| 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 The graphs below, one of the JSE, the other of Wall Street, are showing two very different stories. The JSE (and, to be fair, many other global markets) have decoupled from the US markets and are doing their own thing. The US’s problems are not just a self-inflicted wound, but a wound inflicted by one person, intentionally, and wiping trillions of dollars off wealth portfolios across the world. The JSE is back to those all-time-high levels we have seen in recent weeks – but there is definitely some crab-crawling going on now. Wall Street though, has significantly more volatility, and the bounce back “highs” are lower each time. Stephan Miran Last week we introduced you to Stephen Miran, the person credited with Trump’s tariff policy. The plan was Stephen Miran’s A User’s Guide to Restructuring the Global Trading System, which must have been the most-viewed document by the financial world over the last six months (it’s only 40 pages, which I have, if you want a copy). Stunningly ambitious, it helped earn its author a gig as chairman of the President’s Council of Economic Advisers, and birthed the concept of the “Mar-a-Lago Accord,” and was widely taken as the road map for Trump 2.0’s bid to reshape the world using tariffs. Approaching the administration’s 100-day mark on Tuesday, the “User’s Guide” reads differently now. Some of it has come to pass; Trump has deviated sharply from important recommendations, and certain assumptions now look tenuous at best. To help navigate where the global trading system is heading, it’s a good time to pull over and return to the map – if he has one. While we’re talking about maps, don’t forget Project 2025, which Trump distanced himself from during the campaign but is proving to be the blow by blow script for the Second Season of Trump. You can download the 980 page document HERE . Just a recap: Project 2025 is a political initiative led by The Heritage Foundation, a conservative think tank, aimed at reshaping the U.S. federal government. It outlines a roadmap for a future conservative administration (not necessarily Trump, but right up his alley) to consolidate executive power and implement right-wing policies. The plan is based on the “unitary executive theory”, which asserts that the president should have complete control over the executive branch. The initiative proposes significant changes, including: Replacing federal civil service workers with individuals loyal to the administration. Dismantling or abolishing agencies like the Department of Homeland Security and the Department of Education. Reducing environmental regulations to favour fossil fuels. Cutting Medicare and Medicaid while instituting a flat income tax. Reversing many of President Joe Biden’s policies. Ending diversity, equity, and inclusion (DEI) programs. Critics argue that Project 2025 promotes authoritarianism and Christian nationalism, potentially undermining civil liberties and the separation of powers. Supporters believe it would dismantle an unaccountable bureaucracy and restore conservative governance. This is part of the great Trump Experiment and all we can do is watch on the sidelines. Collecting tariffs The boxer Mike Tyson once said that everyone has a plan until they’re punched in the face. Similarly, the Trump administration, supposedly, had one for rebuilding the world economy with tariffs. It’s been a rough first round. Despite all the on-again-off-again in tariffs, goods are arriving at ports (some that started their voyage before the trade war started), and those increased tariffs are being collected – a lot more. Unfortunately, those tariffs are now going to be clawed back from the beleaguered consumer and put pressure on inflation, so Trump and the Trumpanzees (with apologies to all the sentient Chimpanzees out there) might as well savour this very short-lived victory. It doesn’t matter if these tariffs are counterproductive, illegal, both or neither, those tariffs will soon take their toll on US consumers. Revenue from customs duties spiked more than 60% in April as the first levies took effect, bringing in at least $15 billion, (according to Treasury data released last Wednesday.) About two-thirds of importers pay tariffs monthly, on the 15th working day of the following month. Daily collections—those paid at the time of importing—have also risen by about 40% in April compared with the comparable period in March. Included in those collections are the 25% tariffs on steel and aluminium that Trump imposed as of March 12. But the numbers largely do not account for the 10% universal tariffs that Trump announced on April 2, meaning collections in May could surge further. Some or much of the cost of those tariffs are likely to be paid by everyday Americans as the increase is passed on to them. We are going to start to see how these tariffs impact inflation in the near future. Powell, Rates and Pink Notices If rate cuts are back on the horizon, it is not necessarily the good news that Trump hoped it’d be. With inflationary pressures still building, the only reason the FED would go back to the dovish rate cuts talks, sooner rather than later, will be because they think a recession is loading. Make no mistake, this recession would be a clear shot in the foot by the Donald. How does the Donald get a million dollars? – he starts with a trillion. With fear of a self-induced US recession gripping Wall Street, any news is good news these days. So it can’t be too