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More on Leo Lithium’s packed announcement

Datt Capital’s Emanuel Ajay Datt provided a succinct breakdown of Leo Lithium’s [ASX:LLL] big ASX release today.

CommSec: ‘real risk economy barely grew or fell slightly in June quarter’

Could Japan be surprise growth story of the next decade?

Excerpt from James Cooper’s latest for Fat Tail Commodities.

***

What do US treasury yields, Japanese bond buyers and the yen have to do with commodity prices? Well, maybe a lot more than you think.

Today, we’re uncovering the huge store of wealth held in Japanese savings…where this money has been sitting over the last several decades and why it could flow into critical metal projects over the coming years.

So, let’s kick off today’s update and step back to Japan’s era of decadence…the 1980s.

In many ways, Japan’s economy owned the 1980s — GDP was growing at an average rate of 3.89% per annum, and the economy was booming.

Japanese business tycoons opened the doors to international trade, offering important seed capital for emerging start-ups across the West.

Japan was hitting the mainstream, influencing Western culture and making its mark on Hollywood.

The 1989 blockbuster hit Black Rain was perhaps the pinnacle.

This 1980s classic features Michael Douglas…his character plays a New York City policeman who witnesses a murder and takes down the killer, Sato, a member of Japan’s infamous Yakuza mob.

Douglas’ character transports the gangster back to Osaka for his murder trial. There, Sato’s fellow gangsters free him from police custody…Douglas and his partner are forced to scour Japan’s dangerous underworld of organised crime in search of their fugitive.

But Black Rain’s release in September 1989 coincided with the very top of Japan’s economic prosperity.

After a decade-long bull run throughout the 1980s, the Nikkei 225 index reached an all-time high of 38,957 on 29 December 1989, the last trading day of the year.

The iconic 1980s had concluded and with it…the Japanese economy.

From its momentous peak, the Nikkei proceeded to fall for 18 long years!

It finally bottomed in October 2008 at just 6,994…marking an astounding 89% peak-to-trough decline.

The effects were severe…economic deflation gave rise to the country’s ‘lost decade’.

But in reality, deflation lingered far longer than that.

Making matters worse, the Bank of Japan (BoJ) continued to raise rates well after the 1989 collapse.

The country has lived in a twilight zone ever since…persistent deflation has stifled investment in real estate, equities, and business growth.

It’s created a bizarre economic environment, one in which cash HOLDS its long-term value!

With goods and services typically ‘cheaper tomorrow’…citizens tend to hoard cash, save and limit spending.

It’s also why Japanese investors are major holders of US Treasuries.

Until now, cash and US treasury bonds have remained king in the Land of the Rising Sun.

But the financial world has changed markedly over the last two years.

Japan has lived inside a deflationary bubble for three decades. Yet remarkably, it seems that bubble has now finally burst.

It’s why the BoJ announced that its economy has just passed a major inflection point…

For the first time since the 1980s…inflation is returning to Japan.

Investors in Japan are very different to those from the US, Europe or Australia.

There’s no speculative fervour looking to chase real estate or stock prices higher.

But higher wages and rising consumer goods and services in recent months could bring a return of the 1980s to Japan.

With inflation creeping back, there’s an expectation that deposits in local banks will start to deliver investors higher yields on their savings.

Central banks have also lifted the target range for 10-year government bonds from 25 to 50 basis points.

For the first time since the 1980s, investors can find ‘local’ yield.

It’s creating an enormous exit of US Treasuries…Japanese investors are repatriating their wealth from American shores in mass.

But the impact of inflation is set to flip long-held attitudes…for the first time, the purchasing power of cash is set to decline.

The cautious Japanese ‘saver’ could soon become…the speculative investor.

https://commodities.fattail.com.au/could-japan-become-the-surprise-growth-story-over-the-coming-decade/2023/09/01/

Melbourne Institute inflation gauge up 6.1% YoY in August from 5.4% in July

Finding signal in the noise: Ryan Dinse

The chop of earnings season is almost done.

As the latest information is assimilated, stock prices will move up and down.

Sometimes violently so.

But this time of flux can be an opportunity for those who have done their homework.

The key right now is finding the right signals in amongst the wider market noise.

With that in mind, one result caught my eye last week.

