INVESTING WITH INTENT

Last week we watched fascinated by the sight of a marquee being pitched on the open space beneath our windows. Someone, it seems, had decided that a shopping-centre car park was the ideal place to hold a party. Certainly there was ample parking and Monday’s clean up was quickly effected by means of the fire hose, but it must have been chilly standing on that bleak concrete slab after dark. Stories reached us that it was not a corporate event but some kind of personal celebration. Since none of us in the office “cracked the nod” it must have been a classy event for the rich and famous. Pity. We in this business need some cheering up these days.

There are still no major (or even tiny) themes to seize upon and ride to some sort of satisfying conclusion. The office punters duck and dive, alternately cheering and booing as the rand’s see-saw action makes the pick of the day bounce like one of those superballs one used to play with until it got lost in the hedge. Come to think of it there’s lots of getting lost in the hedge in this game too. Just ask SAA.

My email in-box has been receiving an increasing number of ever more frantic promises of riches for me and my clients. It is probable that somewhere in the list of  exotic and complex derivative products there are instruments that if timed correctly will make us all happier. However, my own tedious combination of age, conservatism and cynicism makes me a bad target market for these toys. I find it hard enough trying to understand just what is going on in the companies themselves without trying to decide what might be the best way to leverage my view.

This week saw the start of the release of the mining company quarterly reports. They seem a pretty mixed bag to me but eight of this week’s top ten movers (increase in market cap.) are resource stocks.  This surge has been enough to drag the all share index to its high point for the month but still a long way off the year’s highs set on 3^rd March. Other company announcements included yet another complicated deal involving Mvelaphanda, a timetable for the squashing of Kersaf and SISA into one and a wish from Sappi that the global economy would get a move on.

This wish will face some headwind if the oil price continues to flirt with lifetime highs well north of $40 per barrel. Did you know that an ounce of gold will now buy you only 10 barrels of the black stuff? This is the lowest number in three years and puts the price, in these terms, some 35% higher than the levels we were enjoying at the end of last year. It is hard to see how we will contain the inflation rate here on the gold-producing Southern tip. Perhaps by dropping fuel prices from the equation – as they seem to have done elsewhere?

In deference and terror I refrained last week from mentioning the ‘bokke’s challenges down under. Am I now being now overconfident in suggesting that by tomorrow evening we will all be roaming the streets looking for a marquee to gatecrash and celebrate in?

James Greener

30 July 2004

A ROLLING BUFFALO GATHERS….

More Art. Downstairs on the plinth in the atrium between the escalators and the trendy coffee shoppe. Near the pub. Which is why I came to notice it. A bronze bull buffalo. On wheels. With two begoggled and horned (really!) stick-thin maidens perched astride its ample back. No reins or visible means of control. No motor connected to the wheels. This buffalo can move only one way. Downhill. Strong symbolism here. Naïve investors riding a bull market? Hmm.

It’s not the intention of this piece to list the crises and joys of the past week in the market. I hope now and again to make a remark that may help you follow what could be taking place. In front of me I have a number of home-grown models and screens that try to summarise and characterize the deluge of numbers. However, it is, of course, quite useless and probably irritating to be told that a certain index has moved here, when one’s share holding – which in all likelihood is a member of that very index – has travelled, very convincingly, there.  Despite having made a career speciality of describing index historical returns, I must admit to knowing deep down that that sort of info is pretty useless. What we all need to know is what is going to happen.

As I have mentioned before, there is now a growing body of research that is coming to the same conclusion that we physicists have always known. That the future is unknowable and in systems like the markets, the next move is randomly up or down. Certainly there are examples and strategies that seem to contradict this observation and I myself have a fondness for trying to use financial ratios to identify relative value.  It’s difficult to accept that all one’s experience and skills are inferior to plain blind luck! All “proper” research carries a warning along the lines that past performance is no guide to the future. But no analyst putting the final full stop to a brilliant report really believes that. Do they?

So will it help when I tell you that once again the currency was the cause of the screams and yells in the dealing rooms of the nation? My charts suggest that this week the rand’s weakness was almost exactly matched by the dollar’s strength.   Substantial intraday ranges in the market indices, with no discernable trends, caused dismay and confusion. As did the news that an appointment had been made to the chair of the Commission for the Promotion and the Protection of Cultural, Religious and Linguistic Rights. The fortunate incumbent has a doctorate in ethics from the University of Chicago. This also is a dubious proposition. But perhaps he will be able to tell us if the lasses aboard the buffalo are praying, and in which language. Culturally, they are nowhere.

James Greener

23 July 2004

LICENCED TO JUICE

This week’s remarks will make you reach for your wallet. How close to expiry is your driver’s licence? In just a few weeks my piece of rather drab, illegible plastic-encased cardboard will self destruct. After the end of August I shall be forbidden to operate a motor car with trailer not exceeding 3500kg in mass. More poignantly perhaps, that date would also see an end to any official sanction for me to throw my leg over the seat of a motor cycle of engine capacity in excess of 125cc. Unable to face these deprivations I joined a long queue on Tuesday.

At the end of a fair wait I found overworked, under-resourced, friendly, patient and astonishingly helpful clerks who tested my eyes (Where is the chequer board sir?) took my finger prints (Relax your thumb please sir)  and probed my pocket (R130 please sir). I will have to return in a few weeks to collect the new licence. I expect that I will get a lot of time to stand and think on that visit also.

