TURKEYS VOTING FOR CHRISTMAS

It is the time of year when Friday mornings proceed to the background noise of 30 ill-tempered guys squabbling over a rugby ball on some Antipodean island.

There’s scant matching excitement from the market. There has been some attempt to continue with the amazing bounce that took place a week ago but the all share index shied away from bursting through the 20 000 level again. There were a few new smallish listings earlier in the week, of which Wearne (Readymix cement and aggregates looks the most promising). The only research I have done for this comment is from noticing how much building is taking place. Cement sales are stratospheric.

Car sales are too. Transport Minister Radebe revealed that there are almost 7m vehicles on our roads. Apparently, trucks and minibuses comprise just 4% each of this fleet. Why then is there always one of them in front of me or overtaking me on the inside? A quarter of the vehicles are “bakkies”. Probably carting all that cement and bricks.

Next week we are to have a midweek holiday to give us the opportunity to amble round to the polling station and vote in a local government. One poster that has blossomed on the lamp posts invites me to cast my vote for people who will “make local government work better”. This seems plausible until you realise that the fellows pursuing this line that are the very ones who have already been running the city for a decade. My vote would go to the team who promises that we would again see traffic cops (remember them?) enforcing trivial things like stop streets, red lights, turn-only lanes and one-way streets. Anyway, we all lose a work day in which to earn the money from where to pay the rates that keep these councils in the style to which they are getting quickly accustomed.

The local Business Day newspaper has launched an attack on the power of the internet to deliver investment information. Half a dozen pages of “Market Wrap” bombards the reader with more figures than anyone could ever use. The only thing I learned from it all was that the JSE’s own interest rate instrument market – Yield-X – is totally moribund. Not a single trade took place yesterday. Once upon a time I was an active player in the well established Bond Market of SA, (which ironically was began life in the early eighties in the JSE itself). I have watched many failed attempts to give the SA bond market what it didn’t want. Yield-X is just the latest. Bond people don’t like being told how or what to deal.

Back in “Market Wrap” however, I think that the section labelled The Forecast Factory” may prove popular with investors. For a selection of companies, it provides the average of forecast earnings supplied by a number of research teams around the country. The final column states whether the share is a buy, hold or sell. There are VERY few sells! I hope someone keeps a score card of success rate of this feature. I predict 50%.

According to the convenor of the selectors of the national cricket side, “the tour to Australia did not go according to plan”. Is that so? Now what is the plan for this evening’s Pro 20 circus down at Wanderers?

James Greener

24^th February 2006

GOING OVER BUDGET

So my potential net worth is about to take another plunge. Even more competition looms. The department of Home Affairs has published a list of the numbers and categories of professionals that the country quite desperately would like to see coming here from overseas to work. Now I am merely a geophysicist, but it’s not all that different from an astrophysicist, 200 of whom appear on that list. The report does not explain what these folk are expected to do but doubtless the nation will benefit from raising the level of discussions about  “dark matter”, “Hawking radiation”, “Big Bangs” and “Black Holes”. However, to get the rest of us up to speed will require many more than the 1000 maths and science teachers that also appear on the list.

Did you know that there are now so many BEE verification agencies that they have formed an industry body named, (naturally) The Association of BEE Verification Agencies (ABVA)? That there is no need to add the letters SA to the name is proof that this piece of foolish legislation is unique to our southern tip. There was no mention of the agenda for their inaugural meeting, but I suppose they covered the topic of just how to distinguish their clients from the rest of the population. I am filled with despair that we are treading down that path again.

Another industry body also with little history but possibly more money, is the Casino Association of SA who took out a full page colour ad the day after the Budget to remind us of how much they had contributed to the fiscus. A trifle ingenuous I’d say, as it’s their patrons who pay most of the tax isn’t it?

The alarming part of the Budget from the market’s point of view was “the shot fired across the bows’ of Sasol. The state will set up a team to see if there are any grounds for levying a “windfall” tax on the company which has benefited from the recent high fuel prices and an historic state subsidy. The precedent this sets for any other industry or company that similarly enjoyed a hand-up or even a tariff protection from the state anytime in the past is concerning. Iscor (now Mittal), Telkom and Eskom are first to mind but there must be many others who could be thought of as “owing something back.”

Sasol has lost about R20bn in market cap this week and Telkom is also pretty soggy. Most pension funds (including Minister Manuel’s own) will have suffered greatly from this weakness. It’s a pity that this matter could not have been more delicately handled. By the way, it is clear from the price action of Sasol in the days before the Budget that news of this idea had leaked. There was huge selling on Tuesday’s closing auction. Please will the Securities Regulations Panel have a close look at this one?

