COMPLIMENTS OF THE SEASON

I do not want to write and you, certainly, have no interest in reading about the markets today. So I shall just wish you a very happy and peaceful Christmas time and a wonderful, healthy, safe and prosperous 2005.

Thank you for receiving these weekly waffles. I have had lots of fun writing them. For those of you who go so as far as actually to read them, an extra thank you.

Thank you to my friends and clients who supported me this year in my move to Watermark. I trust you have found this firm to be as good as I have.

I shall be away from the office for a few weeks and Tidemarks will not appear for a while. Please contact Paul Davis or Charmaine Marcia by phone (011-325-4228) if you have any queries or orders that you wish to place. Please don’t send emails with these requests as I shall not receive them until I return to the office on the 10^th January.

With best wishes.

James Greener

24^th December 2004

PREDICTING DELIVERANCE?

There is very little to write about in the market this week. Even the expected 25 basis point rise in the US rates has had no noticeable impact on our lives. Yet. As you all know by now, my tedious view – long overdue for fulfilment – is that the spectacularly large US debt position is a millstone that gets heavier with each increase in interest rates. Perhaps my expectation of an enormous splash when the victim (US consumer) topples beneath the surface of the liquidity lake is over-optimistic. Maybe all that we shall see will be expanding circles of ripples with just a faint gurgling noise from the centre. However, it’s those ripples that worry me, as I think they could look like tsunamis by the time they reach our markets.

So far this month the JSE is down a bit, but only because of the mining shares. Almost all the other sectors are still stumbling and lurching upwards. The rand has gained against all currencies except the Pound so far this month and the US dollar has been taking a caning from everyone – particularly these last few days. The price of gold is a very good indicator of how deep in the dollar is.

There is a distinct holiday feel to the market with wide price spreads and negligible volumes. The day before the public holiday we enjoyed quite a bit of turnover because of futures close out. This is an arcane ritual that takes place four times a year, usually on the afternoon of the third Thursday in the month. For 100 minutes the market is dominated by duelling computer trading programs – I’m sure I heard the sound of plucking banjos – and mere mortals watch in horror or glee, depending on their position. These programs should carry age restrictions.

To make up for lack of action, and probably readers, analysts and reporters are now churning out their predictions for 2005. It seems that most are sure that the market will go up, the rand will be strong but unpredictable and the Proteas will beat England. Another of my, hopefully well known, scepticisms is that on average exactly half of one’s forecasts are correct. I have already admitted to one of mine which this year was wrong. This is therefore not a good moment to put down on paper any ideas that I may have. Statistically you will now be expecting it to be accurate. Come to think of it, I have very few ideas at the moment anyway. I know what I’d like to happen but that should not be confused with what should happen or indeed with what will happen.

But enough of this lyrical word play; there’s some test cricket to watch and Christmas presents to wrap. I’ll be in the office next week should you feel the need to impress the folk next to you on the beach with a call to your stockbroker to discuss the portfolio. The week after that, it will be me on the beach next to you.

Remember the hat and the sunscreen.

James Greener

17^th December 2004

US DOLLAR: FLAVOUR OF THE WEEK

The end of my week in the Kruger Park was somewhat marred by returning to a house that had been burgled. Fortunately an alert neighbour heard the sound of breaking glass and the alarm siren, which prompted him to peer over the boundary wall and spot the felon loitering in the garden waiting to see if there was going to be a response from the security company patrols. The neighbour issued a few good old fashioned threats and imprecations in the so-called language of oppression and the thief vanished in a flash having had very little time other than to make a bit of a mess and pocket a few small items.

With this experience fresh in my mind, it was with some interest that I read that the police themselves make use of private security companies to guard some of their police stations. Since our response guys failed to show up I would suggest that the police ensure that they have good alert and civic-minded neighbours instead. A lot cheaper too. Just a bottle of wine and a note of thanks for each foiled robbery attempt. Of course they must ensure that the wine is not from one of those KWV cellars where they have been adding synthetic flavouring to the fruit of the vine.

