September 20, 2023 • 23 mins
In this episode, Abdul discussed the latest IPOs from Arm and Instacart, providing valuable insights for potential investors. He also discussed The European Central Bank's decision to raise interest rate and analyzed its potential impact on the global economy. He also examines the concerning trend of rising US inflation and its implications and lastly explores the consequences of Bernard Looney's resignation at BP. Tune in for a concise yet informative snapshot of key financial developments in this episode.
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Transcript
Episode Transcript
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(00:01):
Good afternoon, ladies and gentlemen.Welcome back to the Investors Diet podcast,
where we help you work smarter andharder by providing weekly market updates and insights.
Before we jump into the fun stuff, I just want to provide a
quick update on part who will hopefullybe back for next week's episode. So
today we do have a lot oftalk about. We have updates from the
Arms IPO and on the topic ofIPOs, have some news from an upcoming
(00:24):
IPO from Instacrt. We'll also talkabout the European Central banks historic interest rate
heights, the ripple effects of BernardoLuni's resignation at BP, and rising US
inflation. So we do have quitea bit of unpack so let's jump right
in. Let's start with IPO news. Actually we did come this last week
a bit about ARMS. Chip designerbacked by SoftBank, had an extraordinary debut
(00:48):
on the Nazi Exchange, closing itsfirst day of trading with remarkable twenty five
percent surge, and this searge forthe catapulted Arms valuation to staggering sixty five
billion dollars, which is a substantialleap from the fifty one dollars per share
offer price agreed on just today beforeand now, this IPO proved to be
great for SoftBank, obviously raising nearlyfive billion dollars, making it the largest
(01:11):
US listing in nearly two years.And what's interesting here is that the ten
chlorusal investors, including tech giants likeApple and Nivideo, bought seven hundred and
thirty five million dollars worth of ARMstock as part of this listing, nearly
showcasing tremendous investor confidence and from astrategic perspective, SoftBank's decision to price ARMS
(01:34):
slightly below the initial range at fiftytwo dollars reflects a calculating move. Why
because they believe that a lower initialprice would encourage trading momentum and bolster confidence
in the IPEO market, which hasfaced pressure on valuations over the past two
years. And indeed did it boostconfidence in the IPO market. It just
(01:55):
leads on to this next story aboutInstacart founded into twelve, which is scheduled
to open trading. I believe todaythe company is looking to raise six hundred
and sixty million dollars by sharing byselling shares of its common stock, and
at this level, the company willbe valued at a jaw dropping ten billion
dollars on a fully diluted basis.And really this instacrt is we turned up
(02:20):
the heat on its initial public offering, taking a page from arms recent deal
in a move ceiling a favorable climatefor these new you know us IPO listings,
and insta cart has boosted its IPOprice range by approximately seven percent,
now aiming for twenty eight dollars orthirty dollars per share. Now, what
is insta card because you know it'sthe first time we're talking about this on
the podcast. Instacrt is a onlinegrocery delivery juggernaut. It's a platform that
(02:46):
use free that uses freelance contractors whopick from grocery shopping lists requests in the
area to fulfill the list and deliverthem to customers. Now, instacrt partners
with more than fourteen hundred retail bannersto make that happen. And I know,
buying groceries isn't online isn't new,but instacrt has popularized it in a
way that has provided a much wide, much wider range of options with a
(03:09):
much shorter lead time between order placementand delivery. And in Mark twenty twenty
three, instacart announced that it teamedup an open AI to build an ask
Instacard feature powered by chat GPTM,and the financial instacrt looked pretty promising.
Its sales for the first half oftwenty twenty three stood nearly at one point
(03:30):
five million dollars, which the thirtyone percent gain over the same period in
twenty twenty two. Net income wastwo hundred and forty two million dollars,
compared with a loss of seventy fourmillion dollars in the prior year. Now
back on to ARMS, I justhave a few few comments to make.
But the IPO obviously great twenty fivepercent surge on the first day of trading,
(03:53):
and I believe in an additional threepercent of the next day. But
should we be buying this is theIt's a big question, right and from
my research what I'm seeing, thecompany has shown little growth, with revenues
of two point seven billion dollars remainingrelatively flat year on year. Uh their
net income is five hundred and fiftyfive hundred and fifty million dollars per and
(04:15):
five hundred fifty million dollars five hundredand fifty million dollars sorry, And while
they do have a strong cash positionof one point five billion dollars. Their
margins, however, have been decreasingdown from fifty to fifty to twenty five
percent. Also, given the currentmacro economic environment we're in, I do
believe that this IPER is overvalued andand so personally again this podcast, you
(04:42):
know, we're not financial advisors,so we can tell you what to do
with your money. So this isjust my own opinions and my thoughts.
So you know, take you know, do with that, which you will.
