| Cobie and I like to keep this newsletter and our podcast evolving. We’d love to hear from you about what you like or dislike, what you’d like more or less of – both in the newsletter and podcasts. Do you have topics you’d like to hear a blog on? Do other people’s wealth journeys interest you? Market Watch The Rand and the JSE have both shrugged off all the risk and expected volatility of Trump’s rhetoric and the EWC bill. Year on Year the JSE is over 20%.  Resources have surged since the beginning of the year, having spent most of last year on the slide – now over 23% year on year.  Budget – what budget? Commiserations to everyone else out there who had blocked off Wednesday afternoon to listen to the Budget – but at least my template is ready to go to send you a newsletter ASAP on the 12th of March (hopefully). Interestingly the Budget speech and the long-form Budget proposals were disseminated and ‘embargoed’ (when documents are pre-released to journalists, but cannot be published before a certain time or event) with journalists – who are now sitting on (and quietly disclosing) the contents. The proposed 2% VAT increase caused the snarl-up and cancellation of the speech – and I think that is a good thing. In the past budgets were published and rubber-stamped because the ANC had a majority in parliament. This delay is the GNU (finally) at work. I, for one, would like them to have found their big boy pants a good couple of weeks ago when the EWC (Expropriation without Compensation) Act was promulgated – but hardly a whimper. Ditto when Donut Trump fired off his anti-South African rhetoric. Better late than never? Ahead of the cancelled budget, we did get some feedback from SARS chief Kieswetter (Trevor Manual’s Brother in Law) on Tax revenues: Tax collections came in just below the (Medium Term Budget) October forecasts for the 2024/25 tax year. The South African Revenue Service (Sars) was able to collect R1.84 trillion, which is R19.3 billion less than forecast in last year’s main budget in February. Sars was able to reduce the October estimated shortfall of around R22 billion on the back of a larger-than-expected tax collection from the two-pot retirement withdrawals and growth in consumption due to lower interest rates because of lower inflation. The “tax take” on the withdrawal from retirement funds overshot the original estimate of R5 billion – by R6 billion (R11bn). The withdrawals released an additional R43 billion into the economy (in other words SARS took a 25% cut, on average). Consumer spending also increased because of the lower interest rates flowing from lower inflation. (BTW, if you’re tempted to get on that bandwagon, please read my blog on it first). Kieswetter added that the two factors driving revenue collections down were the fuel levy, which was not increased during the February budget last year, and wrong assumptions of growth in imports. (We told you that the 2025 Budget v1 was leaked – It also proposed no increase in fuel levies for a fourth consecutive time ). “The only thing that can affect the total amount of levy that we collect is consumption. However, consumption is down almost 11%,” said Kieswetter. In the absence of load shedding, Eskom burned less diesel to keep the lights. Industry has been able to switch from diesel to rooftop solar in emergencies. According to Kieswetter, there has been a drop of 1.6 million litres in fuel consumption, which translated into R15 billion less from fuel levy collections for the fiscus. In addition, he said growth in imports was overestimated at around 3.8% for the 2024/25 year. Instead, there has been a contraction of 1.3%. “This big swing has had a direct impact on the amount of customs duty on imports that Sars collected and the amount of VAT that it could charge on the imports.” (Both of these are, ironically, a net positive for SA Inc. – only SARS could moan!) Income from personal income tax was estimated at R738.7 billion, but Sars is expected to collect around R4.4 billion less (R734.2 billion). Things looked good during the first 10 months of 2024 when personal income tax collections grew at 13%. However, it was adjusted downward in line with a weaker outlook for employee compensation. Vat collections are expected to come in at R459.9 billion for the 2024/25 tax year, slightly lower than the estimated R476.7 billion. These all point to a slower economy. In contrast, corporate income tax collections are expected to outperform 2024 budget estimates. The revised estimate for corporate income tax is R314.6 billion, which is R11.9 billion more than the original estimate. What the leaked (untabled) Budget said: Forecast raising an additional R58 billion in tax collections, with the largest contribution coming from the increase in the VAT rate. Smokers and drinkers were set to again face higher-than-inflation increases for alcohol and tobacco products. The health promotion levy or ‘sugar tax’ also did not increase in the draft budget. It remains to be seen if this will still be the case in March. The small but powerful Sugar Lobby has been hard at work. It proposed that higher-earning individuals get only partial relief from the effect of bracket creep. According to the draft budget documents, only the bottom