surprising that stocks spiked in frenzied trading last Thursday after a few Federal Reserve officials publicly mused about possibly cutting interest rates in the near future. Federal Reserve Bank of Cleveland President Beth Hammack told CNBC the central bank could move as early as June if it has clear evidence of the economy’s direction. Federal Reserve Governor Christopher Waller similarly said he’d support rate cuts if President Donald Trump’s tariffs start pushing Americans out of work. Fed officials have signalled they intend to keep interest rates steady until they can fully assess the consequences flowing from Trump’s radical immigration, trade and deregulation plans – but those change daily… If Trump went ahead with firing Powell, the chaos in the US markets would move from a loss of confidence in the US administration (already taking place) to a loss of confidence in the FED. That is a whole new ball game and will end very badly. Markets and economies will assume that inflation will no longer be tamed, and we could have full-blown stagflation. There would likely be a full-blown retreat from US bonds, pushing the yield way up. Since raising tariffs on China to triple digits, Trump has repeatedly called on Beijing to negotiate, while President Xi Jinping has, at least publicly, declined the invitations. A classic Mexican standoff. The US president recently doubled down, pledging that China was “going to do fine” in any negotiation and that there’s no reason to “play hardball.” But last Wednesday, Treasury Secretary Scott Bessent re-muddied the waters, saying Trump hasn’t offered to lower tariffs on China unilaterally. Still, long-maturity Treasury yields fell as Trump retreated from his threats to fire Fed Chair Jerome Powell (which may not be legal anyway). The yen slid as Bessent said America won’t be pursuing specific exchange-rate targets in its talks with Japan. Bitcoin jumped while safe haven trades like gold pushed lower. It is very clear that Trump learned from the last 8 years that there are no consequences for his actions. He was impeached twice, indicted four times and convicted once. But at no time did the 78-year-old real estate developer-turned-president pay a price for his wrongdoing. Like any child who faces no consequences for his actions, Trump is going to continue to do exactly as he pleases and the only way for a country to get a good deal is to (quoting the man directly) @ss kiss. P.S The above portrait is painted by a Russian artist, paid for by the Kremlin, with a clear instruction to flatter the Donald (and shave off a few dozen pounds). VAT : Yes, No, Maybe… rinse and repeat National Treasury announced on Thursday (24 April) that the minister will “shortly” introduce the Rates and Monetary Amounts and the Amendment of Revenue Laws Bill (Rates Bill), which proposes to maintain the Value-Added Tax (VAT) rate at 15 per cent from 1 May 2025. This is in place of the proposed 0.5 percentage point increase to VAT announced in the Budget in March and (supposedly) passed in the fiscal framework earlier in April. The statement from the treasury was as follows: “The decision to forgo the increase follows extensive consultations with political parties, and careful consideration of the recommendations of the parliamentary committees,” . Revenue now has a R75bn shortfall and no sign, yet, of how they are going to make that up. Parliament will be requested “to adjust expenditure in a manner that ensures that the loss of revenue does not harm South Africa’s fiscal sustainability”. The Minister of Finance expects to introduce a revised version of the Appropriation Bill and Division of Revenue Bill within the next few weeks. Treasury said the initial proposal for an increase to the VAT rate was motivated by the urgent need to restore and replenish the funding of critical frontline services that had suffered reductions necessitated by the country’s constrained fiscal position. Running a country’s budget has the same principles as running a household budget. Don’t spend more than you earn, or you’ll go into overdraft (budget deficit), and if you want more discretionary income – cut back on your existing expenses. We have seen almost none of the latter from parliament. The less obvious reason the ANC caved was simply mathematical: having backed away from a 200bp down to a 50bp hike, the increase in income was likely only R13bn, which is a long way off the R60bn government was hoping to raise with the original 200bp increase. Government also didn’t factor in the second round effects, which are the knock-on results of changes in consumer expectations and business confidence, making the revenue collected probably closer to R10bn. South Africa has had some radical changes to the composition of its economy since 1994, which need to be factored into future revenue streams for the government. Ukraine back on the radar Reporters in the White House press pool challenged President Trump over some of his latest remarks regarding Ukraine and the possibility of peace. While in the Oval Office sitting across from Norway’s prime minister Jonas Gahr Støre, Trump was asked what concessions Russia has “offered up thus far to get to the point where you’re closer to peace.” He quipped somewhat sarcastically, “Stopping the war, stopping from taking the whole country” — which he called a “pretty big concession.” In other words, Ukraine, give up all the land Russia has won so far. President Trump lashed out Wednesday again at President Volodymyr