Friday, 20. November 2009, 14:34:56
After the entire internet going crazy about the debacle surrounding the way that Ras Dumisani sang the South African national anthem at the SA vs France rugby match last week, we thought it might be useful for anyone else thinking of singing the national anthem to actually know the words.
Learn the South African Anthem:
http://www.youtube.com/watch?v=Lgq4UG1agHIRegards
Shane Thom
Friday, 20. November 2009, 14:30:59
The new Governor of the South African Reserve Bank, Gill Marcus, attended her first MPC interest rate meeting this week since taking over at the Reserve Bank.
Leaving South Africa's repo rate unchanged at 7%. Interest rates have already been cut by five percentage points since December 2008, bringing the prime overdraft rate to 10.5%.
By not cutting interest rates Gill Marcus gained some credibility as the new Governor by affirming that the Reserve Bank's primary goal is to fight inflation. The following Statement was issued by Gill Marcus:
2009-11-17: Statement of the Monetary Policy Committee
Issued by Gill Marcus, Governor of the South African Reserve Bank
1. Introduction
There are signs that the domestic economy will continue on its recovery path but economic growth is expected to remain below potential for some time; and dependent to some extent on the pace of the global recovery, which still appears to be fragile and uneven across regions. Economic growth is also expected to be constrained by subdued domestic consumption expenditure. The domestic outlook for inflation remains favourable as a result of weak demand pressures and the main threat to the inflation outlook emanates from possible electricity price increases.
2. Recent developments in inflation
The year-on-year inflation rate as measured by the consumer price index (CPI) for all urban areas declined from 6,4 per cent in August 2009 to 6,1 per cent in September. The single biggest contributor to the inflation outcome was the category of housing and utilities which accounted for 1,7 percentage points. This was mainly due to the electricity component which increased at a year-on-year rate of 29,1 per cent. Food price inflation continued to moderate, and at 4,9 per cent is now exerting downward pressure on overall inflation. Goods price inflation measured 4,9 per cent, compared with services price inflation of 7,8 per cent.
Producer prices declined for the fifth successive month in September, with the headline producer price inflation measuring -3,7 per cent. Most categories in the index exhibited low or negative year-on-year rates of inflation, apart from electricity, gas and water, and tobacco products.
3. The outlook for inflation
The CPI inflation forecast by the South African Reserve Bank (the Bank) continues to indicate that inflation is likely to return to within the inflation target range, on a sustained basis, by the second quarter of 2010. There may however be temporary declines to within the target range before then. CPI inflation is expected to remain within the inflation target range until the end of the forecast period in the final quarter of 2011, when it is forecast to average 5,5 per cent. Given the current uncertainty related to Eskom's tariff application to NERSA, the forecast does not make provision for the higher increases requested by Eskom, and electricity price increases of 25 per cent in 2010 and 2011 are assumed. The forecast of the Bank is in line with those of private sector analysts. According to the latest Reuters consensus forecast, inflation is expected to average 5,7 per cent in 2010 and 5,85 per cent in 2011.
There are no major demand side pressures on inflation, and the assessment of the Committee is that there are no significant upside risks to the inflation outlook emanating from this source.
Household consumption expenditure remains subdued. Real retail sales growth has been negative, but there is further evidence that motor vehicle sales may have reached their lower turning point. Although total vehicle sales in October were 12,5 per cent lower than a year ago, when the three months to October 2009 are compared with the preceding three months, an increase of 1,4 per cent was recorded. The recovery has been in passenger vehicle sales and exports. Commercial vehicle sales are still declining. Consumption expenditure is expected to remain subdued, despite the lower interest rate environment, as a result of tighter lending conditions by banks, high levels of consumer indebtedness, negative wealth effects or impaired household balance sheets, and higher levels of unemployment.
Credit extension to the private sector reflects weak demand by households and the corporate sector, and tight lending conditions by banks in response to higher perceived risk and rising impaired advances. Twelve-month growth in banks' total loans and advances declined to -0,2 per cent in September 2009. Growth in mortgage advances to the private sector declined further in September, measuring 4,8 per cent. The other main categories of loans and advances, namely instalment sale and leasing finance, credit card advances, bank overdrafts and general loans, all contracted.
Consumption expenditure is also constrained by high debt levels and negative wealth effects, although asset values have recovered somewhat from their lows earlier in the year. The all-share index on the JSE Limited is currently about 50 per cent higher than the most recent lowest point in March of 2009. House prices also appear to be recovering, with the various house price indices reflecting either small positive growth or moderate declines in October.