two personal income tax brackets were set to receive full inflationary relief. However, this move may also change in a redrafted budget. (Bracket creep is when the tax bands that SARS uses, doesn’t keep up with inflation – this is a tax increase by ‘stealth’.) Treasury also proposed higher-than-inflation increases for social grants, which was expected to cost the taxpayer R6.2 billion more in 2025 and R23.3 billion over the medium term. It proposed a budget of R35 billion to keep the Social Relief of Distress (SRD) grant (Covid Grant) going for another year, but pencilled in a provisional allocation of R75 billion over the medium term. It is widely expected that this SRD will become the BIG – Basic Income Grant). According to the Treasury’s presentation, a BIG could go to 35 million people aged between 18 and 60 years, which could cost almost R400bn a year. According to assessments by Treasury and the World Bank, South Africa has one of the largest social protection systems, in terms of spending as a percentage of GDP, among developing countries. In some years, it had the largest social protection system of any developing country – and it keeps on growing. Around R235bn is paid in social grants, with personal income tax of R739bn, 31,5c of every rand you spend on tax goes to a grant. If you add the 21c debt servicing cost – more than half of your tax is going on these two line items alone. What changes can we expect on the 12th of March? When you consider that 21c in every rand we pay to SARS goes to servicing our debt, and that is unsustainable. RSA Inc, and the government specifically, has to start living within its means – but cutting back is not going to be easy. Obviously, the ANC tried the easy fix – raising taxes – because cutting anything to do with govt spending is deeply unpopular. The ‘other part’ of the GNU who finally put their foot down, IMHO made a very smart move – they framed the VAT increase as anti-poor. So what could they do? Wealth tax ( see below)? Bring the cabinet back to the Mandela 1994 numbers (cutting the ministers and deputy ministers by 2/3)? Scrapping useless government departments? Privatizing SOEs? Full skill’s audit of government workers and cutting back on the massive govt salary bill – or at least start with a hiring and salary freeze across the board? What they won’t do: Touch grants, the increase may be capped at inflation instead of the proposed above inflation increase and remember they are still keen on the BIG (Basic Income Grant). They could try the sleight of hand they do with bracket creep – give below inflation increases which will erode the value over time. They probably won’t touch company tax – we are already at the high end of company tax globally.  Wealth tax: This is a favourite of the EFF (who hopefully are slowly fading into obscurity). In November last year National Treasury said will consider the possibility of a wealth tax once it had analysed the data that the South African Revenue Service (SARS) is collecting on high-net-worth individuals(HNWI). SARS established the High Wealth Individual Unit in 2021, in line with a recommendation by the Davis Tax Committee, to consolidate data on wealthy taxpayers through third‐party information. “This will assist in broadening the tax base, improving tax compliance, and assessing the feasibility of a wealth tax.” From the 2023 tax-filing season, individuals holding assets valued at R50 million or more were required to declare all their wealth, “so that we could get a better picture of the wealth within the country”. (Remember they are now requiring beneficial ownership of Trusts) Wealth and income from wealth are completely different and SARS is still getting a grip on this .. to quote “This is an interesting point, and we’ve had a lot of advice on this from international organisations.” That’s all very well, but is anyone at SARS looking at the trends? Wealth tax is seen as administratively costly and can, and does, result in the emigration of the very people you need in your tax base. Savvy HNW individuals put their wealth into Trusts, years ago (and make sure they aren’t seen to have beneficial ownership). SARS needs to understand that South Africa has a very comprehensive personal income tax system that taxes all these returns to wealth – dividends, capital gains, interest, and rentals – now they want to add wealth tax? Wealth tax is often levied as a percentage of the total wealth every year. Some countries have a quasi-wealth tax – the Netherlands for example income from savings and investments have a deemed return of 5.69% taxed at 30%. This is effectively an annual net wealth tax of a maximum 1.7%, and actual income and gains are not further taxed. That’s the difference to what we might see here, they want all that tax AND a wealth tax ontop of it all.  Covid – 5 years on Time flies, but can you believe that the first hint that the world was waking up to the potential effects of the pandemic was on 19th Feb 2020, eight short weeks after it was first announced on 31/12/2019.  