RATES UP. RATS LEAVE

Although the All Share index failed to set a record high this week, the Top 40 did so with ease. It faltered only when Governor Mboweni yesterday glided up to podium in a striking red tie and raised the repo rate half a percent (50 basis points). After a few sessions to take it all in and watch how the US markets are not allowing any bad news to slow them down, I guess the shares on the JSE will resume normal service. Banking sector shares appear to be about the only ones letting the higher cost of money worry them for longer that the obligatory knee-jerk sell off. Not even the currency seems much interested in these higher interest rates. Foreigners probably have more pressing uses for their cash back home than to come grubbing down here on the southern tip for an extra half percent. Sterling holders in particular are currently losing the battle with the euro across the channel to become the preferred alternative to the US dollar which is collapsing in a spectacular way right now. 

Deputy Minister Susan Shabangu’s office has been bombarded with calls from the nation asking for pinup pictures of the courageous lady. Her advice to policemen who come across criminals at work, to “kill the bastards” has struck a great chord of approval amongst the citizens of the land who are very tired of living in fear. The carefully reported reactions of shock and outrage at Susan’s heartfelt speech, totally underestimate the mood of the people. We need and want more ministers like Ms Shabangu,  who tells it like it is.

Governor Mboweni did that yesterday when he yanked firmly on the “Rates Up” lever. He is definitely focussed on killing inflation, although many of us are not at all certain whether he is using the right weapon. Frankly, after filling up the car and the grocery cupboard most people today have little capacity, at any interest rate, to spend on essentials like wide-screen TVs and cases of Dom Perignon.

Talking of weapons, I was saddened to read that Queen Modjadji is on her way home to Simons Town. She is the third and thankfully last of the utterly inappropriate class of warships that resulted from the corruption–riddled arms deal negotiated for us by people who now claim never to have heard of it. I believe that down here, astride one of the world’s busiest and storm-battered sea-lanes, we definitely have a huge need for a well equipped search and rescue fleet. But just what we plan to do with the good ship Queen M baffles me. She is a submarine.

The furore that is following the progress of the Olympic Torch is also rather disappointing. One can understand the temptation for people with a mission to seize upon the high profile event to publicize their own grievances. However, in the end the Games themselves are simply the pinnacle of a sporting career for thousands of dedicated and disciplined athletes. I think that anyone who has for four years or more every day watched the sun rise while flinging lumps of iron or jumping over fences or paddling canoes or prodding someone with a sword ought to be allowed the opportunity to see if they can do it better than anyone else in the world. Fortunately, for them and the rest of us there are plenty of sponsors pleased to pay for the circus and to enable us to watch it from the chair near the fridge at a respectable hour. Don’t we all love the drama of dashed hopes, unexpected success and the ever more intricate medal ceremonies?

The cat family are not at home in the Super 14 environment. If it wasn’t for bonus points, the poor Cheetahs would barely make the bottom of the log.

James Greener

11^th April 2008

ANOTHER ROUND BARMAN. THE GOVERNMENT IS PAYING

The central tenet of technical analysis (charting) is that every piece of information, about a company is distilled into the share price at that moment and that the behaviour of the price reflects the shifting balance of power between those who believe their information is good news and those who think that their knowledge spells trouble. This so-called “language of the market” is presently sending a clear message that the worst is over and most companies on most markets around the world (China excepted) are going to make greater profits in the future. Fusspots like me who fret about incomprehensible debt levels, insolvent banks, and collapsing housing prices obviously misunderstand the language. Careful listeners believe that while those little difficulties do exist, there are sufficiently powerful forces available (generally fuelled by tax money) who will be able to fix all these problems. After all isn’t that what governments are for? To ensure that everyone lives happily ever after?