It proves to me there’s a lot more substance behind the recent AI hype than critics realise. If you know where to look.

Let me explain…

Why’s a relatively obscure database company catching my attention?

The result that caught my eye wasn’t from one of the well-known ‘blue chips’.

Indeed, you mightn’t even have heard of this stock.

It was from a US company called MongoDB Inc [NASDAQ:MDB].

They specialise in cloud databases for developers and have been around since 2007.

As the blurb on their website says:

‘For the next generation of intelligent applications. Build applications on the industry’s first developer data platform. From AI-powered and event-driven apps to edge use cases and search, build fast and at the scale users demand.’

Since listing on the Nasdaq in 2017, the stock has risen a whopping 1,188% — from US$24 to US$392 in six years.

Not bad.

But why’s a relatively obscure database company catching my attention these days?

As I see it, MongoDB is sitting right at the heart of the action when it comes to a bigger story playing out.

I’m talking artificial intelligence (AI).

AI is all about gathering, sorting, and processing data. And to do that you need cutting-edge, widely used database infrastructure.

That’s what MongoDB is.

And why I think it’s the kind of stock worth paying attention to.

We all know Nvidia is surging on the back of this year’s AI hype. And the now US$1.2 trillion company backed up the hype with some solid earnings growth two weeks back.

They crushed analyst expectations by reporting earnings almost double what was expected.

As CEO Jensen Huang put it:

‘A new computing era has begun. Companies worldwide are transitioning from general-purpose to accelerated computing and generative AI,’

The AI naysayers have crawled back into their holes for now.

But here’s the thing…

MongoDB and some smaller companies like it are also poised to catch the AI wave coming our way over the next few years.

The way I see it, if the hype is real, the proof of the pudding will be found in companies like this.

And news last week suggests the party has started here too.

Last Thursday, MongoDB surprised analysts by exceeding expectations on both revenue and earnings.

As reported:

‘For the quarter ending July 31, MongoDB reported adjusted earnings per share of 93 cents, up from a loss of 23 cents per share in the same quarter of last year, on revenue of $423.8 million, up 40% year-over-year. Analysts were expecting a far more modest 46 cents per share on revenue of $393.68.’

That’s a pretty big beat, and the stock jumped 7% on the day of the release. It’s up 60% this year.

CEO Dev Ittycheria noted on the results:

‘We are at the early stages of AI powering the next wave of application development. We believe MongoDB provides developers a unified platform that supports both the foundational requirements necessary for any application and the exceptionally demanding needs of AI-specific applications, making our competitive advantage even stronger in the world of AI.’

Incidentally, the US$28 billion company has partnerships with both Google Cloud and Microsoft, as well as US$1.9 billion cash in the bank.

I’ll come back to the importance of this point later on.

But as I said before, this is a company sitting in the AI sweet spot.

The next few quarters will show just how much legs this company has.

But as is always the case with investing, if you wait for 100% proof you’re right, you’re usually waiting far too long!

https://www.moneymorning.com.au/20230904/finding-signal-in-the-noise.html

Company gross profits fell 13.1% in June quarter

Seasonally adjusted, company gross operating profits fell 13.1% in the June quarter from the March quarter and 11.8% year on year.

Wages rose 1.8% while inventories fell 1.8%.

The quarterly fall in gross operating profits was the biggest in years.

Source: ABS

Mining profits took a big hit, too.

Household spending falls in July: ABS

Australia’s household spending fell 0.7% in July year on year.

This is the first time since February 2021 that the monthly household spending indicator has fallen.

Spending on discretionary goods and services fell for the fourth straight month, falling 3.3% over the year.

Non-discretionary spending, while up 1.7%, recorded the lowest growth rate since early 2021.

The categories registering the biggest falls compared to July last year were furnishings & household equipment (-7.9%), clothing & footwear (-7.5%), and recreation & culture (-3.9%).

SkyCity falls 17% on potential licence suspension

SkyCity Entertainment [ASX:SKC] is down 17% after flagging a potential suspension of its licence following a complaint by a customer.

SkyCity — operating casinos in New Zealand and Australia — was notified by NZ’s Department of Internal Affairs it is beseeching the Gambling Commission to temporary suspend SkyCity’s casino operator’s licence across three operations in New Zealand for a ‘period in the range of 10 days’.

The Commission will consider the suspension and its duration.

