Brief Multi-Strategy: Fed Reflates the ‘buyside Bubble’? and more

In this briefing:

  1. Fed Reflates the ‘buyside Bubble’?
  2. Isetan-Mitsukoshi Unveils Digital Strategy
  3. Tesla  – Now We Know The Y, But Not the How
  4. China Housing: Price Growth Slowing Down, With YTD Y/Y Decline In Volumes
  5. Japan Stock Weekly

1. Fed Reflates the ‘buyside Bubble’?

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By Steve Blitz, Chief US Economist:

  • Central banks, led by the Fed, have restored market bullishness
  • But the December selloff could still be a taste of future trouble
  • A decade of low interest rates has created a powerful search for yield

2. Isetan-Mitsukoshi Unveils Digital Strategy

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Three years ago, Isetan-Mitsukoshi attempted to reverse a strategy of shifting to small format retailing.

At the same time, the department store operator made a final ditch effort to avoid closing department stores and sacked its CEO who had had the temerity to suggest closure was the only way to revive the business.

Last year new management finally realised the old CEO had been right and that culling stores was the only way to improve profit growth.

Now the company is diversifying again but, instead of just small stores, it is planning a big investment into e-commerce with a projected ¥145 billion in sales from personal styling alone.

3. Tesla  – Now We Know The Y, But Not the How

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The eagerly awaited and long promised Model Y is out and it looks…like Model 3. That’s OK, just no shock and awe which Tesla really needed to jumpstart sales momentum–and a wave of sorely needed cash reservations.

Tesla Motors (TSLA US) unveiled Model Y on, perhaps not coincidentally, March 14th which also is Pi Day. Pi is the fundamental ratio which demonstrates that all circles are related–as Model Y is overwhelmingly related with the seminal Model 3 which contributes 75-80% of the newcomer’s platform and technology.

Which means Model Y may be originating with Model 3’s many inherent problems, as I discussed in Tesla’s Plan B 2.0; Y Not, just as Tesla also is juggling the ramp-up of the newly launched $35,000-base model of Model 3 along with sales expansion into Europe and China as well as building a new plant on a shoestring in Shanghai. All this just as the company also has lurched into a radical new online-only sales model with apparently little if any considered preparation (see Tesla’s New Plan: Buy Before You Try).

No wonder Tesla’s Vice President of Engineering Michael Schwekutsch just quit, an ominous signal.

Another is that Model Y won’t be available until late 2020–at best–which is much later than expected. It’s still not clear when or where Model Y will be in full production or, even more critical, when Tesla will make even a penny of profit on it. Model 3 only recently became marginally profitable, excluding the likely money-losing $35k version, and sales of more profitable but aging Models S and X are in accelerating decline.

And, as I observed last week, Tesla’s track record of long delays in delivering new models coupled with Model 3’s alarming quality and reliability may seriously diminish the hoped-for early bird reservation cash which the company sorely needs to ease its liquidity crunch. At the same time, the pending arrival of Model Y over the next year or so is likely to further dampen already waning demand for Model 3.

In any case, it’s too late for Tesla to preserve profitability in the calamitous first quarter, if not for the full year.

Continue reading for Bond Angle analysis.

4. China Housing: Price Growth Slowing Down, With YTD Y/Y Decline In Volumes

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The data released by NBS over the past 2 days shows the market for new home sales in China continues to slow down, with volumes in decline on a year-to-date year-on-year measure for January-February. Price growth is slowing month-on-month, though by one measure still rising faster year-on-year.

5. Japan Stock Weekly

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Hikari Tsushin (9435) – we remain longer term buyers, it will continue to generate good profits growth and valuations are still not unreasonable. 

Mercari (4385) – a great domestic business, loads of buy notes but in our mind there are big issues with the US business and shares are almost priced to perfection.

NSK (6471) – given the share price, and the cycle, the question is when to start to buy. 

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