| 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? This newsletter will also be uploaded to our website on Monday mornings. Market Watch The JSE continues to be volatile and moving sideways now – and with the silly season well underway, will probably look for direction outside of South Africa until the new year. There is no stopping the US markets, which are loving the thought of less regulation, less tax and a better trading environment for them – to hell with the budget deficit.   Tariffs – not that simple One of the big bits of news last week was a proclamation from Trump that he would impose 25% tariffs on Canada and Mexico (where the replacement to NAFTA, United States-Mexico-Canada Agreement (USMCA) replaced the North American Free Trade Agreement (NAFTA) on July 1, 2020, signed into law by Trump. This is still in force). Nobody wins in a trade war, and Trump voters might just find that out. The most obvious misunderstanding about the Trump proposed tariffs is that they are paid by the exporting country. They aren’t of course, they’re paid by the end consumer and are potentially highly inflationary. It’s not clear how serious Trump’s threat is. The U.S.-Mexico-Canada free trade agreement forbids just imposing tariffs on other member countries. And it’s not clear whether the economy could even tolerate sudden levies on imports: Auto plants on both sides of the border rely on each other for parts and components, and some production lines could screech to a halt.  Amusingly this was the response of Mexico’s first female president, Claudia Sheinbaum: “We negotiate as equals, there is no subordination here, because we are a great nation,” Sheinbaum said, while adding, “I think we are going to reach an agreement.” She added that “It is unacceptable and would cause inflation and job losses in Mexico and the United States,” Sheinbaum said, while offering to talk about the issues. “If tariffs go up, who will it hurt? General Motors,” she said. A global trade war will impact everyone – even us minnows down at the fun end of Africa. Congress has given the executive branch ( the presidency) wide authority to set trade policy. Any trade reform effort considered by President Trump and his advisors is likely to include the International Trade Commission (ITC).The ITC’s role is less widely understood. The ITC maintains the ability to institute “unfair import investigations,” a tool ostensibly designed to protect American companies from intellectual property infringement violations stemming from foreign competitors. If an infringed product is imported into the United States, the ITC has one remedy – an Exclusion Order – that completely bans the product in question from the U.S. market. Unfortunately, in recent years, the ITC has become the forum of choice for opportunistic patent assertion entities (PAEs). Also known as patent trolls, PAEs are companies that purchase portfolios of patents with the sole purpose of using them as the basis for infringement litigation, forever tying them up in endless petty litigation instead of allowing them to do their real job. The ITC rarely conducts a thorough public interest review before taking action. It’s been nearly forty years since it last used a public interest exemption to decline issuing an Exclusion Order. As a trade war heats up the US will ‘want’ a more effective ITC to stop dumping, so this sector is ripe for a Trump/Musk style revamp.  Black Friday Online sales in the U.S. were up about 4% for the first half of the Thanksgiving holiday, compared to a 2% rise last year, a fresh sign that shoppers are lapping up steep discounts from retailers. U.S. retailers have been rolling out bolder discounts early and bulking up their holiday deals to capture the attention of more frugal shoppers this year. Best Buy CEO Corie Barry said the electronics retailer “expected lower demand between sales events, but the impact was steeper than expected,” echoing Target executives who reported a stronger-than-anticipated response to promotions this year. Quite frankly consumers have become wise to the tricks of the retail trade where the ‘real’ prices are actually the promotion prices, and these prices are artificially increased from time to time to boost the promotions. We even see this with our online Retailers. Department stores Kohl’s and Macy’s are being cautious with their annual forecasts due to a slowdown in sales. There has been a long-running decline in department store sales for decades now, even here in RSA – who even remembers John Orrs and The Hub? Abercrombie & Fitch and Gap raised their forecasts because of strong demand for trendy apparel. Retail giants Walmart and Amazon.com also are expected to benefit from what could be a mixed holiday shopping season. All American retailers are under pressure from the huge Chinese retailers Temu and Shein – and even some US manufacturers are actually listing their products on those platforms (and keeping their price point). Interestingly, the peak Thanksgiving window for online shopping in the U.S. was between 7 p.m. and midnight EST, when 35% of sales occurred. Whatever happened to walking-off holiday feasts? This year’s holiday shopping season, which runs from Thanksgiving to Christmas, is expected to grow at its slowest pace in six years. The rise in total online sales is only expected to be 1% for he season (Which indicates that brick-and-mortar stores probably fared even worse). Mexico is a huge exporter of appliances to the US, so the tariff signal put out earlier last week is likely to buoy up the sales of those over the next few weeks.  