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MONEY MATTERS
By Hywel George INVESTMENT GROUP
27 AUGUST 2020
There are a few things worth noting over the past week or There remains a distinct question over what happens when
so, as the market remains at elevated levels. One of the most the extensive government support measures are withdrawn.
noteworthy is that cases of COVID-19 in the US appear to have The chart below shows real personal disposable income
peaked. (+7%) through the crisis compared with the same excluding
government support (-5%).
Meanwhile the US election battle rages on, with Trump 8%
behind in the polls and raging against China, the “rioters” and
“liberal” values. His support appears to be ticking up as he
positions himself as the guardian of law and order.
The economy is recovering but remains well below previous
levels of activity.
He is also muddying the waters around the vote itself, and
whether the election should be delayed given the inefficiencies
of postal voting.
The rest of the market meanwhile continues to flounder. The
top five tech stocks are up 35% year-to-date. The rest of the
S&P is down 5%.
In markets, whilst the US has risen around 10% over the past
three months the US dollar has fallen by the same amount; other
markets are similarly flat over the past quarter. The swift rally
since 23rd March has thereby stalled, at least for the time being.
Trading at record highs the US market certainly looks expensive,
compared to its own history and compared to other world
markets.
As such, the US and other tech heavy indices such as China
and South Korea have recouped all their losses from the crash
earlier this year. Other markets have made back around 60%
of their losses.
The tech companies have fared well through COVID-19, with
WFH accelerating existing shifts to an online life. Revenues
across the big five are strongly positive.
As previously discussed actions by the Fed and state have led The economic advantages of not locking down are clear - did
to soaring money supply across the real economy. Investors are the whole world make a terrible mistake by locking down at
concerned about possible resulting inflation and have flocked all? History may judge us badly in this area.
into gold and other inflation hedges (like bitcoin).
Following up on the last newsletter on cryptocurrencies, the
Fed last week announced a partnership with MIT to explore
a state backed digital currency (the Chinese are already well
advanced with their own digital currency).
Super-fast quantum computing power is now available to all
on the cloud, as Amazon launch Amazon Braket.
A few other points of interest.
Whilst there are many moving parts around such a comparison
Flying cars will hit the skies in Tokyo in three years’ time (flying
it appears that the Swedish experiment (no lockdown, sensible
taxis are already trialing in Dubai).
precautions) has worked. The Swedish chart below looks very
similar to the UK (note as you review the chart that the UK has
a population around 6x that of Sweden).
3D printed food is heading our way very soon.
He is the founder and CEO of seven companies, having founded
And, to lead us into Mr Musk, last month, China launched a
and already sold Zip2 and PayPal.
mission to Mars, hot on the heels of the US and India (2020
is a good year to head off since Mars is in a close orbit relative
to Earth).
ELON MUSK - VISIONARY OR HOTHEAD?
The first thing one needs to understand about Elon Musk is
that first and foremost he is an engineer and inventor, not a
tech entrepreneur (though he is that too). He just loves making
things. That is the extraordinary passion that drives his vision to
attempt to reshape our world. His stated purpose is to “change
the world and help humanity”. To achieve that his focus areas
are combatting climate change (electric vehicles and solar
power), save us from the dangers of AI and inhabit other worlds
and space to save us from ourselves. With this perspective, his
extraordinary breadth of companies and interests starts to He has an estimated IQ of 155. The average IQ is 100; the top
make sense and coalesce into a grand strategy. 2.5% of the population are estimated to have an IQ above
130. Bill Gates, Mark Zuckerberg and Albert Einstein have an
IQ around 160. The highest IQ ever recorded was the novelist
Marilyn von Savant at 228 in 1947. According to Mensa, the
smartest country in the world is Finland, followed by Sweden,
followed by the UK (I was pleased about that!).
