ALL MY FAVOURITE RANTS

Yet another year and my invitation to attend the Davos shindig went astray in the post. Despite the discussions apparently wandering off track and delegates fretting about climate change rather than interest rates, I think I would have managed to get through the week. The catering has been of a sufficiently high standard even to merit a mention in the local papers. Next to a picture of chefs slaving over hot stoves was the news that prawns have been the food of choice for the visitors to the snowy wastes of Switzerland. Between mouthfuls of crustacean and slugs of bubbly I am sure I’d have been able to slip in enough complaints about hot it can be in Joburg at this time of year, not to feel out of place.

Another meeting that caught my attention was the gathering of the nation’s number crunchers. No one, it seems, is satisfied with the current methods of calculating just how much money a company has made (or lost). This appears to be a never-ending problem for accountants, taxmen, regulators and even the JSE. And so the worthies assembled and argued about what is a basic earning and what is a headline earning and other such bewildering concepts. Naturally, the rest of us in blissful ignorance of these distinctions, have been happily dividing the P by the E to help us decide if we should buy the shares or not. Just shows what we know.

I am also woefully ignorant of why someone found it necessary to buy a full page colour advertisement proudly to announce that the IDC (a government sponsored entity) had posted a Performance and Retention Bond (and I don’t know what that is either) for the sum of R220m for the Gautrain. This large display, for what in context is a rather small sum of money, is puzzling. Just imagine how big the ad will need to be when someone eventually comes clean and reveals the full amount that us taxpayers are pouring into this particularly large wheely bin.

The year is now well underway. Business Day has returned to two segments and the corporate tombstone notices are gathering in size and number. Sadly, many of them relate to the imminent disappearance of yet another listing from the JSE boards. The number of Unit Trusts (sorry – collective investment vehicles) now far exceeds the number of different shares one can buy. So in theory it should be more difficult to choose a unit trust than to choose a share to buy.

The market rumour today is that the managers of these funds have been sniffing around looking for derivative products to provide protection for their portfolios in the event of the market falling. This perennial story should not surprise or worry anyone. One would hope that any professional manger worth his fee would always be considering the appropriate downside protection that the cash, the mandate, and his judgement will allow. The problem for the market will not arise from this sort of prudent action. The market will fall when large numbers of investors decide more or less simultaneously that they wish to exchange their shares for actual cash money. What the trigger for that occurrence might be, none of us know, but we would like a week’s warning, please

Of course, the All Share index set a new high this week again.. The Easter bunny had better keep looking over his shoulder. This bull is on steroids and charging into 2007. And I am slinking down to the ‘berg for the weekend. Hence an early tide.

James Greener

26^th January 2007

TRADING IN THE DARK

Once again, I can report that the All Share index set a new high during the week. One year and 40% ago I was doing the same and making a fool of myself in print by wondering if the end was nigh. So there’s no harm in doing it again this year.

Among the signals which I interpret as ominous is that the dividend yield of the index that tracks just the financial and industrial shares (i.e. no resource or mining shares) has fallen below 2.5%pa. In the past, this has been a critical level that seems to lure the sellers from their lairs. Exacerbating this development is the rise of money market interest rates. 1 year deposits of wholesale money should now be able to get better than 9.8%. Remember that this should jump up by almost half a percent when Governor Mboweni announces the seemingly inevitable 50 bp rate hike in a month’s time.

The Governor’s opposite number in Washington this week surprised most people by admitting that the US is facing some slightly worrying deficits that could grow larger unless something is done. Just who is going to tell the US consumer and voter that tax hikes and spending cuts are the remedy was not mentioned. So far, the markets’ reaction has been benign. The US dollar and the pound sterling have been the best performing of the major currencies this year so far. I am puzzled by the relative weakness of the Swiss franc. Can it be that the paucity of snow at the ski-resorts is harming tourism so much?

