| The podcast to this newsletter, is available here Market View Although the JSE eased off slightly last week, it is still holding its own on a year-on-year basis.   The bleats heard around the world. Which economist would have thought that a day would come where a major FOMC announcement would barely register, but a Bleat/Tweet/Chirp from everyone’s favourite Fanta Fascist continues to move markets. (Really, why does anyone believe what he puts out? If you have to put the word Truth in the name of your social media platform, that is exactly what you won’t find there  As expected, Powell and his committee can’t be bullied into cutting rates on the whim of the Donald, and cuts remain on hold (but three cuts are still expected this year). The graph above shows the saga of rate cuts in the last year. From a South African perspective, our SARB is unlikely to cut rates before the FED (aka ‘front running’).  Inflation/Stagflation? The Donald is pleased as punch with the declining price of oil, thinking it is all his doing, of course, but not only are there global factors at play, but they could be heading into a nasty stagflation scenario.  Trump’s war cry to ‘Drill baby, Drill” may sound good on the campaign trail, but at the coalface (as it were) things are not that simple. Anyone who has done basic economics or even accounting will understand the concept of ‘break-even’. The price of a good or service that covers the cost of making or producing it. Anything over that starts to be a profit, below it, a loss. Each oil rig will have its own break-even – and often, when the price of oil falls below this, the rig will be furloughed (especially if it is a small shale operation). Added to the woes of oil producers is the additional cost of replacement parts, etc which could well also be tariffed. The price has been dropping because OPEC+ has been happy to let the price fall, led by Saudi Arabia. It can also be a symptom of falling global demand (ie a softening global economy). Oil took its first dramatic dive on Liberation Day, which was seen to be a hit to global economic strength. Unlike stocks, it hasn’t recovered in the slightest. Unfortunately for those Trumpanzees, the drop in the price of oil has not yet trickled down to the consumer, but it probably will do in time, once the service stations have buffered up their margins. Stagflation is an economic condition where slow economic growth, high unemployment, and rising inflation occur simultaneously. This combination is particularly challenging because traditional economic policies that address inflation, such as tightening monetary policy, can worsen unemployment, while measures to boost employment may fuel inflation. The term was first used in the 1960s and became widely recognised during the 1970s oil crisis, when global supply shocks led to rising prices and economic stagnation. Stagflation contradicts conventional economic theories that typically link inflation with economic booms and falling prices with recessions. On the other side of the inflation spectrum, retailers in the US have now started to increase their prices to include tariffs, as the pre-bought stock (especially from China) runs out.  US Markets versus the rest of the world Markets have now had five weeks to digest Liberation Day, and four weeks to adjust to President Donald Trump’s decision to pause the levies for 90 days for countries other than China. To date, there have been no concrete agreements to avert tariffs returning in full force, and 60 days or so remain to make them. It looks like Trump’s standoff with China might have folded (yes, he blinked first) and they are now agreeing to ‘talks about talks’ – no newly-gilded Oval Office, Chinese @ss kissing session on the horizon. (Sure, the UK and the US had talks about talks, but if you start to dig down into the talks, there is no agreement. As the Americans would call it – a juicy nothing burger. The 10% tariffs weren’t dropped, and the digital banking tax wasn’t touched. The behaviour of key market gauges suggests an outcome in which growth continues (so stocks don’t fall behind bonds), but where equities elsewhere continue to outperform the US market. Interestingly, US imports from China are about 1.6% of US GDP in value terms. If inbound cargo stays at early-May levels, then H2-2025 imports will be 85% of 2023 levels (in volume terms) and 67% of 2024 levels. So the import volume shock would be 0.25% of GDP relative to 2023 and 0.5% relative to 2024. Doesn’t look like it’s a train-smash, right? However, 70% US GDP comes from consumer consumption, and if little girls can only buy 2 dolls instead of 30 (Trump’s own bizarre analogy), then consumer expenditure is going to contract. We haven’t even started to talk about the ripple effect of parts and goods that undergo another ‘value add’ or are used to fix machines, cars etc. The longer these ‘nothing burger’ negotiations continue, the longer China and the rest of the world have time to find new markets and draw up new agreements. Sure, Chinese manufacturing will suffer to a certain extent, but if the Zero Covid approach to economics is any indicator, the PRC isn’t going to care a whole bunch. They aren’t voters after all…  UK BOE dropped it’s rate to 4,25% as expected last week. The BOE has also kept its guidance unchanged since February, when it told investors to expect “gradual and careful” rate cuts. The word “careful” was added because the committee wanted to gauge the impact of Trump’s trade policies. Nobody knows the next direction in Trump’s Great Big Economic experiment. The BOE also said its policy will need to continue to remain restrictive for sufficiently long until