| 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, what you’d like more or less of – both in the newsletter and podcasts. Do you have topics you’d like to hear a blog on? Do other people’s wealth journeys interest you? Market Watch The JSE came off the boil slightly this month but has recovered slightly in the last few days.  Over the last 3 years we are still comparing favourably with Wall Street.  Trump picks falling like dominoes. The problem with surrounding yourself with turkeys instead of eagles is that they get fattened up for Thanksgiving and are just fodder for well-fed Americans. Not much soaring going on here. Last week we talked about the controversial Trump picks – and they are already biting the dust. Matt Gaetz is withdrawing from consideration to be US attorney general. The US president-elect wanted the controversial former Congressman to upend the Justice Department and potentially use it to target his political enemies. Gaetz, the subject of investigations ranging over allegations including sex trafficking of a minor and drug use, has categorically denied any wrongdoing. An earlier federal criminal probe of him was eventually dropped. Still, the congress findings are being leaked and now that he has (thankfully) burned his bridges (resigning his Congress position) the full report will likely come out. But Trump’s problems don’t end there, as his selection of Russia-friendly Tulsi Gabbard for national intelligence director, vaccine-sceptic Robert F. Kennedy Jr. for secretary of Health and Human Services and cable television host Pete Hegseth for Secretary of Defense may also be in jeopardy. In the case of Hegseth, who has no high-level experience in government or the military and is of deep concern to the Pentagon for other reasons, the Associated Press today reported new details of sexual assault allegations from 2017. Hegseth has denied any wrongdoing. Trump has replaced Gaetz with Pam Bondi (former Florida Attorney General) and her experience contrasts with Gaetz’s lack of traditional qualifications. Trump says aiming to end DOJ politicization and focus on crime. Trump picked a loyalist after clashing with Attorneys General during his first term. Trump has also nominated Dr Oz to head up Medicare and Medicaid. While he is actually a medical doctor he is better known as a TV host, supplement flogger (like the fellow showman Alex Jones) and the great flag carrier for hydroxychloroquine during the pandemic.  Using Bitcoin ETFs? Cobie has done an in-depth focus on Bitcoin this week – but in a side note, MicroStrategy shares tumbled after Citron Research said it’s betting against the software company, which has effectively transformed itself into a Bitcoin investment fund. The stock fell 16%, marking its worst day since April 30—and during an extended rally in Bitcoin none the less. MicroStrategy has become nearly synonymous with Bitcoin after it snapped up billions of dollars of the cryptocurrency, sometimes selling debt to finance the purchases. However, with the rollout of Bitcoin ETFs, investors can buy such funds directly instead of using MicroStrategy’s stock as a publicly traded proxy. Buying ETFs is a much safer way for the average Jo to get the advantage of the asset class without getting into the still dodgy world of brokers, passwords and other shenanigans of this asset class – powered by greed with little knowledge.  RSA Inflation and interest rates Last week the RSA’s October inflation print came in at a surprising 2,8% and the Governor of the Reserve Bank erred on the side of caution and only dropped the interest rates by 25 bps to 7.75% – clearly taking the FED’s lead on this issue. With so much expected volatility in the Trump season 2, and sticky inflation still a real worry, this is probably the best course of action. We expect another 50 bps drop in the next year which will bring repo to 7.25%. This is still some 50bps above the pre-pandemic level we’d got used to. A slightly higher level, when the US is some 300 bps above their long-term average, makes sense (even if the average consumer takes the brunt of it). Falling fuel prices remain the primary factor behind the slowdown in inflation. Petrol and diesel prices declined by 5,3% between September and October, taking the annual rate for fuel to -19,1%. The price for inland 95-octane petrol in October was R21.05, the cheapest since February 2022 when the price was R20.14. The aggregate transport index decreased by an annual 5.3%, pulling overall inflation down by 0.8%.  After remaining steady for six months in the 4.5–4.7% y-o-y range, annual inflation for food & non-alcoholic beverages (NAB) retreated to 3.6% in October. This is the lowest rate since November 2019 (3.5%). The graph above shows you where the increases and decreases have come from in the year to end of October. With upward pressure on the oil price from a declining rand, this multi-year low could just be a blip.   Ukraine war – increased risk reflected in markets There was an uptick in tensions in Ukraine last week – with many of the players well aware that Trump wants this conflict to end as soon as possible, and may even withdraw from NATO. While the rest of the world has made ‘workarounds’ from the fuel and grain issues we saw early in the war, this conflict is obviously a huge concern and could spill over into neighbouring countries if Putin is emboldened by Trump’s rhetoric. Gold has had a wild ride this year – and as escalating geopolitical tensions drove investors to safe assets it has reversed its downward trend that we have seen recently.  In a week that saw Russia lowering its threshold for using nuclear weapons and firing a hypersonic ballistic missile at Ukraine, investors’ appetite for riskier assets has been blunted, though bitcoin stood on the brink of breaking the $100,000 barrier for the first time.  