I haven’t been following the developments down at Coega near Port Elizabeth (the place where the Proteas are getting hammered this morning) as closely as the spending of my tax money deserves. But I seem to remember that one of the industries we are begging to come here and open for business on the salt flats of the Eastern Cape is an aluminium smelter plant. Now among the many stories in the press today about yesterday’s wide-spread power blackouts is that Eskom have been chatting to the existing smelters about their power usage. Apparently, the conversations have touched on the need for them to turn down the wick a tad. This will not have gone unnoticed by those who once might have considered coming to shovel bauxite in Algoa bay. Given that many of the world cup matches are scheduled to be played under lights it may avoid acute embarrassment if we were rather to discourage large electricity users from coming here just at the moment.

This energy debacle provides an appropriate background for the notice this week published by the national department of labour. They are seeking technical experts to develop a Business Case for the National Skills Fund. There is an element of cart preceding horse here. Since 1999, the ever-thoughtful state has been collecting levies from us but only now appears to be getting around to putting the money to uses other than paying the salaries of those who placed the notice. Early candidates for an injection of technical skills must surely be the planners at Eskom who have been caught so unprepared

I must now go home and switch off the water heater and the TV. A sing-song round the braai fire before a cold shower and then bed by candlelight, awaits.

James Greener

19^th January 2007

HOT AND TROTTING

Oh well, that looks as if the rickety start to the year is out of the way and the bull is now back in charge. Only 250 points to another new high and that’s not even a one percent gain. This market can leap that much in the first ten minutes of trading on any fine summer’s day.

Already this year we have had a few results and trading updates from those companies that left their accountants sweating over hot keyboards while the rest of the staff went to splash in the waves. There’s been nothing to scare the market there. Dozens of percent earnings growth is starting to seem quite normal.

We bears have had to scratch around quite hard to find any sort of nutrition. There’s the shudders from fellow emerging market, Thailand, where a new military government is displaying a quite wonderful contempt for markets. And the Old Lady in London unexpectedly cranked interest rates up 25 basis points – rather to the (short-term) dismay of the share market there. Some oil producers have been messing with the taps and causing the oil price to bob and weave. And one scaremongering scribbler offered the view that China was quite able to put on its own little economic slowdown and that troubled a few commodity markets.

Back home one could get steamed up about a weakening currency. The trouble there however, is that this week the rand has been pretty steady, and secondly we are not sure if the market goes up or down when the currency does the opposite. Judging by the traffic here in Joburg, as well as the JSE turnover, not everyone has settled down to worry about their portfolios yet. Maybe developments next week will give us a true flavour of how strong this New Year bull really feels and how many folk got new cars for Christmas.

Do please remember to devote some time this weekend to exercising your index finger. Despite the mysterious disappearance of some cash and its chief executive (not simultaneously, I hasten to add) the telecoms regulator has found time to instruct us to punch the full ten digits for a local call from Tuesday. I am very puzzled by their claim that this will allow many more telephone numbers to be made available for use by currently unconnected communities. How?

The sight, last weekend, of the Proteas making really heavy weather of saving the series against India was quite painful but I watched in horror a rugby match that was taking place in Nelspruit! In the first week of January? The temperature on the field was not mentioned but big numbers must have been involved, not to mention the humidity. I think one of the sides was a touring team from overseas. I wonder how many of them survived?

Survival is also a factor in the markets. Already this year there have been headlines suggesting the disappearance of some familiar companies from the JSE boards. These private equity fellows are certainly waving their chequebooks these days. I suppose in a few years time the assets will reappear in a different package and at a higher price in some slickly marketed share offer? All rather annoying.

James Greener

12^th January 2007

WHAT TO WORRY ABOUT IN 2007

The New Year has started in a way that investors will not wish it to continue. After setting an all time record high on the first trading day of the year, a sharp correction in the rest of the week has virtually obliterated the pre-Christmas rally. The obvious question now is whether or not this slide will develop further and whether one should be edging towards the exits. 

To provide an answer now that will look clever in a few weeks or months time will require some luck. Most of the portfolios that I get asked to look at are constructed with a considerable emphasis on providing income. I don’t think that there are yet any signs that annual dividend payments from the solid industrial and financial core holdings will decline in 2007 relative to 2006. Indeed, in most cases substantial dividend growth seems still very possible. If you agree with this, then there is really not very much that one should do right now.

