| 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 and what you’d like more or less of – both in the newsletter and podcasts. Market View Despite the sharp sell-off in the US in the last week, the JSE has held up quite well. (We are off the Donald’s radar – long may it last.) There was very little reaction from the budget either – perhaps because it is not a ‘done deal’ and the DA have already said they will oppose it. If you missed the budget email I put out and still want the 2025/26 tax booklet, let me know and I’ll send it to you. Stock market movement – who cares Donald does, deeply, or maybe that was only his first term – when he took credit for every new stock market high. This time round, things aren’t looking quite so rosy. The QQQ is the tech-heavy index that we often talk about. That high was 18/2/25. The Donald may have missed his calling last week when he turned the Whitehouse lawn into a Tesla Car Dealership, along with a crib sheet of prices in sharpie. Tesla is a very volatile stock – the share has seen the current lower price several times in the last five years, right back to 2020. Trump has realized that his core MAGA constituents probably don’t own a bunch of stocks – but they do have 401ks and ROTHs. On the other hand, his mega-rich donors certainly do own stocks. Anyone who has read this newsletter for any length of time knows I cannot stand the Donald, but most governments around the world, especially those with high debt levels, could do with a significant haircut – but because this is so deeply unpopular, most politicians won’t touch it with a bargepole. There are many economists around the world watching this experiment very closely – it might just work, but what will the fallout be? Recession? De-seating of the Republican party in the mid-terms? Significant increase in unemployment? US CPI US inflation had a positive surprise for a change, with the headline consumer price index rising by 2.8% in the 12 months to February, compared to January’s 3.0% and an expected 2.9%. Once food and energy are excluded, the “core” measure came in at 3.1%, which was similarly below expectation (3.2%) and January’s outcome (3.3%). The overall picture should be familiar by now, as it has been locked into the same pattern for more than a year. Inflation is declining but very slowly because of services inflation. Food, energy and core goods have all reverted to the average, or below average – services haven’t got that memo. The price of eggs (impacted by bird flu) in the US has got all the headlines, but it was the fall in airline prices that had the biggest impact in the last CPI figures. The good news (especially for JD Vance) is that egg prices have suddenly plummeted in the last 10 days (the bird flu crisis is past) At it’s peak, eggs were costing $8.17 a dozen, yes R150, now down to a more manageable $4.90 – R90 ours cost around R40 a dozen at the moment. Markets stand corrected As 2025 started — only 10 weeks ago — optimism for US stocks reigned. That ‘Trump trade’. By February, these forecasts by analysts across the board was still very optimistic. But since then, the S&P 500 has sold off. As of Friday, it had dropped by more than 10% from its high set only three weeks ago, satisfying the popular definition of a “correction.” (A 20% correction is a bear market.) From here, it will need to rally by 20% (meeting the popular definition of a new bull market) to reach that target of 6,614 set by analysts just a few weeks ago. I guess everyone thought the Donald would spend his final term golfing and padding his pockets – not this time around. Cobie and I have been talking about the potential time bomb of US debt and how much pain it would impose on the markets and populace, and what was needed was someone: in their final term (check) and who couldn’t care less (double check). It had to come sometime; the US government (like ours, frankly) is bloated and inefficient, and perhaps everyone should just watch and see if this brutal blitzkrieg method is effective. The term ‘correction’ is somewhat arbitrary. Particularly the notion that it means a 10% fall from peak to trough. If the market was overvalued in the first place, a 10% drawdown won’t correct it. The word implies that the market is now “correct”, which is a dangerous assumption. To take one measure that admittedly makes this market look particularly expensive, the S&P 500 still trades at a higher multiple of sales than at the top of the dot-com bubble in 2000. That multiple may or may not prove to be justified, but there’s no obvious reason to believe that US stocks are now “correctly” valued. US Labour market How strong is the US labor market? And is it contributing to higher inflation? Unlike the prices of commodities and agricultural products, once wages go up, they don’t come down – and the only way that number comes down is to increase unemployment. We often look at how job-switching has changed over time, and how it may be the only way to get an above average salary increase. The graph below looks at job switchers versus job stayers. During the post-pandemic Great Resignation, the premium rose to a record. That has reversed completely, and last month job-stayers got slightly better wage growth. That’s unusual outside of recessions and suggests workers’ bargaining power has evaporated. This is good news for inflation (which is still cooling – as discussed above). What about the R word? Is recession on the horizon? Clearbridge Investments (US) has an interesting ‘watch table’ This shows that while there is more caution, the markets and the economy are not really signalling a recession – yet. What about all those federal workers losing their jobs? let’s put that in perspective – the 77,000 federal workers who’ve accepted the offer to leave the payroll in six months is roughly one-third the number of workers in the US who file for unemployment benefits for the first time in any given week. Relief rally or dead cat bounce? Asia shares rose on Friday and global markets attempted a rebound after a brutal selloff earlier in the week, while gold reached a record as the latest escalation of global trade tensions left nervous investors seeking safe-haven assets.Relief over the likely aversion of a U.S. government shutdown boosted stocks in Asian trade, after Senate Democrat Chuck Schumer said he would vote to advance a Republican stopgap funding bill, signalling that his party would provide the necessary support. This soon crumbled when the Republicans found a loop-hole – in terms of the current regulations a funding bill proposed has to be voted on within 15 days – the Republicans changed the regulation so that the rest of the congressional session (until September) is deemed to be ‘one-day’ so that the 15 days can never lapse. In the latest in a long list of tariff threats, U.S. President Donald Trump said on Thursday he would hit imports of European wine and spirits with duties of 200% if the EU did not remove retaliatory surcharges on American whiskey and other products that come into effect next month. Interestingly, the ‘retaliatory’ tariffs match dollar for dollar the same amount as imposed (first) by the Donald. Who is going to blink first? Typical safe haven assets like gold have meanwhile been beneficiaries of the escalating trade war, as the yellow metal reached a record high of $2,993.80 an ounce on Friday. It was on track to gain 2.6% for the week. The dollar regained some lost ground on Friday due to safe haven flows but was not too far off recent lows as worries