There was a sharp pullback on the JSE as the local bourse reacted to rising inflation.

Bruce Whitfield:
Tonight's market commentator is Paul Theron, he is the managing director of Vestact, a sharp pullback on the market for most of today we ended above 32 200 on the day. Paul, the CPIX number that we will talk to Cees Bruggemans in detail later on, but that came out today and that really set a cat amongst the pigeons didn't it?

Paul Theron:
Yes and that was a follow on from you know the earlier GDP number in the week so yes you do see a weakening trend, you know the financials have been a bit iffy for a while and they certainly haven't been helped by this news. Inflation numbers also of course raise concerns about you know the Reserve Bank's response and consequently you know just add another straw to the camel so to speak which is that the consumer outlook looks quite negative. So you know the market is a discounting mechanism, that is what it does, it sort of weighs these things and you know there are more sellers than buyers in those sectors at the moment so you haven't been making good gains if you have been in retailers, banks, financials, anything with a sort of consumer flavour. Construction stocks have also been quite soft but then again you know here and there like Mr Price which I know we are going to talk about later you see a company that is able to by strength of good management or a good particular insertion into the consumer economy is able to continue to prosper so you know I think there are opportunities for investors and of course you know everybody knows the stuff we are talking about. You know anybody who is listening tonight that is in the investment game will be going yawn yawn there is another investment person talking about the credit cycle and you know what that means is that at the point when the clouds begin to clear as I like to say you know then these things will start to move.

Bruce Whitfield:
But where do the clouds clear that is the big question and that is the one that nobody will be yawning over because if anybody could point to that particular part then we would know where the money would be made but here we have got GDP coming in at 2.1 percent, we have got consumer price inflation coming in at 10.4 percent and possibly still expanding, and all the more reason for the Reserve Bank Governor to use the big stick approach when it comes to raising interest rates.

Paul Theron:
You put your finger on it I mean the problem is of course humans are very good at pattern recognition. You know if it was cold this time last year and it was useful to collect acorns then it is going to be the same this time next year so the assumption is that the credit cycle becomes like a regular up and down sort of thing. So with the benefit of hindsight you could say well that's easy I could have sold all my retailers you know when they were at their highs at the beginning of 2007 and I would have made a killing and I would be buying them back now but in truth if you go back and look at the cycle of interest rates and the cycle of these stocks it is not a one-way street, they don't just go up and down like a steady sinewave you know they in fact go up and then everybody gets a little bit happy and then everybody gets sad again so we are in one of those phases where we are desperately keen for a little good news on that front but there just doesn't seem to be any. Everything is pointing towards and you saw it with the comments around the Governor's plans on interest rates you know everybody thought he would be mad to raise rates, he can't possibly do it - he did it - and then they say oh well actually on balance he did the right thing. So I mean I think it could still be a while. I think the current consensus view is that it is going to be a while and that we could face some dire interest rate increases but then again you know as you know from economics and markets 101 it is at the point of total capitulation when there seems to be no way out of the disaster…

Bruce Whitfield:
… but we are not at total capitulation yet - there are still rays of hope. I mean Standard Bank’s trading update today didn't help very much, Jacko Maree standing up at the AGM and saying I know I told you in March this year that we would make consumer price inflation plus five percent well we are not going to do that any more so they downgraded their forecast for the second time in three months and that gives you a good clear indication as to where things are. Paul Theron is the managing director at Vestact.

Bruce Whitfield:
Paul Theron is our market commentator this evening, he is the MD of Vestact, and insurance shares about two years ago everybody wanted them, Sanlam wanted to buy out Santam, Old Mutual wanted to buy out Mutual and Federal, now Old Mutual doesn't even want Mutual and Federal any more and it is clearly not a great industry to be in any more

Paul Theron:
Yes they have had unusually large claims but I am not convinced that anytime soon these are going to become unusually attractive investment opportunities. I've always thought they should be in big diversified insurance companies because they are too cyclical but that seems to be the case you know they are often owned by parents and for private investors unless you have got a very long time frame and are prepared to sort of sit it out and have very mixed share price performance and quite big dividends they don't seem to be all that attractive.

