Short Squeeze hits Ludicrous Mode


Market Scorecard

China released its trade data this morning for December, where exports grew 7.6%, much higher than the expected 3%. Also surprising on the upside was their imports jumping 16.3% – a consuming China is good for the global economy. Showing signs of the trade war, China’s exports and imports to the US in 2019 were down by 12.5% and 20.9% respectively. The trade war is hurting both sides. With the cooling of tensions between both nations, this trend should change.

Tesla stock soared 10% yesterday as Wall Street analysts upgraded their price targets for the company. There is probably an element of a short squeeze happening, where all the people who bet against the company are running for the door, to take their bets off the table. The game changer for Tesla stock, and peoples perceptions of the company, is how quickly they built their Chinese factory. All of a sudden producing a million cars a year doesn’t look like a problem. If they can build a factory in less than a year, then the supply of the Tesla cars is less of a challenge, and all that matters is demand. So, as long as people are queuing to buy a Tesla, production will increase and profits will rise.

Locally, we are seeing evidence of the tough economic environment, and lack of economic growth. Yesterday Massmart announced that they will be closing some of their Dion Wired stores and Masscash stores – Jumbo and Cambridge food. The closures will impact 1 440 people.

Yesterday the JSE All-share closed up 0.15%, the S&P 500 closed up 0.70%, and the Nasdaq closed up 1.04%.

Company Corner


Bright’s Banter

The Attorney General of Nigeria has withdrawn the $2 billion tax demand against MTN Nigeria which helped MTN Group shares close up over 5% on Friday, the biggest one day gain since March 2019. This is good news for MTN Group and its shareholders because it means the conflict between MTN and Nigerian authorities will soon be coming to an end.

MTN Nigeria listed in the Lagos Stock Exchange last year which is still by far MTN Group’s most profitable and largest market with over 65 million customers. MTN is spending billions of rands in CapEx to ensure that they stay ahead of the game by providing the best high-speed internet at an attractive value for customers.

MTN Group still has other issues at hand though. Its Iranian business is exposed to the current conflict in the Middle East, as Iran might be hit by further painful US economic sanctions. In Afghanistan, MTN is being sued for allegedly paying the Taliban fighters not to blow up its network towers.

Our 10c Worth


One thing, from Paul

I’m glad that we do not hold Boeing stock in Vestact portfolios. It would have been an easy pick five years ago, as the market for commercial aviation was booming, and their US-based defence and aerospace business was doing very well.

The 737 MAX debacle has dragged on and on. This aircraft was supposed to be the backbone of airline fleets for shorter-haul flights, with the latest technology and exceptional fuel efficiency. It went into service in March 2017. After two Boeing 737 MAX aircraft crashed in October 2018 and March 2019, causing 346 deaths, aviation authorities around the world grounded the whole 737 MAX series and the company stopped production.

Embarrassing internal messages between Boeing employees made the news this week, revealing that some staff concerns about the 737 MAX were ignored. The best one said “this airplane is designed by clowns, who in turn are supervised by monkeys.”

In December the company fired its CEO, Dennis Muilenburg who had held the position since 2013. He was replaced by a former chairman of the board, David Calhoun.

Amidst all this drama the Boeing stock price has really suffered. It’s down by 6% in the last 12 months, compared to the S&P 500 which is up by 25%. That is an awful outcome for investors!

In time, this crisis will pass. Boeing is still a great company that employs many dedicated engineers and makes amazing products. There may come a time to buy the stock again, although that time could well be years away.

In the meantime, keep flying. As Morgan Housel pointed out in a recent blog post, In the ten years before 1981, 25 995 people died in commercial aviation accidents. From 2009 to 2019 that number was 9 197. And passenger miles flown increased 4.7-fold from 1981 to 2019. So fatalities per passenger mile flown have declined more than 90%.


Byron’s Beats

The power of the Apple brand is just incredible. Take a look at this table comparing the revenue of the AirPod compared to other major tech firms. Bear in mind that the product was only launched in September 2016.

The table also shows you the size and scale of Apple.They don’t even talk about AirPods in their results presentations. But here it is, with bigger revenues than Nvidia which has a market cap $155bn.


Michael’s Musings

Here is another great infographic from Visual Capitalist – Everything You Need to Know About Recessions.

Working in the investment industry, it seems that most people are only focused on the small red blips instead of focusing on the big purple mountains. When you look at the graph, it shows why that strategy is misguided.

Going into 2019, the headlines in financial media was how there was a 50% chance of a recession, and how the best thing to do with your money was to leave it in cash. If you did that, you would have missed the 30% rally in equities.

No-one wants to invest just before a recession. It is really bruising watching your investment drop in value. As I spoke about in my Musings yesterday, you need to take the long term view, and regularly add to your positions.

If you add to your portfolio regularly, big drops in share prices actually make you excited. You know that with your next deposit, you are able to buy more shares at a discounted rate. In summary, be an optimist, add regularly to your share portfolio, and do it consistently for a long period of time.

Linkfest, Lap it up

Here is an interesting read about the families who control some of the biggest alcohol brands in the world. Some of the brands go back to the 1700’s – Booze Dynasties Control $70 Billion of World’s Liquor Wealth.

Google Maps has this amazing feature, where you can look at a time-lapse for any region on earth, starting in 1984 and ending in 2018. Have a look to see how Joburg has changed. The article has selected some regions they think would be of interest – Timelapse Maps: An Overview of Our Changing Planet.

Signing off

Woolies announced this morning that they are getting a new CEO. Ian Moir, the current CEO, has had the job since 2010. With the business struggling, it is probably time a fresh management team leads the business. Have you settled into 2020 yet? Well, US earnings season kicks off today with JP Morgan reporting their Q4 numbers before the US market opens this afternoon. The Rand is a bit weaker today currently around $/R14.45.

Sent to you by Team Vestact.

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