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Another day in the books.

The ASX 200 closed 0.30% lower, with the utilities sector the worst performer, down 0.59%.

The best individual performers:

• Capricorn Metals [ASX:CMM], up 4.9%
• Metcash [ASX:MTS], up 4.7%
• Silver Lake Resources [ASX:SLR], up 4.3%
• Graincorp [ASX:GNC], up 2.4%
• Perseus Mining [ASX:PRU], up 2.4%

The worst performers:

• Syrah Resources [ASX:SYR], down 6%
• Imugene [ASX:IMU], down 4.5%
• Star Entertainment [ASX:SGR], down 3.8%
• Mineral Resources [ASX:MIN], down 3.5%
• New Hope [ASX:NHC], down 3.2%

 

The journos over at DataRoom at The Australian are saying that a private equity firm is tossing up whether to buy out non-bank lender Pepper Money [ASX:PPM].

This sticks out like the proverbial for me. Just the other month, I gave a presentation to my colleagues around this idea. I called it ‘Return of the jusen’.

The jusen were Japanese non-banks back in the 1980s that made mortgage loans.

They were able to grow their market share aggressively because they didn’t have the same regulatory handbrakes as the big Japanese banks at the time.

Just last week, the Australian Financial Review reported that the team at Citi were telling their clients buy Pepper and the other players in the sector.

Those are as Resimac [ASX:RMC], Liberty Financial [ASX:LFG], and Australian Financial Group [ASX:AFG].

Part of the rationale, at least according to the report, was that non-bank funding costs are improving relative to the big banks.

Asset quality might also surprise to the upside, considering the surprising resilience of the housing sector.

And in sympathy with the ‘jusen’ idea, non-banks might be able to pinch borrowers from the current crop of ‘mortgage prisoners’ looking to refinance in the market.

Non-banks can be more flexible around the interest rate buffer they apply and credit risk they are willing to take. The big banks focus on the prime borrowing market.

Perhaps most importantly of all, these businesses look very cheap, anyway you look at it.

The report in the AFR quotes fund manager Romano Sala Tenna of Katana Asset Management on Pepper Money.

He said:

‘If you look at valuations, the opportunity, their scale and cost of funding and track record over 20 years, this is a serious business fulfilling an important area in the market, and trading at 4 to 5 times earnings is ludicrous.’

I agree.

This is certainly not to say the idea is without risk. However, you have to think about how much negativity has been hammered into the share price.

Here’s an interesting piece of news I missed earlier this month.

The Australian Financial Review reported in early June that the ASX bourse will shrink in 2023 for the first time since 2005! And shrink by about $43 billion.

The reason is twofold: takeovers and a dearth of new floats.

Source: Australian Financial Review

The simple point is that something that’s scarce and in demand tends to go up in value over time.

Art, commodities, baseball cards, and property are several good examples. I mean in Perth, there’s only so much land you can build on next to the beach.

But there’s another more subtle point to this that isn’t always obvious as an investor.

And that’s the fact that working out what’s going to be valuable in the future isn’t as easy.

Something doesn’t become valuable just because it is scarce. You need to think about future demand too.

I mean, a Van Gogh painting is immensely valuable now, but in his lifetime, he could barely sell one.

Similarly, Perth in the 1950s hadn’t seen a major mining boom since the late 1800s.

The accepted thinking at the time was that Australia lacked sufficient reserves of iron ore for domestic production, hence there would be no viable mining industry.

Didn’t that turn out to be wrong!

Several mining booms over the next few decades and into the 21^st century brought people and property demand to Perth in droves.

But it’s little wonder my grandad saw Perth as something of a hick town back then.

He couldn’t imagine that those beachside shacks were a once-in-a-lifetime bargain staring him in the face.

Which brings me to my point…

There’s one asset that is going to become the scarcest asset in the world very soon. April 2024 to be exact.

I’m talking about Bitcoin [BTC].

In April 2024, the flow of new produced halves to just 3.125 BTC new bitcoin produced every 10 minutes or so.

This makes it scarcer in terms of ‘flow’ — that is new supply relative to existing supply — than gold.

‘Bitcoin?!’ that’s not worth anything I hear some of you sceptics think!

Well, not only is that wrong — one bitcoin sells for US$30,000 as I type, and the network has a market cap bigger than the top three global banks combined — but if you’d been paying attention last week, you would have seen a huge about turn from some very interesting players.

You see, last week, BlackRock, the world’s largest money manager, announced plans for a bitcoin spot ETF.

Given all the regulatory dramas in crypto of late, this was a bolt from the blue. And the price reacted savagely higher.

No wonder…

An approved bitcoin ETF in the US would open up bitcoin to reams of institutional capital.

Do you realise what’s happening here?

Every bank and financial player that told you crypto was a con, is quietly — and now not so quietly — looking to carve out a position for themselves in this space.

I mean, Larry Fink, head of BlackRock, once called the idea of a bitcoin ETF an ‘index of fraud’.

And now, today, they’ve applied for just such an index.

You couldn’t make this about turn up.

The truth is, they see what’s coming, and they now want in.

'It’s funny, but I’ve been in #Bitcoin since late 2013 and most of the time I’ve been mocked for it, especially from fellow finance professionals.

'But I take their jibes pretty easily, given I’ve backed the best-performing asset of the last decade…'https://t.co/ZonASQKGBn

— Fat Tail Daily (@FatTailDaily) June 26, 2023

https://www.moneymorning.com.au/20230626/theyre-not-making-any-more-of-it.html

You’ve likely read plenty of commentary and armchair strategists piling on what happened in Russia over the weekend.

Here’s more thoughtful commentary from the Financial Times to add to the pile.

For Russia, there is no normal to go back tohttps://t.co/47wutNxNgO

— Robert Armstrong (@rbrtrmstrng) June 25, 2023

What is the market not pricing in?

In the latest Fat Tail podcast, Greg and I try to answer that question.

One key area the market is overlooking — net liquidity still sloshing about and distorting the effects of tightening monetary policy.

You can watch the latest episode here.

➡️Recent profit downgrades suggest an #ASX correction is imminent.
➡️Forward orders are signalling a slowdown in business conditions.
➡️Why the stock market usually rises during a rate hiking cycle … and why it falls when the cycle eases. #WNPI https://t.co/Im5xjuLSlc

— Fat Tail Daily (@FatTailDaily) June 23, 2023

‘Innerwear’ retailer Step One [ASX:STP] is up 15% in early trade after the peddler of underwear said it expects FY23 EBITDA to be 22%-27% higher than FY22 at $11 to $11.5 million.

However, the earnings boost is expected despite falling revenues.

FY23 revenue is slated to be 10% below FY22 at ~$65.6 million.

Why is Step One expecting higher EBITDA on lower revenue?

‘Effective management of the advertising spend as Step One continues its focus on prioritizing profitability.’

Despite today’s jump, the stock is down nearly 90% since hitting an all-time high in November 2021.

 



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