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

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January 30 2015

Commentary by David Fuller

U.S. Economy Expanded Less Than Forecast in Fourth Quarter

(Bloomberg) -- The economy in the U.S. expanded at a slower pace than forecast in the fourth quarter as cooling business investment, a slump in government outlays and a widening trade gap took some of the luster off the biggest gain in consumer spending in almost nine years.

Gross domestic product grew at a 2.6 percent annualized rate after a 5 percent gain in the third quarter that was the fastest since 2003, Commerce Department figures showed Friday in Washington. The median forecast of 85 economists surveyed by Bloomberg called for a 3 percent advance. Consumer spending, which accounts for almost 70 percent of the economy, climbed 4.3 percent, more than projected.

Swept up by the cheapest gasoline in years and the biggest employment increase since 1999, households are gaining the confidence to spend more freely, which will bolster the odds the world’s biggest economy can escape a global slowdown unscathed. Engaged consumers will help ensure that most American employers will look to expand, even as the decline in oil hurts companies such as Caterpillar Inc.

The expansion last quarter was “all about a solid consumer performance,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, who correctly forecast the fourth-quarter growth rate. “Overall, the number has returned to trend growth after a couple of really hot quarters.”

David Fuller's view

The US consumer is in better shape with the help of higher employment, some wage increases and cheaper gasoline.  However, the US Dollar Index’s sharp rise remains a headwind for the profits of US multinational companies.  More seriously, a sharp slowdown in the domestic energy sector, particularly regarding fracking, will weigh on 1Q GDP growth, and probably beyond. 

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January 30 2015

Commentary by David Fuller

Cheap Oil Burns $390 Billion Hole in Pockets of Investors

Here is the opening of this topical article from Bloomberg:

(Bloomberg) -- Investors have a message for suffering U.S. oil drillers: We feel your pain.

They’ve pumped more than $1.4 trillion into the oil and gas industry the past five years as oil prices averaged more than $91 a barrel. The cash infusion helped push U.S. crude production to the highest in more than 30 years, according to data compiled by Bloomberg.

Now that oil prices have fallen below $46, any euphoria over cheaper energy will be tempered by losses that are starting to show up in investment funds, retirement accounts and bank balance sheets. The bear market has wiped out a total of $393 billion since June -- $353 billion from the shares of 76 companies in the Bloomberg Intelligence North America Exploration & Production index, and almost $40 billion from high-yield energy bonds, issued by many shale drillers, according to a Bloomberg index.

“The only thing people are noticing now is that gas prices are dropping,” said Sean Wheeler, the Houston-based co-chairman of the oil and gas industry team for law firm Latham & Watkins LLP. “People haven’t noticed yet that it’s also hitting their portfolios.”

The money flowing into oil and gas companies around the world in the last five years came from a variety of sources. The industry completed $286 billion in joint ventures, investments and spinoffs, raised $353 billion in initial public offerings and follow-on share sales, and borrowed $786 billion in bonds and loans.

David Fuller's view

This has been weighing on Wall Street’s performance recently.  However, a further technical rally in oil prices, of which we saw the first evidence today (see charts above) would reduce concerns.   

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January 30 2015

Commentary by David Fuller

Seven Reasons Cheap Oil Cannot Stop Renewables Now

Here is the opening of this interesting, somewhat controversial article from Bloomberg:

Oil prices have fallen by more than half since July. Just five years ago, such a plunge in fossil fuels would have put the renewable-energy industry on bankruptcy watch. Today: Meh.

Here are seven reasons why humanity’s transition to cleaner energy won’t be sidetracked by cheap oil.

1. The Sun Doesn't Compete With Oil

Oil is for cars; renewables are for electricity. The two don’t really compete. Oil is just too expensive to power the grid, even with prices well below $50 a barrel.

Instead, solar competes with coal, natural gas, hydro, and nuclear power. Solar, the newest to the mix, makes up less than 1 percent of the electricity market today but will be the world’s biggest single source by 2050, according to the International Energy Agency. Demand is so strong that the biggest limit to installations this year may be the availability of panels

“You couldn’t kill solar now if you wanted to,” says Jenny Chase, the lead solar analyst with Bloomberg New Energy Finance in London.

