Newsletter – Week 22 2024 – Election turmoil globally

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Market watch

The JSE All Share softened over the week, probably more in line with the US markets softening than the local elections. On the local front we can, however, expect continued volatility until all the votes are in and the coalitions hammered out. The strength of the MK vote is a protest vote on the way Zuma was treated (ignoring State Capture, Nkandlagate, etc etc etc of course) rather than substance. There is no direction, manifesto or even leader so if they form a coalition with the ANC, it’ll just be ANC lite. It’s going to be an interesting week ahead. In the last 3 months the JSE has had a good run, even with the recent softening.

With major election campaigns in play across the world, politics is front and centre in economics and markets. The UK announced the start of it’ 6 week election campaigns, and the former US President now has a new title to add to his trophy board – convicted felon. (Felony charges cannot be forgiven by a President – just saying).

US Economy

The U.S. economy grew more slowly in the first quarter than previously estimated after downward revisions to consumer spending and a key measure of inflation ticked down, keeping the Federal Reserve on track to possibly begin cutting interest rates at least once before the end of the year (which is considerably slower than the predictions made at the beginning of the year).

Gross domestic product – the broadest measure of economic activity – grew at an 1.3% annualized rate from January through March down from the estimate of 1.6% and notably slower than the 3.4% pace in the final three months of 2023.

Corporate profits dropped for the first time in a year, falling 0.6% to $3.39 trillion from the fourth quarter’s record high.

There is still robustness in the economy and this was evident in the number of Americans filing new claims for unemployment benefits. While jobless claims ticked higher, the underlying strength in the labor market still shows signs of persisting and should continue to support the economy.

Initial claims for state unemployment benefits rose 3,000 to a seasonally adjusted 219,000 for the week ended May 25, the Labor Department said on Thursday. Economists polled by Reuters had forecast 218,000 claims. The so-called continuing claims (tracking those who collect benefits beyond the first week) rose 4,000 to a seasonally adjusted 1.791 million during the week ending May 18, the claims report showed.


The Beige Book in the US

The Beige Book is a report that is published eight times per year in the US. Each Federal Reserve Bank gathers anecdotal information on current economic conditions in its District through reports from Bank and Branch directors and interviews with key business contacts, economists, market experts, and other sources. The Beige Book summarizes this information by District and sector. An overall summary of the twelve district reports is prepared by a designated Federal Reserve Bank on a rotating basis.

April’s Beige book showed a significant contraction of the US economy, which was validated by the sharp drop in Q1 GDP growth, tumbling to just 1.6% from more than 3% in.

This month’s Beige book found that while economic activity expanded from early April to mid-May as conditions varied across industries and Districts, just like last month, most Districts reported  a slight or modest growth, while two noted no change in activity.

This Beige Book summary is a good way at looking at all the various indicators in one place.

Here are the highlights:
•    Retail spending was flat to up slightly, reflecting lower discretionary spending and heightened price sensitivity among consumers.
•    Auto sales were roughly flat, with a few Districts noting that manufacturers were offering incentives to spur sales.
•    Travel and tourism strengthened across much of the country, boosted by increased leisure and business travel, but hospitality contacts were mixed in their outlooks for the summer season.
•    Demand for nonfinancial services rose, and activity in transportation services was mixed, as port and rail activity increased whereas reports of trucking and freight demand varied.
•    Employment rose at a slight pace overall, as eight Districts reported negligible to modest job gains, and the remaining four Districts reported no changes in employment.
•    A majority of Districts noted better labour availability, though some shortages remained in select industries or areas. Multiple Districts said employee turnover has decreased, and one noted that employers’ bargaining power has increased. 
•    Hiring plans were mixed—a couple of Districts expect a continuation of modest job gains, while others noted a pullback in hiring expectations amid weaker business demand and reluctance due to the uncertain economic environment.
•    Wage growth remained mostly moderate, though some Districts reported more modest increases. Several Districts reported that wage growth was at pre-pandemic historical averages or was normalizing toward those rates.
•    Contacts in most Districts noted consumers pushed back against additional price increases, which led to smaller profit margins as input prices rose on average.
•    Retail contacts reported offering discounts to entice customers.
•    Many Districts observed a continued increase in input costs, particularly insurance, while some noted price declines in certain construction materials.
•    Some Districts observed declines in manufacturing raw material costs. Price growth is expected to continue at a modest pace in the near term.

