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Week 5 2017 Economics in a Nutshell

Local Economy: After the Markets had their ‘Trump Bump’ in the last couple of months, right across the world they are now treading water again trying to second guess the “Mickey (Pence) and Donald” show. US policy is being driven by ‘executive order’ with very little of substance getting to the House and Senate level – no surprise it’s only been a couple of weeks. We are back to uncertainty, and markets don’t like uncertainty. Our inflation is still high, but much of that is the lingering effect of drought and should work its way out of the system. Unfortunately, the private sector is quietly haemorrhaging jobs, and many of these middle and senior managers will find it difficult to be employed again quickly. If you have children then help them find the fun in the STEM subjects (Science, Technology, Engineering, Maths) – the best way of securing their future employability. When you have those two behemoths, USA and China, duking it out, everyone else should run for cover – including us. As individuals, protect your employability and credit rating, and ditto the government. The Budget is coming up and Gordhan (if he is still there) is the master of sugar coated pills. Expect a continued erosion of your after-tax income thanks to ‘bracket creep’ (higher tax margins without corresponding income increases) – take more leave not more cash to work on your ‘side-gig’. Uber is saturating in the big cities but opportunities lie outside of them. Airbnb is still growing.

Global economy: The jobs numbers in the US came in for January and once again was up about 220k+. After months of disputing these numbers last year, of course there was no such criticism this time round from the POTUS (President Of The United States). In the traditional sense, the US workforce is at full employment, with the remainder either unemployable or not serious about getting a job. Trump is hellbent on increasing manufacturing jobs, especially in the ‘rust belt’ – many of which were lost to countries that had way cheaper labour. The reality is that most of those jobs don’t exist anymore. Manufacturing is now mostly high tech and is run by the IT department or robots and those hands on jobs now come from burger-flippers not factory floor. Fiscal stimulus – in other words, lower taxes – is what is driving the US stock market, but once the rubber hits the road and Trump maxes out on his executive order toys, the budget is going to have to balance. Border tax might well stay on the books – not to punish importers, but to pay for the corporate taxes that are likely to be cut. The strong dollar will cancel out that effect anyway. The cutting of work visas in the US could affect the tech sector who are already battling to fill those highly specialised positions (so-called H1-B visas) – one of the most common visas that SAfers use to get into the States – reverse brain-drain on the cards?

Exchange rates: The exchange rate continues to improve, despite a strong dollar. The Rand/Dollar ended on R13.27, Rand/GBP on R16.53 the Rand/Euro on R14.31. To put the Rand/GBP in perspective – the last time the rate was this good was in November 2013. Cross fingers that the inmates of the Onion buildings don’t decide to play some more musical chairs with the Finance Ministry. If any of you played musical chairs as a kid you know that it usually ends in tears when the biggest kid in the room shoves you onto the floor and the prize was never worth it anyway. 

Other Indices:  Brent crude continues to hover in that $55 region – much to the disappointment of OPEC no doubt, but in the flurry of executive orders firmly targeted at many of their members (that don’t have Trump resorts), news on that front is being drowned out. Unfortunately, OPEC cannot really retaliate with oil price manipulation or embargo because, in the decades after that little trick, the US is not just self-sufficient, it could well become a significant exporter if the oil price holds up. Non-oil producing nations need to tap into other sources of energy. Energy self-sufficiency is more important than ever. We can learn a lesson from this. Jo’burg Water put some significant increases into the already punitive sliding scale which will have impacted on your bills significantly. Harvesting rainwater is much cheaper than getting a borehole and those tanks pay themselves off in weeks, not years/decades. Get a solar cover for your pool – heats it up and prevents evaporation. Divert rainwater straight into the pool/pond. Collect/divert and reuse greywater for use in cisterns and in the garden. Collect shower water – up to 1/3 of your shower water is lost while it ‘warms up’ – use it in the cistern.

Blast from the past:

Week 5 2016 Week 5 2017
ALSI ended on 48535 ALSI ended 52 265
Concerns about China growth and clumsy over-reaction. Continued concerns about Chinese growth, but showing more finesse
Repo rate was increased and Rand settled No sign of interest rate increase or decrease
Brent crude $32.72 Brent Crude $55.23
Rand/Dollar R16.02 Rand/Dollar R13.27
Rand GDP R23.45 Rand GDP R16.53
Rand/Euro R17.80 Rand/Euro R14.31

 

Tax year end: There are the obvious things that you can do before the tax season ends to reduce your tax burden – Top up your retirement annuities (R350k max, 26.5% of gross income) and Top up your Tax-Free savings accounts (R30k pa max). Less obvious but just as useful, make sure you have a car allowance (some trackers will help you with that log book). Is some of your salary is commission see if you can’t structure it to be more than 50% so you can claim ‘home office’ expenses.

Gap cover update: Premiums are unlikely to come down because the cap of R150,000 reflects 99.9% of the usual claims. You will only be able to claim on things you are already covered for on medical aid, in other words, if your hospital plan does not cover ‘trauma/ER’ then you won’t be able to claim on your Gap cover. Remember that most gap covers have a 3 month waiting period, and another 12-month’condition specific’ waiting period ( I do have access to one that waives the 3 month waiting period, contact me if you want details). Gap covers are now rolling out into corporate environments aggressively, make sure they haven’t been so dumbed down as to be useless. This is a fringe benefit and you are taxed on it, so dump it if it’s useless. Your group ‘life’  benefits are also a fringe benefit, make sure you’re paying for junk. See my blog below for more pointers on that.

Blogs you might have missed: Life cover hacks from an insider this is also available on the Dekat website HERE

Action: Look for every opportunity to save.  On payday, slip as much as you can into the savings pocket and live on the rest, or reduce the credit limit to one month’s allocation and just use that card – you’ll know quickly if you’re going over your ‘budget’. This is even more important if you or your partner works on a household ‘allowance’. Anything left over at the end of the month should be moved into a 32 day or longer account. Make friends with your money, speak to it often and don’t throw it away.

 

Dawn Ridler, CFP®, BSc Hons, MBA,
Founder, Kerenga – Wealth Ecology
Oracle Broker Services, Licensed FSP 28418
Twitter : https://twitter.com/dawnridler;
Blogs on LinkedIn : https://www.linkedin.com/today/author/dawnridler
LinkedIn Profile and CV: http://za.linkedin.com/in/dawnridler/
Personal website and Blogs: www.kerenga.com
Podcasts : http://dawnridler.podbean.com/#.WAW_cW3MRzc.email
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