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Investment advice from the tea boy

First waves of financial tsunami already lapping at our shores….

A Moneyweb commentator suggested that my musings about the economy are about as useful as those of an office beverage assistant: “Like I said before, Magnus is not qualified or equipped to comment on such matters. He is only qualified to bring me tea to my office and not comment on economic affairs.”

Well, to Miela I say: Ou boet – or sus, as the case may be – sometimes this tea boy sees things you suited types in mahogany row don’t see or don’t want to see.

How? I talk to people, lots and lots of people. Mainly about money and their personal financial lives.

And the narrative these past months has been one of even the wealthy finding themselves in the grips of a financial anaconda, financial life being squeezed out of them. The stock market is not performing (negative in real terms over three years now); average residential property prices down 23% in real terms over eight years, wage and salary increases below inflation.

The portion of your salary that is paid in taxes has risen constantly. Tax Freedom Day, as calculated by the Free Market Foundation, was on May 23 this year – two days later than last year and the worst ever. (Tax Freedom Day means that up to that day you have been working for government and taxes in one way or another.) In 1994, it was five weeks earlier, on April 18.

All these contributory trends have been building up, but were accelerated by the lagging effects of currency declines and, in February, the sharp increases in personal taxes as well as the increase in dividend taxation in the annual budget.

Even a beverage assistant could work out that this represented an additional R4 billion per annum that was diverted from consumers’ pockets to that of the taxman. Overnight.

As Ernest Hemingway once famously said: “At first you go broke slowly and then suddenly…”.

More scathing condescension

About six months ago I penned an outlook on the financial prospects for the economy and individual consumers in particular.

It evidently got up the noses of certain of mainstream economists, with one – Dr Roelof Botha, adjunct facility member at the Gordon Institute of Business Science – writing a rather scathing and condescending reply to rebut my gloomy prognostications.

You can read if here but I wish to highlight one paragraph that seemed to me to reflect an unwillingness by many institutional economists to honestly confront the avalanche of bad economic data heading our way:

“Higher economic growth is being forecast for South Africa in 2017 by both National Treasury and the World Bank, which should ease fiscal pressures and soon abolish the debt downgrade debate to the archives.” (Moneyweb, November 9 2016: Talk of ‘financial meltdown’ quite absurd).

In the glaring headlights of what has unfolded since then – the firing of Pravin Gordhan, credit downgrades, Guptagate, unemployment at record levels and the news this week that SA is now officially in a recession – imagine you basing your personal financial decisions on such a confident but misplaced prediction.

I have previously written about the herd-like thinking of our economists, with very few prepared to speak to conscience and tell it like it is. Being realistic can be career-limiting at our large financial institutions, as we saw years ago: Nico Czipiyonka from the Standard Bank Group got the heave-ho when he was considered to be too negative by the suits at head office. More recently Andrew Canter from Futuregrowth expressed concerns about the risks in taking up bond issues from state-owned enterprises.

Boy, did he get his gonads put through the wringer, with parent company Old Mutual forcing him to recant and apologise. But Canter was right. Subsequent bond issues by Transnet and Sanral, for example, have been dismal failures and were either cancelled or attracted only a portion of the funds they were seeking.

Relying on Treasury has also become dangerous. Virtually every forecast contained in the budget speeches since 2009 has sounded more like a wish list than a serious forecast of what the economy is likely to do.

The few economic commentators who from time to time deliver warnings of the economic grim reaper tend to be the independents who work for themselves, a small group I consider myself part of. I would count among them Mike Schüssler, Dawie Roodt, George Glynis and Azar Jammine.

The Bluffer’s Guide to Economics

Bear in mind that I don’t consider myself an economist. In reality, there is no such profession. Anyone who has read The Bluffer’s Guide to Economics can hang up a shingle and call themselves an economist. I happened to take economics as an additional course while at university mainly because the economics lecturer, Professor Geert de Wet, was a cousin of mine.

A more careful analysis of the GDP figures released this week shows that all sectors with the exception of agriculture and mining showed negative numbers. The turnaround in agriculture was mainly due to base effects and above-average rainfall this past summer, which the ANC can’t take credit for, while mining fortunes were driven by improved global commodity prices. Government with its newly-released Mining Charter actually seems hell-bent on further scaring away investors from our fragile mining industry.

