David Fuller and Eoin Treacy's Free (Abbreviated)
Comment of the Day

The more detailed Subscriber's Comment of the Day becomes available for public access after 4 months.

Click HERE to see the most recent free Subscriber's Comment from 24 July, 2014

October 24 2014

Commentary by David Fuller

Fed $4 Trillion Holdings to Boost Growth Beyond End of QE

Here is the opening of this informative article from Bloomberg:

Quantitative easing may turn out to be a gift that keeps on giving for the U.S. economy.

As the Federal Reserve prepares to end its third round of bond buying next week, the central bank plans to hang on to the record$4.48 trillion balance sheet it has accumulated since announcing the first round of purchases in November 2008.

That will continue to keep a lid on borrowing costs, helping the Fed lift inflation closer to its target and providing support to a five-year expansion facing headwinds abroad, from war in the Mideast to slowing growth in Europe and China.

Holding bonds on the Fed’s balance sheet limits the supply of securities trading on the public markets, which helps keep prices up and yields lower than they otherwise would be. That provides stimulus to the economy just as a cut in the Fed’s benchmark interest rate would, according to Michael Gapen, a senior U.S. economist for Barclays Plc in New York and former Fed Board section chief in charge of monetary and financial markets analysis.

“Preserving it will continue to support the economy,” Gapen said. “The Fed message is we think we’ve done enough to generate momentum and keep the economy on the right track. Now we’re going to wait and see how things go.”

David Fuller's view

The Fed is definitely going to err on the side of caution, probably for the lengthy medium term, subject to key indicators that it is monitoring.

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October 24 2014

Commentary by David Fuller

Germany Inc. Scrutinized for Treating Labor Like Paper Clips

Here is the opening of this informative article from Bloomberg:

Oct. 24 (Bloomberg) –- Daimler AG is among German companies that have found a way to cut personnel costs in the high-wage country: buy labor like it’s paper clips.

By purchasing certain tasks such as logistics services from subcontractors, businesses can legally keep these workers off the payroll and outside of wage agreements with unions. That’s led to growing ranks of contract workers who help boost profit at German companies by lowering labor costs.

The downside is abuse of the system, which leaves some workers unprotected and even unpaid. That’s caught the attention of Labor Minister Andrea Nahles, who’s promising a crackdown, and forcing Germany Inc. to defend the practice.

“We can’t pay everyone the high wage” in union deals, Wilfried Porth, Daimler’s personnel chief, said in an e-mail to Bloomberg News. “Our cost situation has deteriorated compared to the competition. We can’t afford that.”

Proponents argue hiring subcontractors to provide services keeps Germany, where labor costs in the auto industry are the highest in the world, competitive. Opponents say the widespread practice in industries that include shipbuilding, retail, logistics and construction undermines the German labor model of a partnership between employers and workers.

Every third employee in the German auto industry is working either for a subcontractor or as a temporary laborer, according to a poll by IG Metall union published last November. Doing so has helped keep in check already high personnel costs, which amount to 48.40 euros ($61.27) per hour on average, according to the Berlin-based VDA auto industry group. This compares to 4.81 euros in Romania and 25.63 euros in the U.S.

David Fuller's view

In the utopian fantasy of socialist regimes, wages are pushed up to uncompetitive levels.  This forces successful employers, who face competition from the real world, to automate wherever possible, while reducing staff and/or opening more factories in countries where they can find skilled labour at lower salaries.  They also keep many workers off payrolls and out of unions, as described in the article above.

Germany has succeeded more than most socialist countries because of its legendary engineering and manufacturing skills, and minimal population growth, which lowers the youthful unemployment problem.  However, Germany’s economy has experienced minimal GDP growth for a number of years, despite being the EU’s success story.  This will lead to further downward pressure on the Euro over time.    

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October 24 2014

Commentary by David Fuller

Risky Oil-Price Play By Saudi Arabia

Here is a brief section of this topical article from Bloomberg Businessweek:

A foreign diplomat based in Riyadh suggests that while the Saudis are most comfortable with $100-a-barrel oil, current prices are no cause for alarm because of their strong fiscal position. The diplomat adds that one reason Saudi Arabia cut prices was its awareness that global economic growth is fragile and that cheaper crude could help its customers grow faster. Every 10 percent drop in oil prices spurs 0.15 percent more consumption in the global economy. That consumption sets up additional demand of almost 500,000 barrels of oil a day, Goldman Sachs (GS) estimates. Oil that’s 20 percent cheaper than the average price of the past three years amounts to a $1.1 trillion annual stimulus to the world economy, Citigroup (C) says. The diplomat asked not to be identified because his embassy doesn’t want to comment publicly on Saudi oil policy.

