Friday 25 April 2008

EVERYTHING UP EXCEPT THE TEMPERATURE


I was delighted when someone asked me what the theme of Tidemarks would be this week. It makes me feel like a real analyst. The questioner presumably gets the impression that this letter is the result of a week spent in careful and detailed investigation of the investment scene. That’s marvellous and very flattering but actually, the week was spent as usual in combat with the joys and woes of living on the southern tip.
The important but unsurprising news was that inflation is now in double figures. Anyone who has recently filled a shopping trolley or a petrol tank knew this information long ago. And coming soon are some pretty scary increases in the price of electricity – when available – and in even more basic food stuffs. There can be no doubt that the Reserve Bank interest rate wizards at their June meeting will make things worse by increasing the price of money yet again. Do none of them actually have and service a mortgage?
It is obvious therefore why us bears can reel off a list of reasons why share prices should be a lot lower than they are. The overwhelming weight of evidence is in favour of a slowing economy. The prices of essential goods like fuel, food and money are increasing at a startling rate. This is putting pressure on profit margins of all those business that are involved in the supply and production of these things. It presumably also means that consumers will have less money to spend on items like clothes, toys (machinery) and luxuries. Therefore, company earnings will probably decline, and in fact, they are already doing so. Therefore, share prices should come down. But that, they are not doing! So what is going on? The bulls say that investors are smart. That they already are looking through the slowdown to some happy moment, as soon as early next year perhaps, when all the bad news will be gone and life will be good again. That such halcyon days await us somewhere in the future, I have no doubt. It is just that I want to buy cheap shares now so I can have more fun when we get there.
We suffered our share of power blackouts this week. Some functionary carefully selected the load known as Illovo Boulevard and shed it from the electrical network for 4 hours on Tuesday. The computers just hate that! The same evening, he selected my home suburb for similar treatment. This morning, the region between home and office was targeted and traffic chaos ensued. This aspect of the electricity crisis is the perhaps the most dangerous that many of us have to cope with. Apart from lengthy fuel-consuming periods of frustrating and unproductive immobility, the suburban side roads become infested with lawless minibus taxis attempting to avoid the failed traffic light-controlled intersections. Arcane matters like pe ratios and discount rates fade from the mind when faced with an approaching wall of three Toyota HiAce grilles side-by-side.
Yet another impediment to growth must be this year’s arrangement of public holidays. With a theoretical working week of just two days coming up, second quarter productivity will likely set new record lows. Certainly, there will be no Tidemarks in your email next week.
May your back-to-back long weekends be safe and happy. And warm. Shouldn’t we ask for the Nobel Prize back from the chap who said it was getting warmer?
The Lions are making the foot of the Super14 league table their own private space.
James Greener
25th April 2008

Friday 18 April 2008

MORE TOXIC LIQUIDITY


This morning’s story was that the water coming out of the taps in large parts of the city was unfit to drink. Personally I am unaffected by this dreadful news, having long ago adopted a rehydration method that avoids the stuff. However, for those who do drink this colourless and tasteless compound of two chemicals, Spokesman Baldwin Matsimela of Johannesburg Water advised that boiling before consumption was a good idea. He did not explain how this was to be done if you were enjoying one of the now regular power cuts.
But no matter what the news, the share market takes it all in its stride and treks northwards faster than the Boers escaping British taxes. The All Share index took a good look at the empty space beckoning above the 32 000 level before pulling back to gather its strength. As usual, most of the work has been done by the resources shares with financials and industrials rather idling along. We are, however, starting to see some trading statements and company reports where earnings growth rates are down from previous levels. In most cases, the company has a very reasonable explanation for why things are getting a tad slower but so far, no one big has delivered a shocker that might catch the rest of the market’s attention. Of course, even that might not cause too much damage if we take the Wall Street example of share prices rising in apparent reward for management revealing just how bad it has been. Shareholders seem to be quite cheered with the promise that the sacking of several thousand staff members and the writing off a few billion dollars and the raising of executive bonuses will positively and absolutely fix the problems going forward.
Our own version of that is the squabble about what the word “Crisis” means. As I recall in 1994, certain sticklers for detail were still trying to tally all the votes in our own election even as Mr Mandela was accepting the title of President on the steps of the Union Buildings. The situation in Zimbabwe is sadly very different and the arrival of a consignment of Chinese armaments in Durban en route for our northern neighbour is alarming as well as poor timing. Nevertheless, it does not seem to be deterring foreign money flowing down here. The rand was quickly pushed back well below the 8 per US dollar level when it tried to break out this week as well.
I guess it would have got even firmer if it had been announced that Cuba had repaid the R1bn loan that South Africa had made to it in 1996. Instead, the National Treasury admitted that there was no chance of the miraculous socialist economic model that is Cuba being able to cough up our money and that we taxpayers must write it off. I wonder if this news will decrease the amazing popularity Che Guevara T-shirts? It will certainly have dismayed the folk at local defence manufacturer Denel who, presumably having failed to land the Zimbabwe order, are passing the hat around for a similar sum of money. 
Thanks as always to the Gauteng Provincial Government for yet another baffling request. This time for someone who can upgrade their Waste Information System (WIS). Do they actually keep a record of where the rubbish bins are?
I just love the way markets price things. I am yet to be convinced that this Indian Premier League cricket jamboree will be exciting. However, the list of the player pricings is already fascinating. Shaun Pollock and Herschelle Gibbs are both more expensive that Graham Smith who is worth only about half as much as Jacques Kallis. The other irony is that Graham is playing for a side captained by Shane Warne.
James Greener
18th April 2008