Noticeable in the figures is the collapse in consumer spending in the first quarter of this year. Annualised growth of minus 5.9% was recorded in the retail, wholesale trade, accommodation and restaurant sectors – which are all directly related to how confident the average consumer feels.

In short: consumers have either run out of money or are scared to spend it.

The relativity of power and influence

These numbers don’t measure what the firing of Pravin Gordhan on March 31 has done to consumer and business confidence. That is still to come, as well as the effects of the downgrades by S&P Global Ratings and Fitch.

Moody’s demonstrated more optimism, keeping us at two grades above investment grade until Friday June 9. Its decision to downgrade SA’s local and foreign currency rating just one notch was fortunate to say the least. A two-notch downgrade would have announced the arrival of one of the Horsemen of a Financial Apocalypse.

Foreign investors, who have been selling SA equities every month for the past 19 months (R70 billion so far this year) but have been buying our bonds with juicy yields of above 8%, would have had their hands forced.

A double downgrade by Moody’s would have precipitated a disorderly withdrawal from our local bond and currency market with obvious consequences for us all.

But we are not out of the woods. Even the economically illiterate can see the storm clouds in the tea leaves by now….

And there’s not much the beverage assistants of the world can do about it.

Or is there? Suit or no suit, we are all equal on voting day.

* Moneyweb, in conjunction with Brenthurst Wealth, is holding its annual SA Quo Vadis seminars countrywide in the next two weeks. The first seminar takes place on Tuesday June 13 at Rivonia Village, followed by Cape Town (June 20) and Stellenbosch (June 21). Bookings can be made here. For more information go www.brenthurstwealth.co.za.

COMMENTS   47

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Not to get emotional, but what to do? Perfect for another bitcoin update, we now at R42 000. Get your money away from this BEE parasitic government. Trade your Bitcoin for dollars offshore if you dont like new fangled things like crypto. Why invest in loser SA companies run by deadbeats and handouts?? My friends and I, in our mid twenties, moved just some of savings into crypto, never looked back. Its done factor of 1000 times better than my stupid forced passive fund company RA. Is money really yours if you dont have access to it? But Im a millenial what the hell do I know. Like my moms government pension, 30 years savings now in the hands of a clown called Gigaba! Or my fathers expensive living annuity with negative returns. NO THANKS!! oh and just to add, the feeling is indescribably amazing knowing you not participating in this communist hellhole.

Amen Brother. Millenial Here too. I totally understand why our folks had their closed minded views on the current crimina….i mean totally honorable governing body. I will not be putting any of my money near these karasites. I don’t understand the hate on Magnus when we all just don’t do a damn thing about the fact that Gigaba is an actual tea boy who is now finance minister.

Officejonny, try my luck with BC, but got conned by some investment schemes, trade on ice3x, but just don’t get it right, any suggestions to assist or contact.

How many do not recognise the close relation between politics and economy. None can and exist without the other, and when you have a well managed, transparent, respected and stable political leadership (govment), mostly you will end up with well managed, stable and respectful society (populace), which in turn reward a country with a stable and reliable economy.

MH, is right, so many “don’t see or don’t want to see”, building their future on a pipe dream of government promises to radical economic freedom.

He might be right there, but he should not try to dissociate himself from the suited types in mahogany row… he definitely isn’t a beverage assistant or even near the average man on the street income level.

was going to comment on the use of the word “tea boy” – it being related to colonist times. but noticed MH was the subject – so I suppose that’s OK! altho’ I am a follower of MH as a financial advisor, I have to concur that he is not an economist. we all remember the fate of chris hart who called himself an economist – but turned out to be something else. I would also suggest that messrs Mike Schüssler, Dawie Roodt, George Glynis and Azar Jammine are also not recognised economists in the world space. my idea of an economist is a person who holds a professorship at a world class university – so I suppose that cuts out all sa’s!

The value of an “economist” lies in the value of its advice or comments. Most Professors are also parroting mainstream messages, therefore not of any value. They have wonderfully complicated econometric models, but you can’t bet your money on their forecasts so where is the value?

Exactly Beeshaas, and you can bet your arse they aren’t betting any of their own money in a hurry either!?

To those university economists, the real world is often a special case of the theory

Time to use the strength of the Rand to good use. Don’t wait until you become a statistic like my grandmothers Zimbabwean pension.

Im a pensioner. Local not Zimbo, so how do I avoid the Zimbabwe style pension melt down? Going by the above EXCELLENT observation by Magnus and looking reality in the face I would say us over 70’s Pale Males are truly up the effluent canal without a propellant device about now.
Your advice would be more than welcome EG.
Go ahead, the floor is yours.

