Epic Fail

Market Scorecard

The US banks officially kick off earnings season this afternoon. The expectation from the market is for companies, on average, to report 21% lower profits now than last year. The number is a bit all over the place because energy companies will probably report a loss but technology companies will probably report growth in profits.

The main point to note though is that expectations drive the short term price movements of the market. The implication is that if profits are down by more than 21% on average, markets will move lower. If however, profits are stronger than expected, then markets will move higher. Rather simple? It is worth noting that in the last earnings season, 84% of stocks had better profits than the market expected. Analysts were too cautious in their forecasts, which seems to be a general trend - rather under forecast profits than over forecast. It will probably be more of the same in the coming weeks, where companies report better results than analysts were forecasting.

Yesterday the JSE All-share closed up 0.67%, the S&P 500 closed up 1.64%, and the Nasdaq closed up 2.56%.

One Thing, From Paul

I'm really hoping to be able to take an international flight sometime soon. I'd like to touch base with our partners in New York, for one thing. And go somewhere nice in the summer holiday too, perhaps?

Of course, I'm not helped in this mission by the South African government's new rules about travel to and from countries that are approved, not approved, partially approved, requiring a special piece of paper, etc, etc.

The policies get reviewed every two weeks. Yeah right. Goodness knows how the airlines are supposed to deal with this nonsense? Our tourism operators are furious. The problem is that our politicians love to make up new rules, because it makes them feel important.

But what about this? IATA research indicates that there have been just 44 cases of Covid-19 reported since the beginning of 2020 in which transmission is thought to have been associated with a flight journey (inclusive of confirmed, probable and potential cases). It says that over the same period some 1.2 billion passengers have travelled, equating to one case for every 27 million travellers.

How long before the penny drops, and these idiots set us free?

Getting Covid on a plane as likely as being struck by lightning, claims IATA.

Byron's Beats

The world is watching the US elections with keen interest. In recent times we have had a few shock results when it comes to democratic decision making. Brexit and the election of Donald Trump are good examples.

In both cases the polls got the end result wrong. That got me thinking whether the polls were really that wrong or maybe the polls actually influenced the outcome? In this day and age of social media and easy access to information, polls were widely visible in the lead up to the votes. It may have been the case that certain poll figures mobilised people to vote for the underdog.

For example strong Democrat polls may have pushed Republicans sitting on the fence to vote for Trump. Alternatively it may have resulted in lazy Democrats not to vote because they thought the result was in the bag. At the moment the polls are strongly in favour of a Joe Biden victory. I am pretty sure this will be the best mobilising campaign for Trump supporters.

As an investor this is all very interesting to watch and debate. As we have mentioned before, don't make long term investment decisions based on what you think the outcome will be.

Michael's Musings

I studied economics, so I always excited to hear who wins the Nobel Prize in Economics. Technically, the economics award is the ugly step-child of the Nobel Prizes because it was a late addition to the group. The original Nobel Prizes were started in 1895, funded out of the estate of Alfred Nobel, the inventor of dynamite. Alfred felt conflicted about his invention because he saw all the hurt dynamite could cause to the world if the wrong people use it. His solution, to compensate, was the Nobel Prizes.

The Nobel Prize in Economics only came to fruition in 1968, when the Swedish central bank gave a donation to the Nobel Foundation. Its official name is the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, which is a bit different to the Nobel Prize in physics for example. The Nobel family themselves are critical of the award, and even once said it is 'a PR coup by economists to improve their reputation'. Ouch!

Anyway, the 2020 Nobel in Economics Is Awarded to Paul Milgrom and Robert Wilson. They received the prize due to their work on auction theory. It seems like a bit of a random thing to win such a prestigious prize, but when you think about it, it does make sense. Price is a key driver in a capitalistic society, where it shows what is valuable and then encourages others to compete. When the market gets a price wrong, it can have some bad side-effects.

Milgrom and Wilsons main contribution was an auction that has been used for the sale of spectrum by many governments. The result is an auction that returns a fairer price, which is good news for both buyer and seller. The danger for the buyer is that they overpay for spectrum, which means most cellphone companies were overbidding. The downside for the seller, is that buyers tend to underbid more often than overbid. The new auction style meant that governments got more money for spectrum, and buyers had a lower risk of overbidding. Win-win.

Bright's Banter

Last month, video-game maker Epic Games - famous for titles like Gears of War, Fortnite, and Paragon - filed for a court order that would put its games back in Apple (NASDAQ:AAPL)'s App Store and restore its developer account. Apple terminated Epic Games' account on its App Store after Epic complained about the 30% commission on some in-app purchases.

The lawsuit was well-timed by Epic Games in that it was filed straight after Epic rolled out its own payment system in the popular game Fortinite. The video-game maker is basically accusing Apple of anticompetitive behaviour and claims that Apple controls what apps its users can download on their iPhones and other Apple devices.

Apple doesn't allow alternative payment systems and it removed Fortnite from the App Store and wanted to terminate Epic's developer accounts. This in turn threatened Epic's other business of selling software used by other developers to create games. The judge issued an order that allowed Apple to pull Epic's titles from the App Store but barred Apple from taking any action that would harm Epic's developer tools.

You can read more here on how Epic Games Lost Another Ruling to Restore its Games back on the Apple Store.

Signing Off

It is a busy day ahead, both J&J (NYSE:JNJ) and JP Morgan (NYSE:JPM) report before the market open. Then this evening is the Apple product launch where we get to see the latest 5G enabled iPhone. Locally, there is mining data out for August at around lunch time. The Rand is a bit weaker than yesterday, trading at $/R16.55

Original Post