But also just some more information onipers in general. If you guys
weren't a where but thirty one studyinformation to help you guys make a decision
(05:05):
or have a better idea about youknow. Yes, you know this headline
of twenty five percent search doesn't reallymean much though, and I'm gonna break
it down for you guys just here. So some stats of IPOs. Thirty
one point four percent of IPOs fellon the first day of trading in the
United States between two thousand and eightand twenty twenty one, meaning over two
(05:27):
thirds actually seeing a price increase.Right, so having uh sorry, arms
actually trading above it's above its shareprice and having a game it's not really
too impressive, knowing that over twothirds of IPOs already accomplished that. And
not only that, but ip initialterms in the United States over the past
(05:53):
decade in twenty twenty one, whereaverage gains the first day, we're about
sixteen percent, which again twenty upsetis higher but not substantials to significantly more
than than than sixteen percent. Right, And some more information. The shares
of companies in the United States whichwere profitable after their IPO has been decreasing
(06:15):
year on year, with a peakof eighty one percent two thousand and nine.
In twenty twenty one, only twentyeight percent companies were profitable after their
IPO over the long run, also, IPO returns DBA significantly, and a
year later we see a majority ofthe companies are actually underperforming the market by
more than ten percent. Right,And with the seems that in any case
(06:39):
that you know, for some companies, the initial IPO enthusiasm really dies out
or even expected earnings are not met, and investors repriced the IPO to reflect
the actual slower growth of the company. And three years down the line after
the IPO, we calculate that almosttwo thirds of five piers are under before
the market, with most sixty fourpercent more than ten percent behind market returns.
(07:01):
So all that being said, andyou know, history has shown if
this is something you like, ifit doesn't have to be arms. But
any company that goes public, ithas historically has shown that it is better
to wait before entering because as shownhere three years down the line, sixty
(07:23):
four percent of these I piers actuallyunder before the market by more than ten
percent, so they're very risky.So personally, I wouldn't be investing in
buying's IPO anytime soon. But that'smy two cents. Obviously it could,
you know, do better than marketexpectations and do better than our market,
but history has shown otherwise. Anyway, moving on to US inflation. In
(07:49):
August, US consumer price serves bystaggering three point seven percent year on year,
surpassing even the most optimistic forecast.And this search wasn't just a cystical
blip. It had real world consequences, and on a monthly basis, prices
climbed by zero point six percent.And this isn't just a bunch of numbers.
(08:09):
Is really faced by every American consumernow economically speaking, such a significant
inflationary spike raises several concerns. Firstly, it erodes the pursing power of consumers.
You know, when prices rise,households often find themselves spending more on
the same goods and services, leadingto less room for saving or other spending
(08:33):
right. Secondly, inflation can createuncertainty in financial markets and the broader economy.
When consumers and businesses expect prices tokeep climbing, they make decisions that
alter the course of economic growth forinstances. For instance, businesses may increase
prices or delay investment plants, whichwill affect employment in wages. Thirdly,
(08:54):
inflation can lead to higher interest rates. Central banks at the Federal Reserve may
rise may raise rates to combat inflation, which can increase borrowing costs for businesses
and consumers alike, and this couldhave cascading effects on various sectors of the
economy, from housing to manufacturing.We've covered a lot extensity in this podcast,
(09:15):
and we've seen this throughout the yearthrought. The past year and two,
the Fed have been increasing interest ratesand we've seen the consequence of that
with a lot of bank failures earlierthis year with SVB silver Gate, even
credit suees. Right, but we'vehad a lot of bank failures because of
this increase in interest rates. Somy take on this is it's a very
(09:37):
complex challenge for policymakers, right,in particular the Fender reserve. Now it
has a it bases a delicate balancingact. They need to keep practice in
check to ensure economic stability, butalso must avoid stifling the economic growth.
If they've raised interest rates too much, then you know, we've already seen
the consequence of that earlier this year. But if they don't, then you
(10:00):
know, consumers pay the price andbusinesses also. So the Federals is likely
to proceed cautusly. Of course,they'll carefully consider the nonsense of this inflation.
It figures and it says how theyimpact different aspects of the economy.
It's like walking on a tight rope. They need to maintain equilibrium between inflation
control and economic growth. But let'sredive deeper. Right, So what is
(10:22):
causing all this inflation? In firefire? More than half of the recent
price search is attributed to soaring petrolprices. Now this is a helline itself.
We might cover this next week,but oil prices really spiked because Saudi
Arabia and Russia extend at one pointthree million barrel a date oil cut through
December. So this is a voluntarycut, and so you know, these
(10:43):
two countries are really collaborating to pushoil prices towards the hundred dollars a barrel
mark, and Brent crude oil isalready covering at a ten month high of
about ninety two dollars fifty Now.Economically, this development has broader implications.
