Month: December 2018

When Trump Didn’t Get The Border Wall Funding…

Source: Author, gofundme.com

A screenshot on Thursday Dec. 21 at around 5:45pm PST, nearly $10mn has been raised for “The Wall”… out of the $1bn target for the project on gofundme.com.

[The wall funding issue has been the center of government shutdown. The dispute around the funding escalated on Dec. 11 when Trump, Nancy Pelosi (leader of the House Democrats), Chuck Schumer (Senate Minority Leader) “publicly clashed” in oval office meeting.]

But Trump insisted on $5bn..  so $10mn is only ~0.2% of his goal.

The campaign creator mentioned that the government projects had been funded by private sectors before, i.e. Washington Monument repair of $7.5mn (kinda tiny compared to $5bn).

The approach was creative tho.

Drones In The Airport

Signature events will move regulation forward.

That is what drones will be facing after a catastrophic shut down of the second largest airport in UK due to a single drone.

While the drone came back every time the airport tried to reopen, the operator(s) hasn’t been found/caught.

An “effective” measure and procedure to prevent similar things will be formulated.

But problems won’t be solved.

I see drone issues more like gun issues – and eventually might be a “to-ban-or-not-to-ban” choice made by countries. Or a strict military control of technology.

This event will certainly make itself in the future history when regulations are put together.

Softbank Telecomm Unit IPO

Shares closed nearly 15% below the ¥1,500 initial offering price

The IPO raised ¥2.65 trillion ($23.6 billion), second only to the 2014 listing of China’s Alibaba. (WSJ article)

SoftBank Group has larger debt and commitments – investment as an obiligation.

Cash is the paramount consideration, especially in an interest rate rising environment.

Connection with huawei and uses of its equipments added to the hit.

Does US have 3% Checking Account?

Robinhood recently prepared to launch its stunning checking & saving offering for cash management with a 3% rate.

That is an astonishing number compared with regular checking accounts (and saving accounts). Industry average is 0.08 percent yield on U.S. checking accounts and the 0.1 percent average on savings accounts (find more about rates here on bankrate.com).

Comparison provided by Robinhood | Source: checking.robinhood.com cached by Google

However, the comparison didn’t last long… as Robinhood pulled back and slowed down it official launch. The center question is that “accounts look like bank accounts, (but) they aren’t.”  Below is the description at the bottom of the website.

Robinhood Financial LLC and Robinhood Crypto, LLC are wholly-owned subsidiaries of Robinhood Markets, Inc. Equities and options are offered to self-directed customers by Robinhood Financial. Robinhood Financial is a member of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC), which protects securities customers of its members up to $500,000 (including $250,000 for claims for cash). Explanatory brochure available upon request or at www.sipc.org. Cryptocurrency trading is offered through an account with Robinhood Crypto. Robinhood Crypto is not a member of FINRA or SIPC. Cryptocurrencies are not stocks and your cryptocurrency investments are not protected by either FDIC or SIPC insurance

It is not FDIC protected and it is reported that – “the head of the Securities Investor Protection Corp. (SIPC) told CNBC on Friday that the start-up didn’t contact his office ahead of the product launch, and to his knowledge Robinhood had not contacted the SEC, either.”

While regulation is an issue, another question is – whether 3% reasonable / doable?

Historical CD Interest Rates – 1984-2016 | Source: bankrate.com

US has been through years of low-interest environment; people are not familiar with 10% or 5% interest rate back then. But after Fed’s meeting this week, it is highly likely that there is another 25bp raise, pushing fed funds rate into a range of 2.25 to 2.50 percent.

Here is a brief history of four increases this year (updated in Jan 2019)

Date Increase Decrease Level (%)
December 20 25 0 2.25-2.50
September 27 25 0 2.00-2.25
June 14 25 0 1.75-2.00
March 22 25 0 1.50-1.75

And a history – Intended federal funds rate change, 1990 to present.

I should say 3% in 2019 is not undoable. But the core difference is a marketing issue. Robinhood could invest in higher yield products.

