Thursday 02/03/23

  1. In MACRO & CRYPTO NEWS, the West wants the UAE to clamp down on Russia sanction-dodging, Germany’s inflation jumps, hopes increase for post-Brexit financial regulation progress, the BoE hints at peak interest rates and there’s more crypto drama
  2. In FINANCIALS NEWS, ESG causes a kerfuffle, Bridgewater cuts jobs, Revolut posts its first annual profit, Vanguard gives up and Chinese banks offer mortgages for 95-year-olds
  3. In TECH NEWS, Biden gets the power to ban TikTok, Twitter crashes, China’s AI advance faces limitations and Arm swerves London
  4. In MISCELLANEOUS NEWS, Musk plans cheaper cars, Rivian torches cash, Aston Martin losses double and UK house prices fall at the steepest annual rate since 2012
  5. AND FINALLY, I bring you a strangely addictive clip…

1

MACRO & CRYPTO NEWS

So the West looks at the UAE, Germany takes a surprise blow, hopes increase for post-Brexit progress, Bailey hints at peak interest rates and crypto drama continues…

📢 I’ll shortly be publishing my annual P/Review where I roundup the news of the year in 2022 and then outline predictions for themes in 2023. Because it’s such a big report 😱, I will be publishing it in stages. There is nothing like this anywhere else, and it will help your understanding of what’s going on enormously so keep an eye out for it! In the meantime, I’ve recorded a special podcast where Ralph Hebgen and I talk through some key themes to watch out for this year. You can listen to it HERE or watch it HERE.

Did you know that there is a podcast to go with Watson’s Daily? In this podcast, I discuss two stories from the day’s edition in a bit more depth with a Watson’s Daily Ambassador, my mate Ralph (on the Weekly podcast) or a special guest. The idea of this is to help to give you more of an idea of what talking about this stuff could sound like 👍 You can find the podcasts on the buttons below:

West presses UAE to clamp down on suspected Russia sanctions busting (Financial Times, Sam Fleming, Henry Foy, Felicia Schwartz, James Politi and Simeon Kerr) shows that officials from the US, EU and UK have visited the UAE last month in a bid to stop it from exporting critical goods to Russia amid suspicions of the Gulf state ducking sanctions against Russia, particularly the re-exporting of drones and electronic components like microchips. Turkey, countries in Central Asia and the Caucasus are also being looked at regarding their (in)actions on sanctions and the officials have asked for more disclosure on what they actually export to Russia. * SO WHAT? * Given that the UAE has seen a massive influx of Russians to Dubai in particular since the start of the Ukraine war, this is hardly surprising. It’s difficult to see how the UAE’s actions could be monitored and I’m sure that any sanctions imposed on the UAE itself could well be framed as a slight on the entire region, which could in itself spark a backlash in the form of, say, oil supply restrictions etc. This will be a tricky balancing act IMO. But maybe this is just a warning shot from the allies at the moment that they are aware of the situation and could well do something to retaliate.

📢 It’s Thursday, but unfortunately I will NOT be able to do the call tonight as I have to host an online event whose timing was changed at the last minute. I’m sorry for the inconvenience, but should be back again next week! See you then!

Surprise jump in German inflation after surge in food prices (Daily Telegraph, Chris Price, Melissa Lawford and Adam Mawardi) highlights a surprise rise from 9.2% in January to 9.3% in February thanks to higher food prices and service costs. Food price inflation came in at a whopping 21.8% versus February last year, according to the statistics agency Destatis. Ouch. I suspect this could keep the pressure on the ECB to continue with its current interest rate policy.

