HIGHER AND HIGHER AND …

Another week. Another new high for the All Share Index. Unless there is a huge calamity in the market this afternoon, when I shall be down at the Wanderers ensuring that the Proteas are behaving sensibly, the index will end the month up nearly 8%. Biggest contributions to this return will have come from the Basic Materials sector (principally the platinum shares plus Billiton and Anglo) and the Financials (banks and assurers). While I suppose that spotting the first group was not that difficult if you believe in the commodities run, I am uncertain why investors are buying the money sector. There is the ongoing background hum of speculation about the probable buyout of another local bank by a foreign suitor. But there is also the frequent sound of sniping from the legislators and regulators who have targeted the assurers in particular. No aspect of their business is immune to prying bureaucrats who are full of suggestions about how to reduce margins and increase risk.

And talking of risk, don’t you wonder how, these days, several years after you and I had to supply our banks and brokers with all kinds of personal details, the frauds continue unabated? Everybody dodgy seems to have any number of accounts in any name they like and no questions are asked until it all blows up.

Blow up, is what the gold price has done. Patient readers will know that I am always fretting about how long the US economy and currency can maintain their pre-eminence in the global markets. Both are enormous – the largest in the world by far – but I think this gold price strength is indicating that there is a major shift in allegiances taking place.

The new Fed Governor followed his predecessor Sir Alan and raised US interest rates by the expected 25 basis points. This was likely the reason that the very important US ten-year bond yield lifted to new highs last night. Surely all those debtors in the States are starting to find that their repayments are getting painful and will cut back on purchases? Most new car loans over there are now being taken over five years or more! The car could quit before the loan does.

Our own Governor Mboweni gave a clear indication that he is feeling left out of the club of central bank governors. He hasn’t tugged at the “Rates Up” lever in his office in ages and he said that his palms were itching. Rather impudently, however, the market so far gives no sign that there is a need to increase the price of money. The last time when he warned us that he had a hand on that lever, rates ticked up – only to see him make no change at the next MPC meeting. Is he bluffing again this time? I don’t see much need for a rate increase at this point.

A high priority task next week will be to prepare my tender documents to the Receiver of Revenue, who is in need of someone to manage his “data storage infrastructure”. I shall omit the part where I plan to use a deep and waterlogged disused mine shaft as the primary infrastructure for storing tax records. Everything will be indexed under M for Missing.

I hope I see more runs than wickets this afternoon.

James Greener

31^st March 2006

DRIVE CAREFULLY – BULLS ON BOARD

I thought that this week would effectively consist of just three working days. I was wrong. It has been so quiet (although volumes aren’t all that low) that time has dragged and it has felt much longer. Excruciatingly slowly the All Share index has inched up above 20 000 again and today has even breached the all time high set early in February. So that’s another bear sighting shot to pieces. All you can see and hear are horns and hooves clattering through the market. Already the month has delivered more than a 5% return with the financial sector doing most of the heavy lifting. The weaker rand has failed to excite any of the usual suspects among the so-called “rand hedges”. MTN, the cell phone company and the JSE’s 10^th biggest by market capitalisation, set a few hearts a ‘flutter with the release of its results and hints that corporate action of some sort could be forthcoming. With both debt and equity relatively cheap at the moment, it is hardly surprising that predation is such a popular sport. About five dozen shares on the boards are currently sporting cautionary notices. Even if investors are battling to find shares to buy, the corporate raiders appear to be hard at work.

A local morning newspaper is promising that in May it will feature “Bond Traders” in one of its occasional surveys. Purveyors of everything that is expensive, exotic, ostentatious, pretentious and tasteless are already clamouring for advertising space in that survey. Anxious for a sight of themselves in print, bond traders will be keen readers of that edition. In one of my previous lives, I masqueraded as a bond trader. I more or less mastered the bit about buying high and selling low. However, I never donned any yellow braces, nor did I appreciate the worth of mis-priced options and I definitely never acquired a low and speedy vehicle. I eventually withdrew from the floor and assumed the pose of a bond analyst – a species that will never merit a Business Day Survey of their own. Just a Reserve Bank Bulletin and a calculator that handled compound interest were our requirements.

