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

    Email of the day on stagflation

    I have been a long-time subscriber and attended the Chart Seminar around ten years ago. Back then you were a young kid and David led the show. Showing no disrespect for David who admire greatly, you have become at least an equal when it comes to your daily audios. I found this weekend's long-term picture very interesting and well done. I think you have properly described where we are at presently and the likely outcomes in the medium and longer terms. I do get the sense over here in the US that we may be facing an environment of Stagflation. With rising inflation and what now looks like slower growth in the near term, combined with a shrinking Fed balance sheet and rising rates, we could be facing some real headwinds for equities. Can you share your insights on an environment of stagflation and what asset classes would generally over-perform and underperform if the past is a guide? Thank you and keep up the great work!

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    Japan's executives paid less than Asian colleagues

    This article from Bloomberg appeared in the Straits Times. Here is a section:

    "The workforce is becoming more and more global, so to attract and retain the best people, you need to be prepared to pay competitive salaries," said Marc Burrage, managing director of Hays Japan. Seniority-based pay systems are among the reasons for Japan’s low salaries, he said. "It’s a concerning situation and if it’s not addressed soon, it will start to bite in terms of productivity."

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    Walmart Tumbles After Slowing Online Growth Jolts Investors

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

    At the same time, Walmart Chief Executive Officer Doug McMillon is trying to convert the company’s brick-and-mortar shoppers into online customers, who spend almost twice as much overall and seek out higher-priced items.

    At Walmart’s e-commerce unit, sales rose 23 percent last quarter. That’s less than half the pace of previous periods. The Bentonville, Arkansas-based company had been getting a tailwind from its acquisition of Jet.com, an online upstart that it bought in 2016. Still, the company maintained its full-year forecast for online sales growth of about 40 percent.

    The company needs to widen its e-commerce base, especially among younger and professional demographics, said Neil Saunders, managing director of research firm GlobalData Retail.

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    How Low Will Retail Go? Look at the Railroad

    This article by Stephen Mihm for Bloomberg may be of interest to subscribers

    And that is the likely fate of conventional retail. Like the railroad, there’s an extraordinarily surfeit of retail space built with little consideration of what the market will actually sustain; recent declines in the retail revenue per square foot in brick-and-mortar stores suggests that things are getting worse, fast. And like the railroad, there’s a new way of doing business on the block, except that instead of changing how we move people and goods, online retailing promises a new way of delivering them to the end consumer. 

    If the per capita retail footprint declined as much as the railroads did, it would fall all the way down to 2.82 square feet per capita. That’s a lot of empty malls and defunct big box stores, but retail won’t disappear any more than the railroads have gone extinct.

    In fact, in 2014, the inflation-adjusted revenue that railroads earn per mile of track is 2.7 times what it was a century ago. More startling still, the so-called “ton miles” of freight carried on the nation’s railroads (a ton mile is one ton of freight carried one mile) has tripled since 1960, even as the total size of the operational railroad system has declined dramatically.

    That points to the likely future of conventional retail: a drastic reduction in the per capita footprint, with the remaining stores capable of earning far more money per square foot. It’s not the brightest of futures. But it’s also not the end of the world.

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    Reckitt Benckiser Sees Pricing Squeeze After Worst Year Ever

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


    In an effort to sharpen Reckitt Benckiser’s focus on brands such as Strepsils and Mucinex cold remedies, Kapoor has moved to separate the company’s home-care and health businesses. Reckitt also became a leader in infant nutrition with the acquisition of Mead Johnson Nutrition Co. last year.

    On Monday, it increased its forecast for synergies from the deal to about $300 million from $250 million. This year’s savings will only “slightly exceed” additional infrastructure expenses associated with the new health and home-and-hygiene business units, the company said.

    Morgan Stanley analysts led by Richard Taylor described the company’s outlook as conservative.

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    End Game

    Thanks to a subscriber for this report from Myrmikan Research which favours gold. Here is a section:

    In 1969, at the beginning of the previous inflation-induced default on American obligations, 23% of the Federal Reserve’s Treasury bond holdings had a time to maturity of less than 90 days and 1.2% had a maturity date greater than 10 years. The Treasury bond portfolio itself comprised 68% of the Federal Reserve’s assets, the balance being “cash items in process of collection,” foreign currency, and gold. That was a resilient balance sheet.

    Currently, 6% of the Federal Reserve’s Treasury bond holdings have a time to maturity of less than 90 days and 26% have a maturity date greater than 10 years. The Treasury bond portfolio itself comprises 55% of the Federal Reserve’s assets, and another 40% is comprised of mortgage-backed securities. That is not a resilient balance sheet—it is highly sensitive to interest rates.

    Myrmikan has argued for eight years that it is rising rates that will destroy the value of the Federal Reserve assets and, therefore, the value of its liabilities, a unit of which is known as a “dollar.” Gold, having the most stable value of any substance in nature, must rise as the dollar falls. Therefore, gold naturally correlates with interest rates, as the following chart of the inflationary 1970s illustrates.

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    Worldwide Threat Assessment of the US Intelligence Community

    Thanks to a subscriber for this report which may be of interest. Here is a section on space:

    Continued global space industry expansion will further extend space-enabled capabilities and space situational awareness to nation-state, nonstate, and commercial space actors in the coming years, enabled by the increased availability of technology, private-sector investment, and growing international partnerships for shared production and operation. All actors will increasingly have access to space-derived information services, such as imagery, weather, communications, and positioning, navigation, and timing for intelligence, military, scientific, or business purposes. Foreign countries—particularly China and Russia—will continue to expand their space-based reconnaissance, communications, and navigation systems in terms of the numbers of satellites, the breadth of their capability, and the applications for use.

    Both Russia and China continue to pursue antisatellite (ASAT) weapons as a means to reduce US and allied military effectiveness. Russia and China aim to have nondestructive and destructive counterspace weapons available for use during a potential future conflict. We assess that, if a future conflict were to occur involving Russia or China, either country would justify attacks against US and allied satellites as necessary to offset any perceived US military advantage derived from military, civil, or commercial space systems. Military reforms in both countries in the past few years indicate an increased focus on establishing operational forces designed to integrate attacks against space systems and services with military operations in other domains.

    Russian and Chinese destructive ASAT weapons probably will reach initial operational capability in the next few years. China’s PLA has formed military units and begun initial operational training with counterspace capabilities that it has been developing, such as ground-launched ASAT missiles. Russia probably has a similar class of system in development. Both countries are also advancing directed-energy weapons technologies for the purpose of fielding ASAT weapons that could blind or damage sensitive space-based optical sensors, such as those used for remote sensing or missile defense.

    Of particular concern, Russia and China continue to launch “experimental” satellites that conduct sophisticated on-orbit activities, at least some of which are intended to advance counterspace capabilities. Some technologies with peaceful applications—such as satellite inspection, refueling, and repair—can also be used against adversary spacecraft.

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