THE INTERNET RULES

Have you heard about NERSA? It is not an association for the nerds of the country but yet another darned regulatory body. This one will, it is alleged,  oversee the electricity, gas and petroleum pipeline industries by ensuring “a level playing field” – yes another one – and “prevent(ing) monopolistic abuse” which will avoid the “unacceptable outcomes” of unregulated markets. Oh dear. The headline to the story described the idea as a “boon” for private industry, but I suspect that the only folk really to have benefited will have been the caterers who arranged the inevitable launch of this latest folly. Hopefully the first matter of business for the nerds will be to determine why we are selling electricity to neighbouring countries cheaper than we sell it at home.

Never one to rest on their laurels, the cabinet also this week approved a radioactive waste management policy, with of course,  a committee to be established to oversee its implementation. I’m rather alarmed that this implies that hitherto no one has been paying much attention to all our toxic waste. And goodness knows the securities research industry alone produces truck loads of it every week.

Of course today’s equivalent of the old “thud” report (so named for the noise it made on landing on your desk) is the multi-megabyte inbox clogger. Fortunately a dab at the Delete button disposes of this menace and forests of trees are spared only to be used by the supermarket and estate agent full-colour tabloids that slip from the pages of the morning paper. Nevertheless, especially in those countries where the citizens are not prevented from having decent broadband access, newspaper circulation is dropping.  The replacement news source of choice is  the internet. This is sowing terror amongst the politicians and other shady characters who have decided reservations about just how much freedom the proletariat should have to discuss their exploits.

The economy and the markets go through cycles and today the immediacy of news, information, lies, data, opinion and conjecture will ensure that this time it really is different.  Investors believe that they now must surely know so much more than they ever did before. However, purported inside-information has a very limited life-span as leaks can now take place at the speed of light throughout the globe. So too can rumours and dis-information whether malicious or not. Many folk who thought this week that MTN was about to be taken over, will sadly confirm this!

This excitement aside, the market was pretty dreary, as the good citizens of the USA devoted their energy away from the markets and towards the ordeal of travelling back home to attend to their Thanksgiving turkeys. Myself, now sated on cherries (have you any idea how many cherry liqueurs there are?), I am off to the Kruger and hopefully some tiger fishing in the Komati. Due to anticipated heat down there I must now go and stock up on cooling beverages.

Don’t forget the match against Wales tomorrow. It’s difficult to think about rugby when it’s summer time and the living is easy. And there’s someone else doing the worrying about all those level playing fields too.

Keep cool and safe.

James Greener

25^th November 2005

RIDING THE RUMOURS

The market must have employed one of those exciting teams of so-called event co-ordinators. You know – a good looking young woman or perhaps a slightly scruffy young man who plans and manages a function so that it achieves maximum impact for all concerned. The recent weeks have been marked by plenty of noise and fireworks. The biggest bang has been perhaps the dollar gold price, setting what I heard called a “generational high”. Presumably this is a time unit longer than a “multi-year”, but shorter than an “all-time” or even a “since records began”. In rand terms the gold price is at merely a three year peak thanks to the rand which looks determined not to try on the “7 to the dollar” big figure.

No less diverting and entertaining have been the cautionary notices, big fat rumours, wild guesses and red herrings that have swirling around as the silly seasons gets into gear. In particular, following the Vodaphone / Venfin offer, the other telecoms listings have been basking in the spotlight of speculation, with Telkom itself being characteristically inept at handling the issues. Looming largest amongst the idle chat is the thought that just about every good company left on the JSE boards is the target of a takeover. While I am sure that is an unlikely scenario, it is certainly true, that in the last few year many choice companies have disappeared from the JSE. And I am not too excited by some of the new offerings that include, for example, a secondary listing for a Nigerian oil company.

It is also reporting season and with few exceptions the earnings growth numbers that crowd the pages of the newspaper look spectacular. Today, for example, there’s the Mr Price clothing store chain boasting of 54% growth. Faithful readers know that my total ignorance of the alchemy of accounting make me wary of this sort of claim and when the experts warn that the new accounting standards will “shock investors” I feel justified in my fears. However, when the earnings are accompanied by chunky dividends then I feel much happier. Less enjoyable, however, are when the distributions are labelled as “capital repayments”, as these are not tax-exempt in the hands of the recipient and cause all kinds of hassles when the time comes to fill in one’s tax return. Of course the outrageous share confiscations that have become so popular amongst the companies who are setting up black empowerment deals also raise a number of tax complications for the losing shareholders.

