Author: Tabarruk

January 20, 2021

January – Week 3 update

Market update coming soon.

One of our strategies and themes this year is to accumulate and increase our positions in our existing company holdings as corrections play out.

We’ve made 3 purchases in existing companies today.

Purchases detailed below for members.


January – Week 2 update

A flat week on the markets with 6,700 continuing to act as a key level.

Key headlines:

  • Biden expected to reveal COVID relief package details tonight
  • Early trial data points to Johnson & Johnson’s COVID vaccine being safe and effective in the short term. Long term data will also be studied.
  • 2 new variants of COVID being studied
  • 10 million people have received a COVID vaccine so far in the US
  • Chinese exports see more than expected growth in December
  • Shipping rates rise slowing parts of global economy, countering Asia’s trade-led recovery 
  • Japan’s machinery orders rise unexpectedly in November, 2nd straight monthly increase

The ASX VIX (volatility index) continues to remain just under 15.

Volatility doesn’t necessarily show market direction (up or down) but the range of average price changes over time.

The S&P/ASX 200 VIX Index (XVI) calculates the amount of volatility expected in the market over the next 30 days.

•  High readings indicate uncertainty (bearish)
•  Normal readings suggest a slight bullish bias
•  Low readings indicate low volatility (bullish) and strong investor confidence.

Source: marketindex.com.au

Purchase entries for members are at the bottom of this update.

On to the latest CEO insights.

CEO Insights by Sector

Travel & Leisure

“The number of cars out on the road, and the congestion, has come back real quick” 

Darryl Abotomey, CEO, Bapcor Ltd

“I think the China market is the biggest global opportunity in the entire [mountain resort] industry and all the moves that we make for the company strategically are oriented around making sure that we can get benefit from that trend” 

“I think we’re seeing very strong demand for resort properties and a lot of transactions, in many ways probably the strongest demand we’ve seen since 2008 or 2007 and I think, people are looking for opportunities to be critically outside of many of the big cities because of COVID”

Rob Katz, CEO, Vail Resorts Inc

Aviation

“It’s going to be super competitive [in the market] because we’re all rebuilding the market [after COVID-19]. It will never have been cheaper to travel in this country” 

Jane Hrdlicka, CEO, Virgin Australia Airlines

Automotive

“We’re seeing rising steel prices in the U.S. and EMEA due to supply and demand imbalance. This has been caused by faster auto production recovery than anticipated and supply stock replenishment, which is currently outpacing industry steel supply levels as blast furnaces restart” 

Peter Watson, CEO, Greif Inc [multinational industrial packaging company]

Technology

“The way we work will never be the same again and it’s great to see how the PC [personal computer] has experienced a tremendous revival as the computing workhorse…paper to digital transformation is only accelerating, and every business process is going digital because every business is now a digital business” 

Shantanu Narayen, CEO, Adobe Inc

“I almost feel bad saying, maybe it [COVID] helped ultimately because many of our customers have realized the importance of using technology to deal with their customers, their employees, and their suppliers” 

Safra Catz, CEO, Oracle Corporation

Healthcare

“Even regulated industries that have traditionally been slower to embrace digital have certainly picked up the pace this year. We have industries like healthcare that are transforming, whether it’s through personalised medicine, telehealth and new ways, frankly, to engage patients” 

Shantanu Narayen, CEO, Adobe Inc

“I think this horrible COVID thing will shrink to insignificance in a year. They will get vaccines out so fast it will make your head spin. I watched the death of polio to vaccines too” 

Charlie Munger, Vice Chairman, Berkshire Hathaway

Media & Advertising

“Ooh [Media Ltd] is well positioned to leverage the ongoing recovery in audience growth and advertiser sentiment which is becoming increasingly evident” 

Brendon Cook, CEO, Ooh Media Ltd

“The media agency market spend, as measured by SMI [Standard Media Index], reached a low point for the year in May 2020 and has improved considerably since that time with November data showing a return to growth after 26 months” 

Market Announcement, WPP AU NZ Ltd

Retail

“With the inflections that we’ve seen this year through COVID with guests [our customers] living a more active, healthy life and looking for more versatility in their apparel clothing, I think that all bodes well for the addressable market”

 Calvin McDonald, CEO, lululemon athletica inc.

“I still think brick-and-mortar is not going to go away” 

Craig Jelinek, CEO, Costco Corporation

Global Economy

“We’re in a global recession, that will most likely for the most part continue in 2021” 

Mark Schneider, CEO, Nestlé S. A.

Equity & Financial Markets

“We are mindful that very low interest rates result in further asset appreciation; however, in the near term the risk of not stimulating the economy is greater” 

Shemara Wikramanayake, CEO, Macquarie Group Ltd

“There’s a lot of retail participation in a bunch of these IPOs. I do think we’re at a moment in time where there’s a lot of euphoria. I personally am concerned about that. I don’t think in the long run that’s healthy” 

David Solomon, CEO, Goldman Sachs Inc

“Financial markets are telling us that the growth and inflation outlook is benign, which supports governments’ capacity to acquire more debt for the foreseeable future, as long as interest rates are lower than trend growth, the cost of servicing the debt will fall as a proportion of GDP, and the debt burden will fall as growth picks up” 

Peter King, CEO, Westpac Banking Corporation

Commercial & Industrial Property

“There’s no comeback on warehouses. There’s been record activity level in them throughout the COVID period for the most part. Same with data centres, they are super strong” 

“You’ll see lots of people returning to the office. We think 80%-plus of that occupancy, if not more, will come back”

Bob Sulentic, CEO, CBRE Group

Residential Property

“This recovery in housing prices looks set to continue into 2021, so it will be important for housing supply to resume a steady pace given expectation of borders reopening and migration steadily resuming in the next one to two years. Imbalances in supply/demand will exacerbate house prices, resulting in affordability pressures potentially becoming a widespread issue again in the not too distant future” 

Susan Lloyd-Hurwitz, CEO, Mirvac Group

“We are currently posting record lending volumes through our network” 

James Symond, CEO, Aussie Home Loans

January – Week 1 update

The XJO (ASX200) didn’t quite get to 7,000 in December 2020. In fact we haven’t broken 6800 yet.

The start of 2021 so far seems to have 6,700 as a key level.

