JUST HOT AIR – NO HURRICANE

The JSE did a good job. No glitches anywhere during their presentation of 34 slides explaining how prepared they were for the volumes associated with Futures Close-out. It was clear that if there were going to be problems (and there weren’t) they were ready to sidestep any blame in a slick and well prepared manner. Just one thing bothers me though. How come that even the slides showing the computer links with The London Stock Exchange carried the “Proudly South African” logo? Is the LSE, like the England cricket team also heavily infiltrated with ‘bokke?

While the market did peak just as the 100 minute close-out event began yesterday afternoon , that record was quickly  erased in today’s trading. Fueling the buyers is the gold price now confidently well north of $455 and the gold shares are doing the heavy lifting. Nevertheless industrial companies’ reports out this week continue largely to boast of solid earnings growth.

In defence of their limited and costly broadband access to the internet, Telkom’s Business Market and Government Executive (whatever that  may mean) claimed that the cost of PCs (currently at an all time low) and lack of compelling content (currently at several billion pages and growing faster than ever before) were also to blame for SA’s lack of connectivity. I wonder if this fellow has ever actually Googled anything.

While reeling from this piece of ill-considered waffling I noted the story that any company trying to obey every rule and regulation needs to keep up to 170 different types of records. Some of these must be archived indefinitely. From New York comes the news that The Federal Reserve has called in 14 of the world’s largest banks for a little chat about a backlog of paperwork in the $8.4tr market for credit derivatives. It seems that everyone is far too busy doing deals to bother with recording and confirming them. Is there a storm far worse than Katrina brewing in the wings?

Back home, our own Reserve Bank is planning a big refurbishment and is seeking “gender and disability sensitive” contractors able to supply it with office furniture.  Meanwhile the Governor, presumably making do with his insensitive old desk, offered the observation that the SARB would not allow second-round effects from the oil price to develop into an inflationary spiral. While this suggests that the next interest rate move (possibly in December) will not be down, it also makes one wonder how he believes business will absorb the transport price shock.

Another SARB initiative called Labour Market Frontiers was published this week. It reportedly offers the tentative research conclusion that the lower the level of education of the work-seeker the more likely they were to inquire directly at the workplace. Those who can read and write are more likely to respond to job advertisements. Presumably the research is a bit clearer on the issue of how brain surgeons look for work! It is high time we stopped wasting public money on this kind of rubbish. Even the BBC used their licence payer’s money to do a survey that shows South Africans to be amongst those nations that most trust politicians! Surely these are not the same politicians that have presided over a doubling of the number of people living below the poverty line in just six years? Not to worry. Just this week SA won the “African Country of the Future” award. Can anyone remember who won the previous one? That might give us an idea of how long the future will last

James Greener

16^th September 2005

WILL THE GULF CAUSE A CRACK?

Enormous amounts are being written and said about the likely economic consequences of the dreadful tragedy unfolding after the passage of hurricane Katrina across the Southern Sates of the USA. It seems that the human consequences alone are nowhere near yet understood or countable and so it is perhaps both heartless and premature to discuss the impact on our portfolios. The clean up cost will be astronomical, but the US is a very rich country. However, I am certain that things will develop quite differently than they would have without this very serious event. The world’s economy is inordinately dependant on the US consumer buying things that the rest of us supply in one way or another. Watch the debate about whether political pressure will make the Federal Reserve postpone their program of steady interest rate increases.

This idea helped the US dollar to weaken and the gold price sniffed at $450. This in turn caused the rand to get below 6.20 per USD at one stage, and I reopened the discussion in the dealing room about whether we would next see a big figure of 7 or 5 for this number. There were still no votes for 5.

The All Share index enjoyed another week of teasing the bears and got within a hair’s breadth of 16 000. Thursday sees the dreaded close-out event and the first concern is whether the JSE computer system will cope with the anticipated trading volume. It does not have a good record in this area. A meeting has been called where the JSE will promise to do their best and the dealers will threaten mayhem if they don’t. The next little hassle is whether is Joburg City Power will come to the party – and not with candles for the cake. Numerous power failures in recent days have not helped calm the nerves. In the worst case the trade would be to go short JSE (Pty) Ltd (unlisted, but quite tradable on the OTC market) and go long pharmaceutical and liquor companies.

This morning’s headline about “property prices (coming) off the boil” must have been written by a fellow bear. In the text it turns out that price growth has slowed to a mere 19.2% pa. In my book that’s still a tasty return.  And in the same paper I was amazed to learn that Joburg “council is very strict about the number of people it allows to live in a flat.” The article was silent on the council’s attitude toward the number of people that may ride in a taxi. Substantially more than may stay in a flat by my reckoning.

