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

    Facebook Plunges as Pressure Mounts on Zuckerberg Over Data

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

    Politicians on both sides of the Atlantic are calling on Chief Executive Officer Mark Zuckerberg to appear before lawmakers to explain how U.K.-based Cambridge Analytica, the data-analysis firm that helped Donald Trump win the U.S. presidency, was able to harvest the personal information.

    Facebook has already testified about how its platform was used by Russian propagandists ahead of the 2016 election, but the company never put Zuckerberg himself in the spotlight with government leaders. The pressure may also foreshadow tougher regulation for the social network.

    U.S. Senators Amy Klobuchar, a Democrat from Minnesota and John Kennedy, a Republican from Louisiana, have called on the chairman of the Judiciary Committee to bring in technology company CEOs, including from Twitter Inc. and Alphabet Inc.’s Google, for public questioning.

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    Understanding China's Rise Under Xi Jinping

    This speech delivered by Kevin Rudd at West Point earlier this month represents an excellent summary of the machinations of political power in China which I found very interesting. Here is a section:

    However, militating against any of the above, and the “tipping points” which each could represent, is Xi Jinping’s seemingly absolute command of the security and intelligence apparatus of the Chinese Communist Party and the state. Xi Jinping loyalists have been placed in command of all sensitive positions across the security establishment. The People’s Armed Police have now been placed firmly under party control rather than under the control of the state. And then there is the new technological sophistication of the domestic security apparatus right across the country—an apparatus which now employs more people than the PLA.

    We should never forget that the Chinese Communist Party is a revolutionary party which makes no bones about the fact that it obtained power through the barrel of a gun and will sustain power through the barrel of a gun if necessary. We should not have any dewy-eyed sentimentality about any of this. It’s a simple fact that this is what the Chinese system is like.


    Many scholars failed to pay attention to the internal debates within the Party in the late 1990s, where internal consideration was indeed given to the long-term transformation of the Communist Party into a Western-style social democratic party as part of a more pluralist political system. The Chinese were mindful of what happened with the collapse of the Soviet Union. They also saw the political transformations that unfolded across Eastern and Central Europe. Study groups were commissioned. Intense discussions held. They even included certain trusted foreigners at the time. I remember participating in some of them myself. Just as I remember my Chinese colleagues telling me in 2001-2 that China had concluded this debate, there would be no systemic change, and China would continue to be a one-party state. It would certainly be a less authoritarian state than the sort of totalitarianism we had seen during the rule of Mao Zedong. But the revolutionary party would remain. 

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    Businesses Respond Positively to Transition Deal

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

    “Business leaders will welcome the announcement of a provisional agreement on an implementation period and congratulate the U.K. government for heeding the call of business and making it a priority early on,” Allie Renison, head of Europe and trade policy at the Institute of Directors, says in statement. “We are, however, concerned that not enough attention is being given now to the finer details and practical implications of transition.”

    But the British Chambers of Commerce was more positive. “While some companies would have liked to see copper-bottomed legal guarantees around the transition, the political agreement reached in Brussels is sufficient for most businesses to plan ahead with a greater degree of confidence,” BCC director general Adam Marshall says in a statement.

    It’s also noticeable that the pound has risen significantly against the dollar.

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    Precious Metals Review

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

    Capital allocation: We are nearing 5 years since the significant gold price (~$1,600/oz down to $1,360/oz) correction in early April 2013. The period since has largely been characterized by cost cutting, capex reduction and de-leveraging of Balance Sheets. With an average ND/2018E EBITDA ratio of 0.5x for Precious stocks under coverage, companies are largely finished with debt reduction and must now decide on the right mix of project capex (brownfield and greenfield) /exploration /dividends/buybacks/further debt reduction/M&A opportunities. Management decisions to define companies will likely diverge over the coming years and we believe this is a key consideration for investors, particularly for a sector that does not have a good record of deploying capital. In terms of dividends, companies will need to define policies that are both sustainable but also representative of variation in cash flow through the cycle, e.g., a base dividend with a supplementary dividend is most likely.

    Cost pressure starting to come back: A number of companies on recent conference calls mentioned cost pressure that is entering the industry either through macro factors or through mining sector specific areas.

