DARKEN OUR LIGHTNESS

Reportedly, Eskom is presently able to supply less than 80% of its peak capacity. Something big has definitely broken down. Not least of which are the lines of communication. The government has called the mess a “national emergency” and this morning, the big gold and platinum mines in the country shut down their operations. In the meantime, there is news of a private gas turbine generator being constructed that will supply an aluminium smelter yet to be built in Coega. The deal looks as if it will be loss-making for Eskom. We are in real trouble folks. The power situation is way deeper that the euphemistically named Brown Level 3 we are supposed to be in.

One useful way we could save power is to stop spending any time, newsprint or TV broadcasts on the supremely stupid statements issuing from clueless politicians. Their claims that the economy will be unaffected by these blackouts is utterly devoid of reality. These dolts presumably do not get trapped for hours in traffic jams, have tax-payer funded generators installed at work and home and can be certain that their salary will be paid regardless. Most have no experience of earning a living by providing goods or services to customers. They have not yet grasped that the slow down will show up in reduced VAT and income tax collections. And when they do, you can be sure that it will not be their own salary and bonus pool that gets trimmed! I fear that the infant government budget surplus could be turning into a strapping deficit again.

It looked as if it would never stop falling. The rain here in Joburg that is. The market in fact has staged a very robust reversal just when we bears were starting to preen. I do not believe that there is much stamina in this new bull, however. We may be watching no more than a deceased feline, bouncing. At its deepest, the 2007/8 trough has been not even half as deep as the one experienced in the emerging market crisis of 1998/9. I am anxiously awaiting the upcoming season of company reports. Even if results for the period ending December 2007 were respectable, which companies can be expecting good growth into 2008?

The frantic actions by the US authorities to try and reinvigorate their utterly exhausted and indebted consumers are unlikely to work. The patient is beyond recovery and no amount of life-support will avoid the inevitable. I have always been amazed and amused by the arrogance of the rating agencies who loftily declaim on the ability of a financial entity to meet its bills. Once again, they have failed to spot until too late that a number of bond insurance businesses have put up the “Gone Fishing” signs. The ramifications of this latest development have yet to be properly calculated. They will not be trivial.

Another place where the sums were not being done carefully was at a French bank where a single trader is reported to have lost $7bn. I think that it is unfair to describe him as a “rogue”. Deeply talented is more accurate. Even some of the snow-covered talking heads at Davos appear to be impressed by this achievement. None however, appeared to be either shareholders or clients of the stricken bank.

I was delighted to see the national soccer team put the ball in the back of the net (and not their own) during their first match at the Cup of Nations. That’s a good start. Do that again, please chaps. We are in dire need of something to show FIFA that we are worthy hosts of the world cup. Simply renaming the host cities so that the fans get confused and lost is not enough.

James Greener

25^th January 2008

BEARS CAN SEE IN THE DARK

It is time to resuscitate my theory that amongst the huge array of numbers that are available for us to use and analyse, the exchange rate of the currency is just about the most reliable and largely free from sustained manipulation. I think it pretty well tells the story of what is happening in the country, and it is presently telling a rather bleak story. This week it has lost more than 6% against the Japanese yen and it is down almost 3% against even the Australian dollar. Versus most major currencies is has lost somewhere between those two levels. This means simply that there have been considerably more sellers of rands than buyers.

An important cause of this exodus has likely been the warning from the country’s power supplier that it would be unwise for anyone to plan to build any new major project that required a supply of electricity to operate. Now that pretty well rules out everything from aluminium smelting plants, deep mines, metro systems and most factories to probably even floodlit sports events. Our economic growth over the next few years will therefore have to rely on small scale market-gardening and hand-written poetry. Even candle making requires power!

The only good news about this announcement is that it is probably true. Their previous attempts to blame the power shortages on damp coal and misplaced bolts were obviously nonsense. The worrying thing now, however, is that while undoubtedly the growth in electricity demand is pushing up against the inadequately planned supply, the extent of the present program of “load shedding” indicates that something far more serious has happened. Eskom have decided to not to tell us what that is. Even the politicians and bureaucrats have twigged on to this and no one is sure how worried they ought to be! Only the sellers and installers of emergency generating sets are having a good time. The rest of us have been kept in the dark.

