record government bond and money market issues. The good news is that yields on offer are still proving attractive for local and foreign lenders alike and there appears to have been little difficulty in raising the cash. In some other emerging market this has not been the case and some spectacular scenes of “failed auctions” have been reported.

It was claimed that the President, by making public and formal the social escapades that many other national leaders allegedly keep private, was seizing “the moral high ground”. This is just as alarming as the newspaper article that included his name in a list of “school failures” along with Sir Richard Branson, Albert Einstein and the lady who founded Weigh Less. The item was supposed to hearten those poor kids who had failed the increasingly irrelevant school leaving examinations by pointing out that there was a future without a certificate.  

On a clear day from the top of the world’s latest tallest structure, the Bur Khalifa in Dubai, it is claimed that the horizon is 80km distant. I presume that for a fee one can ascend the almost 900m and savour the view which would I imagine be dominated by sand in three directions.  Hmm. Down here in the kingdom just R75 buys you a ride to the top of the new Durban soccer stadium arch. For a smaller sum you may climb the stairs. I have not yet attempted either route but I am certain that the little bit of sand you might see from there will be camel free.

After the test in Centurion I spent some time explaining to a baffled Mexican guest how a game lasting 5 days and which could have been won with even the last ball, still ended in a draw. Yesterday’s identical result at Newlands that brought near delirious excitement to the Barmy Army has me pretty baffled too. Something about once is bad luck but twice is …?

James Greener

8^th January 2010.

EVERY YEAR IS DIFFERENT

Without hopefully any big surprises, the All Share will now stumble along to the end of the year with a modest 1% for the month and a totally unexpected 30% or so for the year. Compared to the giants of the emerging markets clan this performance was quite measly but it is right in line with the big boys like the Dow and the Footsie. Ex-Federal Reserve Governor Sir Alan must have again annoyed his successor by pointing out that the wealth increase created by this market gain has easily outstripped the stimulus package that Dr Bernanke has been promoting. Americans, he claims, are once again rolling in the green stuff and are ready  to resume their mission to spend the whole world rich. I shall wait to see how this one pans out. There’s a vital point missing there somewhere I think.

I do not, however, need to wait to wish the loyal readers of Tidemarks a very merry Christmas and a healthy and happy New Year. To my clients – thank you for your support. To my friends – may we see more of each other in 2010. To all the other readers who are not in either of those two categories – why not?

Even the boere in the English team were looking roasted out there on the Centurion pitch yesterday. Five day cricket is the real thing.

James Greener

18^th December 2009.

STARVE A TREE. DON’T BREATH OUT

A clever cartoon this week depicted a very overweight man, representing the developed nations, painting a bulls eye target on carbon emissions while lesser nations – represented by our very own Pres JZ – was painting a bulls eye on the fat man’s back pocket, out of which was bulging his wallet. Sure enough this morning came the report that one Lumumba Stanislas Dia-Ping of Sudan pitched up in Copenhagen and called on the world’s newest Nobel Peace Prize winner to “help free up $200bn in funds to fight climate change.”  It is amazing how many people have travelled to Denmark to promote their pet project for controlling the world’s most lethal and newly identified poison. I am not of course the first to suggest that if they all stopped getting excited and exhaling carbon dioxide so vigorously it would already be a good start.

Meanwhile the pictures coming from Oslo seem to suggest that the Nobel committee were a bit non-plussed to discover that the Mr Obama who had popped in to collect the peace prize was the same one who had just mobilised a large army. I am afraid that the concept of a “just war” has always proved to be flawed. People are going to die.

The All Share index is just about at the level it was in the first half of 2007. In the interim of course share prices went on to set record highs before collapsing to lows in March of this year. The 2009 recovery has taken us to a point about midway between these two extremes. It is interesting to note that company earnings and dividends are also at the same levels they were almost 36 months ago. Metrics like dividend yield and price earnings ratio are therefore similar too. The obvious question is that if in 2007 these share prices were cheap, are they not so now?  The problem, however, is that currently both earnings and dividends are plunging at rates approaching -25%pa with no sign yet of a bottoming out.  Buyers today will need to be patient. They should also not be surprised to see lower prices in 2010 in which case it would be prudent not to spend all their cash now in one go.

