| 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. Do you have topics you’d like to hear a blog on? Do other people’s wealth journeys interest you? Market View With so much uncertainty, especially wrt to Trump’s on-again, off-again tariffs, it’s little wonder that markets across the world don’t know where to turn and investors scramble to find ‘opportunities’ that always arise in times like this. The investors are not necessarily speculators, but asset managers like ourselves, who keep an eye on a large basket of local and offshore equities to add to our client’s portfolios, times like these often give us an opportunity to add quality stocks that have been “unfairly’ beaten down. Normally, we might consider them ‘overpriced’, but during a correction, their upside potential increases. Europe has been a dead duck for a good few years now, but this has started to change since the beginning of the year. (I am going to be talking about Germany specifically in more detail below.) Germany’s big week There are days that you just know that some sea-changes are taking place, and we might look back on last week as one of them – in Europe, Germany specifically, but there will be global ripples. Despite all the negativity around the German elections that we discussed last week, we saw this sudden change last week. Late last Tuesday, the leaderships of Germany’s traditional two dominant parties, the Social Democrats and Christian Democrats, announced their intention to borrow €900 billion, to be spent on two funds covering defence and infrastructure. To do this, they will amend the constitution in the two weeks before the next legislature is convened. After decades of defiantly running a tightly conservative fiscal ship, this is a sudden “whatever it takes” moment. For European economics, the change is almost as radical as the US shift to support Russia rather than Ukraine – and it is, of course, linked to that shift. Faced with a crisis imposed on them by the US, Germany’s governing elite has made a move that it had been resisting for decades. The most consequential movement was in the 10-year bund yield, which rose 30 basis points for its biggest one-day rise since Germany reunified in 1990 (that thin line on the right-hand side): Spending the money on something is not going to be difficult. Germany’s armed forces are inadequate; it has a well-established procurement system, and any money the Defense Ministry is allocated, it will spend. Investment in infrastructure will be more contentious, but again, there’s little doubt that the money can be spent. Government departments don’t usually have a problem with that. Despite this dramatic sell-off, the 10-year bund still remains lower than the US, UK and anywhere in Europe, so yes, they had ‘room’ to do this. Meanwhile, the euro has surged against the dollar and appeared to break conclusively out of what many thought would be a protracted downward trend after Donald Trump won the US election: Dollar/Euro y-o-y graph Tariffs – not the same environment since 2016 Last week, we were in wait-and-see mode when it came to tariffs, and Trump didn’t blink for a whole two days. He suspended them on Thursday – on most goods from Canada and Mexico, the latest twist in a fluctuating trade policy that has whipsawed markets and fanned worries about inflation and growth. This is only a temporary reprieve (aka negotiation tactic), and the exemptions for the two largest U.S. trading partners expire on April 2, when Trump has threatened to impose a global regime of reciprocal tariffs on all U.S. trading partners. In the years since Trump’s first election victory, manufacturers have adapted ways to circumvent tariffs by turning to friendshoring or nearshoring — setting up next door to gain easier access to markets that have instituted strict tariffs. Hence, the Chinese firms rerouting trade through the most cost-effective countries to access US markets. But with Trump focusing on Canada and Mexico, ideal candidates for friendshoring are running out, there are limits to how far this can go — and there’s still no sign of clemency being shown China’s way. Notably, nearly two-thirds of this increase involved rerouting through Chinese-owned companies in Vietnam — geographically close to China, with similar institutional frameworks and shared cultural norms. Since 2017, as China’s exports to the US declined, Vietnam’s rose by the most to all its trading partners: China is getting more expensive for manufacturers. This is not a new pattern… Even Chinese-owned firms themselves have been looking for locations to manufacture that are cheaper… What the trade war did in 2018/2019 was to accelerate something that was already happening. An equal-weighted basket of China’s seven tech heavyweights including Alibaba Group Holding Ltd. and Tencent Holdings Ltd. — dubbed the “7 titans” by Societe Generale SA — has gained more than 40% this year. That compares with an about 10% drop in an index of the Magnificent Seven stocks, whose slump has also pushed the Nasdaq 100 Index to the brink of a correction. It’s a sharp reversal of fortunes that few in Wall Street saw coming. Earlier in 2025, the Nasdaq gauge had notched yet another record, while Chinese stocks were still marred by years of regulatory crackdown and a tepid consumption recovery. Then almost overnight, DeepSeek upended the perception that it will take years — if ever — for China to catch up to the level of America’s AI supremacy. Chinese tech stocks have been on a tear since then, prompting even long-time skeptics to turn optimistic. The rally received another push this week following Beijing’s plan to step up support for tech companies and a spate of new AI tools from the likes of Alibaba. The tariffs have also spawned a fight over who will ultimately pay for them. US Treasury Secretary Scott Bessent said this week that Chinese manufacturers would “eat” higher prices, while exporters in the Asian