Saffers feeling better this year People believe things are going much better in SA than a year ago. Remember the dark days in November 2023, when everybody was literally sitting in a dark room for a few hours every day – probably stressing about high fuel prices, expensive food and a currency that made a holiday unaffordable? We all hoped for something better and perhaps the GNU started to show us some of that? The FNB/BER Consumer Confidence Index (CCI) jumped from -10 to -5 index points during the third quarter of 2024, recording its second consecutive 5-point increase. Although the latest reading remains somewhat below the long-term average of the CCI (at zero since 1994), the reading of -5 is the highest that confidence has been since the first half of 2019. It was at a record -25 in June 2023. Besides the slowdown in inflation and the interest rate cut in September and November, other factors such as the formation of a national unity government, the absence of load shedding, a stronger rand and significant fuel price reductions have all played a role in boosting consumer confidence. On a positive note, there are even projections that load-shedding won’t be back, and if it does come back it won’t be until 2029. The pressure on barely-better salaries has eased compared to a year ago. The ‘average’ household should have R1 000 to R2 000 more every month than in November 2023 thanks to lower petrol prices and interest rates. Assuming a debt burden from houses and cars of R2m, the drop in interest rates alone, the 50 bps recent cuts in interest rates will put up to – on average – R830 more in the pockets of consumers. The 50-basis-points cut in interest rates will inject nearly R9.4 billion into the economy next year or R775 million per month as consumers use their capital to shop again. The biggest problem remaining is probably the high unemployment rate, but even that improved. The Quarterly Labour Force Survey showed a slight decrease in the unemployment rate as 294 000 people found employment in the third quarter. In short, nearly 300 000 more people are now able to earn money for themselves and their families.  Inflation The resurgence of inflation remains one of the underlying threats to global markets and growth in the near future. The latest reading of the Federal Reserve’s preferred inflation gauge showed price increases were flat in October from the prior month, raising questions over whether the progress to the 2% target has been achieved. In the graph below, the dark green line is Core PCE and it’s not going in the direction we’d all like.  Still, markets expect the Federal Reserve to cut interest rates once more in 2024. As of Friday, markets were pricing in a roughly 67% chance the Fed cuts rates at its December 18th meeting, maybe another 25bps. Obviously, the CPI and PPI data for November will be key in this decision.  Amazon and other Magnificent 7s Three stocks have now reached a market cap of $3 trillion: Apple, Microsoft, and most recently Nvidia. Earnings growth across the technology sector has been phenomenal in the last decade-plus, leading investors to get increasingly enthusiastic about these stocks. Most recently, innovations in artificial intelligence (AI) have further spurred on these shareholder gains – Cobie and I have covered that extensively this year. Now that the trillion-dollar club is filling up – what about $10 trillion? (Just a bit of math and etymology here: A trillion is 10 to the power 12 (twelve zeros), a quadrillion is 10 to the power 15 another 3 zeros) – who might be the first one to get there, is it one of the above – or perhaps the path to a globalized world starts detracting from market cap size? This year we have been very focused on the power of AI, and that is certainly what has pushed Nvidia into this exclusive club, but that AI innovation has to be monetised and that could take a while. Look at online shopping – that took two decades to really become a force to be reckoned with. The wind under the wings of Microsoft (and Netflix) has been the subscription model – Amazon is another one of the contenders for this race. Amazon Prime is a subscription business. Subscription revenue was $43 billion over the last 12 months, up from a measly $2.76 billion in 2014. Remember that Amazon can let these profits fall to the bottom line if it decides to stop reinvesting for growth. Amazon is a vertically integrated online marketplace. The core e-commerce business model has razor-thin margins, which will never change. However, the company has layered in highly profitable business lines on top of the e-commerce marketplace, not only is there Amazon Prime but the $54bn it generates in advertising mainly from sponsored listings on its e-commerce platform. We haven’t even started to talk about their cloud services (AWS – Amazon Web Services) which generated $27,7bn this year (up 19%). The unit’s operating margin came in at 38%, the widest for AWS since at least 2014 (Google Cloud reported an operating margin of 17%.) Could they be the first member of the $10 trillion club?  