Real Estate Investor Magazine South Africa April 2018 - 100th Issue! | Page 59

CURRENCY
Poor’s brought their guillotine down: full Junk Status.
Yet, how did the Rand react?
By immediately strengthening, and continuing to do so over
the coming weeks, extending its gains even in the run-up to
the closely contested ANC Elections – only stalling to take a
breather once Ramaphosa was elected.
After a brief lull, the Rand’s continued its impressive run
in February. It’s hit its best levels in 3 years, spurred on by a
whirlwind fortnight full of ‘good news’ :– Zuma’s long-await-
ed exit, a new charismatic President, a well-received SONA,
a budget that appeared reasonable under the circumstances,
and Ramaphosa’s first Cabinet Reshuffle (showing who is in
charge).
All these positive events should have spurred the already-
fired-up Rand to extend its gains, but the Rand seemed to
take all this as a cue to stop dead in its tracks - and head north.
Seems to defy logic, doesn’t it?
Certainly, no economist would have been able to explain or
predict this. 
And yet, when you understand that markets are moved by
sentiment, which swings from one extreme of sentiment to the
other, it all starts to fall into place.
When you understand that people do extreme things at
heightened levels of emotion (whether positive or negative), it
also explains the extreme shock events that seem to happen at
market highs and lows.
In fact, our Elliott Wave model, which uses these patterns
of mass psychology in the market to predict future movement,
had seen both these events coming — beforehand. 
Skeptical? 
I don’t blame you if you are, as this model’s uncanny ability to
forecast reactions to major shock events still amazes me, after
a full 12 years of following it. 
Below was the outlook on the Dollar/Rand for next few
weeks, published on 25 October 2017 (with the Rand at
14.05), which anticipated a move up into the 14.14 to 14.58
area before topping out and falling. The Rand duly did, hitting
14.57 on 13 November, before reversing sharply.
And then, when the Rand had fallen to hit 11.6293 on 16
February 2018, the day of President Ramaphosa’s SONA ad-
dress (and 2 days after Zuma had resigned), when everyone
was upbeat, our near-term forecast painted a very different
picture….
This showed an imminent reversal of
fortunes for the Rand and for the Rand
to weaken considerably in the coming
weeks. Pretty amazing stuff, when mar-
ket sentiment at face value suggested just
the opposite. 
And this was without knowing what
events would trigger such a reversal, ex-
cept that my 20 year experience was to
expect some extreme emotional event.
This came in the form of the EFF: Two
days after the Rand’s touching 11.50, their
ill-fated Communist motion to amend
the Constitution to allow Expropriation
of Land without Compensation.
So, what can we learn from
this? 
Image 2. Near Term Outlook (next few weeks) of the USD/ZAR from 25 October 2017
• More often than not, the market will act
irrationally — in exactly the opposite way
to what common sense would tell you.
• Extreme emotional decisions and
events often occur at these market ex-
tremes — but do not expect them to pro-
vide you with direction.
• When you are thinking to yourself,
“Can the news get any worse — or any
better — than this for the Rand?” the
answer, more often than not, is “No, it
won’t” (and even more so when everyone
around you is feeling the same as you).
Image 3. Near Term Outlook (next few weeks) of the USD/ZAR from 16 February
2018
So how, do you protect yourself from
making wrong decisions at these points
of extreme sentiment, whether positive
or negative?
By making sure that you have an ob-
jective, scientific-based view of the mar-
ket that enables you to make educated,
informed and rational decisions, instead
of emotionally-charged irrational ones
(which we will default to every time) 
To your success and beyond
SA Real Estate Investor Magazine APRIL/MAY 2018
57