Musk was born in 1971 in Pretoria to a South African father
Elon musk is defined by Wikipedia as an “engineer, industrial (“a terrible human being”) and Canadian mother. Bullied in
designer and tech entrepreneur”. He is 49 years old and enjoys school and by his father Musk took to insular activities. An avid
a current net worth of $70bn. He is the ninth richest person reader he discovered computing at an early age and aged 10
in the world. sold his code of a video game called Blaster to “PC and Office
Technology” magazine for $500. Following his parents’ divorce,
he left Pretoria Boys High and emigrated to Canada aged 18.
In Canada he attended University, graduating with two degrees
(Economics then Physics). He attended Stanford for just two
days of his PhD program in Energy Physics leaving instead to
start up Zip2 with his brother Kimbal.
Zip2
Zip2 was an early internet business (1995) focused on web
software in mapping and directories. Four years later he and
Kimbal sold it to Compaq at the height of the dotcom boom
for $300m. Musk was 28 years old.
PayPal As many of us will always remember on May 30th, 2020 SpaceX
In a move subsequently characteristic of his entrepreneurial launched the first private manned space flight placing an
instincts he took the $22m he received for his 7% stake in Zip2 astronaut into space and docking with the ISS, before returning
and immediately invested $10m of it into a new start up, called both the re-useable rockets and the astronauts safely back to
X.com. An online payments and financial services business, it earth. A truly monumentous achievement.
was renamed PayPal in 2001 and in 2002 was acquired by
In commercial terms SpaceX is now a huge success. Still privately
eBay for $1.5bn. Musk received $165m for his 12% stake. He
held, it is valued at over $40bn, making money from launching
was 31 years old.
satellites into space, at super low cost. Musk is also using it to
SpaceX create his own satellite constellation. Since 2019 SpaceX has
Again he immediately reinvested the proceeds into another been launching 60-120 satellites per month into space, ultimately
start up investing $100m in May 2002 to found SpaceX. creating a constellation of 12,000 communication satellites,
that will deliver internet connectivity to the 2-3 billion people
in underdeveloped countries who currently do not have access.
A truly extraordinary endeavor, and happening as we speak.
SpaceX is also the vehicle to deliver on Musk’s vision to establish
human colonies on other planets, notably Mars. Mars is 140
million miles away and the trip takes around 6 months. Starship,
the successor to the successful Falcon Heavy rocket, is almost
ready, and the idea is that it will land on Mars, refuel there
(using local H2O and CO2), and launch back to Earth. The first
cargo mission is planned for 2022. Musk’s aspiration is for the
first human mission to take place in 2024/5, with a realistic goal
of sometime this decade. He envisages a colony on Mars of 1
Just six years later SpaceX became the first privately funded
million people by 2050, with 3 trips a day to and from earth
company to successfully launch a satellite into orbit, and following
(with the trip time down to 30 days each way).
the decommissioning of NASA’s space shuttle program in 2011,
SpaceX’s Dragon rocket became the first private vehicle to dock Starship will also be able to provide intra earth travel, with access
with the International Space Station (ISS). In 2015 SpaceX’s to any city in the world within an hour’s travel time. Even now
reusable rocket re-landed for the first time, revolutionizing the you can book a seat to go to earth orbit, the moon, or the ISS.
costs of space travel (most of the cost is the discarded rocket Email sales@spacex.com for more information.
booster needed to escape the deep gravitational well of the
earth). In 2018 Falcon Heavy carried Musk’s personal Tesla And this is all before we even get to the extraordinary success
Roadster into space, where it will remain in orbit for “the next story that is Tesla!
billion years”.
