I’m On a Boat

 

Market Scorecard


As expected there was a rate cut from the Fed last night, but it was a ‘hawkish cut’. You have to love some of the jargon from the financial community. As we spoke about yesterday, the market was expecting four cuts before the end of next year. Last night was the second one, but the Fed is indicating that they don’t expect to cut again before the end of 2020.

The Fed indicated that as things stand, the current interest rate is suitable to the environment. But if Brexit blows up and the trade war with China intensifies, then they will cut rates further. Basically, anything could happen between now and the end of 2020. Markets were mixed on the news; knowing that further cuts are still on the table if they are needed to improve sentiment a bit.

Yesterday the JSE All-share closed down 1.66%, the S&P 500 closed up 0.03%, and the Nasdaq closed down 0.11%.

Our 10c Worth


 

One thing, from Paul

A friend alerted me to an interesting book about corporate culture and innovation, called Loonshots, by Safi Bahcall. I haven’t read the book yet but I did find some solid reviews online.

As an equities investor, I’m interested in how big companies innovate and thrive, because those are the ones that we want to own. There is no point buying into giants which are in terminal decline. We want the ones that are big already, but find ways to reinvent themselves all the time.

    “This dilemma .. confronts business leaders every day: how do you deliver performance now while developing the products you’ll need in the future? The skills required to support established franchises are profoundly different from those required to develop new ones. Management techniques such as Six Sigma, focused on efficiency and execution, tend to be bad for innovation, which is intrinsically messy and inefficient. Companies need a different approach to nurture the radically original projects, or “loonshots,” that are essential for long-term success.”

 

Sad to say, but many innovative ideas don’t work out. The reviewer quotes a Harvard researcher: “If your idea succeeds, everybody says you’re persistent. If it doesn’t, you’re obstinate.” Sometimes it’s just as important to be lucky as it is to be smart.

The book review is here, on the Wall Street Journal (may require a subscription): ‘Loonshots’ Review: In Praise of Wild Ideas.


 

Byron’s Beats

People often ask what the best leadership qualities are or what are the key attributes of a successful company. In my experience there are many different styles that can all be extremely effective. Tim Cook cannot emulate Steve Jobs’ abrasiveness if it does not come naturally to him. His cool, calm and respectful style will take a different path but the results can be just as good.

I really enjoyed this article by Brian Wong, The Vice President of Alibaba Global Initiatives. The article is titled What I Wish Silicon Valley Understood About Alibaba. Brian’s perspective as an American working for a Chinese company is very interesting. Jack Ma’s unique style is certainly one of the keys to the company’s success.

There is also a great section which talks about Alibaba’s entry into Africa. Jack Ma sees a lot of similarities between the development of Africa and China 20 years ago. The Alibaba Business School’s eFounders Fellowship Program has nurtured 119 African entrepreneurs so far. The Jack Ma Foundation has also launched a 10 year, $10 million prize fund for African entrepreneurs. It is great to see how Jack and the company have embraced our continent.


 

Michael’s Musings

The idea of a universal basic income is gaining traction as the globe gets wealthier, as productivity levels continue to grow and as inequality becomes a hot topic. The idea is that everyone, regardless if you are rich or poor, will receive a set amount of money from the government. A couple of the key questions that people are asking is, will this create inflation due to all the extra money in circulation or will many people just stop working?

Researchers have been able to study the impact of a universal basic income on society through seeing what happens in Alaska. In 1982, the government set up a fund to distribute some of the oil revenues generated to the population of Alaska. Things changed in 2015 when politics got involved. According to this Vox article, the current governor of Alaska got voted in because he promised to pay the highest amount to the Alaskan population. Effectively buying votes?

There are still many unanswered questions around the unintended consequences of a universal basic income. One of those questions is how to stop politicians from buying votes through promises of higher distributions. If/ when these policies get implemented by developed nations, my guess is that the spend on soft luxuries like Nike shoes or Apple phones will increase.

Read more here – Alaska’s universal basic income problem.


 

Bright’s Banter

The Italian luxury yacht maker Ferretti is slowly cruising towards an IPO on the Milan stock exchange. The company makes luxury boats for the likes of George Clooney and other stars. Ferretti has Weichai Group to thank. Weichai is a Chinese state-owned company that has spent over EUR 470 million, over a seven year period, to rebuild Ferretti. The company was nearly shipwrecked and underwater almost a decade ago.

Ferretti sells the iconic Riva speedboats which sell for $700 000 and above. The company’s revenues in 2018 were EUR 609 million, up from EUR 309 million in 2014; growing at a clip faster than luxury brands like Richemont and LVMH. Ferretti CEO said the company could potentially acquire a foreign rival, this comes after Ferretti recently acquired luxury sailboat maker Wally.

At a 14 times multiple on an estimated EUR 75 million in earnings, Ferretti could fetch around EUR 1 billion valuation. With no debt on the books, Weichai’s 86% stake could be worth over EUR 900 million, almost double what the company invested in the business over that seven year period. Not a bad investment in a low rates environment if you ask me.

Aston Martin recently hoped for a luxury like valuation that Richemont and LVMH enjoy but was unsuccessful. We hope that Ferretti management convinces investors that they’re worthy of such a glossy valuation.

Linkfest, Lap it up


It might be creepy to think about a ‘worm’ moving through your arterial pathways, but it is a much better solution than invasive surgery – MIT Researchers Designed this Robotic Worm to Burrow Into Human Brains

Sticking with healthcare, thanks to the internet you no longer need to be in the same room as your doctor – First long-distance heart surgery performed via robot.

Vestact Out and About


Signing off


Yesterday South African inflation came in at 4.3%, higher than the expected 4.2% and higher than the previous months 4.0%. The higher inflation read effectively ended any hope of a rate cut by the SARB this afternoon. At 13:00 there is a Bank of England interest rate decision and then at 15:00 is the SARB interest rate decision. The Dollar is stronger overnight, reversing all the gains the Rand made yesterday. The current exchange rate is $/R 14.72. The JSE All-share is lower for a third straight day.

Sent to you by Team Vestact.

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