| 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. Many of our clients come from referrals from our existing clients, often through the forwarding of this newsletter – so if there is anyone you know who might like to be on our database please share this newsletter. If you’d like us to contact them directly – our details are below. Market Watch The JSE has recovered, along with the rest of the globe, from the Japanese carry-trade flash crash and is making new highs. Year-on-year there has been a 12.35% growth – coming closer to the long-term average, but way off the Nasdaq’s 30.4%. While the Nasdaq recovered from the flash crash, it has not gone on to make new highs and had already started to slow down before the crash  The S&P on the other hand is still on an upward trajectory. The best-case scenario is that the hot air leaking out of the magnificent 7 flows back into the rest of the market so that the net effect has less of an impact. This isn’t going to help if you’re invested in the Nasdaq, or a Magnificent 7 proxy ETF (where there is a lot of share concentration) but will help if your investments are more broad-based. As interest rates come down, funds are also likely to flow out of Treasury Bonds and into the stock market, which will also soften any potential downward correction.   Retail – new word enters the lexicon The pandemic obviously boosted online grocery shopping in South Africa, with some supermarket chains getting it right quicker than others. Checkers 60 still comes out top with consumers, with Pick ‘n Pay on version 3 or 4 and still not getting it right. (Could this be part of the problem leading to the rights issue?) Woolworth’s offering has been patchy at best – usually because of out-of-stock situations and slow delivery. They are now opening the first of their ‘dark stores’ (central Cape Town) – stores that are not open to customers but purely to service the online market – much like Amazon and Takealot do for ‘dry goods’. The big plus for this model is that those shoppers are not competing for attention with ordinary in-store shoppers. It’s a trend worth watching and to see if any of the other grocery stores adopt it.  Harris’s economic policies – price caps/stability/gouging Because the Republicans have slim pickings to go after Kamala Harris they’ve latched onto the latest price-gouging measures that Harris has got behind, calling it communist, with Former President Donald J. Trump mocking the plan on social media as “SOVIET Style Price Controls.” (The subtle distinction between Soviet and Russia is interesting – and telling!) Many have cheered the announcement as a crucial check on corporate greed, saying it could immediately benefit shoppers who have been stunned by a 20 percent rise in food costs since President Biden took office – but people familiar with Vice-President Harris’s thinking on the ban now say it might not resemble either of those characterizations. The ban might actually not do anything to bring down grocery prices right now, but would be modelled on dozens of existing state laws prohibiting price gouging, the sort of laws that prevent stores from quadrupling the price of snow shovels right after a blizzard hits. This plan is still thin on any details but Harris made clear she planned to take action to punish companies that are keeping food prices artificially high. To quote Harris “Many of the big food companies are seeing their highest profits in two decades and while many grocery chains pass along these savings, others still aren’t. Look, I know most businesses are creating jobs, contributing to our economy and playing by the rules, but some are not, and that’s just not right. And we need to take action when that is the case.” Biden has already made inroads into price-gouging by big pharma, for example capping the price of insulin and allowing Medicare to negotiate directly with the Pharmaceutical companies to bring down prices. (They are obviously the largest single client that these companies have).  Project 2025 If you’ve been listening to the debates going on around the US elections (as if it’s avoidable) then you’ll probably have heard about the Republican’s project 2025. There haven’t really been many opportunities to get a black-and-white picture of Trump’s plan should he win the White House (and even he has pussy footed around it from time to time). You can always read the 950-page document, but here are the lowlights: Project 2025, spearheaded by conservative think tank the Heritage Foundation with help from more than 100 other conservative groups is a multi-part plan for the next conservative administration—namely a Trump presidency—which includes a LinkedIn-style database for presidential personnel hopefuls, training programs for executive branch positions and an as-yet-unreleased “playbook” laying out what Trump should do in his first 180 days. Though the project is led by the Heritage Foundation