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How to profit from base metals WHO’S TIPPING WHAT

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Beat the market’s September blues

The most disappointing organ in the human body

STRATEGY

LAST WORD

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from the editor 4 SEPTEMBER 2009 ISSUE 110 ISSN 1995-4476

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Consumers remain on life support – the figures don’t look good...

The South African Reserve Bank announced the country’s July 2009 “M3” money supply figures earlier this week. They’ve contracted 5.78% year-on-year, confirming the downward trend since the beginning of the year.

But, if you’re a fan of the “green shoots” economic argument, you should be more concerned with the private sector credit extension number. It fell 3.4% year-on-year to July, according to StanLib economist, Kevin Lings. And without credit, we won’t see a “quick” economic recovery!

Why is credit demand so weak? The main culprits remain asset based finance and consumer credit. But there are also several other factors at play. South Africa Inc is still dealing with the after effects of its two year battle with high interest rates. Plus, the National Credit Act had a severe impact on the approval of mortgage loans, hire purchase loans and other loan advances. Absa economist, Jacques du Toit notes that mortgage advances contracted 0.1% monthon-month to July 2009. That’s the first monthly decline since September 2002! This slowdown combines with rising unemployment to create tremendous stress in the consumption side of the economy. The economy can’t recover until consumer – both private and corporate – return to the party!

With 500 basis points worth of interest rate cuts since December 2008, you may wonder why the local consumer remains on life support. The answer’s obvious: Consumer behaviour’s largely a function of sentiment.

You spend through the good times and crawl back into your shell when money gets a bit

We’re seeing this shift here too. But with a difference. Local consumers are under so much debt stress, they’re moving from expenditure to survival. New purchases are on hold, while people struggle to hang on to what they already own. After all, you can’t buy new appliances when you’re just keeping your head above water paying your home loan and car instalments. There’s simply not enough to cover the bills and put something extra aside for a rainy day. These stresses have passed to the corporate sector too.

Simply put: South Africa’s economy surges and falls in line with consumer activity. It looks almost certain the country will remain in recession through the third quarter of 2009.

What should you do to survive the current downturn? A strategy that could yield good results is to pay closer attention to your longterm financial goals. During times of recession, retirement is probably the last thing on your mind. And, the reality is, very few South Africans will be able to retire comfortably. But, those who prepare adequately for their “golden” years still face heavy taxes on their hard-earned retirement salaries! So, in today’s feature article, Laura Henderson examines countries where you can enjoy “a less taxing retirement” (pun intended). Turn to page 16 to find out which countries boast the most friendly tax structures for retirees!

Gareth Stokes Editor, South Africa

In this issue 3 News Disney takes on the X-Men. 7 Sector An under-rated stock that should

19 Blogs The long-term psychological impact of recession; a tax on stupidity.

profit from government cost-cutting.

20 Entrepreneurs How the founder of

13 Briefing The Japanese people

Morningstar made it to the rich list.

have opted for change – but will they get it?

24 Toys You can take this beast anywhere,

14 Global view Cheer up – the future’s not as bleak as you think, says Matthew Lynn.

4 September 2009

tight. Recent data from the United States highlights this. Consumers in the world’s powerhouse economy have shifted from spending to saving at record pace. From saving almost nothing in 2007, the average US household saving rate is now nearing the critical 10% level.

but it’ll cost you over a R1m.

25 Blowing it The celebrity snapper who could lose everything.

news SA economy

Can Eskom keep the lights on?

Eskom may be “stuck between a rock and a hard place in meeting South Africa’s power requirements, but its financial position is not as bad as the latest accounts appear to indicate”. That’s the consensus of miningmx.com’s Brendan Ryan after the group released its results – which showed a massive attributable loss of R9.7bn – last week.

That’s a surprising statement. But, according to Ryan, a measure of Eskom’s “true” health should actually hinge on the group’s operating loss and not its attributable loss. This “key number” was only R825m.

“That’s not good,” admits Ryan, “but it’s a lot better than an operating loss running into billion of rands. For a business of Eskom’s size it could almost be considered break-even.”

Others aren’t convinced.

This “stunningly poor performance” has raised concerns about the group’s ability to “repay loans, roll out its projects and keep the country’s lights on,” reports Fin24.

And according to Chairman, Bobby Godsend, Eskom doesn’t have the

R385bn it needs to expand its capacity to a point where it could meet the country’s requirements. This means it may have to “stop or delay projects”.

Electricity consumption and economic health go hand in hand. For every 1.5% the economy grows, consumption increases 1%. During the last financial year, Eskom only sold 214,850 Gigawatt hours of electricity – 4% lower than in the previous financial year. See where the problem begins to come in?

Eskom’s inability to “fund its expansion programme threatens to put a break on South Africa’s potential for economic growth,” argues Ethel Hazelhurst in the Business Report.

It’s no wonder the company wants to hike prices a further 40%. But we’ll have to wait and see whether it can keep the lights on till then.

Companies

Smokers AND non-smokers beware!

According to the National Council Against Smoking: • •

44 000 South African’s die each year from tobacco-related illnesses.

That’s three times more than those that die in car accidents.

It’s no wonder the council’s elated that earlier this week the president signed

two new laws that’ll alter the smoking landscape.

“The new laws will have dramatic, important and far-ranging effects on public health and the tobacco industry’s marketing activities,” council director, Dr Yussuf Saloojee, told journalists.

Not only have these laws, among other things, increased the fine for smoking, or allowing smoking, in a non-smoking area with immediate effect, but the act also makes it illegal for tobacco firms to hold “parties” or use viral marketing to target young people.

Last year, NoseWeek exposed the “secret scheming” the tobacco industry was using to increase smoking among the youth. This includes notorious underground "smoking parties" at which tobacco companies lure young people into becoming smokers and using their brands. With these new laws in place, this is a thing of the past.

But these new laws don’t bode well for all.

Cigarette manufacturer, British American Tobacco (JSE:BTI), for one is sure to feel the affect on its profits going forward.

The group markets over 20 brands (including Dunhill, Kent, Peter Stuyvesant and Rothmans), and enjoys 65% of South Africa’s tobacco market.

And we’ll feel the pinch on our economy too. Currently, tobacco

The bottom line £500,000 What singer Cheryl Cole (right) is being paid to be the new face of L’Oréal in the UK.

£11.5m How much Jo Wood is getting in her divorce from Rolling Stone Ronnie Wood.

£6,000 What cricketer Andrew “Freddie” Flintoff is rumoured to be spending on having two giant mosaics of the Ashes urn built into the bottom of his swimming pools.

R1.1m The cost of Blade Nzimande’s brand new seven

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4 September 2009

series BMW. The ministry of higher education insisted that it had bought this out of necessity. Anyone else smell a champagne socialist?

£1,500 What a 150-year-old wine bottle that belonged to Charles Dickens has sold for at auction – despite being empty.

The cork has perished

and only dried sediment remains inside.

R500,000 How much the Mrs South Africa Pageant is suing this year’s runner up Henriette-Marie Radmanovic for. She apparently broke one of the rules of the competition by entering another competition without prior written permission.

$1.9bn

Just because you’re rich, doesn’t mean you won’t be attacked by an elephant. This is the net worth of Silicon Valley billionaire Tom Siebel who’s recovering from broken ribs and legs after an elephant charged him and a tour guide in the Serengeti a month ago.

news promote and build characters… in ways Marvel never could”, given its smaller resources. This deal also fills a demographic gap for Disney. Few of its characters currently appeal to young boys; Marvel’s Iron Man and Captain America, however, do.

products contribute 52% of all sin tax.

If sales fall as a result of this clamping down, government coffers will be severely lighter next year. Will taxpayers have to cover the shortfall? Only time will tell…

Global companies

Ebay, meanwhile, isn’t expanding its horizons but rectifying a strategic error.

It bought Skype in the hope that buyers and sellers would swap information telephonically and, thus, boost the auction business, said Robert Cyrano on breakingviews. But eBay’s customers proved far less chatty than expected, which essentially left management “dealing with an unrelated business”.

On the plus side, eBay is getting roughly what it paid and the price is high at almost five times sales, said

Disney and eBay boost M&A market The mergers and acquisitions market was virtually shut down by the credit crunch, but mounting confidence in credit and equity markets now seems to be spurring a revival. The media sector alone saw two major deals this week.

Disney bought Marvel Entertainment, the creator of Spiderman and the Incredible Hulk, for $4bn in cash and shares – a 30% premium to Marvel’s valuation last week. Online auction group eBay sold 65% of internet telephony group Skype to a group of private equity investors for $1.9bn.

David Wighton in The Times. EBay is also keeping a 35% stake in the highflying company, which Sandeep Aggarwal of Collins Stewart deems “another major internet business, just like Amazon”.

DIS: $25.40; 12m change -21.48% EBAY: $21.35; 12m change -14.36%

The way we live now

©BLOOMBERG

What the commentators said Worries that Disney is overpaying look overdone, said Rob Cox on Breakingviews. Note that it paid an even higher price for Pixar in 2006, but that proved a success as it revived the group’s “core animation franchise”. And there are ample licensing opportunities for Disney to exploit, noted Paul Thomasch on Reuters.com. Marvel boasts a roster of 5,000 characters, and Disney will be able to use “its marketing and entertainment clout” – ranging from cable television and films to clothing and theme parks – “to

Disney has netted Spidey

It seems no one is immune to identity theft. Federal Reserve chairman Ben Bernanke is one of the victims of a fraud ring that’s stolen more than $2.1m.

His wife’s handbag was stolen from a coffee shop in August 2008. Soon afterwards someone began cashing cheques from the Bernanke family bank account. “Our family was but one of 500 separate instances traced to one crime ring,” said Bernanke. The police have caught up with most of the gang now and a number of arrests have been made. It’s not yet clear how much was stolen from Bernanke’s account, although court documents say $900 was taken from the personal account of a ‘BB’.

MONEYWEEK’S strategic portfolio: Where to put your money now* Sector Gold Benchmark Bullion Date first tipped Nov 01 Performance to date +17%/year Gold has been range-bound around $950 an ounce this winter, but history suggests it will do well. Since 1969, September has been gold’s best month of the year, with an average monthly gain of 2.5%, says Frank Holmes of US Global Investors.

Longer-term, with the financial system still shaky and inflation a threat, gold’s bull run is unlikely to be over yet.

Sector Japan Benchmark Nikkei Date first tipped May 03 Performance to date 3%/year With the election victory by the DPJ (see page 13) already factored in, the market has slipped from an 11-month high amid mixed recent local data and jitters over China.

Still, Japan has already been through a credit bubble collapse, so this downturn is cyclical rather than structural, and it’s still the cheapest industrialised world market in terms of book value.

Sector Corp bonds Benchmark FTSE £ Corp Date first tipped Feb 09 Performance to date – Investment grade corporate bonds have risen in price since March – so yields have fallen – as global risk appetite has risen, but they still look appealing for income seekers.

Spreads over government bonds are still at levels typically seen in previous recessions, says M&G’s Richard Woolnough. The Invesco Perpetual Corporate Bond fund yields over 5.5%.

Sector Defensives Benchmark Inv Perp High Inc Date first tipped Jul 09 Performance to date – Investors desperately hoping for a sharp economic rebound have concentrated on dodgy cyclicals and neglected defensive stocks (see page 6).

So it’s still worth snapping up solid, high-yielding stocks in areas such as pharmaceuticals – go for GlaxoSmithKline and AstraZeneca – and oil giants BP and Shell, says Tim Price of PFP Wealth Management in his Price Report newsletter.

Weekly change to FTSE 100 stocks. Prices as of xx/xx/07

*Research shows that asset allocation is much more important than share selection. MoneyWeek doesn’t pick shares. But we have some definite ideas about which sectors are likely to go up.

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4 September 2009

the markets

Blind optimism, not recovery So much for selling in May. British shareholders have enjoyed their biggest summer gains in 25 years, and the FTSE 100’s 40% advance since March marks its best six-month run in 50 years. America’s S&P 500 index has gained 50%. But the boom is unlikely to last.

Markets “have decoupled from reality”, says FAZ.net.

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The pattern so far has been that risky, cyclical stocks have left solid defensive stocks, such as utilities, standing. Industrial metals and mining stocks geared to the economy have been among the top performers internationally, as Tim Price of PFP Wealth Management points out in the FT, while firms with dodgy balance sheets have outperformed the rest of the market.

Financials have outperformed too.

In America, Citigroup has risen four-fold off its March low, while in Britain the combined equity value of the three biggest banks – Lloyds, Barclays and Royal Bank of Scotland – is just 15% below the average level of 2007, says Jonathan Pierce of Credit Suisse.

