CONSOLIDATION: IS MORE REALLY BETTER?

Consolidation

Definition:

·         make (something) physically stronger or more solid:

The first phase of the project is to consolidate the outside walls

Strengthen (one’s position or power):

The company consolidated its position in the international market

·         combine (a number of things) into a single more effective or coherent whole

All manufacturing activities have been consolidated in new premises

Combine (a number of financial accounts or funds) into a single overall account or set of accounts.

More often than before, consumers are talking about making up for the years they “couldn’t” save towards retirement. With this has come with it a few radical ideas concerning; buying back years and having more than one retirement annuity allowing them to save more.

Now take a step back and think about it logically…

Quite counterproductive isn't it!

Consolidation is what all consumers need to be thinking about but aren't  We keep getting sold more products and get told that it’s what we need, but the truth is that it’s what industry related companies need in order to stay in business.

On average a retirement annuity will cost you 2% per annum, with an additional performance bonus annually if benchmarks are surpassed. On a retirement annuity with an invested amount of R100,000, you are giving away R2,000 every year excluding vat and any other “standard costs” you may incur.

Let’s look at a consumer who has more than one retirement vehicle and a total invested amount of R100,000. That’s an exorbitant total fee of 4% or more annually that’s been given away (not to mention the bank charges from “Steve’s’ bank”).

In the case of retirement, more is not better. We need to learn how to be conservative in the manner we do things. Once time is lost, it’s not something that we can get back and the same principles go for our retirement. Attempting to be more aggressive in our savings does not necessarily mean that we will be able to make up the deficit.

A simpler way to overcome the obstacles is rather be wiser in the portfolios and fund selections you make. Know what kind of appetite you have for risk and then look at your affordability. These factors would assist you in making calculated decisions regarding your retirement.

If you are already in the position where you have more than one retirement vehicle, the end is not nigh. You can consolidate the annuities, have only one concurrent vehicle and combine the premiums that you were paying. This will save you money on many unforeseen charges and allow you to give a bigger portion of your premium towards retirement and at the same time gaining more interest on the total investment.

So the moral of the story is; drink two less beers a week or one less bottle of wine a day and put that money to good use!

Have a great Friday!

MARKETS AND INVESTORS ARE UNDER PRESSURE

It has been an exciting few weeks in the world financial markets and it seems that the excitement is not yet over. After a fairly strong(ish) relief rally yesterday, markets fell from grace (once again) this morning after news broke of a German Sovereign downgrade. Naturally, the DAX sold off sharply and was shortly followed by the rest of the world. It would seem that the panic is spreading.

Panic. A word that has been on the lips of many journalists for a few weeks now. Before we go any further, Warren Buffet once wrote in a letter to his shareholders that "Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy when others are fearful."

In other words, the conditions for some serious bargain hunting is almost right, although in this writers opinion, not perfect yet. The truth is that we will never know exactly when the market is going to turn. We will more than likely end up getting into (or out of) the market either a little soon or a little late, that's ok. As long as we aren't trying to pick the bottoms (and tops), but rather wait for a confirmation of a trend reversal, we should do just fine. 

So; when everyone else is fearful, be greedy. When things look like they are so bad that everyone you hear talking is crying about how much they have lost, or how bad things are, when everyone is so swept up in the panic of the falling market, that is when we must strike and start buying stock.

Is that day today? Perhaps not. Can we tell when it will be? Not now we can't, but when the time comes we will know.

Let's have a look at some of the recent events in the market.  We all know the Cyprus story, so I won't harp on about it. Some of the more recent drivers in the market have been bad employment data from the US, slower than expected growth out of China and today's German Sovereign downgrade.

First we saw worse than expected PMI data from China, USA and Europe, shortly followed by US Unemployment Claims that were 33k higher than expected and Non-Farm Employment Change numbers that came in at 88k, fully 110k lower than expected. And that was just the first week of April. 