There is a touch of certainty again right now in global markets, amidst:

  • Some protests in the US around Presidential election confirmation
  • Private acknowledgement from Trump that he has lost and formal results to be certified next week
  • Vaccine rollouts with mixed success
  • Talks for further stimulus and infrastructure spending

The ASX VIX (volatility index) is slightly up from the 13s to 14.

Volatility doesn’t necessarily show market direction (up or down) but the range of average price changes over time.

The S&P/ASX 200 VIX Index (XVI) calculates the amount of volatility expected in the market over the next 30 days.

•  High readings indicate uncertainty (bearish)
•  Normal readings suggest a slight bullish bias
•  Low readings indicate low volatility (bullish) and strong investor confidence.

Watchlist and portfolio updates for members are at the bottom of this update.

On to the latest CEO insights.

CEO Insights by Sector

Media, Advertising & Entertainment

“I think that the demand [for gaming consoles] has been unbelievable…and we don’t see any end of that in sight. So certainly, these are fabulous pieces of technology. The demand is terrific for it” 

George Sherman, CEO, GameStop Corp [world’s largest video game/entertainment software retailer]

“The global footprint for mobile [gamers] is vast. You’re talking about 2.5 billion gamers and growing, with some of the fastest growth happening in Asia and emerging markets” 

Frank Gibeau, CEO, Zynga Inc [NASDAQ listed social/mobile game developer]

“We do not believe it [the streaming market] is a winner-takes-all market. We believe there’s a place for a number of streaming services to be successful” 

Bob Bakish, CEO, ViacomCBS Inc [multinational film, TV & media conglomerate]

Food & Beverage

“We do expect, and I think retailers would agree that a sustained view of in-home eating, whether that is because people are more slowly returning to normal life or the fact that more people are going to be working from home or this dynamic of more in-home socialisation which has been driving certain segments of snacking at a very aggressive rate” 

Mark Clouse, CEO, Campbell Soup Company

“I think some of those changes to consumer behaviour are as a result of cooking more meals at home. There are still a lot of people, even with restrictions lifted, working from home, which means lunches and breakfasts and other meals are made at home and it is likely to carry on” 

Jeff Adams, CEO, Metcash Ltd

Travel & Leisure

“Consumers are dying to travel, their banking points, [credit card] attrition is at an all-time low” 

“We’re seeing an increase in our consumer travel bookings, not necessarily in our corporate bookings”

Steve Squeri, CEO, American Express Company

“I can’t stress highly enough the demand for business travel. Now that borders have reopened, we’ve had a number of clients calling to say ‘we’ve got a lot of work to do before Christmas, seeing customers, seeing suppliers” 

Jamie Pherous, CEO, Corporate Travel Management Ltd

“In a sense, you could say the near-term has gotten a little bit worse because the virus statistics have gotten worse, but the medium and long-term has gotten a little bit better because the optimism around a vaccine is that much stronger” 

Arne Sorenson, CEO, Marriott International

Property

“While the rate of return to CBD offices in Sydney has stepped up, it is still less than half. Melbourne is starting its journey out of lockdown, while the return in other CBDs has stalled well below their pre-COVID levels” 

Ken Morrison, CEO, Property Council of Australia

Payments & Lending

“It is really pleasing to see the vast majority of our customers who accessed the banking relief package resuming repayments” 

George Frazis, CEO, Bank of Queensland Ltd

“Every single factor we use to set [loan loss] reserves has gotten better this quarter [versus] last quarter” 

Brian Moynihan, CEO, Bank of America Merrill Lynch

“There’s no question that things are better than people thought a few months ago”

Jamie Dimon, CEO, JP Morgan Chase & Co

Financial Markets

“We’re definitely seeing clients rethinking strategic asset allocation to satisfy return targets. We’re clearly seeing a search for yield with increasing allocations to both private markets and high-risk fixed income assets” 

“We are definitely seeing an increased awareness and incorporating ESG [environmental, social & governance] resilience can have a material financial impact on portfolios, and I think we’re really at the beginning stages of a long-term reallocation of existing capital into sustainable strategies. But more importantly, real growth coming from new capital into these strategies”

Gary Shedlin, CFO, BlackRock Inc [world’s largest asset manager]

Energy & Resources

“We believe that natural gas will continue to play an important role in providing energy and thereby supporting the further development of lower carbon, but intermittent renewable energy generation” 

Scott Wyatt, CEO, Viva Energy Group Ltd

Miscellaneous

“Our customers with new pets [puppies & kittens] are up nearly 40% on a year over year comparative basis. That is huge” 

Sumit Singh, CEO, Chewy Inc [world’s largest online pet retailer]

“While the pandemic has been a challenge for many small businesses, it’s also spurred what The Economist Magazine calls a once-in-a-generation surge in start-ups. We expect that small businesses will lead the recovery just as they did after the Great Recession in 2009” 

Kirk Simpson, CEO, Wave Accounting [subsidiary of H&R Block Inc]

Industrials

“I think we’re really kind of at an inflection point right now where we’re seeing demand move [for equipment & machinery]. We would say there’s still a long runway of replacement demand as you look at the age of the fleet and those sorts of things, so we think we’re a ways off mid-cycle let alone peak” 

Jahmy Hindman, CTO, John Deere & Co

December – Week 3 update

After a steady rise. the market seems to be quieter and sluggish heading into the Christmas holiday period. That suits most ASX investors just fine, especially with the US markets flat overall. It’s like T20 season on the markets is over for now and we’re in the middle overs of a one-day game.

Key Market Headlines

  • The FDA has been busy, saying that Moderna’s coronavirus vaccine is “safe and highly effective”, market is anticipating approval by end of the week
  • FDA also approves first COVID home testing kit that can be purchased without a prescription
  • Pfizer’s vaccine is being deployed across US hospitals
  • Australian unemployment rate out this morning, down to 6.8% from 7%
  • Resources have been doing well. Oil up 0.4%. Base metals mainly stronger. Iron ore up 0.8%. 

The ASX VIX (volatility index) is holding under 15.

Volatility doesn’t necessarily show market direction (up or down) but the range of average price changes over time.

The S&P/ASX 200 VIX Index (XVI) calculates the amount of volatility expected in the market over the next 30 days.

•  High readings indicate uncertainty (bearish)
•  Normal readings suggest a slight bullish bias
•  Low readings indicate low volatility (bullish) and strong investor confidence.

