Market Scorecard
On Friday, the JSE Top-40 had 21 stocks in the green and 19 stocks in the red. Unfortunately, the mining stocks' losses outweighed the small gains from those companies on the 'gainers' side of the equation. In the US, their market was down because there is a worry that Biden's $1.9 trillion stimulus package will come with strings attached. Strings of higher corporate taxes and an increased national minimum wage. Higher expenses, means lower profits, which in turn means a lower share price.
China released its latest GDP figure this morning. Remember that there are two ways of reporting GDP, the first is to compare how this quarter did versus the previous quarter, and then annualise the figure. The other method is to compare the year on year change. There are pro's and con's to both methods. The year on year figure is a 'cleaner' read, but can be seen to give a reading that is out of date because it ignores more recent quarters.
Anyway, the annualised quarter on quarter figure grew by 2.6% and the year on year figure grew by 6.5%. That is very good going! It shows the resilience of their economy and how the factories were able to play catch up after all their lockdowns. Looking at recent trade data, China showed a massive increase in exports. One explanation is that global consumers are spending much less money on transport and eating out, meaning they have more money to spend on e-commerce. Most of that online shopping originates in a Chinese factory somewhere.
On Friday the JSE All-share closed down 0.52%, the S&P 500 closed down 0.72%, and the Nasdaq closed down 0.87%.
Byron's Beats
On Friday JP Morgan kicked off earnings season for Vestact holdings with their 4th quarter 2020 numbers. As expected the numbers were good after the previous quarters included provisions for potential Covid related defaults. Actual defaults were much lower than the provisioned value. Rather safe than sorry I suppose.
The company is incredibly profitable. They made over $12 billion in net income for the quarter. The breakdown of those profits per division makes for interesting reading. Net interest income was down 7% because of the very low interest rate environment. That is why the banks took such a large hit when Covid halted any thoughts of interest rate increases for many years to come.
But noninterest income soared 13% thanks to an incredible period for the investment banking division. There were loads of IPOs, traders were flying and assets under management grew 17%. Of their $30 billion in revenue, $16.8 billion was noninterest, while $13.4 billion came from interest income.
After a tough 2020 the stock reached the highs of January 2020 last week. Despite that, they have still underperformed most of our other stocks.
We liked JP Morgan for it's traditional banking operations and its ability to increase margins by digitising. The volatile investment banking division which now dominates earnings was not our main growth target. We are still holders of the stock and are keeping a close eye on the business and the environment it operates in.
One Thing, From Paul
My favourite website is 20 years old. Ever since I set eyes on it back in the year 2000, I've been a committed user and sponsor of Wikipedia. In fact, when I have to pay a SABC TV licence, I send twice the amount to the Wikimedia Foundation.
Every time that I need to check out a new company as a possible investment target, or answer a tricky question or check a football player or artist's bio, it's my first port of call.
I recall that when Wikipedia first launched, people doubted that a web-based service that was edited by contributors could possibly be accurate enough. Committed encyclopaedia users were very dismissive. That changed. It now has 55 million articles, across 300 languages.
More than 280 000 volunteers help update the site. Wikipedia has been edited over a billion times, and is now adjusted 350 times per minute. It is read more than 8 000 times a second.
Don't get sucked in by those who say that society is going backwards. In the sweep of history, 20 years is nothing, and see how far this project has advanced. This is humanity's best work, and we are advancing every day.
Michael's Musings
It has been a while since I referenced a Ben Carlson blog piece because it sometimes results in our newsletter landing in your SPAM folder. This piece from last week was a brilliant read though - Inflation Truthers. Coming from South Africa, we all know the negative impact of inflation on our spending power, particularly for those approaching retirement and trying to figure out how much money is enough.
As I spoke about on Friday, the financial system is very interconnected. In this case, global inflation has been trending lower thanks to technology making massive gains to our lifestyles without costing us more. Low inflation means low interest rates, which is one of the reasons for high stock valuations. Effectively, if inflation goes up, so too will interest rates, which will mean a short term drop in equity prices.
As you can see, low inflation has been a key contributor to solid equity returns. Certain people feel world governments, intentionally/ unintentionally, have been under reporting inflation, allowing the current loose monetary policy. Effectively they are saying, inflation is a lie, then so too asset prices and the end is nigh.
Ben has some choice words for conspiracy theorists. If anything, inflation has been lower than we think.
Bright's Banter
The dating and networking services company Bumble filed to go public on Friday. I know what you're thinking, another day another IPO! Bumble plans to raise around $100 million at a valuation as high as $8 billion. The dating app will list on the Nasdaq stock exchange, using the share code "BMBL".
Bumble was founded in 2014 by Whitney Wolfe Herd, a co-founder of Tinder. After her experience with Tinder, she wanted to create a less ghetto dating-app where women initiate conversations with men within 24 hours of matching. This subtle stroke of genius has grown Bumble into an app with 42.1 million monthly users of which 2.4 million are paying customers.
The dating company made $489 million in revenues in 2019, a 35.8% growth year-on-year. In the first 9 months of 2020 the company made $377 million in revenues resulting in $117 million in net losses. Steve Schwarzman's private equity company Blackstone (NYSE:BX) bought a majority stake in Bumble back in 2019 which valued the dating-app at $3 billion.
I'm not too bullish on dating companies considering the fact that Facebook (NASDAQ:FB) has 2.7 billion users and they have a horse in this race. However, do keep in mind that Match Group (NASDAQ:MTCH), which owns brands like Tinder, OkCupid, and Match.com has been a ten-bagger in since listing in 2015, a period where the competition wasn't as tight as it is today.
Signing Off
It is Martin Luther King Jr. Day in the US, meaning their market is closed today. On the earnings front, it is a quiet week. The only stock of note for us Vestacters is Netflix (NASDAQ:NFLX) reporting tomorrow. This week also holds the first SARB MPC meeting. Given that inflation has been low and our currency is doing well, there is a chance of another interest rate cut. Fingers crossed because our economy needs as much help as it can get. The Rand continues to hover in the mid to low 15's, it is currently at $/R15.25.