Covid-19 containment has forced many businesses to shut their doors forever. The full extent of the damage is not known, but estimates are depressing. Tourism Minister Mmamoloko Kubayi-Ngubane warned last month that up to 600,000 jobs were at risk in that sector alone. The central bank expects the South African economy to have registered a contraction of at least 30% in the second-quarter. Stockbroker David Shapiro and BizNews founder Alec Hogg discuss the crazy markets in the light of the changes Covid-19 has wrought on businesses. The signs are there that the market is telling us that the Covid-19 economy will look very different. – Editor
Lovely to have you, David, as always. Is it a worthwhile stock market at the moment? Mr. Shapiro.
Crazy. Absolutely crazy, but I’m going to live with crazy sometimes. I’m not going to try to talk it down. Today, the move is coming from China. I haven’t heard a convincing explanation of why it is as strong as it has, but it’s gone through to the rest of the world as well. We’ve got a very strong Europe, we’re going to have another strong session in the US. It comes at a time where there’s so much political speech about or political rhetoric about the US election, Covid there is increasing at a rapid rate, in fact, globally it is. We’re still struggling to understand how long it’s going to take for the global economy to unlock, how long it’s going to take us to get back to normal. Markets seem to brush aside and I think driven by liquidity, people buying equities. We heard at 08/09, we heard the liquidity story, and it continued for 10 years. I’m hoping this continues for another decade because I haven’t got that many decades left. I want to end up on a high.
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I saw you talking about your dad, Archie, Mr. Gold. Was that lovely David, that you could just remember him in that way.
He would have loved this market because when I joined in 70, I mean, gold shares were the only thing that we really dealt with on the JSE, dealt with America. Paris, you name it. It was a vibrant market in all our mining shares. My dad used to walk around, he was a great gold bull and he would walk around the floor with his big buttons – Buy Gold. He went through lots of ups and downs, but he went through the greatest part of the South African gold market. Where production was up at a 1,000 tons, which I think was a peak. We’re down to 100 tons now, but he would have loved this market. He never gave up his gold shares.
It was my first month as a journalist in the Citizen. Can you imagine, my first month as a financial journalist, a little trainee from KZN very wet behind the ears. Never been to Jo’burg before, as sitting in an office at the Citizen, where we had Reuter’s tickers and it was going crazy because South African gold shares were going higher. Clive Roffey, who’s still around today, used to predict gold fix to the dollar, but he didn’t always get it right. Eventually in peaked out at $850. Are we going through or are we living through a period where Mr. Market has just gone dilly, or the stock market is telling us what lies ahead?
I hope it’s the latter. There are times there are places where Mr. Market has gone dilly, such as Tesla and there are a lot of smaller businesses that are being pushed through the roof. I’m not going to argue about Tesla, I cant. Every time we try to talk it down, it just keeps going higher and he’s got his followers. What I like to think is that the economy that we come out of is not going to be the same as the economy we went into. All that’s happened during this period is we have accelerated or transition a lot faster into the state of the economy. For example, over the weekend Disney released Hamilton, which is a very popular musical in the US. I mean, you pay literally thousands of dollars for a ticket.
Certainly in London, it’s impossible to have gotten tickets unless you knew someone who knew somebody.
They formed a stage show in 2016, which they’ve now put on to Disney Plus. The number of viewers over the weekend was staggering. All it does is point, to how things have changed. Yes, they sell a subscription at $8 and this came part of your subscription, but this is what we’re going through at the moment. More and more people are migrating to this economy and changing the way that we live. Things are happening there that I think are going to, I’m hooked into that. I’m very much hooked into where this economy is going to be 3, 4, 5 years and the shape that it’s going to take. Along the line, I still believe that in the medical area as well, a lot more money is going to be spent. No one wants to be caught in the kind of trap that we found ourselves now. Tesla is a different story, I need someone to explain that. You [00:05:02]know, 320 PE [0.3s] but he’s got his followers and whether they are buying his battery technology, where they buying the fact that he’s well ahead of the rest of the pack, and it’s going to take a long time for people to catch him in that. If you’re going to European cities, if you go into Hong Kong, you’re going to not necessarily New York. Sydney, I’ve seen many, many Teslas, it’s a status symbol and people love it. Can you justify these prices? I’m not going to even attempt to discuss it.
