Exploding demand
By Justin Pyvis โ€“ Delivered on 22 Oct 2021

Good morning! So we're going to sound a bit like a broken record here but the NSW government announced yet another voucher scheme yesterday, this time a $A250 hotel coupon to every household with school-aged children in the state as "a big thank you to every single mum and dad right across the state".

That's nice, although they'll probably be paying it back before too long โ€“ NSW's public net debt was forecast to reach $A100 billion (around $A35k per household) by the middle of 2025 before the recent Delta outbreak and 100+ day lockdown.

Moving on, Queenslanders may want to get on Palaszczuk's vaccination lifeboat sooner than later after it was revealed a Gold Coast man had travelled back from Melbourne, somehow dodged hotel quarantine and is now "so sick [with COVID-19] contact tracers are having difficulty talking to him". He was infectious in the community for up to 10 days. ๐Ÿ˜ฌ

Have a great weekend and a happy semi-freedom day to those in Victoria!

Fully vaccinated population (aged 12+)

ACT
NSW
VIC
TAS
NT
SA
QLD
WA
Markets

Daily % change

AUD/USD

74.7

-0.7%

AU Yield (%)

1.83

+2.8%

US Yield (%)

1.68

+2.4%

ASX200

7,415

+0.0%

S&P500

4,550

+0.3%

Brent (bbl)

84.8

-1.2%

Gold (oz)

1,784

+0.1%

Iron ore (t)

116.8

-3.2%

Bitcoin

62,623

-4.9%

Note: Brent oil, gold bullion and iron ore prices are the second futures contract. Bond yields are 10-year Treasuries.

The US S&P500 closed higher (+0.30%) for the seventh straight session, setting a new record high as positive third-quarter earnings reports continued to flow. A notable mover was Tesla (+3.3%), which posted record deliveries, revenue and profit (see the Feature below).

Weekly initial and continued jobless claims fell for a second straight week, helping to support the view that the US labour market is edging closer to something resembling its pre-pandemic normal. The market was also supported by positive existing home sales data, which showed a 7% rebound and the Philly Fed manufacturing index, which fell but remains heavily positive.

Locally, the ASX200 finished the day flat (+0.02%), fading as the day went on with declines to energy (-1.4%) and consumer staples (-1.1%) offset by real estate (+1.7%) and tech (+0.6%).

A notable mover was Flight Centre (-5.8%), which fell heavily after it announced it had raised another $A400 million via a convertible bond issuance, with a number of investors hedging their exposure to Flight Centre stock by selling shares at a discount as part of a simultaneous delta placement.

Economy

No US tax hikes: Well, at least not corporate taxes as "Joe Biden's plans to hike the corporate tax rate to 28% from 21%, a key campaign promise, are likely to be one of the steep concessions he makes to steer his economic revival package through Congress".

Head in the sand: China's government effectively banned domestic online news services from displaying content produced by Caixin โ€“ publisher of various popular purchasing managers' indices โ€“ by leaving it off a list of 1,300 "approved" media sources.

Carrying a load: In its 2020-21 Annual Report (released yesterday), the Reserve Bank of Australia revealed that as at 30 June 2021 it owned 25% of all outstanding Australian government debt and over 60% of the April 2024 bond, which is why it was so easy to manipulate earlier this week.

Transitory..?: Multinational consumer goods company Unilever warned that it expects "inflation to be higher next year than this year", pushing up the prices for its products by 4.1% in the September quarter "in response to the really very high levels of inflation that we are seeing".

Up is down, down is up: Turkey's central bank cut its cash rate to 12% from 14% despite inflation rising to 19.6% last month, well above the bank's 5% target. President Erdogan believes that a high rate of interest causes price rises, fired three top central bank officials in the past week and has churned through three governors in the past two years because of disagreements about how best to destroy the currency. ๐Ÿ™ƒ

Feature
Exploding demand

Tesla reported solid revenue and profit figures in the September quarter on the back of "exploding demand", as "folks want to buy an electric car and folks want to buy a Tesla right now".

