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

    Brazil's Strongman Closes in on Presidency After Round-One Rout

    This article by Mario Sergio Lima, Raymond Colitt and David Biller for Bloomberg may be of interest to subscribers. Here is a section:

    The next three weeks promise to be intense. For while Bolsonaro’s lead appears almost insurmountable, the millions of Brazilians who vehemently oppose his populist candidacy – and its undertones of misogyny, homophobia and dictatorship denial - will make a furious, last-ditch effort to halt his march to the presidency. But they will be fighting against powerful forces not entirely dissimilar to those that helped put Donald Trump in office in the U.S. and Andres Manuel Lopez Obrador in Mexico and gave the U.K. its Brexit shock.

    “It’ll be three weeks of a dangerous and highly polarized scenario,” said Mauricio Santoro, a political scientist at the State University of Rio de Janeiro. “The level of conflict will be very high,” he said, adding that both have to overcome very high rejection rates to win.
     

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    Shell Approves Long-Awaited Canadian LNG Project

    This article by Sarah Kent and Sarah McFarlane for The Wall Street Journal may be of interest to subscribers. Here is a section:

    Shell and its partners’ commitment to the project, which will cost roughly $14 billion to construct, signals growing confidence in global gas markets, as rising demand diminishes the threat that new supplies entering the market will cause a glut. It marks the end of a seven-year effort, blighted by weak prices that pushed back the final investment decision on the project by two years.

    The decision suggests the prospects are positive for other large gas-export projects. A cluster of developments are currently vying for approval in Qatar, Russia, Mozambique and the U.S. Yet in the U.S. the outlook is dimming.

    Earlier this month, China imposed a 10% tariff on imports of super-chilled gas from the U.S. in retaliation to levies imposed by the Trump administration. China is the biggest source of new global LNG demand and is expected to be a voracious consumer in the coming years as a result of efforts to move away from smog-inducing coal-fired power. Its demand rose around 50% in 2017.

    “Right now, this is not very good for American LNG projects working hard to take final investment,” said Morten Frisch, a U.K.-based independent gas industry consultant.

    More than a dozen LNG projects are awaiting regulatory approval in the U.S., though analysts say only a few are likely to get the go ahead before the end of next year. If Chinese buyers fall away, those projects could become more difficult to finance.

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    Email of the day on China's domestic semiconductor industry

    Picking up on today’s big picture commentary, as well several recent comments about China’s mission to create a semiconductor sector, I attempted to identify the largest Chinese based semiconductor manufacturers and assess whether they might benefit from such an initiative. I noted that SMIC (Semiconductor Manufacturing International Corporation) based in Shanghai is listed in HK ((981:HK) and the US (SMI:US).   Do you feel that Chinese semiconductor manufacturers, such as SMIC, might stand to benefit from further state investment in the local sector to enable more independent control over their supply chain of semiconductors? The SMIC Chart at this stage would certainly not support this hypothesis as it has underperformed the SOX Index, but seems to be quite oversold.  Your insight into this topical issue would be much appreciated.

    By the way, for whatever reason, code 981:HK is shown in the Chart Library as China Green Holdings Limited (actual stock code 904:HK) and not SMIC! 

    Thank you for the excellent service - I look forward to starting virtually every day here in Sydney with your valuable and insightful video commentaries. 

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    China Used Tiny Chip in Hack That Infiltrated U.S. Companies

    This article by Jordan Robertson and Michael Riley for Bloomberg may be of interest to subscribers. Here is a section:

    A notable exception was AWS’s data centers inside China, which were filled with Supermicro-built servers, according to two people with knowledge of AWS’s operations there. Mindful of the Elemental findings, Amazon’s security team conducted its own investigation into AWS’s Beijing facilities and found altered motherboards there as well, including more sophisticated designs than they’d previously encountered. In one case, the malicious chips were thin enough that they’d been embedded between the layers of fiberglass onto which the other components were attached, according to one person who saw pictures of the chips. That generation of chips was smaller than a sharpened pencil tip, the person says. (Amazon denies that AWS knew of servers found in China containing malicious chips.)

    And

    One Friday in late September 2015, President Barack Obama and Chinese President Xi Jinping appeared together at the White House for an hourlong press conference headlined by a landmark deal on cybersecurity. After months of negotiations, the U.S. had extracted from China a grand promise: It would no longer support the theft by hackers of U.S. intellectual property to benefit Chinese companies. Left out of those pronouncements, according to a person familiar with discussions among senior officials across the U.S. government, was the White House’s deep concern that China was willing to offer this concession because it was already developing far more advanced and surreptitious forms of hacking founded on its near monopoly of the technology supply chain.

    In the weeks after the agreement was announced, the U.S. government quietly raised the alarm with several dozen tech executives and investors at a small, invite-only meeting in McLean, Va., organized by the Pentagon. According to someone who was present, Defense Department officials briefed the technologists on a recent attack and asked them to think about creating commercial products that could detect hardware implants. Attendees weren’t told the name of the hardware maker involved, but it was clear to at least some in the room that it was Supermicro, the person says.

    The problem under discussion wasn’t just technological. It spoke to decisions made decades ago to send advanced production work to Southeast Asia. In the intervening years, low-cost Chinese manufacturing had come to underpin the business models of many of America’s largest technology companies. Early on, Apple, for instance, made many of its most sophisticated electronics domestically. Then in 1992, it closed a state-of-the-art plant for motherboard and computer assembly in Fremont, Calif., and sent much of that work overseas.

    Over the decades, the security of the supply chain became an article of faith despite repeated warnings by Western officials. A belief formed that China was unlikely to jeopardize its position as workshop to the world by letting its spies meddle in its factories. That left the decision about where to build commercial systems resting largely on where capacity was greatest and cheapest. “You end up with a classic Satan’s bargain,” one former U.S. official says. “You can have less supply than you want and guarantee it’s secure, or you can have the supply you need, but there will be risk. Every organization has accepted the second proposition.”
     

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    Einhorn Assails Tesla, Saying Carmaker's Woes Resemble Lehman's

    This article by Simone Foxman for Bloomberg may be of interest to subscribers. Here it is in full: 

    David Einhorn, a prominent critic of Tesla Inc., bashed the carmaker, saying its woes resemble that of Lehman Brothers Holdings Inc. before the bank failed.

    “Like Lehman, we think the deception is about to catch up to TSLA,” Greenlight Capital said in a quarterly letter Friday seen by Bloomberg. “Elon Musk’s erratic behavior suggests that he sees it the same way.”

    Einhorn pointed to parallels by saying “Lehman threatened short sellers, refused to raise capital (it even bought back stock), and management publicly suggested it would go private” in the months leading up to the bank’s collapse.

    Einhorn said in the letter his short position on Tesla was his second biggest winner in the third quarter. Greenlight’s main fund has lost 26 percent this year.

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    EU Ready to Offer U.K. "Super-Charged" Free-Trade Deal

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

    The offer falls short of what May wants, potentially making it harder to get the deal approved in the U.K. Parliament, where she faces opposition on all sides. However, the document is expected to be vaguely worded, and with as much positive language as possible to help her sell it at home. Hardline Brexit-backers in her party might find it easier to vote for the EU’s offer instead of the tighter ties sought by May, since they have been pushing for a regular free-trade deal all along.

    The risk is that because the EU’s plan doesn’t include frictionless trade across the EU-U.K. border, it will focus more attention on the most controversial part of the divorce deal -- how to keep the Irish border open. It will make it even more important that the so-called Irish backstop is acceptable to the U.K. government and its Northern Irish allies.

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