Windsor deal opens door for progress on post-Brexit financial regulation (Financial Times, Andy Bounds, Daniel Thomas and George Parker) suggests that the Northern Ireland deal could actually pave the way for the resolution of other knotty problems like the regulation of UK financial services. A “memorandum of understanding” (MoU) on regulatory matters has been in limbo since it was agreed in March 2021 because of the impasse between the EU and UK on Northern Ireland. However, it seems that the EU may now look at signing the MoU now that the Windsor framework has been decided although a timeline has not been suggested as yet. * SO WHAT? * As things stand at the moment, there doesn’t seem to be anything to get too excited about for the financial sector as the default position of the EU has been to try and chip away at London’s supremacy. It’ll be interesting to see how this plays out because I think the EU will see this as a unique opportunity to transform its own financial industry that may never come again and so I do not expect them to roll over. Equally, the UK is not going to want to give much ground either given the sector’s importance to UK GDP, so a compromise is going to have to be made somewhere…

Bank of England boss signals interest rates may have peaked (The Guardian, Larry Elliott) shows that BoE governor Andrew Bailey has said that we may have seen peak interest rates after ten rises on the trot since December 2021. However, he did leave the Bank the option of raising rates should there be the need to do so (which is kind of obvious because that’s his job 🤣).

Then in Crypto bank Silvergate evaluating ability to survive as going concern (Financial Times, Joshua Franklin) we see that shares in the crypto-centric bank Silvergate cratered after hours yesterday as the after-effects of the collapse of FTX (which was one of its clients) and digital token prices took their toll after the bank said that it would have to delay the filing of its annual report with the SEC because of the precariousness of its capital position, particularly after it reported dire Q4 earnings. It is currently looking at whether it can continue as a going concern! * SO WHAT? * This just goes to show the consequences of chasing a quick buck as the once small community bank boarded the crypto fun bus only for it to eventually crash. Its move into cryptocurrencies initially resulted in huge growth, but this is now a distant memory and it is now facing a fight for survival.

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!

2

FINANCIALS NEWS

ESG causes debate, Bridgewater cuts, Revolut has good and bad news, Vanguard has a ‘mare and China goes for the oldies…

There were some pretty interesting stories today on ESG! Joe Biden expected to issue first presidential veto in anti-ESG vote (Financial Times, Lauren Fedor and James Politi) shows that the US president is potentially going to have to veto a motion to roll back a rule that enables fund managers to take into account ESG factors in their investment decisions. Biden’s a Democrat among a sea of Republicans and his party was unable to successfully resist the motion (Democrats want the ESG consideration, Republicans don’t), so he’s going to have to use his “special move” and ignore Congress, which voted to prevent fund managers to base investment decisions on ESG factors. The argument against the rule is that by going down the ESG route, fund managers are restricted in what they can buy and therefore risk missing out on outperformance by the oil, defence and pharmaceutical sectors, for instance and politicise investment. Wall Street titans confront ESG backlash as new financial risk (Financial Times, Patrick Temple-West and Brooke Masters) highlights concerns among investment managers, private equity firms and brokers that adhering too closely to ESG principles will harm investment performance. Concerned parties include the likes of BlackRock, Blackstone, KKR and T Rowe Price – some very big hitters – and it seems that anti-ESG sentiment is gaining increasing traction. * SO WHAT? * Given that ESG funds underperformed non-ESG funds in 2022 for the first time in five years, mainly thanks to skyrocketing oil sector performance, you can see why everyone’s changing their tune. FWIW, although I agree on the idea of ESG funds, the practicality is very different. I think that ESG funds were in danger of becoming a self-fulfilling prophecy because their restrictions meant that they could only invest in a narrower universe of stocks and so, given the proliferation of ESG funds, you were getting more money getting poured into the same stocks. This meant that many other stocks never got a look in and that “ESG stock” saw their values artificially inflated. The debate on ESG rolls on…

Bridgewater to cut jobs and cap flagship fund in post-Dalio overhaul (Financial Times, Ortenca Aliaj and Eric Platt) shows that it’s not just tech sector jobs that are at risk – financial jobs aren’t safe either! Hedge fund Bridgewater Associates said it would be making an 8% headcount reduction and cap the amount of money in its flagship fund, Pure Alpha, to ensure that it is nimble enough to make good quality investment decisions. * SO WHAT? * This is all about trying to make up lost ground with rivals such as Citadel, who reported big profits last year. Longtime leader Ray Dalio ceded control in October and the company is trying to reset. It said that it would invest in AI and machine learning, Asia, sustainability and equities.

