| 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 Thanks to the tensions in the Middle East and the new Iran/Israel ‘front’, emerging markets like ours have come off the boil somewhat, but the JSE continues to outperform Wall Street.   Eyes back on the FED and interest rates When we covered the RSA SARB decision to drop interest rates a couple of weeks back, we noted that they were ‘front running’ the FED, in other words, not waiting for the FED to drop their interest rates before we dropped ours. WE are in good company with most other countries deciding to drop depending on their own conditions, highlighting that the economic conditions in the USA are very different to those experienced elsewhere, thanks in large part to the wholly unpredictable nature of the Donald. The US sphere of influence is shrinking by the day. Make no mistake, the Federal Reserve is always powerful. For decades, and certainly since the Global Financial Crisis, it has probably been the single most important driver of the world economy and markets. It hasn’t lost that role, but for the coming few months, it is out of the driving seat. What happens next at the Fed is contingent on what happens on a number of other fronts. Last week the Fed left rates on hold, as universally expected and justified in the opening sentences of its statement: Although swings in net exports have affected the data, recent indicators suggest that economic activity has continued to expand at a solid pace. The unemployment rate remains low, and labour market conditions remain solid. Inflation remains somewhat elevated. As to where the Fed thinks it’s going next, the latest “dot plot,” in which each member of the committee gives an estimate of future fed funds, created the most interest. The median member still expects two cuts during the last four meetings of this year. That was hailed as good news initially by markets, but it’s difficult to make much of it.  Grey dots are from the March meeting, and the yellow dots are the most up-to-date. There are some subtle changes in there, but the obvious first reaction to this chart is accurate; it hasn’t changed that much despite all the drama of the last three months. When it came to economic projections, the dots showed the central bankers growing slightly more negative about growth prospects for next year, while also expecting slightly higher inflation. The rates market has consistently predicted that fed funds will be somewhere between 3.0% and 3.25% by the end of next year. That implies a couple more cuts by than the Fed currently predicts, which in turn suggests that traders are more worried about growth than the central bankers are. Tariffs are still on-again, off-again, rinse and repeat – so markets, businesses and even the FED have to start making their own assumptions and baking those into their strategies. When they are forced to do that, they will usually take the worst-case example. To quote Powell: Ultimately, the cost of the tariff has to be paid, and some of it will fall on the end consumer. We know that’s coming, and we just want to see a little bit of that before we make judgments prematurely. Until the FEDis really confident that tariffs haven’t triggered a significant bump in inflation, it’s going to have to stay on hold. Then there is the added risk of a commodity price spike created by the Middle East conflict. Most notably, this could affect oil prices, even more dramatically than we have already seen, but ships are already avoiding the Red Sea and Suez, pushing more traffic around the Cape, adding to logistics costs. Perhaps the old adage ‘Sell in May and go away’ needs to come back into rotation this year.  Inflation – still hanging around like an unwanted guest Why aren’t the tariffs showing up in the inflation numbers in the US yet? There is probably a reason for this, major retailers bought up significant quantities of stock pre-tariff and they are still working through that – but that won’t go on indefinitely. The FED is still looking at two cuts this year – but the increase in Middle East tensions could kibosh that. Did you hear that tariffs had been thrown out by the courts? Not quite — but they’ve hit a legal speed bump. A federal trade court recently ruled that many of Donald Trump’s sweeping tariffs, particularly those imposed under the International Emergency Economic Powers Act (IEEPA), were illegal. However, that decision was quickly put on hold by a federal appeals court, which granted a temporary stay. So for now, the tariffs remain in effect while the legal battle continues.  