My Brain Food This Week...
A new format for this series going forward! See my thoughts on key topics this week: The rand after SA elections, Apple in bed with OpenAI, and the ECB rate cut
Good morning!
I wanna try something new for the “My Brain Food This Week” series.
The Self-Taught MBA platform is about learning and growing, so I’ve decided to double-click on that, and give a short note on subjects that are intriguing to me, on the journey to becoming a master capital allocator.
Inspired by J Cole’s seven-minute drills, this new format will encourage me to elevate my ability to synthesise information quickly and make thoughtful judgments and interpretations in real time.
I also think it will invite more engagement as we grow the Self-Taught MBA community.
Let me know what you think, in the comments 👇🏾
What caught my eye this week:
Rand gains as investors bet Zuma is out, DA in for coalition government
My thoughts:
South Africa recently held national elections in which the ANC, the once widely loved political party, struggled to gain a majority for national votes. This means the party will have to form a coalition government, and financial markets are hosting their own vote on what an effective government looks like. Financial assets are pricing in a coalition with the DA, which is seen as more stable for the economy. The SA economy has underperformed for over a decade, with rising unemployment, high youth unemployment, low GDP growth and rising cost of living. Markets are betting that a coalition with the DA will have a significant positive impact on the rand and the SA economy, and this is the most likely coalition partner for the ANC, however given the tensions between the two rival parties, policy implementation will be difficult, therefore financial markets are requesting an additional risk premium for holding South African assets.
Apple Made Once-Unlikely Deal With Sam Altman to Catch Up in AI
My thoughts:
Apple and OpenAI are getting ready to announce the terms of their much anticipated partnership to bring ChatGPT voice integration into the iPhone. This is a huge win for Sam and OpenAI, but raises questions for Apple. Having had a head start by releasing Siri in 2011, before all other major AI assistants, apple chose to invest their billions in operating cash by buying back stock instead of focusing on innovation. In Q1 2024 Apple used 69% of its $62 billion of operating cash flow for share buybacks. This is probably catching up with Apple, with their shares up 6% year to date vs the S&P at 12%, as investors are probably asking why Apple isn’t a front runner in AI, and why they are having to do a deal with someone else to bring AI to iPhone users.
ECB Preview And Scenario Analysis: The First Rate Cut Since 2019
My thoughts:
The ECB cut interest rates for the first time since they started the hiking cycle in August of 2022. Although inflation is still not where the central banks want them to be (2.6% for EU vs 2% target; 4% for US vs 2% target; 5.2% for South Africa vs 4.5% target) rate cuts globally are being priced in most probably because 1) consumers and businesses are being hit by double whammy’s from higher rates + inflation, therefore there is a huge risk that this breads a recessionary situation in most economies; 2) it’s likely that inflation will not go back to pre-pandemic levels and economies will have to live with a new normal; and 3) because of this new normal the standard method of fighting inflation by jacking up interest rates no longer works. In Argentina for example, inflation has been coming down, as interest rates are being cut. People and businesses need friendlier financial environments to make the investments necessary to create deflationary tools.
Other reading…
Ster-Kinekor Theatres concludes restructuring process and is ready to entertain once again
Andrew Left, Burned in 2021 Meme Mania, Is Short GameStop Again
Bill Ackman’s Pershing Square Targets Raising $25 Billion for US Fund