Other sellers of the rand have been the foreign shareholders who have decided that the JSE is not immune to the very large bear that is savaging most of the world’s markets. The declines in share prices are substantial and if they continue at their present pace, January 2008 will be in contention for being one of the worst months for the JSE on record. So far, the All Share is down 8% this month. This fails to tell the whole story, however. Savage intraday swings of almost half this size, in each direction, have sent short term-speculators stumbling from their screens, fingers burnt and bleeding. I am sure that the bear is not finished with us yet. While there are pockets of seeming value staring to beckon here and there, I feel that it would be best to wait until the gloom is universal and the headlines proclaim the end of the JSE. Then we shall go shopping for the bargains.

In the meantime, we can occupy ourselves by arranging for our homes to be inspected by the FIFA Bed Police. These people will decide if the accommodation is up to the standard demanded by an English soccer hooligan. Apparently, anyone offering bed and board to visitors to the World Cup, who has not registered with and paid for an inspection and grading by these officially sanctioned busy-bodies will be guilty of some yet to be invented crime. Culpable hospitality?

Have a safe and pleasant weekend and may you not encounter an intersection in the clutches of a metro police officer directing the traffic during a power cut. You will find yourself wondering about the actual meaning of “load shedding.”

James Greener

18^th January 2008

THE BULL HAS LEFT THE BUILDING

Eskom unkindly unloaded our shed here in Illovo from their power supply network for four hours yesterday. These blackouts are not peaceful, however, as most office blocks now have a giant generator that fires up immediately the lights go out. Not everyone was pleased to have backups, however. During some of the more torrid bear market periods this week the idea was expressed that a total and long blackout of the JSE computers would be no bad thing. The share prices of some large companies – notably retailers with potentially toxic credit exposure – are more than 50% off their recent highs. The bear is undeniably in charge and it does not look like he is going away soon. Remarkably, the rand is not doing badly at all. On the other hand, sterling is getting trashed and a UK holiday this winter should be cheaper than last year.

News from the US economy continues to get worse and worse. Many respected commentators have declared that the country is already in recession. The flight to quality had driven US bond yields way down and it is likely that the Fed will drop their interest rates as well. This means that cash returns after inflation are negative and helps me understand why the gold price is chasing $900/oz. Oil too is not getting cheaper. The producers have realised that there is scant fall in demand even at these prices so why should they bother to reduce them.

Years ago, Mad Magazine carried a wonderful cartoon strip entitled Spy vs Spy. I think that sadly, its creator is now dead or else he would be able to see the strip come to life in the shenanigans now engulfing what is laughingly termed the government of this country. Only those people who have lots of time on their hands (i.e. politicians and civil servants) can possible follow the developments as they unfold. Trust, respect and integrity have vanished from the people who we had hoped would create and run a safe and prosperous country for all its citizens. And the horrifying thing is that we tax-payers are paying for these buffoons to play their games.

My dismay at this shameful shambles is almost eclipsed by my amazement at the foolishness being displayed at the conference of the world’s tax-collectors gathered in the shadow of The Mountain. In speech after speech to each other, they are bemoaning the fact that their “customers” are unwilling scheming low-lifes who will do anything to evade their grasp. They are in total denial of the reality that for every person in the world, tax is a hateful idea to which we reluctantly accede only because the state has terrible penalties for those who disobey them. Only their families would mourn if The Mountain were to topple over on their proceedings. Please don’t ever again invite them back to these shores. Any future such meetings should be held in a fly and snake-infested desert.

Some reports have complained that French president Sarkozy is spending more time with his new girl friend than he is running the country. The lady concerned is a super-model and time spent with her is undoubtedly much more fun than running a country. Our own putative president-in-waiting tied the knot with another wife last weekend but from the pictures I have seen, Mr Zuma’s swift return to work this week was not surprising.

It is wonderful that for once, there is a big cricketing squabble going on and we are not involved. My aversion to Aussie cricket renders my view suspect, but I do think that their victory dance behaviour is rather childish.