inflation is deemed to be less of a risk. The Committee indicated that it will continue to monitor closely the risks of inflation persistence and what the evidence may reveal about the balance between aggregate supply and demand in the economy. Monetary policy (interest rates) will need to continue to remain restrictive for sufficiently long until the risks of inflation returning sustainably to the 2% target in the medium term have dissipated further. The Committee will decide the appropriate degree of monetary policy restrictiveness at each meeting.” President Donald Trump said the US has secured what he described as a comprehensive trade agreement with the UK, the culmination of weeks of talks between the two allies and marking the first of his promised deals with countries around the world. The US President said in a post on his social media platform that Thursday would be an “exciting day” for the two nations, with the White House promising details in a press conference at 10 a.m. in Washington. “The agreement with the United Kingdom is a full and comprehensive one that will cement the relationship between the United States and the United Kingdom for many years to come,” Trump wrote in a second post. “Because of our long-time history and allegiance together, it is a great honour to have the United Kingdom as our FIRST announcement. Many other deals, which are in serious stages of negotiation, to follow!” In a nutshell: The US will reduce tariffs on British automotive imports from 27.5% to 10% for up to 100,000 vehicles annually. This is in line with what was exported last year. Also, US tariffs on steel and aluminium will be scrapped, as this was at 25% before. As far as the UK is concerned, they will allow tariff-free Ethanol and US beef. Keir must have taken a master class in, let’s call it, currying favour. (The phrase “curry favour” originates from the Middle English “curry favell,” meaning to groom the fallow horse. The “favell” (or “fauvel”) refers to a character in a 14th-century French poem, a cunning horse that symbolised duplicity. The phrase evolved to mean using insincere flattery to gain an advantage. ) Despite Trump’s language, any agreement is likely to be limited. The UK-US deal has never been billed as a full-scale free trade pact, which typically take years to negotiate. A UK official said Thursday’s announcement will set out general terms and focus on specific sectors. Everything is still vague, and statements from the UK versus Whitehouse contradict each other. With polls showing Americans souring on his economic stewardship, Thursday’s UK deal is a sign that Trump is perhaps seeking an off-ramp from his plan to raise US tariffs to their highest level in a century. The president signalled that “many other deals which, are in serious stages of negotiation,” would follow as he looks to topple barriers to US exports and calm market turmoil driven by the sweeping scope of his tariffs. Hopes that a trade deal will lift the outlook for the UK economy briefly boosted the pound, but the gain fizzled out as investors waited for details. Stocks saw tentative gains while still lagging peers, and gilts outperformed European and US bonds ahead of the Bank of England monetary policy decision. Nevertheless, that the UK is the first country to secure a deal with the US is a win for Starmer, who’s likely to present it as a vindication of his diplomatic approach of refusing to overtly criticize Trump, holding regular phone conversations with the US president and promising him a second state visit to Britain. It comes just two days after the UK announced it had sealed a trade deal with India, Britain’s biggest such agreement since it left the European Union. So far, US talks with several nations have centred around, at best, a top-line deal on commitments and intentions that may leave many details traditionally included in comprehensive trade agreements to be negotiated later. Other nations with talks at high levels with the US include Japan, India and Israel. Trump surprised Japanese negotiators by personally joining in talks last month, while Vice President JD Vance travelled to India for discussions that included trade. Whatever the terms when announced, the UK is still likely to be in a worse economic position with its biggest individual trading partner (the USA) than before Trump’s tariff war, providing potential attack lines for Starmer’s domestic political opponents. In intensive talks with their American counterparts, British envoys have focused on securing reductions in the most egregious tariffs — the 25% imposed on steel, aluminum and the automotive sector — with an expectation that Trump’s base tariffs of 10% on other products would remain. With the Trump administration conducting an investigation into the pharmaceutical industry, Britain was also seeking to avoid the prospect of tariffs on drugs — a major export to the US. Trump’s more recent threat of tariffs on the film industry — another UK strength — added another sector for Britain to defend. An expansion of tariffs beyond goods is ominous for the British economy, which is dominated by its service sector. In exchange for US tariff reductions, UK ministers had been considering lowering some agricultural tariffs and reducing an £800 million ($1.1 billion) digital services tax that largely falls on US tech companies. Closer trade on technology and cooperation on artificial intelligence was also on the cards. In an earlier speech to mark the 80th anniversary of World War II. he described the US as “indispensable” to Britain’s economic and national security and said: “Make no mistake, I will always act in our national interest for