Watchlist, portfolio updates and purchase entries for members are at the bottom of this update.

On to the latest CEO insights.

CEO Insights by Sector

Retail & Ecommerce

“What we have seen as physical retail opens up, this has not had a cannibalising impact on the online channels. It is additive to what is already a tide that has risen online” 

Nick Molnar, Co-CEO, Afterpay Ltd

“As we look ahead to post-COVID, we do believe that a lot of the e-commerce gains will stick, and we’ll continue to grow off of a higher base and the reasons why we believe that is convenience is habit forming” 

“I think the other trend that we believe is significant here [for e-commerce] is entrepreneurship, in times of tough economic climates, we know that business formation generally increases”

Amy Shapero, CFO, Shopify Inc

Domestic Economy

“We’ve been through some seven years of drought where most of those economies in the Australian bush have struggled to keep afloat, and now with the good harvest and the good tourism, there is money coming back into communities” 

Peter Langley, CEO, FedEx’s Australasia

Domestic Property

“The market is improving and there is one reason for that: there is a lot of money at very low rates of interest. That’s the only reason. There is always demand, and there is always insufficient supply. That is still the case. What’s changed is cheap money in great abundance” 

Harry Triguboff, CEO Meriton

Energy & Resources

“We’re not an electricity company so we’re not going to make a big announcement about going into renewables. Why? Because I don’t see much money in it, No 1. And No 2 it’s already a very, very crowded space. Electricity markets and retail markets are very crowded. We will continue to operate in fuels” 

Kevin Gallagher, CEO, Santos Ltd

Food, Beverage & Hospitality

“There’s absolutely no doubt in my mind that it’s going to take a very long time to recover to 100% of bars and restaurants that were open before the pandemic. I think that’s a long-haul – if we ever get back to that place” 

Gavin Hattersley, CEO, Molson Coors Beverage Company

Telecommunications

“Structural shifts are stripping profitability out of the sector: The NBN, growth of the tier-two MVNO [mobile virtual network operator] market, and the OTT [over-the-top/streaming] providers, who contribute little, if anything, to the infrastructure they rely on, yet drive increased usage and continued investment for telecommunications providers” 

Kelly Bayer Rosmarin, CEO, Singtel Optus Pty Ltd

Technology

“Over the next decade, technology spending as a percentage of GDP is projected to double” 

“I think we definitely are going to have real structural change [with technology adoption] so when we remove the pandemic constraints, I don’t think we just go back to the way things were in the beginning of 2020 or late 2019”

Satya Nadella, CEO, Microsoft Corporation

“We believe the explosion of devices, applications and data at the edge [computing] will continue to drive demand for secure connectivity, cloud computing capabilities and analytics, especially in a post-COVID world” 

Antonio Neri, CEO, Hewlett Packard Enterprise Company

Social Media

“When we think about what drives people to Twitter, we think about the events and topics that are happening in the world”

Ned Segal, CFO, Twitter Inc

Automotive

“It’s very much [a] truck first recovery so far” 

Mark Smith, CFO, Cummins Inc [global engine manufacturer]

“I think overall the automotive industry is going to have a strong fourth quarter, and I do believe it’s going to be a strong 2021. I think the industry is in a sweet spot right now” 

Mark Fields, Former CEO, Ford Motor Company

“Labour shortages have become increasingly the concern since we restarted our operations in Q3” 

Doug DelGrosso, CEO, Adient plc [world’s largest automotive seat manufacturer]

Transport & Logistics

“We have the weekly normal flights, but we’ve had to top them [up] with additional flights because there has been so much volume coming into Australia and it has been difficult to get the volume in” 

Peter Langley, CEO, FedEx’s Australasia

Travel & Leisure

“There’s been a rush of bookings as each border restriction lifted, showing that there’s plenty of latent travel demand across both leisure and business sectors” 

Alan Joyce, CEO, Qantas Airways Ltd

Environmental, Social & Governance (ESG)

“If we’ve got customers today that aren’t thinking about climate change, haven’t considered it in terms of their operations, what the risks are and what they should do about it, that’s a pretty big red flag to me that these are not good customers in the way they think about other issues” 

Shayne Elliott, CEO, ANZ Banking Group Ltd

December – Week 2 update

A streak of 7 days in the green for the ASX. The market has 7,000 in its sights. Will we test it before the year ends?

There is more certainty in the market, amidst progress in vaccine related news and the political / election volatility subsiding for now.

The ASX VIX (volatility index) is under 15 and heading to pre-covid levels.

Volatility doesn’t necessarily show market direction (up or down) but the range of average price changes over time.

The S&P/ASX 200 VIX Index (XVI) calculates the amount of volatility expected in the market over the next 30 days.

•  High readings indicate uncertainty (bearish)
•  Normal readings suggest a slight bullish bias
•  Low readings indicate low volatility (bullish) and strong investor confidence.

Watchlist and portfolio updates for members are at the bottom of this update.

On to the latest CEO insights.

CEO Insights by Sector

Banking & Payments

“The virus has been very interesting for payments. On one hand, it’s suppressing cash usage as people are worried about germs being spread via currency and so more people, even for small ticket items where they might have used cash in the past, are looking to use a debit card or a credit card” 

Albert Kelly, CEO, Visa Inc

Technology

“With 5G, data driven insights, automation and embedded intelligence, we will see an explosion of edge computing [computing done at the location it is needed] in smart cities, transportation, factories, hospitals and schools around the world” 

Jeff Clarke, COO, Dell Technologies Inc

Tourism & Leisure

“If you look at the leisure industry, that is airline, hotel, gambling…All those industry specialists are saying that it will take three years and more to recover, then [based on this] we believe that maybe the surge that we had this summer will be a bit reduced. But we have a pretty good runway in front of us” 

José Boisjoli, CEO, Bombardier Recreational Products Inc [owner of Sea-Doo, Ski-Doo & other RV brands]

“I do think the [luggage] marketplace will be disrupted. I do think there’ll be smaller plays in the industry that struggle to come out of this. But it will remain competitive and remain fragmented” 

Kyle Gendreau, CEO, Samsonite International SA

“Travel in 2021 and beyond will be a much more considerate exercise than it has ever been before” 

