THE RECOVERY SMELLS FISHY

While we have all been looking elsewhere, the bull has been hoofing balls into the back of the net. The JSE All Share index has even pierced the 28000 level after a quiet and unnoticed 10 day climb which included a public holiday and a close-out. The dollar gold price is nosing northward and exploring new territory. The rand has outperformed both the euro and the pound sterling quite markedly so far this year – although it is reasonably steady versus the US dollar.

If you need something to fret about have a look at what the bear is up to in the Chinese stock markets where he has clawed 20% out of it in the past two months. Are we wrong to be placing too much hope on China leading the world out of recession with its insatiable demand for raw materials? Another worrisome feature is that despite eighteen months of the official interest rate being held at almost zero and bucket loads of supposedly stimulatory cash being tipped into the economy, the US is not yet looking all that lively. US citizens are still rightly worried about getting and keeping a job, paying the mortgage and reducing debts incurred at much higher levels. Consuming is not on their agenda.

However, back here in the kingdom, the harbour strike is over, the ships have docked and the containers have been unloaded and unpacked just in time to satisfy a surging demand for symbols of patriotism. Tons of non-FIFA licensed colourful flag-bedecked trash for decorating your car, house, dogs and children have engulfed the nation. Visitors too are catered for and every back-pack has a dreaded vuvuzela in home strip poking through the flap. Wooden giraffe sales are nowhere. Clothing retailers must have been smiling this week too with the surge in demand for winter wear from visitors who arrived believing that old line about “Sunny South Africa”. The nasty cold snap that swept over the southern tip is a suggestion that the global warming models are still short of some good science. We may have set a record for the coldest venue for a SWC match ever played.

My earlier contention that there was not going to be any beer available in the stadiums was confirmed. The official supplier of the alleged globally branded beer-like beverage was so worried that 20 fake Dutch fans in sponsored orange dresses might be threatening his insipid brew that he ran off bawling to FIFA. Humour and intelligence played no part in that self-important organisation’s response and armed police were used to deal with the problem. Without that magnificent misjudgement the pretty lovelies would have raised no more attention than any party of girls in short skirts deserve. Now the whole world wants to see the pictures and taste the beer they were promoting

Is this really the base of another bull run? The factors which make that seem unlikely include the fact that the historic price earnings ratio of the All Share index is rich at 17.5. At the start of 2009 it was on 9. Very few company announcements in the last few months have been bubbling with excitement about their business prospects in the near future. The plus side of course is that some companies have tried to slim down during the recession in preparation for a speedy recovery when the orders begin to flow. The dividend yield of the same index is also a very meagre 2.2%. Some of this parsimony has been the result of attempts to restore reserves and increase dividend cover but that is still not a great yield even when compared to taxable interest at around 6%pa. Generally this is not value territory and not a typical starting level for a major bull market.

It will be a relief to watch the oval ball again even if the ‘bokke and the Italians will have to trek westward to Witbank for the game. And the sardines have arrived. May you also have a great weekend.

James Greener

17^th June 2010.

BALL MARKET

The country will pretty much close down at 2pm today and wont notice or care if the Dow collapses and the gold price soars to the levels where they equal each other. The odds of those two prices approaching and meeting each other are probably lower than what you will get for Bafana lifting the trophy and yet the nation is wonderfully and firmly convinced that miracles can happen. It is going to be great fun anyway and we shall all be quite safe as I have just seen a submarine glide past on its way to check the beach next to the stadium. I hope it was one of ours.

World Cup fever is rampant and party time is here. The vuvuzelas are droning on everywhere and how FIFA must be regretting that they failed to get their sticky paws on the rights to that plastic tube and also to that other unique South African attitude to a safety item – the makapara. This must be the only place in the world where the hard hat has been converted to a fashion item with zero safety . And don’t forget the Jabulani. That’s the new football that will be in use during the tournament and which allegedly behaves erratically, especially in the thin highveld air. Perhaps it will liven things and with luck more than a few goals might be scored in the tournament. Us rugby bores like a scoreboard that ticks over..

The world’s markets are also very erratic with no trends emerging anywhere. On the JSE this month so far, the big 4 (BAT, SAB, Anglo, Billiton) are all up but the rest of the market is very mixed with the banks still being sold off, despite FirstRand offering an optimistic trading statement. Value is still elusive. I am in no hurry yet for the SWC circus to end but it is going to be very interesting to see what the effect of playing hosts will have on the various indicators. The rand might be the first to react to the departing hordes. Some consumer prices appear to have risen while others appear unaffected or even lower. It will be difficult and a long time before anyone will be able to tease out the contribution to GDP that 6 years of preparation and 4 weeks of party have injected. The Gautrain seems like a fine legacy even if we are going to be left with some large and empty stadiums. It is claimed that a big part of Greece’s current troubles are the roosting of loan chickens that were sent off to raise money for that country’s Olympic Games. Certainly here in SA the state has been borrowing a lot of money of late so we will need to keep an eye on the repayment schedules in a few years time.