High oil prices can lead to highertransportation costs, which can ripple through various
(11:03):
sexes of the economy. Businesses maypass these increased costs onto consumers, contributing
to overall inflation and pressures which weare seeing at the moment. Additionally,
the energy market is intertwined with globalgeopolitics oil prices, oil price fluctuations can
have diplomatic and economic ramifications, impactinginternational relations and trade dynamics. So what's
(11:26):
my opinion on this aspect. It'sa reminder on the interconnectness of our global
economy. Energy prices are in justa matter of filling up at the gas
station that are pivotal factor in theoverall economic puzzle. Keeping these prices stable
exclusion with both consumers and businesses andre shifting our focus to core inflation the
(11:50):
figures that exclude volatile food and energyprices. In August, core inflation rose
by zero point three percent a monthon month, slightly above the July zero
point two percent rate. And economically, this suggests that whilst core inflation saw
a modest uptick due to rising pricesin areas like airfares, car rental,
and motor insurance, it dips lightlyon an annual basis, from four point
(12:11):
seven percent to four point three percent. Now, this data reveals a multifaceted
story. While monthly fluctuations may risemay raise eyebrows, the really figures provide
a more comprehensive picture. It underscoresthe importance of understanding the longer term inflationary
trends that influence consumer behavior, investmentdecisions, and economic policy. And in
(12:33):
my opinion, this data isn't justa bunch of numbers on a chart that
I'm looking on my screen. It'sa narrative of economic dynamics. It tells
us. It tells us that inflationisn't a one size fits all phenomenon.
It impacts various sectors differently, andit evolved that effects, the effects evolve
over time. Now what does thismean for the Federal Reserve? And what
(12:58):
are you know, what is thisnext move? Well, despite these inflation
reflectuations, the FED is expected tokeep interest rate steady at its upcoming meeting.
They've already raised the rates eleven timessince Smart twenty twenty two in an
effort to bring inflation back down towardshis two percent target. And again,
like always, it reflects the Fed'scommitment to his dual mandate, which is,
(13:20):
you know, pricetability and maximus sustainableemployment. They're threatening the needle,
aiming to control inflation without jeopardizing economicgrowth or the labor market progress. And
they'll likely maintain a conscious stance againclosely monitoring high inflation trends interact other economic
indicators. It's really akin to adjustingthe sales on a ship, you know,
(13:43):
navigating turbulent waters. And with that, we actually have more interest rate
news with the the European Central Bankactually making a historic move raising interest rates
to an all time high in abid to tackle again raising rising consumer prices.
(14:03):
Now the ECB short for the EuropeanCentral Bank, decisions to lift is
to posit rate for the tenth consecutivetime by twenty five basis points, which
is not a whopping four percent.Really sent sent shockwaves across financial markets.
But here's the twist. Whilst theyraise rates, they also hinted that the
(14:26):
end of the cycle of increases mightbe inside right. So as a result,
the euro fell to a three monthslow against the dollar after this pivotal
decision. A strong dollar and lowerinterest rate often go hand in hand yields
on two year German bonds, whichis considered a benchmark for the Eurozone because
you know, it's very stable andactually dipped right, and economists are buzzing
(14:50):
with theories. Many believe the majorcentral banks worldwide are nearing the end of
their rate hiking spree. Why willbecause inflation is showing signs of slowing down
actually despite these new developments with SaudiEuropean Russia increasing or sorry decreasing supply of
(15:11):
oil, but data actually showing thatinflation is actually slowing down, right,
and economic growth is under pressure dueto a higher borrowing costs. And rising
borrowing costs can be a double edgedsword. While they're essential to combat inflation,
they can also weigh heavily on businessesand consumers. As interest rates climb,
(15:33):
loans become more expensive, which affectseverything from your mortgage to corporate finance.
Right and slower economic growth is anotherconcern in itself. When businesses face
higher borrowing costs, they may reduceinvestment and hiring, and potentially slowing down
the overall economic activity. It's afine line that these central banks must walk
to strike a balance, and theECB of the European Central banks stance all
(15:58):
this. Again, like I said, they drop some hints. They mentioned
that the current interest rates, ifmaintained the ones they've set right now,
could help return inflation to their target, but the President, Christine Laguarde also
caution that they can definitively say they'vereached the peak, you know, just
you know, she put that outthere. But the currency markets are also
(16:23):
in the mix when you involve interestrates. A strong dollar makes the Euro
less attractive to investors, and asthe Euro weekends, it can boost exports,
which helps the Eurozone economies, butit also makes imports more expensive,
which potentially push up prices domestically.And furthermore, there is the matter of
(16:44):
inflation expectations. Of course, thecentral Bank aims to anchor these expectations around
their target. If people start expectinghigher inflation, what you know, what
they can do is they can demandhigher wages, which will just add further
fuel to the fire, would justadd more inflation, creating a self perpetuating
cycle. And some experts suggest thatthat Europe might be in for a period
(17:08):
of stag inflation where and what's stagflationstaffations is where inflation sticks around while economic
growth stalls. It's a tricky situationthat could shape the future of the Eurozone.