Despite all the good news, the All Share index has not been a one way journey this week and has settled down somewhat. Because I am tapping this out early in the day before popping down to Ficksburg and its Cherry Festival I shall avoid the temptation to interpret this hesitation as a turnaround. Who knows what will happen later.

I hope to find a TV in amongst all those cherries to watch the ‘bokke face Wales. And of course there’s the ODI in Bangalore. The other reason to be out of town this weekend is that about a million cyclists will close down the throughways of the city on Sunday as they try to pedal as many kilometres as a local radio station has megahertz. That’s 94.7 of them. Good luck to all.

James Greener

18^th November 2005

BEWARE SLOW DATA AND FAST MONEY

A fascinating spat has broken out between the Reserve Bank and National Treasury over the need to retain exchange controls. The former have their doubts that the controls are relevant, while the latter – whose job it is to decide upon the matter – splutter that  they are perfectly happy and we shall just have to wait for the budget speech to see if they will change their mind. I think that the sole sufferers of these controls are now just emigrants and their so-called blocked rands. Everyone else seems to be able to “make a plan”.

And making a plan is what all these BEE deals are about. Another swarm of them left the hive this week moving so fast that it was hard to see where the money came from although we can guess where it’s going to. One day all this undoubted misallocation of capital will haunt us – and provide plenty of material for several academic theses.

The currency spiked a tad weaker in the fuss that followed and that, plus an all-time high for the price of  platinum, gave the mining shares a solid boost. Elsewhere the buyers were not as excited and the All Share index moved only a short distance north of the 17 000 level it breached last week. It is, however, without a doubt, a bellowing bull market. Now that unambiguous statement should see prices plummet presently.

Once upon a time I earned petrol and beer money by working through the night monitoring the antennae, receivers and recorders of a small radio telescope observatory. The heavenly bodies of interest were the planet Jupiter and its satellite Io. The data was captured as inky traces on long rolls of chart paper which we took back to the lab and tried to make sense of. It was pretty crude but not that different from the data capture system now in use at SALT, the hemisphere’s largest optical telescope now operational at Sutherland in the Karoo. Because of insufficient local telecommunications bandwidth, the data can not be squirted out through the internet but instead is captured on little Compact Discs and then carried by hand to observers around the globe. Isn’t that really embarrassing for the country in general and Telkom in particular?  This is another example of how urgently we need to lift the dead hand of bureaucracy off the important levers in the economy.

Today, I believe that there was a ceremony in Pretoria where the Postal Regulator issued the first batch of licences to courier companies wishing to transport items weighing less than 30kg. I suppose that includes the CDs from SALT. The licensing regulations are being “introduced mainly to protect the Post Office from unfair competition”. Our business, like many others, has no choice but to use the postal service for client communication every month, We would all agree that the service seriously needs loads of competition, whether fair or not. My invitation to that ceremony must have got lost in the post. A pity, I’ll bet the catering was lavish.

Opulent, however, is probably the word needed to describe the government offices in Pretoria on which R10bn (yes – billion!) will be spent in the next 25years (compare the R36m bill for the telescope). Also consider that an audit has revealed that the Mpumalanga education department was defrauded of a mere R26m through non-delivery of toilets and water tanks. These guys are getting out of control.

James Greener

11^th November 2005

NO DROUGHT AT THE TALKING SHOPS

This incredibly hot and rainless weather must be to blame. Folk are flocking to conferences in droves where they can doze in the cool of a darkened auditorium while some luminary drones on with his presentation up in front somewhere. And at regular intervals there are refreshment breaks where the caterers are trying to impress. The downside to these gatherings is that they often provide a platform for politicians to flap their jaws and say things even more foolish than usual. For example Deputy Minister Padayachie speaking at a meeting – which itself was a follow up to a colloquium – said that collaboration between telecommunications companies and the state would lower the cost of telecommunications and encourage investment. While this is a dubious proposition, I wonder if had any inkling of the massive investment that was announced just a few days later? Vodafone of the UK has offered to take out Venfin at a huge and tasty premium in order to get its hands on 15% of Vodacom. My guess is that it is the great profitability of Vodacom that attracted the predator’s attention, not the desire to help lower the cost of cellphone calls or provide handsets for the homeless.

Other gatherings of the chattering classes included a derivatives conference in Cape Town; a mayoral business week in Joburg (where complaints about the rather chunky salaries paid to city managers received a curt dismissal); a housing conference attended by the already well housed; a governing council meeting to prepare for the country’s Peer Review (nothing to do with jetties) and some shindig in Germany to which President Mbeki has already jetted off.

