Fudget speech

Market scorecard

US markets closed in the red. The reversal was more pronounced in the information technology sector with Nvidia (NASDAQ:NVDA) dropping 4.4%, its largest decline since October. Markets have been under pressure in the last week after the inflation numbers came out hotter than expected.

In company news, Walmart (NYSE:WMT) climbed 3.2% to be one of the S&P 500's top performers after reporting strong earnings. Elsewhere, Palo Alto Networks (NASDAQ:PANW) tumbled 21% after hours as it cut its revenue outlook for 2024. Lastly, Amazon (NASDAQ:AMZN) and Uber (NYSE:UBER) will be added to the Dow Jones Industrial Average as of Monday.

In summary, the JSE All-share closed down 0.86%, the S&P 500 fell 0.60%, and the Nasdaq was 0.92% lower.

One thing, from Paul

As we wait for the release of Nvidia (NASDAQ:NVDA) results later today, you may be asking yourself why everyone is so hyped up about AI. The reason is simple, AI tools are revolutionising the world of work.

Ethan Mollick is a useful person to follow to better understand this issue. He's a professor at the Wharton School of the University of Pennsylvania, and he has a Substack that you can subscribe to about entrepreneurship, innovation and AI.

In his most recent post, titled Strategies for an accelerating future, he lists the tools that his students were able to create within minutes to do productive tasks in their businesses.

In summary, AI comes up with more creative ideas than most people. With proper AI training, office workers effectively have an infinite number of interns to help them analyse data, organise content, design projects and create reports.

Byron's beats

We often get clients expressing concerns about US government debt levels and how it could potentially spiral out of control. This seems to be a very common argument for the doomsayers who think the world is going to end and are desperate to spread that message.

I am not saying there is no risk with the current situation. US debt is currently sitting at $34 trillion and growing. Every sitting government seems to think that the next government can deal with it, until it can't.

But you cannot compare a country's fiscal management to that of a business or household like so many people like to do. Unless society collapses, a country will run into infinity. This means that the most important factor to consider is a country's ability to finance its debt.

The interest rate for US debt determines the confidence that the market has in its ability to service it. Currently, the average cost of US debt is 2.9%, which means that the collective market is feeling comfortable with the current levels. Remember too that we are at the top of the interest rate cycle so that number should peak soon and then start coming down.

A country pays for its debt with taxes. Taxes are determined by a country's ability to grow the economy. The debt levels have grown, but so too have the US's GDP and tax base.

The US government also has a massive asset base, which includes land, state-owned enterprises and intellectual property. That fact is often ignored when people look at the debt as a standalone.

In general, we are comfortable with the fact that these levels are sustainable. If it spirals out of control, then it will bring us all down with it, so you might as well invest in shotguns and bunkers if that is your belief.

Michael's musings

It is budget speech day. Gone are the relaxed days of Trevor Manuel standing up, cracking a few jokes and then announcing a tax cut. Our finance minister Enoch Godongwana has a tough one ahead of him.

PwC says we might even be in for a tax hike to help the government plug holes in collections. They see it possibly coming from income tax or VAT increases. I think there is a 0% chance of a VAT increase in an election year. Hopefully, we don't see any tax hikes.

South Africa's problem isn't that we don't collect enough taxes, but that the money we do collect is squandered. Raising taxes only allows the ANC to squander more money. It's like loaning your drunk uncle more money, hoping that he turns his life around. What he needs is rehab, not more money. The same is true for our national government.

Tim Cohen touches on the topic in his daily 'After the bell' blog. There have been some interesting proposals recently about how to get South Africa back on track. The real question I have is, in a post-ANC future, how long will it take to reverse the fruitless expenditure culture that we currently have?

Bright's banter

Universal Music Group (AS:UMG) announced yesterday that it will acquire a 25.8% stake in Chord Music Partners for $240 million. This transaction will result in private equity firm KKR exiting its position in the music catalogue owner.

As part of the deal, KKR will sell its majority stake to a consortium led by Dundee Partners, who will own the 74.2% balance of Chord. UMG also revealed plans to establish a long-term partnership with Dundee Partners to oversee Chord's rights management and pursue additional music acquisitions in the future.

UMG highlighted that Chord's catalogue has over 60 000 songs including music from notable artists such as The Weeknd, David Guetta, and John Legend. The transaction values Chord at $1.85 billion.

Signing off

Asian markets are mostly higher this morning. Benchmarks were up in India while they fell in Japan and South Korea. The Hong Kong Hang Seng index surged by 3%, while mainland China's CSI 300 index rose by 1.8%, reversing earlier losses.

This turnaround came as Chinese banks escalated efforts to provide funding assistance to support the ailing property sector. The move signalled renewed investor optimism regarding measures to stabilise the property market and mitigate potential economic repercussions from its downturn.

US equity futures are unchanged pre-market. The Rand is trading around R18.87 to the US Dollar.

Today, all eyes will be on Nvidia's fourth-quarter report. The Fed's latest policy meeting minutes are also due out later.

Have a cracker!

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