THE ‘BOKKE BY FIFTEEN

The financial pages have stirred themselves into a froth about today being the 20^th anniversary of “Black Monday”. One of the many delights of this place where I sit at a desk (work would be rather too presumptuous a term) is that many of my colleagues were still at school when it happened. Even I had not been long in the markets when it struck and I thought that these sort of things were normal. Actually, that “crash” took less than a year to recover its losses and looking back, one can see that there have been at least three years since then with an All Share performance that was worse than 1987. In 1998, we suffered a 10% decline. Understand that it would take a fall of about 25% from current levels to make 2007 into a negative return year. That’s not impossible but unlikely. Perhaps us bears will be satisfied only in 2008?

A probably insignificant yet poignant milestone occurred in the market when BHP Billiton moved ahead of Anglo American in market cap. This is the first occasion in my time of being in the JSE that the top spot is not occupied by a share from the Anglo stable. And then there’s the fact that single-stock futures dominate turnover on the exchange. Is this the sign that it is time for us fogies to move on? Not a bit of it. I have plenty of opinions and forecasts left in me yet! And still half of them will be correct.

The Gauteng provincial government never fails to disappoint and enrage me with novel ways in which it will spend my money. Today they request proposals for “A Body Shop for Human Resources Services”. What on earth is this? A gym, sauna and massage facility for staff stressed out with writing rules on how people should employ other people? Or perhaps a panel-beating business to cope with abused official vehicles? The appeal today from one Mr Gert Joubert to achieve a huge reduction in government by simply abolishing VAT and firing state employees until costs equal income, gets my complete support. His suggestion comes at the end of a week when the state has announced its intention to get even more involved in all sorts of ventures including mining exotic minerals. Just get the water and the electricity to flow reliably first please. Oh yes, and stop those people who rob the rest of us of our lives, possessions and freedom.

I am intrigued and disgusted by the obstinacy and stupidity of the people who apparently have the authority to decide how and when we South Africans can connect to the rest of the wired world. Reportedly, an official conference complete with receptions, lunches and gala dinners was held this week to decide upon a suitable name for the proposed fibre optic cable that might reach SA sometime in the future.

The difficulties of obtaining a Shengen visa to get to Paris this weekend notwithstanding; it seems that a veritable stream of politicians eager to bask in reflected glory of the ‘bokke has been traipsing past the Eiffel Tower these past few days. A photo op with Brian Habana, must today rank as one of the better pictures to pop into the manifesto leaflet. Which reminds me of the declaration a few years ago by at least one current cabinet minister of his support for the All Blacks. How’s it feel these days sir?

I was once fortunate enough to watch the St Patrick’s Day parade down Fifth Avenue in New York. However, Johannesburg today is sporting more green than I ever saw during that event. The atmosphere is wonderful and we confidently expect the boys to hoist the trophy tomorrow. To all of you who might accuse me of lukewarm support might I remind you that my blood is truly greener than any of yours.

Go ‘bokke.

James Greener

19^th October 2007

WHO REMEMBERED KRUGER DAY?

Naturally, the All Share index claimed another record high this week. However, a few hours later, Governor Mboweni, glowing prodigiously in the spotlights, spoilt the party with a half percentage point rise in interest rates. Without dwelling on my ever deepening confusion about why an increase in the price of money is supposed to slow the rate of  increase in the price of everything else, we note that the rand strengthened and share prices have mostly slipped a bit. Something was almost bound to come along and put a brake on the incredible JSE price surge of the last six weeks. And it might as well have been the Governor and his committee of monetary policy wonks. Obligingly, not long after the TV screens reverted to the soaps, the largest listed credit-dependant furniture retailer published a trading statement to warn that they were not earning as much as they had hoped. Realise that the store’s experience of customer reluctance was from a period probably unaffected by even the rate hike before this one and you might agree with me that this Thursday’s action was unnecessary. Certain areas of the economy are already slowing down all on their own.

