Friday 20/12/24

• THIS IS THE FINAL WATSON’S DAILY OF 2024! It’ll be back again in the New Year but don’t worry – I am going to be uploading a lot of material over the Christmas and New Year period so you won’t be missing out. It’ll be the stuff that I wanted to put out at the launch of the new website but have not had the time to plus some extras.
• THE PODCAST WILL START AGAIN VERY SOON. The weekly podcast with Ralph will return and I will be doing a monthly podcast with a compliance lawyer at an investment bank to give you very interesting insights on regulation matters and how they are actually affecting what’s going on right now. I hope to re-start the daily podcast as well after a bit of a hiatus and ongoing technical issues – so there’s more to come!
• WHAT DO YOU THINK ABOUT THE NEW AUDIO FUNCTION? A number of you have been asking for this, so I’m pleased we could sort this out! I tried it initially with AI and didn’t like it – so it’s me that reads it out 😁. I hope that you find this new functionality useful!
• I’LL BE PUBLISHING A “WATSON’S YEARLY COMPETITION” ON MONDAY 30th DECEMBER. This will only be open to paying current subscribers. One of the prizes will be working with me in person at my office where you will be helping me to write Watson’s Daily for a day. I’ll release more details soon! Follow Watson’s Daily on Instagram for more…
• I WILL BE DOING A REVIEW OF 2024 AND THEMES TO LOOK OUT FOR IN 2025 ON TUESDAY 14th JANUARY AT 4.30pm. If you want to attend this, HERE is the link to sign up. I hope to see you there – this will be a good way to start the year!

Bank of England holds interest rate at 4.75% but warns of UK stagnation risk (The Guardian, Richard Partington) shows that the Bank of England yesterday decided to keep interest rates unchanged, meaning that borrowing costs will remain higher for longer due to ongoing concerns about inflation and the repercussions of the recent Budget. Renewed inflation fears stalk central bankers as markets shudder (Financial Times, Sam Fleming and Ian Smith) highlights concerns by central banks around the world about the stubborn nature of inflation, with the knock-on effect that the speed at which interest rates are cut will slow down. * SO WHAT? * This has taken the edge off recent excitement in the markets as a falling interest rate environment tends to be good for markets, and with rising markets come more IPOs and M&A activity as well as more investment as companies try to lean into the feelgood and the cost of borrowing is down. TBH I think everyone needs to hunker down for now and see what Trump comes up with in the New Year in the way of tariffs.

Talking of the man himself, Trump bolsters House Republicans’ new spending deal to avert government shutdown (The Guardian, Lauren Gambino) shows that the president-elect has now put his considerable weight behind House Republicans’ new federal funding plans a day after

he rejected a bipartisan plan that plunged Capitol Hill into chaos. * SO WHAT? * This just smacks of a 🍆-measuring contest but we have yet to find out whether this new version will get traction. As things stand, current federal funding expires at 12.01am on Saturday morning after which there will be a shutdown if an agreement isn’t reached.

Meanwhile, Hedge funds cash in on Trump-fuelled crypto boom (Financial Times, Amelia Pollard and Harriet Agnew) cites a report from data provider Hedge Fund Research which shows that hedge funds using crypto strategies posted returns of 46% in November, meaning that they have enjoyed year-to-date gains of 76%! * SO WHAT? * This is significant given that hedge funds who have NOT employed such strategies have shown returns of  “just” 10% in the first 11 months of this year. Winners include Brevan Howard Asset Management and Galaxy Digital. This is all well and good but it doesn’t count unless you sell up and CRYSTALLISE the gains! Maybe they’ll take some money off the table but given the incoming crypto brotherhood across The Pond, it will be difficult to bet against further gains…

In markets news, ‘A third of smaller companies on Aim’ could be snapped up next year (The Times, Tom Howard) cites the opinion of the head of M&A and advisory at Peel Hunt who reckons that up to a third of smaller UK companies on AIM could be acquired in 2025. * SO WHAT? * This is due to a combination of low valuations, the frustration of low liquidity (this means that it’s difficult to trade the shares, something that investors tend not to like because it means they can’t buy and sell when they want/need to) and a relatively stable political environment in the UK (well, in comparison to Europe for example!). Target companies could be bought out by private equity or perhaps their own management, frustrated with markets under-reacting on good news and over-reacting on bad. Fun fact: 55% of company acquisitions this year have been made by overseas buyers. 

Following on from what I’ve just said, London’s loss of stock market lustre is a question of liquidity (Financial Times, Lex) is an interesting article which contends that the main reason why companies are leaving the London Stock Exchange isn’t actually due to better valuations in the US or better access to US investors (they’re over here as well) – it’s all about liquidity. The easier shares are to buy and sell, the easier it is for investors to build up sizeable stakes and/or get in and out of their investment when they want to without causing the share price to jump or crater (if there aren’t many shares traded, selling out or buying in size can have such reactions). * SO WHAT? * If something can be done to improve liquidity, this could go some way to stemming the outflow and perhaps measures to reform stamp duty on share transactions could be a positive step in this regard. Unfortunately, given that the liquidity issue is a structural one, I would have thought that reform will take time and the effect of that reform will take even longer to get traction.

