Weekend Reading

12 January 2019 | by Ensemble Capital

A summary of this week’s best articles. Follow us on Twitter (@INTRINSICINV) for similar ongoing posts and shares.

China’s Car Sales Just Fell For The First Time In 20 Years (Charlie Zhu, @CharlieZhu, Bloomberg)

As China has continued on the path to urbanization and industrialization, we’ve seen significant increases in new infrastructure spending leading to more highways throughout the country which means additional auto manufacturing.  So much so that they have been the world’s leader in auto sales, until recently where sales fell 6%.  A slowing China economy and concerns fueled by a potential trade war has the Chinese auto buyers looking at caution ahead.  The contraction in sales is one of the clearest signs that the Chinese economy is struggling. However per capita car ownership in China is still less than half the level in developed economies so it is very likely that growth in car sales will return to solid levels over time.

You Know Your Diamond’s Cut and Carat.  But Does It Have Ethical Origins? (Tiffany Hsu, @tiffkhsu, The New York Times)

We often know the origin of the items we buy such as the farm where our cheese came from or the appellation of the wine but what about the origin of diamonds?  With the introduction of synthetic diamonds and millennials waiting longer to tie the knot, the jewelry industry is having to adapt to stay competitive.  Tiffany & Co. is looking to gain interest by offering piece of mind that their consumers aren’t buying a “blood diamond” and they will begin telling their customers the diamond’s country or origin and eventually the specific mine that it came from.  Ensemble’s President and CIO, Sean Stannard-Stockton wrote about the millennial generation in this article: Talking About The Millennial Generation

iPhone XR Revisited: The Best iPhone Apple Can’t Sell (Joanna Stern, @joannastern, The Wall Street Journal)

Does the old adage of what comes up must come down hold true for Apple?  After their historic $1Tn valuation and reports of decreasing sales on their latest phones, the stock has been trending lower in recent months.  One theory for the pullback in the stock is that their phones have gotten so reliable that consumers are holding onto them longer before deciding to upgrade.  Another contributor that has been discussed is slowing growth out of the China market.  The Wall Street Journal quoted Arif Karim, senior analyst at Ensemble Capital for his thoughts in this article: Apple Shares Sink After iPhone Suppliers Lower Outlooks

SoftBank Scraps $16 Billion Plan to Buy Most of WeWork (Eliot Brown, @eliotwb, The Wall Street Journal)

Rents for office space have been on the rise for several years and WeWork has been offering shared office spaces for either short or long-term periods at attractive pricing.  The Japanese company SoftBank was so confident in WeWork that they were planning on a $16Bn investment in the company.  Following the recent market turbulence and opposition from some investment partners, this planned investment has gone down to $2Bn.  Eliot Brown discusses the hurdles seen here throughout this article.

Starbucks CEO Kevin Johnson Reigns In Predecessor’s Ambitions: I’m Not Howard (Julie Jargon, @juliejargon, The Wall Street Journal)

In an increasingly crowed coffee marketplace, Starbucks CEO Kevin Johnson has a different vision for growth than his predecessor Howard Schultz.  Schultz had plans to open 1,000+ of the high end Starbucks Reserve cafes which offer more expensive coffees and a full bar but Johnson is scaling that number back and is focusing on developing more innovative beverages while increasing their market share in China.

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