Hi Dave. If you belong to a “private” type annuity like a Living Annuity pension income, then at least you can sit down with your fin.advisor and ensure that max 25% of your underlying fund-selection has Rand-hedge to it (preferably with conservative global funds, as would be typically suitable for a pensioner’s investment-risk profile). If your pension gets paid from a Govt or “Defined benefit” type annuity, then little one can do, as the fund/asset allocation is to the discretion of the trustees/fund managers. (But your capital won’t run out like Living-annuity can). Discretionary savings…move some to any low-risk global unit trust fund or ETF fund, as a Rand-hedge. An interesting foreign ‘cash’ option is to open a “Foreign Currency Account” in either USD, Sterling or Euro at any of the big-4 local banks that offers it. Usually monthly account fees are nil, but accepted there’s hardly any interest earnings….you basically gain currency appreciation against the ZAR in the long run. (This is not the only advice….others may comment differently, as everyone’s personal scenario is unique.) I’m waiting for the day the SA Govt starts to print cash crazily like Zim, adding zerooooooos…when one will appreciate a few US dollars in hand 😉

With a living annuity you can invest the lot in offshore assets, not just 25%. The 25% rule only applies to pre-retirement savings where you have “terms and conditions apply” tax concessions, now standing at stratosphere percentages, to entice you to invest in dud SA funds. The income from a living annuity is fully taxable like any pension income. Like you, SARS is better off if you receive an income from offshore assets.

Went offshore with a reputable firm and got slaughtered. Reputable firm just shrugged shoulders.

I did too, did ok till I brought it back, then every Tom Dick and Harry decided they wanted a slice of the action. commissions, CGT spreads………..

The mistake you made was bringing it back.

When you take it out it should be with the intention of NEVER bringing it back.

Buy property in another country and let the rental income trickle back. You can choose to pool the income in an account there and then bring it back when you consider the exchange rate to be favourable, otherwise just use it as it comes in.

It’s a good hedge where as your income gets weaker in dollar terms here, your income from there gets stronger.

You should have sat it out. Buy low, sell high, not the other way round.

On point once again, MH! The old “One eyed King” scenario over and over when it comes to a lot of Economists. Perhaps its time for them to front up and every time they comment they need to show us all their own investment status!?

Either that or swop them with the weatherman, and get a more accurate report as to whether we should all jump out the window with our umbrellas or costumes on!?

Stocking up with Kruger Rand is an option.

All very well and good, but as a store of wealth unless they are proof they won’t do you a lot of good. Also determine how many you can export overseas as presents and how many can be legally taken out of the country when you travel as I think they are still governed by exchange control

Great article MH, but it sure is a hard pill to swallow. Being in my late 20’s I do feel like there is not much I can do. I have my savings with two different Asset Managers. I have an RA at Allan Gray and a normal unit trust account there…..but not alot to be excited about there, the value of those investments has decreased significantly. I am trying to save for a deposit on a house, but property prices here in Cape Town are so ridiculous. I even contemplated marrying a friend just for the convenience of a double income, but even that wouldn’t help!!(The one house that we could “afford” came with a monthly bond price of R18 000) I am contemplating relocating back to KZN, moving in with the folks so that the R6k I am paying in rent can inject more into my savings…..my only issue is that the investment vehicles that I am exposed to are unit trusts….a colleague got into bitcoin and he is sitting pretty….the new trend is also forex, I have a few friends into that but I am indecisive. I have contemplated getting a financial advisor, but the fees they charge…..

Having read the first part of your comment, the fees you pay to a good FA will be money well spend…

If Magnus was concerned about anyone else than growing his investment book I would take him seriously – In any 1st world country he would not have anything to say – His research is based on hear say and fear mongering – Of course it makes sense to invest offshore – If you need Magnus to tell you to invest offshore you clearly don’t understand the basics of investing – Maybe his should reflect on the absurd valuation of BIOTECH stocks (even the NASDAQ)… Anyway he will never change his tune. As long as there is bad news Magnus will add to the doom and gloom

Research based on hearsay? The current economic recession (fact), credit downgrades (fact), outflow of foreign funds (fact), mining charter (fact), negative real growth in SA stock market (fact), low investor confidence ( fact), Zuptagate (fact), Pravin fired ( fact) . Where is the “hearsay”? If you don’t like the message don’t shoot the messenger.

