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

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November 20 2014

Commentary by David Fuller

Oil Industry Risks Trillions of Stranded Assets on US-China Climate Deal

China is already shutting down its coal-fired plants in Beijing. It has imposed a ban on new coal plants in key regions after a wave of anti-smog protests. Deutsche Bank and Sanford Bernstein both expect China's coal use to peak as soon as 2016, a market earthquake given that the country currently consumes half the world's coal supply.

The US in turn has agreed to cut emissions by 26-28pc below 2005 levels by 2025, doubling the rate of CO2 emission cuts to around 2.6pc each year in the 2020s.

Whether or not you agree with the hypothesis of man-made global warming, the political reality is that the US, China, and Europe are all coming into broad alignment. Coal faces slow extinction by clean air controls, while oil faces a future of carbon pricing that must curb demand growth far below what was once expected and below what is still priced into the business models of the oil industry.

This is happening just as solar costs fall far enough to compete toe-to-toe with diesel across much of Asia, and to reach "socket parity" for private homes in much of Europe and America. The technological advantage is moving only in one direction only as scientists learn how to capture ever more of the sun's energy, and how to store the electricity cheaply for release during the night. The cross-over point is already in sight by the mid-2020s.

Mr Lewis said shareholders of the big oil companies are starting to ask why their boards are ignoring so much political and technological risk, investing their money in projects that are so likely to prove ruinous, and doing so mechanically as if nothing had changed.

"Alarm bells are ringing. Investors can see that this is unsustainable. They are starting to ask whether it wouldn't be better to return cash to shareholders, and wind down the companies," he said.

David Fuller's view

Will the fossil fuel companies become fossils themselves?

Yes, but the all-important question for investors is when?

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November 20 2014

Commentary by David Fuller

On Target: Moneycraft Tips for Personal Success

My thanks to Martin Spring for his monthly private newsletter on global strategy.  Here is a brief sample:

One of the basic rules I taught my children was that from an early working age you should aim to save 10 per cent of your income. Follow that, and providing you invest conservatively, you can be sure of becoming moderately wealthy later in life.

It’s difficult to keep to such a target, especially in the earlier years when you are equipping a home, upgrading your lifestyle, and probably raising and educating children. But to the extent you can approach that target, you increasingly secure yourself and your family against financial setbacks, improve your personal freedom, and provide for a worry-free retirement.

One of the most important moneycraft lessons is to understand the power of compounding – how much a small improvement in rate of return on an investment held for the long term burgeons into enormous capital gain.

Spending control is, for many people, the most difficult part of personal financial management. Research suggests that the urge to spend, or refrain from doing so, is rooted in our genes and is little influenced by upbringing. That’s why you see such different attitudes towards thrift in your children, siblings and other close relatives.

David Fuller's view

Unless one is undisciplined, it is far easier to save if one is able to earn more than is required for family life.  Unfortunately, this is not easy for most families, given the costs of purchasing or renting a home, raising children and paying for their education. 

However, if you have surplus funds, saving can be combined with enjoyable spending by decorating your home with pleasing works of art.  This usually requires some knowledge of what you are collecting, which does develop over time.  These assets will provide a personal yield of satisfaction, rather than dividends for the bank account.  Nevertheless, sensibly chosen works of art have a good chance of holding their value, and actually appreciating if fashion favours some of your choices over time.

On Target is posted in the Subscribers’ Area. 

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November 20 2014

Commentary by David Fuller

Putin Fights Corruption. Good Luck With That.

Here is the last paragraph from an insightful article by Leonid Bershidsky for Bloomberg:

Putin would be right to liberalize the economy and slim down government. The economic situation has deteriorated sufficiently to make these steps essential if Russia hopes to avoid a major decline in living standards. However, these measures would go against everything Putin and his "war party" have done. It's impossible to pursue libertarian economics while living in international isolation and conducting costly undeclared wars. At best, the proposal from the "system liberals" will give rise to yet another ineffective anti-corruption campaign. As Bendukidze often pointed out, corruption starts at the top, and it's useless to start fighting it from the bottom.

David Fuller's view

Putin’s era is ending badly, but that also makes him very dangerous.  Hopefully, he will go relatively soon and reasonably quietly, but the psychopathology suggests this may be wishful thinking. 

