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Today is Thursday, the 26th of October, 2023. It is the 299th day of the year, 66 days remain.

On this day in 1958, Pan-American Airways made the first commercial flight of the Boeing 707 from New York City to Paris. This flight started an era of cheap, mass international travel, benefitting consumers tremendously. Like most new technologies, the companies providing the product did not benefit as much. Have you ever even heard of Pan-American Airways?

Quote of the day

“Salads don’t win scrums.”

Retshegofaditswe “Ox” Nche

Over the past few weeks, the Rugby World Cup has offered up a few surprises. New Zealand held firm for 38 phases in the final 5 minutes against Ireland. South Africa beat France by a point in front of a hostile home crowd. South Africa beat England by a point after being down and out as late as the 70th minute. Retshegofaditswe seemingly single-handedly destroyed the English scrum – not once, not twice, but four times.

I can’t go through it again on Saturday. Maybe my brother is the smart one in our family – he avoided all the stress of the quarter and semi-finals by going to bed before kick-off.

It feels like markets are throwing up just as many surprises. I alluded to this last week – I believe we are in for a long period of structurally increasing interest rates in developed markets. And almost nobody – and I mean nobody – managing money today has done so in such an environment. Surprises should be expected.

In developed markets, declining interest rates have been the norm for the last 40-odd years; in emerging markets, it’s been more mixed, but we have still benefitted from this favourable tailwind. This backdrop has made a vast cohort of financial intermediaries very wealthy – whether they deserved it or not. And to be honest, many probably didn’t. Luck – in the form of ad valorem fees levied on incremental value accretion through the simple mechanism of present valuing future cash flows with increasingly lower interest rates – played a much larger role than skill.

We professional investors need to ask ourselves: did our fees increase because we created value – higher future cash flows – or because the present value of unchanged future cash flows increased?

We’ve been enjoying the healthy salad of growth stocks sprinkled with a nice bouquet of bonds, roughly in a 60/40 proportion. This recipe has made us lean and trim, if a bit low on muscle power. We’ve never much had to fight the market for returns; we could enjoy the ride down the interest rate slide.

That ride is over, and we need to fight the headwinds of increasingly higher interest rates. To do so, we must change our diet to face the future confidently. We must throw that 60/40 dressed salad out the window and bulk up with more nutrients. And changing one’s diet is hard, especially one that has worked so well for us for so long.

But it’s time.

You have to ask yourself, what would Ox do?

A much more diversified diet is what Ox would do: more whole foods and less processed foods and sauces. And less salad.

So, add nutrients in the form of hard assets. Add nutrients in the form of long-dated, high-yielding emerging market bonds. Add nutrients in the form of short-dated US$ assets. Or, as Jeffrey Gundlach says – more T-Bill and Chill. And have much less of that rich sauce of developed market equities and bonds.

We will have to work hard to preserve wealth – let alone grow it –  over the next 20 years or so. It’s time to change our diet to get into shape for the hard work ahead.

“New highs are bullish”

1. The energy sector

In these tough markets, it’s hard to find bullish-looking charts. But the energy sector keeps hitting new highs.

Energy sector

Source: koyfin

True to the capital cycle, the deals are now starting to happen. US Majors are embracing multi-decade oil assets, while the EU majors diversify into low carbon.

Exxon Mobil is buying Hess for its Guyana resource, while Chevron is buying Pioneer for its long-life exposure to the Permian basin. It will be fascinating to see how this plays out. In the long term, carbon-based energy isn’t going away, and access to long-life resources will become more valuable, not less. I back the Americans on this one. I have no exposure to the European names.

2. Bitcoin


Source: koyfin

Bitcoin hit a new 12-month high of $35,000 on the news that the SEC was close to approving a Bitcoin ETF for Blackrock. It is still far from its all-time high of around $65,000, but it looks like there is still life in the old dog(e).

“New lows are bearish”

1. Impala Platinum

The platinum sector is under tremendous pressure. Impala has declined from R240 per share two years ago to R74 per share.

Impala Platinum

It is now trading as cheaply – relative to sales – as it did in 2016 when it was making losses and had debt. It is in much better shape today – far from loss-making and debt-free.

Impala Platinum

Source: koyfin

But, revenues (sales) are still at very high levels.