Talking of slowing down, did you see the enormous map of Gauteng published in the press today? In intricate detail, it shows the plans the bureaucrats have for alleviating the dreadful and wasteful congestion on the region’s roads. Before my eyes gave up, the main thing I could see were seemingly dozens of toll plazas every couple of kilometres along the main arterial routes. That should speed things up nicely. Actually, it would certainly ensure that the heavy construction boom continued for much longer.

I am delighted to see that some real engineers have told the suits at Eskom not to mislead their customers by claiming that wet coal is responsible for a portion of the electrical power shortages we are suffering. This lame excuse was obviously thought up by someone who’s sole understanding of how thermal power stations work is obtained from occasional visits to the staff canteens at these places. A poorly planned maintenance program that has taken far too many generating sets out of commission simultaneously is obviously the problem.

By contrast, the efficiency of the privately operated cell phone networks was amply demonstrated this week. An innocent observation that an unusually heavy rain cloud was approaching Joburg, mutated into an SMS text avalanche that convinced many folk that every known form of extreme weather was about to hit the town.  People fled for home causing even more traffic chaos than usual and confused dogs, cats and family members were herded into cupboards and under beds to await the hurricane /tornado /tsunami /earthquake. In the end, it rained quite a bit and an irritating cold front hung around for too long. Predictably, already a government official has decided that it is the state’s task to ensure that nervous citizens will not get spooked in this way again. I await his plan with interest. Perhaps it will have application in these markets as well?

South Africans are already very nervous, having slowly returned to normality after several days of wildly celebrating the departure of the Aussie and  Kiwi teams from the World Cup.  Normal breathing will return only late on Sunday night after the ‘bokke have ensured that they will be the southern hemisphere nation to go into the final. This is very tense stuff. I need to leave now and prepare for the real storms that are about to burst on the TV set. Two bottle stores were out of Castle last Saturday! Biltong futures are through the roof.

James Greener

12^th October 2007

WHAT IS HAPPENING TO OUR COUNTRY?

Regrettably, this week at least two friends were caught up in criminal incidents. One was brutally murdered and the second was stabbed several times with a screwdriver. Undoubtedly, these families of educated, skilled and law-abiding tax-payers will soon be looking to see where else in the world they will be more appreciated and protected. Becoming a victim of violent crime is no longer just a case of being in the wrong place at the wrong time and falling prey to one of a small number of criminals prevalent in any society. In this country now, each and every one of us is under almost continuous scrutiny and assessment of our potential for being a useful and valuable target. Whatever the degree of violence, the risk for the perpetrators is almost nil and the rewards can be substantial. It is the perfect recipe for growth and that is certainly happening at a terrifying rate.

Equally disturbing is the reaction of those of us who have escaped the latest bout of local banditry. We merely put our heads down, give thanks that it wasn’t one of our immediate family and continue living in the abnormal society that South Africa seems to make its own. Those who are in power are therefore also able to pretend that nothing is wrong. This gives them the time they need to indulge in the interminable and complicated witch-hunts within their ranks. They consider that this pointless and wasteful sort of activity is government. To many outsiders it feels as if the process is designed to protect and promote criminally incompetent officials at the expense of those who might actually be capable of doing their job of being a servant to the tax-paying public.

One clear example of how we are all managing to hide from the collapse of a civil society is the way we keep on buying this stock market up to ever higher levels. Judging from the behaviour of the rand it looks as if foreign investors are also happy to send their money to Johannesburg. Human nature is certainly dominated by the emotions of greed and fear. As long as the assailant’s bullet or knife misses a vital organ, we are off to the races, shopping, consuming and investing. Surely, there must be a huge fire smouldering out there somewhere but no one has yet spotted the smoke. At present, the flows of wealth are still camouflaging everything else.

