Bezos, Jobs and Musk

“The company is slowly changing, and as they point out, in the coming months there will be more than just the car, the battery too. The so called Powerwall. The products are designed to be beautiful, not too dissimilar to another workaholic and neatness freak who pioneered amazing devices with his design team, one Steve Jobs.”

To market to market to buy a fat pig. Ready, set and go. Today is the day that we get the “jobs number”, that monthly report of the state of the US employment situation. It is still the most watched and highly anticipated number of the month for global market. It helps that the whole week also leads into this number and that it falls on a Friday. The trend has showed a steadily improving US labour market, more strength today will cement the case for an earlier rather than later rate hike in the US.

As we have maintained over and over again, it does not matter in the medium to long term about the prices of the companies that you hold. What matters is that you own companies that make amazing products or offer amazing services, companies that are gaining more traction in the modern economy. Companies that are run by dynamic and in tune people. That is what you can choose. Things you can’t choose include your originally given name, your parents and place of birth, interest rates and global sentiment. So focus on the things you have control over, ok?

Resource stocks took a hammering, the recent graph on resources as a collective must look like a saw blade. Up and down. Sadly the longer picture tells of falling commodity prices as a result of slowing demand and a surge in not only supply, equally extraction techniques of hard to reach deposits earlier. Shale deposits and their extraction methodology changed many, many “things” about the oil market. By letting humans, their ingenuity and market forces take care of supply, we are all benefitting from lower energy prices just at a time when they threatened to get the better of us. It is difficult to believe that when the last oil shock happened in the late 70’s and early 80’s (when tight jeans were really tight and hairstyles were big and weird), that inflation spiralled out of control. Rates globally were so high but people forget, they really do.

Not too dissimilar to when we had a serious inflation shock here around 25 years ago. The Fed funds rate was 19.1 percent in June of 1981. And it is between 0 and 0.25 percent now, in fact it has been that way since December of 2008. Is this a normal cycle? Who knows. I suspect that the high end of the next range will be lower than the past few cycles, check it out from the St. Louis Federal Reserve, US rates since the 1960’s:

So. You can see why people who started their careers in the 70’s and 80’s would focus on interest rates a little more than people who started their careers in the early 90’s through to present day, roughly a generation. If you are between 60 and 70, you have seen it all. An industry peer once told me that the best thing about financial markets was that eager to learn and eager to impress youngsters with clean slates and unparalleled energy (who were intrinsically optimistic) were always there to replace older cynics, battle hardened by the losses and years of boom/bust.

Often the people that tell you that financial markets are ending have had poor experiences themselves, I often point out that personal experiences can (by osmosis) leak into investment decisions. They shouldn’t, they can and do, however. Elon Musk for one has no place for the word no, or it cannot be done. Adopt that mantra, don’t be horrid about it though, equally 100 plus hours of work a week may mean you have no other life for anything. Life is about experiences and personal gratification, saving hard when times are good gives you the flexibility and more importantly ability to enjoy life. If it makes Musk happy working to make the human species interplanetary and he succeeds, then good for him.

Back to local rates here for a second, that ABSA home loans advert of the family trying to hold onto their home with a rope (remember?) whilst it was floating away like a hot air balloon got me thinking the other day, so here is a representation of the REPO rate here locally in South Africa since 1998, courtesy of TradingEconomics. The highest of 23.99 percent, holy smokes those were dark days for interest repayments my friends.

Without knowing the future any better than you, I suspect that the information age, the internet age, has done more for price stability than any other technological jump in humanity. You can sit at home, or even lie in bed with your “phone” and compare prices of products, air tickets, houses, cars, whatever big ticket (or small product) that you want to buy. That sounds like major progress to me. Equally companies can be more productive as a result of technology, enabling them to manufacture their products a whole lot cheaper than at any time in history. If that means a cap on inflation for a while longer than we may anticipate, then that also means a lower rate environment.

Perhaps the French are on to something by trying to factor in happiness to GDP. Or not, it depends who you are and your outlook on the rawness of data. In other words, do you agree with Paul Krugman, Joseph Stiglitz or Milton Friedman, Friedrich Hayek and Irving Fisher. Or Adam Smith. There is a reason that you follow one or the other, it is circumstance and upbringing. If you are born with loads of money, perhaps you will trumpet the free market economy. If you are born with no money, then the idea of sharing all resources is a lot more appealing, I get it. The myth is that capitalists do not want labour to be rich, not true, at least from my side, I want everyone to have the resources to do what they want. It does come with personal responsibilities of self improvement and rising above the competition. There is nothing like standing out and putting your hand up to be recognised.

Lets finish the markets section with the scoreboard, the Dow dropped 120 points (Down six sessions in a row I think) to 17419 points, the broader market S&P 500 lost 0.78 percent, the nerds of NASDAQ was crushed, down 1.6 percent. The big talk of the town was the downturn in the cable companies, Disney was sold off again, Twenty-First Century Fox sold off 6.4 percent, Viacom an astonishing 14.2 percent. All this as ESPN loses customers. Viacom owns MTV, VH1, Nickelodeon and Comedy Central.

