29 November 2024

 

Welcome to the sixth edition of The Inside Track! While some months might resonate more than others, you’ll always find valuable bite-sized insights here to reflect on and improve our financial well-being.

As the year comes to a close, this edition is slightly longer than usual, wrapping up the final mailer of 2024.

December often feels like a natural time to reflect and celebrate. Whether it’s enjoying time with family, appreciating the milestones we’ve reached, or simply soaking in the holiday spirit, it’s a chance to pause and take stock. As we wrap up the year, it’s also an opportunity to think about what’s next and the possibilities the new year might bring.

This year has been marked by both challenges and opportunities, shaped by significant events across the globe. From global elections and shifting geopolitical dynamics to changes in interest rates, ongoing conflicts, and groundbreaking advancements in AI, the pace of change has been unyielding.

Tech company share prices have also soared to unprecedented levels(Palantir Technologies is up 298% YTD), leaving us to ponder: Are we possibly nearing an inflection point, or witnessing the dawn of a new era?

Closer to home, the Springboks gave us memories to treasure, and a few heart-stopping moments that had us questioning our stress levels! Their sheer determination and remarkable victories reminded us that resilience isn’t just a word, it’s a South African way of life.

Looking ahead to 2025, several factors look poised to influence global markets, shaping both challenges and opportunities. Here’s what’s on the radar:

• U.S. Tariffs and Tax CutsProposed tax cuts may boost corporate earnings, benefiting shareholders, while tariffs could increase costs for industries like automotive and retail, potentially impacting consumer spending

   

• Deregulation
  Regulatory easing is expected to support sectors like banking, crypto, and energy, fostering growth and pricing flexibility in industries such as tech and utilities

   

• Fed Monetary Policy
  Likely interest rate cuts could fuel consumer spending, benefiting sectors like automotive, retail, and apparel, which traditionally perform well in low interest rate environments

   

• Blockchain and Cryptocurrencies
  Broader adoption of blockchain technology in finance and logistics is anticipated, along with increased interest in digital currencies, driving growth in crypto-related industries

   

• Automation and AI
  Major investments in AI and automation are set to reshape industries, with cloud computing and AI-driven companies likely to see significant gains 

Market Indicators

Returns % (to 22 November 2024)

There’s been plenty of discussion about the markets lately, and it’s tempting to hope that the one year returns( indicated above) particularly in equities, will continue. But a word of caution: adapting our lifestyles to these returns assumes they will persist, which would require earnings to consistently exceed expectations.

The table below shows the returns of various asset classes over the past 10 years. The last three columns present annualized returns over 5, 10, and 15 years, offering a broader perspective.

When we assess our portfolios, especially the equity components responsible for capital growth, it’s important to understand what drives their movements.

Stock markets act as discounting mechanisms for anticipated future earnings. Prices reflect the market’s collective expectations of a company’s future profitability, discounted to present value.

These expectations are influenced by a range of factors:

• Sentiment: Investor confidence and emotions can drive short-term price movements, often beyond fundamental values
• Interest Rates: They directly impact the discount rate used to value future earnings, making them a key driver of stock prices
• Macroeconomic Conditions: Broader factors such as economic growth, inflation, unemployment, and geopolitical events shape market expectations and valuations

Given this context, it’s important to approach spending with a level head, even when market returns look promising. Share prices that climb rapidly can sometimes become more sensitive to disappointing news or results, leading to market adjustments. For investors, staying grounded in realistic expectations helps avoid the stress of sudden market swings and keeps financial plans on track.

If news, social media, friends’ opinions, or market volatility ever leave you feeling anxious, take a step back and ‘zoom out your portfolio’s performance in relation to your plan’s benchmarks and objectives, and refocus on the bigger, long-term picture. This helps ensure your critical thinking stays intact, preventing emotions from driving impulsive decisions.

