| The podcast of the newsletter is available and you can download it HERE. We welcome all your input so please don’t hesitate to contact us if you’ve got any queries or suggestions. Market watch: The JSE has shown a marked improvement over the last 3 months – double the growth in Wall Street over the same period  If you look over 3 years, things are also looking quite rosy.  Remember though that shares are bought into growth portfolios and have the longest time-frame to iron out the volatility and get the better-than-cash returns over the lifetime of an investment. This underlines the importance of having an objective behind every investment pot – and to be patient.  Still watching the FED Interest rates are still the talk of the town. Many economies around the world are feeling the effects of the often much higher than normal interest rates that is a drag on economic growth, and forcing governments to pay more of their tax collections in interest payments on government debt. Every time a new metric or statistic comes out, pundits try and forecast which way the FED will react – and we all know from the glacial way they reacted to inflation in the first place – trying to suss-out their decisions is almost impossible. Will the higher-than-expected unemployment numbers trump the sticky inflation headwinds and force a rate cut? Probably not. Those unemployment numbers are ‘Corrected” every month – so who knows what the real rate is.  Graph: US jobless claims (Bloomberg)  China As the globe’s second biggest economy, and with the heating up of the trade wars – effectively forcing trading nations to pick sides – it’s important to keep a close eye on them. From time to time China has become a great stock pick (and is in the MSCI ACW Index) but with Xi’s retreat away from capitalism and back to some of the basic Maoist tenets of Communism, distrust has become the name of the game. The post Zero-Covid opening up rally was short lived. Property and construction make up a significant portion of China’s GDP and Xi is now scrambling to patch-up the sector following the implosion of Evergrande and other companies.  This year, after a 25% rebound from the bottom in January, Chinese stocks are once again at a tipping point, with investors turning to earnings for potential catalysts. First-quarter reports so far are decidedly mixed. Firms listed on the mainland have recorded a 4% decline in earnings as their gross profit margins lingered at low levels.  Eskom Where has all the loadshedding gone? (Long time passing…) Andre de Ruyer gave an interesting keynote speech at PSG’s annual conference. One important point was that during his tenure, a budget of approximately R6 billion per year was allocated to spend on diesel to fuel the utility’s open-cycle gas turbines – OCGT – to generate electricity. The current budget for diesel this year under new management is R24 billion, which is four times more than what they had at their disposal during his time. There has been speculation in media that Eskom has been furiously burning diesel to make the ruling party look good before elections, but this doesn’t actually track with available data. The massive surge in private photovoltaic (PV) solar over the last 18 months has taken a significant strain off Eskom’s system during periods with sunshine. Eskom estimated there was around 2,800MW of PV solar directly connected to the grid, with another 5,440MW when including “behind-the-meter” solar (personal use – not fed into the grid). Note that every 1,000 MW of power is equal to a stage of loadshedding. Public Enterprises Minister Pravin Gordhan recently revealed that Eskom had spent R65 billion on diesel over the past five years to fuel its open-cycle gas turbines (OCGTs) (according to some this is a low-ball estimate and is actually nearer R100bn). Electricity Minister Kgosientsho Ramokgopa has attributed the lower levels of load shedding to improved performance from long-term maintenance initiatives bearing fruit. Not coincidently, De Ruyter championed the long-term maintenance programme during his time as CEO at Eskom, which included general overhauls and midlife overhauls of its ageing coal-powered fleet.In 2020, shortly after becoming Eskom CEO, De Ruyter described his plans as “short-term pain for long-term gain” – a term co-opted and now frequently used by Ramokgopa when taking credit for the improved performance at Eskom. No surprises there.  |
| Good News corner Want some more good news – read about the Joint Steering Oversight Committee (JSOC), launched a year ago allowing the private sector to help bring RSA back from the looming abyss. Read it here: How business has helped pull SA back from the brink  Amazon South Africa Amazon in South Africa saw a soft launch last week – and there is little doubt they are taking Takealot head-on. If you have an existing Amazon app (a great place to buy overseas family gifts) then you will see that RSA has been added. Takealot (not coincidently) announced a subscription model similar to Prime where certain items have free delivery. (Of course Prime also has free Prime Video…). A basket over R550 has free delivery anyway… Temu and Shein are probably bigger threats to both parties at this point, with accusations of both China-based retailers avoiding the Tax and Duty payable to SARS. This combined tax is as high as 45%, and is collected by the logistics provider – usually Buffalo. If you like using these Chinese providers – make hay while the sun shines! According to a recent study by World Wide Worx, South Africa’s online retail sector surged to R71 billion in 2023—a 29% increase from 2022, which positions the sector to break the R100 billion mark by 2026. This has led to a surge in hijackings of commercial vehicles. Interestingly both Shein and Temu seem to use contractors in less-than-new private vehicles! Great branding of your fleet is a good marketing ploy, but not if it makes you a target for hijacking.  