HOT BEAR

I am very fortunate to have spent the last 10 days in and around the Kruger Park. We enjoyed many spectacular sightings of wildlife. A rhino calf and an elephant calf suckling, ground hornbills on a nest, quarrelling hippos and a yellow bill kite attacking a martial eagle are among the more interesting.  Some of the game appeared to be bipedal and with opposable thumbs but their behaviour was not described in any of the books that I had. What I did not spot were any newspapers, internet connections or TV broadcasts and so it was only this morning I began to get in touch with the markets.

The first poster I noticed suggested that the good governor had rewarded us with a Christmas present. For a moment, I was amazed to think he might have cut interest rates, but then it turned out to be just the opposite. Some headline writer’s idea of a joke I suppose. Only savers are likely to regard this move as a present. Some of the variable-rate-dividend preference shares will now be paying a R10 annual dividend. Interest payers are clearly going to much less delighted at the prospect of their debt repayments be going up. Regardless of what the money supply growth numbers say, or the news that retailers have failed to get in enough stock to cope with Christmas demand, there are certain to be many tales of hardship resulting from this increase.

It is reported that even after the governor had doled out this rather dubious “present” he then lectured the banks about their behaviour. It seems that he does not approve of them lending money quite as readily as they have been doing. This waving of the big stick was not a surprise to bank shareholders who have been marking prices down in the last few weeks. The banks index is comparatively weak.

The All Share this week all but set a new high somewhere well above the 24 000 level, but the rate hike has temporarily (?) cooled things off a tad. Cool, however, was a word not much used in the lowvelt at the moment. One fellow tourist sprawled in front of the air conditioner in the bar assured me that he had recorded 45 Celsius on the car thermometer while driving through the park. My own observation was less scientific and relates to the fact that the swimming pool water was warmer than the shower. It’s a tough life here on the southern tip, but someone has to do it. Supporters of the global warming theory gained converts this week, that’s for sure.

Similarly, I suppose that us bears on the US dollar are growing in number as well. That dollar looks like one very vulnerable currency. It has already gone off a cliff versus the euro, even if so far, only a small one. The US 10 year bond yield is also dropping fast. Keep a very careful watch on these developments folks.

There was the usual large number of emails awaiting my return after a few days out of the office. However before attending to them I first need to catch up with the amazing wave of all the new listings that have appeared since I last updated my models and spreadsheets. Some of the newcomers are tiny. There are companies higher up the boards whose annual loss is greater than the total market cap of some of these babies. I do hope none of us have too many of the ones that inevitably will not survive.

Keep Cool

James Greener

8^th December 2006

FULL LENGTH CARPING

Have you noticed the rise in the number of helicopters clattering through the skies above Joburg these days? I am sure it is related to the growth in the size and immobility of the traffic jams that are forming around the holes in the road that we are assured will one day contain the Gautrain underground system. Those of us unable to find shareholders or taxpayers to chip in for a chopper are obliged to sit and steam in the stationary streets. Some public transport providers have adopted a No Rules format to help them overcome the crush but their dangerous and inconsiderate driving is intolerable and accidents are frequent. Sadly, it was not this violence that Transport Minister Radebe was referring to when he threatened “the full might of the law... should violence erupt (in the taxi industry)”. Rather, he is worried about the reaction of the taxi drivers who are deeply unhappy with the government plan to change the standard brand-name minibuses (admittedly not all roadworthy and usually overloaded – but we already have laws for those problems) for a lumbering bus of new design, unknown make and alarming reputation. The foolish campaign to convert to these new vehicles lurks behind the name of “The Taxi Recapitalisation Project”. Many of us are suspicious about where this capital is going to. I doubt that the poor scared commuters will see any significant benefits.

Safety and Security Minister Nqakula opined that the spate of deadly cash-in-transit heists was really the fault of the security companies who are providing vans that are insufficiently armoured and guards who are under gunned. I therefore expect even more deadly shootouts between the security guards and the robbers as each side will now presumably obediently be upgrading their hardware. Another politician has called upon the “best brains to combat crime.” No further comment needed.

Up the road in Midrand, little is happening at the Pan African Parliament. The 200 computers which we, the hosts, provided the delegates, when they met last year, failed to make it through the recess. MPs are “unable to connect to the internet” and so progress in “developing sustainable and democratic rule across the continent” has ground to a halt. More active, is the market in pre-owned PCs in the Halfway House area.  Africa’s finance ministers, gathered in Yaounde, are making progress, however.  Although the main  topic is the usual  plea for more debt relief.