and other private third-party groups and is not formally tied to Trump, who has tried to distance himself from the operation, its proposals were developed in part by former members of his administration and other Trump allies, and the ex-president has previously praised Heritage for its policy work. The project has drawn the most attention for its “Mandate for Leadership,” a 900-page proposed policy agenda (probably because Trump was never much of a fan of formal policy in his last administration.) It describes itself as a “plan to unite the conservative movement and the American people against elite rule and woke culture warriors,” laying out plans for all aspects of the executive branch. Personnel: Project 2025 broadly proposes to insert far more political appointees who are ideologically aligned with the president into the executive branch—replacing many of the nonpartisan career civil servants who serve in it now—proposing an executive order that would put political appointees into any “confidential, policy-determining, policymaking, or policy-advocating positions” (which Trump previously did at the end of his presidency, but President Joe Biden then overturned it). Here in South Africa we already have a word for that – Cadre Deployment. Federal Agencies: It proposes a scaled-down federal government, including the abolishment of multiple agencies—including the Department of Education, Department of Homeland Security, National Oceanic and Atmospheric Administration and Consumer Financial Protection Bureau—whose remaining departments would be folded into other agencies or privatized, including the Transportation Security Administration. Transgender Rights: Transgender rights and gender identity beyond biological sex are roundly rejected, with such steps as reinstating the ban on transgender Americans serving in the military, prohibiting public school educators from referring to students by anything other than their birth name and pronouns without parental permission, and ensuring no federal funds are used to provide gender-affirming care. DEI and LGBTQ Rights: Project 2025 seeks to eliminate diversity, equity and inclusion programs from throughout the federal government and in universities, and while it doesn’t outlaw same-sex marriage, it supports “nuclear families” that include a “married mother, father, and their children,” and calls for restricting laws that bar discrimination on the basis of sex to exclude sexual orientation and gender identity. Climate Change: The proposal would undo much of the federal government’s climate work, including by leaving the Paris Climate Agreement, overhauling the Department of Energy to promote oil and natural gas and deemphasize green energy sources, removing the Department of Agriculture’s focus on sustainability and curtailing climate research. Abortion: While Project 2025 doesn’t explicitly call for an abortion ban, it would take many steps to restrict the procedure, including directing the Food and Drug Administration to revoke its approval of abortion drug mifepristone, using the Comstock Act to block any abortion equipment or medication from being mailed—which abortion rights advocates have said would be a “backdoor” way to ban abortion—barring federal funds being used to provide healthcare coverage for abortion and requiring states to report all abortions that take place there to the federal government. Education: Project 2025 emphasizes a “school choice” policy that directs public funds to be used for students to attend private or religious schools, bars “critical race theory” from being taught in federally funded schools and advocates for legislation that would allow parents to sue schools they feel have acted improperly—such as by teaching controversial subjects or requiring students to disclose information about their religious beliefs. Student Loans: Student loan relief efforts would come to an end—including the public service loan forgiveness program and income-driven repayment plans—as the proposal states “borrowers should be expected to repay their loans.” Big Tech: TikTok would be banned, and the proposal calls for reforming “Swction 230” —which shields tech companies and social media networks from being sued over content on their platforms—and allowing laws like those passed in Florida and Texas that seek to punish social media companies who ban or suspend users based on their “viewpoints.” Justice Department: Project 2025 calls for a “top-to-bottom overhaul” of the DOJ and FBI that gets rid of what it calls an “unaccountable bureaucratic managerial class and radical Left ideologues,” proposing an agency that would be more focused on violent crime and filing litigation that’s “consistent with the President’s agenda” and filled with far more political appointees; it also proposes prohibiting the FBI from investigating misinformation or making so-called “politically motivated” moves against U.S. citizens. Taxes: Project 2025 would seek to get rid of current tax rates and most deductions and credits, instead proposing a 15% rate for anyone under the Social Security wage base ($168,000 (R3m) in 2024 – ) and 30% for taxpayers earning more than that—which means the lowest-income taxpayers will now pay more and some higher earners will pay less, and it would also lower the corporate income tax rate to 18%. Federal Reserve: The project seeks to reform the Federal Reserve by quote “tak[ing] the monetary steering wheel out of [its] hands and return[ing] it to the people,” which the authors propose could be done by getting rid of the government’s control over the nation’s money entirely—instead leaving it up to banks—or returning to the gold standard, in which the dollar’s value would be tied to a specific weight of gold. Foreign Relations: Project 2025 emphasizes opposing China, which it describes as “a totalitarian enemy of the United States,” and directs the U.S. to pull out of international organizations when they don’t serve the administration’s interests, including the World Health Organization and various United Nations agencies. Healthcare: Project 2025 does not seek to overturn the Affordable Care Act (aka ObamaCare), but would make significant cuts to Medicaid and impose work requirements to receive coverage, as well as reform Medicare—including by making Medicare Advantage, a paid supplement to Medicare, the default option for patients. (Medicare is federal health insurance for anyone age 65 and older, and some people under 65 with certain disabilities or conditions. Medicaid is a joint federal and state program that gives health coverage to some people with limited income and resources.)  The FED and Jackson hole The all-important FED annual gathering at Jackson Hole happened over the weekend. Powell went into the meeting walking a tightrope. He may need to temper investor expectations. Futures markets last Thursday were pricing in a full percentage point worth of cuts by the end of the year. That would suggest a prodigious half-percentage point reduction at one of the three remaining meetings. To quote Powell: “The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.” This is an emphatic pivot from a battle against inflation to a readiness to defend against job loss opens a new chapter for the central bank just as a consequential U.S. presidential election nears. Powell said his “confidence has grown that inflation is on a sustainable path back to 2%,” after rising to about 7% during the COVID-19 pandemic, and the upside risks have diminished. Meanwhile, he said, a slowdown in the labour market is “unmistakable” and “the downside risks to employment have increased.” Really, the question now is whether the cut will be 25 or 50 basis points.   Canada – for a change Less than 17 hours after almost all rail freight traffic in Canada came to a standstill on Thursday following a lockout by the country’s two main rail companies of 10,000 employees, the federal government told a labour board to end the shutdown and ordered arbitration. Why is this strike a big deal? The lockout had threatened to cause supply-chain disruptions in the United States and serious economic consequences within Canada. The moves followed months of contract talks that had failed to reach an agreement. Steve MacKinnon, Canada’s labour minister, said at a news conference in Ottawa on Thursday that he had told the Canada Industrial Relations Board to formally order the railways to restart service. He said that he expected trains would be rolling “within days.” He also told the labour board to extend the contracts between the Teamsters Canada Rail Conference — the union that represents the workers locked out — and the railway companies: Canadian National and Canadian Pacific Kansas City. The contracts expired at the end of the last year. In the meantime, every day that passes with a stalemate the implications for Canada’s economy and the ripple effect into the US continues.  France – The Olympics labour-truce is over – what now? Now that the Olympics is over and the tumulus elections are not far enough in the rearview mirror to be forgotten, what’s on the cards for Macron? The French are now back and well rested from their long ‘vacances’ and ready to get back to their favourite pastime – political and labour battles. Macron is in a pickle – he called snap elections that left him weaker than before, with a hostile National Assembly that has no majority. He now has to cobble together a government that he can work with. If all goes well for him, a government will emerge that he can work with — and he can get things done in the legislature despite the deep divisions. There remains a range of possibilities reflecting the temporary, ungainly coalition of a newly empowered left and reduced centre that formed to deny a parliamentary majority to Marine Le Pen’s far-right National Rally. It’s a