Wednesday 08/08/18

  1. In MACROECONOMIC NEWS TODAY, the US announces more China tariffs, Turkey feels the pressure to raise interest rates and UK house prices hit new highs
  2. In CAR-RELATED NEWS, Elon Musk mulls taking Tesla private and India’s answer to Uber announces its expansion into the UK
  3. In MEDIA NEWS, ITV announces a tie-up with Hollywood for smartphone video streaming and Snapchat loses users for the first time
  4. In OTHER NEWS I bring you some amazing balloon animals. For more details, read on…



And so the US tariffs on China rumble on…

US to impose tariffs on another $16billion in Chinese imports (Wall Street Journal, Jacob M Schlesinger) highlights the latest tariff attack from the Trump administration covering 279 products (mainly chemicals and electronic parts) worth about $16bn, bringing the grand total of products covered by new duties to $50bn so far. China said it would be retaliating. And so it goes on…and on…

America’s protectionist policies have consequences, though, as US-China trade tariffs cast shadow over cloud computing boom (Financial Times, Richard Waters) shows that this latest round, which covers some key components used by data centres, will pale into insignificance if Trump goes ahead with a third round covering $200bn-worth of tariffs as this list covers digital infrastructure much more comprehensively to include things like routers, switches, servers, motherboards, memory modules and cabling. * SO WHAT? * A huge hike in costs for cloud computing comes at a time of major expansion, and so will hinder the pace of progress as data needs continue to increase. In the meantime, I suspect that US manufacturers of said components will be rubbing their hands at the prospect of making some easy money as they will pretty much be able to charge whatever they like. If I was a US component company at the moment, I would be jacking my prices right up as you just don’t know how long this tariff battle is going to last – so you might as well make hay while the sun shines!

US sanctions on Iran will leave oil market’s safety buffers near zero (Daily Telegraph, A Evans-Pritchard) highlights more downside for America’s protectionist policy shift, this time concerning their re-imposition of economic sanctions on Iran. The article argues that taking out Iran’s production capacity will basically leave no slack at all in the market at a time when oil demand and supply is finely balanced. * SO WHAT? * Westbeck Energy warns that any kind of supply shock or geo-political crisis in our 



current situation could mean that oil goes to $150 a barrel or more by the middle of next year. If that happens, I think we will all start walking to work!!!

Elsewhere, Turkey under pressure to raise rates as lira plunges (The Guardian, Larry Elliott and Kareem Shaneen) highlights how the lira’s dramatic fall against the dollar in the last 12 months (it’s fallen by almost a third) is piling the pressure on the central bank to raise interest rates in order to quell massive inflation (it’s now at a 15-year high). Turkey’s newly re-elected political strongman president Erdogan is very much against raising rates because he wants to keep borrowing costs low to encourage credit growth and economic expansion, although some would argue this is just fantasy as inflation is now running at over 15%! Unfortunately for Turkey, even more pressure has been applied this week to its creaking economy by Trump threatening to remove its eligibility for preferential trade treatment in retaliation for the imprisonment of US pastor Andrew Brunson. * SO WHAT? * The US is Turkey’s biggest export market and a threat to its duty-free access could be crippling and further weaken the lira by removing a vital source of dollars. Turkey’s consumers and businesses were already feeling the pain of a weak lira making their foreign-denominated loans ever-more expensive – and Trump’s pressure is now making it all worse. It sounds like anyone wanting to go on holiday to Turkey right now will benefit from a pretty generous exchange rate!

Higher pay drives house price rise (The Times, Callum Jones) cites the latest figures from Halifax, Britain’s biggest mortgage provider, which show that house prices rose at their fastest rate since November last month. Annual house price growth got to 3.3% – way above expectations of 2.6% – and monthly growth was 1,4% in July, with the average price standing at £230,280. Russell Galley, MD at Halifax observed that “Pressures on household finances are easing as growth in average earnings continues to rise at a faster rate than consumer prices”. * SO WHAT? * Sounds decent enough, but it’ll be interesting to see how the market behaves going into Brexit next year. I’m thinking that people will be sitting on their hands and not buying. Some may argue that the houses that ARE on the market will be in more demand as potential sellers hold off to wait until the dust settles, thus choking off supply. However, I think that the chances are buyers will just get ultra-cautious.



