| 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 Despite our concern at the beginning of last week, the JSE shrugged off all the AWC rhetoric from the previous weekend – but it won’t have gone away.  There is still quite a disparity between the JSE and Wall Street from a 3 year perspective – but the JSE is inclined to move in fits and start with crab-crawling in between. At the moment its ups and downs are fairly closely mirroring Wallstreet, which is a normal ‘wait-and-see’ mode.  Full blow trade war unfolding On Thursday last week the Donald had another of his Oval Office pressers. We have had plenty of coverage of what Trump announced (including some rather disturbing footage of Musk’s young son appearing to diss the Donald.) From now on, Trump is levying reciprocal tariffs on all trading partners; any tariffs other countries put on the US will be matched one-for-one. This is over and above specific strategies, such as the already-announced plan to put tariffs on aluminium and steel, and future levies on chips, cars and pharmaceuticals. It will also go beyond tariffs per se and cover value-added tax, such as is levied across the European Union, and in many other places. VAT is often imposed on imported goods – you are probably familiar with getting a VAT rebate when you leave a country. To show that he meant it, Trump admitted in as many words that this would probably mean higher US inflation in the short term, although he was confident the measures would eventually pay for themselves. Did his base get all up in arms over this? of course not (they know he is a compulsive liar, and let it slide). In the current climate, that was seen as a big admission and showed that he was prepared to lead the US electorate into making sacrifices; much more serious than had been expected. However, there were no dates, no specifics, and he didn’t even sign the by-now-customary executive order, instead merely signing a memo directing others to work on it. Run out of Sharpies Donald? Trump cited barriers in the European Union, including a VAT, as an example of what the US is considering responding to. Trump has also singled out Japan and South Korea as nations that he believes are taking advantage of the US, and thus could be targeted in his latest push. Reciprocal tariffs would amount to Trump’s broadest action to address US trade deficits and what he characterizes as unfair treatment of American exports around the globe. Trump has already imposed 10% tariffs on Chinese goods and plans to slap 25% duties on all US steel and aluminium imports next month. Peter Navarro (Trade Secretary pick) downplayed those worries on Thursday, saying the revenue raised from tariffs would be a “beautiful thing” and arguing that China-specific levies on certain key goods imposed during the first Trump administration hadn’t meaningfully driven up prices. “I would suggest to you that the tariffs we imposed on China were historic and large, and we had no problem at all with that,” Navarro said.  What about stocks In the US the stock market pretty much shrugs off all the talk from The Donald about tariffs – not surprising really, so much of it is lies, grandstanding and ‘negotiation’. A study from the United States International Trade Commission found that the costs of those tariffs were split between less-favourable margins for sellers and higher prices for downstream buyers. The impact of tariffs for American stocks is going to depend on how much of the earnings is serviced locally or offshore. The Mag 7, unsurprisingly have the biggest buffer with more than half of their earnings coming from outside of the US  The weaker dollar will make their overseas earnings look that much better. This fits a broader pattern. So far, as you can see from our favourite DXY chart below, the Dollar has weakened slightly since it became apparent that Trump is serious about Tariffs – but it has a long way to go to the ‘neutral’ territory of 100 on the DXY.   Clouds hanging over the Rainbow Nation Perhaps disappointingly since the Trump EWC bombshell last week, there has not been the call to action I would have liked to have seen from the DA, for example. Under Trump 1.0, Africa was largely ignored (other than his notorious 2018 s*hole country comment. the relatively scanty US foreign policy on Africa was largely driven by the US Agency for International Development (DOGE), which has now been shuttered by the Elon Musk-led Department of Government Efficiency. The old policy was to bait African countries with aid to counter China’s growing influence. With USAID closing, what will be the new policy? Reciprocal tariffs could, of course, make life tougher for everyone. Even before the apartheid regime fell three decades ago, land ownership in RSA was a sensitive issue (and the AWC repealed the Apartheid-era statute Expropriation Act 63 of 1973)). 25% of farmland is owned by black farmers, the Ingonyama Trust is often left out of those figures – some 2.8 Million hectares. The State owns 41% of the rest of the land, so the widely publicised figure of white ownership at 92% is way off the mark. Interestingly 11% of SA land is Arable (can be used for crops) with 69% available for grazing livestock. It is interesting that in the foreign media, it is often stated that previous attempts to ensure equitable land distribution haven’t been successful – making the big leap in the assumption that this is due to the lack of willing sellers – when the reality is that not only has Land Claims been riddled with corruption and gross inefficiency, but highly profitable farms have been handed over to woefully inexperienced farmers with no training and many of those farms have now been destroyed. (You can read some interesting articles HERE