Investing 101 - Part 1

MONEYWEB: Well it's time now for investing 101 and Wayne McCurrie's popped back into the studio. Gee, Wayne, nice to see you've had a haircut for a change!

WAYNE McCURRIE: I've had short hair for a while, Alec.

MONEYWEB: Well thanks for wearing the pin-striped suit.

WAYNE McCURRIE: I'm happy to see you back from all your gallivanting.

MONEYWEB: I did a bit of work over there.

WAYNE McCURRIE: Globetrotter!

MONEYWEB: Globetrotter. Well, Richard Seddon, I guess Australia doesn't count as globetrotting, does it, nowadays?

RICHARD SEDDON: It's a fair way to go, it's halfway across the world, so I would count it that way.

MONEYWEB: Good to have you in the studio with us. We've got John Mauldin here with us, and also tonight we've asked Paul Stewart from Plexus Asset Management to pop in and give us the reason why they brought John to South Africa. David Shapiro has just gone home to get John's book, so that he can bring it back so John is able to put his signature on it. David says it's one of the better books that he's read this year. All of that coming up in Investing 101. Remember, we're here to answer your questions, so the telephone number is 011 327 1116. Barbara Mazaris is waiting for your calls.

MONEYWEB: If you've only just joined us, John Maudlin is here in South Africa. It's his fourth or fifth visit to the country. He'll be doing a series of discussions or talks to Plexus Asset Management's clients. Paul Stewart from Plexus, why did you bring John out? What was his particular attraction?

PAUL STEWART: Alec, we have a business that's focused largely on traditional fund management, and we started developing an absolute-return business with a specific focus on hedge funds.

MONEYWEB: What's absolute return? Remember we're now talking to South Africa, not to your asset-management people.

PAUL STEWART: Alec, absolute-return funds are really funds that are designed to try as best possible to provide investors with a positive return, regardless of the market circumstances.

MONEYWEB: So if share prices go down you've still got to go up, still got to make money?

PAUL STEWART: Correct, and we try to run the portfolios to outperform cash regardless of the conditions out in the marketplace. And we felt that we had the competence to run those portfolizs in South Africa. We understand the conditions locally but the big bad world out there in terms of the global investment markets we felt was too specialised for our specific team that sits in South Africa in Cape Town, and so we decided to go and find a partner out there in the world who could actually run those portfolios for us. We've been reading John's newsletter, which has 1.5m readers a week, and we came to a point where we developed a good chemistry and we developed a relationship with John and his partners in London - and that's really why he's here to assist us with that.

MONEYWEB: That's 1.5 million readers a week? Your website's a little bit out of date then, John. That's an enormous number of people that you're reaching.

JOHN MAUDLIN: Well, it's free. So that helps. But it's been an exciting thing. We started a little over six and a half years ago with 2 000 readers, put the letter on the Internet, and people started forwarding it to friends and other publishers said "Well, if it's free can we send it to our readers?" I said sure. And it's just been an amazing thing. It's forced me to change my business model over the years a couple of times. But it's a very exciting thing. I get to focus on research and reading and writing and travelling and speaking - the things that I would want to do if I retired, so I kind of retired early and am doing what I like to do.

MONEYWEB: For those who haven't had a chance to read it, what topics do you focus on?

JOHN MAUDLIN: Whatever interests me that week. Mostly economics and finance. But I've talked about psychological behaviour, and investing review books how the future is going to come out, because that's what interests me. I think that's a lot of the appeal that people get because I read hundreds of books and articles and magazines a week, every week. I'm just a voracious reader. So I sit down, and when I sit down Friday to write it's what kind of hit me the most, what did I learn this week, what impressed me? And some weeks you don't learn a lot about investing. It's some other topic and that's what I write about.

MONEYWEB: If you were to qualify your best sources of information, what comes out at you and gives you a lot more home runs than others?

JOHN MAUDLIN: That's a tough question, because I read so much - I guess I really don't have a best.

MONEYWEB: Do you read, for instance, the Fed minutes when they come out?

JOHN MAUDLIN: Oh yes, oh sure. And if I don't read the actual speeches, I read the summaries of all the Fed governors and most of the European bank governors when they go out and give speeches, because they're telegraphing what they're planning to do. I probably read anywhere from 20 major investment housing research analyst groups a week, getting their materials, tons of reports. And now I've got so many readers sending me the odd bits, so I probably get 20 to 30 pieces of, I mean, anywhere from short little two-page things to whole books.

MONEYWEB: How many emails do you get a day if you're sending out 1.5m in a week?

JOHN MAUDLIN: It's more than I can handle right now. I mean, I actually have staff that helps me weed through it and answer, and you know gets me the meat of what I need.

MONEYWEB: And there also must be a danger if you say select a particular stock that has now appealed to you that you could lose that off ...

JOHN MAUDLIN: I don't mention a particular stock at all, ever, because there's just too much - I mean you start moving a stock ...

MONEYWEB: Just by thinking of it?

JOHN MAUDLIN: Yes, I mean I actually only own one stock myself, and I've owned it for five years. And every time it goes up another 50c or a dollar my daughter comes in and says "Dad, you said you're going to sell part of it", and it's gone up a chunk. So I sell a bit of it. But I would never mention it, because it's a little small-cap stock and people would buy it and then it would go up another dollar and  my daughter would come in and tell me to sell some more. And then they said you sold it when you were talking about it. So I try to refrain from it.

MONEYWEB: But that's an interesting point. Wayne how many stocks do you own, individual stocks?

WAYNE McCURRIE: I own one stock as well.

MONEYWEB: Only one.