powerhouse are refusing to absorb the full costs of at least 20% levies. Hu said that her company, Hangzhou Skytech Outdoor Co., is negotiating with US businesses to share additional costs. “The American consumers are going to pay the price for the tariffs,” she said. Trump’s tariffs have triggered delicate bargaining across the Pacific, between Chinese exporters looking to keep selling to a lucrative market and American importers who have come to rely on the manufacturing behemoth for cheap and reliable output. A garment manufacturer in Zhejiang province said US clients are requesting discounts as high as 10%, although its thin profit margins mean the company can only offer 2% to 3%. The firm, which earns tens of millions of dollars in annual revenues, asked not to be identified to avoid jeopardizing business relationships. “This is much worse than the first trade war,” said Zheng Tao, an export trader of car parts. “My biggest concern is the clients feel it’s a big torture to do business in such an uncertain environment that they’d rather pay a little more to switch to local suppliers for certainty.” Also jolting was Trump’s abrupt cancellation of the “de minimis” rule, which allowed packages valued under $800 to enter the US duty-free. The policy change largely spared factories that sell to American businesses in bulk, but would hurt online retailers like Shein Group Ltd. and PDD Holdings Inc.’s Temu. Shein’s US sales fell as much as 41% in the days following the removal of the exemption, while Temu saw a drop of as much as 32% during the period, according to Bloomberg Second Measure, which analyzes credit and debit card data. Both companies’ sales recovered later in February. A complete repeal of the loophole could wipe out much of the estimated $50 billion in such shipments that went to the US last year. That was almost 10% of all Chinese goods exports to the US. Adding to the uncertainty is a looming deadline next month for the US Trade Representative to report on China’s compliance with the phase-one trade deal negotiated during Trump’s first term. The report could trigger yet another round of tariffs. This may accelerate efforts for some companies to move their production overseas to dodge US tariffs and other trade barriers. Shein is asking some of its top apparel suppliers in China to set up new production capacity in Vietnam, with incentives including higher procurement prices of as much as 30%, Bloomberg reported in February. Compounding Chinese exporters’ predicament, there are signs that other countries may follow America’s protectionist lead. South Korea and Vietnam said last month they would impose tariffs on Chinese steel, while Mexico has discussed similar measures with Washington. An escalating tariff war would intensify cut-throat competition in China and add to deflationary pressures that risk trapping the country in a cycle of declining prices, corporate profits, salaries and spending power. Trump and the Eagle – Not a stupid bird? European Central Bank rate cut The European Central Bank cut interest rates again on Thursday but warned of “phenomenal uncertainty” including the risk that trade wars and more defence spending could fuel inflation, raising the prospect of a pause in its policy easing next month. Making its sixth cut since June, the ECB lowered the deposit rate to 2.5% in a nod to slowing inflation and faltering activity, and said monetary policy was becoming less restrictive of economic growth as inflation falls towards its 2% target. But rates are still likely to come down over the course of this year as a 2.5% deposit rate is still restricting a euro zone economy that is skirting recession, they said. The ECB has long said restriction will no longer be necessary once inflation – at 2.4% last month – is safely on course to meet its target this year. Lagarde said the ECB would be even more dependent on incoming data than in the past, and that it would pause easing if the numbers suggested that was needed to get inflation to 2%. It is expected that the EU will pause rate cutting sooner rather than later. JD Vance – shouldering unpopularity with ease – German edition US Vice President JD Vance appears to be by a wide margin everyone outside the US’s most despised living human. His name keeps coming up. Germans see his attempt to interfere in their election, tell them how to deal with their Nazi legacy, and then humiliate Ukraine’s President Volodymyr Zelenskiy, as despicable and unforgivable. It’s the extent of the shock caused by Vance (and Trump) that has shaken the German establishment into action. Or, put differently, if this was all a Machiavellian strategy by Vance to get Germany to take up its share of the burden of Europe’s defense, wow, did it succeed. There’s hope, expressed by several people, that Germany’s ability to repurpose manufacturing facilities could help it swiftly turn around arms production as auto plants take up the burden. The US is so unpopular that it will be politically difficult to buy American arms. – European weapons makers will no doubt pick up some of that slack. Markets and Tariffs The Nasdaq dropped 10.4% from its December 16 closing level, confirming a correction. The S&P 500 briefly fell below its 200-day moving average, a technical support level which could signal further declines if it significantly breaks. The cost of tariff uncertainty is growing visibly, most clearly in a continuing sell-off for US stocks, which has now left the Nasdaq Composite down more than 10% from its recent peak (the popular definition of a “correction”). The Bloomberg Magnificent 7 index, including the dominant tech groups, is down 16%, and has just dropped below its 200-day moving average for the first time in more than two years. Meanwhile, when businesses have a clear idea that tariffs are about to be levied on goods they want to buy, they are bringing purchases forward and stockpiling untariffed goods. This was