🔬Japanese Stock Market Reaches 1990 Levels (and that's good), Saudi Arabia is ticked-off (also good), and Much More
🔬Japanese Stock Market Reaches 1990 Levels (and that's good), Saudi Arabia is ticked-off (also good), and Much More
“The most contrarian thing of all is not to oppose the crowd but to think for yourself”
- Peter Thiel
"My problem lies in reconciling my gross habits with my net income."
- Errol Flynn
Table of Contents
🗣️ Market Chatter
🔥 Hot Headlines
🤭 Joke Of The Day
🔬 A.M. Allocations: Rising Sun: Japan's Stock Market Hits 3-Decade High
🙋♂️ Trivia
📈 Market Movers
📊 Market Update
Market Chatter
U.S. markets closed up modestly today (S&P 500 +0.4%, Nasdaq +0.5%) on another
boringquiet day of trading.Sectors: 10 of the 11 closed-up, with Energy the only loser by a smidge (-0.05%) after OPEC+ news weighed on oil prices (more below).
Oil closed the day down 1.3%
Consumer Sentiment dropped again for fourth consecutive month. Bla.
Microsoft hit fresh all-time highs following more clarity on the whole Altman/OpenAI drama.
Following Binance’s record $4.3bn fine and its CEO’s ouster, users yanked +$1bn from the exchange and its coin (yes, they all have coins) traded down ~10% before recovering.
Hot Headlines
CHINA REAL ESTATE (SORTA BAIL-OUT) - China is drafting a list of 50 developers, including trainwrecks such as Country Garden Holdings Co. and Sino-Ocean Group, eligible for financial support to stabilize its dicey property sector. The list aims to force guide institutions in providing loans, debt, and equity financing amidst the deepening property crisis. Despite some uncertainty over the funding's scope and impact, the move signals a strategic shift by Beijing to support key private developers and the broader economy. But it’s not a bail-out, ok? (Bloomberg has more details)
MARKET POLL SHOWS BULLISH OUTLOOK - A Reuters poll of stock market experts predicts modest gains for key global indexes in 2024, with a majority expecting these indexes to reach new highs within six months, driven by assumptions of U.S. Federal Reserve rate cuts. Despite a slow economic growth forecast and mixed views on corporate earnings, there's a cautious optimism for equities, with a slight majority favoring value stocks over growth stocks in the near term. AND STOCK MARKET EXPERTS ARE NEVER WRONG! (Here’s the fully survey report)
KEY OPEC+ MEETING POSTPONED - The rescheduling of OPEC+'s influential meeting from Nov. 25-26 to Nov. 30 led to a decrease in oil prices, with the Nymex WTI contract falling by ~$3.40 per barrel before reversing (closed down $1.05 to $76.72). Rumor has it that the Saudis are displeased that there isn’t enough buy-in for deeper production cuts, amidst a complex backdrop of slower Chinese demand, Middle Eastern tensions, and global economic factors. OPEC+ members announced a combined 1.7 million barrels per day cut earlier in the year to last until end of 2024, and Saudi Arabia and Russia followed that up with additional cuts (1m and 300k, respectively). Goldman Sachs is on the record saying they believe OPEC is trying to keep the price between $80 - $100 a barrel, and thus expects more dramatic production cuts. Basically, it sounds like Saudi Arabia is throwing a tantrum because no one else wants to cut as aggressively as them to manipulate oil prices. (CNBC has more)
US EMPLOYMENT - U.S. initial jobless claims were in the news after posting a significant drop, falling by 24,000 to 209,000 in the week ending Nov. 18, indicating employers are still retaining workers despite a cooling labor market. That said, I think it’s fine.
AI BREAK-THROUGH POTENTIALLY DANGEROUS - OpenAI's researchers sent a letter to the board, warning of a powerful break-through in its Q* project that could pose a threat to humanity, and is believed to be a contributing factor in the board's decision to oust CEO Sam Altman. This AI project, believed to be a breakthrough towards artificial general intelligence (AGI), sparked concerns among scientists about the potential dangers of superintelligent machines. (Reuters has more on this)
(Yahoo) Russia's parliament approves budget with a record amount devoted to defense spending. Defense spending to overtake social spending for first time in modern Russian history.
(Reuters) Four-day truce agreed in Israel-Hamas war as 50 Israeli and 150 Palestinian hostages to go free. Hamas has captured ~240 prisoners and to date has set free only 4.
(Bloomberg) US Mortgage Rates Fall to 7.29%. Lowest Since September.
(NY Post) SpaceX plans to sell shares next month at $150B valuation. Previously raised $750 million in July at same valuation.
(WSJ) There’s a Squid Game TV show coming out.
