| The podcast to this newsletter can be listened to here Global Roundup USA: Latest Market and Economy * U.S. stock markets set new record highs over the last week, with the S&P 500 closing above 6,700 and the Nasdaq and Dow also reaching unprecedented levels despite a federal government shutdown that began on October 1, 2025. * Investor optimism remained strong, with the shutdown shrugged off due to expectations for it to be brief and minimal in impact. Healthcare and technology stocks led the rally, while energy lagged. * Disappointing private sector jobs data (ADP employment fell by 32,000) increased speculation for imminent Federal Reserve interest rate cuts, placing odds of a rate cut this month at 99% (28th October). If the government shutdown carries on much longer, we are not going to get updated stats out of the Bureau of Labour Statistics. * U.S. Treasury yields dipped to two-week lows as traders priced in more rate cuts and softened economic outlook under shutdown conditions. Gold prices pulled back after streaking to record highs, and Bitcoin rebounded to a 10-week top. South Africa: Latest Market and Economy * The JSE All Share Index (SAALL/ALSI) hit a fresh all-time high above 107,500 points on September 30 and again rallied in early October, buoyed by strong performances from gold miners such as Sibanye and Harmony. However, the market pulled back slightly on October 2. * The surge in gold prices and a weaker U.S. dollar have supported South African equity gains, with tech, construction, and consumer stocks all participating in the rally. * Recent employment figures show strain, with a notable drop in South African job numbers: approximately 80,000 jobs were lost in June, impacting confidence in recovery. * Trade data released this week showed South Africa posted a R4 billion trade surplus in August, with exports outpacing imports—an encouraging sign for external balance and local currency strength. * The South African Reserve Bank maintained interest rates at their lowest since November 2022, reflecting supportive conditions amid global monetary easing expectations. Global: Latest Market and Economy Global equity markets—including Europe, UK, South Korea, and Taiwan—joined the U.S. in posting record highs, propelled by strong tech sector gains and enthusiasm for AI-driven expansion. A weak U.S. labour report helped bolster optimism for worldwide rate cuts, leading investors to favour risk assets and pushing the MSCI All Country index to 18 record closes in the 20 sessions over the last couple of weeks. MSCI index * Oil prices plummeted further, reaching four-month lows, while gold and silver notched fresh highs as traders positioned for more central bank action amid persistent uncertainty. * The dollar reversed its recent losing streak, gaining against other majors as oil dropped and central banks weighed in on policy shifts. DXY INDEX * Key regions such as India and Europe reported mixed economic signals, with PMI surveys showing steady growth in services but moves toward contraction in construction and manufacturing sectors. Taiwan – caught between a rock and a hard place For decades, the US has been Taiwan’s most important backer in its efforts to keep Beijing at a distance. That support now seems increasingly uncertain under President Donald Trump. In July, President Lai Ching-te reportedly postponed an overseas trip after the US refused to grant him a transit stop in New York. Then in September, Trump blocked a military-aid package worth more than $400 million for Taiwan. Around the same time, Beijing renewed pressure on Washington to change its wording on the self-governed archipelago, from the present stance that the US “does not support” Taiwan’s independence, to opposing it outright. We don’t yet know the outcome of that diplomatic gambit. But Chinese President Xi Jinping reinforced the message for any doubters yesterday, calling for “separatist efforts” to be resolutely rejected. Commerce Secretary Howard Lutnick added to Taipei’s worries this week by calling on Taiwan to shift more of its world-beating chip fabrication to the US, so that half of America’s demand could be met domestically. To many in Taiwan, such pressure further undermines its so-called silicon shield, since moving semiconductor production abroad would potentially give the US less incentive to come to Taipei’s aid in the event of a Chinese invasion of islands it claims as its own. Taiwan’s government formally pushed back on Wednesday, saying it wouldn’t agree to the production move, underlining tensions in ongoing trade talks. The wider concern in Taipei is that Trump might sacrifice Taiwan’s interests in pursuit of engagement with Beijing as he seeks a trade deal with China and prepares to meet with Xi this month. A move like that would be almost impossible for later administrations to walk back; the damage will have been done and Beijing will push their advantage in the next 3 years. For now, it remains to be seen whether developments will continue to tilt in Beijing’s favour, or if US policy on Taiwan really is shifting despite Washington’s denials. Regardless, it looks very much like Taipei will have to find new ways to maintain its precarious balance between the two superpowers. A military move by China against Taiwan will make the Ukraine war look like a picnic. It does hold a major bargaining chip – those high-end chips that are vital to the burgeoning AI race, IMHO, they