| 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 Before we get going with the newsletter, let me just reassure everyone out there who is nervous about their portfolios – this too will pass. When a market tanks like this, even if we go into a full-blown bear market, for us advisors and asset managers that presents us with opportunities to buy stocks and assets that we previously might have considered ‘too expensive’ and not give us enough upside potential into the future. Often in a mass correction like we saw last week, the market throws out the quality ‘babies’ with the poorer quality bathwater – and we can take advantage of that. If we are investing your assets, they are going to be aligned with your time and capital objectives and ‘hedged’ accordingly. I’m not talking about hedge funds, but portfolios can be ‘naturally’ hedged using asset classes other than stocks, and this is what we do all the time. Thursday’s heat map is one most investors would like to forget, but here it is for prosperity: RSA’s headwinds. As if the Trump Tariff Tantrum wasn’t enough to deal with our GNU seems to be disintegrating in front of our eyes, and markets have noticed. With the dollar depreciation, our Rand should be strengthening, but, alas — no such luck. (put in close of business graph) The political uncertainty has unnerved investors and weighed on the rand. The currency weakened 2.3% on Wednesday — its biggest single-day drop since August 2023 — and traded 0.2% lower at R18.92 per dollar by 8:14 a.m. in Johannesburg. South Africa’s ruling coalition risks unravelling after a dispute between its main members over proposed tax increases deepened, pummelling the rand. Tensions within the alliance were already running high because of disagreements over a series of contentious laws and exploded after the fiscal framework, which underpins the budget and incorporates a proposal to raise the value-added tax rate, was approved by the National Assembly late Wednesday. The Democratic Alliance, the second-biggest party in the so-called government of national unity, rejected the move as unprocedural, vowed to challenge it in court and called a meeting of its top leadership to discuss its future participation in President Cyril Ramaphosa’s administration. The party is readying its exit from the government, Johannesburg-based news website TimesLive reported, citing people it didn’t identify. The unprecedented budget impasse has shaken confidence in South Africa’s fiscal stability and put the GNU coalition on thin ice, while growing pains were to be expected the way things have played out with the budget erodes the policy predictability many expected under the GNU. Part of the problem is that the DA probably went too far, and tried to fight too many battles with this one issue. Wars are won by winning many small battles. We all know that changes are needed to infrastructure, SOEs, land ownership, health and education ( just as starters), but perhaps it would be prudent to eat those elephants one bite at a time and not choke at the first banquet. What happens if the GNU falls apart – especially with all the recession headwinds in the global economy? We can only speculate, but it won’t be pretty. The Top Line on Trump’s demolition day: 10% blanket tariffs on all imports, starting April 5. Tariffs of 54% on China, 20% on the EU, 24% on Japan, 26% on India, from April 9. Mexico and Canada avoid new tariffs – for now. Russia was not on the list of tariffs, ditto other sanctioned countries Belarus, Cuba, and North Korea The UK escapes with a 10% tariff — (it pays to suck up to Trump). China and small Asian countries like Vietnam seem the worst affected. As soon as Trump pulled out those big charts, markets cratered immediately. Asia has come out badly, but it is small African countries that have been hit hardest. The biggest victims in the US are the companies most exposed and that source a lot of their products from there, such as Apple and some of its Magnificent Seven brethren, or Nike , which makes many of its sneakers in Vietnam. Make no mistake this is a tax increase on ordinary Americans, which many of them don’t realise yet. Trump looks at this package as a revenue-raising measure, and it should raise some $600 billion — if all trade continues as before – of course, it isn’t. This represents 2.2% of GDP and twice the size of the largest tax increase in modern US history. Recall that three months ago, everyone was looking forward to tax cuts promised on the campaign trail. A further problem is the bizarre mathematics behind the estimates of countries’ overall tariffs, which include currency manipulation and non-tariff trade barriers. No explanation of how these can be combined into one tariff rate has been offered. There is a strong suggestion that this was done by ChatGPT or some other AI tool and uses a crude calculation of Total US Imports divided by the Total trade deficit with the US – as a percentage divided by 2. Frankly, the more you dig into the numbers, the more absurd it looks. Trump is inclined to surround himself with sycophantic turkeys but this takes the cake. It has every hallmark of a quick and dirty assignment submission after you’ve spent the weekend watching sports and downing Buds by the barbeque – just so you get a participation trophy. How do you calculate current manipulation? Do trade barriers, include VAT? Currency restrictions (or is that included in manipulation?) No idea. Neither do they, I suspect. These are so-called “Average Tariffs”. Is it trade-weighted? Is there any weighting at all? Or is it simple average? 