WAYNE McCURRIE: Only one.

MONEYWEB: Moneyweb.

WAYNE McCURRIE: Not Moneyweb. I see the cautionary was cancelled today.

MONEYWEB: Yes, we had a bunch of guys from over there who were putting big numbers on the table for something and ...

WAYNE McCURRIE: And they backed down or what?

MONEYWEB: They didn't back down but - some guys have a got of hot air

WAYNE McCURRIE: Look, the only share which I own is FirstRand, which is my company and I've got share options in it. So that's the only share I own.

JOHN MAUDLIN: I mostly put my money in the funds that we actually research, so I eat my own cooking. And I've got some private equity that I do. I actually am a big believer in business, and starting businesses and entrepreneurs.

MONEYWEB: And Wayne, on these things nowadays you've got to be so careful. If you have an approach from a company - I'm sure it's even worse in the US, when if you don't know, if it might just happen, then you have to issue a cautionary.

WAYNE McCURRIE: That's part of the regulations, and that's the right way of doing it I mean if someone approaches you with a potential offer you've got to advise your shareholders and tell them exactly what's happening.

MONEYWEB: Until you know a little more of it. Richard, how many shares do you own?

RICHARD SEDDON: I've got eight different stocks at the moment. Obviously I'm a shareholder of Standard Bank and a major shareholder in Satrix as well.

MONEYWEB: And Paul?

PAUL STEWART: I own one stock. We also tend to try and invest most of our money in our funds as well, so we can eat our own cooking. So out interests are aligned with our clients and that's where we try and incentivise and motivate our staff to do as well.

MONEYWEB: That's interesting. John, you've started quite an interesting topic here. If both Paul and Wayne only own one individual share, but of course would invest in different unit trusts as well - it was a similar thing to a big asset management house in South Africa, Allan Gray. A little while ago they got into a bit of trouble with some of the shares they owned in personal accounts because they were too small for them to put into the overall portfolio. And they then took a decision that they were not allowed to own any stocks in future, but only their own unit trust. Is that happening elsewhere in the world?

JOHN MAUDLIN: I think there is a move by, you know, serious investment players to keep the conflicts of interest down. I mean, the regulatory world everywhere is really death  on that, and it's just not worth the hassle. Now there would be no prohibition for me to own stocks as I don't, but I just feel better eating my own cooking. Now I own a lot of stocks through the funds that I'm invested in, but I actually personally don't know which stocks those are. I would feel conflicted about that. If I was in the stock-selling business I would not feel a conflict of interest owning the stocks that I'm putting my clients into. You know, I think investment people ought to eat their own cooking. You know, it focuses the mind.

Investing 101 - Part 2

MONEYWEB: But I suppose with eight shares you do, Richard Seddon, eat your own cooking.

RICHARD SEDDON: Oh very much so, and one of my favourite holdings actually has been Woolworths because, as a customer of theirs, I'm going in there spending all the time. It's nice to get something back through your shareholding.

MONEYWEB: Yes or Sasol. I mean, you fill up with petrol.

RICHARD SEDDON: Exactly.

MONEYWEB: Pity we can't own Coca-Cola any more. But Richard, you're the biggest online stock broker in South Africa. So you have many people I'm sure debating from time to time, be it emails and your forums and so on, perhaps we can stop for a while and look at commodities. The whole resources sector. Coming out of Davos it was very clear that the view is the world economy is going to grow rapidly again this year and probably next year again, which might be a good signal for resources generally. Is that the kind of question that private investors are focusing on today?

RICHARD SEDDON: Very much so, Alec, and I think it was interesting in your earlier in your show in the Power Hour that you were talking about property in the resource belt, and how that's still the demand is still growing there as well.

MONEYWEB: What was it - 120% in Rustenburg!

RICHARD SEDDON: Yes. It's a nice leading indicator in a way - it's probably more like a lagging indicator - but it's interesting to see that there's such growth still in that resource sector.

MONEYWEB: Wayne, you've been a bit cautious on resources for a while.

WAYNE McCURRIE: Look, Alec, I'm not cautious per se on world economic growth. I think the US is slowing down, but there's no major recession coming and of course US interest rates are probably at their peak now and might even fall. I'm just worried about the dollar price of resources. I think it's been driven a lot higher than what it should have gone by sheer investment speculation, and I think there could be some weakness in the dollar price. Now, if you bring that back to the South African market, very simplistically the South African market resource shares are taking into account the high-road scenario. So in other words I don't think the actual share prices themselves would be able to withstand a fall in the dollar price. But, having said all of that, they're not drastically over-valued. I mean, they're not going to fall 50%. Maybe weakness is 20% or something in that region. And considering the fact they've gone up 150%, 160% in the last three years a little 20% weakness quite frankly would hardly even be seen on the chart. But I'm just cautious on the scenario that resource shares are about to embark on another major bull market. I think the bull market is over.

MONEYWEB: What do you think, John?

JOHN MAUDLIN: I would actually tend to agree. I think the US economy - I'm kind of an out-of-consensus analyst on this - I think the US economy's going to go into a very mild recession. I call it the Goldilocks recession, because it's probably going to be the mildest recession we've had since the end of World War 2. But the housing market in the US clearly went into a bubble. The short and sweet of it is that in the last two years 25% of our market has been the sub-prime market, sub-prime mortgages. Now estimates are coming out that as many as 20% of those mortgages could go into foreclosures that were written in the last two years, because they had such lax credit quality on them. In essence, another 5% of what's been sold back onto the market, plus all the investors, people who are trying to put condos and stuff in the various areas, then that's going to bring housing valued down somewhat. That means people are going to be able to borrow less against their homes, because Americans really enjoy borrowing against their homes. Mortgage equity withdrawal is already down about 40% - I think it's going to drop a lot more. Mortgage equity withdrawals in 2006 actually contributed 2% of the growth of our 3% growth in the GDP. That's a huge amount.