are right to hold onto them like their sovereignty depends on it – it probably does. US shutdown As I write this, the US is officially in shutdown, its first for 7 years, and the third under Trump. Trump is now threatening to do what DOGE didn’t: oust federal workers and eliminate programs favoured by Democrats in response. Agencies began shuttering the government aside from essential duties, and with the two parties locked in a stalemate over health-care subsidies and using the moment to frame the 2026 midterm elections, the shutdown and its economic effects could be prolonged. You’ve got to love the internet. Here’s a great clip from 2013 where Trump was talking a very different tune. Note that just because some agencies are ‘open’ does not mean that the workers will be paid. One of the biggest worries is that air traffic controllers could orchestrate a ‘sick-out’, just reporting sick and not coming into work. Trump is going to try to selectively deprive Democrat states of funds – but that could backfire, a state like California could withhold Federal taxes – they pay the central government way more than they receive. AGOA The US accord (AGOA) that grants duty-free access for more than 1,800 products from 32 African nations expired on the 30th of September halting a decades-old program aimed at promoting development and democracy on the continent. Trump’s administration supports extending the non-reciprocal African Growth and Opportunity Act, though it needs legislation in Congress and that didn’t happen before the midnight deadline as lawmakers focused on the government-funding standoff. The African Growth and Opportunity Act (AGOA) is a pivotal US legislation aimed at deepening trade relations between the United States and sub-Saharan Africa, offering African nations preferential, duty-free access to the American market for thousands of products. AGOA was enacted in May 2000 under President Bill Clinton, driven by bipartisan Congressional efforts and engagement with African and US stakeholders. The aim was to stimulate economic growth, promote democratic governance, and integrate African countries into the global economy through expanded trade. Initially part of the broader Trade and Development Act, AGOA built on the Generalised System of Preferences by including over 1,800 additional products for preferential treatment. The act started with a 15-year validity and was extended by Congress in 2015 for another 10 years, and expired on Wednesday last week. AGOA eligibility is contingent on meeting criteria such as progress toward a market economy, rule of law, labour protections, and human rights, and the US President reviews eligible countries annually. (RSA has come under the spotlight w.r.t the Acquisition without compensation for example). The act has been revised several times to make eligibility easier and to focus on future business environments in Africa. Over $8 billion in exports entered the US under AGOA in 2024, half of that was from RSA alone, ranging from apparel and cars to cocoa and crude oil; however, crude’s share has declined as diversification increased. AGOA also spurred support for US investment and technical assistance programs, including efforts via OPIC (now DFC) and Ex-Im Bank. AGOA has helped millions in Africa, supporting hundreds of thousands of jobs, increasing investment, and providing an entry point for American companies into key African markets. The benefits have been uneven: while countries like South Africa, Kenya, Lesotho, and Ethiopia built robust export sectors, only a small fraction of total US imports derive from AGOA countries. Non-oil exports and the apparel industry, in particular, have seen notable growth, but broader economic transformation remains gradual. African trade with China and the European Union has expanded rapidly, presenting competitive pressures and urging debates about AGOA’s renewal and adaptation to fit Africa’s changing trade landscape. Several countries have lost eligibility due to political instability or human rights violations, and the annual review process remains a key policy tool. At the moment, discussions involve restructuring trade relationships, possibly moving from unilateral preferences to reciprocal agreements or regional compacts as Africa’s own economic integration intensifies. Keeping an eye on that AI ‘Bubble’ September saw the publication of at least two widely read analyses suggesting that what is going on in artificial intelligence is indeed a bubble: Is AI a Bubble?, published on Exponential View by Azeem Azhar, and Dotcom on Steroids by GQG Partners, both excellent articles if you want to delve into the topic in more detail. Let’s have a look at ‘Bubbles’ and see if the classic thinking applies to this AI exuberance. In classic bubble psychology, serious attempts to diagnose the investment climate have appeared just as popular fears of a bubble have subsided. Probably unsurprisingly, there has always been more interest in the risk of a bubble than in the prospect of a boom (it’s that fear instinct kicking in after months and months of ‘greed’): In the run-up to the epic dot-com implosion, the Nasdaq Composite index suffered seven separate corrections of more than 10% before finally reaching its peak in 2000. Partying like we’re in 1999 It may be hard for investors to face the uncomfortable reality that the trade that worked for over a decade may be over. After all, most wealth managers