REINDEER SIGHTED CHASING A BEAR

The future’s close-out was quite an event and the All Share index scored another new all-time high on the day. The 25 000 level is a mere skip and a jump away now. There’s no doubting that we have enjoyed an exceptionally long and powerful bull market with few missteps along the way. One occurred in May and June of this year when we bears could be seen chanting that the index was about to plunge below 18 000. It never did and so this merry Yule tide is upon us; provided one tries not to pay any attention to the state of Proteas cricket.

I was bemused to read that the auditor general reported that (he) “had found so many significant material deficiencies in the government’s accounting systems that…” (he) was  “unable to express an opinion” on the financial statements. Now this is the season of goodwill so let me tell you this report was about the USA. Terrifying isn’t it? But it does help when you can print the currency that can be used to balance the books.

Just in case you feel that I am going soft on our local legislators, however, may I ask if you know that the local Road Traffic Management Act allows political leaders (now, there’s an oxymoron and a topic for debate) to disobey traffic signals in the execution of their duties? To my knowledge, the only duty a political leader ever has to fulfil is to be somewhere, shake a few hands, deliver a speech and accept a few gifts and of course refreshments. Sometimes a little dancing is called for. Certainly most of the speeches are liable to induce terminal boredom but otherwise there is nothing vaguely life-threatening in those duties and so I do not accept that the rest of us need to face even more peril on the roads than that already provided by the felons and taxi drivers going about their own duties.

Just think, if the political leader, like the rest of us, was stopped at the red traffic light he too could add to his collection of exquisite beaded wire gifts or get the wife some more coat hangers for Christmas. But maybe he is a sensitive soul and he does not wish to have to share my despair at the plight of our fellow citizens begging at the roadside. It is obvious that governments of every kind are totally unable and unsuited, not to say inept at managing and distributing wealth, except to themselves. When it comes to being Robin Hood, they have mastered only the bit about robbing the rich. The skill of giving to the poor evades them. The burden of choosing who to reward is costly and tiresome and just as they select one deserving case, either the cupboard is mysteriously bare or an even poorer relative comes in sight gathering winter fuel and promising not to speak to the press.

The JSE’s Christmas spirit failed it this year and this, the last trading day before the holiday, did not end at noon as in the past, but will trudge on to the bitter end at five. By then though, even the skeleton staffs will be down to just the odd bone or two. Next week there will be just two and a half days of trading and I imagine that only the extreme bargain hunters will be prowling the screens. One of them will be me.

I wish all readers and very safe, happy and merry Christmas.

James Greener

22^nd December 2006

THE STAR AT THE TOP OF THE TREE

I suppose that by this time next week we will have shut the doors and wandered off in search of Christmas cheer and some last minute panic buying. Of presents that is, not shares. Anyway, it is pretty difficult to find shares to buy when the index is once again probing record highs. Unless Armageddon hits in the next few days, the All Share index is going to deliver a total return for the year of almost 40%. Not as good as last year’s 47%, but still strirring stuff. This will be the fourth year in a row of such excellent performance from the JSE. It is the sort market that makes us all look like investment experts.

Another area of my expertise is the punching of calculator buttons. So I flexed the  digits when I saw that the National Treasury plans to spend not a penny more than R15.1bn on hosting the soccer world cup. This parsimony appears laudable if unlikely. However, if the format is similar to this year’s tournament, we can expect to welcome 32 teams playing between them, 64 games. The taxpayer’s largesse therefore, works out at spending almost R40m per player who is coming here to boot a ball. Or, put another way, we shall be paying around R2.5m per minute of soccer played. Neither of these figures appears to me to be a great bargain.

But I am just an old curmudgeon who is wondering how the business folk of Rosebank are coping with the morass that their precinct has become, now that the digging for the Gautrain has begun in earnest. I still don’t recall seeing which selfless public body committed their ratepayers to guaranteeing that the contractors will get their bills settled, but there needs to be some significant value delivered for all the expenditure and inconvenience we are suffering.

We are at that time of year when bold and foolish analysts succumb to flattery and offer predictions of what the markets have in store. These flights of fancy can do no harm and often generate amusement, particularly when another pundit vehemently rejects the first and supplies his own guess. Such a case unfolded this week when no less an authority than the World Bank (those lenders of last resort to the basket cases of the world) suggested that next year SA would achieve GDP growth of no more than 3.6%. I think this may be rather pessimistic, but if that is all we achieve as we get fully underway with the aforementioned preparations for the footballers, then the share market is going to get messy.

As expected, the US held short term interest rates steady and this put more downward pressure on the US dollar. Our own humble rand improved to better than 7 per USD and the main reaction has been a ratchetting up of the shopping frenzy to gather imported gizmos. By contrast, it will probably be very quiet next Thursday when a particularly late in the year futures close-out event will happen. Many practitioners of this arcane trade will by then be clutching a cool beverage at the braai on the beach and the only close out to worry them will be when the bottle stores shut. Which brings us back to the panic buying story.

I trust that many of you too will be somewhere pleasant and peaceful and friendly by then. Have a great weekend. Do you remember when we called it Dingaan’s Day?

James Greener

15^th December 2006

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