MONEYWEB: Let's just stop it there for a moment. You're saying that people are using their mortgages like an automated teller machine?

JOHN MAUDLIN: Right. Something like $700bn they took out on loans last year. And that's what I'm saying - 2% of our growth, of our 3% growth in GDP. And there's going to be less of that this year, and the mortgage loan standards have already tightened up because we're already seeing a lot of mortgage lenders in some real trouble. Three, I think, mid-sized ones have already gone bankrupt. So their loan standards are tightening up, as they should have been. They got way too lax.

MONEYWEB: That doesn't sound like a mild recession.

JOHN MAUDLIN: Well, you know something, it's a small part of the economy - 80% of the economy is non-manufacturing, non-housing. So if you're in that part of the world you're going to think this is a serious recession. But if you're in health services or in technology and other places you're not going to be as affected as much. In fact, your section of the economy will probably grow. The US economy is stronger than most people would give it credit for. I think we'll go into a mild recession late second quarter, third quarter. The rebound as the housing market problems works their way through. In 2008 our growth will be back to trend. And worldwide, even though the US consumer has been the engine for most of the growth in a lot of the emerging markets, I think the rest of the world is catching up. They'll be able to help offset some of the weakness in the US market. And some things get back to normal fairly quickly. I'm actually quite bullish over the next decade. I think there is so much new businesses, new technology getting ready to happen that we're going to see another major bull market just as big as the nineties.

Investing 101 - Part 3

MONEYWEB: Just to remind you that in the studio tonight we have our special guest from the US John Mauldin. He has a newsletter that is read by 1.5m people. I wonder if you are one of those readers - if you are, give us a call and tell us what you think of his newsletter.

Don from Port Elizabeth, good evening to you there, Don.

DON: Good evening, Alec.

MONEYWEB: Would you like to put your question, sir?

DON: It's complex, about Palabora Mining.

MONEYWEB: I see the share price was down today, after the results that were released.

DON: My question really relates to this magnetite question. For the last six or seven years they've been telling us they've got 214m tons, I think.

MONEYWEB: Don, I think you're going to have to hold on a second. Do either of you know anything about this - and I'm looking at Richard and Wayne. They're shaking their heads, Don.

DON: Yes they won't know about it, I'm sure. It's something that perhaps you could ...

MONEYWEB: Investigate. We will do that, most definitely - Palamin on the whole magnetite story. Thanks Don, we will do that. Although I must tell you, Palamin are one of the least communicative listings on the JSE. They just don't tend to want to talk to us too often. Nemakwarane - have I got your name correct?

NEMAKWARANE: Yes you've got it correctly.

MONEYWEB: OK, from Venda. Where in Venda?

NEMAKWARANE: A village here.

MONEYWEB: What would you like to ask our guest tonight?

NEMAKWARANE: I wanted to know what happened to CMH? Why did it fall so hard - 70% of it in Monday?

MONEYWEB: Sorry - just say it again, please?

NEMAKWARANE: Central Motor Holdings - on Monday it fell 70%. What happened to it?

MONEYWEB: No, Richard Seddon doesn't seem to know.

RICHARD SEDDON: I'm not sure if there's been a corporate event. I mean for something to drop that much in a single day ....

MONEYWEB: It was up today. It was up very strongly. There might have just been a bit of finger trouble on that one. Combined Motor Holdings - is that the one you're talking about?

NEMAKWARANE: Yes Combined Motor Holdings.

MONEYWEB: I'll have a look at my graph, I've got my Market Master. Oh, I see - you're dead right. There - it went down to R18.20 from [indistinct]. It has to be a share split.

NEMAKWARANE: Yes.

MONEYWEB: It has to be a share split. I wouldn't worry too much, because if you had one share before you've now got five. That's probably about right. Four for one or five for one.

WAYNE McCURRIE: I must say I don't know about that split, but it certainly seems like one.

MONEYWEB: Don't worry about that one, Nemakwarane, I think you're in good shape there. In fact, the stock's done pretty well over the last little while. Tanjo calling us now from Umtata. How are you, Tanjo?

TANJO: Good evening.

MONEYWEB: Good evening, nice to have you on the show. It's called Mtata now. Not Umtata.

TANJO: Yes called Mtata now. I just want to know - we've heard people talk about if you put your money in insurance for example at a company Sanlam or [indistinct] or whoever, you are asking them to invest it for you. But now if you can have software where you can invest by yourself at the JSE - I'm being sold one at the moment for R9900. But my question really is I'm already investing through Standard Bank Auto Share Invest. What people have said to me, the ones who are selling the software, investing through Standard Bank Auto Share Invest is like giving your money to an insurance company. Is there a difference or ...?

MONEYWEB: Tanjo, I just want to ask you the people who are selling you this software, what do they want to charge you for that software?

TANJO: R9900.

MONEYWEB: Oh, OK. I think Richard Seddon will give you the answer to that one.

RICHARD SEDDON: Yes, the Auto Share Invest product is basically a product that allows you to set up a monthly debit order on your bank account to invest in one of 20 shares of your choice. Now I think that's the big difference between giving your funds to an insurance company, where they go and choose which share to invest it in, and choosing the shares individually for yourself. And what we do there is we also make it incredibly cheap for people to do that as well. So on a R500 investment you're paying R20 plus 1%.

