ROTTEN FISHING

Since I the last edition of Tidemarks there have been quite a few interesting events, some of which deserve comment. Top of the list might be Minister Manuel’s budget speech, or perhaps the economic statistics suggesting slowing economies in Europe and the Far East. Then there was Joburg City’s call for tenders to supply a Human Capital Satisfaction Measurement Survey, and the news of the sale of a downtown city block for just R5.5m. This might sound low but would, in my view, far exceed the total value of the whole of the city (?) of Luanda, capital of Angola; a country from which I have just returned after trying to catch fish in the majestic waters of the Atlantic ocean.

The sea was almost the sole familiar thing about the whole visit. The rest of the place is wholly appalling, but nonetheless interesting. There is an explanation but no longer an excuse for the apparently deepening squalor and dilapidation. Many of us in South Africa are all too painfully aware that this land has suffered some of the continent’s most dreadful strife and bloodshed. But still the oil and natural wealth is failing to create any affluence for anyone outside of a very exclusive elite. The disintegrating and filthy airport is thronged with characters straight from the script of a bad movie about dirty deals and blatant corruption. I thought that the crumpled, sweat-stained linen jacket and crushed panama hat had died with the Graham Greene novel. The only hint that the times had changed was the cellphone jammed against the ear.

The crumbling roads are lined with the remains of horrific accidents involving totally unroadworthy vehicles. The minibus taxi that provided the three hour transfer to the fishing lodge had seats which were not fixed to the floor and a driver who never stopped drinking beer. Potholes in the tar stretch for hundreds of meters – and are almost as deep. Ironically for an oil producing nation, fuel is often difficult to find.

As in most places where the people have no expectation of anything from anyone – especially their government, there is an incredible flowering of commercial activity. The miles long traffic jams and absence of traffic lights have encouraged huge growth in the career of street vending. The only thing not on display for sale from the crush of humanity on both sides of every traffic lane, were stocks and shares. Actually, also missing, was any form of handiwork or craft – maybe because there is not yet any real tourist market in Angola. Nor is there likely to be.

The fishing lodge was fantastically located on an island in the middle of a deep and fast river that, just before it enters the sea, flows parallel to the surf line for several kms, separated from the ocean by a very narrow sand bar. Giant Tarpon infest the waters. The juveniles roll in the fresh water at one’s chalet door and the 60kg adults lurk in the deep sea crashing on to the beach just a hundred meters beyond.

But in five days I never caught a single one of them, so my human capital satisfaction measurement result is pretty low. But while I prepare my fishing kit for sale this weekend I will at least be able to watch the start of the Super 12 rugby season. And it’s one of those weekends when we are certain that at least two of the SA sides can’t lose.

It’s nice to be home.

James Greener

25^th February 2005

DRESSED FOR EXTINCTION

On my way into the supermarket to fetch a cheese and ham roll for lunch I encountered a cheerful sunburned fellow in complicated boots, green epaulettes and snug khaki shorts. He was soliciting support for the cause of wildlife conservation. This got me thinking about the appropriate uniform for the time when I will have to take up station at the door of Pick ‘n Pay, shaking the slotted tin for donations to save an equally endangered species –  the South African Stockbroker. In ten years we have gone from being a large number of qualified and experienced professionals, mostly respected, who owned both their own firms and also the Exchange itself, to being an almost invisible and unrecognised coterie of greying grumblers generally griping about the way things have turned out.

Unlike the riverine rabbit or the blue swallow, I know that few will lament the drying up of this particular gene pool. Public perception of the stockbroker was usually dominated by stories of spectacular fraudsters and pricey automobiles. However, in this age of international investment banks, CDOs cubed (don’t ask!), hedge funds and the rest of the sophisticated and modern money business, I am always coming across bewildered investors anxious for the service that a professional stockbroker used to provide. That service would include a brief economic scene setting, basic tax information, reasonable and appropriate portfolio advice and very importantly, knowledge of the paths through the jungles of administration and record keeping.

Now I know that I am being nostalgic and romantic to think that the modern investing environment has any place for the amateur investor. Despite its claims to the contrary, the JSE Securities Exchange is neither accessible nor affordable for the man with even as much as R100 000 to invest. I think that this is unfortunate and sad; especially when the suggested home for these funds – the unit trust – has in my opinion, a very poor record. The irony is that there are now more unit trusts than listed shares, so the investment decision for the “small” investor is in fact made harder.

I of course acknowledge that the current stock exchange system is much safer and perhaps a bit fairer and more efficient than what we had ten years ago. Many investors, particularly the computer-literate ones, are delighted with the ease of on-line trading and the access to information, two jealously guarded privileges of the old broking firms, now made public. However, it has been the nature of this technological revolution that the expected cost reductions did not materialise. Some of the extra costs arise from regulatory and administrative burdens imposed by the bureaucrats who realise that with the genie now out of the bottle, the task of policeman just got much larger!

