Trumpalicious

“So do nothing. Inside of what has been a tough couple of years for equity markets, and I am sure that many nerves are currently frayed and believers in long term equity returns are doubters. This is when you need to reach for the unwritten manual book, if there is such a thing. Keep a cool head. Don’t get spooked. Stay the course. People are still going to go to work, they are still going to think about their transportation methods, eat food, buy clothes, worry about their kids education, invest for the future, still pay their mortgage, consume the coolest and newest technology and so on.”


 

To market to market to buy a fat pig So whilst I begin writing this, nobody knows the outcome of the vote for the president in the US. We do know that the futures markets are pointing way lower. We have continually been led by suggestions that Clinton would win easily, Trump just had an outside chance. What is with the anger? Why are people feeling so left behind that they are turning out and voting for ideas that are basically isolation first? They support a man or an idea that is fake, at least in my eyes. Ideas that throw free trade into the toilet. Ideas that take us backwards. Perhaps my optimism in humanity leads me not able to interpret the anger that clearly exists.

The upshot of it all is that the gold price is soaring (currently up three and one-third of a percent), futures are plunging (down by around five percent), the Rand is selling off (down by as much as 4 percent to the pound, and nearly 5 percent to the Euro) and equity markets are likely to take some pain. The Japanese market is down over five percent. Hong Kong down by nearly three percent. For how long and how deep the sell off is likely to be, your guess is as good as mine. I would say that Santa Claus and his rally look very distant at this point. Reality sinking in and perhaps more than shock amongst the have and chattering classes. Spare a thought for Mexican importers, their currency, the Peso, is down 12 percent to the US Dollar. The worst slide in over twenty years. Reach for the tequila.

So, the big question as ever, what is it that you ought to do with your investments? Byron found this on the inter-webs, Bright likes Howard Marks so much that his avatar on WhatsApp is Howard Marks. Ha ha. True story. This is worth trying to get for free (subscription only) and is a long and detailed article written by Marks for Barron’s – The Election’s Implications. Marks is brilliant. I urge you to change your avatar (if just for today) to his picture too, be like Bright. Middle class America is angry. Most especially at the rise of the machines, automated technologies doing real people jobs, those real people became too expensive.

Michael makes a good point too, since the financial crisis, middle class people have felt that they have been left behind somewhat. So whilst the developing world is advancing and there have been more than incremental changes in those lives, bitterness of yearning for yesteryear in developed countries has meant that we are left with the likes of Brexit, and the rise of the right wing types in Europe. Marks reckons that this may well force politicians to work together. He is an optimist. I guess that he has to be!

I would say that we should wait for the outcome. Are we about to enter into a world of trade barriers? Is progress about to be halted? Politicians cushy jobs are certainly under threat from the angry. The angry that want change for them. It is too late to stop the technology that is the robotics and technology age. There may well be some winners in all of this. Perhaps some qualified immigrants would look to get to Europe, or other territories over the US. Or Canada. Or Australia. Or South Africa?

At the core of it I think that people do not like change. They do not like the status quo changed. And globalisation has meant that someone with cheaper skills in some other part of the world with lower living standards than yours (i.e. happy to do the work at a cheaper cost) will “steal” your job. Too late friends. That has happened. Someone on the other side of the world will do your job cheaper, you need to lift your skill base. This is great for global productivity, not for those who are “comfortable” with where they are currently. They are going to get their butt kicked by globalisation.

So do nothing. Inside of what has been a tough couple of years for equity markets, and I am sure that many nerves are currently frayed and believers in long term equity returns are doubters. This is when you need to reach for the unwritten manual book, if there is such a thing. Keep a cool head. Don’t get spooked. Stay the course. People are still going to go to work, they are still going to think about their transportation methods, eat food, buy clothes, worry about their kids education, invest for the future, still pay their mortgage, consume the coolest and newest technology and so on. It does not mean that we will see stability by a long stretch. Markets are prone to knee jerk reactions.

My daughters when they were young were read a book about a little girl called Pinkalicious. She liked all things pink. Even her lemonade. Trump supporters like all things that most of us do not. A difference of opinion and a monster sell off in markets initially may leave you feeling like reaching for a pink drink. Or feeling green and pink. Or just green. Politics. Can you, as an investor do anything to change the rise of populism? I guess not, there is nothing you can do.

