David Fuller and Eoin Treacy's Comment of the Day
Category - General

    Stronger for Longer

    Thanks to a subscriber for this report from Morgan Stanley focusing on the outlook for 2018. Here is a section on Japan:

    Musings From the Oil Patch December 5th 2017

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

    Email of the day on bitcoin and manias

    One more question about bitcoin, if you please (honestly, I am a bit tired of the subject - is it another sign of a bubble?).
    Interestingly, but in the past bubbles had been initiated by professional traders, many of whom stayed in the market till the crash and suffered losses, while individuals piled in at later and final stages (think of tulipmania, 1929, dotcom, etc.). So, when you saw a lot of individuals and inexperienced investors in the asset in question, with their enthusiasm turning into euphoria, and professionals talking the asset up, you knew that the end was in sight. 

    And with bitcoin we have quite the opposite. Just consider this abstract from recent Wall Street Journal article, "At the Asia Securities Industry & Financial Markets Association’s annual conference in Hong Kong on Wednesday, only two of about 150 professional investors raised their hands when asked if they had invested during a session on cryptocurrencies. “It’s incredible that we’re [seeing this] at a finance event, but it’s actually very common,” said the panelist Henri Arslanian, PwC’s China and Hong Kong leader for finch. Mr. Arslanian, who also teaches a fintech course at the University of Hong Kong, said when he asks his students that same question, usually about 30% of them say they own virtual currencies.
    So, what can it possibly tell us about the nature of this market and its prospects?

    PS. This WSJ story, published on November 29, had beautiful chart (please find attached). I just think that they are wrong to begin bitcoin bubble this year. I looked at bitcoin chart at FTM library and think that it is finishing its second bubble year, since in 2016 it rose more than 100%, from about $430 to $1,000, and began really buzzing last year, with the current one bringing euphoria.


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    Modi May Face a Photo Finish in Crucial State Election

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

    Most observers expect Modi to win the Gujarat election when votes are counted on Dec. 18. But the narrowed lead is surprising for a bastion of BJP support such as Gujarat, as well as for Modi, whose party has swept to power in most state elections since he took national office in 2014. 

    Capping days of relentless campaigning, Modi said in a rally in Surat that people of Gujarat would vote for the BJP. “My single aim is to ensure development and improve the lives of the poor,” he said on Thursday.

    Anything other than a comfortable victory for Modi would surprise investors betting on a clear win in Gujarat, as well as five more years of Modi’s government on the other side of 2019. "Market assumptions so far have been of a comfortable BJP victory in Gujarat, and that the momentum continues till 2019," wrote Mumbai-based Credit Suisse analysts Neelkanth Mishra and Prateek Singh in a Dec. 5 note.


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    Email of the day on the Boring Company and tunnel safety

    Actually, tunnels are among the safest locations during earthquakes. Counter-intuitive, but true. Many miles of tunnels in earthquake-prone Japan. See this link. I live in the Los Angeles area, and cannot wait for the tunnels ah, earthquake shelters!

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    Bitcoin's Future Is All Mapped Out

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

    And, in fairness, there's a game attempt to stop this being completely off-the-scale Wild West stuff. It's a cash-settled futures contract in U.S. dollars, with no actual delivery of Bitcoin required. The exchange will impose a minimum initial margin -- the deposit required to trade a specified amount of futures contracts -- of 35 percent. That's seven times more than for trading oil or mini-S&P equity futures. There will be a twice-daily requirement to make sure the 35 percent buffer is intact, given Bitcoin's constant swings. Clearing members can impose a higher limit if they want. Two-minute trading breaks will kick in if the daily price moves 7 percent away from the previous day's settlement price, then again at 13 percent and a hard limit at 20 percent when all trading will cease unless trading can restart within that band. There are no stated plans to offer options on the futures, until the contract is fully established. That would be too much rocket fuel.

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    China's Banks Need More Capital After Credit Boom, IMF Says

    Thanks to a subscriber for this article from Bloomberg News which may be of interest to subscribers. Here is a section:

    President Xi Jinping has highlighted financial stability as a top priority. People’s Bank of China Governor Zhou Xiaochuan warned in October about the risk of a ‘Minsky moment,’ or a sudden collapse of asset values. Financial watchdogs last month promised to overhaul regulation of asset-management products, which hold about $15 trillion and are seen as a key threat to stability.

    Speaking to media on Thursday on a video call, the IMF’s deputy director of monetary and capital markets, Ratna Sahay, said China’s financial system held three main risks. She pointed to an increase in credit that in other countries has been linked to financial distress. An increasingly complex and opaque financial system makes it hard to identify risks, and implicit guarantees encourage excessive risk-taking, she said.

    Credit growth needs to slow, guarantees should be gradually removed, and banks need more capital during that process, Sahay said. “Banks need to have some buffers in order to protect against any possible distress that might happen,’’ she said.


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