| 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 is likely to close solidly in the double digits for 2024, which is great for all those investors out there.  Much of that growth this year has come from Financials, up over 28%:  Resources have disappointed, down nearly 3%   Twisted Tango in Paris with bond vigilantes out in force The French government has fallen. In the 66-year history of the Fifth Republic (It was established on 4 October 1958 by Charles de Gaulle ), no prime minister has ever been dismissed so quickly. With parliament split three ways, the chances of any decisive changes to policy in any direction are close to nil. There is likely to be a stalemate in France for months. The reaction in the markets has been ‘Whatever’. The extra risk reflected in the yields payable on French OATS (medium to long-term bonds) against German bunds has actually declined last week as the drama played out. French stocks continue to be pummelled, even though for many of them the strength of their home country’s economy is of minimal interest. The biggest reason for this is that investors think they’re already covered. The risk on French bonds shot up in the summer when President Emmanuel Macron called a snap election, and has never seriously looked back. In the absence of setting a budget, the existing one rolls over. This is far from ideal, but there is none of the cliff-edge shutdown element that dogs US budget negotiations. Nor is this a direct repeat of the euro zone debt crisis, which was driven by the real risk of default. A second factor supporting OATS was Marine Le Pen. The last week has proved beyond doubt that she is now the pivotal player in French politics whether we like it or not. Michel Barnier lost his job as prime minister largely because of her decision to oppose his budget. Le Pen calmed nerves somewhat by saying that she wasn’t against budgetary restraint, she just didn’t want too much of it, to quote: ” We want to absorb the deficits, but we want to do it intelligently, without depriving ourselves of the chance to reindustrialize, to help companies. This is such an essential problem for us.” It’s positive for the bond vigilantes that she takes seriously that France needs to bring its budget down. Also, she declined to call for Macron’s resignation. His mandate runs until 2027, and he is politically very weak. If an election were held now, she would very likely win it, so this was another example of encouraging self-control. When you look at the graph below that compares the FTSE (Eurofirst index) and the S&P, Europe’s stock markets have been in the doldrums since the 2008 credit crisis, delivering no real returns.  Are things going to improve under Trump Season 2? Likely not – specifically as Europeans are going to have to spend much more defence. Peace on Russian terms in Ukraine is going to increase, not decrease the need for defence spending as Putin is likely to use the respite to rebuild his army and get back to the business of re-Sovietising Europe. The one sector in Europe worth investing in is probably arms manufacture and defence.  Dollar strength The dollar is holding the 105 level on the DXY and all the indications are that the dollar is going to remain strong in 2025. The DXY all-time graph (below) gives an interesting history. In August 1971, the US unemployment rate was at 6.1% and inflation was at 5.6% and Nixon (and his advisors) made the huge decision to break with Bretton Woods and decided to to suspend, with certain exceptions, the convertibility of the dollar into gold or other reserve assets, ordering the gold window to be closed such that foreign governments could no longer exchange their dollars for gold.  You can see on the DXY chart how the stability of the dollar suddenly changed at this point. Speaking on television on Sunday, August 15 1971, when American financial markets were closed, Nixon said the following: The third indispensable element in building the new prosperity is closely related to creating new jobs and halting inflation. We must protect the position of the American dollar as a pillar of monetary stability around the world. In the past 7 years, there has been an average of one international monetary crisis every year… I have directed Secretary Connally to suspend temporarily the convertibility of the dollar into gold or other reserve assets, except in amounts and conditions determined to be in the interest of monetary stability and in the best interests of the United States. Now, what is this action—which is very technical—what does it mean for you? Let me lay to rest the bugaboo of what is called devaluation. If you want to buy a foreign car or take a trip abroad, market conditions may cause your dollar to buy slightly less. But if you are among the overwhelming majority of Americans who buy American-made products in America, your dollar will be worth just as much tomorrow as it is today. The effect of this action, in other words, will be to stabilize the dollar. Well, that didn’t happen of course. It is possible that the dollar strength is an attempt by forex markets to price-in the next 4 years that the US has to endure of DJT Season 2? Tariffs will pay a big role. For a start it, could set off inflation again – and slow or even reverse the interest rate decline we have seen in the last 6 months. The hope that tariffs will boost local production is more a MAGA pipe-dream than reality.  