What on earth can one say about a ceremony where Minister van Schalkwyk called the press around to watch him screw in a light bulb? And here’s a good tip from Australia. Beware the chap who pays all his bills with shiny new coins. He could well be an employee of the Mint doing a bit of unauthorised product testing.

Several readers pointed out that SA now has 5 teams in the Super 14 not 4 as I suggested last week. They are of course correct but who ever remembers the Stormers – who are barely part of SA anyway. Come on The Cats.

James Greener

17^th February 2006

THREATS TO ORAL HYGIENE

I hadn’t noticed the announcement, but apparently this has been national “foot in mouth” week. Governor Mboweni led the way with a suggestion for a business model involving zero margins. He is reported to be unhappy with banks lending money at interest rates higher than they borrow it at. His research reveals that the current spreads are just “convention” and have “no theoretical or clear market basis”. Widespread adoption of this business practice will have interesting implications, not least of which will be a massive but brief surge in South Africa’s competitive position as all costs and taxes vanish, immediately before those businesses vanish as well.

And then we had Deputy President Mlambo-Ngcuka offering the opinion that “Rand strength (was) above desirable levels". Recalling that she did not fund the R700 000 “drop in the bucket’ cost of her recent family holiday in Dubai from personal resources, her claim is perhaps understandable. Folk who do not buy their own travellers cheques miss out on learning what a strong currency is worth. The rand briefly popped above 6.20 to the USD but soon ignored the DP’s opinion and the currency is still one of the better performers this year so far.

More worrying were the official statements about large scale expropriation of land and the view that the “willing buyer willing seller” principle was no longer valid. The assertion that this will remove any uncertainties that farmers, banks or investors (have) about the agricultural sector seems optimistic if not totally foolish.

And in our own markets the telecoms sector shares displayed great volatility as stories about who was selling what and who was talking to whom whirled around. I suppose that getting the punters to call each other up and exchange gossip is a great way to increase the turnover in the business.

Overall market uncertainty and confusion was also widespread this week. We have enjoyed several days when the daily range of the all share index has exceeded 2.5% of the index level itself. Wednesday and Thursday both reported daily turnover of more than R10bn. The bull appears to have lost his way in the noise. Some uncertainty is being caused by folk trying to gauge what impact next week’s budget speech might have on the investment climate. My guess is that Minister Manuel will do his bit for the 6% growth target and we might all be allowed to keep more of our money to spend as we like. There will probably be a long list of projects on which he would like to spend the money that he doesn’t let us keep. I doubt exchange control will rate much more than a mention. I think the budget will be good for the market in that it should keep the consumer well supplied with cash.

I am trying hard to rekindle my interest in sport after the Protea’s ignominious departure from the triangular tournament. Rugby season is upon us. I am puzzled by the fact that when we spread our nation’s rugby talent amongst three teams we failed to make much impact, but now that same talent is to be spread across four teams in the new Super 14. Who is the winner from this inflation of the Super 12?  Is this question my own contribution to foot-in-mouth week?

James Greener

10^th February 2006

LASHINGS OF CONFIDENCE

Now that’s an alarming idea. It seems that a portion of the crowd that turned out at the airport to jeer the spectacularly unsuccessful national soccer team, requested the Football Association President to allow them the opportunity “to sjambok a few”. Wisely, he declined, but I trust this will not set a precedent with disgruntled investors asking Mr Loubser of the JSE if they might have a few minutes in a quiet place with their stock broker and a large stick. And after today’s dreadful performance by the Proteas in Australia they should perhaps be thinking about padding up before emerging into the arrivals hall when they return.

Income seekers may have noticed that Standard Bank will next week list a Retail Deposit Note on the JSE. This novel instrument offers cash investors the opportunity to obtain an interest rate which will be slightly higher than normally available for “retail” amounts of money. Initially the first three month period will likely offer slightly better than 7%pa. Because it is new, there are some unanswered questions about trading costs and liquidity when it begins to trade. I have therefore not felt ready to prepare a write-up about the instrument, but I do have, on email, the glossies and the prospectus sent out by Standard Bank for those who would like to see them. Applications to participate in the initial offering need to be in early next week.

