Archive for the What the Experts say Category

Has the outlook on tax planning in retirement changed?

Matthew Lester looks at ways to cut retirement income requirements so that less tax is payable to SARS.

In times gone by the universal approach adopted when retiring or withdrawing from a retirement fund (pension, provident or retirement annuity fund) was ‘take one-third of the capital in cash and the rest as an annuity. When dealing with provident funds, cash in everything.’ Some were even fortunate enough to be able to withdraw their entire accumulated actuarial value from their pension funds. It was all too good to last.

Times have changed. One needs to take into account the cumulative effect of tax reform over the past 20 years.  Read on….

The consequences of the currency by Dawie Roodt


Not too long ago certain labour movements, political parties and even a few economists called for “a weaker currency”. Now we have one; their silence is deafening!

Obviously a weaker currency will make it easier for exporters to compete internationally. Their input prices mostly remain rand based while they receive dollars (or another “hard” currency) for their exports. Initially these exporters may be a bit better off, but rising inflation and wage demands will eventually erode this short-term benefit and it won’t be too long before there are calls for a weaker currency again.

The disadvantages of a weaker currency are much more harmful than the possible benefits. The most obvious disadvantage is that we are all poorer because of the rand’s weakness. Everything that is denominated in rands is worth less today than before the collapse of the currency. This includes wages, shares, houses, pensions, gold, everything. Some prices adjusted automatically and quickly to the fall in the rand, like share prices and the oil price, but in most instances it will take a long time for all prices to “catch up” to previous levels. Wages and salaries are good examples of prices that will take time to reach previous levels.

Continue reading The consequences of the currency by Dawie Roodt

Confessions of an unreconstructed neo-liberal fundamentalist

Let us consider what Dawie Roodt has to say here about “Confessions of an unreconstructed neo-liberal fundamentalist” and follow his views in the next four editions of his newsletter which will be “dedicated to his plan for the economy”.  This should make for both interesting and thought provoking reading – which, coming from Dawie, is usually not too difficult to digest after he’s already chewed the proverbial cud for us. Continue reading Confessions of an unreconstructed neo-liberal fundamentalist

The future of offshore investments in SA

Prof. Matthew Lester addresses a topic here which, over a number of years, has become a taboo subject matter for many investors and would-be investors.  I can fully understand why, but I would hasten to caution that you re-evaluate your personal standpoint on this important matter against the backdrop of – past and present – sketched by Prof Lester.  Individual circumstances would however have to be at the forefront of any decisions taken and you would be well advised to enter into dialogue with your financial planner.  Read on…


Back in 1696 the then Bank of England was facing financial strain. To rectify the situation, King William III instituted a Window Tax. Under the new tax, each house would pay tax based on the number of windows that it had. In theory this tax was well conceived. It was easy to assess (counting the number of windows is straight forward enough) and the rich would have bigger houses and therefore pay more. In practice, the tax was extremely unpopular as it was considered to be a tax on “light and air”. Taxation of access to facilities that have always been (and should be) free is most likely to upset the populace. The term “Daylight Robbery” is considered to have arisen in part as a reference to this tax. As with many unpopular taxes an avoidance scheme for the daylight robbery tax flourished and the scars can still be seen in modern day England. Read More

Money Marketing – When will the rand weaken – and against what?

In my practice I am regularly asked by some clients to give my views on the direction of the Rand relative to their investments or those portions of their investments that are exposed to other geographic regions and currencies of the world.  This, of course, calls for extreme caution on my part as I am led in my views by the opinions of the experts on these matters and even they can’t stick their necks out too far in terms of prediction.  What they, however, do is to study the trends and various global influences on currencies in order to arrive at their respective, qualified opinions.  
Paul Stewart, managing director of Plexus Asset Management has the following to say: “Ultimately the direction in which a currency trends is a function of aggregate demand and aggregate supply of the currency versus other currencies.  The demand for currencies is largely affected by exports, imports, service payments, portfolio investments, domestic fixed investment, foreign fixed investment and speculation on future expectations.  Based on these factors, how is the SA rand likely to perform in the foreseeable future?  As a general observation, the SA rand is overwhelmingly viewed as overvalued at present and that a sharp devaluation is imminent,” says Stewart.  “In fact, many respected commentators have publicly stated their view that investors should currently accumulate foreign currency exposure, in anticipation of a great unwinding of the rand’s value.”

…….“currency diversification needs to be seriously reconsidered in this new world.  Non-South African exposure for diversification reasons needs to be much more carefully considered. A higher emerging market currency exposure, especially to the best quality emerging markets, should be a core part of one’s investment policy.”
In order to bring the above into context  Continue reading Money Marketing – When will the rand weaken – and against what?

