PUFFING OUT MY CHEST

The winter solstice occurred this week but here in Joburg we are have not yet had anything serious in the way of cold weather.  But I’m sure it’s coming. Just as I’m sure that US markets will succumb to the bear.  On present form, however, the bird bath in my garden will freeze overnight long before the Dow breaks below 10 000! It’s a humbling experience this, trying to forecast the future. On average half of one’s calls should be correct so it does mean that I can boast about the odd success and draw your attention to the NewGold ETF which has now reached 3000 cps. This instrument is a play on a weak rand and a strong dollar gold price.

Despite a slew of  economic statistics released yesterday by the Reserve Bank which allowed the talking heads to get all gloomy about the prospects for the rand, our currency appears to have given up trying to get above 7 to the USD. This in turn has brought some bearishness into the share prices and returns in June now look unlikely to challenge the wonder days we enjoyed last month. Some mutterings about consumer spending slowdown has seen profit taking in the retailers. Nevertheless recent industrial company results still seem to be very healthy.

For two grand a head you can pop along to a seminar next week that promises in just one day to reveal the secrets to “Cracking the Obstacles to Funding BEE Deals”. For considerably less than that, in fact for free, could I suggest that a satisfactory return on investment would do the trick? The detail that the venue for this shindig is a casino makes me suspicious. But then the problem with one of the popular alternative venues is that they may not have recovered from hosting this weekend’s attempt to build the ‘Longest Sausage Roll in the World’ nor from another record-setting event entitled ‘Most People to Attend a Course in CPR at One Venue in One Day’.

I am trying to decide if either of these proceedings have been planned deliberately to precede Monday’s party when the great and good and also the not so great and possibly the downright dishonest will be in town to celebrate the Freedom Charter’s origins. The first ever session of Parliament outside Cape Town can look forward to watching the President light a flame of freedom and hearing addresses from a number of dignitaries. Doubtless, substantial snacks will be provided, for which a giant sausage roll could be a useful contribution. And delegates overcome with emotion or boredom may be pleased to have an abundance of CPR skills nearby.

I am delighted to have so many loyal readers who are disappointed when Tidemarks does not appear. However, I should warn you that our imminent office move from Hyde Park to Fricker Road in Illovo (yes, I’m disappointed too) relies upon Telkom providing appropriate lines and wires on time. Disruption to normal service is possible, but when we get back on line there could well be some great stories to tell you. In the meantime prepare for the barney at Boet Erasmus (is it still called that?) and have a another glass or two in recognition of the Bangladesh victory over the Aussies.

Keep warm

James Greener

24^th June 2005

CLOSE-OUT BLOW-OUT

As usual at the end of last month I was playing around with the national revenue and expenditure numbers released by National Treasury. In the last 12 months they have collected R351bn of income and spent R375bn. So that’s a shortfall of R24bn or R2bn per month. By now most of us would have received a rather anxious call from the bank manger. But governments worldwide seem always to be confident that someone somewhere will lend them the cash to bridge the gap. And astonishingly they are right! Bond yields are way down; in some cases at multi-year lows. These low rates have of course caught the eye of other borrowers and this morning we learned that Eskom will soon be looking for R56bn so they can build some sorely needed new power stations.

Lenders must be confident that this debt is not of the African sort that is being asked to be forgiven. Some USD300bn of it if the Archbishop is to be believed. I do hope that the forgivees will be writing polite notes to the taxpayers of the G8 thanking them for their very kind gifts.

Actually SA has these past dozen years been rightfully increasing its credit rating as a borrower in the international markets. So much so that the new boss of the World Bank, who popped in here after calling in at a few less comfortable places up north, stated that his organisation would really love to lend to South Africa. I’ll bet! People who understand interest collect it, not pay it.

But to get back to those Treasury numbers. As I have commented before, the combination of a consumer spending splurge and an ever more nosy tax man has seen the state’s income growing currently at 11.6%pa. However, Treasury have been doling the stuff out at a rate approaching 12.6%pa. There’s little wonder that wage negotiations for single digit increases are not gaining widespread support. After all suddenly there are these 7000 new mouths to feed as the prisons throw open their doors.

Here in the JSE market there was a complaint from one of its executives that not enough companies were coming to seek a listing. The very next day the JSE’s computers failed to cope with the long anticipated June futures closeout and the market was suspended right in the middle of this very critical session. Tempers in the dealing rooms are getting short and I expect that shareholders of the newly demutualised JSE will want to go short of them as well. To-night’s close out party could get messy.