SkyCity said a decision may not be ‘forthcoming for a number of months’.

The fact a decision may take months goes hand in hand with how protracted this issue is.

The initial customer complaint was made in February 2022 by a now former SkyCity patron who gambled at SkyCity’s Auckland casino between 2017 and 2021.

It is alleged the Auckland casino did not comply with requirements relating to ‘detection of incidences of continuous play by the customer’.

 

One in four NSW businesses expect to cut staff

A survey of 1,000 NSW businesses by peak body Business NSW found confidence is ‘deep in negative territory’, with nearly 25% of companies surveyed planning to cut staff over the next three months.

While unemployment in NSW — and Australia as a whole — is at a historic low, unemployment figures are lagging indicators.

That said, here’s the rest of the findings:

  • 23% of business respondents plan to cut staff in the coming quarter
  • 62% expect to maintain current staff levels
  • And 15% expect to hire more workers

It would be good to know what the baseline is: at any given year, how many businesses plan to cut staff in the quarters ahead? And how many plan to add staff?

23% of companies planning to cut staff in the coming quarter, is that above the historic average?

AMP’s chief economist Shane Oliver said ‘there are more and more signs consumers are cutting back on their spending, and, when that happens, companies eventually have to slow their hiring or reduce their workforce.’

Leo Lithium falls 40% after Mali government suspends Goulamina DSO operations

Lithium developer Leo Lithium [ASX:LLL] is down 40% after finally resuming trading following a voluntary suspension initiated in 20th July.

Leo Lithium seeks to develop the Goulamina project in the north African country of Mali.

The company received correspondence from the Malian Ministry of Mines in mid-July, flagging issues about the direct shipping ore (DSO) status of the Mali government’s free carry stake in Goulamina.

Today, Leo Lithium reported that the Ministry of Mines directed Lithium du Mali SA — a Malian company holding the project — to ‘suspend the DSO component of activities at the project whilst discussions with the Ministry are pending’.

Leo Lithium said the directive ‘does not delay any aspect of the project’.

Mining continues at the site and the ore is ‘being stockpiled ahead of first spodumene concentrate production in Q2, 2024’.

Despite saying there’s no delay to any aspect of the project, Leo Lithium chose to withdraw its prior guidance on 2023 and 2024 DSO production and sales.

Leo Lithium Managing Director, Simon Hay, said:

“While Leo Lithium had a preference to bring Goulamina DSO product to market in advance of our expected spodumene concentrate production in the first half of 2024, it is not necessary for a successful project, and we did not consider a DSO opportunity in our feasibility studies.

“We will continue to engage with the Ministry of Mines and advance our world-class spodumene project. We anticipate further positive developments with the latest Mineral Resource setting the foundation for an updated Ore Reserve estimate later this month.”

For more on the byzantine free carry arrangements required for the project to proceed, see below.

Australia’s era of energy poverty, or why energy return on investment matters

Catch the latest episode of What’s Not Priced In.

It was a cracker (if I can humbly say so)!

August reporting season by the aggregate numbers

Devouring Time, blunt thou the lion’s paws,
And make the earth devour her own sweet brood;
Pluck the keen teeth from the fierce tiger’s jaws,
And burn the long-lived phoenix in her blood …

That’s how Shakespeare described the passage of time in one of his sonnets.

Speaking of passing time, the August reporting season is over.

Both CommSec and AMP did some aggregate analysis on how the season went.

Dividends, earnings, and net profit all took a hit, despite aggregate revenues rising.

Dividends issued by ASX 200 companies totalled about $34.5 billion, down 18.4% on 2022. Nearly a third of dividend payers cut their distributions, above the historic average.

The issue lay with dwindling profits.

While aggregate revenue rose 8.9%, expenses outpaced them, rising 13.9%. Net statutory profit fell by a substantial 42.9%, with earnings per share falling 27.7%.

RBA Board meets tomorrow, expected to hold cash rate steady

The Reserve Bank Board will meet tomorrow and is overwhelmingly expected to hold the cash rate unchanged at 4.10%.

Revealing the market’s stance, cash rate futures place a 14% chance of a 25bp rate cut at tomorrow’s meeting.

The previous choice was to hike or pause.

Now it seems the choice is to pause or cut.

Kiryll Prakapenka

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