THE BULL SLIPS IN OIL

When you get down and have a close look, the All Share index pretty much went nowhere this week. This will have surprised and disappointed several people, especially Governor Mboweni who had gone to all the trouble of ordering extra biscuits and summoning the MPC a month early and getting them to support his plan to lop 100 basis points off the repo rate. While the prospect of cheaper money did very little for the share market, the currency actually strengthened quite a bit especially against the euro this week.

This too is not really supposed to be how the rand should respond to a rate cut. Those of us without years of training in economics and finance had been led to expect that investors would race to buy shares in those companies which sell items that are sufficiently costly that people need to borrow money to buy them, and now with cheaper money … Well you know how the story goes. Perhaps the inflation numbers which showed that food is rapidly becoming such an item is causing a rethink about cars and houses and flat screen TVs

And then over in the USA details of the shape of the next lifeboat full of money to be launched began to emerge. The plan is for taxpayers to lend cash to private businesses that would like to sift through the garbage in the basements of the many, obviously stupid, enterprises who failed to distinguish tasty assets from toxic assets. These new publicly funded geniuses have nothing to lose but someone else’s money and presumably will select from the dross only those IOUs that they hope might deliver. The rest they will leave in the dumpster. There’s a small but very interesting matter of deciding the price to be paid by the smart to the stupid for the allegedly toxic asset that now actually does have a buyer! Presumably the plan is then for the new owners to spruce the assets up a bit and then sell them on for a profit (who to you might wonder?) and repay the government loan. Cynics like me note that this does nothing to inoculate the truly toxic and if the plan fails, the number of troubled enterprises just grows larger.

Back home it seems that an outfit named the Gauteng Enterprise Propeller is in trouble. This has nothing to do with the uproar around the farewell present for the departing CEO of the state airline. As usual the details of the misuse of public money are murky but it does inevitably involve lavish travel and catering in overseas destinations instead of helping poor people propel themselves into enterprises. An equally mysterious organisation named the South African Fryer Oil Initiative are getting into a state about extra virgin (never did follow this one) olive oil which apparently isn’t even olive oil let alone any kind of virgin. So beware anyone straying from the traditional pap and wors fare.

Whoever has the awful task of listening to all these tapped telephone conversations must have had an especially bad week. Can you even imagine the hours and hours of argument about where or what Tibet was and whether or not this Dalai Lama chap was related to Dali Tambo. All South Africans must be deeply saddened by the diplomatic gaffe of refusing this man a visa and then embarrassed by the feeble and nonsense excuse for doing so.

While it is excellent news about the Indian cricket tournament coming here I wonder if much thought has been given to how dew-soaked the fields become at night at this time of year. That trick when the mower tows a thick rope around the outfield is very funny but not much good at drying the grass. Which takes me sadly to the Lions who I fear will not be lifting the Super 14 cup this year.

James Greener

27^th March 2009.

QUANTITATIVE EASING – STRETCHING BY NUMBERS?

Central bankers are busy fellows these days. Most of their energy however is going into combing through dictionaries looking for words that will disguise what they are up to. Their objective is to make money sufficiently plentiful and cheap to entice people to resume their earlier profligate ways and to borrow and to spend. As well as actually handing it over to anyone with a pulse and a suitably bad record of decision making, they are keenly pursuing a new plan of buying pretty much everything that anyone offers to them. This stunt has also been labelled “growing the balance sheet”. The phrase suggests to me that they hope to convince everyone including themselves that much of the rubbish that they are buying actually has a value and that someone, sometime will want it back. I don’t think so. In most cases the cash that they are doling out is freshly minted. Little wonder then that the US dollar has started to go softer again. The helicopters promised by Governor Bernanke are now airborne.

