| We hope you have all had a great start to the new year. The podcast of the newsletter is available and you can download it HERE. We welcome all your input so please don’t hesitate to contact us if you’ve got any queries or suggestions. Market watch: The RSA economy is still very dependent on the commodity cycle, and by extension China’s economy – as the globe’s largest consumer of commodities. China’s economy is still in the doldrums, and they are finding out the hard way that you can’t cherry-pick the bits of capitalism that you like, and centrally plan and control the rest.  The meteoric rise of the Magnificent Seven which has seen NVidia displace Alphabet in the market cap top of the pops. It’s the latest example of how the artificial intelligence boom has sent the chipmaker’s stock soaring. Nvidia rose over 2% on Wednesday to close at $739.00 per share, giving it a market value of $1.83 trillion to Alphabet/Google’s $1.82 trillion market cap. AI is being extensively used by students, and educational institutions now have AI detection programs to catch students out. Interestingly, Grammarly, a great tool that I have used extensively for years, is now considered AI.  The UK As many expected, Britain’s economy fell into a recession in the second half of 2023, only adding to Prime Minister Rishi Sunak’s woes in an election year where he had promised to boost growth. According to official data, gross domestic product (GDP) contracted by 0.3% in Q4 2023, having shrunk by 0.1% between July and September. The fourth-quarter contraction was deeper than all economists’ estimates which had pointed to a 0.1% decline. Jeremy Hunt may try and salvage Tory prospects at the polls by announcing a slew of tax cuts to stave off Labour – but it might not be necessary. The Labour Party has some significant problems of its own, having, belatedly, suspended 2 of its candidates for antisemitic remarks. Muslim Labour MPs are becoming increasingly vocal, going against the UK’s stance and calling for an immediate ceasefire in Gaza. Inflation in the UK held steady at 4%, so interest rate cuts may still be on the cards for later in the year.  |
| Producer Price Index In the US, producer prices came in much hotter than expected, and with the natural follow-through to consumer prices, this is once again pushing back the expectations of an interest rate cut until Q3.There were strong gains in the costs of services (a subset of producer prices), which could amplify worries that inflation is picking up. The producer price index rose 0.3% last month after declining by a revised 0.1% in December. To put it in perspective, Since March 2022, the FED has raised its policy rate by 525 basis points to the current 5.25%-5.50% range. The narrower measure of PPI, which strips out food, energy and trade services components, jumped 0.6% in January after gaining 0.2% in the prior month. The so-called core PPI increased 2.6% on a year-on-year basis, the same rate of increase as in December.  Dollarisation and Argentina Dollarisation is when a sovereign nation uses the US dollar as legal tender in their country – something that we have seen in Zimbabwe, and is now being considered by Javier Milei in Argentina. By the way, you don’t have to get the US’s permission to do that. The main reason a country would do this is that by giving up the power to print their own money you can eliminate one of the major drivers of inflation, and often allows a country to reduce the risk premium associated with international borrowing. In Argentina, the inflation soared to 160% at the end of last year (and is now over 200%), but dollarisation is a huge move and they would have to mitigate the threat of a run on the banks. It is estimated they would need foreign reserves of at least $50bn, they are currently at least $5bn in the red. Argentina is expected to be in a deep recession this year, at least -3% which would make dollarisation even more difficult. It is interesting for us to watch what Mr Milei is doing in Argentina, and see if there aren’t lessons RSA Inc could learn from him. His reforms are currently going through their parliamentary system and has been approved by the lower house. There is still a strong possibility that Argentina will have to default on its sovereign debt.  Russia Global tensions, already running high, were ramped up last week. First Trump told the world that Putin could do “Whatever the hell he wants” to NATO members who don’t meet military spending targets”- like he needed any encouragement. Next, there was a fawning interview by Fox News’s Tucker Carlson and now the blatant assassination of Alexei Navalny. There is little doubt that if Trump were to win the presidential election, he would withdraw from NATO – which would usher in an era of much higher risk of war – especially from China. Be thankful that we live at the furthest end of an almost forgotten continent – now our politicians need to mind their own business.  