Tesla Hyperloop
Musk founded Tesla in 2004 with what you might call a simple In 2013 Musk founded Hyperloop, a high-speed transportation
business plan. system designed to collapse travel time between major cities
and reduce harmful emissions from planes, trains and cars
“Build sports car. Use that money to build an affordable car.
between hubs. An extraordinary design (ridiculed at the time)
Use that money to build an even more affordable car. While
of vacuum tubes with levitating capsules traveling on an air
doing this, also provide zero-emission electric power generation
cushion at high speeds. Well, the first Hyperloop will open
options.”
in India in 2021, followed by Abu Dhabi and Dubai later the
15 years later he has done exactly that. same year. Musk published the patents and others have built
them, including Virgin. Traveling at 1,200 km/h the travel time
In 2008, he launched the Roadster. It cost $90,000 to buy. between for example Abu Dhabi and Dubai will fall from one
and a half hours to 15 minutes!
In 2012, he launched the Model S sedan. It cost $65,000 to buy.
In 2016, he launched the Model 3. It cost $35,000 to buy.
Solar City
Founded in 2006 Solar City has grown to become the second
In 2020, the Model 3 sold 500,000 units, making it the largest supplier of solar panels in the US. As such it has been
bestselling electric car in the world. From scratch, he has built a major contributor to the 99% fall in solar panel pricing over
the most valuable car maker in the world, currently capitalized the past decade, making solar power now cheaper (without
at $350bn. His 22% stake is worth around $70bn, and he has subsidies) than fossil fuels.
signed a remuneration package worth a further $40bn if he hits
certain milestones of revenue, profit and market capitalization The Boring Company
in coming years. The first $3bn paid out last month. In 2017 Musk announced that he would start digging tunnels
under cities to facilitate traffic flow in an environmentally friendly
In an extraordinary move, in 2014 he published online all the way and at super low cost. Again, he was ridiculed. Again, he has
patents and technology behind all Tesla vehicles, so that electric proved his doubters wrong. Tunnels are currently being built
vehicle adoption could accelerate as other manufactures in Baltimore, Chicago and LA. They will carry only electric cars.
copied his technology. In 2016, he built his first gigafactory to
manufacture batteries at the scale required to provide the right Open AI and Neurolink
cost and capacity so that vehicle range could increase. In 2016, Musk is a deep skeptic of our ability to safely embrace AI. He
he launched Tesla autopilot - the world’s first semi-autonomous has described it as the “most serious threat to the survival
vehicle produced at scale. Humans kill 1.6 million other humans of humankind”. In 2016 he set up Open AI as a not for profit
in car accidents every year. It is still the world’s largest killer. organization to undergo research into AI that would benefit
Autonomous vehicles will largely eradicate this scourge. humankind. He also set up Neurolink soon after, a company
that is undergoing research into the integration of AI into the
Not content with all of this going on, in 2017, he offered to build human brain. They are currently investigating the manufacture of
the world’s largest lithium ion battery pack in South Australia ‘threads’ that will weave into the brain, integrating AI capability
to solve their blackout (load shedding) problem. In 100 days, directly into the brain. Human experiments begin this year, and
or their money back - he delivered. progress is already being made in combatting neuro-related
ailments such as Alzheimer’s, dementia and Parkinson’s. As
As an aside, in 2018 Musk tweeted “Am considering taking Tesla
such Musk is also bringing closer to reality the Singularity - the
private at $420/share “. Current price $2000/share. “Funding
moment when humans can merge with machines.
secured.” The rumor was that the Sovereign Wealth Fund of
Saudi Arabia were the potential funders. If the deal had been
done the resulting profit of $250bn would have removed the
entirety of the current Saudi Arabian national debt!
So, as you can see, Musk has been rather busy in his first half
century. And I would say been true to his vision to change the
world and help humanity. In my view, he is not just the greatest
South African of the new age - he is one of the greatest humans.
His achievements already are simply breathtaking. His vision
is unequalled. His execution has been extraordinary. I cannot
wait for his second half century - and if anyone will find a way
to live to 150, it will be him! And will he make it to Mars? I would
not for one second bet against him.
INVESTMENT GROUP
Old Mutual Investment Group (Pty) Ltd is a Licensed Financial Services Provider
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