I see that another exchange traded fund (ETF) is coming to the JSE. This will be a Satrix product, that will track the Resources 20 index (RESI20). It will join the well-seasoned Satrix 40 that mimics the Top 40 index and the Satrix Indi 25 and Satrix Fini 15 that follow their own specific sector indices. The new offering will compete with the existing NewRand ETF that holds a portfolio of the shares that are sensitive to the exchange rate – many of which are of course resource shares. I am a great believer in and supporter of these ETFs. I appreciate their low dealing costs when compared to traditional Unit Trusts and I enjoy the way that they usually outperform any conservatively selected portfolio in a bull market. However, I am anxious about their proliferation and note that the liquidity of the more specific ones is not wonderful. Once there are too many of them, the problem of selection soon begins to rival that of choosing individual shares anyway! My favourites therefore remain Satrix 40 and NewGold – the very efficient rand gold price tracker.

At least the clutch of medals our athletes are carting home from Melbourne may rattle together loudly enough to drown out the sound of Shane Warne flapping his jaws and getting the Proteas all over-heated and distracted.

James Greener

24^th March 2006

LOGGING OUT FOR THE WEEKEND

Well, that clears up the Gautrain funding mystery. Among the critical decisions to be made by the planners, is the design of the logo that will adorn the rolling stock, stations, stationery, beverage cups and bathroom fittings of this mega-project. In a flash of brilliance, they have invited the public to make the choice for them by submitting a vote via the cell phone message system. This has the advantage not only of passing the buck but also of raising a spot of cash at R1 a time charged for each vote cast. No news yet on the number of votes cast, nor on how much this exercise has contributed towards the R20bn cost of this train set. I anticipate many more such public ballots about other difficulties that Gautrain will face. But by the time that they are asking our opinion about what sort of sandwiches to offer in the buffet cars, the cost of a vote will be much higher, I assure you.

The echoes of that once-in-a-lifetime cricket game at Wanderers last Sunday are still ringing around the country. Not even the futures close-out event that has just finished nor the test match that has started beneath The Mountain have removed the silly grins from the faces of those of us who were lucky enough to be there. Corporate email servers are battling to filter out all the wonderfully tasteless jokes and cartoons, that are flying from desk to desk about the Protea victory over the Aussies under the guise of “important inter-office memos”.

About half the market believed that the All Share index would be spurred through the 20 000 level by the close-out. This did not happen and indeed the event was unremarkable for most people. The share prices should now settle down to reflect the balance of “real” buyers and sellers and early indications are that neither side has overwhelming superiority. And then we are heading into one of those unofficial extra long weekends which will be luring many players away from their workstations. The only screen they intend to use in the next few days will be the Factor 20 sun sort.

The news that the JSE has announced a probable listing date for itself on its own market has not soothed the tempers of those of us still waiting for that organisation to deliver February month-end statements and portfolios for some of our clients. The JSE enjoys a captive customer base and obliges all stockbrokers to use a central administration system run by themselves. The benefits of outlawing all competition are evident in the JSE’s income statement. Earnings are up 60%. Buy the share, hate the service.

You will have guessed the reason why the Tidemarks has come in early this week. I too am going to struggle with two shortened working weeks and I am off to a spot where the only electronic gizmo that works will be my GPS receiver. So at least I’ll know where I’ll be this weekend even if I never have many clues about where the markets are going. Keep an eye on all the sport for me please and watch for the frightening fall-out forecast by those French fellows for next week.

James Greener

16^th March 2006

WHITE KNUCKLE RIDE

If you didn’t understand “volatility” a few weeks ago, and if you have been watching the markets in recent days you have been on a steep learning curve. Wednesday’s low in the All Share index was almost 10% below the high achieved just 5 weeks earlier. The recovery since then has been patchy and to me at least, unconvincing. A popular whipping boy for this see-sawing is next week’s futures close out event. That’s the affair that takes place every three months on some mysteriously selected Thursday.  For a few hours around noon, normally relaxed traders tense up a bit and don’t stray too far from their screens. When it’s all over, they go off to the close-out party and try to obliterate all memories of the day. Cell phones ring unceasingly as back-office staff try, with increasing desperation, to contact them to confirm the deals that occur in huge numbers during those frantic 100 minutes. It’s all good clean fun with, theoretically, as much money won as lost.

One reason that my inherent bearish nature has regained the upper hand is the sharp up-tick in the US 10-year bond yields. For a nation that has as much debt as GW Bush’s subjects do, rising rates just have to be bad news and must inevitably curtail the number of Chinese-built toys and gadgets that they can buy. And an American consumer who isn’t consuming, is bad news for the world.

In lighter vein my favourite story of the week just has to be the decision by Transnet workers (?) to postpone their strike “to allow workers in Gauteng to show support for former Deputy President Zuma, who is appearing in court on rape charges.” Does that mean that, unlike when they are on strike, they will still be paid while dancing outside the court?

