Thursday 30/06/22

1. In MACRO, ENERGY & CRYPTO NEWS, US GDP indicates weakness, UK inflation is set to be higher for longer, Spain’s inflation hits double digits, oil prices climbs, the UK threatens European gas supply, a crypto hedge fund fails and Celsius doesn’t look good
2. In RETAIL NEWS, Bed Bath & Beyond sheds its CEO, H&M profits rise, Mulberry pays a dividend, Cath Kidston gets a new owner, Tesco and Heinz fight and Morrisons goes discounting while B&M tries to calm consumer concerns
3. In CAR NEWS, Stellantis moans about high EV prices, Tesla sacks 200, Lookers sees higher profits and UK car production rises
4. In MISCELLANEOUS NEWS, UK corporate confidence hits lows, office landlords get hit, Deliveroo serves up ads and Snap goes monthly
5. AND FINALLY, I bring you a Swedish Lidl-equivalent and a nice cover version of As It Was…

So everyone gets gloomy about the UK’s economic prospects and Sunak is pressed to help…

📢 It’s Thursday, so it’s time for the one hour weekly ZOOM call for SILVER and GOLD subscribers! *** THIS CALL WILL RUN FROM 6PM TILL 7PM ***. As usual, during this call, I will do a round-up of the week’s news and then open it up to questions from you. After that, depending on how much time we have, we will also debate the following:

• Is the failure of Three Arrows Capital just a one-off or is this the beginning of the end of crypto? Why?
• Do you think Robinhood’s future should be as an independent or as part of a bank/investment company? Why?

You can just listen into the debate if you want to, but I thought I’d give you the heads up on topics for if you would like to engage. You will definitely get more out of this call if you take part in the debate, though 😜!

Revised US GDP data indicate less consumer spending and weaker economy (Financial Times, Alexandra White) shows that the US economy may actually be weaker than originally thought after the federal government cut its GDP figures yesterday. This was due to a fall in exports, government spending and investment in private inventory. The main part to focus on here was the sharp slowdown in consumer spending, which may be a harbinger of things to come. More food for thought for J-dog (my pet name for Jay Powell, chief of the Federal Reserve. It’s more fun, don’t you think?).

Meanwhile, it’s all kicking off with inflation as UK to suffer high inflation longer than other nations, warns Bailey (Financial Times, Chris Giles) shows that the governor of the Bank of England painted a tricky picture of the UK economy and floated the idea of a 0.5% interest rate increase to other central bankers at a European Central Bank conference in Portugal yesterday while Spain’s inflation rate reaches double digits (Daily Telegraph, Tom Rees) highlights the country as being the first major European economy to hit double-digit inflation. The rate of 10.2% in the 12 months to June will no doubt pile extra pressure on the laggards bankers at the ECB to get of their 🍑s and actually do something. This is Spain’s highest rate of inflation since 1985 😱! Market consensus was for inflation to increase from 8.7% to 8.8%.

Then in energy news, Oil climbs to $119 as Shell chief warns of prolonged supply squeeze (Daily Telegraph, Rachel Millard) highlights an observation by the chief exec of Shell, Ben ven Beurden, that OPEC producers don’t actually have as much spare

capacity as everyone thinks and that markets were set to get “ever tighter”. The price of Brent Crude has shot up by 50% since the start of the year and observations like this are only likely to squeeze it even higher!

There was a bit of a shocker in Britain to turn off gas flowing to Continent in emergency plan (Daily Telegraph, James Warrington) as it looks like we are going to be cutting off our friends in Europe as part of our emergency plan. This will involve the shutdown of interconnector pipelines to the Netherlands and Belgium if supplies fall and is part of a four-stage emergency plan that could involve gas rationing to big industrial users. * SO WHAT? * I am sure that we are going to hear more and more about individual countries’ plans as we all scramble at the same time to ensure energy security. We are currently in summer, so it shouldn’t be so bad (in Northern Europe anyway) but I suspect this kind of chat will intensify in September/October when people start to think about switching the heating on.

In crypto news, Crypto hedge fund collapses owing $674m (Daily Telegraph, Gareth Corfield) shows that a crypto hedge fund set up by a couple of ex-investment bankers has collapsed as Three Arrows Capital entered liquidation yesterday. It is estimated that the hedge fund had the equivalent of $10bn under management, which is quite decent. * SO WHAT? * Everyone BUT EVERYONE is going to be trying to second-guess who is going to be next to go under and the longer crypto weakness goes on for the worse it’s going to get. I would have thought that Bitcoin and other cryptocurrencies will be weaker for a while as everyone now knows that there is a forced seller out there (as 3AC is going to have to sell assets to pay creditors), but then again crypto does seem to have a mind of its own. Any whiff of big selling is going to panic investors, though, as they may fear a domino effect on big players.

