ANOTHER TRADING STRATEGY GOES UP IN SMOKE

 In the last few weeks the daily range of the All Share index has usually exceeded 600 points and on at least three days reached 1000 points. This is variability with a capital “ouch” and even the most skilled and aware trader will have had some scary moments. Some will have been carried out (see next story). Private investors have wisely kept away from this market although the odd glimmer of value has emerged at some of the low points. Once again most of the recent company reports are of better earnings than last year, but globally and locally the economic indicators are not pointing to an imminent or even modest recovery. Only governments appear to be taking on staff and that is seldom a good idea.

There will be great disappointment among certain traders in the City of London today.  There has been a fellow over at a Swiss bank who could pretty much be relied upon to buy expensive and then sell cheap. This dealing strategy caused several billions of his employer’s money to be lost to other institutions and traders. Eventually his boss noticed the flaw and he has been taken off the desk. What do the folk who claim to run these banks do all day to deserve their huge salaries? Risk mismanagement on a heroic scale. Reportedly the rogue trader in his blog a few days ago noted that he was in need of a miracle. Indeed.

Earlier this year we were proudly informed that SA had joined the big league and was now the S in BRICS. Together with Brazil, Russia, India and China we were an emerging nation to be noticed and respected.  The fun and bravado has been short lived, however. Some of our club have become worried by the big financial problems developing in Euroland and are proposing to wade in there and help. Perhaps by buying bonds. Whoa! Hang on a bit. That’s not how it works. The money is supposed to flow the other way. No one said anything about helping Europeans. We are Africans. It is our hands which are outstretched. Get us out of here.

A large full-colour advertisement promises that for the rather modest sum of R2550, business owners can spend a day being informed about the “… host of new laws and regulations that will force them to change the way they do business, secure data, report, audit, advertise and interact with customers in the next two years.”  Whatever the alleged merits of the new rules, it is likely that they will increase costs and unlikely that they will increase sales. The state is choosing a really poor moment to “punish” the private sector for trying to make a profit. And an especially infuriating aspect of this regulatory urge is that the state’s own institutions seem exempt from them.

No one would deny that wealth is unevenly distributed in most economies and that here in SA it may be particularly skewed. The demand for redistribution is a sure-fire attention getter frequently used by political and labour leaders. Slogans like “Economic Freedom” and “Living Wage” are satisfyingly emotive but hard to define and so the people who lead these campaigns should be asked to sit down quietly and do some arithmetic. Using actual data of the current situation they must specify firstly the processes of their redistribution ideas. And then, critically, prove that the resulting new distribution is capable of providing sufficient tax to fund their beloved socialist agenda of providing pretty much everything for free. But then again politicians are not much good at sums, except if they are counting votes.

The ‘bokke need to win just the next six games to be certain of winning the World Cup. Oh dear. Thank goodness I had a heart upgrade this year. Now just let me check where the Lions are on the Currie Cup points table. Ah yes, still on top.

James Greener

16^th September 2011

ALREADY I AM BORED WITH NEW ZEALANDER’S TONGUES

Once again the markets were supposed to be poised for a speech by President Obama in which he would reveal solutions to problems. This time it was a lack of jobs and even in the unlikely event that any bureaucracy can create jobs by other than standing back and letting private individuals start businesses, the speech had no lasting or visible impact on markets. The 10^th anniversary of that terrible atrocity in the USA may be having a greater effect as folk are nervous that there are many crazies out there who would like to seek infamy by doing something stupid today.

It was another week where many companies revealed and promised good and even excellent earnings growth numbers. FirstRand, the JSE’s second largest bank indicated that its earnings should be more than double last year’s. The nation and the Reserve Bank’s bank supervisory department can be rightly proud that the sector survived the global crisis so well and appears to be ready and able to survive the next one which seems imminent.