MONEYWEB: Tanjo, I think the guy who's trying to sell you that package is himself or herself uninformed, because Auto Share Invest, as we've said on this programme a number of times in the past, is a fantastic vehicle. You can choose one of those 20 shares, do your own research, do your own homework, make that investment. You're not giving it to an insurance company, you're not paying any commission to anyone in between. You certainly are making your own selections and in time it's likely that you will outperform them.

TANJO: Thanks very much.

MONEYWEB: OK. So let those wolves go and bite at some sheep around the corner, not to people who listen to this programme. Let's go to John now in Randburg. Hi there, John.

JOHN: Hi, Alec, and to your guests. I just wanted to find out - I know that in the US what they've done with their hedge funds is they've set, I suppose you'd call it a cap on who can join. I just wanted to find out what the definition is, you know what the requirements are, because at the top of my head I'm remembering it excludes your primary residence, it excludes your primary business. And that's the only two that I can think of. And I'd also like to ask about the requirement for hedge funds in South Africa, and whether or not they've adopted the same strategy.

MONEYWEB: All right, well we've got a couple of the right people in the studio John. Thanks for the call. John [Mauldin], do you want to pick up your namesake's question?

JOHN MAULDIN: Well in the US today the rules are you have to be worth $1m to invest in a hedge fund. That's what's considered an accredited investor. In practicality it's about a $5m minimum, because there's a different class of hedge funds. The hedge funds can take more investors so it's really [indistinct]. The SEC, that's our regulatory authority, has proposed to raise the minimum to $2.5m and the difference here is that the $1m now can include your residence and your primary business real estate. The $2.5m they're proposing to raise it to doesn't include your residence, doesn't include your primary business real estate. So it's going to cut the number of people who are eligible for hedge funds in the US from about almost 8% to about 1.3%. So it's a pretty big change. But what they're saying is that they're indexing it to inflation when they first proposed the rule back in 1982. I've written about it and testified to Congress. I think that's the wrong direction. I think that they should offer hedge funds the opportunity to register, and if they do then they should be able to make their product offering available to the public. I find it offensive that the rich people get all the best deals. I just don't think that's fair. Now that's a personal view point, that's not held by the regulatory authorities in my country.

MONEYWEB: Trying to prevent people like Tanjo falling into a hole with a bad hedge fund offering, I suppose.

JOHN MAULDIN: That's true, but you can fall in a hole with a bad stock, you can fall in a hole with a bad money manager. I mean there's risk out there in the market. You have to do your homework and do your research. There has to be something to it when there's a rapidly growing share of the market being held by hedge funds, and the most sophisticated investors and institutions are taking their money and looking at this arena. I think that saying the amount of money you have equals your financial sophistication is not quite the right way. The English system - and I'm actually registered in England as well - I think is a lot more fair. They don't look at your monetary net worth; they look at your sophistication. So your investment adviser who is helping you to get into the fund is the one who has to certify that you're sophisticated enough at whatever level you are to be appropriate for that investment. I think that's probably the better way to do it.

MONEYWEB: We're going to get back to the South African issue in a moment. Let's just talk to Lynn first in Cape Town. Hi, Lynn.

LYNN: Hello. Yes, good evening. Two questions. One quick one - this newsletter you're talking about, how do I become the 1 500 001th reader?

JOHN MAULDIN: That's real easy, you can go to johnmauldin.com. And there's a button that clicks from the front line and the screen will pop up and probably ask you for your email address, and you're one of my one million closest friends. It's easy enough.

MONEYWEB: And it's not going to cost you anything, Lynn.

JOHN MAULDIN: The price is right.

LYNN: And then, just you know, hearing that you're very well read, I just wonder if you can give an opinion. If you read the history of money, paper money has never lasted as long as our current money that was de-connected - well, the dollar was deconnected from gold in the 1940s or so, I think. It just seems as if there is a huge supply of fiat money. Just a thought as to where one could be heading in that direction?

MONEYWEB: OK. Let's just hold that thought. I'd just like to bring John from Edenvale in now, and we can answer both of those questions together. John, your question?

JOHN: Indeed, thank you. Apropos Piet's remarks about PSG, where does Zeder come into the picture? What does the panel feel about Zeder?

MONEYWEB: OK John, thanks for that.

MONEYWEB: Let's start with the other John, John Mauldin. The whole fiat money episode. There are many newsletters coming out of the US which are highly critical of fiat money or paper money. Where do you stand?

JOHN MAULDIN: Paper money is going to have a value. The value is really created by how well the monetary authorities manage their control of it. If they let the money supply run away, you're going to have inflation and the value is going to go down. Right now the United States is flooding the world - because of our balance of trade we're flooding the world with dollars. At some point I think that's going to weaken the dollar. I've been bearish on the dollar for about four, five years. I think the dollar will slide again this year. It's not going to drop or fall out of bed, it's just going to continue to be weak for some time until we see our balance of trade payments clean up a little bit. I don't think it has to go positive, because I think there's things happening in the economies that don't quite make it on the statistical books. But in general paper monies are going to fall against gold - and not just the dollar. I think paper monies in general over long periods of time - I think the hard assets will do good.

MONEYWEB: So you like gold?

JOHN MAULDIN: I do like gold.

MONEYWEB: South Africa all of a sudden loves you.

JOHN MAULDIN: I became bullish on gold. I was bearish on gold for years. I wrote a gold newsletter back in the eighties and sold it and stopped because I became bearish on gold. But I became bullish on gold in 2002 in February, which was fortuitous timing because I became bearish on the dollar. And I think that that's still the stance to hold.

