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

    The Bull Market Rotates Away From Tech-Driven Mega-Companies

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

    At its heart, the rotation is based on the idea that there’s a lot of money in the economy waiting to be spent on things besides video streaming and online shopping. The U.S. personal savings rate was 7.2% at the end of 2019. By April it had surged to 33.7%, and it was still 13.6% in October—almost double where it started the year. Deposits at U.S. commercial banks swelled to almost $16 trillion in November, up from $13.2 trillion at the end of last year. If consumers revert to their pre-pandemic ways, that could set off what Jim Paulsen, chief investment strategist for the Leuthold Group, has called “a growth bomb,” as companies gear up to replace lean inventories.

    Fund managers with a value bias say there are still opportunities to take advantage of the change in investors’ tastes. Chris Davis of Davis Funds points to the banks Wells Fargo & Co. and Capital One Financial Corp., whose prices were hammered when lockdowns began in March and still haven’t fully recovered. Davis thinks investors have overlooked how banking regulations enacted after the global financial crisis have made these lenders better able to handle recessions. “When you look at their valuations, the amount of cash they produce, the capital ratios that they have, the reserves they’ve been able to put up—they really have this characteristic of resilience and durability, and yet are priced at this sort of shockingly low level,” he says.

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    Chapter 8: The Archetypical Cycle of Internal Order and Disorder

    This latest instalment of Ray Dalio’s evolving book may be of interest to subscribers. Here is a section:

    One timeless and universal truth that I saw went back as far as I studied history, since before Confucius around 500 BC, is that those societies that draw on the widest range of people and give them responsibilities based on their merits rather than privileges are the most sustainably successful because they find the best talent to do their jobs well, they have diversity of perspectives, and they are perceived as the most fair, which fosters social stability.  

    I presume that the current internal orders of countries, like those of the past, will continue to evolve to become something different through the struggles of different classes with each other over how to divide wealth and political power. Because this wealth and power dynamic is very important, it is worth watching closely to discern which classes are gaining and which ones are losing wealth and power (e.g., AI and information technology developers are now evolving to gain it at the expense of those who are being replaced by such technologies) and also to discern the reactions to these shifts that lead the cycles to change.

    So, as I see it, everything is changing in classic ways driven by a tried-and-true perpetual-motion machine. This machine has produced, and is producing, different systems, such as communism, fascism, autocracies, democracies, and evolutionary descendants and hybrids of these such as “state capitalism” in China. It will produce new forms of internal orders to divide wealth and allocate political power that will affect our lives greatly, all based on how people choose to be with each other and how human nature enters into how they make their choices. 

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    Australia Economy Set for Rapid Recovery After Exiting Recession

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

    Gross domestic product advanced 3.3% in the three months through September, exceeding estimates, as consumption surged by the most in the 60-year history of the report, the Australian Bureau of Statistics said in Sydney Wednesday. The rebound came after the economy contracted 7% in the second quarter.

    The expansion occurred as Victoria state, representing a quarter of the economy, was shuttered to contain a renewed Covid-19 outbreak and before the announcement of the additional fiscal-monetary injection. Reserve Bank chief Philip Lowe has made clear he’s prepared to run the economy hotter than normal, given elevated unemployment and little risk from price pressures.

    “The first step was to build the bridge to get us over the pandemic,” Lowe said in parliamentary testimony on Wednesday. “We’re coming down the other side of that, we’re kind of ramping off the bridge and now it’s building the road to recovery.”

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    It will change everything: "DeepMind's AI makes gigantic leap in solving protein structures

    This article by Ewen Callaway for Nature may be of interest to subscribers. Here is a section:

    “It’s a game changer,” says Andrei Lupas, an evolutionary biologist at the Max Planck Institute for Developmental Biology in Tübingen, Germany, who assessed the performance of different teams in CASP. AlphaFold has already helped him find the structure of a protein that has vexed his lab for a decade, and he expects it will alter how he works and the questions he tackles. “This will change medicine. It will change research. It will change bioengineering. It will change everything,” Lupas adds.

    In some cases, AlphaFold’s structure predictions were indistinguishable from those determined using ‘gold standard’ experimental methods such as X-ray crystallography and, in recent years, cryo-electron microscopy (cryo-EM). AlphaFold might not obviate the need for these laborious and expensive methods — yet — say scientists, but the AI will make it possible to study living things in new ways.


    The first iteration of AlphaFold applied the AI method known as deep learning to structural and genetic data to predict the distance between pairs of amino acids in a protein. In a second step that does not invoke AI, AlphaFold uses this information to come up with a ‘consensus’ model of what the protein should look like, says John Jumper at DeepMind, who is leading the project.

    The team tried to build on that approach but eventually hit the wall. So, it changed tack, says Jumper, and developed an AI network that incorporated additional information about the physical and geometric constraints that determine how a protein folds. They also set it a more difficult, task: instead of predicting relationships between amino acids, the network predicts the final structure of a target protein sequence. “It’s a more complex system by quite a bit,” Jumper says.

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    Traders Rush Out of Treasuries on Optimism About U.S. Stimulus

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

    After efforts to prop up the virus-ravaged U.S. economy stalled for months, a group of Democratic and Republican lawmakers revealed a $908 billion stimulus proposal Tuesday. Getting it approved is far from assured. If it does pan out, that could prompt more money to move out of the safety of U.S. debt into stocks, accelerating a shift that began in November when the Dow Jones Industrial Average enjoyed its best month since 1987 amid promising Covid-19 vaccine news.

    “Treasury yields are playing catch-up with the enthusiasm in the rest of the market, and it appears the impetus for additional fiscal spending is the catalyst for rising rates today,” said Charles Ripley, an Allianz Investment Management strategist who is based near Minneapolis.

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    Bitcoin's Rally Spurs Wall Street to Question Future of Gold

    This article by Eddie Spence and Yvonne Yue Li for Bloomberg may be of interest to subscribers. Here is a section:

    “The transparency in Bitcoin is helping drive a lot of interest,” said Lyle Pratt, an independent investor who owns Bitcoin. “Gold is kind of like a blackbox, you have to trust the custodians to tell you about any flows in the market.”

    For Plurimi Wealth LLP’s Chief Investment Officer Patrick Armstrong, who allocates 6.5% of his discretionary funds into gold, even if Bitcoin has potentially bigger upside in an inflationary spiral, the risks are just too big. Gold also has a long history as a store of value that Bitcoin can’t match. There’s always the nagging suspicion that another, potentially central-bank backed, digital currency could supplant it.

    “If the debasement trade works, it is very possible Bitcoin works better,” he said. “But it is also possible Bitcoin has no value in years to come, while I do not think the same can be said of gold.”

    One thing that’s clear is Wall Street is taking Bitcoin seriously in a way that it didn’t in 2017. “I have changed my mind!” wrote Sanford C. Bernstein strategist Inigo Fraser-Jenkins in a report Monday. Bitcoin won’t replace gold, but there’s room for both, he said, especially if the future is one of inflation and extreme debt levels.

    “I see it as being complementary,” he said in an interview. “Whatever one’s starting position was before the pandemic in terms of what your gold and crypto allocation should be, I think it should be materially larger now.”

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