China- Rare earth retaliation Last week China announced a ban on exports of 3 major rare earth elements that are used in chip manufacturing – Germanium, Gessium and Antimony. Interestingly these are a by-product of aluminium smelting – which is something that we do have. A few months ago we spoke about the South 32 Hillside smelter in Richards Bay that uses up massive quantities of our electricity at bargain basement prices (using imported aluminium from Oz). Although critical to newly evolving and increasingly essential technologies, antimony (Sb), gallium (Ga), and germanium (Ge) are generally recovered as byproducts or ‘companion metals’ of other metal ores. The stage at which companion metals are extracted depends on metallurgical processes by which the host ore mineral is extracted and processed; many companion metals are recovered late during this processing. Therefore, the current and future supply of companion metals relies not only on production of major commodities, but also on the efficient recovery of these metals during processing that recovers the primary commodity. This is obviously an opportunity for South Africa, but aren’t they highly likely to sell to China and not the US? What role does Africa play in rare earth minerals? African mines could account for nearly a 10th of the world’s rare earths in five years, climbing from near zero today, creating new players in a market dominated by China. Eight mines in countries such as Tanzania, Angola, Malawi and South Africa are expected to start production by 2029 and contribute 9% of global supply. Most of this new supply could still be secured by Western and non-Chinese processing firms if they get their act together – but China has been playing the long game in Africa for decades! China mines about 70% of the world’s rare earths and refines almost all of the material. The US and its allies are trying to build supply chains independent of China. While 37% of the future African supply is already destined to be shipped to Chinese buyers, that ship might have sailed.  Bitcoin The Asset class that many of us love to hate is back on the radar with full force – much of that is probably because Trump (and his Saffer sidekick) are seen as pro-crypto currency, and last week he appointed Venture capitalist David Sacks (ex-PayPal) to be the White House’s artificial intelligence and crypto czar. President-elect Donald Trump said Sacks will ensure the legal framework for the token has “clarity” to enable the crypto industry to “thrive.  Bitcoin has more than doubled in value this year and is up more than 50% in the four weeks since Donald Trump’s election victory, which also saw a slew of pro-crypto lawmakers being elected to Congress. In true Trump style, he took credit for bitcoin’s rise:  How’s this for a great example of rewriting history from June 2021? “Bitcoin, it just seems like a scam,” Mr Trump said. “I don’t like it because it’s another currency competing against the dollar.” He added that he wanted the dollar to be “the currency of the world”.  US payrolls The US economy added more jobs than anticipated in November, rebounding after job growth almost stalled during the prior month, impacted by devastating recent hurricanes and ongoing labour actions. Non-farm payrolls rose by 227,000 during the month, climbing from the revised higher 36,000 growth seen in October as the labour market reeled from Hurricanes Helene and Milton and a big strike at Boeing (NYSE:BA) factories in the West Coast. Economists had expected a reading of 202,000. The overall unemployment ratecame in at 4.2%, matching expectations, and beating the prior month’s 4.1% rate.Average hourly earnings came in at 0.4%, unchanged from October and above the 0.3% expected. “Over the month, employment trended up in health care, leisure and hospitality, government, and social assistance. Employment increased in transportation equipment manufacturing, reflecting the return of workers who were on strike. Retail trade lost jobs,” according to a report from the US Bureau of Labor Statistics reported today. The number of Americans filing new applications for unemployment benefits rose slightly last week, pointing to steadily easing labour market conditions heading into the final stretch of 2024. Sluggish hiring, however, means some people who lose their jobs are collecting unemployment checks for longer periods relative to early this year, potentially keeping the jobless rate above 4.0%. Economists said this should allow the Federal Reserve to cut interest rates again this month despite stalled progress in lowering inflation to the U.S. central bank’s 2% target.  