Bruce Whitfield:
Santam did pay a nice R22 dividend toward the end of last year which if you had been invested in Santam for a while you would have welcomed with open arms. I also see Dinesh Gwala the man who is the curator at Fidentia he has joined the Santam board today as well. He is get himself a couple of board positions is Mr Gwala so good news there for him. The Liberty Holdings, Liberty Life, Standard Bank triumvirate that story there I was very surprised to hear Mr MacAlpine being so accommodating and understanding and being very positive about the new structure that has been proposed.

Paul Theron:
You know it's a bit of a snooze I thought it is interesting that he thinks it's a good transaction. I suppose if you have been hanging in there and again just getting the dividend payouts and noticing that discount you might be quite pleased to get a little you know Christmas present in June with that buyout but to frank the price was higher before. I am not sure as a Standard Bank shareholder which is the only level we are involved at all that I am all that thrilled about the idea of them having more of Liberty because quite frankly that is a business that has underperformed for a while. Bruce Hemphill you know my friend or acquaintance rather he is doing a manful job there to try and improve margins but I don't know I think those guys are all just battling a little bit. I think more and more clients wonder about the costs associated with some of the investment products that they sell. I know that the investment performance at Stanlib has been up and down so you know for the bank to be increasing its stake… look it had the cash because the Chinese stuck you know countless billions in there and they had to do something with it.

Bruce Whitfield:
I did ask Jacko Maree if he wouldn't rather be spending it elsewhere and he did assure me that he is using 25 percent of his available cash from the Chinese here and he has got 75 percent, call it say R12-billion to spend elsewhere, but I would have thought an offshore growth strategy would have been one that they would have pursued more aggressively but that was set to rights by Standard Bank yesterday. Their trading update that was not very attractive; up until March this year they were saying CPIX plus 10 was the standard growth rate you could expect from Standard Bank, then they cut it to CPIX plus five and now they are saying CPIX just.

Paul Theron:
You know what put a bit of a shiver down my spine wasn't so much the cooling off in consumer credit demand and so on and so forth, you know as we said earlier that has become old hat by now, it was the comment that you know global credit market tightening had resulted in fewer opportunities for their international operation because that has been one of the success stories of the recent months was how that had resulted in some quite big margin improvement. But you know I mean banks are very adept at making money, they have wonderful margins, they don't always have plain sailing but they have enormous earnings momentum so I would be very surprised to see them you know not move forward with some fairly solid numbers.

Bruce Whitfield:
But interesting though to see Mr Price, we spoke to Alastair McArthur this evening he was saying this credit thing is for the birds you must be joking.

Paul Theron:
Look we in the retail space have always preferred Massmart which is a low margin but really boring in some ways but really reliable business in other ways and we anticipate that they are going to have numbers similar to Mr Price so yes I think for investors there are some that are always attracted to the bright lights but you know that can end badly too.

Bruce Whitfield:
Don’t go away because I want a comment from you on ACT Towers in 30 seconds or less but let's cross to Stephen Grootes quickly who is at the speech where Tito Mboweni has been talking about the economic environment. Just how negative is Mr Mboweni this evening Stephen? We can maybe ask the quick question on ACT Towers.

Paul Theron:
Yes just very quickly it is a tiny company relatively but it is involved in one of the most attractive industries worldwide which is mobile telephony, in Africa they are building cell towers; the problem here is huge growth, wonderful customers like Celltel but a couple of not so wonderful customers so they have had a ballooning of their debtors book which is obviously people that owe them money for towers installed so the market took a rather dim view of a less than rosy profit growth but I think you have got to have the faith with this kind of company.

Bruce Whitfield:
ACT Towers thank you very much Paul Theron for answering that question on the SMS line.