There will have been quite a call for relaxing beverages of every flavour in dealing rooms world-wide this week as suddenly everyone fell in love with the US dollar again. This showed up as a 5% correction in the price of gold from its recent 22-year high of USD 457/oz. Our own rand has given up more 3% against the greenback since last Friday. Now all of this was rather unexpected since pundits had been calling the death of the dollar in ever louder and frantic tones. As I have written many times before, the science of predicting the future in financial markets (and probably in other fields as well) has a rather poor track record of success.

Yet another example of this was Thursday’s decision by the SARB not to change the repo rate. I have read at least one commentary which complained that the 15 minute pre-announcement speech seemed to hint strongly that a cut was forthcoming. However, when the Governor turned to the final page and told us that the committee had decided to do nothing, these hints were shown to be mere teasers.  What that commentator must realise is that the speech part of the announcement is surely written some considerable time before the speech and probably even before the meeting of the committee. It therefore has to be pretty agnostic on the decision. I anyway have a suspicion that the final page is picked from the top of a pile of paper containing random “cuts’, “raises” and “do nothings”. It is slipped onto the bottom of the speech as the Governor enters the press conference and the announcement is as much of a surprise to the Governor as it does to the rest of us.

So next week has just four working days, less one for luck, so I would imagine that the market will be pretty quiet, perhaps just drifting south on lack of interest. It’s hard to believe that there are any situations of compelling and outstanding value that are not to be missed right now.

I trust you are getting these good rains too.

James Greener

10^th December 2004

PARTY TIME FOR THE BULLS

When I arrived at the office this morning there was a largish helium balloon hanging over the busy Jan Smuts Avenue intersection. It was tethered to the handrail of the nearby pedestrian bridge but the gusts of wind were sweeping it perilously low over the traffic. Motorists were being provided with possibly an even greater hazard than the usual suspects that stop in the crossing to offload passengers. I missed catching the advertising message that it carried, but began to think about the possibilities that the blimp might have for this industry.

While a warning about the perils of inflation would be obvious, it is currently unwarranted as the CPI and PPI numbers that came out this week remain pretty benign. The fact that helium is an inert gas, less dense than air, seemed to be a promising metaphor conjuring up images of investors doing nothing but watching their portfolio values climb to the stratosphere. But then what would become of the message if the balloon were to puncture suddenly? Best not to go there.

And on the topic of not arriving, what has become of Barclays’ long awaited bid for ABSA? This saga threatens to run for as long as the second telephone network farce or the arms deal offset mystery. If Barclays have not yet arranged their currency for this trade, then the deal is getting more expensive by the day. Curious.

Whether or not the market is expensive is the key question on everyone’s mind as we come to the end of a month which boosted the all share index by around 6% so that the index dividend yield is now a slender 2.6%. Also perturbing is the index pe ratio at a tad under 15, a level it did not reach even in 2002. But of course the “e” part of this ratio is rising spectacularly as company after company publishes very satisfactory earnings growth figures, so perhaps things are still OK for the moment. I would rate the market as a hold, with precious few buys around.

One of the more frustrating trades at present is the New Gold debentures that continue to be very efficiently priced at almost exactly their theoretical level of 1/100^th of the rand price of gold. As the dollar price has soared to $450 and beyond, the rand has surged in sympathy, so that New Gold has done nothing but skulk around 2670cps level since it was issued! One day we gold bulls will reap our reward!

The tide will be out next Friday as I shall be in the Kruger Park for the week. Yes, it will be rather hot! Please remember not to try to contact me by email and call Paul Davis or Charmaine Marcia (011-325-4228) if you have a query about your account or wish to place an order. They do have my cellphone number if you need to contact me directly.

And now we are all leaving the office for a drink or two to wash down the prawns that are to be braaied by the master of seafood, Mr Davis himself. The excuse is that it’s getting close to Christmas, but I think that none of us want to be able to remember to switch on the TV tomorrow afternoon when the ‘bokke meet Scotland.