The politicians just don’t get it do they? The auditor general, the minister of finance and even I have been urging them to cut back on unnecessary spending. But this week the Free State government have been placing full page four colour advertisements boasting about holding a conference that will unlock the potential of their flat cold slice of land. This is about as meaningful as a CEO promising to unlock value. The recently departed and unlamented Eskom chief did just that when he pocketed a chunky performance bonus for the year when that business made a loss. The Telkom boss is also on his way. Lock the cash box tightly chaps.

Tucked in among the noise is a very important test for the ‘bokke in Cape Town tomorrow. The French have even more capacity than the Welsh showed last week to deliver a scare. Again I am uneasy. It is all happening under that mountain this weekend. Actually, there is quite a lot happening on the beach here too.

James Greener

11^th June 2010.

BLOW BUT DON’T THROW YOUR HORN

The “sell in May and go away” period has passed but perhaps it is meant to apply only in the Northern hemisphere. Some voices, however, are suggesting that “flog everything and flee” is still the best strategy for equity investors – particularly in the USA. Their views rely quiet heavily on the patterns and pictures they claim to be able to see in the charts of prices and indices. Apparently they all point sharply downwards. In fact there are also some worrying fundamental facts which suggest that the US especially may be about to experience another wave of mortgage defaults which could lead to a further fall in property prices and liquidity problems for the banks. Thereafter follows the familiar lament of declining investor confidence, job losses and economic contraction. While there has been enormous support for the Dow whenever it tries to break below 10 000, I think the bear will win that battle but hopefully not as far as the 3 000 level that one opinion has offered. The dread phrase “double dip recession” is popping up again. The Rand Refinery reports that demand for Krugerands has soared 50%. People are definitely seeking insurance.

Like most other share markets the JSE is jittery and unable to develop a trend. Buyers are around but are unwilling to pay up to get their shares. A disappointing number of companies which have reported recently have chosen not to pay dividends, but those that do have mostly increased their distribution compared to a year ago. If there is a genuine and sustainable business recovery taking place it is very patchy and hard for investors to profit from.

Surely the state-owned near monopoly business of generating and selling electricity should be staid, unexciting and financially predictable. Their market is captive, their suppliers are amenable and the technology well proven. Nevertheless Eskom is never out of the headlines with stories about boardroom putsches, operational calamities and ridiculously volatile results. One suspects sadly that corruption and incompetence are probably dominant features of that utility. The much trumpeted news of their return to profitability appeared alongside the Durban municipality announcement of a 23% increase in electricity tariffs. That is a huge number and will undoubtedly have a big impact on consumers’ future spending patterns. It is hard not to think that the economic recovery is up against some very strong headwinds.

No such problems however face FIFA who are delighted to announce that they have increased their income by 50 percent since 2006 in Germany to 2010 in South Africa. Helping them reach this wonderful milestone are two sleek grey warships which as I write are cruising past a few miles offshore keeping a keen watch out for pirates. South Africa has ignored all suggestions that it should take an interest in helping to counter the rampant piracy around the Horn of Africa. Now we see why. Our forces are assigned to the far more threatening brigands who are clustered at the traffic intersections selling world cup paraphernalia that has not been blessed by FIFA. Is everyone involved in the beautiful game really happy with the plan to destroy tons of t-shirts in a country where even illegal clothing is welcome now that winter has arrived? Have you spotted that the Lords of the Round Ball have discovered a way to renege on their commitment to allow the vuvuzela to blast its way into soccer history? They have warned that should a single one of these plastic tubes be flung onto a pitch, then that will be evidence of its use as a weapon and bingo – a ban will be issued. Watch this space.

Nevertheless the city is definitely starting to get revved up. Flags and “mirror gloves” are blooming and the cleaned up beach front is wonderful. This is going to be great party. All I have to do now is learn the offside rule. I am a little anxious about the ‘bokke in Cardiff though.

James Greener

4^th June 2010.

EURO RESCUE MADE IN CHINA?

A notable feature of stock exchanges at the moment is that there are some pretty substantial volumes of shares being traded. Sceptical bears believe that this might be evidence of the so-called redistribution trade where institutions are the sellers and individuals are the buyers. The theory is that the wise and well researched have noted that the future looks bleak while the keen and ignorant think that there has never been a better time to buy shares. This neat categorisation of investors is nonsense. Institutions can and do buy stuff that they later wish they hadn’t. Thanks to the internet, information is ubiquitous and simultaneously available to everyone. The differences lie in the interpretation and inference and also in remembering that the investment industry’s income is largely based on someone buying something. The latest rebound in confidence is allegedly due to reports that the Chinese have professed admiration for the euro. Well, they sort of have to don’t they? There are not too many choices for them when they decide to diversify out of the several trillion US dollars that are knocking about their vaults.