I am intrigued by the news that Governor Gono of Zimbabwe took the $50m owing to the IMF with him when he went to Washington recently. Images of briefcases stuffed with grubby banknotes in the best movie traditions come to mind. I wonder if he booked his luggage through or popped it into the overhead locker for the journey. Everyone must be very grateful that the plane suffered no incidents. It must have taken the chaps in Washington a while to count that sort of cash. Did Gono ask for a discount?

There’s tennis and cricket to get us through the weekend, which up here on the highveld is looking set to be more of those stunning spring days. But some rain would be nice. Any chance of Shane Warne retiring before the summer?

James Greener

9^th September 2005

EBONY AND IVORY

Now, who would have ever thought it? Some research outfit has discovered that “Black South Africans prefer paid jobs.” To have a job in a city beats the alternative of sitting on 100ha of rural land. Unless that land boasts a trout stream, sea view, golf course or interesting wild life I can only agree wholeheartedly with my fellow citizens.

Orlyfunt Holdings is reportedly a consortium that believes it would like to spend R1.4bn on a portfolio of assets currently held by JCI and Randgold. Aside from the delightful name there are several points to ponder in that particular statement. In the meantime it reminds us of the French plan to add a levy to airline tickets to fund aid for Africa. This thoughtful gesture to help their passengers in their charitable duty is worrying. It won’t be long before every business will be relieving customers of the tedium of remembering to make donations.

Back home, Minister van Schalkwyk showed a firm grasp of his Environmental Affairs and Tourism portfolio with the observation that climate change posed a major danger to the tourism industry. What he believes he can do to reverse these forces of nature was not explained. I suggest he taps “Katrina” and “New Orleans” into Google to see what bad weather can do for tourism. And then begin promoting the Karroo.

He and his cabinet colleagues also approved The National Freight Logistics Strategy which seeks “to ensure that the freight sector responds to the imperative of higher rates of economic growth”. To be fair I have not read this doubtless worthy document that was 18 months in the making. But I am deeply sceptical that any government can ever make lorries go faster or railways work. As I recall the last official word on this matter was to try and ban big trucks from the roads of Gauteng during rush hour.

Similar breathtaking insouciance was shown by the Western Cape Premier Rasool who claimed that unless business followed government prescriptions, the county’s growth target will not be met. I submit that just reading and filling out the forms he will want completed will knock several points off productivity and growth. No bureaucrat ever had a better way to do something than the guy who is trying to make a living from doing it.

One piece of state calumny that was good news, came from north of the Limpopo where the unexpected discovery of a stash of cash in Bob’s bottom drawer means that our own possible loan to him could be less than originally anticipated.

The JSE computers had a few bad hair days this week and trading was halted while the mechanics lathered up some fresh shampoo to get things going. Nevertheless we have seen a 600 point bull market that has taken us back to within 100 points of the all-time high set on the 16^th August. Aside from the all too simple explanation that there are more buyers (and judging by the rand’s strength, overseas ones) than sellers, I have been told that the forthcoming futures close out on Thursday 15^th will be a HUGE event. In preparation of that affair, traders are adjusting their Greeks, and this is at least one cause for recent volatility. No – I don’t understand either.

Nor do I understand how I can possibly support the Aussies when they meet the All Blacks in Auckland tomorrow. It will be a grim day.

James Greener

2^nd September 2005

THE SMELL OF WET DOG

So that’s another week that saw a 3% trading range in the All Share index. The low point almost wiped out all of this month’s gains. This kind of back and forth behaviour in a market always reminds me of a Golden Retriever shaking himself vigorously after climbing out of the water with a stick firmly clamped between his jaws. The water drops fly off in huge arcs and everyone nearby gets soaked. In my analogy the investors are the water drops desperately trying to cling on but getting dislodged by the shaking shaggy dog of a market. The folk getting soaked are the pundits and analysts trying to pick the winners. The dog feels nothing and waits for someone to toss the stick back into the water.

It seems to have been a bad week for personal freedoms – or a good week if you believe that authorities know what is best for everybody else.

Firstly, we had the Financial Services Board complaining that not everyone had collected their FAIS licence certificates. These lax businesses would therefore be unable to display them on their wall and so would be breaking the law. Just what we need  – bureaucrats as interior designers.

Then the JSE proudly announced a renaming of the Insider Trading Levy as the Investor Protection Levy. Despite a welcome reduction in the rate of this levy the fact remains that it is designed to take money from honest citizens to mitigate the losses of those who deal with dishonest ones.