workers, business, and families to deliver security and renewal.” Author: Dawn Ridler  (ps: I treat Alphabet and Google as the same entity for the sake of the below analysis) It’s interesting how market narratives change over time and the impact they have on company valuations. On the one side, markets are super-efficient pricing mechanisms as long as they know what to price. Analysts based on their knowledge of the company, its peers. and the wider industry would pencil in what they believe the company could grow at. From this, a consensus view is gained and the potential price action for the company is derived. As long as management delivers what is within these consensus views, the company’s price should remain stable. It’s once the company surprises the market with news that wasn’t known or where results are outside of the consensus that share prices react violently. To show how this works, look at the following chart showing Google’s quarterly Revenue actual and estimate results:  In the last 5 quarters the company has missed once and beat estimates for the rest of the time. Not bad going. Look at the price change though. In March 2024 they beat estimates handsomely which led to a 10% gain in the stock price but the converse of this happened in Dec 2024 and you can see the price action lower as a result. This company is no slouch, though. Below is the company’s share price (blue) compared to its Return-On-Invested Capital (purple) over time:  One can see how the ROIC profile builds over time and supports the share price. This allows for the build-up of free cash flow over time that in turn helps the company to invest in operations and new ideas to allow for further growth. In 2024, the company generated $72.8 billion in FCF an increase from 2023’2 $69.5 billion, as an example. The company makes its money from Cloud and Infrastructure (12% of Revenue), Subscriptions to the likes of YouTube, Google One and business services (10%) and the rest it makes from advertising revenue. It is this that has got the market worried at the moment. Google relies on users to access its apps or website to search. This then allows them to target users with advertisements that are tailored to the search criteria. If you subscribe to some of Google’s services, they tailor-make the advertising even more. But now that AI search engines have become the new go to alternative, investors are worried that the traffic to Google-enabled search engines will wane and thus impact their Revenues for future years. This is why this company has seen its share price reduce in 2025. Over 12 months, the stock is down -8% and year to date has lost -18% (a current anti-trust lawsuit is also weighing on the price). Google, in response, has created their own AI-enabled search engine called Gemini. It will do pretty much what the likes of ChatGPT and Perplexity already does. So, the company has an alternative but its integration to their advertising business is unclear. This week Apple’s services head, Eddy Cue said that the company is “pretty impressed” by Perplexity’s AI capabilities and is looking to integrate this into their Safari search capabilities. This news sent Google -7.3% lower on the day. It’s not only about capabilities but also about money. Google pays Apple $20billion a year for Google to be the default search capability in Safari. Apple is seeing search queries dropping as consumers shift to other models of search and is looking to keep Safari relevant. Google quickly countered these claims indicating that their overall search activity continues to grow (ad revenue was up 8.5% in Q1). But it’s not so much about whether search grows or not, it is more about how easy it will be for tech companies to monetise search in the future. Google has been a clear leader in this space but because the future is unclear, the stock stays under pressure. Google is a product of the internet. Without the power of the internet and ever faster broadband, Google would not exist. That is quite different to a company like Apple which is a consumer platform company. They were around before the internet and today their devices power the use of the internet enabled through their Appstore. Consumer platform companies are the most difficult to build. Google know this but also knows that our use of data is on an upward trajectory. No longer are we just using search tools, we need the ability to search, save, share and live part of our lives online. Add AI to this and the need for superfast data becomes so much larger. This means that data storage is going to become a premium product at some point. It’s a business with high barriers to entry, predominantly because of high upfront costs. This year, Google will pay $75 bill for data centre infrastructure which is a 43% increase on their 2024 commitment. These are not small numbers and hence the barrier to entry. So how will the fight for search play out? I don’t really know, but I do know that Google is spending money in areas which will allow them to become a central player in how data is retrieved, stored and shared. It will come with a price tag and if that is paid by the consumer or through advertising remains to be seen. Author: Cobie Le Grange EXCHANGE RATES: The Dollar is still trading at or below the 100 level on the DXY   The Rand/Dollar closed at R18.16 (R18.39, 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 R24.16 (R24.40, 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 R20.43 (R20.78, 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 $63.88 ($61.29, $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 $104,615 ($96,405, $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 |