James Greener

11^th January 2008

DIGGING UP THE DIRT

At last we are getting some useful rain here in Joburg. It was terribly dry and hot over the holiday period and those of us who wandered in to work found it difficult to keep alert. The market did jump around a lot but generally, it was on very slim volumes and so some of the prices recorded were probably not all that reliable. Popular market lore has it that the market usually surges in January as people return from the beach refreshed and optimistic. Allegedly, fund managers also begin to plan to invest the forthcoming year’s cash flows. This is a warm and comforting legend that like most “common knowledge” is gloriously unsupported by any evidence

The New Year has so far not been without interest, however, as both the gold price and the oil price have tested record highs. These moves seem to owe less to a declining US dollar than to actual demand for the commodities in the face of uncertainty and scarcity. The oil price often responds short-term quite sharply to data releases about the size of the US fuel stockpile. That this should go up and down from one day to the next does not surprise me at all, but it does appear to cause outbreaks of panic amongst owners of Hummers and other thirsty cars. Actually, I was a bit startled myself this week when my trip to the diesel pump resulted in the card being hit for an amount of more than R500 for the first time. I am entirely the wrong shape for a bicycle.

The outbreak of violence in Kenya is deeply distressing. Some commentators suggest that it is unavoidable that SA will feel fallout from this implosion of a continental neighbour. That is probably true, but there is always a range of factors in play, each of which will cause different reactions in every market player and so it is hard to isolate and identify which price move is due to which event. So far, I don’t think that I can yet detect any sign of an African sell-off.

The market is currently not even 10% off the all time high it achieved three months ago. While this has been unpleasant for a few buyers, it does not yet constitute either a proper bear market or even a good buying opportunity. Please just be patient.

Those of you in need of a more cultural way to find market protection could take note of the woman in Mpumalanga who has been taking handfuls of soil from the grounds of her local police station. It seems that her son has suffered from regular arrests at this time of year and scattering the sample in her own yard will protect him from further attention by the cops. Compared to its previous premises in Diagonal Street, the garden space outside the JSE is very limited, but one might be able to find a scoop of sand to sprinkle on the share portfolio.

Eskom have announced that a “summer of load shedding” is a certainty once the country gets back to work. This is not good news. I wonder if a truck load of their lush indoor horticultural display at Megawatt Park might protect this office from darkness and blank computer screens. This particular feature of life on the southern tip somehow makes me more bearish than usual.

Traffic volume and company announcements will begin to grow in volume from next week. I am looking forward to only one of these. As ever it is fascinating to see what is going on in the economy and who is managing best to take advantage of opportunity. I think that businesses that have customers who don’t need debt to finance their purchases will have a happier new year than others. And cricket teams that can take 20 wickets in a test match will also enjoy more support.

James Greener

4^th January 2008

BEARING UP – OR IS THAT DOWN?

I think that one of the best medium-term investment decisions that I made this year was not to renew my season tickets to the Wanderers cricket ground. Not only are there distressingly few Proteas’ matches scheduled there but the team itself is tending to become uncomfortable to watch.

On the other hand, my long-standing view that the US markets will lead the way down for the rest of the world is proving much harder to claim as a success. There were several occasions when I was sure it was about to happen in a big way, but only single digit percentage “corrections” appeared in 2007 to tease the bears. I have not been surprised by the nature of the woes that so far have crept across the US financial scene. It never seemed to be a good idea to allow people to borrow money against the collateral of massively overpriced homes. Further, everyone seemed to acknowledge happily that the some of the borrowers had little ability and no desire to repay the loans. But the financial engineers, the propellers on their beanies whirring, laundered and packaged this toxic waste and swiftly sold it on, ultimately to naïve investors living next door to the insolvent borrowers. The whammy was doubled, redoubled and definitely vulnerable. I have been surprised by the lack of any large reaction by the markets to these revelations and now I am being surprised and appalled by the levels of deceit and dishonesty that seemingly pervaded the industry. I claim to have international standards in the skill of cynicism but events in 2007 have left me astonished. Bring me my machine gun.

It is the time of year when forests are sacrificed to the meaningless cause of providing space for analysts to list their predictions for 2008. 2007 will be the fifth consecutive year in which the All Share index has delivered a substantial positive total return. Lengthy and strong bull runs like this are rare, but that in no way suggests or ensures that 2008 will be a down year for the JSE. Valuations are near the top end of their historical ranges but then the infrastructural spending and development that is going on in the country is also at record levels. This might underpin the industrial sector activity and sentiment for a while longer.

Miraculously, the government’s National Credit Act seems to have arrived in the nick of time to reduce the possibility that SA suffered a debt debacle like the ones we see elsewhere. This removes at least one reason why 2008 could be a bad year for the financial sector.

There is no doubt that the world is consuming resources at a rate which is generally unmatched by the coming on-stream of new supplies and so prices of most commodities are rising. However, with many of these products priced in US dollars the rises that have been experienced also owe something to the weakness of that currency. To these two factors, add the movements of the rand and the world-wide corporate activity in this sector and you tend to get the feeling that resource share prices might go up rather than down in the next year.

