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

    Email of the day

    On Brexit articles, from a pre-subscriber:

    I am not currently a subscriber but I always glance at the introductions to articles that you e-mail to me.  I must say that I agree with all of David's comments regarding the EU and am glad that he is helping publicise intelligent articles in favour of Brexit.  Unfortunately, it seems at times that most of these articles are from the Telegraph.  I was disappointed at the very negative response in the Financial Times and it does seem to me that somehow these more positive articles need to appear more frequently in other publications and were they to do so they may calm people’s fears on the subject.

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    America Is Not the Greatest Country on Earth. It is No. 28

    Here is the opening of this interesting report from Bloomberg:

    Every study ranking nations by health or living standards invariably offers Scandinavian social democracies a chance to show their quiet dominance. A new analysis published this week—perhaps the most comprehensive ever—is no different. But what it does reveal are the broad shortcomings of sustainable development efforts, the new shorthand for not killing ourselves or the planet, as well as the specific afflictions of a certain North American country. 

    Iceland and Sweden share the top slot with Singapore as world leaders when it comes to health goals set by the United Nations, according to a report published in the Lancet. Using the UN’s sustainable development goals as guideposts, which measure the obvious (poverty, clean water, education) and less obvious (societal inequality, industry innovation), more than 1,870 researchers in 124 countries compiled data on 33 different indicators of progress toward the UN goals related to health.

    The massive study emerged from a decadelong collaboration focused on the worldwide distribution of disease. About a year and a half ago, the researchers involved decided their data might help measure progress on what may be the single most ambitious undertaking humans have ever committed themselves to: survival. In doing so, they came up with some disturbing findings, including that the country with the biggest economy (not to mention, if we’re talking about health, multibillion-dollar health-food and fitness industries) ranks No. 28 overall, between Japan and Estonia.

    Eradicating disease and raising living standards are lofty goals that have attracted some of the biggest names to philanthropy. Facebook Inc. founder Mark Zuckerberg and Priscilla Chan, his wife and a pediatrician, on Wednesday pledged $3 billion toward the effort. The new study itself was funded by (but received no input from) the Bill & Melinda Gates Foundation. The 17 UN Sustainable Development Goals (SDGs) themselves are a successor to the Millennium Development Goals, a UN initiative that from 2000 to 2015 lifted a billion people out of extreme poverty, halved the mortality of children younger than five years old, and raised by about 60 percent the number of births attended to by a skilled health worker

    The research team scrubbed data obtained on dozens of topics from all over the world. For example, to make sure they had adequate data on vaccine coverage for each region, they looked at public surveys, records of pharmaceutical manufacturers, and administrative records of inoculations. “We don’t necessarily believe what everybody says,” says Christopher Murray, global heath professor at the University of Washington and a lead author of the study. “There are so many ways they can miss people or be biased.” 

    The U.S. scores its highest marks in water, sanitation, and child development. That’s the upside. Unsurprisingly, interpersonal violence (think gun crime) takes a heavy toll on America’s overall ranking. Response to natural disasters, HIV, suicide, obesity, and alcohol abuse all require attention in the U.S. 

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    Email of the day on Japan's stimulus program

    Hello I read your analysis about the Topix bank index, for the first time I don't really agree with you. The bank of Japan is doing something new and it could push the Topix banks index up. I cannot attach graphs here to this message, but if on Bloomberg you compare the Topix bank index (or any bank index) to the difference in 30 year and 10 year JGB yields the correlation in the last 2 years is almost perfect. I believe they intend targeting yields to keep the curve ripid to help the banks. The same thing will probably happen in the Eurozone as they soften some capital rules as well, so I think the bank indexes should be watched even if only on a relative basis (bank indexes should outperform general indexes like sp500 and DAX and the yield curve become more ripid in Eurozone Japan and US), sorry I can't attach my Bloomberg graph. I hope at the chart seminar in London you can let me understand why you do not consider correlations such as these. They are not long term correlations, but are valid in a zero bound environment.

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    EU Banks May Need Rescue Funds Equaling Twice ECB Capital

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

    The Brussels-based SRB, the resolution authority for 142 banks including Deutsche Bank AG and BNP Paribas SA, will use the minimum capital requirement set by the European Central Bank as a proxy for capital that would be needed to absorb losses in a crisis, Koenig said in an interview this month. The ECB last year set an average requirement for the highest-quality capital of 9.9 percent of risk-weighted assets.