20% on eggs and 5% on autos is 12.5%? For tariffs attached to quotas (which many are), is it based on the average or the highest? There is no way to tell. Again, its highly likely that none of these factors were considered – way too much work in too short a time. The inclusion of the McDonald and Heard Island inclusion is the biggest giveaway that this was done by either idiots or AI with poor prompts. These tiny islands are just north of the Antarctic (Australian territory) and have thousands of penguins and seals but have a human population of zero. This is not a serious way to proceed, is making the Trump regime a laughing stock and it’s insulting to put such huge restraints on allies’ trade with such a pathetic explanation — particularly in a speech that accuses the rest of the world of “raping and pillaging” the US. Lesotho Trump put a 50% reciprocal trade tariff on Lesotho, the highest levy on U.S. President Donald Trump’s long list of target economies, this will kill the tiny Southern African kingdom that Trump ridiculed last month, an economic analyst there said on Thursday. (Madagascar is also on a similar level – and has a GDP of $15bn pa.) Not sure what Trump was trying to achieve here, if he even knows where the countries are on the globe. Lesotho, which Trump described in March as a country “nobody has ever heard of”, is one of the world’s poorest nations with a gross domestic product of just over $2 billion. It has a large trade surplus with the United States, mostly made up of diamonds and textiles, including Levi’s jeans. Its exports to the United States, which in 2024 totalled $237 million, accounting for more than 10% of its GDP. (Just a side note here – this is why we in RSA can get Levis at a decent price on places like Takealot) Lesotho charges 99% tariffs on American goods, according to the U.S. administration. That is nonsense – read above on how the Trump ‘dream team’ fudged those figures. Retaliation – what it might look like. Scott Bessent, the US Treasury Secretary has urged countries not to retaliate – of course – but is he onto something? For Minnows on the world stage, like ourselves, it makes zero sense of course – but for the big players Canada, EU, China, Japan – they can’t afford to roll over and let the plump orange duck sit on them. They are going to wait until the dust settles on all of this before making a move, already the White House has been caught ChatGPTing their homework (which should embarrass them, but probably won’t) and the true level of tariffs is probably going to be very much lower than it is now. Listen to Mark Carney and Christine Lagarde – steel fists in velvet gloves. They aren’t impulsive and their responses are going to be measured and lethal. Countries could go the UK route and brown nose their way into Mar-A-Largo bearing gilded gifts. If I were to retaliate I would use a scalpel and not a bazooka. I’d identify those US exports that come from the MAGA states and hit at the heart of far-right nationalism and impose tariffs on them, in a dollar-for-dollar fashion. This is basically what Canada is doing. A local groundswell in the population to boycott US goods too wouldn’t hurt. In fact, with a decent public boycott, retaliatory tariffs aren’t even needed. Here are some examples: • Texas: Known for its oil and gas exports, as well as manufacturing and aerospace industries. • Oklahoma: A major producer of oil and natural gas, with exports also including agricultural products. • North Dakota: A major exporter of wheat, corn, and other agricultural products, as well as oil and gas. • Iowa: Known for its agricultural exports, including corn, soybeans, and livestock. • Montana: Exports agricultural products, minerals, and timber. Weapons that Trump could still use to retaliate if this trade war escalates – what else could Trump pull out of his dollar-store advisory committee? As the epicentre of the financial world and the issuer of the global reserve currency, the United States has a number of levers that Trump can pull to coerce other countries, from credit cards to the very provision of dollars to foreign banks. While deploying these unconventional weapons would come at a large cost for the U.S. itself and may even backfire altogether, it is at least interesting to consider them. This would be particularly true if tariffs do not succeed in reducing the U.S. trade deficit with the rest of the world – an outcome many