Twenty-First Century Fox, well, one of their channels hosted a debate with 10 Republican hopefuls last night. The Republicans will not nominate Trump. If he runs as an independent then Hilary Clinton has an even easier win. What was that one banner in Simpsons (part of the Fox satellite TV bouquet) that read “We are not racists, but we’re no. 1 with racists”. Quite, Trump ticks all those boxes that equals “loser” in my world, sadly some people find him appealing. Sigh, if nothing else then it should galvanise us harder in nation building and not dividing us. End of that sad subject, it makes for low level comedy, he does it to himself.

Company corner

Tesla shares sank over 8 percent last evening as the company indicated (after the session prior to yesterday) that they would miss their annual target of delivering 55 thousand motor vehicles for the year. Instead, it would be between 50 and 55 thousand. For a share price that is primed for perfection, this is obviously not the best news in the world. Musk has a plan though, as a shareholder there is going to have to be many lengths of patience during which you are going to feel underwhelmed by the present or the short term outlook. Having read the book about Musk, you get a sense that he thinks as long term as Jeff Bezos of Amazon.

He (Musk and Bezos for that matter) will sacrifice short term shareholder returns for excellence and execution on his masterplan, which is quite simply to rid humanity on their reliance on fossil fuels. Both SolarCity and Tesla will enable us to do exactly this. You have to start somewhere. As such, when you buy either company, you will not see positive returns, let alone dividends for years. Both these companies were on their knees a number of years ago, about to go out of business. It makes the business very hard to judge as an outsider, let alone value. To put that into perspective, just the Ford F Pick up truck series has sold 423 thousand units this year so far in the US. The July number was 66 thousand. One pickup truck sells more in one month than Tesla will sell all year. In fairness to Tesla, for the moment it is one car, a specialised and niche car and definitely in the luxury category.

Whilst the company makes progress with all sorts of things like the Gigafactory, the Model X delay (the SUV with the swing doors) it is definitely weighing profits down. Elon Musk is large and in charge, that is part of what you are buying here when you own the company. If you read the shareholder letter, you will see that the Model S is only three years old. They are selling nearly 50 percent more cars than last year, all pre paid. No dealerships. The Roadster before that was quite frankly not the best looking car. The car is growing quickly in both the US and Europe. They continue to roll out the charging network: “.. drivers in California are on average never more than 42 miles away from a Supercharger, while drivers in Germany are on average never more than 33 miles away from a Supercharger.”

Quarterly revenues are only one million Dollars for Tesla, GM has annual revenues of 156 billion Dollars. Ferrari in their recent IPO for comparisons sake, are pushing to sell 9000 vehicles a year in a couple of years time, Tesla are going to struggle to get to 55 thousand this year. The company still makes a loss, a narrower one each quarter, they made a net loss of 184 million Dollars. The company is slowly changing, and as they point out, in the coming months there will be more than just the car, the battery too. The so called Powerwall. The products are designed to be beautiful, not too dissimilar to another workaholic and neatness freak who pioneered amazing devices with his design team, one Steve Jobs. It is a company that you have to own, there may be however long leads and lags between the results around share price performance relative to the results. Buy the stock, forget where it trades in the next three years, this is bound to be a long term success, from which point it is hard to say!

We had a trading statement from Sasol this morning, Trading Statement For The Financial Year Ended 30 June 2015. Given the slide in the oil price their HEPS are expected to be down 14% and 19%, with normalised basic earnings expected to be down 26% to 31%. The numbers are better than the market was expecting, the stock is up 4% this morning. The weaker Rand has been a good hedge for the company helping slow the drop in the Rand cost of oil.

The only concern is that for the last financial period the average price of Brent was $73.46 a barrel. The first month and a bit of this financial year has seen the oil price closer to the $50 a barrel mark currently at $49.89 a barrel. Going forward the forecast is for the oil price to stay in this region if not fall further in the short run. What will the average oil price be next year this time? Where will the Rand be? No one knows but if it is at current levels Sasol’s earning will be down again. We will have to wait until the 7 September to see the final results. Chat then folks.

Linkfest, lap it up

Which countries are devoting land to organic farming? Here are the top countries – Which countries have the most organic agricultural land?. Australia makes sense to me given their high living standard and relatively rich population. I didn’t expect to see Argentina in second place.

The new concern doing the rounds is what will happen to the bond market when interest rates normalise? Cullen Roche shares his views – Why Are People Worried About Bond Market Liquidity?

Home again, home again, jiggety-jog. We are up ahead of the big jobs number! Later today folks, if you think that the Rand has had a bad time recently (16 percent weaker over the last 12 months), then spare a thought for the Brazilians. They have been more than err … waxed clean. 36 percent lower over 12 months. True story, with all the problems ahead of the Olympics next year, Petrobras scandals and the like. It is worse in Russia, the Rouble is 44 percent weaker over the last 12 months. Be careful where you draw lines and the like and suggest that it may have to do with internal factors. The Indian Rupee (the Indian economy being net importers of commodities) has fared the best, down only 4.15 percent over the last 12 months, the new Reserve Bank governor there seems to have a handle on inflation. We wait and see!

Sent to you by the Vestacters, Sasha, Michael, Byron and Paul.

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