The court’s ruling doesn’t affect all of Trump’s tariffs. Those imposed under other laws — like Section 232 (national security-related tariffs on steel, aluminium, and autos) and Section 301 (targeting China) — are still standing regardless of the IEEPA ruling. The appeals court scheduled oral arguments for July 31, 2025, meaning the tariffs are set to stay in place at least until then, unless there is further court action before that date. Ever resourceful (Not the Dear Leader himself, obviously, but his minions) are now pushing the Section 232 to its limits and starting to include products that include steel or aluminium. Last month, food inflation climbed to 0.3% month-on-month, its fastest pace since 2021. The monthly advance surpassed the average pace of inflation growth in the last five months:  While tariff pressures may have something to do with this price growth, the escalation in the Middle East poses an additional upside risk that hasn’t yet shown itself in food prices. The concern is that closing the Strait of Hormuz (we go into this in more detail below) , a possible desperation tactic by Iran to shut off the flow of oil, would also affect agricultural commodities. The passage is a major transit point for fertiliser producers in the Gulf region. Iran ranks among the largest global exporters of urea and anhydrous ammonia. Other fertiliser producers like Qatar, Saudi Arabia and Oman also rely on the passage. Key staples like corn, wheat, and soybeans rose significantly. Although they aren’t quite at the levels they reached in 2022 after Russia’s invasion of Ukraine, which directly affected crop production, there’s no telling how high they could rise if the Middle East conflict spreads further. Throw in the likely eventual impact of tariffs, and consumers would be facing the prospect of paying higher prices for food.  It’s hard for the Fed to ignore this because food prices have grown very political. The escalating price of groceries, particularly eggs, was arguably the single most important driver of the Democrats’ defeat in the presidential election. And the last spike in agricultural prices, coming just as inflation was taking off after the pandemic, contributed to the food price surge of 2022. Last Wednesday’s 4.4% price surge of wheat was the biggest since July 2023. Since the invasion of Ukraine, though, countries have come up with alternatives – especially w.r.t wheat, a staple for most countries in the West. Good weather is likely to boost supply, which will eventually curtail any potential sustained price surge. Corn, soybean, and wheat prices are more likely to decline than rise into year-end unless there’s a Corn Belt drought. Prices are likely to return to 2019 levels. While the promising May inflation data, coupled with the latest Fed dot plot, suggests that US rate cuts are on the horizon, the path is far from smooth. The significant surge in food prices adds a layer of uncertainty, even if it’s short-lived. In the near term, the combination of geopolitical instability, looming tariff effects, and volatile commodity markets poses a clear and imminent danger to consumer food prices. Consequently, while disinflationary trends might persist in other sectors, food inflation presents a stubborn hurdle that could complicate the Fed’s timing.  |
| AI is coming for your job The signs are on the wall… The culling of human employees in favour of artificial intelligence is gathering pace. Microsoft is planning to fire thousands of workers, particularly in sales, as part of the company’s latest move to terminate employees amid heavy spending on AI. The dismissals are expected to be announced early next month, following the end of Microsoft’s fiscal year. They follow Microsoft’s firing of 6,000 other employees last month, largely in its product and engineering departments. These are the jobs that are most at risk Clerical and Data Entry Roles Data entry clerks, payroll assistants, and similar administrative positions are highly exposed. AI can process data and manage schedules with greater speed and accuracy, leading to rapid automation in these fields. Customer Service and Support Call centre agents and frontline customer support representatives are increasingly replaced by AI-powered chatbots and virtual assistants. These systems handle routine inquiries, process transactions, and provide support in multiple languages, reducing demand for human workers in these roles. Writing, Translation, and Content Creation Routine writing jobs (e.g., product descriptions, basic news articles), translation, and proofreading are declining sharply as generative AI tools become more capable. Entry-level creative roles, especially those with templated outputs, are at significant risk. Bookkeeping and Basic Accounting Automated accounting software and AI-driven financial tools can now handle many standard bookkeeping and accounting tasks, reducing the need for human bookkeepers and some types of accountants. Manufacturing and Assembly Line Work Robotics and AI-driven automation continue to replace roles involving repetitive, structured tasks in manufacturing and logistics. Retail Sales Retail salespeople, especially in environments with self-checkout and AI-powered recommendation systems, face declining opportunities as automation streamlines in-store and online shopping experiences. When I am in the UK, I always use the self-checkout in supermarkets and other etail stores, and watch as they have sorted out the glitches over the last 10 years, and it is increasingly a seamless process, with more and more boomers using self-checkout. In some small outlets, like in stations and airports, there is no other option. Market Research and Data Analysis Basic market research analysts and data processors are at risk, as AI can quickly analyse and report on large datasets. More complex, strategic analysis still requires human input. Entry-Level Programming and Coding The demand for junior programmers and coders is dropping as AI tools increasingly automate routine coding tasks and boost the productivity of experienced developers.  