The kingdom has sterling credit and about $735 billion in financial reserves, so it’s better positioned to withstand a prolonged downturn than its rivals, says Bruce Jones, a senior fellow at the Brookings Institution in Washington. A price war could do serious damage to nations already on the ropes. Iran, whose exports are still constrained by Western sanctions, needs $153.40 a barrel to break even, according to the IMF. “Knowing that Iran is going to struggle, that’s something Saudi Arabia would certainly enjoy,” says Reva Bhalla, vice president for global analysis at Stratfor, which advises companies on political risk. Russia counts on $100 a barrel: Its budget loses about $2 billion for every dollar drop below that price, says Maxim Oreshkin, head of strategic planning at Russia’s Finance Ministry.

David Fuller's view

We can only surmise the Saudis’ reasons for maintaining a high level of oil production while prices are trading in the $80 region, and they have no need or inclination to explain their logic to the rest of the world.  However, as the most cost effective producer, it does help the Saudis to regain some control within OPEC, while also affecting high cost producers everywhere else.

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October 24 2014

Commentary by David Fuller

The Markets Now

Monday 10th November, 5:30 to 8:30pm

 

David Fuller's view

Here is the latest brochure, and I am pleased to say that we have a new guest speaker who will be familiar to many subscribers: Tim Price of PFP Wealth Management.  So, if you are going to be anywhere near  London  on Monday November 10th, why not join us for a lively discussion of interesting markets?  Once again, this meeting will be held at the East India Club,  16 St. James Square ,  London   SW1Y 4LH .  After the presentations, you are welcome to join us for a drink in the Club’s American Bar.I saw Tim Price’s presentation yesterday.  It is very interesting and educational, and I think delegates will love it.  

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October 24 2014

Commentary by Eoin Treacy

ECB Set to Fail 25 Banks in Review, Draft Document Shows

This article by Patrick Henry for Bloomberg which may be of interest to subscribers. Here is a section: 

The two-part review forms one pillar of the ECB’s effort to rekindle confidence in the euro zone after half a decade of financial turmoil. ECB President Mario Draghi has said banks need to fail to prove the losses of the past have been dealt with. After two previous European stress tests didn’t reveal problems at lenders that later failed, the ECB has staked its reputation on getting this exercise right.

“The numbers are consistent with our expectations,” said Alberto Gallo, head of European macro-credit research at Royal Bank of Scotland Group Plc in London. “It’s too early to say the exercise is credible. The key will be to see how much stress the strong banks will take, and how many of them will pass by a narrow margin.” He expects 11 banks will need to plug capital gaps after measures already taken this year.

 

Eoin Treacy's view

The ECB continues to make abundant liquidity available at the discount window to the Eurozone’s banking sector but investors are still unconvinced that it is has been set back on a sound footing not least because of Banco Espirito Santo’s nationalisation in the summer. While the focus on attention will be on the banks most likely to fail the ECB’s stress test, it is worth highlighting those exhibiting relative strength since they are likely to be the eventual winners from what remains a long drawn out ordeal. 

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October 24 2014

Commentary by Eoin Treacy

Insights in 140 Words October 24th 2014

Thanks to a subscriber for this edition of Deutsche Bank’s weekly missive. Here is a section on a potential evolution of the ECB’s bond buying program:

Wag the Dog - "There is no B-3 bomber" was Robert De Niro's Machiavellian lesson in getting people talking about a story by denying it. Likewise, ECB denials of a corporate bond buying plan certainly got markets talking. If it happens, this will be the central bank's third plan B after targeted LTROs and ABS purchases - plan A being buying sovereign bonds. How much ammunition does plan B-3 offer? Perhaps €550bn, after excluding financial and non-euro area issuers from the iBoxx EUR investment grade index's €1.5tn universe. One potential pitfall is that relative to GDP, this pool is overweight French issuers (one-third) and short German paper (below a quarter). The sector split is similarly skewed with one-third from utilities. Maybe buying the debt of state-owned utilities - the biggest issuer EDF is 85 per cent government held - will break taboos about outright government bonds purchases. 

Eoin Treacy's view

The ECB has clearly stated that it intends to grow its balance sheet by a €1trillion from its current €2 trillion. It is precluded from buying sovereign bonds because of conditions imposed during the creation of the Euro so it has to look elsewhere for assets to purchase. 