Luis Cabrera, CEO, Lonely Planet

Workplace & Employment

“I think all of us, as business leaders, have realised that perhaps we had people taking trips that might not have been necessary, or we sent too many people on a trip, or we sent somebody to give a presentation for an hour and a half and sent them around the world, and that cost money and it cost time, which is money, and now realize that, boy, a lot of that stuff can be done on any one of these video platforms that work darned well” 

Albert Kelly, CEO, Visa Inc

“I do believe there will be more change in the next two years than in the last 10 years…Almost every company on the planet is and will have to reimagine their business. Quite simply, different work needs to get done and work needs to get done differently” Gary Burnison, CEO, Korn Ferry Inc

“Printing volumes continue to be significantly below where they were before the pandemic” Enrique Lores, CEO, HP Inc

Agriculture

“Australia has been in a strong moment of rebuilding [cattle] herds. Australia, overall production of beef in Q3 was 30% below last year. Just to give you a perspective, 30% is a big, big reduction…since last year, and even more this year, probably the best conditions for grass in Australia in many, many decades. So, it came from extreme [drought] to another extreme now, so that’s why the [cattle] retention has been so strong in Australia” 

Andre Nogueira, CEO, JBS USA [world’s largest beef producer]

“In the coming period we need to be prepared for ongoing uncertainty in terms of access to the Chinese market” 

Hugh Killen, CEO, Australian Agricultural Company [AACo] Ltd

Residential Property

“I don’t think the housing market is a risk anymore. I mean we’ve substantially upgraded our forecast in and around housing versus where we were in May and even in August” 

Matt Comyn, Chief Executive, Commonwealth Bank of Australia Ltd

Building & Construction

“We’re anticipating this post-COVID retail environment [where] the nesting effect of the DIY starts to minimize over time” 

Marvin Ellison, CEO, Lowe’s Companies [world’s 2nd largest hardware chain]

Manufacturing

“We are starting to see strength in our [aluminium] markets. We gave a view at the beginning of the fourth quarter that was somewhat uncertain around the value-added products markets globally. We are starting to see the value-added products markets strengthen globally” 

William Oplinger, CFO, Alcoa Inc [global aluminium manufacturer]

“We’ve observed in the last month very strong dynamics in the market for hydrogen technologies, at least say which we have not seen before being this strong” 

Martina Merz, CEO, Thyssenkrupp AG [multinational chemical, steel & elevator manufacturer]

Transport & Logistics

“Building on the V-shaped recovery in the September quarter, we continue to see consistent improvement in terms of mobility and miles driven, and this bodes well for the replacement demand of tyres, both in terms of passenger vehicles as well as truck and bus” 

Sean Keohane, CEO, Cabot Corporation [multinational chemicals company/supplier of chemicals for tyre industry]

Consumer Goods

“I think in the label industry in general, because this pandemic has increased at-home purchases, so if you are in the label business, I don’t think it’s been a stressful time…you wouldn’t say it’s been a bad time for consumer packaged goods companies” 

Geoffrey Martin, CEO, CCL Industries Inc [world’s largest diversified label company & banknote maker]

Retail

“Fundamentally it seems like the consumer is relatively strong” 

Katrina O’Connell, CEO, GAP Clothing Inc

“It doesn’t look like the economy is going to be anything other than very strong in the immediate future” 

Gerry Harvey, Chairman, Harvey Norman Holdings Ltd

December – Week 1 update

After a high in November, the market had a small pullback before starting December steadily in the green.

There is a new picture emerging when comparing global economies. Our employment and GDP numbers show we’re not on the brink of recession and recovering rather well. The US on the other hand, has 10 million people out of work, a long wait on vaccines, questions on further stimulus, all leading to a limping economy.

The contrast is even greater with the COVID situation. Over 2500 deaths a day (that’s a death every minute) and 200,000 new cases daily in the US. Zero deaths for some time now in Australia and a handful of cases, mostly from people flying in.

The ASX VIX (volatility index) remains in a slow downward trend.

Volatility doesn’t necessarily show market direction (up or down) but the range of average price changes over time.

The VIX reading is under 15 points at COB yesterday.

The S&P/ASX 200 VIX Index (XVI) calculates the amount of volatility expected in the market over the next 30 days.

•  High readings indicate uncertainty (bearish)
•  Normal readings suggest a slight bullish bias
•  Low readings indicate low volatility (bullish) and strong investor confidence.

marketindex.com.au

On to the latest CEO insights.

CEO Insights by Sector

Banking & Payments

“So there has been a run on cash in every central bank in the world in the pandemic. I mean there isn’t a single bank in the world that hasn’t seen increased demand for cash” 

“There is a lot of interest in polymer [bank] notes and I would say that it’s accelerated during the pandemic because people are worried about the cleanliness of [paper] currency as well as the cost efficiency and all the other aspects of it. So, we’ve got a lot of interest in that field”

Geoffrey Martin, CEO, CCL Industries Inc [world’s largest diversified label company & banknote maker]

Technology

“We’re seeing such trends and such tailwinds around streaming, whether it be audio or video and that plays right into what we’re doing” 

Patrick Spence, CEO, Sonos

“COVID has resulted in the acceleration of technology in every aspect of our lives and there will be no turning back. This is a fundamental shift” 

Frank Calabria, CEO, Origin Energy

Tourism & Leisure

“Regional tourism is very, very strong. Holiday parks with their open space make social distancing very easy to do. This has been a real positive for the whole industry” 

Grant Wilckens, CEO, G’Day Parks [Australia’s largest holiday/caravan park owner and operator]

“If you said tomorrow that there was a vaccine with 100 per cent efficacy, and everyone gets it, do people want to live on a cul-de-sac or in a city? They’d rush back and realise there was a reason they weren’t living in a cul-de-sac before” 

Peter Kern, CEO, Expedia Group

“We’re seeing extremely strong demand in the back half of fiscal-year ’21 and all of ’22 in terms of cruise line bookings” 

Bob Chapek, CEO, The Walt Disney Company

Workplace & Employment

“My prediction would be that over 50% of business travel and over 30% of days in the office will go away” 

Bill Gates, Co-Founder, Microsoft Corp

“At the beginning of the pandemic, we heard an awful lot about how effective it is using technology to work from home…But what we’re also hearing now is how important it is to be in the office for creativity, the team working, the projects for coaching and development” Dominic Blakemore, CEO, Compass Group PLC [world’s largest contract food service company]

