For the background to this series of posts: here, here and here. And the summary:
- Small investors have some investing options.
- You can invest occasionally in lump sums (the once-off investors) or monthly through debit orders (the monthly investors).
- As for things to invest in, I’m a general fan of low-cost equity-index-tracker ETFs (as is Warren Buffett). But there are other possibilities as well.
- This series of posts is there to see which would work out well.
- Then there are some indicators at the end. Just to get a feel for what things are good to know.
The Once-Off Investors
The Monthly Investors
I’ve added in the Current Account above, as that seems to be the primary reason for this little situation:
The rand is weakening again against the dollar – on the news that the current account deficit (which was released on Monday) was worse than expected. That said, the dollar is also strengthening all on its own against almost everything – so there’s that. But the current account is mostly a function of trade – and the second quarter of 2014 was still filled with strikes, and the fallout from the strikes, and the fact that gold and platinum prices (see below) remained rather stubbornly low. All of which combined to: a whole lot less export, and hence the larger current account deficit.
If you’re wondering why that should affect things, here’s how I see it:
- The exchange rate is the price of rands in dollar terms.
- It’s driven by the demand and supply of dollars and rands, where the demand for rands is the supply of dollars, and vice versa.
- That market is driven by three main forces: trade, short-term investment and long-term investment.
- When trade is mostly in balance (ie. a very small current account surplus/deficit), it acts as a stabiliser to the exchange rate.
- When it shifts strongly in one direction or the other, it acts as a propellant for short-term speculative trade.
- Current account deficits indicate that the country will have a higher demand for imports than exports in the near future, which suggests a weakening of the rand-dollar exchange rate.
- And it’s almost self-fulfilling – because people then sell their rands in exchange for dollars, in anticipation of the exchange rate weakening, which causes the exchange rate to weaken.
- At least, that’s how I see it.
- Totally open to correction.
The bond yield and the ALSI are both pretty much as they were:
And on the commodities front, I feel like we need to find some new explanations for why things are as they are. We face some supply uncertainties in all three, and yet…
The trouble is, while I understand that there may be stockpiles of platinum and oil gluts from the US and Saudi – that’s just not how these markets are meant to work. People are irrational and speculative – and when they see supply shortages in the future (especially with something like platinum), they’re meant to overreact by driving the price up.
Perhaps it’s because the world of commodities is less overrun with high frequency traders and private individuals.
Anyway – until next week!
Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at www.facebook.com/rollingalpha.