So really, what's the bottom line. The ECB's move is a significant
chapter in the ongoing saga of lowcentral banks interest rate policies. It's a
(17:30):
complex dance between inflation growth and economicstability. And this story is far from
over. I'm pretty sure we willcover this in the weeks to come,
but this is a you know,it's a very exciting journey and a very
exciting topic to talk about actually,and that moves to our final story today
with from BP short from for BritishPetroleum. One hundred and thirteen year old
(17:56):
energy giant has long been a cornerstone the global oil and gas industry,
with operations spanning the globe from allexpiration and drilling to refining and distribution.
BP is really a household name inbridge business and business in bridge business and
a key player in the international energylandscape. However, the news that we
(18:18):
have here isn't too great from VP. Really is sent a lot of a
lot of shop gas throughout the energy, the energy, the energy markets.
But Bernard Looney, which is thechief executive officer CEO of BP, has
resigned under extraordinary circumstances. Rich reallyhas raised crucial questions about the future of
(18:41):
the company and the wider energy transition. So Looney, who joined BP at
the age of twenty one in nineteenninety one, spent his entire career at
the company. He's employed CEO intwenty twenty and just three years ago,
and his mission was to try swormVP from a traditional oil producer into a
(19:03):
pioneering integrated energy company boys to navigatethe complex and ever training landscape of the
energy transition. Now under Luney's leadership, VP embarked on a visionary journey.
It plans to achieve a net zerocarbon emissions by twenty fifty, a commitment
that that outpaced most of its industryrivals. The company aimed to invest heavily
(19:26):
in low carbon projects, with agoal of amassing fifty gigawatts of renewable power
by twenty thirty. Very optimistic,and Luney's exit now cast a huge shadow
over BP strategy right. His departurecomes as a result of revelations about undisclosed
(19:47):
personal relationship relationship with colleagues, arevelation that has said the corporate the corporate
world a buzz when really, again, you know what does this means for
VP? What does it mean fora BP strategy? The consequence of far
reaching touching on multiple aspects of thecompany's operation and investor's sentiment. The immediate
(20:08):
impact is visible in the stock market, actually, where a BP shared dipped
by one point three percent in earlytrading after Looney's exit. And this dip
obviously reflects the uncertainty surrounded the company'sdirection and the future of its ambitious green
energy agenda. But it's not allabout stock prices. Looney's departure stems from
(20:30):
allegations about its conduct regarding personal relationshipswith colleagues. Now the BP's board received
these allegations back last year in Maytwenty twenty two, which led to an
initial investigation that really found no bruteconduct. However, fresh allegations of a
similar nature emerged recently, which triggereda new investigation with external legal counsel support,
(20:56):
and the outcome of this ongoing processremains uncertain. Now Looney's resignation not
only leaves a void in leadership,but also raises questions about bp strategic direction.
Investors have remained divided on the company'sbowl transition towards renewable energy, and
while some embrace bvp's commitment to greenerfuture, others Harvard doubts BP shares have
(21:18):
lagged behind competitors, particularly in theUS, where exe On Mobile and Chevron
have been slower to embrace the energytransition. And now, with Looney's abrupt
exit, the board faces the dauntingtask of sciency and successful and this choice
will not only determined VP's future direction, but can also impact investor's sentiment and
(21:40):
however, the new CEO. Thenew CEO will have pivotal decisions to make.
This new CEO will have to decidewhether to continue Loney's green energy focus
or potentially shift back towards maximizing themost profitable aspects of the business. And
this situation raises questions about pas marketcap cap of one hundred and eleven billion
(22:03):
dollars. Rivals may see potential inmanaging its assets differently under new management,
potentially valuing them higher. And furthermore, VP's unfinished business in Russia as complexity.
The company wrote off its value,wrote off the value of its stake
in ross Neft, Russian state backedoil Champion technically still owns it, but
(22:26):
it did right off its value ina stake, and the current geopolitical landscape
complicates, you know, any potentialsale of this of this company. And
in this evolving scenario, one thingis clear. BP strategy, its leadership,
and the entire energy industry are atreally difficult crossrooms and the choices made
(22:48):
in the coming months will not onlyshape the fate of the corporate giant,
but really the future of energy transitionon a global scale. And with that,
that is the rap rap up thisInvestor's Diet podcast just this quick summary
of what we talked about. Wetalked about the IPOs from Ours and Instacrt.