Japan It’s always interesting to keep an eye on Japan – nobody wants to replicate the disastrous doldrum years their economic policies forced them into for the first two decades of this millennium. Japan’s October core CPI rose 2.3% yr-o-yr (vs forecast +2.2%) -this ’normalisation’ of interest rates is actually quite a positive sign. You can see from the graph below that Japan often fell into ‘negative inflation’ for prolonged periods, which is deeply damaging to a country’s economy and business. It’s little wonder that Japan is the home of ‘just-in-time’ manufacturing – if you have deflation you don’t want stockpiles of goods in a warehouse that can be manufactured cheaper today.  Japan inflation rates In October Services inflation perked up, signalling pressure from rising wages. The majority of economists expect the BOJ to hike rates in December. The graph below gives the interest rates over a long period in Japan – and you can see that there were periods where the rate was actually negative. This is one of the major reasons we saw the unwinding of the Japanese carry trade a few months back – you could borrow money for next to nothing, use that money to buy US Treasuries and make a considerable profit for very little risk. That’s all changing now.  Japan interest rates  The Adani affair I love reading about the scams and shenanigans of the ultra-rich – more than anything else, I suppose, so that I can be aware of what to look it likes when an investment looks ‘too good to be true’  This is how this story goes: In June of 2020, a renewable energy company owned by Indian billionaire Gautam Adani won what it called ” the single largest solar development bid ever awarded” – an agreement to supply 8 gigawatts of electricity to a state-owned power company. But there was a problem. Local power companies did not want to pay the prices the state company was offering, jeopardizing the deal. To save the deal, Adani allegedly decided to bribe local officials to persuade them to buy the electricity. That allegation is at the heart of U.S. criminal and civil charges (unsealed on Wednesday) against Adani, who is not currently in U.S. custody and is believed to be in India. The alleged hundreds of millions of dollars in bribes promised to local Indian officials caught the attention of the U.S. Justice Department and Securities and Exchange Commission as Adani’s companies were raising funds from U.S.-based investors in several transactions starting in 2021. This account of how the alleged scheme unfolded is drawn from federal prosecutors’ 54-page criminal indictment, of Adani and seven of his associates and two parallel civil SEC complaints which extensively cite electronic messages between the scheme’s alleged participants. This deal was a major step forward for Adani Green Energy, run by Adani’s nephew, Sagar Adani. Up until that point, the company had only earned roughly $50 million in its history and had yet to turn a profit, according to the SEC complaint. But the initiative soon hit roadblocks. Local state electricity distributors were reluctant to commit to buying the new solar power, expecting prices to fall in the future. Sagar Adani and the Azure CEO at the time discussed the delays and hinted at bribes on the encrypted messaging application WhatsApp, garnered from a confiscated device. When the Azure CEO wrote on Nov. 24, 2020, that the local power companies “are being motivated,” Sagar Adani allegedly replied, “Yup … but the optics are very difficult to cover. In February 2021, Sagar Adani allegedly wrote to the CEO, “Just so you know, we have doubled the incentives to push for these acceptances.” The SEC did not name the Azure CEO as a defendant, but Azure’s securities filings show the CEO at the time was Ranjit Gupta. Gupta was charged by the Justice Department with conspiracy to violate an anti-bribery law. In August of 2021, Gautam Adani had the first of several meetings with an official in the southern state of Andhra Pradesh, to whom he allegedly ultimately promised $228 million in bribes in exchange for agreeing to have the state buy the power, according to the Justice Department’s indictment. By December, Andhra Pradesh had agreed to buy the power, and other states with smaller contracts soon followed. Other states’ officials were promised bribes as well, U.S. authorities said. “The sudden good fortune for Azure and Adani Green prompted speculation in the marketplace about the contract awards,” the SEC wrote in its complaint. Before long, the SEC began to probe. The agency sent a “general inquiry” letter to some Azure representatives and a leading investor in the company decided to pay Adani back by allowing his company to take over a potentially profitable project. The representatives and investor allegedly agreed to tell Azure’s board of directors that Adani had requested bribe money, but hid their role in the scheme, prosecutors said. All the while, Adani’s companies were raising billions of dollars in loans and bonds through international banks, including from U.S. investors. In four separate fundraising transactions between 2021 and 2024, the companies sent investors documents indicating that they had not paid bribes – statements prosecutors say are false and constitute fraud. During a visit to the United States on March 17, 2023, FBI agents seized Sagar Adani’s electronic devices. The agents handed him a search warrant from a judge indicating that the U.S. government was investigating potential violations of fraud statutes and the Foreign Corrupt Practices Act. According to prosecutors, Gautam Adani emailed himself photographs of each page of the search warrant on March 18, 2023. His companies nonetheless went through with a $1.36 billion syndicated loan agreement on Dec. 5, 2023, and another sale of secured notes in March 2024, and once again furnished investors with misleading information about their anti-bribery practices, according to prosecutors. On Oct. 24, federal