FREEDOM FROM WORK?

One could get used to these four-day weeks. All we need to do now is to get the same amount of business to flow during the days that we do stumble into the office. And to ensure that the rest of the world refrains from making market-moving announcements when we are supping long cool ones next to the braai. Many of our public holidays seem to stimulate the waffle gene that lurks near the surface in most politicians. So it is wise therefore on these days to stay away from the TV. Should you make the mistake of switching on just to see if the US economy has cratered or the Chinese have decided to stop buying stuff, you are in danger of flapping jaws, wagging fingers and mangled grammar. However, the complimentary t-shirted rent-a-crowd in the audience provide some relief, because they will be dancing and singing.

So when we switched on the dealing screens this morning, the stories were waiting to slap us in the face. Governor Bernanke was hinting that he might do something to US interest rates – or perhaps he might not. And a panic had erupted over the idea that the Chinese have reached for the handbrake. Freedom Day had liberated the bears and the market obliged by shaving nearly 2% off the main indices. Most of the damage has been inflicted by the mining houses and platinums.

It is of course month-end and despite the current carnage we could still see the All Share index delivering a very acceptable 4% or so for April which would put the year to date (now one-third gone!) performance not very far short of 20%. Anyone complaining about that, probably also thinks that there will be two SA sides in the Super 14 semis.

Like many other businesses, this one is obliged to take the Post Office in as a partner in order to fulfil our service to our clients. Service and clients are two words that are rapidly disappearing from that organisation’s dictionary. Speed vanished long ago. So I am dubious about the crowd-pulling power of Minister Matsepe-Casaburri’s invited address to a conference in Switzerland where she will talk on “The Future of National Posts” I think the chocolates and gluhwein in the refectory will be a much better bet for the delegates. They should refrain from send post-cards home, however.

The ABSA preference share private-placing behaved as we suspected and failed to deliver any stagging profit for its many applicants, who appear now to be keen sellers in considerable quantities. This supply means that on the secondary market the share now offers the highest dividend yield of any of the big bank issues and is only slightly better rated than some of the second tier operators. In my view, it has two drawbacks. Firstly, it comes in R1000 nominal units (which makes for an unwieldy six-digit share price in cents). And secondly, it has a dividend calendar very similar to the others and so missed the opportunity to fill the demand for cash flow at other times.

In the wake of a number of appalling events that grievously and fatally harmed friends and neighbours in the last few days, our president’s threat that criminals “must know that they will not succeed to terrorise and intimidate the government and the nation by resorting to crime” rings hollow and offers me no comfort. We are in serious trouble.

So once again, I shall ask you please to keep safe this Worker’s Day weekend.

James Greener

28^th April 2006

IT SHOULD GO UP AND THEN IT WILL GO DOWN

What a wonderful week for illustrating the arrogance and futility of trying to predict economic variables. At the very moment that I was perusing an article where some poor sap had gone all bullish on the gold price, over on the screen, the darn stuff was plummeting like a falling piano. The only certain reason for this impressive decline by the yellow metal is that all the buyers had gone out to lunch just as all the sellers decided to take profits. The result was a pretty impressive swan dive, but us long-term (unrepentant?) gold bulls are grasping at the straws of today’s modest recovery. Let’s hope it not just one of those “dead-cat bounces”.

That’s the essence of it all, isn’t it? Using cute, smart and faintly ridiculous phrases, terms and jargon to describe the market’s behaviour, we disguise our fallibility. And this is necessitated by the cruel fact that human behaviour as distilled and concentrated into buyers and sellers, consumers and producers is inherently impossible to model. The present situation is always described as “particularly difficult” but we are sure that “once things settle down” then a trend will emerge.

Actually, I think that a trend has emerged. I think that the world is showing strong signs that its long admiration for and trust in things American, is waning. There is a rather useful so-called “dollar index” which is designed to track the strength of greenback versus a basket of other currencies. From a peak level in 2001, this index has been falling and today is 25% below that high point. Whether or not this weakness was triggered by the terrible events of 9/11 is for historians to argue about, but many contemporary commentators are now writing about the decline of the American Empire. The parallels with the Roman, Ottoman and British ones are instructive.

It’s all fascinating stuff and of course, I have few ideas about where one should be placing one’s money to benefit from this trend – I just wouldn’t want to own too many US dollars right now. But that makes the whole “rand hedge” idea quite difficult to fathom. Does anyone know which local companies earn in Yen or Rupees?

According to the newspaper this morning the SABC has decided to review this whole matter of actually earning money by selling a service – namely flighting advertisements — that currently provides 85% of their income. I am tickled by the notion that they wish to “wean (themselves) off revenue from adverts”. With their sole other sources of revenue being tax of one kind or another, their plans for a new “funding mix” will have most of us sitting firmly on our wallets.

Joburg ratepayers will also be alarmed by the call for tenders to “suppl(y) … package support for Corporate gifts…”. Now what on earth is going on here? Is the successful bidder going to provide sticky tape, shiny paper, satiny bows and stylish bags so the city worthies can adequately disguise the presents that they hand out to nonentities like passing politicians and dodgy diplomats? I must have missed the call for tenders to supply the gifts themselves. I wonder what they are. Mayoral busts? Framed illuminated scrolls listing the councillors? Hand drawn maps showing the locations of the last 100 power failures?