Market optimism is running rampant, with Merrill Lynch’s monthly survey of global fund managers revealing that more managers are swapping cash for shares, says Morgan Housel on Fool.co.uk.

Cash balances have fallen to an average of 3.5%, and 34% of managers are overweight equities, the lowest and highest figures respectively since 2007.

But investors are ignoring inconvenient

Watch this space ● “Economic activity appears to be levelling out… the prospects for a return to growth… appear good.”

Ben Bernanke, August 2009

● “… although downside risks to growth remain, they appear to have diminished… and the upside risks to inflation… have increased.”

Ben Bernanke, June 2008, before the economy slumped

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4 September 2009

truths. Take US earnings, says David Rosenberg of Gluskin Sheff.

Analysts are now pencilling in year-onyear, third-quarter earnings of –20.6%, a downgrade from April’s forecast of –17.2%. “The notion that earnings are improving is… not exactly supported by the facts.” (See box below for more.)

Neither is investors’ apparent confidence in a rapid economic recovery. The improvement seen so far has been underpinned by unprecedented fiscal and monetary easing. “As long as economic growth relies on the state, you cannot talk about a durable recovery,” says the European Central Bank’s Yves Mersch.

Battered banks hoarding cash and companies and consumers paying down debt don’t exactly presage an “effortless” rebound either, says Price. Yet investors are evidently hoping for a return to the pre-credit-crunch days. “A lot of people are now counting on everything to go right,” agrees Housel. And “that’s a scenario more likely to end in tears than triumph” with the economy this fragile.

Crisis grinds on for America’s banks The survivors on Wall Street may be profitable again, but the crisis in the US banking sector grinds on. So far this year 84 American banks have gone under, more than in the past 16 years combined.

According to the Federal Deposit Insurance Corporation, which insures bank deposits, there are now 416 “problem” banks – that’s 5% of US financial institutions. Most of the smaller banks that have gone under have done so “the old-fashioned way”, as Floyd Norris puts it in The New York Times.

Instead of snapping up complicated toxic securities, they simply saw loans go bad “in volumes they never thought possible” amid an unexpectedly deep recession and due to careless lending standards.

Temecula Valley bank of California, for instance, gorged on construction loans that went sour and wiped out its capital.

But some banks, lured by the promise of high yields, snapped up pools of mortgages from some of America’s worst lenders, as Robin Sidel points out in The Wall Street Journal. Guaranty Financial Group of Texas was floored by an investment portfolio full of dodgy mortgages in “foreclosure-wracked California”. Many small banks, already struggling amid record mortgage delinquency rates and credit-card losses, will now be finished off by their investments. On that note, the spotlight is now falling on the rapidly deteriorating commercial property market, where 22% of America’s total $3.4trn of commercial property debt has been packaged up and sold on. With plenty of pain ahead, America’s lending squeeze is set to hamper growth for some time to come.

The big picture: US earnings a mirage Second-quarter S&P 500 earnings may have exceeded S&P 500 SG&A expenses (annual % change) reduced expectations, but 20% year-on-year profits were still down by around 28%. And as 10 Tom Lauricella says in The Wall Street Journal, the results were 0 driven by unprecedented recession reductions in overhead costs.

Selling, general and -10 1985 1990 1995 2000 2005 1980 administrative expenses Source: FT Source: Wall Street Journal (SG&A), such as salaries and travel and advertising costs, fell by an annual 6.4% in the second quarter, compared to 4.1% in the 1991 recession and just 0.2% in 2001. Sustainable profit growth requires sales growth, but with unemployment mounting and consumers retrenching, that’s a tall order.

the markets

Can South Africa stay the course as strike wave hits?

Silver’s “Goldilocks moment” won’t last Silver has a split personality. It’s a safe haven and store of value, like gold, but its widespread industrial use means it can also behave like a base metal.

Recently, it’s been doing both. The price has jumped by a third to $15 an ounce this year; gold has gained just 8%.

Investors poured into silver exchangetraded funds early this year and inflows have continued, albeit at a slower pace.

And now the economic recovery is lifting industrial demand. Silver has been “reaping the best of both worlds”, says Société Générale’s David Wilson: “sustaining upside from strength in gold” and finding industrial support.

When President Jacob Zuma was elected in April, many feared the worst. He was installed as head of the ruling ANC party

by Communist and trade union allies.

This raised the spectre of a dash for growth through heavy spending programmes and interest-rate cuts that would lead to inflation, blow the budget and spook international investors. Union talk of a “working-class hegemony” and nationalising the mines didn’t help.

But the leftward shift hasn’t happened.

The former finance minister and central bank governor have been moved, but judging by their successors (who are former colleagues), the overall emphasis on fiscal caution and inflation-targeting endures, says Nasreen Seria on Bloomberg.com. The unions in the cabinet have little say over monetary and fiscal policy. “Nothing has changed,” says Steven Friedman of the Centre for the Study of Democracy. “Zuma appears to be making very solid decisions,” agrees Joseph Rohm, manager of the Africa & Middle East fund at T Rowe Price.

President Jacob Zuma: “solid decisions” “We are encouraged that what was a business-friendly environment has been maintained.”

But can Zuma stay the course? Conflict with the unions looks inevitable. Strikes have come “thick and fast” this wagebargaining season, as South Africa’s Financial Mail points out, and the government is having to balance a long list of spending demands with shrinking state revenue. The only certainty for now is that Zuma’s “fabled skills as a conciliator”, as The Economist puts it, will be tested to the limit.

% change

*4817.55 **-2.05 10280.46 -1.85 994.75 -3.51 1967.07 -2.99 3573.13 -3.31 5319.84 876.17 22056.00 -3.02 24536.00 -1.84 11.16 -0.29 12.74 0.03 7.82 -0.35 **since 27 Aug * 2 Sep

Winners SilverB (SVB)` GBGold (GBG) Astrapak (APK) Howden (HWN) Cadiz (CDZ) CBH (CBH) Platmin (PLN) Afro-C (ACT) Dawn (DAW) Gfields (GFI)

% change Price 26.92% 12.50% 12.00% 11.11% 11.11% 11.01% 9.47% 9.02% 7.91% 7.67%

165c 1125c 999c 900c 300c 383c 1040c 145c 750c 9906c

Weekly change to JSE stocks as 2 September 2009

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Silver’s “Goldilocks” moment is unlikely to last, says Javier Blas in the FT. Either the recovery will stall, denting industrial demand, or it will endure, lowering the metal’s appeal as a haven. Recovery could do more to undermine investment demand than to raise industrial demand, says Blas. Indeed, Barclays Capital reckons investment demand is set to more than halve next year as the economy recovers, while a 2% rise in industrial consumption would still leave the market with a large surplus. Yet demand for a haven could well rebound, given the shaky financial system and the threat of inflation amid central bank money printing. Until the murky outlook becomes clearer, however, silver’s upside looks limited.

Peru’s Hochschild Mining, expecting a further recovery in industrial demand, thinks silver will trade between $13 and $16 in the next six months.

Best and worst-performing shares

Vital numbers FTSE 100 Nikkei S&P500 Nasdaq CAC40 Dax Top 40 All Share Rand/Euro Rand/Pound Rand/US$

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South Africa’s JSE All-Share index is up by around 40% from its spring low last year, and the rand has strengthened by around 13% against the dollar in the past half year. This is partly due to the rebound in global risk appetite that has bolstered commodity-heavy indices, such as South Africa’s. The country also appears to be emerging slowly from its first recession since the early 1990s. But there is another reason for cheer.

4 September 2009

Losers Delta (DTA) DiamondCP (DMC) Oando (OAO) Wesizwe (WEZ) PallinHT (PGL) Hosp A (HPA) Sentula (SNU) Coal (CZA) Implats (IMP) AfPrefInv (AFP)

% change Price -26.47% -16.67% -9.93% -9.50% -7.50% -7.33% -7.28% -7.06% -6.79% -6.67%

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sector of the week

Outsourcers will profit from fiscal crisis index with a market capitalisation of £4.25bn, while the latter is a FTSE 250 member worth £2.3bn.

Britain’s finances are in a dire state.

Serco has 35,000 UK staff, 85%In July, just four months into the 90% of whom are former civil tax year, public borrowing already servants still doing government stood at £49.8bn (R647bn), more work, but now for a private firm. than was borrowed in the entire Among other things, it controls 2006/2007 tax year. With Britain’s military communications borrowing for 2009/2010 on course and, together with Lockheed to hit £200bn, whichever party gets Martin and Jacobs Engineering, into government next year faces “a manages the Atomic Weapons once-in-a-generation challenge to Establishment where the UK’s bring the debt and deficit back nuclear warheads are stored. Last down to manageable levels”, says week’s half-year figures show how Richard Snook of the Centre for it’s happily cashing in. A record Economics and Business Research. £3.5bn-worth of new contracts (including a deal to design, build That sounds like bad news for firms and operate London mayor Boris that rely on government spending.

Everything from prisons to schools has been outsourced Johnson’s cycle hire scheme for the But it could be very good indeed for city) have just been signed, growing the Committee member Dr DeAnne Julius, one group: the outsourcing sector. The order book to almost £17bn. Revenues found that private sector firms can trend for outsourcing ‘public’ work once climbed 31% to £1.95bn and pre-tax typically do a job formerly done by a done by government departments started profits jumped 33% to £83.4m. government department for up to 30% under Margaret Thatcher and has less. Civil servants just “don’t have the continued apace under Labour. These Can this growth continue? Serco’s chief access to the procedures and systems of a days, a whole range of jobs, including executive Chris Hyman reckons so: private company, or access to the capital running prisons, operating railways, “There is more pressure on governments that the private sector does. They can’t inspecting schools, controlling air traffic around the world to do more with less compete, but why should they?” says and protecting their borders is now done due to the fiscal crisis.” As Mark Damian Reece in The Daily Telegraph. by private service firms rather than public Fleetwood of Brewin Dolphin adds, That means, as Matthew Earl of Charles sector staff. outsourcing is now such a part of the Stanley puts it, that “outsourcing should political culture that there’s little chance of be foremost among the ways to avoid the This trend looks set to continue and the process being reversed. “Consultants cancellation of a number of services”. perhaps even accelerate in some areas. and outsourcers are so entrenched in the Why? Because outsourcing is an ideal system that they’re actually the ones Outsourcing is already big business. way for governments to cut costs. A sitting there and making the decisions for Major players such as Capita and Serco report into the private sector provision of the government.” We look at one of the may not be household names, but the public services, published a year ago by best value plays in the sector below. former is now part of the FTSE 100 former Bank of England Monetary Policy ©IAN WALDIE/GETTY IMAGES

by David Stevenson

The best bet in the sector Capita and Serco may be the market leaders running training services and managing Interserve in the outsourcing sector, but that’s already rifle ranges. Meanwhile, international 600 well factored into their share prices. earnings are mainly driven by strong oilFigures in pence 500 Both are selling on current year p/e ratios fuelled growth in the Middle East. of over seventeen times, and well-below 400 average yields of between 1% and 2%.

Interserve has a £280m market 300 For value seekers, Interserve (LSE: IRV) is capitalisation, and stands on a current year 200 in the same line of work, but is much more p/e of just over five times, according to 100 cheaply rated by investors. That’s partly City forecasts, and a yield of 7.7%. The Dec Dec Dec Dec Dec Dec Dec Dec Dec 1991 1993 1995 1997 1999 2001 2003 2005 2007 because of a potential pension fund deficit dividend is covered more than 2.5 times of £250m, which the company is busy by earnings. First-half results released this addressing, and also due to previous one-off charges that had month beat estimates all round, with headline earnings per caused concern among investors. The share price has fallen share up 20%, net debt dropping by 26% and the future from 530p in November 2007 to 225p today. But the company workload, in effect the order book, up 5% to a healthy £6.7bn. keeps on collecting contracts. Britain should account for The group will probably continue to sell on lower rating than around 38% of 2009 profits, with the largest customer being its peers, but the shares look ripe for a re-rating. Mike Foster of the Ministry of Defence, whose needs span from cleaning to Fairfax has a 268p near-term price target.

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4 September 2009

who’s tipping what Julie Brownlee, MoneyWeek’s analyst, picks the best – and worst – tips from the press and brokers’ reports, and suggests a share for the brave.

Don’t get angry about Eskom’s ineptitude – get payback with this coal play?

Tip of the week: “Exxaro rates a buy,” says Finweek Enough already with Eskom’s price hikes! After increasing our electricity bills by over 30%, Eskom’s now harping on about the next bout of looming hikes.

But what can you do? It’s not like there’s an alternative electricity provider to turn to. But there is one way to profit from Eskom’s bungles...