Then in Behind Celsius sales pitch was a crypto firm built on risk (Wall Street Journal, Eliot Brown and Caitlin Ostroff) we see that Celsius Network’s previous boast that it was less risky than a bank with superior returns is starting to ring hollow. Basically, it turns out that Celsius issued big loans with hardly any collateral according to 2021 investor documents seen by The Wall Street Journal. This meant it had very flimsy buffers in a downturn and it made investments that would take time to unwind in the event of investors wanting ready access to their cash. * SO WHAT? * Celsius is in trouble. Last week, it contacted consultants about a possible bankruptcy filing which followed its freeze on all asset withdrawals on June 12th. Oh dear. I wonder whether this will be another Nikola moment where the wheels fall off the great investment story…

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

It’s a mixed bag for retailers, Tesco squabbles with Kraft Heinz, Morrisons discounts and B&M puts on a brave face…

In Bed Bath & Beyond oust chief as home-goods retailer’s sales drop 25% (Financial Times, Ben Glickman) we see that the US home goods retailer booted its chief exec after another drop in quarterly sales, sending the share price over 20% lower on the news. Q1 sales turned out to be worse than expected as the company blamed it all on the fall in demand for household goods and a difficult economic backdrop. * SO WHAT? * The company has inventory and debt problems that need addressing quickly and a recent board reshuffle that gave activist investors a deeper look into the business has yet to come up with any major solutions apart from potentially selling off its Buy Buy Baby chain, which is small in the scheme of things. At the end of the day, BB&B sells fairly high ticket product at a time when consumers are trying to tighten their belts. That almost never makes for a happy ending. A major shake-up is clearly required here and these disastrous results could be the catalyst. You do wonder whether this is a BB&B thing or whether it is something that will spread among other homeware/furniture retailers. I suspect things are going to get worse at furniture retailers as people tighten budgets and they may be even more affected by supply chain problems that have affected delivery times. Let’s hope that they don’t get lumbered with stock that customers bought months ago but who can no longer pay.

Elsewhere, H&M beats profit expectations after cutting back on discounts (Financial Times, Jonathan Eley) shows that the Swedish apparel retailer posted better-than-expected quarterly profits as it managed to hike prices and attract customers at the same time. Store sales were particularly strong and it said that it had yet to see a meaningful fall in consumer spending. As I’ve said previously here, sales have not returned to pre-pandemic levels (unlike at Inditex, for example), so there is still a way to go yet.

Mulberry investors to bag a dividend (Constance Kampfner) reflects a strong performance from the bagmaker as it committed to reinstate a dividend after its sales rose by an impressive 32%. Sales were particularly strong in China, where they increased by 59%. * SO WHAT? * Although this was a solid performance, the company said that it expected its growth rate to slow down this year thanks to the Ukraine war, inflation and Brexit challenges. Having said that, luxury brands tend to do OK in economic downturns as their clientele are less affected by external economic pressures.

Hilco Capital goes shopping and picks up Cath Kidston (Constance Kampfner) highlights the purchase of Cath Kidston from Baring Private Equity Asia by Hilco Capital, the investment and restructuring firm. The retro label was reborn two years ago after collapsing into administration and it, slowly but surely, has returned to profitability. It now has four UK stores, 95 shop-in-shops and a wholesale business, working in partnership with eight

international franchise partners in ten countries. Collabs with Beatrix Potter, Royal Jubilee and Harry Potter helped to boost sales considerably and it is thought that particular effort will be put into expanding its international footprint in the US and Japan. * SO WHAT? * It sounds like Baring PE has done a good job of reviving a flagging brand – so it is now Hilco’s to muck up. If it can tread carefully and not expand too quickly (which is what, I’d argue, led to its previous downfall) then I think Cath Kidston could be riding high once again. Having said that, when I think of Cath Kidston I am reminded of another “classic” brand, Laura Ashley. It was hugely popular back in the day but eventually faded into obscurity. I just hope that the same thing doesn’t happen with Cath Kidston, so let’s hope that Hilco does a proper job.

In the increasingly cut-throat world of supermarkets, Heinz pulls beans from Tesco shelves in price row (Daily Telegraph, Helen Cahill) shows that there is an impasse currently between the consumer goods company and Britain’s biggest supermarket that has led to Heinz pulling its baked beans and ketchup from Tesco’s stores. Both sides are digging their heels in on higher prices as Heinz wants to put through cost increases and Tesco doesn’t. This has echoes of a previous fight between Unilever and its Marmite and, once again, Tesco for the same reason. * SO WHAT? * This was bound to happen given the inflationary environment we are in at the moment and we’ve already seen resistance from supermarkets in the UK and US who are pushing back on the likes of Kellogg, P&G and Unilever (among others). I’d expect to see more instances, but in the end I think prices are just going to have to go up. At the end of the day, though, the supermarkets and consumer goods companies need each other. It’s just going to be a question of negotiation now IMO.

Morrisons turns to discounts as high inflation weighs on sales (Financial Times, Jonathan Eley) shows that the British grocer revealed a rather downbeat trading update yesterday and admitted that it has “serious work to do” given the macro and consumer landscape currently. It posted weaker Q1 same store sales, cautioning that it is facing “a very fragile and difficult consumer environment”. The supermarket that was bought recently by private equity firm Clayton, Dubilier & Rice announced that it had embarked on its biggest discount programme yet to attract/keep customers. * SO WHAT? * Call me cynical, but I think that this is setting the scene for major surgery on Morrisons as CD&R will no doubt use tricky conditions (and a pretty strong commercial property market) as an excuse to sell assets and slim down the operation. This will be a very delicate operation IMO, particularly if Morrisons is to survive for the long term.