The government very courageously went short of its vice-president this week and this news almost certainly helped the rand back off from breaking through the R7 per USD level. However, the currency is still weak enough to keep the resources shares cooking.

Wise investors will wait until the long weekend is over before looking to see where the survivors are.

The long weekend is of course the reason why this week’s jottings are going out early. Early jogging will be the preoccupation for all the Comrades marathoners clogging the road to Durban tomorrow. And on Saturday the ‘bokke will be trying to silence the crowing of the French.

James Greener

15^th June 2005

A WEEK FOR THE TELE-CHUBBIES

There’s another long weekend coming up. Well yes, I know that the holiday is on Thursday only, but what self-respecting hard-working South African financial professional fails to add in the Friday and make a decent break out of it?  It’s not as if the three days before that will be easy. On Wednesday the market will be holding one of those futures close-out events. When the previous one occurred in March, the all-share index peaked at levels not again reached in more than two months. Now we are again at record highs and one idly wonders if history will repeat itself. I can be sure, however, that turnover will be chunky and could well surge over R10bn. Exhausting.

Once again it is the currency sensitive sectors which are responsible for getting the bull all fired up, and this is despite the rand backing off from its recent weak points. All this talk of a “natural” level for the rand makes me wonder how such a level might be determined. Does the dollar price of commodities – especially gold and platinum – have an influence on determining that level? I am sure you have seen that the price of Krugerrands and that cute gold price proxy ETF called NewGold have made medium-term new highs in the last few days. Frankly I believe that the rand’s exchange rate with other currencies is one of the more reliable economic indicators that we can watch. Think of it as the country’s share price. It is set in a reasonably transparent and very liquid market with multiple participants. I also believe that for that reason it will be volatile and will rarely settle at any level for long whether or not that level is deemed “natural” or not. It is pleasing to think that the market has been sophisticated enough to shrug off the knowledge that we too now probably have a dodgy vice-president.

I wonder for how much longer are the telecoms companies going to manage to get away with such incredible profits? Both Telkom and MTN announced results this week and showed combined profits of over R16bn. That’s serious money. Enough to enable every one of us in SA to make more than 200 calls each, even at the current obviously exorbitant charges.

And in case you missed it, Governor Mboweni’s performance on Thursday included the announcement that there would be no change in interest rates for the present. Oddly, despite everyone professing that this was exactly what they expected, the equity market ticked down quite sharply after the news as if it had really been discounting a rate cut. Once again the Governor’s TV show was preceded by interviews with hapless pundits who had been persuaded to forecast its outcome. Not good viewing. I trust that the sport this weekend will be more exciting.

The confident predictions that the ‘bokke will hand a thrashing to the Uruguayans this weekend fills me with dread. Humility is not SA rugby’s strong suit. Have you been considering going along to the celebration dinner for the 10^th anniversary of our world cup win? At two grand a head I am surprised that the organisers need to assure guests that they will receive a 5 star dinner on a plate!

James Greener

10^th June 2005

CLEAR THE ROAD – MARKET COMING THROUGH

There was a great deal of excitement out there in the major traffic intersection near this office yesterday evening. Plenty of whooping sirens, hooters and flashing hazard lights.

There’s this belief that having all four of one’s indicator lights blinking can be used not only to signify that the vehicle is stationary but also the exact opposite. That the car is moving as fast as possible while ignoring as many road rules as necessary. I suppose that occasionally this may be a useful (albeit illegal) device for a driver with a genuine emergency, but these days it is used by convoys of luxury cars with darkened windows and tax-spending passengers still without the clout to summon a helicopter. I am disheartened by the world-wide trend of politicians and bureaucrats to assume powers and privileges beyond those they allow their employers – the taxpayers. I rather think that the citizens of Europe with their “no” votes are showing signs that they too feel that they have quite enough legions of legislators laying down the law and lapping up the loot.

At first I the thought commotion in the road was being caused by investors clamouring to reach their broker and participate in the bull market.  The news that the rand was threatening to climb above 7 per US dollar triggered some serious buying fever in the resources shares. The gold index has gained almost 7% in just two days and Krugerrands have climbed to a 1 year high despite the dollar gold price of the yellow metal looking soggy. The New Gold ETF is doing OK too. So also is the New Rand ETF of rand-hedge counters.

