Simon Shares

• Blue Label (JSE code: BLU) shares flying after writing down CellC to zero. Up some 30%. I guess the market is relived CellC is only going to zero.
• WeWork gets a new CEO as founder Adam Neumann steps aside. Makes sense, aside from a lot of crazed decisions he's made. Founders are a different type of person from a CEO.
• The new top end iPhone is on sale for pre-order locally. At almost R33k, yip a full years tax-free. Even if buying on contract, that's an insane amount fo money for a phone that doesn't even make coffee.
• Peter Moyo again refused entry to work at Old Mutual (JSE code: OMU). This is beyond messy.
• Banking strike, with way more horror stories than actual facts. Facts are the union is not happy about retrenchments. But the many many messages I have received about cash running out and online banking not working I suspect are bogus. I suspect I am one of the few left who still use cash anyway?
• JUUL CEO Kevin Burns has just announced he is quitting.
• Wealthy Maths: Calculating dividends
• Up coming events;
  • 10 October ~ Is it time to buy listed property?
  • 31 October ~ Live Fat Wallet Show recording

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Can Trump juice the markets?

More than anything he wants a second term and the election is in November next year (still over 13 months away).

Now he has a lot of troubles, including a possible impeachment attempt being announced Wednesday afternoon.

But Bigger is the trade wars impact on global economies and hence stock markets. We're seeing real evidence that they are hurting with Germany at risk of a recession and some horrid data out of Asia on Monday.

Point is winning a second term with a weak / tanking economy and stock market is hard, very hard.

So he needs to juice the economy and the market and he can do that easy.

Announce full and real trade peace with China, spinning it however required. This will set the market alight and help a struggling global economy and if he times it right, winning him a second term

The trick is when does he do this? Thirteen months out from the election may be too soon. But waiting for April or so may be too late. In fact it all may be too late. But I expect him to try.

Of course ultimately this would be sticking a band aid on a severed limb, but if all that is wanted is enough juice for a second term, it may work. Eventually we'll get the recession and global markets will slide, and very likely this has already started.

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Simon Shares

• Local inflation came in at 4.3% in August from previous of 4.0%. This a little higher than expected with food one of the main drivers. Maybe we're finally seeing food inflation that will help the retailers. MPC rate announcement on Thursday, 20 out of 25 economists say no change. If they'e right then I think a November cut is certain.
• Prosus (JSE code: PRX) remains in the Top40 and Indi25 indices that it went into when spun out of Naspers (JSE code: NPN). I haven't been able to confirm weightings but the big question is does the two of them exceed what Naspers was weighted? For capped indices this gets real messy, say Naspers was capped at 10%, it'll still be 10%, but will now also include Prosus.
• Flavoured vaping, flavoured cigarettes next? Two states and President Trump are hitting out against flavoured vaping with a ban the likely outcome. I have spoken about this before, the tobacco industry went full tilt into vaping as a new gateway into getting new smokers and it's working. Except now regulators are pushing back and the question is if menthol cigarettes will be next? If it is then the industry is dead in the US market.
  • Breaking news is that "India's cabinet approves ban on e-cigarette sales and production".
• Saudi Arabia oil production is coming back, majority this week 100% within 2-3 weeks. Currently we have over supply (before the attacks) so oil will revert back lower.
• Sasfin (JSE code: SFN) results show a book value of around 5000c yet the share has, for years now, traded well below book value. Otherwise not bad results, but they cut the dividend cover from 40% of HEPS to only 20%?
• Comair (JSE code: COM) results boomed on the back of the payment from SAA (ie: us). But otherwise it seems that the market is ignoring their non airline businesses that are now some 40% of group profits. They also seem to be benefiting from SAA reducing their flights early last year and the grew air traffic.
• Up coming events;
  • 10 October ~ Is it time to buy listed property?
  • 31 October ~ Live Fat Wallet Show recording

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The Netflix Challengers

Apple has launched Apple TV+ for $5 or free for a year if you buy a device. Disney+ also launches in November for $5.99 or $12.99 if you also take Hulu and ESPN+.

We also have HBO, Peacock (coming next year), Amazon Prime (essentially free in the US) and a bunch of others.

Locally we only have Netflix, Amazon and Showmax.

But don't forget YouTube, I mostly watch YouTube, but I am a very light TV watcher, maybe 5 hours a week at most. YouTube is of course free, or you can pay to make the ads go away.

So now things get real for Netflix. At last results they had 151.6million globally with some 55million in the US. A recent price increase saw 130k US subscribers exit, but at an extra $1 per month that still added over US$600million to annual revenue.

But here's the Netflix problem;

• They're spending some US$15billion on content which is US$100 per subscriber who is paying around US$150 on average in the IS and lower in the rest of the world. So the numbers add up. But that content bill will continue to grow and competition has got real in the last year.
• Disney has an advantage of a serious back catalogue whereas Netflix has a much shorter and weaker back catalogue and has lost a lot to Disney, Stars etc. who have pulled their content for their own services.
• The idea was that cutting the cable and moving to streaming would markedly cut the bill. But now with all these services it ends up the same or even more. Users are going to start to be icky abut what and when they subscribe. For example, subscribing to HBO when GoT is on, then pausing.

Netflix is not dead, but for the first time competition is real and investors need to watch subscriber numbers and content spend.

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JSE Direct is an independent broadcast and is not endorsed or affiliated with, nor has it been authorised, or otherwise approved by JSE Limited. The views expressed in this programme are solely those of the presenter, and do not necessarily reflect the views of JSE Limited.