The scariest event of the year is taking place in Addis Ababa where 100 participants are attending the Forum of Value Added Tax Administrators in Africa. Reports emerging from this Forum suggest that this rather Euro-centric tax needs to be “adapted to the social, economic and cultural norms, values and levels of development of African countries”. What this means, is unclear but it is doubtless bad news for the diligent and honest.

Also bad news is that parliamentarians share President Mbeki’s concern “that the best land close to the best facilities was always available to the rich”. Just how many of those “norms” listed above are challenged in this piece of foolishness is hard to say.

Several things happened this week to suggest that interest rates will indeed not go down again before going up. All the various inflation numbers are starting to tick up as the petrol price makes its presence felt. And the second quarter GDP growth rate was published as 4.8% pa. This rather impressive number is one of the highest seen in a long time and suggests that the economy doesn’t need any further stimulus from cheaper money. One has to wonder if the growing acceptance of this belief is not the reason why some heavy bouts of profit-taking have wracked the market twice this month. Of course we are now deep into the dividend season and some sellers are reluctant to jump until they have seen the shares go ex-div. Maybe the big thumps will be felt only in October once all these tasty special dividends have been pocketed.

Early tomorrow we will be urging the ‘bokke on to squash the House of Pain myth. After watching the day traders this week I am ready for all the violence it may need.

James Greener

26^th August 2005

* I have written a short article about this GDP growth number. Please email me if you would like a copy. It will be sent as a .pdf file that will need the Adobe reader program to open it.

BEAR ALERT LEVEL INCREASED FROM PINK TO ORANGE

A frisson of excitement roused us bears this week, as the All Share index swooned more than 3% between Tuesday morning and Thursday tea time. But the cheering and smugness came to an end pretty swiftly. At the time of writing it looks as if we will end this week better than where we started the last one. No one knows where all the selling came from but, if they are to be believed, the JSE statistics suggest that the foreign investors have, for the moment at least, stopped buying. Mind you, in the past 12 months they have spent net, almost R60bn in the equity market and around R10bn in the bond market. This is record-setting stuff.

I was pecking at the computer keys this week and came up with the market capitalization of the JSE at something like R2 630bn!  More pecking suggested that in the last 12 months the listed companies have reported earnings of about R180bn and paid dividends of R73bn. Long suffering readers will know that my ignorance and suspicion of accounting methods makes me wary of that first number and that I prefer to concentrate on the actual cash distribution figure. I am concerned that it converts to an average dividend yield of just 2.8% pa. This is rather low, especially given all the special dividends being dished out these days. I have to conclude therefore that the market is too pricey – but I have been doing that all the way up through this bull market. So best I shut up now.

This would be good advice also for the poor souls appearing on the TV screens around the dealing room this afternoon. In the absence of any Ashes cricket (where the big question is which side do we most want to see lose) and in the presence of a very quiet market, the sets are tuned to a station showing wannabe pop stars all of whom are definitely not tuned. Dire stuff.

The oil price continues to be the dominant number in forming most people’s view of the future. It has easily outstripped the price of that other commodity – gold – which also has been rising. The ratio of these two prices is a wonderful currency-free parameter that works wherever you are. Current value is almost 14oz of gold per 100 barrels of oil. This record high is about twice what it was at the beginning of last year and deserves a moment’s thought – especially if you are aware of how much effort goes into extracting the yellow metal from miles below the surface. It takes just a couple of months to drill a well into an oil reservoir and with luck the stuff flows to the surface under its own pressure at a rate of thousands of barrels per day. No wonder the rumours are spreading that the oil producing nations, now drowning in a sea of dollars, are seeking other currencies to convert their loot into.

This sort of news must be among the reasons for the US dollar being quite weak this month. And my other pet indicator, the US 10 year bond yield, is edging higher. The rigging is creaking louder and louder.

Loud is what we will all need to be tomorrow at noon when the ‘bokke take on the Wallabies in Perth. A good tech idea would be a two-way TV sound system that allowed all us experts to relay back to the ref our opinions of his decisions that we sometime can hear all too clearly. Which brings us back to those musically challenged tin-eared hopefuls.

James Greener

19^th August 2005

SHOUTING THE ODDS

The National Ports Authority is this morning calling for tenders to supply “fog signalling equipment” for East London. Several things come to mind. What is East London doing now to warn ships that they are closer than they think? Just how many suppliers of fog horns are there in SA? Is it a business worth getting into? Thanks to many years on the bond trading floor my voice is able to make its presence felt when the occasion arises. As an interim measure I don’t suppose the NPA would like me to stand at the end of the East London pier and yell? On sunny days I could fish.

