DRIVING IN THE DARK

This all seems to be like the Kubus rotten milk scam. The US government – the largest debtor on earth – is trying to get permission from the politicos to lend money – which it will have to borrow or print – to citizens and organisations who are in trouble because they in turn lent money to citizens and organisations to spend on items which were not worth the prices paid. And delving even deeper into the mess one discovers that the meagre documentation that recorded those loans became the “foundation” for multi-storey castles in the air constructed by so-called financial engineers. The collapse of this folly is now happening rapidly.

I am intrigued that the US politicians are dithering about giving the go-ahead for this latest (but undoubtedly not last) “rescue” plan. Are they also not certain just who deserves to be bailed out? That is definitely a very difficult question. But I suggest that their inclination would be to let the money flow in those directions where it will have the greatest impact on the largest number of voters and also to places from where it will more easily find its way home to their own “fighting funds”. Undoubtedly an amount like USD700bn is spawning advisors and consultants at record speed. Many of these will of course be the people who have just had to leave their previous employer because they helped it to turn belly up.

The markets have been alternately soaring and crashing as each revelation about the status of these rescues and support packages reaches the news. Personally I am unimpressed and can not see how or why the hastening of the slide of the US currency and financial dominance can be bullish. The only real thing that is changing short term is that the massive US debts are being restructured. I was wondering if and when they will send Governor Bernanke down to Fort Knox with the key and a stout trolley? Maybe he already tried that a few weeks ago and that is what caused the gold price to crash.

Against this loud and insistent backdrop we of course have our own market-influencing drama unfolding. The departure of a president under unhappy circumstances is a very significant event especially when followed by a cascade of both principled and opportunistic other high level resignations. Unfortunately, in common with many other nations these days, there are not legions of top calibre replacement candidates waiting in the wings and I suppose that the inevitable “restructuring” that will follow, will detract from the sorely needed service delivery.

It was delightfully ironic that Heritage Day arrived in the middle of all this decidedly ill-tempered squabbling about who had been doing what in the past. Incontrovertibly, however, much time had been spent practicing dancing and hunting leopards. The range of natural fur garments on display was distressing. Personally I failed even to light a braai so my contribution to the holiday was deplorable. For my mother’s sake I suppose I ought to have gone and tossed a few cabers, but I feel nervous in a kilt.

I am so anxious about the prospect of Formula 1 racing in the dark that I am going fishing this weekend at a place that has no TV. What if the Singaporean version of Eskom has a load shedding event at the first corner! Eish. I shall also avoid the game that will take place at the Coca-Cola Stadium, wherever that is.

James Greener

26^th September 2008

THROWING LOTS AND LOTS OF MONEY AT THE PROBLEM

Forget the Lippizaners. Check out these central bankers on their huge white steeds. Charging to the rescue, the double edged swords of public money flashing in the sun, saddle bags stuffed with notes and hosing cash on to every little conflagration they can see. Markets just love lashings of liquidity and this lovely loot has brought the bull stampeding full speed into the arena and the vicious bear that was tearing everything to shreds earlier this week has vanished.

This has been a week to remember in the markets. Especially in the USA. The Lehman Brothers ran out of brotherly love and the Thundering Herd went over the cliff. The US taxpayer has become the owner of the insurance company that they expect will meet their claims for rebuilding Texas-by-the-sea; and simultaneously has became a sponsor for a not very good English soccer team. It has been smoke and mirrors of the highest calibre.

Have you noticed that the TV pictures seem to show only the largely blameless low level employees being spat from the revolving doors of their erstwhile employer’s office block? The chaps at the top of these now smelly heaps have firstly ensured that what remains in the treasury has been appropriately redirected to themselves and then purred from the basement garage in the limo. I am wondering at what stage the term “performance bonus” changed its meaning.

An ironic comment has been doing the rounds pointing out that the amount of money paid by bank A for bank B just a few months ago would today be more than enough to add banks C and D to the shopping basket and still have enough spare change to buy a major high street retailer. Even though this story is about the British situation, recall that some far eastern fellows not very long ago bought a chunk of a local bank for a price which is now nearly double the current level. This capitalism stuff is tricky, believe me.

For example why are the survivors sniffing around the corpses and offering large sums for certain organs and entrails that they think are still healthy. After all the principal assets of a functioning division of a bank are mainly the people – who we have already noted are shuffling down the street with their photo of the kids, favourite coffee mug and flash memory stick of models and client phone numbers in a kit bag – and the book of business, whose worth these days is very uncertain.