Straits of Hormuz – Why it’s a big deal We have often talked about the Straits of Hormuz, but it’s important to understand just how pivotal this region is. You can see from the map below just how much of a bottleneck this is. This narrow waterway at the mouth of the Persian Gulf handles around a quarter of the world’s oil trade. So if Iran were able to deny access to the giant tankers that ferry oil and gas to China, Europe and other major energy-consuming regions, it would send oil prices shooting higher and potentially destabilise the global economy. Notice that the US would not be directly affected by the shortened supply, but the price of US oil would spike at the same level. US Oil is not a nationalised asset like it is in most of the Middle East, nobody can force those Oil producers to sell oil at a cheaper price because El TACO Presidente says so.  Iran has targeted merchant ships traversing the choke point in the past, and has even threatened to block the strait. The UK issued a rare warning to mariners’ days before Israel began bombarding Iran, saying increased tensions in the region could impact shipping. The waterway connects the Persian Gulf to the Indian Ocean, with Iran to its north and the United Arab Emirates and Oman to the south. It’s almost 100 miles (161 kilometres) long and 21 miles wide at its narrowest point, with the shipping lanes in each direction just two miles wide. Its shallow depth makes ships potentially vulnerable to mines, and the proximity to land — Iran, in particular — leaves vessels open to attack from shore-based missiles or interception by patrol boats and helicopters. Tankers hauled almost 16.5 million barrels per day of crude and condensate from Saudi Arabia, Iraq, Kuwait, the United Arab Emirates and Iran through the strait in 2024 The strait is also crucial for liquefied natural gas, or LNG, with more than one-fifth of the world’s supply — mostly from Qatar — passing through during the same period. Iran would have no legal authority to order a halt to traffic through Hormuz, so it would need to achieve this by force or the threat of force. If its Navy tried to bar entry to the strait, it would likely be met with a strong response from the US Fifth Fleet and other Western navies patrolling the area. But it could cause severe disruption without a single Iranian warship leaving port. One option would be to harass shipping with small, fast patrol boats. Or it could launch drones and fire missiles toward ships from coastal or inland sites. That could make it too risky for commercial ships to venture through. Similar tactics have been employed successfully by the Houthi militia in Yemen to disrupt traffic through the Bab el Mandeb strait leading into the Red Sea on the other side of the Arabian peninsula. The Houthis have mostly fired missiles and drones at ships after warning owners of vessels linked to the US, the UK and Israel that they will be attacked if they approach the area. A US-led force in the Red Sea is seeking to protect shipping there. But the number of ships sailing through the Red Sea and Gulf of Aden was still down about 70% in June compared with the average level of 2022 and 2023. This has forced vessel operators to reroute their traffic around the southern tip of Africa instead of going through the Suez Canal — a lengthier and more expensive journey for ships travelling between Asia and Europe. Closing the Strait of Hormuz would quickly hit Iran’s own economy as it would prevent it from exporting its petroleum. And it would antagonise China, the biggest buyer of Iranian oil and a critical partner that has used its veto power at the UN Security Council to shield Iran from Western-led sanctions or resolutions. This is not a new problem. Iran has used harassment of ships in the Gulf for decades to register its dissatisfaction with sanctions against it, or as leverage in disputes. In April 2024, hours before launching a drone and missile attack on Israel, Iran’s Islamic Revolutionary Guard Corps seized an Israel-linked container ship near the Strait of Hormuz. Iran released the ship’s crew the following month, When it seized a US-bound tanker in April 2023, Iran said the ship had struck another vessel. But the move appeared to be retaliation for the seizure off Malaysia’s coast of a ship loaded with Iranian crude by US authorities on the grounds of sanctions violations. In May 2022, Iran seized two Greek tankers and held them for six months, presumably a response to the confiscation by Greek and US authorities of Iranian oil on a different ship. The cargo was eventually released and the Greek tankers freed. So, too, was the oil on a tanker that Iran said it impounded in January “in retaliation for the theft of oil by the US.” During the 1980-88 war between Iraq and Iran, Iraqi forces attacked an oil export terminal at Kharg Island, northwest of the strait, in part to provoke an Iranian retaliation that would draw the US into the conflict. Afterwards, in what was called the Tanker War, the two sides attacked 451 vessels between them. That