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Market Scorecard
The JSE All-share index has now declined for six days in a row. Yuk. The US market at least seems to be back on track, with a strong surge going into the close last night. In other news, Tesla had a Battery Day yesterday and made some interesting announcements. Elon Musk said that they are reducing the cost of their batteries by half in the next three years, which will allow them to sell a Tesla car for just $25 000. That would be a 29% decrease in the current price of a Model 3. Their improved battery technology will also make the cars faster and go for longer before needing to be recharged.
Tesla will further vertically integrate its battery supply chain. Currently, Panasonic provides the battery cells which are the heart of the pack that goes into a Tesla. Now they will make some cells in-house to improve innovation, reduce costs and to ensure stability of supply. Musk commented that it is relatively easy to come up with a new product, but much harder to make the machines to manufacture that product efficiently at scale. Tesla is taking inspiration from bottling plants and paper mills for their new battery cell production lines, which will now see a seven-fold increase in output!
Battery Day demonstrated that Tesla is now years ahead of any rival in terms of battery technology and manufacturing techniques. The implication is that Tesla will probably be a key supplier to other electric vehicle (EV) manufacturers. The competition for Tesla is not rival makers of EVs but internal combustion engine car makers in general. Advancing the whole EV industry will speed up the move away from internal combustion engines, ensuring demand for the growing number of Teslas produced. Tesla stock dropped by 7% in after-hours trade last night, but is still up by 380% in 2020.
Yesterday the JSE All-share closed down 0.10%, the S&P 500 closed up 1.05%, and the Nasdaq closed up 1.71%.
Our 10c Worth
One Thing, From Paul
Nike had quarterly results out last night after the closing bell, and they were very good. Analysts expected sales for the 3-month period ending on 31 August to be $9.1 billion with earnings per share of 44 cents. Instead, they came in with sales of $10.6 billion and earnings of 95 cents per share.
I made two big online orders of new running shoes in the last three months, in addition to a few visits to the Nike stores in Sandton and Rosebank, so I'm not surprised by the blowout sales. I have a pair of Nike Air Zoom Tempo Next% shoes on their way to me right now (see picture below). Very exciting!
It would seem that a lot of people took up running during the lockdown period. If you can't go to the gym, you'll have to hit the streets? Nike's new management team led by CEO John Donahoe battled to get stock into some stores and was stuck with inventory in others, due to Covid-19 logjams in their production networks and store closures. Those problems are now a thing of the past.
Nike has been forging ahead with its digital, direct-to-consumer strategy. The stores are fine, and open again, but just go online please. Better margins. Nike made headlines a few weeks back when they severed ties with nine wholesale sellers of their shoes. E-commerce sales rose by 82% are now 35% of Nike's total revenue. They breezed past the goal of one third of sales that they had previously set for 2023.
In the earnings statement, new CEO John Donahoe said "in this dynamic environment, no one can match our pace of launching innovative product and our brand's deep connection to consumers. These strengths, coupled with our digital acceleration, are unlocking Nike's long-term market potential."
The company also offered a fresh outlook for its full 2021 financial year, expecting sales to be up high single digits to low double digits from a year earlier. That's much better than most analysts expected. As a result the Nike share price rose by 13% after hours, reaching a new all-time high of $130 a share. How thrilling! Almost all Vestact clients own Nike shares in New York. I'll have to go and have a run now, to calm myself down.
Michael's Musings
On Monday, Ben Carlson wrote a great piece on what to do with your investment portfolio in this 'new normal'. Here it is - Negativity Is Not an Investment Strategy.
As you can see from the title, he addresses all the issues around putting your money to work with stocks at near record levels. At the moment, there are very few places that you can put your money to get a decent return. Leaving your money in the bank at zero interest rates means that after inflation, you are going backwards. Bonds are a similar story. For most people, the stock market is the only place to invest.
By staying in cash, you are locking in a negative return. Cash isn't beating inflation at the moment, and probably won't for the foreseeable future. Moving into the market means that your investment will be volatile, but more than likely you will make a positive real return.
As Ben says, the worst investment to make is doing nothing. Doing nothing ensures that your hard-earned money becomes worth less over time. History has shown that being an optimist is far more profitable than being a pessimist.
Linkfest, Lap It Up
To speed up delivery times, Amazon uses its Whole Foods stores as distribution centres, and outsources the last delivery step to independent drivers. An unintended consequence of this system is that drivers are now hanging their phones in the trees near these store entrances, all in an attempt to get the quickest pickup on new orders - Amazon Drivers Are Hanging Smartphones in Trees.
With a large number of damaging hurricanes moving through the Northern Hemisphere this year, people are getting creative with potential solutions. This one seems like a stretch, but you never know until you have tried it - This Norwegian startup thinks it can stop hurricanes . . . with bubbling underwater pipes?
The Democratic Alliance (DA) wants you to be able to borrow up to 75% against your pension fund savings. What could possibly go wrong? You'll get to use 75% of your pension to cover a loan - for any purpose - if the DA gets its way..
Signing Off
Looking at economic releases out today, there is manufacturing data for the EU, UK and US. The Rand has now stabilised at $/R16.80 - for how long though? The JSE All-share has broken its red streak and is up this morning. Enjoy your Heritage Day off tomorrow!
Sent to you by Team Vestact.