The financial landscape is undergoing enormous tectonic shifts. As usual the politicians and regulators are swarming all over the place promising to fix things so that it will never happen again. The sole certainty is that they will fail. Already emerging from the wreckage I am sure are ideas and plans to profit from the various rescue programs. Even in soon to be devalued dollars, the amounts of money being talked about are awe-inspiring. Everyone is going to want a piece of that action.

The economic landscape will not be unscathed by these developments and growth will be lower than any of us would like or need. Unfortunately political events can also have an influence in this area, and I think that particularly foreign investors are bewildered by the sight of the local ruling party waging civil war on itself. Ideally, provided they keep to themselves and limit their larceny to reasonable proportions the rest of the nation can ignore government and get on with their own lives. Sadly this is definitely not the case at the moment. 

Several readers complained last week that I had renamed the rugby trophy after a local spice. Will they also moan about the spelling of Umfolozi, which is where I am now going to look at rhinoceros and beer?

James Greener

19^th September 2008.

IS THAT A LIGHT OR JUST A BURNING TRUCK?

The last two months have seen an astonishing turnaround in sentiment towards the US dollar. It is now the season’s must-have fashion item for the best dressed portfolio. They must have dollars and lots of them. In just two months the greenback has regained all of the ground lost in the previous ten and is back to where it was a year ago. What are people doing with these dollars? They are not buying shares on Wall Street. The Dow has done very little since mid-year. The recent small declines in US yields do indicate that a bit of cash has gone into the bond market -- but this could not be considered to be a smart decision. As is the case here on the southern tip, the rate of inflation is larger that the yield, and after a while disappointment is bound to result. Property prices do not appear to have bottomed out in the US yet either so there’s probably also negligible money flowing that way.

My guess is that much of the money is being used to repair some extraordinarily unhealthy balance sheets, by repaying debt. And good old fashioned cash is the only thing that can be used to do that. Hence the demand for the currency of the world’s most indebted nation.

The US government showed the way last weekend when it generously stepped in and rescued the two hopelessly insolvent mortgage giants Fannie Mae and Freddie Mac. The debt there is so huge that they are unable to count it until the chaps from the Zimbabwe Central Bank arrive to show them what comes after 999 trillion. Also receiving scant publicity in that mess is the fact that it will take several generations of US taxpayers actually to foot that bill.

They and obviously many other people have been down in the cellar looking for stuff to sell to raise dollars and as a result commodity prices have taken a pasting these last few weeks as well. Emerging market shares have also been well offered and the Chinese and Indian stock markets especially, have experienced a very nasty case of bear infestation. The resources boards of the JSE have been savaged.

Maybe we are seeing the end of an age of exploration and adventure where investors (particularly in the US) forsook the solid boring domestic stuff and instead sent borrowed money off to seek its fortune in exotic climes. That money is now required back home. The mood has changed and perhaps we are in for a spell of domestic simplicity and evenings of hot chocolate and Scrabble by the fireside instead of personalised single malts and internet conversations with distant brokers eager to offload another bucket of toxic waste disguised as acronyms.

The good news about this possibility is that it would suggest that we are getting much closer to the time when securities and markets are declared dangerous and the talking heads demand that something should be done to protect the public. Major financial publications will declare the end of the share market and then you and I will know that it is time to buy!

Now does anyone know who is top of the Curry Cup log? There’s a tremendous fuss going on down here at the moment.

James Greener

12^th September 2008.

BIG OIL CHASES BEARS INTO THE MARKETS

There is less than 5% left beneath the All Share if it is not going to set a new low for he year. I think the probability that it will pierce that level is high because at last a few of the familiar relationships have appeared. Like the rand weakening. Like sellers popping up with shares that report disappointing earnings and like the dawning realisation that far too many dangerous socialists are squeezing into the wheel house and tugging at the ship’s wheel. The country is drifting leftwards deeper and deeper into the seas of intervention and control. Pretty soon it won’t just be the Olympic athletes who are being told when to wear what clothing. I may have to go and buy some shoes soon. The FSB are certain to have a view on a dress code for rural stockbrokers. I am disturbed by the mutterings that so far government programs have failed to deliver the required targets of transformation and so the polices need to be toughened up. Fellows, we have a severe shortage of skills in this place. No legislation will ever solve that problem. Only making the country safe and pleasant to live in will retain and grow those skills.

There is a well established precedent for retirees from the local financial regulatory scene to choose a life in Switzerland after they have accepted the gold Rolex and the card filled with illegible messages. A previous minister of finance was pleased to join his money in that Alpine haven just as soon as he could. However, given the Swiss people’s new-found eagerness to blab about some of their clients and also the sudden fragility of previously rock-solid banking names Governor Mboweni might do well to have a chat with Barend about the braai and potjiekos scene on Lac Lucerne before buying a large cowbell and some skis.

