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December 31 2014

Commentary by David Fuller

Russians Are Organizing Against Putin Using FireChat Messaging App

Here is the opening of this interesting article from Bloomberg:

Anti-government protesters in Russia followed along on Twitter as opposition leader Alexey Navalny live-tweeted hishouse-arrest violation today. But the real action was on FireChat, where Navalny and his supporters organized protests and exchanged unfiltered communication.

Open Garden, the San Francisco startup that makes FireChat, says activity from Russia has been spiking since yesterday, when Navalny urged his followers to download the free app. FireChat was the top-trending search on Apple’s App Store in Russia today. Downloads in the country began to increase on Dec. 20 after Facebook blocked a page promoting an opposition rally, under pressure from the government’s communications regulator, according to Open Garden.

FireChat, which lets users create chat rooms and communicate anonymously, has become popular among protesters around the world. Aside from anonymity, the app offers an advantage to those in politically unstable regions because it works even when Internet service is down. FireChat uses a Technology available on newer smartphones, called mesh networking, that facilitates wireless communication directly between devices. It uses a combination of Bluetooth and Wi-Fi signals to connect with phones running the app. Iraqis flocked to FireChat in June after unrest prompted an Internet shutdown, and protesters in Taiwan and Hong Kong used the app when wireless networks failed.

As President Vladimir Putin faces increasing dissent during Russia's worst economic crisis since 2009, he’s tightened his grip on the flow of information online. Navalny, an adept social networker, condemned his accelerated trial as a government attempt to silence him. He announced his arrest today to his 16,000 followers on FireChat, where his account has been verified by Open Garden. (Navalny has 868,000 followers on Twitter, where is profile is also verified.)

David Fuller's view -

If he survives Putin and his apparatchiks, Alexey Navalny would make a worthy successor.  



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December 31 2014

Commentary by David Fuller

The Markets Now

Monday January 12th, 5:30pm to 8:30pm, at East India Club, 16 St. James Square,LondonSW1Y 4LH

David Fuller's view -

We live in fascinating times which I look forward to discussing with you. Here is the brochure for this opening session of 2015.  There are certainly plenty of opportunities in the markets, in addition to some inevitable risks which we all hope to avoid.  We have an interesting new guest speaker - Charles Elliott - who will talk about the exciting field of Technology in which we all have an interest.  Our November session at the East India Club was a sell-out, attracting plenty of knowledgeable delegates who contributed to a lively session.  I expect the same in January and hope you will come along with any guests who would benefit, and do not hesitate to participate in the discussion of prospects and risks for 2015.  If you have the time, please also join us for a drink and further chats at the Club’s cash bar after 8:30pm.

Good news - Bruce Albrecht will also be able to give a short presentation at this seminar.

Please note – The Early Registration rate of £50 expires after 31st December.

 

Happy New Year!



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December 30 2014

Commentary by David Fuller

The Markets Now

Monday January 12th, 5:30pm to 8:30pm, at East India Club, 16 St. James Square,LondonSW1Y 4LH

David Fuller's view -

Here is the brochure.  I am looking forward to this opening session for 2015.  There are certainly plenty of opportunities in the markets, in addition to some inevitable risks which we all hope to avoid.  We have an interesting new guest speaker - Charles Elliott - who will talk about the exciting field of Technology in which we all have an interest.  Our November session at the East India Club was a sell-out, attracting plenty of knowledgeable delegates who contributed to a lively session.  I expect the same in January and hope you will come along with any guests who would benefit, and do not hesitate to participate in the discussion of prospects and risks for 2015.  If you have the time, please also join us for a drink and further chats at the Club’s cash bar after 8:30pm.

Good news - Bruce Albrecht will also be able to give a short presentation at this seminar.

Please note – The Early Registration rate of £50 expires after 31st December.



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December 29 2014

Commentary by David Fuller

The Markets Now

Monday January 12th, 5:30pm to 8:30pm, at East India Club, 16 St. James Square,LondonSW1Y 4LH

David Fuller's view -

Here is the brochure.  I am looking forward to this opening session for 2015.  There are certainly plenty of opportunities in the markets, in addition to some inevitable risks which we all hope to avoid.  We have an interesting new guest speaker - Charles Elliott - who will talk about the exciting field of Technology in which we all have an interest.  Our November session at the East India Club was a sell-out, attracting plenty of knowledgeable delegates who contributed to a lively session.  I expect the same in January and hope you will come along with any guests who would benefit, and do not hesitate to participate in the discussion of prospects and risks for 2015.  If you have the time, please also join us for a drink and further chats at the Club’s cash bar after 8:30pm.