David Fuller's view

This is a good article, even if it does lose its focus, in my opinion, in the last two paragraphs.  It also contains some helpful graphics.

In particular, look at the third point.  Here is a key sentence on solar: “It’s a technology, not a fuel.”  This is certainly true and solar is fast on its way to becoming the dominant technology in the energy field.  

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January 30 2015

Commentary by David Fuller

The Markets Now

Monday 23rd February at the East India Club, 16 St. James Square, London, SW1Y 4LH

 

David Fuller's view

If you live near London and attend our next seminar on 23rd February, you will meet another subscriber, David Brown, who has attended Markets Now and will return next month as our guest speaker.  He is a fascinating, visionary and accomplished individual whose subject will be The Third Industrial Revolution.  

You will find the speakers’ short bios in the latest brochure, and if Bruce Albrecht can join us once again in London he will also participate.  Delegates will be limited to 35 so I would not delay if you are interested in this event.  At approximately 8:30pm, following the presentations, speakers and many delegates adjourn to the East India Club’s American Bar for refreshments and further conversation.  I hope you can stay on and join us if you have the time. 

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January 30 2015

Commentary by Eoin Treacy

Musings From the Oil Patch January 30th 2015

Thanks to a subscriber for this edition of Allen Brooks’ ever interesting report for PPHB which may be of interest. Here is a section: 

What is most interesting is the consistency in long-term demand growth since 1989. As shown on the chart, for the decade 1989-1999, demand grew on average by 900,000 barrels a day. For the overlapping decade of 1994-2004, average demand grew 50% faster, or an average rate of increase of 1.45 million barrels a day. That period was marked by 2004’s dramatic increase along with healthy growth during the last half of the 1990’s. When we calculated the average demand growth for 2000-2014, it was at an annual average rate of 950,000 barrels a day. This means that last year’s demand grew by only two-thirds of the historical growth rate. This year’s growth will come close to matching the long-term average, however, that forecast was made before the International Monetary Fund (IMF) cut its global economic growth estimates for 2015 and 2016 by 0.3 percentage points, respectively. The problem is that if industry planners were anticipating growth more like that experienced over the 1994-2004 decade, then demand is falling well short of expectations. What we know about this year’s energy demand forecast is that it will continue to be buffeted by the cross-currents from the demand stimulus as a result of lower oil prices and reduced economically-driven demand from around the world.

In our view, much of the world’s energy business for the past decade has been driven by an extrapolation of the demand trends established in 1994-2004. The financial crisis and recessionary period presented a brief interruption in that healthy growth trend. Population growth, rising living standards and cheap capital, curtesy of easy monetary policies around the world, stimulated significant growth in oil drilling and production that contributed to the current supply growth. Lack of demand continues to play a greater role in the weak oil prices of today than many are willing to acknowledge. That imbalance between demand and supply is not particularly large – maybe 1.5 million barrels a day, although supply is growing while demand is lagging. Saudi Arabia knows it needs a healthy global economy to spur long-term oil demand growth and thus lift global oil prices. How long will it take to re-establish this growth? Saudi Arabia said it was prepared to live with low oil price for up to two years. Fundamentals, however, should shorten that time frame.

Eoin Treacy's view

A link to the full report is posted in the subscriber's Area,

A 60% cut in the price of oil will reignite demand growth. However prices will not rebound in any meaningful way until demand has recovered sufficiently and supply has been pared back so that the market returns to relative equilibrium before reversing. The motives of the Saudi Arabians in holding production steady in a supply dominated environment will be cause of continued debate but until they decide to alter their strategy the market will be susceptible to weakness.  

As with any major decline analysts tend to extrapolate the trend and become progressively more bearish as prices fall.  However where oil finds support will be heavily influenced by the ability of shale oil producers to sustain production at lower prices.