Exxaro Resources Limited (JSE: EXX) is perfectly placed to profit from Eskom’s raging appetite for coal. Exxaro is South Africa’s fourth largest coal producer with

a capacity to produce 45 million tonnes a year.

Not content with Eskom and local demand, the company is focusing heavily on the international market by exporting its carbon commodity. It also has existing operational interests in China, Australia and Namibia.

But coal’s not all Exxaro provides. This South African mining group has a diverse portfolio of commodities. This includes mineral sand, industrial minerals and base metals. You also get exposure to iron ore thanks to the company’s 20% stake in Kumba Iron Ore. Exxaro was born in 2006 after Kumba Resources split into

Gamble of the week: Pinnacle Technology Holdings Limited (JSE: PNC) Did you hear about our new Seacom cable? Finally, South Africa has joined the digital age! In July, the Seacom cable went live. But, why should you care?

It looks like, at long last, South Africans will have access to decent broadband speed at lower costs. Not only that, phone bills should also reflect a price reduction. So, with that to look forward to over the coming 12 months, how can you profit from the long awaited development?

It all comes down to the age-old supply demand equation.

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4 September 2009

Exxaro and Kumba Iron Ore. This allowed the respective companies to become specialists in their relevant areas. But with Exxaro’s 20% stake in Kumba, it will still benefit from its growth.

Demand is set to increase as cheap internet usage starts to take off. Hordes of people will want to buy computers and all the other bits of associated hardware. And this means supply will have to keep up with the explosive demand for hardware.

And this is where Pinnacle Technology Holdings Limited (JSE: PNC) comes in. You may already be familiar with its products. The Proline range of PCs and notebooks makes up Pinnacle’s main product offering. But, its offerings don’t stop there...

15 operating companies make up the Pinnacle group. These companies distribute and licence international brands.

Companies you’ll be more than familiar with like Microsoft, Sony, Canon, IBM and Hewlett Packard. And that’s just for starters. A quick visit to their website reveals the full array of big boys under its umbrella.

who’s tipping what As Brendan Ryan asks in Finweek, “why is the price [of Exxaro] holding up”? It’s going against the grain of most commodity counters at the moment because it’s still making money. Ryan puts in down to “its powerhouse coal division”. And despite our gripes with Eskom, you’ll have Eskom to thank for soaking up Exxaro’s coal production.

Demand is only set to soar as time ticks on.

So, how is Exxaro looking on the books?

Well, not too shabby. Despite warning the market about its coming earnings being down for the same period in 2008, they were still good! Revenue boosted 23% for the six months to June 2009.

Net operating profit soared 18% up to R953m. Headline earnings per share added 8%. And regardless of the horrific economic climate, the company still managed to pay a dividend, even though it was less than the previous interim.

100c a share is not bad. Exxaro is currently trading on a dividend yield of 3.47%.

After holding up so well over these tough times, Exxaro’s potential looks fantastic. Don’t wait too long before you get your share – this company’s performance has been excellent and it should only improve in the coming months. It won’t take long for this to reflect in the share price. Exxaro’s a buy at the current price of 8638c.

Buy. Recommendation: BUY at 8638c Market capitalisation: R30.765bn

Turkey of the week: “Crushing antitrust fine looms for Mittal” – Business Day Arcelor Mittal SA Limited (JSE: ACL) has hit the headlines again.

And, again, it’s not good news.

Bang on the front page of Tuesday’s Business Day, Charlotte Mathews highlights the second antitrust probe into Mittal.

So what’s happening? In our 8 June issue of MoneyWeek, we highlighted that Mittal escaped the Competition Tribunal’s R692m penalty for charging excessive prices on flat steel.

This time around, Mittal faces charges of colluding with other companies on prices. If found guilty, it must pay “a penalty of 10% of annual domestic sales as well as the value of its exports in its previous financial year”. That would cause a serious dent to the company’s current financial position.

So how did this latest accusation come about? The Department of Trade and Industry, along with research by the Competition Commission, suggests that steel mills in South Africa “had charged local customers at about import parity price levels since 2002”. Even though SA “is a net exporter of steel”!

But, if the charges hold, it’s not just Mittal who’s under the cosh. Companies under investigation include well-known listed companies Group Five, Murray & Roberts, Stefanutti and Esor-Franki. So, if “convicted”, it won’t just be Mittal facing

If that isn’t enough, the company also sells cable and networking products, and essential services like data storage.

Pinnacle has a finger in every computer pie!

So, as demand increases for computers, Pinnacle will be there to serve retail and business clients alike.

And, of course, government contracts will be up for the taking as they implement the widespread use of computers in their offices and schools.

The company’s latest results to end February 2009 showed just how well Pinnacle is doing already. Turnover soared 35%. There was a slight loss in earnings per share, but

9

4 September 2009

the brunt of the Commission’s wrath.

On release of the news, Mittal’s share price dropped 5%. As the largest steel producer on the African continent, this new accusation and outcome could have a severe impact on the credibility the company has slaved away to achieve since forming in 1928.

But, despite the fact that these allegations could have an impact on the company’s reputation, not to mention its credibility, Mittal remains a major player in the international market. It has a presence in 27 countries. And globally employs over 300,000 people.

If the new charge falls through, it’ll be a great time to buy Mittal at a slight discount. But, if the charges hold firm, you could be in for a rocky ride as a shareholder of the steel giant. Avoid for now until there’s more clarity on this newest charge.

Recommendation: Avoid Market capitalisation: R47.918bn

that’s thanks to foreign exchange losses. There’s nothing wrong with the company.

This development in bandwidth will open up South Africa for a massive technology boom. And Pinnacle is in the perfect place to benefit. Pinnacle is a small-cap company, but don’t let that hold you back. It’s already paying a generous dividend. Currently, the company has a healthy dividend yield of 5.33%. With the IT landscape rapidly changing, now could be your chance to jump in and ride the wave up. Pinnacle is a buy at 225c.

Recommendation: BUY at 225c Market capitalisation R420.991m

best of the financial columnists Stalinism is no answer to the crisis Caroline Baum Bloomberg

Population boom is a good thing Felipe FernándezArmesto The Times

Britain’s coming blackouts Irwin Stelzer The Daily Telegraph

We don’t need rules on light bulbs Martin Hutchinson Breakingviews

10

Maybe aggressive government intervention has saved the US from Depression 2.0, but some problems are still being handled in the same way that they were in the 1930s, says Caroline Baum. That would be the wrong way. American farm policy still props up production, even though agriculture employs just 1.2% now versus 21.5% in 1930.

Take American sour-cherry farmers, who are being told to dump 40% of their harvest to prevent prices falling. This makes no sense.

“Oversupply and declining demand are just screaming for a price decrease” to force farmers to find new uses for their goods or try other crops, rather than this Stalinist solution that just hurts the economy. Sadly, “Depression-era farm policy” isn’t confined to agriculture, but has “spawned copy-cat programmes” like “cash for clunkers”, which paid consumers to trade in gas-guzzlers for fuelefficient cars. “If the nation’s goal is to increase productivity, dumping Chevys or cherries – targeting ‘less’ as an objective – isn’t the answer.”

Good news: Britain’s population has climbed to a healthy level, says Felipe Fernández-Armesto. “Bad news: Doomsayers will misrepresent triumph as disaster.” They’re wrong: While the population has surged, resources have increased even more. Yes, “we face crises of biodiversity and resources”, but that’s “because of our madcap consumption, not our numbers. We have selective food shortages – because of unfair distribution and warped priorities.” However, as the world becomes richer these problems should ease. “Prosperity is the best contraceptive: the rich breed less to be sure of surviving heirs.”

Indeed, the biggest population problem is the steady ageing of generations that all prosperous countries, including Britain, face.

So the latest figures are hopeful, showing that fertile immigrants can provide the new generation of young people the country needs to keep demographics in balance. “The ‘population bomb’ is a hoax.

The real danger is that as people multiply, we will value them less.”

Britain faces blackouts between 2013 and 2016, says Irwin Stelzer. This isn’t due to global energy shortages: The world has plenty of oil, gas and coal, while nuclear energy is safe and reliable. “Throw in wind and solar power, and you have more energy than can ever be needed by businesses and consumers.” Nor is the main risk unreliable foreign providers cutting off those supplies – Britain uses “reliable Norway for an increasing portion of supplies”, while more natural gas is within reach. “Add more storage capacity, and you have a viable energy policy.” The fault lies with the politicians who should be replacing Britain’s decaying power infrastructure and their vulnerability to Nimbys who want to frustrate plans for new plants, turbines, solar panels or nuclear reactors. The UK must overcome this and “add in an acceleration in clean coal research” to get over the additional problems caused by the government’s targets for reducing carbon dioxide emissions. Otherwise, shortages are “almost a certainty”.

The European Union’s decision to outlaw traditional light bulbs in favour of energy-saving compact fluorescent light bulbs (CFLBs) is deeply flawed, says Martin Hutchinson. “If the new bulbs were better, consumers would choose them naturally”: If the claimed energy savings were real, rational consumers would switch. But CFLBs emit considerably less light than claimed and a substantial percentage burns out before the expected lifespan. They also contain toxic mercury, which is illegal to discard in ordinary rubbish, inconveniencing consumers. So the ban “violates simple economic principles and imposes substantial hidden costs on the economy.

It’s an attempt to forward a policy goal – combating global warning – by statutory means.” Such goals can be better met by explicit taxes, which fund governments and substitute for other taxes. “They also impose clear costs on oil consumption and carbon emission”, meaning that consumers can easily make their own purchase decisions “with those costs taken into account”.

4 September 2009

Money talk

“Our goal is to raise money for charity, but also to put Coppertone out of business. You can be charitable, but still be a bloodthirsty capitalist.”

Comedian Will Ferrell (above) on his Cancer for College charity sunscreen, quoted in People “We don’t stay in the most expensive places and every band member knows the rules – if they want something from the mini bar they pay themselves.

Younger band members and crew learn this is a job, not a party.”

Ian Anderson of rock band Jethro Tull, quoted in The Sunday Telegraph “I’m quite pragmatic.

If there was a lovely blonde with huge breasts and long legs who had my experience and wit, I’d be out of a job.”

Anne Robinson, host of TV gameshow The Weakest Link, quoted on BBC News “Bankruptcy is the easy way out. I decided no, I’d step up to the plate, try to do the right thing and get everyone their money back.”

Actor Neil Morrissey on entering an IVA in order to repay debts after his property firm collapsed, quoted in The Sunday Telegraph

investment strategy

How to beat the September blues 2. Bet on rising volatility

September got off to a bad start for investors. Weakness in the Chinese market and general concerns over the sustainability of economic recovery rattled investors early this week. The FTSE 100 shed nearly 2% on Tuesday to end the first trading day of the month down at 4,820.

©IMAGES.COM/CORBIS

by John Stepek

Investors probably shouldn’t be surprised. “It is hard to believe that a single month can disappoint investors so often, but September fits the bill,” says David Schwartz in the FT. It’s even worse when there’s been a run-up of the sort we’ve seen since March. According to Schwartz, there were eight bull market years in recent decades when British shares gained at least 9% in the six months to the end of August. “Prices continued to rise in September just once” – even then the gain was less than 1%. With this September looking at least as wobbly as history suggests, what can investors do to protect themselves?

When the leaves fall, so do the markets

“This September looks at least as wobbly as history suggests”

Hedging your bets You could of course just sell out of stocks. And if you were smart with your timing, and managed to join the ‘dash for trash’ that has seen banking and housebuilding stocks (among others) rocket over the past six months or so, then now is probably a good time to be thinking about taking some money off the table. These stocks might have further to run, but by the same token, they are also likely to be among the worst hit if the traditional September correction turns out to be something worse. Your profits – and the risk involved in holding for longer – should offset any trading costs.

But if you’re more of a long-term investor, and have been stocking up on the largecap, high-yielding stocks we’ve been recommending as a core holding in recent months, then you probably don’t want to sell out of the market. For one thing, defensive stocks have underperformed in the rally, so there’s much less to lose in terms of gains. In fact, defensives may even rise as investors shift from cyclical stocks to ‘safe havens’. For another, if you bought the stock based on getting a nice

11

4 September 2009

dividend yield, there’s little point in selling and missing out on that. So how can you take out insurance against a falling market without selling out of it entirely?

Here are a few options.

1. Buy put options One way to protect your portfolio is to buy put options. These give you the right – but not the obligation – to sell an agreed number of shares at a specified level (the ‘strike’ price) to the ‘writer’ of the option, up to a set future date (expiry). The option writer collects a one-off fee (‘premium’) for selling you the right to sell your shares at the strike price.

