Harry Potter and the Evolution of Travel

“And his death would probably not be in vain, it will not stop the evolution of travel. If the trailer and the truck had seen the Tesla, and not turned, we would not be having this conversation about the safety of self driving cars. If the truck and trailer had been a self driving vehicle, it possibly would never have made the turn, seeing that the car was coming down the road (too fast or not).”


To market to market to buy a fat pig With the US closed yesterday, it felt a little weird being without a mid afternoon opening, from the financial capital of the known universe. Stocks did manage to eke out a gain here, mostly resources stocks. They are being buoyed by the idea that we are stuck with lower rates for longer. The first half of this decade is likely to be remembered as a decade when it became very hard for fixed income. Mind you, with bond yields globally in the developed world plumbing new lows, it looks OK in the short run. Some of the yields defy belief.

These are all 10 year equivalent bond yields, in other words, I give my money to that government, they pay me an annualised yield of X (paid twice a year), and then give me my money back after 10 years. The principal. That is the simplest way of explaining it. Currently, according to Bloomberg’s Rates & Bonds, the US treasury yields all of 1.41 percent. In other words, I will earn between 32 and 33 Dollars (over and above the initial $100) for the duration of the time that I have invested. Germany, that is currently a negative yield, minus 0.14 percent. In other words, for securing my every Euro that I get back from the European Central Bank for a period of ten years, as it currently stands, I have to pay them 0.14 percent per 100 Euros I park there. It sounds nuts, right?

And I guess at some level it is, it is a return of capital rather than return on capital. Countries, major ones anyhow, with negative rates also include Japan and Switzerland. Over in Brazil I am afraid that the market is telling you something else, the 10 year yields 12.01 percent. India, that is a country that offers investors a yield of 7.42 percent in Rupees. Here? Our ten year equivalent yesterday saw the yield drop to 8.69 percent. It also explains why the Rand has been strong, the eternal search for yield. We have some, there are risks for sure.

What is startling however is that there are some basket case economies where investors still plug away, as long as they understand the risks involved – Venezuela Refuses to Default. Few People Seem to Understand Why. The Dollar denominated bonds of Venezuela are yielding 26 percent, they trade at less than 50 cents on the Dollar, their issue price.

The article points out that since Hugo Chavez took over 17 years ago (and the bus driver Nicholas Maduro assumed the role when Chavez died), Venezuelan bonds have returned 517 percent. Not bad! The human misery that trumps the commitment and insistence of paying bond holders makes even a hardcore capitalist like me sick. With nearly 90 percent of the country borderline starving, this may be a case of a repeat of The French Revolution. The moral choice (bond holders versus basic foodstuffs), as the Harvard economist Ricardo Hausmann points out, is odd. The country has to deal with 116 billion Dollars of debt in the next two decades (one-fifth due over the next two years), on their knees and life is a daily struggle. Thanks Socialism for destroying human fabric.

OK, so with rates lower for longer that might well mean that we could see flows in this direction and that could equally drive inflation lower. There is a lining of silver sorts in the Brexit moment, even if just for us. And many other emerging markets. Or Paris for that matter. Or Frankfurt. Those may benefit as clearing houses for Euro trades. Meanwhile, having trashed the place, all the advocates for Brexit are leaving the scene, suggesting that their job is done. Thanks for that chaps! Didn’t expect that now, did you? The other reason for rallying markets over the last little while is that the expectations are for more central bank response. From the Fed and the Bank of Japan, Mr. Market’s expectations are for another round of intervention.

Possibly little will be revealed in the Fed minutes from the last meeting (due for release tomorrow evening), other than the highlighting of concerns around a potential fall out from a let us exit vote in the UK. And there is also likely to be not so much impact on hiring when the next set of “jobs numbers” come out on Friday. Expect a knock on impact, if any, to be felt in the coming months.