But in consumers’ view, it is truly disrupting and may level up the playground for all players in this field.

The time of easy money is gone. The startups or new initiatives with better and sustainable solutions (usually tech-oriented) are attacking the incumbents. Robinhood may or may not be the one (and this may not be the exact right approach), but the industry needs to be prepared.

What Google Can Tell Us (Amazon & Walmart & iPhone)

What Google can tell us

Source: Google Trends
  • holiday season is king and this year is strong (as expected)
  • Walmart is living well; and it becomes more competitive in Thanksgiving shopping
  • Apple’s iPhone in 2018 not as attractive

*Amazon may have lots of volume directly through its own platform

Walmart International Strategies

India

Walmart first announced its acquisition of a 77% stake in Flipkart in May 2018, with a consideration of $16 bn including $2 bn of new equity funding. The deal closed in August.

According to QZ, “in the fiscal year ended March 31, Flipkart had net sales of $4.6 billion, over 50% higher than the previous year, Walmart said. Its gross merchandise value (GMV, or the total value of goods sold from its platform) was $7.5 billion during the period.”

“Amazon India is currently worth $16 billion and has the same 30% marketshare as local competitor Flipkart”, source: Forbes, Citi

Valuation multiple ~4.5x of net sales in FY2017.

China

Walmart chose JD as its partner in China in June 2016 when it used its China business for an initial 5.9% stake in JD (newly issued shares)

Then it doubled the stake in Oct. 2016 to 10.8%; and in Feb. 2017, the ownership level was increased to 12.1% (289.1 mn shares).

Walmart also invested $500mn Aug. 2018 with JD in the Dada-JD JV Daojia, which claimed to have 20 million monthly active users at that time.

Latin America

In June, 2018, Walmart sold 80% of its Brazil business to Advent International, a PE firm and recorded a $4.5 bn loss. In connection with the deal, Advent would also invest 1.9 billion reais ($485.66 million, in three installments; the first two capital raises will total 750 million reais each; the first was already completed in 2018 and the second is expected for 2019; the remaining amount will be invested by 2021, according to Reuters)

Walmart acquired Latin American (Mexico and Chile focused) grocery-delivery marketplace Cornershop for $225 million in Sep. 2018 (WSJ report).

UK

Walmart sold a majority stake in its UK business Asda in Apr. 2018 for $4 bn. Asda was valued at $10 bn (valuing Asda at approximately £7.3 billion on a cash-free, debt-free and pension-free basis, implying an EV / FY17 EBITDA multiple of 5.8x).

 

China Car Sales Slowdown

China’s passenger vehicle sales has been through 6 month of yoy decline (Jun – November) and will post the first yoy annual decline in 2018, after 26 years of boom

Two sources: CAAM and CPCA, passenger car sales down 16-18% yoy in November.

There are two factors to consider here:

  1. Long-term: the market is reaching maturity.
    a. Although there may be another few years before China finds its stable level of car ownership, it has become a fairly high level of –  an average Chinese household has around 0.58 cars. (China’s household number has been estimated to be ~455 mn and China has ~310 mn automobiles by the end of 2017, assuming 6/7  of which are passenger cars)
    b. The second half of China’s car ownership boom is at the beginning of shared vehicles & an era of transportation-as-a-service.  Therefore, China may never reach a stable level of ownership as high as major industrial countries’.
    c. China’s cities are more condensed. Population is so centralized that high car ownership rate in cities may not be possible
    c. an average US household has 1.968 cars
  2. Short-term: consumer confidence & tariffs
    a. The tariff was proposed to be decreased from 25% to 15% in May, but due to trade war the tariff for US produced cars were raised to 40% since July.
    b. Consumer confidence is damaged while financing may also be limited

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Very Interesting Statement from Running on Empty by Peter Peterson

Democratic – there is no limit to how much they can take from government

Republican – there is no limit to how little they can give to government

where “they = voters”

It seems that the swing between two parties causes the constantly larger promises that are asymmetric in terms of what voters get – no one would promise more restrictive policies to gain votes.