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

    Email of the day on China's yield curve

    Thank you for such an eloquent financial service! Further to your comment on China today, according to Tracy Alloway of Bloomberg, the Chinese 5-10 Yield curve inverted yesterday. Is this a bad omen or can China be different!? 

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    Machine Learning in Finance

    Thanks to a subscriber for this how-to report from Deutsche Bank covering quantitative strategies and how they are applied to finance. Here is a section from the introduction:

    Machine learning is everywhere 
    “Machine learning” repeatedly appears in the news, from the game of go to autonomous cars: what can those algorithms do for us in finance? 

    Supervised learning and its pitfalls in finance 
    In this first report in the series, we focus on supervised learning and note that while machine learning is very relevant to us, there are dangerous pitfalls, sometimes specific to the type of data we deal with. In particular, we examine penalized regression (lasso and elastic net), decision trees, and boosting – we also mention, in passing, support vector machines and random forests. 

    Application to the Japanese equity market 
    To make things more concrete, we try to use those algorithms to combine the investment factors in our database in order to build a stock ranking system for the Japanese market; this shows the limitations and pitfalls of traditional machine learning practices in finance. 

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    Investment Implications of the Final Frontier

    Thanks to a subscriber for this report from Morgan Stanley which may be of interest. Here is a section:

    We estimate that the ~$350b Global Space Industry will grow into a $1.1+ Tr Global Space Economy by 2040. However, there is significant execution risk, and we, accordingly, estimate a wide range of potential outcomes, from ~$600 bn (-60 bps v. Global GDP) to ~$1.75 Tr (+400 bps v. Global GDP). Working with our aerospace & defense, internet, satellite, and telecom analysts, we estimate a $400 bn+ incremental revenue opportunity from providing internet access to under- or unserved parts of the world, and a ~$725 bn revenue opportunity for internet companies focused on social media, search/online advertising, and, in particular, e-commerce, if global internet penetration reaches 100%. Ultimately, this will depend on the success of the new low Earth orbit (LEO) satellites from players like OneWeb and SpaceX.

    In the short to medium term, most of the value of the industry is linked to internet bandwidth. Satellite broadband is responsible for ~50% of the Global Space Economy, and ~70% of our Bull Case. The demand for data is growing at an exponential rate, while the cost of access to space (and, by extension, data) is falling by orders of magnitude. However, over the long term, the discussion expands to topics such as national security, research, deep space exploration, high speed travel, … even mining asteroids. In this report, we discuss the potential for the BFR from SpaceX to disrupt the freight transportation industry.

    Space is the "ultimate high ground" for national security. With the United States military's expenditures exceeding $600 bn/ year, and global military expenditures ~$1.7 Tr, compared to NASA's budget of ~$20 bn, there appears to be substantial room to increase the investment in space. While we expect the topic of space to increase in importance, our view is balanced by a recognition of realworld budgetary constraints, and other priorities.

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    Electric Vehicle Revolution and Implications for the Nickel Market

    Thanks to a subscriber for this presentation from Vale which may be of interest. Here is a section: 


    Electric vehicles will usher in a new age for nickel

    A more balanced nickel consumption profile between stainless and non-stainless applications

    Batteries need high purity nickel sulphate, cannot readily use Class II such as nickel pig iron or ferronickel units – today, only ~50% of global production is suitable

    Nickel industry needs to grow significantly in suitable units to meet demand for battery manufacture

    Growing in suitable nickel units is expensive

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    Email of the day on the Dow Jones Industrials outperformance

    You already commented a bit on the state of the US stock market yesterday (October 17). But I want to share with you FT story on similarities and differences between today's market and the one 30 years ago, "How big is the risk of another Black Monday equities crash?"- While reading it, I looked at Dow Jones chart. It is not visible on 1- or 2- or even 3-year charts, but 5- and 10-year ones show rather obvious acceleration this year, don't they? What do you think?

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    Email of the day on p&f charts

    I love PnF charts but these are getting as rare as hens’ teeth these days. Sad really. I notice you don’t use them in your newsletter. I use them in the Chart Library and prefer to customise mine (the 3 box reversal variety). They seem to work with Indices but not with individual stocks. Tried the Aussie stocks eg. Kingsgate Consolidated(KCN), Codan (CDA) but I get a blank page. What am I doing wrong?

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    From Cells to Cities: A Conversation with Geoffrey West

    Thanks to a subscriber for recommending this 2-hour podcast with the author Scale: The Universal Laws of Growth, Innovation, Sustainability, and the Pace of Life in Organisms, Cities, Economies, and Companies. I’ve been working my way through this book for a while now. It’s a dense read but certainly worth the time.