The cold efficiency of screen dealing has no need for loud voices. The only time we shout these days is to encourage the blinking fluorescent numbers on the monitor to move in our desired direction. However, it doesn’t always seem to work. Just as my forecasts don’t always work. You will have noticed that Governor Mboweni ignored my advice and followed the “11 out of 12” economists who felt that there would be no change in interest rates.  Naturally this disappointing failure to reduce the price of money has been taken as good news by the bulls (in fact any news is good news to the current breed of bull) and market indices have continued their seemingly unstoppable journey northwards. This just makes us bears shout even more loudly at the screens.

A few months ago a potential client chose not to open a broking account when I told her that in the absence of our own investment research from Watermark, I could provide her with any opinion she desired. I am not sure whether she disapproved of the implication that I could tailor my own views to suit hers.  Actually, the point I was trying to make was that the Internet has now turned information into a commodity. Within minutes of an analyst pressing “SEND” to distribute his hard work to his selected client list, that same report disappears into cyberspace. I am sure that if I took the trouble to read all the research that appears in my inbox that I could find opposing opinions provided by respected rated analysts on any stock.

Investment and broking is only one of many businesses trying to learn to live with the new world of free distribution and transparent pricing. Watch how the entertainment “celebrities” are wrestling with the same problem.  Most of their product, for which they have been handsomely (over)paid for more than a century, is now instantly digitised and distributed to cries of “theft and piracy” Aside from giving the police an excuse  to keep away from more dangerous crimes while they hunt down DVD pirates, this process is inevitable. Eventually the price of the original material will fall until “piracy” becomes not worthwhile and all the links in the entertainment business chain will have to learn to live on less. One by one the professions will succumb to the internet until only plumbers and sportsmen will be able to command big bucks!

The internet allows one to sample numerous and diverse opinions on just about any investment topic. This fuels my existing scepticism that it is possible to forecast the future – particularly in areas of human endeavour, of which the stock market is a perfect example. This is not to deny that many analysts have deep and excellent understanding of the industries and companies that they cover. It is just to state that I don’t believe that equips them any better to forecast next year’s earnings, dividend or share price. Disappointing isn’t it?

James Greener

The Glorious Twelfth of August (unless you are a grouse)

RATES AND TAXES

Judging by how quiet the markets are today it seems that women around the country have been asked to celebrate their very own public holiday by loading the 4x4 with food, drink and children. I’m sure the roads out of town are filled with families off to make a long weekend of next Tuesday’s holiday. By tonight the air above the game and fishing lodges of the country will be thick with braai smoke and the local wildlife will be bolting at the sound of popping corks and snapping ring pulls.

It was just a month ago that two groups of aging performers from the world’s richer countries were squabbling over who had done the most to grant $50bn debt relief to the world’s poorer countries. At Gleneagles we had the head honchos of the G8 and from Hyde Park we had Sir Bob and another clutch of wailers. Just what mandate either group had to speak for the actual taxpayers whose money had been loaned to the dubious dust-bowl desperados and despots, was not explained. Are those citizens pleased to have the chance to write off any chance of getting at least something repaid? As I read it, folks in the UK and the USA are already in pretty dire straits on the debt front themselves. And now this week comes the report that the bureaucrats tasked with the actual job of tossing the loan ledgers into the bin are a little anxious about what this largesse will do for their own way of life. Writing off so much money will make a huge impact on their ability to carry on their business and they may just have to shut up shop. By the way, this figure of $50bn shows that our own $1bn arrangement with the other Bob is not a trivial amount. One Business Day correspondent converted this sum to about R150 per man, woman and child currently living in South Africa, many of whom would, I’m sure, be very grateful for such a handout.

This morning’s report of a speech by Governor Mboweni leaves me in no doubt that he will amble up the microphone next Thursday afternoon and proclaim a quite large drop in interest rates. Yesterday he expressed “confidence” that a growth rate of 6% was attainable. What else can he do to help this happen but tug on the only lever he has? And the Bank of England cut rates this week – which shows the way.

Normally lower interest rates and cheaper money are seen to be good for share prices. However, I find it hard to see how most of the listed companies could report even better earnings growth than they have been doing these past months. Almost every day we read of yet another large “special dividend” as companies dole out their extra cash. I have no idea what the economists mean when they waffle on about the “velocity of money” but I reckon it must been reaching the speed of light here in South Africa these days. And Einstein said that was as fast as anything could go.

I was disappointed to see the newspaper advertisement from the tax man assuring us that despite the threat of a staff strike, the “service” would be unaffected. I was quite prepared to ease their burden by cancelling my subscription to their mailing list.

I have received a message from a Kiwi friend suggesting that the All Blacks, having devoured the Lions, are now eager for a taste of Bambi.  I just hope that the ‘bokke have properly digested their double helpings of Wallaby.

James Greener

5^th August 2005