| 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 Year on Year, the JSE is still well into the double digits – its resilience in the face of all the anti-SA rhetoric coming out of the USA is quite surprising. Wall Street, unsurprisingly, is not faring quite as well. Trump’s first month report card Trump 2.0 is one month on, the blush is off the rose, the honeymoon period is over, and even his base is waking up to the harsh find-out phase following that giddy fool-around phase we saw in the last six months. Forget polls (Trump’s popularity is tanking); look at hard facts. Strong/Weak dollar – why does Trump care? All the questions arising from the hectic first month of the second Trump administration find their expression in the dollar. I know many of us were hoping that Trump would just “quiet quit” and play golf for the rest of his presidency, but no such luck. To be fair, he has played golf 10 times in the last 30 days – all the activity, now that his Sharpie has run out on the hundreds of executive orders, has come from the First Bro, Elon and his merry band of puppies. So far, Trump 2.0 has been very different, and far more dramatic, than Trump 1.0, but the US currency is treating it so far as a direct replay. This is how the broad DXY dollar index performed from a month before the 2016 and 2024 elections. They’ve been identical, and if that carries on, there’s a lot more dollar weakness ahead Many factors drove the dollar. In 2017, it kept weakening until the administration delivered a big tax cut late in the year, then tariffs in 2018 sent it higher. But this time, its future seems to be split around two contrasting and plausible views of how Trump’s financial policies will develop from here. Both find ample support in things the president and his advisers have said: The key point for dollar bears is that Trump wants a weaker dollar, and has some means to achieve this. Foreign exchange is reciprocal, and in practice it’s difficult to weaken a currency without cooperation. There’s a precedent in the 1985 Plaza Accord which we have spoken about before, in which officials from the then-much-smaller capitalist world agreed to intervene to weaken the dollar. The years of Reagan prosperity resulted, but Japan’s experience once it had agreed to make its currency less competitive might make other countries, like China, unwilling to do the same. Scott Bessent, Trump’s Treasury secretary, has made clear that he hopes to achieve some such deal. Rather than New York’s Plaza Hotel, the idea is that a new accord would be struck at Trump’s Florida estate, which is why the whole notion is now known as the Mar-a-Lago Accord. The idea is that other nations would agree to direct investment in the US to head off a trade war and also coordinate to make their currencies stronger, and thus make the dollar more competitive. For the arguments as to why you should take this seriously, read “A User’s Guide to Restructuring the Global Trading System” written by Stephen Miran, (I have a copy if you want it – just email me) the hedge fund manager and former Treasury economist who is set to become the chair of Trump’s Council of Economic Advisors. It’s a startlingly ambitious and wide-ranging document that has spread far and wide electronically since publication in November. It argues that tariffs provide revenue and “if offset by currency adjustments, present minimal inflationary or otherwise adverse side effects.” The nub is to get others to agree to the changes. As Trump has shown in the last few weeks, there are plenty of other sticks in his arsenal beyond tariffs to “persuade” others. Times have changed since the Plaza accord, central banks and governments don’t believe in intervening in currency markets anymore, and the only government that could change its currency is China. The yuan is tightly managed, but Beijing’s problem is that their domestic economy is still battling post ‘Zero-Covid’ and their currency wants to go down, not up. Another element is that foreign governments could help the US fund itself and avoid any downward pressure on the dollar by swapping their current holdings of US bonds for zero-coupon non-marketable century bonds. In other words, the US would get financing locked up for 100 years without having to pay interest in the interim, and foreign creditors wouldn’t be able to trade it. Why on earth would they do that? It’s also hard to see how this hare-brained scheme could be achieved without a Godfather-level amount of coercion from Don the Con. But the arguments are there, the US is (still) in a powerful position, and it’s obviously what the administration wants. Meanwhile, Wall Street sees the constant threats as a simple negotiating ploy…. Trade War = Strong Dollar Trump can’t have his cake and eat it – he can’t have those draconian tariffs and a weak dollar. All else equal, when a nation levies tariffs it strengthens its currency. Will Trump be able to claim the crown of William McKinley, the protectionist 25th president and Tariff King. To quote Jonas Goltermann, markets economist at Capital Economics: On trade policy (along with fiscal, the key policy area for currency markets) there arguably has been more sound and fury than substance. Market participants appear to have interpreted the administration’s approach as more open to negotiations around trade than might have been expected based on Trump’s campaign rhetoric. Is it safe to assume that more tariffs aren’t coming? He’s cutting it fine if he really is bluffing. The president’s threats against Canada and Mexico over non-trade issues reinforced the belief that he was using levies as a negotiating tool. His remarks on Wednesday suggesting 25% duties on European automobiles and his plans to proceed with levies on Mexico and Canada in April (when he had previously talked of a March deadline) provided little clarification. They’re consistent either with using tariffs to raise revenue (and make it easier to cut taxes), or with another round of bruising negotiations designed to win concessions. As Trump badly wants lower rates and a weak dollar, he might well duck major new tariffs. Logically, a trade-off is a realistic expectation, especially with the fine details of the reindustrialization plan still lacking. But it would be dangerous to assume this administration isn’t serious about tariffs. This is how the currencies currently caught in the US crosshairs reacted to the