As ever, as a private individual investing in equities, what should I do? Very little actually. If anything, these events spook markets into acting first and then trying to figure it all out much later. We are part owners of businesses. Not owners of “the stock markets”. The prices of the individual securities reflect the price that the collective participants (whatever their agenda) are prepared to pay, or sell, today, based on how they see the future. You sell for one reason, you buy for one reason. Perhaps not, Bill Gates doesn’t worry about balancing his portfolio now, does he?

Stand by for what will continue to be a battling through session. Until we are sure, which we will never really be, about the future. Expect humans to act irrationally, expect both exuberance and despair. Equity investing is not for the faint hearted at any point in history. Remind yourself and repeat, this is growing wealth and ownership. Doing the same thing over and over again, day after day is what makes people successful. Recognising when to act is also an art form, yet doing very little is exactly the right thing to do, very often. View yourself as an owner of a business that has a securities price attached to it, rather than an owner of a security that has a business attached to it. That mindset shift will change almost everything that you view about investing.


Company corner

Tesla has been in the news for the wrong reasons over the last few days. Firstly the mangle of the driverless vehicle not distinguishing the background of a trailer against the sky, and causing a vehicle to smash through it, killing the driver, is bad news in itself. It means that the self driving mode is not 100 percent yet. And regardless of how many minor or major accidents humans may have in their life, the fact that the self driving mode is not 100 percent safe is cause for concern. This is regardless of the fact that the driver may not have been paying attention, and may have been watching Harry Potter on his device.

Check the NYT article – Joshua Brown, Who Died in Self-Driving Accident, Tested Limits of His Tesla. The irony is that, as a lover of the product, he may well in his untimely demise have advanced driverless car technology to push to heights not seen. With every accident in aviation, there are normally improvements that we don’t see as ordinary people. Science advances in the face of disasters. Amazingly, as you see in the article, a video that prevented an accident that Mr. Brown posted, to which Tesla co-founder Elon Musk tweeted the link, led Mr. Brown to say to a neighbour: “For something to catch Elon Musk’s eye, I can die and go to heaven now.” Wow.

And his death would probably not be in vain, it will not stop the evolution of travel. If the trailer and the truck had seen the Tesla, and not turned, we would not be having this conversation about the safety of self driving cars. If the truck and trailer had been a self driving vehicle, it possibly would never have made the turn, seeing that the car was coming down the road (too fast or not). See the same publication – Inside the Self-Driving Tesla Fatal Accident.

And then the second bit of bad news is that the last quarterly production numbers were not good. A decent enough website on all things Tesla (and electrical), Electrek, has the story – Tesla Model S deliveries hit an almost two-year low globally, but Tesla is keeping its cards close to the chest. It is not as if the demand is not there, the price and economics are possibly a deterrent at current levels, those dynamics are set to change in the coming years. Again, as we have often pointed out, don’t bet against human innovation and in particular innovators like Elon Musk. He may be an egotistical obsessive stickler for detail, that may be terrible for his social life, it is excellent that humanity has people like this. He is trying to change the future. One Model S or X or 3 at a time.


Linkfest, lap it up

As we spoke about yesterday, the economy is shifting and as it shifts so do the demand and supply requirements of the labour market – College-Educated Workers Now Dominate the Labor Market

NASA’s Juno spacecraft entered Jupiter’s orbit yesterday to get the closest look at the planet to date – Juno

Sticking with Jupiter, have a look at how great the planet’s “Northern Lights” are – NASA unveils the bewildering beauty of Jupiter’s enormous polar light show

In investing and particularly trading the market can reward you for making mistakes and because money is normally the scorecard we get an overinflated view of ourself. Basically a short term successful track record can be due to just as much luck as skill – The Downside of Past Performance.


Home again, home again, jiggety-jog. Markets are selling off across the globe after the recent decent trot that we have experienced. There will be those people that will constantly be looking for reasons as to why this is happening, be mindful that many different people transacting in markets at all times means that the prices cannot stay the same. Ever. So get used to the fact that stocks can go up and down on news that may not be related to the company (and often is not) at all. The economy does not equal the market and the market does not equal the economy, you know that part too, right?

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

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