So you are betting the share price will fall, while the writer reckons it will rise.

If the share price does fall, the value of your option will go up, as it gives you the right to sell at the higher price. The higher the strike price compared with the actual price, the greater premium you’ll have to pay, because you’re buying more insurance against a fall.

If you deal in ‘exchange-traded’ options – listed in the FT under ‘equity options’ in the ‘markets’ section – you can sell your puts at any pre-expiry point.

For example, with GlaxoSmithKline (LSE: GSK) shares at 1,196p, the ‘1,200p strike’ puts expiring on 20 November 2009 currently cost 63.5p each. But this contains a ‘time value’ based on the time left until expiry. If GlaxoSmithKline doesn’t drop until just before the option expires, this ‘time value’ will fall, meaning the put price won’t rise as much as the share falls.

The Chicago Board Options Exchange Volatility Index, or ‘Vix’, is known as Wall Street’s ‘fear gauge’. That’s because it tracks the premiums paid for options tied to the price of stocks on the S&P 500. To put that simply, it measures the price of insuring against sudden market movements. If traders are worried about prices falling (which is usually what they’re fretting about, rather than the other way around), then they’ll be willing to pay more for an option that will let them cover their positions.

The long-term average on the Vix is around 21. In the wake of the Lehman Brothers collapse, it spiked as high as 81. It’s currently trading at around 29. If the market does go into another slide, it’s a pretty reasonable bet that it will end up far higher. The easiest way for retail investors to get exposure to the Vix is via the iPath S&P 500 VIX Short-Term Futures ETN (NYSE: VXX), with an annual management fee of 0.89%. Be aware that it’s denominated in dollars, so as a sterling investor you do have currency risk.

3. Spread trade You can hedge your exposure to falling share prices using spread trading. Say you hold 1,000 shares in Vodacom, currently trading at around 5800c. If you want to hold onto them, and perhaps profit from any falls in the meantime, you can place a bet that the share price will fall. If it does, what money you lose (on paper) on your holding in the stock will be cancelled out by the spread trade paying out a similar sum.

In this case, you’d go to a spread trading provider and sell Vodacom at 5800c at R10 a point. It then falls to 5300c, giving you a profit of R5,000 (R10 times 500 ‘points’), offsetting the R5,000 loss you’ll have suffered on your Vodacom shares. If the price rises instead, to 6300c, you’d owe the spread trading firm R5,000 – but your shares will have risen by roughly the same amount too. Do remember, of course, that you will be charged a bid-tooffer spread (the gap between the sell and buy price offered by the spread trading provider), which will eat up some of your profits. However, this shouldn’t be too onerous if you’re trading on blue chips.

personal view

Get in on 3 of the world’s fastest moving sectors What I would invest in now Since the Lehman collapse a year ago, three not-entirely-distinct phases have shaped the current investment environment.

This week, Anet Ahern, Head of research at Sanlam Investment Management Global tells MoneyWeek where she would put her money.

1) Out of denial Corporates acted swiftly, slashing millions of dollars of expenses such as staff costs, entertainment, PC replacements and especially advertising spend. This resulted in global media companies experiencing their “worst recession since the war”. Another feature of this phase was the realisation that many business models were far more fragile than we previously understood.

2) Raiding the cupboards US wholesale manufacturing inventories grew on average by around 0.6% per month for the past five years. This year, that number dropped to -1.2% per month.

3) Strengthening the foundations Many companies needed to renegotiate terms for their debt, or issue shares, and they did so this year. Ironically, many chose to buy back shares and did expensive acquisitions with debt while the market was rising, only to issue shares at prices some two thirds lower a few months later.

While all of this took place in the boardrooms, the global economy started responding to the shock stimulus it’s received since late 2008. The most obvious signs were in commodity prices and trading activity. To put this in perspective, the Commodity Research Bureau (CRB) Commodity Index fell 35% and bounced by 20%. The Baltic index dropped 96%, bounced 380% and is still only a third of peak value, giving us some idea of the contraction in activity.

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4 September 2009

In the global arena, the fastest movers tended to be shares with balance sheet risks, including the big global banks. As soon as there was any clarity on burning issues, astute investors saw a doubling and trebling in value in the space of months. That phase seems to be over now and the plethora of single-digit PE’s, literally pricing in failure, aren’t so easy to find.

On the global front, I’d invest in a media shares. They’re really under siege with no growth in advertising spend and business models in need of transformation. But with a forward PE of 11 and some of the best brands and content, I’m prepared to bet that companies will start spending on advertising again. Consumers will want to be entertained.

My first pick is American media company Viacom (NYSE:VIA). It includes brands such as MTV, Nickelodeon, VH1 and Paramount.

Next is Banco Estado Rio Grande Sul [Banrisul] (SAO:BRSR6). It’s a government owned regional Brazilian bank, trading at a forward PE of 9 and a little above book value.

While emerging market valuations have moved up significantly, this one’s remained cheaper – probably because of its agricultural exposure. Earnings will be volatile, but the Return on Equity (RoE) is there.

Locally, I’d add something with a great ability to pay dividends like British American Tobacco (JSE:BTI). I like the company’s ability to generate cash, its RoE, dividend yield and offshore exposure.

The shares Anet likes: Viacom ($)

12mth high $30.28

12mth low $13.09

Now $30.28

Banrisul ($)

$5.28

$1.83

$5.28

British American Tobacco (SA)

R301.00

R197.50 R243.90 *Price as at 2 September 2009

investment briefing

Japan’s political seachange Last weekend, the Japanese voted to oust the LDP, which has governed since 1955. So what can Japan, and the rest of the world, expect from its successor, the DPJ? Cris Sholto Heaton reports.

What’s changed in Japan?

of the LDP (along with the grandfather of Taro Aso, the incumbent prime minister he has just defeated). Another influential figure is Ichiro Ozawa, who was DPJ leader until he stepped down over the arrest of a close ally in a fundraising scandal earlier this year. Both men are ex-LDP members and were both part of the short-lived 1993 government. Indeed, it’s worth remembering that the transfer of power to their coalition back then was expected to reform politics, something that it clearly failed to do. Still, on paper at least, the DPJ is proposing a significant break with its predecessor’s policies.

Last weekend’s general election saw a huge shift in Japanese politics. The Liberal Democratic Party (LDP) was defeated by the opposition Democratic Party of Japan (DPJ). The LDP has ruled Japan for all but 11 months since 1955 – and the brief period out of power in 1993-1994 was the result of a split within the party, rather than them being turfed out by the electorate. But now it’s been reduced to a rump, shedding more than 180 of its seats in the lower house of the legislature, or Diet (see chart below).

How did the LDP last so long? ©BLOOMBERG

Because initially its policies were extremely What’s the DPJ’s manifesto? successful. A unique system of close It has pledged to move away from the co-operation between the LDP, the infrastructure spending binges that bureaucracy and the keiretsu (groups of combined fiscal stimulus with pork-barrel interconnected companies) delivered patronage for LDP voters. Instead, it will Democratic Party leader Yukio Hatoyama decades of strong growth, turning Japan increase healthcare spending, attempt to from a post-war wreck into the world’s second-biggest economy. boost birth rates through childcare support and cut taxes on The limited need for change was satisfied by shifts in the small business. Optimists hope this will boost consumer balance of power between different factions in the party. That spending. Less positively, Hatoyama has said that he may began to fall apart after the bubble and crash of the late 1980s; remove some of the labour market flexibility brought in by but even then, the LDP’s enormous fiscal stimulus programmes Koizumi, with measures such as a ban on factories hiring ensured it continuing support in rural areas and from industries temporary workers. The DPJ also intends to reform the such as construction. The rise of the charismatic and popular bureaucracy and end the common and corrupt practice of prime minister Junichiro Koizumi then gave the party a new amakudari, or ‘descent from heaven’, in which senior lease of life early in this decade. But after he stepped down in bureaucrats retire to top positions in the industries they’ve been 2006, the LDP ran through three leaders in as many years. regulating. In foreign policy, the new government may weaken It lost its majority in the less-powerful upper house of the Diet ties with the US and improve relations with the rest of Asia. in 2007 and now voters have evicted it from office altogether.

It remains to be seen if these promises will be honoured.

Why have the voters lost patience?

What might go wrong?

The economy undoubtedly played a part. Everyone is now The DPJ’s manifesto disguises a party that has been held familiar with the story of Japan’s ‘lost decade’ (now together more by a desire to evict its rival than any coherent approaching 20 years) since the bubble burst. Still, the situation ideology. This fact is not lost on voters, who were clearly voting is often exaggerated by Western commentators. Yes, it’s been a against the LDP rather than endorsing the DPJ. It’s possible that lousy time for investors: stocks are back at 1985 levels and land in power it will either succumb to infighting or just be content prices are off by 50% from the peak. But Japan remains a to let the status quo persist. What’s more, there is an elephant in wealthy, innovative and exciting the room in the shape of Japan’s country, not an economic slough enormous public debt (more Seats in the lower house of the Diet of despond. As much as anything than 200% of GDP), which Total 480 seats else, voters were simply tired of must begin to constrain the POST ELECTION the LDP and the uninspiring government’s options soon. The Liberal Democratic Democratic succession of hapless prime DPJ has tried to sound a tough Party of Party Japan ministers who followed Koizumi note on reducing the budget and they wanted a change. deficit, but has not presented any real plan for cutting the mountain down to size. Still, Will they get one? there is at least a genuine chance Perhaps. It has to be said that the PRE ELECTION for a major shake-up, not least leaders of the DPJ are not exactly because the LDP must now revolutionaries. Party leader Japanese Communist Others reinvent itself as an effective Yukio Hatoyama comes from a Party New Komeito Social Democratic Party opposition if it is to have any typical Japanese political dynasty.

Party Source: Associated Press prospect of regaining power.

His grandfather was the founder 13

4 September 2009

opinion

Don’t be too gloomy – capitalism will bounce back as it has many times before China and India – will have a rapidly expanding middle class. They will have reached the point where they stop simply buying necessities and turn into affluent consumers. That could be one of the big drivers of growth in the next 20 years.

The outlook for the global economy over the next 20 years seems grim. After roughly two decades when everything seemed to go right – inflation was tamed, Matthew Lynn technology boomed, globalisation opened up new markets – many people now reckon everything is set to go wrong.

Yet one lesson of the past 100 years has been that surprises are, more often than not, on the upside. After a traumatic shock, the economy often does far better than most people thought it would. That was certainly true after the inflationary traumas of the 1970s, and it was true as well after both World War I and World War II. Could it be true again?

It certainly doesn’t seem like it from where we’re standing. The 1990s and 2000s will no doubt go down as a uniquely benign period for the global economy. The Bank of England governor, Mervyn King, took to referring to it as the ‘NICE’ decade – ‘Non-Inflationary Consistently Growing’ – and that about summed it up. After the oil shocks and recessions of the 1970s and 1980s, just about everything came good. Inflation behaved itself. Governments everywhere began programmes of deregulation and privatisation. Communism collapsed, propelling lots of new countries into the free market system. The growth of computers, mobile phones and the internet spawned huge new industries.

It was a prosperous golden age, in which all we had to do was worry about spending wealth, not creating it.

In the wake of the global recession of 2008/2009, it’s easy to imagine that this is all over. The banking authorities warn us that any return to growth will be a long, hard slog. Debts are massive in the private and public sectors. Borrowing will have to slow and taxes will have to rise.

The world is awash with excess capacity, destroying profits for a generation.

Populations are ageing, creating huge 14

4 September 2009

©CHINA PHOTOS/GETTY IMAGES

Global view

China’s middle class: the drivers of future growth

demographic problems. Resources are scarce once again, and it may not be long before we have inflation to contend with too. Charles Bean, the deputy governor of the Bank of England, already refers to it as “the great contraction”, a view shared by many policy makers. They don’t expect the good times to return soon.

And yet the aftermath of a traumatic shock to the global economy is often better than people imagine. “The periods after the two world wars in the 20th century, the inflationary 1970s, and the emerging markets crisis in the period from 1997-2000 were all thought likely to be the gateway to stagnation, but economic performance, in the end, surprised on the upside,” argues George Magnus, senior economic adviser to UBS, in a recent analysis.

We may well be surprised again.

While there is no point in ignoring the problems, there are reasons for optimism too. First, over the next 30 years the world’s population is expected to grow by another three to four billion people.

Most will be in the emerging economies, so while Europe and the US may have a demographic crisis, those economies will still be thriving. Many of the big developing economies – in particular

Second, in Europe and America lots of people don’t work. In Britain, for example, around five million people are on incapacity or unemployment benefit.

