Simon Shares

• Local Q2 GDP came in at 3.1%, higher then expected but what struck me was the comment from Stats SA ~ "spurred on by a build-up of inventories and increased household expenditure". Now we have seen Woolies* (JSE code: WHL) and Shoprite* (JSE code: SHP) both comment that the second half to end June was stronger than the first, and this statement would suggest it was the second quarter. But who are these people? Or is it maybe base effect?
• An Eskom briefing on Wednesday seems to show that the utility has been stabilised with issues such as not enough coal largely fixed. But important point is stabilised, not yet improving. A start I suppose.
• Group5 (JSE code: GRF) is leaving the JSE as it exits business rescue. Shareholders can expect to get zero back. This is the risk of investing, we get the upside, but if it goes wrong we can lose it all.
• Discovery* (JSE code: DSY) results were pretty much in line with the first half and they continue to spend a lot of the new businesses. Price is, as always, slightly ahead of embedded value and PE is now a little under 15x. David Shapiro Tweeted;

— David Shapiro (@davidshapiro61) September 4, 2019

 

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* I hold ungeared positions.

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US recession

US ISM came in at 49.1 which is contraction. This is now another recession warning adding to the inverted yield curve. It is frankly looking more and more likely the US will have a recession in 2020 or maybe early 2021.

Technical recession is two consecutive quarters of negative quarter-on-quarter GDP growth.

OECD data shows 6 US recessions since 1970, about one a decade which is frankly not very many. But what it also shows is that when the US hits a recession so does most of the rest of the world. No surprise there, either because they lead everybody down or because they only enter recession when globally things are real bad.

So what to do?

In short nothing. Just carry on carrying on.

• Firstly, maybe the US won't enter a recession any time soon, or maybe not for an age.
• Secondly, maybe the recession is only in 2021 and the market rallies first than collapses back to levels above the current levels. Remember Trump has an election next year and he can juice the stock market (and US economy) like crazy by making real trade peace with China and what does he want more; a second term or better trading terms with China?
• Thirdly, it may be a mild recession. Still not fun, but not earth shattering.
• Fourth, maybe locally we don't get hit too hard by it? I know that sounds crazy, but say Eskom debt gets fixed and consumer confidence and growth start returning? May sound unlikely, but not impossible.

Point is there are simple too many variables and as such, we just carry on carrying on. Buy your ETFs, keep a well stocked emergency fund and if you're nearing retirement, recession or not, be in the process of de-risking your short-term cash needs.

If you're really scared, and you should not be, have a look at the target volatility ETFs from Absa. Here's an interview I did and a blog post from Kristia here.

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