Navigating the Tides with Chartered Wealth Transcript 

Michael Avery:
Welcome back to Navigating the Tides with Chartered Wealth, where we cut through the market noise and get to what actually matters. And there’s a lot of noise at the moment, as markets woke up this morning to a reminder that conviction is pretty fragile and positioning is certainly crowded.

Gold, the ultimate safety trade, plunged more than 4% overnight on a little more than a rumour that the next chair of the Fed might be more hawkish than hoped. And that came after a month where gold surged over 20%, hit fresh all-time highs, and delivered its strongest January since 1980.

So it’s a really sharp reversal, and I think a perfect illustration of a market that’s priced for comfort and suddenly confronted with a lot of uncertainty. So let’s navigate the tides with Victoria Reuvers from Wellstrat, the investment business for Chartered Wealth. Vix, great to have you back on.

And last week, silver just pipped our call, reaching $100 before gold reached $5,000 on Monday morning. But this week alone, we saw gold adding another $500. Markets can be irrational for longer than we expect. So what do you think this coexistence is really telling us about the underlying investor psychology in the market at the moment?

Victoria Reuvers:
Well, Michael, first, we’re both wrong in that gold bet. So I do hope you gave Adrian a very nice bottle of wine. The timing, it was just a day or two, but it was silver, nonetheless, that won that.

So yes, gold, you know, typically it rises in anticipation of something going wrong. And last year, we had so many things that went right. Let me just clarify from a market perspective. Markets were strong in their local currencies, interest rates fell. So it feels like a contradiction, right?

On one hand, you think equities are celebrating last year’s earnings strength. And on the other hand, gold is screaming higher as a hedge against uncertainty. I guess you could say it’s psychology in real time. People want to believe in growth, but they don’t quite trust it. So they’re buying both hope and insurance at the same time.

Michael Avery:
Yeah, which is understandable, right? In an environment like this where you’ve got all of that uncertainty, especially out of the White House.

Gold’s remarkable though. I mean, up nearly 30% this year alone and has doubled in 12 months. And traditionally, a vote of no confidence in the world. Yet last year, things actually went pretty well, if you think about it. Everyone was worried about tariffs and Trump, but in the main, it was a pretty good year for all asset classes.

Is gold here acting more as insurance, or is it telling us that investors just don’t trust the durability of the good news out there?

Victoria Reuvers:
Michael, I think gold is acting more like portfolio insurance. It’s a way of saying, I’ll enjoy the good news, but I don’t really trust its durability.

So as most investors who don’t hold gold, they say we don’t buy it, it doesn’t have a yield. And yes, gold has no yield, but it appears that fear doesn’t actually need a yield. It tends to seek comfort in gold when the future feels fragile. And that’s what investors are feeling right now.

But what is interesting is you’ve just seen Trump nominate Kevin Warsh as next Fed chair, and the market seems to like that, and gold fell by 5%. So the sensitivity to the price moves to both good and bad news are what we’re seeing right now.

Michael Avery:
Yeah, it’s that amplified sensitivity to both good and bad news that I think makes it difficult for investors. And when markets stop making intuitive sense, the worst instinct, as you’ve pointed out in the past, is action for action’s sake.

So in a world where both good and scary assets are working, how do you stop clients from overtrading and from mistaking movement for insight in the markets?

Victoria Reuvers:
It’s a difficult one because human behaviour is just full of mental shortcuts. It’s generally how it serves us well in real life and every day. But we often carry these same rules of life into investing, where, as we know, the opposite is true.

So as humans, what we’re seeing right now, we like to feel in control and we like to spot patterns and act on them. And acting on them gives us this comforting illusion that we’re in control of things. And in the short term, we tend to feel good about ourselves. We’ve taken some action. It feels productive and almost reassuring.

But as we know with investing, the best decision is often to do nothing at all. To sit on your hands, to stay invested, and to trust your process. And that is not being passive. In fact, it’s actually one of the most active and disciplined decisions that you can make as an investor, even though it’s really, really uncomfortable at the time.