Governor Mboweni has clearly spent a bit of time re-running the tapes of all his previous announcements about the repo rate. He has wisely decided that his obvious discomfort and physical deterioration in front of the TV lights was detracting from the drama of delaying the decision until he had delivered numerous pages of boring econo-waffle. The poor man had probably been told (incorrectly) that this part of the speech enhanced his reputation as a skilled and erudite central banker. Now the important number is released in the first few seconds of the broadcast when he looks fresh and happy. The sycophantic analysts deserve to sit through the rest knowing that we sensible souls have switched the TV over to The Fashion Channel or Sport Fishing

There is furious speculation about next week’s decision, which has been stirred up by the sharp improvement in the rand exchange rate. Money is flowing back to the southern tip. The peaceful and unexpected flowering of democracy in Zimbabwe is fuelling all kinds of over-excited speculation about opportunities. The air is thick with early birds looking for worms. They might well find them. But I don’t think that will distract the Governor from the soaring inflation rate and his determination to attack it. Much like the powers(off)-that-be at Eskom, there is a determination to punish citizens for not heeding the warnings to use less money and electricity.

It is taking much longer than I had expected for the bear to take control of the markets and economies. I am therefore grateful that I have no need to worry about the arrival of the day when I would be sent away with an ugly clock and a ridiculously large greetings card filled with doggerel about enjoying my golden years. I am going to stay put in front of these screens for as long as it takes and see everyone get what they deserve. So those of you who thought that the second absence in three weeks of this letter was the sign of my imminent retirement are happily wrong. A week ago, I was very proudly watching the Chancellor of Rhodes University conferring a degree on my younger daughter. A wonderful but possibly the last such occasion for us.

Load shedding has returned and as ever the Gauteng Provincial Government is on top of their game. The paper today carries a request by them for someone to host the “Passing of the Torch Awards 2008”. I know that fumbling around in the dark after Eskom trips the switch, requires skill but who ever would have thought that my government would have seen fit to pass out prizes for the top performers in this area? Obviously, an electrified venue will not be necessary.

James Greener

4^th April 2008

DEEP IN THE DZONGA

As I write these words, the mysterious futures close-out event is about half-way done. The volumes going through the market are massive but there has been no significant impact on share prices. These were already looking weak before close-out began, driven largely, I suppose, by the rather scary drop in the gold price. This event in turn was probably a result of the gullible and chronically hopeful punters believing that the Fed’s latest dose of rescue remedy will fix the US economy. I am sure that merely reducing the price of money to below the rate of inflation will not remove the waves of suspicion and distrust that are presently washing over the financial beaches. No one who has any cash is remotely interested in lending it to anyone except to someone who will undoubtedly be able to repay it even if they have to crank up the printing presses to do so. Hence short term US government bond yields are plunging but rates for all other categories of borrower are soaring. When one of the best known banks in the world can go from hero to zero in just a day – what other nasties are coming down the road?

Back here on the southern tip, the after-tax-and-inflation rate of return for cash on call is perilously close to zero if not negative. This explains why there is a ceaseless search for something of value in the share market to buy. On the simple raw data, the metrics suggest that there are some tempting offerings in the financial sectors of the JSE. But if another big bank somewhere in the world were to follow Bear Stearns into oblivion, that would surely spark jitters about whether our own money lenders are as safe as they and Governor Mboweni claim. Therefore I would I not yet be betting the farm on this idea but perhaps just a small vegetable patch.

At ten minutes to eight this morning the planet passed through the southern hemisphere autumnal equinox and so it is now decidedly downhill to winter. Here in the big smoke an unusually cold and astonishingly wet spell coincided with the resumption of power blackouts. It is also the season of short working weeks. Yesterday the government caved in to workers (?) pressure and created one of only two working days duration at the end of April. Fortunately, I am a veteran of such events having lived in London during the UK miner’s strike in the early 70s and my advice is to keep a bottle opener, corkscrew and small torch about your person at all times. In South Africa, you can die of many things but boredom and thirst should not be among them.