president’s comments at the cabinet meeting. All weakened, but not by that much: After a monthlong pause, sweeping tariffs on America’s largest trading partners are set to go into effect March 4th as planned, as Donald Trump said on Thursday last week . The president confirmed 25% levies on Canada and Mexico from next week, after giving contradictory answers about a potential timeline Wednesday. added that he’ll also impose an additional 10% tax on Chinese imports. The dollar surged. As for stocks, a sell-off in megacaps drove the Nasdaq 100 to its lowest since November. (This wasn’t the first time last week that Trump was confused – when asked whether he still thought that Zelinsky was a dictator, he said,’ Did I say that? “) American Reindustrialisation All this protectionism and anti-globalisation would have to require a reindustrialisation of the USA – something they left behind decades ago, abdicating that mantel to the East. Not only would massive investment have to be made in this (most of it would have to occur from scratch), but you’d have to have a workforce willing to go back to being factory workers (arguably less appealing than flipping burgers). When you see the massive logistical and infrastructural support the Chinese give foreign investment projects – the USA is going to face an uphill battle. When a company like Tesla decides to build huge new factories (there are 2 in the pipeline) the Chinese government will make sure that workers have low-cost, good housing, schools, clinics and shops all in the same vicinity – paid for by the Chinese government. Those workers are also paid 1/10th of their US counterparts. The US under Trump is hell-bent on getting back to pre-Pearl Harbour era, but that will come at a cost. Trump has forgotten that it was NATO that jumped into the wars started by the US post 911. They are leaving a vacuum in world politics – who is going to fill it Europe or China? Trump does not like the EU or NATO and this time, he’s going to ‘put them in their place’, and every institution is under fire. The experience of Canada and Mexico has been that political concessions can at least buy time. What sets the EU apart is that Trump’s grievances run deep and are multi-dimensional — in fact, he said on Wednesday last week that the bloc was “formed in order to screw the United States.” Goods trade imbalances, digital services taxes, low defence spending and higher sales taxes are all on the list and the EU will not be able to address all of these. If the administration does attempt to implement Trump’s promise, the results are likely to be an administrative debacle, along with retaliatory escalation that could fatally undermine the foundations of the global trading system. For these reasons, the US is almost certain not to proceed with Trump’s plan in full. However, selective actions against high-profile targets could still prove deeply destabilizing. Germany Once the powerhouse of Europe, Germany has had its share of political problems lately – mostly due to the public’s backlash over what it sees as a too-liberal migrant policy (Angela’s baby). The DAX, however, is still holding up: Last week saw Germany’s elections – and In the longer term, it’s important to note that Germany’s Social Democratic Party has just suffered its worst-ever defeat, gaining 16.4% of the vote, while the Christian Democrats, with which it has alternated power throughout Germany’s postwar history, had its second-worst ever tally with 28.5% — just 44.9% between them. Meanwhile, the Alternative für Deutschland (far-right, almost neo-Nazi party), with just over 20% of the vote, now has the greatest electoral bridgehead for the far-right since the fall of the Nazis. Germany’s extremely liberal immigration policies of recent years look ever more like a serious mistake that provoked a deep political realignment. The AfD did a little worse than polls had predicted, on the highest electoral turnout since Germany reunified. Electoral mathematics, with several smaller parties failing to meet the 5% threshold needed for representation in parliament and so seeing their votes reallocated among the others, meaning that a coalition of SPD and CSU will be able to govern. This is not like neighbouring France, whose legislature is deadlocked, or the Germany of the last three years, where confidence in a weak three-party coalition has steadily eroded. Oil Unpredictable and inconsistent economic policies aren’t just annoying, they also frustrate business planning. The Trump administration’s ambitions for oil, for instance, are relatively straightforward — shore up production output through “Drill, Baby, Drill” and lower prices at the pumps — a so-called proxy to lower inflation and, subsequently, interest rates. This simplicity is missing when you consider how these policies will be delivered. Three years ago, when Russia invaded Ukraine, crude oil surged to $125 per barrel. For the last six months, it has barely breached $80. Trump’s ambition for it go lower, amid a supply glut and weak demand, is ambitious but not impossible. However, unending tariff threats get in the way. Oil rose as much as 2% on Thursday as Trump insisted a 10% levy on Canadian crude exports to the US would go ahead next week. Put simply, the president’s focus on Canada gave the oil price an adrenaline shot, however temporary. Barring a seismic correction, black gold is seen going lower. The underlying problem remains that without clarity on tariffs, predicting their exact impact is futile. Other policy avenues might counteract tariffs. The president’s resolve to end the conflict in Ukraine, which it’s assumed would open the gates to more Russian exports, could bring prices down. JPMorgan’s head of global commodities strategy, Natasha Kaneva, suggests that Trump could prove a soft touch on sanctions for Iran – he just last week Thursday withdrew Venezuela’s ‘temporary’ lifting of the oil ban – which would have increased supply, and bring down oil prices. This is seen as an odd change in heart by Trump who is also a Mudaro fan-boy . With crude oil’s demand muted and inventories at their lowest levels in decades it’s hard to see ow much further the price of crude can fall. Refilling strategic reserves could support oil prices in the next five years, but low government stocks reduce the buffer against upside price risks, which include a return to heightened geopolitical tensions, deepwater project