To market to market to buy a fat pig. The US has just missed their deadline to pass a new debt ceiling bill. It is currently 00:05 in Washington, where the Senate is expected to vote at 02:00 and then the House is expected to vote between 04:00 - 06:00. Assuming both sides of Congress vote in favour of the new bill, Trump can roll out of bed at 07:00 to sign it into law, just in time for federal workers to be at work on Friday morning. At the moment, there isn't any noticeable impact from the shutdown.
You may be asking why there are these shutdowns? At the heart of the matter is the current US deficit, where they are spending more than they collect in taxes. Roughly speaking the US federal government spends $4 trillion a year and only collects $3.5 trillion from taxes. As they keep racking up deficits, the debt reaches self-imposed limits, the debt ceiling. Below is a table of the deficit over the last few years, note how huge it was during the financial crisis!
Found at US Government spending
I have been asked before, why does it seem like investors care more about South Africa's deficit and less so about the US deficit? As it stands, the US 10-year yield is 2.8%, and the RSA 10-year yield is 8.4%. Roughly speaking our debt is 3.5 times more expensive, so even a small deficit costs us much more!
Market Scorecard. It was one-way traffic for the US market yesterday. The Dow was down 4.15%, the S&P 500 was down 3.75%, the Nasdaq was down 3.90%, and the All-share was down 0.44%.. Asian markets are down over 2% this morning, with Tencent down 3%. Market slumps like this only matter if you are planning to sell your stocks in the near term, which is why you should never have money in stocks that you will probably need in the next 12-months. If you plan to only need the money in the next five, ten or twenty years, what the market does today is largely inconsequential.
If you are someone who has a few decades to go until retirement, dips like these are good things. I would much rather be putting my retirement savings into the market when it is lower rather than higher. Due to dips like these being insignificant for long-term holders, there is no need to look at my portfolio regularly. Watching your investments go through the gyrations of volatility creates unnecessary stress. Below is one of my favourite cartoons for when the market goes through periods of uncertainty. Are we up or are we down?
Company Corner
Byron's Beats
Tesla reported fourth quarter and full year numbers two days ago which always sparks excitement. At the same time, Elon Musk had just launched his Roadster into space and images like this were floating around the internet.
He really is a marketing genius!
2017 was a busy year for the company. They started delivering the model 3, unveiled the Semi truck, launched the new Roadster (and one into space), installed the world's largest battery in Australia and delivered 101 312 Model S and X vehicles.
Revenues grew 55% for the year to $11.8bn. For the full year, the company lost $2.2bn. But because so many people believe in the story, the company has access to a lot of capital. Currently, the company is sitting on $3.4bn in cash which should keep it flush for at least another year.
It is very hard to look at fundamentals for this business. I saw some report that suggested if Tesla meets all it's production targets it could be making $20 a share in 2020. The share currently trades at $315. I can almost guarantee they won't meet their targets but it still has the potential to become very profitable in the future.
Having said that, I wouldn't be surprised if Elon Musk constantly launches new products and constantly expands in new regions (Jeff Bezos style). Which means this company won't be profitable for a long while to come.
But once they manage scale, as the best electric, mainstream car in the world, they could be absolutely massive. I haven't even mentioned the energy supply side of the business.
It is volatile and is still pinned up by faith in the story. We like the share but only as a small allocation to a well-diversified portfolio.
Linkfest, lap it up
One thing, from Paul
This week on Blunders: Volpocalypse - the trend is your friend until the bend at the end, El Chapo promises not to murder his jurors, US Treasury uses Forbes magazine to complete its homework assignment, and man vs. dog eating contest in China: Blunders - Episode 87
Michael's Musings
It is amazing what we can do when we put our mind to something - A memory champion has memorised 10,000 digits of pi.
Vestact in the Media
Bright chatted to PowerFM about Twitter and MTN - PowerFM - MTN listing in Nigeria.
Home again, home again, jiggety-jog.Our market is down 1.5% on the open, following global markets. The US Senate has just approved the budget bill, so it moves onto the House now. The Winter Olympics opening ceremony is today, I see that some of the events kicked off on Wednesday already. We currently have curling on the in the background to get into the spirit of things; and people call cricket boring? Instead of watching the market and your portfolio today, watch that.
Sent to you by Team Vestact.
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