of an impending U.S. recession and brewing trade tensions kept pressure on the greenback (see the dxy chart below). The euro has drawn additional support from Germany’s fiscal reset plan involving a 500 billion euro fund for infrastructure and sweeping changes to borrowing rules to revive growth and ramp up military spending in Europe’s largest economy. Next week will also see a slew of central bank meetings including the U.S. Federal Reserve, as investors await further guidance on the rate outlook amid uncertainty over Trump’s trade policies and their impact on U.S. growth and inflation. The general consensus is that interest rates will continue to go lower – it’s just a matter of when. European view on Trump tariffs A full-scale global trade war would hurt the United States in particular and could re-energise Europe’s push towards unity, European Central Bank President Christine Lagarde (in an excellent BBC HardTalk Interview) said on Friday. The U.S. has imposed a raft of tariffs on friends and foes alike and threatened even more measures, prompting retaliation from most and raising concern that global growth could take a major hit. “If we were to go to a real trade war, where trade would be dampened significantly, that would have severe consequences. It would have severe consequences for growth around the world and for prices around the world, but particularly in the United States. However, these tensions could also have the positive side effect of giving European unity another push. You know what it’s doing at the moment? Stirring European energy. It’s a big wake-up call for Europe. Maybe this is a European moment, yet again,” The European Commission and Germany, the bloc’s biggest economy, have already announced increased spending on defence and infrastructure, ending years of reluctance to spend. This “collective waking up” also appears to include the UK, which left the European Union, as it’s taking part in Europe’s security effort. Many of the EU’s large scale efforts to deepen unity have been stalled for the better part of the last decade, and former ECB chief Mario Draghi delivered a scathing report on the European project last year. Leaders, however, have taken few if any steps to implement Draghi’s reform proposals, even as the bloc is barely growing now and Germany suffered two straight years of economic contraction. Author: Dawn Ridler Fund Manager AI Last week on our podcast I suggested to Dawn that I would discuss some of the happenings in AI and how this could influence fund management in the future. As a starting point, the use of data and technology in the pursuit of returns is nothing new. As computing power has increased, so has the use of machines in identifying trends. This, interestingly is what gave the previous FED Chairman, Alan Greenspan, an edge in markets before he became the chair. He owned a consulting company which was known for their ability to secure and analyse data. This is important because much of the data which was then acted upon was either private and needed to be bought or if it was available, it was probably in a library or a government basement. Access to the data became the first part of success but crunching it before computing power was the second part to success. With the advent of the internet, data became more available. One needed to subscribe to data vendors for access, but much of this was now delivered straight to your desktop. This was further liberated when data became freely available from the middle 2000’s onwards. It is what is called the democratization of information and was propelled forward by the likes of Google and their search engine. Outside of this rich historical set of data, there continues to be organisations which hold their information close. A good example would be the data vendor, Bloomberg. Only those with a Bloomberg terminal can access this information set. This is supercharged information and comes with the added ability that you can talk to other institutional investors across the world which may be looking at the same asset class as you. Wonderful to have, but not necessarily the path to great returns otherwise, everyone with a Bloomberg Terminal would automatically outperform everyone else. As time has marched on so has the library of free information also increased. This not only risks making everyone an expert (remember Covid) but it also populates the internet with so much information that it becomes difficult to ascertain what is important and what is not. Bloomberg I can only imagine found its product being used less and less as users found other places to source and use data. With the advent of Artificial Intelligence it has now become possible to sift through tons of information and crystalise an answer with much less effort. Previously, if I wanted to know where a specific company sourced its raw material this would require a read through the annual report and a Google search to learn all I could. Now, AI can present me with the information much quicker and effectively by searching critically. AI has become a co-pilot of sorts allowing me to crystalise a decision far quicker than before. But remember that AI can only search what is publicly available. What is behind a paywall or truly private cannot be shared. I argue that private information is going to become a lot more valuable with the advent of AI. If your organisation knows something that no one else does, you would be inclined to profit from this, whilst AI creates a new breed of herd thinking. This is the one thing professional investors have always tried to avoid and will now have to learn how to do in an AI-powered world. This is the problem with AI-trained modules from large data vendors… if too many people use them.. they become the market. Being contrarian in this new world will be an art form in itself. AI at present is a co-pilot (sorry, Microsoft) for decision-making. But coming up is fully autonomous AI. This is where AI is able to take over tasks and learning from the past; is able to make better decisions in the future. Large data vendors are attempting to build AI modules which will automatically flag problem areas, show unintended correlations in a portfolio and warn of news-flow which can influence stock prices. It would even be possible for AI to make portfolio decisions and be a good home for this is probably high frequency trading portfolios or the ETF space. The warning here though is that we have witnessed large-scale funds blowing up in the past where machines have played a dominant role. Much like autonomous automobiles crashing so that machines can learn from it, much of this will also happen when AI modules attempt to manage money as well. It’s interesting but only if it’s not your money being lost! Author: Cobie Le Grange EXCHANGE RATES: The dollar continued to weaken last week as money flowed into other safe havens (like gold) The Rand/Dollar closed at R18.18 (R18.20, 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 R23.52 ( R23.50, 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 R19.83 (R19.72, 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 $70.51 ($70.33, $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 $82,639 ($83,710, $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: Income at retirement NEW 2025 Budget NEW Apportioning blame for your financial state Tempering fear and greed New Year’s resolutions over? Try a Wealth Bingo 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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