S&P 500 (Yahoo Finance) Let’s examine what has happened in the five years since Feb. 19, 2020, when the S&P 500 closed at an all-time high of 3,383.10. Barely five weeks later, on March 23, it finished at 2,237.40. That frighteningly fast 34% fall was driven by Covid, the biggest external economic shock in the modern era, and yet the S&P reached a new all-time high of 6,129.58 on Tuesday 18/2/25. Even if you’d bought at the top five years ago, you’d be sitting on a total return of 95%. One interesting little nugget from the above graph is that from inception in 1985, the S&P has returned 34,941%. We are all fully aware of the FED’s response to the pandemic, a massive injection of money into the system – which when added to the over-the-top largesse of the stimulus cheques from both Trump and Biden, has left the US with this massive inflation headache. Interestingly here in RSA, we didn’t have the means for those generous stimmi cheques so our inflation stayed well below that of our Western counterparts. Wen did have the ‘Covid grant’ – like all grants in RSA this is now a permanent fixture. In my forthcoming – (maybe the second week in March) Budget review, I will be looking very closely at grants. Unfortunately in our climate of massive unemployment, once a grant is given it is rarely withdrawn or reduced. They are now talking of the BIG (Basic Income Grant). I think that after this Budget fallout, the BIG and the NHI (which will cost hundreds of billions) will be put firmly on the back burner.  RSA Inflation – Stats SA That injection of money by the FED probably helped avoid an all-out market meltdown and, maybe averted an economic depression. While the monetary ease stayed in place too long, as Powell has conceded, their decision was probably reasonable in real-time. Let’s face it, if you are in real time and you are watching people die from the Delta variant and someone suggests raising rates who is going to vote for a raise in rates? Geographic winners and losers can be unclear. Covid originated in China. A year later, it ‘seemed’ to have dealt with the disease brilliantly (the Covid-Zero policy) while the rest of the world suffered. Then China’s property bubble burst. When the omicron variant (originating right here at home) hit in late 2021, the West stumbled to a way to protect the vulnerable while allowing life to continue almost as normal. But China reacted to omicron as though it hadn’t paid attention during the previous two years, and brought itself to a standstill with Covid-Zero restrictions. It has yet to fully recover.  DeepSeek revisited In the weeks since the DeepSeek Bombshell, Nvidia has bounced back.  Nvidia share price When you look at how the DeepSeek narrative was so quickly rewritten, the first reaction was about efficiency and how models can be done with less. That was overtaken by the narrative that it was driven by both investors and by big tech, which was to say, this is a demand issue and this is suggestive that the demand is gonna be so big that we have to move. And so the capex not only stayed the same but accelerated. If it’s easier than we thought to build an AI model, the thinking appears to be, then there could be even more data centres. And there is no evidence as yet of any dip in power demand post-DeepSeek. If anything, most utilities have used their fourth-quarter earnings calls to increase their projections for data centre load growth and give details on the extra demand coming in the pipeline.  Tech valuations remain very high, and must be vulnerable to more “DeepSeek” incidents that call their narrative into question. DeepSeek upended the market for a very short period of time. Up until it’s launch, the narrative suggests that the origination of an AI model and the subsequent data centres to power these will cost a lot of money. This technology race could only be entered by large tech companies of which the majority are based in the US. Once people started realising that the DeepSeek origination costs were probably false, this led to price appreciation of the tech sector again. But the cost of all of this will come down in time. Last week Microsoft launched it’s first quantum computing solution called Majorana 1 which is built on a topological core. It makes use of topoconductors which is a new class of materials. “Imagine a chip that can fit in the palm of your hand yet is capable of solving problems that even all of the computers on Earth today combined could not!” said Satya Nadella CEO of Microsoft. Welcome to quantum computing!  Inflation – upward pressures persist. We’ve often talked about how Trump’s policies are inflationary for the US, but ‘sticky’ inflation is found elsewhere – like in the UK.  I think most of us know by now that Central bankers (the FED, SARB) think that raising interest rates is the silver bullet to decreasing inflation, and they also think they have it under control. Not so fast. Monetary policy (broadly, interest rates) has little impact on global food prices, and broad measures show that pressure is growing in the pipeline. You can see from the graph above food inflation is still on the rise. In the US they still focussed on the price of eggs (which thanks to the bird flu outbreak is on the rise), leaving egg on the face of JD Vance who used this as one of his campaign promises.  