Friday 11 April 2008

RATES UP. RATS LEAVE


Although the All Share index failed to set a record high this week, the Top 40 did so with ease. It faltered only when Governor Mboweni yesterday glided up to podium in a striking red tie and raised the repo rate half a percent (50 basis points). After a few sessions to take it all in and watch how the US markets are not allowing any bad news to slow them down, I guess the shares on the JSE will resume normal service. Banking sector shares appear to be about the only ones letting the higher cost of money worry them for longer that the obligatory knee-jerk sell off. Not even the currency seems much interested in these higher interest rates. Foreigners probably have more pressing uses for their cash back home than to come grubbing down here on the southern tip for an extra half percent. Sterling holders in particular are currently losing the battle with the euro across the channel to become the preferred alternative to the US dollar which is collapsing in a spectacular way right now. 
Deputy Minister Susan Shabangu’s office has been bombarded with calls from the nation asking for pinup pictures of the courageous lady. Her advice to policemen who come across criminals at work, to “kill the bastards” has struck a great chord of approval amongst the citizens of the land who are very tired of living in fear. The carefully reported reactions of shock and outrage at Susan’s heartfelt speech, totally underestimate the mood of the people. We need and want more ministers like Ms Shabangu,  who tells it like it is.
Governor Mboweni did that yesterday when he yanked firmly on the “Rates Up” lever. He is definitely focussed on killing inflation, although many of us are not at all certain whether he is using the right weapon. Frankly, after filling up the car and the grocery cupboard most people today have little capacity, at any interest rate, to spend on essentials like wide-screen TVs and cases of Dom Perignon.
Talking of weapons, I was saddened to read that Queen Modjadji is on her way home to Simons Town. She is the third and thankfully last of the utterly inappropriate class of warships that resulted from the corruption–riddled arms deal negotiated for us by people who now claim never to have heard of it. I believe that down here, astride one of the world’s busiest and storm-battered sea-lanes, we definitely have a huge need for a well equipped search and rescue fleet. But just what we plan to do with the good ship Queen M baffles me. She is a submarine.
The furore that is following the progress of the Olympic Torch is also rather disappointing. One can understand the temptation for people with a mission to seize upon the high profile event to publicize their own grievances. However, in the end the Games themselves are simply the pinnacle of a sporting career for thousands of dedicated and disciplined athletes. I think that anyone who has for four years or more every day watched the sun rise while flinging lumps of iron or jumping over fences or paddling canoes or prodding someone with a sword ought to be allowed the opportunity to see if they can do it better than anyone else in the world. Fortunately, for them and the rest of us there are plenty of sponsors pleased to pay for the circus and to enable us to watch it from the chair near the fridge at a respectable hour. Don’t we all love the drama of dashed hopes, unexpected success and the ever more intricate medal ceremonies?
The cat family are not at home in the Super 14 environment. If it wasn’t for bonus points, the poor Cheetahs would barely make the bottom of the log.
James Greener
11th April 2008

Friday 4 April 2008

ANOTHER ROUND BARMAN. THE GOVERNMENT IS PAYING


The central tenet of technical analysis (charting) is that every piece of information, about a company is distilled into the share price at that moment and that the behaviour of the price reflects the shifting balance of power between those who believe their information is good news and those who think that their knowledge spells trouble. This so-called “language of the market” is presently sending a clear message that the worst is over and most companies on most markets around the world (China excepted) are going to make greater profits in the future. Fusspots like me who fret about incomprehensible debt levels, insolvent banks, and collapsing housing prices obviously misunderstand the language. Careful listeners believe that while those little difficulties do exist, there are sufficiently powerful forces available (generally fuelled by tax money) who will be able to fix all these problems. After all isn’t that what governments are for? To ensure that everyone lives happily ever after?
Governor Mboweni has clearly spent a bit of time re-running the tapes of all his previous announcements about the repo rate. He has wisely decided that his obvious discomfort and physical deterioration in front of the TV lights was detracting from the drama of delaying the decision until he had delivered numerous pages of boring econo-waffle. The poor man had probably been told (incorrectly) that this part of the speech enhanced his reputation as a skilled and erudite central banker. Now the important number is released in the first few seconds of the broadcast when he looks fresh and happy. The sycophantic analysts deserve to sit through the rest knowing that we sensible souls have switched the TV over to The Fashion Channel or Sport Fishing
There is furious speculation about next week’s decision, which has been stirred up by the sharp improvement in the rand exchange rate. Money is flowing back to the southern tip. The peaceful and unexpected flowering of democracy in Zimbabwe is fuelling all kinds of over-excited speculation about opportunities. The air is thick with early birds looking for worms. They might well find them. But I don’t think that will distract the Governor from the soaring inflation rate and his determination to attack it. Much like the powers(off)-that-be at Eskom, there is a determination to punish citizens for not heeding the warnings to use less money and electricity.
It is taking much longer than I had expected for the bear to take control of the markets and economies. I am therefore grateful that I have no need to worry about the arrival of the day when I would be sent away with an ugly clock and a ridiculously large greetings card filled with doggerel about enjoying my golden years. I am going to stay put in front of these screens for as long as it takes and see everyone get what they deserve. So those of you who thought that the second absence in three weeks of this letter was the sign of my imminent retirement are happily wrong. A week ago, I was very proudly watching the Chancellor of Rhodes University conferring a degree on my younger daughter. A wonderful but possibly the last such occasion for us.
Load shedding has returned and as ever the Gauteng Provincial Government is on top of their game. The paper today carries a request by them for someone to host the “Passing of the Torch Awards 2008”. I know that fumbling around in the dark after Eskom trips the switch, requires skill but who ever would have thought that my government would have seen fit to pass out prizes for the top performers in this area? Obviously, an electrified venue will not be necessary.
James Greener
4th April 2008