One of the challenges of reanimating the ABS market is that the majority of Euro ABS have already been posted as collateral with the ECB in return for capital. Issuance of new ABS will be required to create a market for the ECB to inject liquidity into. This represents an opportunity for the banking sector but will take time to line up. 

 

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October 24 2014

Commentary by Eoin Treacy

NZ trade deficit widens as lower log and dairy prices weigh on exports

This article from the New Zealand Herald may be of interest to subscribers. Here is a section: 

Imports were bolstered by large capital item purchases with transport equipment jumping 591 per cent from the same month the previous year to $614 million, including an aircraft from the US. Car imports gained 31 per cent to $371 million, with a boost from Japanese car arrivals, Statistics NZ said.

China remained the country's largest trading partner although New Zealand slipped into a trade deficit with Asia's largest economy, from a small surplus in September a year earlier. Chinese imports rose 9.6 per cent in the month from a year earlier to $865 million, while New Zealand's exports to the country declined 30 per cent to $568 million, as the difference in dairy prices weighed on the value of the country's exports.

 

Eoin Treacy's view

The New Zealand economy has come through the financial crisis and the Christchurch earthquake in robust fashion, bolstered by exports of food and building materials to a growing Asian market. However the doubling of the Kiwi Dollar against the US Dollar from 2001 has been an impediment to the competitiveness of exports. This was less of an issue when the Euro was relatively firm but its recent weakness represents a challenge for New Zealand’s milk operations not least as the Eurozone’s milk quota scheme expires at the end of this year. 

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October 24 2014

Commentary by Eoin Treacy

Large 3D nanostructures built from Lego-like DNA bricks

This article by Richard Moss for GizMag may be of interest to subscribers. Here is a section: 

By combining the bricks in different patterns, they could form large numbers of distinct crystals across these categories, with simple modular design on the computer followed by self-assembly on the part of the DNA strands allowing both great precision and near infinite potential at scales up to 80 nanometers (and perhaps more in the future).

What's more, the technique could enable scalable production of new and emerging technologies, such as quantum computers. The team demonstrated that self-assembled DNA crystals made from these bricks could house gold nanoparticles inserted into slots less than two nanometers apart from each other along the crystal structure – a feat that's important for strong plasmonic coupling, which would make the technique useful in photovoltaic devices like solar cells.

The researchers expect DNA crystals to also prove useful in developing more versatile inorganic circuits and other nanoscale technologies. The technique could also aid in protein crystallography, which studies protein structures at atomic resolutions for applications in biotechnology, pharmaceuticals, and the academic field of structural biology.

 

Eoin Treacy's view

At a basic level all digital data is made up of 1s and 0s. DNA pairs of As with Ts and Cs with Gs represent a logical avenue for additional work in creating novel new programing languages with a biotechnology objective. It is only a matter of time before this sector develops to the extent that novel solutions can be printed using additive manufacturing. This innovation can be seen as one more incremental step towards full customisable medicine. 

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October 24 2014

Commentary by Eoin Treacy

Weekend Reading October 24th 2014

Thanks to a subscriber for this list of most academic reports contributed in the spirit of Empowerment Through Knowledge.

October 24 2014

Commentary by Eoin Treacy

The Chart Seminar

Eoin Treacy's view

I am delighted to announce that we have a new venue for the Chart Seminar in London.

November 13th and 14th brings me to London and the rarefied East India Club. Founded in the middle of the 19th century, its original members were 'the servants of the East India Company and Commissioned Officers of Her Majesty's Army and Navy' returning from far flung lands.  As our London seminar always attracts delegates from around the world, it seems a fitting venue to conduct The Chart Seminar.

To book your place, please contact Sarah Barnes at sarah@fullertreacymoney.com

The full rate for The Chart Seminar is £950 + VAT. (Please note US, Australian and Asian delegates, as non EU residents are not liable for VAT). The early booking rate of £875 for non-subscribers expires two months ahead of the event start date. Subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.

Private Seminars and Partnering Opportunities
We are also available to conduct private seminars and occasionally agree to speaking engagements at investment conferences and professional societies. 

2014 marks a number of changes in how we organise the Chart Seminar.  In order to facilitate more venues we are open to partnering with other groups to market the event. If your organisation would like to arrange a seminar either internally or for your clients please do not hesitate to contact us.

 

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