But, back to the problem of the uniform. Dark suit, black shoes, white double cuff shirt, ostentatious cufflinks, old boys tie?  Sounds OK, but the problem is that ever since I came to work with these old fashioned stockbrokers at Watermark I haven’t really needed a suit. I find my friends and clients are more interested in my time and ideas than in my clothes.

Have a great weekend

James Greener

18^th February 2005

PEOPLE POWER

The other day a fax arrived on our machine here in the office that, I think, was not intended for us. But I read it anyway. It was an invitation to attend the 50^th birthday party of Joburg’s illustrious mayor. But what caught my eye was the last line, after the bits about when and where the festivities would be held, which stated: “Presents are Welcome”.  How refreshing to leave the guest in no doubt about the host’s expectations. Imagine an investment report that ended with the words. “Orders are Welcome”. Instead we drop hints that one should think about accumulating on weakness or sell into strength or similar weak-kneed non-committal phrases. When what we really mean is that we hope that you are impressed by all the work we have done in compiling the report and will reward us accordingly.

The Governor’s decision this week not to change interest rates has also been labelled a cop-out by several sections of the market, especially those who had put together nice little positions that would have scored from a rate cut. Probably the most important reaction has been seen in the rand which may be trying to reverse the softening that it began in the final days of last month. The share market seems unconcerned with what the Reserve Bank is up to, and the All Share index has already scored better this month than it managed in the whole of January. However, the dispersion of performance is very wide with the service sectors taking a bit of a hammering. Resources and goods are doing OK. There’s nothing special happening to financials.

I have just spent a week in the E Cape, where the papers wisely devote little space to financial and business matters beyond the price of pineapples and the outlook for ostrich products. Big news was the fire that destroyed a chunk of Grahamstown’s Church Square. Other impressions gained from a leisurely return trip along the back roads of the country were mainly of population pressures. It is astonishing to see how many new small housing units have popped up in huge sprawling townships alongside the old ones outside every dorp and town. There is clearly a massive shift of people from the country to the town and this must be a significant source of the consumer boom being experienced. Also noteworthy were the number of fresh graves visible in the cemeteries. I am certain that we are not getting true or accurate data about just exactly what is happening to this country’s demographics.

Back home with the Biz Day newspaper my anxiety was deepened by the number of stories that show the rapid encroachment of government’s market-unfriendly and   interventionist pronouncements and actions. I was particularly alarmed by the notion that pension funds should not make achieving a high return their top priority. Rather they should support worthy causes, or at least causes deemed worthy by someone else. I was thinking about the reaction of a pensioner on being told that the fund had dried up but not to worry because his cash had been used to “invest” in community projects. Now there’s a fellow for whom presents will most definitely be welcome.

It may almost be time to talk about cricket again.

Keep Well

James Greener

11^th February 2005

IT’S NOT MY FAULT

How seriously are you taking the deputy president’s request that we citizens should “embrace members of the police service”? His reason for this display of affection is that “it had become a law-abiding establishment”. This is quite a gratifying piece of news, even if, we hope, a trifle superfluous. However, on this basis I am expecting my fair share of hugging too. Although I was away at the beach and the cricket quite a bit this month, the days that I did spend in the office were devoted to great chunks of particularly law-abiding behaviour.

It seems that compliance officers worldwide made a joint New Year resolution to prod us delinquent investors to get our paperwork into order. You know the sort of thing.  Copies of IDs and electricity bills and letters of authorisation and so on. All to be shuffled and dealt and filed and stored, ready for inspection. All boxes ticked.

Now, I know my clients, and for most of them, their idea of money laundering is limited to the odd bank note that remained in a shirt pocket through the medium hot wash and spin cycle. But my pleadings that I’d much rather spend the time being a stockbroker than a policemen were blown away by the news about some outfit called Riggs Bank in Washington. These guys, it seems, had a reputation for quality and prestigious clients, but nevertheless have just copped a $16m fine for having some rather shady customers of whom the US government disapproved.

And then my attention was drawn to the story about an analyst at a UK stockbroker who has been slapped with an equally chunky fine – presumably for faulty or misleading research. And here I am, writing away, being disrespectful, flippant, offensive and even worse, listing share names that I like or dislike and not a single line of disclaimer, disclosure or wealth warning in sight. At one research house I am told that a ten line research note might carry up to three pages of fine print, warning anyone foolish enough to read it that the research note was quite possibly useless. Another source tells of a firm where every email, letter and note has to be checked by a lawyer before the “SEND” button can be pressed. Who checks the lawyer, I wonder?

Today is the JSE’s month-end, and statements and portfolios will be prepared this weekend for mailing on Monday. It has been my habit since I arrived at Watermark, to write a small newsletter about the market for inclusion with those statements. I’m starting to wonder if that is wise. Are there any folk out there who are finished with blaming MacDonalds for making them fat or SAB for making them drunk or the mirror for making them ugly? What if my stock calls make them angry, or poor or even rich?