A must-have investment guide came to light this week in the form of a document  that was given to the country’s largest fund manager by his client – the country’s largest pension fund. Reportedly, it “details a tight mandate” to ensure that the fund manager “performs at the maximum”. The board of trustees of the pension fund have decided to incorporate environmental, social and corporate governance issues into all of its decision-making. No mention of return or performance, but I suppose that the aforementioned document covers those matters. It would be churlish not to note that the JSE’s Socially Responsible index has delivered a return of 25% so far this year compared to the All Share’s more modest 23%. Maybe they are onto something.

My mood of despondency has not been lifted by today’s cricket test victory in Pakistan but perhaps on Sunday after the All Blacks have been sent home and the ‘bokke have trounced Fiji, things will look brighter. Maybe after the World Cup, Jake White will come home and run the country.

Please keep vigilant and safe. It is a jungle out there.

James Greener

5^th October 2007

BEARS CITED FOR UNDERPERFORMANCE

So that’s the end of the month and the third quarter. Was that storm last night a cover-up for Santa’s practice laps around the circuit? The All Share index is skulking around its all-time high and a total return in September of nearly 5% looks likely. That nasty little 15% “correction” that scared us in August has been completely erased along with the credibility of us bears who thought we had spied the beginning of the end.

I was interested to read that the official view on inflation is that it will be tamed only next year. As this statement is so clearly an optimistic wild guess (sorry – considered carefully researched opinion) I wondered why it was offered. Perhaps they too have noticed the sharp upward spiral of commodity prices – especially oil and wheat – and also conclude that bad inflation news is inevitable. Now the approved (but in my opinion, incorrect and ineffective) official weapon in this fight is the cost of money. I think we can expect it to be increased at the next meeting of the MPC in two weeks time. The present strength of the rand may also be anticipating such a move.

The end of September sees the first step in the changes to the way that the tax man seizes a portion of the money that companies pay out as dividends. The rate for the secondary tax on companies (STC) will fall from 12.5% to 10%. In principal that should be good news. Shareholders ought in future to get the loot that in the past was flowing to the National Treasury. Maybe this is one reason for the particularly frisky nature of the bull on the JSE of late.

However, the variable-dividend preference share market would appear to be reacting in the opposite way to this change in the tax. Prices of those shares have softened noticeably in the past few weeks. I am puzzled by this move. This class of pref shares undertakes to pay a specific amount of dividend (related to the prime overdraft rate) per share per year to the shareholders and issuers have had to adjust their prospectus conditions to cater for this tax change. If that amount remains unchanged despite the tax rate decrease, why should the prices now fall? The average implied dividend yield of the shares in this category is now well above 10%pa. Maybe it’s the expected repo rate rise they are anticipating and nothing to do with tax.

I never realised that it was necessary to apply for a job as a member of a provincial sports team. I thought that if you were any good at the game someone would tap you on the shoulder and invite you to pop in for a try-out or something. So I was surprised to see the ad in the paper placed by Western Province Rugby (Pty) Ltd who are apparently in need of a tight-head prop. Perks of the post include a blue and white hooped jersey with your name and the number 3 tastefully embroidered on the back. Perhaps the most surprising part was that the ad felt it necessary to state that academic qualifications are not essential but great natural strength would be useful. My CV will stay in the file.

We can’t be certain that the ‘bokke wont again take the long way round to beat the USA in Montpellier on Sunday evening. It is not easy to watch this sub-prime sort of stuff. And then I suppose we will wake up on Wednesday morning to learn that one of the chaps has been cited for an alleged and unseen misdemeanour just minutes before the cut-off time. Unsettling. Someone out there fears the ‘bokke almost as much as the two McLaren drivers distrust each other.

James Greener

28^th September 2007

IS A PERMANENT BULL MARKET OUR HERITAGE?

Even though the All Share index has not yet set a record high this week, its impudent younger brother, the Top 40 index, has done so. Once again, bears are sporting egg- splattered faces. The main reason offered for week’s bullishness is that Governor Bernanke chose to drop US interest rates and surprised everyone with the aggression and style of the move.