Remember, the most important anchor is understanding the purpose your portfolio and money must serve, it keeps you grounded through the inevitable turbulence ahead.

Global Market News

• The euro experienced its steepest monthly decline since early 2022, falling over 3% to approximately $1.05, amid U.S. tariff concerns, political instability in Germany and France, and a significant regional economic slowdown

• U.S. Inflation Update: Core inflation held steady at 4.1%, raising concerns that prolonged high U.S. interest rates could hinder global growth and affect emerging markets like South Africa

• Jerome Powell emphasized that the US Federal Reserve will take a “deliberate and careful” approach to lowering interest rates, supported by ongoing economic growth, a strong job market, and inflation above the 2% target. Fed funds futures indicate a 65% chance of a December cut but only a 32% probability of another cut in January, suggesting a potential pause

• The yen recorded its best week in four months, driven by strong inflation data from Tokyo that boosted expectations of a potential rate hike by the Bank of Japan. Traders now see a 60% chance that the BOJ could hike interest rates again in December

• According to Reuters, U.S. intelligence sources report that the decision to allow Ukraine to use American weapons to strike deeper into Russia has not heightened the risk of a nuclear attack. Despite escalating rhetoric from Russian President Vladimir Putin, the likelihood of such an attack remains low

South Africa

• Interest rates were lowered by just 25 basis points, which came as a surprise given October’s inflation rate of 2.8 percent. This is well below the Reserve Bank’s 3 to 6 percent target range. It is the lowest inflation rate since May 2020 at 2.1 percent and a rarity, with inflation not dipping below 2.8 percent in nearly two decades

• South African Airways is regaining financial confidence, with banks now open to lending as the airline reports improved finances. Oxford Economics estimates its economic contribution at R9.1 billion in 2023-24, projected to rise to R32.6 billion by 2030 if its expansion plans succeed

• Boxer Retail jumped 18 percent on its Johannesburg debut, raising 8 billion rand in South Africa’s largest IPO since 2017. The listing signals renewed optimism for the local bourse, which has gained 15 percent in dollar terms since June

• South Africa officially assumed the G20 presidency during a ceremony held in Rio de Janeiro on Tuesday

• S&P upgraded South Africa’s outlook from “stable” to “positive,” highlighting the government’s commitment to accelerating economic reforms and the growth in private sector investments

• South Africa is considering implementing a wealth tax to address economic inequality and generate additional revenue. The proposed tax would target the country’s wealthiest individuals, potentially the top 5% of high-net-worth individuals and estates with significant assets

Food for Thought

• At 94, Warren Buffett continues to inspire with his wisdom, generosity, and grounded approach to life. This week, he donated over $1 billion in Berkshire Hathaway shares to family foundations, staying true to his commitment to give away most of his wealth to charity. He believes in leaving children enough to pursue their dreams but not so much that it stifles ambition

  Living frugally has been a cornerstone of Buffett’s life. He is still living in the same Omaha home he bought in 1958. This simplicity has helped him grow his wealth for greater philanthropic impact, proving that meaningful success is not about extravagance but about purpose, legacy, and maybe a really good chair.

• Australia has banned individuals under 16 from using social media platforms like Facebook, Instagram, TikTok, X, and Snapchat. Passed on November 28, 2024, the law fines companies up to AUD 49.5 million (USD 32 million) for allowing underage accounts, aiming to safeguard youth mental health and online safety

• Japan has a unique Christmas tradition? Every year, millions of families celebrate with a feast from KFC! The fast-food chain’s ‘Christmas Party Barrel’ has become so popular that orders often need to be placed weeks in advance. It all started with a 1974 campaign called ‘Kentucky for Christmas,’ and the tradition stuck!

Quote for the Month

“If you want to change the world go home and love your family”

Mother Teresa

Chart of the Month

Crypto: A Game of Musical Chairs or Lasting Value?

Dogecoin takes the crown this year with a jaw-dropping 310% YTD return, leaving even Bitcoin and Solana in its meme-worthy dust. The reasons?