Labour market developments are also likely to constrain household consumption expenditure. According to the Quarterly Labour Force survey, approximately 800,000 jobs have been lost since the beginning of the fourth quarter of 2008. The Quarterly Employment Statistics show a decline of over 200,000 formal sector jobs between the beginning of the fourth quarter of 2008 and the end of the second quarter of 2009.
Domestic output appears to be recovering and the leading business cycle indicator of the Bank has continued its positive trend. There are still some doubts about the speed of recovery, and the output gap remains relatively wide. Most forecasts suggest that positive growth will have resumed by the fourth quarter of 2009, but there is less unanimity about the third quarter outcome.
The outlook is also not even across sectors. The monthly data suggests that the mining sector contracted further in the third quarter, but the manufacturing sector performance on a quarter-on-quarter basis was relatively robust. According to Statistics South Africa, the physical volume of mining production declined by 7,5 per cent in the three months to September compared with the previous three months. However, a more positive trend may be expected in the fourth quarter.
The physical volume of manufacturing production increased by 2,6 per cent over the same period. This outcome is consistent with the Kagiso/BER Purchasing Managers Index, which although still reflecting a contraction in manufacturing, has rebounded significantly and the forward-looking indicators in the index are generally positive. There is a risk however that this recovery could be affected by low consumption expenditure growth. The outlook for the construction sector appears to be less favourable. The real value of building plans passed declined by 18,5 per cent on a year-on-year basis in August, while in the three months to August compared with the previous three months a decrease of 27,7 per cent was recorded. The FNB Civil Construction Index also declined significantly in the third quarter of 2009.
Fiscal policy developments are not seen to be a threat to the inflation outlook. The revised budgeted deficit of 7,6 per cent of GDP announced in the MTBPS is to a significant extent due to lower tax revenues, a result of low economic growth, and is therefore part of the workings of the automatic stabilisers. The previous fiscal prudence has provided sufficient space for increased borrowing to fund the shortfall. The deficit is expected to narrow as growth gains momentum.
No significant upside risks to the inflation outlook are expected from food prices. Food price inflation has declined to below 5 per cent, and this favourable trend is expected to continue. Consumer food prices tend to lag food price developments at the producer price level, and the latter have been either declining or rising marginally over the past months. In October, manufactured food prices declined at a year-on-year rate of 1,8 per cent, while agricultural product prices declined by 2,4 per cent. The current spot and future prices of agricultural commodities indicate that no significant upward pressures are expected in the near future.
For the past year petrol prices have exerted downward pressure on inflation as a result of the appreciation of the rand and relatively low international product prices compared to the previous year. However, these favourable base effects are not expected to continue. Over the past few months the international oil prices have remained relatively stable but some account is taken in the forecast for possible increases in the international oil price should the global recovery accelerate. In November the domestic petrol price remained unchanged, and should current trends continue, a modest increase in the petrol price is possible in December.
The rand has remained a positive factor in the inflation outlook, notwithstanding some volatility during the month. Since the previous MPC meeting, the rand has traded in a range between R7.30 and R7.90 against the US dollar. The rand's movements have been influenced to a large extent by exogenous factors, in particular movements in the dollar, a resumption in global capital flows to emerging markets, and a recovery in commodity prices. Since the beginning of the year the rand has appreciated by 20 per cent on a trade-weighted basis.
The global economic recovery has been led by the emerging Asian economies. However the turnaround in the advanced economies is less certain. While there are positive signs, the recent higher growth rates have been driven by a turn in the inventory cycle, and the continued weakness in consumption expenditure in the United States in particular, and rising levels of unemployment pose risks to the recovery. The nature and speed of exit strategies from the previous stimulus packages also remain a risk to the outlook.
The global environment remains benign from an inflation perspective. Despite moderately higher commodity prices, there are no significant risks to the global inflation outlook.
As in the past few meetings, the main risks to the inflation outlook are seen to emanate from electricity price increases and the possible second round effects thereof. In addition the trend of wage settlements continues to pose an upside risk to the inflation outlook.
4. Monetary policy stance
The Monetary Policy Committee, having reviewed the global and domestic economic and financial developments, has decided to maintain the current stance of monetary policy and to leave the repurchase rate unchanged at 7 per cent per annum.
Gill Marcus
GOVERNOR
Regards
Shane Thom
Monday, 16. November 2009, 13:00:21
In the October 2009 edition of the Coronation Fund Managers publication, Corospondent, Louis Stassen, a founder member and former CIO of Coronation, believes that many investors saving for retirement or already drawing an income from their accumulated capital base may be too conservatively positioned. He believes it essential that investors hold an adequate level of growth assets in their portfolio to ensure a decent chance of beating inflation.