Then in Retailers B&M and Moonpig play down UK consumer squeeze (Financial Times, Jonathan Eley) we saw that both companies decided to leave their profit guidance for 2022 unchanged despite general gloom on the state of the consumer. Let’s hope they are right.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

Stellantis cautions on the EV market, Tesla sheds 200 jobs, Lookers benefits and car manufacturing turns a corner…

High prices put electric car market at risk, says Stellantis (Daily Telegraph, Howard Mustoe) highlights warnings by Stellantis that the market for EVs could “collapse” if nothing is done to bring prices down. I suspect the company is pushing for more incentives for buyers (remember the UK government cut them recently?). * SO WHAT? * The owner of the Vauxhall, Peugeot and Fiat brands said that the current situation is “a big challenge”, but then again consistently high oil prices (and therefore petrol prices) are making EVs look more attractive, despite the fact that they are often about £10,000 more than their petrol model equivalents. I still think that EV prices are too high and that the current crop of early adopters don’t actually need the incentives anyway. I also think that the charging network needs to improve faster than EV sales otherwise there will be chaos, so current macroeconomic circumstances may be a good excuse for governments to do nothing on this.

Staying with EV-related news, Tesla sacks 200 in Autopilot division in cost-cutting drive (Daily Telegraph, James Titcomb) shows that Tesla has axed almost 200 staff from its Autopilot tech division as the company tries to cut costs. I wonder whether the axed workers will have got a fat payout for signing an NDA on their way out given that the Autopilot division is currently subject to a number of investigations by US authorities…

Things seem to be going OK in the UK though in Lookers sees profits on the rise as car supplies dry up (The Times, Tom Howard) as the car dealership published a strong trading update yesterday. This prompted analysts to bump up their profit forecasts because although sales numbers were actually down (because of the restricted supply of new and used cars), the dealerships were able to charge more for them, which was great for margins. * SO WHAT? * Although Car output accelerates but road is still rocky (The Times, Russell Hotten) cites the latest figures from the SMMT which show that manufacturing output is up, there are still supply chain problems, which I would interpret as meaning that car prices are going to stay higher for longer.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

Corporate confidence takes a beating, office landlords get clobbered, Deliveroo looks at ads and Snap goes down the subscription route…

In a quick scoot around other interesting stories today, Corporate confidence hits 15-month low (The Times, James Hurley) cites the latest results of the Lloyds Banking Group monthly survey, which make for sobering reading and is notable in that it is usually more resilient than other economic sentiment indicators.

Landlords take £1.4bn hit on fears for offices (The Times, Tom Howard) shows that some of Britain’s biggest landlords –  including Land Securities, Workspace and Great Portland Estates – have come under fire from analysts at Bank of America who are now saying that “real estate’s glory days are numbered”. All of them saw their share prices fall yesterday as this was a major change in stance for the investment bank who now thinks that WFH will cut the need for space and the imminent recession will dent expansion plans. * SO WHAT? * It’s a major change in stance, I’ll grant you that, but really?? Office rents have been proved to be pretty robust and I think that the WFH threay has been overdone IMO. Also, I would imagine that lots of companies managed to renegotiate decent rates under lockdown so even if things aren’t looking great now I would have thought the sector will be insulated from outside turbulence for a while yet.

Deliveroo hopes adverts with takeaways will boost profits (Daily Telegraph, James Titcomb) shows that Deliveroo is trying to get creative with alternative revenue streams as it is going to be offering advertising space on the order tracking page on its app. Restaurants and shops can already pay for advertising on its search results and listings but this latest development will mean it expands into consumer brands. * SO WHAT? * Given that Deliveroo has 8m monthly active users, this makes eminent sense! I think that it really needs to diversify revenue streams as a matter of urgency given what’s about to happen to the economy. You do wonder why it hasn’t done this before, actually…

Then in Snapchat parent launches monthly subscription plan (Wall Street Journal, Kathryn Hardison) we see that Snap Inc, parent of Snapchat, is going to launch a new subscription option that has extra exclusive features. The new plan, called Snapchat+, will cost $3.99 per month and give users access to a whole host of extra features. * SO WHAT? * This sounds interesting, but making people pay for stuff like this (especially in Snapchat’s younger demographic) is a bit risky IMO because it could push users onto other platforms. Still, $3.99 won’t break the bank, but it seems that the perception of paying for something that was once free rarely seems to go down well. Maybe it is worth the risk, though, as recurring revenues for a company who may suffer from falling ad revenues would be very welcome I am sure.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

…in other news…

In the spirit of looking for cheap options on groceries at the moment, I thought this looked quite interesting: We spent £40 at new ‘Swedish Lidl’ – here are the bargains we rate and what we’d avoid (The Mirror, Levi Winchester). I also noticed this new cover of Harry Style’s As It Was, which I think is a great version!