Later we saw worse than anticipated CPI data from China as well as GDP growth of 7.7%, which by any measure is fantastic, but the market expected 8%. The markets slipped, commonalities slipped and the Rand lost much of the ground it had worked so hard to regain against most major currencies. All in all, economic data has not been the most bullish in the last few weeks and it has put markets under severe pressure. The feeling is that more pressure is to come as, if we recall, China had warned at some point that their GDP growth for 2013 is expected to average 7.5%. Now if we saw such adverse reaction to the data released from China a few days ago, imagine how much more pressure will be put on commodities and commodities based stocks when this number comes in below 7.5%. 

Surely we cannot tell the future, so we will just have to wait and see what the outcome is when we get there. Although I don't think that a bear market in commodities prices in completely impossible. Time will tell.

From a Technical Analysis point of view, it does appear likely that our market will come down to test the 32000 level on the ALSI (Top 40 Index). It won't get there by moving in a straight line though. It would seem that it could likely bounce higher by about 1000 or so points to test the 35000/35500 level before pushing further down. If we compare recent post-recession years to this year, the trend has been to consolidate and drift slightly lower from January/February until the end of May/June, before trading higher for the second half of the year. 

The feeling is that given the fundamental/economic data that has been driving the market over the last few weeks and the historical trend over the last few years, it is likely that a difficult first half will be rewarded by a rally closer to the end of the year. It would also appear likely that our market has some way further to fall before we start seeing any real, sustainable relief. 

The facts are that commodities are under pressure and that South Africa is a commodities based economy. So the more pressure commodities prices comes under, the more pressure our market feels.

It is of course very brave trying to predict what the market is going to do, so I will have to acknowledge that I could be wrong at any point. I will say though, that once we reach the bottom of that channel line depicted in the chart above, we will have to be razor sharp. If we break through the bottom of that level convincingly, we are in for a much deeper correction. If that level holds though, we look set for new highs. We are currently in a healthy uptrend and a 10% to 15% retracement, or pullback, is natural and healthy. Also, macro trends tend to last somewhere around the seven year mark, so in my opinion, the chances of us entering a bear market is relatively low. I also think that by the time we reach the 32000 mark, panic would have set in properly and at that point, following Warren Buffet's advice should be at the very top of the to-do list.

For the moment though, we need to remain cautious and be sure that we do not take unnecessary risk, nor panic if we are in a position that is running against us. Remember, the professional traders make money from our fear-fueled decisions. 

Trade carefully out there.

BIGGER THAN YOU!

As of late, there has been a lot of discussion around the preservation of funds and people withdrawing their money in cash when changing employers. Each to their own is my belief and opinion. Take your cash and spend it, if you don’t spend it, give it to me and I will.

Regardless of what you read or what you are told, the fact of the matter is that you still going to do exactly what you want. We do this because we don’t know any better, yet certain consumers choose to be naïve enough to pass the buck and not own up to the truth… We are the dumbest-smart race! In other words, we don’t always think about our own preservation. We spend money to impress, not thinking about the consequences, we buy impulsively knowing very well that we probably won’t use that R1000.00 can opener with 1001 functions that is still essentially, a glorified can opener. We spend R5000.00 on a bottle of wine, when most of us wouldn’t know the difference between that and a R20.00 bottle from your local corner store.

Yet through all this chaos and anarchy, it is our instincts as human beings to survive. We will always be just fine; it’s how we are designed. When you have your back against the wall, it is your instinct that tells you to fight.

You ask how this is relevant.

We make all the wrong decisions to find the right answers. Inevitably we start learning from our mistakes and realize how important not spending our pension money is. We grow up, start families and then the broader picture comes to light; saving is bigger than just you! This is the time when you starting fighting because you know that your responsibilities have changed. Your instincts kick in and it begins to sink in that if you don’t start saving, you will become the burden of the very humans you have created.

Leaving it until it’s all too late has become somewhat of a fashion statement in recent times. It’s up to you to break the trend and move towards self education.

