Investing.com’s stocks of the week
Market Scorecard
Over the last few trading days, tech company share prices have been under pressure with the Nasdaq underperforming the S&P 500. Having said that, the Nasdaq has significantly outperformed the S&P this year. All these ebbs and flows of the different stock prices and indices have numerous underlying reasons. Financial media pegs the changes on US and China tensions, 'profit-taking' and a delay in a US stimulus package. As you can see, all of these reasons are sentiment based and not really focused on the long term prospects of respective companies. Ignore the noise and carry on.
Some good company news came in the form of a positive trading statement from MTN (JO:MTNJ). The company showed a massive rebound in its profits, better than the market was expecting. As a result the share price shot up by 10% on Friday.
On Friday the JSE All-share closed down 0.76%, the S&P 500closed down 0.62%, and the Nasdaq closed down 0.94%.
One Thing, From Paul
At times like these it's hard to maintain the view that life for humans on earth is getting steadily better. It is especially difficult to make this argument to South Africans right now, who are witnessing a slide in the standards of governance at all levels of government administration. That, and Coivd-19.
Keep in mind though that humans have come a long way in recent millennia and that what we regard as acceptable behaviour now is really just a recent norm.
Sometimes we are just too close to the 'action' to see the wood for the trees. We really do lead more elevated lives now than ever before. Here is an example. A few decades ago the internet did not exist. Then it became widespread and people used it to find stuff that was "cheap". Now they use it to find stuff that is "best". The transition happened in 2009 and is now quite clear. The data in the chart below was discovered by Benedict Evans and is from Google Trends, for the United Kingdom.
Byron's Beats
Many of our clients like the thought that the stocks they own are fighting climate change. For this reason I like to report back on any updates from our array of stocks.
In January Microsoft released their green plans in this blog post. One of the initiatives is a $1bn commitment to a climate fund. The first allocation is a $50 million investment in venture capital firm Energy Impact Partners.
Some of the companies being backed by the fund include software for improving energy networks and methane capture technology.
Like Apple, Microsoft has also committed to being carbon negative by 2030. That also includes their data centres which are sometimes backed up by diesel generators.
Michael's Musings
In 2008 the price of oil briefly touched $140 a barrel, it seemed a foregone conclusion that it would hit $200 a barrel - then the financial crisis happened and prices collapsed. By the end of 2009 oil was back at $80 a barrel and in early 2011 above the $100 mark. It then hovered around the $100 mark until the middle of 2014 when prices halved in a few months. Prices have mostly stayed around the $50 a barrel mark since then.
We have the frackers to thank for lower oil prices. As their production quantity increased, Opec's grip on the oil market weakened. In South Africa, having a low oil price is great news for most of the economy. The fracking boom was fuelled by debt though. In a rapidly growing industry, investors couldn't help but to throw big money into new companies. The problem with debt is that it makes a company brittle.
Even before Covid hit, the fracking industry was starting to show a few cracks. Over investment, coupled with a lot of the easy money already having been made, resulted in industry consolidation. With Covid, the industry took another hit.
If the US fracking industry does not recover quickly, it could create an interesting dynamic in the oil market, with the unfortunate possibility that prices could continue to rise.
Bloomberg has written a detailed piece on the industry - Frackers Are in Crisis.
Bright's Banter
The billionaire fundamental short-seller Jim Chanos, founder of Kynikos Associates is said to have made $100 million for his clients by betting against fraudulent German payments company Wirecard. According to the Financial Times, Chanos has been building a short position against Wirecard since 2019.
Chanos gradually increased his bet against Wirecard post the FT's expose', which highlighted the payments company's balance sheet issues, including $2.2 billion that was missing. Chanos said that "The buzzwords, the numbers that didn't make sense, the business model that seemingly didn't make sense." is what rang the bells for him.
He continued to say that "When people ask, who were the auditors, I always say 'who cares?'. Almost every fraud has been audited by a major accounting firm". The last nail on the coffin was the KPMG forensic audit, which by the way had a very limited scope. This forensic audit showed more red flags in what it didn't report, as compared to what it did.
Jim Chanos and the FT weren't alone in uncovering this fraud; hedge fund managers like Chris Hohn of The Children's Investment Management and Paul Marshall of Marshall Wace made a over $1.2 billion in the Wirecard short as a group. My favourite hedge fund that was short Wirecard is JP Verster's Protea Capital Management, which only got in the short post the KPMG forensic audit.
The share price of Wirecard has tanked 99% from recent highs of EUR140 to EUR1.59 per share. The ex-CEO Markus Braun was arrested for the second time in Germany last week Wednesday. I hope justice will be served this time, unlike the last Markus who's still walking among us here in South Africa.
Signing Off
The Vestact office is chomping at the bit for the company earnings this week - Visa (NYSE:V), Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Facebook (NASDAQ:FB), Google (NASDAQ:GOOGL), Amgen (NASDAQ:AMGN) and Starbucks (NASDAQ:SBUX). There is nothing of note today on the data or earnings fronts. The JSE All-share is higher this morning and the Rand a bit stronger, now at $/R16.56.
