🔒 Why David Shapiro is nervous about Tesla, Coronavirus and (sigh) Cyril’s SONA

David Shapiro, South Africa’s original “raging bull”, has turned cautious on the big stories of the moment. He explains why in the latest episode of Rational Radio where he likens Tesla to a fan club rather than an investment opportunity; cautions investors to tread warily while there is still so much uncertainty about the coronavirus; and reckons the President’s State of the Nation Speech will be more of the same muddling through without addressing any of the urgent issues. Love him or not, SA’s favourite market commentator always makes for great listening. – Alec Hogg

It’s a warm welcome to Biznews Radio. This is our weekly show called Rational Radio. As always we kick off the program with David Shapiro. We’ve got lots to talk about Dave and not least Tesla. I’m not sure if you’ve been following the incredible performance of that share price.
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And how I have.

Are you a shareholder?

No.

We were but we got out at about $300 and it got to nearly $1,000 last week.

Because you’re probably rational, that’s why because you looked at the fundamentals, you looked at his history and you looked at other things that potential investors would look at and said I’ve had enough. To try and explain the move from when you sold it to where it is, is very difficult. It’s much more of an emotional show than anything else. I try to explain it in a different way. I’m saying it’s like owning the shares of Man United or West Ham. You want to own the shares because you want to identify with a club or you want to identify with the movement. I think to a large extent this is very fashionable at the moment – ESG environmental issues – and I think it’s a vote in favour of what it does and what he represents more so than the fundamental benefits you’re going to get from owning the shares. So how do you explain that? I have no idea.

You described it really well. The FT weekend had a lot of coverage this week about Tesla and Elon Musk. It didn’t mention much about his South African roots but it did say exactly what you are talking about, that it’s a millennial share. One of the columnist’s had interviewed a lady from Germany who was flying over to interview Elon Musk but she’s on YouTube or something of that nature and she’s of an age where it’s a fan club rather than an investment decision. So spot on there. But what should investors do just sit on the sidelines?

Don’t get sucked in. Do not get suckered into this – as much as you like the product – and I’m not saying don’t buy the product. I think in Europe people will want to be identified as driving a Tesla. They do it in Australia, they do it in Scandinavia, they do it in many areas. Mainly metropolises where you don’t have to drive into the country. Another one is veganism. The Impossible Foods or Beyond Meat.

It’s an interesting point all around, that there are these different trends, these big trends. So that’s what’s making Elon Musk’s share rocket. Unless you change your mind about investing, probably best to sit on the sidelines, but can we sit on the sidelines on the coronavirus?

No. I think that you’ve got to be very careful. I’m surprised at how well markets are holding up – and I’m talking specifically about the US market – and maybe there is a message there. It hasn’t hit America, there’s been no deaths, they’re very fearful of what the consequences might be. It hasn’t hit Europe in any big way but I think down the line this is going to work its way through the global economy and there are going to be companies that take strain. We don’t know how it’s going to unfold. I’m not saying get bearish, I’m not saying sell out and run away from the markets, but what I am saying just be careful. Don’t ignore it and don’t brush it aside and don’t think that there’s going to be no consequences.

We had a wonderful interview with Gary and Andy Cronje – South African teachers from Durban – who are in the middle of China at the moment. It was extremely enlightening to hear what it’s like on the ground. But the question – listening to that – if the streets are deserted in all the major cities – Shanghai, Beijing, Wuhan and other places – what does this do to Richemont? Richemont relies heavily on China for a percentage of its revenues. Is this starting to bother you? Because the Richemont share price doesn’t suggest anything.

It may be temporary and maybe they’re able to overcome it, it might only be for a one month or two months sales cycle. We’ve seen in other luxury companies like LVMH which has bounced back – even Estée Lauder and L’Oreal – who rely heavily on the Asian markets. They seem to have brushed this aside and even management has given comfort. But I would like to see the numbers before getting carried away and taking advantage of these lower prices. It’s going to have consequences. We’ve seen it with loadshedding. When we’ve had a week of loadshedding or a couple of weeks of loadshedding, the consequences that has on restaurants, on shops in your areas. We saw it in Anglo Platinum numbers, we saw how it hurt production, so it gives you an idea of what happens when you close down an economy. In our case it’s only for a few hours a day, here it’s 3,4,5 weeks and it could be even longer. We don’t know. So I think you’ve got to be careful. The supply chains are going to be hurt. It’s coming through in commodity prices – commodity markets have been hurt dramatically with oil leading the way – so I think just be careful.

Perversely, there are businesses in South Africa who are benefiting quite significantly. I’ve got a friend who manufactures, who says that the retailers are suddenly his friends again. They are suddenly coming up to find out if he can supply them because they cannot get any supplies from China anymore. Talking about uncertainty, the State of the Nation address comes later this week, what are you hoping that Cyril Ramaphosa the president says?

We are all hoping for some dramatic change in his outlook and structural reform. We’re not going to get it. I don’t think there’s going to be anything that’s groundbreaking in respect of what the market’s expecting. Are we going to hear about this R250bn? There is a lot of debate around this and there’s a lot of anger around it.

What R250bn?

This is the R250bn Cosatu wants to take from the PIC, which is pension fund money and there are a lot of debates about whether legally they can take it and what the consequences will be if they do, as well as what it really means if the country is getting so desperate that you’ve got to dig into pensioners money in order to save Eskom.

Surely its theft?

It is theft. I’m with you. To me it’s pure theft and it’s really robbing piggy banks. That’s like taking your your little grandchild or your daughter’s piggy bank and breaking it open in order to buy some cigarettes or booze or something like that. The worry is what this means. I know this is desperate measures and the argument in favour of doing it is that desperate times need desperate measures, but that doesn’t allow you to take pensioners money at whatever cost. It’s a huge debate and it also shows you the kind of trouble that we’re in at the moment. The only way to get out is to change our mindset and move with big structural reforms. We have to face the consequences. We have to lay off people. We have to get Eskom right but we’re not going to do it by bowing down to the unions and continuing along this developmental policy that the government has. So that’s what we are hoping for, we’re not going to get it.

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