NFB FINANCIAL UPDATE Volume56 June 2011
FROM THE CEO’s DESK
S
ome issues ago I referred to the various trends which might develop over the coming months and years. One such possibility was something both I and other commentators have described as a “Muddle through” economy. Very influential and often without conscience or concern for the long term, in matters affecting our short and medium term economies, are the politicians. Able at a swish of a pen to legalize the printing of money, the bailout of a favoured bank or insurer, or even in the case of the Americans, an ill considered Mortgage Originator/Bank introduced originally to help ensure “that each American owned a property and enjoyed the long term prosperity this bullet proof store of and creator of wealth and equity provided”. These decisions, often subject to jockeying and deals within deals can ruin decade's worth of endeavour, and more importantly, the confidence of people to take business risk, a critical ingredient in the sustainable growth of any economy. In South Africa, we suffer another bothersome reality. Whilst the Government is critically aware of the importance of job creation, they are beholden to their very important source of support being organized labour. On the one hand, we have the president talking about 5 million jobs being created, and on the other we have ever tightening terms of employment, minimum wages, special conditions, unreasonable wage settlements, and so forth. What a backdrop from which they expect to have entrepreneurs and Big Business alike to risk time, capital and the stability and sustainability of existing business, in a rather fickle economy, to build new enterprises, employing and training largely unskilled workers, who, if they don't measure up, are near impossible to eject. Business and Government will struggle to align their agendas and in my opinion, until this impasse is solved, there is NO chance of these heady goals, announced by politicians once again, being met. On to matters more personal and investment related. A few weeks back an article by Matthew Lester in the Sunday Times raised the issue of SARS focusing on South African high worth tax payers and avoiders. This is an important subject and warrants our individual attention. The program recently introduced covers both local and foreign investments or activities where proper declaration has not been made. This opportunity is worth taking seriously and consulting with your accountants or attorneys to establish how to act should this be necessary. We also wrote some time back of the decision to allow the switching of properties out of Close Corporations into individual's names. This was about a year ago and feels like it was just yesterday. If you might benefit by this switch, particularly if the property is your primary residence, we would again
welcome a discussion either with your advisor at NFB or suggest you engage with your accountants. The deadline is fast approaching and you do not want to be caught in a last minute dash, or being reliant on an extension being offered to us by the authorities. Changing the topic to markets, interest rates and Global trends, we note a few issues which are noteworthy. Firstly, in quite a few Economies we are seeing inflation raising its ugly head. This will eventually result in interest rates following suit, although this still might only be a general trend next year. Investors and large pension funds in the developed world continue to suffer from poor returns on safe investments in their own banks and instruments. This continues to fuel weakness in their currencies as they go abroad, significantly into developing geographies, in search of yield and returns. Should this trend reverse, the currencies in these developing economies could suffer significant weakness, complemented by material pullbacks in markets and asset prices in general. The large offshore markets currently reflect better value than our local bourse. The Rand also remains very strong on a series of crosses, most notably the US Dollar. The Americans and others seem only too happy to weaken their local units in an effort to support local industries and exports. Foreign allowance investments, if done for long term reasons, including diversification and as a long term hedge against a meltdown in the Rand, are always appropriate. Recent concessions made by the Reserve Bank in terms of a material increase in the allowances, make this channel of investment worthy of serious discussion and then implementation. Notably, these funds can be applied into formalized investments, bank or other short term deposits, as well as property (private, rental generating and commercial). Once again, I am all for these generating a yield, either in the form of a dividend if in shares, a rental, if in property, or an interest coupon, although the latter does not offer much in the majority of offshore currencies at present. A final note on investments takes a quick look at the recently discussed Dividend Income Funds which have effectively been disallowed by SARS in the recent budget. NFB has a few effective solutions for cash and funds emanating from these disallowed products. Depending on the term of investment, we have developed solutions which will help in the optimizing of both total return and net of tax returns for individuals, trusts and our corporate clients. Please chat to your advisors for updates in this important area of investment optimization. Mike Estment, BA CFP® CEO, NFB Financial Services Group
IN THIS ISSUE From the CEO’s desk Just because you're older does not have to mean more expensive life cover Is cash the safest bet?
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