Bespoke going mainstream

“There is a new and uber exclusive jewellery brand named after one of the internal creative directors who was tasked with starting his own internal brand. This is a first for the majors, normally the idea is to buy and hold, famous and iconic brands from yesteryear. This is the first of the home grown brands, Giampiero Bodino is the name. This is a very exclusive brand, clients essentially have a say of what they want the bespoke pieces to look like.


 

To market to market to buy a fat pig Yesterday Byron said to me that I write too much about the Fed and interest rates. And that if we say that they matter little for our clients, then we should write less about them. I agree with that at some level, he is right, we possibly do fret too much about interest rates. The fact of the matter is that rates are far more important to the rest of the globe than equity markets. We will try and keep some sort of balance. Of course this coincides with the Fed decision today, tonight around 7-8 our time. The decision which has a low probability of a rate hike, although Bill Gross reckons that folks may well be caught off guard. Not sure, not going to stick my neck out, do care at some level. They must do what they must do, we will do what we will do.

Stocks across the oceans vast and far away in New York, New York, sank to the worst levels at the closing buzzer, after having traded modestly higher through the session. All the major indices ended up on the day, they were however higher until literally the last throw of the die. The wait is now on and TV screens in trading rooms around the world will be led to believe that this is more important than re-runs of Hawaii Five-0 on SABC. The original, where half the characters are dearly departed. I suck, of course the Fed decision is more important than that, and to be perfectly honest, about the only time that I watch the national broadcaster is when one of my colleagues are about to go on the box on that channel.

The biggest news at the market get-go on Wall Street was a special Senate hearing with Wells Fargo CEO John Stumpf being grilled by a bunch of politicians eager for recourse. This was like finding out that your top notch uncle has been cheating at golf for some time now. Just a quick recap, thousands of employees at the bank were required to meet performance targets and as such, opened fake accounts for real clients. Once the accounts were opened, there were commissions for the employees, the customers knew little about them as they were closed pretty quickly thereafter. Unethical, right? Stumpf couldn’t seem to recall the details. Funny that. Apparently it is called “unethical amnesia.” The BusinessInsider has more on the matter – Here’s why it seems like the CEO of Wells Fargo can’t remember anything. He is not alone.

Two hours of intense grilling, a livid Senator Elizabeth Warren certainly had more than cannon fodder when she asked if the exec or senior people returned any of their compensation or took the fall, rather than the rank and file and the answer was no. She then called Stumpf a gutless leader essentially. An area president was the highest profile sacking, with so many complicated titles, it is hard to know where that sits on the “importance” level. Senator Dick Shelby asked what accountability looks like when this scandal coming to light coincides with community bank head Carrie Tolstedt departing after a multi decade career at the bank with over 100 million Dollars in compensation.

These questions are necessary, they may not seem fair and there may be a lot of political point scoring ahead of US presidential elections, the truth is that the cleanest bank on Wall Street has now been tainted. More than a few bad apples, who have been dealt with. And performance targets have been hoofed to the sidewalk. About those clawbacks? I wonder, as Byron pointed out the other day, what Warren Buffett and Berkshire think of all of this? They are after all the biggest shareholders, with 9.5 percent of the business. In time no doubt he, or the big shareholder will deal with this publicly, for now we can only guess what he thinks of these practices. I suppose if anyone know humans and their emotions then it must be the wise old oracle of Omaha. I can bet there must have been a few choice words at some stage. Oh, and on that score, a fun article on Buffett, I am not too sure how dated or how completely accurate it is, fun nonetheless – 10 Things Found In Warren Buffett’s Office

On the local scene stocks had a horrible no good day. At all. As a collective they sank around a percent and a quarter. Industrials were down over a percent and a half, resources nearly the same, financials were the least bad of the lot. The Rand continued to strengthen, Rand hedges were feeling the pain. Why is the Rand strengthening? Part the eternal search for yield in a world of low rates, it feels strange with the prospects of some sort of ratings downgrade hanging over us. It is what it is, I cannot explain the flows. Equally I don’t have a view on the students and their seemingly agitating closer to exam time, violence is no way to get anything done. At all times in humanity it doesn’t work out. Except that we know that history is written by the victors.