Have a great weekend also.

James Greener

26^th November 2004

SUMMERTIME AND THE LIVIN’ AIN’T EASY

There’s both a rugby AND a cricket test tomorrow. And perhaps you are planning to ride a bike all over Joburg on Sunday. I can see that this will not be a relaxing weekend, so I suppose that I should try to give you some pleasant reading here.

I could start by telling you that there was a rumour in the market that Governor Mboweni was going to call a special meeting of the MPC (the worthies that decide interest rates) with the intention of springing a surprise rate cut on us. The problem, it seems, is the rand. You probably saw the report that Minister Manuel expressed some dismay that it now required only six of them to buy a dollar. Good news for those of us shopping for imported goods, but a becoming a bit a problem for the exporters again, despite the short respite afforded by the previous cut in August. And it’s not just dollar weakness that’s the cause. While we are up more than 10% versus the USD this year, we are also more than 7% up on both the Yen and the Euro and up even 4% against the venerable Swissie! People out there want to own the rand. And one reason for this is to buy the equity market. There has been R10bn worth of net foreign buying in the last six weeks. When the American market dividend yield is a skimpy 1.9% pa, yields of around 5% from shares as chunky as Liberty Holdings are seen as a steal.

However, as I write, there is no sign of any truth to the rumour about the meeting and those of us who need interest income to buy biltong, beer and fishing equipment (life’s little essentials) can relax. Actually, if you think about it, the chance of collecting together anyone for a meeting on a Friday summer afternoon is slim. Even if you do promise five star catering.

Another rumour doing the rounds is that some institutional investors have started to take profits, especially in the retail shares. That index is up more than 12% this month alone, so you can sort of see the thinking there. However, the excellent results continue to pour out from these companies and the earnings and dividends in most cases support the prices for a ‘hold” I just wouldn’t want to do a lot of buying here, that’s all. In the meantime I am getting old waiting for the US markets to wake up to the fact that they should be going down. The worse the news, the more they buy. Disturbing.

You may recall me picking on the Fannie Mae mortgage securitization business (second largest financial company in the US) a few weeks ago. Well, they are getting a lot of news coverage recently, with auditors getting sticky and possible losses in the billions. And then this morning we learn that they are down here on the southern tip teaching our chaps how to do things. I wonder who will learn the most?  And while on the topic of people in trouble how about getting an adjusted tax assessment requesting an EXTRA six billion dollars? Aren’t you glad you aren’t Yukos, the Russian oil company?

There, you must be much happier and ready to turn to the sports channels on the TV now. Have a great weekend, and I hope the rain starts only after you pedal across the finish line.

James Greener

19^th November 2004

BEARS ALL OUT FOR A DUCK

It is all quite confusing for an old scientist. It seems that I no longer have a provincial side to support but a “franchise”. Now I always thought that franchises had something to do with battered chicken and a certain colonel from Kentucky but it seems that I am mistaken. These franchise thingies are everywhere. I waltzed off to Wanderers on Wednesday to watch the charity cricket match between what I thought was Transvaal (or even southern Gauteng) and the rest of SA. What I saw was the rainbow nation and very little cricket. The rest of SA players were decked out each in their own franchise set of pyjamas. Very colourful but I was alarmed at how many of the fellows were proclaiming themselves to be Titans. The standard of the cricket didn’t support that! The tour to India could be painful. And on TV last night an assembly of rugby pundits were less that certain that the ’bokke will pummel the Irish tomorrow.

But to return to the battered chicken. That pretty well describes the look and feel of any remaining bears in this market. Outstanding results from most consumer companies continued to fill the press this week. There is no longer any point in asking plaintively where all the money is coming from. Just take a walk through your local mall this weekend and observe our fellow citizens going for gold in the shopping leagues. I’m told that SAB are going at full speed on all their bottling lines and in some places not keeping up with demand. Of course this rather alarming drought and heat wave will have a large part to play in that particular market. Isn’t it infuriating that ABI (the bottler and distributor of Coca-Cola) is being taken off the JSE boards?

