LOEWS HAIRPIN IS NOT AS BENT AS FIFA

The economic situation has made folk very excited but also deeply confused. Daily turnover figures on the JSE have been regularly well over R15bn, which is nearly twice previous “normal” levels. The market has zigged and zagged quite sharply from one day to the next. Sellers presumably are taking the view that a loan of a trillion dollars to European nations that are already in debt is not quite as good an idea as some claim. They anticipate that businesses will sell fewer products and make smaller profits and that shareholders will have lean times. Buyers, however, are impressed by the so-called “shock and awe” rescue program being mounted by the world’s omniscient leaders and agree with them that it will restore confidence and that widespread wealth will be the inevitable result. Loyal readers will not be surprised by my scepticism about how the process actually makes the debts go away. Somewhere, is there not, there is a piper waiting to be paid. Austerity and public sector pay cuts are being announced all over Europe and it seems that many economies have not yet left the  recession behind.

Similar cost cutting could not be further from our own politician’s thoughts as they appointed a team of powerful people who can actually read and write and who will take on the hard work of making plans. Assuredly these very clever people will identify and solve the mysteries of the universe. Parliament can look forward to hearing from them in due course on how to fill potholes, generate electricity, treat sewerage and deliver all those annoying service things that ungrateful taxpayers ceaselessly demand. In the meantime they, the nation’s elected representatives, can pursue more important stuff like punishing computerised ticket sellers and beer brewers who are definitely getting unacceptably rich by working hard to satisfy their customers.

Governor Marcus and her team decided that developments in Euro land will have little impact on their domain and declined to change the price of money yesterday. It is probably true that the inflation threat as we used to know it has diminished a bit these days and in any case raising rates had no discernable effect on the scourge. The moans of us pensioners hoping for some increased interest income are also easily ignored.

Down here alongside the nation’s busiest port, however, the effects of the transport strike are very apparent with the number of ships idling at anchor growing daily and local news full of stories about urgent cargoes getting undelivered. Businesses affected by this activity are just the latest who would like to see lower interest rates.

One story that does deserve a lot more notice is that the country will turn 100 at the end of May. Over the years we citizens have picked some really bad governments to run the place and yet it has survived. It is however, currently facing a raid by the forces of FIFA who have laid down a huge smokescreen of imaginary foreign fans in order to plunder and pillage our pockets. Nonetheless the intention to have a good time has taken firm hold on us all and the World Cup party will be a fitting beginning for our next 100 years. I was amused to see that the exact same doubts and fears that we had 4 years ago are now emanating from Brazil – FIFA’s next victim.

Because the invitation obviously has got lost I shall again watch the Grand Prix from a deck above the Indian Ocean rather than one on a yacht moored in Monte Carlo. Mind you I am grateful that I also never received the invitation to go and watch cricket in the West Indies.

James Greener

14^th May 2010.

HAS THE SECOND DOWNTURN BEGUN?

The bear suddenly started to feed on what has looked like perfect bear food for some time. The main course is the situation in Greece, where in order not to default on paying off a debt which has fallen due, the government is borrowing cash from someone else. This seems sort of self-defeating but is quite a common procedure in the financial world where it is dressed up with names like “restructuring”. The implicit assumption is that the borrower will now turn over a new leaf and begin to spend less, earn more and so thereby have a bit over to pay off the debts. This proposition is proving deeply unpopular amongst the Greek folk who up to now were grateful recipients of their government’s spending programs but who lethally are allegedly among the world’s leaders in failing to be at home when the tax collectors call. Lenders to Greece and several other countries in the Euro zone, which are suspected of being in  similar very leaky boats, are now demanding that they be paid much higher interest rates on their loans to compensate for their risks. This is the financial market equivalent of kicking a man when he is down.

In the USA, politicians are trying to score points with the voters by kicking men who are anything but down but who are suspected of being too clever by always selling high and buying low. That the people on the other side of these trades are so-called valued clients is puzzling to both the affected clients and to others not actually working in these markets. The outcome will probably be more and stronger regulations on top of the ones which are already in place but are circumvented because that’s what human ingenuity is for.

