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

    Email of the day on maturity extensions

    Why does the US not shift its bonds to 20 and 30-year duration, increase inflation to, say, 2% and pay back the money in 20 or 30 years’ effectively free of interest? This would really kick the can down the road and give them many years to sort out the mess.  When I asked this of Americans five years ago, they thought it would cause interest rates to spike if the Fed tried to drastically increase the duration.  I think the last few years have proved that the duration could be increased without causing panic in the markets. 

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    The great nutrient collapse

    This fascinating article by Geoff Johnson and Helena Bottemiller Evich for Politico may be of interest to subscribers. Here is a section: 

    What he found is that his 2002 theory—or, rather, the strong suspicion he had articulated back then—appeared to be borne out. Across nearly 130 varieties of plants and more than 15,000 samples collected from experiments over the past three decades, the overall concentration of minerals like calcium, magnesium, potassium, zinc and iron had dropped by 8 percent on average. The ratio of carbohydrates to minerals was going up. The plants, like the algae, were becoming junk food.

    What that means for humans - whose main food intake is plants - is only just starting to be investigated. Researchers who dive into it will have to surmount obstacles like its low profile and slow pace, and a political environment where the word “climate” is enough to derail a funding conversation. It will also require entirely new bridges to be built in the world of science - a problem that Loladze himself wryly acknowledges in his own research. When his paper was finally published in 2014, Loladze listed his grant rejections in the acknowledgements.


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    Google bets anew on smartphones, pays $1.1 billion for HTC's Pixel division

    This article by Jess Macy Yu and Paresh Dave for Reuters may be of interest to subscribers. Here is a section: 

    The all-cash deal will see Google gain 2,000 HTC employees, roughly equivalent to one fifth of the Taiwanese firm’s total workforce. It will also acquire a non-exclusive license for HTC’s intellectual property and the two firms agreed to look at other areas of collaboration in the future.

    While Google is not acquiring any manufacturing assets, the transaction underscores a ramping up of its ambitions for Android smartphones at a time when consumer and media attention is largely focused on rival Apple Inc (AAPL.O).
    “Google has found it necessary to have its own hardware team to help bring innovations to Android devices, making them competitive versus the iPhone series,” said Mia Huang, analyst at research firm TrendForce.

    The move is part of a broader and still nascent push into hardware that saw Google hire Rick Osterloh, a former
    Motorola executive, to run its hardware division last year. It also comes ahead of new product launches on Oct. 4 that are expected to include two Pixel phones and a Chromebook.


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    Fed Asset-Shrinking to Start Next Month; Rate Hike Seen in '17

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

    “The labor market has continued to strengthen” and economic activity “has been rising moderately so far this year,” the Fed statement said. The FOMC repeated language saying “near- term risks to the economic outlook appear roughly balanced.”

    The decision to leave the target range for the federal funds rate unchanged and begin the balance-sheet runoff in October was unanimous. The Fed reiterated that interest rates are likely to rise at a “gradual” pace, though updated forecasts indicated that officials see the path as less steep than before.

    In their new set of projections, Fed officials estimated three quarter-point rate hikes would be appropriate next year -- the same number they saw in June -- based on the median in the so- called dot plot of interest-rate forecasts.

    Crisis Action
    The Fed's decision to exit from balance-sheet policies comes a decade after the global financial crisis began to tip the economy into a recession at the end of 2007. The reduction in assets will be slow -- just $10 billion a month to start. 


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    It's Not Just Toys R Us. More Credit Weak Spots Emerge

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

    Money managers are grappling with an uptick in operational and balance-sheet challenges late in the business cycle, with debt-laden Toys ‘R’ Us Inc. the latest retailer to file for bankruptcy this week, catching bond markets off guard. Just two weeks ago, credit-default swaps, which allow traders to hedge against losses, were pricing in a low probability of near-term default at about 10 percent based on contracts expiring in June.

    "Companies with the weakest fundamentals often show problems first late in a cycle, and the retail sector has many such examples," said Adam Richmond, Morgan Stanley’s chief credit strategist.

