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

    The Chaos Theory of Donald Trump: Sowing Confusion Through Tweets

    Here is the opening of this article from The Washington Post:

    Donald Trump’s sudden embrace this week of a nuclear arms race — and his staff’s scramble to minimize the fallout — underscored an emerging modus operandi for the president-elect: governance by chaos.

    Since winning the election, Trump has seemed to revel in tossing firecrackers in all directions, often using Twitter to offer brief but provocative pronouncements on foreign and domestic policies alike — and leaving it to others to flesh out his true intentions.

    In the past week alone, Trump has publicly pitted two military contractors against one another, sowed confusion about the scope of his proposed ban on foreign Muslims and needled China following its seizure of a U.S. underwater drone.

    But nothing has created more consternation for many foreign policy experts than Trump’s assertion on Twitter Thursday that the country should “greatly strengthen and expand” its nuclear capability.

    On Friday, after his staff had tried to temper his comments, Trump doubled down — telling a television talk show host that in an arms race against any competitor, the United States would “outmatch them at every pass.”

    Trump has pledged to shake up both Washington and the world order, and boosters argue that a degree of unpredictability can be useful, particularly when it comes to foreign policy. But the mixed messages and erratic nature of his pronouncements have alarmed even some Republicans, who say it’s important to know how seriously to take the leader of the free world.

    “We’re just operating in this world where you cannot believe the things he says,” said Eliot Cohen, a foreign policy expert and former George W. Bush administration official at the State Department. “It will have large consequences for our allies and our adversaries, and it’s going to greatly magnify the danger of miscalculation by all kinds of people.”

    Trump’s team has struggled with the new resonance that becoming president-elect has given Trump’s Twitter habit. They have repeatedly said that his statements on social media do not necessarily reflect his official policy and have at times sought to play down the import of his actions.

    But Trump supporters say the rest of Washington is going to have to get used to his more freewheeling style.

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    Email of the day 1

    On Homo Deus: A Brief History of Tomorrow:

    Dear David, I wish you and Eoin and all the team the very best for 2017. I am reading Yuval Noah Harari's book "Homo Deus". It offers us his thoughts on the future of humanity and covers many of the themes that your team develop in your commentaries. It follows his excellent book called "Sapiens on the history of humanity. May I share this intelligent analysis with the rest of the FullerTreacy community. Regards, Alan

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    Email of the day 2

    On notes from the Milken Institute meeting on The Evolution of Asset Management:

    Dear David

    I have attached more notes from last weeks' meeting organised in London by the Milken Institute. I found this session particularly interesting. The topic was 'The Evolution of Asset Management.' We all sense that change is coming so it was interesting to attend this panel comprising 3 constituencies: current asset managers, openly disillusioned customers, and new technology companies aiming to disrupt the status quo. It was all very polite but some strong messages came across which I have summarised in the pdf.

    Asset managers are trying new markets, such as direct lending in place of banks, and investments in private equity including hi-tech startups (I wonder how many really understand what they're doing). And they are experimenting with big data and automated trading though there was disagreement about how successful this actual is. No evidence was given.

    Other key messages that I took away were:

    1. Customers are not particularly happy with performance or fees, saying there's much waste in unnecessary infrastructure.

    2. The public availability of so much information that was previously available only to professionals is a game changer, as it reduces the 'added value' of asset managers.

    3. The result is a growing trend for DIY investing. It started with HNWs setting up their own wealth funds and it is spreading to other private investors as they/we become more empowered by technology.

    Also, corporations are starting to retake control of their defined benefit pension schemes by managing them in-house. To quote one panelist: "Corporations whose db plans failed to deliver will ask 'why would I delegate investment to those who are clearly the dumbest investors in the world.' Public and private pension funds need returns of 7-8% but they have been receiving much less than that from the AMs to whom they out-sourced. The pension asset managers always get their fees yet it's the corporate that has the liabilities on its book when there is under-performance. One panelist stated that several corporations in the US have already taken in-house control of their db plans and he expects this to become more widespread.