In car-related news, Tesla (or rather Elon Musk) gets dramatic and India’s answer to Uber makes moves into the UK…

In Elon Musk declares plan to take Tesla private (Financial Times, Arash Massoudi, Richard Waters and James Fontanella-Khan) we see that Tesla’s founder made a dramatic statement on Twitter yesterday lunchtime that he wanted to take the company private in a deal that would put a $70bn valuation on it (equivalent to $420 per share). The Tweet came shortly after news that Saudi Arabia’s sovereign wealth fund had taken a $2bn stake in it. The shares jumped by 11% to $379.57 when trading resumed as investors hoped to cash in if Musk actually meant what he said (“Am considering taking Tesla private at $420. Funding secured”). He later sent out a memo saying that a final decision has NOT been made yet. * SO WHAT? * It does seem to be a bit of a weird thing to do for Musk. Usually, companies that carry out leveraged buyouts (LBOs) tend to have a big reliable cashflow. Tesla, on the other hand, is still losing money and burning through tons of cash. Also, an “average” LBO candidate usually contributes a small amount of equity whilst funding the rest of the transaction with debt – but Tesla’s already got loads of debt and it’s not clear who would be willing to take this on by funding it.

According to Elon Musk tweets he is considering taking Tesla private (Wall Street Journal, Mike Colias and Miriam Gottfried), a $420bn buyout would make it the biggest LBO in history, eclipsing the current record holder Energy Future Holdings Corp at $32bn. Why is Musk even talking about this? Well according to Morningstar analyst David Whiston, taking the company private would mean that Musk would not have to “constantly worry about going to the public markets for more money. He can do what he needs to do behind closed doors and keep growing the company without all that extra scrutiny”. IMHO, given how many people and companies have invested in Tesla, I think that Musk would be doing them a disservice by going private. The fact that he is forced to justify his actions on a continuous basis to shareholders stops him from going completely off the rails and makes him address the hard questions. On the other hand, going private would certainly make his life easier in many ways but I’m not sure whether now is the right time to do it. On balance, I think he’s yanking everyone’s chain – but hey, you never know with this guy!

Indian Uber rival says hello to Britain (The Times, Simon Duke) heralds the arrival of Indian cab-hailing company Ola, which aims to provide services across the UK by the end of the year – starting with south Wales. It is one of India’s best-funded tech businesses and operates in 110 Indian cities. It will offer passengers the option of hiring a minicab or licensed taxi – which will distinguish it from rival Uber. * SO WHAT? * More choice should be great for the consumer, less so for rival operators who will have to fight even harder to attract and retain customers.



In media news, ITV teams up with Hollywood on streaming and snapchat loses users…

ITV joins Hollywood giants in backing video streaming service for smartphones (The Guardian, Mark Sweney) highlights ITV’s involvement in a $1bn investment to back an ambitious new video streaming service for smartphones, currently dubbed “NewTV”. The aim of the new venture is to provide content specifically for smartphones and backers include Disney, 21st Century Fox, Lionsgate, NBC Universal, Sony Pictures, Viacom, Warner Media, JP Morgan and Goldman Sachs. The new service is set to launch next year and will focus on creating quality programming in a 15-minute mobile-friendly format and is expected to offer two types of subscription – free

with ads and paid without. * SO WHAT? * I’m not really sure whether this is reinventing the wheel, but I suppose it’s interesting to the extent that it is focusing on smartphones as the main viewing platform in response to changing viewer habits. Also, the list of backers is pretty impressive – but then again, they’ve all got fingers in other pies as well. Good luck to ‘em!

Snapchat’s users slide in latest setback for social media (Wall Street Journal, Marc Vartabedian) shows that the number of Snapchat users has declined for the first time in its history in the most recent quarter. A redesign of the app launched earlier this year that was supposed to be more advertiser-friendly, was blamed as the main cause for this but on the other hand, the company said that its second quarter revenues were up by 44% versus the same time period a year ago. Its shares are now trading 46% below its flotation price. * SO WHAT? * Although there was good news in the results – strong revenues and Saudi Prince al-Waleed taking a 2.3% stake, for instance – investors are going to be fixated on sluggish user growth and the general cloud hanging over social media stocks at the moment.



…And finally, in other news…

I thought I’d leave you today with some very impressive balloon art in 10+ Unbelievable balloon animals by Japanese artist Masayoshi Matsumoto (, Dominkya Jurkstaite Amazing!

As always, thank you for reading Watson’s Daily!