Residential Property

“With the scheduled end of the Job Keeper and deferred mortgage programs still yet to be determined, along with other macro factors impacting consumer confidence, there is still material uncertainty as to whether the momentum evidenced in the first half of FY21 will be maintained in the second half results” 

Eddie Law, CEO, McGrath Ltd

“The major lenders have seized the opportunities presented by favourable funding conditions and have aggressively targeted market share growth with generous cash back offers and very competitive fixed rates for new customers. This has seen the major lenders regain market share from the non-majors. They now hold 60.1% of the market, up from circa 52% in the same period last year” 

David Bailey, CEO, Australian Finance Group [AFG] Ltd

Building & Construction

“Demand strength [from the construction industry], particularly in the Australian market, has continued to outpace our expectation” 

Mark Vassella, CEO, BlueScope Steel Ltd

Transport & Logistics

“Despite the fact that we are still in the middle of the pandemic with continued high uncertainties, we have seen a strong recovery in demand within transportation and logistics, which has led to equipment shortages, both containers and vessels” 

Søren Skou, CEO, Maersk [global shipping company]

Advertising & Marketing

“Millennials and Gen Z are hard to reach. The traditional modes of advertising don’t reach this generation” 

Anthony Eisen, Co-CEO, Afterpay Ltd

Retail

“I do think that some personal [shopping] habits will have changed on a relatively permanent basis in terms of customers focus on handwashing and overall safer lifestyle choices when it comes to keeping clean go forward” 

Andrew Meslow, CEO, L Brands Inc [global clothing, soap & fragrance conglomerate]

Food & Beverage

“I think we are at the very beginning, for meat and dairy substitutes, of their market growth – they are still tiny compared to the overall meat and dairy markets. In the most developed countries, it’s 5%of meat or dairy – some predictions say it could go to 50%.” 

Hanneke Faber, President, Foods & Refreshment, Unilever

“Long before the pandemic started, we were witnessing a shift away from the traditional sit-down family dinner. Anyone who has kids has experienced this. Many activities, not enough time and dinner was whatever could be eaten between activities. The pandemic brought the sit-down family dinner back. Meals previously eaten on the go have become family activities” 

Jim Snee, CEO, Hormel Foods Corporation [multinational processed foods conglomerate]

Aviation

“The history books will record 2020 as the industry’s worst financial year, bar none. Airlines cut expenses by an average of a billion dollars a day over 2020 and will still rack up unprecedented losses” 

Alexandre de Juniac, CEO, International Air Transport Association [IATA]

“[A lack of national cohesion on borders] Is kryptonite for the tourism industry. No one knows what is going to happen from one day to the next” 

Geoff Culbert, Chief Executive Officer, Sydney Airport Ltd

Energy & Resources

“Renewables are plunging in cost so fast, gas will never get a look in. This isn’t about politics. It’s about economics and realism” 

Mike Cannon-Brookes, Co-CEO, Atlassian Inc

Chinese Economy

“If you look at China right now where things are pretty much back to normal, you will see our businesses are performing well there, people are socializing outside the home again” 

Ivan Menezes, CEO, Diageo PLC [multinational alcohol company]

On to purchase entries and company updates for members.

November – Week 3, ASX glitch, thoughts on portfolio breaking 250k

The market, ASX 200 (XJO) hit a post-covid high of over 6,500 yesterday and ended the day just under it.

In the last 48 hours markets globally have seen a positive uplift, mainly due the news of a second vaccine from Moderna that is claimed to be 95% effective as opposed to Pfizer’s claims for their vaccine last week.

Pfizer’s vaccine headlines were also accompanied by the CEO selling 7.5 million AUD worth of shares on the same day the vaccine effectiveness was released to the media and the share price rose 15%. Made us raise our eyebrows and think of our article on Director’s buying and selling shares just 2 weeks ago.

Other highlights of note to markets:

  • Australia signed the world’s biggest trade deal RCEP (Regional Comprehensive Economic Partnership)
  • NSW plans to make stamp duty optional. A land tax instead.
  • Australia’s travel bubble plans with NZ on hold with new outbreak of cases in South Australia
  • US now has 11.2million cases of covid, and is on a trajectory that will top 200,000 new cases daily by the end of November. France has gone over 2million cases
  • Thousands of people volunteer to take test cruise ship trips as operators look to satisfy CDC standards for being COVID safe.
  • US election uncertainty seems to be subsiding.
  • Rotation into Energy, Travel and Leisure, cyclical companies continues for now, but at a slower pace.

We’re keeping a close eye on things and looking at companies that will become ideal to take positions in, both from our existing portfolio and our watchlist.

The VIX (volatility index) has dropped even further.

Volatility has been levelling out the last few months and has now sharply dropped.

Volatility doesn’t necessarily show market direction (up or down) but the range of average price changes over time.

The VIX reading is under 15 points at COB yesterday.

Source: marketindex.com.au

•  High readings indicate uncertainty (bearish)
•  Normal readings suggest a slight bullish bias
•  Low readings indicate low volatility (bullish) and strong investor confidence.

16th Nov, Monday’s ASX “crash”

When we wrote ‘Will there be another share market crash in 2020’, we didn’t think it would the kind that had the ASX tech support team putting out fires.

Office Monkey GIF

Monday’s ASX outage which started around 10.30am, lasted for hours before the market was officially closed to investigate and fix an issue with a system upgrade of the data trading system, which was implemented by NASDAQ.

And it was specifically due to to do with combination trading of equities, and options (CX trades). This type of combination trading has been disabled and the ASX resumed trading the next day.

ASX released an official apology and response late on Monday.

They’ve only been a few instances of the ASX having technical issues and having to shut down trading. Yesterday’s 6.6 hour outage was the longest the market has been shut in 10 years. Reports say that the impact of no trading yesterday, across 2000 listed companies and institutional money etc. totals about 1.2. trillion AUD.

It hasn’t been a great quarter for the ASX, a publicly listed company itself. Last month the ASX’s much-anticipated new website failed shortly after launch, blocking access to company announcements and market data leading to criticism of the ASX being the only exchange in Australia.

Many other countries have multiple exchanges which lends itself two more providers competing for providing the service, generally a good thing.

Are tech issues on the ASX a concern and are shareholdings safe?

