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

    Winklevoss Twins Lose Bid for Bitcoin Trade Fund

    WASHINGTON — The irrepressible Winklevoss twins, known for having sued Mark Zuckerberg over the idea for Facebook, have suffered a setback from federal regulators in their push to expand the use of bitcoin to a wider universe of investors.

    The Securities and Exchange Commission rejected Friday a proposed Winklevoss exchange-traded fund that could have opened the digital currency to larger numbers of ordinary investors. The SEC said the proposal from Tyler and Cameron Winklevoss was inconsistent with rules for securities exchanges designed to prevent fraud and manipulation, and to protect investors.

    Bitcoin allows people to buy goods and services and exchange money without involving banks, credit card issuers or other third parties. About 8 years old, it has yet to be broadly embraced and has been prone to wild price swings.

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    New Infrastructure Themes and Top Ideas

    Thanks to a subscriber for this report from Deutsche Bank highlighting the growth potential in new technology infrastructure. Here is a section:

    A core insight in our theme report is the meaningful shift in spending priorities that our primary research notes at Hyperscale Clouds, Enterprises, and Service Providers. In particular, we highlight +50% Y/Y capex intensity at major Clouds for Terabit Scale Optical Interconnects; required for running Web Scale Applications such as Google Maps, Azure Cloud, AWS, GCP, etc.

    A corollary insight is the accelerating IT demand for Software and SaaS based tools for Network and Application Analytics, AI and Machine Learning, and Automation tools – for “structurally lowering” the costs of running complex IT infrastructures at Hyperscale Clouds, Large Enterprises, and Carriers.

    A case in point is CSCO “doubling down” on Security, Analytics, AI/ML, and Automation Software capabilities (Meraki, AppDynamics, Jasper, Tetration, etc) to drive incremental Top Line and EPS growth through a “recurring revenue” model – laddering upon CSCO’s +250B networking installed base.

     

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    Park's Ouster Raises Prospect of Reset With China, Kim Jong Un

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

    The impeachment of Park Geun-hye opens the door for a reset in ties with North Korea and China.

    The leading candidates to replace Park, who was ousted as president by South Korea’s constitutional court on Friday, favor a softer touch with North Korean dictator Kim Jong Un. They’re also open to rethinking the deployment of the Thaad missile shield, which has spurred Chinese retaliation against South Korean companies.

    “The liberals believe that if you engage with North Korea, then they could get some kind of missile-test moratorium,” said John Delury, an associate professor of Chinese studies at Yonsei University in Seoul. “The Chinese strategy will be to push just hard enough so the South Korean public sees the cost of having Thaad, but not too hard that you unleash outrage.”

    The election campaign -- a vote must be held within 60 days -- will spur fresh debate on how to stop Kim from acquiring more powerful nuclear weapons and missiles. Secretary of State Rex Tillerson plans to seek a new approach to dealing with North Korea in a trip to the region next week, though China’s calls for talks have been rebuffed by the U.S., Japan and South Korea.

    Earlier this week, the U.S. military unloaded two mobile missile launchers in South Korea to start deployment of Thaad. It came as North Korea launched four ballistic missiles that landed in waters near Japan.    

     

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    US Shale Surge Overwhelms Oil Market as OPEC Splits Deepen

    Oil prices have plunged to the lowest level this year as US shale producers boost output at an astonishing pace and crude inventories keep rising, triggering a wave of selling by hedge funds with record speculative positions.

    The US surge threatens to neutralise cuts agreed by the OPEC cartel and a Russia-led group of producers last November, potentially delaying a full recovery of the market until 2018 or even later. 

    Texas light crude fell $48.90 a barrel on Thursday after yet another surprise jump in US stocks. Prices have slid 8pc in three days and have broken through key levels of technical support, dousing enthusiasm for commodities across the board. 

    America's shale frackers have slashed cost so far that they can now produce large volumes at a break-even price of $35 or lower in the prolific Permian Basin, the twelve-layered 'crown jewel' of West Texas, where land auctions have reached $60,000 an acre in core zones.

    Continental's legendary wild-catter Harold Hamm said drilling is coming back so fast, and on such a large scale, that it threatens to overwhelm the global industry. "We are on something of an equal basis today with OPEC. We need to be careful not to overproduce. It has to be done in a measured way or else we’ll kill the market," he said at the CERAWeek energy forum of IHS Markit in Houston.

