MADE IN SOUTH AFRICA

This is a fascinating line of business. Change is everything. If it doesn’t change, we are not interested. And when it does change in the way we hadn’t expected we are disgusted. And not only do we watch for things that change we always need to be ready to change the things we watch. Who, for example a few years ago would have known even where to look up Chinese interest rates? Then this week we discovered that the price of money in that country is critical and changing and we should definitely make it a cause for concern, if not stage a mild panic. But the crisis was short-lived. None of us had much idea what it was all about anyway. That’s why we have economists out there to take the full force of the news and to tell us how much to care about it. “Not much”, is the view, and so today, all is calm and the bull is back on board the pedalo, a bottle of something cool in hand. The previous boatman is now back in England.

So that means that there is once again very little to say about this market. This week’s all time high was on Tuesday, just hours before the China syndrome struck, but today we are less than 250 points from doing it again.

The last interest rate hike was foisted upon us in early December. Despite this taking place more than four months ago, it will have had a negligible effect on trading conditions for companies with half-year ends just a few weeks later. These are the only results that have been published so far this year and as already mentioned they were stellar. Currently it is a slow time for company results but in a month or so, we shall begin to see numbers for the period when the higher interest rates might have been making an impact. We will then be able to see if the wicked rumours about stock build ups (particularly in the car market) have any foundation. Thanks to the accountants (who according to the Biz Day report are sitting on top of SA’s company pile (?)), any earnings declines will be neatly camouflaged in a blizzard of figures and huge efforts will be made to maintain and grow dividends for a while. It could even take another round of results in say August and September before the truths emerge. This is not to suggest that there are necessarily any to emerge, but merely to highlight the potentially long hiatus between events and evidence.

Our ever-caring government has now decreed that textile goods will in future carry labels many times larger than some of garments they will be attached to. Astonishingly, they believe that despite the disgracefully low levels of literacy in the land, consumers need more than just the price and their experience to choose a T-shirt. Perhaps this regulation will end the fashion of prominent display of the label on one’s clothing. In future, it will have to show Calvin Klein or Gucci’s date and place of birth and as well as the qualifications of the fellow who unpacked the box the item came in. Uncool!

As you hack at the little plastic loop that joins the ten-page CV of the sheep who provided the wool, with your new pair of socks, give a thought for the “Development of a General Waste Minimisation Plan for Gauteng” that our old friends at GDACE have begun work on. Please eat the label; don’t throw it away; we need less waste.

And I have managed to avoid also any mention of sport. Isn’t that what you have come to expect from the Illovo bear? Late thought: Is it OK if the Made in SA label is itself made in China?

James Greener

20^th April 2007

SPAGHETTI FUNCTION

So it turns out that the man with a name that sounds like a menu item in the farinaceous section, and who was going to buy Goldfields, does not exist. The bloodhounds from the regulators are now sniffing about for someone to sink their canines into. Some lucky investors will have enjoyed a huge windfall when the rumour about Mr Pastorini first broke. Regulators hate it when people claim a quick profit. It makes them suspicious that someone knew something before someone else. Oddly, however, they are not so worried when people suffer a quick loss from trading on presumed “inside information”.

In the last few months, the following entry will have been laboriously pencilled into the pocket diaries of quite a few central bankers. “Got up; ate breakfast (cornflakes); went to work; changed nothing; came home; watched self on TV; ate supper (beans on toast); went to bed.” Our own governor will have made his entry just last night. World-wide, it seems that the price of money is perfect and there is no need to tinker with interest rates. Naturally, there is incessant speculation in the markets on how much longer these central bankers will be able to bear this inactivity. Eventually one of them will pull the lever and rest will gleefully follow suit. I do wonder why, in these supposedly free-market economies, we need a committee to decide on this important parameter. Several years ago, here in SA, we experimented with a daily auction system to set the repo rate. It had some serious teething troubles and displayed terrifying volatility but it was settling down nicely when the meddling bureaucrats decided that they knew better and returned us to a fixed rate model.

The mayor of Johannesburg has declared that migrants are the lifeblood of the city and has proposed setting up a desk to “advise them on how to access government services, get information on economic opportunities, social networking, counselling, legal advice and shelter.” The likelihood is that the queue in front of that desk could be extremely long, but that would provide ample opportunity for social networking, so he could omit that part of the brief. May I offer His Worship the suggestion that perhaps it is the ratepayers who provide him and his crew with their own particular lifeblood? Perhaps he might ask them if they want to encourage yet more people to the city when the existing desks in his offices already are unable to direct his current citizens to economic opportunities and shelter.

