EVERYTHING COMES IN CYCLES

That R99 million fine that has been imposed on a bakery because it admitted that it had been chatting to its competitors about the price of a loaf, is a lot of money. Why the government is going to pocket the loot is not explained, although I do understand that doling it out fairly amongst the folk who have bought bread these last few years is a tough task. Would I, for example get a greater refund on my exorbitantly priced Ciabatta this weekend than the chap who is about to lunch on a Bunny Chow? But once again, I am puzzled that the state feels so strongly about ensuring free markets in some things while it simultaneously insists that it alone can decide on the correct price of money itself. Governor Mboweni has been very clear this week that he believes that the stuff is still too cheap and he will be pressurising the committee of great and good next month to raise interest rates some more. The sound of the pips squeaking is clearly not yet loud enough for him.

At last, the share markets appear to be noticing the cries of pain coming from the credit markets in the US and other large economies. Even two of our own local banks have been affected by these euphemistically named sub-prime loans. No-sign (of the money coming back) loans is a truer reflection of the situation. Things are already much worse than any forecast that I have read. The only people who are not feeling the pinch, are the departing bank chief executives whose main problem is wheeling the truckloads of farewell-present cash out of the door. It’s an odd system.

Inevitably, the picture is not unambiguous, however. The gold price has plunged below $800 per ounce which is another way of saying that the greenback has strengthened. With so many experts calling for its collapse, I suppose a recovery was probable. It has this week gained against every major currency except the Yen  and this last anomaly may have something to do with these mysterious “carry trades” [Not the same thing as the aforementioned CEO’s wheelbarrows].

Reporting season on the JSE is in full swing and with the notable exception of a dismal set of numbers from the fixed line phone monopoly, most companies are doing fine. Understandably, earnings growth is sometimes lower than a year ago but no calamities have yet come to light in the industrial and financial sectors. As we have discussed many times, the miners have their own special set of problems.

I maintain my attitude that a well-balanced portfolio of solid dividend-paying shares does not need to be radically adjusted even at this time. If one is exceptionally worried and bearish then certainly postpone putting any extra cash into the market and maybe allow the income account to accumulate for a while. I am fairly sure that cheaper prices are on the way.

I do hope that the weather in Cape Town is fine this weekend. When the mother city puts on her party frock, she is one of the most attractive places in the world to visit. It will certainly be warm since there are right now plane-loads of G20 conference delegates arriving at the foot of the mountain and once they get going, the hot air will be flowing in torrents. May they nevertheless be delighted and beguiled by the place. Please watch your wallet at all times and especially when chatting to estate agents in Clifton.

On Sunday, thousands of cyclists will once again encounter that strange Highveld summer weather phenomenon. No matter in which direction you pedal, the wind is always in your teeth.

James Greener

16^th November 2007

MINING HOUSES MAKE LIKE MISSILES

A gentle glow of satisfaction was starting to pervade the bears on Wednesday evening as they watched the money channels on TV. Wall Street was looking very weak and it did appear as if the odd chicken was even coming home to roost. The JSE sagged in sympathy on Thursday morning and buyers were scarce. Then a few minutes before lunchtime, the news broke that BHP Billiton, the largest company on the JSE ranked by market capitalisation, had been spotted trying to persuade Rio Tinto that a merger of the two would be a match made in heaven.

What happened immediately was that the Billiton share price shot up – fast and far. This was followed closely by the Anglo share price. When these two behemoths sprint like that, the earth moves for all investors. The index climbed nearly 1000 points in seconds. Thereafter things got even more messy and complicated and mere words could not describe events. You had to be there, in front of the screens and in earshot of the screams. The talking head industry has seized on this topic with delight. One can now get a complete range of opinions on whether or not a merger would work. Political opinions, jaw-flapping and intervention are confidently expected next. Acres of weekend news print will be assigned to the story. Trees will fall.

The current position is that Anglo is once again the largest share on the JSE, the All Share index less than 400 points off the all time high, and the bears are back in the woods. Potential mega deals like this are of course the reason that investment banks exist and sometimes the deals become one of those rare “black swan” events that can demolish carefully crafted investment strategies. I do not entirely understand the various extreme price reactions to the news. What is certain, however, is that knowledgeable people in the commodities business believe that the demand for their products is not over and that good growth lies ahead.

We are staring to move into company reporting season again. Some of the recently listed ones with construction and building-related business have announced stellar results. In some cases the wonderful earnings have somewhat justified the terrifying valuations that the shares had been wearing. Nevertheless, these sectors still have very few obvious bargains. Ominously, however, it appears to be getting tougher to sell consumer durables to people who have to borrow money. A motor dealer this week complained that cars are not flying out of the showroom as fast as they used to. Credit-dependant furniture retailers are also slowing down quickly. The new money lending legislation is obviously having one of its intended effects of controlling individual indebtedness. The price of fuel is also making the idea of car ownership and indeed most travel unappealing. And that’s before you consider the implications of a plane discarding an engine during take off.

The papers today tell a rather sad little story about the response of the national broadcaster to complaints that the ball-by-ball cricket test commentary was absent from the usual radio channel. The response was “What is ball-by-ball commentary?” I suppose for some people, the appeal of cricket is as low as the appeal to me of televised proceedings of the debating chambers of the provincial and national legislatures. In my view, this is a complete waste of broadcasting bandwidth and at the very least should be tagged as unsuitable viewing for children and anyone who can read without moving their lips.

