Author: Arminius

15 September 2020

Twice a year we summarise the half-year and full-year results of the companies in the ALCE portfolio. Although the COVID-19 pandemic has affected some of the results for the June 2020 half year, the companies in the portfolio remain strong. Several – e.g. APA, Amcor, BWP, Spark NZ, Steadfast, and Waypoint – have not been materially affected by the pandemic. Others – e.g. ASX, Coles, and Wesfarmers – have done very well in recent months.

Power utility AGL unsettled investors with a net profit which was lower than expected, but it also promised dividends which were higher than expected. The main problem was that lower demand caused a drop in wholesale electricity prices, at the same time as the expiry of old gas contracts brought higher gas prices. AGL customer demand rose 1% despite the 2% decline in market demand. The 51c final dividend meant that the FY20 dividend was cut by 18% to 98c, but management indicated that for the next two years the company would pay a special dividend to top up the payout ratio from 75% at present to 100%… [read more]

22 July 2020

• The economic consequences of the COVID-19 pandemic in the US are expected to trigger a fall in the US dollar against major global currencies over the next four years. By 2024 the Australian dollar could rise as high as $0.84 (US 84 cents)
• The fall in the US dollar (USD) will be probably be associated with rising inflation in the US, from the present level of less than 2% to as high as 5%. This does not mean there will be worldwide inflation – other countries will be able to decide how much inflation they allow in their economies.
• We recommend that Australian investors reduce their exposure to Australian companies which derive a large part of their revenues in US dollars, such as the global healthcare groups. The rise in the Australian dollar (AUD) against the US dollar reduces the AUD value of USD profits.
• Australian investors should also reduce their exposure to the broad US market. At its low point in March 2020, the AUD had fallen -44.7% against the USD since the highs of July 2011, boosting the AUD value of US equities. This effect is about to go into reverse… [read more]

18 June 2020

Bank profits have been falling since 2015, but the latest half-year was particularly dismal. Loan growth was weak even before COVID-19 arrived on the scene, and the banks were already paying hefty remediation charges for their crimes against their clients. Are the COVID-19 loan impairment charges going to be the straw that breaks the camel’s back… [read more]

9 June 2020

The Chinese economy has stalled. The manufacturing PMI for May was an anaemic 50.6, a touch worse than April’s 50.8. The PMI is a dispersion index, which means that figures above 50.0 indicate expansion, and figures below 50.0 indicate contraction. So manufacturing growth is only just in positive territory. Trivium’s National Business Indicator tells the same story. In the first week of June it had reached 87.8%, compared to 85.3% a month earlier. In particular, new export orders remain very weak as the rest of the world struggles with COVID-19… [read more]

5 May 2020

Warren Buffett provided a couple of surprises at Saturday’s annual meeting of Berkshire Hathaway.

First, he admitted that he had made a mistake in owning airline shares, because the industry was unlikely to bounce back quickly, so he sold out of all four big US airlines in April… [read more]

1 May 2020

China is recovering, not only from COVID-19, but also from the GDP collapse caused by its lockdown. We know this because the central government has begun to relax several key restrictions on travel and spending.

First, China’s children are being allowed to go back to school. All provinces are phasing in the resumption of regular classes over the next six weeks. In the land of the one-child policy, the return to school is psychologically very important. Even though COVID-19 very rarely kills young people, no Chinese government wants to be responsible for any child mortality. Remember the 2008 scandal about melamine infant milk formula? Reports cite that 12 children died with 300,000 falling ill. A mayor and local party boss were sacked; China jailed 19 people and 2 men were executed. Who knows what the real totals were… [read more]

21 April 2020

The day oil died was Monday the 20th of April 2020 – for the first time in history the price of a novated futures contract CL00 for Crude Oil WTI went negative (“CLK20” ticker on the CME for May 2020). It got buried -$37.63 below ground, final resting place Cushing, Oklahoma. Speculators holding those futures and retail investors holding the ETF “USO” will have, in market parlance, been “carted out” on the day. Whilst the next roll month is still trading in positive territory (at time of writing!) the issues that caused the May contract to hit -$37.63/bbl have not gone away. These same issues may not go away by the time the June contract expires, so future oil prices may well go negative again… [read more]

https://arminiuscapital.com.au/how-bad-will-the-covid-19-recession-be/

 

23 March 2020

Chinese authorities have told the world that COVID-19 has been contained inside China. Rules about isolation are being loosened – even in Wuhan – as the number of new cases diminishes. The number of cases outside the core areas around Wuhan remain small, because the policies of quarantines and draconian travel restrictions have succeeded in preventing new cases in the rest of China. Big cities like Shanghai and Hong Kong have set excellent examples of how to handle a pandemic, because their leaders were smart enough to listen to the experts and to act decisively very early on. Examples of this decisiveness is welding doors shut on apartment blocks… [read more]