Coronation believes that the biggest risk faced by an investor is failure to provide for a comfortable standard of living into retirement, however long that may be. This is often overlooked by investors who seek the 'security' of a product with low volatility and low risk.
A guaranteed investment, while providing the security of a return, could result in the risk of providing a below inflation return. This, once again, emphasises the need for investors to always consult with a financial planning professional for investment assistance and advice to ensure that investments are properly aligned according to time horizons.
The rule of 72 [72 ÷ inflation rate] is used as a guideline to determine how long it will take for the purchasing power of money to halve at a given inflation rate.
For example, let's assume inflation averages 8% over the next 10 years. 72 divided by 8 gives you the figure of 9. This means that on average, every 9 years the purchasing power of your money will halve in value. Conversely, if you purchase a car today for R300 000 you will pay R600 000 for the same car in 9 years time. The same goes for the cost of education, food and other goods.
Another factor is that people are living longer and this means that there is a greater burden on one's retirement savings. According to Stassen, most people often start to reduce their exposure to growth assets far too early. As they reach retirement age [60 years] they automatically take on a more conservative outlook by reducing exposure to growth assets [primarily equity] and up weighting lower expected return assets [for example government bonds]. While this might be appropriate for some, it is in all likelihood inappropriate for most.
Acknowledgement to 'Conversations with Coronation' [Article by Louis Stassen - The Risk of not Talking enough Risk]
Regards
Shane Thom
Monday, 16. November 2009, 12:55:28
The Minister of Finance, Pravin Gordhan, announced some important amendments to Exchange Control Regulations in his Medium Term Budget Policy Statement on 27 October 2009. These primarily increased exchange control allowances from 27 October 2009.
Set out below is a summary of the latest changes to Offshore Allowances:
The foreign capital allowance for natural persons has been increased from R2 million to R4 million.
The foreign capital allowance per emigrating family unit has been increased from R4 million to R8 million.
The single discretionary allowance available to natural persons who are 18 years or older has been increased from R500 000 to R750 000. The allowance is per calendar year and no tax clearance is required. Note, however, you may not leave or invest any of your unused portion – you must bring it back to South Africa on your return.
The allowance may only be used for the following purposes:
# Donations to missionaries
# Maintenance transfers
# Monetary gifts and loans
# Travel allowances
# Study allowances
Note that the travel allowance of R160 000 per calendar year available to natural persons who are under 18 years of age remains unchanged.
The allowance for investment by South African companies outside the common monetary area has increased from R50 million to R500 million.
Regards
Shane Thom
Friday, 30. October 2009, 14:51:27
In the opening statement of the Medium Term Budget Policy, Minister of Finance Pravin Gordhan said: 'We have to do things differently, because over the past 14 months, the world has faced the most intense economic crisis since the Great Depression. The crisis is not of our making, yet its impact has been very serious.' He concluded that: 'We will not waste this crisis.'
Last year Trevor Manuel, in tabling the budget indicated that there were storm-clouds on the horizon. With some hindsight we find that every cloud has a silver lining. In South Africa, articles on the global crisis have tended to be relegated to the back pages of the press largely due to excellent transparent institutional implementation of our fiscal policy.
The Medium Term Budget Policy Statement [MTBPS] is guided by the obligations of government, embodied in legislation and overseen by Parliament in terms of policy direction and political mandate as expressed in the State of the Nation Address. In the 2009 Medium Term Budget Policy Statement the Minister, on Tuesday, set out the priorities and main budget points for the next 3 years. The following is an excerpt:
Honourable Speaker, this Medium Term Budget Policy Statement presents the fiscal framework within which the Cabinet will work to deliver on the five priorities of this government:
Creating jobs;
Enhancing the quality of education;
Improving health outcomes;
Rural development;
Fighting crime and corruption.
The MTBPS updates the revenue, spending and borrowing projections for the current fiscal year. It reflects the collective understanding of Cabinet on the economic and budgetary challenges ahead.
The MTBPS has a special place in the Parliamentary programme, because it enables legislators and the public, business and civil society leaders, workers and citizens, to consider government's budget plans several months ahead of the Budget itself.
In this policy statement we have five clear assurances for all South Africans:
We will sustain our delivery of services and developmental programmes;
We will carefully prioritise and focus our efforts;
We will be diligent in the management of the public finances - and not burden future generations unduly;
We will vigorously pursue savings within all spheres of government; and
We will ensure consistency in policy, while creating room for engagement and review.
