Tesla Shoots for the Stars

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?

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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.

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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

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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.

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Vestact in the Media

Bright chatted to PowerFM about Twitter and MTN - PowerFM - MTN listing in Nigeria.

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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.

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What the Truck!

To market to market to buy a fat pig. WOW! Musk was right; he did blow everyone's mind at the truck launch last night in California. People are not talking about the new truck launched though, they are talking about the launch of the new Roadster. I am amazed that they managed to keep the development of the Roadster out of the media.

I was following the live blog post of the event on Wired (Elon Musk launches Tesla's electric truck: Live coverage) here is how the updates rolled in:

"Production begins 2019! Which means you'll get your truck in 2037 if you order tonight. . . . And Elon's off the stage!. . . . Well that's it! Alex, please tell me you're currently plotting a truck heist. . . . Doing the presidential thing, shaking hands with those in the crowd. . . . And, all the lights just went out. . . . Now's my moment! . . . HOLD ON FOLKS. . . . A SPORTS CAR JUST ROLLED OUT OF A SMOKING TRUCK. . . . What. Is. Happening. . . . Is this the Roadster 2?. . . It looks like a sexed up mix of the Roadster and Model S . . . . It was in the truck! This is the coolest product reveal of all time. . . ."

Here are some of the stats for the new car:

- 0 to 60 in 1.9 seconds
- The fastest production car ever made
- More than 1000km on a charge
- Top speed above 250 miles per hour

It is no secret that Tesla spends more money than comes in their front door through sales. As someone pointed out on Twitter, launching an expensive sports car and having people pay for it up front is a great way to raise short-term interest-free funding.

Moving onto the truck, which is why everyone attended the event. The trucking industry is all about efficiency and ease of use which can only be tested in real life operations. From the presentation, it looks like Tesla has reached a new level of battery efficiency, which will allow the trucks to go 400 miles on a 30-minute charge, and 500 miles on a full charge. Having such range off such a short charge, you could see trucking companies install charging stations at delivery points. The truck arrives, plugs into the charging station and then offloads. Once the offload is complete, the truck is ready to do another 400 miles - This is Tesla's big new all-electric truck - the Tesla Semi.

Market Scorecard. Stocks had a great day out yesterday, US stocks had their biggest gains in two months. The Dow was up 0.80%, the S&P 500 was up 0.82%, the Nasdaq was up 1.30% and the All-share was up 0.62%. Taste announced a monster rights issue yesterday, raising R398 million; their current market cap is around R350 million. The new Starbucks in Melrose Arch is amazing, it is a place that you want to spend time in.

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Linkfest, lap it up

One thing, from Paul

Peter Lynch was born in 1944 and ran the Magellan Fund at Fidelity Investments between 1977 and 1990. During that time, the fund averaged a 29.2% annual return, more than double the S&P 500 market index. During his tenure, assets under management increased from $18 million to $14 billion.

I especially liked this Lynch quote, which I spotted this morning in an investment blog:

"I'm always fully invested. It's a great feeling to be caught with your pants up."

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Byron's Beats

Phil Knight is the founder of Nike. He is turning 80 this year and Nike is hosting a three-day basketball tournament which celebrates Knight's drive to empower people through sport. This article through Nike News details the tournament.

If you have not yet read Phil Knight's memoir titled Shoe Dog, I strongly suggest you buy it right now for some December reading. Especially if you own the shares! It is a very honest and real account of the highs and lows of starting a successful, large-scale business. (Make sure you buy it from Amazon and support another share of yours!)

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Bright's Banter

Steven Terner Mnuchin is an American banker who is the 77th United States Secretary of the Treasury, part of the Trump administration and real estate baller of note! In his previous life, Mnuchin was a film producer and hedge fund manager, with an estimated net worth north of $300m.

Steve has led one hell of a life. However, today's article is not about Secretary Mnuch it's about his ex-wife Ms. Heather Mnuchin who's still balling hard in new West Coast real estate - Heather Mnuchin Steamrolls Into A $13 Million Brentwood Circle Mansion

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Home again, home again, jiggety-jog. Naspers is off to another flyer, breaking the R3 800 level. Unfortunately at the other end, Mediclinic and Brait are in the red again this morning after their numbers this week. No major numbers out today, which is weird for a Friday. Next week our MPC meets, don't expect a rate cute and brace yourself for a potential rate increase.

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New Look Wants Its Old Look Back

To market to market to buy a fat pig. US stocks had another down day yesterday; I saw a tweet from a US market commentator saying "What is this weird looking crimson colour on my screen?". The current drawdown in the market seems to be driven by a drop in commodity markets.

Market Scorecard. The Dow was down 0.59%, the S&P 500 was down 0.55%, the Nasdaq was down 0.47% and the All-share was down 0.56%. Naspers opened at an all-time high thanks to solid numbers out of Tencent yesterday. Naspers is now up 84% for the year.