This is the first time since taking over the job that Helicopter Ben has tugged on the big lever in the corner of his office at the Federal Reserve. He is the man who is on record as saying that dropping dollar bills from a helicopter is also a feasible central bank strategy for addressing monetary problems. He must have been sorely tempted to invite his predecessor Sir Alan for a short chopper flight this week. The aging alleged guru has been seizing the limelight with unhelpful commentary and a book of criticism about his former bosses. Tacky.

Another unappealing idea has turned out to be the system of quasi-government so-called Education and Training Authorities (SETA). Dozens of these things exist and each one feeds on levies raised from real businesses within different industries and sectors. Naturally, the quality of staff running these leech-like entities is highly variable and all too often stories of incompetence, corruption and larceny reach the news. One example appeared recently when the dullards that run the Transport SETA announced that they had written off their R252m investment in the disgraceful Fidentia Asset Management outfit that collapsed. Fair enough, anyone can make a bad call, but firstly to slip into the announcement that a further R2m from an internal fraud was also gone and secondly to claim that the Authority would still be able to meet all its commitments despite this shortfall is breathtaking arrogance. If this is true, why did they need so much money in the first place?

The notable feature of the futures close-out yesterday was that the JSE systems pretty much handled the massive volumes without any serious calamities. No particular price trend emerged during the event and I guess that traders were more focussed on domestic practicalities of getting the deals done than watching the overseas screens for news to panic or exult about. That came later in the day when the Proteas slid ungracefully from the Twenty 20 world cup event. I suggest that we get our money’s worth from these well-paid young men by assigning them to stadium security duties for the rest of the tournament. They should not now be permitted to withdraw to their golf-estates and watch on TV as the Aussies lift the darn trophy. With now only one sports team left in a world cup tournament, SA Breweries are probably correct in their forecast that the country will not run short of beer in the next few weeks.

More bad news for taxpayers appeared this morning in the form of a R70 000 advertising bill to allow the Department of Health to scold us for not appreciating them or their minister enough. Just do the job lads and you’ll get all the appreciation you deserve. And I hope that the Home Affairs department has noted that the Chinese are reportedly solving their problem of jobless rural citizens moving to the cities by sending them to Africa. That’s OK. Just don’t send the planes back empty please. In the markets we call it the switch trade.

The ‘bokke really should be able to make our Heritage Day long weekend and national braai day reasonably happy. Can anyone actually find Tonga on a map?

James Greener

21^st September 2007

SHOW ME MY MONEY

There’s a photograph whizzing around the internet today which shows an orderly but lengthy queue. The line begins inside the London City branch of one of Britain’s largest mortgage lending companies and winds down the street. This morning the company was reported to have been turned away empty-handed from the Bank of England when it asked if it could borrow a few quid. I doubt that the people in that and other queues reportedly forming elsewhere outside other branches of the company are rallying round to offer bundles of cash to the beleaguered institution. I would rather think they are trying to do the opposite and leave the premises with folding stuff that they will pop under the mattress for the time being. These are amazing scenes. That allegedly “small and contained” sub-prime debacle in the US is spreading its tentacles.

It is now quickly dawning on people who actually have money that considerable numbers of  their fellow citizens who have been borrowing it are really unable to meet the interest payments. More seriously, they are also not in any position to repay the principal amount either. This is because in the worst cases they have consumed it or because the assets they “invested in” have plunged in value. The intermediaries in this whole sorry mess are now suspected of being rather too cavalier in their promises to the lenders and rather sloppy in their evaluation of the borrowers. The fact that many of  those intermediaries have been seen to be standing up to their navels in fees and commissions during these last few years of alleged plenty is not improving tempers. The fear and greed pointer is sliding towards the F word.

In the US, the problems for the savers and investors is compounded by the fact that the dollars themselves that they are extricating from the ruins are falling in value against oil, gold and other currencies. The demand for “safe” US treasury paper has been so large that interest rates have been pushed down and that too is putting pressure on income. It is a mess.