Revolut dealt banking licence setback by its own accountant (Daily Telegraph, Simon Foy and Matthew Field) highlights some good and bad news for the British fintech company. The good news is that it is getting closer to getting a UK banking licence (which means it’ll be able to hold deposits and provide loans to customers) and that it achieved its first full year of profit but the bad news is that its auditor, BDO, left a “qualified” opinion on its delayed accounts because it had not been able to verify around half a billion of revenues warning that they may be “materially misstated”. * SO WHAT? * This is a big deal because it represents about two-thirds of the company’s revenues! It could also potentially delay the granting of the licence, although that hasn’t been officially stated as yet. Having a qualifying statement on your accounts is never a good thing although it is worth saying that BDO did NOT express any worries about Revolut being a going concern.

Then in Vanguard closes UK financial advice arm after less than two years (Financial Times, Chris Flood) we see that the US fund manager is shutting down its UK financial planning arm due to lack of interest! It now has to refund all the financial planning fees clients have paid since they joined! It seems that the personalised retirement saving advice service to investors with a minimum of £50,000 to invest just didn’t get any traction. The firm was planning to roll out a similar service in Germany and Europe, but that may now be in question. * SO WHAT? * The FCA reckons that there are around 4.2m UK customers that hold over £10,000 in cash and would be open to invest this money, but it is very difficult for companies – even with the size and resources available to Vanguard – to do this in a way that is profitable to them and that is at a price that isn’t deemed to be too expensive by customers. As populations age, this is something that will only get more pressing, not less.

Chinese banks try to revive housing market with mortgages for 95-year-olds (The Guardian, Amy Hawkins and Helen Davidson) shows that banks in Beijing, Hangzhou and other major cities are now offering “relay loans” to older customers anywhere between 80 and 95, which are then inherited by their offspring in the event that they can’t make the payments. The age cap is usually around 70 but the new moves will allow older people to apply for mortgages of 20 or more years and the middle-aged to have longer repayment periods. * SO WHAT? * This is an interesting move that is designed to boost China’s sluggish property market – but I have to say that, as world populations get older, the upper age cap is surely going to have to rise. If nothing else, it seems that prices are so high these days (although prices are coming down now) that the average age of buyers is creeping up – so surely the upper age limit also needs to be moved accordingly, not least because we will also be retiring later and working longer as well!

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!

3

TECH NEWS

Biden gets the power to ban TikTok, Twitter crashes, China’s AI advance has limitations and Arm looks set to avoid London…

Republicans push to give Biden power to ban TikTok (Daily Telegraph, Matthew Field) shows that the powerful US House Foreign Affairs Committee voted to approve a bill that will allow Biden to ban the short-form video sharing app, which is currently used by 100m Americans. The Republican chair of the committee, Michael McCall, pointed out the security concerns and came out with this fantastic quote about what the risk is to its users: “It’s a spy balloon into their phone”. There are no details as to how this would actually work and the bill will have to pass the full House and Senate before it made it to Biden. * SO WHAT? * The pressure really is building on the ByteDance-owned app which consistently denies that it co-operates with the Chinese state. It just announced that it’s setting a one-hour limit for users under 18. OK so this can be turned off, but teenagers who do this will get a daily warning and advice to cut down if they exceed 100 minutes watch-time per day. Will this pressure really turn into a ban?

In Twitter goes down days after Musk fires 200 staff (Daily Telegraph, Matthew Field) we see that Twitter had an outage yesterday and comes just days after 200 additional job cuts were announced. It is amazing to think that Elon Musk has sacked over half of Twitter’s workforce since he became CEO last year. I think it’d be fair to say that Twitter is still very much in rebuilding mode…

Meanwhile, China telcos: the fear of dissident chatbots will retard AI (Financial Times, Lex) is an interesting article that talks about the unique challenges that China faces as it makes efforts to build its own versions of ChatGPT. I’ve said before that there are difficulties regarding the use of, say, purely Chinese language sources to train the chatbots, but this article also mentions the difficulties development may face when it comes to censorship, particularly as we’ve seen that ChatGPT (which is seen to be at the forefront of AI at the moment) is prone to making extreme comments. Will state intervention ultimately slow the progress in AI?