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Company corner

Byron's Beats

We have often spoken about how being a pessimist makes you sound smart and being an optimist makes you sound naive. I find this very ironic and somewhat strange on the back of a globe that is constantly improving in so many facets of life. The stats don't lie. Poverty levels have decreased, healthcare has drastically improved and more and people are living better lives. Of course there are a lot of negatives out there that need improving. One of those is the environment.

It has also become very fashionable to beat down on Tesla. If you think Tesla will fail you come across as smart, cautious and articulate. If you believe in the Tesla story you come across as naive and a sucker to the smokes and mirrors that Elon Musk has managed to brainwash you with. That is more recently of course because the share price is down 22% from it's highs of September. To put that into perspective the stock is still up 44% so far this year. So who is actually wrong here? You be the judge.

Let's delve into the Q3 numbers they released a few weeks back and see why the stock has been so volatile.

Below is the revenue mix of the business. I have popped this in to show that this company is not just a vehicle manufacturing business, it is also an energy business. Although Energy generation only contributes 10%, it is growing fast. A big power supply agreement in Western Australia is just the start of what can be a very lucrative business.

Services and Other includes sales of second hand Tesla's as well as servicing of the existing ones.

Ok lets look at the vehicle segment. During the quarter they delivered their 250 000th vehicle. They delivered 26 137 vehicles in the quarter. The problem for investors was that only 222 of those were Model 3 vehicles. Elon Musk has promised 5000 a week by Q1 2018 with a potential 10 000 a week shortly after. Wall Street is not so sure. The company experienced some heavy bottlenecks this quarter, mostly with regards to battery assembly. This is why the share price has pulled back.

I understand the market getting a little jittery about failed promises. But this is a real business trying to achieve a very tough task. Soothing Wall Street is not their concern. Amazon went through the same 'yes they can', 'no they can't' seesaw for nearly 5-years before they achieved scale.

Tesla often gets compared to other vehicle manufacturing companies. But it is not just that. It is a utility, a software business and most importantly a battery manufacturer.

When all the other big car companies manufacture electric vehicles where do you think they will come knocking to buy those batteries? Tesla are first movers and have pumped billions into mainstream battery production. Solar and battery power will be a huge part of our future.

Their cars have an amazing allure, similar to Apple. They will continue to attract a premium because they are beautiful, simple and a great product.

Their current issues revolve around supply, not demand. Demand for electric vehicles will be massive for 50 years and more because of the low base it is coming off. Even when the other big vehicle players go mainstream.

Short term "investors" might be concerned about these bottlenecks but if you are patient I believe Elon Musk and his team will succeed. They have already achieved the impossible in a short space of time. As you can see, it is volatile but continue to hold tight.

As a side note, Elon Musk is making a very exciting announcement today about the Tesla Semi Truck. Jeepers he likes to keep his hands full. Rumour has it that these electric trucks will be able to follow each other like a train with only one driver needed to operate the first truck. Sounds amazing!

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Michael's Musings

Yesterday Brait released their 6-month trading update which has been keenly awaited due to their poor performance over the last 18-months. Since January 2016, the stock is down 70%. In February, after management wrote-down the New Look asset by R10 billion to R8 billion, I said most of the pain from New Look had been felt. I was wrong. Management has now written off the remaining R8 billion, so that their carrying value of New Look sits at zero. Due to the further write-down, Brait's NAV now sits at R66.62 per share. A 36.6% decline since September 2016.

A quick observation about the Brait share price. If you bought in 2012 you are still up 130%, which in most peoples books is a good return. See the graph below, where I drew a line from starting share price to the current share price. It doesn't look too bad? This is of little consolation if you bought in the last 2-years. It highlights though, your perception of a company and their performance is heavily influenced by when you bought.

Moving onto the numbers, we will start with New Look. Revenue was down 4.5%, life for like sales were down 8.6%, third-party e-commerce sales were up 17% and interestingly their own e-commerce sales were down 7.6%. The company says it best of what has gone wrong:

- its product positioning had moved away from its successful broad appeal, becoming too young and edgy.
- its customer messaging had become overly fashionable and in the process, no longer highlighting New Look's value proposition;
- excessive product options and increased complexity throughout the organisation resulted in the business being late to certain trends and as a result not clearing ranges by season end;
- reduced flexibility and speed as well as an increased cost base.

Management has a strategy to turn things around, which they say won't have a significant impact until next year. Going forward the carrying value of New Look can't hurt the Brait NAV but if Brait needs to put fresh capital into New Look that will have an impact. My rough calculations at the current run rate, New Look will have a couple of years worth of cash, so it doesn't look like Brait will have to pony up anymore for now.

Their other operations look solid though. Premier had a tough time due to the drought, which pushed down their profits. Their biggest asset, the Virgin Active gyms saw revenues increase and margins expand. Over the last year they added 17 new gyms, with more in the pipeline. Lastly their third biggest asset, Iceland foods, who are the leaders in frozen meals in the UK also looks to be on track. They are busy shifting to meet the changing consumer demand for instant and easy meals. Currently they are delivering 40 000 meals a week.