The same is true in many other countries (even if they have other ways of disguising the unemployment). People still routinely retire at 55 or 60, even though they may well live for another 30 years.

A combination of welfare and retirement policies has pushed down the percentage of the population that works. If that starts to change – and the pressure on public finances over the next decade means it will probably have to – then it will release a huge number of people into the labour force. Since the number of workers is one of the main determinants of long-term growth, that would give the economy a big boost.

Thirdly, a whole continent was excluded from the economic boom of the last decade: Africa. While the rest of the world got richer, Africa got poorer.

That doesn’t make sense – the continent has too many valuable raw materials to be ignored. At some point, Africa will be re-integrated into the global economy, unleashing yet another driver of growth.

Finally, don’t discount another technological revolution. Mobiles might have reached saturation point. The internet may not be able to grow in the next decade the way it did in the last.

But, by definition, we have no idea what will be invented in the future – if we did we’d already be making it. With the global population rising, and education improving in the developing world, it would be very odd if the world’s inventiveness slowed down. It is much more likely to speed up – and all the new inventions will create new industries.

The global economy has a great capacity to bounce back from adversity. Undue pessimism can be just as expensive for investors as exaggerated optimism.

Growth has surprised us before – and it may well do again.

funds

Serious investors put money in emerging markets

by Gary Booysen

Templeton’s largest exposure is in the BRIC countries (Brazil, Russia, India and China) as well as South Africa.

“The spring has sprung, the grass is rizz, I wonder where them birdies is?” This was Ashburton MD, Peter Bourne’s reply when Leon Kok asked how the markets are fairing. There’s no question that the second and third quarters of 2009 have seen fantastic growth in markets across the globe. We’ve seen especially strong returns in the commodity driven shares of emerging markets. But, as fundamentals continue to disappoint, it’s all beginning to look a little overcooked.

While we might be looking at a short-term correction, in the longer-term we can expect emerging markets to trounce developed economies six/love. Morgan Stanley’s Asia/Pacific analysts warn that while the world economy has recovered sharply, developed countries are still feeling the effects of unprecedented policy stimulus. They’ll still have to cope with subsequent withdrawal.

But don’t despair. As Templeton Asset Management executive chairman, Mark Mobius says, “it’s usually possible to find at least a few bargains in most markets, all emerging market regions are looking exciting”. And he’s put his money where his mouth is.

But, emerging markets have long-term potential. They’ve faired much better than first world countries, thanks to higher savings rates. “For example, Brazil is one of the world’s largest suppliers of iron ore, Russia the largest supplier of natural gas. Also, since emerging markets have the most people in the world the potential demand for commodities in those countries is also the greatest.”

Fund of the week

A defensive Asian play for the long run Asian stock markets have risen 30% this year, while small-caps are up more than 50%, surprising even the most optimistic pundits. “It’s glaringly obvious any well constructed longterm international portfolio needs to include emerging market Asian exposure”, says Jonathan Schiessl, an Asian Pacific specialist at Ashburton. China and India have the potential to outperform the markets in the long run. If you’re looking for aggressive returns, the Chindia Fund is for you.

It divides its exposure roughly in half between China and India. The Chinese currency exposure is mainly in Hong Kong. It launched two years ago and has racked up an impressive

15

4 September 2009

over Christmas, but come March this year, it grew legs and began to run. Even that’s an understatement. It rose 40% in the run up to the election, but made truly amazing gains the day after the election, when “the Bombay Sensex posted a 17% gain in 60 seconds”.

Largest Holdings Holdings

gain of 40% this year so far… although it’s still marginally down over 12 months.

Both China and India are countries set to boom in the longer term. Economists laughed when President Hu Jintao’s predicted 8% growth for the country.

But he’s delivered it. As for India, it underperformed other Asian markets

Sector

%

China Everbright

Financials

3.58

China Const Bk

Financials

3.48

China Agri-ind Hld

Con Staples

3.32

Icici Bank

Financials

3.20

Reliance Inds

Energy

2.76

Mphasis Ltd

Technology

2.69

Axis Bank

Financials

2.58

Cnpc (Hong Kong)

Energy

2.46

Xinyi Glass Hldgs

Con Discretionary

2.37

Midland Holdings Ltd

Financials

2.37

cover story

A less taxing retirement If you want to retire in the sunshine, and get the most from your retirement money, what are the best options? Laura Henderson reports.

The dream of retiring abroad turned sour for many Britons in 2008 as the plunging pound hit their standard of living.

Eurozone émigrés in particular, relying on fixed sterling incomes from savings or UK pensions, saw their purchasing power fall by around a third last year. Yet despite shrinking war chests, one in six Britons over the age of 55 will have left Blighty by next year, reckons the Institute for Public Policy Research – it’s just that their preferred destinations may have changed.

And, for South Africans, with the rand holding firm, now may be the perfect time to consider a move abroad for your golden years.

Long-haul stalwarts, such as Australia, New Zealand and Canada, have been joined by “tax haven”’ newcomers Malaysia, Belize and Panama. A growing

Four top tax tips Retiring abroad involves lots of planning and paperwork. When it comes to tax, there are four key areas you should pay particular attention to, says Tim Bennett.

1. Property: This is most people’s biggest single expense. First decide whether you plan to rent your SA property out, or sell up and buy abroad. If you take the latter route, you’ll might free up some capital, as some countries are cheaper than SA. But if SA property prices pick up, you may find yourself unable to afford to return, should you wish to.

When buying abroad, check purchase taxes. Transfer duty in SA ranges from 0%-8%. And you will have to pay stamp duty. In other countries the rate may be

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4 September 2009

number of escapees are avoiding old favourites, such as France, Spain and Portugal, in favour of the less costly delights of Morocco, Turkey and Cyprus.

“The latter all boast light-touch tax regimes compared to Spain and France, which continue to put the financial squeeze on foreign homeowners,” says Peter McGahan of independent financial adviser Worldwide Financial Planning. So if you’re looking for sunshine, a reasonable cost of living, and a forgiving tax regime, where should you go? We’ve looked at three countries for potential expatriots to investigate.

1. The attractions of Panama John Darwin, the man who faked his own death to start a new life in Panama, may not have been the world’s most successful fugitive. But he certainly had the right idea when it comes to relocating. A nation transformed since the

higher and you may even have to pay value added tax. Also, if you let, rather than sell, your SA property, rental income will be subject to SA tax. And any capital gain from the time you leave may be taxed once the property is no longer your main home (or “principal private residence”).

2. Income: You might think that having left South Africa you’ll escape SA income tax. but if you spend 91 days (three months) or more back in South Africa in any one tax year (1 March to 28 February), you’ll suffer SA income tax as what SARS calls a ‘SA resident’.

That’s also true if you leave but are a regular visitor – averaging 91 days or more a year here, over five consecutive tax years. SARS also looks for evidence that you have severed ties with South

US ousted military dictator Manuel Noriega in 1989, Panama, like emerging Caribbean basin markets such as Guatemala and Belize, has capitalised on a steady drip-feed of money from a highspending, empty-nest class of US and European retirees looking for a casita (small house) under the palms.

As the early pensionados (pensioners) set themselves up with second careers, running start-up businesses such as bed and breakfast establishments and restaurants, they in turn are attracting more of their compatriots to the country.

Yet despite the country’s growing popularity, it still offers an inexpensive lifestyle combined with excellent tax breaks. Indeed, International Living magazine ranks it as one of its top three overseas retirement havens for US Continued overleaf

Africa before declaring non-SA residence.

So cancel any golf club subscriptions before you go and get your post redirected to your new home. Once you achieve non-resident status, avoid sending large dollops of cash back to South Africa, or it may still be taxed.

3. Estate duty: Escaping SA residence isn’t easy. But it’s a doddle compared to escaping “SA domicile”, whereby the SA is seen as your “permanent legal home”.

As a SA domicile, all your worldwide assets attract SA estate duty at 20% on your death after R3.5m.

4. Pensions: On pensions – personal or company – take advice. You may, for example, be charged a penalty by either a life assurer to move your income (annuity) overseas or have a company pension paid abroad.

cover story Properties for sale Sample villas and apartments in Cyprus, Panama and Malaysia.

©PAUL BARTON/CORBIS

Panama: Emerald Monkey Resort, Bocas del Toro. One, two and three-bedroom villas from R4.7m. See www.escapes2.com.

The dream of retiring abroad turned sour for some – but some boltholes could still put a smile on your face Continued from previous page

expatriots (for the full list, see www.retirement-index.com).

Overseas residents number around 80,000. The majority settle along the Pacific coast near the capital Panama City in beach destinations such as Coronado, Punta Chame, Gorgona and Rio Mar, where property prices remain competitive.

New-build apartments with sea views sell for as little as R650,000, while top-end designer villas go for upwards of R4.5m.

International Living’s Jessica Ramesch points out that it’s also possible to buy Panamanian-style homes for far less in inland towns such as David, although obviously what you gain in price you sacrifice in terms of nightlife and easy access to the beach.

Retirees have plenty to smile about in Panama. There’s no tax on offshorederived income, be it a pension, bank deposits, overseas property rental or an investment portfolio. Nor is there any capital gains tax (CGT) or inheritance tax. Moreover, foreign owners of newbuild properties that have construction permits issued before 31 December 2009 are exempt from paying property taxes on a sliding scale of five to 15 years, based on the market value of the property.

So how do you get in? “The most straightforward means of securing

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4 September 2009

residency is with the pensionado visa,” explains John Hitchcox, chief executive of international investment firm YOO, “with low entry-level requirements for individuals that receive a pension for life in their native county.” Applicants must demonstrate a minimum income of $1,000 a month (this is cut to $750 a month if you invest $100,000 or more in real estate) and $250 for each dependant.

Once the visa application is approved, the pensionado benefits are there for the taking. Better still, a new law states that from 29 August 2009 all applications must be approved or denied within 60 working days of submission – if not, the applicant is automatically granted the permit. Pensionado perks are numerous with up to 50% off key services from doctors’ fees and hospital costs to public transport and airfares.

Income tax on a sliding scale of 20.5% to 27% is payable on Panamanian earnings, with the first $9,500 exempt. However, you can claim some exemption from tax on rental income if you let a property.

And if you invest in one of Panama’s “tourism zones” you may be exempt from income tax altogether on any income it provides for 15 years. Retirees also receive a one-time exemption on the importation of household goods up to the value of $10,000 and enjoy an exemption from duties on the importation or local purchase of a car every two years.

Continued overleaf

Panama: Ocean-front apartments in Balboa Avenue, Panama City; prices from $352,500.

See www.yoopanama.com.

Malaysia: Golden Palm Tree Resort, Sepang.

Polynesian-style villas; prices from R1.3m.

See www.experience-international.com.

Cyprus: Ocean Village, Larnaca. Two-bed villas; prices from R4m. Jackson-Stops & Staff, +44 (0) 20 7828 7387.

cover story Continued from previous page

A survival guide

2. For long-haul luxury – Malaysia Palm-fringed beaches, lush rainforests and national parks make Malaysia a tempting destination, but expatriots are drawn to Malaysia more by familiarity – it’s an Englishspeaking, tea-drinking, former British colony as well as a “dragon economy”. It also has a warm climate, worldclass healthcare, and among the lowest living costs in developed Asia.

The government’s ‘Malaysia My Second Home’ (MM2H) initiative, launched in 2002, is worth exploring. To qualify, buyers over the age of 50 must hold at least RM (Malaysian ringgit) 150,000 (about R340,000) in a deposit account, but can use this money to buy a property and keep a minimum balance of RM103,000 (R234,000) for subsequent years. As long as they don’t work in the country, successful applicants benefit from a rolling ten-year residency visa and can bring their spouses, unmarried children under the age of 21 and parents above the age of 60 into the country as dependants.

MM2H residents may bring in household effects duty-free, and import or buy one vehicle locally, tax-free. They are exempt from Malaysian income tax on pension and related income remitted into the country. A “tax-lite” regime also means no CGT, wealth tax or inheritance taxes.

Income tax for foreign residents on earnings made in Malaysia is levied at a flat 28%, although mortgage interest payments and property maintenance costs can be offset against this. As for where to stay, many settlers put down roots on the scenic Sepang Gold Coast, close to the capital Kuala Lumpur and the nearby yachting hub of Port Dickson, or on the tropical island retreats of Penang and Langkawi, where freehold apartments can be had for as little as R1m.

©PHOTOLIBRARY

1. Language: Unless you plan to spend all your time with fellow English speakers, you’ll need to learn at least the basics. Ideally do it before you go.

You can then take further classes locally – a good way to meet people and make new contacts.