Without getting into too much detail, the short answer is that we are very fortunate with the way ASIC and the ASX work, the regulations around ownership and trading of shares, being linked to a CHESS / HIN number that is unique to each shareholder. And with registries like Computershare to manage share holdings and brokers, shareholder’s actual ownership of shares is always safe and therefore the value of money is safe in them. There’s always going to be a track record and history of what trades were done with the ASX.

The other reason we feel safe, is that we use brokers like SelfWealth who allow you to buy shares with your own CHESS / HIN that’s connected to your Tax File Number.

With some of the other brokers including new ones like SuperHero, this is not the case. You do not technically own the shares because they trade all the shares on your behalf, under their own CHESS / HIN which means they technically own the shares. Of course, it’s up to everyone to decide whether cheap brokerage is worth the technical ownership issue. We’ve never used brokers that don’t allow us to trade with our individual CHESS / HIN, thereby ensuring the shares are actually owned by us.

Thoughts on Tabarruk’s portfolio value crossing 250k

We’re at 115% growth with our portfolio and the core of our long term strategy has been:

1️⃣. Investing in established businesses

2️⃣. Finding smaller companies or business recovery signs early

3️⃣. Conviction and patience to hold as growth occurs

4️⃣. Using our secret to buying at the bottom

5️⃣. Investing a portion of our income monthly or fortnightly

Since the start of our portfolio in March 2020, once our initial investment had grown to a baseline of what we felt was ‘secure’ we diversified into some early picks and companies that were recovering. This theme is something that we continue to do while researching companies and sectors, week in, week out.

This has had our portfolio rally to new highs off late as the rest of the market and media got wind of some of these sectors and companies.

This combination really comes into its own when you have multiple early finds, combined with the holdings in established companies also growing at a good rate. Finding companies early can be life changing.

Watchlist and portfolio updates for members are at the bottom of this update.

On to the latest CEO insights.

CEO Insights by Sector

Workplace & Employment

“We believe the shift to distributed work will continue long after the pandemic ends” 

Drew Houston, CEO, Dropbox Inc

“We’re expecting, hoping it [unemployment] will get to 6.5 per cent by the end of calendar year 2021, I think that would be a very, very good result” 

Matt Comyn, CEO, Commonwealth Bank of Australia Ltd

Domestic Economy

“Some of the underlying impact of lockdowns we probably can’t quite see until probably April/June quarter next year” 

Matt Comyn, CEO, Commonwealth Bank of Australia Ltd

“Australia is positioned to demonstrate to others the importance of investing in relationships and the power of trade. We have demonstrated for decades a firm belief in cooperation and collaboration in our region and beyond. The Australian Government’s leadership together with China and other nations to finalise RCEP is such an example. We must return the world to growth to help improve living standards and do it in a way that is sustainable and benefits all. For us to ‘build back better’, we must ‘build back better, together’ … we have to ensure we are doing absolutely everything in our power to secure Australia’s continued prosperity through mutually beneficial trade and co-operation”

Mike Henry, CEO, BHP

Chinese Economy

“This was another extraordinary quarter for Chinese consumer consumption” 

Fabrizio Freda, CEO, The Estée Lauder Companies Inc

Food & Beverage

“Despite restricted operating conditions due to a virus resurgence in the State of Victoria, strong drive-thru and delivery sales drove roughly 75% of Australia sales, and they grew market share. Australia has also seen an increase in other digital channels, such as our mobile app and self-order kiosks, as customers use contactless ways to order and pay” 

Kevin Ozan, CEO, McDonald’s Corp

Agriculture

“Milk supply in Australia continues to improve…Favourable weather conditions have helped increase milk production for our current base of suppliers. We’ve seen increased milk purchases from third-party milk brokers, and we continue to increase our toll manufacturing opportunities. Volumes are performing better than prior year” 

Kai Bockmann, COO, Saputo Inc [Australia’s largest dairy processor]

“There were reports just a few weeks ago about rain and hail storms and the damage they had done to crops, put simply we’re not seeing the impact of that coming through our network based on the scale of the crop” 

Robert Spurway, CEO, GrainCorp Ltd

“Right now, we’re into harvest and we’re seeing what’s happening and we’re very confident about the amount of grain coming into our network, based on what we see as a very significant crop across East Coast Australia. We’ve seen good yields. We’ve seen good quality” 

Robert Spurway, CEO, GrainCorp Ltd

Domestic Retail

“With borders reopening and the return of domestic tourism, along with a steady increase in workers returning to CBD offices, this should support improved retail conditions across Australia” 

Grant Kelley, CEO, Vicinity Centres

“As a result of significant pent-up demand, the trading performance across stores in Melbourne has been very strong since they re-opened to retail customers on 28 October 2020” 

Rob Scott, CEO, Wesfarmers Ltd

Media & Advertising

“Since the end of September, the FTA [free to air] advertising market and Nine’s share of that market, have both improved significantly” 

Hugh Marks, CEO, Nine Entertainment Co Holdings Ltd

Construction & Infrastructure

“As we look ahead, our customers are pointing to volumes remaining at current levels through to the start of the new calendar year” 

Ross Taylor, CEO, Fletcher Building Group Ltd

Energy & Resources

“After scientific and personal analysis of the renewable resources of our little planet I can assure you there is more than enough renewable energy to sustainably and economically supply every person on the planet from this time forth” 

Andrew Forrest, Chairman, Fortescue Metals Group.

Commercial Property

“Vacancy is beginning to rise and it’s beginning to rise fairly quickly now which is again exactly what you would expect in a downturn of this sort. Companies that do not have the ability anymore to kick the can down the road are, based on our numbers renewing and that’s at a higher percentage than is typical. They’re not going to the market. They’re just going to renew and they’re renewing at shorter-term leases” 

Brett White, CEO, Cushman & Wakefield plc

“At the moment, the way I would describe, what we’re seeing on the leasing side is rents are holding up. That will change. We know the rents are going to be coming down” 

Brett White, CEO, Cushman & Wakefield plc

“Rising confidence will combine with very low interest rates to drive investor capital toward property, and particularly commercial property yielding two to three times the yield available from buying residential” 

David Harrison, CEO, Charter Hall

Aviation

“There’s reasonable optimism now that [northern hemisphere] summer 2021 will get back to some degree of normality”

Michael O’Leary, CEO, Ryanair

Automotive

“We are now assuming a global car demand down 17% for the full year, 2 percentage points better than our previous expectations, and a minus 5% in the fourth quarter. High-value [car industry] is confirming its resilience” 

Andrea Casaluci, CEO, Pirelli Tyre & Co SpA

Tourism & Leisure

“Caravan sales are very strong at the moment – a six month wait for a new caravan is not unusual – and the two most popular regions in Australia for caravanning and camping are the NSW North Coast and NSW South Coast” 

Simon Owen, CEO, Ingenia Communities Group

Members only updates follow below.