The main question that has not yet been answered satisfactorily, however, is whether or not the world’s economy really is picking up. At the simplest level this is the same as asking if there are now more people employed in value-adding jobs earning more than before. Like all economic and social statistics this sort of data is notoriously unreliable but the figures released this week in SA suggest that the answer is no. Despite this, all of SA’s ports and railways are due to be shut down by a massive strike next week. While this will bring relief to the hard-pressed “brand police” trying to confiscate all the imported items from which the FIFA regime have failed to claim a tribute,  the number of ships lying in the outer anchorages awaiting berths will grow.  Many World Cup spectators will have to do without makarabas.

Defence and Military Veterans Minister Sisulu, however, proposed that the nation’s youth should put on “staaldoeke” and uniforms and learn how to march and shoot things. Given the widespread discontent about the government’s failure to deliver any services, arming the potential protestors seems a bit unwise. A better idea would to ditch the laws which make it so complicated to hire and fire people. Start with the one that asks about the employee’s skin colour.

The good news from the kingdom is that King Shaka airport is open and operational with a departures hall big enough to hold the World Cup Final but a road layout that routes both arriving and departing vehicles through the same crossroads. The SkyCar that hoists visitors to the top of the soccer stadium arch has taken a commendable R5m in ticket sales in just five months. This is a useful contribution towards the R3.1bn bill for the structure but together with other businesses in the complex, such as the excellent pub and grill, this tourist attraction will shortly be shutting down for a spell so as not to offend the sensitive souls of FIFA. Odd hey?

Keeping up with the Lions’ record breaking attempt to lose every single Super 14 match is rather diverting and I was a bit startled to notice that the pyjama cricket on the TV was no longer happening in India. The spectators were sitting in bright sunshine rather than grey smog. They were also way more mellow. It was surely that funny collarless shirt that denied the Proteas a win in that first match.

James Greener

7^th May 2010.

AUTUMN ANNOUNCEMENTS

April felt like a long and messy month for the markets. The four largest shares on the JSE displayed the confusion that was evident throughout the exchange by delivering returns that varied between 9% up from the brewer (SAB) to 8% down by the cigarette purveyor (BAT). Is there a signal about personal habits here? The two roughly comparable mining houses also went their different ways with Anglo gaining while BHP Billiton slumped. The index will be fractionally up on the month while the rand, despite a good last few days, actually softened a bit during April. It would be going against my bearish nature if I did not again suggest that the bull is finding it very tough to make any significant advances. This is not a time for “fill-your-boots” buying programs.

The Reserve Bank has proudly announced that they are developing a “macroprudential policy framework” to help them decide if there is too much credit in the system.  The Department of Water Affairs is “engaged in initiatives” that support a “turnaround strategy” for coping with the R23bn sewerage backlog non-crisis. The members of a huge National Planning Commission will be announced today and will then set to work providing “visionary thinking in finding solutions to SA’s problems”. As well as despairing at the mangling of the language, note carefully that no one is actually going to do anything except decide what ought to be done. The outcome is always the same. The spokesman is despatched to sift through and rearrange the catalogue of clichés and platitudes and everyone else heads for lunch. It is reported that one brainwave for fixing the sewers is to see if any of the summarily dismissed engineers might like to come back and bail things out. My guess is that most of them are now overseas being valued for their skills.

Meanwhile the good news is that SARS have seized 17 970 counterfeit Bafana Bafana jerseys that were bound for Swaziland (?) and have confirmed that any employee getting a World Cup ticket, a souvenir football, a vuvuzela or a jersey (whether fake or not) from their employer, must pay tax on the value of that freebie. Given the large number of complimentary tickets that seem to be issued, that should be a nice little earner for the revenue account.

Accusations and recriminations are flying around Europe about who is not doing enough to help support the alarming number of countries where the truth about their actual government deficits is surfacing. The worst case development is that the euro currency collapses. This would cause an unimaginable dislocation of markets. I really can’t believe that would happen although undoubtedly there already are smart guys in dealing rooms taking positions that would benefit from such an outcome. Most probable, however, is that secret deals are being stitched together which will sort of rescue things but which will flout all the previous agreements and rules. No one will dare to complain. This is the reason that markets are nearly impossible to forecast. Human ingenuity never ceases to provide ingenious and creative solutions to unforeseen and unexpected problems.