Can you stop yourself from being part of the knee jerk reaction and remembering that you invest in companies and their future, and not politics and short term ructions? I hope so, for it is what you must do. Strap in, put your big-investor hat on and see through the market mists. Remember also that American politics has checks and balances, that is the way that it is designed. Larry Kudlow, a long time political commentator on CNBC, made a great point. He said, I don’t want to sit here (in his chair) and not say that Trump has proven us all wrong. We must respect that.


 

Company corner

This is not a company that you own directly, rather indirectly, a business called New Look reported a 26 week update for the period to end 24 September 2016. New Look of course are owned by Brait, one of the worst performers in the Vestact stable this year. The stock has been battered by a number of factors, obviously the currency turning tail in favour of a stronger Rand (which means that the Rand price is lower of the same UK asset). The UK Brexit vote is one of the reasons. And the negative perception of UK assets has in some instances been reinforced by some tough trading conditions, the consumer is being very cautious in that part of the world. The unknown long term implications of something that isn’t done yet (triggering of article 50) is weighing on UK assets. That saga now involves the courts, the next step is the appeal in December.

Politics, uncertainty about what it means for currencies and the business outlook is just some of the headwinds currently facing New Look and by extension Brait. Revenue for the first half of their financial year (New Look) fell 5 percent. UK like for like sales fell 8.8 percent. Adjusted EBITDA fell 28.6 percent. The group reported a modest loss before tax. The only highlights were that the online sales grew sharply and the stores footprint in China is growing. Fast fashion. It is a great market to be in, fashion that lasts a short time and costs just enough.

The chief of New Look (Anders Kristiansen) is a little more upbeat about the future than these current numbers suggest: “We remain confident in our long term strategy and continue to make good progress against our strategic initiatives.” And then he continues: “Despite the challenges in the first half, we are excited and well-prepared for our peak trading period to come in Q3. We have increased our out-of-home marketing across key markets to improve ‘top of mind’ brand awareness, alongside an impactful Christmas window scheme.”

The Brait share price has reflected the uncertainties, perhaps too much so. The Rand NAV should continue to fall whilst the Pound bottoms and equally, the company may well value these positions in the UK at a lower level. The Rand value reflects that uncertainty. Equally to remember is that Brait are pursuing a listing in the UK next year, round about the same time that Theresa May expects to trigger the start of leaving! We suggest that you hold and watch, John and his team are top class, the biggest shareholder is none other than Christo Wiese. I still remember when Brait tried to buy Shoprite, all those years ago, nearly a decade now – Shoprite accepts R13,2 bn buy-out offer from Brait. Nowadays Wiese seems to think that the mighty Steinhoff and Shoprite are a more natural fit.


 

Linkfest, lap it up

Having studied economics, the first assumption spoken about in any economic model is that people are rational. In other words, people will always take the path where they get/ make the most. Behavioural economics has shown that we regularly make irrational decisions – This classic thought experiment explains the weird decisions we make about spending money.

There is no doubt that democracy is the best system that we have. The weakness in democracy however is having uninformed voters – The case against democracy (The headline is designed to be controversial and to get clicks). One of the academic arguments presented in the article is that, instead of encouraging everyone to vote, people should be encouraged to become informed about what they are voting on. If you don’t feel your time is well spent on becoming informed, then don’t vote, which makes the votes of those who are informed count more. What is informed though? Voting for your own good or voting for the greater good?

In a US context:

“Roughly a third of American voters think that the Marxist slogan “From each according to his ability to each according to his need” appears in the Constitution. About as many are incapable of naming even one of the three branches of the United States government. Fewer than a quarter know who their senators are, and only half are aware that their state has two of them.”

 

Do you have to understand the political system to be considered informed? Another example was when there was a spike in google searches of “What is the EU” after the Brexit vote. Having a basic understanding of economics would help in being informed, knowing what the EU is surely would be the first step to being informed though?

We can have all the academic scenarios playing out, no system will be perfect. Democracy is the best system that we have, being able to express your opinion is important.


 

Home again, home again, jiggety-jog. WRONG. We got Brexit wrong, along with all of the polls and we certainly got this wrong, what the people think about the Donald. I asked someone this morning to explain the whole idea that ordinary people think Trump is wildly successful, don’t get me wrong, he deserves his time in the sun, what about sensible people like Gates and Buffett? For whatever reason, those people are known to the populous, others like Amancio Ortega are not. For the record, he is the Zara guy, the fellow that founded Zara with his ex (and now late) wife. We wait here and watch. Polling and prediction industry ….. You’re fired.


 

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

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