prosecutors in Brooklyn secured a secret grand jury indictment against Gautam Adani, Sagar Adani, Gupta, and five others allegedly involved in the scheme. The indictment was unsealed on Nov. 20, prompting a $27 billion plunge in Adani Group companies’ market value. Adani Green Energy promptly cancelled a scheduled $600 million bond sale. The graph below tells the story:  Author: Dawn Ridler  Crypto Land Love or it hate it, crypto is on the move again. Bitcoin, which has had the longest run in history it was $40,000 in January and has now spiked to very close to $100,000. I have never seen an asset class divide opinion like Crypto. There are professional investors which have called it a Ponzi scheme and to be avoided at all costs whereas others only speak of its merits. Crypto has now become its own asset class. There are a range of different coins to choose from with Bitcoin leading the pack. As with anything that sees the kind of price action that Bitcoin has seen, this introduces speculative assets. Apart from the smaller coins on offer, there are also a range of memecoins based on jokes, pop culture and the likes. Yes, some of these may attain value over time but many of these may very well go to zero. Rather focus on what crypto means, who the major players are and what they are trying to achieve. To show how serious people are about their crypto holding Jurrien Trimmer from Fidelity posted the below graph:  It shows the price movement of Bitcoin but then also shows the size of the wallets of those holding Bitcoin. Investors that hold over long periods of time are called HODlers and they believe in the long-term case for crypto rather than attempting to speculate in the asset class. If you look at the size of these wallets one learns something quite amazing. Wallets that hold $10 million or more account for over half of the wallets. Crypto investors are often seen as wild speculators but here one sees that serious long-term investors exist in this space. The one thing I have learnt about crypto is that it behaves as a growth asset class. The case exists for it to be an alternative money store, but it doesn’t behave like a currency should. The bedrock of a good currency is stability and crypto is too volatile for that. What it does though achieve is answer a future problem which relates to the effects of long-term currency debasement. As I have written before, Western countries are debasing their currencies by issuing new debt to repay older debts or at least the interest thereof. In A Tale of 2 Budgets which I wrote a few weeks ago, the UK government (according to their new budget) will only spend 35% of the Labour budget on new projects. This long-term currency debasement detracts from the purchasing power of currencies forcing citizens to work more than one job and the inability to afford capital items such as a home becomes the norm. In the UK, for instance, home ownership requires about 7x your salary for a foothold whereas 20 years ago you required 3x your salary to join the property train. Now some of that increase is due to property scarcity as well, but if the British government continues to debase their currency, home ownership will not only become completely unaffordable but homeowners are going to find it increasingly difficult to part with their properties. Growth asset classes are really the only way that one can solve for this and crypto is part of this band. At the heart of cryptocurrencies is the blockchain. This is the ledger that holds all the information about which wallets have ownership and in what quantities. The ledger is decentralized and digital and requires consensus to be reached by all participants in the network for a change to occur. So, if I sell a Bitcoin for instance, all participants in the network will agree that I have sold, who the new owner is and what the sale price was. This is fundamentally different to giving this power to a government or a bank for instance. This technology also lends itself to embedded contract terms on the blockchain. Everything we do is a set of contracts. Think about your everyday life. You drive to a store (a contract with the road authority that you will abide by the traffic rules), buy a pen (a contract with the store that the pen will work) then order a coffee (a contract with the coffee shop that they will provide a product to your liking). Now these may be simplistic in nature but contacts for cross-border transactions for instance are more complicated. These for instance can be imbedded to release a certain amount of crypto currency once the criteria of the contract has been fulfilled. This not only makes contracts cheaper to maintain but payment cannot be withheld once the contract terms have been fulfilled. These are called smart contracts and provide users with not only cost benefits but also security and transparency. A currency like Ethereum is used in this space. So are crypto currencies Ponzi-like? I think the idea answers a societal question and the technology has amazing future uses. The path to it becoming mainstream is a volatile one but requires attention. Generally speaking, those are not the hallmarks of a Ponzi scheme. This though has not stopped bad actors from using the poorly understood asset to create their own Ponzi schemes. Author:- Cobie Legrange EXCHANGE RATES:  The Rand/Dollar closed at 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 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 R18.87 (R19.19, R18.85, R19.09, R19.07, R19.05, R19.19, R19.12, R19.47, R19.79, R19.72, R19.80, R19.70, R20.01, R19.94, R19.58, R19.74,)  Brent Crude: Closed the week at $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 $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: Pre-retirement – The make-or-break moments NEW Some unconventional thoughts on wealth and risk management NEW 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 |