November Update – Week 1 & 2

The market, ASX 200 (XJO) hit a high of 6,437 this morning and is sitting at 6,351 at 2.22pm.

Overnight, Pfizer released a media statement claiming that their vaccine is 90% effective.

This combined with increasing certainty following the US elections caused a significant rally on global stock markets, so it was inevitable that the ASX would follow.

As we saw in April 2020, when the media put out initial ‘recovery / vaccine’ hopes, the sectors and companies that the money has flown into today, and caused surges in share prices were Energy, Travel and Leisure.

Whether the Pfizer vaccine is indeed effective and how long it would take to get to the masses, remains to be seen. Likewise, the rotation of investors attention from Technology and Health into ‘recovery’ plays is also something that needs time to ascertain if it’s temporary or longer term.

Some key highlights we’ve noted:

  • Global coronavirus cases go over 50 million as USA and Europe have difficulty containing surges
  • China state media takes an optimistic tone on Biden, says relations could be restored to a state of greater predictability
  • China auto sales go from strength to strength as virus recedes; optimism growing that slump is over; electric cars gain ground
  • Business sentiment of Japanese manufacturers and service-sector firms was the least pessimistic in nine months in November
  • IEA sees new European lockdowns denting oil demand outlook, but would likely be less severe than under lockdowns earlier in the year
  • International travel into and out of Australia not officially open but sentiment around it seems to be changing

Regardless, we’re keeping a close eye on things and looking at companies that will become ideal to take positions in, both from our existing portfolio and our watchlist.

Also interesting to see the VIX (volatility index) has dropped from the elevated levels the last couple of weeks, as we highlighted in our ASX vs global markets and volatility article.

As you can see, the volatility spiked to a peak around the March covid crash before levelling out over the next few months. There was a clear uptrend forming from the last 2 week period which is now starting to settle down again.

Volatility doesn’t necessarily show market direction (up or down) but the range of average price changes over time.

Today’s VIX reading is around 18 points.

•  High readings indicate uncertainty (bearish)
•  Normal readings suggest a slight bullish bias
•  Low readings indicate low volatility (bullish) and strong investor confidence.

Watchlist and company updates for members are at the end of this post.

On to the latest CEO insights.

CEO Insights

Retail & E-Commerce

“What we saw in the second quarter, clearly a significant disruption in a lot of areas and scarcity in certain areas in the supply chain and distribution that drove a lot of people shopping online…What we’ve seen in the third is it’s reverting to a more normalised buyer acquisition trend and more normalised repurchase frequency for those cohorts” 

Andy Cring, CFO, eBay Inc

“These [recent e-commerce ASX listing] companies have…taken advantage of good market conditions, but this is the next generation of retail. You can’t put the genie back in the bottle” 

Mark Coulter, CEO, Temple & Webster Ltd

“We’re seeing more customers than ever shopping early for their holiday gifts, which is just one of the signs that this is going to be an unprecedented holiday season” 

Jeff Bezos, CEO, Amazon Inc

“As we look into the future, there’s no difference between a micro [SME] business and an online micro business. Every micro business is going to be online. That’s just how people are going to find things. That’s just how people are going to want to transact, because it’s going to be simpler for them and it will allow them to scale in a way that previously they couldn’t” 

Aman Bhutani, CEO, GoDaddy Inc [worlds’ largest domain/website hosting company]

Consumables, Meat & Livestock

“COVID has been the greatest sales changer that anyone has ever seen. When you have five million people locked in their homes or a panic attack across the whole country, that drives sales more than any other promotional event” 

Steven Cain, Chief Executive Offer, Coles Group Ltd

“We see incredible opportunities, quite frankly, across the mega trends all over the world that we’re seeing on the ground. Naturals and sustainability, the urbanisation that we’re seeing in big markets, ageing population in developed markets, or younger population and per capita consumption opportunities in developing countries” 

Noel Wallace, CEO, Colgate-Palmolive Company

“Never in my lifetime have we seen the dearest cattle in the world in Australia” 

Peter Hughes, Owner, Hughes Pastoral Company [major QLD cattle group/landowner]

“Values being paid for young grower or replacement cattle bear no reflection to the current domestic or global meat market and are more a reflection of the desire for producers to restock their properties that have experienced a great season following the drought” 

Trevor Lee, Owner, Australian Country Choice [major cattle group/landowner]

Residential Property

“We continue to see our customers invest more in the comfort of their homes, where many are spending more time working and studying” 

Mark Ronan, CEO, Adairs Ltd

“We have quite an optimistic outlook on what’s going on around Australia” 

Mike Schneider, MD, Bunnings Group.

Travel & Leisure

“We were really quite surprised by the level of demand that came into the product of the winter season. Within the first two weeks, we had literally triple the demand that we were expecting at rates above what we were expecting” 

Michael Bayley, CEO, Royal Caribbean International

“I’d have to say it’s [length of rental] pretty elevated. Our customers are keeping the cars longer so when I say that people are checking out at weekends, it’s not like a weekend rental. It’s like you think where you’d take out Friday and come back Sunday, it’s not that at all. They’re using the car over these longer leisure periods” 

Joe Ferraro, CEO, Avis Budget Group, Inc

“There’s much discovery going on and price shopping and there seems to be more direct bookings in the smaller market independent hotels as people are calling to make sure they’re open, make sure that safety protocols, etc” 

Peter Kern, CEO, Expedia Group Inc

“The recovery for travel is not going to be in quarters. It’s going to be in years” 

Glenn Fogel, CEO, Booking.com Holdings

“There’s a huge amount of pent-up demand. People love traveling, they want to get out, and, by the way, even business travel. People like business travel. It’s a break from the monotony, in some cases, of their work” 

Chris Nassetta, CEO, Hilton Hotels

Aviation

“We’re seeing encouraging industry data validating the safety of air travel. Recently, IATA [International Air Transport Association] published data outlining that of the over 1 billion people who have travelled by air this year, there have been fewer than 50 documented cases of transmission”