Simon Shares

• Hello Prosus (JSE code: PRX). Spun out of Nasper (JSE code: NPN) and trading on JSE and Amsterdam Euronext. I expect Prosus to be the better deal as Amsterdam is a larger market for those wanting access to Tencent and the other assets. And the local fun damager saying that Prosus will do well as local fun damagers don't understand tech should hang his head in shame. The issue was simple weighting, one couldn't have Naspers at full weight in a fund, never mind over weight. So they had to decide how under weight they wanted to be and as such a large discount happened.
  • As I record value unlock is some 3% with Prosus at R1,204 and Napsers off R1,100 adding R104 of value.
  • Bottom line for me is that I expect Prosus to be the better asset due to the Amsterdam listing.
  • And the awkward moment was the JSE not reflecting the indices right as they hadn't included Prosus in the indices that Naspers was in. So everything looked real ugly for a while. They fixed it. For next day or two Prosus will live in same index as Naspers, then JSE will rebalance either kicking Prosus out or keeping it in and kicking out the smallest.

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• Intu (JSE code: ITU) flies on reports of a possible bid for the company by Orion Capital Managers. The problem is that the first two bidders both walked away, but I guess at some price the deal works?
• Labat (JSE code: LAB) is buying into cannabis, well kinda. A very small deal and we'll see. But I for one would not being buying the shares. Labat do not have the best track record on anything and sure cannabis is becoming legal all over. But that doesn't mean the profits flow, where I come from we don't call it cannabis we call it weed, because it grows like a weed.
• Famous Brands* (JSE code: FBR) trading update mostly as expected. GBK doing better after last years restructuring while local brands doing modest after inflation and new stores removed. The new issue is manufacturing where Lamberts Bay Foods is down 39% after losing one client? Talk about concentration risk.
• Moody's says no junk status for 12-18 months. So no need for immediate panic and first they need to drop us to negative outlook anyway.
• Jack Ma steeping down at chair of Alibaba. He stepped down as CEO in 2015 and is an amazing individual. He's 55 and got his first computer at age 33 starting Alibaba in 1999 and the company is now worth some US$460billion.

* I hold ungeared positions.

JSE – The JSE is a registered trademark of the JSE Limited.

JSE Direct is an independent broadcast and is not endorsed or affiliated with, nor has it been authorised, or otherwise approved by JSE Limited. The views expressed in this programme are solely those of the presenter, and do not necessarily reflect the views of JSE Limited.

Simon Shares

• Local Q2 GDP came in at 3.1%, higher then expected but what struck me was the comment from Stats SA ~ "spurred on by a build-up of inventories and increased household expenditure". Now we have seen Woolies* (JSE code: WHL) and Shoprite* (JSE code: SHP) both comment that the second half to end June was stronger than the first, and this statement would suggest it was the second quarter. But who are these people? Or is it maybe base effect?
• An Eskom briefing on Wednesday seems to show that the utility has been stabilised with issues such as not enough coal largely fixed. But important point is stabilised, not yet improving. A start I suppose.
• Group5 (JSE code: GRF) is leaving the JSE as it exits business rescue. Shareholders can expect to get zero back. This is the risk of investing, we get the upside, but if it goes wrong we can lose it all.
• Discovery* (JSE code: DSY) results were pretty much in line with the first half and they continue to spend a lot of the new businesses. Price is, as always, slightly ahead of embedded value and PE is now a little under 15x. David Shapiro Tweeted;

— David Shapiro (@davidshapiro61) September 4, 2019

• Ring fencing tax losses
• Upcoming events;
  • 05 September ~ JSE Power Hour: Benefits of offshore investing

* I hold ungeared positions.

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US recession

US ISM came in at 49.1 which is contraction. This is now another recession warning adding to the inverted yield curve. It is frankly looking more and more likely the US will have a recession in 2020 or maybe early 2021.

Technical recession is two consecutive quarters of negative quarter-on-quarter GDP growth.

OECD data shows 6 US recessions since 1970, about one a decade which is frankly not very many. But what it also shows is that when the US hits a recession so does most of the rest of the world. No surprise there, either because they lead everybody down or because they only enter recession when globally things are real bad.

So what to do?

In short nothing. Just carry on carrying on.

• Firstly, maybe the US won't enter a recession any time soon, or maybe not for an age.
• Secondly, maybe the recession is only in 2021 and the market rallies first than collapses back to levels above the current levels. Remember Trump has an election next year and he can juice the stock market (and US economy) like crazy by making real trade peace with China and what does he want more; a second term or better trading terms with China?
• Thirdly, it may be a mild recession. Still not fun, but not earth shattering.
• Fourth, maybe locally we don't get hit too hard by it? I know that sounds crazy, but say Eskom debt gets fixed and consumer confidence and growth start returning? May sound unlikely, but not impossible.

Point is there are simple too many variables and as such, we just carry on carrying on. Buy your ETFs, keep a well stocked emergency fund and if you're nearing retirement, recession or not, be in the process of de-risking your short-term cash needs.

If you're really scared, and you should not be, have a look at the target volatility ETFs from Absa. Here's an interview I did and a blog post from Kristia here.

JSE – The JSE is a registered trademark of the JSE Limited.

JSE Direct is an independent broadcast and is not endorsed or affiliated with, nor has it been authorised, or otherwise approved by JSE Limited. The views expressed in this programme are solely those of the presenter, and do not necessarily reflect the views of JSE Limited.