S Korea – a masterclass in financial management in an emergency Minutes after South Korean President Yoon Suk Yeol declared martial law on Tuesday night, plunging the country into its worst crisis in decades, his stunned finance minister knew his priorities: throw everything at defending the currency. By around 11 p.m., Choi Sang-mok, who was among the majority of cabinet members who opposed martial law, had set up an emergency meeting at the Seoul Bankers Club, an unofficial meeting place for top policymakers from the central bank, finance ministry and banking and markets regulators. As soldiers stormed the nation’s parliament, Korea’s top four financial authorities, known as F4, activated an emergency playbook that had been used during past crises, scrambling to head off a crippling selloff in the won before Asian markets awoke. The first announcement came swiftly. South Korea would inject unlimited cash into markets as needed, the finance ministry said, which pulled the won back from lows last seen in 2009 during the global financial crisis. In the four decades since South Korea was last under martial law, the nation has weathered several crises and significantly evolved its systems to eschew the strongman politics of the past and focus instead on ensuring economic stability. Lessons from the 1998 Asian financial crisis formed the basis for the playbook. That episode ran deepest for South Korea, a country hugely exposed then to short-term debt and a playground for foreign speculators, forcing it into what many Koreans saw as a humiliating rescue package from the International Monetary Fund. Citizens donated their gold to a depleted national coffer. By 1 a.m. the next morning in Seoul, parliament had declared the martial law decree invalid. The F4 persisted with measures, held overnight meetings with their deputies, met again at 7 a.m. and pledged to keep markets functioning normally while the financial regulator said it was ready to deploy a 10 trillion won ($7.06 billion) stock market stabilisation fund. The prime minister may not survive the week. At least in this corner of the world citizens are having no truck with dictators. The plan mostly worked. The won is off its two-year lows and Korea’s stock market, one of the emerging world’s worst performers this year, has lost just over 2.5% over the past three days. Japan, perhaps offers a masterclass on how not to manage an economy, is staying guarded on the timing of the next rate hike in December – hardly a done deal given soft consumption, its governor’s cautious decision-making style and anxiety over U.S. economic policy in a second Trump presidency.  RSA GDP Real South African gross domestic product (GDP) weakened by 0,3% in the third quarter of 2024. The agriculture industry was the main drag on growth on the production (supply) side of the economy, with transport, trade and government services also contributing to the slowdown. On the expenditure (demand) side, there was a decline in imports, exports and government consumption.  Agriculture recorded its second consecutive decline, falling by 28,8% in the third quarter. It was the largest negative contributor, pulling GDP growth down by 0,7 of a percentage point . The industry experienced a rough quarter. Drought plagued the production of field crops such as maize, soya beans, wheat and sunflower. Adverse weather conditions also hindered the production of subtropical fruits, deciduous fruits and vegetables in parts of the country. Three other industries also performed poorly. Transport, storage & communication was the second largest negative contributor, recording a decline in land transport and transport support services. Disappointing figures from the wholesale trade, motor trade and restaurant, fast-food & catering sectors pushed the trade, catering & accommodation industry lower. The general government was weaker on the back of lower employment numbers in the civil service. Not all was bad news. Finance was the largest positive contributor, pushed higher by banking, insurance, real estate and other business services. The electricity, gas & water supply industry expanded for a second straight quarter, driven higher by a rise in electricity generation and consumption. Stronger manganese and chromium ore production helped boost mining. Iron, steel & machinery production drove much of the upward momentum in manufacturing. Construction’s second straight rise of 1,1% may seem relatively small, but it’s the biggest increase in two years. The positive showing in the third quarter was mainly driven by construction works, with support from activities related to non-residential buildings. On the expenditure (demand) side of the economy, exports decreased by 3,7%, representing the largest decline in three years. The slump was mainly due to weaker trade in pearls, precious & semi-precious stones and precious metals; vehicles & transport equipment (excluding large aircraft); chemical products; base metals & articles of base metals; and machinery and electrical equipment. Imports were also down (-3,9%), driven lower by decreased trade in vehicles & transport equipment (excluding large aircraft); mineral products; vegetable products; and base metals & articles of base metals.  