I am amused at the outrage expressed by the politicians who are watching what capitalists do with money they have begged from the government. They use it to keep themselves in the style to which they have become accustomed. After all, their own businesses had failed to do just that, so what else is one supposed to do with the bail-out booty? Socialists are shocked. This was not their plan. They failed to spot that with labour already in oversupply, there was no need for the bosses to allocate any of the state’s handout to the workers (aka voters)

There will be some satisfaction among the bureaucrats, however. They will be noting the worldwide stock market recoveries and congratulating themselves on turning the investors’ mood around. Here on the southern tip our own central bank has declared that the Monetary Policy Committee will meet soon and often and presumably they will wield a big chopper on interest rates. Some enthusiastic younger analysts are talking about local rates being halved by year end. The excitement has seen the All Share index soar effortlessly above 20 000. I am content to wait and watch for pullbacks to resume the nibbling that I have suggested before. I am certain that the bear is not through with our markets yet.

Also never far away are those who are pleased to aid government in any of its efforts to give away public money. Local Government Minister Baloyi is reported this week to be worried that charlatans are claiming benefits in the names of the deceased and issued the following request. "We really call upon citizens to confirm your alive status". Does this mean that 50 odd million of us need to troop off to a dingy office somewhere and breathe on a mirror? If the government can’t keep track of who is alive and who is dead, it just deepens my suspicion about the accuracy and usefulness of most other statistics compiled by them. This week, even the despicably efficient revenue service (what a misuse of the word) gave an encouraging hint that it too might be losing the plot. It emailed warning notices about taxes due without specifying the taxpayer to whom the notice referred.

Anglo American plc gave up on gold mining this week and was lucky enough to find someone eager to take their last shares in AngloGold Ashanti off them. AngloGold have reported a loss in 10 out of the last 13 quarters so despite the emotion of this separation it does seem like a smart idea. Maybe they will resume paying dividends again soon.

It is far too early to get optimistic about the cricket at Newlands and the only reason the Lions are not at the bottom of the Super 14 log is that they have played 2 fewer games than the Cheetahs. At least the sun is out again here in the kingdom.

James Greener

20^th March 2009.

BULL IN FULL FLOW

Incredible amounts of wealth have been destroyed by the decline in the prices of almost every asset as we descend into this deep and terrifying depression.  One exception has been government bonds where the so-called safe-haven status of a piece of paper issued by the same legislature that was responsible for overseeing the aforementioned crash is in great demand. Investors apparently feel that the guarantee of getting back their capital and a tiny bit of interest is meaningful. But I worry that the repayments will be made in currency that in most cases will be freshly printed.

This explains why people are eager to believe that the share market bull is back, fit and well. There is no doubt that the bear market has to end sometime but I am certain that now is not that time. It will take a while before the massaged and tardy official numbers confirm it, but most wage earners who are not employed by government are increasingly worried about keeping their jobs and paying their bills. Prudent people are certainly not interested in borrowing any money – even at near-zero rates – for flat screen TVs and overpriced cars. And it seems that the banks have at last learned that it is unwise to lend to imprudent people!

Governor Mboweni is off to London to attend a G20 meeting and his speech in Cape Town today was delivered by a flunky. It reportedly warned that “portfolio flows are fickle”. Presumably he suspects that foreigners invest in our markets in order only to make a profit. Just as soon as losses threaten they flee for the exits and callously take their money with them instead of steadfastly leaving their cash down here on the southern tip to turn into manure and trickle down among the grass roots. If he thinks that the ebb and flow of foreign money has something to do with his and his cronies stewardship of the economy he is right but he should not take it personally. Switzerland surprised a few folk this week and dropped interest rates. Money promptly left the shadow of the Alps (some may even have popped up here) and the Swiss franc swooned. It is down more than 4% against the euro. This must be a great worry for anyone with a secret horde in a numbered account. Lichtenstein also announced that in future they will be more hospitable to foreign tax collectors who call round for a chat. Times are getting tough for anyone who believes their money needs privacy.

Privacy is certainly already lacking for Mr Madoff, who the authorities speedily put behind bars for stealing $65billion. In the rush however, there was no opportunity for the judges to ask him where he stashed the cash he nicked. Is there any truth behind the rumour that Bernie’s people have been seen talking to Shabir’s people about how to arrange a suitably impressive sick note? Just a couple of years in the prison hospital and Bernie will be off to join his loot.

