A Beefy Comeback

  • Market Overview

Market Scorecard

Global markets retreated yesterday, as Covid-19 Delta variant fears spread and renewed lockdowns loomed across the planet. The S&P500 fell the most in two months.

These market moves reminded me (Bright) of the early days of the pandemic where shares of businesses directly impacted by Covid restrictions were sold off heavily, while a handful of online platform companies benefited. For example, American Airlines (NASDAQ: AAL ) and United Air sank by 4.1% and 5.5% respectively, while retailer Kroger (NYSE: KR ) and online crafts marketplace Etsy surged by 4.3% and 3.2%.

In company news, trading app Robinhood plans to raise over $2.2 billion at a valuation of $35 billion in what will be the fifth-biggest US IPO of 2021. Elsewhere, Chipotle, Target (NYSE: TGT ), and Shopify said that they are now using TikTok to find new employees.

Overall, the JSE All-share closed down 2.49%, the S&P 500 closed down 1.59%, and the Nasdaq closed down 1.06%. Rather sloppy!

One Thing, From Paul

Markets have done really well since the Covid-related slump of March 2020 (apart from yesterday). As a result, some new clients ask if it's still a good idea to buy shares now.

I enjoyed these comments on this issue from Bill Miller's second quarter newsletter.

"Current consensus estimates for [US GDP ] growth are around 7%, the fastest in over 30 years. Earnings estimates likewise are being raised dramatically. Household net worth has grown the most in history in the past year. Home prices rose 14.6% in the most recent reading and housing continues to be in short supply. Real interest rates are negative and 10-year treasuries have been declining and offer the prospect of almost certain real loss of capital."

To me, that sounds like a clarion call to go on buying stocks. In summary, when clients ask if they should wait for better days to invest, I say, these are the better days.

Byron's Beats

Richemont (JO: CFRJ ) has been an excellent performer on the JSE of late. In the last year it has gone from R100 a share to R170. When you look at the performance of their competitors like Louis Vuitton, you can see why. Luxury goods companies are enjoying a bumper year.

On Friday, Richemont released a brilliant sales update for the first quarter of 2021. Sales nearly doubled versus the first quarter last year. Of course that was over a period when China was in full lockdown mode. More importantly, sales grew 22% from the first quarter of 2019.

Asia Pacific saw a 40% growth from 2019, the Americas grew 47%, the Middle East grew 55%, while Europe declined 15% (they rely heavily on tourist spending).

All in all, a very good set of sales numbers. As the rich get richer, we expect Richemont to be a consistent performer for local portfolios.

Michael's Musings

As we create new technologies, ethical challenges arise. Here is a very interesting new dilemma. Should we allow AI to put words into people's mouths? Here is the opening paragraph from the link below:

"In Roadrunner, a documentary released Friday about the life of chef Anthony Bourdain, viewers hear Bourdain saying, "You are successful, and I am successful, and I'm wondering: Are you happy?" But Bourdain never said that. Those words were from an email the chef sent to a friend before his suicide in 2018."

I haven't watched the documentary, but reading the above paragraph I felt a bit deceived. The producers got permission to recreate Anthony's voice, but is that enough? Should they have told the audience that the 'voice' they were hearing was actually a computer? Where do we draw the line on using AI to recreate reality?

A bigger issue will be when AI is used to create things that people didn't say. There is already a massive amount of fake news around, and using AI to putting false words into trusted people's mouths will only make the situation worse.

Bright's Banter

Comeback stories are rare, but everyone loves hearing about them. Today I present to you the comeback of the decade, the Brazilian brothers Joesley and Wesley Batista. They went from being locked up in cells with concrete bunk-bed cells to turning around their nearly collapsed meat empire.

In 2017, as authorities closed in on corrupt politicians and business people, the brothers snitched on a network of over 1 800 officials who they had bribed. The wide-ranging scandal led to what is now known as "Joesley Day", one of the worst one-day dips for Brazil's markets.

Today, they're free and back to running their family business, JBS, which is now worth three times what it was while they were locked up four years ago. JBS operates in 20 countries and controls over 25% of all US beef processing. The brothers are worth a cool $5.8 billion combined, and the business is worth north of $28 billion.

Signing Off

Markets have fallen in China, Hong Kong, Japan and South Korea with cyclical businesses like those operating in the energy and industrial sectors the worst hit. However, US futures are up this morning. Who knows what will happen as the day wears on?

The Rand is trading around R14.58 to the US Dollar. Hold the line!

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