Friday 27 June 2008

THE BEAR EXTENDS HAPPY HOUR


The All Share is down about 6% this month and unless Monday is a belter, this will be one of the worst months for the JSE in a long time. February’s record up-run is now a distant memory. This bear is looking all-powerful and he is certainly international. Sellers seem to dominate most markets at the moment. In the face of all this we should be pleased with the rand holding at better than 8 to the US dollar.
There were two especially bad pieces of news that caught my attention this week. Firstly our own Governor Mboweni received praise and congratulations from Sir Alan for how he is carrying out his duties. This worries me a lot. The Governor will at this very moment be thumbing through back numbers of Central Banker Weekly absorbing the fact that Sir Alan was the man who took 2 years and 17 steps to raise US rates 425 bp. Given the bad piece of news about producer price inflation leaping to 16.4%, the camera-shy one is undoubtedly already ordering that the “Rates Up” lever in his office be greased and polished. Once again I have to tell you that I still don’t understand why ruinously expensive money in South Africa will make Saudi oil sheiks drop the price of oil.
I thought that the idea behind a “happy hour” was that it was a marketing ploy by the bar keeper who discounted the price of drinks for 60 minutes, to entice customers who might then stay on when normal prices were resumed. I am therefore puzzled to read about the insults that were allegedly traded at the Armscor “management board happy hour”. Presumably the price of booze at these shindigs remains at zero for much longer than an hour since it will almost certainly be the shareholders (i.e. taxpayers) who are picking up the tab.
Apparently the slick and professional way in which Gautrain have told its financiers (i.e you and me) that the bill for the train set will be far higher than the last R25bn estimate has deeply impressed an outfit called the International Association of Business Communicators who live safely in New York. They handed over a “Gold Quill Award of Merit” to the chaps who manage the media strategy for this hole in the ground. I guess they will be parading it from a topless bus through the streets quite soon.
Not due for a Gold Quill anytime soon are the fellows over at the post office who deny all knowledge of the wholesale theft of items in the mail. Reports suggest that there are some members of their staff who are impeccably dressed in very expensive shirting and who have compiled an extensive library of books and discs. Presumably if an investigation were ever to uncover the larcenous crooks they would employ the tactics offered by the MPs who were found in similar circumstances and claim that they were “forced to confess”.
The South African Wine Investment Trust is complaining that expert evaluation of the current discounted value of a R170m the loan they made to the Phetoga Consortium  would cost about R30 000. Aside from the fact that the source of their funds seems to be primarily the KWV and that the money was used by the consortium to buy shares in that company, it does seem a lot of money for someone to do a simple compound interest sum. On the other hand why not sell the shares which have more than doubled in price, and plan for a “happy hour”
I like the flair of the Spaniards. I hope they lift the cup.
James Greener
27th June 2008

Friday 20 June 2008

BARGAIN HUNTING IN THE DARK


The precise moment of midwinter occurs tonight in the wee hours. For me this is always a very important moment and I delight in the thought that the hours of daylight will now start to increase and summer is on the way. On the other side of the equator the position is reversed and perhaps this explains the huge bear activity as they prowl the markets fattening up for hibernation. There are, I think, no true southern hemisphere bears. Except for me, of course.
No one can deny that the JSE is also in a bear market. The market index that excludes the mining and resources shares has lost almost 10% in just over a month. Another move like this and it will be threatening to break below the lows it attained in January. The All Share index, which is heavily influenced by the heavy hitters in the mining sectors is down a comparable 7% or so in the last few weeks but the difference is that the January lows in this index are still a long way down. Anyone glancing at this chart might think that is has not been too bad on the JSE and begins to wonder why their portfolio does not echo this observation. The simple reason is that most prudent portfolios do not have the index weighting in these big gorilla shares. This is one of those times when I remind myself that attempts to categorise and average shares and prices in the stock market is not always useful. Sometimes the behaviour of the mavericks overshadows the index.
The message that the price of oil is terrifyingly high and that it will impact every corner of everyone’s life is now sinking in fast. There is a growing acceptance that fuel prices will not fall anytime soon and people are beginning to try and work out what changes are going to happen to the economic landscape. Even mainstream newspapers are carrying articles about people altering their spending patterns. It seems unreasonable to expect that almost any company will be immune to these seismic shifts and the trick of course is to decide which ones, if any, are likely to be beneficiaries. Low end food stores might well see increased traffic. They would be advised to dim the lights to decrease the possibility that you are recognised in the aisles by your friends. I wonder how the luxury car market is really doing at the moment? There are certainly plenty of pre-owned models on offer. And office talk often dwells on housing price horror stories (for sellers that is).
So the electricity price negotiations between Eskom and the unfortunately named Nersa have come to an end. I suppose that third significant figure in the percentage increase was tacked on to try and fool consumers into believing that the bargaining was so tough that even a half percent was fought for. Almost the first response from Eskom has been to reassure the country that not all the extra loot will be funnelled into executive bonuses. Some of us are sceptical about this. We are also unimpressed by the seemingly never ending squabbles that are being fought both at the national broadcaster and in the ranks of the judiciary. In both cases what we the public want is for these matters to be dealt with speedily and cheaply in a way that leaves both institutions more fit to carry out the tasks we have assigned them. Their internal disputes are boring.
Almost as boring as the lists of excuses that are offered as to why this nation of almost 50 million can not find 11 men capable of putting a large ball in the back of a net on a regular basis. I am looking forward to the clash of the previous and current ‘bok coaches at Newlands tomorrow.
James Greener
20th June 2008