US debt The amount of credit card debt across the US has hit a new record high of $1.337 trillion (even though it appears to have finally hit a brick wall, barely rising in March by the smallest amount since the COVID crash), even as the savings rate has tumbled to an all-time low.  To be sure, credit card debt is just a small portion (~6%) of the total household debt stackThe bulk, or 70%, of US household debt is in the form of mortgages, followed by student loans, auto loans, credit card debt, home equity credit and various other forms. Altogether, the total is a massive $17.5 trillion in total household debt. Inflation has caught up – more and more Americans are using credit card debt for everyday purchases because their salaries are not keeping up. One interesting development is the surge in the “Buy Now Pay Later” BNPL firms- using instalment payments where an initial amount is paid and then the rest is paid over 4-6 months in equal instalments (very popular with online apps and purchases). These fly under the radar when it comes to reporting to the credit rating agencies that most debt providers rely on. This is not dissimilar to the pay-day loans we saw a decade or so ago.  Big Tech and their money Last week we mentioned the amount that large tech companies are spending on projects. In almost all cases, Big Tech can spend numbers which most other companies can only dream off. This means that if there is a next idea which can earn superior returns, they are more likely to find it than smaller firms. Also remember that if a smaller competitor had to stumble across an idea, they would be offered cash for their company they could only ordinarily dream off. This allows Big Tech to buy ideas and people when it suits them. To put this into context, Microsoft is guiding to spend $60 billion next year whereas Google is aiming to spend $50 billion next year. Facebook owner, Meta will spend $35-40 billion next year. These are large numbers all around. Look at how their Capex cycle looks today relative to where it was in 2017. It’s no joke when people call it Big Tech.  It seems that both Google and Meta’s sales growth has kept pace with Capex whilst Microsoft and Amazon hasn’t. That doesn’t make the latter two bad investments, but it does pose the question why their Capital investments have not paid off like Google and Meta’s has. Perhaps both Microsoft and Amazon have more mature businesses or their business models have hit the peak of scalability. This is where fund management comes in. Remember that CAPEX needs to be depreciated at some point which is an expense line. Hopefully the Revenue line can keep pace with this. This has to influence the valuation of these counters and what market participants are prepared to pay. If this happens during a downturn, the losses from these counters could be exacerbated. There is a statistic which shows that most enterprise value is only created after 10 years of existence. Big tech can attest to this. The early days are for the believers. Most people who invested in Amazon as an online book retailer but who saw the future of the complete entity have become wealthy. But what did it take to be a believer? Perhaps early investors had an inert understanding of how the tech space would change over time and why Amazon would benefit. That requires specialist knowledge which means that these investors were less worried about the share price than what Amazon was actually doing as they developed. Years of investment then finally paid off with the resultant ramp in the share price. Perhaps the current capex cycle requires the same philosophy. Are you a believer? Author- Cobie Legrange EXCHANGE RATES: The dollar was slightly stronger last week at 105.31 The DXY Index:   The Rand/Dollar closed stronger again at R18.43 – the best showing in over 13 weeks (R18.51, R19.09, R18.68, R18.99, R18.76, R18.72, R19.15, R19.30, R18.97, R19.03, R18.80, R18.78, R19.03).  The Rand/Pound is a tad weaker at R23.80 (R23.22, R23.62, R23.61, 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 a touch better at R19.86 (R19.92, R20.35, R20.25, 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 down slightly at $82.73 ($82.82,$87.39, $90.87, $86.58, $85.33, $81.80, $83.80, $83.40,$83.14 $80.91, $77.36, $83.66, $78.33.) Unless the price or exchange rate changes dramatically over the week we could see a drop in the price of petrol and diesel next month.  Bitcoin was down again at $60,880 ($63,154, $64,135, $68,804, $64,681, $69,078, $68,340, $62,315, $54,649, $52,510, $47,195, $ 42,897, $41,608, $41,680). Articles and Blogs: Taking a holistic view of your wealth NEW Why do I need a financial advisor ? Costs Fees and Commissions The NHI and what do 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 |