Sometimes the worst plans can make you richer. In this special Investment Guide we highlight strategies that may seem foolish at first, until you dig into them. Buy gold? Trade options? Take a reverse mortgage? All can provide big returns in the right circumstances. To help lead the way is the man behind pretty much every bad idea on HBO’s cult sitcom Silicon Valley – actor and comedian T.J. Miller, whose Erlich Bachman somehow always pulls through.
Written by Janet Novack, FORBES STAFF
Sleazy Image, Smart Play / Reverse mortgages have a low-rent reputation. But they could play a bigger role in affluent Boomers’ retirement plans. If that happens, a 39-year-old neat freak will be a big winner. / By Lauren Gensler
Gold Is for Cranks? Not So Fast / Bad inflation may never return. But if it does, you’ll wish you owned some metal and hogs. / By William Baldwin
Related: Tax Devils
Milking Your Stocks / Trading options is a gambler’s bet, but for a math-minded investor, they can also provide a steady and relatively safe source of income. / By John Dobosz
Divide Your Home / Forfeit part of your “best” long-term investment? It might make sense. / By Samantha Sharf
Shrink Your Salary / Newt Gingrich, John Edwards and (it appears) Donald Trump did it. Maybe you should too. / By Kelly Phillips Erb
Related: Keep The IRS At Bay
When Paper Beats Cash / Sacrificing salary for hard-to-value-options is crazy—unless you can do the math. / By William Baldwin
Rowing Upstream for Alpha / As billions pour out of active management, stockpicking standout T. Rowe Price is hunkering down and quietly setting up a quant shop, just in case. / By Matt Schifrin
Faceless Returns / Jack Bogle and a chorus of indexing champions say active investing is futile. BlackRock thinks Andrew Ang and his computer-driven ETFs are the strategy’s last great hope. / By Nathan Vardi
Web Extra: The Irresistible Math Behind Private Equity Stocks / By Antoine Gara
Controlling The Ledger: The World’s Largest Financial Firms Embrace Blockchain
Ask nearly any leading banker or financial executive to go on the record about blockchain, and you are liable to hear crickets. After all, it’s an industry built on trust and stability and crypto’s recent legacy of volatility and even fraud has tainted the topic.
It’s ironic because, behind the scenes, few industries are eagerly working on blockchain projects as feverishly as financial services firms are. Bank of America, for example, has filed nearly 60 blockchain patents. Yet it refused to speak to Forbes about its dive into distributed ledger tech. JPMorgan’s CEO Dimon famously threatened to fire any employee caught trading bitcoin. Today it is developing its own digital token.
The world’s largest, most centralized and most powerful institutions are now embracing the technology designed to unseat them because they realize that at its, core blockchain is just lines of code that simplify accounting and record keeping. For hundreds of years, bankers have exhibited mastery in ledger keeping and they have no intention of giving that up.
Our inaugural Blockchain 50 list is dominated by financial firms. From BNP Paribas and Citigroup to Nasdaq to Mastercard and Visa, the biggest names in global money are making strides in blockchain testing and adoption.
They’re using the technology to speed up settlement times and interbank payments, simplify processes that still rely on paper and fax machines, and improve security measures with the goal of both saving time and money now and creating new ways to make a profit in the future.
Fidelity, which now has 100 employees devoted to digital assets, has launched a digital asset custody service for institutional investors and is already building a trading platform for purchasing crypto. PNC bank is using Ripple’s blockchain software to process international payments.
Santander is already collecting revenue from One Pay FX, a blockchain-based foreign exchange service that is also built on Ripple technology. Dutch banking giant ING’s dedicated blockchain team that has launched 8 pilots since 2016, and alongside Credit Suisse completed the first legally enforceable securities swap on a blockchain last year.
Even banks that didn’t make our list, like the Royal Bank of Canada and Bank of America, are testing the waters. RBC has conducted 8 live pilots, and Bank of America has filed the most blockchain patents of any company in the industry.