Not enjoying the same buying enthusiasm are the shares in the Life Assurance sector, which was the only sector to record a loss last month. Some of this is due to what appears to be a large seller of Sanlam. This trade is probably related to the imminent closure of the Barclays/ABSA deal, but the other heavyweights in this industry are not doing well either. My theory is that baby-boomers like me, now entering retirement, are beginning to totter in to the offices to claim their pensions and other maturing financial products. There, to their horror, they discover how little is left for them after the company has paid for the advertisements of yachts and exotic companions that lured them to that same office all those years ago.  Recently a slew of uncomfortable regulatory decisions and unfavourable press comments have been making things nasty for the assurers and I wonder if the share holder is going to lose out to the policy holder for a while. Just a thought.

When I last skipped a Tidemarks because I was out of the office on a Friday, there was an alarming but gratifying outburst of complaining. Hence I offer this scribbling a little early before nipping off again. I do hope there’s no TV where I am going, as I am not really a tennis fan – especially as some of the more intriguing players at Roland Garos have been eliminated already. For those who enjoy their televised sport to be a little slower there was the three day Durban judgement this week.

James Greener

2^nd June 2005

WE ARE MARCHING TO PRETORIA TSHWANE

It must be like travelling to the Himalayas for the first time. Everywhere you look you see a new high. It must be simply lovely up there and you begin to have grave doubts about the sherpa who told you that it was much too dangerous to join the ascent party. It would be far safer, he said, to sit tight here at base camp and watch the whole thing through binoculars. Safe yes, but very unexciting.  

The JSE All Share index looks as if it could record a 10% gain in May, but then of course we have about the same figure for the year-to-date as well. Remember that at the end of April we were back to where we had started in January and we had no inkling of the cliff face ahead.

The heavy lifting on this month’s expedition has been done by the rand hedge stocks which have been gleefully dancing to the increasingly fainter tune from the rand. Its rather dramatic weakness must be very gratifying for the assorted trade unionists, textile manufacturers and miners who have been calling for someone to do something. Just who has done what, we can’t be sure. But our currency has so far this year declined 7% against the Swiss Franc and more than double that versus the US dollar. I think that might be quite far enough for the moment please.

 Like most US economic parameters, the greenback’s strength has defied predictions. Dollar bears are now bleating that a surprise result in the French referendum on Monday will change everything. Maybe even an expected result will also have undreamt of consequences. It may take a while for the euro to regain its potential reputation as a world-beating currency unit.

In a straw poll taken amongst my colleagues this week, the overwhelming view was that the rand will never again get below 6 to the USD, and that 7 will be the next big figure. That sort of seems right to me too, but I can’t help noticing that our long bond yields are now almost 450 basis points higher than the US ones. This is up from a low of 325 basis points and might just entice some foreign buying from investors seeking yield.

Uncertainty about the name of the places we live in is also adding to our stress levels. Recently the President himself berated Grahamstown for using an unsuitable handle. The President believes that Colonel Graham was a pretty bloodthirsty and unsavoury character and quite the wrong person to name a major seat of learning after. Last weekend’s explorations introduced me to a map filled with unfamiliar Ms and Zs and way too many vowels and I am now quite downhearted to think I might soon be unable to pronounce my home town too. I wonder what sort of fellow this Chief Tshwane was.  Peaceable and benevolent, no doubt.

However, if there’s one thing we can be sure of, it’s that just before the test season begins there will be a bust-up in the ranks of those who claim to run SA rugby. What a sorry mess. And the idea that anyone in government can improve matters is utterly terrifying.

James Greener

27^th May 2005

DESERTING THE RAND

It may have felt as if this week’s market moves were especially hazardous, but as is often the case, the facts can ruin a good story. The All Share index has since Monday spanned a range of just 344 points; historically this is not a large weekly range.  What has of course exacerbated our perceptions that the market has been hairy is the substantially weaker rand. Our mighty currency has lost more than 5% against the dollar and 3% against sterling since last week, before the boys from Barclays said they wished to spend R33bn on buying ABSA. The news that the currency had already been sorted out in a private chat with the SARB and the aside from one of the deputy governors that the rand really was way too strong were the obvious triggers for a spot of selling. But what really puzzles and pains the pundits is that the market has tended to go weaker along with the currency. Nevetheless, so far in May we have managed to recover almost half the losses suffered in the period from the peak levels set during the March close-out to the end of April.