Investor hype over a potentially crypto-friendly Trump administration, Elon Musk’s growing political clout, and guys like Michael Saylor of MicroStrategy pulling the strings. If nothing else, it proves one thing: narratives are still the fuel for crypto adoption and wild price movements.

When people ask me about crypto, this is the advice I give:

Understand what you’re stepping into. Recency bias and hype fuel the market, with algorithms quietly manipulating demand and supply in ways most people don’t notice. The value of crypto thrives on emotion and speculation, not logic.

Remember, crypto isn’t backed by an underlying business or assets. Its value is purely driven by supply and demand, fueled by speculation. For it to work, there has to be someone more optimistic than you to buy in at a higher price, like a game of musical chairs. As long as people believe the price will keep going up, the demand fuels the loop, driving prices higher. But like the Emperor’s New Clothes, the moment doubt creeps in, the music stops and those still holding are left wondering where things went wrong and how it all unravelled so quickly.

Personally, I prefer to avoid investing in things I don’t understand. That said, I keep a ‘fool’s portfolio‘, money I’m willing to gamble with and expect to lose. If you’re considering crypto, find your balance and try not to let biases like the gambler’s fallacy and confirmation bias cloud your judgment.

Cathie Wood, CEO of ARK Invest, predicts Bitcoin could skyrocket to $1.5 million by 2030.

In the rollercoaster world of crypto, ‘Fortune favours the brave’ might as well be rewritten as ‘Fortune favours the bold… and occasionally the wildly optimistic.

Wrap-Up: Tip for your Financial Wellbeing

As we conclude this month’s mailer, I feel it is important to highlight a concerning trend. Dubious traders have been on the rise in Cape Town, leaving many individuals financially crippled.

These fraudsters are exploiting financial strain and leveraging technologies like AI-driven deep fakes on social media platforms. Be cautious of these pitches often accompanied by a high sense of urgency to pressure you into making decisions. These companies may promote so-called “award-winning” traders or schemes promising 30-40% returns with “guaranteed” results, backed by fake endorsements from prominent figures like Johann Rupert or Elon Musk.

In Cape Town (and I am sure in other areas) several scams have left people financially devastated, often by exploiting a tactic known as escalation of losses. These scams typically start with small initial payments, drawing victims in. When the money disappears or a supposed ‘bigger opportunity’ emerges, victims are pressured to invest more in an attempt to recover their losses or secure the promised payoff, ultimately resulting in a complete loss.

Remember: if someone claims they can guarantee high returns, ask yourself why they need your money. If their method were truly reliable, they could simply borrow from a bank and profit from the spread. The truth is they cant!

Be cautious of:

• Individuals and articles that use past performance to entice you with the promise of future returns should be approached with extreme caution. No one, not even the Oracle of Omaha, can predict the future
• Investments with no clear assets or verifiable information
• High-pressure tactics like “once-in-a-lifetime” opportunities
• Requests for upfront payments to ‘get the ball rolling’
• Operations linked to suspended FSCA licenses

A healthy dose of skepticism, combined with thorough due diligence, is essential when parting with your money.

Above all, try not to invest in things you don’t fully understand. If it feels too good to be true, trust your instincts. It is okay to walk away, your peace of mind is worth more than any promise.

I hope this month’s mailer has provided some value and insight. I look forward to reconnecting with you in the new year on 31 January 2025.

I wish you and your loved ones a safe and joyful Christmas season, filled with peace, happiness, and the moments that truly matter.

Reference: Morningstar, Forbes, NinetyOne, Blackrock, Bloomberg

Please be aware that the contents of this blog include the opinions of Robert Taylor and are not to be construed as advice or acted on before consulting with Robert Taylor or any other licensed Financial Services Provider where professional process and the FAIS act and General Code of Conduct are applied.