MONEYWEB: David Shapiro has managed to sneak back into the studio with a fair amount of noise, David. I think a bull like you has to make his presence known. I'm sure that you were thinking, as you were driving home to get your book, what your top question would be for John tonight.

DAVID SHAPIRO: I tell you what amazes me about John is that he produces a regular newsletter which is very in-depth and with a lot of foresight. In other words, we're involved in the markets on a day-to-day basis here and yet we just plod along. And there's always an interesting element or aspect or kind of turning to the article, and it's great, great reading. And all his articles circulate among thousands and thousands of people. And that's what I always find very, very interesting. There's always an angle on an event that John seems to pick up - something totally different.

JOHN MAULDIN: I really like this guy. He's very astute, sharp. I mean if all South Africans are like this, I'm coming down.

MONEYWEB: The book's going to have a very nice front page, I'm sure, David.

DAVID SHAPIRO: I think the question that I will ask is that the one thing that concerns me - because I just heard John talking about the US dollar now - you know, when everybody embraces or everybody is so negative on the dollar, to me that's always a contrary sign. And I'm a little concerned that we might just get this one wrong.

Investing 101 - Part 4

JOHN MAULDIN: I don't think everybody is that negative. I mean, looking at the dollar, the dollar's been hovering around the 1.25, 1.20 [to the euro]. There's a lot of dollar bulls out there. It's not like it was, say, six months ago when, because the dollar had gone to 1.33, everybody became a bear. You're absolutely right, when everybody is on one side of the trade and there's nobody on the other side of a trade, then that's the top. But I think the dollar's going to continue to do what it's done, which is gradually slide. You know, there will be periods of peaking, consolidation and trading. I don't think it's something you can make a trade on like, going in there, OK, I'm going to go long the euro today and expect that two weeks or two months or two quarters from now you're going to be ahead. But I think at the end of the year the euro will be higher [indistinct] against the dollar than it is now. I'm more bullish on Asian currencies, even though they're manipulated, because I think those currencies will probably rise more than the euro.

MONEYWEB: The next time you go to China take a lot of renimbis, put them in your bottom drawer and you might in fact find that they've value. Because it's very hard to invest otherwise.

JOHN MAULDIN: Well, the renimbi is a great investment if you like 3% to 5% a year. I don't particularly want to go out and buy those currencies because they're not giving me enough interest, and the Chinese government is only going to let it drop 3% to 5% year. That's what I was talking about - it is a manipulated currency. They're controlling the slide. They know they've got to go to a floating currency at some point, but they're going to do that in their own good time. I mean, the rest of the world is sitting and pointing their finger at them and the United States is lecturing at them. They just don't care. And if I were them I wouldn't care either. I think they're doing exactly the right thing because they're doing what's best for them. They're trying to manage an economy that has 800 million people living in a country without jobs, and now they're trying to pull half of those people into a modern economy in a relatively short period of time - you know  10, 20, 30 years. They've done, I think, an amazing job, considering where they started from and where they're trying to get to. Now, they haven't repealed the business cycle. One day there's going to be a heck of a recession there, because you run too far, you get too much ahead. Their real estate in certain areas is probably in a bubble, but 10 years from now China's economy is going to be double the size it is today. That's a great story.

MONEYWEB: Richard Seddon, just to get back to another issue - and I'd love to pick up on real estate in just a moment, particularly Mumbai's real estate, which is up 10 to 15 times in the last year. Interesting you talk about a bubble.

JOHN MAULDIN: There you go.

MONEYWEB: Zeder - there was a question a little earlier about Zeder. Do you find many of your clients or Standard Bank Online clients actually invest or own Zeder?

RICHARD SEDDON: It's not a widely held stock. I think some of the traders are into it, but it's not a widely held stock by our clients.

MONEYWEB: Piet Viljoen said earlier Dave, in the programme ...

DAVID SHAPIRO: Yes, I'm surprised at Piet. Maybe Wayne can help me out on this one, because we're experiencing exceptionally hot weather and there's a good chance that it may not rain at the right time. And once again we're short on our crop, and once again these agricultural companies come under severe pressure and we have to go and import wheat, etc. So I find the risks in actually farming in some of those agricultural companies far, far greater than taking a risk on a gold mine or a platinum mine or something like that. I don't share Piet's enthusiasm and I suppose if you can get them at very, very low multiples maybe that's fair. But many Wayne's got a view on wheat.

WAYNE McCURRIE: Who knows with agricultural commodities? Maybe I disagree with David slightly. I think they're probably slightly less volatile than gold, but nevertheless they are very, very volatile. The price of maize has gone up - two, three years ago I think it was about R700 a ton. I think it's gone up to R2 500 a ton now. But it is cyclical, so with any commodity share choose your cycle right. In my own personal opinion I don't think it's the right time in the cycle now to go and buy them.

JOHN MAULDIN: Well, let me just jump in on the price of - we call it corn in the United States - maize. There is so much of our crop being turned into ethanol because it's government subsidising this, and you just cannot believe - every time you turn around somebody's building another ethanol plant. I don't want to say it's a bubble, but it's certainly an enthusiasm. And they're taking a significant chunk of the US crop, and that's taking that off the world markets, and that's the driver for corn as much as anything.

MONEYWEB: Interesting to see the wheat graph, the US wheat graph. June last year $200 now it's $275. So it's almost 50% in six months in US dollar terms.

JOHN MAULDIN: Yes and it could grow more. Crops worldwide haven't been coming in the way that everybody forecast, and the wheat land went limit up on the futures market here a couple of weeks ago, and went limit up again. If you were on the wrong side of that trade that was not a good feeling.