More ominous news came from yet another deputy minister who felt that we in the financial sectors are still not doing all that we should do to satisfy FICA. It seems that the bad guys are still managing to launder their money and not pay their taxes. So prepare yourself to be asked to supply verified copies of every document you have ever owned as well a blood test result from the family hamster. On the topic of data, a fine row has broken out about just how many poor people are actually out of work how many jobs are being created. That has coincided with the news that another minister is to lead a scouting party to India to sign up skilled workers. This will not be the first time that the country has raided the sub-continent for help with a sticky problem.

As a scientist I distrust dodgy data but I would have thought that records of sales of both cars and petroleum products would be quite reliable. What then do we make of the fact that 50 697 new cars joined the road in October (most of them on my route to work) but petroleum product sales are pretty well unchanged? Are the proud new car owners just polishing them up in the driveway to impress the neighbours?

Irrefutable data, however, shows that my view on the market was quite wrong. The All Share index has broken above 17000 and into new high territory. The October weakness was a bear trap and I am wounded. So I offer you the forecast from a good friend who is a roaring bull who expects the market to add another 8% or so before we get to wish each other a happy 2006. He’s been really right so far this year.

I do believe that it’s raining right now. Wonderful. It’s traditional that the Centurion ODI gets rained on. And how about them Pumas?

James Greener

4^th November 2005

STARTING TO FLAG

As you may recall, the first Twenty 20 international between the Proteas and the Black Caps was a dreary affair. This is doubtless due to the feelings of horror and despair that swept the local crowd when they unfurled their free 100% polyester South African flags. Almost as large as the colourful and proud pennant itself, was a label that offered stern instructions about how to launder the product and also the assurance that the manufacturer of the attached flag was “Officially Licensed”. The sting came in the three words that proclaimed: “Made in China”. Which dumb government department is using my money to employ people who issue licences to the Chinese to make my national flag? Desperate stuff.

A lot of people announced a lot of things this week.

Minister Manuel boasted about how much money he had collected in revenue this year which means that he will have to borrow less than budgeted to cover a smaller than expected deficit. In principal this falling demand for money ought to reduce its price. i.e. interest rates should go down. However, the worst kept secret in the market these days is that Governor Mboweni intends very firmly to raise interest rates just as soon as he can. He’s fretting about inflation and the interest rate lever is the only one that most central bankers have protruding from the floor in their 27^th floor office with private washroom. He’s dying to give that lever a tug.

Anglo American’s secret was a lot better kept and the news of their major restructuring probably caught many investors unawares. It seems likely that we will  need to change our view and rating of this giant corporate as it undergoes this metamorphosis, but initially the market liked the news. Especially the bit about returning a billion dollars to shareholders. Am I alone in thinking it odd and sad that some one like Anglo can’t themselves find projects to spend that money on?

Probably they were thinking that we poor taxpayers are going to need loads of extra cash soon to help meet the terrifying new R20bn cost of constructing a special train in Gauteng. Leaving aside the fact that there is already a court battle raging between some of the partners in the construction of this baby – and R20bn is worth squabbling over – one does sort of wonder how anyone thinks they will get this kind of cash back, even over 20 years. We certainly won’t expect the answer to this sophisticated project finance calculation from the official who claimed that the escalation in the cost from R12bn over three years was due to inflation. That works out at an inflation rate of about 18%pa! But to be fair, he also admitted that the previous estimate omitted VAT! I wonder if the new wild guess leaves out the cost of money or some other small detail. I have little faith that anything other than the actual construction (no engineer will ever refuse to build something challenging and expensive e.g. Channel Tunnel) will turn out well.

My claim that the market will not again in this cycle, challenge the early October peak has come under pressure this week. Prices have shown a quite spirited recovery that fortunately has not yet blown the forecast out of the water. Nevertheless, the JSE month-end portfolios will be produced tonight and things will look a lot brighter than they did just a few days ago.

James Greener

28^th October 2005

BEARS FIND FISH

We are all now only too familiar with the host of rules and regulations that apply whenever we want to do something as simple as open an account or carry out some other mundane financial task. There must be computers world-wide stuffed full of records of  my mother’s maiden name, proof of my home address and the number of times I have spent exorbitant sums at angling supply shops.

