Wednesday 22/08/18

1. In MARKETS AND CRYPTOCURRENCY NEWS TODAY, the S&P goes for a record bull run and the Winklevoss twins attempt to take Bitcoin mainstream

2. In RETAILER NEWS, India’s Flipkart makes an acquisition, House of Fraser’s Oxford Street store survives and Sainsbury’s falls behind its rivals

3. In INDIVIDUAL COMPANY NEWS, Slack gets a hefty valuation at its latest fund raising, Toll Brothers unveil storming profits and La-Z-Boy has comfortable sales

4. In OTHER NEWS, I bring you a chastened caped-crusader. For more details, read on…

So the US bull run continues and the Winklevoss twins try to make Bitcoin more widely acceptable…

S&P 500 hits new high on way to record bull run (Financial Times, Nicole Bullock) highlights continued strength in the S&P as it moves to within a day of being the longest bull run on record. Strong corporate earnings and the continued effects of Donald Trump’s tax cuts seem to be keeping the negative forces of trade wars and rising interest rates at bay but pessimists fear that this boom has just been fuelled by cheap money and unprecedented amounts of central bank stimulus. Some would also worry about the inordinate rise in influence of the FAANGS in recent years, but yesterday the Dow Jones Transportation index (which includes America’s largest airlines and freight railways) also hit new highs, as did the Russell 2000 index of smaller companies. * SO WHAT? * As the saying goes, even a broken clock is right twice a day. Consistent naysayers are bound to bang on about the cheap money etc etc but they’ve probably been “wrong” for a very long time. As I often say, being “right” is admirable but being able to spot the trend just before everyone else spots it and having the conviction to stick with it and ride the wave is far more impressive. Sure, the unusually long period of ultra-low interest rates and stimulus pumped into many of the world’s economies has had a boosting effect – but that’s what they were SUPPOSED to do! Solid corporate earnings, Trump’s tax windfall and rising wages are all 

playing their part in the rise of the index and although the tax windfall effect in particular will drop off, the other two could well compensate for it. As far as I’m concerned, there are two major risks – firstly, the effects of a global trade war and secondly, Trump getting impeached. On the trade war front, I am inclined to believe this will ultimately prove to be a storm in a teacup. Everyone needs resolution and so one will be found hopefully sooner rather than later – and when that happens there will be a sudden trading boom IMO. Re Trump’s potential to be impeached, the latest court shenanigans involving his national security adviser, personal lawyer, campaign chairman, deputy campaign manager and foreign policy aide could yet implicate him in unwelcome legal attention. I don’t really think this will happen but the more people closest to him get caught up the more pressure he will be under. If HE goes, then panic is likely to ensue.

In The Winklevoss twins move to take Bitcoin mainstream (Daily Telegraph, James Titcomb) we see that Cameron and Tyler Winklevoss, who famously sued Mark Zuckerberg over the creation of Facebook, have launched a self-regulating industry group called the Virtual Commodity Association to “promote fairness, transparency, risk management and liquidity” in the market. Four of the biggest cryptocurrency exchanges have signed up to the VCA. * SO WHAT? * The Winklevosses have tried and failed on two occasions to launch an Exchange Traded Fund (ETF) as the US Securities and Exchange Commission refused to approve it because it believes that trading could be open to manipulation. Although forming this self-policing association is certainly a way of moving Bitcoin closer to the mainstream, I think it’s unlikely to get an official seal of approval any time soon given the scepticism it faces from the Establishment. Less volatility via more openness is key here and I’m sure that’s what the twins hope the VCA will bring to the party.

In retail news, Flipkart makes an acquisition, House of Fraser’s Oxford Street Store is saved and Sainsbury’s lags its competitors…

Flipkart acquires speech recognition start-up Liv.ai (Financial Times, Simon Mundy) heralds an acquisition by Indian e-commerce group Flipkart of Bangalore-based start-up Liv.ai which develops AI-driven software enabling smartphone users to dictate texts in ten different local languages from Hindi to Malayalam. * SO WHAT? * This sounds like a canny move (although Flipkart didn’t say how much it cost) as a report published this month by Bain & Company found that only 40% of India’s 390m internet users made online transactions, with most of these being in a higher income bracket. The theory would suggest that in order to get access to the remaining 60%, companies need to look beyond affluent English-speakers – hence why this latest move could help Flipkart forge ahead of rivals such as Amazon. Currently, Flipkart’s interface is only in English. The Bain-led report estimated that this push for new users could add $50bn of sales to the Indian e-commerce industry, which is more than double last year’s revenues of around $20bn.

