Wednesday 05/06/19

  1. In MACRO NEWS, talk of US rate cuts cheers markets while Australia actually cuts them
  2. In NEIL WOODFORD NEWS, the star fund manager gets a pasting for poor performance and banning redemptions
  3. In INDIVIDUAL COMPANY NEWS, Salesforce announces a positive outlook, AO World blames Germany for its woes and meatless burgers boost burger chains
  4. In OTHER NEWS, I bring you the freakiest thing I have ever seen. It will give you the heebie-jeebies. For more details, read on…



So the US hints at cutting interest rates while Australia actually cuts them…

Trade tensions prompt Fed to put interest rate cut  in play (Wall Street Journal, Nick Timiraos) shows the Federal Reserve’s openness to cutting interest rates in order to keep the economy on track for expansion. Or as Fed chairman Jerome “Jay” Powell put it, “We are closely monitoring the implications of these developments [in trade negotiations] for the US economic outlook and, as always, we will act as appropriate to sustain the expansion”. Although he stopped short of saying that he would cut it, Stocks close sharply higher as Fed hints at possible rate cut (Wall Street Journal, Amrith Ramkumar) shows that markets were relieved that the Fed was open to taking action, giving US markets their biggest one-day boost for five months. * SO WHAT? * This is a significant turnaround in stance by the Fed – hence the big market moves. It had, until now, been firmly of the opinion that

rates would stay as they are. The general rule of thumb is that interest rate cuts = good for markets – and if US markets go up, that often provides a boost to other markets as well.

Australia cuts interest rates to bolster ailing economy (Daily Telegraph, Chris Johnston) heralds Australia’s first interest rate cut for three years with its central bank chief, Philip Lowe, hinting that there could be more where that came from. It was a 25 basis point cut to a record low of 1.25% aimed at giving the economy a kick up the &rse as it has stagnated of late due to being caught in the US-China trade war crossfire. Fun fact: Australia has gone 28 years – yes, that’s 28 years – without a recession! Less fun fact: Australia’s GDP growth fell to a rather anaemic 0.2% in the last three months of 2018. * SO WHAT? * Australia is suffering because China buys massive amounts of its natural resources, such as iron ore and coal, and import tariffs that are being slapped on as a result of the US-China trade war are denting Australia’s economic growth prospects. Cutting interest rates is one way to stimulate the economy, but realistically it needs the trade war to come to an end.



A star fund manager falls from grace and annoys investors…

Normally, a fund manager having bad performance isn’t really that newsworthy – it happens all the time. The thing is, though, if you’ve never heard of Neil Woodford – you will be hearing plenty about him now! He was the star fund manager of Invesco Perpetual and earned a reputation over more than 25 years as one of Britain’s top fund managers. He left Invesco to start up Woodford Investment Management in 2014 and his assets under management have now cratered due to a combination of poor performance and fund redemptions (i.e. investors taking their money out of the fund). Woodford tremors rock City as investors revolt over fund freeze (Financial Times, Peter Smith, Owen Walker and Caroline Binham) shows disgruntled investors continuing to try to extract their funds a day after Woodford blocked withdrawals (he said that he wants to stop the withdrawals to give him a chance to sell illiquid and unquoted stocks from the fund – and he can’t do this if he gets redemptions all the time). Hargreaves in spotlight as wheels come off (The Times, Alex Ralph and Ben Martin) shows that investment platform Hargreaves Lansdown is now also getting it in the neck as a result of its very close relationship with Woodford and recommendation of his funds to investors and Neil Woodford’s most disastrous stock choices – a roundup (The Guardian, Julia Kollewe) gives a rundown of some of

his worst stock picks and their performance over the last 18 months: Kier (the construction company that many think could go the way of Carillion -80%), Prothena (Dublin-based biotech firm, -80%), Allied Minds (investor in start-up tech and biotech firms, -79%), Provident Financial (the doorstep lender, -78%), Purplebricks (online estate agency, -71%), AA (breakdown service, -68%) and Imperial Brands (tobacco giant, -44%) are among his worst picks. Concerned investors might want to have a look at The alternatives that are delivering returns (Daily Telegraph, Laura Miller) which identify funds that have similar aims to Woodford’s (providing a mix of income and growth investment) but that are actually performing quite well. * SO WHAT? * I really think that this is, fundamentally, a non-story – but I decided to include it here because there is just sooooo much comment on it in the press today. When I was a stockbroker advising fund managers on what stocks they should buy and sell, I always thought that fund managers had a very tough job. Most of them can perform well for some of the time, but hardly any can perform well ALL of the time. Contrary to what a lot of the press would have you believe, most fund managers I know take losses personally and really feel the pressure when their portfolios aren’t performing well. It just goes to show that even if you’ve been brilliant for 25-odd years, a few mis-steps here and there can bring the whole thing crashing down and the problem is that, in this business, reputation is everything. It will take a Herculean effort for Woodford to salvage his – and in the meantime fund trackers will probably see more inflows to the cost of active fund managers.



Salesforce announces strong earnings, AO World blames Germany and meatless burgers boost burger outlets…

In Salesforce raises earnings outlook (Wall Street Journal, Aisha Al-Muslim) we see that, the American cloud-based business software company, raised its full year earnings forecasts after delivering record revenue in the latest quarter. * SO WHAT? * Salesforce has been benefiting from increased take-up of cloud-computing and developments in Artificial Intelligence. It looks like that is going to continue!

AO World blames Germany for losses (The Times, Elizabeth Burden and Martin Strydom) highlights AO World’s mixed performance as the household appliance specialist racked up pre-tax losses of £19m in the year to March 31st versus losses of £13.5m in the previous year. Having said that, UK earnings before tax jumped by 21% and revenues were also up by 13.%. Germany was blamed as being the main drag due to tighter legislation in the country over drivers’ hours, which meant that AO had to go from a four-day week to a five-day week. * SO WHAT? * Clearly, the legislation in Germany is a pain, but it sounds

like something that can be surmounted. The main difficulty, though, is over Brexit as consumers still seem to be spending – just not on big ticket items. AO World is generally all about big ticket items and so will suffer more than other retailers (although at least they don’t own any high street stores – so things could be worse!).

Fast food embraces meatless burgers, but there aren’t enough to go around (Wall Street Journal, Jacob Bunge and Heather Haddon) highlights the success of meat alternatives as Beyond Meat and Impossible Food’s products are now on sale at almost 20,000 restaurants across the US and they are struggling to keep up with burgeoning demand. According to research by Technomic, 15% of US restaurants offered meatless burgers in March, up from 3% a year earlier. White Castle, TGI Fridays, Del Taco, CKE and Red Robin Gourmet Burgers have all introduced burgers from these companies and rising demand (and consequent hype!) has helped to almost quadruple Beyond Meat’s share price since its flotation last month. * SO WHAT? * Production costs are still quite high, but I would have thought that increased demand will lead to production on a bigger scale that will help to reduce costs over time. Cynics will say that strong performance is a flash-in-the-pan/passing fad, but given that the products are healthier, better for the environment and – let’s face it – actually pretty tasty I think that meatless is going to be huge.



And finally, in other news…

When I saw this story today, I decided to look no further: Japanese artist turns man’s face into eerily realistic human flesh coin purse (SoraNews24, OMG. Just OMG. This will freak you out!

Some of today’s market, commodity & currency moves (as at 0820hrs 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 **
7,214 (+0.41%)25,332 (+2.06%)2,803 (+2.14%)7,52811,971 (+1.51%)5,268 (+0.51%)20,776 (+1.80%)2,864 (+0.06%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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