In the view of some trade union bodies, the serious problem with a shortage of electrical power in the country is because Eskom were distracted from their duties by having to think about how to privatise the company. Equally puzzling was a warning from the same parties to government that it would not be pleased if any meeting called to discuss the shortages failed “to break out of the existing construct of electricity generation, distribution, supply and cost.” I hope this was a misquote. Surely that’s exactly what the problem is?

I am not a great movie goer and am unlikely to see South Africa’s Oscar-winning film, Tsotsi. However, we have to congratulate everyone who was involved in this triumph while lamenting that it may reinforce the global perception that crime is our national competitive advantage.

Without dwelling on the many rugby and cricket matches that are taking place against the fellows from down-under this weekend, I can point out another area where we are undoubtedly ahead of much of the world. Thursday’s Business Day carried a startling colour picture of huge bloated white cow carcasses lying on a beach in Perth. The caption eased the shock somewhat by revealing that these were “art” pieces, rejoicing under the title: “B(l)eached Cows”. Not even this witty name can avoid the fact that our own herd of colourful charity-collecting cattle were much pleasanter to have around. Surely not even Aussies can sun-bathe next to a model of a long dead cow?

James Greener

10^th March 2006

DARKNESS & DOOM DESCENDING?

Even with the short trading week the JSE maintained its recent record of swooping and climbing, trying to scare investors to “run for the hills”. That very phrase was used as the headline for a piece of investment research on the emerging markets, produced by a London research firm. They rate South African “materials” shares as a serious underweight but are more relaxed about our “domestic” shares – placing them at 10% overweight. So the hills they are recommending are not that high then?

This prompted me to dig out one of my own valuation charts for the JSE Financial and Industrial index. For the first time since 2000, the pe ratio on this index has moved above 15 times. This is expensive territory and has been brought about by a combination of the run in the market and a gentle but notable slowdown in the rate of earnings growth in the companies comprising this index. Their earnings are up just 25% year on year, compared to the 35% pa growth rate we saw for the 12 month period ending in September 2005. Now 25% is still a fantastic growth rate but some colleagues are suggesting that companies are finding it increasingly difficult to maintain margins if not turnover. This very profitable consumer season must surely be attracting numbers of competitors into the businesses.

So what I am suggesting is that in fact our domestic sectors are pretty pricey and perhaps one should be picking out one or two higher hills and plot one’s heading for them. As for our rand hedge materials shares, I don’t share that “underweight” view. Last week there was an emerging market currency “scare”, which began with someone taking a dislike to the Icelandic krona. The contagion was muted but evident and the rand this week has lost at least 1% against all the majors; except against the US dollar – which of course has its own problems. Resources are a good hedge against the rand.

A French research house has leapt into the limelight with a precise date for the start of the US (and therefore world) market melt-down. In the week starting March 20^th the Iranians will apparently begin to price their oil in euros and the US will cease publication of their M3 money-supply statistic. Reaction to this last piece of news has varied from the phlegmatic “it isn’t very useful anyway” to the rabid “the Fed is too scared to show us how much money they are creating”. The French fellows are dismayed by these and other pieces of news and have put the chance of a collapse of the world as we know it, during that week, at 80%. No, I don’t know what that means either.

Whatever happens, South Africans will take no notice until at least the Wednesday because we have one of those Tuesday public holidays (Human Rights Day) that everyone (well at least me) adds to the weekend to take a decent long break.

We are starting that time of year when these four-day weeks come thick and fast.

Thick, but not fast are the words on most broker’s lips these days as the JSE has admitted to a major glitch in getting the February month-end statements and portfolios out to clients. They were due last Monday but we may get them by next week if we are lucky.

Isn’t it tempting fate and Eskom to have an ODI under floodlights at Newlands today?

James Greener

3^rd March 2006

TURKEYS VOTING FOR CHRISTMAS

It is the time of year when Friday mornings proceed to the background noise of 30 ill-tempered guys squabbling over a rugby ball on some Antipodean island.

There’s scant matching excitement from the market. There has been some attempt to continue with the amazing bounce that took place a week ago but the all share index shied away from bursting through the 20 000 level again. There were a few new smallish listings earlier in the week, of which Wearne (Readymix cement and aggregates looks the most promising). The only research I have done for this comment is from noticing how much building is taking place. Cement sales are stratospheric.