today do not carry the scars of the dot-com era. Of the approximately 1,700 active large-cap US portfolio managers, just 4% invested through that period. There is a difference between living through a downturn and merely reading about it. Why do we keep harking back to 1999? First, those of us old enough to have watched the dot-com bust, perhaps even investing during that period, have probably been too ready to see other imminent disasters in the years since. It’s hard to forget that this wasn’t just a downturn; companies went bust, never to be seen again, like Pets.com, Webvan, Boo.com, and eToys.com (all with sky-high valuations not based on real earnings but nebulous expectations). Cisco dropped 89% and Amazon dropped 90% though – probably getting unfairly tarred with the same brush as those other companies, but survived due to a great deal of tenacity too. It wasn’t until the end of 2001 that Amazon eventually showed a tiny profit (one cent per share), on revenues of $1bn – and they only really started to grow once they diversified out of bookselling. We are all prisoners of our own experience, and while most active managers don’t have direct experience of dot-com, the commentators they read generally do. This episode feels different from 1999 and 2000. Remember, back then, de-industrialisation had begun in earnest (a time that Trump is hungering after, like most octogenarians “when-we’s”. The days before Vladimir Putin had arrived in Moscow, and while the Twin Towers of the World Trade Centre were still standing, the US and its economy seemed invulnerable, arguably in its heyday, from which we have seen a steady decline. Optimism and excitement were everywhere and frothed over. A further specific issue with benchmarking to the dot-com era is that it was, by most measures, the most excessive stock market speculation there has ever been. Finding that the AI bubble isn’t as bad can miss the point, as nobody should want speculation to grow anything like that extreme. Stocks fell some 70% after the top in 2000; that doesn’t mean that anyone would be happy with a fall of 60% from here. Irrational exuberance, as famously diagnosed by Robert Shiller (a great book, available on Kindle and Audible) ahead of the dot-com bust, is not the same as stupidity. Bubbles are hard to diagnose, but in hindsight, the biggest were in technologies that proved to be revolutionary — canals, railroads, cars and the internet. They do, however, rely on cheap money. Right now, money is not particularly ‘cheap’ – but that is relative and interest rates are coming down. If you can borrow money at, say 4% when the return from AI this year alone is 18%, and even more if you bought at the bottom of the ‘Liberation day’ crash. We humans find it difficult to extrapolate trends into the future, and once easy finance is available, justified excitement about something transformative can turn into wasted money. I have seen this repeatedly over the years – people wanting to take equity in their bonds to (frankly) speculate. The symptoms of a burst are there, even if it isn’t going to be the wholesale, 70% down, debacle we saw in 2000. That could take months or years. Adobe were one of the first to jump on the AI to users bandwagon, and we spoke about that at the time. Look at its recent share trajectory, not great: Today, eye-watering amounts of money are being committed to capital expenditure, but one has to remember that many of the hyperscalers below have actually made this money. They have a choice to spend it on finding an AI path or any other idea they may think could be a growth driver in the future. Obviously, they could also share this cash by paying dividends or buying back their own shares. The hyperscalers have chosen to invest for an AI future and one should expect that this level of capex will normalise at some point. The question one should ask is what growth will this extra Capex produce tomorrow? Such a rate of increase looks, frankly, unsustainable. It is the spending sparked by the bubble, rather than the share prices themselves, that looks dangerous. One of the reasons the markets had a wobble when DeepSeek was launched was that they had (apparently) managed to achieve the same with a far lower cost. An interesting statistic is that Big tech CapEx as a percentage of Ebitda – Earnings before Interest, Tax, Dividends and Amortisation – is now running at 50%-70%, which is similar to AT&T’s 72% at the peak of the 2000 telecom bubble and Exxon’s 65% at the peak of the 2014 energy bubble. In both the telecom and energy bubbles, an exciting new technology (the internet for telecom, shale for energy) justified unprecedented levels of investment. Eventually, supply outstripped demand, and the companies never earned a return on their investment… However, customers benefited massively from cheap internet and energy. Maybe the same is going to be said of AI? The dot-com bust happened before Google had gone public. Facebook and Twitter did not yet exist. Netscape Navigator and Microsoft’s Internet Explorer were still fighting to be the dominant browser. The money lost by the irrationally exuberant back then did not stop the internet from transforming society and the economy. And several of the leading companies from that era remain in the lead today. The lead players today are still some of the best supported companies from that era — Microsoft/Apple/Oracle/Amazon. However, that didn’t stop each of those