View from the Chair - Proficio 2023 Issue 2

The state of play in the global banking arena has caused a few raised eyebrows of late

Mike Estment CFP®

Mike Estment CFP®

Executive Chairman: JHB and Private Wealth Manager

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View from the Chair - Proficio 2023 Issue 2

The year has seemingly just begun and yet as I pen down these thoughts, I will be dating this document April! What a crazy place the world seems to be. From ChatGPT to the conflict in Ukraine, to the state of play between the USA and China, to American banks being closed, Credit Suisse being absorbed by UBS, Cyril messing with the Russians and Chinese and so much more!

And in the meantime, we in SA need to focus on our personal wealth and well-being and our floundering Rand. A day doesn’t pass without us engaging both within NFB and in conversation with clients and institutional colleagues on this rather tricky subject. Some say it seems ludicrous to externalise hard earned Rands at current levels. Others reply that the Rand historically weakened from parity to the Dollar to R2/US$. This, they say, is the same as it weakening from current levels to say R36/US$. They both halve your global worth!

We never attempt forecasting at NFB. It is a fool’s game. However, in the medium to long term, the trend remains your friend, and if I was asked to wager, I’d certainly back the Greenback in five year’s time.

A little on the state of play in the Global banking arena – Silicon Valley Bank created a very uncomfortable situation a few weeks back. It suffered a run on deposits, forcing the Fed to step in and manage the contagion risk this represented. Studying some of the fine print and media on this and the broader risk faced by mid-sized banks in the USA and elsewhere, led to me learning that the accounting rules in the US allow banks with “hold to maturity” assets, which might be materially down in value, not to report these paper losses. This is rather odd, as depositors look at banks as the “safe place” when markets get weak or even volatile. The truth is quite different in fact.

"Banks offer very focused risk, when compared to a well-diversified portfolio of shares in different companies, countries and sectors."

Clearly share portfolios need careful consideration and application where time allows for true long-term thinking, but they aren’t the high-risk alternative some describe them as. Or, if bank deposits are needed, perhaps a well-diversified product which spreads the funds across various banks and borrowers is better. We like this approach and find this very interesting at present given unusually high interest rates on offer in slightly longer bonds. As always, tax is an ever present hurdle. Where tax isn’t a problem such as in retirement funds, blended income funds are a great idea, particularly to fund a few years of drawings, allowing the bulk of funds to go abroad or seek inflation beating returns at home in our markets.

I write this editorial using power from an Inverter. Eskom continues, as do all of our erstwhile world class utilities, to damage not only the economy but also our psyche. I have just invested in a Solar Energy solution for our home in Atholl. It seems the problems with Eskom aren’t going away and looking at the issue it strikes me that Solar is attractive from various perspectives, including the long-term saving it will afford us. It is also significantly about ‘peace of mind’. Friends suggest that water is next with neglected infrastructure and grand theft, leaving our predictable access to drinkable water in serious jeopardy. Watch this space!

NFB just turned 38 years young on 1 April. From humble beginnings in Port Elizabeth and Cape Town, we have spread our wings somewhat. Today NFB is recognised as one of the country’s top advisory businesses. This journey has been shared with many remarkable staff, clients and institutional partners. As the last of the founders, I would like to acknowledge everybody who has helped shape our business, including our new leadership and our remarkably supportive clients in Gauteng and elsewhere, both here and abroad. Many years ago, we began a process of preparing for succession. That crop of leaders is already in place. We have now set about the next generation of what we term our “Young Turks”. Men and women who will be shaped into leaders as we continue to offer advice and service to you for the next 38 years and beyond.

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