Car sales are too. Transport Minister Radebe revealed that there are almost 7m vehicles on our roads. Apparently, trucks and minibuses comprise just 4% each of this fleet. Why then is there always one of them in front of me or overtaking me on the inside? A quarter of the vehicles are “bakkies”. Probably carting all that cement and bricks.

Next week we are to have a midweek holiday to give us the opportunity to amble round to the polling station and vote in a local government. One poster that has blossomed on the lamp posts invites me to cast my vote for people who will “make local government work better”. This seems plausible until you realise that the fellows pursuing this line that are the very ones who have already been running the city for a decade. My vote would go to the team who promises that we would again see traffic cops (remember them?) enforcing trivial things like stop streets, red lights, turn-only lanes and one-way streets. Anyway, we all lose a work day in which to earn the money from where to pay the rates that keep these councils in the style to which they are getting quickly accustomed.

The local Business Day newspaper has launched an attack on the power of the internet to deliver investment information. Half a dozen pages of “Market Wrap” bombards the reader with more figures than anyone could ever use. The only thing I learned from it all was that the JSE’s own interest rate instrument market – Yield-X – is totally moribund. Not a single trade took place yesterday. Once upon a time I was an active player in the well established Bond Market of SA, (which ironically was began life in the early eighties in the JSE itself). I have watched many failed attempts to give the SA bond market what it didn’t want. Yield-X is just the latest. Bond people don’t like being told how or what to deal.

Back in “Market Wrap” however, I think that the section labelled The Forecast Factory” may prove popular with investors. For a selection of companies, it provides the average of forecast earnings supplied by a number of research teams around the country. The final column states whether the share is a buy, hold or sell. There are VERY few sells! I hope someone keeps a score card of success rate of this feature. I predict 50%.

According to the convenor of the selectors of the national cricket side, “the tour to Australia did not go according to plan”. Is that so? Now what is the plan for this evening’s Pro 20 circus down at Wanderers?

James Greener

24^th February 2006

GOING OVER BUDGET

So my potential net worth is about to take another plunge. Even more competition looms. The department of Home Affairs has published a list of the numbers and categories of professionals that the country quite desperately would like to see coming here from overseas to work. Now I am merely a geophysicist, but it’s not all that different from an astrophysicist, 200 of whom appear on that list. The report does not explain what these folk are expected to do but doubtless the nation will benefit from raising the level of discussions about  “dark matter”, “Hawking radiation”, “Big Bangs” and “Black Holes”. However, to get the rest of us up to speed will require many more than the 1000 maths and science teachers that also appear on the list.

Did you know that there are now so many BEE verification agencies that they have formed an industry body named, (naturally) The Association of BEE Verification Agencies (ABVA)? That there is no need to add the letters SA to the name is proof that this piece of foolish legislation is unique to our southern tip. There was no mention of the agenda for their inaugural meeting, but I suppose they covered the topic of just how to distinguish their clients from the rest of the population. I am filled with despair that we are treading down that path again.

Another industry body also with little history but possibly more money, is the Casino Association of SA who took out a full page colour ad the day after the Budget to remind us of how much they had contributed to the fiscus. A trifle ingenuous I’d say, as it’s their patrons who pay most of the tax isn’t it?

The alarming part of the Budget from the market’s point of view was “the shot fired across the bows’ of Sasol. The state will set up a team to see if there are any grounds for levying a “windfall” tax on the company which has benefited from the recent high fuel prices and an historic state subsidy. The precedent this sets for any other industry or company that similarly enjoyed a hand-up or even a tariff protection from the state anytime in the past is concerning. Iscor (now Mittal), Telkom and Eskom are first to mind but there must be many others who could be thought of as “owing something back.”

Sasol has lost about R20bn in market cap this week and Telkom is also pretty soggy. Most pension funds (including Minister Manuel’s own) will have suffered greatly from this weakness. It’s a pity that this matter could not have been more delicately handled. By the way, it is clear from the price action of Sasol in the days before the Budget that news of this idea had leaked. There was huge selling on Tuesday’s closing auction. Please will the Securities Regulations Panel have a close look at this one?

What on earth can one say about a ceremony where Minister van Schalkwyk called the press around to watch him screw in a light bulb? And here’s a good tip from Australia. Beware the chap who pays all his bills with shiny new coins. He could well be an employee of the Mint doing a bit of unauthorised product testing.

Several readers pointed out that SA now has 5 teams in the Super 14 not 4 as I suggested last week. They are of course correct but who ever remembers the Stormers – who are barely part of SA anyway. Come on The Cats.

James Greener

17^th February 2006