| Market watch: The JSE continues to amble sideways, which is unsurprising as we do not have the AI companies that are driving the offshore markets and commodities are out of favour – for now.  The Russell 2000, which is much more broad-based than the Nasdaq, for example, while not showing the same growth in the last few months, is still well up y-o-y. There is no doubt that the JSE is battling, and until we get more clarity from the May elections, or the price of commodities suddenly spike, there is not likely to be much movement there.   TikTok (again) Despite the so-called TikTok bill, social media platforms continue to grow in value. Reddit made its debut last week ending the day up 48%. Trump’s social media platform, Truth Social is also about to go public and could net him a much-needed $3bn. The former president is currently scrambling to put together circa $500Bn in a bond to appeal his New York case. He has until Monday to put up the money or face confiscation of property – not just in New York but anywhere in the US including Mar-A-Largo. While we are talking about TikTok, India (which is publicly hostile to China, and has a very small border with them that is constantly in dispute) banned TikTok (and umpteen other Chinese apps) in 2017 when it had 200m users – more than the US’s 170m users. All that happened, despite the wails of protest at the time, was that the TikTok creators just moved to Facebook (Reels) and Instagram.  The FED The FED is in a quandary at the moment. Higher interest rates have left homeowners reluctant to switch from their current dwelling or for new entrants to buy a property. This is as the interest rate that would need to be accepted is high in comparison to its past. For this reason, home prices in the US are not keeping pace with the growth in other asset classes. As an example, the stock markets continue to bubble upward on the back of AI. A buoyant stock market is often used as a proxy for economic health, but the man on the street (who probably doesn’t have a significant stock portfolio) has not benefitted from this bouyant market, but only sees the ever-rising prices at the supermarket, increased debt repayments and a salary that is not keeping pace. At the FED Open Market committee meeting last week, the members estimated that the current FED rate, currently at 5.25 to 5.5% will drop by about 75 bps by year-end. The good news for Biden is that unemployment is at a steady 4%, for the longest stretch since the Vietnam War. Bond markets remain uncharacteristically volatile. The FED is still actively tightening, and bonds are being allowed to mature without being ‘rolled over’ which is effectively removing liquidity from the system (at a rate of $95bn a month). The Treasury is countering this effort by the FED and continues to issue more and more debt to finance their ‘overdraft’ (the deficit caused by the govt spending more than they earn – something that we Saffers are very familiar with).  Apple’s woes One interesting bit of news this week was the anti-trust suit levelled at Apple. The core of this law suit is that Apple is accused of keeping its customers reliant on Apple, downgrading input from other sources and making it less likely to switch to other devices. There is the allegation that incoming communications and pictures from Android devices are deliberately downgraded (the infamous ‘green‘ messages on iPhone). Apple has already been forced to use C-type chargers on their phones in the EU and there are moves afoot to open up the operating system and iStore, plus a $2bn fine for hampering music streaming competitors. Alternatives to Apple Pay are also under the spotlight. Apple needs to look for the next big thing to keep its spot as the market darling. iPhone upgrades are just not worth it and one of their biggest markets, China, is slowing down and the government is actively discouraging the use of iPhones by public servants.  |
| AI The big technology war that is on at the moment between the US and China centers around AI, and the race to dominate it. Frankly, there is no point in the West trying to regulate this new technology when China is not going to buy into any of those regulations. The Marco Polo think tank, part of the Paulson Institute, has been focused on this sector for several years now, and they estimate that at least half of the top AI researchers are based in China, compared to only 18% coming out of the US. 40% of top AI researchers in the US are from China, often moving there to complete their doctorates. Espionage is a huge concern. For example, a Chinese citizen working at Google was charged with selling secrets this month. Unfortunately, many of the immediate beneficiaries of AI are going to be in the military realm and the dark web. In an interesting story around AI, the tiny Caribbean nation of Antigua brought in $32m (10% of their GDP) last year from companies looking to register the domain that ends in *.ai (mostly from domain names held on auction).  Hermés We often chat about Hermés in our newsletter, because it has a very attractive business model (but is often considered overvalued). It has been the established norm for decades that if you want one of their ultra-expensive Birkin or Kelly bags (costing tens of thousands of dollars) you have to buy ancillary products like scarves, perfume, watches or shoes (called tying) before being ‘invited ‘ to purchase a bag. This practice has incensed a couple of (entitled) Californians who have now filed an anti-trust lawsuit. Their premise is that ‘tied’ purchases are anti-competitive – which may hold some merit if it was a necessity – but it’ll be interesting to see what the impact of this suit will be (if any). Rolex and other luxury brands will no doubt be looking at this with interest as they have similar policies. The secondary market for Hermes items is robust, and items usually sell for much higher prices than retail (and the luxury brands keep a close eye on this and cut off resellers at source).  