Please keep safe this weekend.

James Greener

21^st April 2006

ALOUETTE, GENTILLE ALOUETTE*

Among the numerous and unnecessary laws that are dreamt up by bureaucrats and politicians who don’t trust us to do anything on our own, is one labelled, magnificently, The Space Affairs Act. This week’s news is that in accordance with the Act, The Space Affairs Council is being appointed. However, it seems they will not concern themselves with serious matters like which child’s turn it is to have the space next to the window or whether your blue-horned helmet is obscuring the view of the man behind you at Loftus. Bafflingly, it will offer advice to the Minister on how the nation ought to handle matters out there, above the clouds. Indeed a long way above the clouds. It “includes meeting SA’s international commitments for the peaceful use of outer space.” For a nation that has yet to meet its domestic commitments for ensuring the peaceful use of air, land and water, these words seem rather grand.

A long time ago, I spent two years scratching through data collected by one of the world’s earliest artificial satellites. Built and operated by Canada, and launched by the USA, the satellite could not avoid passing overhead South Africa from time to time. While there, it diligently counted and measured and probed chunks of outer space above this southern tip. Then, with one expectant eye on the Nobel Physics Prize committee, I arranged the numbers in neat tables and graphs. Understandably, these caused not a flicker of interest in Stockholm. The good news I suppose was that all this happened well before 1993 when the Act was signed into law. Doubtless, today I would have to appear before the panel of pointy-eared, silver-garbed councillors with my ID and utility bill to collect the permits required before having an affair with the nation’s ionosphere.

ABSA are coming to the preference share market with a R3bn issue. The initial offering will not be available to the public, but this may not be a bad thing. If we have interpreted the listing document details correctly, the all-important “percentage of prime-rate” dividend level will be set by ABSA only after the issue is placed. Sounds a bit mean, but it will be nice to have all this extra liquidity in the secondary market at the end of the month.

From these irrelevant passages, you will have gathered that there is not much happening in the markets as we go into the four-day long-weekend. Those of us sad enough still to be at work are just killing time until Governor Mboweni lets us in the secret that he and the MPC have been hatching for two days. Incidentally, why does it take so long? Does anyone at the meeting change their mind in these two days of tea and biscuits around the long polished table on the 31^st floor?

So that’s it. No change to the repo rate, although the ante-penultimate sentence was pretty hawkish and had dealers scrambling for the “Sell” button. Equity market indices seem relieved and are trudging back upwards after a day when they dribbled lower.

Please take care this weekend.

James Greener

13^th April 2006

[* The satellite was named Alouette]

ICE AND FIRE AND TAXES AND TAXIS

There have been a number of crises in the markets and in due course each one is given a catchy name such as “emerging market crisis” or “Asian tiger crisis”. Apparently, we are in danger of sliding into something that may become known as the “Icelandic crisis”. Aside from allegedly being home to energetic geology, important drinking, breathtaking women and legendary fishing, some of us are surprised to learn that they have a currency and a stock market and that both are in difficulties. The island’s stories are moving from the Discovery Channel to CNBC.

South African cricket, on the other hand is in danger of appearing on the Cartoon Network.

Against the background of the news that the trades unions are unhappy with the idea of a luxury metro train service linking the airport to Joburg and Pretoria, came the headline that thousands of minibus taxis are about to be scrapped. No one has explained how the largest groups of commuters are expected to get to work. I am certainly not bullish at the prospect of having fleets of 18-seater busses flitting through the traffic.

The All Share index is piling on the points and is within striking distance of 21 000. I have no idea when this bull market will end. All my previous attempts to call it have ended up with my face covered in omelette.

Last year the government spent R407bn. This money came of course from you and me, either in the form of taxes, duties, imposts or loans. For the same period, the nation’s Gross Domestic Product was R1 523bn. Divide the first number by the second and you get 27% as the state’s share of GDP. That’s the highest it has been this century and in my view, way too much.

Good news of a kind can be found in the fact that for the fiscal year just ended, it looks as if government spending will be matched by its income. In other words, no deficit! So in theory they should not have any need to borrow money so then the price of money, i.e. interest rates, ought to go down rather than up. This is another reason why many of us are puzzled by the Reserve Bank’s stated intention to hike interest rates soon.

But as all we market players know, it is pretty well impossible consistently to predict accurately the future levels of any price or statistic. Who, for example, believed that the rand could go better than 6 to the USD in 2006? I forecast a rush by locals to the travel agents to book up overseas holidays at all-time low prices. The other side of that coin is that all those game lodges and resorts will be whistling for foreign tourists and there might be some bargains on offer. This means that the main concern this year would seem to be planning and taking holidays and staying away from the office as much as possible.

And that’s sort of why this week’s Tidemarks is a bit early. I am going away. Again. This time I shall be wearing a suit and another one of those silly grins as I attend my daughter’s graduation with an Honours degree. I forecast celebration.

That’s one call that should be correct.

James Greener

5^th April 2006

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