Daily volumes are still amazingly robust but will likely collapse after next week’s close-out event after the public holiday. In fact most true investors should have departed for the beach already and leave these dog days to the derivative desperados.

I doubt that it will ever be revealed how much actual money will be collected by the UK Chancellor’s vindictive and petty 50% tax on banker’s bonuses. Sure, we are all enraged and jealous that those fellows managed to score so much loot. But retrospective legislation stinks and my guess is the revenue raised will be risible.

The chaps down here in the kingdom are delighted with the FIFA draw and are hopeful that they might get to sell all the tickets in the new stadium for several of the seven matches it was built to host. The Portugal Brazil match on 25^th June is especially promising. Several tonnes of  prawns and litres of pink stuff are not going to make it to the 26^th.  The draw itself was baffling and it turned out that the lady with the American accent comes from Benoni while the man with the Boksburg haircut works in the US. Also a lot of goldfish were made homeless.

James Greener

11^th December 2009.

LOTS OF SPENDING – THE TAXING WILL FOLLOW

In October the National Treasury distributed more than R60bn to the various departments, deadbeats and the deserving destitute that are on their list of tax-eaters. While this was not a record – the September figure was R69bn – it was 25% more than the government managed to spend in October 2008. This figure I think explains somewhat why one continues to hear how busy it is in the shops and why the “What recession?” response is still common. The state is dishing out cash as fast as it can. And the beneficiaries are spending it just as fast.

This free spending approach to staving off the effects of the recession is merely following a wide-spread international model. And locally it conveniently provides a camouflage to disguise all kinds of dubious expenses like the alleged R65m refurbishments to the presidential family home. Government expenditure is now almost R750bn a year. This is a terrifying number for several reasons. Firstly it is more than 30% of the country’s GDP, up from any already worrying 26% just a year ago. Only wild-eyed committed socialists will be content with this trend. One wonders if at this rate there will be anything left to nationalise? Secondly the bigger problem for the present is that more than 20% of this spending is using borrowed money. Tax and other sources of government income are now yielding less than R590bn per year and are declining at a rate approaching 3%pa. Industrial shares annual earnings growth is now also negative. A few more months of these trends and one quarter of government expenditure will be deficit spending.

 The total disconnect between the two sides of the national budget is severely worrying and there is no sign that anyone allegedly in charge cares very much. The most likely response will probably some fearsome tax increases being imposed quite soon.  Brace yourselves.

About the only news to reach me during my holiday in the bush was about the collapse in the attractiveness of buying sand from people who have unlimited quantities of it. Even if the stuff has been arranged into islands with whimsical shapes like palm trees or national borders recognisable from the International Space Station, there is only a limited number of rich people who will fail to spot that a sand bank is a pretty ephemeral object and not, as the pamphlets insist, a lifelong investment. Did the salesman neglect to mention the hefty monthly levy to keep the pumps running?  A low latitude desert kingdom is also not a wise location for a winter sports resort even if it is something to boast about.  We can all be grateful to Dubai for having supplied us over the last few years with construction jobs, gee-whiz items to marvel at and a cheap but long way to get to Heathrow. It seems now that the game is over. Pity.

Tonight the World Cup draw will determine which teams will play in which venues come next June. Presumably that will initiate a scramble for tickets, once fans know where their teams will be playing and reduce the current alarming figure of 80% unsold seats. It will also provide a wake up call in South African geography for those fans as they pore over their old school atlases trying to figure out how to get from Nelspruit  to Nelson Mandela Bay (where?) in five days. And then back to Tshwane (again where?) given the news that there is no longer a single plane seat available at that time. As far as I know, the trains have not made much effort to meet this kind of demand either. When I was at school, we were transported to away matches in the back of a Bedford truck. I wonder if they are still running. As we locals are fond of saying; “Africa is not for sissies”.

James Greener

4^th December 2009.