These are commitments that flow from values embedded in our Constitution. But for us to succeed we need a shared compact, across all the divides in this House, and across the nation:
We will not tolerate corruption;
We will act forcefully against wastage;
We will insist on value for money for the billions that we spend;
We will clean up the procurement system and take strong action against those who feed selfishly off the state!
Inkohlakalo ngeke siyibekezele! - We won't tolerate corruption!
South Africans from all walks of life know what it means to be both resilient and sensible in the face of adversity. We are a remarkable people. We will succeed in our long walk to a better life for all our people.
Can we do this? Can we work together, to meet five shared, national, social and development goals? Yes we can! Minister of Finance Pravin Gordhan 27 October 2009
Regards
Shane Thom
Tuesday, 27. October 2009, 08:24:15
A mouse looked through the crack in the wall to see the farmer and his wife open a package. What food might this contain? The mouse wondered - he was devastated to discover it was a mousetrap. Retreating to the farmyard, the mouse proclaimed the warning: There is a mousetrap in the house! There is a mousetrap in the house! The chicken clucked and scratched, raised her head and said, "Mr.Mouse, I can tell this is a grave concern to you, but it is of no consequence to me." " I cannot be bothered by it."
The mouse turned to the pig and told him, "There is a mousetrap in the house! There is a mousetrap in the house!" The pig sympathized, but said, I am so very sorry, Mr. Mouse, but there is nothing I can do about it but pray. "Be assured you are in my prayers." The mouse turned to the cow and said "There is a mousetrap in the house! There is a mousetrap in the house!" The cow said, "Wow, Mr. Mouse. I'm sorry for you, but it's no skin off my nose." So, the mouse returned to the house, head down and dejected, to face the farmer's mousetrap alone. That very night a sound was heard throughout the house -- like the sound of a mousetrap catching its prey.
The farmer's wife rushed to see what was caught. In the darkness, she did not see it was a venomous snake whose tail the trap had caught. The snake bit the farmer's wife. The farmer rushed her to the hospital , and she returned home with a fever. Everyone knows you treat a fever with fresh chicken soup, so the farmer took his hatchet to the farmyard for the soup's main
ingredient. But his wife's sickness continued, so friends and neighbors came to sit with her around the clock.
To feed them, the farmer butchered the pig. The farmer's wife did not get well; she died. So many people came for her funeral, the farmer had the cow slaughtered to provide enough meat for all of them. The mouse looked upon it all from his crack in the wall with great sadness.
So, the next time you hear someone is facing a problem and think it doesn't concern you, remember -- when one of us is threatened, we are all at risk. We are all involved in this journey called life. We must keep an eye out for one another and make an extra effort to encourage one another.
Author: Unknown
Thursday, 22. October 2009, 12:29:37
Changes to the estate duty act have been virtually negligible over the last decade and estate duty is here to stay. So what does this mean? It means that 20% of the value of most of your property above certain abatements will incur estate duty. If you have not made use of expensive and sometimes complicated trust structures from a young age, your wishes at death could be put at jeopardy.
People with very high levels of cash or equity [unit trusts or shares] who never really need to draw from this money can save massive amounts of personal tax, estate duty and capital gains tax by using a retirement annuity as an estate planning tool - ensuring that surviving family members will have sufficient income to maintain their standard of living.
Let us use an example: A high-net-worth client has R5 million in cash, unit trusts or shares, has no need for dividends or interest income and is concerned about estate duty. After the R3.5 million estate duty abatement, SARS earns 20% in estate duty which, in this case, amounts to R1 million.
New legislation allows any person to invest in a retirement annuity up to any age. Once the investment is made into a retirement annuity it immediately falls outside your estate, which in the above example would save your heirs R1 million. What's more, no executors fees are levied on any retirement funds, provided that beneficiaries are appointed. If you need to supplement your income you can at any time transfer the retirement annuity to a living annuity and draw an income from it. Again, it will fall outside your estate and capital is not lost to your beneficiaries.
Contributions to a retirement annuity, as opposed to donating the amount to a trust, will allow the money to be taken out of the estate without attracting donations tax, but with the added benefit of an income tax deduction.
The opportunity to make additional provision for retirement, together with the potential for tax and estate duty savings, will ensure the continued popularity of retirement annuities as an estate planning tool.
Financial Planning is a vast subject and I will continue to bring you new ideas about it.