Zelensky of Ukraine after he rejected a U.S. plan to end the war with Russia. “He can have Peace or he can fight for another three years before losing the whole Country.” Trump and Zelensky did have a very brief discussion before the Pope’s funeral, and Trump put out a Tweet mildly lambasting Russia for its targeting of Kiev over the weekend, but he changes his mind so often, don’t take it to the bank. Vice President JD Vance last week outlined the U.S. proposal, which closely aligns with Russia’s goals. It includes a “freeze” of territorial lines in the three-year war, acceptance of the Russian annexation of Crimea and a promise that Ukraine will not join NATO. It was the first time a U.S. official had publicly laid out a peace plan that favours Russia in such stark terms. Vance said the U.S. would “walk away” from the diplomatic effort if both Ukraine and Russia refused to accept the terms. But Zelensky was the target. (Clearly, the left hand doesn’t know what the right hand is doing in the Whitehouse. Not even the right hand knows what the right hand is doing to be fair.) Hours earlier, Zelensky said his country would never accept Russia’s 2014 occupation of Crimea as legal. “There is nothing to talk about,” he said. “This violates our Constitution. This is our territory, the territory of the people of Ukraine.” Trump accused Zelensky of making “inflammatory” statements. “If he wants Crimea, why didn’t they fight for it eleven years ago when it was handed over to Russia without a shot being fired?” Trump wrote (fair comment). “The statement made by Zelenskyy today will do nothing but prolong the ‘killing field,’ and nobody wants that!” Context: Russia currently occupies close to 20 percent of Ukraine. A freeze would essentially force Ukraine to surrender huge swaths of land to Russia. Just a quick refresher: Ukraine faced several challenges that made direct military resistance difficult when Russia annexed Crimea in 2014 (Obama was the US President). Here are some key reasons: Political Instability: Ukraine was in the midst of a political crisis following the ousting of its pro-Russian president, Viktor Yanukovych, in February 2014. The government was in transition and lacked strong leadership (probably why Russia picked that opportunity). Military Weakness: At the time, Ukraine’s military was underfunded, poorly equipped, and not prepared to confront Russia’s well-trained forces. Russian Military Presence: Russia already had a strong military presence in Crimea due to its Black Sea Fleet base in Sevastopol. This allowed Russian forces to quickly take control of key locations. Lack of International Support: While Western nations condemned the annexation, Ukraine did not receive immediate military assistance. Instead, the response was largely diplomatic, with sanctions imposed on Russia. Fear of Escalation: Engaging in direct combat with Russia could have led to a full-scale war, which Ukraine was not prepared for at the time. Musk on the way out? While we watch the gradual disintegration of the bromance between The Donald and Musk, what did Musk achieve? He tanked his company. Tesla’s profits plummeted by 71 per cent from last year, as the company reported last Tuesday. And even as sales of electric vehicles rose globally, Tesla sales have slumped because of competition from Chinese carmakers and Mr. Musk’s support for right-wing causes. On a call with investors on Tuesday, Musk attributed the decline to “those receiving the waste and fraud” from the government. “The protests that you’ll see out there, they’re very organized. They’re paid for,” he said with tears in his eyes, (providing no evidence for his claim.) He became unpopular. Polling shows that Musk’s approval ratings have taken a nosedive since he came to Washington, largely driven by disapproval among Democratic and independent voters. He cut some government spending, but we don’t really know how much. Musk arrived in Washington with promises to cut $1 trillion from the next fiscal year’s federal budget. On a website tracking its progress, DOGE put the savings at $160 billion but even that estimate might be inflated. The group’s accounting has been riddled with billion-dollar errors and it has claimed to have cut spending that was never even scheduled for this year. He became the country’s biggest political donor. An analysis released last month found that Musk had donated more than $291 million to Republican candidates, political action committees and other conservative organizations during the 2024 race. That’s nearly $95 million more than the next largest Republican contributor and more than four times more than the largest donor to Democratic candidates. Since the election, he has shown no sign of halting his involvement in electoral politics. Musk and allied groups spent more than $20 million on a Wisconsin state Supreme Court contest, transforming the race into a referendum on him — and he lost. And he has threatened primary challenges against any Republican House member who does not support President Trump’s agenda.He scooped up a ton of personal data. Through his executive order creating DOGE, Trump granted Musk’s group access to “all unclassified agency records” — a category that includes sensitive information on virtually everyone in America. A recent investigation found that Musk’s team has tried to access databases that track more than 300 separate pieces of data, including not just Social Security numbers but immigration status, gambling income, student loan