I receive daily screen dumps from one of my associates which show me many aspects of the markets, the exchange rates of our major currencies, the price of Bonds and the movement of each of these.
I’m not a fundi when it comes to these measures but I know red means down and green means up. So, if I look at the movements of the last two days, I’ve seen green – that unexpected Monday morning sense of excitement as the markets and the currencies take action on the back of good news. Our JSE jumped 1.56% yesterday to 57307 and has grown 11% this month so far. I’m tempted to do the sum extrapolating this increase to month-end…let’s do it…68 768…NOW, THERE’S A RECORD!! And in the USA, the Nasdaq is over 12 000 and the S&P just shy of 30 000. I’m open to correction but I reckon these are near highs if not records.
So, what drives this all? Probably three things:
- President Trump leaving office.
- President Elect Biden bringing some hope.
- A covid vaccine by Pfizer.
I’m sure if I dug deep into the Google fount of all things, I would find some more good reasons but for now, these will suffice.
Practically speaking, 50% of America voted for President Trump so America remains not a United States. But possibly there were enough investors and enough enthusiasm amongst them to drive the markets up again. On the other hand, President Elect Biden had 50 % so he has brought some hope to some citizens and perhaps enough to settle things down a little as the lawfare ramps up. But then there’s the vaccine and for those of us who are covided-out, it is good news.
I guess you could say it’s like explaining the great property market at the moment by saying it is historically low-interest rates that have brought it about; a Catch-All reason for buoyancy. Whichever, or whichever the combination of myriad factors, Up is better than Down for All of Us.
I was reading Mark’s EVO Newsletter this morning and I understand his reservation. For three reasons he feels the property market is up and sustainably so:
- Low-interest rates have ignited affordability.
- Developers are up to the challenge of providing stock with a wide range of choice.
- The Banks are lending.
I think he’s right. These factors, especially the first and the last, are very important to sentiment and it only takes a few months in lockdown to spur getting into your own home. How sustainable is anyone’s guess, and I’m sure the arguments for and against will flourish, especially in hindsight, a year from now.
What can make this turn of events calm down? A hawkish approach by the SARB for one and then definitely rising Repo rates. But remember, that will only happen if the underlying economy is recovering, or better still, flying. Oh, for some of that! And the SARB is not going to want to switch that off unless the Inflation rate starts to raise an ugly head. My view on that is that prices are not going to jump too quickly in a world which is globally trying to recover and repay mounted debt – because we’ve all been in the same boat this year.
On the other hand, we have a measure called the S&P VIX. We’ve talked about it before and it’s just become one of the first things I watch in my dashboards. Quoting a senior person talking about 2020 in a meeting I’ve just ended, there is “a lot of volatility and a lot of moving parts.” Indeed, and I’m sure some of us have the experience of feeling like a “moving part”; kinda like watching a spin dryer or even feeling in it at times. These days, Certainty – that little bit of normality daily – sometimes goes out the window for a while.
So, what about the VIX?
It measures the volatility in the S&P stock market index. We know that it is really good [in a market traders view, possibly a little too good] when below 10. But it has risen close to 50 during the “collapse of everything” in April. At these levels, it is simply too much to bear and impossible to forecast while unemotionally, it measures a market in absolute volatility and even, as it felt then to us, in free-fall. But yesterday it was 23.39 and had weakened [red!] by 5.91% ie, by about 1.38 points.
On the one hand, it was measuring the upturn in the markets, but on the other as in any market, the prices continued to “jump around” as the post-election news waxed and waned. Whilst I believe Mr Trump was playing golf, it seems he did have time to launch more litigation and fire his Defence Secretary. The VIX is just picking all of that up through the market’s volatility. Still high, it is way down on covid highs and once the election settles down, it too may return to 12-15 again. We wait and see; only a very brave person calls such measures as the VIX. If you asked me what would stabilise it, I would say Mr Trump congratulating Biden on his win and another 90% efficacy vaccine being produced and distributed in 100’s of millions of doses.
But for now, it seems certain that we will continue to enjoy a buoyant market. As I’ll continue to remind us, make hay while the sun shines and for goodness sake, don’t miss the opportunity. Use every relationship you have to harvest everything the market has to offer and don’t languish. Think of it this way….everything you’ve ever done has got you to this point and now it’s your time for success and pay-back.
You have what it takes. Use it!