(23:10):
We will cover the INSTACRT IPO thenext episode of Things trading today,
so we will cutter that next week. The European central banks raising interest rate,
rising US inflation, and the effectsof Bernardo Luni's resignation at BP.
Once again, thank you very muchfor tuning in with us another episode of
the Investor Dity podcast. Thank youfor listening, and peace.
Good afternoon, ladies and gentlemen.Welcome back to the Investors Diet podcast,
where we help you work smarter andharder by providing weekly market updates and insights.
Before we jump into the fun stuff, I just want to provide a
quick update on part who will hopefullybe back for next week's episode. So
today we do have a lot oftalk about. We have updates from the
Arms IPO and on the topic ofIPOs, have some news from an upcoming
(00:24):
IPO from Instacrt. We'll also talkabout the European Central banks historic interest rate
heights, the ripple effects of BernardoLuni's resignation at BP, and rising US
inflation. So we do have quitea bit of unpack so let's jump right
in. Let's start with IPO news. Actually we did come this last week
a bit about ARMS. Chip designerbacked by SoftBank, had an extraordinary debut
(00:48):
on the Nazi Exchange, closing itsfirst day of trading with remarkable twenty five
percent surge, and this searge forthe catapulted Arms valuation to staggering sixty five
billion dollars, which is a substantialleap from the fifty one dollars per share
offer price agreed on just today beforeand now, this IPO proved to be
great for SoftBank, obviously raising nearlyfive billion dollars, making it the largest
(01:11):
US listing in nearly two years.And what's interesting here is that the ten
chlorusal investors, including tech giants likeApple and Nivideo, bought seven hundred and
thirty five million dollars worth of ARMstock as part of this listing, nearly
showcasing tremendous investor confidence and from astrategic perspective, SoftBank's decision to price ARMS
(01:34):
slightly below the initial range at fiftytwo dollars reflects a calculating move. Why
because they believe that a lower initialprice would encourage trading momentum and bolster confidence
in the IPEO market, which hasfaced pressure on valuations over the past two
years. And indeed did it boostconfidence in the IPO market. It just
(01:55):
leads on to this next story aboutInstacart founded into twelve, which is scheduled
to open trading. I believe todaythe company is looking to raise six hundred
and sixty million dollars by sharing byselling shares of its common stock, and
at this level, the company willbe valued at a jaw dropping ten billion
dollars on a fully diluted basis.And really this instacrt is we turned up
(02:20):
the heat on its initial public offering, taking a page from arms recent deal
in a move ceiling a favorable climatefor these new you know us IPO listings,
and insta cart has boosted its IPOprice range by approximately seven percent,
now aiming for twenty eight dollars orthirty dollars per share. Now, what
is insta card because you know it'sthe first time we're talking about this on
the podcast. Instacrt is a onlinegrocery delivery juggernaut. It's a platform that
(02:46):
use free that uses freelance contractors whopick from grocery shopping lists requests in the
area to fulfill the list and deliverthem to customers. Now, instacrt partners
with more than fourteen hundred retail bannersto make that happen. And I know,
buying groceries isn't online isn't new,but instacrt has popularized it in a
way that has provided a much wide, much wider range of options with a
(03:09):
much shorter lead time between order placementand delivery. And in Mark twenty twenty
three, instacart announced that it teamedup an open AI to build an ask
Instacard feature powered by chat GPTM,and the financial instacrt looked pretty promising.
Its sales for the first half oftwenty twenty three stood nearly at one point
(03:30):
five million dollars, which the thirtyone percent gain over the same period in
twenty twenty two. Net income wastwo hundred and forty two million dollars,
compared with a loss of seventy fourmillion dollars in the prior year. Now
back on to ARMS, I justhave a few few comments to make.
But the IPO obviously great twenty fivepercent surge on the first day of trading,
(03:53):
and I believe in an additional threepercent of the next day. But
should we be buying this is theIt's a big question, right and from
my research what I'm seeing, thecompany has shown little growth, with revenues
of two point seven billion dollars remainingrelatively flat year on year. Uh their
net income is five hundred and fiftyfive hundred and fifty million dollars per and
(04:15):
five hundred fifty million dollars five hundredand fifty million dollars sorry, And while
they do have a strong cash positionof one point five billion dollars. Their
margins, however, have been decreasingdown from fifty to fifty to twenty five
percent. Also, given the currentmacro economic environment we're in, I do
believe that this IPER is overvalued andand so personally again this podcast, you
(04:42):
know, we're not financial advisors,so we can tell you what to do
with your money. So this isjust my own opinions and my thoughts.
So you know, take you know, do with that, which you will.