Of course, dividend yields are dreadfully thin and PE ratios are way up as well, so it would not surprise me if share prices were to fall this year and return those parameters towards average levels. However, very few risk-free investment alternatives can provide the level of income that flows from most long established share portfolios. Hence, I suggest that investors should not sell just to avoid seeing the market value of the portfolio decline, unless they are prepared to forego or are able to replace the after-tax income stream.

It is of course always necessary to review the portfolio regularly and prune holdings which through their own success have got a bit overweight. Whether to direct the cash that this would raise, or even new cash, back into the market immediately, depends on the shape of the rest of the portfolio and the investor’s own attitude. I expect that there are many readers who share my anxiety about the potential for a vengeful and savage interest rate increase emanating from the Reserve Bank in the next few months. This would likely provide better buying opportunities.

Actively traded portfolios naturally have to take a very different approach and are delighted by the volatility that has appeared as the trees and tinsel come down.

And if the market is not stressful enough, we citizens of Johannesburg have been told to calm down and not worry that the city has announced a review of the rating process. We are not to assume that this will automatically result in higher rates. Sorry. I am worrying. No bureaucrat anywhere has ever pondered the source of his salary and not decided that he deserved a raise. An attack on ratepayer’s wallets is a certainty.

Less certain is whether the two world-cup sporting festivals that are coming this year will make us a happier nation. Not even the departure of numbers of geriatric players from the Aussie cricket team is comforting. There are some awesome replacements coming along, but then too, we have a few as well. I do wonder if the management of SA Rugby has stopped squabbling long enough to notice that the picture on the calendar has changed and that in about 9 months time we need to send a team to France.

I hope your return to work is proceeding gently.

James Greener

5^th January 2007

END OF THE YEAR. TOP OF THE MARKET?

Apparently, there is a new approach to drawing money from an ATM. In the event that you have forgotten your PIN or perhaps your card or maybe even you do not actually have an account then a wad of explosives comes in handy to get the machine to dispense some cash. This is a much simpler method than the old one where one had first to hijack a bulldozer before digging the ATM out of the wall. I haven’t yet seen the minister’s response to this “bang for a buck” development but presumably it will be the fault of the banks for not installing sufficiently bomb-proof auto tellers.

This is of course the final Tidemarks of the year and the JSE will shut at noon so I shall be brief. Despite the very quiet conditions of this shortened holiday week, the All Share index scored another record high. But in the last few days some really shocking statistics have been published. Money supply growth is soaring again and the massive trade deficit was as unexpected as a tsunami on the beach at Plett. The poor governor of the Reserve Bank. He has repeatedly told us how our profligate spending habits worry him. Doubtless, he is right now pouring himself a stiff one from the selection of bottles received from grateful bankers at Christmas time. Thereafter he will be off to the laptop to peck out the text of a thunderous speech at the end of which he will hike interest rates. Probably by more than 50bp. Fasten your seatbelts.

I would like to wish you a very safe and happy and healthy and prosperous New Year and look forward to continuing this contact between us in 2007.

And just think what awaits the Proteas in the West Indies.

James Greener

29^th December 2006

REINDEER SIGHTED CHASING A BEAR

The future’s close-out was quite an event and the All Share index scored another new all-time high on the day. The 25 000 level is a mere skip and a jump away now. There’s no doubting that we have enjoyed an exceptionally long and powerful bull market with few missteps along the way. One occurred in May and June of this year when we bears could be seen chanting that the index was about to plunge below 18 000. It never did and so this merry Yule tide is upon us; provided one tries not to pay any attention to the state of Proteas cricket.

I was bemused to read that the auditor general reported that (he) “had found so many significant material deficiencies in the government’s accounting systems that…” (he) was  “unable to express an opinion” on the financial statements. Now this is the season of goodwill so let me tell you this report was about the USA. Terrifying isn’t it? But it does help when you can print the currency that can be used to balance the books.

