Easy Money

vestact

Jun 9

Market Scorecard

Yesterday, US markets closed in the red, continuing what has been a bumpy ride. The mood remains ambivalent, with not much conviction from stock buyers ahead of key inflation data out tomorrow.

In the company corner, Apple indicated that they would bankroll the new Apple Pay Later service themselves, as the iPhone-maker presses further into the financial services business. Elsewhere, Campbell Soup closed up 1.5% after it reported a rise in quarterly revenues and lifted its sales guidance for the 2022 fiscal year. Do you like soup?

When all was said and done, the JSE All-share closed down 0.52%, the S&P 500 lost 1.08%, and the Nasdaq dipped by 0.73%.

Our 10c Worth

One Thing, From Paul

I wrote yesterday about why I thought that high inflation in the US would go down soon. That's important as it would reduce pressure on the Fed to hike interest rates further. A friend who lives in California wrote this in response, and I thought it would be useful to post his comments in full. Here goes, Drew's guest post:

"The kind of rapid inflation we've seen (8% plus) is going to recede later this year because inflation is a rate of change."

"In order for the current rate to continue, prices in our basket of goods need to accelerate with the same percentage increases. So, if gasoline went from $4 to $6 a gallon, it would need to go from $6 to $9. If beef went from $7 to $14 a pound, it would need to go to $28. Or other areas of our basket that hadn't seen as large percentage changes will have to start skyrocketing."

"In order for this to happen we need more money chasing fewer goods. Most of the Covid handout programs have terminated, the Fed is draining money from the system, high prices stimulate commodities supply (see lumber), and the supply chain issues are bad but don't seem to be worsening at the same pace."

"While the Fed and the Biden admin will be quick to declare victory as headline inflation recedes (from 8% to 4% perhaps), even if the price of gas or beef doesn't change people are still having to pay $6 per gallon or $14 per pound which is horrific. Their standard of living is still compromised and it will take many years of pay hikes to catch up."

Byron's Beats

Yesterday Naspers soared 9%, a welcome relief after a horrible year so far. Even after the rally, the stock is down 27% year to date. There was good news from China after a bunch of new video game releases were approved by the government.

The regulators also closed off an investigation directed at Didi, meaning the ride-hailing app can now take on new users. That news sent the Didi share price 50% higher on Monday. In case you forgot, Didi's controversial listing in the US last year was one of the catalysts for the clampdown on Chinese tech companies.

Regulatory uncertainty is very problematic for shareholders, but not unprecedented in China. In 2018 Tencent took a big dive because game releases were blocked for months by the regulators who were worried about the impact of gaming on kids. Naspers dropped 28% in 3 months.

It seems like things are settling down and heading in the right direction in China again. Let's hope sanity prevails.

Michael's Musings

The Covid-lockdowns weren't all bad. Some people became artisanal bread bakers, others started side hustles, and many spent their time learning about investing. A local low-cost brokerage firm, Easy Equities more than doubled their client base over the Covid period – they've done a great job making it easy for anyone to get invested.

Learning to take control of your finances and investing to create inter-generational wealth is a great idea. Starting out then was well-timed because with cryptocurrencies flying and meme stonks bouncing, there was a lot of easy money to be made in 2020 and 2021. That might have been a bad thing though, because making quick money results in overconfidence and can teach people bad habits.

During tough times we get to see what we are really made of. In the US, data shows that retail investor activity has dropped by 20% from last year. I suspect a similar trend in South Africa.

I haven't seen many of those screenshots posted on Twitter from novice trading accounts lately, showing big returns in a short period of time. Local FinTwit accounts are maturing, discussing long-term investing, instead of how to make a quick buck. Those that survive the current market pullback will be well-positioned for their future investing journey.

Bright's Banter

Inditex reported bumper first-quarter earnings as the company benefitted from raising prices more than rivals, without damaging its sales. The fashion giant best-known for its iconic Zara brand saw its profit surge 80% to €760 million, its highest profitability in a decade.

The Spanish retailer's revenue rose 36% year-on-year to €6.7 billion as foot traffic at stores recovered to pre-pandemic levels, even though online sales were down 6%. Inditex took a big €216 million write-down related to its operations in Ukraine and Russia, where they have over 600 stores. Russia was actually their second-largest market by shop numbers.

China was another stinker where its 67 stores were affected by heavy lockdowns. The US operation saved the day with noteworthy growth. I'm surprised there's still a clothing retailer out there holding its own against online-store Shein, so kudos to the Inditex management team for this good showing.

Linkfest, Lap It Up

Naspers is investing heavily in the agri-tech industry. They just put R40 million into a platform that connects farmers to buyers - Naspers Foundry backs agri-tech startup Nile.

RedBird Capital is buying AC Milan for $1.3 billion. The New York-based private equity firm beat out others, and will co-own the legendary club with Elliot Management - AC Milan gets new owners.

Signing Off

Chinese markets were down a bit this morning as the rally in technology companies fizzled. Sentiment took a knock after it emerged that one district in Shanghai will be locked down on Saturday morning for Covid testing.

As we've been saying all week, US inflation data for May is out before the market tomorrow, and economists expect a very slight slowing from April's reading. Some pandemic-era price surges have persisted, like the run-up in the cost of used-cars.

US equity futures are just below par in early trade. The Rand is trading at around R15.29 to the US Dollar.

Take care.

Sent to you by Team Vestact.

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