Bloomberg’s agricultural commodities index, based on foodstuffs most widely traded on futures markets, has picked up sharply. Year-on-year gains aren’t high by historical standards, but the direction of travel is not great:  European bonds are having a bit of a revolt. The British inflation numbers prompted a bad day for bonds across Europe on Wednesday last week, with yields rising, although divergence over the last year is evident. UK gilts briefly staged a revolt last month and swiftly recovered, but remain at much the same level that forced out Liz Truss as prime minister in 2022. French OATS yields, burdened by political deadlock, are near the top of their range, and Italian BTP yields have descended quickly under the (surprisingly popular) Giorgia Meloni. Is this the signal the end of interest rate cuts for the moment? European Central Bank governor Isabel Schnabel suggested cuts were almost done, and then the publication of the minutes of last month’s meeting of the Federal Open Market Committee, which showed the Fed clearly skewed toward keeping rates where they are rather than resuming cuts: The Committee was well-positioned to take time to assess the evolving outlook for economic activity, the labour market, and inflation, with the vast majority pointing to a still-restrictive policy stance. Participants indicated that, provided the economy remained near maximum employment, they would want to see further progress on inflation before [cutting]… Many participants noted that the Committee could hold the policy rate at a restrictive level if the economy remained strong and inflation remained elevated.  Sun Tzu, Xi and Trump Donald Trump and Xi Jinping are up to something, and Sun Tzu might be able to explain it. The ancient Chinese general, strategist and philosopher of war taught that “to subdue the enemy without fighting is the acme of skill.” That’s what both are trying to do. The intense question is whether they possibly can. Trump’s initial 10% tariff on all goods from Beijing — as opposed to the much more aggressive 60% he proposed during his presidential campaign — and China’s subsequent countermeasures show much less than the usual “animosity” between these two superpowers. The retaliatory tariffs, which target roughly 80 US products valued at $14 billion, took effect on Feb.10, while China added non-tariff measures including an antitrust investigation into Google, tightened export controls on critical minerals, and the addition of two US companies to its blacklist of unreliable entities. That’s not exactly a robust response. Add in Trump’s brinkmanship with Mexico and Canada, which ended with no tariffs in return for largely symbolic concessions, and this leads to growing market confidence that this confrontation will soon go away. Trading in both the offshore Chinese yuan and the broader dollar suggests that Trump’s bluff is being called, with the spike after tariffs were announced end Jan having partially recovered – with some volatility, but nothing like the volatility we saw when the tide started to turn away from Harris to Trump.  Trump as we know, is transactional – he looks at this as a garage sale or an episode of The Apprentice. Beijing’s half-hearted retaliation suggests that Xi is merely sparring, not resorting to combat that could wreak lasting damage. Unfortunately, China will also be watching what will be seen as the US’s capitulation to Putin’s colonisation of Ukraine – is Taiwan next? NATO, without the US is going to have to step up to the plate. It would be a mistake for us to assume that because China’s economy has been in a touch of trouble, that they have been sleeping on the job. China’s manufacturing sector has made remarkable progress since the Trump 1.0 trade conflict and has reduced exposure to the US. Fathom’s Andrew Harris points out that between 2005 and 2023, China increased its global export market share in 19 of the 20 high-level goods and service sectors, while the US lost ground in 16 of them, as shown in the graph below:   Ukraine Donald Trump called Volodymyr Zelenskiy a “Dictator without Elections” in a Truth Social post, saying he’d “better move fast” and reach a deal to end the war with Russia. Earlier, the Ukranian president accused his US counterpart of falling victim to Russian “disinformation.” Zelensky was democratically elected in a fair and free election. Under its constitution, Ukraine can postpone a scheduled election in wartime, and it did so last year because of the Russian invasion. NB Trump has never called Russian President Vladimir Putin a dictator. The contents of the post are sickening:  Fox News, as ever, has climbed on this ‘Cancel Zelensky’ bandwagon but even Pearce Morgan is having a go at that. Author: Dawn Ridler  Does anyone care? South Africa has placed itself in a precarious position. The economy is not delivering at the very basic level and the economic extremes are only getting larger. The ANC has clearly leaned right into their ideology with the EFF and the MK parties even further right from the ANC position. It’s this ideology that the US is finding unpalatable and the very public stance against Israel has left the ANC with no actual tools to fight the economic battle back home apart from ideology. For all intended purposes, they are doing what all political parties do when threatened .. they double down. But South Africa is