Prospects for South Africa’s policy rate

According to Arthur Kamp, Investment Economist, Sanlam Investment Management  “……the surge in the domestic equity market from its recession induced low in 2009 has helped underpin a bounce in household net wealth, thus further supporting the recovery in household consumption.  Indeed, real consumer spending surprised consensus expectations to the upside through 2010, advancing, on average, at an annualized rate of between five and six per cent per quarter from 4Q09 to 3Q10.
As the business cycle upswing unfolds the rate of return on capital can be expected to improve, which should encourage a recovery in private sector fixed investment spending and job creation. Hence, the upswing in domestic final demand is set to maintain momentum through 2011 and into 2012.”  Read on….

The Weekly Focus – Bull Market forges on


Executive Summary

Last week was an amazing week for our stock market and offshore markets. In the midst of concerns about a correction and Egypt, the market promptly jumped 4.3% in rands (3.4% in dollars, not shabby) to another post-crash high as the US market gained 2.7% in dollars and the MSCI World Index gained 2.3%.

  • For good measure, Anglo American stole the show, jumping 12% in one week, followed by Billiton and Sasol’s 9%. So yes, the JSE Resources index was up 8.7% to its best level since mid-2008, while the Financial & Industrial Index rose just 1.3%, despite a nasty 7% fall in the Construction Index.
  • The ALSI 40 Index, with 48% in Resource shares (including Sasol), is benefiting from this run (Anglo & Billiton comprise 29%), while 44% of the All Share Index is in Resources, also quite high. Most SA fund managers benchmark themselves against the SWIX Index (Shareholder Weighted Index), which excludes foreign holders of our shares and has about 32% in Resources.
  • Meanwhile, the SA Listed Property Index is now down almost 8% from its recent January 10th high and is also trading 5.5% below where it was 4 years ago (peak in 2007). On a forward dividend yield of 8.8% 12 months out, it is starting to look quite attractive relative to bond yields (now at a similar yield after a big jump) and money market yields (now 5.6% and maybe 7% in 18 months time).
  • However, the unknown is whether the rand continues to weaken. If it does, it may cause bond yields to rise over 9%, which could negatively affect listed property further. If investors wanted to buy listed property at this stage, perhaps using a phased approach makes more sense, i.e. buy some now and hold off pending the rand’s movements.

To see the full review; please Read on…..

Executive Summary of Weekly Focus

(by Group Advisory Services, Stanlib)

Market Comment

  • September was a great month for markets, with the JSE gaining 8.7% (15.2% in dollars), while the MSCI World Index gained 9.4% and the MSCI Emerging Markets Index gained 11.1%, both in dollars. With the rand gaining 5.9% in September against the dollar, these two returns were 3.4% and 5.1% respectively in rand terms.
  • The rand also gained 3.6% against the pound, but lost 1.3% against the euro, one of our big trading partners.
  • The ALSI returned 13.3% over the quarter to end September (24.2% in dollars).
  • Although bonds have done very well (up 14.1% YTD), both the JSE Industrial Index (up 18.2%) and the Financial Index (up 16.7%) have beaten bonds, while the Resources Index (-3.6%) has struggled.   Cash has done 5.3% YTD.
  • Foreign investors have taken some profits lately, with a total of R8.9bn net flowing out of our bonds and equities over just the past 10 days, with very little impact on the rand so far.

Where to now?

  • After such an impressive jump, markets could pull back a bit in October.   Note that, apart from cash and residential property, almost everything is in a bull market.  Copper jumped 9.5% in September to its highest price since before the Lehman Bros crash. Oil jumped 8.5%, palladium jumped 16%, silver 12%, gold 5% and platinum 8.5%.
  • The point is, as Fidelity’s legendary value fund manager, Anthony Bolton said last year, slow world growth, minimal inflation and low interest rates are a good environment for equities….also for commodities and not bad for bonds either.
  • BCA Research admits that economic uncertainty remains high, although in a nutshell they think we are slowly passing the soft patch; but more easing by the US is still needed.
  • They note that although US consumer spending is growing slowly, in absolute dollar terms it is now at an all-time record high, as are US company profits.
  • BCA’s asset allocation model has just up-weighted equities at the expense of bonds, especially Emerging Market equities.

Snippets of Info

  • The Financial Times reports that the US TARP programme, whereby they lent money to besieged companies like GM, Citigroup, AIG and Bank of America, is on track to cost just $50bn, way below the $700bn original estimate.  In fact, the US taxpayer may even make a profit.
  • The FT reports today that 3 Brazilian and 2 Chinese banks are among the world’s top 10 credit card issuers, more evidence that banks and consumers in the emerging markets are leaving their western rivals in the shade.