This was one of those weeks when we were treated to a quarter hour TV show hosted by Governor Mboweni. If only his producer would realise that there is just one sentence that holds any interest for everyone excepting a few gung-ho junior wannabe economists. Just tell us the decision in the opening line please (no change in this case, again as expected) and the rest of us can get on with over-reacting to the news. A similar scene was enacted in Washington when Sir Alan raised US rates by yet another quarter percent. Immediately thereafter he sank a cold beer and a warm sausage roll at his farewell party and tottered out the door of the Fed with his cardboard box of personal effects to begin his retirement. The very next day the Old Lady of Threadneedle Street asked if he would mind coming round to her place as she wanted to ask him a few things. What a guy, to be in such demand at his age.

Connoisseurs of  market indicators will point to the fact that a local paper whose main headline is normally devoted to lurid and bloody crime reports, chose to tell its readers that the All Share index had broken through 20 000. This, they will tell you is akin to being given market tips in the lift by the cleaning staff. It is a sure sign, apparently, of the end of the bull market. The rest of us will have to wait and see. But think about this. If the market were to suffer as much as a 25% correction, the index would fall to around 15 000. This is still double its level it was at when the most recent leg of the bull market began in 2003 and still no lower than it was in June last year. Now that’s not comforting for new investors who have just entered the market, but for anyone who has steadily been compiling  a portfolio over the years it’s certainly not a train smash. So keep a bit of liquidity and let’s wait for that buying opportunity shall we? And that’s another sign of the end of the bull phase. This old bear is getting soft.

James Greener

3^rd February 2006

EXCHANGING BLOCKED RANDS FOR SUN BLOCK

“Exchange controls may be lifted” says the headline. I wonder who really cares anymore. Supposedly, without controls, cash will stream out of the country and the currency will crash. Somehow I doubt it. Whether there are restrictions or not, if the government does anything silly, the money finds a way to flee. And I wonder if there is currently very much appetite for overseas investment beyond what is already legally there. As long as we can dig stuff out of the ground to sell to people who are desperate for it, our rand will likely remain a sturdy little fellow.

But what about all the  “blocked rands” left behind by the emigrants over the years? Some estimates suggest that there could be as many as R20bn of them. I’m not so sure. While I have no wish to impugn the integrity and administration procedures of the banks, I have to say that not many people these days have any idea what a blocked rand is and what you can and can not do with it. I am pretty sure that one way or another plenty of these “blockies” have leaked away or been legitimately moved or used up with holidays to the Kruger and Plett. There are many aspects of exchange control that baffle the finest financial minds. Just try to get someone to provide exchange control approval for a Trust to buy an “Inward Listed Security” – like Itrix.

Less sturdy were the spirits of people trying to read and trade the share market this week (or the bit of it that has passed so far). Although most local financial data and results released this week have ranged from excellent to OK, share prices took their cue from overseas markets and swooped and soared like a peregrine falcon on drugs. It is possible that the all share index will set both the year’s high and the year’s low in the same week.

These unpredictable wild gyrations are one good reason why this letter does not commit itself to recommendations of what to buy and sell. Another is that once the page had been filled with dozens of lines of the required disclaimers, there would be no space left for anything else.

I would not, for example, be able to share with you the thoughts from a friend about the perks tax payable by a on a R750 000 benefit received by using an air force plane for a mid-eastern shopping trip. This looks like an excellent topic to cover when you compile your “Tips for Trevor” email. My own suggestions will run more along the lines of “please take me off your mailing list”. Nor would there be space to invite you to consider just why a dismissed vice-president would be termed a “key dignitary” at the opening of parliament. Dignity is not the word that comes to mind.

But now what comes to mind is a short break down at St. Lucia where, if the fish don’t bite, I’ll fly my kites. And see what I can do about SAB Miller’s complaint regarding low beer consumption because of a cool summer.

Keep good care of the markets for me please. Keep an especially close eye on the 10 year US bond. I think it will be the first harbinger of trouble.

James Greener

19^th January 2006.

INDICATIONS OF AN INTERMISSION?

In order to avoid watching any cricket on TV, I tried my hand at old-fashioned analysis this week and spent time sorting out the new family of indices that the JSE presented to us at the start of the year. I am delighted to see the back of those dreadful cyclical / non-cyclical labels. It used to get me thinking about the Argus bike race versus the Two Oceans marathon.

Are you aware that of the roughly 400 listed (more or less) ordinary shares, just 161 of them contribute to the All Share Index? This in turn is split into a Top 40 (containing 41 shares!), the Mid Cap (63 shares) and the Small Cap (57 shares). A different subdivision splits the 161 shares into nine Economic Groups and then again into about 45 sectors.  Many of these groups and sectors are rather silly. The Oil & Gas Group contains just Sasol. MTN and Telkom are the sole occupants of the Telecomms Group and then each of these shares is the only member of its own Sector (Mobile and Fixed Line). The Health Group is also thin and sickly, with just three shares, also further split between two Sectors. Don’t complain, we are now in line with international standards.