Mind you, debt relief is very quickly becoming a major topic in the USA. About the only way to provide this would be to drop interest rates and the prospect of this happening may be the reason why the dollar has been getting a hiding. It has lost more than 2% against the major currencies and almost 3% versus gold this week. Even though I shall be away in the game reserve for a while I shall be watching this development closely. I am not impressed that the All Share index climbed back close to its all time high today. That just gives it further to fall.

May I thank those of you who asked for my CV so they could include it in their nomination of me to join “The Gauteng Propeller Board”. Despite on occasion having been accused of being a propeller head, I must decline your invitation. My escape route can be found in clause 2di which insists that candidates possess knowledge and experience in … “finance or economy”. Someone who doesn’t know if the shares will go up or down fails that test immediately.

Why did anyone think that it was a good idea for the ‘bokke to play at Twickenham on two successive Saturdays? There must be some huge incentive cheques flying about.

James Greener

24^th November 2006

LOTS OF BALLS IN THE AIR

Two million rand. This is the price that the auctioneers expect to achieve when they sell a Pierneef painting next week. If they do, then it will be a record for a South African painting. The sellers will be hoping that there are a couple of oriental art lovers amongst the bidders, who will emulate their countryman who last week purchased a big chunk of Anglo American for a record price. That price was a bit more than two million rand though. I have been thinking about the significance of the founding family deciding that this price was too good not to take the gap. Why should we mere onlookers expect it to go higher even as the rand gets stronger and the commodity prices cool off?

That I am not alone in these thoughts is clear from the All Share index, which perhaps significantly did not set a record high this week and is set to close near its week’s low this evening. Big losers this week are almost exclusively from the resources sectors. Banks and other financial institutions have done all right but not enough to rescue the overall indices. I doubt, however, that the bears need yet to pop down to Arthur Murray and polish up on the footwork for the victory dance. Company results filling the papers this week were crowing about earning growth above 15% pa in most cases and sometime three times that in others!

By the way, I am pleased to see that the JSE appears to have ceased their silly plan to cancel their requirement that companies publish their results in the newspapers. Despite the arrival of the electronic age almost everyone including the big name analysts, still prefer to have the broadsheet format to pore over and scribble on. Somehow, it is also not so easy to hide the provisions and impairments on a printed page.

I never tire of remarking on the buffoonery that the tax consumers spend our money on. This time it is the Reserve Bank’s Labour Market Frontiers Report that attracted my attention. What on earth is a “labour market frontier” and have SARS set up customs desks at the border posts yet? The report relays the news that their surveys discovered that “the higher the level of skill, the higher the monthly wage received by the worker”. This research should have the Nobel Prize selectors in Economics looking up the dialling code for South Africa. The Reserve Bank ferrets are pleased to note sycophantically, however, that government policy will enhance the supply of skilled labour and thereby reduce this wage inequality in the future. But what policy do they possibly envision will encourage people to upgrade their skill, other than the fact that a plumber earns a lot more than the fellow carrying his (or her) toolbox; and usually more than the householder who called him out to fix the leaking loo. No one of course will come close to the earnings of the suits that compiled the report and we all know which side of the labour frontier they are on.

The ‘bokke have also crossed a border this week and many of us are hoping that the bus gets lost in Wales and they never get to Twickenham. That’s probably the only way they’ll be unbeaten. And just imagine my frame of mind next week if the Proteas fail to bowl out India on Sunday. This is going to be a long and tense weekend.

I hope you enjoy parts of it.

James Greener

17^th November 2006

BULLS vs BEARS AT THE WHITE HOUSE

The rand is now at a two month high versus all of the major currencies. Aside from neatly destroying just about every prediction about its future, this also is apparently the reason why I will not be able to write that the All Share index set another record today. Although of course, it did do so on Tuesday. Even The Star newspaper departed from its usual lurid stories of bloody violence to tell its few remaining readers that the 24 000 level had been broken. The figures of foreign transactions in the bond market allege that substantial net buying is taking place. If this is true, then this would be a good reason for the strengthening currency. The current (well, the last 2 days) fashion in the share market however, is that a strong rand equals a weak JSE market.

For a while, it seemed that investors decided that the sight of President Bush’s party getting a thumping was decidedly bearish and pressed the “sell” buttons. Now, after 24 hours, the world is quite used to the idea and the bull is back. Even though the Democrats’ victory was not a surprise, I have yet to read a commentator that can decide if the new political landscape will be a good thing or a bad thing for the US economy, the dollar and the markets. In the meantime, it is fun to see the president being nice to all his new “best friends’.

If there is a market story, it is the news filtering out of the inquest into banking charges. Certain witnesses it seems have been observed sobbing copiously into their handkerchiefs and allowing the unthinkable to escape their lips. People sitting close enough have heard them whisper that just perhaps some fees may have been a tad ambitious. Without making any promises, the tear-stained faces suggested that when they next meet their competitors under the motorway bridge at midnight, they might discuss this issue. As a result, the banks’ index did retreat a bit. But not by much. Perhaps investors have noticed the signs that suddenly the banks are finding short-term funding not quite as costly as it has been.