It bears repeating that Africa is not for sissies.

In looking for some light relief from what felt like a torrid market you will have seen the news that one of Cell C’s Black Empowerment shareholders sadly can’t find all the money they need. A big chunk of their allocation might therefore be offered to a Saudi  company which, presumably, does have the cash. Do they, these new investors from the deserts of Arabia, have sufficient melanin to satisfy Cell C’s required shareholder demographic? In the bad old days there was a deeply embarrassing and offensive board of bureaucrats who passed judgement on personal features and subsequent classification. Has it been resurrected?

I was delighted to accept an invitation to chat to a small investment club this week. It is always fun and fascinating to meet the people who are actually battling with the challenge of where to invest their own money. They usually provide totally unexpected insights that have been missed by the professionals. For example this group of ladies were distinctly lukewarm to the idea that NuClicks might be offering value because, they said, the shops were dreadful to go into. This is true.

The Goldfields / Harmony saga does appear to be getting towards the end with the sole winners being the advisors and advertisers and publishers who have waged the battle in the pages of the newspapers. However, as it seems unlikely that the deal will be consummated, the advisors will then miss out on the final juicy plum, a development that has the whole nation weeping in pity for them. They’ll now just have to go and try to arrange the next marriage between a local bank and a foreign suitor, Rumours abound.

There will not be a Tidemarks next week. I plan to be visiting sites for a possible coastal branch office for the household. Requirements? Within casting distance of a decent rock gully and within walking distance of a pleasant public house.  Pleasant, however, does not describe the reception the Stormers can expect at Loftus tomorrow. A last minute hat-trick by them will not be popular.

James Greener

13^th May 2005

BARCLAYS / ABSA: THE REF CHECKS HIS WATCH

Doubtless this will bring a smile of satisfaction to your lips. The old bear was just last Friday, ranting on about how weak the market was and then in the very next letter he needs to eat his words. We have enjoyed a four day week with the market putting on as much and even more value that we have seen in many a five day one. This business of putting down in writing one’s thoughts and ideas is bound to provide copious amounts of egg on face. Aside from watching prices rise the market spent a great deal of time talking and wondering about the Barclays / ABSA deal. You will have noticed that the rand plummeted below 6 to the US dollar this week and the popular view is that this move is related to that deal. I can’t imagine that Barclays have not already arranged the majority of the rands that they will need for the purchase. If they haven’t, then it’s all getting more and more expensive for them and the decision will correspondingly be getting harder and harder. It will be a calamity for our market if they fail to make a bid and return to London to join in the election celebrations. Consensus view is that the deal will take place. If not, then expect serious price declines in the financial sector.

Thanks to an awesome and record-setting R46bn revenue (tax) inflow in March, the government ended its fiscal year with total income of R348bn. This is 16% more than garnered in the previous year. Most private enterprises would be pretty pleased to report top line growth like that. The boys down at SARS must be very pleased with themselves. Even the sheriff of Nottingham must be envious of that kind of tax take. On the expenditure side (or more correctly, on the distributions to departments line, since some departments seem to have great difficulty in actually spending their allocated loot) the annual figure was R371bn. Growth here was 12% pa. The shortfall (deficit) was a very modest R23bn that they had no difficulty in borrowing. Indeed interest rates even fell throughout the period. If a conservative old bear wanted to complain about anything here, then it will have to be the rapidly growing government share of total GDP. This number is something like R1 500bn a year, so the central government is now about one quarter of the economy. Isn’t this way too high?

And we have not even included local government, which here in Joburg has discovered a miraculous new source of income. The mayor has just assured residents that the decision to write off R1.5bn in unrecoverable rates due would not cost them a cent! So where else did he find that cash then? I think we should be told. In the last year the city has borrowed R2bn in the bond market that is costing them about R240m a year in interest. I wonder why this week’s story about the downgrade of GM’s and Ford’s bonds to “junk” status comes to mind?

I suppose that you too will be scouring the local nurseries this weekend for specimens of the Jatropha Curcas tree, whose seeds, it appears, can be crushed to produce an oil suitable for running the family car. A number of folk in the Kimberly area have seized upon this agricultural venture, no doubt also worried by the price of petrol these days.

Quite a bit of sport to supervise this weekend, although it will take a major epidemic of a temporarily debilitating disease to sweep Australia for an SA side to make the Super 12 semi-finals.

James Greener

6^th May 2005