Much of this week’s thinking was inevitably about the rand, which this afternoon has broken decisively and substantially through the six to the US dollar level and on the week has run out easily the best of a whole raft of other money including the Swissie, the Pound and the Euro.

To the dismay and puzzlement of us bears, the equity market has not responded with a satisfying headlong plunge. Its daily excursions appear to have been aimed at injuring the short term punters, parting them from their cash and their affability with each unexpected reversal. In fact the All Share index looks as if it could close up on the week. Powerful performers include three of the big banks (not Nedcor) which are placed right behind Sasol, the outright leader with a gain in market cap. of more than R3bn since Monday. I love this share.

At the very kind invitation of a client I enjoyed another excursion away from the office this week when I was introduced to the whole process of turning water into orange juice. Aside from the trees, the labour and the technology, the most impressive link in the chain was the squeezing machine. At some incredible rate it selects half a hundred oranges and slings them into individual egg cup shaped holders. A frighteningly medieval looking cap plunges down and in the blink of an eye juice, peel and pith are going their separate ways. The similarity with what the market can do with a portfolio was too awful. At least in the factory the end result is sweet and sticky.

I drove home (barely legally) still thinking.

James Greener

16 July 2004

RIDING OUT THE COLD WEATHER

I am a keen armchair follower of that massive sporting event, the Tour de France. For us in South Africa this is a race that starts in the winter and ends in the spring. After the cold snap we are enduring this week in Joburg, a spot of warmer sunshine and green shoots on the trees will be very welcome.

I imagine that most of the Tour riders, however, are not welcoming the prospect of soon having to pedal themselves and their bikes up some pretty awesome mountain peaks. Much the same feeling must be creeping over the bulls as they watch the all share index which seems keen just to freewheel down into the valleys, drains and dongas. It is now more than 10% below the March peaks. Regular readers will know that this unfriendly behaviour does not surprise me. In fact I am huffy that it is all happening so slowly and indecisively.

The headline-grabbing financial headline of the week was (as usual) about the rand which was accused of being STRONG. At one point, just half a dozen of them would have scored you a greenback. So far this month, however, the dollar has weakened against most other currencies as much as or even more than it has against our own runt. This means that in July, we have suffered from dollar weakness rather than rand strength. For the exporters, of course this is a nicety that doesn’t help them pay their bills and dividends. This is certainly the reason for most of the downward pressure on the indices.

The Standard Bank preference shares began to trade this week and the efficiency of the market surprised me. Despite the massive unsatisfied demand for the issue, the price in the market almost immediately settled at just about 3.5% above the offer price. This placed the new share on almost exactly the same projected forward dividend yield (7.75%) as the two previous issues (Nedbank & Investec). This is still a very tasty return and equates to something in the region of 12.5% for a taxable interest paying instrument. All tax-paying portfolios need to have slug of these prefs tucked away inside them. Just imagine the fun of filling in next year’s tax return and putting a much smaller figure in the “interest received” block.

So I am afraid there is certainly no call just yet for investors to don the whites, thread a red rag through the belt loops and start prancing about, trying to attract the attention of the bulls. They just aren’t about yet. Pull that kind of stunt and you are much more likely to get a nasty slapping from the shaggy clawed one. Far safer at this stage I think, to leave the action to the guys in slick shorts and slotted helmets. And please keep warm this weekend.

James Greener

9 July 2004

FRETTING ABOUT THE MARKETS

A good friend explained to me that his strategy for life was now one of going for the enjoyable option. In the light of the realisation that I am older than that iconic electric guitar, the Fender Stratocaster, that has just turned 50, this seems sensible advice. 

So I have spent an enjoyable week completing the month end tasks that included compiling a share valuation list that you will have received in the post together with your statements and portfolio print outs.  On a “dearness” scale of 1 (cheap) to 10 (expensive) the average rating turned out to be slightly more than 5, which tied in with my view that the market as a whole is pretty well priced. The index return calculations that I also produce at month end, provided another numeric confirmation of how flat and uninteresting the market has been for investors. The all share index is slightly down for the year with the gains on the swings of the financials and industrials slightly outweighed by the dizziness experienced on the roundabout of resources. The fact is that cash was the best performing – not that one wants to dignify a mere 4.1% with the description of performance – asset class in the last six months.

Very few of us began 2004 with anything other than a deep scepticism about the likelihood of an ever strengthening rand and consequently the mining shares in our lovely so-called balanced portfolio have delivered us a kicking. The gold index is off 35% since January and platinums are down about half that amount. Is it too late to run for cover? Probably.

This reminds me of the newspaper headline that revealed that there was “A race to get the Athens computers running”. I am sure this is true. Perhaps they should be entered for the discus instead? And no matter what the result of the Greece versus  Portugal football final this weekend, the subsequent celebrations will doubtless put further strains on the Olympic readiness timetable. Every year this first weekend in July is a pretty tough one for us sporting critics ensconced on the couch armed with beverage and remote control.  By Monday not just the cyclists on the Tour de France will have saddle sores.

Also on Monday we will get the results of the Standard Bank preference share allocation.

I wonder if I would enjoy guitar lessons?

James Greener

2 July 2004