    Of course, my impression of the discussion inevitably reflects my view of the topic.

    Others may interpret it differently, so here is a link to a recording of the panel in case readers wish to check it out themselves.

    Best wishes

    David

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    U.S. shale is now cash flow neutral

    This article from Mining.com may be of interest to subscribers. Here is a section:

    Oil prices are probably already high enough to spark a rebound in shale production.

    The IEA says that in the third quarter of 2016, the U.S. shale industry became cash flow neutral for the first time ever. That isn’t a typo. For years, the drilling boom was done with a lot of debt, and the revenues earned from steadily higher levels of output were not enough to cover the cost of drilling, even when oil prices traded above $100 per barrel in the go-go drilling days between 2011 and 2014. Even when U.S. oil production hit a peak at 9.7 million barrels per day in the second quarter of 2015, the industry did not break even. Indeed, shale companies were coming off of one of their worst quarters in terms of cash flow in recent history.

    That all changed around the middle of 2015 when the most indebted and high-cost producers went out of business and consolidation began to take hold. E&P companies began cutting costs, laying off workers, squeezing their suppliers and deferring projects that no longer made sense.

    By 2016, oil companies large and small had shed a lot of that extra fat, running leaner than at any point in the last few years. By the third quarter, oil prices had climbed back to above $40 and traded at around $50 per barrel for some time, replenishing some lost revenue. That was enough to make the industry cash flow neutral for the first time in its history.

     

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    Gleanings

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

    Another theme we think is surfacing is inflation driven by Trump's potential fiscal stimulus program. Hence, a return to "real assets," or stuff stocks, should have an increased weighting in portfolios. Verily, the price of real assets, relative to financial assets, is at historic lows. Consequently, investors' mindsets should be focused towards higher inflation, higher interest rates, and reduced disinflation. As an example, China's PPI hooked up in September for the first time since 2012. We believe the same thing is happening here in the U.S. 

    Accordingly, REITs, timber, agriculture, collectibles (wine, art, diamonds, precious metal coins, farmland, etc.), and MLPs should have an increased weighting in portfolios, in our view. To this MLP point, we recently met with one of the savviest MLP-centric portfolio managers on Wall Street, who believes the midstream and downstream MLPs are ripe for a number of good years going forward. He suggests the bad news is in the rearview mirror: the capital markets are wide open for the MLPs; we are consuming an extra 1 million barrels of crude oil per day, and the MLPs traded at around a 30% discount relative to par.

     

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    The bizarre business of intentional product failure: planned obsolescence

    This article from reportsfromearth.com may be of interest to subscribers. Here is a section:

    Today built-in obsolescence is used in many different products. There is, however, the potential backlash of consumers who learn that the manufacturer intentionally make the product obsolete faster. Such consumers might turn to an alternative producer (if any exists) that offers a more durable alternative. In other words, this nasty strategy is not available for small companies who would only lose customers.

    Given today’s tremendous increase of international corporate power and severely reduced competition, planned obsolescence has become an attractive possibility for products than ever in human history.

    Built-in obsolescence was already used in the 1920s and 1930s when global mass production became possible and rigorously optimized. 

     

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    Email of the day on back pain, lifestyle and emotional reserves:

    I had lots of back problems as I was a dancer until I had my operation. 1 fusion and 1 plastic disc that give a little movement. One interesting thing was that they put in synthetic bone of some description for the fusion, and within 6 months, it would all be replaced by growth bone and the synthetic would have disappeared! Yes, key hole if it's just a disc snip!

    And 

    I’ve had the same myself – also see if you can get Bowen Therapy over there. I tried this 3 years ago and I haven’t had a problem since (touch wood). I wish Lily a very speedy recovery. 

    And 

    Add swimming to your wife's list of options for a longterm solution. It is medically recognized as a very effective remedial method and it helped me combat lower back pain (brought on by muscle spasm, not a herniated disc) some years ago. A caveat: avoid breast stroke as it arches the back. Do the crawl or back stroke, instead. Incidentally, even walking lengths of the pool is beneficial.

     

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