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

Uncertainty Soars

Investors are by their very nature risk takers, but they are always trying to reduce the risk which they have to take to a minimum. Donald Trump, with his threat of an international trade war and his on-again, off-again tariffs has significantly increased the level of risk in markets across the world. This can be seen in the extraordinary volatility in the S&P500

Liberation Day

Trump has done the unthinkable. He has deliberately engineered the collapse of the US and world stock markets in the nonsensical belief that somehow an international trade war will make Americans richer. Nothing could be further from the truth. His actions have taken the S&P down from its all-time record high of 6144.15 on 19^th February 2025 to Friday’s

The Creation of Money

The money supply of a country is a symbol of the goods and services of that country. Obviously, if the size of the money supply is increased more rapidly than the real growth of its economy, then you have more money chasing the same goods and services, resulting in rising prices. Since, over the long term, the only organisation that can create money is the government,

V-Bottom is likely

The 10% collapse of Wall Street, which is a direct result of Trump’s random policy of on-again, off-again tariffs, is very similar to what happened to Wall Street in February/March 2020 when investors tried desperately to accurately discount the impact of the COVID-19 pandemic.

Normally, corrections in the market

The Trump Correction

It is relatively unusual for the activities of American presidents or what they say to have an impact on the New York Stock Exchange, especially during their first 100 days in office. Trump, however, is the exception. His confused, on-again, off-again rulings on tariffs have rattled the market. Markets hate uncertainty and even Trump himself doesn’t appear to know exactly

Dividends

Investors know that the return on a share is made up of a capital gain plus the dividend. Private investors are mostly attracted to the prospect of making a capital gain on the shares which they buy and do not often consider the dividends. What they perhaps do not realise is that a capital gain is actually just the dividend in a different form.

Quarterlies

One of the major differences between the US equity markets and the JSE is that listed companies in America are required to report every 3 months, not every 6 months as they are on the JSE. The quarterly reports of the S&P500 companies are closely followed by investment analysts and predictions are made for their profits.

Gold's Record Run

On Friday last week, gold reached a new all-time record high of $2871.42 per ounce. Its gain in rands has been even more impressive rising from less than R1000 per ounce in August 1992 to last Friday’s close of R52864.85.

In our Confidential Report of March

Growth by Acquisition

Hudaco (HDC) is a master of growing by acquiring smaller businesses in similar fields of activity or businesses, which then complement its existing suite of businesses. It has been making these bolt-on acquisitions for many years and has developed great expertise at selecting and evaluating appropriate targets.

These bolt-on acquisitions are mostly small

The Impact of News

Old Wall Street wisdom says the following concerning news which comes out about individual listed companies:

1. Good news which is expected - causes the share price to drop.
2. Good news which is unexpected - causes the share price to rise.
3. Bad news which is expected - causes the share price to rise.
4. Bad