mega stocks falling -65%, -80%, -83% and -94% respectively vs their Tech bubble peaks to their troughs. Another sobering thought is that they took 16, 5, 14 and 7 years respectively to regain those 2000 peak prices! If you are a shareholder, a burst bubble could be really bad news. However, the fact that this bubble, like the dot-coms, has been funded primarily by equity is good news for everyone else, as the economic impact should be reduced. The stock market is not the economy! This is not like the credit crisis of 2008, which had much more severe implications for the economy, so if a correction comes, Central Banks should not have to get involved. Sure, investors could lose, and lose big if they haven’t diversified and have ‘share concentration’ in the mag 7 (or by default in market cap trackers and ETFs), but it shouldn’t get to the point that banks have to be bailed out again. The AI journey is all part of that ‘Creative Destruction’ made famous by Joseph Schumpeter in the 30s and 40s. To quote: The opening up of new markets, foreign or domestic, and the organisational development from the craft shop to such concerns as U.S. Steel illustrate the same process of industrial mutation—if I may use that biological term—that incessantly revolutionises the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. |
Wealth tax – does it work? Wealth tax is something that has often been floated by our avaricious ruling party her in SA Inc, and you can find it around the world – but is it really a viable way to extract more tax from the wealthy? This isn’t a new concept, centuries back France decided that a good measure of wealth was the number of windows you had in your home and taxed accordingly – guess what? Homeowners just bricked up windows. Today, they just pack their bags and trek. France is again considering a wealth tax (this has been on the back burner for years), which would be as nonsensical today as it was 500 years ago. The issue is explosive for the president, whose economic policy is grounded in keeping a lid on taxes in a bid to stir business activity. Throughout his eight years in office, that has got results with falling unemployment and rising foreign investment. But it earned him the moniker “president of the rich,” and critics have pointed to a rise in poverty rates under his administration. Over the next decade, almost every rich country will have to face the fiscal reality of an unsustainable debt burden. All (except the US in many respects) have expanded their welfare state to serve not only the needy but also the middle class, with expensive pensions, health care and worker benefits. But with an ageing population, slower growth and rising interest rates, the math just doesn’t add up. Something has to give. In the meantime, US and European politicians are grasping at one strategy they hope will allow them to avoid hard choices: soaking the rich. You’re not going to hear much of this talk from the Donald, who protects his billionaire buddies who stood behind him at his inauguration, but both France and the UK are debating a wealth tax, hoping that it will provide enough revenue to avoid a broader tax increase or benefit cuts. France has so far been unable to even reduce the number of bank holidays (public holidays as we call them), never mind cut pensions. But one policy that has popular support is taxing wealth of more than €100 million by 2% of their net worth. To be fair, this tax bracket is not just high net worth, but uber-ultra-high net worth. The RSA equivalent ( that attracts a high estate duty) is R35m or 1,75m Euros. But wealth taxes, like the window tax, don’t work. First, it sounds small, but a 2% tax on wealth is the equivalent of a 50% capital gains tax, assuming a 4% return on assets, and wealth taxes need to be paid even if someone’s investments lose money. Second, by removing so much capital from markets and reallocating it to the government, a wealth tax could lower growth and distort incentives. The primary problem with a wealth tax, however, is that it is just very hard to implement. It gives the rich an incentive to either move somewhere with lower taxes or put their wealth in hard-to-value assets, such as art or private equity. That seems to be why UK Chancellor of the Exchequer Rachel Reeves has rejected the idea. In the US, wealth tax proponents are less prominent, but there is a growing “eat-the-rich” populist movement on the right and left. The probable next mayor of New York City is planning on limiting the profits of landowners by requiring them to freeze rent on the city’s rent-stabilised units — an effective cut once inflation is accounted for. He also wants to increase corporate taxes and has proposed a 2% flat tax on New Yorkers who earn more than $1 million. He also plans to use the revenue to provide many new benefits for the middle and upper middle class — rather than fund existing unfunded obligations, which will probably get worse under his plan. It is a risky strategy – but we are living in an era where the president of the wealthiest country in the world shoots from the hip and fights in courts later when all the damage has been done. New York’s finances are dependent on a handful of high earners. A flat tax, as opposed to a marginal tax levied on different tiers of income, is not considered optimal by tax experts because it creates perverse incentives — mainly to keep your earnings below the level at which all your