Gemini, which country are you living in ???

The ‘official’ economic data is already bad……UNOFFICIALLY, our country is on its knees….!!!

What part of this dont you understand ?

Why not open your eyes….take a drive around, see the decaying infrastructure, the hordes of ‘To Let’ signs…..the younsgters posting above you here how tough it is to survive…the fact that in reality almost HALF the population is UNEMPLOYED !…etc etc

Where do you want me to carry on…

What is it about you ‘head-in-the-sand’ types ??……is the truth a bitter pill to swallow ?

Does MH’s hard hitting factuality offend you possibly ?

Perhaps you prefer the sugar coated BS spewed by the ivory tower ‘economists’ ?

PS if so great to invest here as opposed to offshore, why not post for all to see here then ?? [ plse dont mention WC property – the same old only ‘glimmering hope’ right now ]

Really?? – Did you take the trouble to read what I said? I said it makes sense to invest offshore – Also said that if you need MH to tell you that you should not be investing in the 1st place – Just don’t buy into overvalued offshore assets just because you want to get your money out – By the way look at the NASDAQ performance today and yesterday – Also at the Rand performance – My head is not in the sand – I have assets offshore but I don’t trash my country each chance I get…

Agreed! On both scores! Question is, how much does one invest off -shore?? Have quite a bit there already one way and another, but the local investment movement (or lack thereof) is disheartening, to say the least. Does one take it all off-shore. Most FA’s don’t recommend.

Gemini, wrt your reply below:

Yes, of course “one shldnt buy into overvalued offshore assets just because you want to get your money out”

But as an overall investment strategy, it still beats anything locally generally speaking.

In addition, your MH bashing is UNWARRANTED – for starters, you lost all credibility with your “His research is based on hear say and fear mongering” comment

In fact, I think MH is being too nice !….and holding back on expressing the true state of SA affairs on record [ like most economists ]

The reality is, THINGS COULD BE EVEN WORSE THAN WHAT MH IS STATING…..SA Inc probably just hasnt felt the full knock on detrimental effects yet.

Hopefully, yes, there could be a turnaround in the future, but only based on a complete change of those in power [ to someone with at least a modicum of economic basics ], or a 180 in mindset of the current regime.

Mmm……dont expect this any time soon though.

Ok, so when I was referring to his research it was tongue in cheek – Its not his research now is it? He is not presenting any new facts is he? We are all aware of what is happening around us – BUT if every single article he writes says exactly the same thing – If he is that negative he should just leave – There are enough passport and VISA schemes around if you have enough money – Lets see how much value he adds in another country – Anyway – You are entitled to your opinion just as I’m entitled to my opinion – Lest just have some balanced views – Not just the same view over and over and over

Economists are very reliable – one can rely on them all being wrong most of the time.
The trick is to know how to sift the right from the wrong.
Like the curates egg.

Have a look at Wealth Migrate. A fintec firm that will but you into overseas property in an honest, transparent and low cost legal structure. Have a look at their web-page. As a retiree I feel much better with funds in USA earning 8%pa. Have a look at their webpage.

Thanks Lynne, worth investigating. However, one have to get one’s head around the “crowd funding” concept & come to accept it. We as S’Africans are generally conservative types, and takes time to gets to grips with and accept new concepts. (Bitcoin is one such example. Very tempting for speculative purposes though)

It’s not every day my gonads get into print! Thank you for that honour (!?!?).
Seriously though, while I (Futuregrowth) apologized for making public comments about the SOEs before a fair private engagement, we have not recanted our views nor stance.
We’ve had good and productive engagement with some SOEs (e.g. IDC, Landbank, DBSA), and are still working with some others.

Andrew, please don’t let the truth get in the way of a good click-bait….I mean article. We know MH is not BIG on facts.

???

Charles, firstly if you read in between the lines, Andrew very well holds firm on his views on how dodgy SOE’s are.

But, short of COMING UNDER FIRE for this kind of REALISTIC viewpoint, Andrew will only initiate a kneejerk reaction from ppl like you who believe ‘all is A-ok”

So, its toned down.

Secondly, I dont know what part of MH’s article is short on facts…??

At what point does SA wake up to the fact that if those in power continue on this road, we are [ if not already], on a certified road to ruin.