Some 115 shares that to make the cut for the All Share Index, are lumped into the cutely named Fledgling Index. However, the total market capitalisation of this whole batch is less than that of Barloworld. The JSE recognises the triviality of this Index by computing its value just once a day, after the close. The conclusion is that unless you are a derivatives trader interested in some of the special indices such as the Findi30 or the Indi25, pretty well the only indices worth watching regularly are the All Share or its slimmer twin, the Top 40 (which drives SATRIX), the Gold Mining index (for gold bugs) and perhaps the Banks index. Thereafter one should probably just follow the shares themselves. After all, that’s mostly what you can buy.

This has been one of the least volatile weeks in a long time. Although the All Share Index achieved a new high at mid-week, the daily ranges of this parameter have been smaller than we have become used to. Is this the eye of the hurricane? When the daily ranges surge up towards 200 points again, will the wind be blowing in the other direction? Should we be battening down the hatches?

Patient readers may recall the results of a straw poll taken amongst my colleagues several months ago. The question was simple. Will the rand / dollar exchange rate next break above 7 or below 6? Not one of us voted for the lower number. But this week we saw that exchange rate proudly wearing a 5 big figure. As usual, the advice was worth its price! It has been an interesting week in the forex markets, with both the Euro and the Swiss franc losing ground to the dollar, pound, yen and of course, the rand – that king of currencies. A front-page picture in Business Day made me wonder if the dollar had finally begun to experience the difficulties that many of us have so long been expecting. It showed a wad of US dollar notes all printed back to front. I presume that hoisting one’s flag upside down is still an international distress signal?

All the lads with houses along the Vaal have been considering distress signals as the flooding river rises higher. The rest of us a very pleased with all the rain, but it must stop by next weekend please when I go off on holiday.

James Greener

13^th January 2006

AND AWAY WE GO WITH 2006

Although the holidays are drawing to a close, it seems that most people’s interest in the markets is about equalled by their excitement about the forthcoming local government elections. That is – nil. The JSE welcomed us back with a whole new classification system for shares and indices.  This does not appear to have got off a great star. But I suppose that in time we will be used to seeing Anglo being lumped into the same sub-sector (general mining) as Kumba  and Scharrig Mining. And is it a sign of the times that the JSE has just three listed food retailers but five home improvement retailers, and a dozen apparel retailers?

The first headline of the 2006 in Biz Day declared that the “Rand (is) set to be king of currencies this year”. This is a fine illustration of the new year excitement that infects market wizards still under the influence of the sparkling grape juice. In fact the year started pretty well for the market with the all share index (if it is still called that) getting within a whisker of 18 500. But it was not such a happy new year for King Sigcau of the Xhosas, who died at the age of 79. This is doubtless a sad occasion for his family and subjects but it provided an opportunity for a politician to begin his own year with the foolish statement that “more needed to be done to improve the medical care of traditional leaders.” We all of us would be pleased if medical care improved for the everyone in the nation, but some of us are certain that this will never happen while the state is responsible for it.

I rather fear that the markets will also see more interference this year from people who think they can price and allocate resources much more effectively than can a willing buyer and a willing seller – not forgetting the eager broker. Two fine examples of poorly used funds came to light this week when a body that would appear to be failing in its task of running an HIV prevention campaign and the National Youth Commission (no, I don’t know what they do either) both seem to have run into money troubles. Unlike listed companies, they cant blame the newly implemented International Financial Standards for their mess.

Neither (yet) can Gautrain use that excuse, The project (pork barrel?) was reported this week to be “grinding on” with financial talks. One hot topic at these talks is expected  to be “private-sector contributions to the project”. I’ll bet. While there are legions of folks keen to show us how to build a railway set for just R20bn, the queue to provide the cash is much shorter. Taxpayers, whose representatives believe that we are unconcerned with trivialities like “return on capital”, are advised to hide their wallets as we are doubtless to be nominated the financiers of last resort.

I expect that it will all get a lot busier next week and I may even have to come in to the office a bit earlier so as to avoid some traffic. But that will be fine if it means that turnover picks up. It is difficult to see where anything is going if it doesn’t move much. This early in the year however, we are already getting exciting signals from gold and the rand. Both are strong with the numbers in the first case going up (to $550?) and in the second case going down (to below R6/$?). Lets hope that there will be no “sporting” declaration here.

James Greener

6^th January 2006.