“We believe there will be pressure on defence spending as a result of all the COVID-related spending that governments around the world have been experiencing. I don’t think we’re looking at that world through rose-coloured glasses. I expect real pressure on that market”  

David Calhoun, CEO, The Boeing Company

“The last thing that businesses in any sector needs right now is more red tape, taking time and energy when we should be focused on recovery” 

Alan Joyce, CEO, Qantas Airways Ltd

Automotive, Transport & Logistics

“With new car sales returning to pre-pandemic levels in September and dealer inventory more than 20% below average, we’re likely to see continued strength in OE [original equipment sales] demand throughout the remainder of the year” 

“Industry conditions improved meaningfully compared to the second quarter and much faster than we expected…Miles driven trends improved globally as freight volumes benefitted from increased consumer and industrial activity”

Rich Kramer, CEO, The Goodyear Tyre & Rubber Company

“All of our plants are now back up and running…and really, most of them now have returned to what I would call near pre-pandemic production levels” 

Mike Manley, CEO, Fiat Chrysler Automobiles N.V.

Payments & Lending

“The trajectory of the recovery, where borders are now open provide some indication of how fast the cross-border business could rebound once most borders reopen” 

Vasant Prabhu, CFO, Visa Inc

“As a result of the overwhelming government support and our ability to manage at a granular level, so far, the [loan default levels] outcome is better than many feared. In a time of ultralow interest rates, time is cheaper than at any time in our history and so buying time through a deferral can be a very rational response for customers” 

Shayne Elliot, CEO, Australia and New Zealand Banking Group Ltd

“We saw [credit] card balances decline a lot and then plateau. We’re still seeing that plateauing effect. I think it will take some time for balances to recover” 

Jes Staley, CEO, Barclays

Insurance

“Insurers have continued to increase premium rates, and volumes have held firm” 

Robert Kelly, CEO, Steadfast Group Ltd

Technology

“The next decade of economic performance for every business will be defined by the speed of their digital transformation” 

Satya Nadella, CEO, Microsoft Corporation

“I look at companies like Microsoft or Amazon and those businesses are the railways of the current era. When railways opened it liberated economies right around the world. What you have with those hyper cloud vendors [eg Microsoft Azure or Amazon AWS], they are the railways of the current era” 

Tony Walls, CEO, Objective Corporation

Energy, Mining & Resources

“We are excited to see recent reinvestment into our sector with major mining houses flagging increased exploration spend and junior miners now accessing capital through equity raisings” 

Jeff Olsen, CEO, Boart Longyear Ltd

“If all the pledges of the Paris Climate Agreement were met, oil and gas would still be 46% of the energy mix in 2040. The energy transition will take time and major breakthroughs in technology will be needed” 

John Hess, CEO, Hess Corporation [global oil & gas producer/refiner]

“Investment in our industry tends to be global and capital will shift to the best place, so governments are aware if they get that wrong through heavy handed intervention, they can actually shift the investment elsewhere and have a negative price impact” 

Lawrie Tremaine, CFO, Origin Energy Ltd

Domestic Economy

“Interest rates will rise but it’s hard to know exactly when, I think we have to be sufficiently optimistic that it will occur sometime in the next five years” 

Dr Phillip Lowe, Governor, Reserve Bank of Australia

“There has been a modest deterioration in our economic assumptions, the expected shape of the recovery and downturn has changed, with a deeper trough and a slower recovery” 

Gary Lennon, CFO, National Australia Bank Ltd

“Anything that helps consumers feel more certain about spending in this important quarter will help propel the retail economy forward – which in turn creates a positive ripple effect on jobs and growth” 

Paul Zahra, CEO, Australian Retailers Association

Chinese Economy

“China’s economy is running. We are developing projects, it’s played back to normal and the pandemic seems to be very, very well controlled” 

Bertrand Camus, CEO, Suez SA [global waste management/recycling company]

“According to the preliminary data, global chemical production was slightly positive in Q3 2020 compared with the prior year quarter. The resilience of chemical demand in some highly relevant customer industries is one reason for that. Another reason is China. The country continues its V-shaped recovery” 

Martin Brudermuller, CEO, BASF SE [world’s largest chemical manufacturing company]

Fitness & Recreation

“We do see strength across categories, basically everything that involves adventure and outdoor activity, especially golf.” 

Cliff Pemble, CEO, Garmin Ltd

Members only updates follow below.

How global markets affect the ASX and planning for volatile periods like USA elections

There’s obviously a lot of content flying around about the US elections and it’s impact on the markets, including predictions of what could happen based on different outcomes.

We’ve never invested based purely on predictions. Our philosophy is based on strong conviction backed by in-depth research, which often leads to the best growth results over the long term.

What we do factor in, is observable data. Like volatility.

How the global markets relate to the ASX

We posted an infographic earlier today on LinkedIn, Twitter and Facebook.

While there, make sure to like, subscribe and follow if you haven’t already.

What the infographic we posted doesn’t show is that 4 of the top 5 companies in the US are bigger than the total market cap of the ASX.

So with the US markets making up almost 50% of the world’s markets, it stands to reason that when they go through volatile periods, it has an impact on the rest of the world, including the ASX, which is 1.5% of the global markets.

Measuring Volatility

The S&P/ASX 200 VIX Index (XVI) calculates the amount of volatility expected in the ASX over the next 30 days. It is also known by other names like “Fear Gauge” or “Fear Index.”

As you can see, the volatility spiked to a peak around the March covid crash before levelling out over the next few months. There is a clear uptrend forming from the last 2 week period.

Volatility doesn’t necessarily show market direction (up or down) but the range of average price changes over time.

Today’s VIX reading is around the 24.5 points reading.

•  High readings indicate uncertainty (bearish)
•  Normal readings suggest a slight bullish bias
•  Low readings indicate low volatility (bullish) and strong investor confidence.

Source: marketindex.com.au

Approach to planning for volatility

Besides the Democrats vs Republicans outcome of elections in the US, there is another possible outcome.

Australia being isolated in a way, and appearing to have come through the worst of the pandemic in better shape than other economies, we could be seen as a safe haven for the global economy.

So how do we plan to approach investing in this period?

Members, read on to learn what our plans are.


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