US House prices continue to surprise

The unprecedented rise in interest rates which normally results in depressed house prices just doesn’t seem to have stopped the booming US housing market. Sure, there will be many who just cannot move home and lose their ultra-low mortgage rate, but there are plenty of buyers out there that seemed to be undeterred.

Home prices in America’s 20 largest cities rose for the 13th straight month in March (according to the latest data from S&P CoreLogic), with the 0.61% MoM gain in February was revised down to +0.55% MoM.

This pushed the price up 7.38% YoY – the fastest rise since October 2022…

Global trade war hots up

In a recent statement the G7 warned China over its trade practices. They want “balanced and reciprocal collaboration,” and will “consider taking steps to ensure a level playing field.”

The US is already going to let tariff exclusions on hundreds of Chinese items expire, and the EU may be leaning towards a high tariff on Chinese EVs.

In short, global trade war looms, will this old adage appear? “If goods don’t cross borders, soldiers will.” 

To add to the tensions, China just finished a huge military exercise that clearly rehearsed a blockade of Taiwan and says it will no longer accept US congressional delegations to Taipei (whatever that means). To add to the tensions in Taiwan, the pro-China KMT party and its ally are making inroads aimed at weakening the new president, further stirring the national-security pot.

Russia apparently wants a ceasefire in Ukraine, which would allow it to keep all it has already taken. Of course it does: those are the most attractive terms available for anyone in that position. However, a further escalation in fighting still seems more likely. Indeed, NATO chief Stoltenberg now backs allowing Ukraine to use Western weapons to hit Russian forces inside Russia’s pre-2014 territory, which will only deepen the perception in Moscow that it is at war with the West and not just Ukraine. 

The US just lifted its ban on arms sales to Saudi Arabia. The Israel-Hamas war continues despite the recent rulings of the International Criminal Court and the International Court of Justice, the latter giving a more nuanced legal opinion than many initially read into it. Israel’s fight with Hezbollah in Lebanon continues to escalate in tandem. Related Houthi attacks just claimed their first (unsuccessful) strike on a ship in the Med: others will follow, maybe closing off another major international waterway; and what if the Houthis share that military technology with forces in East and West Africa who want to block Western shipping going that alternative route rather than via Suez, where piracy is the norm. Freight rates are already spiking again, with warnings this can get worse.

In a related development Russia just struck a Red-Sea-port-for-guns deal with Sudan, meaning they now have belt of influence and boots on the ground right across the Sahel.

Inflation: Treasury versus the FED

In the fight against inflation, is it the Fed or the Treasury that calls the shots? The answer is, it’s both.

The Fed raises interest rates to make loans less attractive and bring inflation down, but The Treasury has its own set of magic tricks to artificially “stimulate” or “tighten” the economy as well.

One of them is a Treasury buyback program, something that was just reincarnated for the first time in about two decades. This is where the Treasury repurchases its own outstanding securities from the open market to increase liquidity, stoke, demand, and bring down yields. 

If Treasury markets can’t be reigned in, the Fed expands its balance sheet by buying those Treasury securities to add liquidity and stability. These open market operations are usually the money printing that people are talking about happening at the Fed. 

QE refers more specifically to operations where the Fed is buying other assets beyond just Treasury securities, as occurred in the 2008 crisis and during COVID. But the Treasury buying back its own issued debt is, in essence, QE by another name.

While this occurs outside the halls of the Federal Reserve itself, Treasury buybacks are merely a different way to print money from nothing. The US is running a deep, sustained fiscal deficit with no true debt ceiling — so the Treasury buys back its own securities by issuing new debt, which it creates out of thin air. With spending far exceeding revenue, higher interest rates plus more debt means that fiscal deficits accelerate. The short-term stimulative effect of this somewhat offsets the Fed’s tightened monetary policy but digs a deeper hole in the longer term.