Tokenization (a glimpse of the future) For you who may not know, tokenization is the act of creating a digital version of a physical asset. Let’s take real estate as an example. If you had enough money, you could own the piece of real estate on your own or perhaps if you preferred fractional ownership, you would own the property with other investors through a company, trust or even a special purpose vehicle. This is physical ownership. A step further would be to buy property through a REIT structure. Here your ownership would be through the holding of shares/units in the REIT alongside other investors. A share register would identify who you are and how many shares you own. This is a form of tokenization. The fact that exchanges are mostly electronic today, means that the record of your ownership is held with the exchange and is portrayed to you through one of their members who would act as your custodian. You may recall the process where the JSE became electronic with the introduction of STRATE (Share Transactions Totally Electronic Limited) in 1997. For South Africa, this is the defacto option for share ownership. You, the JSE and your custodian know what your holdings are. This is reported to SARS but that is where it ends. Any information of your SA shares and any shares you own offshore is held by exchanges and isn’t readily available. If you are a corporation and require information on the ownership criteria of another company, this information has to be sourced. If a company vote is required someone has to co-ordinate this and this must occur through the exchange in question. You may own various account numbers originated by various custodians across the world but none of them would know about your collective holdings. Ultimately to them, you are an account number and the identification that you are who you say you are, is up to the custodian and their identification process. The financial world has been on a journey to make information about your holdings more accessible. This is why tax authorities once a year receive portfolio holdings for a specific TIN (Tax identification Number)… this is actually quite recent and makes tax authorities one of the most connected entities when it comes to your financial affairs. This though leaves individuals with the tiresome task of the FICA roundabout. Every time a new account is opened, new FICA is required accompanying a new application. For individuals with multiple accounts, this process can be very tedious as multiple rounds of FICA can be required through time. Let’s face it, this process isn’t fool proof. Financial institutions are relying on their intermediaries to go through a KYC (Know Your Client) process to ensure that the client is who they say they are. A dubious intermediary can falsify and lie. But what if every investor in the world could be assigned a unique number. This will require one verification process and could even be done through an international entity thus removing the intermediary from this process. Each asset that trades on an exchange has a unique number (ISIN numbers). There is no reason why unique numbers can’t be given to investors as well. The technology to do this already exists, and much like countries signed on to be part of the AEOI (Automatic Exchange of Information) protocol for tax purposes, the same can be done here. Once global investor numbers exist, the need for multiple accounts across various jurisdictions will fall away. Your unique number can hold shares or units across the world and can even be held digitally as the need for a custodian can be replaced by a digital wallet. This will provide easier and cheaper access to assets. To keep a record of ownership, exchanges (or another form of exchange) may also opt to record these on a blockchain much as what is happening with cryptocurrencies today. This is the ultimate form of tokenization. You are represented in the digital world…. Owning digital assets. I have no doubt that this will start happening. Countries will have to adhere to the global standards of allowing their citizens to be digitally represented. Exchange controls and international cash transfer fees will become a thing of the past. How taxes are collected will also need to be taken into consideration. Countries who opt out of the international accord will become second rate as their citizens make their digital wallets private and their exchanges fail to raise the requisite ownership interest. I wonder how much the JSE is thinking about this? EXCHANGE RATES: The dollar was up again at 104.43, and while still within the same range, it has been in for the last year, this strengthening is probably behind some of the recent Rand weakness. The DXY Index:   The Rand/Dollar closed up at R18.99 (R18.76, R18.72, R19.15 ,R19.30, R18.97, R19.03, R18.80, R18.78, R19.03).  The Rand/Pound is up a tad at R23.93 (R23.90, R24.06, R24.18, R24.47, R23.61, R24.03, R23.87, R23.86, R24.15.)  The Rand/Euro closed the week at R20.56 (R20.43, R20.47, R20.71, R20.93 R20.38, R20.51, R20.38, R20.40, R20.72.)  Brent Crude: Brent closed the week up again at $86.58 ($85.33, $81.80, $83.80, $83.40,$83.14 $80.91, $77.36, $83.66, $78.33).  Bitcoin was down a touch at $64,681 ($69,078, $68,340, $62,315, $54,649, $52,510, $47,195, $ 42,897, $41,608, $41,680). Articles and Blogs: The NHI and what do do about it NEW 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 |