Cyprus: a favourite spot for retirees for 20% of all property transactions. It’s small wonder. A thriving expatriot community mean homesickness and culture shock aren’t as significant a problem as with more exotic destinations.

Paphos on the west coast remains a prime retirement spot, with three-bedroom villas in sought-after locations, such as Coral Bay, fetching upwards of R3.9m, while apartments in the bustling town of Larnaca to the east can be had for R1.3m – although, like everywhere else, developers are suffering in the downturn, so negotiate.

“Malaysia boasts world-class healthcare”

3. For familiar security – Cyprus If trekking to an unfamiliar destination is a step too far, you might find Cyprus more to your taste. The Mediterranean’s thirdlargest island has struck a chord with British retirees – more than 60,000 own homes on the island and foreigners account 18

4 September 2009

Cyprus joined the European Union in 2004, and adopted the euro in 2008. The country boasts favourable tax treatment of anyone in receipt of pension income, regardless of age. “If you live in the country permanently or at least six months a year, you can benefit from becoming a tax resident, whereby any pension – state, business or personal – is taxed at a flat rate of just 5%,” says George Karavis, tax partner at Grant Thornton in Cyprus. “Interest and dividends are exempt from tax, but are subject to the “special defence contribution” of just 10% and 15% respectively.” Be aware that retirees cannot work in Cyprus once their application is approved.

Foreigners are, however, subject to income tax on any income earned in Cyprus, including property lets, which is taxed at a progressive rate up to 30%,

2. Cost of living: South African is one of the world’s cheapest countries for everything from property to theatre tickets. But while overseas destinations can be more expensive, don’t forget to also factor in major extras, such as flights home to visit friends and family.

3. Healthcare: You will probably need insurance, just like here in SA, unless you rely on the public offering here.

This can get pricey – comprehensive private cover can cost more than R40,000 a year for a couple living in Europe, or more like R130,000 in America or Canada, notes www.planyourretirement.co.uk.

4. Climate and bugs: South Africa is blessed with a nice climate for the majority of the year. Overseas things can be very different – places that were a delight when you visited in spring may be a sweaty nightmare in high summer, or bone-chilling in winter.

Vaccinations will also need to be up to date – check with your doctor for the latest advice. And ask the locals about bugs. For example, newcomers to Sydney are often surprised at how often locals have to scrape highly toxic bat poo off their cars and even their clothes.

5. Infrastructure: The beach may be lovely, but have you checked out the road and rail networks? How many airports are there and how close to one will you be living? If you plan to own a car, do you have an international drivers permit and is it valid for your chosen country?

Additional research by Daria Afsanavia.

depending on the rental period. CGT is also payable at a rate of 20% on the profit of the sale of a property, although the first €17,086 (around R182,000) of the gain is exempt.

Laura Henderson is a freelance property writer.

the best blogs What the bloggers are saying

Stupidity tax for rash travellers www.bloomberg.com The French have come up with a great idea, says Celestine Bohlen – “a tax on being stupid”.

Miffed at a number of expensive diplomatic incidents, they have proposed a law requiring citizens who wander into danger zones to pay part of the cost of their rescue. On three occasions since April 2008, French naval forces have had to save citizens hijacked while sailing off the coast of Somalia. This costs a small fortune and carries risks: in one case, a French hostage died as commandos stormed his yacht.

©HENRIK SORENSEN/GETTY IMAGES

How recession moulds minds

Rescuing the reckless costs a fortune

And that’s not the only mess that can result: Aung San Suu Kyi, leader of Myanmar’s democracy movement, had 18 months added to her house arrest because a 53-year-old American decided to swim across a lake to her doorstep. The man has since announced that he’ll write a book on his ordeal. “Maybe there should be another law diverting proceeds from film rights, book deals and TV contracts to pay for their mistakes.”

Brazil’s oil grab is a wise move http://gregor.us Brazilian premier Lula da Silva has caused uproar after he hinted that the state may boost its stake in national oil company Petrobas – wiping $7bn off its shares in one day on fears of resource nationalism. But he’s dead right, says Gregor McDonald. Brazil has a chance to avoid the mistake that other countries, such as Britain and Mexico, have made by squandering their oil wealth.

Britain took only 30 years to run through the bulk of its North Sea oil reserves. To make matters worse, it did so while oil was cheap. And what

happened to the proceeds of those oil sales, did they get reinvested in productive assets? No, of course they didn’t. It’s the same sad story in Mexico, where the giant Cantarell field is in rapid and terminal decline. But there is no need to produce oil and sell that precious resource quickly, just for the sake of being efficient. Leave some of it where it is. “Brazil’s discovery of new reserves is a passport to the future if handled properly,” says Lula. “We don’t have the right to take the money we’re going to get with this oil and waste it.” At last a government gets it. Not all resource nationalism has to be destructive.

http://timharford.com “It will soon be a year since Lehman Brothers filed for bankruptcy. And two years since the queues began to form outside branches of Northern Rock,” says Tim Harford. Now we’re no longer staring over the precipice, doesn’t the hysteria of that period seem overexcited?

Perhaps not. New research from economists Paola Giuliano and Antonio Spilimbergo suggests the crisis “may shape the psyche of a generation”, even if the immediate impact passes quickly.

Their work studied the attitudes of Americans who have experienced severe regional recessions since 1972. The results were striking, finding those aged 18-25 at the time were strongly affected.

“The recession experience pushed these people towards the left of the political spectrum. [They] expressed a stronger preference for government redistribution, and they also tended to believe that success in life was more a matter of luck than hard work.” However, those under 17 or over 42 when the recession hit did not seem to be so affected.

This adds to work by Ulrike Malmendier and Stefan Nagel, who found that the stockmarket returns experienced in early adulthood influence investment decisions for decades afterwards. Consequently, perhaps we should expect the latest crop of school-leavers and graduates to become “firmly convinced that success in life has everything to do with luck”.

Stimulus scam snags crooks www.reuters.com

“Operation Show Me The Money” sent letters offering personal stimulus payments under the fictitious name of “South Florida Stimulus Coalition” to suspects wanted on charges from second-degree murder to guns and drug charges, to failure to pay child support. Recipients who showed up at an auditorium to collect their cheques were then arrested on the spot.

Round-ups are safer and more efficient than arresting someone

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©PHOTOLIBRARY

Many Americans would say that anything the government offers you is bound to come with a catch. For crooks in Florida, that’s definitely true. Police in Fort Lauderdale used the promise of a share in the government’s stimulus binge to lure 76 people to their arrest on a variety of outstanding warrants.

at home, according to police and, apparently, the bait doesn’t need to be large. “They were not large dollar amounts,” said police sergeant Frank Sousa. “No one was promised thousands of dollars”. Times must be tough in the black market.

entrepreneurs

The simple idea that made me $1bn He then spent $6,000 for a large advertisement in Barron’s, the US investment weekly, from which he got 600 orders at $32.50 a piece. Charging so little for that kind of information “was unheard of at the time”. More importantly, people paid up front, meaning “I had the money before I needed to pay the printers or Barron’s”.

His timing couldn’t have been better.

In 1984, there were only 1,243 mutual funds in the US, with net assets of $370bn. As of the end of 2008, there were 8,022 funds worth $9.6trn.

by Jody Clarke With its shares up by more than 100% since it listed in 2005, the success of investment research group Morningstar has catapulted its founder, Joe Mansueto, 53, onto the rich list. But you wouldn’t think his life had changed much. “Sure, I like money for the independence it gives me,” says Mansueto in his easy Midwestern drawl. “But as for the material things, I couldn’t care.” He has only recently bought a new car, having driven an old BMW for seven years.

Before that, it was a Mitsubishi Montero with rust holes in the floor panels.

The son of an Indiana doctor, Mansueto’s first business venture came in the late 1970s, selling soft drinks from his dorm room at the University of Chicago.

“We made $500 a quarter, enough to keep us in beer money.” A keen stock analyst, he got interested in the writings of a “guy called Warren Buffett, who was very obscure then”, and what made him buy some stocks over others.

He wrote off to Buffett’s Berkshire Hathaway vehicle and other fund managers for information. Before long, piles of prospectuses were clogging up his one-bed apartment on the North Side of Chicago. Mansueto thought the funds were a great way for “the average person to get investing”. But the amount of material in the prospectuses was overwhelming. “So I thought, wouldn’t it

MY FIRST MILLION Joe Mansueto, Morningstar be a good idea to gather them all into one compendium for investors?”

With $80,000 in start-up capital, in April 1984 he crammed five tables and three IBM personal computers into his kitchen.

He created a database of the information the funds sent to him. Within six months the first copy of the resulting publication, the 400-page Mutual Fund Sourcebook, was on his desk, containing everything an investor needed to know about every fund on the market.

Morningstar has grown alongside them.

In 1985, it had £100,000 in sales. That hit $1m in 1989 as it launched its first CD-ROM based product. This carried all the data that up until then had only been available in the print edition, but was far easier to search through. The advent of the internet gave the company new ways to distribute its information, and Morningstar.com launched in 1997.

With revenues of $502m today, it’s “been by far and away my best investment”, says Mansueto, who is worth around $1.3bn. But he still dabbles in the market.

He’s currently wondering what to invest in for his three young children. “I’m torn between buying what I think would be good investments or what they can relate to. My dad bought me ten shares in Chrysler when I was ten... so maybe I should buy shares in Disney. You should stick to what you know.”

©BBC

The MoneyWeek audit: Martina Hingis • How lucrative was her tennis career?

In a career spanning 13 years, Martina Hingis, 28, has won five Grand Slam singles titles and nine Grand Slam doubles titles, plus a total of 43 Women’s Tennis Association (WTA) singles titles and 37 WTA doubles titles.

She spent 209 weeks as the world’s top female tennis player.

Her total prize money comes to more than $20m, making her the sixth highest-earning tennis player of all time. Her most lucrative year was 1997, when she won more than $3.4m, aged just 17.

• What have brushes with controversy cost her over the years?

In 2001 Hingis sued Italian sportswear group, Sergio Tacchini,

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claiming the company’s trainers – which she’d worn as part of a sponsorship deal worth $5.6m – had given her a chronic foot injury. The case was dismissed by the New York State Supreme Court in 2002. She briefly retired from tennis in 2003, before returning to the WTA tour in 2005. But her comeback was cut short last year when she was banned from tennis for two years after testing positive for cocaine. She protested her innocence, but says she never appealed because the process can take years, instead choosing to retire from the sport. As a penalty for failing the test, Hingis had to give back £80,000 of her winnings – barely making a dent in her career earnings.

• What about her reality TV show appearance?

Hingis has been announced as one of 16 celebrity contestants on this year’s Strictly Come Dancing. She is set to earn £50,000 for taking part, regardless of when she is knocked out of the competition. This year BBC bosses are paying every participant the same fee, regardless of the extent of their fame.

personal finance

Are these 6 roadblocks standing in your path to real wealth?

by Karin Iten

The average South African will never reach their dream of building wealth, being financially secure and retiring comfortably.

It’s not because they don’t have a rich, recently deceased, long-lost uncle.

It’s because they’re making one or more of these six money mistakes.

Are you endangering your future by making these mistakes too?

Cast your eyes down the page. If you answer no to any (or all) of these questions, fear not. I’m going to tell you how you can fix each problem to get yourself back on the pathway to financial freedom.

#3: Unseen spending habits?

Do you trickle your money away? Like a leaking bucket, even the smallest, barely noticeable amounts (like your daily R12 cappuccino) can have a huge impact on what you waste at the end of the day. Over time, the hole just gets bigger and bigger. By the time you notice it, the water’s gushing through.

Solution: It’s a lot easier to plug a small hole. Start a spending diary. Jot down every cent your pay for a month.

And voila… just like that you’ll know exactly how much you’re wasting on unnecessary expenses.

towards something.

Solution: Write down your goals.

Visualise them. Whether it’s retiring early, an unforgettable trip overseas or sending all your children to university, your first step is to know where you want to go.

#5: Enough cash to last the month?

When you use this month’s salary to pay off last month’s spending, you’re in trouble.

Solution: If you have to buy something on credit, you shouldn’t be buying it at all. If there’s no way you can get around this, then ensure you don’t just pay off the interest every month.

If you do, you’ll never get out of debt.

#6: Enough stashed away

So go ahead, ask yourself… Do you have:

If you’re going to accumulate wealth, you need to control your spending.

#1: A 30 year bond?

#4:Financial goals?

Have you cashed out some of your retirement money? If you have, you’ve put a huge dent in your ability to be wealthy. But it’s not too late to fix things.

Where do you find the money to build wealth? Try looking at your bond.

If you don’t have a map to Barbeton, chances are you’ll never get there. To accumulate wealth, you need a plan.