  29 November 2024

 

Welcome to the sixth edition of The Inside Track! While some months might resonate more than others, you’ll always find valuable bite-sized insights here to reflect on and improve our financial well-being.

As the year comes to a close, this edition is slightly longer than usual, wrapping up the final mailer of 2024.

December often feels like a natural time to reflect and celebrate. Whether it’s enjoying time with family, appreciating the milestones we’ve reached, or simply soaking in the holiday spirit, it’s a chance to pause and take stock. As we wrap up the year, it’s also an opportunity to think about what’s next and the possibilities the new year might bring.

This year has been marked by both challenges and opportunities, shaped by significant events across the globe. From global elections and shifting geopolitical dynamics to changes in interest rates, ongoing conflicts, and groundbreaking advancements in AI, the pace of change has been unyielding.

Tech company share prices have also soared to unprecedented levels (Palantir Technologies is up 298% YTD), leaving us to ponder: Are we possibly nearing an inflection point, or witnessing the dawn of a new era?

Closer to home, the Springboks gave us memories to treasure, and a few heart-stopping moments that had us questioning our stress levels! Their sheer determination and remarkable victories reminded us that resilience isn’t just a word, it’s a South African way of life.

Looking ahead to 2025, several factors look poised to influence global markets, shaping both challenges and opportunities. Here’s what’s on the radar:

• U.S. Tariffs and Tax Cuts
  Proposed tax cuts may boost corporate earnings, benefiting shareholders, while tariffs could increase costs for industries like automotive and retail, potentially impacting consumer spending
• Deregulation
  Regulatory easing is expected to support sectors like banking, crypto, and energy, fostering growth and pricing flexibility in industries such as tech and utilities
• Fed Monetary Policy
  Likely interest rate cuts could fuel consumer spending, benefiting sectors like automotive, retail, and apparel, which traditionally perform well in low interest rate environments
• Blockchain and Cryptocurrencies
  Broader adoption of blockchain technology in finance and logistics is anticipated, along with increased interest in digital currencies, driving growth in crypto-related industries
• Automation and AI
  Major investments in AI and automation are set to reshape industries, with cloud computing and AI-driven companies likely to see significant gains

Market Indicators

Returns % (to 22 November 2024)

There’s been plenty of discussion about the markets lately, and it’s tempting to hope that the one year returns( indicated above) particularly in equities, will continue. But a word of caution: adapting our lifestyles to these returns assumes they will persist, which would require earnings to consistently exceed expectations.

The table below shows the returns of various asset classes over the past 10 years. The last three columns present annualized returns over 5, 10, and 15 years, offering a broader perspective.

When we assess our portfolios, especially the equity components responsible for capital growth, it’s important to understand what drives their movements.

Stock markets act as discounting mechanisms for anticipated future earnings. Prices reflect the market’s collective expectations of a company’s future profitability, discounted to present value.

These expectations are influenced by a range of factors:

• Sentiment: Investor confidence and emotions can drive short-term price movements, often beyond fundamental values
• Interest Rates: They directly impact the discount rate used to value future earnings, making them a key driver of stock prices
• Macroeconomic Conditions: Broader factors such as economic growth, inflation, unemployment, and geopolitical events shape market expectations and valuations

Given this context, it’s important to approach spending with a level head, even when market returns look promising. Share prices that climb rapidly can sometimes become more sensitive to disappointing news or results, leading to market adjustments. For investors, staying grounded in realistic expectations helps avoid the stress of sudden market swings and keeps financial plans on track.

If news, social media, friends’ opinions, or market volatility ever leave you feeling anxious, take a step back and ‘zoom out your portfolio’s performance in relation to your plan’s benchmarks and objectives, and refocus on the bigger, long-term picture. This helps ensure your critical thinking stays intact, preventing emotions from driving impulsive decisions.

Remember, the most important anchor is understanding the purpose your portfolio and money must serve, it keeps you grounded through the inevitable turbulence ahead.

