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

    Email of the day 1

    On British Socialism:

    Despite the worst campaign by Tories in recent history and arguably the best ever by Labour, British Socialism is sill more than 50 seats shy of effective government in the UK. If this is the best Labour can do, I'd back a revitalized Tory party to romp home in a couple of years’ time, once Brexit brawls have provoked another election. First, wounds must heal and Brexit discussions take shape.

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    Email of the day 2

    On politics in the UK versus Japan:

    A bloated public sector is a major factor but now we have the demographic factor of cheerfully clueless young people, mostly first-time voters who desperately want to believe the false assurances of the hard left. They'll grow older and wiser as most do eventually but in the meantime massive damage will have been inflicted on the economy and society. I prefer the humdrum politics in Japan, where I live. The conservative LDP have been in power for decades, providing stable and mostly sensible stewardship which seems to satisfy the public. No Parliamentary Question Time theatrics (politicians' speeches are usually very boring) and very little ideological frictions. The one time the Left were elected they blew it and lasted just one term. They haven't been given a second chance.

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    Just Five Stocks Account for Nearly 75% of the Nasdaq's Plunge

    This article by Julie Verhage for Bloomberg may be of interest to subscribers. Here it is in full:

    When it comes to the ongoing technology beat-down in the stock market, it appears not all shares are created equal.

    Indeed, just five names account for nearly 75 percent of the drop in the Nasdaq Composite Index, which has fallen more than 2.1 percent since June 7. Meanwhile, the Dow Jones Industrial Average and S&P 500 Index are roughly unchanged over the same time frame.

    Much of this dynamic is due to giants like Apple Inc., Microsoft Corp. and Goggle parent Alphabet Inc. falling as much as 6.5 percent. Those companies account for nearly 30 percent of the index’s weighting, and their outsize impact has driven the gauge lower even though the bulk of the stocks are doing fine.

    This selloff was “way overdue given the extreme out- performance and positioning in technology shares,” Morgan Stanley analyst Michael Wilson wrote in a note to clients Monday, Shares of Apple, for instance, are still up 25 percent this year, giving them room to fall.

    But while Wilson expects the drubbing to continue in the short-term, he doesn’t think the market has seen a peak in tech shares.

    “We would be surprised if this is the end for technology stocks given the very strong earnings growth we are witnessing,” he wrote.

    Analysts now believe performance in technology will depend on the economic outlook. And if conditions change, finance will be the likely beneficiary.

    “If the current economic ‘Goldilocks’ environment persists, technology and other growth stocks should continue to outperform, despite today’s price declines,” Goldman Sachs Group Inc. analysts led by David Kostin wrote in a note to clients late Friday. “However, if investors recalibrate expectations for inflation and Fed policy to match the growth optimism suggested by the S&P 500 level, higher rates should lead to financial sector outperformance.”

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    Inflation 'Bonus'

    Thanks to a subscriber for this heavyweight 168-page report from Deutsche Bank focusing on global emerging markets. Here is a section on India:

    2) Growth-inflation balance has improved and should remain; time now to focus on quality of growth
    India continues to be one of the fastest growing economies in the world, but what has changed in recent years is the quality of growth-inflation mix. Currently India’s real GDP growth is in the 7-7.5% range, with CPI inflation anchored around 4.5%. This is markedly different from FY10-11 period, when real GDP growth averaged about 9.5%, but with CPI inflation running around 11.5%. While achieving high economic growth is important, it is more important in our view to achieve this along with low or acceptable inflation. In fact we would argue that it is imperative to get inflation and inflation expectations down, to achieve higher (and sustainable) growth and investments. From this perspective, there is no trade-off between growth and inflation in the long term.

    In fact, we believe that today’s corporate sector balance sheet stress can be traced back to the developments of the FY10-11 period, when a lot of mal-investments took place, with entrepreneurs believing (wrongly) that high nominal GDP growth, negative real rates and stable rupee environment would continue for the foreseeable period. In reality (and in hindsight), the FY10-11 high growth period was an aberration and led to the formation of macro imbalances, which later would unravel in the form of a currency crisis in mid-2013. In our view, a large part of those mal-investments were caused by persistent and large negative real rates, which gave a false sense of confidence and comfort to the Indian entrepreneurs about potential high return on investments.

    We are reasonably certain that similar type of macro imbalances will not be tolerated or allowed to be formed in the first place, given the changes that have taken place particularly with respect to RBI’s inflation management policy. With RBI formally committed to keep CPI inflation low, in the 4-5% range, and real rates positive in the 1.5-2.0% range, we believe chance of misallocation of capital, based on faulty market signals remain low in the future and would be dealt with decisively and proactively, if it were to manifest somehow. This would ensure that India’s growth-inflation mix remains prudent in the period ahead, which should help investors make decisions regarding long-term investments based on realistic expectations of returns and profit.

    India’s current growth rate is below potential, as per various metrics, including the composite PMI, which has remained stagnant in the last three years. Furthermore, growth is mainly supported by consumption at this juncture (10.5%yoy real growth in FY17), with private investment remaining anemic due to the high leverage of the corporate sector and weak demand. Or in other words, the quality of growth is not optimal at this stage. In our view, a healthy mix of consumption and investment growth needs to be achieved to prevent macro imbalances and inflationary expectations from building up and monetary actions should be calibrated keeping this in mind. The developments of the last two years, where RBI has cut policy rate by 175bps but private investment momentum has weakened further, have raised doubts about the efficacy of monetary policy action to solve the malaise of the private sector.

