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

    Google's Quantum Processor May Achieve Quantum Supremacy in Months

    Thanks to a subscriber for this article from Interesting Engineering. Here is a section:

    After the list goes above 6, the numbers start becoming so large and abstracted you lose the sense of the gulf between where Google is and where it will be at the next step.

    In the case of Moore's Law, it started out in the 1970s as doubling every year, before being revised up to about every two years. According to Neven, Google is exponentially increasing the power of its processors on a monthly to semi-monthly basis. If December 2018 is the 1 on this list, when Neven first began his calculations, then we are already between 5 and 7.

    In December 2019, only six months from now, the power of Google's quantum computing processor might be anywhere from 24096 times to 28192 times as powerful as it was at the start of the year. According to Neven's telling, by February--only three months after they began their tests, so 3 on our list--, there were no longer any classical computers in the building that could recreate the results of Google's quantum computer's calculations, which a laptop had been doing just two months earlier.

    Neven said that as a result, Google is preparing to reach quantum supremacy--the point where quantum computers start to outperform supercomputers simulating quantum algorithms--in a only a matter of months, not years: “We often say we think we will achieve it in 2019. The writing is on the wall.”

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    Putin's Big Bet on Gold Is Paying Off Nicely

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

    The U.S. dollar’s dominance as a global reserve currency is commonly thought to result from the dearth of safe assets. Russia, however, recently has provided an example of how a sizable economy with the world’s fifth biggest international reserves can minimize dollar assets ad still do well. So far, it doesn’t have many followers, but gold buying by central banks is going up.

    Since being hit by sanctions for its aggression against Ukraine in 2014, Russia has had good reasons to rethink the composition of its international reserve. While the European Union hasn’t toughened its sanctions for almost five years, the U.S. has been doing it all the time. The Kremlin and the Bank of Russia consider the risk of further restrictions unpredictable and dependent more on U.S. domestic politics than on anything Russia does. In the 12 months since the end of September 2017, the central bank has more than halved the dollar’s share in its international assets and sharply increased the shares of the euro and the renminbi.

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    So Close Yet So Far Apart: Inside the Italy-EU Budget Tussle

    This article by Marco Bertacche and Lorenzo Totaro may be of interest to subscribers. Here is a section:

    For 2019, the EU could grant Italy flexibility available for unexpected events like last summer’s bridge collapse in Genoa. That would bring the adjustment required down to 0.42% of GDP.

    Italy meanwhile says that a series of one-time revenues plus lower-than-expected spending for the populists’ flagship programs are worth about 5.3 billion euros. That’s enough to improve the structural deficit by 0.1 percentage point, the Treasury says -- the commission is forecasting a deterioration of 0.2 points.

    If Italy’s numbers are right, then the two sides are just 0.3% of GDP or about 5 billion euros apart. That in itself might be close enough for the commission to give Rome a pass again.

    But that may be overshadowed by the prospect of another battle when discussions on the 2020 budget start in September.

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    Fed Lowers Long-Run U.S. Rate Outlook as Growth Outlook Dims

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

    “This is really important,” said Torsten Slok, chief economist at Deutsche Bank Securities, who expects a rate cut in July. “For many years, the Fed has been arguing that monetary policy was easy and accommodative and supporting growth and inflation. After a decade of easy monetary policy, the Fed has decided that policy is no longer stimulative.”

    Reasons listed for the lower neutral rate include ongoing fallout from the financial crisis, weaker productivity, continued slackness in the labor market and an aging population, which when combined leave the economy structurally weaker and so more vulnerable to rate hikes.

    The upshot is the Fed may have to lower rates if it wants to boost expansion to offset global headwinds, including slow global growth and trade disruptions from President Donald Trump’s tariff battles.

    Powell will give his view of policy in a speech on Tuesday to the Council on Foreign Relations in New York.

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    Swiss Spat With EU Prompts London Curbs on Country's Shares

    This article by Alexander Weber, Silla Brush and Viren Vaghela for Bloomberg may be of interest to subscribers. Here is a section:

    The political agreement at the heart of the issue -- which seeks to replace treaties on everything from agriculture to immigration and civil aviation -- was finalized in November last year. It hasn’t been endorsed by the Swiss government because it’s unpopular at home, in part because of fears it’ll erode high local wages.

    Earlier this month, while saying it was still “broadly positive,” Switzerland asked for some clarifications.” That was seen in Brussels as an attempt by the country to renegotiate the accord, which the EU has ruled out.

    The commission has also complained about “foot-dragging” by the government in Bern, and unless the commission decides otherwise, regulatory equivalence of the Swiss stock exchange will expire at the end of the week.

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    A Dark Alley in China's Credit Market Suddenly Getting Rough

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

    For firms that obtained funding via unorthodox methods, conditions may become particularly challenging. One of those practices is known as structured issuance, where a company will transfer cash to an asset manager to buy a slice of the bonds the company is itself selling. The manoeuvre helps give the appearance of greater demand for its securities and stronger ability to obtain funding. What could make the practice untenable is if asset managers can no longer use those securities held in custody as collateral for repos.

    “Since some repo transactions have defaulted recently, it is unclear whether companies can continue to borrow money from the structured issuance method, said Meng Xiangjuan, chief fixed-income analyst at SWS Research Co. in Shanghai. “If it stops, some issuers will certainly face difficulties operating their business normally, and their debt-repayment pressure will rise,” she said.

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    Don't tell me WHAT to buy, tell me WHEN to buy

    Thanks to a subscriber for this report from Jeffrey Saut. Here is a section:

    Well, as stated on June 3rd, we said a bottom was formed with the SPX at ~2729 and that the SPX was going to trade to new all-time highs.  Three sessions later, with the SPX at 2852, we wrote the stock market was probably going to stall into mid/late-June, but that new all-time highs were still coming.  The stock market did indeed stall, but only for about 5 sessions followed by a breakout to new all-time highs.  Indeed, “Don’t tell me what to buy, tell me when to buy!”

    Meanwhile, some Wall Street pundits suggest the SPX has already tagged their year end price target, stocks are expensive, and a recession is on the horizon.  They obviously are NOT listening to the message of the market that is predicting no recession.  Speaking to their other points, while earnings estimates for the S&P 500 have come down from roughly $173 to $168 for 2019, and $188 for 2020, stocks are not all that expensive on forward earnings.  If those estimates are correct, it implies the SPX is trading at 17.5x this year’s estimate, which granted is a tad on the expensive side, but only at 15.7x earnings for next year.  However, our models tell us under the current interest rate environment the right price earnings multiple (PE) should be 19.  Therefore, 19x this year’s estimate yields a price target of 3192 for the SPX.  If 2020’s estimate is anywhere near the mark, the SPX’s price target becomes 3572 (19 X $188 = 3572).  To wit, the average PE multiple at the end of just about every bull market is 18.89x earnings (Chart 1).  As a sidebar, the SPX’s PE ratio at the end of the late-1990’s bull market was over 30.

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