Michael Avery:
I think it’s a really important point you make because the knee-jerk response is to go out there and to sell something or to trade at the wrong moment. And to actually actively do nothing, you’re pushing back against that human emotion, the knee-jerk, and as you say, a lot of those are based on the heuristics or those mental shortcuts that we take.

So a very important point to land that sometimes doing nothing is the best course of action in all of the tumult and the news and the storms from week to week.

AI is another one of those areas where we see a lot of noise. There’s a lot of hype around spending. Everyone seems absolutely convinced that they’re right about where AI is going to take the world. The bulls say it’s transformative. It’s the biggest thing we’ve seen since the internet. The sceptics say, well, the profit just isn’t there yet.

Is AI starting to feel maybe less like an investment theme and more like maybe an ideology, a belief system? Because in markets, conviction is useful until it becomes theology.

Victoria Reuvers:
Yeah, this ability to hold two opposing truths especially is very important right now when discussing AI as an investment opportunity, as there are very strong arguments, as you say, both for and against AI.

The supporters argue it’s transformational technology. It’s going to usher in a new era of productivity and improve everyday life as we know it. And then the sceptics, they counter this argument by really focusing on the enormous sums that are being spent with little evidence of sustained profit growth.

And I think the truth lies somewhere in the middle. But what is interesting to see is that there’s very little grey in people’s arguments at the moment. It’s black or white. And conviction is useful in markets, but when conviction hardens into theology and you stop listening to evidence or to the other side of the argument, I think that’s when risk creeps in.

So there’s no denying, in our perspective, that AI is most probably going to prove to be a seminal technology and it’s going to change the way we live and work. But from an investment perspective, it’s the valuations and the sizing of the exposure that we’re questioning at this stage.

Michael Avery:
Yeah, and in your note this week, you make a very good comparison to the dot-com bubble. It reminded me of an interview I was watching with Jeff Bezos recently, where he was asked about AI and are we in a bubble. You know, everyone was asking that towards the back end of last year.

And he said, well, we might be, but it’s certainly not like past bad bubbles. And he distinguished between an industrial bubble and a financial bubble. And he said dot-com, yes, was a bubble, but we were left with something that was a net good for humanity. We were left with the internet.

Whereas a financial bubble is generally destructive. So you might get a bubble forming and capital just chasing almost everything. Two people and a dog with a good idea around AI will get funding in this environment, but not everyone is going to make money.

Yet at the end of it, you are going to be left with this transformational technology. And we know the internet changed everything. It just probably wasn’t the timetable that markets priced in there.

So is the real risk here with AI not that it fails per se, but that expectations arrive maybe years before the cash flows actually start materialising?

Victoria Reuvers:
Yeah, I mean, parallels with the dot-com bubble and the boom of the late 90s, they’re very hard to ignore. And as you say, we don’t think the risk with AI is failure. It’s just the unrealistic expectations of how quickly this technology is going to make an impact and that the earnings expectations that are baked into the price are going to come through.

So historically, that mismatch between sort of promise and payoff, that’s where investors get hurt. And I like what Jeff Bezos said about the difference between the financial bubble and, sort of, the housing bubble.

If you think about the tech bubble, what happened in the US from 2001 sort of up to 2008 was you saw companies like Microsoft generate double-digit earnings growth, but the price did nothing.

So we don’t need to see prices collapse from here for markets to correct. Prices could stay exactly where they are, not climb, as earnings play catch-up. And I think that’s the problem. Investors have got so addicted to these price rises, and then the earnings expectations baked into them.

So we don’t necessarily believe this is bubble territory, but what we are seeing is that any hint of earnings weakness or earnings disappointment is triggering sharp sell-offs. And this week, I think we saw a good example of that.

So, you know, Meta getting rewarded despite the higher capex, but Microsoft getting punished despite beating expectations on some fronts.

Michael Avery:
So what’s going on under the surface there? Are we officially in a kind of “show me the money” phase of the cycle?

