The Fed left rates unchanged, with JPow hedging on the possibility of a rates cut. Markets rallied on the news. You’ve got to hand it to the “markets” — their capacity for optimism remains unbeaten. Found this gem from The Druck to be useful:
When rates were practically zero, every Tom, Dick and Harry and Mary in the United States refinanced their mortgage, corporations extended. Unfortunately, we’ve had one entity that did not and that was US Treasury. Janet Yellen, I guess, because of political myopia, whatever, was issuing two years at 15 basis points when she could have issued 10 years at 70 basis points, or 30 years at 180 basis points. I literally think if you go back to Alexander Hamilton, it was the biggest blunder in the history of the Treasury. I have no idea why she has not been called out on this. She has no right to still be in that job.
We expect rates to continue to be higher for lower — US PCE remains just under 4% when the Fed’s target rate is 2%. It’s more concerning considering goods inflation has started to decrease in recent months — i.e. inflation is still mostly services + discretionary driven.
Apple!
Apple released a set of results that technically “beat” but the market wasn’t impressed — stk is down 3.00% after market. Sales in China missed by about $2bn while device sales sat flat, with weak sales in iPad and the personal computing segment. Services remains the bright spot — about $21bn in revenues (+$2bn YoY). Amazing when you think about the amount of people paying for iCloud, etc.
We think Apple is now a mature company that is growing in the single digits — nothing wrong with that, but if they want to grow at the rates Microsoft and Amazon are seeing they need to put their pile of cash to work. Remains a solid business but there’s nothing hugely impressive here, and weak China results point to i) Chinese buyers are buying Chinese brands and ii) a weaker macro environment. Trading at fair value.
Estee Lauder > Bad result, earnings down 10% and weak outlook on China. Stock dropped 18% then bounced back 9% today — we think it’s a buy at these levels; they own the “best of the best” (Tom Ford, La Mer, Mac, Le Labo) and have suffered a few bad quarters owing to a host of events. Still commands about $3bn a quarter in revenue and stock is off ~55% YTD — buy when others are fearful, etc…focus on the top line — revenue has CAGR’d 25% on a 10 year basis…
Good piece in the FT on Hermes, the luxury house which has defied slowing luxury sales. Link.
Rakon > noting market veteran Mike Daniel added 1% to his holding — he now owns 6.1% of the co. Good buying at 68c — 6x earnings — but mgmt needs to do a better job of communication to the market…we are not all PHDs who understand microchips…
Mainfreight > sitting back at ~$61.00, after it dropped to $57.00 (remember we were saying it was a ‘buy’ at those levels?). Still see value at $61.00 — expect a soft ‘24, but we expect softer results across the board.
RE > noting China Construction Bank (New Zealand) has called for the mortgagee sale of 33 luxury apartments in a multimillion-dollar Auckland block – The Victor, in Browns Bay. Link. Comes on the back of Ockham recalling deposits on a development and ongoing issues at Du Val. Expecting more RE trouble as interest rates bite.
Macquarie shares are down -2% after revealing a weak result, with net profit after tax slumping -39% from last year to $1.4 billion as market volatility and fewer opportunities to trade assets led to a dip in activity across its business lines.
Macquarie had flagged that trading conditions were tough and it would be hard to replicate previous half performances so the market had accounted for most of the weakness, and that the remainder of 2024 financial year would also be down from the previous year. Macquarie will be paying out a $2.55 per share interim dividend representing a 70% payout ratio, accompanied by $2 billion of share buybacks, with the company still well capitalized with $10.5 billion in surplus capital.
We remain BUY-rated on Macquarie as a medium to long-term holding and note that there will be volatility in earnings over the near-term this time towards the downside, and a strong run of above normal returns from favorable trading conditions