Today is the last time that incoming flights to Durban will pass directly overhead my ocean- facing desk. From tonight the flight paths will change to the new King Shaka airport and the public relations people are hoping to make enough fizz about the move that we will all forget what it is costing us. Even the promise that the president will stop by to unveil a statue and declare the thing open has made little impact. Far more important is the forthcoming Sharks versus Bulls fixture. If the local lads fail to de-horn the blue one at Loftus tomorrow they will not be welcomed home at any airport.

James Greener

30^th April 2010.

THE WORLD IS NEITHER ROUND NOR FLAT. ITS CROOKED

It seems as if there is nowhere left that is not overwhelmed with corruption Almost every day another alleged paragon of virtue is exposed to be just as grubby and self-serving as the rest. Is there no institution, enterprise or individual that consistently and reliable displays and practices integrity, honesty and probity? It would sadly seem to be unlikely, and if not, then should we even be able to trust whoever decided that someone did deserve such an accolade? The financial world has long demonstrated that AAA ratings are more easily bought than earned and in any case neither version means very much at all. One should not be surprised by anyone finding it easier to renege on an obligation than to fulfil it. Watch this space.

Mankind undoubtedly has an inherent propensity to trade first for his own account before tending to his customer’s needs and it is probably just wishful thinking to believe that in the good old days everything was so much better. The growing numbers of computers able to talk to each other and swap their stores of secrets is making it far harder to hide and easier to uncover the skeletons in the closet which in the past may have remained unopened. Which goes to show that being a computer illiterate who never sends emails might be a good career move for anyone aspiring to run anything; especially a country. Surely one of those guys who will be building Eskom’s boilers was able to tap ‘Chancellor House” into Google? Or can none of them read?

Equally, anyone claiming to be an investment specialist should take care what he or she commits on record, as always half of it will be completely wrong. The usual question of where the market is going to is nearing an interesting stage as the market approaches the all-time highs set in 2008. Most shares are currently priced on historical valuations which are at the top end of recent ranges. Indications are that hosting the World Cup will deliver only meagre contributions to earnings yet to come. Most of the associated infrastructure spend has already been banked, although the state has promised that much more is in the Budget. And then there have been some exciting forecasts of what GDP growth might be this year. Globally the “double-dip” supporters are facing extinction and only very fierce bears would use the valuation risk to exit the market at this stage. Bulls should be nervous but may continue to tune the portfolio with well managed dividend paying liquid counters, and new money  should commit no more than half their cash to similarly selected shares on the basis that there is a fair chance that better buying opportunities will turn up later.

I suppose that most of us are starting to accept that South Africa is inexorably slipping down the ranking tables in most areas except for rugby, cricket and corruption. However something called the Fraser Institute has pushed South Africa down to 61st position from its previous 49th place in the world mining league. This dreadful news should not surprise anyone following the JSE mining sector. Only a small minority of the pure mining companies consistently declare a profit and some are amongst the Exchange’s largest loss-makers. They also have to devote copious resources to keeping abreast of the never ending stream of advice, instruction and obstruction emanating from clueless bureaucrats.  Minerals Resources Minister Shabangu, who through no fault of her own, has no education or experience in this activity, has kindly pointed out that mining companies ought to be using modern exploration technology to enable them to discover “world-class” deposits. Does she perhaps imagine that mining houses still deploy grizzled old prospectors on mules to swirl grit around a pan?

A month ago Bafana Bafana beat Botafogo (I have no idea either) but since then have either lost or drew the next three warm-up games. What an opportunity to recapture some of that 1995 goodwill is going to be lost. Imagine the excitement in the land if there was a sniff of a chance that our side might win a match or two. The optimist who has just sent me an email offering vuvuzelas at R20.90 apiece provided I buy 10 000 of them might just have got an order.