hoping that China will save it. But China is fighting a much larger war back home where they are battling debt deflation. There are structural reasons for this, but a large piece of the puzzle is their bloated property market and the fallout this has created. What they need to do is to start aggressive quantitative easing to ensure enough liquidity to kick start asset price inflation again. The Yuan is at a 5-year low against the Dollar making imports pricey. Despite all the rhetoric of a BRICs Bank and floating an independent currency away from the Dollar, the Chinese economy is very Dollarized. They import raw materials priced in Dollars, sell their goods and services in Dollars and the stability of their central bank is highly dependent on the Yuan against the Dollar. There is political rhetoric where the BRICS currency lives and then there is reality where real-world economies that trade in Dollars live. The US Dollar has been strong as we often show in the DXY Index. A weaker Dollar will probably assist the US in achieving some of their own economic goals. Think of the fact that the US injected $ 6 trillion last year in treasury bill issuances. At some point when Scott Bessent starts issuing more longer-dated bonds again, it will be nice if the Chinese could be buyers of these. Notably, the Chinese will probably want to see a weaker Dollar and this is where negotiations come in. Make no mistake, buying US bonds will help stabilise their own treasury. But the sticky issue of tariffs needs to be squared up first before there could be talk of treasuries. No doubt the US is using their strong Dollar as a negotiation tool at this stage. This brings me back to South Africa and it’s so called National Democratic Revolution. Do politicians know how little any of this is of concern to the international order? They don’t care. Sure, they want to keep decent relations so that everyone can smile and wave when the G20 happens but apart from that, South Africa is on its own. This makes the move against South Africa by the US so much more of an anomaly. This probably would never have happened if the Trump regime wasn’t doing a full audit on where the US government is spending their money. South Africa cropped up. Even then they probably would have negotiated with the government if it wasn’t for the country’s very public stance on Israel. So now South Africa needs all the help it can get. This requires cool heads and a willingness to be at least pliable in one’s stance. Perhaps not being able to table a budget last week due to the Democratic Alliance’s (DA) pressure will show the ANC that South Africa isn’t a vacuum where only they are and their decisions live. Author:- Cobie Legrange EXCHANGE RATES: The Dollar has cooled again in the last week which may be why our Rand didn’t depreciate last week.   The Rand/Dollar closed at R18.35 (R18.38, R18.41, R18,67, R18.38, R18.73, R18.03, R18.05, R18.11, R18.21, R17.58, R17.60, R17.66, R 17.41, R17.48, R17.12, R17.42, R17.85, R17.82, R17.71, R17.85, R18.32, R18.26, R17.95, R18.23, R18.20)  The Rand/Pound closed at R23.19 (R23.12, R22.85, R23,16, R22.93, R22.80, R22.99, R22.98, R22.72, R22.99, R22.73, R22.72, R22.89, R22.75, R22.93, R22.90, R23.20, R23.44, R23.41, R23.13, R23.39, R23.28, R23.32, R23.34, R23.00, R22.63, )  The Rand/Euro closed the week at R19.20 (R19.29, R19.02, R19,35, R19.31, R19.23, R19.09, R18.87, R19.19, R18.85, R19.09, R19.07, R19.05, R19.19, R19.12, R19.47, R19.79, R19.72, R19.80, R19.70, R20.01, R19.94, R19.58, R19.74,)  Brent Crude: Closed the week at $74.23 ($74.51, $74.65, $76,40, $77.60, $79.98, $71.00, $72.38, $75.05, $70.87, $73.86, $73.99, $75.57, $78.67, $77.95, $71.96, $74.68, $71.47, $76.99, $79.05, $79.09, $79.43, $77.56, $85.03, $83.83, $84.86, $85.22).  Bitcoin closed at $96,151 ($96,821, $96,286, $99,049, $104,559, $104,971, $99,341, $97,113, $97,950, $90,679.47, $79,318, $68,277, $66,989, $62,876 , $62,267, $65,596, $62,603, $54,548, $57,947, $63,936, $59,152, $60,847, $61,903, $59,760,). Articles and Blogs: Apportioning blame for your financial state NEW Tempering fear and greed NEW New Year’s resolutions over? Try a Wealth Bibgo Card instead. Wills and Estate Planning (comprehensive 3 in one post) Pre-retirement – The make-or-break moments Some unconventional thoughts on wealth and risk management Wealth creation is a balancing act over time Wealth traps waiting for unsuspecting entrepreneurs Two Pot pension system demystified Keeping your legacy shining bright Financial well-being when dealing with Dementia and Alzheimers Weathering the storm Pruning your wealth farm Should you change your investments with changing politics? Taking a holistic view of your wealth Why do I need a financial advisor? Costs Fees and Commissions The NHI and what to do about it New-Normal for Retirement? Locking-In Interest rates – The inflation story Situs – The Myths and Reality Tax Residency – New Rules new headaches Are retirement annuities dead A new look at retirement Offshore investing – an unpopular opinion Cobie Legrange and Dawn Ridler, Rexsolom Invest, Licensed FSP 45521. Email: cobie@rexsolom.co.za, dawn@rexsolom.co.za Website: rexsolom.co.za, wealthecology.co.za |
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