I do believe that I am not being naive and complacent when I claim that domestically in SA there is no crisis of comparable size or severity lurking. Nevertheless, the banking shares on the JSE are being smashed and are leading the whole market away from the local peak it attained this week. The September futures “close-out” event takes place on Thursday afternoon and may be seen as a reason to ratchet up anxiety levels a notch or two. These are exceptionally interesting times.

Only the largest three gold mining companies of the dozen or so that are listed on the JSE seem actually to be making any money. This week I saw news of another one that hopes to get permission to reopen the ancient workings that used to define the southern edge of Johannesburg city. Mining is not for pessimists or sissies.  But I suppose this is another of those opportunities to “Unleash Your Investment Potential’ – whatever that might mean.

As well as trying to cope with unfolding events in the markets there are at last two international sporting tournaments clamouring for my attention. Now let’s get this straight. If England beat Australia this afternoon then the Aussies go home early. Come on England! But tonight we need to beat England ourselves so we don’t meet Australia in the semis. Whew! The marketing geniuses down at SA Breweries have replaced the old six-pack with the eight-pack. Not a moment too soon.

Have a wonderful safe sporting weekend and may your teams win (but not against us).

James Greener

14^th September 2007

SUMMER IS A’COMING IN. LOUD BLOW THE REF’S WHISTLE

I was not terribly reassured by the news that the banks’ own industry association had paid a quarterly subscription to the wrong organisation. Apparently it took four months before the R360 000 error was discovered. In the meantime, the rightful beneficiary had not noticed the shortfall and the lucky recipient had spent the unexpected loot. Requests from The Banking Association for the cash to be returned have been ignored.  It comes as no surprise that the free-spending outfit is run by politicians, and it is gloriously ironic that it is an organisation which, amongst other things, lobbies against high banking charges. I guess that charges will soon go up again chaps. There’s a loss to cover.

But the theme of carelessness with other people’s money is very strong and widespread at the moment. One fund after another all over the world has been telling their customers that they really should not call up and ask for their money back. It is only when the fund needs to sell their “investments’ in order to pay out those whining customers that everyone learns the awful truth that many of the bits of paper they hold are worth very very much less than they were being valued at. Oh dear.

That “pain index” measure that I have told you about before has recently been dropping back from the record highs it reached at the end of last month. However, this afternoon the USA released some data that has caused panic to break out and the bulls to flee. That number has the unromantic name of “non-farm payrolls” and today’s statistic suggests that Americans are losing their jobs. Now an unemployed American is undoubtedly less able to go shopping or pay off the mortgage and this is bad news for a world that has become dependant on the American population doing both those things with enthusiasm. Markets have swooned, the dollar has tanked and the gold price has broken above both $700 and R5000 per ounce. The pain index is definitely on the way up again. Traders on the wrong side of this move will be thronging the bars tonight seeking comfort in the bottle.

Investors now have a full weekend to absorb and digest this news and I would guess that the market weakness will continue on Monday when they do make that call they have been told not to make! Even conservative good quality portfolios here in SA will fall in value as speculators race for the exits. However, there is still no evidence that good companies are cutting or skipping dividends and so cash flows should remain healthy and can be accumulated for the excellent buying opportunities that I am sure will turn up, but  probably next year only.

Why did it take so long to confirm that the otherwise unprepossessing one and a half kilogram piece of stone was in fact a diamond? As I recall, the country’s first diamond find was confirmed when some clever chap in Grahamstown scratched his name on a windowpane with the gem. Nowadays one probably doesn’t have to travel to Lower Albany to find a suitable window, but the principle remains the same. Now we can look forward to so-called celebrities fighting over who is going to be able to afford to hang this particular bauble around whose neck.

At last, tonight the rugby world cup gets underway. It is a long haul from here and hopefully we will have interest in it right up to and beyond the final whistle. The warm weather has at last returned and the fridge is stocked. What more can we hope for? That the ‘bokke survive the Samoan encounter undamaged?

James Greener

7^th September 2007