Monday 11/07/22

1. In MACRO & CRYPTO NEWS, Japan’s LDP wins by a landslide after Abe’s assassination, the Tory leadership contest hots up and Europe warns about crypto
2. In NEWS ABOUT BUSINESSES IN TROUBLE, Klarna raises funds, Joules wants to do the same, the UK dairy industry looks tricky, the bus network faces big cuts, small builders continue to go bust and businesses generally brace for recession
3. In CONSUMER NEWS, Poland faces a wage-price spiral and UK consumers continue to cut spending
4. In MISCELLANEOUS NEWS, Twitter has a bit of drama, tech hiring slows and Diesel looks to be the next LVMH
5. AND FINALLY, I bring you an unusual flavour of Pringles…

So Japan’s LDP gets a major boost, the race for PM starts and European regulators warn about crypto while crypto deals are being done…

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Japan’s ruling LDP wins landslide victory after Shinzo Abe’s assassination (Financial Times, Kana Inagaki and Antoni Slodkowski) shows that the current Prime Minister Kishida’s ruling coalition won a massive victory in Japan’s upper house elections held over the weekend. The vote happened just two days after former PM Abe was assassinated. He was a life-long advocate of changing Japan’s pacifist constitution (that was imposed on them by the Americans after WW2) and it seems that his assassination prompted a higher-than-expected voter turnout. * SO WHAT? * This gives the government an unprecedented chance to push through reform of Article 9, which says that land, sea and air forces “will never be maintained”. However, it won’t be easy as opinion is divided on this reform. Still, if it goes through, it could prompt a major uplift in defence spending.

Back in the UK, Tories seek to narrow leadership field quickly as rancour grows (Financial Times, Sebastian Payne) highlights a lot of noise, shuffling and backstabbing going on as everyone lines up to take over from Boris. You’ll see loads of this from now on and I’m sure that runners and riders will change on a daily basis! As you know, I’d bet on Sajid Javid because he’s held some of the most senior jobs (chancellor, health secretary), taken a moral stance against BoJo twice, isn’t another Etonian, hails from the north (might be useful in the whole “levelling up” thing) and knows the City (because he was a board member at Deutsche Bank – no mean feat). But of course I could be completely wrong!

Then in Europe regulator warns of ‘cautionary lesson’ from crypto crash (Financial Times, Laura Noonan) we see the usual thing of regulators (this time, the European Securities and Markets Authority) wagging fingers and saying “I told you so” to all those crypto dudes and dudettes. Verena Ross, chair of the European Securities and Markets Authority, said that “I hope that some of these investors will see this and will take a cautionary lesson to at least think about how much of their money they invest in these kinds of assets”. She was keen to add that there will be no bailout for affected investors given they’ve been banging on about the dangers for so long. * SO WHAT? * This is clearly a warning shot as ESMA is going to be assuming licensing responsibility for Europe’s biggest crypto asset services providers which will also encompass provisions for mandatory environmental disclosures and some consumer protection for specific areas like lost crypto wallets. Regulators seem to me to have moved at glacial speed on crypto – and it’s high time they do so before private investors in particular get really burned.

Amidst all this, For crypto survivors, there are deals to be had (Wall Street Journal, Paul Vigna) highlights the upside of recent crypto-carnage – that there are loads of deals to be done if you have the money! Last week, crypto lender Nexo agreed to buy rival Vauld for an undisclosed amount and valuations across the sector are down, as you’d imagine. Last month, crypto exchange FTX announced a deal with lender BlockFi that had an option to buy for up to $240m. On the other hand, trading firm Alameda Research bought Voyager Digital, which filed for bankruptcy protection last week. * SO WHAT? * It sounds to me like this is a complete minefield in terms of investment. Yes, there will be salvageable assets, but the risks will remain high as valuations will no doubt be difficult to discern while regulatory pressures are also bound to increase. It’d be like playing pass-the-parcel with a bomb. Although companies like Tagus Capital, a UK crypto VC firm, is looking to hoover up bargains, VC activity in this particular area has slowed down sharply. Also, larger firms like Binance are looking to invest…

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

All sorts of businesses are suffering at the moment…

‘Buy now, pay later’ firm Klarna in $800m fundraise (Daily Telegraph, Ben Woods) shows that Klarna is about to launch an $800m fundraising round with backing from investors like the Canada Pension Plan Investment Board (CPPIB), Canada’s biggest pension fund. It’s looking to announce a new capital injection this week with other investors including sovereign wealth funds and private equity firms. * SO WHAT? * Klarna has fallen from grace somewhat since its last financing round as Apple announced its entry into the BNPL space and the looming threat of a tough regulatory clampdown. I think it’s a good idea to raise money now while it can. If the regulators come down too hard, fund raisings may not be so easy and they will probably come with even more onerous conditions from investors.

Joules prepared fundraising after cost of living hits retail (Daily Telegraph, Ben Woods) shows that things really aren’t going well from the one-vaunted high street apparel retailer. It has now employed KPMG to look at its options – one of which is to raise fresh capital after its cash reserves took a pasting from rising costs. * SO WHAT? * Joules had been a high street champion not so long ago, but its has since had to push through price hikes after being badly affected by global supply chain problems. It has also ditched unprofitable wholesale deals and pivoted away from Chinese suppliers. Given that the company’s share price has already fallen by a whopping 87% over the last year, time is ticking and although funding sounds good, you do wonder whether this company will just become a money pit as customers tighten their belts. Tough times.

