The rand crashed 15.5% during May 2013 to hit a chilling 10.2830 on Friday 31st – its worst levels since March 2009.
And, of course, once again, this surprise move was blamed on all sorts of bad news and fundamentals – from a faltering local economy to renewed mine labour unrest, Zuma’s speech on the day, Eurozone jitters etc etc.
At face value, this looks like a valid argument, but actually it is a complete myth.
But this was a belief I held myself for many years.
Back in 2003/2004 (after the rand’s spike in 2001), fundamentals were screaming out that the rand had strengthened too much, and exporters and local manufacturers were being crippled.
Fundamentally, the writing was on the wall, and it started showing in economic news and data.
But did the market care?
No, in fact it seemed to have just the opposite effect – like a triple dose of red cooldrink to an overtired, hyperactive kid – finally only running out of steam at 5.60 at the end of December 2004 after a three-year party.
It has taken us a long time to realise what the market is – and what it is not.
The market is NOT a reflection of economic data, news and fundamentals.
Economists like to think so, but they fail to understand that economic data and news are all telling us what people have already done. Not how people are feeling or acting – or likely to act – right now.
Yet they flood themselves with as much data as possible to help them see where a market is heading. And there is not only conflicting data, but conflicting interpretations of any data.
For instance, an increase in CPI could be interpreted as good (it shows there is a healthy demand in the economy) or bad (it erodes wealth and spending power, and will prompt an increase in interest rates) – depending on your focus.
This being so, how in the world can I absorb this data and then decide what the market is going to do based on how everyone is likely to interpret and react to it?
It is like driving down the road looking in your rearview mirror
and reacting swiftly to that huge pothole you have suddenly seen appearing – some 200 metres back...
That won’t help if you missed it – and certainly won’t help if your tyre is already shredded!
So if the market is not a reflection of economic data, what is it?
Well, a data release is telling us what people have already done – based on their feelings at the time (we tend to make decisions emotionally – and then rationalise them with logic).
But it takes time for these to take effect in an economy, and evidence itself in good or bad news.
By contrast, the market picks up this change in mass sentiment immediately.
The market is a near-perfect reflection of the underlying mass human psychology driving a market – at that point in time – to an accuracy of 4 decimal points
And just as history repeats itself – we all tend to do the same things in similar circumstances – so these patterns of emotion repeat themselves in smaller and larger timeframes.
This is so critical to understanding the markets.
Using pattern matching technology we are therefore able to pick up a change in sentiment very early on, and have a high degree of certainty as to where a pattern is likely to complete – based on how similar patterns have played out in the past.
Just as we did with the recent move of the rand into the 9.50 to 10.30 area, which we predicted way back in mid-January 2013.
As we know, this is exactly what happened, with the rand making a high of 10.2830 on the last day of May 2013.
This is what understanding what actually moves the markets can do for you. Instead of having a data overload and trying to filter it, understand it, and guess what effect it will have going forward, we have the market itself telling us what it is most likely to do – as accurately interpreted by our forecasting technology.
Understand the debunking of this myth, and you understand what 95% of people don’t.
For more specific short, medium and long term forecasts, go to www.ForexForecasts.co.za/go/ZAROutlook.