Friday 13 June 2008

BANKING IGNORANCE


I think the most significant development in the markets this week has been the amazing strength of the US dollar. Not only is it now worth more than several  billion Zimbabwe dollars and more than eight South African rand but cash has been flowing steadily out of every major currency into the greenback. I am mystified why people want to own the currency of the world’s most indebted nation as it battles with recession. In what markets are they are they expecting to earn a return? Interest rates in the money market are below the inflation rate – even if you believe Helicopter Ben’s hint that he might raise them – and bond market yields are climbing. The unconvincing little bull that slouched into the equity market in March seems to have been sent packing. And while there are many cheap and empty properties coming on the market it seems likely that there are plenty more to come. I suppose that there must be some very profitable export businesses in the US which are rather cheap but understandably the Americans get twitchy about foreigners owning too much of their capacity.
Back home of course the important news was that Governor Mboweni sold the market a 200bp dummy pass and stepped inside to score under the posts with a mere 50 bp hike. The share and bond markets reacted with a knee-jerk bounce of relief which does, however, look to be short lived. The rand hated the good news and slumped.
I am intrigued by the stories that the oil exploration business is now the employer of choice for science and engineering graduates. For many years, people with number skills have been invading the investment industry and confusing genius with a bull market. Now that the bull is growing tired and it turns out that investment is really just about the fiendishly difficult job of buying cheap and selling expensive, the  disillusioned “quants” are drifting off to look for places to dig holes in the ground. I should declare my own interest here and admit that I was one such escapee from the mineral exploration business many years ago. I have seen a few bear markets too. And I think that the development discussed above is just more evidence that the golden age of banking is heading into one. Yet another bank has admitted that there were some nasty skeletons in the cupboard and that it would like shareholders to send some more money please. Everyone is losing confidence in the trustworthiness and worse, the integrity, of the financial industry. Belief in their skill not to get involved in bad business disappeared long ago. On the JSE, the financial sectors are leading the way down as investors begin to note that the era of steadily growing earnings and dividends is under threat. The fact that the bank index pe ratio is now below 7 is more than just a temporary pricing anomaly.
So what sectors should one think about buying? Areas where the state is spending money seems a good idea. Once again the Gauteng Provincial Government provides the opening by calling for proposals from organizations that can teach municipal councilors on subjects such as Leadership, Management & Governance and Ethics & Public Management. Why should taxpayers have to foot the bill for teaching these people how to do their job? But I suppose it is our fault for electing unsuitable candidates to run our cities, provinces and country in the first place.
I have been sleeping in front of these interminable soccer games from Euro 2008 wondering when they will use a TV ref to banish those players who can make a missed tackle look like a multiple fracture with head wound complications that is cured by an icepack.
James Greener
Friday 13th June 2008

Friday 6 June 2008

WONT WATCH THE BIRDIE


So Governor Mboweni is becoming camera shy? That’s cute. He believes (probably correctly) that photographers and picture editors are always looking for an unflattering moment to plaster across the front page with an appropriately droll caption.. We shall be watching you on TV even more intently that usual on Thursday, sir. If you carry out your threat to raise rates by a large amount nothing will save you from the ire and mockery of the nation.
There were plenty of market-moving events and speeches this week. A talking shop in Cape Town has allowed all and sundry to stand in front of The Mountain and offer us their opinions. In the written word I was intrigued by the reported offer to buy the second worst fixed line phone company in the world for a price much greater than its market value, provided the company first disposed of its most valuable asset! Odd stuff that. Then, despite the evidence on the roads to the contrary, it seems that very many fewer cars and trucks are being sold than a year ago. I was alarmed by the following phrase in a hardware supply company’s report:”... sudden and dramatic reverses in the building industry.” I was even more distressed to learn that the state hands out R5.5bn per month in aid to 12m benefactors. That’s a quarter of the population! Taking this information together with the figure which shows that growth in tax receipts is slowing quickly, it’s little wonder that the bond market is bear-infested.
Keep an eye on the US dollar / Euro exchange rate. There is a growing consensus (not yet shared by me) that the dollar has seen its worst and is on the way back to world domination.
I was really very saddened by some of the stuff that appears in the prospectus for the so-called Sasol Inzalo share offering which is open to Black People only. The offer is of course a response to the state’s deeply misguided attempt to interfere in the allocation of resources through its appalling BEE program. The prospectus echoes some of the stuff that I used to find deeply embarrassing and indefensible when  I was a student in England in the early 1970s and my accent betrayed my homeland. In those days my accusers would brandish the annual report of which ever South African government department decided how many people needed to be reclassified from one race group to another. Now, in this prospectus, we find phrases such as “: …citizens who were regarded as Coloured before 27 April 1994, but are of Chinese origin.” Equally offensive is the need to refer investors to a definition of who qualifies as a Black Person. This is outrageous, demeaning and totally contrary to what I thought we as The Rainbow Nation were striving for. By the way, the offer appears to be very generous and worth taking up despite the trading and listing strictures that will prevail for a couple of years. Get a prospectus from any post office.
And still on this theme might I suggest that the only difference between racism and what is being called xenophobia is that one of those words is more difficult to spell.
A warming Leek and Dragon soup will be served in Bloemfontein tomorrow, and the Grand Prix from Montreal will be on screen at very awkward times and is there really enough level ground in the Alps to host a soccer tournament?
James Greener
6th June 2008