Ten Gazillion Cents

“Or to really get a sense of how big this business would be in a South African context, that is revenues from Tencent (for the last quarter) of 77.75 billion Rand.”


 

To market to market to buy a fat pig Fed minutes release yesterday and followed by the comments from Messrs. Williams and Lockhart in the session prior, echoing that the Fed would watch the incoming data and if the numbers suggested that the US economy was strong enough to stand up to a rate hike, then they would proceed. The Minutes of the Federal Open Market Committee from the meeting on the 26th and 27th of April certainly set the cat amongst the proverbial pigeons yesterday.

Sometimes that is what I think it is, pigeons being chased by a cat in the old Italian town square. People with very short term agendas peering around the corner and wondering if it is safe to dash across the square, to the next point. That is not the kind of activity that we encourage here at Vestact. We advocate long term savings, we advocate that you squirrel and beef up until we need the nuts. If the nuts vanish as a result of, well I don’t know …. binary options trading where the outcome is one or zero, that type of activity is attractive for a certain kind of person, not for us. If the Fed think that the US economy is strong enough to withstand a rate hike, then you must trust some of the best academics on the planet, in their respective field. The problem is that this isn’t a transplant in a human body impacting on a few lives, a rate hike impacts on all citizens. Perhaps globally, as many countries hold US treasuries too.

When the news hit the screens around 2pm in New York (New York) yesterday, stocks sold off, by the end of trade the Dow and broader market were 0.02 percent either side of the thin red line, the Industrial index down a smidgen, the broader market up a feather. The nerds of NASDAQ enjoyed a better day, stocks there as a collective up half a percent exactly. Energy, materials and utilities were hardest impacted, all down pretty heavily. Obviously the higher rates are not bad for everyone, financials across the board were amongst the best performers on the day. Bank of America added over four and three-quarters of a percent. Citigroup was up nearly five percent, the only one that we hold in that space, Wells Fargo, was up over two percent.

Retailers were issued another body blow, Target sank after poorly received results and a cloudy outlook, that stock sank 7.61 percent. Not all bad news see – These two numbers are why Target’s CEO isn’t losing faith in consumers. I am with the Target CEO, Brian Cornell, consumers are always going to consume. Period, as the Americans would say. Until someone invents a pill to stop us from doing so, we are hard wired to stack up on the proverbial nuts to make our lives easier. Walmart was down in sympathy, that stock sank over three percent.

An interesting short fact about Target, Costco and Walmart combined vs. Amazon. Target, Walmart and Charlie Munger’s Costco (not his, the association) is that they have combined quarterly revenues of nearly 180 billion Dollars. And a combined market capitalisation of 296 billion Dollars. Amazon had prior quarterly revenues of 29 billion Dollars, around one-sixth of the size of these “old” retail types, yet possesses a market capitalisation of nearly 322 billion Dollars.

Google finance sticks Amazon with the likes of eBay, Mattel and even compares them to Google/Alphabet, as well as IBM and Microsoft. You could even throw Netflix into that mix. Amazon doesn’t fit into a box, it is an ever evolving beast that is not sticking to their knitting, hence the market values the company heavily for future growth prospects. And so far, Amazon has not disappointed. Heck, they announced own name brands a few days ago, the private label offering – Amazon is going to sell its own lines of food, detergent and diapers, and it’s going to be a really big deal. Good for that Bezos fellow (he has more than one first-name in this office). Making lives easier, one idea at a time. some of the ideas from old time ideas seem more like Grug from The Croods animated movie. No? Haven’t watched it? Do yourself a favour, give it a wind.

In conclusion, if the smartest minds on interest rates think that it is a good idea, then so should you. And what should you “do” about it? Nothing. Hold the same stocks, stay the course. Companies adjust at the fringes to a higher rates environment, as do consumers. It is not a case of all fall down. Not at all. There are many things beyond your control as an investor, one of them is interest rates. You have absolutely zero control over the interest rate trajectory that central banks are likely to follow. Get used to it. Spend more time worrying about your companies that you are likely to hold through multiple up and down cycles. That part, you have control over. Equally, politicians and their economic policies, you can bemoan the state of x or y, that doesn’t help anything. Rather do something about it. Save elsewhere. Mostly …. save more than you think you need to!

