26 Jun Capital 19 Catch-Up
Weekly Index Movement
| S&P500 | -1.4% |
| Nasdaq | -1.3% |
| Aussie All Ords | -2.2% |
Stocks slipped a little last week after a statement by Fed Chair Powell had traders reassess their interest rate expectations.
Asked when inflation will come down his answer was:
“The process of getting inflation back down to 2% has a long way to go.”
That had markets finally coming to the conclusion that rates will stay around 5% well into next year.
That should be negative news for tech stocks. That kind of headline, when it happened last year, saw tech fall. Now, stocks just shrug it off and say, meh.
On a year-to-date basis, Tech is up 36% and Communication Services is up 34% (Facebook and Google are in this group rather than tech). But financials are down 3%, materials are up 3% and Energy is down 10%.
Right there explains why the Aussie market has gone nowhere in 2023. It is all Financials and Materials. If you want growth you have to buy what is growing.
The end of the financial year is a good time to reassess your portfolio and sector weightings. If you are looking for growth, stop buying speccy Aussie rubbish and just buy some solid US tech. It couldn’t be easier.
Why should you buy tech?
Well, I’ll ask you some questions:
What do you think inflation will look like 6 months from now? Will it be closer to target or further away?
What about interest rates? Will they be looking like they will be heading a lot higher? Or is the next move lower?
And lastly company profits. What will the trend be here? Getting better or getting worse?
The tech sector has the highest company margins of any sector, averaging around 20%. Along with that, the sector has the highest growth in revenue of any sector around 15% per year.
It’s a no-brainer.
That got me thinking. Here I am in Australia and I’m looking for growth stocks to buy. The best I can find anywhere in the world is US tech.
But the same is true if I was a fund manager in Europe. European fundies are looking at their market and saying “our economy is in recession. Is there anything I should buy here, or it is better to just buy US tech that has the highest growth and highest margins of any sector?”
Asian fundies are doing the same thing.
In fact, just about everyone in the world is reaching this same conclusion and all that money is flooding into US tech stocks. There is still plenty of room left for these stocks to run even higher as the whole world is now chasing the same thing.
The whole world is also hoping two of the world’s richest guys will duke it out.
Mark Zuckerberg and Elon Musk have been talking trash and offering to fight in a UFC type contest.
It all started when Musk expressed concern for Meta’s new Twitter-like alternative. Another user joked that Musk should be careful not to upset Zuckerberg who has been training in Jiu-Jitsu, and Musk responded with “I’m up for a cage match”
I can’t believe this will actually happen but am secretly hoping it does.
Apart from dreaming of watching two billionaires belt each other in the Vegas Octagon, this week I’ve found something else interesting for you. More on that below, but before we get to it, a quick look at what is happening next week to close out the financial year.
The Personal Consumption Expenditures (PCE) index, the Fed’s preferred inflation indicator, out Friday morning, will be the week’s biggest economic data release.
Tuesday and Friday will bring consumer checks from The Conference Board and the University of Michigan, respectively.
On the earnings side, results from Nike, Carnival (CCL), Walgreens (WBA), and Rite Aid (RAD) will be key highlights.
Nothing to get very excited about really.
Bitcoin
I’ve never been a big crypto fan, but it does not want to go away and so even I have to admit maybe there is some opportunity here.
We had some big developments this week and Bitcoin popped over $30,000
A few key events might have sparked a fresh love affair with the cryptocurrency. First off, BlackRock – the world’s biggest investment manager – sought regulators’ approval to launch an exchange-traded fund tracking bitcoin’s spot price. There are bitcoin ETFs already, but they track the price of the futures contract. So far no-one has received approval for a spot-price ETF, but Blackrock are the biggest so you would assume if anyone can, they can. And there was another juicy move: the uber-powerful trio of Charles Schwab, investment firm Fidelity, and hedge fund Citadel unveiled a new crypto exchange, designed to serve big institutions rather than everyday retail investors.
The news here is Bitcoin might well be on the track to a serious investment vehicle desired by big institutions. And big institutions bring big money.
The timing of all this is very interesting because I have been researching a small Aussie company recently called Iris Energy. Despite being Aussie, Iris is only listed on the Nasdaq under IREN and is trading for $4.60
Iris Energy mines bitcoins. This process requires a lot of computing power and also energy. This is where things get interesting, as Iris has built data centres to do the mining that are based on 100% renewable energy.
The Company targets markets with low-cost, excess renewable energy where its operations can help solve energy market challenges (e.g. contributing to lower power prices in regulated energy markets such as British Columbia or shedding load to support deregulated energy markets with high penetration of intermittent renewables such as Texas).
Not only does this strategy give Iris cheap energy, it also helps mitigate potential regulatory and/or political risks associated with its operations.
The company has been self-funding expansion of this power production and now has excess capacity, allowing it to expand mining operations.
Iris mines these coins and sells everything they mine every day, which means they have strong cashflow and profits depend on the price of Bitcoin. This is what they estimate based on the Bitcoin price.
The company made an announcement last week.
Cash in the bank is up to $64million which is $9million more than May and they are increasing capacity at one plant from 5.6 EH/s to 9.1 ES/s in 2024. All you need to know about what that means is more energy production means they can do more.
In addition, the company is revisiting its HPC strategy. That stands for High Performance Computing.
The company explored this strategy in 2020 and even signed an MoU with Dell (DELL) to use the company’s energy-efficient facilities for energy intensive computing. The growth of AI is likely to lead to decent increased demand for such computing. I think this announcement makes Iris much less of a one trick pony and can derisk the business from Bitcoin.
Iris Energy is a growing, cash-generating business trading on a PE of less than 4 with exposure to the upside of Bitcoin’s price that is looking at ways of diversifying income streams by taking advantage of the recent explosion in AI and powers all of this with 100% renewable energy.
It is an interesting way to gain some exposure to Bitcoin and is a cheap, renewable energy powered business.
Warning
Stock values can go down as well as up. It is possible to lose 100% of your investment in a stock. Any advice given by Capital 19 is general advice only and does not take your personal circumstances into account and might not be suitable for you.