    We think both RBI and the government have been prudent with their monetary and fiscal policy stance in the past few years, focusing more on sustaining macro stability, rather than choosing the easy way out to prop up growth in the short-term. The strategy instead to focus on long-term structural reforms, like improving ease of doing business conditions in the country, will in our view help support a more robust and sustainable private sector capex cycle in the future, once demand starts coming back. India, in our view, is buying higher growth for the future by adopting a prudent macro policy stance at the current juncture.

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    SoftBank Agrees to Buy Robot Maker Boston Dynamics From Google Parent Alphabet

    This article by Pavel Alpeyev  and Mark Bergen for Bloomberg may be of interest to subscribers. Here is a section:

    This would be Son’s second venture into robotics. In 2012, SoftBank acquired French company Aldebaran Robotics SA and two years later unveiled Pepper, a $1,600 humanoid promoted as the world’s first robot endowed with emotions. Son envisioned building an ecosystem of apps that would let Pepper man storefronts as well as entertain people at home. But culture clashes between the Japan parent and French engineers as well as challenges of creating artificial intelligence capable of understanding natural language has left Pepper underwhelming and with lackluster adoption limited to Japan.

    “SoftBank may not have struggled as much if they bought a better robotics company” instead of Aldebaran, Takahashi said.

    The shares of SoftBank rose 7.4 percent in Tokyo, buoyed by Alibaba Group Holding Ltd.’s 13 percent jump in the U.S. that boosted the value of SoftBank’s stake in the Chinese e-commerce giant to $105.6 billion.

    “Typically, when Son makes a big acquisition, the markets are worried,” said Tomoaki Kawasaki, an analyst at Iwai Cosmo Securities Co. “If this deal goes through the Vision Fund, no one will fret about the impact on SoftBank’s balance sheet.”

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    Theresa May's Disastrous Failure

    Here is the opening of this Bloomberg Editorial:

    U.K. Prime Minister Theresa May's election gamble has faileddisastrously. The consequences are dire for her party and government, and could be equally bad for her country's relationship with Europe.

    May had hoped to increase her Conservative majority in Parliament, and instead has seen it wiped out. The Tories are the largest party in the House of Commons and with the support of Northern Ireland's Democratic Unionists intend to form a government. Directing policy and passing legislation, however, will be vastly harder than before.

    This would be a serious problem under any circumstances, as Britain's previous experience with hung Parliaments suggests. But these aren't just any circumstances. Brexit talks were due to start in 10 days. May's effort to prepare for that challenge has left her plans, such as they were, in shreds. The immediate prospect is great political disorder and maximum economic uncertainty.

    Such is the humiliation of this setback that May might soon choose -- or be forced -- to resign. This offers no relief. The task of finding a new leader would only add to the chaos, and there's no obvious successor capable of uniting the party. But if she hangs on, the question of if and when she goes will linger. Her authority is irretrievably diminished.

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    To the Millions of People Who Voted for Jeremy Corbyn: You Scare Me

    If I'd suggested to you before yesterday that Jeremy Corbyn was on course to outperform every Labour leader since Attlee, you'd probably have thought me away with the fairies.

    But that is exactly what happened. Under Jeremy Corbyn, Labour's share of the vote increased by 9.6 per cent – more than any other leader in any other election since Clem Attlee's 1945 landslide.

    Forgive me if I don't congratulate him.

    In fact forgive me, please, if I say this to each of the 12.8 million people who voted Labour on Thursday: you scare me.

    For months on end – ever since he became leader in 2015 – Jeremy Corbyn's views and alliances have been rammed home.

    You would have had to be living in a cave not to know that the Labour leader described Hamas terrorists as his "friends", that in a war between the IRA and Great Britain he wanted the IRA to win, or that he laid a wreath at the grave of one of the Munich Olympic's terrorists.

    It has been repeatedly reported that he was, until becoming Labour leader, chair of Stop The War, an organisation whose senior members celebrate North Korea as a model society and defend any enemy of the West.

    Then there's Labour's problem with Jews.

    For a time, Mr Corbyn's decades-long ally Ken Livingstone was barely off the news with his Tourette-like spouting of the name Hitler. He might have turned Jew-baiting into a fine art, but that has not been enough for Jeremy Corbyn's Labour Party to expel him.

    I could fill this entire page with examples of anti-Semitic hatred from Labour members and supporters, all of which have been constantly flagged up in newspapers and on broadcast media.

    And I haven't even mentioned John McDonnell's praise of violent rioters or Diane Abbott's view that any defeat of the British state should be celebrated.

    But none of this has made the least difference to 40 per cent of the electorate who were happy anyway to vote for Jeremy Corbyn's Labour Party.

    A bit of Jew hate? Support for the IRA? Pah! Look at the inspiring manifesto.

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    Email of the day

    On before we get too negative:

    Well, before we get too negative, let's remember the good things. This election knocked the SNP for six; and May has a bigger percentage of MPs than Angela Merkel is likely to get. Also, the weaker pound helps my non-UK shares! After that I'm struggling!

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