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

    Renewed Love for Gold into Early 2017

    Thanks to a subscriber for this report from RBC, dated February 13th, which may be of interest. Here is a section:

    Through the first month of 2017, global commodity AUM flows have shifted course as funds have returned to precious metals and out of energy. This was a reversal in pattern from that seen through Q4/16, which saw total outflows of $20.5B in precious metals holdings and inflows of $8.4B into energy. This corresponded to a 0.7% increase in TSX weighting for precious metals to 7.3% and a 1.3% decline in energy in January. However, despite the promising start to the year for precious metals, total commodity AUM still sits 13% below the $123B seen in September 2016 and the current TSX weighting of 7.75% still sits 1.9% below the high of 9.6% seen in July 2016.

    This month, we have seen an acceleration of inflows into physical gold ETFs, which we view as a positive sign fundamentally, and believe that we will continue to see inflows due to geopolitical concerns, persistence of low real rates globally, and growing US inflation expectations. We would recommend that investors focus on companies with attractive margins, solid balance sheets, organic growth opportunities and a consistent operating strategy.

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    NVidia to fall nearly 20% on increasing competition from AMD, high valuation, analyst says

    This article by Tae Kim for CNBC may be of interest to subscribers. Here is a section:

    Instinet lowered its rating on NVidia to reduce from buy, saying the company's earnings will come in below expectations this year due to a more difficult gaming graphics market.

    "We believe consensus is underappreciating a slowdown in gaming and the potential negative impact to the multiple," analyst Romit Shah wrote in a note to clients Wednesday. "We recommend investors take profits."

    NVidia shares are up 251 percent in the past 12 months due to better-than-expected sales results from its graphics card segment.

     

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    Saudi Arabia $2 Trillion Aramco Vision Runs Into Market Reality

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

    Even within the Saudi government, doubts are emerging. A person familiar with the flotation, who asked not to be named, said last week Aramco in its current form would probably be worth about $500 billion because a lot of its cash goes toward taxes and future investors won’t have a say on investments in non-core areas. Another person familiar with IPO talks put the figure at a little less than $1 trillion if investors base the valuation on Aramco’s ability to generate cash.

    Selling a 5 percent stake would therefore raise at least $25 billion, still enough to match Alibaba Group Holding Ltd.’s unparalleled 2014 offering and dole out millions of dollars of fees to the advisers hired to manage the sale, namely JPMorgan Chase & Co., Moelis & Co. and independent consultant Michael Klein.

    The $2 trillion estimate was initially put forward by Deputy Crown Prince Mohammed bin Salman last March. There are two key issues, according to interviews with a dozen industry analysts, investors and executives, who asked not to be named because of the sensitivity of the matter.

    The first is that it’s premised on a simple calculation: Take the 261 billion barrels of reserves Saudi Arabia says lie under oil fields like the onshore Ghawar and offshore Safaniya, and multiply by $8 (a benchmark used to value reserves). An independent auditor is assessing Saudi reserves, the second- biggest worldwide, before the IPO.

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    NASA Telescope Reveals Largest Batch of Earth-Size, Habitable-Zone Planets Around Single Star

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

    NASA's Spitzer Space Telescope has revealed the first known system of seven Earth-size planets around a single star. Three of these planets are firmly located in the habitable zone, the area around the parent star where a rocky planet is most likely to have liquid water.

    The discovery sets a new record for greatest number of habitable-zone planets found around a single star outside our solar system. All of these seven planets could have liquid water – key to life as we know it – under the right atmospheric conditions, but the chances are highest with the three in the habitable zone.

    “This discovery could be a significant piece in the puzzle of finding habitable environments, places that are conducive to life,” said Thomas Zurbuchen, associate administrator of the agency’s Science Mission Directorate in Washington. “Answering the question ‘are we alone’ is a top science priority and finding so many planets like these for the first time in the habitable zone is a remarkable step forward toward that goal.”

     

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    Le Pen Wins Over Women Voters Who Feel Left Behind in France

    Here is the opening of this topical article from Bloomberg:

    French women are starting to picture their next president as a divorced mother of three.

    The anti-euro, anti-immigrant candidate Marine Le Pen has been playing up her gender as she seeks to convert a likely first-round victory into an overall majority in the run-off on May 7 -- and it’s paying off. The 48-year-old National Front leader has already rallied some 2 million additional female voters to her cause since her last run for president in 2012 and she’s betting more will follow.

    “Women are the key,” said Nonna Mayer, a researcher at the Sciences Po institute in Paris who has studied the National Front for 25 years. “These women often abstain and now they are backing Le Pen to protect their jobs and their security.”

    While women make up just over half of the electorate in France they are far less likely to turn out than men, offering a well of untapped support for the candidate who manages to tune into their concerns. Le Pen’s pitch weaves together concerns about immigration, security, and the economic decline of many white French communities into a potent populist brew that borrows freely from U.S. President Donald Trump, blaming “the elite” for the problems of ordinary voters.