significantly raised the cost of insuring tankers and helped push up oil prices. When sanctions were imposed on Iran in 2011, it threatened to close the Strait, but ultimately backed off. During the Tanker War, the US Navy resorted to escorting vessels through the Gulf. In 2019, it dispatched an aircraft carrier and B-52 bombers to the region. The same year, the US started Operation Sentinel in response to Iran’s disruption of shipping. Ten other nations — including the UK, Saudi Arabia, the United Arab Emirates, and Bahrain — later joined the operation, known now as the International Maritime Security Construct. Since late 2023, much of the focus on protecting shipping has switched away from the Strait of Hormuz and onto the southern Red Sea, the region’s other vital waterway, and the Bab el-Mandeb Strait that connects it to the Gulf of Aden and the Indian Ocean. Attacks by the Iran-backed Houthis on shipping entering or exiting the Red Sea became a greater concern than the Strait of Hormuz. Who relies most on the Strait of Hormuz? Saudi Arabia exports the most oil through the Strait of Hormuz, though it can divert shipments to Europe by using a 746-mile pipeline across the kingdom to a terminal on the Red Sea, allowing it to avoid both the Strait of Hormuz and the southern Red Sea. The UAE can export some of its crude without relying on the strait, by sending 1.5 million barrels a day via a pipeline from its oil fields to the port of Fujairah on the Gulf of Oman to the south of Hormuz. With its oil pipeline to the Mediterranean closed, all of Iraq’s oil exports are currently shipped by sea from the port of Basra, passing through the strait, making it highly reliant on free passage. Kuwait, Qatar and Bahrain have no option but to ship their oil through the waterway. Most of the oil passing through the Strait of Hormuz heads to Asia. Iran also depends on transit through the Strait of Hormuz for its oil exports. It has an export terminal at Jask, at the eastern end of the strait, which was officially opened in July 2021. The facility offers Tehran a means to get a little of its oil into the world without using the waterway and its storage tanks were slowly being filled with crude late last year. Bottom line, while the US (and the rest of the world) would be impacted by surging oil prices, the countries most affected will be in Europe and the East, especially China. Perhaps for this reason, it is not considered a high threat at this point in time.  Overpopulation no longer an issue? In the 80s and 90s, everyone was talking about the problem of overpopulation, and China, famously, imposed their ‘one child’ policy, and femicide became a huge problem, not just in China but also in India (hence the issue of ‘male surplus’ in those two regions specifically.) Things are changing… The graph below shows the world’s distribution by age  The graph below shows the world population distribution by country ( with some projections).  Birth and Death Rates: In 1965, there were 34 births and 13 deaths per 1,000 people. By 2017, these figures had dropped to less than 19 births and fewer than 8 deaths per 1,000 people, reflecting lower fertility and higher life expectancy. Regional Variation: Sub-Saharan Africa continues to have high birth and death rates, resulting in rapid population growth, while Europe and Central Asia have low birth and death rates, leading to stagnation or even decline. Migration: Movement of people between countries also affects population distribution, especially in regions with ageing populations and labour shortages. Japan is an interesting case study Japan’s fertility rate declined in 2024 for the ninth consecutive year, reaching another historical low that underscores the immense challenge facing the government as it attempts to reverse the trend in one of the world’s most aged societies.  The total fertility rate — the average number of children a woman is likely to have over her childbearing years — fell to 1.15, down from 1.2 the previous year, and marking the lowest rate in records going back to 1947 The trend was particularly notable in Tokyo, where the rate was below 1 for the second year in a row. The data underscores the urgency of the government’s recent push to boost fertility. Prime Minister Shigeru Ishiba has rolled out a range of policies aimed at easing the financial burden on families, including expanded child-related subsidies and tuition-free high school education. The government has also guaranteed full wage compensation for some couples who both take parental leave and improved working conditions for childcare and nursing staff. These measures build on the initiatives by Ishiba’s predecessor, Fumio Kishida, who pledged to raise per-child government support to levels comparable to Sweden, where 3.4% of GDP is devoted to family benefits. At the time, Kishida warned that Japan could “lose its capacity to function as a society” unless bold action was taken. The continued decline in births is renewing concern over the future of Japan’s social security system. The nation’s public pension program is under increasing strain, with fewer contributors and a growing number of recipients. Over the past two decades, the number of people paying into the system has