    "Investors initially treat those issues as idiosyncratic, and then the problems spread, when credit conditions begin to tighten,” he said. “That is how the late cycle can transition to end of cycle."

    These risks are hard to see at the index level, with the Bloomberg Barclays U.S. high-yield benchmark up almost 7 percent this year, led by CCC-rated names. Still, the latter has underperformed the broader market over the past two months, suggesting investors are increasingly compelled to price-in deteriorating fundamentals -- reminiscent of a market in its late winter, according to the U.S. lender.


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    Proterra Catalyst E2 MAX Sets World Record And Drives 1,101.2 Miles On A Single Charge

    This press release contains some impressive statistics and may be of interest to subscribers. Here is a section: 

    Today Proterra, the leading innovator in heavy-duty electric transportation, announced it has set a world record for driving the longest distance ever traveled by an electric vehicle on a single charge at the Navistar Proving Grounds in New Carlisle, Indiana. Proterra’s 40-foot Catalyst E2 max traveled 1,101.2 miles this month with 660 kWh of energy storage capacity. For the last three consecutive years, Proterra has demonstrated improved range and battery performance. Last September, Proterra drove 603 miles with 440kWh of energy storage, and in 2015, Proterra drove 258 miles with 257kWh of energy storage on a single charge. This year’s world record range marks exceptional performance improvements over prior years, and underscores Proterra’s commitment to innovation and accelerating the mass adoption of heavy-duty electric vehicles.

    “For our heavy-duty electric bus to break the previous world record of 1,013.76 miles — which was set by a light-duty passenger EV 46 times lighter than the Catalyst E2 max — is a major feat,” said Matt Horton, Proterra’s chief commercial officer. “This record achievement is a testament to Proterra’s purpose-built electric bus design, energy-dense batteries and efficient drivetrain.”

    Beyond meeting transit agencies’ range requirements, the Catalyst E2 max is poised to make a significant impact on the transit market because of its low operational cost per mile compared to conventional fossil fuel powered buses. According to Bloomberg New Energy Finance, lithium-ion battery prices have dropped by roughly 72 percent since 2010, and the economics for batteries continue to improve. Between li-ion battery cost savings and improving vehicle efficiency, electric vehicles represent the most disruptive mode of transport today.

    “Driven by the best cost savings-per-mile, we believe the business case for heavy-duty electric buses is superior to all other applications, and that the transit market will be the first to transition completely to battery-electric powered vehicles,” said Ryan Popple, Proterra CEO. “Early electric bus adopters like our first customer, Foothill Transit, have paved the way for future heavy-duty applications, like motor coaches and commercial trucks. As we see incumbents and more companies enter the heavy-duty EV market, it has become very apparent that the future is all-electric, and the sun is setting on combustion engine technology.”


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    Oil Traders Empty Key Crude Storage Hub as Demand Booms

    This article by Rupert Rowling and Javier Blas for Bloomberg may be of interest to subscribers. Here is a section:

    Oil traders are emptying one of the world’s largest crude storage facilities, located near the southernmost tip of Africa, as the physical market tightens amid booming demand and OPEC production cuts.

    Total SA, Vitol Group and Mercuria Energy Group Ltd. are selling crude they hoarded in Saldanha Bay, South Africa, during the 2015-2016 glut when the market effectively paid traders to store oil, according to people familiar with the matter, who asked not to be named discussing private operations. 

    Crude demand is now seasonally outstripping supply, tightening the physical market for some crude varieties to levels not seen in the last two years and encouraging traders to sell their stored oil.

    “The market is selling inventories from everywhere,” Mercuria Chief Executive Officer Marco Dunand said in an interview in Geneva.

    Although largely unknown outside the oil trading industry, Saldanha Bay is one of the world’s largest crude storage facilities, with the capacity to hold 45 million barrels in just six gigantic, partially-buried concrete tanks. By comparison, Cushing, the better-known U.S. oil storage center in Oklahoma that serves as the pricing point for the West Texas Intermediate oil benchmark, can hold about 75 million barrels in more than 125 tanks.


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