James Greener

9^th November 2007

THANK YOU JAKE WHITE. HAVE A NICE LIFE

The US obediently followed my forecast and this week cut interest rates by a quarter of a percentage point. However, the debt dragon is already far too big to be worried by such puny actions. His fiery breath is licking into every corner of the US and illuminating more and more cowering damsels in severe distress. It almost seems as if no one who borrowed money in America in the last few years had any intention of paying it back. The banks and intermediaries disguised this fact from the lenders (and it seems, from even their own bosses) by slicing and dicing and packaging and wrapping the toxic messes in ever more mysterious ways. But now the blood is not just dripping from the corner of the smelly and battered suitcase. It is pouring out at such a rate that just maybe the share market can no longer ignore it. There have been some bad down days in the Dow and buyers worldwide are now pondering their purchases a bit more carefully than before.

The dual-listed rand hedge shares on the JSE have been the best performers of the week as the rand has given up much of the gains that followed the news of the big Chinese purchase of Standard Bank. The quarterly reports from the gold mining companies and the outfits that claim one day that they might become one, have been appearing and it is sad to see the near collapse of this as a viable South African industry. Gold shares are now only for the very brave, nimble and risk-hungry. Investors need no longer give this sector any time at all. Someone should tell the SABC that they could make more time for cabinet ministers to preen themselves by dropping any mention of the gold index from their news programs

The chaps down at the Financial Services Board have ensured themselves a merry Christmas with a couple of multi-million rand fines slapped upon some hapless traders who manipulated share prices in March 2003. Based on this speed of justice, if anyone who helped give the JSE prices that big push in the final minutes of trading on Halloween is worried about the cops, they have plenty of time. The Soccer World Cup will be over and they will be able to travel to Pretoria for their hearing on the Gautrain.

The Department of Home Affairs has decided that the Post Office is the source of all its lamentable inefficiency and failures. In a somewhat garbled tirade it appears that that the department uses the Post Office for tasks like moving documents from the “front” office” to the “back office” or other such nonsense. Admittedly, it is rare to see any government employee shuffling from one place to another burdened with anything more than a single sheet of paper, but to use the mail to get something to the next room seems extreme. I have long been in an industry for which the SAPO is an unavoidable partner and I think that generally the service is pretty good. For example, if I overlook the fact that they were sold out of standard postage stamps in those convenient dispenser rolls, they did manage to deliver to most of my clients their October statements within 48 hours of being posted. In a probably deluded attempt to ensure that the mail keeps working, I refuse to use anything other than the post for my correspondence with the tax man. Sadly, so far his assessments and demands have never gone astray.

I am grateful to the person who pointed out that England rewarded their World Cup-winning coach with a knighthood. In South Africa we have allowed politicians to use Jake White to send a message about government power to the nation. It is a pitiful, shameful, embarrassing and alarming development. Those of us who nurture a hope that there really is something special that can grow in our rainbow nation, have been reminded that we are naïve. Politics before people. Oh dear.

James Greener

2^nd November 2007

CHINA SYNDROME

When will it dawn upon these evil and nasty politicians that the power that they think they have is really quite illusionary? They can strut and posture and proclaim and pontificate about changing names, selecting teams, permitting work and other similar annoying matters, but in the end 5.5bn US dollars beats all. A man from China clutching wads of actual real cash gets everyone’s attention and BEE loses out to CEE. Two of the speakers at the Standard Bank press conference that announced the 20% acquisition by the Industrial and Commercial Bank of China of the country’s largest bank are old boys of my own school. I wonder if Cantonese will not soon be compulsory in those dusty Eastern Cape classrooms?

You can be sure that this latest move by the smart and rich Chinese to gain a further foothold in Africa has nothing to do with them wanting to redress any legacies of colonialism or ensuring the furtherance of human rights. It’s the minerals they are after and I doubt they will be keen supporters of the idea that a mine should be closed after each fatal accident until blame has been apportioned. As I understand their approach, workers have work not rights. Our lives here on the dark continent are going to change.

It has been customary to describe large sums of money as being in the category of telephone numbers. However, not even the recent addition of the area code digits to our numbers has made them large enough to describe the losses that are being reported by the financial market giants. Despite many of them claiming that either a) they had only minimal exposure to the calamity of the sub-prime loans market or b) the debacle was of small importance and well-contained, all has not been well! Wealth has been wasted by the wagon load and lenders are wondering how many other euphemisms for “the money has gone” are lying in wait.

It is widely presumed that next week, Governor Bernanke is going to try and alleviate the woes in the US that are arising from people being unable to pay their debts. To do this he will probably drop interest rates. Unfortunately for him this will probably also cause the dollar to weaken further and also discourage foreign investors from putting their savings into American instruments. The phrase “viscous spiral” springs to mind.

A few weeks ago, I described the rand as a runt. Naturally that runt has grown up into the pick of the litter and has sunk its teeth into my leg. It is at two-year highs against many major currencies and the so-called rand-hedge shares are under pressure. I have no idea why economists are listed together with jewellery designers, electricians and maths teachers as some of the 53 categories of scarce-skills who can fast track the work permit system. You could hire pretty well anyone to make a forecast that will turn out wrong.

Even though the JSE thinks that tonight marks the end of October and the official portfolio valuations will be printed over the weekend, Halloween is still three trading days away. This leaves plenty of time for the All Share index to slide below the 30 000 level and turn the month’s performance into a negative number. There still seems to be no news either good or bad enough to cause the buyers to run for cover. Everyone wants stock and obligingly the list of new companies (coming mostly to the Alt-X board) is not growing shorter. Some of these issues are ludicrously small and terrifyingly oversubscribed and some have failed to surge on listing. I think this is alarming news, but then what do I know?

I do know that the ‘bokke are deserved world champions and that the Lions will lift the Curry Cup this weekend.

James Greener

26^th October 2007

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