Economic Weekly

  • The SA leading economic indicator recorded an impressive rise of 1.1%m/m.
  • Stats SA released the CPI headline inflation last week, which fell to 3.5% mainly on the strength of the Rand.
  • SA PPI accelerated slightly to 7.8 percent y/y in August from 7.7 percent in July, driven mostly by mining and electricity.
  • SA credit growth increased in August mainly because of a large increase in mortgage advances.
  • Overall credit growth is clearly looking a little more encouraging.
  • SA trade account recorded a larger than expected deficit of R4.66bn in August 2010, due to a sharp decline in mineral and metal exports 
  • In the US last week, personal income rose more than expected in August 2010.
  • US consumer confidence fell sharply in September to 48.2, well below market expectations.

To see the full review, Read on…..

Efficient Group – Events to Watch 6 to 10 September 2010

Economic variables released during the course of the past week gave an indication of South African international trade, demand for credit and money supply in the economy. These variables are very important to look at as they give an indication of consumer demand (demand for credit) and foreign demand for South African produced goods. Read on ….

Executive Summary of Weekly Focus (by Group Advisory Services, Stanlib)

Market Comment

  • STANLIB’s economist, Kevin Lings, continues to believe (even after recent weak numbers) that there is only a 20-30% risk of a “double-dip” recession in the near term, meaning that there is a 70-80% probability of continued, albeit slower, global growth.  Many top analysts/economists agree with this view, saying that it is quite normal to have a slowdown after an initial burst of activity, as the re-building of inventories comes to an end.
  • Volatility remains high in markets as the news ebbs and flows from good to bad during this slowdown, causing emotions to run high.
  • Last week markets jumped smartly by 3-5%, just when many investors were preparing to jump ship.  Many did just that as US equity funds saw their 5th largest weekly redemption on record (2nd largest since June 2008).  Global money markets attracted $33.5bn, which is the biggest weekly inflow since the dark days of January 2009.
  • But the bottom-line for equities offshore and locally is the big picture, namely the world economy, because this directly affects company earnings, which feeds into share prices.
  • A few commentators have lowered their growth forecasts for the US because of the slowdown, but are still forecasting 2.9% growth for 2010 and a little slower for 2006.
  • One of the most convincing pieces of the puzzle arguing in favour of the continuation of a cyclical global bull market in equities is the US yield curve, where the ten year US government bond exceeds the short-term Fed Funds rate by around 3%.  This usually foretells of positive economic growth.
  • On the currency front, the euro bounce against the dollar is so far intact, in line with renewed risk-taking by investors (and a much lower Vix  or fear index) and although the rand has regained a bit against the pound, the trend of rand strength to the pound remains broken.

Snippets of Info

  • Spain stands to benefit much more than Holland from its mighty win because its 40.5 million people have been suffering badly from one of the nastier economic slumps and very high unemployment of over 20%.  So let’s hope the “animal spirits” there help raise the Spanish people out of their economic suffering and boost their economy.
  • South Africa has made us all extremely proud through staging the world cup and the Sunday Times’ quote from former US politician (born in Germany), Henry Kissinger (he of the deep, deep gravelly voice), says it best: “It has been the most exciting (world cup) and I have never seen one better organized and with greater hospitality.”

Economic Weekly

  • The global economic recovery remains uneven and conditions for sustained growth appear to be fragile.
  • SA manufacturing rose by a modest 0.3%m/m.
  • Overall, we expect manufacturing activity levels to soften over the next few months, especially on an annual basis.
  • Offshore, US government revenue is responding to the improvement in economic activity and is now up 25%y/y.
  • The US fiscal deficit is slowly improving, but remains substantial relative to GDP.
  • US housing activity has been exceptionally weak.
  • The IMF revised up their world growth projections for 2010 and according to them, the world economy expanded at an annualised rate of over 5% PPP basis (Purchasing Power Parity) during the first quarter of 2010.
  • US consumer credit declined by a further $9bn in May 2010, much more than expected. This follows a heavily revised decline of $14.9bn in April.

To see the full review, Read on….

Money Marketing Newsletter – Time facts to never forget – sometimes we are just not that unique

In today’s newsletter we look at the importance of time. Today the focus has been the release of Nelson Mandela 20 years ago. It has been a privilege to share such an exciting time in South Africa’s history. Each generation has their moment of text book copy that they share in – sometimes it is more than one – the recent financial crisis would be another of our moments in the record books. 20 years can seem both a long and a short time – what does time mean in an investment and how do we view time, how do we make sure our timeframe for our investments matches our timeframe of life?  

Time facts to never forget – sometimes we are just not that unique  

We were reminded yesterday that it is always risky to say that something that is happening is unprecedented.