    Requiring banks to have at least that same amount again in loss-absorbing liabilities will ensure that they can recapitalize themselves quickly after restructuring, Koenig said. This minimum requirement of own funds and eligible liabilities, or MREL, is calculated at the “30,000-foot level,” and more precise levels tailored to each bank will follow after the ECB sets new capital requirements and changes are made to capital, bank-failure and insolvency rules, she said.

    “We want to avoid confusing the markets by saying, this is our decision this year, knowing that it will be different next year,” Koenig said. “So we take an indicative step this year. For next year, we hope that some of the dust has settled.

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    Email of the day on the Dollar Index

    California's legal marijuana market is on the verge of exploding

    This article by Ben Gilbert for Business insider may be of interest to subscribers. Here is a section:

    We're not talking about de-criminalization, or police de-prioritization.

    We're talking about alcohol-style regulation and sale of marijuana to adults, age 21 and up. We're talking about legally allowed personal cultivation, state/local taxation of retail sales/distribution, and re-evaluation of sentences/records for people charged with marijuana offenses.
    We're talking about outright, full-on legalization of marijuana. And in the world's sixth largest economy, that means billions of dollars. 

    If California's Proposition 64 passes on November 8, and sales begin by January 1, 2018, California's looking at an additional $1.5 billion flooding into the marijuana market. That number swells to just shy of $3 billion in 2019, and nearly $4 billion by 2020, based on the latest report from New Frontier Data and ArcView Market Research.

    And to be clear, that's on top of the already booming medical marijuana market — the total size of the cannabis market would reach $4.27 billion in 2018, and would grow to $6.45 billion by 2020.
    The ballot initiative has overwhelming support in California: Over 60% of respondents support Prop. 64, compared to just 34% opposed, according to Ballotpedia's average of polls.


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    Yellen Rebuffs Pressure to Hike as Fed Gives Economy Room to Run

    “We had a rich, deep, serious, intellectual debate about the risks and the forecasts for the economy, and we struggled mightily with trying to understand one another’s points of view,” she said.

    She played down concerns that the Fed’s easy monetary stance was fueling bubbles in the financial markets and the economy. “In general, I would not say that asset valuations are out of line with historical norms,” she said.

    Michael Gapen, chief U.S. economist at Barclays Plc in New York, said Yellen may be too complacent. “Historically the Fed has had problems seeing financial instability in real time,” he said.

    Weak Productivity

    Yellen also argued that monetary policy was not exceptionally easy, in spite of the low level of interest rates. That’s partly because slow productivity growth and an aging workforce have reduced the economy’s potential growth rate and thus its long-run equilibrium interest rate.

    “Monetary policy is only modestly accommodative,” she said.

    Policy makers on Wednesday lowered their estimate of the economy’s long run cruising speed to 1.8 percent from 2 percent. They also trimmed their calculation of the long-run federal funds rate to 2.9 percent from 3 percent in June.

    Former Fed official Jonathan Wright backed Yellen’s decision to give the economy more leash.

    “There is little risk and considerable potential benefit from running the labor market somewhat hot for a while” because it could draw more discouraged workers off the sidelines, said Wright, who is now an economics professor at Johns Hopkins University in Baltimore.

    Drew Matus, deputy U.S. chief economist at UBS Securities LLC in New York and himself a former Fed official, disagreed. Yellen “might find that room to run disappears pretty quickly,” he said.

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    Email of the day 1

    On markets:

    Hello David

    I hope that you are keeping well.

    I am looking forward to your seminal or is it secular review of stock markets as it continues?

    In this regard, I would be grateful for any comments on the attached articles on companies which seem to me to share many characteristics of the autonomies or are indeed part of that grouping. I know that you are blessed with uncanny intuition which might, just, enable you to guess which fund group sent them to me.

    Having regard to your recent comments about value managers turning bearish too early, do you have any thoughts as to whether you continue to prefer autonomies & other ‘high quality’ shares or value plays (other than late cycle commodities/resources which you often mention)?

    Wishing you all the very best

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