James Greener

23^rd April 2010

TICKETS PLEASE

For the second time in as many years little Iceland has stirred things up. Last time a few of their banks imploded leaving depositors stranded. This time one of their volcanoes has exploded leaving air travellers stranded. For all their size they can cause big problems. But that’s often the way. Back home we have the news that tiny Alliance Mining who appeared to grow from zero to hero were actually lying about themselves and their accomplishments and are now back at zero. The recent suggestion that unlisted companies need not bother with being audited unless they so choose, is beginning to make sense. Here is yet another example where an allegedly regulated listed and audited entity vanishes before our eyes. Many years ago a Cape based investment bank published a thick and glossy annual report. Each page displayed a picture of one or more of the supremely talented executive posed alongside a piece of priceless antique furniture.  On the very day that the document reached shareholders, news came of the bank’s collapse. Am I right in recalling that the auditors report was printed opposite a tasteful picture of the CFO next to an ornate Georgian commode?

The rumbling about the Greek situation was joined this week by some opening grunts about events unfolding in Portugal. However, just about the only reactions to these developments have been taking place in the associated local bond markets where interest rates moved up. The reality is that many more nations than just the PIGS are suffering from bloated and oversized governments spending more money than they can extort from their citizens. The apples begin to fall from the cart only when sufficient influential voices begin to point out the flaws and dangers being concealed with accounting tricks and politician speak.

The JSE ambled along the gently upward sloping path, occasionally lurching because of a knee jerk reaction to some or other instantly forgettable US statistic about how many non-farm houses were out of work. It is also equally unperturbed by whatever burbling inanity the local politician of the day has decided to offer as proof of his or her unsuitability for office.

Investors often complain that they don’t understand derivatives. Just think of a World Cup match ticket as a put option. The holder of a ticket has purchased from the organiser the right but not the obligation to put their rear in a specified seat at a specified time, commonly known as kick-off.. Shortly after kick-off the value of the ticket falls to zero, but at any time before that, the value will vary depending on many factors. If the organiser has misjudged the popularity of the event and it is a sell-out, the value of that ticket will probably rise. But event organisers regard secondary trading in tickets as “touting” and usually ban it with the excuse that it unfair to fans. What they are really doing is preventing others from benefiting from their misjudgement and initial pricing decision.  The current multi-phased program that FIFA is using to sell World Cup tickets is a wonderful example of this. FIFA’s hugely complicated method of selecting and identifying buyers has contributed to obscuring the actual demand for the tickets and apparently half a million remain unsold. Obviously the pricing is too high and FIFA is loath to admit their misreading of the SA market. This country is one of the world leaders in on-line ticketing systems. Why the clowns at FIFA did not just hand the whole shebang over to the local chaps, must have a whole lot to do with corruption and patronage and little to do with being honest and transparent towards the paying fans. At the rate of yesterday’s maiden day of over-the-counter sales they will still be trying to sell tickets months after the final whistle. FIFA’s greed to control all the money via its agencies and other dodgy mates has unfairly and undeservedly cast a pall over the country’s own growing pride in how well it has done its part of the preparations. We are not unused to hosting stadia-loads of foreign fans pitching up to watch a game and drink some beer. Vuvuzela sales are through the roof.

Lions versus Sharks this weekend. I am going fishing.

James Greener

16^th April 2010.

A BULL MARKET IN CORRUPTION

So the World Bank has decided to grant Eskom the R27bn loan they need to build their power station. The fellows over at Hitachi Africa will be very pleased. Will they wait until the contracted work is actually complete and the profit is in the bank before they send a dividend cheque over to their 25% shareholder? Knowing the shareholder, however, I guess they will demand their money up front before doing anything as tedious as actually providing goods and services. But the biggest problem is that all electricity users are now liable for interest and capital repayments on a loan from which the ruling party will receive a substantial amount

The JSE All Share index has come within a whisker of the 30 000 level this week. Several commentators attach some sort of mystical significance to breaking above this nice round number but remember that it is still 10% off the peak attained almost exactly two years ago. Despite the strong rand, the resource shares have provided most of the action of recent weeks, but the JSE has performed much in line with most world markets. I doubt that this is the best buying opportunity we will have for most shares this year. Do, however, take note of our newest and only sizable coal listing (Optimum). Companies like this one and Sasol that produce primary energy products are always worth watching for buying opportunities. SAB Miller is also in that category

There will have been some hissing noises at National Treasury as they hooked the caps off a few small bottles of warm grape juice to celebrate the amazing reversal of some very alarming trends in both their income and their expenditure figures. Someone had clearly been shouting down the phone at the other ministries and year on year growth in state expenditure is now at a measly 16%pa after recent 23% pa levels. On the other side of the office, the tax collectors have obviously been busy with life-style audits of the rich and famous and managed to squeeze a near record R60bn out of the populace in the year’s shortest month. The 2009/2010 fiscal year deficit is no longer heading for the R200bn that once seemed possible but even at around R150bn no one ought to be happy.