But today’s request by the United Nations Development Programme in South Africa for proposals to provide them with a banking service shows that our local officials lag way behind the global bodies when it comes to milking the masses. The fee for simply going to an office in Pretoria and collecting the necessary form is R8000. The good news is that the UN does promise to try and choose the successful bidder within four months. Until then I suppose they will be keeping their money in a box under the bed. If so, they can expect frequent visits from elements representing the less formal sector of the wealth management profession who pursue their own development programme.

The record market high occurred on a Tuesday this week.

Only the strongest amongst us will be able to watch cricket this weekend.

James Greener

12^th April 2007

RATING A CUT

Earlier this week a train in France set a new speed record of 575 km/hr. It was powered by a 31 000 volt overhead line which stayed live for the whole trip. Most of us admired the first achievement but were more envious of the second. This morning’s news is that “big business and government” have issued a warning to us mere consumers that we need to limit our power consumption and that they thought the forthcoming massive price increase for electricity were both inevitable and a good idea. So too will be power cuts this winter. I foresee little chance that the Gautrain will be setting any records when it gets started. Sitting stationary at Halfway House waiting for the power to come back on will slow things down a tad.

The headline on the news service claims that the experts believe that there is not sufficient evidence to hike rates. There is therefore little point in reading the actual article as it is already clear that it has nothing to say. I would not be surprised if the experts quoted in the piece include a few of the earnest-looking folk we will see when the cameras scan the audience during the press conference next Thursday. Most of them are there in the hope of claiming a few seconds of fame by asking the governor a long and inane question and looking grave and nodding when listening to the equally information-free reply. They forget that us viewers jab the button on the remote and return to the cricket the moment the decision is announced.

I also don’t know what Governor Mboweni and his mates will decide. My ultra short term forecast will rely as usual on the colour of his tie when he ambles up the podium. To see if I am correct I shall need to wait only the ten minutes or so while he regurgitates several pages of meaningless statistics before getting to the last page with the nitty-gritty number. My success rate is about 50%, the same as the experts.

Around the world, market commentators, but notably not the markets themselves, have been working themselves into a panic over interest rates. The focus is of course the USA, where there is a rapidly cooling property market and a soaring number of defaulters in the low quality credit market. It has been amazing to watch people discover that the business model of lending money to someone who has little hope or intention of repaying it, is rather flawed. In order to reduce the impact that these events are having on consumer confidence and spending power, the pundits are sure that the Federal Reserve will need to reduce interest rates this year. But the problem there is that such a move could easily hurt the already sagging US dollar. Just why did Dr Bernanke want Sir Alan’s job? I am sure that all of us will have a much happier long weekend than he will, fretting about this problem.

Have you seen the new beer to be launched in this country to replace the Amstel brand that was removed so suddenly? No doubt in the interests of economy the new brew (branded as Hansa) will appear in the green bottles and gold foil tops that SAB would otherwise have had to discard. I guess the chaps down the at pub will now simply call for a Hamstel. Those European brewers who left in such a huff will find it difficult to regain market share when they finally manage to get back here. They are smart fellows at SAB.

This week the record market high occurred on a Tuesday.

Please have a safe and enjoyable Easter weekend.

James Greener

4^th April 2007

BURIED IN THE NUMBERS

Let’s just get the inevitable bit of news out of the way: the All Share index set a new record high today. The bull is completely in charge. It is not only polar bears that are in danger of extinction. Share market bears are endangered too. Prices will never go down. Company profits will always grow. Investors will never again suffer losses. The drought is broken. The receiver of revenue is to close down. The Proteas are right on track to bring home the World Cup. Only one of the above statements is true.

Against all expectations it seems as if the JSE will deliver a positive return in March which will be the eighth month in a row that it has done so. Just four weeks ago, we were watching a sharp decline in prices and I for one was committing myself on paper to the view that the end was beginning. Wrong again.

I do, however, ask you to note one price that really does look sick and is not showing any signs of recovery. And that is our currency, which since the beginning of 2006 has lost more than a fifth of its value against all major currencies except the yen and the US dollar. The rand is down only 15% versus these two because, of course, they are suffering their own private troubles. Tthe latest inflation indices, published this week suggest that consumer prices have risen less than 7% in the same period. That’s good, isn’t it?

From time to time I have described my theory of a data-quality pyramid in the money business. At the apex of the pyramid are just a few numbers whose reliability is as good as it gets because they are prices which are set by large, liquid and transparent markets. In my opinion only a very few major foreign exchange rates and important commodities prices will qualify for this top rating. Most market prices are to a varying extent open to manipulation, adjustment and influence under certain circumstances. Their quality and reliability is certainly not undoubted and I rank them in the body of the pyramid, way below the apex. The base of the pyramid is huge and is filled with almost all the published financial and economic data that emerges from companies, governments, and institutions. Particularly suspect are data where the publisher has an interest in the levels and trends of the numbers they produce.

