Cars and Guns

“There are roughly 92 people killed on US roads each and every day. There have been, since records have been kept on such matters, over 3.6 million fatalities on US roads. That is since 1899, a year in which there were 26 deaths. Would you believe me if I told you that gun violence accounts for about the same amount of deaths in the US every year. Barking up the wrong tree? Maybe.”


 

To market to market to buy a fat pig What a twist. Who would have thought that we are at an all time high for the S&P 500 last evening. The broader market printed 2143.16 during the session, pencil that in as your all time high. So much for Brexit anxiety and so on, so much for the biggest negative event, so much for the naysayers and doomsday scenario planners (there are too many) telling us that this is now it. In the end all that matters to the equities that we invest in is earnings. And the quality thereof of course, a low quality set of numbers would be dealt with in the manner you would when accepting low quality anything. Toss aside. That said, don’t be that person that suffers from quarteritis. Earnings season is upon us, it is going to, as always, be fun.

Bloomberg, in this article – Year of Pain Erased for Bulls as S&P 500 Surges Back to Record, says that this is the 109th record since the S&P 500 rose above the October 2007 level a few years ago. Yet there is still an enormous amount of scepticism towards this rally back from the depths of despair in March 2009, when the index touched 666 points. I suspect the reasons that there are still “haters” of the rally is simple, the memories of those dark days are so powerful that everyone suddenly recognises something bad and heads for the hills. It may well take another half a generation for the participants of that time to move on, either retire and be gone, or have time to heal their pain. Our mantra here at Vestact always remains the same, hold the line and most importantly, hold the quality.

Our market here locally is still some distance away from the all time highs, the Jozi all share closed last evening above 52 thousand points on a ripper of a day, up one and three-quarters of a percent. Led in large part by resources and financials. Anglo American is back at 150 Rand a share, amazing. South 32 is back at 20 Rand a share, around the level that it was unbundled. It was pretty much a broad based rally. Most of the recent moves (the last couple of sessions) have been as a direct result of the enormous jobs number last Friday, the health of the biggest economy in the world no longer in dispute really, and that is a good thing. The one thing that I suspect may happen in the next jobs report is that there may well be a slight Brexit pause from employers, one could expect the report released in a few weeks time to be perhaps a blip. As ever, who knows, we don’t invest for the report. Ever. They are what they are. If you are following this strategy of flipping and flopping, dare I say it, you may be doing it all wrong.


 

Company corner

I have been thinking about the “fallible” Tesla technology for a few days now. First the fact that it is 2016 and we have driverless cars is pretty cool. The fact that a big fan of the technology met his untimely end in a car he loved, that is not too cool. Being in his favourite car, that perhaps was the only good thing about the incident. I thought one thing of the whole accident, and laid it out last week, what if the truck with the trailer had the self driving technology? Would it have turned at that moment, sensing the oncoming traffic? Possibly not. And as discussed last week, we wouldn’t be having this conversation. I was struck in my reading that the very “inventor” of modern flight, one of the Wright brothers was involved in the very first flying fatality known to man. We didn’t stop evolving now, did we? Otherwise I wouldn’t have actually been able to write this very paragraph whilst sitting on a commercial airline in the sky.

I encourage the authorities to engage with the company and make sure that the software is up to scratch, see – Fatal Tesla Crash Draws In Transportation Safety Board. Amazing that one crash, which was in theory the OTHER drivers mistake that led to the downfall, gets so much airtime. There are roughly 92 people killed on US roads each and every day. There have been, since records have been kept on such matters, over 3.6 million fatalities on US roads. That is since 1899, a year in which there were 26 deaths. Would you believe me if I told you that gun violence accounts for about the same amount of deaths in the US every year. Barking up the wrong tree? Maybe.

Elon Musk tweeted this article, written by a Tesla driver, and I think that this article nails it, the Upside of Tesla’s autopilot. A few excerpts from the blog: “Prior to this first unfortunate death (my sincerest condolences to the family), Tesla’s Autopilot had successfully, safely driven owners and their families 130 million miles. Among all vehicles in the U.S., there is a fatality every 94 million miles. Worldwide, there is a fatality approximately every 60 million miles.”

And then the lines that make you think powerfully about the implications of letting the software improve, quoting Elon Musk here: “the system’s capabilities “will keep improving over time, both from the standpoint of all the expert drivers … training it,” he said, “but also in terms of the software functionality” — which will add new features.” The author of the piece, Dr. Peter H. Diamandis (the Americans love their second name initials thing), makes the best conclusion thus far: “This is so important I need to restate it: With every single mile driven, the cars get safer and safer.”

So why in your wildest dreams would you, as he says, trust a 17 year old kid with 20 hours of driving experience in control of a 5000 pound (2267kg) vehicle speeding at 65 miles per hour (104.6 km per hour) and debate whether learning software is safer. Dumb when you think about it. I agree with Peter’s last line: “I’ll take an ever improving machine learning algorithm over kid with a learners’ permit any day.”

What also amazes me is that the SEC is having a go at Tesla for not disclosing to shareholders that there had been a crash. Excuse me for batting for the company a while, when I read this WSJ article (SEC Investigating Tesla for Possible Securities-Law Breach), this line again: “The May 7 accident killed the driver, Joshua Brown, a 40-year-old Tesla owner who collided with an 18-wheel semi-truck that pulled in front of him on a Florida highway.” See that, the truck pulled in front of him. It is like McDonald’s not disclosing that a chronically overweight individual had a heart attack whilst eating a supersize meal. My goodness, if ever a bunch of people could rather highlight stricter gun control or safer driving by first timers, this is it!

At the core of this argument is that Tesla is expected to be perfect. And that is a good thing. We should have very high expectations of a company that is transforming the future. The future in which transportation is different than now. As I often tell my kids, you may never need to get driving lessons from me, and they are less than a decade away from that age. The driving age. Tesla is not for everyone, the stock is volatile and the company is not quite “there” yet from being profitable at all. Tough at best really to say with major conviction that Musk is going to meet and beat his targets. A 20 fold increase in market capitalisation in a decade? In the classics they say, from your lips to the markets ears.


 

Linkfest, lap it up

As the Chinese middle class grows, so may the calls to have a more democratic and open country – 225m reasons for China’s leaders to worry. The interesting numbers from the article are:

“In 2000, 5m households made between $11,500 and $43,000 a year in current dollars; today 225m do. By 2020 the ranks of the Chinese middle class may well outnumber Europeans.”

 

and then

“An inward-looking nation has grown more cosmopolitan: last year Chinese people took 120m trips abroad, a fourfold rise in a decade.”

 

There are many reasons why people buy and sell shares, putting fund managers on notice due to a recent period of underperformance can create wrong incentives for the managers – Double Secret Probation.


 

Home again, home again, jiggety-jog. Stocks across the globe are following the Wall Street hurrah. Earnings, man, I am very excited. The old “traditional” kick off to Wall Street earnings began last evening, Alcoa reported numbers that were a beat. Revenues fell however. It is hardly the litmus test for what is to come. Stand by, we will cover all our investments as they come at us, not getting caught up in the disease that impacts the investor markets and perceptions, quarteritis. Avoid that at all costs, remember that it is not contagious, it is just a mindset.


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

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