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Market Scorecard
There we have it, the US Fed cuts rates for the first time in a decade. Reading the headlines this morning, it seems that no one is happy though. On the one hand, some people say the cut was unnecessary and only done due to political pressure. You can read Barry Ritholtz' rant here - Today's Reckless, Irresponsible, Politically-Motivated FOMC Rate Cut. On the other hand, people are saying the Fed should have done more. As it stands, the Fed's position is that they will lower rates again when the data confirms it is necessary, implying that many cuts may not be on the cards.
The way the market works is to put a greater weighting on profits today and a lower weighting on profits far into the future. Low interest rates are good for corporate profits today and by extension good for share prices. When it became clear that the Fed might drop rates slower than traders were expecting, US market turned red. Compounding the 'hawkish' tone is that two of the voting members voted to keep rates the same and not to drop them. For clarity, being hawkish is generally tied to wanting to raise rates and being more restrictive. Dovish is the opposite, where the focus is on lowering rates and being more expansionary with monetary policy.
Fret not, it will take the market a day or two to fully process this new information, share prices will adjust accordingly and then the market will continue on its merry way. Remember, you are investing for the long term, what the market does over the next few days is of little consequence to you.
Yesterday the JSE All-share closed up 0.80%, the S&P 500 closed down 1.09%, and the Nasdaq closed down 1.19%.
Company Corner
One thing, from Paul
What's going on at Amgen? This biotech company is also widely held in our client base, and its share price has underperformed a bit lately. The stock price reached $210 late last year, but has since drifted lower to around $180 per share.
In previous reports we have described how Amgen is a multi-drug powerhouse, with 7 blockbuster drugs (over $1 billion in annual sales), another 5 which sell more than $500 million per year, and 7 which sell more than $100 million per year. It's in a transition phase now, as some top sellers are approaching the end of their period of patent protection, and other newer drugs are slowly ramping up.
Amgen reported its second quarter numbers on Tuesday night, with revenue of $5.87 billion, which was ahead of consensus. The revenue beat was mostly thanks to higher than expected sales of rheumatoid arthritis drug Enbrel, which sadly faces competition from biosimilars. Osteoporosis treatments Prolia and Xgeva are selling well. Multiple myeloma (cancer) drug Kyprolis is also taking off. Migraine treatment Aimovig is growing sales steadily.
In the negative column, sales of post-chemo drugs Neulasta and Aranesp slowed further, as did growth hormone drugs Epogen and Neupogen. Uptake of new cholesterol drug Repatha was a little disappointing, due to a price reduction.
Amgen spends a lot of money on pharma research and development. The new drug pipeline is exciting, with significant progress on possible cancer drugs. The most promising is the KRAS inhibitor codenamed AMG-510. KRAS proteins are the body's on/off switch in cell signalling. People with Lung cancer have tumours because of mutated KRAS proteins, and AMG-510 attacks them (this is a gross simplification, but you get the idea).
The data on AMG-510 lung cancer efficacy was first presented at the annual American Society of Clinical Oncology (ASCO) meeting in June. On Tuesday Amgen revealed that AMG 510 also works on colorectal cancer and cancer of the appendix. As you can imagine, effective cancer treatments are a potential multi-billion Dollar market.
In a weak market on Wednesday, Amgen stock rose by 5.7% on these reports. That's really encouraging. We remain very confident that Amgen is a stock to own and accumulate at current levels.
Our 10c Worth
Byron's Beats
Another foreign investor has taken a dip into our economy. My favourite gin, Inverroche, has been bought out by Pernod Ricard, the French giant who also owns Chivas, Jameson and Absolute Vodka, according to Business Insider..
I always thought this brand was due for international greatness. The fynbos infused gin manufactured in Stilbaai, Western Cape has an incredibly smooth, unique flavour. With fynbos being endemic to the Western Cape, the flavour cannot be copied. Fortunately for the South African economy, the manufacturing will have to continue here.
Pernod Ricard has the distribution networks to make it huge. The brand already oozes simple luxury. I wish them all the best. Next time you are in that area, visit the distillery and create your own gin, I heard it is great.
Michael's Musings
I love reading about people who build new things and in the process, make the world a better place - 37-Year-Old Former School Teacher Is India's Newest Billionaire.
In this case, Byju Raveendran from India, has built an education app which is worth $5.7 billion. In India, e-learning is taking off as more people get access to the internet and as the price of smartphones drops. Education is vital to building a thriving economy. Being able to access information and education through the internet is one way that poorer households can take part in the economy of the future.
The app is planning to launch in the US next year, where they are teaming up with Disney to make it more relevant. It is a brilliant move from both companies. The app becomes more relevant thanks to Disney characters teaching you maths. For Disney, they will further build their brand value by making their characters more visible.
Linkfest, Lap it Up
It is human nature to think future you will gym more, work harder, eat less and save more. Unfortunately, in most cases things never change and the future happens quicker than expected - 57% of Americans Expect a Comfortable Retirement
It is amazing what science is able to research - The Big Bang Wasn't The Beginning, After All.
Vestact Out and About
Signing off
There is manufacturing data out today from the EU, UK, US and South Africa. There is also an interest rate decision from the Bank of England this afternoon, what will they have to say about the current political turmoil in the UK? After the hawkish tone from the Fed last night, the US Dollar is much stronger today. Currently the Rand is trading around the $/R14.35 levels. The JSE All-share is lower this morning.
Sent to you by Team Vestact.