Made In Texas

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Market Scorecard

Yesterday, US markets fell after yet another frenzied session. The Nasdaq was up as much as 3% halfway through the trading session but gave up those gains to close down. These daily losses are starting to pile up a bit. The broader S&P 500 is down 9.8% from its record highs, while the Russell 2000 index of smaller stocks is down more than 20% from its highs.

The US economy is actually looking very strong, despite this poor stock market performance. US GDP grew at an annualised rate of 6.9% last quarter, the biggest one-year jump since 1984. That was higher than the 5.5% growth economists had pencilled in, but growth will probably moderate this year.

In company news, Tesla (NASDAQ: TSLA ) fell 12% after the company said it wouldn't introduce any new models this year, and rather prioritise deliveries. Byron reviews their record earnings below. Elsewhere, Apple (NASDAQ: AAPL ) and Visa (NYSE: V ) both rose by 5% after hours, on the back of sterling results.

In conclusion, the JSE All-share closed down 0.40%, the S&P 500 fell 0.54%, and the Nasdaq retreated by another 1.40%.


Byron's Beats

On Wednesday night, Tesla reported their 4th quarter and full-year numbers. Tesla is the most actively-traded stock in history, so it always stirs excitement. As long-term holders of Tesla shares, we prefer to look at the trends in the full-year numbers.

2021 was a great year for Tesla. They grew production by 83% to 930 422 vehicles. Amazingly they made $5.5 billion of profits in the year and had free cash flows of $5 billion, even after spending $ 6.5 billion on new factories.

Car factories in Berlin and Austin are about to come online, which will help them to achieve their 50% per annum annual growth target. Given the supply issues everyone had last year, this was an amazing achievement. Another 50% growth would mean 1.4 million vehicles delivered in 2022.

Tesla's sales and profits have caught up with its share price. It's now a highly-profitable business with first-mover advantage, in an industry scrambling to meet the demands of billions of prospective electric car owners. On top of that, it has some very exciting "side hustles" in energy, mobility, robotics and self-driving cars. We are long term buyers and owners of this stock.


One Thing, From Paul

Ok, Friday, advice time. Here's the question: do you really need life insurance? Well, clearly, responsible individuals with young dependents should worry about what would happen if they died. If you kick the bucket, a capital pay-out for your surviving spouse and children will be a godsend. This is especially true if you have a lot of debt.

Working people are often covered by group life-insurance programs offered as an employee benefit. That's fine, but I'm also impressed by those who buy individual policies to cover long-term family expenses in the event of a premature death. That seems like the right thing to do.

The Covid-19 pandemic over the last two years drove the biggest increase in death benefits paid by life insurers since the 1918 influenza epidemic. The hit to insurance company profits has been extreme.

I'm told that sales of new life policies has been strong. In the US, total new life insurance premiums increased 18% for the first nine months of 2021, the largest growth recorded for nine months in 25 years.

I'm 55 and I still have a lot of life insurance. I pay some hefty monthly premiums over to Discovery (JO: DSBPp ) Life. Mind you, I'm getting to the point where my children will soon be grown up and self-supporting. My wife co-owns and runs a good business. Plus, we have lots of savings and no debt. So what's the point of life cover?


Michael's Musings

Earlier in the week, this New York Times article was doing the rounds, Cash Aid to Poor Mothers Increases Brain Activity in Babies, Study Finds. The study doesn't say why this is the case, only that when mothers were given $333 a month, their children did better after their first year.

The reaction to the study from left- and right-leaning political groups was particularly interesting. Liberal people say this points to the need for widespread government aid, particularly for early-stage development. Conservatives argued that the study vindicated more stringent welfare laws, which they say reduces child poverty by incentivising parents to find and keep jobs. The two opposing camps have wildly different perspectives on humanity and the economy.

We all want to live in a society where children from different income brackets have similar opportunities when they grow up. In 2014, Bill Gates highlighted the problem of malnutrition. If a baby doesn't get sufficient nutrients in their first 1 000 days on earth, they will go on to have a lower IQ. Even if their diet improves later in life, the damage will have been done. In this case, the child doesn't have the same opportunities, by no fault of their own. The chances of intergenerational poverty increases.

What to do? I don't know. There isn't a simple solution. What works in one country won't work in another. Humans are complex and societal structures are even more so. Simple one-liners like "more government intervention is the answer" or "people are poor because they don't work hard enough" is just lazy thinking.

Bright's Banter

Kim Kardashian's Skims underwear brand raised $240 million in its latest funding round, valuing the business at over $3.2 billion. That's double the level from its last round in April. This is all thanks to sales surging 90% to around $275 million in 2021, and those are expected to be north of $400 million this year.

Since launching in 2019, Skims has expanded its products from shapewear (including bodysuits and boy shorts) into loungewear like pyjamas and tracksuits. They now sell a wide range of basics that include pullovers, sleep robes and polo necks. Shapewear now represents less than 20% of sales, while underwear accounts for majority of the business.

The focus for Kim Kardashian and her business partner Jens Grede, is to grow the company beyond North America. This should be easy thanks to digital channels like Instagram and online marketing. The duo retained a controlling stake in Skims, with Kim Kardashian remaining its single largest individual shareholder. Kim is the queen of "never let a good crisis go to waste" and I stan!


Signing Off

Asia-Pacific markets are rising today for the first time in six sessions, with the exception of the Hong Kong bourse. US Futures are up in early trade, which is probably thanks to Apple and Visa's rallies after hours. The Rand is trading at around R15.44 to the US Dollar.

It's the weekend baby! Have a good one.

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  • Brett Ellis @Brett Ellis
    What is lazy Michael is you quoting Gates on nutritional matters - ask a qualified nutritional expert.Quote him on computer viruses, that flood our machines, but not medical viruses.
    Like 0