We went into this act in more detail in our last newsletter (always available mid-Monday morning on our website www.rexsolom.co.za ).The latest legislation that drew Trump’s wrath essentially empowers the government to take land for a public interest purpose, including roads and schools. It has been reported in foreign press thatlLandowners are entitled to compensation but in some instances haven’t received it, and that has fueled Trump’s ire. This is untrue, you can read more about the infamous Akkerland case that has been the backbone of some of these claims here (subscription required) or watch it here on YouTube. As Cobie quite rightly said in last week’s podcast – taking the govt to court is expensive, but the good news is that there are some deep pockets out there that are funding some of these challenges. Sometimes all it needs is a few test cases to be overturned with costs (as in the Akkerland case) for the govt to get the message. There are genuine concerns that adding trade sanctions would bite even harder. The reality for RSA Inc. is that Washington advanced over $8 billion in aid over the past two decades, mostly combating HIV-AIDS and that is now gone. The US though during last week allowed for HIV prevention funding through PEPFAR to continue. Every South African should be asking why these programs cannot be funded by South Africa? HIV is an old problem and by now South Africa should have been prosperous enough to fund it’s own HIV prevention efforts. A full-blown diplomatic row and trade sanctions would pile on even further pain. Secretary of State Marco Rubio is snubbing a G-20 meeting in Johannesburg later this month. The US is South Africa’s second-biggest export market and it runs a trade surplus, fitting Trump’s prerequisite for a reciprocal tariff. Let’s not forget AGOA – our duty-free US access under the Africa Growth and Opportunity Act, enacted 25 years ago, is at risk. To qualify, countries must demonstrate respect for the rule of law, human rights, and core labour standards. The reality is that only 2% of South Africa’s exports are covered by the trade law, and the deal is in any case due for renegotiation in September. Still, any impediments to accessing the US market would generate pain for US consumers. South Africa is an important source of critical minerals for the US. Loss of AGOA would also have negative implications for the US, which buys almost all of its chromium imports from South Africa. The US also buys 25% of its platinum imports from South Africa, the source of 80% of the world’s supply. South African President Cyril Ramaphosa doesn’t appear to be backing down. He told legislators that his country needs to stand united against a “harsh global wind”: We will not be bullied by anyone in the country or outside. While South Africa’s government will never allow people to be forcibly removed from their property, there remains a need for land reform more than three decades after the end of White-minority rule. Like the transformation of our society, the process of restitution is not complete. It is an ongoing process. What was the JSE’s reaction? Meh…  The Rand/Dollar – more Meh…  Are the markets dangerously deciding that Trump can be ignored? Despite the defiance, South Africa’s fragile economy has barely returned to growth and needs all the help it can get. Pressure from the US is strongly motivated, and not just about trade.  Trump, NATO, Ukraine and Hegseth I don’t know if any of you caught the presser Hegseth had at the NATO HQ in Brussels last week. Hegseth is the uber-underqualified new Sec of Defence in the US and is clearly the Donald’s mouthpiece. To quote: “Make no mistake, President Trump will not allow anyone to turn Uncle Sam into ‘Uncle Sucker,'”. It’s NATO’s turn to get the Trump treatment. We all know from Season 1 that Trump would dump NATO in a heartbeat. He was humiliated in 2018 at a NATO summit, with hot-mic incidents in prime spot, and we all know that Trump loves to exact his revenge.  Hegseth brought a message saying “we must make NATO great again” and called on European allies to do “far more for Europe’s defence” – such as ramping up defence spending to 5% of GDP in line with Trump policy. The Pentagon chief laid out that he’s been given “clear mission” from the Commander-in-Chief to “achieve peace through strength as well as put America first”. In light of Trump’s ‘peace talks’ with his buddy Putin and MbS (Mohammed bin Salman from Saudi Arabia ), but excluding Ukraine, let alone the rest of Europe, is deeply troubling, and Hegseth doubled down on Ukraine not joining NATO. Obviously, to everyone except DJT, Peace Talks without Ukraine in the room is a non-starter. I have often wondered why Obama did not react to the invasion of Crimea, which obviously emboldened Russia to invade Ukraine. Here is an interesting article written on this based on an interview with Christiane Amanpour, but bottom line: “Ukraine of that time was not the Ukraine that we’re talking about today, there’s a reason there was not an armed invasion of Crimea, because Crimea was full of a lot of Russian speakers, and there was some sympathy to the views that Russia was representing.” I do not see a quick and easy resolution to this war. In 2024, the Secretary General of NATO Jens Stoltenberg said that Ukraine is on an irreversible path to joining NATO and there is little indication that they are backing down from this. How quickly Trump forgets that it was NATO who joined the US on their wars post 9/11. Does Europe need NATO, it needs its cash for sure – but the rest of it?  