Of course the huge news event today will be that we have another MPC meeting, expectations are for rates to remain on hold. With the Rand barreling out recently and the oil price ratcheting higher over the last couple of months, the inflation outlook is likely to have worsened a lot. Meaning that a surprise rate hike may well be not completely unexpected, at all. For now consensus is that rates are likely to be on hold for the moment, with the MPC taking a look and see approach. Inflation, the scourge of all, more so for the buying power of the poor. Sadly.


 

Company Corner

Tencent results yesterday! This was for their first quarter of 2016. Follow the link to download the .pdf. As you can see clearly, revenues rose 43 percent to 31.995 billion Renminbi, or 4.952 billion Dollars. Or in their listed environment, Hong Kong, in those Dollars that equals 37.95 billion Hong Kong Dollars. Or to really get a sense of how big this business would be in a South African context, that is revenues from Tencent (for the last quarter) of 77.75 billion Rand.

Profits for the period were 10.134 billion Renminbi, on a per share basis (in Hong Kong Dollars) earnings were 1.072 Renminbi. Or 1.27 Hong Kong Dollars. If you annualise that, you get to over 5 Hong Kong Dollars, which at and around 160 Hong Kong Dollars the stock trades on 32 times earnings. Growing really quickly, if you do the quick PEG ratio you get to around 1. Funny how cheap this has become. We are still conviction buy on Naspers.


 

Tesla announced last evening that they were raising more money, not at the discount you may expect. The first line says it all: This is a public offering of shares of common stock of Tesla Motors, Inc. The company is offering 6.8 million shares to shareholders. The Tesla document (if you read it) is a little hard to read, the WSJ do a better job than I ever would – Tesla Plans to Sell $2 Billion of Stock. Raising money to ramp up production and then Elon Musk is exercising rights (and selling to pay for tax obligations) in order to settle obligations. The quantum of which is mind blowing. He is not (repeat not) taking any money out, rather exercising rights granted in 2009 (5.77 million shares) for a mere 36.5 million Dollars.

That is still a big number, however, he needs to pay tax on it, selling 2.77 million shares to raise 566 million Dollars to pay tax. In order to take possession of shares that are worth 1.1 billion Dollars, the 5.77 million shares. The dilutionary impact I guess is there for all to see, the board way back in 2009 would have known the value of the fearless leader. And that is what you must live with as a shareholder. The net impact is that he (Musk) takes on another 3 million additional shares. I can’t (or couldn’t) find the exact number of shares that he now owns. A quick web search says he has 35 million shares (I am not sure whether this is before or after these new shares). On top of that, he owns 20.6 million shares of SolarCity. Nearly 30 percent of that company.

The man who never stands still in a company that never stands still. Astonishing. We stay long Tesla on a very case by case scenario.


 

Linkfest, lap it up

This is like buying a monster truck to tow your rubber duckIraq Shut Down Its Internet to Prevent Sixth-Graders From Cheating. It looks like Iraq is not the only country to do this! Surely the costs of shutting the internet is more detrimental than the costs of letting cheaters pass/ or the costs to search students before exams?

Not bad for a $1.65 billion purchase 10 years agoAlphabet’s YouTube: How Much Is It Worth? $67B to $86B, Says Bernstein. I didn’t realise that Youtube had such a large streaming service, “with an estimated 18.5 billion music streams or views daily”

I can’t think of too many people that I know who will readily admit to sleeping 8 hours or more. Most people claim to be sleeping around the 6 – 7 hour mark, maybe it is just symptom of living in JHB? – Who’s Getting The Most Sleep?

Infographic: Who's Getting The Most Sleep? | Statista

You will find more statistics at Statista


 

Home again, home again, jiggety-jog. Stocks are down across the board because of, you guessed it, fed concerns. The Rand is getting pummelled, now at R15.80 to the Dollar.


Sent to you by Sasha, Byron and Michael on behalf of team Vestact.

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