Thursday 08/09/22

1. In BIG PICTURE NEWS, the US cracks down on tech in China, China’s exports drop, we look at the energy latest in Europe while Putin makes more threats, metals suffer, the oil price drops, Repsol sells itself, sterling hits new lows and Celsius’ story gets worse
2. In CONSUMER/RETAIL NEWS, Americans are buying flash cars, UK property shows weakness, Revolut revokes job offers and Amazon slows hiring while in retail, GameStop disappoints, WH Smith takes a hit, Halfords benefits from maintenance and John Lewis identifies an emerging trend
3. In INDIVIDUAL COMPANY NEWS, Microsoft invests in CloudKitchens, Netflix looks at more ways to save and Cineworld files for bankruptcy
4. AND FINALLY, I bring you an epic game for train geeks…

So Truss maps out her energy strategy, real wage cuts loom, Sturgeon takes action and the Yen hits new lows…

📢 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:

• Do you think that VW will follow through on its intention to list Porsche by the end of the month? Why and what do you see happening here over the next year?
• If the real estate market is really slowing down, what do you think the repercussions will be?

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 😜!

US bans ‘advanced tech’ firms from building facilities in China for a decade (The Guardian, Joanna Partridge) is a pretty punchy move by the Americans as the Biden administration announced that US tech firm that get government funding will be covered by the ban. * SO WHAT? * This is part of the bid to boost domestic production of semiconductors – much-needed as it only produces about 10% of the world’s chips as things stand currently. The government will be doling out semiconductor subsidies for building new production plants in the US next year and it doesn’t want any of this money to go to China. Tensions continue to get worse…

China exports fall as demand slows and lockdowns hit manufacturing (Financial Times, Cheng Leng and William Langley) shows that China is continuing to have a tricky time as official figures for August were published, reflecting a major shortfall versus expectations. Trade had been one of only a few areas for cheer for the Chinese economy and weakness here could mean that the good times are over (at least for now) for China exports. * SO WHAT? * China has suffered from more lockdowns in August as well as droughts and heatwaves which caused power shortages. President Xi Jinping has a lot on his plate at the moment, what with this and the problems of the massive indebtedness of the real estate market. It would be a miracle if China could hit its year-end GDP growth target – and if it did, no-one would believe it!

In energy chat today, EU seeks windfall tax trigger well below market rate (Financial Times, Alice Hancock and Barney Jopson) shows that Brussels is intent on implementing a windfall tax on European electricity companies by setting a threshold of less than half of current market levels. The European Commission is seeking to slap a windfall tax on revenues generated by non-gas electricity producers when market prices breach €200/MWh. Current prices are north of €450/MWh! EC president Ursula von der Leyen justified this by saying yesterday that producers of renewable energy were making “enormous revenues, revenues they never calculated, revenues they never dreamt of and revenues they cannot invest as fast”. * SO WHAT? * This is part of a set of proposals being debated today that will also include things like a mandatory cut in peak electricity demand, a price cap on Russian gas (which has

irked Putin enough to threaten further punitive action as per Putin threatens to cut off energy supplies to Europe if price cap imposed on Russian gas (Daily Telegraph, Eir Nolsoe, Szu Ping Chan and James Warrington)), changes to collateral requirements for electricity companies and changes to state aid rules that would allow company bailouts. Repercussions of rising energy prices are highlighted in Europe’s metal industry on edge of collapse as power costs surge (Daily Telegraph, Tim Wallace) as the chiefs of Eurometaux, which represents 49 industrial giants and business groups across Europe, are warning Brussels about the devastating effects that they are already having – and will have – on the future of their businesses. The pressure on Brussels to take drastic action continues to increase.

Olaf Scholz fights to keep Germans on his side over Russia’s energy war (Financial Times, Guy Chazan) shows that Germany’s chancellor is having a tough time selling his government’s response to the energy crisis to his citizens. He has effectively been thrown a hospital pass by previous administrations who ensured the country’s heavy reliance on Russian energy and he now has to come up with ways of keeping the lights on whilst dealing with a cost-of-living crisis in a very weak coalition government. He said that he is confident of getting through winter and Germany turns to coal for a third of its electricity (Financial Times, Valentina Romei and Martin Arnold) highlights one way the country has been able to do this as the shift from gas to coal gathered pace in Q2. * SO WHAT? * Given that Germany (pretty much like everyone else) had been trying to reduce its reliance on coal as an energy source, this is a pretty dramatic turnaround. Coal releases twice as many emissions as gas and over 60 times more than nuclear energy, according to the Intergovernmental Panel on Climate Change.