What to do with Brait? Currently the share trades at a 30% discount to the NAV, which is a big safety net; their other assets all look solid and are well-known brands. What is more likely, the share price going to R90 a share or to R22 a share? All things considered, it is more likely to go up than down.

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Linkfest, lap it up

One thing, from Paul

Here at Vestact we are keen investors in innovative healthcare companies. As people live longer, have better health insurance or fatter life savings, spending on complex therapies is rising sharply. This theme covers companies making medical devices, pharmaceuticals and hospitals. You should buy them all.

I thought that this was a great story, out yesterday. US regulators have approved the world's first tablet with an inbuilt sensor. It can be tracked inside the stomach, relaying data on whether, and when, patients have taken vital medication. The technology has been developed over 10 years by Silicon Valley-based Proteus Digital Health.

The immediate application is for patients who are not "all there", and may not be sure whether they have actually taken their meds today. That would be especially helpful for the elderly, and those with dementia or psychotic conditions. The data shows up on an app on their phones, and can also be accessed by their doctor, caregiver or nominated family members.

The tracking devices can be attached to all sorts of orally ingested drugs, which will be positive for pharma company sales.

More detail on the FT article: US regulators approve first digital pill with tracking system

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Bright's Banter

Michael once said that millennials like to spend money they do not have on experiences they do not need. This is true and probably one of the reasons why we hold companies like Priceline in our clients portfolios. There's been a surge in the number of people who aspire to travel the world, experience different cultures, unwind and meet new people. We think this trend will continue as we become more of a global village and millennials have more disposable income.

I know a lot of people who would like to go on a Greek holiday including myself, but we are not sure about the standard of living and how much the day-to-day costs would look like in Rands.

Here's a breakdown Rand for Rand from someone who went there a couple of weeks ago.

Fari is a friend I went to university with. Unlike me, she is well versed in travel. She's snorkelled in Thailand, parasailed in Mauritius, ascended the Eiffel Tower in Paris, walked the streets of London, chowed down on some Gelato in Italy, had camel rides in the deserts of Dubai and even stood on the edge of Victoria Falls in Zim. - How Much I Spent During My Trip To Greece

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Home again, home again, jiggety-jog. There were numbers from Mediclinic this morning that the market doesn't seem very happy with, the stock is currently down 2%. The Rand has strengthened today against all major currencies. Then this afternoon we have initial jobless claims out of the US.

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Naspers Keeps on Giving

To market to market to buy a fat pig. US markets continue to surge. As I look at it, I would say that Trump's proposed tax plan is the main reason. We haven't had any North Korea news for the last few days, and China is closed for their Golden week/New Year, so no news from them either.

Here is the scorecard, the Dow was up 0.37%, the S&P 500 was up 0.22%, the Nasdaq was up 0.23% and the All-share was up 1.04%. With our market within a whisker of all-time highs, it is no surprise that Naspers is at an all-time high. It closed up 2.9% at R3 058 a share, well into the R3 000's now.

Interestingly, between 2003 and 2010 the stock was already a 'ten-bagger'; it went from around R30 a share to R300. It was in 2010 when Vestact started adding Naspers to our portfolios and the feeling in the office was that we had probably missed the initial growth surge but that going forward it would still have decent growth. You know, growth where you double, maybe triple your money over seven years. Over the last seven years, Naspers has been another ten-bagger! Will they be another ten-bagger over the next seven years? Probably not but with exponential wealth creation in China and the untapped potential of the internet, who knows.

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Company corner

On Monday night Tesla reported their Q3 2017 Vehicle Deliveries and Production Numbers. As expected, it was a record quarter for production, and they are on course to produce over 100 000 Model S and X vehicles in 2017. There were some teething issues with the Model 3 production meaning they only produced 260 of them instead of the anticipated 1500 for the quarter. The company are confident that they will overcome the bottlenecks in the production line though.

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Linkfest, lap it up

One thing, from Paul

My favourite US hamburger chain is Shake Shack, and naturally I'm also a shareholder. The company announced yesterday that they are opening a new store in Astor Place (lower Manhattan, in the East Village). Here's why that is newsworthy: robots will replace humans and cash won't be accepted.

Customers will place orders via an app or at touch-screen kiosks inside the restaurant. Human workers called "hospitality champs" will guide diners through possible tech glitches as they place orders at the kiosks. This is the future people! Sounds delicious - Robots are replacing fast food workers at new Shake Shack

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Michael's Musings

As we spoke about yesterday, interest rates are central to asset values - The 5,000-year history of interest rates shows just how historically low US rates still are right now. I thought historic interest rate would have been higher given the increased risks with a less developed financial system.

Would you fly in an aeroplane that didn't have a pilot? Most people wouldn't but in the future I think things will change - Airlines could cash in on a $30 billion opportunity that would make pilots obsolete.