Warren Buffet’s Will In an interesting development last week, Warren Buffet released a letter outlining the contents of his will. Warren Buffett, who has amassed a $150 billion personal fortune, made a case against creating “dynastic” wealth as he named three independent trustees to oversee his philanthropy following his children and donated an additional $1.1 billion in Berkshire Hathaway stock to his family’s four foundations. Instead of leaving his three children an enormous inheritance, the 94-year-old legendary investor has long pledged to give away 99% of the fortune he built at Berkshire, the Omaha, Nebraska-based conglomerate he has been running since 1965. Buffett believes family wealth dynasties could have negative consequences such as eroding personal growth and complicating relationships. Meanwhile, they also create societal uncertainties as it’s unforeseeable how future generations choose to distribute such wealth. “I’ve never wished to create a dynasty or pursue any plan that extended beyond the children,” Buffett wrote in a lengthy letter Monday. “I know the three well and trust them completely. Future generations are another matter. Who can foresee the priorities, intelligence and fidelity of successive generations to deal with the distribution of extraordinary wealth amid what may be a far different philanthropic landscape?” The “Oracle of Omaha,” who owns about 37.6% of Berkshire Class A shares, said the assets he’s collected may take longer to deploy than his children live. He has appointed three trustees of his charitable trust to potentially succeed his children in disbursing his wealth. Buffett’s children are now 71, 69 and 66. Warren Buffet has advice for all parents “whether they are of modest or staggering wealth”: let your kids read your will before you sign it. I don’t necessarily agree with him. If you do decide to disclose the contents of your Will, be sure each child understands both the logic for your decisions and the responsibilities they will encounter upon your death. Even if you don’t your children must at least know where the physical copy of the Will is held. I have had the sad task of helping to wind up a few estates this year and missed expectations of children, specifically, seem to be most contentious. These are tough conversations to have, but they’re meaningful and when approached correctly, can strengthen relationships. Kids’ imaginations can run wild with what they think they should be getting. As a result, you should be as clear and thorough as possible about who will receive what and why. If any of the children have avaricious tendencies then you’ll do more harm than good by disclosing your financial affairs to the children. There is the very real possibility of them continuing to sit on their laurels and wait for you to pop off. Be careful of ‘pre-inheritance’ in South Africa this is not allowed by SARS and you could fall foul of the 20% donations tax rule. There is a good reason inheritance tax and donations tax are the same – both are 20%! There is the ‘reasonable maintenance’ rule for ‘helping out’ a child with income from time to time, but as soon as this starts to get into 6 figures it will raise a red flag. (There is an annual R100k allowance per taxpayer). In his letter, Buffett recalled that over the years he witnessed “many families driven apart after the posthumous dictates of the will left beneficiaries confused and sometimes angry. Jealousies, along with actual or imagined slights during childhood, became magnified.” If the inheritance is not split equally between siblings, you’ll want to explain why. Maybe one child will receive more because another got help with a down payment on a house or attended a far more expensive college, he said. A child with a spending problem might inherit a trust in which they receive their bequest in regular instalments. In large estates, leaving all or some of the capital to a Trust (probably set up before death – in other words, Inter Vivos and not Testamentary) can be a good solution. As we’re living longer, there is an increased risk of one (or even both) partners suffering from dementia in their old age. Financially you can manage this with a curatorship (which can be highly divisive) or using a Trust (especially after the death of one of the spousal pair). I am going to be writing a blog in the near future on Wills and