| 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 Market View Before we get going with this newsletter, please excuse me if some of the information is already out of date. I doubt that there has ever been a time in history when a single power-drunk person can cause markets to make or lose billions on a stream of impromptu tweets. As advisors and asset managers, we have been trying to navigate this chaos, ensuring the assets we have under management are appropriately positioned to weather the storm and look for opportunities within all this confusion. As of close of business on Friday, this is what markets looked like: For the last 3 months, the JSE is some 10% ahead of Wall Street – but US markets, thankfully, clawed back some of the crash we saw last week. Monday should open stronger as Trump has now, effectively, walked back most of the important Chinese tariffs. Cobie calls this Trump’s experiment – it is unwinding fast, but, as with many experiments, the clean-up may not be quite as pretty. US inflation On a normal day, the US inflation numbers would be in the headlines, but we are not in normal times, books are going to be written about the shenanigans of the last few weeks. U.S. consumer prices unexpectedly fell y-o-y in March to 2.4% (with a surprising month-on-month deflation – thanks, in the main, to the sinking oil price) amid cheaper gasoline and used motor vehicles. Interestingly, these are two components of inflation where we are likely to see significant movement in the short term. Oil prices are dropping, this is often an indicator of slowing economies, aka recession. With the 25% tariff on cars still in place, cars and used cars are both going to become more expensive. If you dig down into the numbers a little more, airline tickets cost less as did hotel and motel rooms, pointing to declining discretionary spending amid a sharp deterioration in business and consumer sentiment. There have been reports of Canadians boycotting travel to the U.S. While we know that the tariffs, especially those still imposed on China, have the natural inflation knock on effect – US retailers are not going to be able to absorb 145% in tariffs. But consumer sentiment has plummeted, and that will temper the inflation surge as people cut back on spending. The main reason is that this inflation data is being ignored is that the landscape is undergoing a sea change which makes it almost irrelevant. The chances of an interest rate cut is increasing again – not just thanks to the inflation drop, but the FED is probably going to have to ‘stimulate’ the spending patterns of the consumers to help keep the US out of recession. Gasoline prices fell 6.3%. Crude oil prices have declined on growing concerns the global economy is stagnating. Food prices rose 0.4% after climbing 0.2% in February. Grocery store prices increased 0.5%, boosted by a 5.9% rise in the cost of eggs. Duties are also looming on pharmaceutical products. Trump’s tariffs, which he sees as a tool to raise revenue to offset his promised tax cuts and to revive a long-declining U.S. industrial base, have raised the odds of a recession over the next 12 months. Core CPI inflation increased 2.8% on a year-on-year basis in March, the smallest advance since March 2021, after rising 3.1% in February. Based on the CPI data, economists estimated the core Personal Consumption Expenditures price index rose 0.1% in March after jumping 0.4% in February. Unemployment. The US numbers in the graph below, shows that there has been little impact on unemployment – yet. It’s all very well for Trump to rabbit on about bringing jobs back to the US, but with unemployment at such low levels, this is not exactly a problem. The unemployment levels are at the level where anyone who isn’t in a job, probably doesn’t want one/will never get one. It’s clear that Trump has a somewhat outdated and romanticised view of what those jobs actually look like. The reality is that almost all manufacturing is now automated, and the need for unskilled or semi-skilled jobs is declining – what those factories need is highly skilled tooling engineers – those workers that can design and manage industrial machines and ‘robots’. China has those skilled workers in spades, the US in mini-teaspoons. Sure, there are still some jobs that require semi-skilled workers – like apparel – where robots still battle with the sizing changes and manipulation of fabric. Apparel, the one area where China dominates, is a production line – it does not require the skill of a seamstress. A worker could spend their entire careers inserting zips or sewing buttonholes. Cutting out of the material is all automated, with multiple layers of fabric placed on top of each other, but the cutting of the fabric, and optimisation of the pattern layout to minimise waste are all automated these days. The graph above gives you some perspective of the US’s unemployment ‘problem’. Safe Havens Whenever there is market turmoil, you will see a flight of capital to safe havens. In the past, this has been the dollar, US Treasuries, the yen (sometimes) and gold, but this has shifted this time around. When the US does something truly self-defeating and stupid, the natural response of currency traders is to seek an Alpine sanctuary that is not in the EU. The Swiss franc is regarded as the safest of havens. So it’s significant that the dollar just endured its worst day compared to the Swissie (as it is often called in Switzerland) since 2015, falling more than 3% to take it to a level last touched during the debt ceiling debacle of August 2011 ( Barak Obama was President but the Congress has a Republican majority). On that occasion, dysfunctional policymaking in Congress prompted Standard & Poor’s to downgrade Treasury debt, and that briefly led to an exodus: Essentially, back then the US very nearly decided to default on its debt when it didn’t have to. The latest rush to the Swiss Franc no doubt suggests that the market thinks that the Liberation Day tariffs, subsequently retracting some of them, and the scarcely credible 