Notably, these early first forays into the blockchain space have fostered something unexpected among these major competitors: collaboration, especially through industry efforts like Hyperledger and the Enterprise Ethereum Alliance. “I remember how different people from different institutions tried to start talking about the common work in this moment,” says BBVA’s Carlos Kuchkovsky, CTO of new digital business, of the early days of those groups. “That’s how we want to collaborate now, to create common new rails.”
Citibank has partnered with Barclays to launch a blockchain app store. ING and BNP Paribas are just two of several big banks that partnered to create komgo, a blockchain trade commodity network, and UBS has partnered with BNY Mellon, Deutsche Bank, and Santander to create a way to exchange digital cash.
Of course, these banks know that there is a long road ahead when it comes to integrating blockchain into their daily processes. Blockchain is not a catch-all solution, and there are sure to be new hurdles ahead, but some banks say they are already reaping the rewards. “You already have tangible benefits but this still is not the end state,” says ING’s program director of distributed ledger technology Mariana Gomez de la Villa of a recent ING pilot. “The ecosystem is growing.”
-Sarah Hansen; Forbes Staff
Re-constructing Johannesburg The City Of Opportunity
The inner city of Johannesburg is expected to turn into a giant construction site this year. An in-depth look at how the past is being revived and the future is being rendered.
The remnants of a once grotesque skyscraper erected in the midst of the country’s political demise towers over the Johannesburg skyline.
A bright-red illumination adorns the dusky sky and a view that stretches as far as the northern parts of South Africa’s Gauteng province.
Built in the 1970s, at a time when South Africa’s racial segregation policies stirred an uprising among the black youth fighting for a right to education, the cylindrical Ponte City Tower stood tall as a symbol of metamorphosis within the inner city.
In contemporary times, the neighborhood has lost luster.
Once home to the elite, in a previously white-only area designated for the minority under the Group Areas Act, the 173-meter, 54-storey tower overshadows one of South Africa’s most controversial neighborhoods in the inner city, Hillbrow.
With 461 apartments, the ‘point of the city’ transformed from one of the most desirable buildings to being among the most neglected.
As the political dispensation pre-democracy in South Africa was being criticized, investments dropped and its maintenance was neglected.
By 1990, the entire precinct had turned into a slum while the country anticipated a pot of gold at the end of the rainbow in the form of the 1994 elections.
With ease of travel after the elections, the urban sprawl began to develop as more citizens moved to Johannesburg in search of work opportunities.
Tahira Toffa, the Associate Director of Iyer Urban Design Studio, says building rights in the precinct allowed for developers to rise to limited heights.
As a result, Hillbrow developed into a dense area with high-rise buildings. As a result, there was greater focus on building upwards, and with that, discussions on how to maneuver the rights to the sky.
“Air rights are dependent on the zoning in certain areas. There are restrictions as to how high buildings can go in certain areas. When a development crosses a public road or space, air rights need to be paid,” she says.
Today, apartment 5101 in Ponte evokes a sense of nostalgia as breeze wafts in through an open window.
The renovated space owned by journalist Nickolaus Bauer and strategy consultant Mike Lupak pays homage to township culture with makeshift furniture.
“I came to do a story on Ponte in 2012. Essentially, I came to do a story on the bad things that you hear about [regarding] this building. If you grew up in Johannesburg in the 1980s, you heard nothing good about this building,” Bauer says as he points to the skyline.
Hailing from the western parts of Johannesburg, Bauer recalls seeing a red flashing light at the top of the building as a young boy.
“I asked my mom, ‘what is that building’ and she said to me, ‘son, if you are a failure in life, you will end up in that building’,” he says.
On arrival for the story, Bauer remembers leaving his watch in the car with his wallet.
As he entered the building, seeing tenants on their way to work and children playing in the passages instantly changed his perception.