Then in Oil price at lowest since Ukraine invasion in setback for Kremlin (Daily Telegraph, Tom Rees) we see that oil prices have dropped further on fears of weakening global demand, despite the news that OPEC+ decided to cut production, making the timing of Repsol to sell $4.8bn stake in oil and gas business (Financial Times, Tom Wilson and Robert Wright) look a bit weird as Spain’s biggest oil company has decided to offload a 25% stake in itself to US investment group EIG. It is looking to use the money to invest in renewables. Private equity firm EIG is one of the industry’s biggest specialist oil and gas investors, so it should know what it is doing!

Meanwhile, Sterling at lowest level since 1985 (Daily Telegraph, Szu Ping Chan, Simon Foy and Patrick Mulholland) highlights investor scepticism about the UK economy and Crypto lender Celsius ‘was insolvent for three years’ (Daily Telegraph, Gareth Corfield) shows just how full of 💩 the collapsed cryptocurrency “bank” Celsius Network actually was before seeking bankruptcy protection. * SO WHAT? * I hope top management goes to prison for this – it is disgusting that they were able to lie for so long and get away with it! In the meantime, Celsius’s user accounts remain frozen. How many other crypto banks and platforms are in the same state?? Hopefully, this revelation should give their collective egos a massive knock and embolden regulators to crack down hard on them to protect underlying customers who are now facing a cost-of-living crisis.

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!

We look at consumer trends, real estate trends, employment trends and retail trends…

In Americans snap up Teslas, Bentleys, Lamborghinis as the luxury auto market booms (Wall Street Journal, Ryan Felton) we see that affluent Americans are continuing to enjoy themselves in style as the share of new vehicles sold by luxury brands hit a record 17.3% of overall US car sales in June, according to JD Power, an automotive industry analytics specialist. This percentage has risen steadily over the last few years and super-premium marques like Lamborghini, Bentley and Ferrari have jumped by 35.6% versus the same period five years ago. * SO WHAT? * I guess this goes to show the increasing divide between the haves and the have-nots in American society – but it also means that perhaps investors will be focusing more on companies that provide goods and services to those further up the socio-economic scale in order to insulate themselves from the ravages of the rest of the economy.

In the UK, Last hurrah for housing market as reality bites (Daily Telegraph, Tim Wallace) shows that the property market is wavering after an incredibly strong run and is an article you should read in full if you can as it gives you a very good summary of the developments of recent years right up to where we are now. Halifax and Barratt warn of challenges ahead (The Guardian, Joanna Partridge) shows that Halifax, the UK’s biggest mortgage lender, is warning of a “more challenging period” ahead while the UK’s biggest housebuilder, Barratt Developments, said that the number of homes reserved on a weekly basis until the end of August had dropped beneath the level it reached at this time last year. * SO WHAT? * The limited supply of homes seems to be keeping average prices high, but the problem will come when unemployment rises, pushing people to sell properties they can no longer afford, which will then lead to a steady flow of properties coming on to the market, giving buyers more choice and therefore more bargaining power.

In employment news, Revolut axes graduate jobs as it conducts sweeping costs review (Financial Times, Siddarth Venkataramakrishnan and Laura Noonan) highlights the bank’s latest cost cutting effort as part of its “Project Prism” initiative – the revoking of job offers to graduates with only a few days warning. The Project Prism review started in May, prompted by worsening economic conditions, and has involved a number of measures aimed at reducing costs. It is interesting to note here that it is still hiring elsewhere in the group as it has over 200 open positions and is adding 300 net jobs per month. Employment: cancelled job offers point to inflationary impact (Financial Times, Lex) says that Revolut is not alone in having to cut jobs as Twitter, Redfin and Coinbase are just some of the others who have had to do the same. Amazon CEO charts slower hiring following pandemic boom (Wall Street Journal, Aaron Tilley) shows that even the mighty Amazon is reining things in on the hiring front. * SO WHAT? * Tech companies in particular are having a rough time of it and many other companies will be reassessing their staffing needs in the face of a harsher macroeconomic environment. Unfortunately, such cuts may only be the tip of the iceberg as the job market remains tight currently but shows signs of faltering.