As once famously quoted, “There is no need to sally forth, for it remains true that those things which make us human are, curiously enough, always close at hand. Resolve then, that on this very ground, with small flags waving and tinny blast on tiny trumpets, we shall meet the enemy, and not only may he be ours, he may be us.”

So yes; you will be just “fine”…. but is “fine” enough?

Saving really is bigger than you!  

SHAKESPEARE ‘WAS A RUTHLESS TRADER’

LONDON – Hoarder, moneylender, tax dodger — it’s not how we usually think of William Shakespeare.

But we should, according to a group of academics who say the playwright was a ruthless businessman who grew wealthy dealing in grain during a time of famine.

Researchers from Aberystwyth University in Wales argue that we can’t fully understand Shakespeare unless we study his often-overlooked business savvy.

“Shakespeare the grain-hoarder has been redacted from history so that Shakespeare the creative genius could be born,” the researchers say in a paper due to be delivered at the Hay literary festival in Wales in May.

Jayne Archer, a lecturer in medieval and Renaissance literature at Aberystwyth, said that oversight is the product of “a willful ignorance on behalf of critics and scholars who I think — perhaps through snobbery — cannot countenance the idea of a creative genius also being motivated by self-interest.”

Archer and her colleagues, Howard Thomas and Richard Marggraf Turley, combed through historical archives to uncover details of the playwright’s parallel life as a grain merchant and property owner in the town of Stratford-upon-Avon whose practices sometimes brought him into conflict with the law.

“Over a 15-year period he purchased and stored grain, malt and barley for resale at inflated prices to his neighbors and local tradesmen,” they wrote, adding that Shakespeare “pursued those who could not (or would not) pay him in full for these staples and used the profits to further his own money-lending activities.”

He was pursued by the authorities for tax evasion, and in 1598 was prosecuted for hoarding grain during a time of shortage.

The charge sheet against Shakespeare was not entirely unknown, though it may come as shock to some literature lovers. But the authors argue that modern readers and scholars are out of touch with the harsh realities the writer and his contemporaries faced.

He lived and wrote in the late 16th and early 17th centuries, during a period known as the little ice age, when unusual cold and heavy rain caused poor harvests and food shortages.

“I think now we have a rather rarefied idea of writers and artists as people who are disconnected from the everyday concerns of their contemporaries,” Archer said. “But for most writers for most of history, hunger has been a major concern — and it has been as creatively energizing as any other force.”

She argues that knowledge of the era’s food insecurity can cast new light on Shakespeare’s plays, including “Coriolanus,” which is set in an ancient Rome wracked by famine. The food protests in the play can be seen to echo the real-life 1607 uprising of peasants in the English Midlands, where Shakespeare lived.

Shakespeare scholar Jonathan Bate told the Sunday Times newspaper that Archer and her colleagues had done valuable work, saying their research had “given new force to an old argument about the contemporaneity of the protests over grain-hoarding in ‘Coriolanus.’ “

Archer said famine also informs “King Lear,” in which an aging monarch’s unjust distribution of his land among his three daughters sparks war.

“In the play there is a very subtle depiction of how dividing up land also involves impacts on the distribution of food,” Archer said.

Archer said the idea of Shakespeare as a hardheaded businessman may not fit with romantic notions of the sensitive artist, but we shouldn’t judge him too harshly. Hoarding grain was his way of ensuring that his family and neighbors would not go hungry if a harvest failed.

“Remembering Shakespeare as a man of hunger makes him much more human, much more understandable, much more complex,” she said. “He would not have thought of himself first and foremost as a writer. Possibly as an actor — but first and foremost as a good father, a good husband and a good citizen to the people of Stratford.”

She said the playwright’s funeral monument in Stratford’s Holy Trinity Church reflected this. The original monument erected after his death in 1616 showed Shakespeare holding a sack of grain.

In the 18th century, it was replaced with a more “writerly” memorial depicting Shakespeare with a tasseled cushion and a quill pen.