MONEYWEB: And just to confirm your corn story, in August last year the corn price was about $2 100 - I guess this must be per ton - and it's now $3 700 today.

JOHN MAULDIN: And demand is more, and more ethanol plants are coming online. I don't know what number it is, I'm just pulling a number out of the air - one a month, one a week. They're just, they're real, and they just suck corn up.

MONEYWEB: So Zeder is a good stock, David, based on this. Let's get to Otto now in Rooseveldt Park. Otto?

OTTO: Hi, how are you guys?

MONEYWEB: Good, man. How can we help you?

OTTO: David, you know I spoke to you earlier and you told me to not go with your company, rather go single-stock futures. What about, for a small punter, going single-stock futures in pennystocks? What do you guys say?

MONEYWEB: Single-stock futures in pennystocks. That's a nice conservative ... Do you have a lot of those kind of punters, Richard?

RICHARD SEDDON: No, we don't, because one of the things we don't do is we definitely don't put single-stock futures over pennystocks. You're really asking for a hiding there. We only do it on well-known liquid stocks.

WAYNE McCURRIE: I don't think single-stock futures exist on pennystocks.

WAYNE McCURRIE: But who's the other party?

MONEYWEB: What's a pennystock, first?

RICHARD SEDDON: Well a pennystock is a stock that's usually under R1, or under R10 in many cases, and it's usually a highly volatile stock and usually illiquid as well. So it's not traded that frequently. So for anyone to list a single-stock future over a pennystock, you need to be able to trade in the underlying. So when you buy the future they need to be able to buy the underlying share, and if they can't be doing that they're not going to be making a price.

MONEYWEB: Are you telling me when we list Moneyweb's single-stock future, we better make sure that there's enough underlying liquidity.

RICHARD SEDDON: Absolutely. I mean, if there's a tight spread there then the brokers will be very happy to make a futures price.

MONEYWEB: John, what about the whole story of pennystocks? Do you look at pennystocks, do you look at these shares that I suppose in US terms will be under 10c or 15¢ or 20¢ each?

JOHN MAULDIN: The one stock I own was a pennystock five years ago. It went down at a 25¢, 30¢ range and today it's about $3 - so there's value in there. But you've got to do your research. You've got to find management and company. Most pennystocks are a pennystock for a reason. And it's because they're small cap. There are not companies that are growth companies, so there's not a big demand for it. You can find some value down there because what you find is an entrepreneur out there that's gone out and taken his company public. And sometimes these guys, you know, figure out how to find an acre. But you've got to do some homework and I would certainly not suggest that an investor go out and read two stories over the Internet, and go "Oh this looks great!" I mean, investing in a large-cap stock or a pennystock or anything, you've got to do your homework. Most investors low money because they don't. They look at the trend, they see a pattern going up, and they think, oh wow, it's gone up 20% in the last two months - what happens if it goes up 20% again? And they start projecting their profits into the future, how they're going to spend it, and they don't look at the fundamental reasons for why you are buying a company. I mean, if you're going to be doing this you need to have a long-term view and understand what it is that you're doing.

DAVID SHAPIRO: John, if we move away from pennystocks, are there funds or hedge funds that would focus on fallen angels?

JOHN MAULDIN: Oh yes, distressed is becoming its own sub-category in hedge funds, and there's hedge funds buy distressed debt. They'll go in and take distressed stocks and distressed companies, and do a turnaround. And actually it's not an area for rookies, but the guys who do this and have been doing it for five, 10, 15, 20 years, have done pretty well. It's not something you're going to go in and do a turnaround in two weeks or two months. These guys are taking things with a long term of two, three, four years and they're taking debt, you know, knowing they're going to be shareholder activists. It's not a business for rookies.

MONEYWEB: Let's got to Allan now in Dainfern. Hi there, Allan.

ALLAN: Hi, John. I've been reading your newsletters for five years. I've got many good idea from your bull's-eye investing, and applied them to the South African market. I'd like your advice as to whether you can think of a useful predictor for foreign investment flows into South Africa. In 2003 our market was flat. We only had R8bn come into our market as net foreign investment into equities. In 2004 we had R33bn, 2005 we had R51bn, 2006 we managed to clock up R71bn. So our shares are flying because of the amount of foreign investments, and of course what's terrifying is if someone decides to take out R50bn next year or this year. So how can we best predict what American investors are going to do in investing into emerging markets?

MONEYWEB: Good question. We'll get to that in a moment. Let's ask Kevin now from Cape Town. Hi there, Kevin.

KEVIN: Hi, Alec. Maybe a bit of a sensitive one, but why does the Moneyweb share price not move - or why hasn't it moved with the market? And the other day there was a minuscule amount of shares traded, and I see your share moved like 10c or so. For what it's worth I'm not a shareholder in your stock, but I listen to your programme a lot. You guys are very, very knowledgeable. You obviously know the market. Why don't the analysts or why don't the institutions believe in you and push the share price up? I'll listen on the radio.

MONEYWEB: All right, we'll ask Wayne and David that one. I've had too many sayings on the same issue. Thanks, Kevin. Do you want to answer the first question, John? Foreign investment in South Africa.