Global Market News

• The euro experienced its steepest monthly decline since early 2022, falling over 3% to approximately $1.05, amid U.S. tariff concerns, political instability in Germany and France, and a significant regional economic slowdown  
• U.S. Inflation Update: Core inflation held steady at 4.1%, raising concerns that prolonged high U.S. interest rates could hinder global growth and affect emerging markets like South Africa  
• Jerome Powell emphasized that the US Federal Reserve will take a “deliberate and careful” approach to lowering interest rates, supported by ongoing economic growth, a strong job market, and inflation above the 2% target. Fed funds futures indicate a 65% chance of a December cut but only a 32% probability of another cut in January, suggesting a potential pause  
• The yen recorded its best week in four months, driven by strong inflation data from Tokyo that boosted expectations of a potential rate hike by the Bank of Japan. Traders now see a 60% chance that the BOJ could hike interest rates again in December  
• According to Reuters, U.S. intelligence sources report that the decision to allow Ukraine to use American weapons to strike deeper into Russia has not heightened the risk of a nuclear attack. Despite escalating rhetoric from Russian President Vladimir Putin, the likelihood of such an attack remains low
  

   

South Africa

• Interest rates were lowered by just 25 basis points, which came as a surprise given October’s inflation rate of 2.8 percent. This is well below the Reserve Bank’s 3 to 6 percent target range. It is the lowest inflation rate since May 2020 at 2.1 percent and a rarity, with inflation not dipping below 2.8 percent in nearly two decades.

   

• South African Airways is regaining financial confidence, with banks now open to lending as the airline reports improved finances. Oxford Economics estimates its economic contribution at R9.1 billion in 2023-24, projected to rise to R32.6 billion by 2030 if its expansion plans succeed.

   

• Boxer Retail jumped 18 percent on its Johannesburg debut, raising 8 billion rand in South Africa’s largest IPO since 2017. The listing signals renewed optimism for the local bourse, which has gained 15 percent in dollar terms since June.

   

• South Africa officially assumed the G20 presidency during a ceremony held in Rio de Janeiro on Tuesday.

   

• S&P upgraded South Africa’s outlook from “stable” to “positive,” highlighting the government’s commitment to accelerating economic reforms and the growth in private sector investments.

   

• South Africa is considering implementing a wealth tax to address economic inequality and generate additional revenue. The proposed tax would target the country’s wealthiest individuals, potentially the top 5% of high-net-worth individuals and estates with significant assets.

   

Food for Thought

• At 94, Warren Buffett continues to inspire with his wisdom, generosity, and grounded approach to life. This week, he donated over $1 billion in Berkshire Hathaway shares to family foundations, staying true to his commitment to give away most of his wealth to charity. He believes in leaving children enough to pursue their dreams but not so much that it stifles ambition.

   

  Living frugally has been a cornerstone of Buffett’s life. He is still living in the same Omaha home he bought in 1958. This simplicity has helped him grow his wealth for greater philanthropic impact, proving that meaningful success is not about extravagance but about purpose, legacy, and maybe a really good chair.

   

• Australia has banned individuals under 16 from using social media platforms like Facebook, Instagram, TikTok, X, and Snapchat. Passed on November 28, 2024, the law fines companies up to AUD 49.5 million (USD 32 million) for allowing underage accounts, aiming to safeguard youth mental health and online safety.

   

• Japan has a unique Christmas tradition? Every year, millions of families celebrate with a feast from KFC! The fast-food chain’s ‘Christmas Party Barrel’ has become so popular that orders often need to be placed weeks in advance. It all started with a 1974 campaign called ‘Kentucky for Christmas,’ and the tradition stuck!

   

 

Quote for the Month

“If you want to change the world go home and love your family”

Mother Teresa

Chart of the Month

Crypto: A Game of Musical Chairs or Lasting Value?