Imagine spending over 100 hours a year in traffic!? Here is a look at what congestion looks like around the world - The Most Congested Cities. Cape Town is slightly worse than Johannesburg for the South African cities.

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Home again, home again, jiggety-jog. Our market is green again this morning, Naspers is up another 1%. Later today are the US's crude oil inventory numbers, something to keep a close eye on considering last nights fuel price hike.

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A Car That Smells Like Apples

To market to market to buy a fat pig. Dow 22 000! It was only in January that Dow 20 000 was the talking point for financial journalists, it is just a number but marking these milestones creates excitement around the market and hopefully results in more "average Joe's" investigating using equities to create long term wealth. Any idea how far the Dow fell in 2008, 2009? The index fell from around 14 000 points to the mid 6 000's Ouch! A reminder that markets don't only go up. Since those lows though, the market is up 3 fold, meaning that if you continued to regularly contribute to your investments and your pension, those lower prices have been a huge win for you now.

On to the scorecard, the Dow was up 0.23%, the S&P 500 was up 0.03% and the Nasdaq was 'down' 0.00% or down less than a point. Locally the all share is holding its ground above the 55 000 mark, finishing at 55 200 yesterday down 0.34%. Companies sitting at 12 month highs include Dischem and Clicks. If you had to guess, would you have picked 2 RSA focused retailers to be sitting top of the pile? Dischem has been on a tear since listing, up 40% and more if you were lucky enough to get some pre-listing. Another company having a good time sitting at 12 month highs is Discovery, breaking into the 140's again. The talk on the street is that a potential rights issue from them is looking less likely which is good news for existing share holders.

Having a look for the US oil inventory number from yesterday I stumbled across this article, Venezuela Expects Refinery Output Capacity To Drop To 44%. Ouch! Poor policy has lead to poor economic outcomes, which then leads to more poor policy and the cycle continues. Currently the antigovernment death toll is sitting above 120, the country has a chronic shortage of essentials and there are reports of some citizens having to eat their pets (no food to be found for the pets or the owners). Remember that Venezuela is the country with the largest oil reserves in the world, they have 12% more reserves than Saudi Arabia, proving that even if you have an abundance of natural resources, the people can still suffer due to poor policies. Back to the oil inventory number, inventories in the US dropped but by less than the market was expecting meaning demand for oil isn't as high as expected. Good news for the consumer not good news for producers.

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Company corner

Byron's Beats

Last night we had Tesla results. This is always exciting for market participants even if you don't invest in the stock. People love to hear what Elon Musk has to say. Here is a quick highlights reel of what happened this quarter. Never a dull quarter for these guys!

The market liked what it saw and the stock surged 10% from it's intra day low. The loss was less than expected and demand for their luxury vehicle's, the Model S and Model X, were higher than expected.

What was absolutely incredible to see was that they are averaging 1 800 Model 3 orders a day. Remember, you need to make a $1 000 deposit to get your order in. That's $1.8m coming in per day. Not bad for a capital hungry business like this. If you want one here in SA, you better get your order in now because that queue is not slowing down. The ability to grow supply will be exponential as they adjust to the scale. They aim to produce 10 000 a week at some point in 2018.

The hype for this product and the long virtual queues smells a lot like apples.

The energy generation and storage business. They have installed the solar tiles onto various Tesla employee's houses. This will help them find defects along the way. Those will go mainstream soon.

Energy storage is a huge theme. Whether you use wind, solar or hydro, storage is crucial. They have just landed the biggest lithium-ion battery storage project in world in South Australia. It will provide 30 000 homes with stored electricity. This division brought in $286m in revenue, growing 34% from last quarter.

This is not just a car company. It is a software business with self driving car capabilities. It is a utility business with it's energy producing capabilities. It also a battery business. Anyone who needs to store energy (who doesn't) could be a Tesla client, especially since they are the first movers in mass produced lithium batteries for both homes and commercial.

The ride will be wild with many ludicrous modes involved. But we think, with every quarter, Tesla are slowly winning the battle against all odds.

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Michael's Musings

MTN released their first set of numbers under new management this morning, I'm pleased to see that the market reacted favourably to them. In constant currency the numbers looked okay, when converting everything back to Rands it looks rather horrible. In constant currency Revenues are up 6.7% (down 18.5% on actual currency) with Nigerian revenues up 11% and South Africa up 1.6%. The future of the business, data had a strong showing with a revenue increase of 31.9% or 9.6% in actual currency, with Nigeria growing by 70%, South Africa by 14% and Iran by 68%.

New management means a new vision for the company and a new culture to some degree, which is what shareholders were looking for. Below is what the new growth plan and focus will be for the company. My corporate speak is a bit rusty but if they can execute on what they plan to do, it looks good for the long term health of the business. I'm interested to see what the "digital" focus will entail, there has been talk that MTN might buy Multichoice's Rest of Africa operations.