Then in Arm snubs London listing in blow to Britain’s stock market (Daily Telegraph, James Titcomb) we see that the SoftBank-owned British tech company is going to list in New York, when it floats later this year. PM Sunak has been trying to get at least a dual listing over here, but it seems that his overtures have fallen on deaf ears. * SO WHAT? * This isn’t the end of it yet as it is still possible that there could be a dual listing. I think that listing on the NASDAQ was always going to be a front-runner as American investors are generally seen as being more tech-friendly (and likely to put it on a higher rating). SoftBank needs the cash and you would have thought that an American listing will give Arm a higher valuation – which means that SoftBank will be able to get more money.

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!

4

MISCELLANEOUS NEWS

Musk plans cheaper cars, Rivian cash burn continues, Aston Martin’s losses double and UK house prices fall…

In a quick scoot around some of today’s other interesting stories, Elon Musk plans cheaper ‘next generation’ Tesla cars (Daily Telegraph, James Titcomb) shows that Tesla is planning on halving the cost of making new cars and introducing a cheaper new model that will be much more price-competitive, helping the company to boost volumes considerably. No details on the c.$20,790 new model were forthcoming but clearly it could be a winner considering that the average cost of an EV in the UK right now is over £40,000!

Rivian’s $6.4 Billion Cash Burn Might Be a Record for Startups (Wall Street Journal, Stephen Wilmot) highlights the frightening rate of cash burn at Rivian as it continues to lose money on every car it sells! It is also ploughing money into future development and its negative free cash flow stands at an eye-watering minus $6.4bn! Tesla had 13 consecutive years of negative free cash flow before turning positive, so Rivian may well try to take heart from that! * SO WHAT? * Since its stellar IPO in November 2021, where it raised $13.5bn, a lot of things have gone against the company. Inflation and freight costs increased its cost base and it has had to cut production numbers because of parts shortages. Although it is going to continue to burn through cash, the company is predicting a slightly better 2024 and 2025 – but it is highly likely that it is going

to need even more cash! I always thought that Tesla was able to raise cash because of the charismatic Elon Musk, but there’s only one of him and I’m not sure whether Rivian has the same draw – particularly as Musk had the EV sand box pretty much to himself back in the day whereas Rivian is facing more competition from the off.

Then in Aston Martin losses more than double amid hopes for turnaround in 2023 (The Guardian, Jasper Jolly) we see that the company has come through a dire period in its history since its flotation back in 2018 and says it expects cash burn momentum to slow down in H2 of 2023, with the caveat that inflationary pressures may hold things back. * SO WHAT? * The implication that things will get a lot better sounds to me like it is based quite a lot on hope rather than reality, but we’ll just have to see whether the cost reductions, focus on its financials and new model launches will work. I certainly hope so!

UK house prices fall at fastest annual rate since 2012 (The Guardian, Joanna Partridge) cites the latest data from Nationwide that shows that annual house price growth went into negative territory for the first time since June 2020, Persimmon warns new home sales may fall 40% on current trends (Financial Times, Joshua Oliver) embodied pessimism in the industry as the housebuilder said guidance was difficult to call but Persimmon: UK housebuilder is trading close to trough valuations (Financial Times, Lex) reckons that the share price has been so bombed-out that it could have now reached rock bottom on a historic basis.

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!

5

...AND FINALLY...

…in other news…

This is so simple and yet I find it strangely compelling – you’ll like this if you like the classic a-ha hit Take on Me.

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Some of today’s market, commodity & currency moves (as at 0633hrs green is up, red is down). THIS IS INTENDED AS A ROUGH GUIDE ONLY!

FTSE 100 *Dow Jones *S&P 500 *Nasdaq*DAX *CAC-40 *Nikkei **Shanghai **
7,915 (+0.49%)32,661.84 (+0.02%)3,951.39 (-0.47%)11,379.48 (-0.66%)15,305 (-0.39%)7,234 (-0.46%)27,499 (-0.06%)3,311 (-0.05%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿
$77.413$84.047$1,832.811.198671.06397136.6421.1266323,457

(markets with an * are at yesterday’s close, ** are at today’s close)