Gambling leaves a mark on household spending. Households increased consumption expenditure by 0,5% in the third quarter. Consumers spent more across most product categories, except for transport. Gambling has risen sharply in recent years, according to the latest set of statistics from the South African National Gambling Board. Gross gambling revenue totalled R59,3 billion in 2023/24, a 25,7% rise from the year before. This follows an increase of 37,0% in 2022/23.2. Author: Dawn Ridler  2025 Scott Kenneth Homer Bessent is an American hedge fund manager. He was a partner at Soros Fund Management and the founder of Key Square Group, a global macro investment firm. Bessent has been a major fundraiser and donor for Donald Trump. He was an economic advisor for Trump’s 2024 presidential campaign., and is now Trump’s pick for head of Treasury. A strong dollar helps at keeping inflation at bay which is good for the average American and it becomes a negotiation tool as far as tariffs are concerned. If inflation is under control, it givesTHis is only a theory and needs to be tested by Mr Bessent the US economy a chance to deal with its spiralling debt issue. The Dollar has seen net inflows since at least 2012. It’s a market of choice driven by technological innovation. This leads to a stronger Dollar and its difficult to see how this will end. But if this coincides with too much liquidity injection (through bond issuances) you could very well create inflation, triggering rate increases again. The FED will do everything in their power to not increase rates again. What does this mean for Emerging Markets? A strong Dollar will force tighter emerging market monetary policy as they try and attract capital. The South African MPC is in a rate cutting cycle at present, but a strong Dollar could hamper this effort. The US Treasury has been issuing short-dated treasuries as the yields on the long end of the curve has become too expensive to issue. Apart from this, the appetite for long dated bonds has diminished. Since 2022 the average duration for new issuances was only 1.2 years. I don’t think Mr Bessent has a choice but to continue along this trajectory which is good for market liquidity. The US may have its issues, but the rest of the world have even more. Also consider the deglobalisation trend underway. The markets that will benefit the most from this are developed economies which take back a process or a supply chain… not emerging markets. So if liquidity continues and the Dollar is at the very least managed this can underpin US valuations in 2025 even if share prices rise at a slower pace. The rally in equities seem to be getting broader with small caps starting to join the rally. Generally, bull markets start broad with a large amount of counters and end with a narrower set of counters. This time round it has been the other way as large tech leads the pack and with a broader set of counters now joining the rally … interesting. The Equally weighted S&P 500 has 77% of its counters that have moved above their 200-day moving average indicating this broader rally. The Equally weighted S&P is trading of a 19.8 trailing P/E whereas the S&P500 is trading at 25x. Whereas one can argue that tech companies have become expensive, the Equally weighted S&P500 shows a much fairer picture.  Jurrien Trimmer from Fidelity argues that the heavy lifting in 2025 will have to come from earnings growth. I tend to agree. The Republicans look like they will create the backdrop and companies can get on with turning a profit. Long may it last. Author:- Cobie Legrange EXCHANGE RATES:  The Rand/Dollar closed at R18.03 (R18.05, R18.11, R18.21, R17.58, R17.60, R17.66, R 17.41, R17.48, R17.12, R17.42, R17.85, R17.82, R17.71, R17.85, R18.32, R18.26, R17.95, R18.23, R18.20)  The Rand/Pound closed at R22.99 (R22.98, R22.72, R22.99, R22.73, R22.72, R22.89, R22.75, R22.93, R22.90, R23.20, R23.44, R23.41, R23.13, R23.39, R23.28, R23.32, R23.34, R23.00, R22.63, )  The Rand/Euro closed the week at R19.07 (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 $71.00 ($72.38, $75.05, $70.87, $73.86, $73.99, $75.57, $78.67, $77.95, $71.96, $74.68, $71.47, $76.99, $79.05, $79.09, $79.43, $77.56, $85.03, $83.83, $84.86, $85.22).  Bitcoin closed at $99,341 ($97,113, $97,950, $90,679.47, $79,318, $68,277, $66,989, $62,876 , $62,267, $65,596, $62,603, $54,548, $57,947, $63,936, $59,152, $60,847, $61,903, $59,760,). Articles and Blogs: 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 |