“What we had here was an opportunity to come and live in the sky,” he says.
Ironically, a story on the ruthless living conditions in Ponte turned into a new home for the journalist.
Renting a 150sqm apartment in Ponte was a much cheaper option than the 36sqm apartment he had in gentrified Maboneng.
“So, I moved in. I didn’t leave with that story about drugs, gangs and prostitution, I left with a lease,” he adds.
Bar stools made out of empty beer crates stacked together adorn the once dilapidated apartment.
With a sharp eye for opportunities, Bauer decided to venture into business.
In 2012, he opened an arcade center to entertain the children in the area. He called it Dlala Nje (let’s play).
Children with needs ranging from afterschool activities to tutoring programs gradually emptied their pockets at his establishment but the costs of running the business were not getting covered.
A funding model to the youth programs came to light during a night out with friends in Maboneng.
“We went to a bar in Maboneng and told some people that we are living in Ponte,” Bauer says. Intrigued by the historical past, the spectators wanted an experience of the landmark.
The first tour was in November 2012 and seven years later, they have brought up to 10,000 people to experience Hillbrow.
“Immediately, people are skeptical about you leading people around and taking photos. You get asked, ‘what are you trying to do, are you trying to show people we are poor?’ We convinced people it was a good thing,” he says.
Bringing capital back and building skills in the community forged a relationship of trust and honesty between the two.
“It is a nice synergy. People want to get involved but they don’t necessarily know how. People come on a tour and they become alive to the fact that people that live in Hillbrow aren’t poor, black and evil. At the same time, the people that live in Hillbrow realize that the people with money coming to see how things operate in our city are not white, rich and evil,” he says.
With the Dlala Nje youth center and tours, Bauer hopes to change the perception of the marginalized area by creating opportunities for the youth and a gateway for future development in the precinct.
Bauer slides a large window shut as he looks into the distance contemplating his home.
“You can’t solve the problems by just bringing in capital. Capital needs to understand that their money is going to be wasted unless they get the buy-in from the people that live in the community.
“It is not just a simple investment of just turning a dark building. There needs to be a holistic approach to ensure that the area you find a dark building is not only transformed but the transformation of the entire area is also supported,” he says.
The solution is fixing the cause of the dark buildings and moving people will not change the persisting problem.
Just a few kilometers away from the towering Ponte, another building embodies neglect but a different future awaits it.
As part of the inner-city development initiative driven by the City of Joburg, the Vannin Court, described as Hillbrow’s Heritage Portal, will be developed into a safer and cost-effective residential building.
Unable to hold back a tear, City of Joburg Property Company CEO, Helen Botes, describes the journey of reconstructing the inner-city as an emotional one.
“It is bringing our people closer to the workplace. They save on transport costs. Giving them a better quality and the rental is in line with the social rentals defined by law.
“People living in the buildings will be provided temporary accommodation and once the building is constructed, if they can afford the rental.
“I think most of them can because they are [currently] paying some land lord ridiculous amounts of rental because most of the buildings are hijacked,” Botes says.
The City opened tenders to renovate 84 buildings where 13 of the properties are in the inner-city.
Vannin Court and Beaconsfield Court, both in Hillbrow, and a vacant land in Newtown are kick-starting the initiative with an official tender handover tour to each of the respective buildings.
The three properties amount to a total investment of R204 million ($14.2 million).
The cacophonous sirens caused by a mayoral convoy draws the attention of people in the area.
Locals gather to witness the spectacle.
As the celebrations of the awarded tender proceeds on the ground floor of Vannin Court, tenants in the discarded building watch from the balconies.
A police officer warns another to keep a close watch on the windows, “if anyone throws water, we are going in,” he says.
A police escort is required to enter the building.
Three policemen rush in to clear the dark lobby, and we are ushered in.
A staircase obscures the little light coming in through the foyer on this hot Thursday afternoon in January.
A child peeks through a gap between broken doors, as dim torches illuminate a path ascending the stairs.