But also just some more information onipers in general. If you guys
weren't a where but thirty one studyinformation to help you guys make a decision
(05:05):
or have a better idea about youknow. Yes, you know this headline
of twenty five percent search doesn't reallymean much though, and I'm gonna break
it down for you guys just here. So some stats of IPOs. Thirty
one point four percent of IPOs fellon the first day of trading in the
United States between two thousand and eightand twenty twenty one, meaning over two
(05:27):
thirds actually seeing a price increase.Right, so having uh sorry, arms
actually trading above it's above its shareprice and having a game it's not really
too impressive, knowing that over twothirds of IPOs already accomplished that. And
not only that, but ip initialterms in the United States over the past
(05:53):
decade in twenty twenty one, whereaverage gains the first day, we're about
sixteen percent, which again twenty upsetis higher but not substantials to significantly more
than than than sixteen percent. Right, And some more information. The shares
of companies in the United States whichwere profitable after their IPO has been decreasing
(06:15):
year on year, with a peakof eighty one percent two thousand and nine.
In twenty twenty one, only twentyeight percent companies were profitable after their
IPO over the long run, also, IPO returns DBA significantly, and a
year later we see a majority ofthe companies are actually underperforming the market by
more than ten percent. Right,And with the seems that in any case
(06:39):
that you know, for some companies, the initial IPO enthusiasm really dies out
or even expected earnings are not met, and investors repriced the IPO to reflect
the actual slower growth of the company. And three years down the line after
the IPO, we calculate that almosttwo thirds of five piers are under before
the market, with most sixty fourpercent more than ten percent behind market returns.
(07:01):
So all that being said, andyou know, history has shown if
this is something you like, ifit doesn't have to be arms. But
any company that goes public, ithas historically has shown that it is better
to wait before entering because as shownhere three years down the line, sixty
(07:23):
four percent of these I piers actuallyunder before the market by more than ten
percent, so they're very risky.So personally, I wouldn't be investing in
buying's IPO anytime soon. But that'smy two cents. Obviously it could,
you know, do better than marketexpectations and do better than our market,
but history has shown otherwise. Anyway, moving on to US inflation. In
(07:49):
August, US consumer price serves bystaggering three point seven percent year on year,
surpassing even the most optimistic forecast.And this search wasn't just a cystical
blip. It had real world consequences, and on a monthly basis, prices
climbed by zero point six percent.And this isn't just a bunch of numbers.
(08:09):
Is really faced by every American consumernow economically speaking, such a significant
inflationary spike raises several concerns. Firstly, it erodes the pursing power of consumers.
You know, when prices rise,households often find themselves spending more on
the same goods and services, leadingto less room for saving or other spending
(08:33):
right. Secondly, inflation can createuncertainty in financial markets and the broader economy.
When consumers and businesses expect prices tokeep climbing, they make decisions that
alter the course of economic growth forinstances. For instance, businesses may increase
prices or delay investment plants, whichwill affect employment in wages. Thirdly,
(08:54):
inflation can lead to higher interest rates. Central banks at the Federal Reserve may
rise may raise rates to combat inflation, which can increase borrowing costs for businesses
and consumers alike, and this couldhave cascading effects on various sectors of the
economy, from housing to manufacturing.We've covered a lot extensity in this podcast,
(09:15):
and we've seen this throughout the yearthrought. The past year and two,
the Fed have been increasing interest ratesand we've seen the consequence of that
with a lot of bank failures earlierthis year with SVB silver Gate, even
credit suees. Right, but we'vehad a lot of bank failures because of
this increase in interest rates. Somy take on this is it's a very
(09:37):
complex challenge for policymakers, right,in particular the Fender reserve. Now it
has a it bases a delicate balancingact. They need to keep practice in
check to ensure economic stability, butalso must avoid stifling the economic growth.
If they've raised interest rates too much, then you know, we've already seen
the consequence of that earlier this year. But if they don't, then you
(10:00):
know, consumers pay the price andbusinesses also. So the Federals is likely
to proceed cautusly. Of course,they'll carefully consider the nonsense of this inflation.
It figures and it says how theyimpact different aspects of the economy.
It's like walking on a tight rope. They need to maintain equilibrium between inflation
control and economic growth. But let'sredive deeper. Right, So what is
(10:22):
causing all this inflation? In firefire? More than half of the recent
price search is attributed to soaring petrolprices. Now this is a helline itself.
We might cover this next week,but oil prices really spiked because Saudi
Arabia and Russia extend at one pointthree million barrel a date oil cut through
December. So this is a voluntarycut, and so you know, these
(10:43):
two countries are really collaborating to pushoil prices towards the hundred dollars a barrel
mark, and Brent crude oil isalready covering at a ten month high of
about ninety two dollars fifty Now.Economically, this development has broader implications.