I look forward to the day when I will not have to express surprise that the US dollar has enjoyed yet another strong week. This time however, it does not look as if the foreign money was looking for shares on Wall Street. Maybe the cash inflows to the US are flowing to bargains in property and other deeply distressed segments of the economy. Americans themselves are preoccupied with coping with storms with names like Gustav, Ike and Sarah. The first two of these wild and windy phenomena have threatened to close down oil production platforms, while the other one is keen to punch holes for oil wells into every corner of America. Especially in places where there are polar bears. The prices of oil and gold (and probably other stuff) have been swooping and swooning on the slightest excuse and these alternate threats and bounties appear to feed through to investor sentiment in every area.  Interestingly the Japanese Yen is the strongest currency of the moment.

We are right in the heart of results season now and with only a few notable exceptions most businesses are revealing that it has become more difficult to grow profits than a year ago. One banking group has warned that their results yet to come will admit to lower earnings so confirming that not everyone in this industry has managed consistently to buy low and sell high or to lend to folk who can pay you back.

SA Breweries have announced that they will be launching a new brand of beer. To be called “Quart Behind Noscore” it will be the new sponsor for the Proteas.

James Greener

5^th September 2008

TICKETS FOR TAX PAYERS

I have just seen the suggestion that the JSE could close the year 20% higher than where it is now. Statistically this sort of rise in just four months is not impossible or unprecedented. I would be interested to know what proportion of this pundit’s personal portfolio is invested in the market today. Anything more than say 10% liquidity and I would suggest that he, like me, actually feels that this kind of move is economically unlikely. You may have noticed that some surprising companies have been blaming consumer spending cutbacks for slower earnings growth and even dividend cuts. Of course there have also been several delightful results and companies have showered their shareholders in money.

I watched the Olympics closing ceremony and stared open mouthed at the scruffy performance put on by London, the next host city. And that was just its mayor, who clearly had not coped with the time zone shift. Still wearing the suit he had slept in, he lurched onto the stage to collect the flag and wave it about in a dazed manner. Elsewhere in the stadium a straggle of equally scruffy alleged thespians did odd things with umbrellas and a badly made model red double-decker bus. An elderly musician survivor from swinging London managed to stay upright for long enough to strum a few chords and an American soccer player emerged from the roof of the bus to kick a ball. However, was it so bad that the pound deserved to be marked down severely this week? Or perhaps it is just the rest of the world noting that it will cost the UK a lot of pounds over the next four years to lift their game?

In contrast, various stories have surfaced about how demand for gold coins has exceeded the supply of even the largest producers and suppliers. That this alleged demand has not really yet shown up in the price of these shiny dense discs leaves me a tad suspicious about the reports, but it is fun for us gold bulls to hear this kind of thing.

What is not fun for tax-payers, however, is the size of the tab that we have been landed with to pay for lawyers to represent the leader of the ruling party at his forthcoming trial. Just why this bill should be handed to the nation has not been made clear and it is especially irritating to see this news today when provisional tax payments are due. It is also hard to reconcile this use of public money with Minister Manuel’s claim that “Tax collecting enables development.” Unless of course, he is referring to the development of those lucky lawyers’ lifestyles.

Another equally banal and foolish statement that “Economic growth (is the) antidote to poverty in Africa” is apparently the conclusion to a study carried out by the World Bank. You really have to wonder what many of these semi-official organisations are for when you encounter this presumably high-priced nonsense.

Thanks to the recent squabble about how to calculate inflation, when this week’s very bad (old style) numbers were published, folks were uncertain whether to whine or blow raspberries. Having just been told that the price of bathroom taps will go up tens of percent on Monday I belong to the whining school and must now dash off to the plumber to see if we can avoid using wooden bungs in the new house.

No matter how you try to do the maths of GDP per ball, or swimming pool per city or medals per mouth we are doing very badly at sport right now. I scored zero fish too. I declare the bar open.

James Greener

29^th August 2008

A QUADRILLION IS NOT AN EQUESTRIAN EVENT

It was another week when inflation as a topic captured far more headlines space than it deserves. First off some one announced that prices in Zimbabwe are going up by about 5% a day and a picture of a rubbish bin filled with bank notes in denominations of as much as Z$500 000 was doing the rounds. It makes one wonder just what it is that keeps alive the fragile trust that a citizen has in a piece of paper printed by a central bank. The only good news from that mess is that we have all learned what comes after a trillion. Then from Euroland came mutterings that inflation was starting to get way too high. And finally the National Treasury seems to have decided that they will soon be able to discard the CPIX statistic that was created especially for them several years ago with the sole reason of making an easier target to hit. As we all know their record in hitting that target has become as tattered as the baton-passing record of the relay team.  Presumably between themselves and Stats SA they have hatched a number that might be more obliging, even if it bears no relation to the spending experience of the consumer.