Down here in our particular kingdom the cost of berthing a containership in the harbour is causing alarm. Sea traffic is allegedly looking for alternative ports because the harbour costs here are claimed to be among the highest in the world. Now instead of getting the harbourmaster to make a few calls and assemble some facts and come to a decision, the dread hand of delegation has appeared with the call for tenders to “[develop] a pricing strategy and determine charges to be implemented for services and facilities offered by … Ports Authority.”  I detect a hugely expensive contract involving international travel over 3 months and a report which says nothing unwanted. After all there are more than 20 ships sitting out in the roadstead right now waiting for a berth.

There has been a conference this week where one of the topics was about broad-band access to the internet. It was saddening that many voices were raised in favour of improving things in a slow and controlled (i.e. regulated) manner allegedly so as to ensure that all sorts of spurious goals will be met. Like ensuring that people who live in the sticks get exactly the same service as those who live in a city. The communications industry is moving and changing so fast that a near-monopoly part state-owned business like Telkom will never be able to catch up. And of course it does not want to. The response of the puzzled and frightened executives and politicians to demands that we join the 21^st century will to appoint commissions and avoid letting the market work.

A long defunct and derelict US satellite is falling back to earth. As much as 500kg of this thing might survive the re-entry into the atmosphere but NASA has stated that the chance of being hit by a piece of this space junk is extremely small. Nevertheless the quoted odds of 1 in 3200 are either hopelessly wrong or worth a bet. Winning the lottery is 5000 times less likely. I must look out my hard hat.

The Rugby World Cup is going to do terrible things for productivity. The car park at the local Mall was almost deserted during the opening ceremony this morning. Beer and boerie roll suppliers are going to be about the only beneficiaries of the excitement of the next few weeks. The trade unions did manage to get a bit of publicity from the news that not every replica ‘bok rugby jersey had been made in SA and wanted to pick a fight over the matter. No one was much interested as pretty much every consumer item that we buy today regrettably is made in China.

On Sunday we will be having leeks on toast for brunch. Go ‘bokke.

James Greener

9^th September 2011

THE THREAT OF BEING BLACKBALLED

Despite at one point being more than 10% down in August, the All Share Index actually delivered almost flat performance over the whole month.  But today it seems that some or other economic measurement out of the States has disappointed or surprised or worried the talking heads and woosh it is all going down again. In parts of Euroland, the suits decided to ban naked short selling which can at times be just as exciting as it sounds. Watching bears getting stripped by bulls is not advisable for people who are easily shocked. The suits would be appalled to learn how many profit opportunities their ban will have created for the clever and swift.

This kind of meddling with the market by bureaucrats who believe they know what the price of everything like labour and assets ought to be usually has only a short-lived impact, particularly in reasonably liquid markets. Such markets soon adjust prices so that they more exactly reflect the current balance of supply and demand. But because labour markets involve voters, the price discovery process often takes far longer. A huge industry of securities analysts tries to make a living from determining the “appropriate” price for assets and then encouraging clients to buy the cheap ones and sell the expensive ones. Of course the value of a company can and does vary a great deal both because of the state of the business itself and equally importantly because the overall market mood and environment can change its opinion on the asset class or market sector. Much of the current volatility in the share markets today is due to the latter factor.

Even experienced market people are perplexed when the market’s reaction to similar news or data announced perhaps just months apart can have a completely different impact on sentiment and prices. Hence this old bear’s advice to avoid buying when relative valuations are high and to select those companies which are well run (as far as one can tell) and have a record of paying reasonable and regular dividends. Selling from a portfolio constructed over time in this way will be necessary only when it is clear that the management of a company have clearly and irredeemably lost the plot or been seduced by some unrealistic vision of the future.

July was a pretty cold month and for the first time since leaving Joburg we were running heaters and wondering if not building a fireplace had been a good idea. Nevertheless the country used less electricity in July than a year ago which is probably a good indicator that business activity was cool as well. The GDP results for the second quarter confirmed that the manufacturing sector is suffering a dreadful 2011 so far. Even if we and the rest of the world manage to avoid having our economies declared officially to be in recession again, most of us are definitely not feeling better off than at any other time in the recent past.

