ARTICLES

Security and Bitcoin

In times of crisis, investors typically abandon their search for a return on their capital and look instead for security.

Equity shares, especially in an emerging economy like South Africa are seen as being high-risk, high-return assets.

International investors are attracted to our government bonds and stocks because they see a high real return (after-inflation). The risk of investing here has been increased, now that we are officially in the junk-bond category following the Moodys downgrade, but at the same time the return on our R2030 bond has risen to compensate. Thus our 10-year bond, the R2030, has a yield of 10,955 against an inflation rate of around 4,5% - which means that the real return is well over 6% per annum.

This compares very favourably with the US 10-year treasury bill which is yielding about 0,624% per annum - against an inflation rate of around 2% - which means that the real return is negative. Investors in the 10-year US treasury bills are actually paying the US government to keep their money safe!

Obviously, the international investment mood is still strongly "risk-off" and so, despite our high real rates of return, we are finding it difficult to attract overseas investment.

But investing in government bonds is not the only "safe haven" for investors in these turbulent times. Gold continues to be a refuge. Since the arrival of COVID19, the gold price has risen steadily to current levels above $1700 and well above R32000.

Of course, gold, unlike government bonds, offers no return at all. But historically, it has always been the safest place to hold the value of wealth.

Some investors have also suggested investing in Bitcoin. We have never favoured Bitcoin, since it gained popularity in 2017. We ran an article on 8^th December 2017 which we entitled "The Bitcoin Bubble" predicting a collapse of the bitcoin price. Now 3 years later we see no reason to change our position. Consider the chart:

Here you can see the meteoric rise of Bitcoin in 2017 followed by its ignominious collapse in 2018. In the middle of 2019, it staged a recovery and made a lower top before beginning what technical analysts call a "downward broadening formation". Broadening formations are an indication of growing uncertainty in the market. The uncertainty causes the graph to become more and more volatile. In this case because the broadening formation is also sloping downwards it indicates that it will ultimately be broken to the downside. So we urge investors not to be misled by the recent slight recovery in the Bitcoin price.

The enduring problem with Bitcoin is that there is no asset to back it and no central bank that guarantees it. So, its value is purely notional. If enough people think it is a good investment, then it will have value and vice versa. We certainly do not see it as a safe place to store your wealth.

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PDSNET ARTICLES - APRIL 2020

Security and Bitcoin

In times of crisis, investors typically abandon their search for a return on their capital and look instead for security.
Equity shares, especially in an emerging economy like South Africa are seen as being high-risk, high-return assets.
International investors are attracted to our government bonds and stocks because they see a high real return (after-inflation). The risk of investing

Cartrack Vs Mix Telematics

Two of the most interesting companies listed on the JSE are Cartrack (CTK) and Mix Telematics (MIX). Both companies are involved in providing remote fleet and asset management systems. Both companies started in South Africa recovering stolen vehicles and both have spread across the world expanding their client base and broadening their product options.
As listed shares, both companies have the distinct advantage

Recovery

In our article ("Bear Trend") on 13^th March 2020 we said, "this bear trend is likely to be relatively short and sharp. Investors will begin to see that the virus has or is running its course in first world countries and, at some point in the next few months, they will re-enter the market as aggressive bargain-hunters. So, our expectation is that we will see a "V-bottom"

SA might be saved from Covid19

The advent of COVID19 may seem like an unmitigated disaster to private investors, but there a few reasons for us to have some hope.
The first is that our relatively warm weather is on our side. Apparently, this virus is happiest at around 3 degrees centigrade - which means that it thrives in the Northern hemisphere where that type of temperature is common during the winter. Here in South Africa, temperatures can fall that