Show me the money, Jerry Maguire. One of my best movies. I mean, it’s a legendary movie. But then I went and I looked and it actually came out in 1996. What? Michael, that’s 30 years ago. I feel so old.

Victoria Reuvers:
Oh, you and me both, because I actually remember so many of those phrases.

Okay, but why we talk about that with AI is, you know, if we think back to the dot-com era.

What was interesting this week was both Meta and Microsoft reported earnings with very different market reactions. So I’m just going to unpack this.

Meta released earnings in line or just above analyst expectations, and they even had further increases in capex, and the market rewarded that. They loved them.

But then on the other hand, it punished Microsoft. Despite them releasing earnings ahead of analyst expectations, what the market didn’t like was the level of capex that they had and their slowing cloud growth. And the sell-off was sharp.

So we’ve spoken about this concentrated market, and Microsoft fell almost 10% last night. I just want to put that in context for our listeners. The magnitude of a loss of 10% from a Mag 7 share. So the decline in market cap was $357 billion. And that is larger than the market caps of 96% of the S&P 500 index. That’s crazy.

Michael Avery:
The Fed, isn’t it? So it’ll be interesting to see if Jerome Powell stays on as a member of the FOMC when he stands down as chair in May, given all of the political pressure that he’s under, because he may not be chair, but he can still stay on as a member.

You mentioned Warsh and him being nominated now, and you use a great climbing analogy that the descent is more dangerous than the ascent.

I mean, the Fed pauses again. It’s cited sticky inflation, cited a steady labour market. It’s a difference between the Fed and our Reserve Bank — it’s got this dual mandate.

Is this less about fighting inflation now and maybe more about avoiding a policy mistake later, especially given what J-Pow said — what was it — transitory inflation?

Victoria Reuvers:
Yeah, I mean, 100%. And I think, you know, credit to J-Pow, because aside from managing quite an interesting economic environment, he’s facing some political pressure, which can’t be easy.

But we use the climbing analogy because it’s a great one. And speaking about the descent being more dangerous than the ascent, because in climbing everybody focuses on what goes up and the damage that that can inflict.

And the same can be said with interest rates. Everyone fears an interest rate hiking cycle, and they crave the interest rate falling cycle. But when you ease interest rates, it actually requires very careful consideration.

And you’re seeing this with the Fed and Jay Powell and his colleagues, that they’re choosing to exercise more caution in this easing policy cycle than they did during the last hiking cycle, despite all the pressure that they’re getting.

So it does appear that despite the dual mandate, the Fed’s pause is less about fighting inflation, which is not yet a big problem, but more about avoiding a policy mistake later.

I mean, interesting to see we also saw our MPC keep rates on hold yesterday. So a similar stance is being taken. Very interesting that.

I thought there was definitely space for a cut, but we did see two voting for cuts, or maybe at the next meeting.

Michael Avery:
Despite this caution that we’re seeing, both at home and from the Fed, the dollar has kept on weakening. And suddenly we find the rand below 16 for the first time since 2022.

Is it a vote of confidence in South Africa, or are we just again being bobbed around in all of this global dollar story washing through the markets?

Victoria Reuvers:
Michael, I was in the US exactly a year ago today, and I went back and looked. The rand was 18.60. So I cry when I think about that.

But it is crazy to see that we have a rand below 16 as we speak. But the rand strength is more a global dollar story than a sudden vote of confidence in South Africa.

So yes, we’ve got positive factors supporting it, like our lower inflation, our credit rating upgrade, the fact we came off the grey list. But what we haven’t seen is any meaningful structural changes or improvements in growth.

So it’s encouraging to see a strong rand, but it’s not yet structural. And as we know, currencies can move very quickly.

Michael Avery:
Yeah, they really can, especially our beloved rattler. They call it the rattler because he can strike and bite you when you least expect it.

Now, speaking of biting you when you least expect it, it still gives me cold sweats watching Alex Honnold free-soloing a skyscraper for half a million dollars. And everyone’s talking about it. A remarkable feat.

Do you think it was worth the risk for $500,000?

