Doubtless this will bring a smile of satisfaction to your lips. The old bear was just last Friday, ranting on about how weak the market was and then in the very next letter he needs to eat his words. We have enjoyed a four day week with the market putting on as much and even more value that we have seen in many a five day one. This business of putting down in writing one’s thoughts and ideas is bound to provide copious amounts of egg on face. Aside from watching prices rise the market spent a great deal of time talking and wondering about the Barclays / ABSA deal. You will have noticed that the rand plummeted below 6 to the US dollar this week and the popular view is that this move is related to that deal. I can’t imagine that Barclays have not already arranged the majority of the rands that they will need for the purchase. If they haven’t, then it’s all getting more and more expensive for them and the decision will correspondingly be getting harder and harder. It will be a calamity for our market if they fail to make a bid and return to London to join in the election celebrations. Consensus view is that the deal will take place. If not, then expect serious price declines in the financial sector.
Thanks to an awesome and record-setting R46bn revenue (tax) inflow in March, the government ended its fiscal year with total income of R348bn. This is 16% more than garnered in the previous year. Most private enterprises would be pretty pleased to report top line growth like that. The boys down at SARS must be very pleased with themselves. Even the sheriff of Nottingham must be envious of that kind of tax take. On the expenditure side (or more correctly, on the distributions to departments line, since some departments seem to have great difficulty in actually spending their allocated loot) the annual figure was R371bn. Growth here was 12% pa. The shortfall (deficit) was a very modest R23bn that they had no difficulty in borrowing. Indeed interest rates even fell throughout the period. If a conservative old bear wanted to complain about anything here, then it will have to be the rapidly growing government share of total GDP. This number is something like R1 500bn a year, so the central government is now about one quarter of the economy. Isn’t this way too high?
And we have not even included local government, which here in Joburg has discovered a miraculous new source of income. The mayor has just assured residents that the decision to write off R1.5bn in unrecoverable rates due would not cost them a cent! So where else did he find that cash then? I think we should be told. In the last year the city has borrowed R2bn in the bond market that is costing them about R240m a year in interest. I wonder why this week’s story about the downgrade of GM’s and Ford’s bonds to “junk” status comes to mind?
I suppose that you too will be scouring the local nurseries this weekend for specimens of the Jatropha Curcas tree, whose seeds, it appears, can be crushed to produce an oil suitable for running the family car. A number of folk in the Kimberly area have seized upon this agricultural venture, no doubt also worried by the price of petrol these days.
Quite a bit of sport to supervise this weekend, although it will take a major epidemic of a temporarily debilitating disease to sweep Australia for an SA side to make the Super 12 semi-finals.
James Greener
6th May 2005