Red and blue wires hang from what used to be a plug socket.
“If you look at the state of the city and the quality of the buildings and the amount of work we have to do and the resources that are required to rebuild the city, it is emotional to know that we allow our people to live in squalor and we need to use all our energy to push them to a different standard,” she says.
Dense areas such as downtown Johannesburg are not without their challenges.
Johannesburg Housing Company revenue manager, Karabelo Pooe, who has been developing properties for the past 11 years has focused on inner-city projects.
Growing up in Pretoria meant he traveled 40 kilometers to get to downtown Johannesburg for work opportunities.
Spending over an hour to travel using public transport, he vowed to create an easier way to navigate and reside in the city. “It aligns well with what I believe in, trying to change that considerably by creating and building affordable housing that is secure and of good standard so that we change the layout of Johannesburg and South Africa,” he says.
Investing in property in the inner-city can cost up to R20 million ($1.4 million) for a small project.
The amount spent on refurbishing and getting the property up to the right standards, can accumulate to R80 million ($5.5 million), depending on the development scale.
“Newtown is what it is because you do housing and housing becomes a catalyst. People need a full cycle. You need housing, lifestyle, entertainment and schools.
“From an economic perspective, the impact of it is not only instantaneous with the year that you are constructing but, as a result, by creating the housing opportunities people are living there. They spend their disposable income there,” Pooe says.
This particular plot is surrounded by various informal businesses ranging from car washers, food vendors and junk yards to a mall located within walking distance.
On our arrival, a concerned employee who works in the yard as a waiter at a food vendor approaches us.
“What happens to our jobs?” he asks.
Itumeleng Lekokile, who has been in living in Johannesburg for four months, relocated to the inner-city in search of employment from Dube, a township in Soweto, Johannesburg.
Afraid that he will soon lose his job, he deems the project as an obstacle, but stays optimistic that it will provide an opportunity in the end.
“It is going to cost us a lot. People who stay around here come here for fun, and that is closing down. Not only for me, individually, but I think the [other] residents too… It is a good thing but then again it is a bad thing. As an individual, I am going to lose my job and will have nowhere to stay, it will affect me,” he says.
Property development thus is a cycle that includes more than just the business operations as it has far-reaching social implications.
Before an existing property can undergo development, communication between the area councilor and tenants becomes a priority in order to avoid conflict.
“Through dialogue and good community skills, we were able to speak with to the people. There are alternatives in our portfolio with units that are R1,500 ($103) up to R6,000 ($415).
“So, for people that are employed, we are able to relocate them with ease. Once the building is complete, we give them first preference,” Pooe says.
The R250 million ($17 million) project in the Newtown precinct will allocate local labor to the tenants who are operating on the stand, thus sparing Lekokile his employment.
Architect and urban designer, Toffa, argues that although, development in the city offers opportunities for multitudes of people, public transport is one of the biggest drivers.
Development can be economically efficient as much as it is environmentally-sustainable.
She says, when done well, developments can contribute to the reduction of carbon emissions.
“We need to promote a culture of public transport so that people need to reduce using their cars so much, the Gautrain has changed people’s perceptions,” she says.
“One of the biggest challenges is parking and traffic in the inner city. Public transport makes sense and it reduces carbon footprint. There are other ways of improving the city and changing socio-economic aspects of the city but public transport really needs to be the biggest driver of that”, she adds.
Traffic Net Managing Director, Rob Byrne, who provides traffic reports for all types of media platforms, weighs in.
With traffic reporting experience for over 20 years, Byrne echoes Toffa’s sentiment.
“Where you got development that is linked to public transport infrastructure, it is always going to work better. You have seen what has happened in Sandton recently, a big company has opened a big head office and I don’t know how many extra hundreds of people they have put in, but it just saturates an already saturated area.
“The building and development really needs to be in line with transport options so you can give people that are coming into those newly-developed areas better access to not have to go in and create congestion,” he says.