wholly predictable and helps to explain why the latest US trade deficit, published Thursday, was the highest on record. That had much to do with the rush to send gold bullion to the US, which has little effect on the real economy. However, the spectacular widening of the US trade deficit with Canada shows that businesses are already taking evasive action. Canada is now in the eye of the tariff storm, when only recently, many had assumed that it would be exempt. That’s led to a remarkable buying spree as Americans stockpile Canadian goods: Today’s announcement came after Trump spoke with Mexican President Claudia Sheinbaum, who has sought to negotiate with the 78-year-old president, while Canada Prime Minister Justin Trudeau struck a more strident tone. The Trump administration did take pains to say its other threatened tariffs would move forward as planned in the coming weeks and months, but after weeks of threats, little follow-through, and now reversals, Wall Street has decided the only safe thing to do is sell. The S&P 500 fell to a four-month low. China and tariffs Premier Li Qiang of China told this week’s NPC that stimulating domestic demand is the highest economic priority. Counting on exports is no longer viable, as other countries are ready to throw Beijing under the bus to placate Trump. How soon can consumption firepower come on stream? Consumption is only about 40% of the economy, versus 55% in culturally frugal Japan and Germany, and 63% in Brazil. Chinese officials know more is required to head off the impact of a trade war. The economy’s best-case scenario for the Chinese economy would still be to avoid a trade war. The 20% rise in US tariffs may shave up to 1% off China’s GDP, cutting growth from 5% in 2024 to 4.2% this year. Author: Dawn Ridler Amazing Google Markets are in an interesting place at the moment. There is lots of political and economical events that are shaping the world we live in, and the market is on a relentless drive to ascertain true value. The last 3 years has been very good for US investors especially those in the tech sector. As a matter of fact, at some point this was the only game in town before the broader rally in US stocks started extending early last year. Today 40% of the S&P 500 index has created positive results on a y-o-y basis. The wider the rally, the more momentum it has to sustain itself into the future. As of early this year, the Eurostoxx 50 has also started showing decent growth, not because the companies listed there are superior to their US counterparts but because, after years of growth in the US market, capital is being diversified into Europe now, chasing better valuations. The outlier is the Hang Seng with its Chinese counterpart indices, which are yet to show the growth recorded in the US. I have in the past written about the valuation levels in the US, but what should also be considered is the age of the current bull market. At 28 months, it’s starting to get old with the median bull market over the last 100 years lasting on average 30 months for a 90% price gain. The current price gain is at 50%, but keep in mind that there are a lot of input factors which can impact on the return achieved. What continues to amaze me is the quality of the counters available in the US market. Take Google as an example. This is a truly global company making money in the US, Europe and Asia. Europe and Asia combined make up 45% of it’s revenue. Their Google Services business is by far the largest contributor to Revenue, making up 87% of Revenue. In here are services such as Gmail, Chrome, Google Ads, Google Drive and all other ancillary services which you may have come across during your travels on the worldwide web. It’s here where the company started when they enticed you to use their search functions and then made sure you see related advertisements for products you may want. The product set has only grown from there into a company that has become a platform from which business can be conducted online. Its largest challenge today is the advent of AI, which has the chance to unseat it as the search engine of choice. The fear is that internet users no longer “Google search” to find information but rather use a tool such as ChatGPT. To this end, Google is spending money to build their own AI alternatives such as Gemini and Vertex AI. This is leading to an AI race where various providers are trying to outdo and outspend each other. Companies such as Google have billions to spend on developing AI, which many people who may be interested to join the race simply don’t have. But there is another component to the AI race which is often overlooked and that is data housing. Google is accustomed to housing data for their clients to enable services such as Gmail, GDrive and the like. So data center management isn’t new to them and will be required in abundance to make AI work seamlessly. To this end, the company is spending $ 75 billion in 2025, with a substantial amount going towards data centres. To put this into context, according to the State Department, the US has spent $ 66 billion in military assistance to Ukraine since the start of the conflict in 2022. Google outspent them on datacenters in one year alone! There is a true tech revolution under way and it’s quietly happening in the largest tech names. Where are they listed … well you guessed it .. the US! Author: Cobie Le Grange EXCHANGE RATES: The dollar weakened significantly over the last week – and we can see that very clearly in the rand strength. The Rand/Dollar closed at 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 R23.50 (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 R19.72 (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 $70.33 ($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 $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: 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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