Possibly, you might want to look up ‘cognitive dissonance’, and come to the realisation that your rose tinted view might have to be dropped…as uncomfortable as that might be.

@Realitybites, you seem upset, what can I do to help you?

Charles wrote: “@Realitybites, you seem upset, what can I do to help you?”

If you dont feel aggrieved at what is happening to this once thriving country of ours, as the thugs in power continue to rape and pillage, then:

1] You are either a govt employee,or,
2] Not living in SA and dont care.

Are us good citizens upset at seeing our hard earned money being wasted in the form of tax…?..are we good citizens tired of the continuous onslaught of crime, day in and day out..?.are we good citizens tired of seeing unnecessary discrimination and victimization perpetuated on minorities here..?..are we good citizens tired of seeing a few elite in power plunder this country at will, while the rest of us are left with the messy aftermath …?….

Charles,plse, rather go help yourself, and stop trolling here

My JSE portfolio is up 15% in Dollars and 29% in GBP. Yes offshore is a very important component of asset allocation (up 24% in USD over 12 months) however it needs to be executed as part of a strategy and individual dependent.

Looking at the comments from retirees, if you had followed MH advice last year and remitted offshore, you would be negative in Rands or just breaking even depending on which asset class you chose (yes in hindsight we all invested in BITCOIN).

However a retiree with a local bond allocation achieved 15% in Rands, 28% in USD and 38% in GBP.

Obviously Rand strength is not a long term trend, but be cautious of those who use fear to profit.

Ja no well fine – please show me a rich economics professor!

Gemini you always critisize MH. If he is playing the same tune, so are you. Why do you read if you know what comes?

I don’t see him trashing our country. I see his views as not-perfect (nobody’s is) but valuable reading to decide on my finances. I spoke to senior people of a listed property group yesterday – they are even more ‘negative’ (wrong word) than MH, trust me.

As long as he keeps repeating the same old story I will keep on posting my reply – For that same reason you don’t have to read my reply (if its so upsetting to you) By the way some of the independent economists that everybody keeps quoting said the Rand would be trading at 80 to the Dollar – Its now at 12.78… Its a forward indicator of the state of the economy – Bur feel free to follow MH advice, even better pay him some fees to look after your money – Just be aware of the following: Maybe just understand the CGT implications and withholding taxes on foreign investments – Invest in a decent low cost tracking fund (no kickbacks etc to advisers) – Remember in what awesome 1st world countries the previous financial crash started (and just how many of those company directors landed in jail) – Basic principle of asset structuring – At least match your assets en liabilities in the same currency etc – But follow MH – good luck

No, Gemini….thats not how it works.

MH has a contrarian view [ and quite rightly validated judging by SA economic policies of late ] then most of the ivory tower economists out there, who continue to put out the usual sugar coated BS mantra [and their data is so far out its a joke ]

However, your continual lambasting of MH here on the forum indicates you either have a personal vendetta, or he is striking a nerve close to home, and as they say, the truth is hard to swallow sometimes.

In closing, here’s what we’ll do – lets revisit this thread in say 6 mnths time to check in, and see how SA Inc is doing ?

And if Magnus’s predictions are closing in…or, hopefully, off the mark [ but based on previous ANC HISTORY, I wouldnt put the bubbly on ice yet ]

Great, so you have your own rules for posting Realitybites? He has no contrarian view – Seeing that you are a bit slow – I will repeat my view that you should have offshore exposure (as per previous posts) – I don’t have a vendetta against MH. The only issue I have is that he keeps on rehashing the same old story time and time again – If he is that negative on SA he should pack his bags and go (there are enough options for the wealthy to leave) – He has every reason to scare investors so he can build an investment book – That is my point – Try and read slowly so it can sink in RB

Gemini wrote: “…pack his bags and go”

Jeez, that same rhetoric…here we go again.

Usually that phrase is spun out by the racist,idiotic guavament who use this knee jerk childishness for anyone who dares complain about corruption/crime etc etc

Now you resorting to this kind of lame viewpoint too ??

Same totally illogical thinking as ‘ well she deserved to be raped as she was dressed like she was asking for it”

Shame on you Gemini.

Gonna leave it at that as you’ve sunk too low, and we know where your head is at now.

There’s a difference between pessimism and realism….and it has to do with emotions. Time to adjust the sails…..or at least, buy a copy of the “Bluffer’s Guide”. I’ll take advice from a tea boy anyday! Well said, Magnus.

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