For Byrne, developments of all kinds attract more people, which causes an influx of people moving towards the city, thus causing high levels of congestion.
“Congestion is everywhere. The numbers of cars growing a certain percentage a year, we have heard 7%, a few years down the track, you will get almost a quarter more traffic than you already had.
“Traffic is a big thing, it is not going to go away. Development linked to public transport is a much preferable way to go.”
Buildings create a ripple effect on people, the economy, and the environment, which is ultimately linked to health and wellbeing.
With an already dense population, Johannesburg and other economic hubs will need to focus on creating the developments of the future – and possibly more cities in the sky.
Is Forex A Scam Or Money Goals?
Currency trading is a vast and technical space, however, many get caught in the seductive web of quick gains. Untangling forex can be daunting but with patience, it can be rewarding.
Foreign exchange, also known as forex (FX), is a trade that has risen in popularity over the last decade on the continent. Many companies and sole proprietors have claimed to have amassed wealth from FX, going as far as offering seminars and flaunting their opulence on online platforms.
However, a number of them have also been exposed as frauds and scammers. This has called into question the validity of FX as a credible investment vehicle, but the semblance of wealth has also continued to attract unsuspecting investors.
Simply put, FX is the market where foreign currencies are traded. It is a vast and mercurial space as currencies from all over the globe participate in this market. The buying and selling of currencies in this decentralized global market is determined by whether markets move up or down and traders make decisions based on these movements.
These market conditions influence how traders speculate and make predictions, with the ultimate goal of selling a currency at a higher price than it was purchased for in order to make a profit.
FORBES AFRICA followed the breadcrumbs of an unsettling FX story that has since uncovered a police investigation into a shocking FX scam that spans provinces and allegedly defrauded millions from unsuspecting investors. How easy is it to pose as a forex trader? What steps do investors need to take to ensure their money is the hands of reputable traders?
Forex landscape in Africa
In relation to other markets, the popularity of FX in Africa is relatively new. The first retail forex CFD (contract for difference) on the continent opened its doors in 2017 in Sandton, dubbed the richest square mile in Africa.
This is an indicator that FX had not been previously commercialized on the continent, while globally FX lounges were commonplace. This speaks to the idea that FX is still developing in Africa. It is also an indicator that Africans have shown enough interest in FX for investors to identify a gap in the market and take the risk of trying what others have not previously ventured towards.
Although it has provided investors the golden opportunity of an uncharted territory, it has also created a feeding frenzy for predators looking to exploit a decentralized market that produces an average value of $5 trillion daily trading volume globally.
FX trading occurs digitally, via the internet which is an immeasurably colossal space, with crevices like the deep web that elude the average Googler. Its boundlessness means that it does not fall under any particular jurisdiction and, therefore is not restricted by laws and regulations.
Herein lies the first of many obstacles for an unsuspecting investor who hands money over to scammers. Technically, anybody can trade should they choose to do so and this opens the door for reputable traders and shysters alike.
Economist Kathy Nicolaou Manias cautions that “scamming in the digital space is very intense… it’s actually very easy to be scammed but you’ve got to keep your wits about you and be very careful.
“The forex environment is an incredibly volatile one, especially if you’re looking at the rand. It’s different if you’re looking for a retail trader – that’s someone who is an agent who can convert currency for you,” says Manias who is a leading expert on the continent on illicit financial flows, AML/CFT, beneficial ownership and trade-based money laundering.
There has been increasing evidence to show that a significant number of people who invest in FX have a limited understanding of what it entails and inadvertently end up being victims of unscrupulous traders, trainers, brokers, and companies.
The draw to the FX market is that it’s purported to be a space of opulence and lightning-quick extraordinary returns for relatively little work.
Nick Sproule, who is a retail trader and director of Blackstone Futures – which is a forex and CFD company, says his clients are “mom-and-pop clients who are interested in being involved in the financial markets”.