Just in case you feel that I am going soft on our local legislators, however, may I ask if you know that the local Road Traffic Management Act allows political leaders (now, there’s an oxymoron and a topic for debate) to disobey traffic signals in the execution of their duties? To my knowledge, the only duty a political leader ever has to fulfil is to be somewhere, shake a few hands, deliver a speech and accept a few gifts and of course refreshments. Sometimes a little dancing is called for. Certainly most of the speeches are liable to induce terminal boredom but otherwise there is nothing vaguely life-threatening in those duties and so I do not accept that the rest of us need to face even more peril on the roads than that already provided by the felons and taxi drivers going about their own duties.

Just think, if the political leader, like the rest of us, was stopped at the red traffic light he too could add to his collection of exquisite beaded wire gifts or get the wife some more coat hangers for Christmas. But maybe he is a sensitive soul and he does not wish to have to share my despair at the plight of our fellow citizens begging at the roadside. It is obvious that governments of every kind are totally unable and unsuited, not to say inept at managing and distributing wealth, except to themselves. When it comes to being Robin Hood, they have mastered only the bit about robbing the rich. The skill of giving to the poor evades them. The burden of choosing who to reward is costly and tiresome and just as they select one deserving case, either the cupboard is mysteriously bare or an even poorer relative comes in sight gathering winter fuel and promising not to speak to the press.

The JSE’s Christmas spirit failed it this year and this, the last trading day before the holiday, did not end at noon as in the past, but will trudge on to the bitter end at five. By then though, even the skeleton staffs will be down to just the odd bone or two. Next week there will be just two and a half days of trading and I imagine that only the extreme bargain hunters will be prowling the screens. One of them will be me.

I wish all readers and very safe, happy and merry Christmas.

James Greener

22^nd December 2006

THE STAR AT THE TOP OF THE TREE

I suppose that by this time next week we will have shut the doors and wandered off in search of Christmas cheer and some last minute panic buying. Of presents that is, not shares. Anyway, it is pretty difficult to find shares to buy when the index is once again probing record highs. Unless Armageddon hits in the next few days, the All Share index is going to deliver a total return for the year of almost 40%. Not as good as last year’s 47%, but still strirring stuff. This will be the fourth year in a row of such excellent performance from the JSE. It is the sort market that makes us all look like investment experts.

Another area of my expertise is the punching of calculator buttons. So I flexed the  digits when I saw that the National Treasury plans to spend not a penny more than R15.1bn on hosting the soccer world cup. This parsimony appears laudable if unlikely. However, if the format is similar to this year’s tournament, we can expect to welcome 32 teams playing between them, 64 games. The taxpayer’s largesse therefore, works out at spending almost R40m per player who is coming here to boot a ball. Or, put another way, we shall be paying around R2.5m per minute of soccer played. Neither of these figures appears to me to be a great bargain.

But I am just an old curmudgeon who is wondering how the business folk of Rosebank are coping with the morass that their precinct has become, now that the digging for the Gautrain has begun in earnest. I still don’t recall seeing which selfless public body committed their ratepayers to guaranteeing that the contractors will get their bills settled, but there needs to be some significant value delivered for all the expenditure and inconvenience we are suffering.

We are at that time of year when bold and foolish analysts succumb to flattery and offer predictions of what the markets have in store. These flights of fancy can do no harm and often generate amusement, particularly when another pundit vehemently rejects the first and supplies his own guess. Such a case unfolded this week when no less an authority than the World Bank (those lenders of last resort to the basket cases of the world) suggested that next year SA would achieve GDP growth of no more than 3.6%. I think this may be rather pessimistic, but if that is all we achieve as we get fully underway with the aforementioned preparations for the footballers, then the share market is going to get messy.

As expected, the US held short term interest rates steady and this put more downward pressure on the US dollar. Our own humble rand improved to better than 7 per USD and the main reaction has been a ratchetting up of the shopping frenzy to gather imported gizmos. By contrast, it will probably be very quiet next Thursday when a particularly late in the year futures close-out event will happen. Many practitioners of this arcane trade will by then be clutching a cool beverage at the braai on the beach and the only close out to worry them will be when the bottle stores shut. Which brings us back to the panic buying story.

I trust that many of you too will be somewhere pleasant and peaceful and friendly by then. Have a great weekend. Do you remember when we called it Dingaan’s Day?

James Greener

15^th December 2006