Like anything, motivation is the key. So if you’re saving, make sure you’re saving

Solution: If you save between 10% and 15% of your income starting today, you’ll be well on your way to accumulating real wealth in later years.

Millions of homeowners think nothing of paying off their loans over a 30 year period. Yes, they’re the safest option, but they’re also the most expensive.

Did you know that with a 30 year bond you’ll pay around two-and-a-half times more than the price of the home you bought? That’s ridiculous.

Solution: Opt for a 15 to 20 year bond instead. You’ll pay a higher amount each month, but you’ll save big money on the interest.

#2: Control of your own money?

Are you involved in the day-to-day finances of your family?

Even if your spouse handles all your payments, you’re putting yourself at risk if your spouse becomes seriously ill, dies or if you divorce.

The same is true if you turn all your investments over to your broker or financial advisor.

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Solution: Know the details of your finances, investments, debt, savings, etc. Get involved. Keep abreast of the situation. And never give total control of your money over to someone else.

4 September 2009

Tax tip of the week Cash in on the 2010 World Cup without any nasty Vat surprises Hoping to cash in on the FIFA World Cup next year? Make sure you know how the Vat rules will apply to your earnings.

If you want to rent out your home to fans coming into the country for the tournament, remember that the supply of accommodation before, during and after the World Cup will be subject to Vat at the standard rate.

If you’re thinking of getting involved on the transport side of things, the following applies: • International air travel will be zero-rated; • Domestic air travel will be standard-rated; and • Passenger transport by road or rail will be Vat-exempt as normal.

Lastly, if you’ll be selling food at a tournament site, e.g. around a stadium, this will qualify as hospitality and will be zero-rated.

Remember: Hospitality supplied within tournament sites will be zero-rated, but hospitality supplied outside the sites will be standard-rated.

Matsika Vengesa, TaxConsulting, matsika@taxconsulting.co.za

profile This week: Peter Schiff

Peter Schiff is loud, reckons Time. And it’s hard to get him to stop talking. Ask a simple question and you get a ten-minute harangue featuring libertarian political opinions that some may think pretty extreme. Yet Schiff is far from being an opinionated boor. He did a better job than most of forecasting what would happen in financial markets, storming onto the national stage just as the credit bubble was set to pop, with a devastating critique of America’s unsustainable debtfuelled economic trajectory.

Fortune. His father, Irwin Schiff, is a long-time tax protestor who has published several books arguing the illegality of federal taxes. At 81, he is serving a 13-year prison sentence for tax crimes. Failing health means he spends much of his time shackled to a hospital bed. “My dad has basically taken a certain principled stance – unfortunately to his detriment,” says Schiff. “I pay my taxes,” he adds, clearly wistful about his failure to follow his father’s crusade to the full. “I’m taking the easy way out.”

Back then, he was widely mocked; but when markets collapsed, Schiff, 46, achieved cult status when a ten-minute YouTube clip of his predictions, complete with smirking rebuttals from eminent critics, became an instant hit. “What makes that clip so good is not so much me as everybody else,” he says. “People like laughing at people.” Now, having acted as economic adviser to fellow libertarian Ron Paul during his 2008 presidential campaign, Schiff hopes to stand in Connecticut as Republican candidate for the Senate in 2010. Some claim he’s got the drive and charisma to go all the way to the top. You would certainly be hard pushed to find a more deeply convinced, articulate opponent of Big Government in America.

Schiff attended college at the University of California at Berkeley – not the obvious choice for a rabid free-marketeer.

But he’d already gained a solid grounding in “libertarian icons” such as Ayn Rand and Ludwig von Mises from his father.

After graduating in 1987, he joined Shearson Lehman as a broker, but never got on well with his bosses. In 1996 he bought his own broker-dealer business with a partner, which they renamed Euro Pacific Capital. He spent those early days “cold-calling potential clients with warnings about a growing bubble in tech stocks”. The business has since grown to accommodate 60 brokers in six US offices and has about $1bn invested (see box).

It’s no surprise that Schiff grew up with “an unconventional outlook”, says

In person, Schiff – a divorced, but handson father of a seven-year-old son – is “less bombastic and more analytical” than his public image, says the Hartford

©LUCAS JACKSON/REUTERS

The rise of the libertarian free marketeer who predicted the crisis

Courant. Unlike most politicians, his hero Ronald Reagan included, he refuses to traffic in unbridled optimism. “It’s twilight in Peter Schiff’s America and, if painful and drastic changes aren’t made soon, he foresees an economic depression lasting a decade.” His prescription is tough: shrink the government, cancel all bail-outs and let the free market do its job. Opponents denounce him as defeatist and anti-American. But his “eat-yourspinach ethos” is gaining ground in the grass-roots of Connecticut and across the internet. Dismiss him again at your peril.

“In the end the fundamentals are going to prevail” The problem with staying true to one message is that people may tire of hearing it, says Time. Schiff hasn’t changed his message about America’s “phony economy”, and it isn’t pleasant to listen to, which may explain why his TV bookings are down 75%-85% this year, according to his younger brother Andrew, who handles his PR. But it’s his investment performance that gives his critics the most ammunition. The year that saw Schiff became a TV star was also one of the worst periods ever for his clients. As blogger Michael (Mish) Shedlock points out, Euro Pacific Capital’s recommendations were money losers in 2008.

“How could a bear have managed to lose money last year?”

Schiff’s current advice is the same as it has been for years, says Fortune. “Get out of the US dollar and into more fundamentally

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sound currencies like the Swiss franc or the Singapore dollar; buy some precious metals; and buy foreign, dividend-paying stocks, with an emphasis on natural-resources companies.”

What he failed to anticipate was that global investors would pile into dollars and US government bonds during the panic last autumn. But Schiff has no doubts. He still believes the US economy is based on the same principles as Bernie Madoff’s investments. “It’s a Ponzi economy. It’s not real. The markets might not validate what I’m saying. But they will eventually.

In the end the fundamentals are going to prevail.” In an earlier interview with the Canadian Globe & Mail, Schiff outlined his hopes for “giant global renaissance”. But that will only happen if “the world comes to its senses and allows America to collapse”.

That might well prove a piece of rhetoric too far for US voters.

Spending it Travel

Where to find “foodie heaven” in Tokyo

By Ruth Jackson Which city is the world’s restaurant capital? If you answered Paris, you’d be wrong. It’s actually Tokyo. The Japanese capital city has more Michelin stars – 227 spread across 143 restaurants – than any other city in the world, making it the new “foodie heaven”.

Thirty of Tokyo’s Michelin-starred restaurants are in hotels, so depending on where you stay, you need never be far from fabulous food. For city centre luxury, you’ll struggle to beat the Mandarin Oriental (from R3,600 a night; see www.madarinoriental.com). “The highlight here is the view, which – day and night – is spectacular in all directions,” says James Studholme in The Daily Telegraph.

The hotel overlooks the Imperial Palace and the Bay of Japan, and all the rooms are situated on the 30th-36th floors, so you’re guaranteed a good view.

This being Japan, there are plenty of inroom extras, from a permanently warmed toilet seat to yoga mats, with elegant nightwear provided should you need it.

The hotel has seven bars and restaurants, including the single-Michelin-starred modern Cantonese restaurant, Sense.

Another option is the Peninsula Hotel (from R4,900 a night; see www.peninsula.com), whose Hei Fung Terrace was awarded a Michelin star this year. Of the rash of new hotels that have opened in Tokyo in the past few years, the “best by far is the Peninsula,” says Kate Graham in The Independent on Sunday.

What do Michelin star ratings actually mean?

Michelin defines its star-rating as follows. A one-star restaurant promises an “excellent meal”; a two-star restaurant serves up “meals that are worth a detour”; while a three-star restaurant serves “meals that are worth a trip” in themselves.

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Clockwise from top: The Mandarin Oriental, the Park Hyatt and the Peninsula Hotel “Each bedroom bristles with the latest technology” and the service is excellent.

And if eating the food isn’t enough to satisfy your foodie curiosity, the Peninsula also offers a cookery course. Students learn to make tempura – deep-fried fish and vegetables – and two types of sushi, nigiri and maki. At the end of the twohour class you’re served a “mini-banquet of sushi and tempura platters” in your own private dining room, says Tom Gatti in The Times. All for R2,100 per person.

If you’d rather venture out of your hotel and into the city for your food fix, then Tokyo’s Park Hyatt hotel (from R3,100 a night; see www.tokyo.park.hyatt.com) is a fine alternative as a place to rest your head. The hotel featured in the film Lost in Translation and until recently had for years been recommended as Tokyo’s best hotel. It has now been overtaken a little

by newer rivals, but still has plenty to offer guests, including a fabulous spa and a bar with possibly the best view of Tokyo you’ll find in any of the city’s hotels.

There are nine restaurants in Tokyo that have been awarded the top rank of three Michelin stars. Sushi lovers should make for the Sushi Mizutani in the Seiwa Silver Building for the “most transcendent of experiences”, says Danielle Demetriou in The Sunday Times. But make sure you book well in advance, as the restaurant is hugely popular.

For a different three-Michelin-star experience you can head to Hamadaya.

Housed in a former Geisha house dating from 1912, this restaurant serves a “string of delicate seasonal dishes created in kaiseki style, the Japanese equivalent of haute cuisine”, says Dementriou in The Daily Telegraph.

cars

Range Rover’s fabulous luxury SUV

You can bang on about the pointlessness of SUVs, but when it comes to the Range Rover, “to drive one is to want one”, says Ben Oliver in Car. In fact, the best comparison is not with SUVs, but with the Rolls-Royce Phantom. It’s that good. It’s been restyled inside and out, there’s a new supercharged, five-litre V8 and a plethora of “mad new gadgets”.

The cabin is, as before, “fabulous”, with a touchscreen display in the central console, and enough leather to “put cows on the endangered species list”.

Buyers who might have been tempted by other high-end SUVs should think again.

“There’s a big difference between high price and high class”, and the Range Rover has its rivals “licked for the latter”.

Beneath all the glitz, “a fabulous car lurks”, says Anthony ffrench-Constant in The Daily Telegraph. You sit so high up that you’re “a little astonished to arrive behind the wheel without the aid of a ladder”. At 100km/h, it “ticks over in near silence at less than 2,000rpm”, and the handling is improved in this new model, although trying to drive at speed

through corners still feels “like chucking the living room around”. But for all that the car is “remarkable”.

It has staggering off-road ability, plus “perfectly decent behaviour down twisting, undulating tarmac”, says Paul Horrell in Top Gear. In short, it has everything you could want from a car.

Except economy (8km/l).

Wine of the week: no skimping of new oak barrels for this wine Wine: Eikendal Classique R130 at exclusive wine retailers Eikendal Classique is one of the first Bordeaux blends made in the early eighties and still gets regular four star awards in the Platter’s guide.

This Classique truly lives up to its name. The estate makes it from Cabernet Sauvignon and Cabernet Franc

by Marilyn Cooper in the style of French right bank wines.

The wine is brimful of typical blackcurrant/berry, bramble and cassis aromas, which fill the palate. The constituent, which makes this wine stand apart – particularly as far as its ageing potential is concerned – is ageing the wine in 80% new French oak.

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The economy is suffering. A new 225 litre French oak barrel costs over R10,000, while the packaging costs for a single bottle are around R8.00. You don’t have to be an accountant to realise that this pushes up the price of wine considerably. R130 for a serious wine of this nature is actually a bargain.

Many winemakers are now substituting wooden staves and chips to keep the costs down but I’ll tell you about those soon.

Marilyn Cooper is a Cape Wine Master and Managing Director of the Cape Wine Academy.

blowing it

Annie Leibovitz: A modern American morality tale?

Then there’s the stunt pulled by pop group KLF in 1994. Not content with terrifying a music award show by firing blanks from a tommy gun into the audience, the band decided to withdraw the last of the money they made – some £1m – and burn the lot in a boathouse on the Scottish Isle of Jura.

When photographer to the stars Annie Leibovitz wanted circus animals for a celebrity shoot, a bestiary was rolled out.

And when she decided to photograph actress Kirsten Dunst in the style of MarieAntoinette, the entire Palace of Versailles had to be closed.

But now the world’s most famous – and demanding – snapper is facing bankruptcy.

After a disastrous decision to take a $24m loan from Art Capital Group, a high-end pawn broker to the art world, Leibovitz faces losing her homes and the rights to her life’s work if she doesn’t pay up by 8 September.

©BRIAN RASIC/REX FEATURES

But top prize for reckless whimsy has to go to Michael Jackson’s megalomaniac stunts to publise his grand comeback in June 1995. Asked by Sony executives how he wanted to reannounce himself to the world, Jackson commanded that they build him a statue.

