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

    LedgerX gets U.S. approval for derivatives on digital currencies

    This article from Reuters by Gertrude Chavez-Dreyfuss for Bloomberg may be of interest to subscribers. Here is a section:

    The U.S. Commodity Futures Commission said on Monday it has granted New York-based LedgerX, a bitcoin options exchange, the first license to clear and settle derivative contracts for digital currencies.

    The license authorizes LedgerX to provide clearing services for fully collateralized digital currency swaps. LedgerX, which was also granted a license to operate as a swap execution facility early this month, initially plans to clear bitcoin options, the CFTC said in a statement.

    The CFTC, however, also clarified in its statement that the approval of LedgerX's license "does not constitute or imply a commission endorsement of the use of digital currency generally, or bitcoin specifically."

    With the settlement and clearing license, participants in the LedgerX trading platform will be able to hedge bitcoin and other digital currencies using exchange-traded and centrally cleared option contracts. Initially, LedgerX expects to list one- to six-month options contracts for bitcoin. Other digital currency contracts such as ethereum (ETH) options are expected to follow.

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    "Risk versus Reward"

    Thanks to a subscriber for this report from Jeffrey Saut for Raymond James which may be of interest. Here is a section:

    In one such repartee, the advisor asked me to talk to her client who continues to sit on mountains of cash and refuses to invest.  His reasons were the same ones we always hear at events, so I related the points as to why we think this secular bull market will continue for years, but it was all to no avail.  My parting shot to the advisor and her client was, “Call me and tell me when he decides to buy stocks, because then I will become a seller”, which got a big laugh from both of them.

    “Risk versus Reward,” what an interesting topic and one that is extensively covered in Ben Graham’s book The Intelligent Investor.  The operative quote from that book is this, “The essence of portfolio management is the management of risks, not the management of returns.”  Dr. Graham closes that thought by saying, “All good portfolio management begins and ends with this premise.”  Yet managing risk is one of the hardest things to get investors to do, and that is the sad reason many participants remain scared of stocks, because they didn’t manage the risk back at the beginning of 2008.  Recall, there was a warning signal sounded by Dow Theory with the “sell signal” of November 21, 2007, just like the Dow Theory “sell signal” of September 23, 1999, but I digress.

    As stated, there is little doubt in our minds that the secular bull market is alive and well with years left to run, but most do not believe it because only a few of us have ever seen a secular “bull market”.  Indeed, like our example of the advisor and her client who think our conclusions are reductio ad absurdum, so they scorn the concept that stocks have years left to rally.  Unfortunately, many folks have felt that way for the last eight years and remain underinvested.  Also unfortunately, many participants are more concerned with the short/intermediate-term directionality of the equity markets than the long-term, net-worth-changing implication of a secular bull market.  To respond to those concerns, our intermediate-term model continues to flash bullish readings, while our short-term model suggests there is still the potential for some downside consternations this week.  We think if that weakness arrives, it should be bought.

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    Hong Kong Stocks Advance to Two-Year High Amid Mainland Inflows

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

    Inflows from the mainland have helped Hong Kong’s benchmark equity gauge climb 22 percent this year to outperform most global peers. Onshore shares have largely been left behind amid concerns about rising funding costs, corporate governance issues, liquidity pressures and tougher regulatory oversight.

    Chinese investors have bought about 35 billion yuan ($5.18 billion) worth of Hong Kong stocks in July as of Friday, surpassing June’s total monthly net purchases according to Bloomberg calculations.

    “Mainland investors are buying Hong Kong stocks to diversify their portfolios and hedge risks, thanks to the weak performance of mainland equities, especially the ones listed in Shenzhen," said Banny Lam, managing director and head of research at CEB International Investment Corp.

    The ChiNext, cowed by an official battle against speculators, is on the verge of becoming cheaper than the Nasdaq Composite Index for the first time on record. Its valuation based on reported earnings is now at 36.2, compared with 34.3 for the Nasdaq, leaving the narrowest gap since the Chinese board started in 2010.