The FirstRand preference share debuted on those boards this week at the really quite generous price of 10300 cps. This implies a dividend yield of just more than 7.25% and makes it the cheapest of the big four bank prefs. The markets are certainly not thinking of the holidays yet. Several interesting developments are taking place including the Harmony / Gold Fields tussle that must be providing a very nice little Christmas present for the advisors and media compiling and printing the ever more acerbic salvos from the two sides. The disposal by the quaintly named Thintana consortium of their chunky stake in Telkom has also generated some fire but little warmth unless, of course, you were one of the happy beneficiaries.

As expected, on Wednesday, the US raised their Fed Funds interest rate by 25bps to 2%. This excited the Wall Street bulls but surprisingly (for some) failed to stop the dollar sagging to a record low of 1.3 per euro. I just love reading the complaints on the US websites of how expensive Europe has become for a trip by the people from the land of the free. However, do not gloat too much as there was a report out this week saying that our own Herculean rand is deterring overseas visitors! Does this mean sensible prices for a meal in Cape Town this festive season? Hmmm. Probably not.

Downside of the week for me has been the number of criminal incidents that took place in and around my friends and colleagues. Thankfully no physical injuries have been inflicted but there is a definite increase in these utterly dreadful shocking and disturbing incidents. Please keep aware and safe this weekend.

James Greener

12^th November 2004

PENNY FOR THE BUY

I was planning all week to start this piece with some lame comment about going off with a bang or shooting up like a rocket or some similar reference to the date. But in the end I decided not to, as we have had more than enough excitement, what with US elections and exploding rands and soaring dollar gold prices.

These last two numbers can be combined to yield the rand price of gold. And this week saw the listing of NewGold. Despite not trading yet in any large volumes, its pricing has been very efficient. It has been consistently at a very small (around 0.5%) premium to the price of the actual metal. The Krugerrand premium is sometimes above 5%, so NewGold should give the coin a bit of competition.

A few months ago a client advised me that we should all be buying shares in Sappi – the paper company. His research was based on looking around any office to see to what extent the so-called paperless society had failed. These last few weeks of trying to comply with the FICA regulations have hammered home the point, and I would add copier supply companies to the list. These days just about everyone that you deal with is obliged by law that you confirm that you are who they think you are and that you live somewhere. Failure to do this will result in all sorts of sanction and freezing of things. In the current heat wave a freeze sounds rather welcome but will doubtless prove inconvenient. So I am just warning you that we here at Watermark – despite our privileged location at the centre of Joburg’s shopping universe  - are also in the hunt for paper and copies of paper that we can collate and file and store. There is no escape.

Now FirstRand have joined the confiscation party. Around March next year they plan to plunder  7.6% of each shareholder’s holding, at a price of 1228cps and pass the booty on to some folk they have identified as worthy of this generosity. Until then of course we won’t know whether this is a good or bad price but I think the idea stinks. Now we know what FirstRand will be doing with the cash they raised from placing their new preference share. Two much smaller pref share issues have also been recently announced by Sasfin and PSG. Unfortunately they are too small to be likely to enjoy much liquidity, but we’ll keep an eye on them.

The Americans have made their choice of President. So what happens next in the markets? Well just this afternoon one of those dreaded non-farm payroll numbers came out much higher than expected and knees jerked everywhere; in particular US interest rates went up. This will just serve to irritate the debt monster and his bulk is making itself felt in a relentlessly weakening dollar. The flip side of this is a stronger rand. As I watched our currency try to get below 6.1, I began to wonder if Governor Mboweni was watching as well. And whether he might not feel moved to spring a surprise interest rate cut upon us before the scheduled meeting of his committee in mid December? Just a thought, but that bang would make the consumer shares rocket even more.

Dragons and leeks for the ‘bokke  tomorrow?

James Greener

5^th November 2004