Hermès Hermès is unapologetically my favourite brand, and one of our favourite shares too – mostly because I can only ever dream of owning one. If you forgot your wife this Valentine’s Day here is a shopping suggestion for those of you with a few million to spare:  French luxury group Hermès reported an 18% rise in fourth-quarter sales on Friday, showing robust appetite from wealthy shoppers for the most expensive luxury items like its Birkin and Kelly bags.  Hermes continues to outshine rivals like LVMH and Kering-owned Gucci thanks to its wealthier customers as the industry suffers its slowest sales in years. Global luxury sales fell around 2% last year, hurt by a property crisis crimping spending in China and inflation-weary shoppers elsewhere. Hermes also reported 9% growth in sales in the Asia region excluding Japan, the label’s biggest market, despite the downturn in traffic in Greater China seen since the end of the first quarter of 2024. Hermes is known for its tight grip on production, sticking to an annual increase of around 6-7% a year, with order backlogs cushioning it from falling demand while holding up the label’s exclusive aura. (For those of you that don’t know the Hermes model – you can’t just walk into a store and buy a bag, you have to suck-up to a sales associate, buy a whole bunch of other stuff and then you might be ‘invited’ to buy a bag, but it is not necessarily to your specs). Anyone acquiring a Birkin or Kelly can instantly double their investment by selling to some high-end resellers. Sales in the Americas region clocked 22.3% growth, matching growth in Japan. Asked about the impact of potential U.S. tariffs on European goods, Dumas said the company would not adjust its production. They know full well that their clients are extremely ‘price elastic’ and won’t blink at tariff-related increases. Author: Dawn Ridler  It’s all about the US.. for now Despite the latest doomsday reports on US CPI, US equities continue to climb. The January Consumer Price Index (CPI) data revealed a 0.5% increase, surpassing the expected 0.3% m-o-m rise. This uptick, driven largely by shelter costs, indicates inflation moving further from the Federal Reserve’s 2% target as US inflation is now recorded at 3% on an annual basis. Deutsche Bank suggests that such CPI surprises are more common in January, hinting at potential inflationary pressures persisting. The FED may very well have entered its pause season when it comes to interest rates. So equities are probably not going to get a windfall price increase because inflation is set to cool further. Consider that the mainstay indices are all higher year to date. The naysayers are still pointing to the overall valuation of the US market against its other G7 counterparts, but earnings are continuing to surprise on the upside. With 308 companies having reported so far, 77% has beaten their estimates. This has now shifted earnings growth estimates for the year from 10.1% to 11.4%. According to Jurrien Timmer at Fidelity, earnings growth rates for the last few years were as follows: Year Earnings growth (US Market) 2021 48% 2022 8.5% 2023 -2.6% 2024 11.4% est. Now think of the backdrop into which all of this is happening. Trump is easing the business cycle and threatening to cut the corporate tax rate in the US all the while DOGE under the leadership of Elon Musk is cutting the US government payroll. As an example, I saw last week what the process is for a federal employee to retire. These documents are housed in a disused limestone mine and much of the process still requires the shuffling of paper. An interview with a journalist who has been to the facility recounts that an employee’s data can take up to 30 days to be processed and if some of it is missing, the process basically stops. This system has been in existence since the 1950’s and is in serious need of upgrade. Once the document process has been digitised and streamlined the cost savings could be huge.  The P/E ratio of the S&P500 is at a current 30x earnings and just outside its one standard deviation band. This has many observers pointing to the stretched valuations of equities. But the forward estimate of 11% points to the S&P500 trading of an expected 27x earnings. That will put the P/E back within its one standard deviation band. But I am thinking that should the Trump administration continue to deliver this could accelerate earnings further. Let’s assume earnings accelerate by 15%. That will put the forward P/E at 26x placing the P/E even closer to its long-term average of 24.7. Yes, global equities elsewhere are cheaper, but they often lack the quality of their US counterparts. I would argue that the valuation parameters of the US market are fair. Once DOGE has a clear handle on federal expenses this will be good for bond markets. Long-dated yields will drop again, and the US may very well start growing ahead of its debt repayment rate. More tailwinds for US equities! Author:- Cobie Legrange EXCHANGE RATES: The Dollar has cooled a little in the last week but is still showing relative strength, and this will impact our exchange rate.  The Rand/Dollar closed at R18.38 (R18.41, R18,67, R18.38, R18.73, 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 R23.12 (R22.85, R23,16, R22.93, R22.80, 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 R19.29 (R19.02, R19,35, R19.31, R19.23, 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 $74.51 ($74.65, $76,40, $77.60, $79.98, $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 $96,821 ($96,286, $99,049, $104,559, $104,971, $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: Apportioning blame for your financial state NEW Tempering fear and greed NEW New Year’s resolutions over? Try a Wealth Bibgo 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 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 |
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