GO SHORT FOR THE LONG TERM?

This has to be the way forward. Here I am scouting about for an idea on how, where and when I should retire and yesterday’s paper carries an advertisement for the perfect position. It seems that the Kwa-Zulu Natal Department of (Local) Economic Development is looking for “Short Term Experts” in just about every sector and service under the sun – and hopefully near some warm fish-filled ocean. Now if there one thing any stockbroker can claim it is that he is a short term expert. What an opportunity. There are acronyms and buzz words and partnerships with stakeholders and all the good gravy train stuff. Best of all, the cash is coming from an EU grant.  This STE in LED is just padding out his CV and he’ll be aboard in a heartbeat. And if there’s any air travel required, then a seat at the sharp end please.

While I await their reply I’ll just demonstrate my short term skill and tell you that July has been a pretty good month for the market with the all share delivering slightly more than 7% total return. This brings the year-to-date figure well above 20% - a number that not even long term experts were expecting at the start of the year. In this kind of bull market just about any buy recommendation makes one look like a genius.

Genius, however, is not the word I would use to describe the announcement that the government has identified 10 000 unroadworthy vehicles which will be removed from the roads by December 2006. Why wait? Surely just boot them off as soon as you identify them? At least it would give those of us who own slightly safer vehicles a bit more space to drive in.

Getting back to the market, I have to express surprise and delight that the markets seem these days by and large to ignore the lunacy of politicians and other extremists. Remember when Minister Manuel declared support for any team playing against the ‘bokke? That put several points onto bond yields and scared the rand. Today, however, our president’s claim that corrupt politicians had no part in Zimbabwe’s debt crisis had no effect on the markets. “(The problem)”, he went on, was simply that “the government of Zimbabwe spent more money than it had.” As a graduate of a rival English university to the one that Mr Mbeki attended, I can only say that economic theory of this standard is all I could expect. As far as I know there are very few countries which don’t run a budget deficit. We will begin lending them money too?  The SARB as the new World Bank? Eish!

So is this the top of the equity market? I have no idea. I certainly have no clever buying suggestions – short or long term – at these levels.  The industrial index earnings base annual growth rate is starting to back away from the record 40% level. The index, now a heroic 140% up since early 2003, certainly anticipated this growth brilliantly. I have once already erroneously identified the substantial rerating that accompanied this rise as overdone. Maybe my education is just as suspect as the president’s. However, I am going to plunge in again now and say that I don’t think there can be much more upside to industrial share prices from these levels. Can we really expect another season of 40% plus earnings growth? Many people think the answer is yes. I don’t.

Important rugby at Loftus in Pretoria this weekend. Can the ‘bokke do it again without Madiba there? Just 80 minutes of short term expertise like last week please chaps.

James Greener

29^th July 2005

OFF THE RAILS

You may have noticed that I didn’t send you a “Tidemarks” last week. That is because I was attending a 150^th birthday party in Grahamstown. My old school was holding a jubilee celebration and I went down there to help. It was a great occasion with plenty of long-standing friends, some of whom were old too. Food, drink and words were plentiful, with rather a lot of sentences beginning with “When I was here...”. Many of the old boys are farmers and I was struck by how in touch with economic developments like prices, currencies and interest rates they were. The power and ubiquity of the internet reaches even onto distant maize farms in the Free State!

Another observation, after spending 20 hours on our national road network, is the enormous number of huge trucks and buses rumbling up and down the country. And yet at Noupoort – once the hub of the railways – I saw very few trains on the tracks. As a nervous flier who rather enjoyed the glory days of cheap British Rail services in the early seventies, I have long thought that a reliable comfortable overnight intercity service between our business centres would be a good idea.

While I was away, the market powered on northwards – this time it was the financials and industrials doing the heavy lifting. Anyone who hoped for a buying opportunity in SAB following their news of a substantial cash raising exercise to buy most of South America’s beer was disappointed. Similarly the threat of official investigation of undoubtedly high cellphone costs did nothing to dent the telecoms sector. Resources slowed a little as the rand recovered against most currencies.

A strong rand should be welcomed by taxpayers who this week have been told to chip in with a loan to Zimbabwe of one billion USD dollars. Just what the terms of this loan might be has not been released (why ever not?) and some of us are a tad sceptical that we will ever see it repaid. However, we also appreciate that hungry neighbours are definitely unwelcome.

Still on the topic of the rand but slightly more technical, it is interesting to note that at approximately 3%,  the cost of 1 year forward cover (the price of dollars for a deal to be settled this time next year) is at its cheapest in the memory of most dealers in the market today. What this means is that the foreigners who are currently buying copious amounts of the JSE share market can very cheaply insure themselves against the rand collapsing and wiping out their profits. This may provide a useful bolster and impetus for yet more buying by those fellows. Another underpin may also be forthcoming from the Barclay’s cash that must eventually seep into the market as the ABSA shares get paid for. All in all, it’s a bad time to be a bear.

It’s a bad time to be a ‘bok supporter too.

With all the good news on the business front these days, people are changing their newspaper reading habits and starting at the front pages instead of with the sports pages at the back. But I am pleased that it looks as if Lance Armstrong will clinch his seventh Tour de France title this weekend. A wonderful triumph on behalf of all former cancer patients.

