| There is a podcast available for this newsletter. Market View The JSE continues to give good returns, while the US markets slump. Other international markets, like Germany (below) and China however are showing much better growth – thanks in the main, from the ‘decoupling’ of US from everyone. FED holds rate drop The FED is as uncertain about the future of US monetary policy as the rest of us, and has, unsurprisingly, not dropped rates this month (the SARB will probably follow suit – update). In his usual refreshingly honest approach, Federal Reserve’s Jerome Powell made clear when he repeatedly told the press that he didn’t know what was going to happen with US trade policy, or what effect it would have on the economy. It’s often a mark of a true leader to admit you don’t know what is happening, I think most of us would prefer that approach than ‘Jumping and building your wings on the way down’ approach adopted by the current US administration. It could work, or it could end in some very messy roadkill, and that the rest of the world would have to navigate. Powell described the possible effect of tariffs on inflation as ‘transitory’ (hopefully not like inflation – the last time that phrase was used). The most recent ‘dot plot’ from the FED chairs shows that they too are losing confidence in the downward trajectory of interest rates going forward. U.S. President Donald Trump, never one to let an opportunity to show off his mental superiority slip, on Wednesday said the Federal Reserve would be better off cutting rates “as U.S. tariffs start to transition (ease!) their way into the economy. (The Trump administration’s initial policies, including extensive import tariffs, appear to have tilted the U.S. economy towards slower growth and at least temporarily higher inflation, Federal Reserve Chair Jerome Powell had said earlier.) Japan – an update on the interest rate rises We often look at Japan, their economy and rates – not just as a historic cautionary tale of policy gone wrong (resulting in a two-decade doldrum) but whether they can finally lift those rates off the basement they have been languishing in without causing even bigger problems. The Bank of Japan’s Kazuo Ueda is captaining this rate takeoff. Last year’s exit from negative policy has been smooth, barring air pockets of wild currency swings. The BOJ left rates unchanged this week, and the lack of urgency for a faster climb makes sense. Just like an aircraft making a sudden sharp ascent risks many problems, this measured approach by Ueda’s makes sense. Increases in the annual wage negotiations (or shunto,) combined with rising food prices, suggest that the next hike is only a matter of time. Rates are now projected to climb a bit faster than they were at the turn of the year. Last quarter’s gross domestic product was revised to 2.2% from an annualized 2.8%. Subdued growth is driven by weak consumption, even as price growth outruns an increase in wages. The Yen’s reaction to the FED announcement on Wednesday was almost immediate: Japan has benefitted from the US uncertainty – reclaiming some of that ‘reserve currency’ status. Don’t forget last year’s carry-trade unwind that sent US markets for a brief spin – that is what might happen unless the rate rises are slow and measured. The sheer scale of Japan’s debt must be a cause for concern — it is currently more than 250% of GDP — and still weighs on public finances. The Japanese Ministry of Finance estimates that interest expenses will rise by 50% over the next few years to hit ¥16.1trn (US$109bn) in the fiscal year ending in March 2029. The two months that feel like two years One of the things that I love about this profession and being an Econo-financial commentator is that it changes every day – but frankly, enough already! We are watching a rapidly disconnecting world. Germany has decided to go ahead with massive borrowing to fund rearmament, and the DAX surged while US stocks fell; China’s BYD Co. announced a new battery for its electric vehicles that prompted a big US selloff for Tesla Inc. (Along with Elon’s growing PNG (persona non grata – you know like our Ambassador to the US) status. At the moment we are seeing the biggest switch away from US stocks on record. US exceptionalism, (the popular name for the dominance of the dollar and the Magnificent Seven group of tech platforms that has been a feature of the last decade) is fading fast. We have become very used to the globalized free markets that have held sway since the end of the Cold War, but the world is reallocating itself into independent groups or spheres of interest. This is called mercantilism, or autarky — the economic term for national self-sufficiency. The US’s move away from globalism is one thing – but who and what is going to fill the void? (Of course, nobody will have timed this perfectly, hindsight is a perfect science). The turn in markets has been startlingly sudden. This chart shows the Magnificent Seven’s performance compared to the DAX since the start of last year. Anyone who shorted the Mag 7 and put the proceeds into the German benchmark before the Christmas break is now sitting on a very healthy profit. In the past we would assume that the capital flows would go to China – but not this time round. They seem to be flowing to Europe. Europe was already waking up — belatedly — to the need to reduce reliance on the US before Trump’s return. Last year, French President Emmanuel Macron offered a new paradigm in a speech with the emotive title, Europe — It Can Die. Mario Draghi, former head of the European Central Bank and prime minister of Italy, published his own report calling on Europe to pool resources to become more competitive. And in the UK, approaching nine years from the vote to leave the EU, attention has turned to ways to get the domestic financial system to benefit the country again, rather than send money across the Atlantic. Capital flows much more easily across borders than goods. It can also be cut off much more easily. With Japan now looking likely to raise interest rates further, there’s a chance that savings will be repatriated. China has no choice but to reduce reliance on international capital. Europe’s political imperative to build its own weapons rather than buy American could mean less money flowing to the US. Interestingly, Canada had a US Dollar-denominated Treasury bond issuance last week which was oversubscribed 4 times. Canada owns over $350tn in US treasuries – when they roll over will they be replaced by US or Canadian treasuries? Unfortunately for the Donald, the new PM of Canada Mark Carney is a very successful economist (educated At Harvard and a Masters and PhD in economics from Oxford) and has the unusual distinction of having run both the Bank of England (2013) and the Bank of Canada (during the 2008 crisis). When will Trump stop? Are there any guardrails left? Will market and economic pain be enough to stop Trumpism? In his first term, and even last year immediately post election, Trump loved to take credit for the stock market performance. I am often reminded of a very wise saying I heard very early in my career as an investment advisor – if you take credit for the market going up, be prepared to take the blame when it tanks too. The