fallen by around 3 million, while beneficiaries have increased by nearly 40%, according to a separate ministry report. Japan’s soaring social security costs are placing even greater pressure on public finances, where the debt-to-GDP ratio stands at the highest among advanced economies. For fiscal year 2025, social welfare spending totalled ¥38.3 trillion ($266.3 billion), accounting for one-third of the national budget. Japan’s story is one that most Western countries are already facing, or if not publicly acknowledging, must be causing concern. In Japan, the labour market is also expected to remain under pressure. If current trends continue, Japan could face a shortage of 6.3 million workers in 2030. This can only be turned around with migration – something that most countries, including the US, don’t want to acknowledge. US births declined in 2023 to the lowest level in more than 40 years, a trend that likely led the Donald Trump administration to consider a raft of childcare policies, like the Trump account for newborns that I spoke about last week, but doesn’t seem to extend to reducing the cost of childcare. The ageing of the population and the concurrent shortage of workers over time could well be addressed by AI. Author: Dawn Ridler  Dollar and Bonds Every week we cover the bond market extensively and this week will be no different. I was though hoping to bring a long-term perspective on G7 bond markets and their yields. As always, Jurrien Timmer from Fidelity comes up with an amazing graphic showing bond yields relative to the DXY Index:  The chart goes back to 2019 and shows how yields (10-year bonds) have changed for large economies (bottom graph). The top graph shows the DXY Index (Dollar strength and weakness) over the same period. As can be expected, the Dollar was weak during the COVID years but then regained its reserve currency status. It’s been pretty range-bound but has recently broken out of this range to settle at a lower level, making everyone wonder if the Reserve status of the currency isn’t in doubt. Remember that much of the recent weakness is occurring during rising geopolitical tension as the Israel/Iran war wages. Why is it that investors are not piling into the Dollar? If you look at the yields, it’s interesting to note how high US 10-year yields are relative to other alternatives. Only the UK provides a marginal extra 0.50% and doesn’t have the financial backing of the US Treasury. Now look at Swiss bonds. They reacted like all the other bond markets during the inflation spike in 2022, but then broke ranks to settle at a yield of 1.50% today. This is occurring as investors prefer Swiss bonds over other alternatives. Japan’s aim to keep its 10-year yield close to 1% has similarly failed. For a country where the carry trade has been the order of the day for many years, rising yields have put a dampener on this. Clearly, investors are calling into question the safety of US government assets. No doubt rising debt levels has a lot to do with this, as well as clearer alternatives than what existed in the past. Gold is one of them. With global money supply increasing and more central banks prepared to hold the yellow metal, Gold has become an alternative to safeguard cash. The other alternative includes holding a basket of currencies outside the US Dollar. This may protect against the Dollar, but amongst the G7, all countries have their unique set of issues. Bitcoin has become a liquidity measure. As global liquidity rises, so it seems does the price of Bitcoin. This detaches capital from the vagaries of country economics, but again introduces a whole new set of risks associated with cryptocurrencies. The other asset class people ignore is equities. As the Dollar becomes weaker, it makes US exporters more competitive, and it enhances US companies’ international earnings. This is then reflected in the share prices of these companies. It is for this reason that it is better to have one’s assets invested overseas rather than leaving them in cash. Investors often try and pinpoint an advantageous time to swap their home country currency (such as the ZAR) for an international currency. This is not the most important decision when sending capital offshore. Ensuring that one is invested is a lot more important, especially when measured over long periods of time. This does protect against Dollar weakness. Author: Cobie Le Grange EXCHANGE RATES:The Dollar remains weak, and we can expect the dollar to be soft for the foreseeable future.   The Rand/Dollar closed at R17.99 (R17.92, R17.77, R17.95, R17.88, R18.04, 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 R24.22 (R24.35, R24.05, R24.18, R24.14, R23.95, 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 R20.74 (R20.68, R20.24, R20,37, R20.27, R20.13, 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 well up at $77.27 ($74.38, $66.56, $62.61, $65.41, $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 $103455 ($105,017, $105,643, $104,049, $103,551, $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: Kick Start your own Retirement Plan NEW You matter more than your kids – in retirement NEW To catch a falling knife Income at retirement 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 |