In retail news, GameStop sales slipped last quarter as loss widened (Wall Street Journal, Sarah E. Needleman) shows that the videogame retailer/meme legend announced a drop in sales and a bigger-than-expected loss for Q2 as efforts to turn the company around fail to gain traction. * SO WHAT? * GameStop’s share price has fallen by over 50% in the last 12 months and I think it’s safe to say that it is now grasping at straws as it announced yesterday that it was entering into a partnership with crypto exchange FTX aimed at introducing more of its customers to the FTX community and digital asset marketplace. Another worrying thing about the company was that it didn’t give any guidance as to the current quarter and hasn’t provided guidance or answered questions for the last two years. In a bid to turn things around under new leadership, it has tried to focus on more e-commerce sales and it also launched an NFT marketplace. Oh dear. From where I’m sitting, this company looks like an absolute disaster that was kept alive by that whole meme-stock thing last year.

In the UK, High street not so funky for WH Smith (The Times, Constance Kampfner) shows that strength in its travel division (shops in airports, train stations etc.), where sales remained well above pre-pandemic levels, was dragged down by the poor performance of its high street division and the damaged caused by a cyberattack in April on its Funky Pigeon business. The company kept its full-year guidance unchanged, which is a positive sign IMO – particularly given current economic circumstances!

Halfords reaps benefits of focus on four wheels (The Times, Constance Kampfner) highlights the success of Halfords’ car servicing business that boosted revenues. * SO WHAT? * I think that the servicing business is definitely the way to go and, as people hang on to their cars for longer before they “go electric” the need is surely going to rise. The company has also been hiring EV mechanics as well – and this is bound to sustain them over the longer term as well as consumers make the switch. I would have thought bike demand won’t reach the heights of lockdown, but I don’t think there’s any harm in keeping this business ticking over.

I thought I’d include What John Lewis gets right about British shoppers (Financial Times, Cat Rutter Pooley) as it shows us that venerable retailer John Lewis has identified a new trend – that we are transitioning from an “experience economy” (where consumers have sought experiences to go alongside their goods and services) to a “moments economy” (where consumers look to bring flashes of joy to “all the moments of our lives”), which means selling more small stuff more often as it no longer enough for John Lewis to be around for life’s big moments. * SO WHAT? * Although this sounds like marketing 🐂💩, it does actually make sense in an economy where many people are cutting down on big ticket purchases because of tightening household budgets. Having said that, buying more stuff more often may not sit well with the company’s ambitions for sustainability but maybe this new trend could be a decent rallying point to aim for. Selling more stuff has surely got to be a good thing for a retailer that has had a very rough few years!

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!

Microsoft buys into CloudKitchens, Netflix continues to hustle and Cineworld files for bankruptcy…

Microsoft invests in Travis Kalanick’s CloudKitchens start-up (Financial Times, Dave Lee and Tim Bradshaw) highlights  Microsoft’s investment in Travis Kalanick’s “dark kitchens” venture, which I mentioned yesterday, in its latest funding round, although neither company has given any detail. It’s tricky to know why Microsoft would be so interested and some speculate that it’s because operators of dark kitchens use its tech. * SO WHAT? * Kalanick’s contentious past as co-founder of Uber has clearly made him more conscious of the risks of media exposure and he even urges staff not to put CloudKitchens on their LinkedIn profile! Given the money he made from Uber, he’s been able to pretty much self-fund the early years of CloudKitchens’ development, but I guess now he needs buy-in from the big guns like Microsoft – but given his past they may not be rushing to trumpet their involvement with him. Still, it sounds like this hasn’t stopped the venture from growing and I suspect that the company will have to come out of the shadows sooner rather than later!

Elsewhere, Netflix hunts for cost cuts, from cloud computing to corporate swag (Wall Street Journal, Sarah Krouse and Jessica Toonkel) shows that the streamer is continuing to cut out any fat from its business in the face of slowing subscriber growth by cutting its data requirements, hiring more junior staff and reducing spend on corporate merch while Cineworld files for bankruptcy after battling to survive post-Covid (Daily Telegraph, Laura Onita) highlights the downfall of the world’s second biggest cinema chain as it got its fingers burnt on a proposed deal to buy a rival just before Covid hit and suffered the consequences. It filed for bankruptcy in the US with $5bn in debt. * SO WHAT? * That said, there is no major impact expected on its UK business and the shares will continue trading as usual in London. Cineworld’s chief exec an biggest shareholder Mooky Greidinger will probably take a big hit on his 20% stake, but filing for bankruptcy will help to shore up the company’s financials and help it return to growth after a major debt restructuring.

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…

I’m not a train geek but I think that this could be quite therapeutic: JR East to release official train simulator on Steam on 20 September (SoraNews24, Master Blaster). I have seen train driving simulators in old-style games arcades in Japan and think that this version looks pretty amazing if the trailer is to be believed!