mess, and while global attention has moved away from France following global markets seem as sceptical as ever. French stocks tanked relative to the rest of the European Union when Macron dissolved the assembly in June, in a failed attempt to strengthen his position after a disastrous outing in the European Parliament elections. They haven’t recovered, at all:  This doesn’t make sense, as the most important stocks in the French index are multinationals with little exposure to their home economy. For instance, luxury giant LVMH (Moet Hennessy Louis Vuitton SE) has seriously lagged its international counterparts since the turbulence began in June. Interestingly, the bargain hunters haven’t yet arrived to bring big French stocks back more closely in line with international counterparts. S&P Global Purchasing Manager Index figures confirmed that the services sector had, unsurprisingly, enjoyed a big boost from the Olympics. The scale of the improvement was greater than the market had expected, particularly compared with Germany — although economists don’t expect the effect to last beyond the summer:  The French are going through their own GNU angst. In part, the anxiety reflects annoyance with the time Macron is taking over nominating a prime minister, who must be acceptable to a majority in the assembly. It’s understandable that he doesn’t want to appoint a political opponent, but as the left-wing New Popular Front grouping won more seats than his own party and natural allies, it’s hard to see how this can be avoided. Current lame-duck prime minister Gabriel Attal has presented a budget that implies austerity — something he’d have preferred to leave to his successor. The French are notoriously unhappy with any whiff of austerity. And there’s the awkward fact that France’s fiscal problems haven’t gone away, and may yet prove to have been deepened by the expense of putting on the games.  FED and interest rates If you regularly consume US economic media, you’ll probably be familiar with the FED ‘dot plot’. This plots the outlook of the various FOMC (Federal Open Market Committee) chairs. The latest DOTS (above) shows distinct dovishness, but with the Fed only pricing in one cut this year (the market now pricing in 4 cuts). And “almost all” Fed officials expect data to line up with their expectations supporting September rate cuts… • ‘Almost All’ Fed Officials Wanted More Inflation Data Before Cutting Rates • ‘Almost All’ Fed Officials Expected Continued Disinflation • ‘Some’ Officials Noted Risk of ‘More Serious Deterioration’ in Labor Market Of course, the fact that over 800,000 jobs just got erased magically means maybe this shifts The Fed’s attitude even more to protecting the labour side of the mandate.  US Jobs market – dodgy statistics – again The U.S. economy added far fewer jobs in 2023 and early 2024 than previously reported, a sign that cracks in the labour market are more severe — and began forming earlier than initially believed. For such an important metric, closely followed by the FED, investors and economists, how and why do they keep having to ‘revise’ these numbers? (We’re fine ones to talk – the Census in 2022 looks like it was a complete shambles – I know I never got a form to complete for my household). Last Wednesday, the US Labor Department said monthly payroll figures overstated job growth by roughly 818,000 in the 12 months that ended in March. That suggests employers added about 174,000 jobs per month during that period, down from the previously reported pace of about 242,000 jobs — a downward revision of about 28 per cent. That’s an embarrassing mistake!  The preliminary revisions are part of an annual process in which monthly estimates, based on surveys, are reconciled with more accurate but less timely records from state unemployment offices. The new figures, once they’re made final, will be incorporated into official government employment statistics early next year. The updated numbers are the latest sign of vulnerability in the job market, which until recently had appeared rock solid despite months of high interest rates and economists’ warnings of an impending recession. More recent data, which wasn’t affected by the revisions, suggests job growth slowed further in the spring and summer, and the unemployment rate, though still relatively low at 4.3 percent, has been gradually rising. Even accounting for the new estimates, the big picture remains relatively unchanged: Job growth is slowing, but not collapsing. The unemployment rate is rising, but layoffs remain low. The new numbers show that hiring was slower nearly across the board than originally reported. There were large downward revisions in white-collar sectors like professional services and information, as well as in the hospitality and retail industries. The transportation and warehousing sector, which includes many businesses involved in e-commerce, was one of the few in which job growth was revised up instead of down. The monthly payroll figures are based on a survey of roughly 119,000 businesses and other employers. The large size of the survey makes it reliable, but not perfect. Government economists must make assumptions to account for businesses that open or close or that fail to report data. Those assumptions can be less reliable during periods of rapid changes in the labour market. Market reaction to the revisions was muted.  