Good Afternoon,
IGNORING EVERGRANDE for a moment I want you to listen to our latest podcast. It's with an old long lost friend of mine, now CEO of THE ICONIC, Erica Berchtold. We catch up on the latest in retail and how they're saving time on orders and protecting staff from the Covid. There's some amazing parts in there about the tech being used in retail and what's ahead. Also (and interestingly for me) what gets left behind in the space.
"A few days from the final quarter and looking at the results for q3 the gains need to be protected. That I believe is why markets aren’t being saved and no extra risk is being taken. Why chance it with a few days to go?
Remember, the US is in a state of ‘not risk on’ – it’s not necessarily risk off but if you’ve had a great quarter and you’re right on the line for drawing a line under the end of the quarter why would you risk it on an overvalued market with a lot of downside risks?
China also has Evergrande and the associated unknowns attached to that, along with the CCP randomness in which sectors they attack next. Don’t start me on Macau gaming that’s a position I’m glad is small."
The above was written yesterday morning at about 10am Sydney time to clients and as prep for TV. General feeling was that the market needed to come off a little and there was no point being a hero saving it on the first day.
The Evergrande issue is a question of contagion and of whether the Chinese government will bail out the investors or the company or both. That's not for this article to decide. However the market needed a reason and a reason it found.
What did I find? You can go to Alibaba and find a USD 100000 Multimedia fountain that Evergrande are clearly trying to flog cheap to pay a $100m coupon due Thursday....
Music and lights for those looking to really add something to their renovation.
Moving on from China because there are deals to be done while markets are cheap.
Investible ideas:
European gas prices are rocketing. No new news there but Nord Stream 2 is needing approval so the Russians are allegedly lowering supply to Europe to force the issue, storage is way down and the wind turbines aren’t producing what they should. And it’s having downstream effects.
Numerous UK energy companies are going out of business with wholesale prices out of control and unable to be hedged or passed on. They’re predicting 10 suppliers will remain after winter from a starting point of 49.
Even more interesting is that fertilizer makers are unable to carry on with 2 large fertiliser plants suspending production.
A by-product of fertiliser manufacture is Co2, which is used to stun and control the poultry temperatures in the slaughter process. The biggest chicken producers only have 5-7 days Co2 left.
The same is happening in the pork world too.
So a shortage of fertiliser and it looks like pork, chicken and turkey won’t make it to tables for Christmas.
“Christmas is cancelled”
There is a spot opening up for anyone else who provides fertiliser, pork and poultry. In short, it’s the bulk of the FOOD ETF.
Happy to add to it on any chance this week. Perhaps right now...
Secondly the UK government has amended it’s testing rules to allow easier travel to very popular term break & Christmas destinations. Changes in NHS paying for quick testing and the removal of popular destinations Pakistan, Maldives and Turkey from the “hot list” have also opened up destinations. Without getting too far into it, airlines are adding seats so it’s a great sign that the airlines are a good opportunity.
Here’s the best European travel ETF I could find
iShares STOXX Europe 600 Travel & Leisure UCITS ETF (DE) - code is EXV9 and it trades in Germany so it’s accessible. Good list of names here and a chart that looks strong..
So there you have it. Maximum talent provided via a great podcast, great deals in fountains and two half decent ideas at bargain prices.
All the best,
James
James Whelan | Investment Manager
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