Weekend wrap: better late than never
I wanted to hit the brakes on the weekend wrap this week because I knew Monday would be so ridiculously eventful. Let's review 7 days of pure madness.
I originally conceived the weekend wrap as a way of tying the previous week up in a tight-knit bow. But this week the news was actually on the weekend. Let's have a chat about all things Coronavirus, FinCEN files, Microsoft and Nikola. To my American readers, this week I'd really appreciate some commentary down in the doghouse below the article. Because these issues affect so much more than just the US markets. They actually affect your livelihoods.
I'll keep my Coronavirus commentary very brief because I'm just as sick of hearing about it as everyone else. And it's not because I don't think the whole thing is severe. I was one of the first to start wearing a mask here in Australia and I'm bloody fearful of the overall effect it's having on our fantastic country. But there comes a point where you go well I want to move forward, I know what this is, I know how it affects me and I know what I need to do to make sure I'll be okay. So why do we need to sit here and feed each other's anxieties about it?
That's starting to become the big problem though with Coronavirus, anxiety. It's feeding the external environment of the economy and when a massive leap in 7-day average figures for daily new cases in Europe and the United States get released as they have in the previous days. People start fearing what comes next. In this case? Lockdowns. We've just gone through one in Victoria, Australia and it seems that it may be the last we go through permanently. Not because the Coronavirus isn't present but because the uproar it caused was basically political suicide.
So why is this affecting the economy so much? I mean last time America had issues with Coronavirus the market rallied. Thing is, it's a bit different this time. Congress is dragging its heels with a new stimulus package aimed at protecting the American economy from a full-on recession. And if it continues it could mean job losses. But not everyone is a loser from lockdowns. As we saw on Monday's session the tech stocks rallied again. FAANG stocks were up in what you'd class as a recovery but equally a safely store session for anyone who had money in the finance sector.
Speaking of finance what a weekend it's been for banks worldwide. To ultra-simplify what the FinCEN Files are they're basically a bunch of classified Government and banking documents released by Buzzfeed which implicates almost every big bank on earth in extremely illegal and criminal activity. Things like money laundering. Now the glass-half-full types out there are going to argue to me that the documents were reports submitted by banks to the US Financial Crimes Enforcement Network reporting suspicious activity to their clients. But what these files amount to are me murdering someone, telling the Police and the Police not doing anything about it. That's basically what it is. It's the banks telling law enforcement that a mafioso is using their bank to money launder but they haven't done anything about it.
And that's why it affected the markets on Monday so bloody much. People are happy to throw their money about in banks and financial institutions as long as they have no idea what they're doing with it, but as soon as they know? Sh*t hits the proverbial fan. People don't like doing the morally wrong thing and they will take their money elsewhere. And in Monday's case? They took it to the guys that have made them the most money previously and they know are morally straight, tech stocks. If you took my advice on Friday and bought in any of those suggested tech stocks? You can thank me later.
Now while most tech stocks were up by a minimum of 3% but Bill Gates' little ole Microsoft struggled to a 1% up finish. Why's this important you ask? Because on Monday morning Microsoft announced they were spending $7.5billion on a video game company called ZeniMax media which owns one of the biggest gaming studios on earth, Bethesda Studios. With the XBOX Series X going on pre-sale today (the 23rd of September) one would've thought this was huge news for Microsoft. But here's the thing. Microsoft's market cap is $1.5 trillion.
That means that Microsoft, a company which has much bigger products in sectors like personal computing, data centres, b2b software and SAAS spent almost 3% of its total capitalisation on a video gaming company. A company which in total would only count towards a small % of total volume for XBOX purchases and which have already announced cross-platform (Playstation and XBOX) titles anyway, and a day before the pre-order starts for their next-generation console and almost a week after Sony (which has a production figure that was triple of the XBOX worldwide at launch) sold out their worldwide pre-orders for the Playstation 5.
So my question with that is, what is the actual point? ZeniMax only had a total of $2.5billion in equity in 2016 and Bethesda has consistently underperformed in total sales volume on titles like Fallout 76 and Doom Eternal. And for those that tell me the two aforementioned products are niche titles. I would ask are they really? Fallout 76 has a battle royal mode announced almost 12 months ago and the only reason you add a battle royal mode to any game is to compete in volume and paid downloadable content with the big guns. I think Microsoft has overpaid for this ZeniMax acquisition and it certainly sounds to me as if the decision was an emotional one in an attempt to claw back some volume from Sony's Playstation 5.
I wanted to quickly touch on the whole Nikola situation this week as well. I did a smackdown piece on General Motors a couple of weeks ago after their partnership with Nikola was announced and surprise surprise later that week rumours of fraud emerged and all but erased the gains that each company had received as a result fo the partnership announcement. In fact, both stocks dropped off the end of a cliff.
Today, Nikola's founder resigned over those fraud allegations. It's worth mentioning that Trevor Milton was a non-executive board member of the company but none the less his resignation means a great deal for the company. It's basically an admission of guilt and a vote of no-confidence in the future of the company. And it is bloody terrible for the company's valuation. Nikola ended Monday almost 20% down on Friday's session after having an already godawful weekly result and the stock has all but collapsed.
Similarly, General Motors stock slumped another 4.76% on Monday which was probably a combined effect of the announcement from Nikola and the collapse of finance stocks which normally directly affect automotive valuations. With that in mind, General Motors is still up 13% month on month. So a quick piece of advice, if you have the stock? Sell it now and take a profit on the way back up. I don't think the General Motors saga is over and neither do I think it's going to end all that positively for them.
The good news is that tech is the big winners out of all the uncertainty in market today. So if you were smart enough to use that cash you had on hold over September to buy some tech late last week? You'll have a big smile on your face. I don't think that rally is over yet either, you've still got an opportunity to snap up some of the big growth stocks like AAPL, NVDA, SQ, ATVI and even some of the 5G stocks like QRVO, QCOM and VZ. Don't expect the ride up to be smooth, but expect it to be a ride up none the less.
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