Breaking it down: Tesla managed to deliver 241,300 vehicles in the quarter, up 72% from the previous year despite the much-reported microchip shortage and global supply chain woes. It also churned out an impressive gross profit margin of 30.5%, which still held up at 28.8% with regulatory credits excluded.

For context, Toyota's gross profit margin usually sits in the 15-20% range and US sales by General Motors and Ford dropped about 33% and 27%, respectively, with Tesla proving to be more nimble than its rivals by "sourcing different chips and rewriting software on the fly".

Perhaps as a sign of a maturing company, for the second straight quarter Tesla's profit was not entirely dependent on US regulatory credits, which it sells to other producers to offset their emissions:

Why this matters: Electric vehicles are all the rage, along with the components that fuel them. Plenty of Australian companies are increasingly tethered to electric, such as the spodumene lithium miners and perhaps soon even giants such as BHP, which earlier this week made an inflated offer for a Canadian nickel miner as it desperately seeks to increase the share of battery materials in its portfolio.

However, Tesla is about to face intense competition from the legacy auto industry players and currently trades at an eye-watering 116 times its annualised earnings per share. While that shouldn't matter for the mining companies it's certainly of concern to anyone who holds Tesla, either directly or as part of an index fund now that Tesla is part of the S&P500.

Looking forward: Tesla needs to keep growing like a tech company to prevent its share price from plunging. It faces plenty of hurdles on the way, some of which it's already encountering โ€“ for example, Chief Financial Officer Zachary Kirkhorn said that the company "is seeing commodity cost increases, which have resulted in price hikes".

It's also being investigated by the US National Highway Traffic Safety Administration because its cars keep crashing into parked emergency vehicles, has yet to deliver on its $US10,000 'full self-driving' option, and is very reliant on its factory in Shanghai (which has 'common prosperity', 'trade war' and 'power shortage' risks) to export models built there to developed markets, boosting its margins.

The Wrap Up
    โœˆ๏ธVictoria's government will join NSW in abolishing all quarantine requirements for fully vaccinated international arrivals from 1 November.
    ๐Ÿ›‚Australia's two biggest supermarkets, Woolworths and Coles, announced COVID-19 vaccine mandates for their workers, covering around 170,000 people.
    ๐ŸงปPeople will buy anything with an Apple logo: Apple's new $US19 "polishing cloth" is already out of stock with an estimated 2-3 month wait.
    ๐ŸŸขThe US FDA authorised COVID-19 booster shots from both Moderna and Johnson & Johnson for people aged 65 and older, while also allowing them to 'mix and match' vaccines. Anyone who had the 'one shot' Johnson & Johnson vaccine is now advised to get a second two months later.
    ๐Ÿ”ฌThe NSW government will spend $A96 million in a pilot mRNA manufacturing facility, in partnership with NSW and ACT universities.
    ๐Ÿ‰Wayne Bennett will be the inaugural coach of The Dolphins, the new NRL franchise that will enter the competition in 2023.
    ๐ŸšขAustralia's WTO representatives released a statement saying there was a "growing body of evidence" that China's "arbitrary border inspections, unwarranted delays [and] imposition of unjustified anti-dumping and countervailing duties" were "motivated by political considerations".
    ๐ŸŽพUp to 35-40% of tennis players on the ATP/WTA circuits are unvaccinated, meaning they may not attend the February 2022 Australian Open.
    ๐Ÿ›‘Western Australia's government "paused" its move to reclassify Queensland as 'very low risk', due to the new case detected yesterday.
    ๐Ÿ™ŠFormer US President Donald Trump is launching his own social media app called "TRUTH", which completely coincidentally is also the name Russian Soviets gave to their infamous propaganda publication ("Pravda").
    ๐ŸฆถThe AFL mandated that every player will have to be fully vaccinated against COVID-19 by 18 February 2022.
    ๐Ÿ’‰Pfizer reported that results from its phase 3 booster shot trial "showed a relative vaccine efficacy of 95.6% compared to those who did not receive a booster".
    ๐ŸŒฒOnly in Florida Michigan: A man is facing charges after he got lost in the woods while trying to escape police and had to call 911 for help.
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