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    Fox and Johnson Launch Coordinated Post-Brexit Trade Push

    This article by Simon Kennedy and Andrew Mayeda for Bloomberg may be of interest to subscribers. Here is a section:

    Trade Secretary Liam Fox acknowledged it will be a stretch for Britain to negotiate a new trading relationship with the European Union by the time of their 2019 divorce in another sign that the U.K. government will seek a post-Brexit transitional period.

    "There’s a growing consensus amongst the cabinet that we will leave the European Union, but we will have a transition and implementation phase,” Fox said on Monday during a trip to Washington. "It would be nice to think we could get a full trade agreement by the time we get to March 2019, but that would be an optimistic view of recent free-trade agreements.”

    Prime Minister Theresa May’s government once maintained a trade pact would be possible by the time Brexit happens despite doubts within the EU and warnings it took Canada and the bloc seven years to negotiate a less ambitious agreement than the one she is seeking. Her failure to maintain a parliamentary majority in last month’s election and increasing calls from business to avoid a "cliff edge" are now forcing the government to rally behind a transitional period.

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    The Great Rotation May Finally Be at Hand

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

    George Pearce’s, a macro strategist with Bespoke Investment Group LLC, said: “Higher risk-adjusted returns for stocks should draw inflows, and we know from our work that Americans are relatively unexposed to the market.”

    Companies have been the main buyer of U.S. equities since the post-crisis low, while households and institutions have divested, according to Credit Suisse. The outperformance of bonds since the financial crisis, risk aversion and regulations unfriendly to equities have helped create a preference for fixed income.

    Global bond funds -- which include government and high-yield obligations -- have seen $1.3 trillion of net inflows since 2009, while stocks have taken in less than half of that at $600 billion, according to Jefferies Group LLC, citing EPFR Global data, which reflect holdings among mutual and exchange-traded funds. 

    In the first half of the year, bond funds took in $204 billion while stocks saw $167 billion of inflows. A $107 billion injection into fixed-income in the second quarter was the highest on record going back to 2002, Jefferies said. This happened despite fears of higher global yields.

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    China's Got a Huge Artificial Intelligence Plan

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

    "The positive economic ripples could be pretty substantial," said Kevin Lau, a senior economist at Standard Chartered Bank in Hong Kong. “The simple fact that China is embracing AI and having explicit targets for its development over the next decade is certainly positive for the continued upgrading of the manufacturing sector and overall economic transformation."

    Chinese AI-related stocks advanced Friday. CSG Smart Science & Technology Co. climbed as much as 9.3 percent in Shenzhen before closing 3.1 percent higher, while intelligent management software developer Mesnac Co. surged 9.8 percent after hitting the 10 percent daily limit in earlier trading.

    AI will have a significant influence on society and the international community, according to an opinion piece by East China University of Political Science and Law professor Gao Qiqi published Wednesday in the People’s Daily, the flagship newspaper of the Communist Party.

    PwC found that the world’s second-biggest economy stands to gain more than any other from AI because of the high proportion of output derived from manufacturing.

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    Another Golden Age for Corporate Technology

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

    Even consumer companies are trying to make businesses foot at least some of their bills. Instacart is figuring out ways to make money from large food brands such as Red Bull, and not only from consumers reluctant to pay delivery fees. Airbnb and Uber want more bookings from people traveling on the corporate dime.

    Some of this strategy is about squeezing revenue from as many sources as possible. But it also highlights the limits of tech products and services just for individuals. We the people are penny-pinching jerks. Businesses watch their bottom lines, too, but they are often willing to pay for software and gadgets that give them an edge.

    That's why Intel, Oracle, International Business Machines and the early internet were built on sales to governments, spies, big corporations and others that wanted cutting-edge stuff and had the budgets to support its development. It feels a little like that again now. I think I'll stream some Pink Floyd.


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