 Isn’t a political party really similar to a club that you join and pay a subscription to in order to be among other people who wish to share the benefits and ethos of that club? Most of us would never consider joining a political party because they don’t seem to have a clubhouse and well-stocked bar with a big flat-screen TV for watching sport. So what’s the worst thing that your club can do to you if you break the rules? Throw you out? Is that really worth bringing downtown Joburg to a halt for?

The tallest tree in South Africa is a Sydney Bluegum and stands 80m high. This doesn’t upset just the environmentalists trying to rid us of invasive alien species. Haven’t we had quite enough of tall Aussies in the Tri-Nations casting shadows over our line outs? And in all the excitement about the ‘bokke setting off for the World Cup, few will have noticed that the Lions are still clear leaders at the top of the Currie Cup log.

James Greener

2^nd September 2011

SURVIVAL OF THE RICHEST

Only a few brave and agile traders will remember the amazing volatility in August with fondness. Problems were triggered when a ratings agency suggested that the US was not quite as good at servicing its debt as it used to be and dropped it from the AAA club. Opponents of this view rightly pointed out that since the USA actually printed the dollar bills, there was no chance that lenders would not get their money back. The ten year bond yields fell to the ludicrously low level of nearly 2%. What received less publicity, however, was the undeniable fact that the very act of printing those dollars was simultaneously eroding their value and so lenders would definitely be repaid with less value. That seems a fair enough reason for the rating downgrade.

Even before the month is over another potentially market-moving event is taking place in Jackson Hole in Wyoming. This sounds like the venue for a shoot out between the bad guys and the sheriff, and in a way it is. US Federal Reserve Chairman Bernanke has been attending a meeting there and is scheduled to report on its deliberations later today. It is unlikely that the talking heads will have been able to resist the temptation to “fix” things, and indubitably their interventions will provoke the bull and then later the bear.

Mr Warren Buffett, possibly the world’s richest man, has infected his peers and competitors with a very dangerous disease. Its symptom is the demand that they be allowed to pay more tax. This reveals their entirely mistaken assumption that governments will distribute their money to the poor more effectively than they could. Tellingly, the disease has yet to surface in SA. In the meantime, Mr Buffett has arranged for the Bank of America to take a $5bn deposit on which it will pay the astonishing yield of 6%pa. Which of that bank’s other clients are going to be paying for that generosity? Probably it will be the poor ones with overspent credit cards.

It is rumoured that the missing despot from that troubled North African country has been spotted at a traffic light in Pretoria selling flags, naartjies and coat hangers. After all we have been the only country to complain that the manner of his removal from power was undemocratic and it is possible we have offered him tea, sympathy and a job. Noble sentiments, but unlikely to impress the young men wielding those terrifying automatic cannons fitted on the back of a bakkie careering through the streets of Tripoli. With so much weaponry on the loose it may be a while before the ballot box is seen as a practical alternative.

Allegedly the SA Rugby Board is considering a plan where a side in the Currie Cup will lose points merely on the basis of the names on its team list. Just think where this could lead. No longer will it be necessary for coaches to pick the 15 players who they hope will have the best chance of beating the opposition in 90 minutes of physical encounter on a rough or muddy field.  Instead each week they will merely submit a team list of individuals they think will meet the Board’s criteria and await news of how many points they lose. The best actual and aspirant rugby players in the country will drift off to play somewhere where they are required to don a jersey and boots to prove their worth. This of course is a concept and technique becoming all too familiar elsewhere in the nation. Potential ability and skill to fill a post, counts for less than name, gender and ancestry. Sadly the one or two cabinet ministers who have expressed concern about this deeply unfair and hugely inefficient labour policy, have been reprimanded for straying outside their ambits.

James Greener

26^th August 2011

THE BEAR IS GETTING WARMED UP

For many months the JSE share market was stuck in a trading range and the list of factors that were being scrutinised for a sign of which way the breakout might go was getting longer. Frankly I think that we bears had the better and more compelling list. And so it has proved to be although it is quite uncertain what finally pushed matters past the tipping point. Personally I single out the US debt situation but right now it doesn’t matter. All those factors are still there and many of them will be exacerbated by the damage that the bear is doing to share markets around the world. It is not yet anywhere near the time to begin looking for bargains.