Estates – based on some of my learnings in the last year – but in the interim please make sure that your Will is properly structured and signed correctly. A small misunderstanding of the instructions given by the author of the Will can have it declared null and void – and all your carefully thought-out estate plans go out of the window. I am always available to give you my 5c worth if you’re worried. Author: Dawn Ridler  Debasement At the end of the Roman Empire, inflation was out of control. To give you an idea of the scale of this a modius of wheat (about 9kg) sold for 0.5 a denarius in the second century sold for 10,000 denarii in 338 AD. There is a double whammy that ended the Roman Empire. The debasement of their currency lead to uncontrollable inflation which finally ended the Empire. By 211BC a silver Denarius was introduced and by 268 AD silver only made up 0.5% of a Denarius. That’s some serious debasement. Cash was spent on ongoing vanity projects and a system similar to the UK dole where wheat was handed out to citizens. Much like modern governments today, they walked a tightrope of keeping the populous happy and content whilst ensuring that they collected taxes. But the Roman Empire was very much linked to both gold and silver which they harvested from territories they conquered. When the conquering stopped so did the flow of gold and silver and this in turn forced them to debase the coins in circulation. On the face of it seems harmless but what it does is reduce the value of coins as more are printed. The actual face value reduces until finally the currency isn’t worth the “paper its written on”. Today, nations try and control source and supply of commodities without necessarily going to war. China for instance is very interest in Peru due to their large silver deposits. Silver imports into China run at 9000 metric tons. In the third century, the empire came under attack which they attempted to defend. They lost territories, their tax revenue and the ensuing looting caused a cash crunch. The Roman army was large with about 500,000 men enlisted and making up over 70% of the budget. But how do you incentivise an army on the backfoot and with a currency which is worthless? The dream of the Roman Empire became harder to sell. This was the start of the end of the Empire as the army lost it’s will to fight. The government had no choice but to debase their currency further to create enough coinage to pay the army. When this failed, parts of the army went looting introducing a half a century of turmoil. The empire limped on but by the fifth century when the barbarians started overrunning the Empire, Roman citizens started seeing them as liberators rather than conquerors. The state had become to authoritarian. Merchants were forced to provide their goods directly to the army and leaving a trade was outlawed as the government became more authoritarian to keep a grip on power. At some point they attempted to place price caps on goods and even tried to introduce new pure gold coins (called a Solidus) which ultimately failed as successor emperors debased these refusing to believe that this was the cause of inflation. For the Roman Empire a dwindling supply of gold and silver lead to accelerating inflation. Today there is a hunkering for a gold standard again as Western currencies continue to be debased due to spiralling debt. As the Romans have taught, a gold standard has limits and was the reason why it was abandoned in the 20th century. Free float currencies doesn’t have the same limits as using gold but it perhaps works best in a globalised world where there is trust between governments and most importantly where there is growth. As economies grow, they prove to others that they are viable and that they can honour their debts (bond issuance). This gives a country a standing amongst others and the level of its currency becomes a byproduct of its trade activity with others. We are now entering a deglobalized world where trust has eroded. What the Romans taught us is that there are no easy answers. I see a world where countries are driven by their own ideologies and those that align with these. Inflation will become a byproduct of who you are aligned with and currencies become a trade weapon. The next era will be one where there may be no clear global leader but where various countries (or blocks) jockey for positions. President Trump is going all out to prove to the world that the US remains a power to be reckoned with. Out with the “woke” and in with a right-agenda. But beware because the Romans proved that outspending yourself can lead to dire consequences. Author:- Cobie Legrange EXCHANGE RATES:  The Rand/Dollar closed at 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 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 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 at $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 $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: 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 |