One reason why forecasts are usually so awry is that firstly, they are based on these dubious historical numbers and secondly they attempt to predict outcomes which are prepared by people who have already noted the predictions. The phrase “beat analyst expectations by a penny” comes to mind.

The expectations of sign writers in Limpopo province were smashed this week when it was decided that Louis Trichardt could not just choose a new name for itself and order up the green boards and white paint. It seems that full consultation of all the stake holders did not take place. On that basis, the sign writers should prepare to move down here to Johannesburg, which recently lost the name of its airport without stakeholder approval.

In the meantime, I hope that someone is explaining the concept of run rate to the Proteas. I know it involves long division and five is the largest digit to appear to the right of the decimal point in the “overs” column but please guys, have a stab at it. Your stakeholder approval is waning. So too is the ranking of SA sides in the Super 14. Will we look foolish in April?

James Greener

30^th March 2007

WHAT A DIFFERENCE A “NAY” MAKES

Pretty well everyone thought that Governor Bernanke would change US interest rates this week. But he declined to do so. He and his advisors clearly felt that American money is priced just right and there was no need to make it either cheaper or dearer. The bulls, who were anxious that rates might go up, were delighted with the news and charged up Wall Street dragging most of the world in their wake. All concerns about the effects and consequences flowing from the rapidly growing mess in the housing finance market appear to be forgotten or at least dismissed. The business comedy channel on TV found a US government official who assured the viewers that all was well and that there was no contamination of other credit markets by the hollowing out of the so-called sub-prime mortgage industry. Did they really believe he could tell the world that things were getting mighty smelly and that the US housing market is already experiencing major price falls?

In Joburg the All Share index joined the excitement and surged to within just a few hundred points of its peak. As far as we know there is no similar credit market debacle lurking in the wings here at home for us to dismiss. But we did see some rather dreadful economic data published the day after we had all stayed at home to polish up our human rights. So we ignored those instead.

The  news was that the current account deficit rose to 7.8% of GDP in the last quarter of 2006. This has caused an epidemic of hand-wringing and forehead-dabbing among the talking heads. Despite being told not to panic, we amateurs are left in no doubt that this number is bad news. A gloomy future threatens with a falling currency, higher interest rates, and coming last in the Tri Nations. Regular readers will be painfully aware that I am devoid of any economic learning and that my pronouncements and interpretations are usually naive and embarrassing. My observation is that the share market cared nothing for the news but I do wonder how a mineral-exporting nation in a time of high prices and a weak currency can earn less from its exports than it spends on importing iPods and Cadillacs. We must be paying ourselves much more than we are really worth. This complaint, as ever, leads my eye over towards all those politicians, bureaucrats and legislators who produce nothing but words, virtually none of which have any worth.

For example, I could raise little enthusiasm for the excited report that Eskom have chosen the names for the six new power stations that they plan to build just as soon as they get the money, the permission, the plans and the time. I have no doubt that the announcement was made at a well-catered little ceremony for two or three hundred guest and dignitaries.  Contrast this story with the report that every year China adds twice as much generating capacity to its electricity network as we here in SA actually have right now (and for some time to come). But I’ll bet the Chinese power stations have boring old plant numbers and not even names.

Once again, a criminal event casts a pall over us as we go into the weekend. There is no comfort that this time it took place on the other side of the world. Bob Woolmer was an important figure for all local sports lovers and his links to South Africa were strong. He would be thrilled to see us beat the Aussies on Saturday.

James Greener

23^rd March 2007

UNGUARDED COMMENTS

I was too young and lucky to be balloted to spend nine months in the army. Those of my friends who were selected to don the khaki, told of the endless hours of boredom standing guard in places like Kimberley or Oodtshoorn or Heidelburg. But now we have an all-volunteer army whose employees apparently feel no need to list guard duty as one of their skills. It is far preferable to get the tax-payer to fork out for a private security company to send along their finest to make sure that our troops are safe in their beds at night. One wonders if these fellows will also outsource the other unpleasant and inconvenient bits of the job like handling noisy and dangerous guns or defending the country from an enemy.

The Gauteng Department of Agriculture, Conservation and Environment (GDACE to its friends) appears to have already outsourced all of its proper work. Why else would they have taken space in the paper to tell us that they are awaiting proposals for the “Development of Agriculture Plan” also known by the nifty nickname “The A-Plan”? I assume that the GDACE staff is already fully stretched with the C-Plan. That’s the one where they decide on the catering contracts for the canteen and conferences.