economists see as plausible given the fact that near-full employment in the U.S. has led to deep labour shortages. “I could well imagine that Mr. Trump… grows frustrated and he does try to implement wacky ideas, even if the logic for them is not there,” said Barry Eichengreen, professor of economics and political science at the University of California, Berkeley. I couldn’t put it better myself. MAR-A-LAGO ACCORD The U.S. administration’s not-so-secret plan is to rebalance trade by weakening the dollar. A way to do that would be to enlist foreign central banks in a coordinated effort to revalue their own currencies. This may happen as part of a Mar-a-Lago accord, which we have spoken about before, a reference to the dollar-capping Plaza Accord of 1985 and to Trump’s resort in Florida. To be fair, economists are sceptical that any such deal would gain traction in Europe or China because the economic and political situation is so different now from four decades ago. Effect on the US consumer As a result of Donald Trump’s sweeping new tariffs, we are now seeing a sharp increase in consumer costs and a dramatic rupture in America’s global economic relationships. According to the Nonpartisan Tax Foundation, the average American household will pay $2,100 more per year for goods due to the tariffs. One thing that pundits seem to ignore is the impact of market cratering is going to have on the 401ks of millions of Americans. The billionaire backers of the Trump administration are already bleating – but who cares, right? Bank of America just dropped a chilling forecast that could reshape how investors look at the current market correction. If the new U.S. tariffs spark full-blown retaliation from trading partners, operating income across S&P 500 (SPY, Financial) companies could get crushed—down 32% from current levels. Even without retaliation, just the inflationary cost of imports could shave off 5% of earnings. And that’s not some distant hypothetical—the market already wiped out $2 trillion on Thursday alone. Smaller companies are in the crosshairs. Small caps could see profits fall 22% even in a one-sided tariff environment—and completely vanish if retaliatory tariffs hit back. Mid-caps? They could lose 11% to 60%, depending on the level of trade tension. It’s a brutal picture. But please bear in mind what I said in the opening paragraph, with these corrections come investment opportunities. Look for companies in the US with steady cash flows, minimal global exposure, and resilient dividends. Negotiations are now going to begin in earnest – but RSA Inc who have already blotted their copybook with Trump, and only represents,5% of global GDP is going to go to the back of the line. Brace for more volatility but don’t panic. Nothing destroys a wealth portfolio faster than acting in haste. If stagflation sets in and trade talks stall, the fallout could get uglier. Auto tariffs are one aspect that is going to hit car-loving US consumers hard – and will also add to the price in the used-car market – again affecting working-class Americans. 45% of all new cars in the US are not made there – most of them come from Mexico, S Korea, Canada Japan and Germany. In fact, during the car-making process, the parts may cross over the Canadian and Mexican borders more than once before the final product is ready for sale. RSA Tariff war Before we wail about how unfair the US is being with tariffs, let’s have a look at some recent changes closer to home: The South African Revenue Service (SARS) has issued a notice of its intention to withdraw all forms of concessions currently used by traders that are outside of current regulations. The notice specifically includes concessions, deviations, agreements or special allowances that have been granted in the past to traders in relation to certain requirements of the Customs and Excise Act. The revenue service has suggested that many concessions are no longer applicable due to changes in law, policy, procedure or technological advancements. SARS commissioner Edward Kieswetter said in the notice that some concessions date back 20 years and were granted for a specific purpose at the time, that are no longer applicable. So, in an attempt to ensure compliance with the Act, SARS intends to withdraw all these concessions that traders rely on. This would mean that products from Chinese retailers Shein and Temu can no longer be cleared at customs using a simplified process with a 20% flat duty rate. This specific concession was implemented in 2007 and was one of the main mechanisms the e-commerce giants used to import their goods into South Africa. The mechanism, which only applies to shipments valued under R500, was intended to help logistics companies cope with an influx of imports as international e-commerce activity began accelerating. However, local retailers have flagged this concession as being highly damaging for local businesses that have to face much higher taxes and cannot compete with cheaper prices. Retailers claimed that the