Any ideas I had of being hugged have now vanished. Especially as the market seems to be going down quite sharply this afternoon.

There will be no Tidemarks next week. Not because I’m scared, but because I’ll be in Grahamstown, carting crates and katunda up the stairs of the University residence where my daughter is to spend the year.

James Greener

28^th January 2005

BIRDIES AND BUY LISTS

I was very fortunate this Christmas to find under the tree a slim package with my name on the outside and the DVD of Robert’s Birds of SA on the inside. This turns out to be an exceptionally happy marriage of technology and information. The description and drawings of every bird are accompanied by photos, sound recordings and movies. And some clever software enables one to search and sort by every possible characteristic, habitat and habit. Even the notorious lbjs (little brown jobs) are starting to yield to this wonderful resource and the space for my own records is slowly filling up.

But on to serious stuff

I have been trying to act like a proper stockbroker and together with my colleagues have begun to compile a list of what we think should be hot this year. The key question is, as always, the currency. We agreed that while it ought to weaken, in fact we have no idea when it could do so and therefore chose to assume it will maintain its current relative stability. With that out of the way, we reached the surprising conclusion that the market as a whole is not greatly overvalued and that there may be some shares worth taking a look at. Of course if the dollar strengthens appreciably against our poor runt then you just have to shut your eyes pile into the resources. One simple way of doing this is to buy the New Rand ETF (exchange traded fund). Or even Metorex.

Naturally the main thing is to avoid ideas that end up destroying value. This is broker-speak for “don’t buy shares that go down”. When this happens most people face the possibility of making a loss. However, for one investor who was quoted in the paper this week, it merely “slows down some of our strategies”. Isn’t it wonderful what jargon can do? But even the best jargon can’t compete with a presidential pardon that removes all record of past crimes. This Alan Boesak affair is a pretty shabby one that does nothing for this country’s reputation. But at least we are miles better than Argentina, who were surprised when their foreign bond holders got upset with an offer of just 30 cents in the dollar. Now that’s destroying value!

There was certainly no shortage of things to write about this week. Did you notice the Joburg city notice calling for tenders to provide Metro Police with training in customer care? There are at least three topics in that piece of nonsense alone. As you see I certainly chose not to start with any cricketing remarks and, thanks to some pretty heavy rain over in Pretoria today, I shall not be ending with it either.

For those of you who read all the way to the end, hoping for the above-mentioned ideas, I can tell you that my own picks were headed by Nampak, African Life, Telkom and RMB Holdings. In the month-end newsletter that will accompany the statements and portfolios I shall be discussing a longer list gleaned from the whole firm.

So if you, like me, have not been invited to join the great and good at the economic talkfest at Davos this weekend, I hope that the sun will come out and at least we will be a lot warmer than the folks who have.

And there’s golf and tennis on too.

James Greener

21^st January 2005

STARTING THE YEAR GENTLY

It says here in the paper that only 45.1% of Joburg’s residents are satisfied with the city council and that this number is down around 5%, since it was last sampled a year ago. Well, if they were to poll the folk who have had to tackle the Bompas Road, Jan Smuts Avenue intersection where the traffic lights have been out for two days they would get a percentage way lower than that.

It would be considerably lower than the 25.4% total return that the All Share index delivered in 2004. This was so much better than anyone had predicted.  But when it come to statistics it is difficult enough to get even the historical numbers right. Just ask Stats SA about their manufacturing data.

Of course at share and sector level the results were widely scattered. This can be summarised by the fact that resources were down around 5% for the year while the financials and industrials were up almost 50%. This last number is pretty heroic stuff and one might think that this kind of surge must have stretched valuations somewhat. However, average year on year earnings growth in the financial and industrial sectors index is at an eyepopping 30%. This means that although these shares have re-rated very significantly since the 2003 lows, they are currently not yet hugely over valued. In my view one could continue to hold them while as always keeping a very wary eye on Wall Street.

The problem comes in trying to find any pockets of undervaluation for the new cash that always seems to appear at the start of a year. Some of that cash is coming from the tasty and chunky dividends that are flowing from the market. Companies are still reducing dividend cover and returning cash to shareholders as they too seem baffled by the problem of what to do with it.

I have wondered before why it is taking the boys from Barclays so long to make up their mind about whether to buy ABSA or not. But then, sitting at the cricket yesterday the answer came to me in a flash. There will not be any progress on this deal until the English cricket touring side leave. The ABSA corporate suite at Wanderers was full of slightly red gentlemen, conducting serious due diligence studies through the bottom of a beer glass. Compared to wading about in the rain-filled streets of their soggy isle there’s really no contest!

Which is why this first edition of Tidemarks for 2005 is early today. I am off to Wanderers myself in a few minutes. I trust that you enjoyed a safe and happy festive season and that the New Year will be healthy and prosperous.

James Greener

14^th January 2005

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