(Axios) Online holiday discounts to be bigger than last year. Score!
Joke Of The Day
My friend is trying to convince me to invest in his sword making business. He makes some very good points.
A.M. Allocations
Rising Sun: Japan's Stock Market Hits 3-Decade High
The Japanese stock market has been a dark, sad place to invest for most of my life. After the fall-out from the great asset bubble popping in 1991 resulted in the ‘Lost Decades’, there really hasn’t been a heck of a lot to get folks excited. Until now…?
Since bottoming out (FINALLY!) in March of 2009, the TOPIX - a market cap weighted index of the largest 2k or so Japanese companies most comparable to the S&P 500 - has been on something of a slow-and-steady rise upward (it’s up ~240% since then vs. S&P 500 up ~530%).
Japan has even started garnering some hype from the international investing community, which has helped push the TOPIX toward heights not seen in nigh-on 33-years, and buoyed by foreign investment, better earnings, and corporate governance reforms. Warren Buffett's Berkshire Hathaway has been responsible for some of the growing attention. The Oracle’s been putting money into Japanese trading companies since 2020, with the nation now constituting his largest international holdings.
Buffet was in the news again recently about Japan, after recently raising $827 million through yen-denominated bonds, indicating a potential long-term commitment to the Japanese market.
My Thoughts: The timing of the Japanese return to corporate form also has coincided with the weakest Japanese Yen in decades. A weak currency is helpful for exports (bad for imports) as it makes your goods cheaper, and thus more competitive, abroad. However, we haven’t really seen that arise to any great extent in Japan (last week I did a bit of a spiel on weak Japanese exports and a potentially softening economy).
Another thing a weak currency helps with is the translational impact of converting your foreign currency back into domestic cash. For example, even if Toyota makes cars in North America and sells them here, when they ship the profits back to Japan they are worth more. So for the large Japanese trading companies (big conglomerates, also called Sogo shosha) or other players with their hands in international pies, the weak currency could be a nice bolus to profitability.
I would also like to highlight another interesting tidbit around the Yen currency level - it has been fluctuating quite a bit of late given the Bank of Japan increasing flexibility around yield curve control.
I can’t really speak to the sustainability of the Japanese market’s strength, but it is worth noting that currently the TOPIX Index trades at ~14x forward P/E vs. the S&P 500 at ~19x. So nowhere near as insane as back in the bubble days of the 80s and early-90s. Oh, and in case you were curious, the S&P 500 is up ~1,135% since July 1990.
Trivia
Today’s trivia questions are on the illustrious Medici banking dynasty.
The Medici Bank was among the first to use which of the following as a financial instrument?
A. Stocks
B. Double-entry bookkeeping
C. Credit cards
D. Government bondsWhich Medici was known as 'the Magnificent' and was a significant patron of the arts?
A. Cosimo de' Medici
B. Lorenzo de' Medici
C. Giovanni di Bicci de' Medici
D. Piero de' MediciThe Medici Bank's innovative approach to handling the finances of the Catholic Church involved managing what specific type of revenue?
A. Tax collections
B. Papal tithes
C. Real estate profits
D. Trading profits
( answers at bottom)
Market Movers
Winners!
eBay (EBAY) [ +3.1% ]: A private-equity consortium plans to take over Norwegian online classifieds company Adevinta, with eBay holding about 30% in Adevinta. eBay supports this $13.1bn deal and will keep a stake in the newly privatized entity. ‘Norwegian online classifieds’? $13bn? Seriously?
HP, Inc. (HPQ) [ +2.8% ]: Q4 results met expectations, maintaining FY24 EPS and FCF guidance. Positive aspects include AI PCs (which is starting to get some hype) and cost savings.
Losers!
Urban Outfitters (URBN) [ -12.4% ]: Beat on Q3 earnings, but weak core business and stacked up inventories weren’t appreciated by investment folk.
Guess? (GES) [ -12.3% ]: Q3 earnings and revenues fell short. Flat sales in Asia and declining sales in North America were noted and FY23 guidance was lowered.
Autodesk (ADSK) [ -6.9% ]: Beat on Q3 EPS and Revenue, but Q4 guidance underwhelmed. Analysts are concerned about weaker new subscriber growth and uncertain margin trajectory towards 2025.
Virgin Galactic (SPCE) [ -6.6% ]: Downgraded to underweight from equal weight by Morgan Stanley, mainly due to a halt in revenue-generating space flights. Going to break with my normal professional formatting and direct your attention below. Who keeps giving them money? A Burger King franchise has more revenue? (Yes, that says $1.7m in Revenue).
Market Update
Trivia Answers
B. Double-entry bookkeeping
B. Lorenzo de' Medici
B. Papal tithes
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