One method the Treasury uses is to shorten the average duration of securities so that debts mature sooner. That means more short-term debt (like Treasury bills) versus long-term debt (like Treasury bonds). This encourages more capital flows into the banking sector and helps stave off instability. If it fails, the big banks still win: when smaller banks fail, they’re usually just absorbed by bigger ones where the profits are private but the losses are socialized. The “Too Big to Fail” club becomes even bigger and more powerful.

Watching India and fuel

Asia’s imports of crude oil rose to the highest in 12 months in May, with the strength being driven by India as the region’s second-biggest buyer is on track to see record arrivals. The world’s top crude importing region is expected to have arrivals of 27.81 million barrels per day (bpd), up from 26.89 million bpd in April. That’s an increase of 920,000 bpd month-on-month, with the bulk of the gain being accounted for by India, where imports are expected to rise to an all-time high of 5.26 million bpd, up 710,000 bpd from April’s 4.55 million bpd.
Part of India’s robust performance can be attributed to a strong economy, with gross domestic product expanding by 8.4% in the three months to December.

While the pace of growth may have eased in the quarter to end-March, it’s still likely to be around 7%, which is high enough to drive increased demand for transport fuels through increased manufacturing and rising vehicle sales.

India’s election process, which is taking place over several weeks up to June 1 and sees almost 1 billion eligible voters, is also likely to have provided a one-off boost to fuel demand.

The Wealth Ladder

Last week markets traded lower after a strong May in gains. Yes, certain counters are expensive but this isn’t a broad indictment on the market as a whole. If you own market related assets you are amongst the wealthy in the world. Your assets increase over time as you are invested in living companies who have to ensure that they make money over and above their own cost of capital. If you don’t own market assets, you are either in the category where you are attempting to build enough spare cash to start investing, or you for some reason have elected to disassociate from the real world.

Those that are trying to get themselves meaningfully investing has in the past learnt that a steady job with home ownership has allowed them to build wealth. Consumer confidence surveys in the US shows that Americans are not content with their economic conditions despite the unemployment rate being at 4%. Its not only about the quality of their jobs (remember that some folks have to work 2 jobs to get by) but it is also about the cost of living.

Post Covid and the ensuing inflation shock, prices have gone up and even though these have now stabilised, they wont be coming down. They will wait for wage growth to catch up and this should occur over time but the process can be painful. The notion that a superior college degree would give one an upper hand certainly worked in the past but today the cost associated with this is so large that many new entrants are finding themselves paying off college debt deep into their careers hampering the college effect. Also consider that education has become democratised. Ivy league universities today provide courses which can be attended online where the curriculum is shared but at a fraction of the cost.

The world evolves and provides new opportunities for those that are trying to find them. The old institutionalised strategies to place oneself on the wealth ladder has dissipated but new ones are continuously emerging. Take freelance contracting work as an example. The internet has allowed people across the world to earn a foreign currency which is unrelated to their domicile.  I came across a social media feed of an individual doing this from Cape Town. Low cost of living (comparably speaking) and foreign earnings. Not only does this strategy allow for a quick change in domicile as no hard assets are owned, but it also allows for excess earnings.

Technology opportunities allow for remote work but there are great examples where qualified professionals can also provide their skills remotely. Architects no longer need to be domiciled in a specific country but can work from anywhere in the world. Site visits may be required from time to time, but the rest can be done remotely. The internet has truly democratised information and the world of work will further change as AI allows for higher levels of productivity. The future belongs to those who can unlock these opportunities. Imagine you can provide an enhanced level of skill or service but at the same cost as before. This locks out competition and future proofs remote income. Previously your social standing was a passport to earnings but today understanding the tools that democratises work will do you equally good to get onto the wealth ladder.    
Author:- Cobie Legrange


The Rand/Dollar closed softer again  at R18.87 (R18.42, R18.26, R18.43, 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 also a tad softer at R23.98 (R23.46, R23.11, 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 well down at R20.42 (R19.97, R19.08, 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 again at  $81.73 ($82.16, $83.43, $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 at $68,362 ($69,391, $66 328, $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.