The news that SA is responsible for 40% of the carbon dioxide emissions in Africa is not surprising. Recall that the gas is exhaled unceasingly by every one of us. But the country groans under the weight of an excessive number of politicians who never stop talking in order actually to do something. And now it is election season. May I suggest to those attending the conference on Carbon Capture in Joburg this week that it is not this non-poisonous gas that needs to be controlled.

The only cricket to concern us this weekend is the equally embarrassing squabble that has broken out between the selectors and the managers.

James Greener

13^th March 2009.

THE BEAR IS STILL MARCHING

Judging from the way that the turnover on the JSE has soared every time the All Share index has tried to break below the 18 000 level, it seems that folk believe that this number is somewhere near the worst the bear can do. I will be surprised if this is the case. I believe that sellers will outnumber buyers for still some time yet. I think there is widespread denial and misunderstanding of just how severe the economic situation in the USA has become and that it may get even worse. Next I think that there is also an unrealistic hope that there are other countries and people able to pick up the slack and create demand to replace the faltering US consumer. And then finally I regret that the campaigning for next month’s general election back here is providing too many opportunities for our alleged and hopeful leaders to expose their shortcomings to the world and scare off investors.

One splendid example of this emerged this week when a candidate reportedly stated that “… businesses should be urged to hire (staff)” I trust that someone has now taken her aside to explain that in the real world one hires a staff member only if the extra revenue that could be generated by the new pair of hands will leave a profit after all the costs of that new person are accounted for. Only in government is headcount a growth target. Next up we were treated to a lecture about carbon footprints and climate change by a man whose science training may be limited to virus control by showering. And then there was the cabinet minister who implied that her department regards her either as too untrustworthy or too dim to reveal the workings of the new passport to her.

In almost every category except crime and tax collection (more or less identical endeavours) South Africa is moving down the world ranking tables. Even our shot at getting to number 1 in test cricket is not going very well. And we are pretty hazy when it comes to diagnosing health conditions for parole.

Actually we must be very near the best in the world when it comes to bank stability and solvency. All the big boys have now announced and there were no really bad surprises (like losing a few billion dollars between now and when they last tried to buy a corporate jet). Overseas, some bright spark has come up with an idea to subject applicants for public handouts to “stress testing”. My view is that this will be a pointless exercise as in effect the market does that automatically and all the time. Don’t give anyone one any public money and the survivors will be the ones that pass the test! Those that fail at least will do so without taking the taxpayers money into the black hole along with themselves.

At the airport last night I noticed that the screen that displays the day countdown to kick-off in the soccer world cup was blank. There are several possible explanations for this but it is ominous that the cabinet found time to discuss the problem that so far very few locals appear to have bothered to apply for tickets for many of the matches. In our inimitable way we are all doubtless expecting that in order to avoid embarrassment of empty stadiums, the organisers will on the day call rent-a-mob, who for the price of a tee-shirt, cap and a Coke  (sorry, Pepsi) will ship in people to cheer for Croatia or wherever. The mobs will be in great need of employment by then because their present deployment in disrupting university classes, trashing meeting venues and threatening opposition voters will have come to an end.

These early morning games from the other side of the world have good and bad sides. Surfers miss the early waves but the pubs open for breakfast. The Lions had better take advantage of their bye weekend. Practice is needed!

James Greener

6^th March 2009.

CRASH AND BURN

Next year’s best male actor Oscar winner is a dead cert. That nice President Barack Obama will take it going away. The calm and confident manner in which he delivers his lines makes one think that he really believes every word of the script that is scrolling up on those neat screens set up to port and starboard of his podium. His audience are with him every step of the way and completely forget that he is simply playing a part. The part of saving America and the world from the excesses that resulted from cheap money and overpriced assets. They are also not yet aware that despite getting in for free they will have to buy tickets to get out and the prices are soaring with every sentence that Obama utters. They will probably have to call the kids sitting outside in the car park to go home and fetch their piggy banks and to ask grandpa to stop taking all those expensive medicines. Two trillion is a lot of anything. Especially a deficit. Even US dollars.