For example, did you see that we have added a new word to the English Language this week? Dzonga. The government is calling for people to serve on a Digital Dzonga. It appears that this is a council that will oversee the implementation and monitoring of the switchover to digital broadcasting. As usual, as well as inviting ridicule, the state is way behind private enterprises that actually will make money from this switchover. Last week, in the wilds of KwaZulu Natal, I noticed a cell phone company team laying a fibre-optic cable near the unremarkable and very analogue village of Mtubatuba. Wait until the Dzonga hear about that. And my old friends, the Gauteng Provincial Government, forever in the dark about what they are for, are requesting proposals for Service Providers to develop a Gauteng State of Development Report. It would be all the more funny if I wasn’t paying for this nonsense.

Please enjoy a safe and happy Easter break. Sadly, I think that the Lions will go the way of all the chocolate bunnies this weekend.

James Greener

20^th March 2008

ON THE BRINK OF SOMETHING BIG

Friends who visit the Victoria Falls, often bring back pictures of themselves cavorting in a small pool right at the lip of the 100 m drop. I am unable to get any enjoyment at all from viewing these pictures, or even worse, contemplating splashing around in that supremely foolish venue myself. My vivid imagination worries about things like the outer edge giving way; a surge of water flushing through the pool or perhaps even a testy crocodile or hippo arriving to join them in this unnatural jacuzzi. Buying shares on the JSE at the moment fills me with the same dread. Nevertheless, some folk are doing so and coming out alive and invigorated. I watch in terror.

The Top 40 Index set a new all-time record high this week, although its stouter elder cousin, the All Share Index, has yet to do so. This gives a hint that the market performance is not evenly spread and indeed just a few of the super-sized resources shares are responsible for the fun. Most of these counters are listed on overseas exchanges as well, and so in addition to riding the huge crest of the commodities price wave they are also benefiting enormously from the collapsing rand. This it is doing with style and aplomb and having vaulted over the narrow lip, it is now plummeting into the gorge. We are, however, all certain that it will this time find a ledge to cling to and not continue to the bottom where the Zimbabwe dollar has now worth just one 25 millionth of a US dollar (and that after shedding three zeros on the way as well).

A friend and close neighbour was murdered in his home last weekend and his wife and teenage son sustained possibly fatal wounds. The incompetent bigots who claim to have the nation’s support to run my beloved country refuse to acknowledge the rapid disappearance of the necessary characteristics of a civilised and mature society. I doubt the killer will be found. The police have yet to arrest any of the assailants and intruders who in the past year were responsible for terrifying other friends in the same suburb. They do not even try to prevent so-called taxi-drivers from blockading routes and disrupting traffic that is already grid-locked on the inadequately planned and maintained roads system. The drivers are probably better armed than the police. What possible logic enables authorities to dismiss and discount the dangerous reality of life for ordinary people and visitors in this potentially wonderful land? Just how big are gifts, bribes, perks and incentives that are being offered and taken that they are able to obscure the facts? I am very very disillusioned today. Sorry.

By way of light relief I offer you the wonderful and revealing slogan that was being chanted by a crowd of women who were staging a protest at a taxi rank. Taxi-drivers are never far from the news these days. They are a conservative crowd it seems and have been harassing female passengers and passers-by that were, in their opinion, underdressed. The mini-skirted misses pointed out that “We are not road signs – you need to treat us with respect.”

I believe that we all ought to be treating the news out of the US with respect. It is not trivial when the largest economic and military nation on the planet slides into a morass of deficit, debt and doubt. It can’t even find a credible presidential candidate who might restore its dignity. Its wealth is probably a lost cause.

Tidemarks will not appear next week as I am going to hide from all this craziness in the Umfolozi bush. But not before watching the Lions pile insult on top of the injured Bulls tonight. At least one SA side will not lose this weekend.

James Greener

7^th March 2007

LEAPING TO CONFUSIONS

This will be the last (and sole) Tidemarks that I shall write which can be dated 29th February. The next time this date falls on a Friday, I will definitely be fishing somewhere. So perhaps I should try to be positive and upbeat in this unique edition.