Undoubtedly all the usual “experts” like the central bankers, politicians and bureaucrats will soon be barging in and distributing other people’s money in yet another attempt to “fix” things. This fixing is really just about not letting capitalism and markets do their job of culling the weak and sick businesses and ideas and making space for fresh and novel ones. The problem is that in many economies the government and business are mutually dependant for survival and they both hang on long past their usefulness.

Here is SA this does not seem to be the case as there is a growing antagonism within the ruling political class towards the organisations and individuals who probably pay most of the tax. Lead by a so-called “youth league” the kleptocracy are raising their eyes from the tax to the income on which the tax is levied. The demand is for “economic freedom” which as far as I know they have not defined beyond the phrase “nationalisation without compensation”. The core principal, however, appears to be the acquisition of unearned income. Their point is indeed attractive and given just how hard it is to start and run a private enterprise where earnings exceed costs, their marches might attract support from everyone in the country not already dependant on the state for a living. Sustainability is obviously some else’s problem

The latest crop of company reports show a slight bias in favour of disappointing earnings often considerably lower than a year ago. Even MTN, the cell phone company, failed to reach double digit percentage growth. Some niches are doing better, however. The demise of Transnet as a reliable service has certainly helped the trucking industry, and the low profile unglamorous businesses that stock and supply the parts that keep the big machines running are OK for the moment too.

Finally here along side the Indian Ocean the Yellow Billed Kites have returned. For me they are the indicator of the start of summer and it has indeed warmed up considerably. If we have another cold winter like that down here next year I shall have to think about moving! Sutherland, I believe is a poor alternative. Thank goodness I never pursued my idea of a career in astronomy.

SAB are finding the Foster’s defence against their takeover bid as fierce as the Wallabies defence of their try line against the ‘bokke last week. Meanwhile the All Blacks are returning our favour of resting their stars for the test in PE tomorrow. Unfortunately not every ‘bok supporter will be clad in green and gold. In a huge triumph against crime and corruption the police have unearthed and impounded a large consignment of counterfeit ‘bok shirts. It’s hard to see why we should not be allowed to choose to buy them over the genuine article. After all many suggest that even the ‘bok coach is not the real thing. May I once again point out the unbeaten Lions at the top of the Currie Cup log?

James Greener

19^th August 2011

WHO’S TURN FOR THE YO-YO?

Amidst the hectic gyrations of the global share markets, a quite disturbing announcement was delivered in Washington. This was that administered interest rates would remain close to zero at least until 2013. While this is devastating news for those having to live on savings it is also an admission by the largest central bank that its efforts to get the economy going are puny and fruitless. Many commentators are warning that the USA might be echoing what happened in Japan where share prices and businesses have been depressed and slow at least a decade.

Locally it feels that the number and impact of positive company announcements and economic reports and data have been substantially outweighing the less optimistic ones. Certainly there have been days when the JSE quite deliberately moved up when other markets were losing their grip. However, I think that the outgoing tide is probably the stronger and the rand weakness suggests that overseas money is going home. That is, we have not yet seen the bottom, so in due course some tempting valuations will be revealed and prudent buying will then be in order.

I am ashamed and embarrassed to admit that I did not know that here on the southern tip we had more than one recognized king. Reportedly they all (?) converged on Joburg this week for their first ever meeting with each other.  Presumably agenda items will have included the care and maintenance of regal regalia, how to deal with unruly princes, and the terrible cost of appropriate consorts. I don’t think the Swazi king got invited as he would have been tied up ensuring that the “four pillars” of performance required for the disbursement of his R2.5bn loan from SA were in place. The first of these is reportedly that his government needs to undertake “confidence building measures”. What a classic piece of bureaucrat nonsense!

Also in Joburg it was announced that taxis and buses will be exempt from the tolls on the R20bn worth of highway improvements that the city has provided. Whether or not royal entourages and bureaucratic convoys will also be exempted from the impost was not mentioned, but obviously only those vehicle owners with easy to find addresses will be pursued for fees owing. Substantial shouting about and deep dissatisfaction with the proposed tolls has broken out, allegedly on behalf of the poor, who are not, I’d have thought, car owners.

