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 28 April, 2014

July 28 2014

Commentary by David Fuller

The Boom Is Coming, and Sooner Than You Think

My thanks to a subscriber for forwarding this informative article on the 18th, although it found its way to my ‘Junk Email’ section rather than my Inbox for some unfathomable reason.  Nevertheless, it is just as relevant today and here are a few samples:

I disagree with the economic pessimists who believe, as I outlined in yesterday’s column, that persistently slow growth will be the norm for years to come.

Yes, huge federal government deficits and debt are a major drag. It’s also true that budget surpluses aren't likely to materialize to shrink the $17 trillion-plus national debt, even if growth resumes.

Nevertheless, there is a strong possibility that government debt relative to gross domestic product will fall appreciably, as it did after World War II. Back then, deficits were relatively small, so GDP outran gross federal debt. The debt-to-GDP ratio dropped from 122 percent in 1946 to 43 percent 20 years later.

The ratio fell even further in the late 1960s and 1970s as inflation, caused by rapidly rising federal spending on Vietnam and Great Society programs, pushed taxpayers into higher tax brackets and filled government coffers. Higher corporate-tax revenues also resulted from under-depreciation and inventory profits.

A more recent example of a reduction of the federal debt-to-GDP ratio came in the 1990s under President Bill Clinton. Robust nominal growth of 5.5 percent a year caused deficits to shrink so much that small surpluses existed in fiscal years 1998 to 2001. Federal tax receipts rose 7 percent on average, faster than nominal GDP, and outlays grew slower, at 3.6 percent. The dot-com bubble lifted individual income-tax receipts at an 8 percent annual rate and corporate taxes by 8.3 percent a year.

And:

I believe much of today’s new technology -- the Internet, biotechnology, semiconductors, wireless devices, robotics and 3-D printers -- is in its infancy. Collectively, they have the potential to rivalthe rapid growth and productivity-generating effect of the American industrial revolution and railroads in the late 1800s. Mass-produced autos and the electrification of factories and homes, which led to electric appliances and radio in the 1920s, offer yet more examples. Today, only a third of the world’s population is connected to the Internet but 90 percent live within range of a cellular network.

Sure, productivity (output per hour worked) grew by only 1.5 percent from 2009 to 2012, but that’s normal after a severe recession. I expect it to return to a 2.5 percent annual growth rate -- or more -- after deleveraging is completed in another four years or so. Even in the 1930s, productivity averaged 2.4 percent a year, higher than in the Roaring '20s. In the 1930s, much of the new technology from the 1920s -- electrification and mass production -- was adopted despite the Great Depression.

David Fuller's view

This article arrived with the subscriber’s comment: “This view from Gary Shilling seems well based on historical data.  I suspect it’s in line with your thoughts too.”

Absolutely, although I have not had all of Gary Shilling’s numbers to support it but the key premises are similar: 1) Several years of deleveraging following a financial crisis slow GDP growth significantly, and government debt rises; 2) Recovery time will vary among countries, subject to governance, but will become apparent between 5 to 10 years after the financial crisis for most of them; 3) What I have described in recent years as ‘the accelerating rate of technological innovation’ will be the most important factor contributing to our next secular bull market;

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July 28 2014

Commentary by David Fuller

Email of the day

On TCS and developing a career:

Hi David, I hope you are well. I became a subscriber (to Fullermoney at the time) in 1997 having attended the Chart Seminar while working as a junior trader in an Irish bank. I have remained a subscriber in one or other guise since. I would say that first Chart Seminar was very influential in my development as a trader. I have always found the service excellent - perceptive, sensible and honest. I wish you and Eoin well with Fuller Treacy Money. Myself and three colleagues set up a Global Macro CTA in late 2012, Three Rock Capital Management, of which I am Investment Director. In that capacity I write the occasional short research piece. I have uploaded the most recent "Farewell to Risk On - Risk Off" onto the subscriber's forum. Please feel free to post it in Comment of the Day, if you feel it may be of benefit to subscribers. I must confess that where 'empowerment through knowledge' is concerned I have not been a very progressive member of the community, much more a taker than a giver! Hopefully, I can change that. All the best, Conor O'Mara

