Market Scorecard
After three days of red, we had a day of green. Is this just the market taking a break from a sustained drop or has it now put the inflation data behind it? Only time will tell. Financial media headlines ascribed yesterday's bounce to better than expected economic data in the US, particularly the weekly jobless claims number released every Thursday.
A new view on inflation seems to be emerging too. The theory is that some inflation will be good for 'Main Street' America because inflation can be a lubricant for spending. As South Africans, we are well aware of how quickly high inflation can eat into our savings. As such, it may be better to spend money now than to leave it in a bank, where it will be going backwards? Well, that's the theory, some inflation is good, too much inflation is bad.
Yesterday the JSE All-share closed down 1.86%, the S&P 500 closed up 1.22%, and the Nasdaq closed up 0.72%.
One Thing, From Paul
In recent days, there has been widespread panic about an uptick in inflation in the US. A release of hot monthly data caused a nasty market sell-off. Some pundits are saying that this is merely a transitory spike, whilst others are screaming blue murder.
It's important to keep things in perspective. The chart below shows the rate of inflation in the developed world since the 1960s. As you can see, inflation was at above 10% per annum in the 1970s. Since then, it's been going down. It's hovered at 2% since the year 2000, despite everything that has happened in the world since then.
The massive fiscal and monetary intervention by the US authorities in reaction to the Covid 19 debacle may have some unintended economic consequences. Rising inflation could be one of them. It's too soon to say with any certainty, we shall have to wait and see.
Byron's Beats
So far this year the Rand is one of the best emerging market currencies. There are various reasons for this but I would say a big driver has been strong commodity prices which have given our economy a welcome boost.
We should also give credit where credit is due. Having watched countries like Turkey and Argentina blunder along with their central banks and fiscal management, our leaders have been relatively stable in that regard.
A common pattern over the last decade is, when markets drop, the Rand weakens too. This is because the Rand is seen as a risky asset. However, with the S&P 500 losing 4% in three days, the Rand remained rock solid. Why am I telling you this? I think it is a good opportunity to send some strong Rands offshore and buy some quality US-listed stocks at cheaper prices.
Michael's Musings
Covid has caused several societal shifts. Here is an unexpected one, a spike in early retirement. I read an interesting Bloomberg article talking about how Covid resulted in more people taking retirement. The article was looking at US data, I'm not sure if the same holds true for South Africa?
The theory is that the recent strong stock market has given people the confidence that they have enough money to last the rest of their lives, even if they retire early. Added to having a healthy savings pot, many older people have not enjoyed working from home, especially slogging through so many Zoom sessions. As a result, people have re-evaluated priorities and decided it is better to retire while healthy.
I thought people were meant to be living and working longer, not retiring early? Time will tell if this trend persists.
Bright's Banter
The Oprah Winfrey-backed, vegan milk maker Oatly is planning to raise as much as $1.65 billion in an IPO, potentially valuing the business at over $10 billion. In July last year, the company raised $200 million at a $2 billion valuation in a round led by Blackstone (NYSE:BX); other investors included Oprah, Jay-Z, and Howard Schultz.
Oatly was founded in 1994 in Sweden by brothers Rickard and Bjorn Oste. They used technology based on research from Sweden's Lund University to turn fiber-rich oats into liquid food. Oatly is the largest oat milk company in the world with more than 7 500 stores that sell its products and about 10 000 coffee shops in the US. They have been in that market since 2017.
According to NielsenIQ, oat milk was basically unknown in North America before Oatly's entrance, and has enjoyed a 151% surge in dollar sales over the past year.
Plant-based dairy as a category has risen by 20% in the same period, with oat milk being the second most popular after almond milk. I am personally excited to see something different in the food space coming to the markets. I might wet my beak on this one!
Blunders
This week on Paul's Blunders - Blunders 199 - Angry Old Man Wants His Vaccine. *Beware F-bomb alert!
Signing Off
Asian markets are green and so too are US futures. We look set for a strong close to the week. The Rand is currently at $/R14.11.