Let’s start with things that have gone up. Inflation certainly has and with today’s fuel price increase announcement there is no way that it will cool off any time soon. Money supply growth is well north of 22% pa and bond market yields are rising quickly too. It is more than a month until Governor Mboweni’s next appointment in front of the hot TV lights but it is hard to identify any possible news between now and then that might be good enough to persuade him to cut the repo rate. So that’s something else that will go up. The trade deficit is also going up but only the biggest optimist would see light at the end of this particular tunnel and one of the biggest importer of things at the moment must be the Gautrain tunnelers. The cost per passenger mile of this project must be starting to make the man on Mars mission look cheap.

Commodity prices have been soaring so fast that even gold has been a laggard in this company. The number of US dollars required to buy a unit of almost every currency in the world, except the rand, has been going up. Share prices on the JSE have also been going up although individual experiences for February performance may vary considerably depending on the weighting of commodity stocks within the portfolio.

Good news in the down direction must include wonderful rains that have been falling and car and house prices (provided you are not a seller like me!). The price of electronic goodies like big screen TVs and computers also seem to be suffering from over supply and under demand.

Buyers of these items might find themselves unable to enjoy them from next week when savage and lengthy power cuts are scheduled to restart. Just how the country has managed to enjoy these past few weeks without needing to shed any loads has not been explained. But something is going to happen in the power generating industry this weekend and the dark ages beckon. I do hope they don’t start tomorrow when I go to Loftus to watch the Bulls/Sharks grudge match under lights. Even the briefest blackout could see some scores being settled while the ref is peering into the gloom.

Sufficient companies have now reported so that most of the indices are starting to reflect the new average earnings. Unsurprisingly, annual growth rates can be seen to be declining in almost every sector. I have not yet seen any sector earnings bases actually falling, but the slowing growth, in tandem with the price recovery of the past few weeks, means that PE ratios are pushing upwards again. This of course makes it again hard to find any value to buy. This is very unfortunate, as suddenly, it looks like a good idea to reduce cash levels. An important consequence of rising inflation is that interest rates after inflation and tax are zero or even negative. Cash is no longer king. This explains the swarms of buyers in the stock market looking for protection from this savings-destroying evil. Time this weekend to go through the share lists with a fine toothcomb again.

I am finding it quite hard to switch between watching the Super 14 matches under the new experimental laws and the Six Nations under the old laws. It must be especially tough on the referees too. I am sure I saw one signal a four last weekend.

James Greener

29^th February 2008

BUDGET BANISHES BEARS

This was a very bad week to be a bear. The All Share index is now just 4% off the October 2007 highs and is up more than 10% this month so far. Even without its one extra day this year, February 2008 could threaten the record of the best month ever on the JSE. This trophy has been gathering dust in the cabinet since July 1982 at 17.74%. Almost all the work on this awe-inspiring bear-trashing recovery has been done by the resources shares whose sector index is up almost 40% from the late January vale of depression and despondency about the future of the country. Ironically, of course, the currency has vanished into a black hole and this is what has driven the exporters.

Minister Manuel’s Budget Speech on Wednesday was fairly bad news for the few of us in the country who have formal employment, permanent addresses and a few assets. None of the members of this constituency was surprised to learn that they would in future have to pay even more to the fiscus, but some of us are very angry that most of it almost certainly will vanish without trace. The state will spend R121bn (11.5%) of its money on Education and yet the country lies at the foot of almost every international league table in this area. The only skill that most of the children learn appears to be how to become a venal, incompetent and corrupt government official. By the way, Health will receive 10.6% of the budget. Do you know any well paid nurses?

Buried in the fine print of the Budget were a few paragraphs about certain relaxations of exchange control regulations. While this is good news, it has certainly added to the rand’s woes and our currency is starting to look settled above 15 to the British pound. Eight to the US dollar is not far off either and both of these levels are multi-year lows.