 

I did a deep dive into Richemont yesterday. There is no doubt that the stock has been more than a little disappointing. Luxury goods across the globe have looked sloppy as fewer vacations to Europe coincide with lower purchases by foreigners, equally however since the current Chinese leadership has cut down on corruption and the culture of “gifting”, there has been a slowdown in sales. Richemont as it exists nowadays is less than 30 years old. There was the tobacco element for more than half the life of the company, the cash flows were used to fund some of the acquisitions. They own some of the most prestigious and iconic luxury brands on the planet, Cartier and Van Cleef & Arpels, as well as watch brands like Vacheron Constantin, Piaget, Panerai, Baume & Mercier, amongst others. They own Chloe and Lancel, Dunhill, Mont Blanc and Peter Millar, Purdey and Shanghai Tang, in a division of “other” that contributes only 16 percent of overall sales.

There is a new and uber exclusive jewellery brand named after one of the internal creative directors who was tasked with starting his own internal brand. This is a first for the majors, normally the idea is to buy and hold, famous and iconic brands from yesteryear. This is the first of the home grown brands, Giampiero Bodino is the name. This is a very exclusive brand, clients essentially have a say of what they want the bespoke pieces to look like. So, instead of buying a small part of a collection, these are truly one of a kind. Watch a short clip The ultimate bespoke jewellery by Maison Giampiero Bodino. Wearable art? Perhaps. Jewellery Maisons account for around 55 percent of all sales over at Richemont, watches just below 30 percent. Jewellery has much higher margins than watches, it is the most profitable part of the group.

So what next for luxury markets? Have we entered a time where less is more? Or are we likely as humanity to consume more of these items? Lloyd Blankfein, I was reading yesterday, wears a sports watch. Does it mean that people will replace their “I have arrived timepieces” with a wearable? Maybe. And perhaps already this is happening, Swiss data yesterday reported 14 straight months of watch sale exports, down.

Not all luxury is the same however, some of the jewellery items prices that Richemont sell across their independent brands (that is important to note) are available only on request. i.e. If you are looking for the price online then, well good for you, if you are serious, then enquire about the price. Are there likely to be more people in the world that can afford their products, or less? What does society think of the products? Do they “last” forever? They certainly do and the longer you hold them, the more valuable they become, unlike wearables which in two years will be worth nothing. I suspect we will muddle through for a little while, the next 12-18 months or so. In that time, some of the second tier family jewellery and watch makers may well become a take out target for Richemont, we loosely identified a few yesterday. Chopard and Buccellati amongst the jewellery makers, Louis Moinet and Audemars Piguet amongst the watchmakers were penciled in, no real info, just suggestions.

All luxury goods makers will be fine and continue to morph into what customers want. People want the finer things in life. They also want organic food, renewable energy, an electric vehicle and craft beer. OK, perhaps not the last one. I suspect that traditionally a cautious company, they may well get busy snapping up competitors in a time when things are a little tougher, that has been their strategy in the past. We continue to recommend holding the stock, the market is factoring in low to no growth for the time being, the share price has adjusted accordingly.


 

Linkfest, lap it up

We all make decisions using biases that we are normally unaware of. With the result being poor decisions being made – Cognitive Bias Codex. Being aware of these biases helps us make less of those mistakes.

Trying to regulate AirBnB sounds like a waste of resources to me. I have not seen the data that the London authorities are using but in my mind, if AirBnB has had a material impact on property prices it means that the hotel industry is not giving tourists what they want, probably cheaper rooms – London could be the next big city to crack down on Airbnb.

Sasha found this article over the weekend. It is written by someone who lived under communist rule, they highlight how inequality rose thanks to communism. There were those in power (the haves) and everyone else who couldn’t improve their lives through handwork/smart investing (the have nots) – A beginner’s guide to socialist economics.

As electricity becomes more expensive, having small amounts of electricity trickling away everyday due to un-used electronics starts to add up – This might explain why your electricity bill is so high


 

Home again, home again, jiggety-jog. Did you see yesterday that Edcon is now owned by the banks? Standard Bank, Barclays Africa (or is it ABSA?), FirstRand, Investec, Stand Chartered, as well as Franklin Templeton and the Harvard Pension Fund. Wow. Too much creaking debt, an economic slowdown, incorrect product mix for the times, increasing competition and a consumer that not only had choices, was also scrambling. All this meant a bad toxic cocktail and unable to service their debts, the company handed the keys over the bond holders. They are still a beast of South African retail, 1 542 stores in 9 countries, generating sales in the last financial year of 29.352 billion Rand. Truworths has annual turnover (expanded as a result of acquisitions) of 18.2 billion Rand, The Foschini Group has annual turnover of 21.1 billion Rand. See? It is big. When does it come back to market? In a bit, this is not the outcome that the banks and lenders wanted however, now they own a business.

Japanese central bankers did something that has sent the Nikkei into orbit, the index, after having been down one third or so of a percent, is up over one and two-thirds of a percent. US futures are positive, we should seen some green on the screens.


 

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

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