Newsletter – Week 10 – Can the US economy stay strong ’til November

Market watch:

For a change I have used the graph below to show the last 3 months returns and not over a year or more as is usually shown – but it still doesn’t show a pretty picture for the JSE. To be fair we just don’t have those AI-focused stocks that are driving the US market. 

The Nasdaq – which is more tech- heavy than the Dow Jones, is still on a tear!

If you compare this to Russell 2000 you can see that while the growth is still there, it is more muted:

The fact that the smaller stocks are growing well is a good sign for the health of the overall US economy.


Some SA stuff

Using the Big Mac exchange rate barometer, A Big Mac (burger only) in New York is $5.13, or R96. In RSA it is R31 – one third. Good news if you live in RSA, but bad news if you’re a globe trotter. Logically we should be a much more desirable tourist destination for Americans than we are, but with precious few flights straight across the pond, we are a  24 hr plus travel destination. You’re welcome Cape Town!

There have been some quite radical changes to the basic conditions of employment act, now if you earn over R21,800 per month you are not automatically protected w.r.t overtime and public holiday pay. The only way someone can protect themselves is to ensure that this is addressed in their contract of employment (without any reference to the terms of the basic conditions of employment act) – which cannot be changed unilaterally. Help the youngsters out there by reading all the small print they may not understand.

Fear and Greed

I find it interesting to watch CNN’s fear and greed index from time to time, especially when markets are as frothy as they are at the moment. This index is trending toward neutral at the moment.

When the S&P 500 is above its moving or rolling average of the prior 125 trading days, that’s a sign of positive momentum. But if the index is below this average, it shows investors are getting skittish. The Fear & Greed Index uses slowing momentum as a signal for Fear and a growing momentum for Greed. The graph below indicates that there is no slowing of momentum just yet. (The CNN article tracks other interesting metrics)


Boomer wealth transfer, loading…

I think most boomers like me feel like we lived in a golden age, where it was easier to get on the property ladder and build wealth than the age our children live in now. One of the things that I hadn’t considered was the inevitable transfer of wealth that is going to happen once we boomers shuffle off our mortal coil. The last of the Boomers turn 60 this year with older boomers turning 77. 

Many millennials and late Gen Xers are currently grasping in frustration at long-held American Dreams like homeownership, a steady job and an affordable cost of living. However, over the next twenty years, Millennials and late Gen Xers are poised to inherit some $90 trillion of assets and become the richest generation in history – but only the ones who already come from affluent families, potentially deepening wealth inequality further. 

Between now and 2044 in the US, the Silent Generation and Baby Boomers are expected to hand over the reins of their significant wealth to Millennials and late Gen Xers (obviously not voluntarily) , but whether you’re going to get that windfall is a lottery of birth and what those parents have done with their inheritances. Very often inherited wealth is lost in the second generation, especially if it is fairly liquid.  

Let’s face it, property is no longer the ‘safe as houses’ investment it was the previous generations. For a start interest rates are higher than they’ve been for decades, and don’t look like dropping to their ultra-low levels any time soon.

State of the Union – The USA.

The S&P 500 and Nasdaq closed lower on Friday after touching record highs during the session, with high-flying chip stocks going into reverse and a mixed labor market report that showed more new jobs than expected with a rising unemployment rate. (Do remember that these figures are notorious for being  ‘adjusted’ ).The S&P and Nasdaq briefly hit intraday record highs but started to lose steam late Friday morning.

The Philadelphia Semiconductor Index (.SOX) ( a good indicator of AI exposed shares) , opened sharply down and ended the day down 4% after touching an intraday record high. Is the market testing the ‘top’? Essentially there is so much money washing around the US economy looking for a place to go that much of it ends up in the stock market (commercial property has lost it’s lustre due to changing work habits and high interest rates).

Now that the US presidential campaign is properly underway, it will be in Biden’s favour if the markets remain strong. Biden gave an impressively energetic and uncharacteristically political State of The Nation speech last week – never once referring to Trump by name but as the former-president. Interestingly, the formal GOP (Republican) response to the State Of the Union address was made by a (MAGA) junior senator from her kitchen by Zoom.

Biden saw a bump in the polls after his speech but this is going to be a long and dirty race. Trump isn’t hiding his agenda and intentions – none of it good for the rest of us. Increased de-globalization and anti-China sentiment would drive emerging markets like ours (who he famously called sh*thole countries in his last term) further into the not-so-loving embrace of China and Russia. The very unusual, yet highly publicised visit by Trump’s big buddy Victor Orban (Hungarian PM)  to Trump in Mar-A-Largo last week underlines Trump’s pro-Russian/Fascist stance.

China and Solar

China unleashed the full might of its solar energy industry last year in an attempt to kick start it’s faltering economy.

It installed more solar panels in one year than the United States has in its history.

It cut the wholesale price of panels it sells by nearly half. And its exports of fully assembled solar panels climbed 38 percent while its exports of key components almost doubled. Get ready for an even bigger display of China’s solar energy dominance. In mean time the United States and Europe are trying to revive renewable energy production and help companies fend off bankruptcy.