Aside from that, there was no real theme to the week except for yet more rather good company results. In particular the cement business is flying. Is there any suburb in the country that does not have heaps of building rubble and materials outside every third house in the street?  Equally as numerous are the new listings that are coming to the market now. Close relatives of the sole owners of these soon-to-be-listed companies should be looking forward to well-stuffed Christmas stockings this year.

The Old Lady raised the UK base rate by 25 basis points to 5%. This move will not have gone unnoticed by our own Ou Vrou in Tshwane and they will be ordering fresh calculator batteries in time for the December meeting of the MPC. One immediate local spin off from the UK increase is the 4% increase in the annual dividend payment paid by the Investec sterling preference share.

The ‘bokke begin their northern hemisphere campaign at Lansdowne Road tomorrow, and I trust that it will all go according to plan. Although some of the lads do seem to have difficulty in remembering it for the full 80 minutes. Firstly, however, they will need to remember that they are not wearing green and gold for this match.

Have a great weekend.

James Greener

10^th November 2006

PEAK SPENDING AND PEAK MARKETS?

At some point, a trade will take place in every share at a price that will not again be  attained for a very long time – perhaps even years. For some shares, that point may have already happened, for others it may take place even this afternoon. When that price is recognised, the seller will congratulate himself on his skill at spotting the top of the market and the buyer will berate his broker for not warning him that this was the all-time high price. My expectation of the arrival of this mysterious top for most of the shares in the JSE has been around a long time. How wrong I have been. We have not yet experienced anything that could be identified as the start of the “correction” or even the “crash” depending how quickly and how far prices fall. Some will claim that such an event will never happen and that all we will suffer is a “soft landing”. Perhaps.

I draw your attention to the fact that quite a few of the Wall Street indices have been going down steadily this week. It is far too early yet to claim that this is the beginning of the end. But it is interesting to note that even the mainstream press in the USA is starting to mutter about the liquidity problems that consumers are facing as the housing market craters. As we have been told ad nauseam, the world’s economy is apparently rather dependant on the US consumer doing her duty with his credit cards. The US published a surprisingly poor GDP figure this week and Detroit car manufacturers are still looking for ever more outrageous ways to persuade people to buy their cars. However, the bulls are confident that the approaching holiday season will see the American shoppers back saving the planet from recession.

Back home in SA there are few reasons for disquiet on the spending front. Occasionally one notes a result that suggests that consumers are not quite as busy as they were earlier this year. However, the evidence that there has yet been a significant reaction to the recent interest rate rises is not clear. The roads, the shops, the resorts and the jails are all full. Even if the traffic is not, the economy is speeding along. The National Treasury has more money that it needs, but still the taxman pursues his mean-spirited program of seeking ways to squeeze ever more cash from the easy targets. Bureaucrats and politicians will never cease to come up plans to waste the stuff. Like deciding that the word “Union” when applied to a 100-year-old Building has less meaning for the nation than the name of one of their predecessors.

I don’t remember any news about the funding for Gautrain being finalised so I hope that the folk already digging up the streets in this part of Joburg have enough money to see them clean up the mess. Even more chaos is expected later this month when the 94.7 bike race will close the main roads around Wanderers stadium on the same day as the ODI against India takes place! Cricket fans versus men in tight shorts and lurid jerseys? Hmm.

Precious metal prices have made very impressive price gains this week and the shares have improved nicely. Naturally, the Top 40 index has set a new high. After quite a spirited recovery in October, the rand seems to have lost its way. Various talking heads have been up on platforms and behind microphones, saying things that encouraged the rand bears for a while.

As for the rest of the week, we saw the ripening of an airline named Mango, dismal bowling by the Proteas, taxi drivers going slowly and the army disagreeing with its own report that it has lost most of the toys we have given it. Some good rains fell here in Joburg.

James Greener

3^rd November 2006

HOT BULLS

The 23 000 level does now appear to be somewhat of a barrier for the all share index at last. Except that the index is showing reluctance to drop below that number during the current breather period it is taking. Inflation adjusted earnings of the companies in the index are still growing a rate well above 20% pa. This rate of growth is admittedly about a third less than we were seeing at the beginning of the year but it is still highly acceptable and capable of supporting the current prices. This is yet another way that this bear has found to say that his wait for a market correction and great buying opportunities is not yet over. There are still a few days of the month to go and it looks as if October will deliver a total return of around 4%. This is well above the monthly average figure of 1.8%.

