ARTICLES

Uncertainty = Risk = Volatility

We live in uncertain times. Among the sources of this uncertainty are the final outcome of the recent local elections (i.e. what the shape of our future government will take) and the prospect of the American elections on 5^th November 2024. In the background are the wars in Ukraine and the Middle East which constantly threaten to escalate.

The uncertainty means greater risk and has led to markets being more volatile as investors constantly reposition themselves to either benefit from what is coming or protect themselves against it.

One of the most important axioms in the stock market is that:

Uncertainty = Risk = Volatility

The least volatile chart in the markets is a straight line – preferably (at least from an institutional perspective) one which slopes gently upwards yielding a capital gain of between 15% and 30% per annum for an extended period of time. Any departure from this ideal adds to the risk inherent in the investment and results in it being re-rated downwards.

In times of uncertainty, the smart money moves into relatively low return, low risk assets until the uncertainty has passed or at least fallen to acceptable levels. Usually, this means a move out of emerging markets like South Africa and into secure investments like US Treasury Bills.

Of course, the most secure of all investments is gold. Its security lies in the fact that it is scarce and the fact that all investors have recognised it as the most secure asset for at least 5 000 years.

Because it is the most secure of all assets, it has a zero return.

The only reason to hold gold is to protect your wealth from the weakness of the many “paper” investments – such as US T-bills, property, shares, bonds and dozens of others.

Right now, gold has broken very clearly above its long-term resistance at $2060 and is trading for around $2310. That is a considerable jump for an asset which does not pay any interest, dividends or rent. It means that a huge amount of international cash is now just sitting in gold, earning a zero return, because investors are worried about impending uncertainties.

Bitcoin shares many of gold’s characteristics – it also offers no return at all and it has no fundamental value beyond the fact that some people believe it has value. There are, however,  a number of key differences.

1. Cryptocurrencies are a very recently invented digital “asset”. Fifty years ago, nobody had ever heard of cryptocurrencies. Gold, on the other hand, has been around for millennia. It has literally been accepted as the ultimate store of value since the dawn of civilisation.
2. Most people in the world still do not know much about cryptocurrencies or believe them to have great value.
3. Bitcoin has no physical presence. You cannot hold it in your hands. It is an alignment of electrons on the cloud and inherently intangible. It requires a “leap of faith” to believe in its value.
4. Almost every central bank holds large amounts of gold as a reserve asset. Only three central banks - China, the US, and Germany - have any significant holdings of cryptocurrencies.

Since Bitcoin has no fundamentals, it can only be evaluated technically. Consider the chart:

You can see that Bitcoin made a cycle low in January this year at $38896. Then it rose to a new all-time record high of $72657 on 13^th March 2024. After that it made a second top on 8^th April 2024 at $71792 and then just a few days ago it made a third top on 5^th June 2024 at $71677. If it falls further from current levels, this could become what technicians call a descending triple top  – which is arguably one of the most bearish formations in technical analysis.

It means that one or more very large holders of Bitcoin are off-loading massive quantities of the asset in a controlled manner. Whenever it goes much above the previous record high at $68536, someone very big (and hence probably very knowledgeable) is quietly getting out because they are seeing the top of this market.

Our advice remains the same: If you have them, sell them. If you don’t have them, don’t buy them.

DISCLAIMER

All information and data contained within the PDSnet Articles is for informational purposes only. PDSnet makes no representations as to the accuracy, completeness, suitability, or validity, of any information, and shall not be liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use. Information in the PDSnet Articles are based on the author’s opinion and experience and should not be considered professional financial investment advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Thoughts and opinions will also change from time to time as more information is accumulated. PDSnet reserves the right to delete any comment or opinion for any reason.

PDSNET ARTICLES

The US Jobs Market

International investors who trade on Wall Street are generally negative about any good news from the economy because it tends to make the monetary policy committee (MPC) more hawkish and less likely to reduce interest rates. The opposite is also true. But there comes a point where bad news is so bad that investors begin to fear that the US economy is heading

Jackson Hole

Once a year in late August central bankers and academics congregate in Jackson Hole to discuss the state of the economy and consider the way forward. Traditionally, the Chair of the Federal Reserve Bank (“the Fed”) addresses the meeting and gives direction to its thinking on monetary policy in the US. This year, the comments of Jerome Powell resulted in the

Choppies

Choppies is a supermarket chain which operates in Botswana, Namibia and Zambia. It is listed both on the Johannesburg Stock Exchange (JSE) and on the Botswana Stock Exchange (BSE). Notably, the company has resisted the temptation to re-enter the highly competitive and cut-throat retail market in South Africa, having exited that market in 2020 due to sustained losses. Despite

Gold Resistance

All investments throughout the world can be ranked on a scale from high risk to low risk. As a general rule, in the world of investment, risk and return rise together. In other words, as the risks in an investment increase, so does the return necessary to attract investors.

At the one end of the scale there are very low risk investments

Sibanye takes off

We have been writing about Neal Froneman and Sibanye for years now. Beginning in 2013, Froneman assembled the Sibanye group over a period of 7 years, buying up mining operations both in South Africa and America at bargain prices. Initially he bought precious metals producers, but more recently he has been diversifying into base metals like zinc and lithium which

The 16 Year Bull Trend

Since the Second World War, the stock markets of the world, including the JSE, have always tended to follow the New York Stock Exchange (NYSE) - and the NYSE is best measured by the S&P500 index (S&P) of its 500 largest companies.

For this reason, we believe it is important for private investors to constantly

CA Sales Revisited

Retailing in Africa is difficult with many of our leading retailers having attempted to open stores in countries to the North of us without notable success. These countries are often unstable and volatile politically. Getting adequate stock to branches has proved problematic and expensive.

It is not surprising therefore that a company has been

Bluetel

Bluetel (BLU) is a company involved in pinless top-ups, prepaid electricity, ticketing and universal vouchers. As such it is a company with substantial repeat business from existing customers. This type of business model is attractive to investors because it implies minimal working capital and strong cash flows.

Bluetel’s purchase

The Debtors' Book

A BIT OF HISTORY

Many years ago, in 1982 when I started this business (which became “PDSnet”), I ran advertisements in both the Rand Daily Mail (RDM) and in the Star – which were the two most widely read newspapers in Johannesburg at the time. At that time, we were a very small business and had no credit rating at all. Despite this the RDM immediately

WeBuyCars - Results

The financial results of companies show how profitable they are and give a good indication of their share’s risk and potential return. WeBuyCars (WBC) is a recent listing which came to the JSE on the 11^th of April 2024. Unlike other listed motor vehicle companies, it is a company which specialises in the purchase and sale