This morning I discovered that my cheque for R72.00 made out to the City of Johannesburg, for a trailer licence, had been deposited into an account named Kolgans Visserye. This looked a bit fishy. The bank’s reaction on being told of this potential fraud was quite disappointing. My report was not the first to alert them to the possibility that a fishmonger appeared to be acting as the city treasury. And when I told them that I had received the licence, they lost interest completely suggesting that the city would not have issued it unless they had received my payment successfully. I am not comforted by this view, especially when we get yet another headline that R1bn has been written off by the city in unpaid accounts.

Investors in and clients of the New York broking firm called Refco, have also been obliged to write off very substantial sums. It seems that major fraud may be to blame for this, the fourth largest bankruptcy in US history. This collapse adds to my growing unease about the situation in the largest market in the world. The US long bond yields are again on the up and all those innovative mortgage schemes will surely begin to hurt the vitally important US consumer’s ability to spend. The Dow has ricocheted about a bit this week, driving the technical analysts into a frenzy of speculation about head and shoulder formations and the like.

But when it comes to bouncing, our own all share index has been giving us a foretaste of the unpredictable behaviour that we will see in the struggle at Loftus tomorrow. With moves of almost 5% from one day’s high to the next’s low, followed by a near complete recovery, the “timing is everything” school of investment has been getting a thorough testing. I hang on to my view that we have seen the top and that down is now the main trend for sometime.

Governor Mboweni has returned from an overseas junket and has been hogging the headlines with startling doubts about his performance in his previous job as minister of labour. And while we were trying to digest that one, he slipped in a hint that he thinks interest rates are too low. This had little impact on the equity market this morning which has lost scores of people to their half-term hideaways in the bush and on the beach. Turnover today will be about the lowest recorded this month.

Fortunately, other records this month include some decent rainfall in Gauteng and our new colleague from the Cape has been suitably impressed by the ferocity of the highveld thunder storms. We just don’t need one tonight please when I stroll down to Wanderers to watch SA take revenge on the Kiwis for lifting the tri-nations. It will be my first time at a 20-20 cricket game so I am interested to see it all.

Only two shares (Lonmin & Reunert) in the top 50 list are up so far this month. Who got that one right?

James Greener

21^st October 2005

GROWTH – BUT NOT AS WE KNOW IT

I would say that the question we posed last week has now been answered by the market. This action is not a mere buying opportunity but the birth of a pretty impressive bear market. So far, just the hair and the claws on one paw are visible. The teeth we have yet to see. And its eyes are not yet open. Almost every share has been wounded. None yet fatally so. The largest one still standing, is PPC. And Krugerrands are at a two and a half year high. If this is the start of a significant market melt-down then I don’t think it will do much for the cabinet’s grand plans for the economy. All kinds of fancy schemes to transfer assets will slip underwater if market prices dip significantly.

Suddenly the GDP growth story has become a mantra with everyone chanting their own favourite number. If only it was that simple. Most of us will have been puzzled by the news that the government this week have approved a “blueprint for 6% growth by 2010”. Why didn’t they approve a “blueprint” like that five years ago?  Could we see the current plans please? Will it involve government appointing and paying for more  legislators, regulators, inspectors, advisors and consultants? If so then it would seem unlikely that the rest of us will have much opportunity after filling in forms and preparing reports about what we thought of the forms actually to get much work done.

For example, the new National Credit Bill promises to “register consumer credit providers, conduct inspections, monitor compliance and investigate systemic market conduct problems…” Apparently the present system is “dysfunctional”. This view hardly fits with the 18% pa growth in personal credit extension reported last week. It seems as if everyone is already borrowing plenty of cash without even more folk coming along to monitor them.

Reserve Bank Deputy Governor Guma, pitched up at the podium yesterday to deliver the interest rate decision. He was so nervous, poor chap, that he surpassed the previous record for monotonous delivery. I gather that towards the end he said that there would be no change, but by then I was fast asleep. The market was already charging southwards and also paid no heed.

It is tempting also to ignore the JSE’s data on net foreign buying of equities. Do you believe that, with the exception of a very small amount (R22m) of net selling yesterday, every day so far this month the overseas investors have never bought less than R300m worth of shares. Last Friday – when the first signs of panic began to appear – the net buying is said to have exceeded R1.1bn worth! This really does not feel right.

I managed to publish some proper research this week and on the website you will find a discussion of the likely impact of interest rate increases on the prices of the banking sector preference shares. In short, I don’t expect them to decline by very much at all. But now that I have written that down, as well as the view that we now have bear market, you can be sure that I will turn out to be wrong on both counts.

Why does the market collapse only in October?

James Greener

14^th October 2005