High oil prices can lead to highertransportation costs, which can ripple through various
(11:03):
sexes of the economy. Businesses maypass these increased costs onto consumers, contributing
to overall inflation and pressures which weare seeing at the moment. Additionally,
the energy market is intertwined with globalgeopolitics oil prices, oil price fluctuations can
have diplomatic and economic ramifications, impactinginternational relations and trade dynamics. So what's
(11:26):
my opinion on this aspect. It'sa reminder on the interconnectness of our global
economy. Energy prices are in justa matter of filling up at the gas
station that are pivotal factor in theoverall economic puzzle. Keeping these prices stable
exclusion with both consumers and businesses andre shifting our focus to core inflation the
(11:50):
figures that exclude volatile food and energyprices. In August, core inflation rose
by zero point three percent a monthon month, slightly above the July zero
point two percent rate. And economically, this suggests that whilst core inflation saw
a modest uptick due to rising pricesin areas like airfares, car rental,
and motor insurance, it dips lightlyon an annual basis, from four point
(12:11):
seven percent to four point three percent. Now, this data reveals a multifaceted
story. While monthly fluctuations may risemay raise eyebrows, the really figures provide
a more comprehensive picture. It underscoresthe importance of understanding the longer term inflationary
trends that influence consumer behavior, investmentdecisions, and economic policy. And in
(12:33):
my opinion, this data isn't justa bunch of numbers on a chart that
I'm looking on my screen. It'sa narrative of economic dynamics. It tells
us. It tells us that inflationisn't a one size fits all phenomenon.
It impacts various sectors differently, andit evolved that effects, the effects evolve
over time. Now what does thismean for the Federal Reserve? And what
(12:58):
are you know, what is thisnext move? Well, despite these inflation
reflectuations, the FED is expected tokeep interest rate steady at its upcoming meeting.
They've already raised the rates eleven timessince Smart twenty twenty two in an
effort to bring inflation back down towardshis two percent target. And again,
like always, it reflects the Fed'scommitment to his dual mandate, which is,
(13:20):
you know, pricetability and maximus sustainableemployment. They're threatening the needle,
aiming to control inflation without jeopardizing economicgrowth or the labor market progress. And
they'll likely maintain a conscious stance againclosely monitoring high inflation trends interact other economic
indicators. It's really akin to adjustingthe sales on a ship, you know,
(13:43):
navigating turbulent waters. And with that, we actually have more interest rate
news with the the European Central Bankactually making a historic move raising interest rates
to an all time high in abid to tackle again raising rising consumer prices.
(14:03):
Now the ECB short for the EuropeanCentral Bank, decisions to lift is
to posit rate for the tenth consecutivetime by twenty five basis points, which
is not a whopping four percent.Really sent sent shockwaves across financial markets.
But here's the twist. Whilst theyraise rates, they also hinted that the
(14:26):
end of the cycle of increases mightbe inside right. So as a result,
the euro fell to a three monthslow against the dollar after this pivotal
decision. A strong dollar and lowerinterest rate often go hand in hand yields
on two year German bonds, whichis considered a benchmark for the Eurozone because
you know, it's very stable andactually dipped right, and economists are buzzing
(14:50):
with theories. Many believe the majorcentral banks worldwide are nearing the end of
their rate hiking spree. Why willbecause inflation is showing signs of slowing down
actually despite these new developments with SaudiEuropean Russia increasing or sorry decreasing supply of
(15:11):
oil, but data actually showing thatinflation is actually slowing down, right,
and economic growth is under pressure dueto a higher borrowing costs. And rising
borrowing costs can be a double edgedsword. While they're essential to combat inflation,
they can also weigh heavily on businessesand consumers. As interest rates climb,
(15:33):
loans become more expensive, which affectseverything from your mortgage to corporate finance.
Right and slower economic growth is anotherconcern in itself. When businesses face
higher borrowing costs, they may reduceinvestment and hiring, and potentially slowing down
the overall economic activity. It's afine line that these central banks must walk
to strike a balance, and theECB of the European Central banks stance all
(15:58):
this. Again, like I said, they drop some hints. They mentioned
that the current interest rates, ifmaintained the ones they've set right now,
could help return inflation to their target, but the President, Christine Laguarde also
caution that they can definitively say they'vereached the peak, you know, just
you know, she put that outthere. But the currency markets are also
(16:23):
in the mix when you involve interestrates. A strong dollar makes the Euro
less attractive to investors, and asthe Euro weekends, it can boost exports,
which helps the Eurozone economies, butit also makes imports more expensive,
which potentially push up prices domestically.And furthermore, there is the matter of
(16:44):
inflation expectations. Of course, thecentral Bank aims to anchor these expectations around
their target. If people start expectinghigher inflation, what you know, what
they can do is they can demandhigher wages, which will just add further
fuel to the fire, would justadd more inflation, creating a self perpetuating
cycle. And some experts suggest thatthat Europe might be in for a period
(17:08):
of stag inflation where and what's stagflationstaffations is where inflation sticks around while economic
growth stalls. It's a tricky situationthat could shape the future of the Eurozone.
