- The state of the world is fluid, dynamic, a little crazy and difficult to navigate if you are in any way level-headed and consider yourself a moderate.
- If you see yourself as conservative, then the world may be swinging back to the way you feel comfortable. If you consider yourself a liberal, then you may be struggling with the current set up.
- However you identify, do not for one moment think that the media you use to analyze the world is telling you the truth. They may indeed be feeding you what you want to hear, however the truth, as they say, is in the eye of the beholder. Oh wait, that may be beauty, but I think you get my point.
- I use “X” for a lot of my news consumption, but even here I often get two violently opposing viewpoints in consecutive tweets (X’s), even when those two X’s are covering the exact same story.
- Seems to me that those who shout the loudest are receiving the most attention.
- And I am afraid that it is the same set-up in financial markets.
- I’m going to give away my age here but allow me to share what it was like back in the day before the Internet existed. Long before the advent of social media.
- When I was a junior trader, back when General Electric was still a Sergeant, one of my functions was to trawl through the daily ticker to find any news “worthy” stories that I would then build up the courage to take to my boss, for him to opine on. Truth be told, his consistent reaction was that I should try not to be stupid and to do better.
- For the uninformed, the daily ticker was a paper roll of stories that came through via “Telex” (google it if you must) during the day. A printout of stories and headlines that news agencies around the world sent out.
- I realized after a few weeks that this task was given to me simply to get me up the curve in terms of analysing news and economic data, and that my boss was up to date and didn’t really need my help – go figure.
- But being up to date back in those days really meant that any news coming out was already hours old because you obtained that news from newspapers – always well behind the time curve.
- Today it’s all real-time, on demand and up to date. And here’s the real difference. Today, computer algorithms are reading stories and headlines far quicker than humans can and are reacting and executing trades at the speed of light.
- Today computer bots are producing analysis and views far quicker than journalists or editors or analysts can do. And there is an endless supply of these algos and bots.
- As a result, trading has fundamentally changed from the days when I was trawling through a paper roll of news stories and headlines.
- If you want a better understanding of how life has changed for traders, I recommend Michael Lewis’ excellent book titled “Flash Boys”. But even this book is a little outdated when viewed against today’s technological advances that utilise Artificial Intelligence and Quantum computing.
- So, what is the relevance of this back story? Why does it matter how we got here?
- Volatility – that’s why!!! Or better said – a lack of volatility.
- Decades ago, market participants were receiving information at differing time points. And then depending on the time that you received the information, traders made decisions and execute trades based on their skill, knowledge and understanding.
- Naturally, this setup created “normal” volatility in the markets as this divergence of information resulted in a state of entropy.
- Today, in a world of instant information, essentially, a level playing field as far as access to information is concerned, much of this entropy is removed from the system. Not all of it – but a great deal of market information entropy is removed.
- Add to this equation the fact that increasingly we have computers making decisions, all at the same time, all using the same information and similar algorithms, we find that the nature of price volatility has also changed. It’s not that there is no volatility – but periods of volatility have decreased significantly. Spikes in volatility do exist as new information becomes available – but then as all the computers react, we find markets settle quickly until we have new information again.
- So, although uncertainty is still a constant – the ability to analyse and navigate the uncertainty has quickened in pace, thus in essence removing much of the uncertainty in a shorter period of time.
- And it is self-fulfilling – the more people that ‘gain an edge” through computing power, the more other people join the congregation, and thus less longer-term volatility.
- Days gone by I would send a “currency comment” almost daily. My views, some information and what I thought was relevant for market participants.
- Today all of this information, and price discovery, is instantly available to anyone who has an interest. Computers and algorithms are slowly making people redundant. Like most industries – we as traders are not spared the technological fallout.
- Fortunately, I will be retiring in a few short years’ time – if the computers handle my pension adequately.
- However, whilst I’m still around I find myself trying harder and harder to be able to beat the bits and bites and chips and artificial intelligence engines at their own game. It’s like trying to convince my old boss that I had indeed found a story that no one else was paying attention to in my paper roll of information.
- It’s not easy. Try telling ChatGPT that you have better information or analysis than they do.
- So- Seeing as this is marketed as a “currency comment” I had better make some commentary about currencies. More specifically the local currency – the ZAR.
- The Rands’ recent performance has been very positive.
- Some of you may be surprised to be reminded that its not long ago that the Rand was trading at very close to 20 to the dollar. Six months ago, in fact.
- At the time President Trump and those in his circle were making very concerning comments about South Africa and its geopolitical positioning. An increase in Vat was placing strain on the GNU and many were concerned about the economic and political future of South Africa.
- Fast forward 6 months and the Rand is trading at levels last seen in the years before Covid.
- What has happened to turn the fortunes of the Rand since April?
- Well firstly – precious metals prices (and Crypto) have sky rocketed meaning that our mining sector are able to earn excellent returns, and export earnings for our small nation.
- The USD has broadly come under pressure weakening by close to 20% in the last few months.
- Globally interest rates have been declining resulting in a broad search for yield in emerging market assets.
- And so on and so forth.
- Back at home
- The GNU has stabilized somewhat but remains tenuous.
- Loadshedding is almost a thing of the past mainly as a result of private solar installations, but Eskom’s operational efficiency has also improved.
- The port situation is improving. There is still a long way to go but decent strides have been made.
- Consequently, we are seeing a small improvement in GDP growth and hopefully this trend will continue.
- Government finances have stabilized somewhat.
- And lastly there is a view that S.A may be able to exit FATF’s grey listing before the end of the year.
- All these factors have improved sentiment toward the Rand.
- Hopefully, this trend can continue.
- To be sure, as always, risks remain.
- S.A is not in Trumps good books. AGOA’s benefits are all but done with a formal announcement expected soon.
- The state of the GNU will always be a little fragile.
- Long may it last.