In other retail bits, Deal saves House of Fraser’s flagship Oxford Street store (The Guardian, Angela Monaghan) shows that the Oxford Street flagship store has managed a

stay of execution as its new owners, Sports Direct, managed to renegotiate things with the landlord to keep it going. It was due to close under the terms of the Company Voluntary Agreement announced back in June. * SO WHAT? * I think that James Keany, head of national agency at real estate group CBRE, put it best when he said “This deal only happened because all parties realised it was better to keep the store open and fully operational”. If I was being a cynic, I’d say that Sports Direct had the landlords over a barrel on this – which company in its right mind would want to take on retail space the size of House of Fraser in Oxford Street when retail spending isn’t exactly firing on all cylinders?? I am sure that Sports Direct will replicate this tactic up and down the country – lower your rent, landlords, or we’ll just pull out and leave a massive hole on your high street.

There’s a bit of gloominess on Sainsbury’s in Sainsbury’s trails major rivals despite heatwave boost (Daily Telegraph, Ayesha Javed) as a report published by Kantar Worldpanel showed that it was the worst performer of the major UK supermarkets in terms of sales and market share but then Mega-merger gets the thumbs up (The Times, Deirdre Hipwell) highlights a major Sainsbury’s shareholder as backing the £12bn merger with Asda saying that that it would help it catch up with Tesco. Martin Walker, UK equities fund manager at Invesco Perpetual (which is Sainsbury’s #3 shareholder) said that “There are some real positives here in this deal and when I appraise it financially the earnings accretion are huge. The synergy costs are conservative and could be much bigger, but what I am most interested in is that the deal would appear to offer returns in excess of Sainsbury’s cost of capital”. I’m still not convinced…

In individual company news, Slack gets a big valuation, Toll Brothers sees profits jump and La-Z-Boy has strong sales…

Slack valued at $7.1bn after new capital raising (Financial Times, Hannah Kuchler) highlights a huge rise in the perceived value of the workplace chat app as it raised $472m in its latest financing round which has effectively boosted its valuation by 40% in under a year. Slack has so far raised almost $1.3bn in its mission to become the backbone for businesses by replacing e-mail with a social media-like app that integrates with company software. Slack has 8m daily active users who use it for free and 70,000 who pay for it at customers including IBM,

eBay and BuzzFeed. Slack wants the money to help it expand the business. It now has 1,000 employees in eight offices around the world. * SO WHAT? * Wow! The more money it raises the more it will be able to make itself the go-to option for business. I just wonder whether WhatsApp’s new business platform (WhatsApp Business) will be able to spoil its party. I’m sure there’s room for both of them, Facebook-owned WhatsApp will have the spending power to bring it up to speed very quickly.

There are more signs that America’s economy is chugging along nicely as Toll Brothers profit jumps as wealthy Americans spend (Wall Street Journal, Laura Kusisto and Harriet Torry) shows that wealthy Americans are exuding confidence by buying new homes (Toll Brothers is one of the country’s biggest builders of high-end homes), with the company reporting a 30% rise in profit for the latest quarter and La-Z-Boy sales rise, helped by price increases (Wall Street Journal, Josh Beckerman) shows that they are flush enough to spend on new furniture. The company’s success helped to power the shares up by over 20% in after-hours trading!

…And finally, in other news…

We all know that crime doesn’t pay – and that even goes for superheroes too, apparently, in Amazing scenes as Batman lookalike is pulled over by cops for “speeding” in Batmobile (The Mirror, Laura Forsyth https://tinyurl.com/y9d52oxm). I wonder whether he pulled the “Do you know who I am?” card?!

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