It was hoped that the ruling party had muzzled Youth League Chairman Malema at least until the World Cup was over. Regrettably, he popped up this week to insist that he was solely responsible for announcing the government’s policy on mine nationalisation. Straight from the horse’s mouth as it were it was very muddled but interestingly appears to be intended for new projects only. Presumably that means that all the mines currently operated by the 16 listed mining companies that appear among the JSE’s largest 100 list would be unaffected by this proposed legislation. In one respect at least the local proposal might be better than the Aussie plans to dissuade investment. The horses’ mouth, however, is not known for doing sums properly and probably will be disappointed by how long it will be before the deserving poor will be able to order Breitling watches like his. Mining in South Africa is not a bowl of cherries. The aggregate price to earnings ratio of those 16 companies is around 25, and this climbs to over 80 if you omit Anglo and Billiton, who derive a lot of their income from offshore. In the last 150 years miners have naturally plucked the low hanging fruit in terms of the richest and shallowest ore deposits. The proposed state mining company is not only going to be faced with technically difficult  projects but will also battle to find private money willing to share the risks in return for the very meagre rewards that Malema is prepared to allow them.  Tax payers can look forward to even more outstretched hands.

Bits of the Gautrain will be working in time for the big event. The schedules of fares and running times have been released and show that management have conducted a careful needs analysis. Unfortunately it appears to have focused on the need of the staff to go home to bed, as the service will close down every night at 8:30pm which is the exact moment that the final match of the day kicks off. Fans needing to get back out to the airport after that match can forget the metro! And there could be lots of them as it was announced that 140 000 extra tickets have been found down the back of a sofa and have now gone on sale .Hopefully the demand will come from overseas fans who have realised that their press warnings to beware the venomous vipers in South Africa omitted to point out that these would mostly be confined to VIP boxes and blue light motorcades travelling the protocol routes.

There are certainly no tickets left for the Super 14 final at the Orlando Stadium tomorrow. People seem surprised that rugby fans had such a good time at the same venue last week. Did they forget that the place is situated in the nation’s largest per capita beer consumption neighbourhood so what was not to like. Go Bulls.

James Greener

28^th May 2010.

BEAR PASSES THE DOPE TEST?

It is probably worth reminding oneself that no one who believes that their views are really influential is ever going to make a very pessimistic call even if that is what they are thinking at the time. In one way or another most of us have at least a portion of our savings in the equity markets and savage bears are not welcome. It seems, however, that the beast is on the prowl right now and there are frantic efforts being made to find out who let him loose and how he can be tamed.  The German Chancellor’s ban on naked shorts is the current scapegoat. This sounds like a topic requiring closer observation, but I think that the dawning realisation that the world is not yet out of the economic slump is far more important for sentiment. People appear to be converting their money to cash. Even lending it to the government by buying bonds may be risky as in many places interest rates are on the rise. It is significant that there is huge demand for physical gold. Share markets are becoming unfriendly places.

Many governments’ programs of extravagant entitlement are running into trouble as the income side of that equation dries up. Proposals for reducing state expenditure are either trivially cosmetic or have triggered anger amongst citizens who have become used to the state playing Robin Hood. Nowhere in the story line does Robin tell the people that the rich have either also become poor or have disappeared, taking their money with them. The rand breaking above eight to the dollar is one manifestation of that last phenomenon.

Surely not too many people will shell out R15000 plus VAT for a table at a dinner where the FIFA boss will offer his views on “The Socio-Economic Impact of the World Cup on SA”. We already know that the answer is “precious little”. One reason for this is that in return for enormous sums of money, FIFA have assured their so-called commercial partners that the obedient South African authorities will close all possible competitor businesses for miles around the sacred grounds and routes. Fans coming to the Moses Basket in Durban for example, will find that the Sky Car which travels up the handle of the basket, the pubs, coffee shops and stores in the precinct all closed and shuttered throughout the tournament. Curio and trinket sellers have been chased away and their stock confiscated. There won’t even be beer for sale. Where is our fearsome Competition Commission when we really need it?

The “One Light One TV” headline was not a new electioneering slogan but the warning that in order to ensure enough power to keep the stadium lights burning, the rest of us might need to switch off all our other stuff. Reportedly one of the president’s wives is already setting an example in this matter.  Actually that might just make the parties go even better. Drink fast before the beer gets warm. We are going to have a great World Cup even if it is a round ball being chased by fragile and overpaid primadonnas.

President Zuma was “close to tears” after witnessing the dreadful conditions that some of his constituents are living in. The answer to his question the next day of why this had been allowed to happen was blindingly obvious. He was addressing his own Co-ordinating Council whose agenda was "unpacking the human settlements delivery agreement" and “putting programs in place”. Whatever this nonsense might mean, half a hundred delegates had doubtless travelled from far and wide to attend and lavish catering was a certainty. Actually doing stuff like staying at work, issuing orders and firing people who did not carry them out was definitely not on anyone’s agenda.

Will the Bulls and their fans really feel as if they are playing in a home semi-final when they play in the Orlando Stadium tomorrow? Legend has it that the grass available outside the grounds is just as good as the stuff on the field so it should be a wonderful occasion

James Greener

21^st May 2010.

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.