David Fuller's view

Many thanks for your thoughtful email and continued interest in our service.  Good luck with Three Rock Capital Management.  Start ups are challenging and hard work, as I am sure you and your colleagues realise, but immensely satisfying if you are able to develop them.  In producing research, we further our own education in addition to providing information for subscribers.  

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July 28 2014

Commentary by David Fuller

Obama, Allies Plan New Measures Against Russia

Here is the opening of this interesting article from Bloomberg:

President Barack Obama and the four major U.S. allies in Europe intend to adopt “new measures” against Russia over the fighting in Ukraine, the French president’s office said.

Obama spoke with the leaders of France, the U.K., Germany and Italy by telephone today, as the Ukrainian government made further advances in the eastern part of the country against pro-Russian rebels. A spokesman for the separatists said their leader had traveled to Moscow for an unspecified period.

“Despite numerous appeals to President Putin, Russia has not effectively put pressure on the separatists to force them to negotiate, and has not taken the concrete steps asked of it to control the Ukraine-Russia border,” according to a statement from President Francois Hollande’s office in Paris. “The five heads of state and government confirmed, under these conditions, their intention to adopt new measures toward Russia.”

The U.S. says the crash of Malaysian Air Flight 17 on July 17 that killed all 298 passengers and crew was probably caused by rebels using a Russian-supplied surface-to-air missile. The disaster has deepened what was already the worst standoff between the U.S. along with European allies and Russia since the end of the Cold War. Russian President Vladimir Putin denies his government is helping the separatists.

David Fuller's view

Will further US-European sanctions against Russia increase pressure on Putin, or be little more than another slap on the wrist?  We may be about to find out and Russia’s dictator is currently betting on the latter. 

I think the circumstances justify tough sanctions, and if so, they would certainly create problems for Putin, particularly if they were maintained beyond the short term.  However, sanctions would obviously also cause some pain for the countries carrying them out, and they are also an invitation for reprisals.

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July 28 2014

Commentary by Eoin Treacy

What Do Chinese Dumplings Have to Do With Global Warming?

This article by Nicola Twilley for the New York Times may be of interest to subscribers. Here is a section:

An artificial winter has begun to stretch across the country, through its fields and its ports, its logistics hubs and freeways. China had 250 million cubic feet of refrigerated storage capacity in 2007; by 2017, the country is on track to have 20 times that. At five billion cubic feet, China will surpass even the United States, which has led the world in cold storage ever since artificial refrigeration was invented. And even that translates to only 3.7 cubic feet of cold storage per capita, or roughly a third of what Americans currently have — meaning that the Chinese refrigeration boom is only just beginning.

And

Despite the expansion in frozen foods and refrigerators, the critical growth area is what’s known in the logistics business as the “cold chain” — the seamless network of temperature-controlled space through which perishable food is supposed to travel on its way from farm to refrigerator. In the United States, at least 70 percent of all the food we eat each year passes through a cold chain. By contrast, in China, less than a quarter of the country’s meat supply is slaughtered, transported, stored or sold under refrigeration. The equivalent number for fruit and vegetables is just 5 percent.

Eoin Treacy's view

The evolution of cold storage capacity tends to move hand in hand with the instant gratification often associated with a developing consumer economy. Having a large refrigerator in one’s home means a large selection of food is available whenever we wish. As the article points out the roll out of a refrigerated food chain doesn’t necessarily reduce food waste over the long term. However it changes food waste from being an inevitable fact to being dependent on people’s purchasing and consumption choices.  While China is on its way to surpassing the USA in terms of refrigeration capacity, India is only now beginning to introduce refrigerated warehouses suggesting there is substantial growth in this sector. 