I’ve got Tesla on the screen with the blue graph, which is Toyota Motors. The outperformance over the past year has been 418%. Okay, let’s take a little bit further, say take it over 3 years, the outperformance there, 234%. It’s just as though Tesla is the stock to buy, Toyota which it has now surpassed in market cap, produces many, many more vehicles, is not in fashion anymore. I suppose what we do have here is Mr. Market very excited about Tesla. The question really is, is this sustainable?
Obviously not. We know, but the market is irrational, but that it stays irrational longer than you stay solvent. I wouldn’t bet against it. That’s a problem, I wouldn’t go short of it, although the amount of shorts in Tesla must be astronomical. In other words, there must be thousands of people that have taken or a huge amount of money that’s gone short on Tesla expecting it to fall. Eventually, they’ll be right. It’s going to somewhere down the line it will flatten out and start to fall, but we don’t know when that’s going to happen. I see you’ve got Disney up there as well, I like Disney. It’s been hurt because they’ve closed down the theme parks is a lot more arms to Disney. Then, of course, ESPN, which is the sporting channel, has also suffered as a result because they’re not playing any kind of sport in America. From that point of view, they hurt but on the streaming side, I think this is where we’re backing them against Netflix, I think they are a cheaper entry and they’ve got content. The one thing Disney has got, it’s got decades and decades of movies that appeal to families. If you got a young kid stuck in lockdown, you better get the Disney Channel because I’m not sure they’re going to warm to Netflix or to Hoopla or to any of the others. Spotify is great.
I’m very proud of that one because it was around March that we bought it in our portfolio, on the strength of the more aggressive move into podcasting, which is something we are doing ourselves after having our homework. Look at that, $135, in fact, I think we put it in the portfolio at $126. If you were lucky, would have even got at it even less, $117. Look at it today. It’s sitting at $271.
Credit to you, because a couple of months ago or even a year ago, I would have said Apple Music, YouTube Music, Amazon Music, all kinds of music stations coming on there, all offering the same kind of hits, etc. Yet they’ve just had an edge and it could be the podcast. It’s just that they seem to have captured the attention of music lovers. I must admit that I’ve got all of it. I’ve got YouTube, I am subscription junky. The one I love the most is Spotify, and they have done brilliantly. You’re right, going into podcasts, a master move.
Daniel Ek, the founder and CEO of Spotify, who is not yet 40 and [00:08:42] Scott Hastings, [0.3s] the founder and CEO of Netflix, have got a similar philosophy. They say that their competitor is not Apple Music or Disney or any of the others who are entering into this streaming field. Competitors are the linear operations, the networks, in other words. If you look at Netflix as well, it’s done great but it certainly Spotify. It had already been identified some time ago. I like that philosophy David, when you look at a stream, only about 10% of the full package, so there’s a long way to go if you buy that view.
I’ve also missed it, I think Covid or lockdown has helped Netflix, more than anything else because they were starting to lose momentum. There were concerns about whether they could keep their subscription-based going and that. Along comes lockdown and let’s just put them through the roof. Where their problem is that they’ve got to get content. They’ve probably released their arse till now and they’ve got to make sure that they can keep it up. They’re probably releasing stuff now that they would have released some time ago, but I don’t think people are going to go back on it. I still think that globally they’re going to continue upwards. The one thing that bothers Hastings and bothers Netflix is more the gaming side. I think that’s more of a challenge. My gaming players is Tencent. I’d rather go for the base, the platform where they actually play games than the producer. In other words, Tencent is a Netflix because this is where kids certainly in China are going to play their game. That’s probably their biggest competitor, but listen, that’s exciting areas.