The gloom continues in UK on the edge of dairy shortages (Daily Telegraph, Tom Rees) shows that Arla Foods, which makes Lurpak Butter and Cravendale milk, reckons that a dairy crisis is imminent as it just can’t find enough workers, something I referred to last  week, England’s bus network faces 30% cuts as Covid subsidies end (Financial Times, Jennifer Williams) highlights the plight of England’s bus network as Covid subsidies from the government taper off  and Small builders forced to wall (The Times, Tom Howard) just provides more evidence of smaller local builders going bust because of rising labour and materials costs and the lack of financial buffers and bargaining power to raise prices to clients. This was the conclusion of a report from accountancy firm Price Bailey using data from the Insolvency Service. The number of house-builders that went bust last year increased by 75% versus the previous year.

Overall, though, UK companies braced for recession as spending slows and costs soar (Financial Times, Daniel Thomas) shows that a number of companies are now preparing themselves for recession this year thanks to a deadly combination of slowing consumer demand and rising inflation. Retailers are finding it difficult to plan ordering and businesses that rely on discretionary spending, like those in travel and leisure, are expected to be hit particularly hard. Media and marketing are also likely to take a hit – as I always say, they are often seen to be a leading economic indicator. On the other hand, companies in healthcare, utilities, tobacco and consumer staples (like food) are likely to be OK as it is difficult for people to cut spending in these areas too much. * SO WHAT? * Although of course macro factors are going to play a big part here, I actually think that the next PM could also play a major role in a turnaround or a further fall from grace. It sounds like a lot of the candidates to replace BoJo are talking about tax cuts – which might actually stimulate demand and perhaps take the edge off so that we avoid recession. That is a big ask, though, and it also depends on what the new leaders’ other policies are.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

There’s a wage-price spiral going on in Poland but UK consumers are holding back…

Poland’s wage-price spiral shows little sign of stopping (Financial Times, Raphael Minder and Delphine Strauss) highlights a difficult situation in Poland as more people are asking for a raise, not getting it and then going elsewhere as the job market is so tight. * SO WHAT? * This is happening in a lot of countries, including the US and UK, but the phenomenon is proving to be a headache for monetary policymakers who want to control inflation. The problem is that if people earn more, they will spend more and then prices will continue to rise. Interestingly, in Poland, wages have risen by 13.5% in the year to May versus inflation at 15.6% in the year to June. Clearly, we’ll just have to see how this goes, but I am of the opinion that if people keep hearing about inflation and rising prices,

there is a tiny possibility that they will rein in spending anyway “just in case”, which could perhaps slow things down a bit because they can’t just go up forever. That is a very small possibility though and perhaps based more on hope than reality!

Back home, Millions cut back on their spending (The Times, Mehreen Khan) cites research from investment management firm Abrdn and Bristol University which shows that one in six households face major financial difficulties in the cost of living crisis. It also found that more people were now struggling with costs than at any time during the pandemic and low-income households will be proportionately more exposed than more affluent ones as utilities, food and fuel costs account for a larger percentage of disposable income (something I’ve said on numerous occasions previously). This is clearly something that the “new” government needs to address as a matter of urgency.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

Twitter has a bit of drama, tech slows hiring and Diesel wants to be the next LVMH…

In a quick scoot around other interesting stories today, Twitter shares head for another fall as Musk pulls out of $44bn deal (The Times, Emma Powell) tells you about Musk pulling out of the proposed purchase of Twitter in case you missed it (he’s saying that Twitter was in “material breach” of several parts of the agreement, particularly related to the proportion of spam accounts it has), Twitter hires US law firm Wachtell to sue Elon Musk for ending $44bn takeover (Financial Times, Hannah Murphy, Sujeet Indap, Ortenca Aliaj and Eric Platt) shows that Twitter has got the lawyers in to push back and Twitter didn’t seek a sale. Now Elon Musk doesn’t want to buy. Cue strange legal drama (Wall Street Journal, Cara Lombardo and Robert Wall) highlights the irony of the whole shebang. * SO WHAT? * I still think this is an elaborate ruse to push the price down because surely to goodness the agreement will be watertight – particularly after all those abandoned M&A deals during Covid lockdown. Maybe he’s happy to pay the break fee, but that seems like a waste of money to me. We’ll just have to wait and see…

Elsewhere, Tech’s red-hot hiring spree shows signs of cooling (Wall Street Journal, Sebastian Herrera and Sarah Donaldson) shows that the tech industry’s massive hiring boom looks like it’s hit the buffers. Recent Labor Department figures show that there is still growth in the number of tech jobs available but it seems that the momentum is slowing down what with the likes of Twitter, Snap, Tesla and Netflix either freezing hiring plans or cutting staff. * SO WHAT? * I think there’s still growth to be had here, but it’s just going to have to get smarter and change from the pure “getting bums on seats” mindset.

I thought I’d include Diesel jeans founder aims to build Italian rival to compete with LVMH and Kering (Financial Times, Silvia Sciorilli Borrelli) because it is an interesting article about the ambition of Renzo Rosso, who started Diesel in 1978, aged 23. Diesel currently owns Jill Sander and Marni and Rosso really wants to grow this into something that can rival the big French conglomerates. * SO WHAT? * Although you wouldn’t think it, Italy doesn’t have anything similar, so it sounds like it could be possible! The only thing is whether he has the cachet to be be able to tempt big names.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

…in other news…

I’m sure that many of you out there have enjoyed the odd Pringle here and there in your lives so far. So what about a really odd Pringle as per Pringles Japanese egg sandwich-flavor potato chips on sale now, said to taste AND smell the part (SoraNews24, Casey Baseel). YUCK! I really don’t like egg sandwiches. Which is weird, because I really like all forms of eggs (even raw)…