delays, and a major slowdown in global EV sales. In contrast, key downside risks to our view include a period of weakness in global economic growth, higher volumes of OPEC+ production, and unforeseen improvements in US shale productivity. Are you a gold bug? How much longer can the great gold rally last? It’s been protracted, even if it hasn’t quite taken gold beyond $2,000 per ounce, and has disobeyed all the recent macroeconomic drivers. As the metal pays no income and storing it costs money, the price should fall when low-risk assets offer a higher yield but rise when yields fall and gold’s lack of an income stream is less of a disadvantage. Indeed, the inverse relationship between the yield on 10-year TIPS (a real yield, taking account of inflation) and the gold price had grown very strong. This terminal chart shows gold and the 10-year real yield (inverted so that the relationship is clear) from 1997 to 2022: But this is what happened after the Federal Reserve started hiking rates in early 2022. Gold and real yields surged together (which means that in the chart, where the real yield scale is still inverted, they appear to diverge): Beyond tariffs, there’s another fascinating possibility, hinted at by Treasury Secretary Scott Bessent’s comment that he would “monetize the assets side of the US balance sheet for the American people.” That could mean Margaret Thatcher-style privatization, but the gold pundits hope it’s something different. there is the possibility that that the Treasury would revalue the gold on its balance sheet to market prices (from $42 per ounce currently). That would increase the value of its gold holdings by about $800 billion, which could be leased to the Fed. The Fed would then credit the Treasury General Account with $800 billion, which would be a key source of liquidity in markets (i.e. gold price positive).” There is a precedent, as FDR revalued gold from $20.67 to $35 per ounce in 1933. A move that helped finance the upheavals of the New Deal might similarly help Trump 2.0 — and there are also suggestions that this new money could be used to seed a sovereign wealth fund (not usually the purview of a country with a massive deficit). Other officials have pointed out that this would look like a dubious manoeuvre that might undermine confidence in the Fed. If that narrative also doesn’t work, then, gold has just had a short squeeze and now looks vulnerable to a policy disappointment. After the gold rush, it’s best to be careful. Author: Dawn Ridler The rise of AI Perhaps, like most people, you are wondering what effect Artificial Intelligence will have on your life. Big tech companies are spending a fortune attempting to be the best in a technological race which really only became known about 2 years ago. Before that, it was about the internet connecting people and companies using the power of the internet to connect better with their customers and potential clients. The internet in many ways became an enabler in a similar way to what the mall was to shops trying to sell their wares. The internet no doubt increased that audience and in many instances created markets which companies didn’t know existed in the first place. But AI is a race which bolts onto the internet race and supercharges it. We are seeing this in the world of analytics. Before, employees would need to sit and crunch through endless data to understand a product, its seasonality and how the product setup should be adapted for the current audience. This requires employees with math and data experience and becomes a complete cost centre for a company. As time has evolved, the software that is being used has become more powerful as the speed of computing has increased. Current AI is something of a co-pilot for data engineers. The AI tool lies on the desk of the data engineer and can be used as a sounding board for an idea. It still requires the data engineer to pick up the software and use it to derive what in many cases is becoming better outcomes. Want to know who the main competitors are in a specific field? Only ask an AI tool and it can quickly discern, interpret and provide answers which would have taken an analyst many hours to compile. But for AI to work, data needs to be public … aka on the internet. There will come a time when companies don’t necessarily publish or make their data freely available but rather hold it private. This then becomes their competitive advantage. Think of the MARS company, which is family controlled and possesses data on their customers worldwide. It’s not information they share, and as a matter of fact the company is quite secretive. They are unlisted and don’t need to hold investor days or conferences with investors. In an AI world, their competitive advantage may just have become larger. In the not-too-distant future, parts of AI will become autonomous. This is where a machine can work without human supervision. You can watch how both TESLA and Google are attempting this with autonomous vehicles with its fair share of disasters. But as soon as this puzzle is solved, these companies stand the chance to change the world of transport. Think of the impact of autonomous work and how this will change the work place. Cost centres will be mostly affected as these jobs stand the greatest chance of an AI revolution. Good news for corporates who will drive more profitable companies but not such good news if your job is at stake. All of this, though, requires semiconducting power, a race in which it is far from unclear who is leading. Nvidia is a leader but uses the likes of TSMC (Taiwan Semiconductor Corp) to manufacture. Taiwan is a precarious territory given its Chinese and American ties. But both global powers have a vested interest in keeping Taiwan alive. The AI world even though world powers want you to believe is segregated, actually is far more globalised than most think. Author:- Cobie Legrange EXCHANGE RATES: The Dollar is tracking sideways at the moment but the DXY is an interesting index to watch – this is the fist place you’ll see Trump’s drive for a weaker dollar (and stronger rand?) The Rand/Dollar closed at R18.71 (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 R23.53 (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 R19.41 (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 $73.03 ($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 $85,696 ($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 |