JOHN MAULDIN: Well, there's two things to look at in the whole emerging market. First off, debt. The spread between US debt and emerging market debt was at its lowest level last week that it's ever been in history. So you're going to see some blowing out of the risk premium. It's just got to move up some. The second thing is that's going to have an effect on people's view of various countries. As far as giving an indicator of what Americans are going to do right now, I think I read something in the past two days - something like 80% of new fund money is going into international funds, because that's where the profits are. Americans, we're nothing if we don't love winners. I write in my book all the time about "past performance is not indicative of future results", but nobody really pays attention. They look at past performance. Past performance this year in 2006 was in international markets, so that's where they're throwing their money. And so if you're looking for an indicator for Americans I guess - I'm trying to make this up on the fly - it would be as long as your performance is good, Americans will keep throwing money at you. That's just the way we are. And if you slip we'll say, oops, well, that's too bad.

DAVID SHAPIRO: Alec, there's a very interesting aspect of foreign investments -there's a worrying aspect and there's a very positive aspect. I'm just saying to Allan if we look at today's trade, which was an R8bn day, 15% of that was in Anglos. Now what's happening is the demand in Anglos is in London. That's where the market of first choice is. And naturally, if we're a supplier, they will come to us. So we will supply them with the Anglos that they want. And slowly we've been sellers of resources into the far more aggressive and far more confident global world. We've been negative on resources - you hear it here all the time. Yet they're the buyers. So in essence we're actually disinvesting in our resource companies and those shares will stay there, because Anglos is a foreign listed company as is Billiton.

Investing 101 - Part 5

MONEYWEB: Paul, you wanted to say something?

PAUL STEWART: I just had one more thought leading on from Allan's question about what people should look out for, what reason would foreigners start to disinvest in South Africa. I think one of the things that John has spoken about a number of times is the fact that yields around the world have been so low that investors have been looking for yield pickup in emerging markets, and now that we're potentially in a situation where foreign interest rates might start rising, that might well be the indicator that foreigners start to withdraw some of their capital away from these emerging market investments. That's not in South Africa - that's Brazil, that's Singapore, Malaysia, Thailand ...

MONEYWEB: I can't agree with you. Coming back from Davos, I think you're on completely the wrong wicket there, because the international picture in there is emerging markets, emerging markets. That's where the growth is - 10.5% China this year, 8.3% India. You're talking Vietnam looking at 8% this year. There's a massive move towards those markets, rather than away from them.

PAUL STEWART: I'm not suggesting it's going to happen, I'm simply suggesting that if an investor is looking for a reason why foreigners may start to disinvest from their emerging market holdings - whether that happens this year or next year or the following year I'm not sure - but that may be the reason if interest rates around the world start to rise.

MONEYWEB: It's a view.

PAUL STEWART: It's a view.

WAYNE McCURRIE: Look Alec, I actually think there's a bubble in the emerging market, so I totally and utterly disagree with you. You know, it's one of these classic sayings: until the day Internet shares fell, everything was positive. I mean it was just a win-win situation. So let me just rephrase that slightly. I don't think there's anything like the Internet bubble in emerging markets, but for economies to show 8%, 10% growth indefinitely year in and year out - it just doesn't happen.

MONEYWEB: It's happened for 25 already, Wayne.

WAYNE McCURRIE: Oh, not in China, I mean China is ...

MONEYWEB: Twenty-five years China's been growing at between 8% and 10%.

WAYNE McCURRIE: We can check the stats on that.

MONEYWEB: No, I'm telling you. I did my research last week. That's a fact.

WAYNE McCURRIE: I can just equate it back to a very good domestic example. Everyone spoke - and obviously this is many, many years ago - that if Didata compounds their earnings growth at 30% year-on-year, then the share is worth a 70 PE, etc, etc. But if you actually do the numbers Didata's earnings would have been after 40 years bigger than the South African GDP, you know. So there is a limit to this.

MONEYWEB: I think you and Paul should just leave now. [Laughter.]

WAYNE McCURRIE: There is a limit to this. I mean, just to give a sort of final word from my side, I'm actually very bullish on China in the 20-year scenario. I‘m just worried about the two- to three-year scenario. I think the slowing global growth is going to be very, very difficult for emerging markets to show this phenomenal growth that they've had over the last ...

MONEYWEB: That's another debate. Slowing global growth.

WAYNE McCURRIE: Of course yes.

MONEYWEB: It's a massive debate. There are lots of reasons why people would say there's going to be accelerating global growth, not least of them trade. But talk to me about Moneyweb.

WAYNE McCURRIE: OK. Moneyweb, just to answer the listener's question. Moneyweb is a small-cap share, it's a R38m share.

MONEYWEB: It's a fledgling cap share.

WAYNE McCURRIE: Yes. So you are going to get volatility. Just understand that, first of all. Secondly, I think that the company itself has got to show another year of earnings growth. In other words, it's gone through a torrid time that we all know about. Earnings were not good. But they have looked a bit better over the recent past. But as an investor and giving advice I would actually almost wait for another confirmation that the earnings are on track and that the earnings growth is stable going forward, because when you look at the price of the share at the current earnings, it's a 44 price/earnings ratio. Now that's not a problem if earnings are going to double or triple over the next year, year and a half. But there is still an element of uncertainty. So I might not be here next week - but maybe not for widows and orphans.

MONEYWEB: David Shapiro, he doesn't understand broadband, clearly.

DAVID SHAPIRO: What not concerns me, what puzzles me, is that nobody has come here with a big chequebook.

MONEYWEB: No they have, but they've been turned down all the way because - well, you're got to look at broadband. You know, what has broadband done all over the world, what will broadband do here?

DAVID SHAPIRO: That's exactly what I'm saying. So anybody should be taking a far more aggressive attitude towards the pricing of this firm, simply that to replace what you've built up here you're not going to do overnight. Nor do I know any other serious player in the area that you operate in. There are bitsy players. So I'm a bit surprised by that - that some other media company hasn't come and made it almost impossible for you to refuse.