earnings become subject to higher tax. California did not have much luck with (better-constructed) tax hikes on its high earners, as many left the state. If the US economy booms and there is no recession or financial crisis in the next decade or so, a wealth tax could work (though even then it probably wouldn’t raise much revenue). More importantly, they could grow themselves out of the debt problem, which, frankly, should be top of mind, not this chump change tax change. Rich people, like all humans, respond to incentives — and there just aren’t enough rich people to pay for everything. And there is no getting around the fact that the US governments, both national and local, have been overpromising and undertaking for years. Not only will the rich have to pay more taxes, but so will everyone else for the debt issue not to spectacularly implode down the line (but by that time, those geriatrics that are currently in power will probably be long gone). Author: Dawn Ridler Gold is all the rage in 2025. I find the recent move into Gold interesting because a few years ago, the only people who were interested in Gold were miners and goldbugs who inadvertently believed that this is the only asset class to own. It takes fortitude to own an asset class which from its peak in August 2011 went nowhere until October 2018. And like all asset classes, at some point they have their time in the sun. Below, I show the price of Gold (blue) relative to the price index of the S&P500 (purple). This clearly shows that stock investors have not been left out in the cold, but that Gold has seen large capital flows since 2024. The interest in Gold is led by central banks, which are starting to doubt the sovereignty of the US Dollar. In the past, central banks held Dollars as the reserve currency of choice. World trade occurred in the greenback and the currency was backed by the world’s largest central bank, the Federal Reserve. But runaway US federal debt and geopolitical factions have placed a question mark around the validity of the US Dollar as a reserve mechanism. Enter Gold. This isn’t a new idea, but it probably finds itself at the nexus of debt, geopolitical tensions and the rise of the non-Western block of nations which want to exert their power on the world. As these three factors converge, the price of Gold has risen in response. But the price rise is indicative of the scarcity of the metal. There just isn’t enough of it around to allow central banks to hold it in vast supplies to back their own currencies. This is why the US decided to end their relationship with the gold standard in 1971 under Richard Nixon. Free float currencies became a much more viable alternative for a growing world economy, and the positive effects of globalisation, which is sadly now in retreat. The problem central banks face, though, is finding alternatives. The West is facing a debt super cycle, which can only be solved by outright default, which is unpalatable or by creating monetary inflation. This is where new debt is created to pay back older debt, and is the reason why the current US dispensation is calling for lower interest rates so this can be more easily funded. The net result is not only a weaker currency but also the question of the sovereignty of the US Dollar. It is estimated that debt will grow by 11% of GDP p.a. as the basics of government expenditure recede to make way for debt repayments on current debt. The current US Government shutdown and the ensuing losses of jobs is a great example in point. The sticking point? Medicare payments. This is all good news for Gold miners who have been the largest winners on the JSE this year. Most of the time, Gold miners are juggling large capex expenditures, unions, safety concerns and the fluctuating Gold price. At least for now, the rising Gold price has taken one of the unknowns out of the equation. Author: Cobie LeGrange EXCHANGE RATES: The Rand/Dollar closed at R17.22 (R17.35, R17.33, R17.37, R17.58, R17.65, R17.44, R17.61, R17.74, R18.15,R17.76, R17.72, R17.90, R17.58, R17.89, 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,) The Rand/Pound closed at R23.19 (R23.22, R23.35, R23.55, R23.73, R23.84, R23.53, R23.84, R23.84, R24.09, R23.88, R23.76, R24.22, R24.08, R24.49, 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, ) The Rand/Euro closed the week at R 20.22(R20.30, R20.35, R20.38, R20.61, R20.62, R20.44, R20.56, R20.64, R21.04, R20.86, R20.61, R20.93, R 20.70, R20.91, 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, ,) Brent Crude: Closed the week $64.28 ($69.67, $66.57, $66.80, $65.52, $67.38, $67.73, $66.08, $66.07, $69.46, $68.29, $69.21, $70.58, $68.27, $67.39, $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). Bitcoin closed at $124,858 ($109,446, $115,838, $115,770, $110,752, $108,923, $114,916, $117,371, $118,043, $113,608, $118,139, $118,214, $117,871, $108,056, $107,461, $103,455, $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). Articles and Blogs: Spoiled for choice NEW Who needs a plan anyway NEW 8 questions you need to ask around retirement What to do when interest rates drop How to survive volatility in your investments What to do when interest rates drop Difficult Financial Conversations Financial Implications of Longevity Kick Start Your Own Retirement Plan You matter more than your kids in retirement 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 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 |