145% levies on Chinese goods constitute the stupidest acts of US economic policy since then. You can see from the DXY chart below (Friday) that the dollar has weakened dramatically, and is already below the ‘neutral’ level of 100. That slippery alpine slope is something that we have become very familiar with in the last 10 days. This pattern was also seen in Europe: Gold initially slid but as the tariff tantrum unwound, it took back it’s mantle as the safe haven to hit new record highs ($3221). The Yen has appreciated significantly, but probably not as much as we might have expected (they still have the 25% auto tariffs and their own problems to contend with). JD Vance, the toxic Trump mouthpiece continues to repeatedly put his foot in in it. I’d like to think it is deliberate and sanctioned by his Niknak President, but maybe he is just that dumb. His latest ‘bon mot’ was to describe Chinese workers as peasants. The toxic premium on bonds If you’ve been reading my newsletters over the years, you’ll know that I have become fascinated by this formerly boring asset class. One descriptor I came across last week which put some of the ‘risk’ factors that investors place on this asset class in perspective is the (their term, not mine) the ‘moron’ premium. In other words, there is the intrinsic value of the bond in a risk-of-default-free environment, anything above that is the ‘moron’ premium, the risk that the government (specifically, but it could be extended to corporates) will do something truly moronic. Unsurprisingly RSA Inc’s bonds have a significant ‘moron premium’, as they attempt to maintain their yield gap relative to US bonds and contend with outflows as capital attempts to find safety. If you use Switzerland or Japan as the risk-free benchmark then the ‘natural’ rate is 0,65% to 1,59% (respectively). On Friday our 10-year yield had spiked right up over 11%! When you consider that RSA Inc. hasn’t defaulted on govt debt since 1994, that’s quite a premium. There is very little doubt that it was the US Bond markets that got Trump to reverse course on his tariff ego trip, as of Friday this hasn’t settled yet, it could well go back to the 4,78% or higher levels we saw until very recently. Just a reminder – Scott Bessent, US Treasury Secretary – has to refinance Trillions of dollars in debt in the next few months and years – and he isn’t going to want to at these high levels. QE – The Trump Era (also pronounced error) What if this volatility doesn’t all settle down – especially in the bond markets? Unless this moronic rhetoric out of the White House eases off the FED and Bessent are going to have to think about Quantitative easing again. Quantitative easing (QE) is a monetary policy tool used by central banks to stimulate the economy when traditional methods, like lowering interest rates, are no longer effective. It involves the central bank buying financial assets, such as government bonds or other securities, from the market to increase money supply and encourage lending and investment. Let’s have a look at the recent History of QE: 2008 Financial Crisis (QE1): The Federal Reserve implemented QE for the first time in response to the subprime mortgage crisis. It purchased government agency bonds and mortgage-backed securities to stabilize the financial system and encourage lending. 2010-2011 (QE2): A second round of QE was introduced to combat slow economic recovery. The Fed bought long-term Treasury securities to lower interest rates and stimulate growth. 2012-2014 (QE3): Often called “QE Infinity,” this phase involved open-ended asset purchases to support the economy until a substantial improvement in labour market conditions was achieved. 2020 COVID-19 Pandemic: The Fed launched an unprecedented QE program, purchasing $700 billion in government bonds and mortgage-backed securities to counter the economic impact of the pandemic. Every time the FED says never again… guess what? Masterclass in stock market manipulation I think most of us watched, gobsmacked, as the US markets reacted instantly to the ‘good news’ that tariffs were going to be suspended on Wednesday. Tech stocks did best. The Nasdaq Composite was most spectacular, gaining 12.4%. That was its best return since the first trading day of 2001, when it rose 14%. Looking at how that worked out, it’s best not to assume that the only way from here is up. That was a bull trap, which suckered people into losses of more than 50% that wouldn’t be made good until 2007. When Donald Trump offered some financial advice Wednesday morning, stocks were wavering between gains and losses. But that was about to change. “THIS IS A GREAT TIME TO BUY!!! DJT,” he wrote on his social media platform Truth Social at 9:37 a.m. Another curiosity of the posting was Trump’s signoff with his initials. DJT is also the stock symbol for Trump Media and Technology Group, the parent company of the president’s social media platform Truth Social. It’s not clear if Trump was saying buy stocks in general, or Trump Media in particular. The White House was asked, but didn’t address that either. Trump includes “DJT” on his posts intermittently, typically to emphasize that he has personally written the message. Anyway, it didn’t really work. Trump Media closed up 22.67%, soaring twice as much as the broader market, a stunning performance by a company that lost $400 million last year and is seemingly unaffected by whether tariffs would be imposed or paused. Trump’s 53% ownership stake in the company, now in a trust controlled by his oldest son, Donald Trump Jr., rose by $415 million on the day. Trump Media was bested, albeit by only two-hundreds of a percentage point, by another Trump administration stock pick — Elon Musk’s Tesla. While we’re on it – how is Tesla faring after Trump’s extraordinary sales shtick on the White House Lawns. Oh well, that didn’t work either. Last month, Trump held an extraordinary news conference outside the White House praising the company and its cars. That was followed by a Fox TV appearance by his commerce secretary urging viewers to buy