narrative among the Republicans has shifted to a mantra we have all heard from the gym-bros – no gain without pain. Of course, we’d all far rather have a calm, professional and qualified personal trainer doing that than some steroid-fuelled wind-gat. What about China – can it finally lift itself out of the funk it’s been in since the failure of its Zero-Covid policy. With the Magnificents priced for perfection, investors are taking any suggestion of competition from China as reason to sell. DeepSeek’s R1 large-language model was hailed as a “Sputnik Moment” and fuelled a US market rout in January, from which Nvidia Corp.’s share price has not recovered. Nvidia share price Then, BYD, the popular Chinese electric vehicle maker, unveiled a new charging system that allows motorists to recharge their battery in only five minutes. That’s provoked a mini-DeepSeek Moment for Tesla.This is the problem with innovation. On the one hand, they rapidly improve the products we use but they can also render competitor’s products obsolete in a very short time. Global diversification away from the US Over the last couple of months we have watched the Trump administration breaking from long standing allies with foreign and economic policies that have challenged those allies, undercut some multilateral institutions and used tactics such as tariffs, which escalate by the day. While it is unclear what will eventually emerge, many countries are showing that they are not waiting to find out. The other aspect that Trump never factored in his ‘brinkmanship’ negotiation strategy is that companies and individuals can independently decide to boycott consumer goods. In Canada, for example, goods coming from Red MAGA States have been specifically targeted for retaliation. Trump seems to have forgotten the old adage ‘the enemy of my enemy is my friend’. One Chinese official (who refused to be named) said Trump’s tariffs against U.S. allies such as Canada and Europe had given Beijing an opening. Trump cannot isolate China with U.S. allies because his allies are also facing tariffs, Chinese companies have to diversify, reducing their exposure to the United States and increasing it in other parts of the world, from Southeast Asia and the Middle East to Latin America. Investors are not going to cut off their noses to spite their faces, U.S. stock market assets remain attractive, even if they have been softening of late. That’s because of the size of the American economy, the depth of its capital markets and the relative strength of its institutions, especially when compared with authoritarian governments (China, Russia) elsewhere. There are also limited choices. Anyone looking for an alternative to the dollar outside the U.S. sphere of influence, for example, has three options: gold, crypto and (maybe) the Euro, yuan or yen. Some of the run-up in gold in recent months is attributed to central banks diversifying away from the dollar. Any company looking to do transactions in the yuan instead of the dollar, for example, would need instruments to hedge its exposure to it – and those are available, but perhaps not as fully-fledged as importers may like. Breaking away from the ‘petro-dollar’ is not as easy as you think – but you can believe that there are countries out there who are going to try and make it happen. RSA interest rates The Reserve Bank chose to keep the interest rate unchanged. The central bank argued that the balance of risks remains tilted to the upside. This will be despite the MPC being able to reason that there are not really new disinflationary forces emerging, given the rand’s performance, and softer oil prices. The is prudent for the SARB not to ‘front run’ the FED. Another factor that may have persuaded the MPC to pause is South Africa’s souring relations with the US. Some fear it could cause it to lose its preferential status under the African Growth and Opportunity Act, a trade accord covering about $3.6 billion of its exports to America. In light of the fact that the budget is still not a done deal, SARB has done well to err on the side of caution until the dust has settled somewhat. South Africa’s inflation rate has ostensibly flatlined. The consumer-price index rose 3.2% in February from a year earlier, the same as the previous month. The median of 17 estimates in a Bloomberg survey of economists was 3.4%. Author: Dawn Ridler Volatile Markets So far March has shown what equity markets are really made of. Back in 2022, the S&P500 recorded a 24.3% drawdown and then again in August 2023 recorded another drawdown of 9%. The recent memory of equity markets is thus one where share prices continued to accelerate with very little chance of a drawdown. This is not how equity markets operate. The reality is that equities are down between 30-40% of the time but ultimately compound out at 11% p.a. This means that when equities are not down (for the remaining 60-70%), they are busy pushing indices higher. Good news for long-term holders of equities but not so much for those who are trying to time the market. S&P500 Index It was inflation which saw equities selling down in 2022. This ultimately ended in October of the same year as the FED started getting a handle on inflation. The rate hiking cycle had started in March 2022 and by the November the policy rate was already at 4.25% – 4.50%. Markets started looking through the high inflation to a future where inflation was back in control and allowed the FED to reduce rates again. Markets then accelerated off the back of this. The 2023 sell down was prompted by a growth scare as the Yen carry trade started unwinding. Markets in 2024 was all about growing earnings and multiple expansions as inflation was brought under control. This year, with valuations mostly fairly priced, it’s all about earnings. And it is this that markets are now worried about given all of the noise surrounding tariffs. From its high, the S&P500 lost 9.9% (18 Feb to 13 March) making for a very quick price unwind as can be seen from the above chart. 10% drawdowns happen 37% of the time and is not unusual. It now becomes a matter of time. Markets have sold down because there is uncertainty as to how tariffs will influence earnings and inflation going forward. Once markets gain clarity, they will assume direction again. In the meantime, be reminded that this is the price one pays for long-term superior returns. Having cash at a time like this is critical. I try and ensure that there is always some cash available for purchases when this sort of thing happens. And then patience is equally important. This is a great time to stress test positions and to purchase those ideas where one thinks value has emerged. Is this the bottom? I have no idea! Author: Cobie Le Grange EXCHANGE RATES: The dollar steadied a touch last week, but overall sentiment is that it will continue to drift lower. The Rand/Dollar closed at R18.21 (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 R23.55 (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 R19.72 (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 $72.13 ($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 $84,889 ($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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