Under-Water

 

To market to market to buy a fat pig. The increased risk of a spat between Donald Trump and Kim Jong-un meant that markets sold off yesterday. Higher risks mean that asset prices need to be lower to compensate you for that risk. I’m fairly sure if North Korea did anything, like firing a missile at Guam like they threatened, the US would reduce most of the country to rubble.

The worry is not what North Korea contributes to the globe, at last count North Korea had a GDP of $16 billion (Apple makes more profit in 6 months), the worry is that conflict brings neighbours China and South Korea into the mix. See the map below and note how close Seoul is to the boarder, first in the firing line if conflict breaks out. Not good for global trade and for the likes of Kia, Samsung, Hyundai and LG.

Onto the scorecards; S&P 500 was down 0.04%, Dow down 0.17% and the Nasdaq 0.28%. All three indexes started the day off much deeper in the red but improved as the day went on. I suppose the market is telling you that it doesn’t think the threat of war is very high at the moment, just two men showing the world who has a bigger missile at the moment.

Locally our markets opened in the green and then drifted lower, finishing the day off down 0.33% at 55 980. The no-confidence vote which only came out after the market closed hit the Rand from around $/R13.15 to the $/R13.40’s range. More of the same means that we are still on track for a Moody’s debt downgrade, unfortunately a shrinking economy (lower denominator) and budget deficit (bigger numerator) results in a growing debt to GDP ratio.


 

Company corner

Byron’s Beats

On the first of August we had results from Under Armour which looked bad at first glance. Sales grew only 9% to $1.09bn while they made a $12m loss. We are used to solid double digit growth from these guys. It clearly pushed management into action who also announced a restructuring plan on the same day.

The apparel industry is going through a big change. Sales points are moving online or to directly branded stores instead of aggregators like Foot Locker and Sports Authority (who have now closed down). Over the long run this is good news for the likes of Under Armour and Nike because the middle man is lost, the transition requires good strategic decisions and costly logistics changes though.

More than 80% of sales come from North America. This region is massively competitive, especially following a massive resurgence from Adidas. This presents a great opportunity for Under Armour to expand globally. Their brand is already well known and highly sort after. They just need to increase their presence in new geographies.

The company has doubled sales over the last three years. This resulted in the company over capitalising in certain areas. The restructure involves streamlining operations, terminating leases and firing a few employees. The restructure will costs between $110m-$130m.

The share price hit $45 in April last year. It is now at $17 a share. A big fall from grace. We think this is a good buying opportunity in a sector we think has massive traction as people become more health and fitness conscious. The brand has the potential for global growth and the shift to online and direct store sales will benefit the business over the long run. Kevin Plank started this business from scratch, I am sure he can navigate the business successfully through this tough period.


 

Linkfest, lap it up

One thing, from Paul

These are the top ten things that employees say they want in an office setup. A running friend of mine tweeted this, and as a responsible business owner I was compelled to check it out. Of the the ten things, we are lagging a little on the one (our sad old printer/scanner/copier needs an upgrade) – Employees Say They Want These 10 Things in Their Workspace

Ivan Vladislavic is one of my favourite writers, so I was thrilled to see this short interview with him in the New Yorker magazine. In it, he describes Johannesburg as “rising and falling, simultaneously everywhere”. Reminds me of that fabulous old Japanese proverb: everything here is perfect, but there is plenty of room for improvement – The South African Parables of Ivan Vladislavic

We get lots of young visitors here at Vestact, all of them trying to find a way into the finance industry. This is great reading for such persons. Ten tips for making it in finance – Ten tips for making it in finance


 

Michael’s Musings

The 911 is arguably one of the must successful sport cars in history, the car number 1 000 000 has just rolled off the production line – The Colorful History of the Best-Selling Porsche 911.

Property companies are trying to ‘internet-proof’ or ‘Amazon-proof’ their investments by upgrading malls to focus on experiences like gyms or restaurants – Money is Pouring Into Malls

Netflix has been in the news this week with a number of deals. The first is Disney not renewing their contract with Netflix, so from 2019 Netflix will no longer be able to play Disney content. I doubt this was a surprise for Netflix, which is why Netflix has been pumping huge amounts of money into new content so that they are not reliant on other companies – Disney will pull its movies from Netflix and start its own streaming services

Talking of new content, Netflix have lured David Letterman out of retirement to host a new talkshow – David Letterman will come back to TV as the host of a new Netflix series.


 

Bright’s Banter

A driverless car was spotted doing the rounds in Arlington, Virginia over the weekend and it turns out its just a normal car being driven by a human disguised as a car seat. . . confusing right??? – Self-driving actually controlled by man dressed up as a car seat

Sexism is still a big issue in Silicon Valley and not even Google has it under control. Here’s a series of tweets to show that workplace gender inequality is a real thing – Google anti diversity memo Peter Thiel linked investor slammed for tweet


 

Home again, home again, jiggety-jog. Our market is green this morning and the Rand is on the front foot moving into the $/R13.30’s. We should get a report out of OPEC later today showing where supply and demand factors are sitting, currently we are paying $53 a barrel of Brent Crude, as a consumer I would love to see it back in the $40’s. Nvidia the GPU chipmaker and supplier to Tesla and Amazon has numbers tonight, the market has some very high growth expectations (the stock is up 200% over 12 months) so we should see some share price volatility post the numbers.


 

Sent to you by Team Vestact.

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