the stock. Less than four hours after that BUY! signal, Trump announced a 90-day pause on nearly all his tariffs. Stocks soared on the news, closing up 9.5% by the end of trading. The market, measured by the S&P 500, gained back about $4 trillion, or 70%, of the value it had lost over the previous four trading days. It was a prescient call by the president. Maybe too prescient. Author: Dawn Ridler Is the US becoming a financial experiment? Is the American government beset by arrogance after presiding over one of the longest economic miracles the world has ever seen? The US has achieved what many countries have merely dreamt about. A large part of this can be explained by their attitude to failure. In the US, failure is seen as merely a subset of longer term success as business players try their hand at another venture which could unlock their American dream. Failure is tolerated, something one doesn’t readily see in other economies across the world. Much of the American success has been derived from a globalised world. The Americans have been allowing other parts of the world to manufacture and export their goods to the US which has driven down the cost of goods for years and hence allowed inflation to cool for 4 decades. It was the very best of globalisation. As this occurred, this created wealth in the US as interest rates fell. This all started in the early 80’s and has been a trend until Covid hit (2020). The net effect today is that the wealthy are adequately catered for but there is a set of Americans that are being left out of the American dream. These people are living paycheck to paycheck and often work more than one job with escalating debts. Scott Bessent, the US treasury chief estimates that this makes up 40% of Americans. It is this group that the government is most worried about. When the US government talks about Main Street, it is these individuals that they are concerned about. An unequal wealth distribution in an economy has long-term social consequences. One has to look no further than South Africa for an example of such. The US government is trying to fix this and in order to do so they need to get the borrowing costs down so that debts can more easily be repaid. The US 10-year yield (above) is the mortgage gauge in the US and the lower this goes the mortgage origination market should be elevated as more consumers enter the housing market or swap their homes as their circumstances change. But how does one engineer something like this? Well, this is where the latest tariffs come in. In order to get yields to move lower, investors need to buy bonds which they have been reluctant to do because the US government is one of the most indebted in the world. But if American guarantee promises of bond repayments won’t do the trick one then has to orchestrate a drop in yields. The tariff announcements sent global stocks lower and as investors sold, they opted to buy bonds sending the US 10-year yield to below 4% briefly. An interviewer asked Mr Bessent about the failing stock markets, and he was quick to point out that the price of oil has also corrected by 35% making energy cheaper in the US. One can clearly see that what the US government is trying to do is focus on the lower 40% rather than the wealthy in an effort to equalise society. They want to assist them with cheaper debt repayment rates and stable if not lower inflation. Stan Druckenmiller, an American fund manager called the tariffs a consumption tax much like an increase in income tax. That is if tariffs stay reasonable at say the blanket 10% level. So, at these levels, the impact on inflation is probably limited, and the US government collects extra revenue which assists their debt levels. Perhaps this will assist in driving yields lower as more confidence returns to US bonds. On Wednesday, Donald Trump announced a 90-day tariff reprieve as he is ironing out deals with the world’s economies. I guess that the 10% tariff number will be the norm with a few exceptions such as China. An outright tariff war will have the opposite effect. In this world, tariffs become an act of war and destroy all value sending economies into recession. In this scenario Mr Bessent achieves none of his goals and Donald Trump has to leave office (one would hope). As the sell-down in markets settled on Monday, after digesting the China reciprocal tariff, Donald Trump threatened an extra 50% increase in China tariffs. This in effect will send tariffs on Chinese goods to over 100%. The markets stayed stable rather than selling down further. Perhaps everyone knows that the tariff talks between the US and China is more about strong men showing their egos than actual economics. Then the 90-day reprieve was announced on Wednesday driven by rising bond yields as investors started exiting US bond positions. This threatens Mr Bessent’s efforts to lower yields. The Chinese are some of the world’s largest US bond owners and they could very easily have been behind the selling. Make no mistake, the US and the Chinese will have a tariff deal. The Chinese use US Dollars they collect from world trade to serve their ballooning debt levels. If this switches off, the Chinese would find themselves in trouble. But if the Dollar could weaken this could in part ease not only tariff pain but could also make the Chinese Renminbi more competitive. This is what is at play if I look beyond the strong-man fiasco of last week. Author: Cobie Le Grange EXCHANGE RATES: The Dollar weakened again last week and is now trading below 100 The Rand/Dollar closed at R19.12 (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 R25.01 (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 R21.72 (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,) Brent Crude: Closed the week at $64.76 ($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 $84,695 ($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: To catch a falling knife NEW Income at retirement NEW 2025 Budget 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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