In particular, the niggling restriction on inward listed securities was lifted and investors with accounts in the name of companies or trusts will now be able to buy these shares without problems. As if forewarned of this development, a major investment bank just last week launched three new exchange traded funds which provide exposure to the Japanese, US and a Global market via appropriate stock market indices and currencies. These ETFs join the two existing Itrix funds that offer UK and Eurozone exposure. Faithful readers know that in principle I like these instruments (which of course include the Satrix family and NewGold) but I also have reservations about them until they grow in size sufficiently that the originator is not the sole price-maker. Anything below about R1bn market cap can face this problem.

About three dozen companies reported this week and glorious unfettered upward growth in earnings is not a universal theme. Some businesses are certainly finding that things are tougher than a year previously. The nation’s favourite quality food and underwear vendor delivered results which compared very poorly with the supermarket that used to be “just up your street”. Banks, however, seem to be clinging to growth numbers north of the magic 20% level.

The sliding rand is causing dangerous cost overruns in the preparations for the World Cup. That would explain why the FIFA contingent, who were pictured standing in the long-completed Ellis Park stadium, were outfitted in hard hats and reflecting jackets. The budget for this ridiculous and superfluous gear for visiting dignitaries must be enormous. It most cases it serves only to denote that the wearer is on the way to a large lunch paid for by someone else.

Did you see how those magnificent Lions stole the game from the Cheetahs last week? With luck, the Blues will suffer from the altitude tomorrow night.

James Greener

22^nd February 2008

LION SINGS THE BLUES

Without packing a single suitcase, I have the feeling that I am now living in a country very different from the one I had expected and hoped for when we moved to the Rainbow Nation nearly twenty years ago. It is not that I have left my country but rather that my country has left me. I once read this sentiment written by a US citizen and I now believe it deserves resuscitation for my own experience. Almost nothing remains of the moderately effective services that one expects a government to deliver. In my country there appears not to be a single state or official organisation where the people in charge have the faintest idea of what they should be doing to earn the money we pay them. In some departments, their policies seem to be designed to deliberately reduce and even destroy what already exists to the detriment of every citizen. Compounding this dreadful state of affairs is the torrent of abuse, denial and outright lies that pour forth when even the mildest questioning or criticism is raised. I watched in stunned amazement the ceremony of apology unfold in Australia early this week. But it made me wonder whether the descendants of our current rulers will one day kneel down in front of my great grandchildren and apologise for what their own ancestors did to this country in the early 21^st century.

Although many of us are currently submerged in this trough of bleak depression, it has not stopped the rest clamouring to buy shares on the JSE. Judging by the continuing weakness of the rand, the supply of shares is still coming from offshore. There have been some rather downbeat assessments of the SA situation on prominent overseas TV stations.

Reporting season is now well underway and about two dozen companies published results this week. So far, only a few of the numbers are really disappointing and they came from the mining counters, most of whom are reporting rapidly rising costs. Remember that these figures cover a period before the power cuts began. It is sadly ironic that because of declining mining production, the prices of the minerals are shooting upwards and yet the mines themselves seem unable to capitalise on the bonanza. This is a very difficult sector in which to find stocks to buy.

The trigger for a very welcome price surge in markets world-wide mid-week was the news that Mr Buffet, allegedly the planet’s most skilful investor, had offered truck loads of cash to help bail out one of America’s most recently damaged financial sectors. Unsurprisingly, of course, the small print in the offer revealed that he wished to buy just those parts of the so-called monoline insurance industry that were old, dull, boring and profitable. He was not interested in the parts of the businesses that dealt with things that neither he, nor anyone else it seems, understood. Disappointment has followed the discovery of this condition to the offer.

A little incident reinforced my attitude of sceptical amusement towards the efforts of the “proper” analysts. It was the upgrade of a share from a “sell” to a “hold” recommendation. Now, if the clients have dutifully followed the earlier “sell” advice, just what was it now they were supposed to “hold”? I have licence to mock. I used to write that stuff too.

Super 14 is upon as again. Oh dear. There was a time when I thought I would have to be a Sharks supporter this year, but it looks as if I can remain with the Lions. But will they remain with me?

James Greener

15^th February 2008