The standard and obvious question for every share market investor is whether the market bottom has yet been reached. My view is that it has not. Amongst the events that I think we will see before we can look for the tunnel let alone the light is acknowledgment that the idea of governments throwing freshly printed and newly borrowed money at the credit crunch is a poor one.  There is simply no point in trying to rescue companies and industries whose business models and management led them into failure. And the greater insult is that the very regulators and legislators who claimed to be in charge while this slide into disaster took place, are the ones who are now going to supervise the rescue operations.   I am not in the least impressed by their pleas that just a few a few more buckets of someone else’s cash will change everything.

Even in the industries with the worst problems, there are thriving and surviving enterprises and citizens who are battling away beneath the radar screens making things that people need and want.  Just look at the crop of company results this week. Some doubled earnings compared to last year while others lost both money and the plot. Within moments of the  collapse of even those businesses that are considered to be too big or too important to fail, survivors will be scrambling through the wreckage risking their own money to snap up worthwhile assets at sensible prices. It is undoubtedly sad and in some cases desperate that some parts of the failed business will find no buyers. For example it may be a while before there is any significant demand for Hummer assembly lines (tough one for SA that) or for teams of traders in financial derivatives. And if indeed the failed company had nothing or no one that a competitor thinks is worth buying or hiring then why should the public own it?

This question is especially painful today, which is the last day to make provisional tax payments. Has no one at SARS yet noted the delightfully apt yet dodgy name they have come up with for their virtual tax man? (s) arse filing? I ask you.

A week or so ago some official in Zimbabwe was reported to have denied any plans for the “randification” of their alleged economy and suggested that it may be necessary to float the Zim dollar. I would suggest that this poor currency is long past floating and has sunk without trace. At the Tongaat Hulett investor presentation this week it was said that the move to allow companies operating in that country to use foreign exchange freely was a very encouraging step and may well signify the turning point for that beleaguered land.

At least Ellis Park might be 10 degrees cooler than Kings Park. Lions are not good in the heat. Shame.

James Greener

27^th February 2009.

PUTTING IT IN WRITING

This bear market is getting fiercer. Some indices are now back to levels last seen about 4 years ago and one is quite tempted to do a little buying here and there. But don’t expect immediate gratification. It may well take a year or two before you will be able to congratulate yourself on your clever buying. The conundrum is that most companies who announced results or issued trading statements this week were modestly and occasionally very positive. Retailers enjoyed a pretty good Christmas season and not even the banks have yet unveiled any really frightening stuff.  Bears will of course point out that our recession is starting to hit only now and so we need to wait six months or so before the skeletons tumble out of the cupboards.

 This morning, however, the news that Anglo American will miss its dividend is a big shocker. I wonder to what extent this result is a consequence of that organisation losing many experienced people and also trying to comply with unrealistic government diktats. The company is now in only 4^th place in the JSE market capitalisation rankings. Is it melodramatic or premature to wonder if we are seeing the end of an era?

We may get an indication of how badly everyone is hurting when the results of the Soccer World Cup local ticket sales begin to filter through. The cheapest ticket at the earlier matches will be priced at R70, but there are also many which will be dished out for free. The black market prices of those will be a very good indicator of both local interest in the event and the state of economic hardship in the country. I was intrigued to see that unless one has both an internet connection and a credit card, the only other way to lodge an application for tickets was to slap down a pile of the folding stuff at the branch of a local bank that very kindly will open a credit card account for you with the money. Have they found a way around all this time-consuming FICA and Credit Act stuff? In that vein I was amazed to be told by Telkom to hand a certified copy of my ID to the technician when he came to the house to fix a fault. No one was able to explain why this was necessary or useful. But to go back to that ticket thing. FIFA are reportedly using an exchange rate of 7 rand to the dollar for their sums. They may be in for a disappointment when the games are over and they pop in at the bureau de change at the airport on their way home.

