SERVICE ECONOMY

They just don’t get it do they? Governments have developed this quaint notion that taking tax off us is a “service” and we should be grateful and perhaps even proud.

This week, news reached us that The South African Revenue Service (there’s that word again!) had opened a new business centre “to cater for large scale taxpayers”. Picture the ambiance of deep carpets, piped music, potted palms, art by the yard and lurking plush couches.  “Clients” are plied with fake coffee in real cups before being ushered into an inner sanctum where the walletectomy will be performed.

Obviously governments do require money to operate. This fiscal year our chaps look as if they will need something like R375bn (up from R330bn last year) to keep the wheels turning. Odd as it may seem to a tax man, most of as intend very firmly to contribute as little as we can get away with. We believe that spreading what remains of our own money between “services” of our own choice will likely do just as much good as most government departments can manage. It will also be more fun.

There is a world-wide trend for politicians, many with dubious electoral credentials, to tap the public purse for purposes of patronage and reward. What results is a mushrooming establishment of bureaucrats who, like the politicos, believe that they alone have the sole best model for resource allocation and distribution. The assurance that everything is done “in the public interest” is not universally convincing. To raise a faint murmur of concern often brings a swift and furious response. Some examples from just this week come to mind

Here on the southern tip I suspect that most citizens, whether or not they are clients of SARS, would prefer to see more cash being directed towards the real and vital services rendered by the teachers, nurses and policemen and less being spent on Pan African Parliaments and the like. The contrast yesterday between the march of strikers in Pretoria and the sushi and chardonnay shindig in Midrand was stark.

Despite the religious holidays and a fairly uneventful futures close-out, the market steamed northwards this week. Bears like me spent a great deal of the time wiping egg from their faces and closing short positions in anguish and pain. The gap (“disconnect” in dealerspeak) between our All Share index (up 16% in the last six weeks) and the Dow (virtually unchanged in the same period) is noteworthy – but so far meaningless.

Liberty Group have followed the lead of Standard Bank with one of those schemes of arrangements (more correctly termed “confiscations”) which at current prices will see shareholders donating about 1% of their value to those deemed more needful than themselves. Where have we heard that story before?  As we did for the Standard Bank scheme, we shall be voting all the shares which we hold in safe custody against the scheme – but it will not alter the outcome.

May the Lions wallop the Sharks.

James Greener

17 September 2004

LOOKING FOR LEFTOVERS

Is it just us or has this market been terribly quiet recently? Taking a look at the turnover figures for the JSE it seems that it is just us. There have already been two days this month when turnover exceeded R4bn and very few days failed to get above R3bn. Much of the turnover, however, has been “professional” in nature as the large derivatives houses prepare themselves for next Thursday’s futures close out event. It would take far more time, space and energy than any of us have on a Friday afternoon to try to understand what that last sentence means. So let’s just accept that I have had a bit of time to dig around the data.

In the past month or so almost 100 different companies have announced results and (with luck) declared a dividend. Whether that dividend has been greater, similar or even lower than what was paid last year provides wonderful material for a calculation or two.

In aggregate, across the whole market, the so-called dividend base (price times dividend yield equals dividend base) has been pretty much flat for almost 18 months. However, there have been huge differences from sector to sector. Most spectacular has been the industrials, where current dividends are running about 23% up on last year. Financial sector dividends have maintained a steady annual growth rate of between 10% and 15% for almost two years. So it comes as no surprise therefore to learn that the resources index dividend base is now 25% lower than a year ago. Something had to be counteracting those other two good numbers.

Some more thoughtful prods at the calculator keys suggest that the resource share prices have not yet declined in complete sympathy with those leaking dividends. Everyone hates selling Anglo and Goldfields and Impala! It seems as if most of us are holding on in the hope of a terrifying collapse in the rand and a consequential leap in the sector. What a dilemma.

This week the banking shares received boosts from a number of sources including stories of foreign suitors. I am puzzled by the idea that anyone would want to operate a retail banking business in South Africa given the looming presence of all those politicians and bureaucrats who appear to have much better ideas about how to run one. The Robin Hood model comes to mind.

Which leaves us scratching through the industrials for shares which have not yet responded to the consumer boom – surely the main driver of all these wonderful results? What do you think of Caxton, Woolies, Metcash, Imperial, Truworths and Bidvest? Let me declare that I bought some Caxtons myself this week. Well, I had to do something about the turnover!

Late night tennis from New York, the Monza Grand Prix and a long expected family reunion will keep me happy and busy this week end. Don’t mention the cricket. I hope you have nice plans too.

James Greener

10 September 2004