No one would disagree that the health services in SA are in dire need of improvement. Just getting back to the levels and standards of a dozen years ago would be a good idea which the present leaders seem unable to achieve. The proposed National Health Initiative is therefore very unlikely to be a success. The biggest puzzle at this stage is why is it going to be so costly? Presumably just about every doctor, nurse, physio and pharmacist who wants employment is already earning an income whether from private patients or the government, and while increases are always welcome, where else is the money going to go? How many Cuban doctors are we going to be able to attract? Some of the cash could be spent on buildings, equipment and training, but are there not already unspent budget allocations and woeful inefficiencies in those areas? Drugs and consumables are extraordinarily expensive; but even with an increase in the number of professionals surely not that much more can be used up? Not even the most ambitious schemes for larceny, theft and corruption could account for the balance.

The city is filling up with folk wearing green, gold and an air of panic. Tomorrow’s test against the Wallabies is the reason. No further rugby comment can be made except to point out that the Lions are top of the Currie Cup log, unbeaten and probably insolvent.

James Greener

12^th August 2011

FLOCKS OF BEARS SIGHTED

Suddenly it is all looking very messy. In a couple of days the All Share is down almost 10% and is back to where it was a year ago. The news wires and pundits are crackling with excitement and urging people to buy at these wonderful levels. But I am not so keen and think that the bear has a lot more work to do before he gets most investors to the point where they never want to buy another share ever again. Traditionally that’s the signal that rouses the bull. Except for this big fall in equity markets, nothing fundamental has happened elsewhere in the economic landscapes. In the US, where of course they raised their debt ceiling at the eleventh hour to even sillier heights, there is talk of the feds coming in once again with “stimulus money”. The Eurozone is springing leaks everywhere. People are waving and drowning!

One good news story locally comes from the so-called small and medium supermarkets sector which operates mostly in the rural regions. They are reporting sales up 73% compared with 2009. From our desks in the city it is hard to imagine how this can be, but perhaps it is government outflows both formal and illegal that are reaching purses and wallets out there in the sticks.

If these poor souls try to flee to the cities, probably the only job they might get will be to clean stuff like streets and floors. Fortunately for them the Services Seta is right onto their plight, convening Cleaning Services Industry Information Sharing Sessions. The five item agenda for these sessions is astonishing to those of us who have no idea what goes on in this industry. The item about new qualifications and unit standards is particularly fascinating. Who knew that, provided the standards were met, one could become qualified to push a broom or wield a mop?

The Pan South African Language Board spent R5.4 m in legal fees to dismiss its CEO. That seems like a lot of money to say “You’re fired!” but presumably the process had to be conducted in all 11 official languages (and Braille).

And so here it comes. Legislation to regulate the ratings agencies is on the way. They will have to become “registered” – that delight of all bureaucrats. Because there is scant difference between a ratings report on an entity and a research report published by an analyst, registration of pretty well everyone in this industry must be imminent. Mining analysts are already in the net. Presumably the objective of the regulators is that aggrieved investors who follow advice that turns out to be wrong must be able to place the blame and loss elsewhere. Sadly it is true that even professionals, who should know better, fail to understand that the responsibility of an investment decision rests with them alone. Justification for this statement lies in the fact that, especially in the case of company analysis, it is common that respected analysts will have opposing views, thus demonstrating the subjectivity of the exercise.

The government has announced that it is to create two new commissions whose tasks will include fighting red tape.  There is something oh so wrong about this idea!

 “Winning will be high on our list of priorities” was the headline that accompanied the report of the Springbok coach’s response to the nation’s disgust at what happened in Sydney and Wellington. What exactly is at the top of this list then? Ensuring that the sponsor’s cheque arrives on time? Providing properly prepared orange slices for the lads at half time? Or maybe it is to have a training and selection policy that confuses and disappoints as many people as possible while delighting the opposition. Yes, that must be it.

James Greener

5^th August 2011