James Greener

22^nd July 2005

WHAT BOMBS?

This week we learned that a tragic and appalling terrorist outrage, this time in London, meant little for the markets. I was very surprised by this lesson, but obviously there were people who welcomed the buying opportunity offered by the initial response of a sharp dip in prices. We bears will just have to be patient and wait. Eventually, some event will destabilise the market. In all likelihood it will be a seemingly trivial announcement that will be identified well after the fact. Only sterling itself has so far suffered any modestly significant and enduring weakness. It amazes me to see that the world’s cash has been flowing solidly back into the USD. The real government deficit in that country is now so large that even a 100% tax rate would not close the gap!

I am certain that politicians worldwide will seize the opportunity afforded by these attacks to say “we told you so” and to ratchet up the restrictions and invasions on individual freedoms. It has already begun. A member of my own family arriving in Toronto from London yesterday waited an hour and a half while all in-bound luggage was X-rayed! Air travel is going to get even more tedious. The sad irony is that none of the measures put in place in the last few years managed to detect or predict yesterday’s disaster.

Did you spot our own distinguished president in the row behind the leaders of USA and France during the telecast of Prime Minister Blair’s impassioned speech at the G8 summit? In common with the other heads of government our man appeared not to be paying too much attention to the oration and his mind was obviously elsewhere. Perhaps he was wondering how soon he would be able to escape the perils of bagpipes, oatmeal and haggis and get aboard the presidential jet and its R827 per passenger catering budget. He will need something to help ease the transition from Gleneagles to Sudan – his next port of call.

After having (sort of) announced the tender winners (Basil Read Holdings up 27% this week) for the Gautrain project, the provincial premier and at least half a dozen public servants are off to London, Tokyo and Randstad (not Randburg) on a fact-finding tour. It seems that these places have “good transport, cultural and safety set-ups”. Apart from lousy timing as far as London is concerned, I would have thought that this kind of study should have taken place years ago when the project was first being planned.

Citizens, however, are less convinced that public transport is the answer and bought a record 50 000 new vehicles in June. Retail sale growth in April of 9.2% shows that the chunky pay increases for various CEO’s around town are being put to good use. The spread between the top and bottom of various pay scales is always a rich source of acrimony and accusation. It is probably one of the reasons for next Tuesday’s strike by Joburg municipal workers. However, council officials have assured residents that “services will not be disrupted”. How will we tell?

Our office move here at Watermark proceeded with little disruption to services. None of the pictures are hanging yet, but the kettle and most of the telephones are working. The computers seem to be thriving on cement dust and the local coffee bar has cancelled all plans to close. Go ‘bokke.

James Greener

8^th July 2005

TAKING A POWDER

It seems to have been a particularly bad week for those of us who do not feed off the public purse but instead, fill it. Despots and bureaucrats world-wide have dominated the headlines with stories of greed, corruption, fraud and incompetence.  I have no idea where Nokeng Tsa Taemane is, but the municipal manger there is clearly a non-performer as he is able to pull down a salary of only R542 000, way behind all his colleagues elsewhere in the country.  It’s tough work allowing municipal debts to reach R36bn.

Did you know that Joburg City Power has a target for power outages in the year and it’s not zero! In fact it is 133 600 – an oddly precise number – and they look well set to exceed it. No doubt a celebration will be held when the target is reached. I wonder if those who sat in darkness so that the fellows could get there will be invited.

But it’s not just tax and rate payers who keep the wheels turning. This weekend the Live8 concerts will raise pots of cash from willing music fans. The organisers are keen to assure everyone that they hope and believe the money will go to the desperate and deserving poor of Africa. However, I am in no doubt that the major winners of this exercise will be the Mercedes Benz dealers of the Dark Continent. If you think I am too cynical, then note that Minister Manuel is suspicious that laundered ill-gotten gains are responsible for pushing local house prices sky-high. What puzzles me is how this could happen when one is required to produce everything short of a blood test just to open a bank account. Actually I think that it is mostly just relatively cheap money that’s fuelling the property boom; just like everywhere else in the world.

Spending of other people’s money continues in Cape Town this weekend when the full board of FirstBank of Nigeria hold their annual retreat (a quaint and possibly inappropriate term). Next week they move up to Joburg for the launch of that bank in South Africa. The MD must have been misquoted in the report which claims he said: “…the move to open the office hinges on four planks.” In any case, the arrival of FBN on the banking scene should be a stimulant for us all.

June’s All Share performance was a modest 3% with only a few smallish sectors showing a loss. Richemont was the big cap winner as the weak Euro / strong Dollar story coupled with news of rapidly growing numbers of Chinese tourists made buyers excited. Despite this, the year so far has been dominated by performance in excess of 25% by the resources (Sasol, platinums, Anglo & Billiton) while the financial and industrial index has remained in single figures. My feeling is that resources may have now done their best for a while, and that nothing quite so spectacularly good is going to happen in the next six months.

It is now closer to next Christmas than last Christmas. Wimbledon finals, Tour de France and the Durban July this weekend signal that the days are getting longer at last. Another less well known sporting event tomorrow is the 1km uphill box, desk and computer lugging event in which we here at Watermark will be participating

May your horse come in first.

James Greener

1^st July 2005