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July 28 2014

Commentary by Eoin Treacy

China Property Cooling Prompts Revival of Builder Bonds

This article from Bloomberg news may be of interest to subscribers. Here is a section: 

The central bank in May called on the nation’s biggest lenders to accelerate the granting of mortgages to first-home buyers. Some Chinese cities, including the northern city of Hohhot and the eastern city of Jinan, have started to relax property curbs to stimulate the local market.

Allowing bond sales by property companies is part of government easing measures along with the removal of property curbs and the support of mortgage lending, according to Frank Chen, head of China research at CBRE Group Inc., a commercial real-estate services company based in Los Angeles.

“The revival of property bonds is the right move in the long run,” given real estate’s close ties to many industries including cement, steel and even banking, said Chen in Shanghai. “Property is the single most important sector to the Chinese economy.”

 

Eoin Treacy's view

Relaxing of some of the strictures that have been imposed on property developers is a positive development from the perspective of the stock market since they represent such a large direct and indirect component of its market cap.

China Vanke is currently rallying from the lower side of a more than 5-year range. This is lending support to the recent positive performance of the Shanghai Property Index 

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July 28 2014

Commentary by Eoin Treacy

Zillow to Acquire Trulia for $3.5 Billion in All-Stock Deal

This article by Jing Cao and Pui-Wing Tam for Bloomberg may be of interest to subscribers. Here is a section: 

The deal positions a unified Zillow and Trulia to capture a larger share of digital real estate ads as more people shift house hunting onto the Web and property agents deploy more marketing dollars onto the Internet. While there are other real estate websites such as Move Inc. and Redfin Corp. that are growing, Zillow and Trulia are the top two most-visited property sites in the U.S. tracked by ComScore Inc.

“The opportunity here is very large -- both companies are growing extremely fast,” said Ron Josey, an analyst at JMP Securities who rates Zillow the equivalent of a buy. “They should be able to benefit from some sort of brand awareness and the network effect just grows with this deal alone.” 

Eoin Treacy's view

The housing recovery is well established and while some areas of California appear to be fully valued, the prospects of another crash appear remote. Real estate agents compete for access to the consumer base and online databases represent a great way of marketing so that personal interaction can be reserved for the most serious prospects. As a result, online real estate search engines represent potent marketing venues not least via mobile apps. 

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July 28 2014

Commentary by Eoin Treacy

The Chart Seminar and Global Strategy Sessions

Eoin Treacy's view

Following an encouraging start to the year’s speaking engagements I am looking forward to our events later this year. . . 

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

With regard to The Chart Seminar, 2014 marks a number of changes in how we organise the event.  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. .

The remaining dates and venues for 2014 are:
September 29th & 30th The Chart Seminar Chicago - The University Club, 6 E Monroe St, 
November 13th & 14th The Chart Seminar London - Radisson Edwardian Hotel, Leicester Square

If you are interested in any of our remaining venues 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 ¡ê850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.

The full rate for the Global Strategy Sessions will be £450 + VAT). The early booking rate of £375 for non-subscribers expires two months ahead of the event start date.

Subscribers are offered a discounted rate of £350. Anyone booking more than one place can also avail of the £350 rate for the second and subsequent delegates.

Delegates who attend both The Chart Seminar and the Global Strategy Session receive a reduced rate of £250 on the Global Strategy Session.

 

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July 28 2014

Commentary by Eoin Treacy

52nd Annual Contrary Opinion Forum

Eoin Treacy's view

It has been my pleasure to accept an invitation to return to the Basin Harbor Club in Vermont to speak at the 52nd Annual Contrary Opinion Forum hosted by Fraser Asset Management between October 1st and 3rd. The Forum’s convivial atmosphere is something Mrs.Treacy and I look forward to not least because it gives us an opportunity to meet so many subscribers.  

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