He agrees it’s possible to make large sums of money but says there are a variety of distorted associations with FX.
“You can make excessive profits in a short space of time, based on the amount of capital that you put in… There are a lot of people out there that purport themselves to be mentors, trainers, FX experts that who lure people in with this idea of big wads of cash and create the idea that it’s achievable for everybody.
Typically, there’s a training program that comes with it; they offer free signals, and the reality is that most of these mentors or trainers can’t trade themselves.
“They make money charging R20,000 ($1,415) for a course, people part with their money and before you know it, they haven’t learned anything and the mentor has disappeared.”
Manias echoes Sproule’s sentiments in saying there might be a burst of financial incentives from trading but it’s inconsistent and therefore it’s erroneous for traders to perpetuate the idea that FX offers a limitless amount or wealth daily.
“The rand is probably one of the most volatile exchange rates globally. It’s a very small, open economy …so that can promise you ridiculous things in a short space of time but over the long term, that can be very unsustainable,” Manias says.
Those interested in trading are not at the complete mercy of shysters. The South African Reserve Bank (SARB) enforces the exchange control legislation.
These “controls are most commonly imposed because of concerns about outward flows, but controls can also be imposed to restrict inward flows, for e.g. an influx of funds risks damaging an economy,” SARB reports on its site.
Despite vigilant monitoring, insalubrious practices by false traders can, at times, go unnoticed because scams often include scenarios where the victims voluntarily offer their money or personal information.
“South Africa’s reserve bank has probably got one of the most sophisticated foreign exchanges, particularly for a developing country. That forex surveillance office functions incredibly well and it’s got a very good handle on how it manages forex in the market,” says Manias.
According to reports, the dollar is the most traded currency globally, taking up 84.9% of all transactions. The euro is second at 39.1%, while the yen is third at 19.0%.
On the continent, the only local currency ranked among the most-traded in the international FX market, is the South African rand, which was placed at the end of the top 20 in 2017 – accounting for 1% of the world’s daily currency trading, according to a survey by the Bank for International Settlements.
Also, in the last three years, the rand has strengthened by almost 6.3% against the dollar since December 2015 – making it the strongest currency against the dollar in this period, according to data published in December 2018 by independent analyst Johann Biermann.
As much as this bodes well for the economy, it is an indicator that the rand is fluid/volatile. Fluidity reflects that the rand is highly malleable and is often affected by external conditions.
“The rand is too volatile. Today, it’s up 10 cents, then tomorrow, something silly happens; we have a Bosasa scandal and the next thing you know, the rand plummets again,” Manias laughs.
How can this fluidity be used to the advantage of those involved in currency?
In 2017, South Africa’s Competition Commission filed an affidavit stating that more than a dozen banks were illegally profiting from the rand’s volatility.
A total of 17 banks were implicated, three of them were South African banks.
Sproule says that those who can manipulate currencies do so because as conglomerates, they dominate the environment.
“There are only a handful of big market players, these are the banks that set the prices for the rand–the big banks.
“Because the rand is controlled by a couple of big players, it is much easier for them to move the market much faster. You only have to look at the fact that there will be announcements on policies that come out, and before that, the rand has already moved quite significantly.
“I think it’s easier to move because it’s controlled by a handful of people who have good access to information that we wouldn’t necessarily have access to,” Sproule says.
Manias acknowledges that there are instances where banks might exchange information, however, as part of common business practices that many partake in.
“From a competition perspective, you can understand that if they [banks] are colluding to manipulate the exchange rate, they are driving the price up or down,” she says.
“Institutions would do things like that. Whether it’s done nefariously or with the intention of proven business practices – it’s difficult to prove.
“In the early ’90s, George Soros and his son collapsed the rand… If you have enough capital backing, you can easily do that. And South Africa is a small open economy, so it’s really vulnerable to that kind of volatility. (Cont)
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