Regards
Shane Thom
Tuesday, 20. October 2009, 06:09:55
Friday, 16. October 2009, 15:11:00
It is well-known that the contributions to a retirement annuity [RA] are tax deductible. What is less well-known is that certain retirement annuities provide the member with access to a portfolio of shares managed by a stockbroker. Seen in this light, the RA contribution can be compared to a direct investment into a portfolio of shares on the JSE, at a 40% discount. The below two graphs reflect the holdings and performance of some of the portfolio managers that we are currently invested in via RA's:
SABMiller plc SABMILLER Reinet Investments SCA REINET
MTN Group Ltd MTN GROUP Nampak Ltd NAMPAK
British American Tobacco plc BATS Sun International Ltd SUNINT
AngloGold Ashanti Ltd ANGGOLD Cash on call CASH
Sasol Ltd SASOL FirstRand Ltd FIRSTRAND
Remgro Ltd REMGRO Illovo Sugar Ltd ILLOVO
Sanlam Ltd SANLAM Tongaat Hulett Ltd TONGAAT
Harmony Gold Mining Company Ltd HARMONY Aspen Pharmacare Holdings Ltd ASPEN
Compagnie Financière Richemont SA RICHEMONT Anglo American plc ANGLO
Mondi plc MONDIPLC RMB Holdings Ltd RMBH
Standard Bank Group Ltd STANBANK Liberty Holdings Ltd LIB-HOLD
Sappi Ltd SAPPI Netcare Ltd NETCARE
African Rainbow Minerals Ltd ARM Datatec Ltd DATATEC
Shoprite Holdings Ltd SHOPRIT Gold Reef Resorts Ltd GOLDREEF
Dimension Data Holdings plc DIDATA Metropolitan Holdings Ltd METLTD
Performance: Graph showing total return (%) from 15 Oct 2002 to 15 Oct 2009.
How To Buy Listed Shares At 40% Discount
Month-End performance data (values for periods greater than one year are annualised) as at 15 Oct 2009
1 Month 3 Months 1 Year 3 Years 5 Years 10 Years
Company A 3.76% 11.75% 22.23% 10.10% 22.58% 23.70%
Company B 3.15% 9.76% 39.49% 14.96% 26.14%
Company C 3.53% 12.73% 22.26% 7.87% 20.58%
Company D 4 .76% 13.90% 28.76% 11.46% 22.29% 27.61%
All performances shown in the table are percentages calculated using NAV to NAV prices net of fees, including dividends reinvested on payment date.
If you're looking to boost your retirement capital, it is always recommended that one maximizes your contribution to a retirement annuity. A retirement annuity allows you to grow your retirement savings in a tax efficient manner. Investment growth in a RA is tax free, attracts no income tax, capital gains tax [CGT], donations tax and estate duty.
Regards
Shane Thom
Friday, 2. October 2009, 11:05:51
Often people make the mistake that financial planning is only about life assurance. Indeed, life assurance is an essential component to ensure estate liquidity for one's family: that is, to pay any outstanding debts, capital gains tax and estate fees etc.
But financial planning runs far deeper than just estate liquidity.
Financial happiness is one of the most overlooked financial topics in the entire financial planning universe. We often focus on mortgages, retirement, credit cards, debt, career… but we miss the most important focus our money should have: allowing us to achieve our dreams. With proper financial planning dreams become achievable goals.
In the book The Millionaire Next Door (a study of how people become wealthy) the following was discovered: many people who live in expensive homes and drive luxury cars do not actually have much wealth. If you make good income each year and spend it, you are not getting wealthier. You are just living high. People with a great deal of wealth simply live differently; wealth is accumulated and not spent.
Although - it is essential to understand - not all financial paths lead to happiness. If you want to find happiness in your financial planning, you must have a plan:
Educate yourself.
Have a Will.
Budget.
Have a financial adviser carry out a financial needs analysis for you. Not a cigarette box calculation, but a very thorough investigation of your financial affairs. This should naturally include estate planning.
Reduce credit card debt.
Ensure that you have sufficient life assurance to support your family, whilst you accumulate wealth.
Ensure that you have sufficient money saved for emergencies in a money market account.
Fund your pension funds to the maximum.
Fund your retirement annuities to the maximum.
Own your own home.
Whatever is left over, invest!
"Hey. Don't ever let somebody tell you you can't do something. Not even me. All right? You got a dream? You gotta protect it. If people can't do somethin' themselves, they wanna tell you you can't do it. If you want somethin', go get it. Period." From one of my favorite movies Pursuit of Happiness starring Will Smith.
Financial and estate planning are vast subjects and I will continue to bring you some new ideas about it in future writings.
Shane Thom
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