    The US rig count has almost doubled to 756 since touching bottom last May. The productivity per rig has soared as longer lateral drills, "geological steering", and precision "clustering" triple extraction rates in some sweet spots.  The decline rate of the wells has dropped from 65pc to 35pc a year since 2013.

    “The consequence has now become alarmingly visible. US crude oil production is growing. And it is growing strongly," said Bjarne Schieldrop from SEB.

    Raghdaa Hasan from Statoil said US producers have restored almost all the losses of the slump in just four months, lifting production by over 500,000 b/d. "US shale has proved itself really resilient. They are able to pour significant output into the global system," she said at CERAWeek.

    And:

    The shale rebound has combined with events in the Middle East to seriously rattle the day-to-day oil markets. The Iraq's oil minister, Jabbar Ali Al-Luiebi, stunned traders with predictions at CERAWeek that his country would lift output by almost a million barrels a day (b/d) to 5m in the second half of this year. 

    Such an expansion would further flood the global market before it has come close to rebalancing. It is matched by similar rhetoric from Libya, which has already doubled output to 700,000 over recent months and is ultimately eyeing 2.2m b/d.

    And:

    It had been assumed that the Saudis would do whatever it takes to push oil back up to a band of $60 to $70 in order to smooth the way for a $100bn part-privatisation of the state oil giant Aramco next year, the biggest public offering ever. This is no longer so certain.

    Patrick Pouyanné, chairman of the French group Total, said OPEC is going to have to bite the bullet and accept much longer cuts. "The fact is, we still have build-ups in U.S. inventories. If OPEC wants to rebalance the market, then they'll have to extend the agreement. It will take a year to 18 months to really have an impact on inventories," he said in Houston.

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    Green van Beurden of Shell Warns On Looming Peak Oil Demand

    Shell's chief executive Ben van Beurden has warned global energy leaders to brace for the shock of falling oil use as soon as the 2020s, warning that those who trivialise the threat of climate change will exhaust public tolerance for fossil fuel companies if they are not careful.

    "We have to acknowledge that oil demand will peak, and it could already be in the next decade. It could happen. There are people who believe it will grow forever but I don't subscribe to that," he told the CERAWeek energy forum of IHS Markit.

    Mr van Beurden said the industry is skating on thin political ice - notwithstanding the election of Donald Trump in the US - and needs to shore up its flank. "Social acceptance is just disappearing. I do think trust has been eroded to the point that it is becoming a serious issue for our long term future," he said.

    "This is the biggest challenge of my career. We're under a lot scrutiny and pressure. It is not a rational discussion any more, it's emotional," he said. Regulators across the world are starting to demand that fossil fuel companies account for 'stranded assets' and financial risks from climate change, leading in turn to a shareholder pressure on the boards.

    Claims of peak demand are anathema in the US oil capital of Houston. "Wishful thinking," said Chevron's chief John Watson. Saudi Arabia's energy minister Khalid al-Falih said talk of peak demand is ridiculous and ultimately dangerous, discouraging vitally-needed investment before alternatives are on offer. "They are compromising the world's energy security," he said.

    Mr van Beurden advised the oil and gas industry to take an activist approach to show that it takes the threat of global warming seriously. Shell is already the biggest provider of renewable energy in the US through its wind farms. It is planning to invest $1bn a year in green technologies, and carbon capture and storage.

    "You can be too early on this, as we discovered to our detriment. You have to get the timing right," he said. This time the stars are finally coming into alignment as renewable costs fall to parity with fossils.

    Shell can afford the luxury of this 'moral' position because it has already made the switch to natural gas, the lone fossil fuel winner of the Paris Agreement on climate change. Gas emits roughly half the C02 of coal in power generation. It is also the perfect back-up for intermittent solar and wind.

    “The largest contribution Shell can make to reducing emissions globally in the near term is to continue to grow the role of natural gas,” he said. The company has finished integrating BG following the $52bn takeover in 2016, creating a gas giant and $4bn of synergies this year. "We have taken a tremendous amount of cost out," he said.

    The BG merger is one prong of the strategy. The recent sale of $8.5bn of oil sands acreage in Canada is another. Shell is today far less exposed to the political risk of climate change.

    The group has not abandoned oil, although it has pulled out of Alaska where it wasted $9bn on a "dry well". Mr van Beurden said the regulatory overkill in Arctic waters, married with high costs, made it pointless to continue.

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