concessions were also open to abuse, with importers using loopholes to ensure they benefited from the rules—such as splitting packages. In 2024, SARS introduced a temporary measure to clamp down on these practices, modifying the way customs duties and import VAT are calculated. Specifically, it changed it so that VAT was added to the 20% flat rate customs duty applied. However, after review, all special concessions are now on the chopping block. The process is open to feedback, with SARS giving stakeholders until 23 April 2025 to comment. Stakeholders who believe a concession should stay will have to indicate why the concessions should not be withdrawn and/or suggest legislative amendments. Hint: get your orders in now. Author: Dawn Ridler SA Budget Do we have a budget or don’t we? Well this is a very good question and if you thought that watching the news will make it clearer … it wont. It will actually just confuse you even more. Everyone agrees that there is a GNU led by the ANC and the DA. Both these parties are attempting to find each other in this coalition but ideologically they are miles apart. The ANC is nationalistic in their approach. They believe in a large state controlling the country’s resources and the private sector is a mere cog in to their larger objective of total control. It’s socialist in its approach and requires a bloated public wage bill. They call it their national democratic revolution. The problem for all to see is that they are lost and have opted for self-enrichment at the expense of everyone else. The DA on the other hand believes in a smaller state where the private sector plays a more dominant role. They believe that only if business flourishes, the country can achieve one of its largest aims namely job creation and by default poverty alleviation. There is not much nationalistic about the DA’s approach. And herein lies the conundrum by asking members of a government which ideologically are so different to work together. Finding each other becomes a real challenge as is evident with the budget. So the debate and negotiations have been going on for weeks now and it’s not just the personalities which need to be contended with but more importantly the fight over the ideological direction of the country. It was this ideological tug-of-war which led the ANC to start canvassing minority parties outside the GNU. Remember free market thinking for a nationalistic idealogue is complete heresy. Make no mistake, there is tons of research into why economies succeed and fail. By far the most successful economies in the world are run along capitalistic lines. Unfortunately, in Africa people associate capitalism with Western dominance but the reality is far from the truth. Capitalism at its root promotes the free movement of capital so that it can find the best ideas. Its biggest success is that today’s great idea can be supplanted by an even greater idea tomorrow. Because capital can move freely it can easily be directed to a new idea. Do this over and over and our lives become easier and enriched as the quality of the products we use are continuously evolving. If you were going to pick an ideology for success, nationalism would not be a first choice. Here the literature is quite clear. So the debate over the budget isn’t about two parties, but about their ideologies clashing. For the average South African, the hope is that the ANC starts making a slow but concerted effort to become more aligned with the DA as they just don’t possess the votes to rule on their own. One would have hoped that somewhere in the ANC reality would have slowly dawned that their policies have failed since democracy. But then again they are lost. If a move to more capitalistic lines won’t happen naturally, I am afraid that the world order will force this upon South Africa. The mechanisms for this is trade tariffs, embargoes and fraying of friendly alliances. Ultimately the IMF and World Bank will force the change, but this is a way off still. In the meantime, it seems that a bunch of minority parties now think they have the political power which the polls never gave them. Yes, there is a budget but it requires for those involved to now make alternative suggestions to stop gap what the VAT increase is supposed to do. The ANC-led treasury will decide if they like the solutions or not. In short, the current budget appears here to stay – albeit at the 0,5% VAT level, not 2%. Author: Cobie Le Grange EXCHANGE RATES: The Dollar weakened steeply last week and is coming closer to the ‘neutral’ 100 level The Rand/Dollar closed at R19.10 (R18.36, 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 R24.73 (R23.78, 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 R20.93 (R19.95, 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,) Oil Brent Crude: Closed the week at $65.95 ($72.40, $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 $82,661 ($83,074, $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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