And talking of months, what on earth happened to October? I know that I was not at my desk for every possible day recently, since I needed to make some important site visits to fishing waters and game reserves, but it still went by in a flash. The huge glossy advertising leaflets that slip out of the paper every day, increasingly carry a Christmas theme, with pictures of snow covered fir trees and robins and reindeer. As it is currently hotter in Joburg than it was in the Okavango swamps last weekend, this is deeply incongruous. The rains are now worryingly overdue.

A trip to our local garden rubbish dump recently provided me yet another example of irritating pointless government expenditure. Several skips were filled with substantial plastic-covered ring-binders each loaded with a thick “Participants Handbook” of course material for instruction in the “Implementation of Organisational Performance Management in Local Government”. Clearly, someone had failed to perform in their organisation of this conference. Either too few delegates had turned up or too many handbooks were produced. Nevertheless, I’ll bet the catering did not go to waste. Many thanks to the taxpayers.

Taxpayers are in fact playing their part in the game very nicely it turns out. During his mini-budget speech, Minister Manuel confirmed that these generous souls are going to drop off at the National Treasury around R30bn more cash this year than he previously expected. However, the rest of his speech dwelled on what he and his chums in the cabinet have in mind for this loot. It never for a moment crossed his mind that perhaps not confiscating it from the citizens in the first place might be a far better idea. But that’s a socialist for you; always certain that they can allocate resources far better than those who earn them. Just for starters, there are some government folk who have a heap of legal fees to pay. And what about all the signs to Jan Smuts airport, or whatever it is called, that need to be repainted.

I doubt there will be any surprises at next week’s inquiry by the Competition Commission into banking fees. Are they really expecting anyone except the banks themselves to complain that the present fees are not high enough?  I predict another few skip-fulls of pointless piles of paper.

I can tell you what is definitely not high enough;- the Protea’s scoring rate. But that’s another sad story.

James Greener

27^th October 2006

MORE IN THE DARK THAN USUAL

This letter comes to you from darkest Illovo. We are enjoying another total power failure, but hopefully the battery in this laptop will survive long enough for me to arrange a few words in an interesting order. Unfortunately the peace that usually descends when the electricity goes off, is shattered by the roar from the beast of an emergency generator that has kicked in at the building next door. Presumably they have the crucial appliances such as kettle and fridge connected to this supply so we can wander over for a brew if normal service is not resumed soon.

Readers will be hoping that one day I will offer searing insights into the markets. But what else is there to say than that the market is still strong? Extraordinarily strong in fact, with the All Share index becoming quite boring now in the way it sets new highs almost every day. One day it will stop doing so. Perhaps only once the expectations of the R12bn spend on the 2010 World Cup have cooled off.  Or maybe when Wall Street crashes. Have you noticed that almost every day another company gets a listing on the JSE boards? Once upon a time, a rash of new listings was an indicator of the market’s peak. But perhaps not this time. We are all experts in recognising market tops and sell signals, but only long after they have passed.

Consider for a moment that R12bn figure cost of getting the country in shape to host 32 football teams in 2010.  Couple this with the report that FIFA expects SA to be ready for just 55 000 foreign fans and you find that the plan is to spend about R200 000 per visitor. Isn’t this slightly more than we expect them to spend per head on beer, boerewors and a bed? Who, exactly, is going to pick up the tab for all this?

Today is the 19^th anniversary of a previous spectacular global market meltdown, but I am sure that the markets care little for such historical precedents. It certainly cares little for series and cycles and patterns and predictions. A recent piece of research attempted to illustrate the uselessness of analyst predictions and found a mere 36% success rate for a well-respected research house over several years. I find that figure very interesting. It means that an investor who did the opposite of every recommendation would now be delighted with his performance, especially against the poor sucker who followed the recommendations faithfully.

Perhaps you too were alarmed by the use of the phrase “Zimbabwe model’ being used in connection with the governments possible plan for an acceleration in their land allocation meddling. Certainly several overseas commentators picked up on it and have been less than bullish on the currency as a result. Where could a South African seek protection from a collapsing currency and the rampant inflation that might result. Well, offshore of course, which explains the strength of the rand hedge shares recently. Krugerrands are also still popular but difficult to store safely, so I still like the New Gold ETF product that is listed on the JSE. Each unit is priced very nearly at the exact value of 1/100^th oz of the actual metal.

Tidemarks is appearing a day early this week because I shall very shortly be leaving for the Okavango swamps to hunt tigers among the barbel who are right now indulging in their annual “run”. It’s a tough job, but someone has to catch those fish.

Shout for Schumi on Sunday for me please and for your health’s sake avoid the Proteas for the moment.

James Greener

19^th October 2006