Please note that no trees were harmed in the production and dissemination of these wild guesses – unless of course you printed it out yourself in which case your carbon footprint has gone up one size.

Whatever happens it will be a fascinating, infuriating and entertaining new year in the markets. For you and your family may it also be a healthy, safe and prosperous one.

James Greener

28^th December 2007

MERRY CHRISTMAS

I began this comment determined to try and sort out which of the various wild moves and reactions in the markets were due to the Zuma effect, the amazing bouncing dollar, the futures close out event, inflation worries, holiday indifference, or other mysterious yuletide forces. I soon realised that firstly, it would be an impossible task and secondly no one is really that interested. There have been numerous sightings of a bear in a Santa Claus suit, but he hasn’t yet appeared out in the open. It does, however, look as if December will not be the best month of the year for the JSE. Nevertheless, the year’s overall performance will still be much higher than inflation, showing once again, that it is important always to have a reasonable fraction of one’s investable assets at work in the share market.

But this is getting all too serious and businesslike. It is Christmas time, the offices are almost empty, the fridges are full and I hope your family (well, the ones you like anyway) is gathering around you. Please enjoy a very happy, safe and peaceful holiday.

James Greener

21^st December 2007

BLACKING OUT

This is suddenly starting to look and feel like a proper bear market. The All Share is off almost 2000 points in three days and has tested the November lows. Nothing especially scary has happened at home, so presumably sellers are taking their cue from the amazing developments offshore. US Federal Reserve Governor, Helicopter Ben Bernanke, has cranked up the chopper and is about to begin his promised flight over the country dropping money. He has also arranged to scramble several other members of Central Bank Squadron and even the Swiss have joined the European Central Bank, the Bank of England, and the Bank of Canada in showering their nations with cash at bargain prices. These unprecedented activities are a desperate attempt to unblock the credit squeeze that is slowing things up so badly. Investors are obviously not convinced that this will work and believe that company profits will plunge regardless and they would therefore rather not own any shares. It is all looking very messy.

Recall that the trigger for this crisis was the coming home to roost of  US chickens who unsurprisingly decided that they would prefer to spend their meagre earnings on food before servicing their complicated and newly expensive mortgages. Most of us believed that there was no similar problem of “sub-prime” lending happening down here on the southern tip. However, I was very alarmed to read this week that a local bank had securitised R2.4bn worth of “low-cost” housing loans. These were sold with boastful ease to a number of eager fund managers. The mystery is solved when you learn that these bundles of potential ‘toxic waste” come with a colourful certificate to hang in the foyer and a number of Brownie Points that can be added to the buyer’s financial sector charter obligation scorecard. All this state-allocation of resources is going to end in tears, I am sure.

Without commenting further on the quaint global practice of giving female names to machines that bore, it was fun to see the pictures of hard-hatted and reflecting-jacketed worthies peering into a large hole in Rosebank. They were there to bestow the name Imbokodo on Gautrain’s very own boring machine. Whether or not this is a woman’s name I am not sure and neither it seems does anyone else. There was, however, quite a lot about struggle heroines and striking rocks and I am sure that dear Imbokodo has a lot of both ahead of her.

It was also a struggle doing business in South Africa this week as Eskom decided to show off its inability to supply sufficient power by organising “load shedding” events across the country. Even the aluminium smelting plants in Richards Bay were not immune to being cut off and they are among Eskom’s favoured customers. I am still amazed at the official insistence that another big plant like these will definitely soon be announced for the Coega area. In the meantime, however, the chaps down there in the Eastern Cape have hedged themselves by signing up an American aquaculture outfit who they say will open a prawn farm. I doubt that the reported figure of more than 11 000 employees can be correct, but if so, we should soon all be dining on crustaceans rather than mielies.

Power problems at home this week were  exacerbated when cable thieves ripped several lengths of copper cabling from the distribution poles in the street and left us in candlelight. Fortunately, I was able to transfer the beer to a gas camping fridge so it was not a total catastrophe.

The week in the Kruger was very calm and relaxing. There were no once in a lifetime sightings but I did enjoy a pair of ground hornbills. The Jane Goodall chimpanzee refuge near Nelspruit is fantastic.

James Greener

14^th December 2007