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January 30 2015

Commentary by Eoin Treacy

January 30 2015

Commentary by Eoin Treacy

Alibaba Finance Affiliate Valuation to Yield 12 Billionaires

This article by Zijing Wu and Sterling Wong for Bloomberg may be of interest to subscribers. Here is a section: 

A higher valuation for Alibaba Group Holding Ltd.’s finance affiliate ahead of a stock sale will yield 12 new billionaires, including the e-commerce giant’s Chief Executive Officer Jonathan Lu and Chief Risk Officer Shao Xiaofeng.

Zhejiang Ant Small & Micro Financial Services Group Co., which owns payments processor Alipay, is valued at about $50 billion, according to people familiar with the matter. Ant Financial is weighing a private placement before going public in 2016, and details of the planned fundraising aren’t finalized, said the people, who asked not to be identified because the discussions are private.

Alibaba’s own record-setting IPO in September briefly made Chairman Jack Ma Asia’s richest person. He has a $26.3 billion fortune as of yesterday, according to the Bloomberg Billionaires Index. The dozen billionaires from the payment processor’s bigger valuation include Alibaba’s Chief Operating Officer Daniel Zhang and Chief People Officer Lucy Peng.

“It’s got formidable room for growth,” said Cyrus Mewawalla, managing director of London-based CM Research Ltd.

“As Alibaba expands in global markets, so could Alipay. If technology companies do well, then their owners become billionaires.”

 

Eoin Treacy's view

Alibaba has three main business units. The wholesale “China to the rest of the world” arm that bears the company’s name, Tmall which allows third party companies to market their goods to Chinese consumers and its finance arm offering outsized deposit rates and the ability to pay for goods on the company’s various sites. The first two were part of last year’s IPO and it is looking increasingly likely that the finance arm is now being prepped for sale. 

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January 30 2015

Commentary by Eoin Treacy

Amazon Rises as Profit Offsets Concern Over Higher Spending

This article by Spencer Soper for Bloomberg may be of interest to subscribers. Here is a section: 

For the fourth quarter -- typically the most lucrative for the Web retailer because of the holiday shopping season -- net income declined 12 percent from $239 million a year earlier while sales rose 15 percent from $25.6 billion. Operating expenses climbed 15 percent to $28.7 billion, which was a slower rate of increase than the 20 percent jump a year earlier.

Excluding an $895 million hit from foreign exchange rates, net sales increased 18 percent from a year ago, the company said. Gross margin was 29.5 percent, up from 26.5 percent.

Amazon also forecast first-quarter sales of $20.9 billion to $22.9 billion, falling short of analysts’ average projection of $23 billion.

“It felt like Amazon had a great holiday because they started early and they carried strong through,” said Scot Wingo, CEO of ChannelAdvisor, which helps third-party merchants sell on Amazon.

 

Eoin Treacy's view

With turnover in the hundreds of billions and one of the most recognisable brands in the online world Amazon is a major player and one of the original cast of Autonomies. However the lack of focus on profits over the last year has been highlighted by investors as a deterrent to investing. This contributed to the underperformance of the share since hitting an accelerated peak a year ago. 

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January 30 2015

Commentary by Eoin Treacy

The Chart Seminar 2015

Eoin Treacy's view

Following a productive collaboration last year we have agreed to co-host another Chart Seminar with the CFA Institute in Singapore. This is provisionally booked for April 16th and 17th.

This year we only intend to hold one seminar in the UK so please let us know whether you would prefer a May or November schedule. Additionally if you are interested in attending a seminar in either Australia or the USA this year please let us know. If we have critical mass we would be happy to arrange one. 

To book your place or express interest, 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. 

 

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January 30 2015

Commentary by Eoin Treacy

Twitter

Eoin Treacy's view

FullerTreacyMoney set up a Twitter feed in December but I didn’t start updating it until yesterday. In the era of social media many people tend to look more at their Twitter accounts than free daily emails so we will post content both on our website and via Twitter.

Additionally, I will post interesting charts on a daily basis when I have completed by morning click though of markets. Today I posted charts of the historical oil price, Canadian Dollar, Singapore Dollar / Swiss France cross rate, Check Point Software and Veolia.

Please feel free to follow us on Twitter at https://twitter.com/FullerTreacy  We would also be happy to follow the Twitter account of any of our subscribers who follow us. 

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