Back here in the markets, rumours have again emerged about the existence in the US of a Plunge Protection Team. These fellows are alleged to hide out in some underground dealing room and use government money to buy up a market whenever it shows signs of tottering. Believers in this P-Plan can cite the experience of the last few days when certainly the Dow turned back from what could have been a precipice. I am very sceptical that any such buyer-of-last resort could remain clandestine before the market sniffed out that there really was someone who was prepared to buy anything on offer. And once discovered, this mysterious super-bull would very quickly get submerged in a blizzard of paper that would overwhelm even the cash that Governor Bernanke once threatened to drop from helicopters.

The JSE action this week was influenced by another of those close-out events. Yes, can you believe it? It is already three months since the last one. Now, a day after the event, it seems as if close-out activity prevented prices from falling. Things are feeling a bit weak today.

Governor Mboweni has scared people a little and bank shares a lot with a speech that threatened that even though he did not push the up-button last time, he did know where it was and could easily give it a tap in April when the Monetary Policy Committee next meet. This is not the only reason that I remain a reluctant buyer of shares. I remain certain that the rapidly deteriorating situations in the housing and credit markets in the US are having a growing negative impact on market conditions and sentiment. The USD has resumed its slide against the euro and the yen, and the “recession” word is being used by people other than retired Fed governors.

I am sure that share markets have not yet reached their 2007 lows. The All Share Index could collapse by 25% (a remote possibility) and still not breach the 2006 low!

Time to go and watch the Proteas open their World Cup campaign. And it is GP season again. Scant SA presence there though. It’s time we sent Mr Ecclestone a taxi driver or two. Just imagine an F1 car with white wall tyres.

Keep happy and safe.

James Greener

16^th March 2006

BANG OFF TARGET; THANK GOODNESS

Early on Wednesday evening the police called me and asked if I could come to my good friend’s home around the corner and assist him. On arrival, I was shattered to learn that he had been shot during a tussle with armed intruders who had found a way into his home. He was fully conscious and his legendary sense of humour and cynicism was running at full speed. Police and paramedics were being treated to a commentary on the state of the nation and the perception of crime. It was something of a relief to see him disappear in the ambulance to the trauma unit where it was found that he had been incredibly lucky and that the bullet had missed anything vital. This very good news together with the impressive and competent professionalism of all the officials that we dealt with that night helped a little to allay the anger and fear that the incident provoked. However, I was very aware that the detectives, the policemen, and the trauma room staff also shared my own sense of frustration and despair that crimes like this will be repeated over and over again. Their efforts were mostly about providing immediate assistance and support with little prospect of being able to convict and punish the perpetrators.

The next morning, the news wires offered the story that the SA cabinet had decided to “contribute” R26 million to help Liberia with its unpaid debt to the African Development Bank. The fact that many of the people who had helped us the previous evening were unpaid volunteers and reservists, threw this latest piece of government stupidity into stark relief. Also this week I read that Interpol are delighted with the contribution being made to their operations by our very own National Police Commissioner Selebi. I wonder if their delight could possibly extend to finding a full-time job for him. With an office in Brussels or Beijing please.

Federal Reserve Governor Bernanke in Washington must also be hoping that someone in a remote location will make his predecessor, Sir Alan, an offer he could not refuse. The retired knight keeps on tottering up to microphones to announce that in his view there’s a jolly good chance that there is a recession is on the way. This sure isn’t making it any easier for the Fed to assert that the US economy is doing just fine. They will also be trying not to notice yet more bad news from the mortgage markets, the rising oil price and the rate increase announced by the European Central Bank.

Back home, the JSE, which early at the start of the week was off almost 8% from the all-time high achieved just days earlier, has been clawing its way back up. It is reported that about USD9 billion was withdrawn from emerging market funds by investors last week. This represents nearly 3% of the total assets in these funds, so I suppose the JSE survived quite well in the face of such an exit.

Reporting season on the JSE is slacking off a bit now but it revealed that late 2006 was a very profitable time for most companies. The All Share earnings base is now showing growth of 31%pa which, coupled with the price declines, has pushed the price-earnings ratio down to 15.4. In my view, this is definitely still not bargain territory and I can see very few attractive buying opportunities. Please just be patient.

There’s a slew of sport happening this weekend and many folk, particularly cyclists, will feel sore when it’s over. But not as sore as my friend who did nothing more strenuous than defend himself and his wife from the scourge of our new national sport.

Keep safe and alert and angry.

James Greener

9^th March 2007