"During the past six months the management team undertook a thorough review of the Group strategy and developed a clear growth plan for MTN that will be arranged under six strategic pillars comprising: Best customer experience; Returns and efficiency focus; IGNITE commercial performance; Growth through data and digital; Hearts and minds; and Technology excellence. We refer to this as the "BRIGHT" strategy."

One of my favourite stats from the telecom companies is what they have to do to achieve their growth, for the last 6 months they installed 4 404 3G towers and then a further 3 478 4G towers. They estimate that for the full financial year they will spend around R30 billion on CAPEX, around 13% of their market cap. The biggest chunk is allocated to South Africa with planned CAPEX expenditure coming in at R11.5 billion! With an improving political situation in Iran they are doubling their CAPEX spend to R3.9 billion.

As a long suffering MTN shareholder you will be in line for a R2.50 dividend at the end of August and then a projected R4.50 dividend in March next year, still a far cry from the R13.10 full year dividend paid two years ago. If you have ridden the share price over the last few years, it would make sense to keep ridding this one for a while longer to see how much of an impact the new management will have.

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Linkfest, lap it up

One thing, from Paul

I'm old enough to remember Apartheid South Africa, so this article made me feel sick in the pit of my stomach. A list of prominent SA businessmen who actively supported PW Botha's National Party. With copies of their donation letters. (Declassified: Apartheid profits - Who funded the National Party?)

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Bright's Banter

We all know the famous saying An apple a day keeps the doctor away. Well it seems that we may have been sold dreams because the Queen has FOUR DRINKS A DAY and that formula seemed to have worked for her and your majesty is only 91 years young. (The Queen Has Four Cocktails a Day)

So Game of Thrones lovers, yes you AKA the Throners…SPOILER ALERT!! STOP READING FROM HERE! I AM WARNING YOU FAM, YOU REALLY DON'T WANNA SEE THIS. HBO is freaking out about the hack that leaked an upcoming "Game of Thrones" episode. Now the FBI is involved. I wonder what this means for Time Warner Inc and its shareholders. (HBO Hack: Insiders Fear Leaked Emails as FBI Joins Investigation)

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Home again, home again, jiggety-jog. After being up 4% this morning, MTN are now down 1%. Maybe something was said in the results presentation this morning that the market didn't like? Our market is higher again this morning and the $/R is sitting steady at around 13.25. Note worthy data out today is a rate decision from the BOE and then initial jobless claims from the US.

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EV growth is Electric

"Now that the battery is a whole lot more affordable than at any time in history, it makes more economic sense to power your vehicle from home and then heigh ho, off you go. The thing is, in countries that still burn a lot of coal to generate electricity, are you really doing the climate a favour by plugging into the grid?"

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To market to market to buy a fat pig Stocks Friday in Jozi gave up ground across the board, all the major indices were lower on the day. Again, some of the new 12 month lows were reflective as to what has been going on in the economy, the likes of Woolworths, Life Healthcare and Spur are all trading at year lows. Astoria reported a Dollar NAV that clearly surprised to the upside, the stock is now at a 12 month high. Astoria of course is a listed holding vehicle/fund for US stocks, based out of Mauritius, priced in Rands here in Joburg. All the assets however are foreign, making the vehicle attractive at some level. This morning we have started on a better and more even keel, the currency has juiced up a bit.

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It was jobs Friday. That was, the Friday last, where the multiple talking heads thrash out why this jobs number is so important and more important than the last one. Of course, as is often the case and I try and test this theory, nobody remembers the numbers from two months ago. The number from the Bureau of Labor Statistics is often prone to revision. The full report is always called, The Employment Situation - June 2017. A strong jobs report at face value makes for a mixed Fed, darn that job is tough!

Stocks in New York, New York, most especially technology stocks, rallied sharply. The nerds of NASDAQ rallied over a percent by the close, the broader market S&P 500 gained just shy of two-thirds of a percent, whilst the Dow Industrials, weighed on a little by energy stocks (down 0.15 percent as a collective), managed to add just over four-tenths of a percent. Facebook added one and three-quarters of a percent, the stock is still around two odd percent from the all time highs, so much for the great technology sell off of 2017. I shouldn't be so smug, it may well come!

In sad news over the weekend for one of the companies that we recommend, one of the founders and CEO passed away - Neal Patterson, Cerner's Billionaire Co-Founder CEO, Dies at 67. It is sad, a reminder that we all have a finite amount of time. One can look back at the legacy that the man left, it is pretty amazing that he achieved this much and built something of this magnitude. I am sure that all and sundry will miss him.

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Wow. The rate of adoption is just astonishing. And whilst we all believed that this would happen, the evolution of the Electric Vehicle (EV), I suspect that it has happened quicker than most people would think. There are some countries that are committed to eliminating fossil fuel powered vehicles by certain dates. I suspect that it is just a cost thing. If a consumer is presented with two vehicles, exactly the same, one is an electric one with fewer moving parts, one is the combustion engine, and more importantly they cost the same, which one do they choose? There is the important point about the outlay of a charging station at home (the installation cost) and wondering about moving through the countryside trying to find a charging station reliably.