    In 2012 Le Pen lagged behind with female voters, winning 17 percent compared with 20 percent of men’s ballots. Now she’s closed that gender gap, attracting 26 percent of voters of both sexes, according of pollster Ifop. That makes her the favored candidate among women for the first round.

    “What she is proposing is really different, just like Trump offered something really new,” said Cindy Blain, a 27-year-old pharmacist in the rural north east of France. “Maybe if we see Trump succeed, then voters will give her a chance.”

    The prospect of a populist president committed to taking France out of the single currency pushed the spread between French 10-year bonds and similar-maturity German bunds to its widest in more than four years on Wednesday. The risk premium dropped 3 basis points to 76 basis points at 5:24 p.m. Paris time after earlier reaching 84 basis points.

    Asked if she was concerned about the risks involved in Le Pen’s plan to leave the euro, Blain brushed the question off with a flick of her hand, as if swatting away a fly.

    Le Pen’s bid for women’s votes is clear: on Feb. 4 she began distributing 4 million copies of a glossy, magazine-style brochure that set out her plan to “defend French women” as the country’s first female president. The pamphlet was interspersed with pictures of her navigating “the world of men” as a sister, mother, lawyer, sailor and political leader and included a promise to be a shield against Islamic fundamentalists who, she said, want to stop women “wearing a skirt, going to work or to the bistro.”

    “This is not a feminist vote,” Mayer said.

    Le Pen sent another signal to the voters Tuesday on a visit to Beirut, when she refused to wear a head scarf to meet with a senior Muslim official, who insisted she don one. With neither side backing down, she left without seeing him.

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    Trump Eyes Easing Obama Rules for Sprawling Pipeline Network

    Here is the opening of this article from Bloomberg:

    The hints of a pipeline spill are subtle: the hiss of rushing fluid, a streak of rainbow sheen. Tucked far below ground, a ruptured line can escape notice for days or even weeks, especially in the backcountry, where inspectors rarely venture. 

    Regulators in the waning hours of the Obama era wrote rules aimed at changing that, and the industry is looking forward to the new administration rolling them back. The Pipeline and Hazardous Materials Safety Administration “has gone overboard,” said Brigham McCown, a former head of the PHMSA who served on President Donald Trump’s infrastructure transition team. “They built a Cadillac instead of the Chevrolet that Congress told them to build.”

    The oversight agency, an arm of the U.S. Department of Transportation, is just one of many where Barack Obama’s policies are in the Trump team’s sights. The battle lines are predictable, with companies on one side and safety and environmental activists on the other. What’s particularly worrying the latter is timing, because the rules could be upended as new shipping routes go into service across the country.

    The president, a fan of fossil fuels, has revived two controversial pipelines, TransCanada Corp.’s Keystone XL and Energy Transfer Partners LP’s Dakota Access. They would add 2,300 miles (3,700 kilometers) to the U.S. network with room to transport 1.1 million barrels a day. As it is, there are more than 200,000 miles of pipe cutting across the country carrying crude, gasoline and other hazardous liquids -- about 18 billion barrels worth annually. Many other projects are on the map; in Houston alone, planned lines are expected to increase capacity by 550,000 barrels a day in the next few years.

    “I’m terrified about what is going to happen under Trump,” said Jane Kleeb, president of the Bold Alliance, a coalition of groups opposing Keystone XL. “My worry is that they will just budget-starve PHMSA.”

    Read More: Why Keystone counts

    While Obama was president, the PHMSA budget grew by 61 percent. Then, seven days before Trump’s inauguration, the agency finalized a ruletoughening up inspection and repair demands, mandating, for example, that companies have leak-detection systems in populated areas and requiring they examine lines within 72 hours of flooding or another so-called extreme weather event. The American Petroleum Institute, the oil and gas industry’s main trade group, characterized it all as overreaching and unnecessary.

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    The Weekly View: Ride the Bull, But Do Not Chase It

    My thanks to Rod Smyth for his excellent timing letter, published by RiverFront Investment Group.  Here is a brief sample:

    Our advice to investors is to “ride the bull” but not to chase it.  We believe the bull market in global stocks reflects the recovery in global economic and earnings growth, which we think will continue in 2017.  Our strategic allocation process recently reaffirmed our strategic preference for stocks over bonds, and this is currently reflected across our asset allocation portfolios. 

    That said, we do not see this as a time to take above-normal risk by chasing the current bull market.  Our strategic process reminds us that US stocks are above trend, and with sentiment so optimistic, we think the pace of returns is likely to moderate.  As you can see from the chart above, the 200-day moving average is rising (a good thing, in our view), but the index is now at the top of its rising band, with the 200-day moving average at the bottom of the band.  Our balanced portfolios are close to their strategic targets and have sufficient cash and bonds to take advantage of a pullback should it occur.

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