WSJ BLOG: REMEMBER ITALY? THE MARKET DOES

  (This story has been posted on The Wall Street Journal Online's The Euro Crisis

blog last week at http://blogs.wsj.com/eurocrisis.)

  By Katie Martin

  "Oh yeah, Italy. Forgot about that."

  That's the line in financial markets Wednesday.

  For a week or so, traders seemed to forget all about it. Cyprus was the only game in

town, with shock at the initial deal put together and wrangling over how to forge a new

one.

  The drama is not over, clearly. Capital controls on the island could be in place for

months. Savers and holders of bank bonds may never sleep quite so easily in their beds

again, amid genuine confusion over whether the Cyprus bailout may prove to be a model for

others in future. (If you drink an espresso every time you see a conflicting headline on

this theme, you'll be feeling pretty wired by now.)

  Still, there's a deal for Cyprus. The worst-case scenarios have not materialized,

yet.

  So, traders and investors appear suddenly to have remembered that Italy held an

election last month, and there's still no government in place. This is what everyone

was worrying about before the Cyprus crisis came along.

  Helping to jog traders' memory, Pier Luigi Bersani -- he who was expected to be

king by this point -- today saw a fresh setback in his efforts to form a governing

alliance after the upstart Five-Star Movement refused to back him. Given that Mr. Bersani

says he would never seek an alliance with Silvio Berlusconi's center-right

coalition, it is tough to see a way forward.

  "Only an insane person would want to govern this country, which is in a mess and

faces a difficult year ahead," Mr. Bersani said.

  The ratings firms are circling, with Moody's Investors Service offering a reminder

in an interview with Reuters Wednesday that it's looking at the Italian political

deadlock carefully in relation to the country's ratings.

  This is not going down terribly well. Italy didn't have a government last week,

either, but suddenly this issue is in the spotlight.

  German government bonds -- the safest of safe assets in the euro area -- are up at

their strongest levels since August, as investors seek, well, safety.

  Italian government bonds, meanwhile, are feeling the pinch. Yields on the

country's 10-year bonds have reached their highest point in three weeks. The

pressure is not as great as it was immediately after the February election, but it's

clear to see. In a bond auction Wednesday, Italy had to pay the highest yield on

five-year bonds since October. Again, it wasn't a washout of an auction, but it was

on the weak side.

  The euro is plumbing fresh four-month lows.

  It all goes to show that when the market wants to get its teeth into something, it

does. And that traders can concentrate on only one thing at a time. 

INCOME V.S. OUTCOME

“Cause and effect” – A saying apparent in a lot of picture films, but how relevant is this in our everyday lives and spending?

As consumers we are all in control of what the outcome will be of our income, yet are we cognisant of these factors?

Learning how to control the outcome of our income is very basic and it’s an ability that we as humans were born with; planning.

Due to the ever changing factors in our economy, one needs to constantly be planning and amending those plans accordingly.

When interest rates fluctuate and your bank increases your rate, we as consumers need to adjust our financial plans to align ourselves accordingly.

The fluctuation of rates could either allow us to save more or require us to ease up on the spending, the latter being somewhat harder to achieve.

We never really think that these rates will affect us that much, but in the long run it does. Despite what you may think, finding a corner and lying in the fetal position won’t make things go away.

The lack of planning has us delving into our savings or “emergency funds”, yet somehow we find ourselves trying to justify it to ourselves just so that we can feel better for spending money we don’t have.

This is a vicious circle that, once entered, could possibly never end!

The fact of the matter is that making a few simple adjustments will put you back in control of your finances and steer you away from falling into the debt trap and the street corner.

Take your income, align that with your expenditures and include possible savings.

It’s a simple plan and it’s something that you could do on a spread sheet or even long hand, whatever your preference may be. Just make sure you do it every month.

It’s all cause and effect - income V.S. outcome.

Plan your income and you will have control of the outcome.