MONEYWEB: John put it very well earlier on - he said you've got to do your homework. And if you want to understand this business, do your homework.

DAVID SHAPIRO: Well I'm merely saying that I think that on what you produce you're grossly undervalued, and I think the earnings should start to come down the line.

MONEYWEB: Do you know that if we'd be in the United States with that situation that we'd had in South Africa, we would have been out of business long ago. Because nowhere in the world does dial-up Internet work. Nowhere. And yet this company's managed to get through all of that and now the broadband revolution's arrived. That's the reality of it. But the markets have always got different views. Otto is back with us again - and you've got another question, I think, Otto.

OTTO: Hi.

MONEYWEB: OK, you're back on air.

OTTO: ... you're shooting the breeze. That's cool man, but Moneyweb is a pennystock. Now, you know, David Shapiro's going to tell me I shouldn't go long on Moneyweb or shouldn't go short - but David, do me a favour tell me, should I be taking single-stock futures on Moneyweb, because it is a Mickey Mouse stock?

DAVID SHAPIRO: Don't do a single-stock future.

WAYNE McCURRIE: I don't think there are any.

RICHARD SEDDON: There are none.

MONEYWEB: What company do you run Otto?

OTTO: No I don't, I just listen to you guys and I find you guys fascinating.

MONEYWEB: Thanks for the call Otto. Let's got to Mac now in Durbanville.

MAC: Hi, Mac - how's it, Alec, I mean. [Laughter.] See how you've got me confused already. When is the meeting with the Reserve Bank in February to consider the rate hike or possible rate hike? What date?

DAVID SHAPIRO: About the 15th, I think.

RICHARD SEDDON: I thought it was the 7th.

DAVID SHAPIRO: It could be the 7th, yes.

MAC: So what is it? The 15th, the 7th? Or what is it?

MONEYWEB: I know I'm going through to the Governor's office next on the 8th, which I think is the Thursday - but I think that's probably the day after.

WAYNE McCURRIE: I think it is the 7th, yes.

MONEYWEB: OK. On the 7th. So you going to read it, Mac, after what John's been telling us about having to read the officials' statements.

MAC: I'll try and wade my way through it. Listen, with the Auto Share Invest, how long after you make a purchase online do they actually buy the shares? What's the delay, is it the next day or is it the day after?

RICHARD SEDDON: OK the way that works is we collate all the orders once a month, so we debit your account and the following day we'll place the orders. But we only debit your account once a month.

MAC: So if I purchase tonight?

RICHARD SEDDON: If you put your order in, you're actually not purchasing tonight, you're just saying I would like my account to be debited. And it's always on the 25th business day of the month. We will then go and debit your account the day before, and purchase the shares on the following day.

MAC: So it wouldn't happen in January now?

RICHARD SEDDON: No, the next purchase will be in February .

MAC: And you mention on your info on your website a R500 or more monthly investment. Can you do a lump sum?

RICHARD SEDDON: Absolutely. Yes, you can do once-off investment, and as it says the minimum is R500. But you can put any amount that you like in.

MONEYWEB: Mr Patel calls us now from Durban. Hello, Mr Patel.

MR PATEL: Hello. These FICA documents. You know, I applied for online trading and on my computer it says here "we have not yet received your FICA documents". Yet when I went to the Greyville branch in Durban they said the FICA documents are already handed in. I tried to get the helpline, but it's always engaged.

MONEYWEB: All right, if the hotline is always engaged, Richard?

RICHARD SEDDON: Well if the hotline was always engaged my phone would be ringing off the hook. If I can get Mr Patel's details I'll try and sort him out tomorrow.

MONEYWEB: Barbara will pick that up for us. Alex from Mossel Bay. Hello, Alex.

ALEX: Hello, Alec, thanks for the programme. I have just a question. If the [indistinct] that the US dollar will go sideways, euro might re-increase in value, what are the prospects for the pound sterling?

MONEYWEB: Prospects for the pound sterling? And I'll tell you why this is very relevant, John - we do have in South Africa the opportunity to invest in the FTSE 100. With exchange controls it's very difficult to make these investments, but you can get an exchange-traded fund which gives you the FTSE 100. So if the pound sterling is overvalued stay away. If it's undervalued go to it. Alex has got a good question.

JOHN MAULDIN: I don't understand the pound sterling. It just seems to me to be decoupled from all rationality. I go to London, I look at the prices, they're double of what you can buy things in the US. The last time I was in New York I went into a hotel bar. There were 35 middle-aged women in there; they were all from England and Ireland going on shopping sprees in New York. And New York's an expensive place to buy stuff. You know, I don't understand the pound but it keeps going up. So I'm not the guy to ask on that one. That just seems to be a tough way for a currency to go.

MONEYWEB: Sounds when you say things like that that you don't understand it. Well, maybe you don't understand it because it's just a little bit too high.

JOHN MAULDIN: Well that's what I'm saying. You go there and you look at the price of everything, and then I go back to the States - and I don't think that we're all the cheap, because I come here and things are a lot less expensive than they are in the States. But you know it's literally half, it's like a 50%-off sale going from London to Dallas. At some point that mismatch of valuations I think has to change.

MONEYWEB: Well our thanks to John Mauldin who was in our studio this evening from the US. David Shapiro came back with his book that is going to be very nicely signed no doubt. Richard Seddon was in the studio too, with Paul Stewart from Plexus Asset Management and Wayne McCurrie. We look forward to being in your company again for Investing 101 next Tuesday.