It‘s official. The Bafana Bafana team is a basket case requiring charity just to rent a field on which to practice. Admittedly the fields are a tad pricey since they have decided that their fantastic talents deserve honing at overseas facilities. The National Lottery could be in breach of its charity supporting mandate by funding the national soccer squad. Animal charity supporters have long been disappointed that they are excluded from any Lotto funds and yet now we see them dishing it out to the lamest of ducks that allegedly already have a massive fan and sponsor base. What is happening?

People trying to travel through and to Pretoria one day this week were advised to be patient as many of the main roads across town were closed in order to accommodate the arrangements for the funeral of a politician. The rulers just don’t get it do they? It is private enterprise going about its business of creating wealth that pays the taxes.

Did you see that my fellow Lions fans were so incensed with the dismal performance of the team that they went and shouted at the management who were meeting at Ellis Park? The admission that “Kindergarten Contracts” had enabled possibly good players to abandon ship made me wonder if the lawyers that drew up those contracts have refunded their fees or at best been forced to take a 10-year lease on a corporate box at Ellis Park? At least the light blues won the boat race.

James Greener

9^th April 2010

HOLIDAY FEVER

After a fortnight away on the Indian Ocean, utterly removed from any news, it was quite worrying on my return to see what the fools who allegedly run my country had managed to destroy. Unsurprisingly the Lions have not yet won a match, but to see just how rapidly the state’s leadership vacuum is being filled by reprehensible thugs was astonishing. The president has neither the will nor the ability to do anything beyond playing Mr Nice Guy for which ever audience he has been plonked in front of.  The appalling and unacceptable murder of even a rather unpleasant personality has evoked the risible appeal for people not to take the law into their own hands. There is no law of any sort being enforced and maintained in this sad country at the moment. Democratic, civilised and lawful behaviour is crumbling as fast as the roads.

The sole strictures which are evident are being served on local citizens who are attempting not to let the arrival of a few thousand football players and fans interfere with their normal activities. Just try and do anything that FIFA have not approved and the blue light brigade will clap you in irons. The nonsense of concepts like stadium pouring rights and protocol routes and Football Fridays are rightfully attracting scorn and derision as well as confusion and denial amongst folk who now realise that the money flows are taking place way above their heads. It will of course be fun to keep the fixture wall chart on the fridge door and pencil in the scores (generally nil-nil) and follow Bafana Bafana’s progress through the stages. However, the chart that would be especially interesting would be one that followed the money. Over on the left it would start with tax and rate payers.

Despite Governor Marcus slicing 50 basis points off the repo rate, the rand seems to be continuing with its bullish run. I have been told to expect this to continue right the way through until everyone goes home after the World Cup and that rand hedge positions taken in the next few months will look very clever by Christmas. The reasoning behind this strategy is obvious and simple but as usual has a no better than evens chance of working. Like all financial markets the order flows in the currency market are far more complicated and unpredictable than noting that a few tourists are buying wooden giraffes and a cold Castle with a dollar or two. The equity markets enjoyed a wonderful March, however.

Amongst the memories that I brought back from the cruise was the rapt attention and respect that the bus driver and tour guide paid to the apparently unusual appearance of crisp and official French policemen on the roadside in Reunion. Life on this scrap of land in the middle of the sea is already pleasantly organised and comfortably law-abiding, but the threat posed by the visiting gendarmes was clearly worth responding to. All South Africans on the coach were amazed – but they fastened their seatbelts and sat up straight as requested!

It will take a while for me to get into the swing of things with this long weekend after such a extensive break and normal service will be resumed as soon as possible.

James Greener

5^th April 2010.