Walmart pushes back climate change targets (Financial Times, Gregory Meyer) shows that the US retailing giant said this week that it is going to fall short of previously-stated climate pledges thanks to difficulties with energy policy, infrastructure and the availability of low-carbon technologies. * SO WHAT? * Given the company’s size, this is likely to influence the whole sector as it may well give the excuse for other companies to do the same (“Well Walmart’s going it – so should we”). The Paris Accord, which was signed by almost 200 countries in 2015, committed to cutting global emissions by 43% by the end of the decade to limit global warming to no more than 1.5°C above pre-industrial levels. In Walmart’s case, the retailer has been expanding, which means that new stores have opened, necessitating more goods being shipped by the retailer, leading to more emissions. On a positive note, 48% of its global electricity needs have been supplied by renewables in 2023, putting it on track to hit its 50% target in the first half of 2025.

In consumer goods news, The Risky Strategy Behind Nike’s Massive Holiday Discounts (Wall Street Journal, Inti Pacheco) shows that Nike is discounting its stock aggressively at the moment in order to clear inventory. The new CEO, Elliott Hill, is keen on doing so, even to the detriment of

holiday sales. The company reported quarterly numbers yesterday – and they were disappointing as this was the third consecutive quarterly decline and profits also fell. * SO WHAT? * Hill has got a job on his hands and given that things have been weak for a while now at Nike, he’s still in that period where he’s OK in making things look bad. This means that when he puts a turnaround plan in place, it’s more likely to have a positive effect and make him look like a hero.

Then in Soho House revives talks to quit the stock market in £1.4bn deal (Daily Telegraph, Matthew Field), we see that the chairman of the chain of posh members’ clubs is looking at taking the company private again in a $1.8bn buyout bid after an unsuccessful foray on the New York stock market where it has seen it market value crater by almost two-thirds since it listed. Soho House launched back in 1995 but has now expanded to 45 clubs around the world! * SO WHAT? * This will be a tough turnaround if the deal goes ahead and I would have thought that any kind of recovery will depend on timing and luck in attracting more members at a time when many are still feeling the pinch.

Tesla sales crash as drivers snub Trump supporter Elon Musk (Daily Telegraph, Matt Oliver) shows that Tesla sales in Europe have dropped by a whopping 40% thanks to a combination of tariffs levied by the EU on Chinese-made cars that the company exports to the Continent, its ageing line-up of vehicles and Musk’s backing of Trump in the election. * SO WHAT? * It’s debatable as to how much of Tesla’s travails are due to tariffs (not all Tesla cars in Europe come from China) or Musk’s foray into politics (arguably, people are likely to forget) but the fact that its model line-up is long in the tooth may put some potential buyers off.

British car production falls to lowest level since 1980 (The Times, Tom Saunders) highlights disappointing numbers from the SMMT which show a new low for car production thanks to a combination of factories re-tooling for EV production, the ongoing disappointing demand for EVs, poor charging infrastructure and lack of buying incentives. In the immediate future, reforms of the ZEV mandate will be of utmost importance.

In a quick scoot around some of today’s other interesting stories, FedEx Shares Jump on Plan to Spin Off Freight Trucking Division (Wall Street Journal, Esther Fung and Connor Hart) shows that investors demonstrated their delight at the prospect of the delivery giant announcing the spinning off of its freight trucking division as part of efforts to streamline its corporate structure and, I hate this phrase, “unlock shareholder value”. Shares jumped by 8% in after hours trading on the news despite FedEx also announcing weaker quarterly profits and downgrading some of its year-end forecasts. It seems that FedEx is the latest company to want to streamline its operations to be more investor friendly.

There’s bad news for Bond fans in James Bond Outdueled Goldfinger and Dr. No. Can He Win a Battle With Amazon? (Wall Street Journal, Erich Schwartzel and Jessica Toonkel) as it turns out that there is no new Bond film in prospect (and still no sign of the new Bond!) as Barbara Broccoli and Amazon (the franchise’s “new” owner) are at loggerheads about the future creative direction.

In Smart ring start-up Ōura raises $200mn as valuation leaps to $5.2bn (Financial Times, Tim Bradshaw) we see that Ōura, famous for making health-tracking smart rings, has managed to double its previous valuation in its latest funding round where it has raked in $200m of new

money. The company said that the cash would help it expand into new categories, invest in AI and power its international expansion. * SO WHAT? * This is an impressive development and highlights just how far it has come since it started on Kickstarter, the crowdfunding site, in 2016. However, I do wonder about the long-term life of such fitness gadgets because it the company doesn’t keep innovating, others start to introduce similar devices and its “hotness” recedes. Whoop is another example of a premium fitness tracker that has gained popularity over the years, but TBH I would be more inclined to get behind existing smart watches because they have so much more functionality whereas I fear that the popularity of one-off devices like this just fade after a couple of years (look at what happened with Peloton and Mirror, for instance).

Then in BT fights off £1.3bn UK class-action lawsuit (Financial Times, Alistair Gray) we see that BT has managed to shrug off a massive legal claim that it overcharged around 3.7m landline customers in the UK. * SO WHAT? * This is a setback for the class-action lawsuit crowd who had been emboldened after Mastercard recently homed in on settling a claim for about £200m that it imposed unfairly high fees on card transactions. It may be that this has a dampening effect on similar claims in the short term but I believe that this is something that is still at an early stage in the UK.

I know that I brought some bold dad-dancing moves to your attention on Tuesday this week but when I got home last night and just put Friends on I realised that I did you a massive disservice. I am so soooo sorry about this. I failed to bring up this classic Friends gem of Ross and Monica doing “The Routine”. But did you know that Ed Sheeran did it as well?? Superb!