Fear and Greed When meeting people for the first time, I am always interested to find out what they do for a living and how this shapes their attitude towards money. There are those who are professionals, and they generally slowly save for retirement in the classical textbook way. Then there are those who are more entrepreneurial in nature. Cash comes and goes as their business ventures develop. Here long-term saving isn’t always possible but a large windfall at some point can lead to long-term financial security. It’s not the classic way but as the world evolves it’s becoming more the norm. What about those who don’t believe in classic investing but rather place capital in areas that are often of interest to them such as boats, cars and perhaps even livestock? The possibilities are endless today, making decision-making so much more difficult. For those who have studied an investable area, they are able to identify the specific rhythm of an investment class and what signifies a fair price to pay for the asset. What drives the industry? Is there a seasonality to the investment class? Where do the risks come from? I was talking to a younger individual the other day who was telling me of the benefits of investing in livestock. When I probed what he knew about this asset class it turned out that he was relying on secondary information about returns from another individual. It was greed rooted in secondary information rather than true knowledge that was driving his decision-making….. a tried and tested way to lose money. If you haven’t spent time and effort studying an asset class, you are a novice. As you don’t know what to look for and by default what to avoid, expect the emotions of fear, greed and second-hand information to fashion your investment portfolio. Seth Klarman, the chief executive and portfolio manager of the Baupost group, makes the point that people are irresistibly drawn to hot initial public offerings, momentum strategies and investment fads. It’s called get-rich-quick schemes and there is nothing like making money alongside your neighbour who discovered the fad. It is hot-wired in us.. speculation. You have a choice to make -either you can be a subject expert and enjoy the long-term fruits of a specific asset class. It doesn’t matter if it’s the more traditional asset classes or exotics such as cars or boats. If you can’t be an expert, then look to pick an investment manager who has spent a lifetime building the correct mindset to avoid speculation. Seth goes a step further in his analysis and says that even if the whole country became security analysts (investment managers), memorised Ben Graham’s Intelligent Investor and regularly attended Warren Buffet’s annual shareholder meetings, most people would, nevertheless find themselves irresistibly drawn to the hot investment ideas. So, picking an investment manager has a lot more to do with only looking at returns. My grandfather always said that you cant go wrong in buying Rembrandt shares. For those unaware of what I am talking about, this is the forerunner of what has become Remgro, Richemont and Reinet. It’s a Rupert super success story and for those who identified this soon enough, they too became very wealthy in the process. The only problem with it is that it is incredibly boring. It’s much nicer to talk about the hot pick of the week! And perhaps this is the main ingredient of a good investment manager…. Buying what is boring, but invariably being able to sleep at night! Author:- Cobie Legrange EXCHANGE RATES:  The Rand/Dollar closed at R17.71 (R17.85, R18.32, R18.26, R17.95, R18.23, R18.20, R17.91, R18.37, R18.90, R18.87, R18.42, R18.26, R18.43, R18.51, R19.09).  The Rand/Pound closed at R23.41 (R23.13, R23.39, R23.28, R23.32, R23.34, R23.00, R22.63, R23.37, R24.18, R23.98, R23.46, R23.11, R23.80, R23.22, R23.62)  The Rand/Euro closed the week at R19.80 ( R19.70, R20.01, R19.94, R19.58, R19.74, R19.49, R19.14, R19.67, R20.59, R20.42, R19.97, R19.08, R19.86, R19.92, R20.35)  Brent Crude: closed the week down at $79.05 ($79.09, $79.43, $77.56, $85.03, $83.83, $84.86, $85.22, $82.30, $79.91, $81.73, $82.16, $83.43, $82.73, $82.82,$87.39)  Bitcoin closed at $63,936 ($59,152, $60,847, $61,903, $59,760, $56,814, $61,436, $65,635, $ 66.975, $71,257, $68,362, $69,391, $66 328, $60,880, $63,154, $64,135). Articles and Blogs: Financial well-being when dealing with Dementia and Alzheimers NEW 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 |