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On Saturday drones attacked Saudi oil production facilities. That sounds like a headline from a sci-fi movie? A longer term impact on the oil market will come from the damage done, which equates to 5% of global oil supply. The BBC reported that fires are still burning at some of the production facilities; once the fires are out though, then repair work will begin. These facilities will be offline for weeks.

The overnight change in demand and supply metrics shot the oil price higher by 19%. Part of the higher oil price is an increased risk premium, traders are now pricing in the chance another attack disrupting supply. A few nations have released some of their oil reserves to help balance supply and demand and to bring the price down again. It goes to show how quickly things can change though. A sustained increase in oil prices, will lead to higher inflation, which then has an impact on global monetary policy. If no further attacks happen, things should be back to 'normal' in a week or two and the impact on the financial markets will be muted.

Yesterday the JSE All-share closed up 0.60%, the S&P 500 closed down 0.07%, and the Nasdaq closed down 0.22%.




Our 10c Worth


One thing, from Paul

Ben Evans is a partner at Andreessen Horowitz (also known as 'a16z'), a venture capital firm in Silicon Valley that invests in software companies. His biography page says "I try to work out what's going on and what will happen next".

His latest blog post deals with the announcements from Apple at last week's event in Cupertino, at their fancy new headquarters building. The highlights were the new iPhone 11 range of phones, updates to Apple's services offerings, and Apple TV+.



These are Evans' key observations. All smartphones are great these days, but there is still scope for innovation in cameras. The iPhone 11 Pro has three lenses and amazing onboard software. Taking even greater a pictures with very little effort is a top reason to buy the latest model. I'm in!

The services innovations are ongoing, and make it even easier to live inside Apple's ecosystem. The interfaces between the hardware and the services is very smooth. For example, I like the way that Apple Music works with my Apple Watch and AirPods.

Finally, Apple's TV service looks interesting but is not likely to disrupt industry leaders like Netflix, for now. Apple has assembled some impressive content ahead of the 1 November launch, but the streaming service is priced at only $4.99 per month. Everyone is spending a lot on original content.

Apple stock rose after the event announcements and closed the week at $218.75 per share. Of course, we are still firm holders of Apple and will continue to buy the stock for new clients, and those adding to their existing portfolios.

Read the full blog post by Ben Evans here: Apple, services and moats.






Byron's Beats

Michael is the house economist but every now and then I like to dabble in the "philosophy".

Due to Trump's complaints about the US trade deficit the term has received a lot of attention. I would just like to squash the myth of the deficit.

In simple terms the term trade deficit means that a country has more imports than exports. Why is that a bad thing? The negative connotations around the word can be deceiving. People like to compare countries and companies, so let's do that. Assume that a company outsources more aspects of its business than it does internally. The company outsources because buying from someone else is cheaper than making it in-house. Technically that company has a deficit, but it still makes a profit, and that profit is bigger due to outsourcing. That is the key, profits.

High imports means the country's consumers are benefiting from cheaper goods made elsewhere. But more importantly, the money consumers save from buying cheaper imported goods gets spent or invested elsewhere in the economy, creating extra jobs and extra taxes. What is key here is the overall wealth of the country and the taxes collected; similar to the profits generated by the company mentioned above. If a country is able to raise more taxes on the back of increased consumer spending, that a good thing.

You may argue that a country with a high trade deficit like the US loses out on jobs because they are supporting industries in other countries more than their own. The US has an unemployment rate of 3.7% so that is also hogwash.



I am sure Trumps advisors understand this but he is just using the term for political motivation which supports his trade wars. Politicians are just the best.






Michael's Musings

Having more people invested in the stock market is a good thing. Thanks to lower costs, easier access and increased consumer education, more people are now buying stocks - Americans own more stock than ever.

One of the criticisms of QE, and the lower interest rates that comes with it, is that the subsequent rise in equity prices only benefitted the rich. As more people own companies it means that more people get to benefit in the profits created from private enterprise.



Another angle that occurred to me is on the supply and demand metrics. As more people own shares, the demand for them increases. Then on the supply side, fewer companies are listing, instead deciding to stay private for longer. Effectively demand is increasing and supply is decreasing, that would naturally lead to higher share prices? In conclusion, you need to own stocks.






Bright's Banter

Wealth-X posted some interesting data on universities that churn out the highest number of ultra-high net worth (UHNW) individuals. The report explores the country of origin for these alumni and how their wealth is made.

Here are some highlights from the study:

- Only three of the top 20 universities are outside of the US.

- Six of the eight Ivy League universities make it into the top 20 of the list.

- A big chunk of these UHNW alumni are self-made.

- Harvard tops the list with almost 14 000 UHNW alumni, more than double that of Stanford who is in second place.

Below is the infographic showing the data.

Infographic: The Universities Churning Out Millionaires | Statista You will find more infographics at Statista




Linkfest, Lap it Up


Here is a quick take on the impact of negative interest rates - The end of money as we know it.



One of the reasons that we own MTN is because of the huge role that mobile phones play in African economies.

Infographic: How Our Mobile World Powers the Global Economy | Statista You will find more infographics at Statista




Vestact Out and About


Catch up with the main events from last week - The Week That Was - 13 Sept 2019.







Signing off


The main focus for this week will be the Fed on Wednesday and the SARB on Thursday. Then of course, it is the kick off of the Rugby World Cup on Friday; probably the most important event this week? The Rand was as strong as $/R 14.50 on Friday, but has weakened a bit to $/R 14.68 this Monday morning. The JSE All-share is higher this morning.

Sent to you by Team Vestact.


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