balances and even professional job references. I think we Saffers can agree on one thing – you can keep him Donald, no backsies. The real ‘Whales’ holding US assets Over the last few weeks, we’ve often looked at bond holdings by foreign governments, and how any sign of them ‘dumping’ their bond holdings could have a significant impact on the bond market. But there is a much bigger catalyst for the USD to sell-off more: FX hedging flows from proper ‘’whales’’. These whales control $30 trillion (!) in USD-denominated assets, of which 13 trillion is in equities and the remaining portion is in fixed income instruments. Foreign pension funds, insurance companies and asset managers are the true whales that could dump more US Dollars in an attempt to correct their sizeable and secular ‘’under-hedging’’ of USD risk: Author: Dawn Ridler Hoya Corporation Whilst the clown show around tariffs continues, it is good to see that markets, maybe, just maybe, have found what seems to be the bottom. This was reached on April the 7th and from there markets have staged a bit of a comeback. At its worst, the S&P500 was down 18%. Whilst markets are trying to figure out what the US commercial future will look like, it is important to know that companies which in many cases have sold their products for many decades will survive the Trump onslaught and will in all likelihood continue to prosper as they find new ways to compete and to bring their products and services to market. It’s part of the human psyche to survive and to build for the future. It’s what causes humanity to pick up the pieces after a disaster and create efficiency and beauty again. So, betting against stock markets is, in a way, betting against humanity’s ability to bounce back. Over time, this has proven to be a bad bet. Given the above synopses, one should always be on the lookout for those ideas which could thrive into the future. It takes a market crisis to dish up opportunities, but to take advantage of them, one needs to be looking for them. One of the most recent additions to our portfolios is an eye care company called Hoya Corporation. Its main listing is in Japan, but it also carries a secondary listing in the US. This is a company which is up 190% in the last decade but has been selling down since October last year. Remember, this company is primarily listed in Japan and currency wars will play out in the stock price. Add some tariff trouble and you have a company which sold down by more than 22% since its high. As mentioned, they make money from eyecare (eyeglasses, contact lenses and intraocular lenses) (67% of revenue) and a further 29% from optical components for the semiconductor industry, which includes submasks and mask blanks, which are critical components used for the miniaturisation of semiconductors. In some of these markets, the company holds a near monopoly. Did you know that the world is becoming more near-sighted? You might look at the youth today and compare them to your time as a child playing outside and being active, being quick to use the phrase: “When I was Young….”. The world, though, has changed. Academics require hours in front of books and screens, and many young people opt for online gaming to relax rather than going for a run. All of this drives a nearsighted pandemic, and it is growing rapidly in Asian countries (no surprise there!). This is great news for companies making eyeware, and Hoya has the global footprint to serve that need. The Information Technology division is a niche business which they dominate. My guess is that it is small enough to drive margins today but will become less important as the eyeware business grows over time. Hoya boasts a high level of cash generation coupled with large Returns on Invested Capital (ROIC) over time. But this isn’t the case for all competitors in this space. Take German listed Zeiss Meditec, which delivers a below 10% ROIC over time and EssilorLuxottica, which achieves a 5% ROIC over time. This company is the culmination of Essilor, which competes with Hoya, and Luxottica, which owns the Oakley and Ray-Ban brands amongst many others. It’s the co-joining of a French and Italian company which comes with it’s own set of complications. With the merger, they attempted to dominate the eyecare world by lens manufacturing and frame brand ownership and all of this was vertically integrated to provide this service at the retail level. They own Sunglass Hut as an example. But dominance doesn’t mean it’s a good business. EssilorLuxottica is a $133 billion business compared to Hoya at $39 billion. Different sizes, that is for sure, but they pack a very different punch. So, back to the tariff saga. Hoya Corporation will outlive Trump and whoever is elected after him. Focusing on what matters in the future means more for an investment case than the noise which surrounds today. Our job is to focus on what will matter tomorrow by identifying it today. Author: Cobie Le Grange EXCHANGE RATES: The Dollar has found a new, weaker, level, below 100 The Rand/Dollar closed at R18.64 (R18.89, 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 R24.82 (R25.10, 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 R21.21 ( R21.52, 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 $65.86 ($67.72 $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 $94,185 ($84,571, $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 Bibgo 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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