At the annual session of China’s legislature this week, Premier Li Qiang, the country’s second-highest official after Xi Jinping, announced that the country would accelerate the construction of solar panel farms as well as wind and hydroelectric projects. With China’s economy stumbling, the ramped-up spending on renewable energy, mainly solar, is a cornerstone of a big bet on emerging technologies. China’s leaders say that a “new trio” of industries — solar panels, electric cars and lithium batteries — has replaced an “old trio” of clothing, furniture and appliances.



The Federal Reserve is considering when and how much to cut interest rates, and the employment report on Friday will give policymakers an up-to-date hint at how the economy is evolving ahead of their next policy meeting.

Fed officials meet on March 19-20, and they are widely expected to leave interest rates unchanged at that gathering.

In his congressional testimony FED reserve chairperson Jerome Powell said:

“We’re waiting to become more confident that inflation is moving sustainably to 2 percent, when we do get that confidence, and we’re not far from it, it will be appropriate to dial back the level of restriction.”

The Fed is primarily watching progress on inflation as it contemplates its next steps, but it is also keeping an eye on the labour market. If job growth is strong and the labour market is so robust that wages rise quickly, that could keep price increases higher for longer as companies try to cover their costs. On the other hand, if the job market begins to slow sharply, that could nudge Fed officials toward earlier interest rate cuts. For now, unemployment has remained low and wage growth has been solid — but not as strong as the peaks it reached in 2022. That has given Fed officials comfort that the supply of workers and the demand for new employees is coming back into balance, even without a painful economic slowdown.

Demand for labour is still outstripping supply.  A more expansive measure of slack labor market conditions, which includes people working part time who would rather work full time, has been steadily rising and now stands at 7.3 percent. 

In a positive sign, the labour force participation rate for people in their prime working years — ages 25 to 54 — jumped to 83.5 percent, matching a level from last year that was the highest since the early 2000s. The participation rate for those over age 55 remains markedly below its pre-pandemic level, potentially in part because the booming housing and stock markets have allowed more people to retire.


Buy and Hold

This week equity markets showed some belated volatility before recovering into the latter part of the week. This is not surprising given that equities have run significantly since their low point in 2023.  Consider that the MSCI All Country World Index was up 24.4% in 2023 and has risen another 5.6% this year so far. This more than makes up for the -17.7% return this index provided in 2022. Long term equity holders again benefit more than those that want to sell when volatility sets in.

There are two types of equity investors at present. There are those that have stayed invested and are reaping the benefits of this today. These investors have been able to manage their own emotions and have not responded to the doomsdayers which called for the end of the investment world during 2022. Then there are those that have sold their holdings and are now faced with a market which has made up for its losses and then some. These investors are now hoping for another market correction before they will allocate more capital to equities. Their energy is being spent into trying to predict when equities will have their next demise so that they will be given a chance to also participate. This is negative emotional energy and the people that they are listening too are often on the fringes of society. This is called timing the market and is ultimately a fool’s game. It puts investors on an emotional roller coaster and forces the mind to focus on dynamics which isn’t controllable. Getting this right is a luck stroke rather than the culmination of philosophy, process and data… the bedrock of any good asset management framework.

Ultimately it doesn’t matter if the FED will drop rates once, twice or three times this year. It’s even less important when they do so. What is much more important is if the economy will grow and if earnings will continue to expand in the next year. These dynamics will underpin equity valuations more than waiting for a left field event to implode valuations. In asset management the rules are easy, but the game is difficult. Anyone can follow the rules but having the patience and fortitude to buy and hold is an entirely different matter. Somehow this is lost on many self do investors who everyday watch the market for detail which ultimately don’t matter.          


The dollar was down again  at  102.7- and the rand benefitted significantly from that move. 

The DXY Index:

The Rand/Dollar. The rand/dollar closed the week stronger on R18.72 (R19.15 ,R19.30, R18.97, R19.03, R18.80,  R18.78, R19.03). This move is almost all dollar weakness not rand strength. 

The rand/pound is also better at R24.06 (R24.18, R24.47, R23.61, R24.03, R23.87, R23.86, R24.15.)

The rand/euro closed the week at R20.47 (R20.71, R20.93 R20.38, R20.51, R20.38, R20.40, R20.72.)

Brent Crude: Brent closed the week down at ($81.80 $83.80, $83.40,$83.14 $80.91, $77.36, $83.66, $78.33). The Red Sea continues to be a bottleneck for some oil exports, and there is little sign of easing of Gaza tensions, and even the US are giving up and opening up a marine corridor straight from the Mediterranean into Gaza. The Europeans are already doing this on a smaller scale out of Cyprus. Gaza’s beaches are shallow and sandy making this logistically difficult for big vessels. 

Bitcoin was up yet again at $68340, $62,315, $54,649, $52,510, $47,195, $ 42,897, $41,608, $41 680).

Articles and Blogs: 
New-Normal for Retirement? NEW
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.