Michael Jackson’s 32-foot tall statue makes its way down the Thames Just for good measure, nine were made at a cost of $30m. of fancy. Arnold Schwarzenegger, for example, still jokes about flying “And in a contemporary twist on Tourists in London were soon being through a blizzard in a helicopter, then Tom Wolfe’s Bonfire of the Vanities, treated to the sight of a 9.7m tall steel nearly freezing to death on top of a Leibovitz’s troubles are being raised to the statue of Jackson in full military regalia mountain for his 1997 Vanity Fair cover status of an American morality tale,” says being towed up the Thames. Tower image. And I particularly liked her Medb Ruane in the Irish Independent.

Bridge was even raised to let the giant decision to repeatedly dunk Kate Winslet The public is lapping up the story of the Jackson through. And East Berliners got into a tank of freezing water for her pampered photographer who is close to an awful fright when a 9.1m Jackson, shoot. being destroyed by easy credit and greed. sporting a jock strap outside his trousers, “Her demands became too big,” says was lowered by a giant construction And for all her madcap photo stunts, Jane Sarkin of Vanity Fair. “Fire, rain, crane onto a plinth in Alexanderplatz.

Leibovitz falls a long way short of other cars, aeroplanes and circus animals – I’m sure, at that moment, a few East artists in her determination to indulge whatever she wanted, she got.”

Berliners must have doubted the wisdom her own whims. Take Damien Hirst. of pulling down the Berlin Wall.

Surely Annie’s passion for tigers and But isn’t everyone being a little tough on pyrotechnics pale in comparison to Annie? Sure, her photos are overblown, Hirst’s For the Love of God – a skull at least to my eye. But you have to festooned with 8,601 diamonds, which admire her determination to stake so cost $20m to produce. much money on so many wild flights

Tabloid money… Auntie has an unfair advantage ■ “These are difficult and dangerous times for media companies”, writes Mark Austin in the Sunday Mirror.

Newspapers are closing in record numbers. Even The Observer – the world’s oldest Sunday newspaper – is under threat. But “all the while the licence-fee-funded BBC sails on with a fair wind provided by the certainty of its income from you and me.”

Sure, the BBC does a great job of producing news, current affairs programmes and dramas. “But does it need to do all the other things?” Why use licence-fee-payers’ cash to fund giving away video news content to newspapers, for example “when my employer, ITN, is trying to do the same thing commercially”?

■ “Oh Fergie, where is your insight,” moans Vanessa Feltz.

After facing criticism for her ITV documentary The Duchess On The Estate, the ex-wife of the Duke of York says she’ll never make another documentary in Britain again. But “did you truly cherish the notion you could fraternise for just a few filmed

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moments with life’s unfortunates and be swept off in a gleaming limousine to the sound of tumultuous applause? How idiotic do you think we are?” As a common girl, who managed to marry well but still messed things up, “your blood is no bluer than Katie Price’s”. Your ego is so bruised, that you say you want to go away to live in a hole. “I’m too much of a lady to suggest that might just be the brightest idea you’ve had in ages.”

■ “It would have taken just a call to the Health Professional Council of South Africa (HPSCA) to establish that 51-year-old Ann Nosizwe Mbodla is not registered as a medical practitioner”, says Fred Kockott on Independent Online. Mbodla worked as a doctor at the Umzinto Correctional Services centre for over a year. She’s facing charges of fraud and could soon be joining her former patients behind bars. Dr Yacob Kadwa, chairperson of the local Independent Practitioners Association, says the issue smacked of “jobs-for-pals”.

shares at a glance MoneyWeek’s comprehensive guide to the week’s shares in the news

PUNTS Company

Media

Reason

Exxaro (EXX) Mining

Finweek

Finweek’s Brendan Ryan exposes Exxaro’s true strength this week. He says: “Exxaro is currently a rare breed – a mining group that’s still making good money, thanks mainly to its powerhouse coal division.” The share’s going to face challenges with a lower coal price but, its share price has moved up 5% since announcing solid interim results. Coal demand is set to escalate sharply at any sign of recovery as Eskom starts to once again crave coal. But, coal aside, Exxaro’s also perfectly positioned to take advantage of an increasing iron ore price. As China’s growth continues, Exxaro’s 20% stake in Kumba Iron Ore will pay nice dividends. Buy. 8638c

Woolworths (WHL) General retail

Summit TV Henk Viljoen, Stanlib

Henk Viljoen says he likes Woolworths for several reasons. He believes the food division, an area where Woolworths has previously lost market share, is “going to recover quite nicely”.

It’s also launched a new series of clothing that Stanlib’s retail analyst is very excited about. He suggests that Woolworths is quite top heavy in terms of costs. It has a lot to gain from efficiency improvements and is an attractive addition to any portfolio. Buy.

1530c

Brendan Ryan is just downright impressed with Northam Platinum. He writes in Finweek that “the company has held up against the slump in platinum market far better than industry heavyweights, such as Lonmin and Anglo Platinum, and ‘sexier’ platinum stocks, such as Aquarius”. This company is no sleek temptress. It hasn’t even been the homely friend in the corner.

For years, it’s been getting bad investment press because it’s the deepest mine in the country. But, these high cost operations are still outperforming the rest as Northam chalked up profits of R630.5m and managed to pay a 78c dividend to boot. The real value is in the Booysendal project – is a shallow low-cost operation that’s about to be brought online. Buy.

3800c

Northam Platinum (NHM) Mining

Finweek

Current price

Data Vendor Company

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Address: 7 Sturdee Ave, Rosebank Johannesburg

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4 September 2009

This comprehensive data content, coupled with our home-bred applications, makes I-Net Bridge an invaluable partner in facilitating your investment decisions.

shares at a glance MoneyWeek’s comprehensive guide to the week’s shares in the news

DOGS Company

Media

Reason

Current price

BRC DiamondCore (DMC) Mining

Financial Mail

The diamond industry is floundering, but among the condemned, one share has concrete boots. Jamie Carr sings the requiem of BRC in Diamonds & Dogs this week. The vast majority of its operations are in early exploration stage and while they may one day show returns, “they are a long way from being bankable”. This leaves BRC with “a lack of going concerns”. Bankers are compounding its problems by denying further financing. Who can blame them when most of the projects are situated the Democratic Republic of Congo. Last, but not least, there’s the looming litigation. “A final liquidation order against the holding company of DiamondCore’s SA assets is lurking ominously in the Northern Cape high court.” He concludes that “it’s not quite time to hoist the white flag, but it’s going to take some mighty nimble manoeuvring to get this outfit back on its feet”. Sell.

150c

DRD (DRD) Gold mining

Financial Mail

The Financial Mail’s Matthew Hill doesn’t like gold miner DRDGold. He says: “When the rand gold price leaps like it did in February, DRDGold rolls in cash.” Unfortunately, the latest quarter hasn’t been kind. The company reported a pre-tax loss of R81m. On a PE of 16.72, it’s also expensive. Sell.

565c

Reason

Current price

WATCHLIST Company

Media

Brimstone (BRT) Equity investment instrument

Transpaco (TPC) Containers and packaging

Shoprite (SHP) Retail

Business Connexion Group (BCX) Computer services

Financial Mail

Financial Mail

Financial Mail

Financial Mail

Brimstone’s dramatically increased its turnover since last year and the earnings per share have moved back to black. The Financial Mail’s Larry Claasen says, “the results look good but they’re measured against a period where it incurred a R74.1m fair value loss”. Its holdings in Nedbank and Old Mutual are paying off but, at the moment, it’s only fair value. Hold.

585c

Transpaco is a leading manufacturer, recycler and distributor of plastic and paper packaging products. And the share price has rocketed in recent weeks thanks to fantastic results. Razina Munshi writes in the Financial Mail: “Investments and acquisitions, which were three years in the making, are now paying off.” It’s lowered its debt substantially and it’s on the look out for new opportunities. This is a great company with brilliant future prospects, but it’s a little pricy at the moment. Hold.

825c

Financial Mail’s Sasha Planting poses the question: “How much more efficiency can be squeezed from the business?” Shoprite has managed to increase its trading margin to 4.96%. It’s shown good all round growth during recessionary conditions. Let’s keep an eye on this one; it’ll be interesting to see how it reacts to the low interest rate environment. Hold.

5660c

The days of restructuring are almost over and a new era of efficiency has arrived. Hopefully. So far Business Connexion has benefited from higher spending in the public sector. It’s another one to keep an eye on. Hold.

450c

**Closing prices as at 2 September 2009

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4 September 2009

last word

Dumb geniuses The fixers try to fix their fixes had a hard time explaining it. The smart dudes did not toil in the fields, neither did they spin. What did they do? They earned millions, bought BMWs and got dates with actresses. They claimed they were doing a fine job of allocating the world’s wealth and making everyone better off.

From California comes word that the summer programme of Singularity University (SU) ended this week.

The idea of SU is simple enough.

Put smart people together with the latest technology; let them figure out solutions to the world’s problems. ‘The Singularity’ is an idea from Ray Kurzweil.

Bill Bonner

But when the bubble blew up, it was apparent that the financial world they created was fragile and perverse. Not a single one of the largest Wall Street banks

The gist of it is that computers will soon be smarter than humans; by the middle of this century they’ll be smart enough to figure out how to get smarter and faster.

No doubt many will go into finance. And no doubt many will make a fast buck.

But will more smartness really make the world a better place? According to the singularists, increased brainpower will be able to solve all sorts of problems – from global climate change to market crises.

The more the brain takes command of a project, the dumber the man becomes.

He limits himself to his logic, cutting himself off from the wisdom of intuition and the accumulated wisdom of 1,000 generations’ worth of trial and error.

He ends up coming down on his subject like a blacksmith’s hammer on a fine Swiss watch. Set him to work on social, political or financial matters and the genius always smashes it to pieces.

For every problem brains have solved, they’ve caused two more. During the bubble period the big banks were the biggest employers of graduates from the world’s top schools. Oxford, Cambridge, Harvard, Yale – the financial sector drew them in like flies to an open latrine. The financial industry made so much money it 28

4 September 2009

If the bug had come from stupid people, smart people could have avoided it.

They would have come through the period without permanent scarring. But the wheezy intellectuals behind it were too clever for their own good. They soon infected the top universities – and the government. They convinced almost everyone that central planning was the wave of the future and that anyone who stood against it was a bumpkin, parasite or a fool. Then, in the name of human progress, they took control in two of the world’s largest countries and turned them into prison camps.

By the last decades of the 20th century it was obvious that central economic planning wouldn’t work; it was obvious even to the planners. In both Russia and China, they gave up. But the brains didn’t give up. We reported last week on the Nobel laureates’ role in the blow up of 2007-2008. It was they who had developed the formulae and theories that set hearts fluttering in the financial sector.

They believed they could tame risk – by calculation! They figured out the odds and worked out prices – to as many decimals as needed to put investors to sleep. And then along came a risk they had not foreseen – the risk that their own formulae were nothing but claptrap.

©LELAND BOBBÉ/GETTY IMAGES

One of the biggest disappointments of the human race is that its finest tool has proved useless for its most important undertakings. The brain itself is just a dumb tool. It does what it’s told to do; it doesn’t ask questions. Put to the task of building a bridge, it does well. But no mechanical engineer has ever improved the old-fashioned kiss. The brain sets to work on every project as though it were building a bridge... as though it were an engineering job.

Committee had been on the ball they’d have given Karl Marx a prize.

Intellectuals are too clever for their own good survived without government handouts.

A news report this week tells us Americans were so damaged by the bubble époque that their discretionary spending has now been cut to levels not seen in 50 years. The geniuses wiped out a half century of economic progress in the richest, most successful economy the world has ever seen.

This comes decades after the economic engineers had already destroyed two of the most promising economies of the 20th century. What was the biggest single error of the last century? Central planning – a simpleminded attempt to fix the supposed evils of the natural economy.

The smart central planners thought they could do a better job than individuals did for themselves. The idea was so alluring half the world fell for it. If the Nobel

Meanwhile, the brains were at work in the public sector too. There, they were still pushing central planning, albeit on a much less ambitious scale than in the last century. In the West, government economists kept lending rates low to encourage consumption. In the East, they kept rates low to encourage production.

And what ho! Now the world has too much debt and too much capacity.

And so the brains are back on the job.

In China, the government is boosting production by lending at three times last year’s rate. In America, the planners are trying to boost consumption by spending trillions more. In short, the fixers are trying to fix the problems caused by their fixes of the last two decades.

To read Bill’s thoughts, sign up to Money Morning’s free email at www.moneymorning.co.za.