Dogecoin takes the crown this year with a jaw-dropping 310% YTD return, leaving even Bitcoin and Solana in its meme-worthy dust. The reasons?

Investor hype over a potentially crypto-friendly Trump administration, Elon Musk’s growing political clout, and guys like Michael Saylor of MicroStrategy pulling the strings. If nothing else, it proves one thing: narratives are still the fuel for crypto adoption and wild price movements.

When people ask me about crypto, this is the advice I give:

Understand what you’re stepping into. Recency bias and hype fuel the market, with algorithms quietly manipulating demand and supply in ways most people don’t notice. The value of crypto thrives on emotion and speculation, not logic.

Remember, crypto isn’t backed by an underlying business or assets. Its value is purely driven by supply and demand, fueled by speculation. For it to work, there has to be someone more optimistic than you to buy in at a higher price, like a game of musical chairs. As long as people believe the price will keep going up, the demand fuels the loop, driving prices higher. But like the Emperor’s New Clothes, the moment doubt creeps in, the music stops and those still holding are left wondering where things went wrong and how it all unravelled so quickly.

Personally, I prefer to avoid investing in things I don’t understand. That said, I keep a ‘fool’s portfolio‘, money I’m willing to gamble with and expect to lose. If you’re considering crypto, find your balance and try not to let biases like the gambler’s fallacy and confirmation bias cloud your judgment.

Cathie Wood, CEO of ARK Invest, predicts Bitcoin could skyrocket to $1.5 million by 2030.

In the rollercoaster world of crypto, ‘Fortune favours the brave’ might as well be rewritten as ‘Fortune favours the bold… and occasionally the wildly optimistic.

Wrap-Up: Tip for your Financial Wellbeing

As we conclude this month’s mailer, I feel it is important to highlight a concerning trend. Dubious traders have been on the rise in Cape Town, leaving many individuals financially crippled.

These fraudsters are exploiting financial strain and leveraging technologies like AI-driven deep fakes on social media platforms. Be cautious of these pitches often accompanied by a high sense of urgency to pressure you into making decisions. These companies may promote so-called “award-winning” traders or schemes promising 30-40% returns with “guaranteed” results, backed by fake endorsements from prominent figures like Johann Rupert or Elon Musk.

In Cape Town (and I am sure in other areas) several scams have left people financially devastated, often by exploiting a tactic known as escalation of losses. These scams typically start with small initial payments, drawing victims in. When the money disappears or a supposed ‘bigger opportunity’ emerges, victims are pressured to invest more in an attempt to recover their losses or secure the promised payoff, ultimately resulting in a complete loss.

Remember: if someone claims they can guarantee high returns, ask yourself why they need your money. If their method were truly reliable, they could simply borrow from a bank and profit from the spread. The truth is they cant!

Be cautious of:

• Individuals and articles that use past performance to entice you with the promise of future returns should be approached with extreme caution. No one, not even the Oracle of Omaha, can predict the future
• Investments with no clear assets or verifiable information
• High-pressure tactics like “once-in-a-lifetime” opportunities
• Requests for upfront payments to ‘get the ball rolling’
• Operations linked to suspended FSCA licenses

A healthy dose of skepticism, combined with thorough due diligence, is essential when parting with your money.

Above all, try not to invest in things you don’t fully understand. If it feels too good to be true, trust your instincts. It is okay to walk away, your peace of mind is worth more than any promise.

I hope this month’s mailer has provided some value and insight. I look forward to reconnecting with you in the new year on 31 January 2025.

I wish you and your loved ones a safe and joyful Christmas season, filled with peace, happiness, and the moments that truly matter.

Reference: Morningstar, Forbes, NinetyOne, Blackrock, Bloomberg

Please be aware that the contents of this blog include the opinions of Robert Taylor and are not to be construed as advice or acted on before consulting with Robert Taylor or any other licensed Financial Services Provider where professional process and the FAIS act and General Code of Conduct are applied.