Victoria Reuvers:
I mean, that’s debatable, but what I liked about this was it’s quite a neat metaphor for markets, right?

So investors often take extraordinary risks for returns that often don’t fully compensate them for the potential fall.

When it comes to Alex Honnold, I enjoyed watching him scale that building, but if you enjoyed that, you have to watch Free Solo. It’s a documentary about him where he climbs El Capitan, which is actually double in height, again unaided.

And it’s mesmerising because what they do is they actually zoom in while he’s climbing on his toes, and his toes are like fingers. It’s just quite a thing to see, and each one actually finds its own grip.

So I digress.

Back to risk-adjusted return for Alex. I think only he can answer that. But if I translate that to investing, you know, the lesson is clear.

Most people always focus on the gain. They look forward. But what they really should be making sure of is that they’re genuinely comfortable with what they could lose, because that’s the real measure of risk.

It’s not the upside. It’s how you feel when the downside shows up.

Michael Avery:
Yeah, on a day like today, true words could never be spoken.

I mean, if you’ve been riding the high of the precious metals rally, and all of a sudden you see 10% of your investment wiped out in a single day, if you can’t stomach that, then you shouldn’t be up on the mountain in the first place. A great analogy.

So Siya’s story is one of quiet determination and going the extra mile, literally.

The background is that Siya works as a harness maker for the Cart Horse Protection Association. And this is a charity in Cape Town that helps support the livelihoods on the Cape Flats, while also advocating for the welfare of working horses.

Now, most people in Cape Town will drive past a horse and a cart and they’ll feel sorry for them and want to take them away. But what they don’t understand is that most of the time, that horse is the most valued treasure that supports the welfare of an entire family.

And the Cart Horse Protection Association helps the owners by providing shoes, food, equipment, blankets in winter for the horses, vets, and also really educating the owners to care for these animals and creating a relationship of trust.

So it’s a wonderful cause.

But what Siya started doing is he started running 17 kilometres a day to and from work so that he could save his transport costs to use that money for his sister’s education.

So last year, he started, and he started as a novice. He ran the Two Oceans Ultramarathon, and then he ran his first Comrades, and he ran a silver — a sub-7:30.

What? If you’re a runner listening to this, massive respect.

He also raised over R160,000 for the Cart Horse Protection Association. And more importantly, what was so delightful was to see the reaction from the community and the inspiration that he has become to them and so many of the youth.

So he’s still running. He’s still raising money. Always with the biggest smile.

And what I loved about this is that it’s the kind of story that makes you believe the world is bigger than markets.

Victoria Reuvers:
Yeah, it really is.

I mean, that’s just incredible. To run a silver in your first Comrades, and the background that he’s from.

It reminds me — I don’t know if you’ve been following the Alexforbes Angel Wing story — but this crew from disadvantaged communities like Grassy Park and the Cape Flats, mostly women sailors, young women sailors, trained at the Royal Cape Yacht Academy, finished first in their handicap in this year’s Cape to Rio Yacht Race.

Michael Avery:
I did see that, and it is unbelievable.

Victoria Reuvers:
I love stories like this because it reminds us that when something really matters to you, you’ll go, you’ll run through walls, you’ll go the distance.

And I think Rassie Erasmus also recognised that when he broadened the net for selection for the Springboks, taking players like Canan Moodie, for example, who didn’t go through the elite school system.

And Mapimpi.

If you’ve had to struggle and it means something maybe just a little bit more to you than the next guy, you’ll make it work and you’ll achieve your goals.

And I think it’s a really great lesson for life, and for markets as well.

Michael Avery:
So Vix, as ever, great insights this week.

As the world continues to be bobbed around on storms of uncertainty, we’ll have lots to talk about next week.

Victoria Reuvers:
Michael, I have no doubt.

Michael Avery:
Absolutely.

That was Navigating the Tides with Chartered Wealth. And as Vix said, we’re going to do it all again next Friday.

And if you’d like to learn more about how Chartered Wealth can help you invest with a bit more clarity and confidence, visit charteredwealth.co.za, or call them on 011 502 2800.