So really, what's the bottom line. The ECB's move is a significant
chapter in the ongoing saga of lowcentral banks interest rate policies. It's a
(17:30):
complex dance between inflation growth and economicstability. And this story is far from
over. I'm pretty sure we willcover this in the weeks to come,
but this is a you know,it's a very exciting journey and a very
exciting topic to talk about actually,and that moves to our final story today
with from BP short from for BritishPetroleum. One hundred and thirteen year old
(17:56):
energy giant has long been a cornerstone the global oil and gas industry,
with operations spanning the globe from allexpiration and drilling to refining and distribution.
BP is really a household name inbridge business and business in bridge business and
a key player in the international energylandscape. However, the news that we
(18:18):
have here isn't too great from VP. Really is sent a lot of a
lot of shop gas throughout the energy, the energy, the energy markets.
But Bernard Looney, which is thechief executive officer CEO of BP, has
resigned under extraordinary circumstances. Rich reallyhas raised crucial questions about the future of
(18:41):
the company and the wider energy transition. So Looney, who joined BP at
the age of twenty one in nineteenninety one, spent his entire career at
the company. He's employed CEO intwenty twenty and just three years ago,
and his mission was to try swormVP from a traditional oil producer into a
(19:03):
pioneering integrated energy company boys to navigatethe complex and ever training landscape of the
energy transition. Now under Luney's leadership, VP embarked on a visionary journey.
It plans to achieve a net zerocarbon emissions by twenty fifty, a commitment
that that outpaced most of its industryrivals. The company aimed to invest heavily
(19:26):
in low carbon projects, with agoal of amassing fifty gigawatts of renewable power
by twenty thirty. Very optimistic,and Luney's exit now cast a huge shadow
over BP strategy right. His departurecomes as a result of revelations about undisclosed
(19:47):
personal relationship relationship with colleagues, arevelation that has said the corporate the corporate
world a buzz when really, again, you know what does this means for
VP? What does it mean fora BP strategy? The consequence of far
reaching touching on multiple aspects of thecompany's operation and investor's sentiment. The immediate
(20:08):
impact is visible in the stock market, actually, where a BP shared dipped
by one point three percent in earlytrading after Looney's exit. And this dip
obviously reflects the uncertainty surrounded the company'sdirection and the future of its ambitious green
energy agenda. But it's not allabout stock prices. Looney's departure stems from
(20:30):
allegations about its conduct regarding personal relationshipswith colleagues. Now the BP's board received
these allegations back last year in Maytwenty twenty two, which led to an
initial investigation that really found no bruteconduct. However, fresh allegations of a
similar nature emerged recently, which triggereda new investigation with external legal counsel support,
(20:56):
and the outcome of this ongoing processremains uncertain. Now Looney's resignation not
only leaves a void in leadership,but also raises questions about bp strategic direction.
Investors have remained divided on the company'sbowl transition towards renewable energy, and
while some embrace bvp's commitment to greenerfuture, others Harvard doubts BP shares have
(21:18):
lagged behind competitors, particularly in theUS, where exe On Mobile and Chevron
have been slower to embrace the energytransition. And now, with Looney's abrupt
exit, the board faces the dauntingtask of sciency and successful and this choice
will not only determined VP's future direction, but can also impact investor's sentiment and
(21:40):
however, the new CEO. Thenew CEO will have pivotal decisions to make.
This new CEO will have to decidewhether to continue Loney's green energy focus
or potentially shift back towards maximizing themost profitable aspects of the business. And
this situation raises questions about pas marketcap cap of one hundred and eleven billion
(22:03):
dollars. Rivals may see potential inmanaging its assets differently under new management,
potentially valuing them higher. And furthermore, VP's unfinished business in Russia as complexity.
The company wrote off its value,wrote off the value of its stake
in ross Neft, Russian state backedoil Champion technically still owns it, but
(22:26):
it did right off its value ina stake, and the current geopolitical landscape
complicates, you know, any potentialsale of this of this company. And
in this evolving scenario, one thingis clear. BP strategy, its leadership,
and the entire energy industry are atreally difficult crossrooms and the choices made
(22:48):
in the coming months will not onlyshape the fate of the corporate giant,
but really the future of energy transitionon a global scale. And with that,
that is the rap rap up thisInvestor's Diet podcast just this quick summary
of what we talked about. Wetalked about the IPOs from Ours and Instacrt.
(23:10):
We will cover the INSTACRT IPO thenext episode of Things trading today,
so we will cutter that next week. The European central banks raising interest rate,
rising US inflation, and the effectsof Bernardo Luni's resignation at BP.
Once again, thank you very muchfor tuning in with us another episode of
the Investor Dity podcast. Thank youfor listening, and peace.
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