From what I can discover this is a very popular ploy used by governments world-wide. Any suggestion that this constitutes a hefty shift of the goal posts is met with cries of outraged disbelief that they would even think of such a thing. However, it will not be long before you will be able to spot carefully disguised statements pointing out why it would be inappropriate to link senior civil servant salaries to the new CPI.

About two dozen listed JSE companies reported this week and several others released trading statements. Most of those firms which are connected to the business of producing and shipping minerals and commodities delivered satisfyingly increased profits. The main disappointment to catch my eye was from Woolworths where a modest year on year fall in earnings was reported. In contrast, however, fellow retailer Massmart delivered rather good growth in profits.

Earlier this month the all share index was more than 20% below its May all-time high and some commentators felt that such a correction was about all one might expect from a bear market. Certainly since then, that index has experienced a 5% recovery but as is often the case with indices, this statistic conceals disparities as wide and as puzzling as the example of the two retailers quoted above. Despite the suggestion that the commodity boom is over, a careful sifting through the details indicates that financials are still underperforming resources. Patient readers will know where this is leading, which is my fear that the uncomprehendingly large debt levels in the US must inevitably continue to erode the US dollar and the financial edifice that rests on this now very shaky foundation. Not one person a year ago would have believed that we could now be at the point where gold plated banking names from places as solid as Switzerland were announcing write off amounts that grew almost every week. Not only does this suggest that they had been doing business with some very dodgy names but also it was terrifying to realise that their record keeping was so bad that they did not actually have the faintest idea of how much trouble they were in!

Maybe I should try that approach in my provisional tax return to SARS next week and say that my records are in such a mess (in fact, the dog ate them) that I’ll take a tax holiday, change my name and year end and start afresh in 2010 when I don’t feel that any of my tax will be used to subsidise someone else’s conversion to digital TV.

Plenty of sport this weekend with the ‘bokke assured of at least the bronze in the tri-nations. I am going fishing.

James Greener

22^nd August 2008.

PLAYING TO THE CROWD

 Contrary to popular belief I do consult charts from time to time but only to see the context of the current levels. I have little trust in my ability to project the darn things forward into the wild blue future. One of my favourites shows the daily history of six exchange-traded funds here on the JSE. In August so far it is impossible to discern any trend or signal emerging from what is nothing more than a tangled multicoloured bowl of spaghetti. No one sector or type of share is this month’s current winner or indeed clear loser. There must be some very sorry and also some very exciting tales being told by the fund managers who have been trying to spot and trade this market.

Students of my school of interest-rate prediction will have known the instant that Governor Mboweni tuned to face the microphones that he was not about to change the repo rate. Sure enough, after several minutes of soporific delivery of allegedly important but undoubtedly dubious economic numbers he announced what his cool blue tie had been screaming. In due course as his fear of being photographed deepens he will need only to hoist his tie on the Reserve Bank flagpole and the world will know the decision.

It has been another week when the most eye-catching financial news has been the strength of the US dollar. To bet against the greenback has been such a winning trade for so long that the severity and strength of the recovery must have destroyed many hopes and careers. The only cries of pain I have not yet heard are from American exporters who will surely soon begin to wail for protection? The thing that puzzles all us dollar bears is that there really so far has been not one scrap of news to suggest that the worst is over for that economy. But perhaps that in itself is the signal that the end is nigh.

Finally this country’s largest bank announced their half year results and managed to scrape together double-digit earnings growth and so overshadow the competition. Can this be the time to begin buying the financial shares again?

Look out for mielies and cows in Gauteng sporting short whip antennae. They will be customers for Gauteng’s proposed Geo-Referencing project for high Value Crops and Livestock. Why the country’s least agricultural province needs to use satellites to watch over its few farmers is not explained. Also never explained is why the state finds it necessary to relaunch, at regular intervals, its lamentably ineffective antipoverty campaign. Aside from the obvious attraction of lavish festivities at each event, will it never dawn on socialists that the costs and temptations of any program of sanctioned robbery and distribution has never worked?

I wonder if this coastal lifestyle thing is not starting to soften me up a bit. At half-time in the first tri-nations test I was so wound up that I went outside to breath deeply and watch the sea – and never returned to the TV after realising that whether I watched or not would not affect the result. Although tomorrow’s match is taking place at an hour when soothing chemical help is more palatable I am uncertain if I will switch over to at Newlands. After all I really can not miss a single round of women’s beach volleyball. And have you seen the ferocity of that handball business? Far more bruising than any front row battle. Who knew there were so many ways to work off a good lunch?

James Greener

15^th August 2008.