Iran says Hormuz reopening depends on U.S. meeting its conditions
Market Scorecard
The wheels of justice turn slowly, but it looks like they are at least turning in South Africa. With the arrest warrant for ANC secretary-general Ace Magashule issued yesterday, we are set to see how seriously the ANC will take their anti-corruption stance. Even though there have been books written about the corruption linked to Ace, it is important to note that we live in a society where someone is innocent until proven guilty in a court of law. For the Hawks to issue the arrest warrant, they must think they have a strong case. For South Africa to get back to a place of GDP growth, we must cut out the cancer of corruption.
Looking to markets, the buzz from the Pfizer vaccine has started to fizzle out a bit. Part of the reason for the poor performance of global markets is because the tech giants are coming under pressure. For most of this year, the tech-heavy Nasdaq has to lead the way higher as investors came to embrace the idea of technology playing a more central roll in our lives.
Now with a vaccine on the horizon, that sentiment has shifted a bit. The change can be seen when looking at the performance of the three major US indices yesterday. The Dow was green yesterday, the S&P 500 was slightly red, and the Nasdaq was down over 1%. That goes in descending order based on the amount of tech in each of the indices. Part of the underperformance is also due to Amazon, which Byron talks about below. Whenever there are big changes, markets need to readjust. Who knows how the chips will fall in the short term, but if you are a long term investor, technology is still the sector you want to be in.
Yesterday the JSE All-share closed up 1.63%, the S&P 500 closed down 0.14%, and the Nasdaq closed down 1.37%.
One Thing, From Paul
Apple announced last night that a new generation of Macs will be powered by the same kind of Apple-designed chips already used for iPhones and iPads. The code name of the new processor is the M1.
They are moving away for the use of Intel processors. This has been a major push for Apple's teams of software and hardware engineers in recent years. The challenge is to ensure that both performance and energy use (battery life) of the new chips is up to scratch. The M1 chip sports 16 million transistors, and delivers what the company claims to be the best CPU performance per watt - two times the performance of the latest PC laptop chip, while using one-fourth of the power.
They will also have to work hard with outside developers to make sure that third party apps work well on the new chipsets. The most important ones for users are those sold by Microsoft (the Office suite) and Adobe (Acrobat).
This is not their first such shift. In the mid-1990s, Apple moved from the original Motorola chips that powered the first Macs to PowerPC chips, which were a joint IBM-Motorola effort. Then they shifted from PowerPC to Intel chips starting in 2005.
The in-house skills to do this have been built up over many years and through multiple acquisitions. A company called PA Semi was bought in 2008, which worked on the Apple A-series chips, which have powered every iPad and every iPhone since 2010. Then they bought Intrinsity in 2010 and Dialog Semiconductor in 2018.
Note that while design will be handled in-house, production of these chips will be outsourced to Taiwan Semiconductor Manufacturing Co.
Apple is a great company with very talented employees. We are proud to be part-owners of this company. I look forward to owning another one of these home grown Macs in the near future.
More info here: Apple unleashes M1.
Byron's Beats
We are quite used to this by now, tech companies getting fined, especially in Europe. This time it was Amazon's turn to take the heat. The European Competition Commission said it suspects Amazon of violating antitrust rules by using data from third party sellers to boost their own products. Basically, Amazon was checking what items were selling best from their third party retailers and then selling those items themselves. Often the Amazon version would be top of the search list.
I suppose being the platform and the retailer does have its conflicts. But do you blame Amazon? The third party retailers could always go somewhere else? I am sounding ruthless here and I do see place for some regulation.
Amazon has countered saying that they only represent 1% of the global retail market. How on earth could they be a monopoly with that kind of market share? If you zoom in though, their online retail market share is a lot larger.
Our view on these regulations remains the same. The size and scale of big tech are unprecedented. Between the companies themselves and the regulators, they will have to develop a middle ground through trial and error. But life will carry on. Big tech has more than enough cash to handle legal fees and fines. They will continue to grow and adapt to the regulatory environment - as they have done in the past.
Michael's Musings
Transportation hasn't really taken a big leap forward for about 100 years. Going back to the 1920's, we had trains, cars, aeroplanes and boats. Sure, they are all much better today than back then, but there hasn't been a transformational shift. The Hyperloop is meant to be that transformational shift, the transport mechanism of the 21st century.
This is just another one of those technologies that Elon Musk and his team invented - something that is going to change the world. The man is brilliant at creating new technologies, it is one reason why you should never bet against Tesla. In the case of the Hyperloop, Musk said he didn't have the time to build it, so he put all the plans on the internet for free. He also built a test track in SpaceX's backyard so that other developers could test their ideas. There is one benefit of inventing something new, even if Musk doesn't build it, he got to name it.
We are now one step closer to having a functional Hyperloop, with Virgin Hyperloop completing the first passenger test run. The company hopes to get safety certification by 2025 and to then be operational by 2030.
Read more here - First passengers travel in Virgin's levitating hyperloop pod system.
Bright's Banter
Adidas reported its quarterly numbers showing major losses as the coronavirus pandemic shuttered many of its stores and caused a decline in foot traffic to its locations. The sportswear apparel giant reported a 35% revenue drop to $4.24 billion and incurred net losses of $362 million for the quarter. The Adidas and Reebok brand revenues fell 33% and 42% respectively.
The only shining star was the company's e-commerce sales which were up 93% and now account for over a third of Adidas' total revenues. More than 70% of the companies stores were closed in April but slowly reopened in May resulting in 83% of all its stores being operational by the end of June.
CEO Kasper Rorsted said in a statement:
"We addressed the challenges and went after opportunities, as reflected in our e-com business nearly doubling this quarter. We are now seeing the light at the end of the tunnel as the normalisation in the physical business continues, with the vast majority of our stores being operational again."
Today, about 92% of Adidas' physical stores have reopened, including the Asia-Pacific region, which they hope leads to some improvement in sales. The outlook shows that Adidas is expected to make 600 million to 700 million Euros in profits if there are no new major lockdowns and foot traffic at physical stores continues to improve.
Signing Off
Asian markets are mixed this morning, but Tencent is under pressure again. One theory is that the cancellation of the Ant IPO has hurt the sentiment attached to big Chinese companies. Brent crude continues to go higher, from $40 on Monday to over $44 this morning. Yuk! After its initial exuberance, the Rand has been drifting back towards that $/R 16.00 mark again. It's currently around $/R 15.60. Who knows where we go from here?