Just weeks after they raced off home to Detroit clutching cash from Washington, General Motors are bleating that they will soon need some more. They will probably be in luck. President Obama, who appears to have spent much of the early days of his reign signing things, does not send an upturned hand away empty. He has not yet heard a hard luck story he does not believe and he glides off to the polished table to sign a clutch of cheques in front of an adoring team. Why do they applaud when he finishes? Perhaps it is the thrill of seeing a president who can write. But the result of having to print all this money to cover the bills is eroding the value of the greenback. One of them will now buy only 1/1000^th of an ounce of a shiny metal called gold.

It is unsurprising that the UK have decided to impose visitors’ visas on South Africans. No doubt their attitude has been influenced by the national airline’s drug transporting business which no one allegedly in control seems to have any desire to investigate or stop. Despite all these lucrative schemes how come the top party officials always seem to have money problems? And why on earth do we accept them setting out economic policies for us?

The Lions are in Durban this weekend. I may have to keep my celebrations rather low key and private. But I do now have an ND registration plate on the Sani.

James Greener

20^th February 2009.

BUDGETTING FOR A BAIL_OUT

  I hope it is just a printing error on the front page picture and not his new wife’s cooking that appears to have turned Minister Manuel’s skin a bright yellow colour. I am also alarmed by the way he has his hands in the air in a gesture of surrender. Has he given up the battle? Certainly it looks as if he has with his proposal to spend R105bn more than last year. By increasing the plastic bag levy and taxing allegedly inefficient electric light bulbs he hopes to raise some of the cash needed for all this extra expenditure. However, he conceded that that the state will still need to borrow the record amount of R95bn to balance the books. That’s a lot of money. It is going to be very interesting to see what happens when Governor Mboweni’s determination to reduce interest rates comes up against the need to borrow all this cash. The yield curve is already undergoing some big shifts.

But this terrifyingly large local borrowing requirement is nothing when compared to the new unit of currency that is now being used quite widely overseas. This unit is the Bail-Out and it solves the puzzle of what Zimbabwe’s Central Bank Governor Gono  did with the dozen or so zeros that he lopped off his dollars the other day. He exported them! They have pitched up in the northern hemisphere where President Obama was only too pleased to use them to stick on the end of his brand of dollars to create these Bail-Outs. Our measly deficit of less than 10billion USD would not even earn a thank you note from the CEO of any self respecting failed bank or motor company.

From what I understand the difference between a recession and a depression is spelling, depth and term. The latter is deeper and longer than the former. It is the word that is becoming more common in the commentary about developments in the US and now even in some parts of Europe. Undoubtedly this economic situation is different from any that we have experienced before with the sole exception that like other slow-downs, it will end at some point. This is the factor that causes my view that occasional small forays into the share market to buy fundamentally sound but perhaps currently bombed out companies is a realistic strategy. Do, however, remember my other suggestion which is not even to open the share prices pages for a month following each foray.

Tidemarks is early this week not because I knew that you required another ten thousand word analysis of Trevor’s talk. I am going to wrest myself away from this sea view for a few days to go and sample the mountain parts of the kingdom. I may even attempt to rig a rod and cast a fly. I shall certainly wrestle the top off a bottle. I do hope that I shall not interact with any of these so-called VIP convoys on the roads. The only reason that any politician, bureaucrat or state layabout needs to get somewhere else is to make a speech, sleep in a meeting and have a free meal. There is nothing life or death about their presence. None of these events need anything more than decent diary diligence to ensure that the allegedly very important person arrives no later than 4 hours after the scheduled time, otherwise known as “on time”. Gun-wielding bodyguards prepared to shoot mere citizens out of the path of these convoys are unnecessary and poor form. And poor form is not what the Lions need this weekend.

James Greener

12^th February 2009.