There is a great report free from Bloomberg (you just have to enter a few details) - Electric Vehicle Outlook 2017. There is another Bloomberg article, from earlier last week titled The Electric Car Revolution Is Accelerating, with this important price per unit (for the battery):

Now that the battery is a whole lot more affordable than at any time in history, it makes more economic sense to power your vehicle from home and then heigh ho, off you go. The thing is, in countries that still burn a lot of coal to generate electricity, are you really doing the climate a favour by plugging into the grid? No. You have to spend a whole lot more money in getting the rooftop network and batteries installed. Of course, as this FT article (subscription only) points out, Electric car growth sparks environmental concerns. The inputs still need to be mined, as well as recycled. I suspect that in a modern world we are more equipped to deal with these matters.

As ever it is about the economics. Is the price affordable. At the same time, talking affordable cars, the fellow who changed all of it was Elon Musk. He took delivery of the first Model 3 - Tesla Rolls Out Its First Model 3, and It's Elon's. At least Musk agrees with Henry Ford, who famously said about the Model T: "Any customer can have a car painted any color that he wants so long as it is black." There is a shortened version that is known well. Here goes, one of the first photos of the electric vehicle that may well be the vehicle that pushes more people to other models. i.e. If you want a Tesla, and cannot afford it (even the 35 K USD one), then many other manufacturers are making more affordable vehicles.

The question arrises, who wins and who loses in this scenario? The manufacturers can refit factories to build battery vehicles, humans still need transportation. Car sharing and car pooling with autonomous fleets? Does that mean lower overall demand? What does that mean for the roads, the filling stations, automobile mechanics, the big oil businesses, the countries reliant on oil production to balance their budgets. As with the industrial revolution, there is a re-skilling of people across the globe, they find their jobs elsewhere and don't just starve and wander around like zombies. It does feel like a shakeup is coming, courtesy Artificial Intelligence, Autonomous Driving/Fleets and Battery Operated vehicles, the future is here friends.

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Linkfest, lap it up!

Here is the annual list from BI of who to follow on Twitter, just after heavy weight Cullen Roche you will find Paul's name - The 125 most important finance people you have to follow on Twitter.

Thanks to the likes of Instagram, traveling is high on the priority list of millennials. Which passport works the best for traveling? (What is the World's Most Powerful Passport?). Sasha points out that African countries should consider dropping their Visa's to high tourist nations like Germany.

If you want to eat what ever you want, cycle the Tour de France - A Tour de France cyclist burns 6,071 calories a day - here's how many Chipotle burritos that is. Two things stood out to me, firstly the massive amount of energy needed to complete a stage but also how high the calorie count is in junk food. No wonder obesity is on the rise, it is so easy to get more than your recommended calorie count in just one meal.

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Home again, home again, jiggety-jog. It is the start of earnings season. Which is simply great. The real business of business, the real down and dirty of the job. The coal face. The cricket? I don't want to talk about it, ok?

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Are Fossil Fuels Getting Old?

"We will get there, humanity is more aware of the harmful impact of fossil fuel usage than at any other point in history, it is unfortunately a rich people problem that impacts us all."

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To market to market to buy a fat pig Stocks in Johannesburg as a collective gave up ground through the session, ending the day down nearly four-tenths of a percent by the close. Industrial stocks were mostly to "blame", only financials amongst the major sectors ended the day in the green. Glencore, Mondi and Richemont all gave up ground as the Rand firmed a little off the very worst levels of the day.

Still, things are looking a little worse for wear. The biggest concerns always with the weaker currency to the majors of course are the inflationary issues. There seems to have been some steam coming out of the commodities complex as a whole, gold prices are trading near a two month low. I was having a look, gold prices are in fact trading down 7 percent in Dollar terms over the last three years. Gold prices have been at this level first in August of 2010. Spare a thought for some of the precious metal producers, it is not so easy out there. Are we getting too excited about the weak Rand and mixing it with politics?

An oil price that has bounced back a little and a weaker Rand = a higher petrol price, and we all know that you have to move goods and people with a combustion engine. For now of course. Many transport companies around the world are working out how to make more of what their customers want, and their customers definitely WANT to have electric vehicles.

We will get there, humanity is more aware of the harmful impact of fossil fuel usage than at any other point in history, it is unfortunately a rich people problem that impacts us all. i.e. it is only once you have the resources to own an electric vehicle and to change to battery technologies to power your home that cost is not as much a factor. Various studies have shown a long dated saving on energy by doing this, remember that you have to outlay the funds. We can deal with that later ..... Tesla.

There were 12 month highs for the likes of Bidcorp and Clicks, new 12 month lows for Spur and Sygnia (again for both). It is looking a little slim on the corporate news front, not much going on here locally or anywhere for that matter. With the Northern Hemisphere summer pending, we could be in for lower volumes. Although, I am not too sure that is a "thing" anymore in the age of the computer and internet.