Impala revenue

Source: koyfin

This chart from The Finance Ghost (follow him on X – @FinanceGhost – for very useful market commentary) shows that revenues are set to decline further for the platinum sector:

PGM basket price

The time to buy platinum stocks is approaching, but we’re not there yet. I still don’t own any.

2. MTN

The poster child of investing in Africa continues to hit 12-month lows.

Its two main businesses are in South Africa and Nigeria. The consumer is under pressure in South Africa, and in Nigeria, the currency is collapsing. The company has run out of good news, and the market is busy giving up on it.  I don’t own it and am happy to continue sitting on the sidelines.


Source: koyfin

3. Equites


Source: koyfin

Equites is a REIT. That almost guarantees the bearish case. Earnings are declining, and the CEO continues to be a heavy seller. If I owned it, I would also be selling it.

Did you know?

1. The end of load-shedding is in sight.

My colleague at Merchant West Investments, Daniel King, sourced this table from Standard Bank Research. If accurate, we should be in surplus by 2025. This could be a real boost to the economy:

Eskom table

The major driver has been the private sector via the installation of household solar power.

Rooftop solar

My take: never underestimate the power of incentives to drive humans to solve problems.

2. The missing billionaires?

The book The Missing Billionaires by Victor Haghani opens with a striking observation: there were about 4,000 millionaires in the US in 1900, and if they’d invested in a diversified portfolio, achieved average returns, and paid the usual taxes, their descendants today would probably number around 16,000 billionaires. In fact, today, the US has 700 billionaires, so there are not nearly as many as expected. In other words, there’s substantial mean-reversion in extreme wealth, even though the extremely wealthy can afford advice on prudently investing their money.

My take: wealth seldom survives the third generation – not always because it is wasted, but often through poor investments. Good advice is worth paying for but very hard to find.

3. Lucid Motors

The maker of luxury electric cars delivered 1,500 vehicles in 3Q23 and has a market capitalisation of US$10.3bn. During the quarter, It lost US$750m on revenues of US$150m. By comparison, BMW sells about 2.5m vehicles yearly and has a market cap of EUR 60bn. Even more astonishing is that Lucid is still so overpriced even though the stock is down 90% from its highs. And what is truly outrageous is that Lucid’s CEO Peter Rawlinson is the highest-paid CEO in the automotive sector, with a package totalling $379 million last year.

My take: if you thought this speculative cycle was over with the collapse of Bitcoin last year, think again. And – dad joke warning – I guess it pays to take people for a ride.

4. The bond market

Bond chart

An unlikely aberration has occurred in global bond markets for the first time on record: yields on emerging-market bonds in local currencies are lower than the yield available on US Treasuries.

My take: emerging markets are generally in better financial shape than developed markets. And it’s starting to show.

What I’m reading

The Techno-Optimists Manifesto by Marc Andreessen from the Venture Capital firm Andreessen Horowitz was sensible. In fact, very sensible, coming from (a potentially Utopian worldview-promoting) venture capitalist. You can read it here to judge for yourself:

Of course, there is a counterargument, which you can read here.

What I’m listening to

I have a friend who knows music, not like your uncle from Pretoria who knows the chorus of all the 80’s hits. He’s the guy who represented some of the biggest names in the music industry. He’s the guy who can play drums and guitar – and probably the sax, too, but I haven’t checked. He’s the guy who can identify just about any song after three bars.

Yes – he’s that kind of guy. And he builds killer playlists on Spotify. He has one which is called the Friday Song – where he adds a new song every Friday, accompanied by a highly detailed, sometimes technical, but always entertaining, description of the song and its origins.

But it’s a private list.

Let me know if you want to be added to his WhatsApp group. If you love music like I do, Fridays will be much better once you’re on that list.

What I’m watching

DoubleLine CEO Jeffrey Gundlach, speaking Oct. 3, 2024, at Grant’s Interest Rate Observer fall investment conference.

T-Bill and Chill. Enough said.

Watch it here:

Last week, my wife told me she was getting bored with my schtick – the letter was becoming prolix. As Mark Twain said: “I didn’t have time to write a short letter, so I wrote a long one.” That seems to be my problem in each letter, but I’ve managed to keep it under 2,000 words this week.

Thank me later. And remember to be careful out there!

Piet Viljoen