I need Dollar, Dollar

“It always feels bad when the currency that you live and work in weakens against the majors. What can you actually do however about the currency? Is there any use waking up in the morning and morbidly obsessing about the weakening. Rubber necking on the currency, in the same way that people check out a crash on the highway. It has gone, it has happened. I suppose with the currency, it has happened to you, and you may (or may not) have done something about it. The trick is to always be saving, so that you obtain dollar cost averaging.”


 

To market to market to buy a fat pig. Hey, hey. I am back. Michael kept you entertained for days whilst I was enjoying the last end of my holiday, school holidays and all means keeping the children busy. The markets have really stunk, the worst start in the US markets since record keeping, it has been that bad. Locally the currency has suffered, two reasons, perhaps a third too which we can touch on. Emerging markets have been completely crushed with major redemptions coming out of every quarter, the spike in the currency yesterday morning attributed to Japanese redemptions.

China concerns about growth, there are many differing views on what the respective growth rates are in China, depending from which quarter you are at. Some say one to two percent growth, some say that it is too difficult to say whether or not to believe the official statistics. I think that we must believe the Chinese authorities, to believe in conspiracy theories is exactly that. Chinese markets halting trade after breaking the circuit breakers with regular occurrence. Laughable really, too much volatility in what seems like a headless chicken approach. There are of course around 100 million retail accounts in China, it is difficult see how emotion won’t hold sway over what is a very crowded and immature market. Immature in the sense that it is only 25 years old, there is very little if no generational reference point for many people.

And then of course all the obvious reasons that South Africans love to give, I saw some analysis from ex academic and current Investec chief economist and strategist, Brian Kantor suggesting that the worst was priced in. The credit default swaps market has marked South African debt down to junk status, even if the ratings agencies haven’t. If you haven’t read it, then here is a link: Brian Kantor: Zuma blunders now priced into SA assets as a permanent danger. South Africa is a good place, perhaps from an investment point of view, things are tricky right now. Of course one can sit and moan about it, or one can see that there are choices. I will come back to that in a moment.

The third reason to look at is possibly the one that has basically put the cat amongst the pigeons since late 2014 has of course been the “when will rates rise” question. i.e. When would the Fed and Janet Yellen raise rates, she had indicated as much by the middle of 2014, when she first took the job. A stronger Dollar has meant that the rest of the currency markets globally have been hammered. From the Russian Rouble (for slightly different reasons than most) to the Brazilian Real, everything standing in the way of the Dollar has been thrashed. And that obviously includes us here locally, although we could do better, as could most countries around the world.

Returning to those choices that you have. These are choices to buy companies that have expansion plans in growing industries. Choices to save and buy companies in different currencies. It always feels bad when the currency that you live and work in weakens against the majors. What can you actually do however about the currency? Is there any use waking up in the morning and morbidly obsessing about the weakening. Rubber necking on the currency, in the same way that people check out a crash on the highway. It has gone, it has happened. I suppose with the currency, it has happened to you, and you may (or may not) have done something about it. The trick is to always be saving, so that you obtain dollar cost averaging.

Saving is hard though, it is not too dissimilar to getting fit, getting healthy. It is far easier to say that you will do it next year, or next week, or next month. Yet, if you never start, you’ll never know. Most working people have savings mechanisms in place, pension funds and the likes, any market move impacts any country directly. You may think that it doesn’t, think this through for a moment.

Let me try explain. Let us say that your pension fund as a result of lower asset prices is forced to give you a lower increase (next year) than you may have hoped for. You then are forced to spend less, as you have less. That creates fewer opportunities in the economy, meaning fewer employment opportunities. Fewer employment opportunities does impact all people in the economy, those most vulnerable in fact. So the falling value of your purchasing power of the folks that have savings in the economy has a short and medium term impact. It is then unfair on the various social media platforms that I see to suggest that it is only a rich people problem. It is all of our problem, lower asset prices and it definitely impacts on all of us, the haves and the have nots alike.

I suspect that what is needed to stabilise markets from here is the realisation that rates going up in the US means that the respective economy is strong enough to stand on their feet after a rate hike. That is definitely a good thing, not so? I get the sense that human nature is cautious, rather than being overly optimistic. Feast or famine, you know. I still think that notwithstanding the “challenges” that we face here and globally, this is a far better world we live in than our grandparents. I don’t know about you, I seem to think that world wars and the cold war were pretty bad for global trade. Communism was awful for global trade. The last 25 years have had their moments, it is much better now than back then.


 

Linkfest, lap it up

This is an old favourite but given that it is the new year here it is again – 43 Thoughts About Investing and the Economy. Number 7 is spoken about regularly in the office “7. As Josh Brown points out, there are no perma-bears on the Forbes 400 list of richest Americans. Optimism wins in the long run.”

In the grand scheme of things the change to renewable energy is happening very quickly – Wind, solar power soaring in spite of bargain prices for fossil fuels

This is not a perfect system but having access to electricity goes a very long way to lifting people out of poverty – Electrifying India, With the Sun and Small Loans


 

Home again, home again, jiggety-jog. Markets are lower here to begin with, US futures are lower too, Asian markets have led us lower. Look out for an email from us later today, some things that you may, or may not know about Vestact. That will be fun!


 

Sent to you by Sasha and Michael on behalf of team Vestact.

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