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Stocks across the oceans on Wall Street were sold off, led by technology stocks again. The nerds of NASDAQ sold down 1 percent exactly by the close of trade, the Dow Jones Industrial average lost three-quarters of a percent, with the broader market S&P 500 down 0.94 percent by the close. GE slumped after the European Commission was said to be probing the business after accusing them of misleading on the detail of the acquisition of LM Wind Power.

There was also the small matter of a very heavy broker downgrade from JP Morgan - 'We Don't See The Future Growth Potential'. For what it is worth, that share price is seen going to 22 Dollars a share, more than 20 percent downside from here.

Hey, talking 20 percent downside from here, Tesla stock fell into a "bear market". It is a technical measure of when a stock goes down 20 percent from their last highest point. And in this case, post the Tesla production numbers, this was a mere 2 weeks ago. It has been a horrible no good week for Tesla stock, over the last three months the stock is still up around 3 percent. Year to date? Up 44 percent. Since listing? Up 1508 percent.

Whilst the earnings, production and outlook are very hard to call, I do believe that this company not only "talks", it does also deliver. Elon Musk is busy getting excited about the following - Tesla Powerpack to Enable Large Scale Sustainable Energy to South Australia.

The release points out the impact and gives a little detail to the background, when Musk promised to have something completed by a certain time: "Upon completion by December 2017, this system will be the largest lithium-ion battery storage project in the world and will provide enough power for more than 30,000 homes, approximately equal to the amount of homes that lost power during the blackout period."

It seems that the go ahead has been given. This contract steams from a Twitter conversation when Musk promised to have the batteries installed within 100 days or they were free. I have no doubt that Tesla will deliver this, hopefully on time! Talking alternative energy and gasoline cars, France has joined some other countries in announcing that they wish to phase out all motor vehicles powered by fossil fuels - France Plans to End Sales of Gas and Diesel Cars by 2040. Joining some others! What does this mean for the future of fossil fuels and all those companies that have a load of reserves, and countries for that matter.

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Linkfest, lap it up!

Bright sent this link on the WhatsApp group, the title pretty much says it all - 50 Smartest Companies 2017. The tricky part in trying to identify these investments is that of the 50, only two have been on the list for 8 years.

Here is a look at the activities of the rich and the poor, no surprise to see golf at the top and relatively cheap entertainment like TV and radio at the bottom. I was surprised to see Running come in 4th spot, it is a relatively cheap sport and you can run almost anywhere - Here's How Americans Spend Their Time, Sorted by Income.

Here is one of the main, if not the main reason Amazon is so valuable - Amazon, not Google, is the most popular starting point for Americans looking to buy products online. With the consumer associating Amazon with online shopping it means that they are the first place people look when they want something and they don't go to the competition even if the competition is similarly priced or cheaper.

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Home again, home again, jiggety-jog. It is non-farm payrolls today, an important point for global markets. Earlier in the week, there was a slightly weaker ADP number, all and sundry are looking for "direction".

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Nas-Decked

"I have never seen anything like the NASDAQ glitch last evening. This was after the market had closed for a half day, remember that today in the US is a holiday. As far as I can tell from the reading that I have done, some improper use of test data sent to third party vendors caused the mistake, across platforms such as Google Finance and Bloomberg."

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To market to market to buy a fat pig I have never seen anything like the NASDAQ glitch last evening. This was after the market had closed for a half day, remember that today in the US is a holiday. As far as I can tell from the reading that I have done, some improper use of test data sent to third party vendors caused the mistake, across platforms such as Google Finance and Bloomberg. Eeeekkkk! So on paper, at least according to the data being provided, the wildest swings that I have ever seen transpired.

There were multiple share prices stuck at 123.47 Dollars a share. Amazon was there (as was Google/Alphabet, the C class shares), implying that they were down 80 percent plus on the day. I saw that Amgen had halved, it then closed near the same number as all the others. Apple was up so much that the market cap was above 3 and a bit trillion Dollars. Then the stock price of Apple was back down 14 odd percent to that 123.47 Dollars. The BusinessInsider managed to grab a few screenshots before the NASDAQ corrected the data - Amazon and Google share prices were reported down more than 80% after test data went live. Microsoft was also stuck at 123.47 Dollars a share (up 80 percent), as was Zynga (up over 3000 percent a share).

The FT reports - Nasdaq stocks including Apple, Microsoft, Amazon see prices changed to $123.47. What I found interesting is that the prices of the stocks on the NASDAQ website, the actual platform, was unchanged. I suspect that techies had been working on some data set for testing purposes, they had put in a few prices of big stocks and fun stocks (Zynga in there). I managed to find a place where the data was still compromised and grabbed a few screen shots. What is important is that there is a disclaimer there at the bottom. So here goes a few share prices, designed to show that technology is not fail proof.