The Budget With the budget due on Wednesday 21st, what can we expect? The NHI bill is sitting on Cyril’s desk waiting to be signed – the impact of this bill cannot be over-emphasised. It has the potential to be devastating to the private healthcare sector and could result in mass emigration of medical practitioners and taxpayers alike. Fortunately, it is going to be tied up in legal challenges at the constitutional court, and it is going to take a huge length of time to get all those ducks in a row. For example, the government patient record system is in complete disarray and has to be redone from scratch (several pilot studies have already failed). We might start to see an erosion or removal of the medical tax credit. The two-pot pension system has been postponed several times while FSPs get their ducks in a row, but it could well be implemented in this budget. One of the ways the government increases taxes by stealth is with bracket creep – not moving the tax brackets up in line with inflation, eroding the purchasing power of your after-tax income. Allowances for things like interest have stalled for years. Because we are in an election year – voter-pleasing spending like grants are likely to get a boost. As we come to end of the tax year, remember to note your odometer reading at the end of the month, and you might still have time to top up your TFSA and RA. I will be putting out a budget summary on Wednesday.  Dystopia loading In 1997 Lester Venter published a book called When Mandela Goes. The book explores what could lie ahead for South Africa under the ANC. The book is made up out of 3 parts: Rising Anger, Silent Dynamics (attitudes and behaviours in a new society as well as crime, corruption and defeating prosperity are some topics here) and Future Outcomes. I bought the book when it was released and read it some 27 years ago. I remember thinking by myself how bleak the future of this country looked should this come true. Then I was 24 years old and living in a South Africa which was starting to go through an economic awakening. Mr Venter must have been seen as out of touch with reality by some. Others perhaps saw what he was predicting and left the country. I decided to read portions of the book again last week and I was surprised to find how close the book really comes to everyday live in South Africa. The future outcomes portion of the book highlights the daily life of the Barnard family. It’s a world where the family lives in a security estate in a smaller home rather than the suburban family home they used to occupy. Safety is of course the overriding reason for this. The Barnard family must endure power cuts, and the fragmentation of the ANC tripartite alliance with the ensuing policy mess this creates. Control of the media becomes important as the state continues to fail, and the family’s ability to live a life outside the estate becomes increasingly difficult. Window washers and beggars are around every corner. Those who migrate from country areas find it increasingly difficult to find work and turn to crime as an alternative. Kidnappings become the norm as they target the well-to-do. Privately funded police stations are created as the state police service falls into disarray. There is a shift of economic activity to the Western Cape as the rest of the country falls by the wayside and emigration continues to shift skills elsewhere. Does any of this sound familiar to you if you are living in South Africa? The reality is that South Africa has a choice to make. It’s a societal choice more than a political choice and it’s about the future that we would like to see. The sad reality is that the further society fragments into a have vs have-nots world, finding a common goal for the average South African becomes more difficult. If you have the means and skills to produce, you either do so within a cocoon and export your cash, or you leave the borders of the country. If you lack skills, you are at the mercy of a society which is becoming increasingly unapproachable as walls grow higher and ideologies drive a wedge into what could have been a common goal. So, the opportunity set for South Africa is slim and if it doesn’t make a choice, the world will make a choice for South Africa. The lustre of a post-apartheid country with Nelson Mandela as its poster child is now gone and the hard realities of building a country and paying one’s debts loom large. South Africa has competition on the emerging market stage. India so far is a far more willing partner for foreigners wanting a piece of their demographic dividend. What does South Africa offer in contrast? Not much I would say other than our commodity base which in any case is at the whim of international prices. Lester Venter concludes his book by citing American economist, Joel Stern who visited the country in 1997. Mr Stern, who is now deceased, observed that there can be no meaningful economic growth in South Africa as long as exchange controls remain, and crime rates and taxes stay high. Have we fixed any of these things? No. Again I say, South Africa needs to make a choice and society needs to stand up and lead. South Africa’s current leaders have chosen not to. EXCHANGE RATES:The Dollar continued to strengthen again last week, albeit with a slower momentum. The DXY is at 104.28 The DXY Index:   The Rand/Dollar. The Rand/Dollar closed the week on R18.97 (R19.03, R18.80, R18.78, R19.03).  The Rand/Pound is also down at R23.81 (R24.03, R23.87, R23.86, R24.15.)  The Rand/Euro closed the week at R20.38 (R20.51, R20.38, R20.40, R20.72.)  Brent Crude: Brent closed the week up at $83.14 ($80.91, $77.36, $83.66, $78.33). Middle East tensions continue to weigh on the commodity price. We could well see yet another price rise at the pump next month (and then there’s the inevitable increase in the fuel levy).  Bitcoin was up again at $52,510 ($47,195, $42 897, $41,608, $41 680). Articles and Blogs: Locking-In Interest rates – The inflation story NEW 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 |