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November 20 2014

Commentary by Eoin Treacy

Organovo now selling tiny 3D-printed human livers

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

The resulting models are composed of living human liver tissue, and incorporate hepatocytes, stellate, and endothelial cells – just like a real, full-sized liver. They also produce liver proteins such as albumin, fibrinogen and transferrin, plus they synthesize cholesterol.

Additionally, the cells are arranged in a 3D orientation relative to one another, as they would be naturally. By contrast, the liver cell cultures currently used to test pharmaceuticals are two-dimensional, and thus may not always function in the same manner as the actual organ.

The exVive3D tissue remains functional for at least 42 days. According to Organovo, this "enables assessment of drug effects over study durations that well beyond those offered by industry-standard 2D liver cell culture systems." Already, the models have demonstrated the abilities to differentiate between structurally-related toxic and non-toxic compounds, and to detect metabolites (molecules that are products of the body's metabolism).

 

Eoin Treacy's view

While at university I remember studying the work of Baruch Spinoza. Along the way I heard he died in his early 40s probably as a result of inhaling the fine glass dust that was a by-product of his lens grinding trade. I was reminded of this recently when I finally gave into necessity and purchased reading glasses. It is a wonder how such a simple product enhances one’s working life but particularly for those engaged in precision industries where they need to be able to see what they are doing. In addition to creating telescopes, microscopes and range finders, increased supply of lens allowed the cost of eyeglasses to fall. This extended the working life of the skilled class by decades and as a result their productivity increased considerably.  Bio-printing of fully function organs is still in its infancy but the potential productivity gains achieved by extending the working lives of highly experienced, educated people is truly exciting. 

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November 20 2014

Commentary by Eoin Treacy

Shaken, Not Stirred

This article gained some attention in the last week as cruise lines experiment with replacing bartenders with robots. Here is a section:

Once the guests enter the bar, they virtually create their drink via a smartphone or tablet app. The sky is the limit as far as drink orders go. The robots can execute options ranging from alcoholic to non-alcoholic beverages as well as a full range of combinations.

As soon as the guest’s order has been sent, the KR 5 arc robots get to work. They grip the cocktail mixer, fill it with the desired ingredients, shake it and pour the finished cocktail into the glass. The robot only requires one minute to make two drinks. Their compact design makes the six-axis robots ideal for the bar environment. Thanks to the longest reach in their class as well as their low weight, the robots are practically predestined for use on a cruise ship.

“Makr Shakr is an excellent example of how robot-based automation can change the interaction between humans and products – a topic that we have researched substantially”, says Carlo Ratti, professor at the Massachusetts Institute of Technology and co-founder of Makr Shakr.

Eoin Treacy's view

The evolution of robotics, optics and power consumption has revolutionised the utility of these machines and their cost continues to trend lower. Some will obviously worry at the loss of employment opportunities for lower skilled work this entails. On the other hand, for a cruise ship minimising the berths taken up by crew means more space can be allocated to fare paying passengers. These types of economic considerations are driving demand for machines. 

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November 20 2014

Commentary by Eoin Treacy

Email of the day on the iron-ore price

The Iron Ore price in The Chart Library doesn't seem to be updating past November 3rd. Has Bloomberg changed something? It seems a bit of Murphy's Law as the Iron Ore price has been slumping further of late!

Eoin Treacy's view

Thank you for continuing to highlight the iron-ore price. One of the primary reasons we are having such difficulties with providing a reliable price for the commodity is because it is not freely traded. Following some consultation with Bloomberg I have updated the price once more and will monitor it daily to ensure it continues to update. 

Iron-ore remains in a consistent medium-term downtrend. Major investment in new supply has resulted in the three major producers ramping up supply just as demand peaked. Mines cannot simply be closed because prices have fallen since some revenue is better than no revenue and debt needs to be repaid. This is similar to the conditions that resulted in the triple waterfall crash of resources shares during the early 1980s and the greatest pressure falls on higher cost producers. 

 

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November 20 2014

Commentary by Eoin Treacy

Interesting charts November 20th

Eoin Treacy's view

Korean Won to 1 US Dollar – As one of the Japan’s major regional competitors South Korea cannot afford for the Won to appreciate while the Yen is declining. The Dollar rallied to break a three year progression of lower rally highs by September, found support in the region of the 200-day MA from October and continues to extend the rebound. While increasingly overbought in the short-term a sustained move below the trend mean would be required to question medium-term upside potential. 

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