Notice that the prices of the stock during the half day of trading are actually the right prices, the last traded price is wrong. All is well that ends well, the data is not really compromised. Recently there have been a few hiccups, CNBC stuck together a list - A short history of stock market glitches. I recall most of them, the flash crash was the most horrifying of them all.

At the half day session end, stocks in New York closed mixed, the Dow was up just over six-tenths of a percent, settling at a new record, thanks in part to a bounce back from oil and materials. Expect the same here today from those stocks. The broader market S&P 500 added nearly one-fourth, whilst the nerds of NASDAQ saw some more selling of the tech sector (ignoring the above), down half a percent by the close. The likes of Facebook, Alphabet and Amazon (in the real market) sold off over a percent.

Tesla, the most talked about company on some of the platforms I follow, released a production report last evening. Whilst the headline number sounds impressive (an increase of 53 percent), it fell short of the market analysts. "Q2 production totalled 25,708 vehicles, bringing first half 2017 production to 51,126." What is more interesting is that Model 3 "keys" are set to be handed over to the first 30 owners at the end of this month. Good news. Tesla reckons they may get to 20 thousand Model 3s a month by the end of the year. We shall see if they can meet that lofty goal. I am interested to see how excited Tesla Model 3 customers are in their new products.

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Stocks locally were unfortunately powered by losses in the Rand, in turn the Rand hedges bolted ahead, driving the overall market up over a percent here in Jozi. Resources were on fire, those stocks up over two percent as a collective. Glencore, BHP Billiton, Anglo and Naspers were in the winners column, as was South32, Kumba and Steinhoff, at the other end of the spectrum were mostly ZA inc. stocks, the likes of PSG, Capitec and Aspen, as well as Discovery all losing ground on the day. The news was relatively sparse, other than a joint announcement from Long 4 Life and Holdsport in which the former was expressing an interest in acquiring Holdsport for a scrip swap ratio. Holdsport ended up two and a bit percent on the day. Long4Life about the same amount. We will look at this in a little more detail during the course of today and then revert.

Long4Life raised 2 billion Rand and has a market cap of 2.53 billion Rand, as at last evening. They must have earned decent enough interest, they must have had some costs along the way. 10.44 Long4Life shares for every 1 Holdsport ordinary share is the swap. There are currently 405 million Long4Life shares in issue. There are currently 43.15 million Holdsport shares in issue. So there could potentially be another 450.5 million Long4Life shares issued to shareholders of Holdsport.

Long4Life would then have around 855 million shares in issue, you will own Holdsport (currently worth 2.55 billion Rand) and cash of 2 billion Rand. And the combined smarts of the boards of Holdsport and Long4Life, the overlap is Kevin Hedderwick of Famous Brands fame. He is a non-exec at Holdsport and appointed the L4L Chief Operating Officer in May this year. So let me get this right, you are paying (if you buy L4L) a twenty percent premium on cash currently, and the deal making ability of Joffe and Hedderwick.

It better be darn good if you are a Holdsport shareholder, the premium is not much, the stock currently trades on a historical multiple of 13 times (at the "takeout" price). It will now become a shareholder issue, if Allan Gray as the biggest shareholder feel that the premium is not enough, they will ask for more. Kevin Hodgson, the CEO of Holdsport is the second biggest shareholder, this is a big deal in his life.

Kevin Hedderwick owns 60 thousand Holdsport, relative to his Famous Brands holding, I cannot imagine that this is "material" for him. For Brian Joffe, who got a "better price" than some of the others (he got 4 Rand a share). Joffe owns 6.2 percent of the company, if he works there for another three years, which should be the case, he will get (as per the listing document), another 3 million shares in remuneration. He will then own 28 million shares. If this dilution happens, then he is around a 4 percent shareholder. Not a lot in percentage terms, at 6 Rand a share, quite a lot. Let the shareholders of Holdsport decide, they are after all the owners of the business.

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Linkfest, lap it up!

Investing in stocks is not easy because no one likes to see their portfolio values drop, which happens regularly if you have been in the market long enough - Every Time Stocks Fall. . . .. We see this regularly where, when things get bumpy our daily newsletter gets read more and we get more phone calls. When the market is going up generally things are quiet.

With global wealth at an all time high and the topic of inequality increasingly coming up, the idea of a basic income for all is gaining traction - The largest basic income experiment in history is coming to Kenya. The above link is from 2016, here is where you can follow the progress of the study - New study published on results of basic income pilot in Kenya.

The next question to ask is where do you get the money from to pay everyone a basic wage? If you are like Alaska where there is a vast amount of oil and a small population, there is enough cash to go around (The largest cash transfer program in the US just got a huge vote of confidence). Most nations though have large populations and governments running deficits already.

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Home again, home again, jiggety-jog. Stocks locally are lower. Naspers has understandably sold off as a result of the tech selling across the globe. There should also be slower volumes today, as a result of the 4th of July.

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