- It is well documented that the Warren Buffett indicator, which measures equity market cap as a ratio of GDP, is at an all time high, surpassing the dotcom boom.
- It is less well documented that the ratio of profits to GDP is also strong and has been trending up.
- h/t The Market Ear.
Stocks
Interesting, and often contrarian, Snippets on individual companies and the stock market.
Japanese Small Cap Value
- Small cap value stocks in Japan are very attractively priced relative to the broader Japanese market.
- NB value defined as cheapest half of market, size defined as smallest third. Multiple valuation metrics used.
- Source: GMO.
EM vs US Equities
- Emerging market equities are approaching a near 20 year low relative to S&P 500.
SPAC Returns
- JPM analysed 98 SPAC deals that closed or liquidated from Jan 2019 to March 2021.
- It isn’t a pretty picture – “while SPAC sponsors and “SPAC Arbitrage” investors are still making money, it’s an unsightly picture for everyone else in the SPAC ecosystem“.
- Things didn’t get any better for the 85 SPAC mergers since March 2021 – the same patterns hold.
- This was a great post looking at the crazy things going on recently in the SPAC world.
Pixar
- George Lucas was forced to sell Pixar to fund his divorce.
- Venture capitalists, 35 of them, refused to back the firm as did eight strategic partners, but Steve Jobs agreed.
- “If we’d had any other investor than Steve, we would have been dead in the water.“
- He forced the firm to succeed “He’d berate those of us in management, then write another check”
- Pixar was eventually sold for $7bn to Disney “This is astounding considering they could have had us for free in the 1970s when we approached them on bended knee.”
- The real story of Pixar – a fascinating read.
Dell
- “Splitting a good black jack hand” is a great way to describe how Michael Dell pulled off perhaps the most daring deal of the last decade.
- “Before the LBO, he owned 15.6% of his company, shares worth less than $4 billion. Thanks to the miracles of his financial engineering, he will own 52% of Dell and a 42% stake in VMware. The total value of his Dell holdings is $40 billion.“
- A really great article from Forbes.
Stock Issuance
- Equity issuance at an all time high. Not a bullish sign.
- Source: GMO.
Music Streaming Market
- There are 487m music streaming subscribers globally at Q1 2021.
- Emerging markets are now central to this market accounting for 60% of all 2020 subscriber growth.
- Spotify is still the leader with 32% but has lost two points of market share since Q1 2020.
- Google’s Youtube Music has been the standout story – “The early signs are that YouTube Music is becoming to Gen Z what Spotify was to Millennials half a decade ago.“
- Source.
Grocery Delivery Sales
- Grocery delivery did extremely well during the pandemic.
- Walmart dominated pre-pandemic but the first few months of lockdowns its market share was eclipsed by Instacart.
- As of June 2021 it is back in the lead with 48% share while Instacart has 45%.
- Overall online grocery sales peaked in January 2021 and volumes are down 24% to June 2021 (which is -3% YoY).
- NB Amazon is excluded.
- Source.
Aducanumab Approval
CPU Competition
- The world of CPUs is heating up with new competition.
- In his first interview the new CEO of Qualcomm signalled they plan to design their own SoC with their own CPU.
- This will be based on their acquisition of Nuvia ($1.4bn) which was founded by Apple employees who worked on the M1 chip design.
Bounce Backs
- The time it takes for the stock market (S&P 500) to recover from a 2-sigma one day decline is at a historic low.
EV Maintenance Costs
- The US government estimate of fleet maintenance costs found that battery-electric vehicles (BEV) have about 40% lower cost when compared to internal combustion engine vehicles (ICEV).
- Hybrids (HEV) and plug-in hybrids (PHEV) also save money.
- NB this 4c per mile difference across the nearly 2 billion miles federal government vehicles covered in 2019 equates to $78 million a year in savings, and that doesn’t account for fuel costs.
Growth Scarcity
- Back in the early 2000s half of the stock market would be classified as a growth stock.
- Today only 67 companies have a top line 5-year growth rate of >15%.
- Growth is scarce.
- Source.
Peer to Peer Car Sharing
- Turo, part owned by IAC, is the leading peer to peer car sharing company (think Airbnb for cars).
- Turo has been gaining share – it has tripled from 2% in June 2019 to 6% in June 2021.
- Still miles away from the top three rental firms (Enterprise 37%, Avis 31%, Hertz 26%).
- Competition in the space is heating up with Uber unveiling their own rent-a-car service and Lyft partnering with SIXT for care rental.
- Source.
Hotel Occupancy Rate
- The occupancy rates of hotels has recovered nicely and is almost at the median level (’00 – ’20, blue line).
- Leisure demand is “doing the heavy lifting” (as seen in weekend occupancy rates), meaning a solid picture through the summer.
- Source: Calculated Risk.
Newsletters
GSK
- GlaxoSmithKline has been the subject of an activist attack by Elliott, who built up a significant stake in the company in April.
- GSK then hosted their long awaited investor day in June – laying out a plan for a future after spinning off their consumer health division.
- Elliott then released a letter which was quickly rebutted by the board of GSK who called for the usual “stability”.
- This was a good write up of the whole interaction.
- One interesting element that has not entered the discussion is the balance sheet.
- NewGSK will have 2x ND/EBITDA, even after gearing up consumer health to 4x and paying a dividend back. It also has a pension (£2bn deficit) and minority payments to ViiV partner Shionogi. All of this constrains the firm.
Stripe
- A lot has been written about this remarkable company and its even more remarkable founders.
- This was a really great, long piece covering everything from history to strategy.
- “In 2006, using an SAT score from a test he’d taken at the age of 13 (an infuriating anecdote), Patrick matriculated to Lisp’s birthplace: the Massachusetts Institute of Technology. He’d sped through the final two years of his high school curriculum in just twenty days.”
S&P H1 Return Decomposition
- Interesting to see that more than 100% of the 14% H1 2021 return of the S&P 500 index is earnings growth.
- Source.
