The Recipe For Apple Chips

Market Scorecard

Thanks to positive economic data out of the US and China, global markets are mostly green. In the US, data showed stronger than expected housing numbers, and in China, they had better than expected manufacturing and services numbers. Even China passing and imposing the controversial security law on Hong Kong this morning didn’t scupper markets.

There will always be political and economic risks when investing. The trick is to not focus on these short term issues, and rather focus on the long term trajectory of humanity. Humans innovate, we create more with less and in the process make our lives better. In the current zero interest rate environment, the only way to hitch your wagon to global economic growth is through investing in stocks.

Yesterday the JSE All-share closed up 0.92%, the S&P 500 closed up 1.47%, and the Nasdaq closed up 1.20%.

Our 10c Worth

One thing, from Paul

What is going to happen in the November 2020 election in the US? Reading about politics is always rather interesting. We all have our own ideological leanings, and the candidates are certainly colourful.

Over the past few months, the sense that Donald Trump would coast to an easy victory and a second-term in the White House has evaporated. Due to the Covid-19 disaster he’s gone from enjoying a very strong US economy to scrambling to fix one in crisis.

His advantage on prediction markets has been reversed. There are still over four months to go until the election, but Joe Biden now has a big lead on

Polls of likely voters reflect the same problem for Trump. Aggregator 538 shows Trump’s approval rating slumping to just above 40%. Even his base seems to be tired of him.

Keep in mind though that these same sites gave Trump little chance of winning in 2016, but he did. Will that happen again? Will his (mostly older) supporters turn out to vote, whilst his (mostly younger) detractors can’t be bothered?

From a stock market point of view, Joe Biden is not really a major concern. He was of course part of the Obama administration, which proved to be fairly market-friendly over time.

What is perhaps of greater interest is the outcome of the concurrent elections for control of the US Senate in November. If we were to see a “Blue Wave” resulting in Democratic party controlling the House, the Senate and the White House then there would be more scope for tax hikes and other less advantageous outcomes (for investors like ourselves, that is).

This article on The Hill reviews the prospects of the Dems winning control of the Senate. I’d say that the chance of that occurring is about 50-50 at present. They were lower a few months back. Let’s see what happens. There is still a good deal of water to flow under this particular bridge.

Byron’s Beats

Last week we spoke about Apple’s new in-house chips that will be used in Macs going forward. As a layman that sounds like a sensible move to cut costs but as a tech geek you may be wondering if these chips are any good? Remember that the chip is the brain of the device. Its efficiency allows speed, graphics quality and seamless integration with applications. The entire device experience is determined by the quality of the chip.

This article titled Apple Silicon – The Rest of Us seems to think that Apple now make the best chips in the industry. I suppose that comes with having billions of Dollars to work with.

What makes Apple’s chips even more efficient is that they are specifically designed to run Apple software. That is the benefit of managing both the hardware and the software. Whether you are running a Mac, an iPad or iPhone, the experience will be quality and they will all integrate seamlessly.

It may seem like a good cost cutting tactic to make chips in-house but I believe this is another step towards maintaining their device dominance.

Michael’s Musings

If you have been on Twitter in the last few days, you would have seen people talking about the 60c in every Rand raised in taxes, going towards government employee salaries. I’m not sure of the accuracy of the number but it sounds to be in the correct ballpark. At the Budget Speech in February, the government’s wage bill was 14% of our GDP, which translates to around R750 billion per year. The government hoped to save R160 billion over the next three years by reducing salary increases and through early retirement of employees. Most political observers think that the government is underestimating the challenge of reducing the wage bill.

Part of the reason for the large public sector wage bill is because the government felt that they needed to increase employment in 2008/09/10, during the period when the private sector stopped hiring due to the financial crisis. At a high level that sounds like a good plan, have the government support the economy while things are tough. The problem is that the government did it in the wrong way. Economic support needs to come in areas where it is easy to remove the support when things normalise again. An example is infrastructure spending. As we see now, it is very difficult to cut staff numbers when we can’t afford them.

Our Finance Minister made a very valid point when he spoke last week, we should not be borrowing money to simply cover our monthly expenses. By doing that, we are sending the country into a debt trap. Basic financial literacy will tell you that borrowed money should only go towards investing in the future. This is what the government plans to do – 14 massive projects planned for SA, including a space hub and a new Gauteng city. This is a step in the correct direction.

Bright’s Banter

Yesterday, the American beauty and cosmetic company Coty announced that it had agreed to take a 20% stake in Kim Kardashian West Beauty (KKW Beauty), valuing this fragrance and cosmetics company at $1 billion. If I didn’t know better I would say someone at Coty is out to give the Kardashian-Jenner clan great valuations for their businesses.

This comes after Forbes announced that Kanye West is worth a staggering $1.3 billion but his sister-in-law Kylie Jenner is now worth only $900 million. Remember that a few weeks ago Gap announced that it had entered a ten year deal with Kanye West, which will see his Yeezy brand create apparel for the retailer starting from 2021.

Now back to Kim, our star for today. KKW Beauty was founded in 2017 and the brand has benefitted from Kim’s genius of being able to convert her over 300 million social media followers into paying customers. Coty is betting on Kim’s direct reach, which they believe can boost its revenue by adding skin care, hair care, personal care, and nail-products into her existing portfolio.

This is a sound business model if they can get the Kardashian-Jenner clan to continue plugging the brands the exact same way they’ve been doing in the past. For example by creating short DIY makeup videos. Let’s agree to disagree on the argument that there’s something in the water in Calabasas, California where the family resides.

I mean what are the chances that three very successful businesses come out of the same family at basically the same time? But then again Drake, Katie Holmes, Will Smith and Jada Pinkett-Smith all live in the same gated community of Calabasas. There’s a lot of creative energy flowing and floating around Calabasas and Hidden Hills.

Linkfest, Lap it Up

Are you looking for a new pet? How about buying Spot? It is slightly pricey but it is really good at fetch. Robot technology is still in its infancy, but Spot is being used to go into places where it is not safe to send humans. As the technology advances and as production numbers increase, the price tag will come down – Boston Dynamics will now sell any business its own Spot robot for $74,500.

The best way to prepare humanity for living on a different planet, it to recreate the experience on Earth first. By doing that, we learn what works and what doesn’t. If you want to live through this Mars experience, it will cost you between $3 000 and $6 000 for a week – Building a utopian Martian village in the Californian desert.

Signing off

This morning Stats SA will release our official GDP performance for the first quarter of 2020. Remember that we are already in a recession and that Q1 only covers a small part of the economic lockdown. The JSE All-share is up this morning and the Rand is at $/R17.32.

Sent to you by Team Vestact

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