Investec Asset Management portfolio manager Clyde Rossouw made the excellent point that government debt to GDP ratios have been high in the past (for example World War II). Government debt has been on our minds a lot as deficits worldwide balloon and countries run into severe trouble. Read on…

Money Marketing Newsletter – Synchronised recession, desynchronised recovery; SA listed property

In today’s newsletter we take a look at the ever present topic of the global recovery and what we could expect in 2010. The recession hit everyone hard – at mostly the same time. But the recovery from that recession is significantly different across the globe. Key to how well you recover from this recession is what sort of shape you were in when it happened. We also have an article on the South African listed property sector.

Synchronised recession

Speaking at a Plexus media day presentation, Pimco’s managing director and portfolio manager Paul McCulley, said that while the recession most recently experienced was synchronised, the recovery from the recession will not be as synchronised. Plexus has been appointed as Pimco’s South African representative and distribution partner.  

How well you come out the recession depends on how healthy you were when it happened.

Read the rest of this entry …

Resilient Rand supports domestic demand recovery

The unfolding recovery in the global economy, the concomitant increase in South Africa’s terms of trade over the past year and the marked decline in household debt servicing costs through 2009 are supportive of a recovery in economic growth in the year ahead. Read more ….

Executive Summary of Weekly Focus (by Group Advisory Services, Stanlib)

Market Comment

  • The JSE rose this Monday morning to a new 2009 high of over 27,000. The last time it was at this level was in early September 2008, before the Lehman Bros collapse.
  • As usual, our market follows offshore trends. Record low interest rates offshore (and low inflation) coupled with a change in the economic cycle (turning upwards) is a powerful combination or concoction for risk assets like shares and commodities (sweet spot); and the economic cycle seems to still be early in its upswing, despite concerns.
  • A number of asset managers in SA have openly announced that they are reducing their allocation to SA equities because they see our market as overvalued.  While one understands their reasoning, one risk they are taking is that they are cutting back very early in the economic upturn.
  • It comes down to risk versus reward.  Each investor’s risk/reward equation differs because of age, net worth, responsibilities and the ability to handle risk (stomach churn) and sleep peacefully at night.
  • The risk/reward ratio of the stock market is much higher today than it was on 9th March 2009 because of the market’s big gain.  Each person needs to make a judgement call on what his/her risk profile should be at this stage.

What are some of the other market analysts saying?

  • One risk of forecasting the future is that one’s forecasts may change as new data emerges.  This has happened with US market analyst, Elaine Garzarelli.  She has turned more positive again because of strong trends emerging from US Q3 growth numbers and the latest company earnings reports.
  • Strong cost-cutting by US companies has translated into strong cash flow and a mountain of cash, leaving US companies in a strong financial condition and competitively placed.
  • With 87% of US companies having reported profits for Q3, earnings are down 2.5% instead of the -13% forecast. So Elaine is raising earnings forecasts for 2010.
  • The broad leading indicator of the top 29 countries (OECD) has rebounded to a level that is higher than in the 1975, 1983, 1991 and 2002 economic recoveries.
  • Many positives are emerging. Korea’s manufacturing is up 47% over the past nine months, Brazil’s manufacturing is up 20% and Japanese vehicle sales rose 63% over the past seven months.
  • BCA say that although they would prefer a stock market correction or consolidation, US equity prices are not yet stretched.  They see the “cyclical bull market rally” having further to run, although the short-term risk/reward ratio has deteriorated because of the big run in the market and the uncertainty about sales growth and consumer spending.

Economic Weekly Review

  • Last week showed more evidence that the V-shaped economic recovery is in full swing; with the Euro-Area posting GDP growth of 1.6%q/q annualised; and Japan 4.8%q/q annualised. The sustainability of the recovery is still in question though, as are the appropriate policy exit strategies.
  • China had a good October with most of its key economic data continuing to show strong growth, especially the domestic economy. The economy remains on track to achieve 8% growth for 2009, and is expected to accelerate to around 9.0% in 2010.
  • Locally, manufacturing activity recorded a welcome improvement in September.
  • Ahead of the SARB interest rate decision tomorrow, STANLIB held its Interest Rate and Forex forecast meeting on the 12th November. The general consensus is that we have seen the bottom of the interest rate cycle and that the first upward movement in rates will only occur in the 4th quarter of 2010.
  • The weighted view for the currency is to end 2009 at R7.50/$; 2010 at R8.10/$ and R8.60/$ at the end of 2011.  The risk of further Dollar weakness and the positive sentiment around the world cup in the first half of 2010 could see the Rand remain strong or even strengthen over the short term. 

To see the full review, Read on…