    Examples include the increase in energy costs (mainly due to higher diesel/gas prices), some currency moves, consumables, equipment and contracting. It does not appear to be significant at this stage but the opportunities for cost-cutting initiatives seem to have largely ended (with the potential exception of technology impacts, e.g., Barrick's initiatives medium- to long-term). As an example of cost pressure, Barrick's nearterm All-In Sustaining Costs (AISC) are expected to be ~$765-815/oz for 2018, ~$50/oz higher than previous guidance of $740-760/oz. Longer term, Barrick has alluded to the fact that its target of $700/oz is going to be more difficult to achieve.

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    Email of the day on the MidPoint Danger Line

    New study rips into cobalt, lithium price bulls

    This article by Frik Els for Mining.com may be of interest to subscribers. Here is a section:

    Prominent commodities research house Wood Mackenzie this week released a report on battery materials that forecasts a decline in the price of cobalt and lithium this year which would turn into a rout from 2019 onwards.

    Woodmac is not lowballing demand growth for lithium and the authors expect demand to grow from 233 kilotonnes (kt) in 2017 to 330kt of lithium carbonate equivalent in 2020 and 405kt in 2022, but:

    … the supply response is under way. Yet it will take some time for this new capacity to materialise as battery-grade chemicals. As such, we expect relatively high price levels to be maintained over 2018. However, for 2019 and beyond, supply will start to outpace demand more aggressively and price levels will decline in turn.

    According to Woodmac data, spot lithium carbonate prices on the domestic market in China are already down 6% from December levels to around $24,500 a tonne while international market prices have remained robust rising to $16,000 at the end of February.

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    Deep Thaw Below Arctic Circle Risks $30 Billion Nordic Industry

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

    The forest floors below the Arctic Circle are usually frozen solid this time of year, hard enough to support the giant timber machines needed to harvest their wood.

    But that’s changing, according to the foresters who work the land in Finland and Sweden. Unusually mild winters are turning once icy grounds into thick layers of mud capable of swallowing up the 25-ton vehicles used to gather the materials that go into pulp, paper and packaging.

    “We will see more and more of these difficult conditions,”

    Uno Brinnen, head of forestry at Sweden’s BillerudKorsnas AB, said in an interview. “It will always shift between warm and cold winters, but the long-term trend seems clear.”

    Temperatures across large swathes of Sweden were as much as 3 degrees Celsius (5.4 degrees Fahrenheit) higher than normal in December and January, according to the Swedish Meteorological and Hydrological Institute. That warming forms part of a trend that’s likely to persist, according to SMHI, whose scientists expect temperatures to continue rising over the next six decades because of climate change.

    The travails increasingly experienced by Nordic foresters underscore the economic impacts of climate change. Even as warming temperatures in and around the Arctic Circle frees waterways and reveals new paths to exploit natural resources, countries and companies in the region are being forced to adopt new ways of conducting traditional business.

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    Pipeline Stocks Sink as FERC Kills Key Income-Tax Allowance

    This article by Stephen Cunningham, Tim Loh and Jim Polson for Bloomberg may be of interest to subscribers. Here is a section:

    Wells Fargo & Co. analyst Michael Blum said the broad selling was an overreaction, because the effects would be felt only on partnerships with a large amount of interstate pipelines.

    "It’s definitely a negative, but it’s not Armageddon for MLPs," Jay Hatfield, a New York-based portfolio manager at the InfraCap MLP exchange-traded fund, said by telephone. "And it’s not as if it affects every asset in every single MLP."

    Even among interstate pipelines, it’s unclear how much the ruling will impact different assets, Selman Akyol, an analyst at Stifel Nicolaus & Co. wrote in a note Thursday. That’s because these pipelines can charge rates based on a different agreements -- there are "cost of service" rates, which will be affected, as well as market-based rates or negotiated ones, which won’t be impacted. What’s more, "cost of service" rates are partly built on aspects that have nothing to do with taxes -- including maintenance and depreciation costs for the pipeline.

    "This adds a layer of uncertainty to the group, and we do not expect it to be cleared soon," Akyol said in the note. “We anticipate companies will provide disclosures around cost of service exposure and potential impact to cash flow.”

    The decision could further the trend of MLPs converting into corporations -- or simply selling interstate pipelines affected by this change in policy to existing corporations such as Kinder Morgan Inc., Hatfield said.

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