Good news - Bruce Albrecht will also be able to give a short presentation at this seminar.



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December 23 2014

Commentary by David Fuller

The Markets Now

Monday January 12th, 5:30pm to 8:30pm, at East India Club, 16 St. James Square,LondonSW1Y 4LH

 
David Fuller's view -

Here is the new brochure.  I am looking forward to this opening session for 2015.  There are certainly plenty of opportunities in the markets, in addition to some inevitable risks which we all hope to avoid.  We have an interesting new guest speaker - Charles Elliott - who will talk about the exciting field of Technology in which we all have an interest.  Our November session at the East India Club was a sell-out, attracting plenty of knowledgeable delegates who contributed to a lively session.  I expect the same in January and suggest that you book early for the better rate and to ensure seats for yourself and any guests.  If you have the time, do join us for a drink and further chats at the Club’s cash bar after 8:30pm.

Good news - Bruce Albrecht will also be able to give a short presentation at this seminar.



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December 23 2014

Commentary by Eoin Treacy

Tech hardware and supply chain, Ten themes to watch in 2015

Thanks to a subscriber for this detailed report from Deutsche Bank, dated December 8th, but no less relevant today. Here is a section:  

What is Big Data?
The terms Big Data and Big Data Analytics are often used interchangeably, but they differ in one fundamental way. Big Data describes the processes used to collect and store large amounts of data. A data set is generally considered big when traditional relational databases or statistical programs become difficult to work with on existing hardware platforms. When this happens, new techniques must be used which are based on distributing the processing of the data set across hundreds or thousands of servers. Examples of these data sets can include shopping patterns collected by customer loyalty cards or location information collected from iPhones. Big Data Analytics is the process of collecting value from that data.

Market size and growth expectations for the Big Data market
IDC estimates that the combined Big Data and Business Analytics market was a $115B market in 2013, with Big Data representing 11% of the total, while Business Analytics represented 89% of the total. As seen in Figure 10, the combined market is expected to grow at a CAGR of 13% over the next 5 years, reaching $214B by 2018. The Business Analytics market is expected to grow at a CAGR of 11% during this period to a $173B market by 2018, largely driven by growth in services and software to support Business Analytics, while the hardware to support that growth is only expected to see modest growth. 

The Big Data market is a smaller market than analytics and was a $13B market in 2013. As seen in Figure 11, the Big Data market is expected to grow at a CAGR of 26% over the next 5 years, driven largely by growth in hardware to support Big Data. Servers and storage to hold Big Data are expected to see growth of 28-29% during this period, with this growth significantly helped bycloud infrastructure which is expected to grow 41% over the next few years. Growth in Big Data is being driven by increased use of social media, the digital market place, the proliferation of mobile devices, and the growth in the Internet of Things (IoT).

 

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

The Technology sector is in a constant state of flux, such is the rapid pace of innovation across its various subsectors. However some clear themes are evident such as mobility, connectivity, the accelerating output of data points from every part of our lives, increasingly intelligent machines capable of self diagnostics and rapid prototyping. All of these innovations are not occurring in isolation but are collaborative, so that developments in one area are quickly co-opted to accelerate growth elsewhere. While big data uses might be most apparent in social media and advertising, its application to the industrial, energy and healthcare complexes is even more important. 

 



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December 22 2014

Commentary by David Fuller

The Markets Now

Monday January 12th, 5:30pm to 8:30pm, at East India Club, 16 St. James Square,LondonSW1Y 4LH

 
David Fuller's view -

Here is the new brochure.  I am looking forward to this opening session for 2015.  There are certainly plenty of opportunities in the markets, in addition to some inevitable risks which we all hope to avoid.  We have an interesting new guest speaker - Charles Elliott - who will talk about the exciting field of Technology in which we all have an interest.  Our November session at the East India Club was a sell-out, attracting plenty of knowledgeable delegates who contributed to a lively session.  I expect the same in January and suggest that you book early for the better rate and to ensure seats for yourself and any guests.  If you have the time, do join us for a drink and further chats at the Club’s cash bar after 8:30pm.

Good news - Bruce Albrecht will also be able to give a short presentation at this seminar.



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December 19 2014

Commentary by David Fuller

Oil Production and Climate Change

My thanks to a relative for this interesting and detailed report by James W Murray, School of Oceanography, University of Washington.  Because it consists mostly of graphics, here is the briefest opening:

“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so”

Mark Twain

There are many, many things that the public and policymakers know for sure about energy that just ain't so.

"We like to think that the reason we enjoy our high standards of living is because we have been so clever at figuring out how to use the world's available resources. But we should not dismiss the possibility that there may also have been a nontrivial contribution of simply having been quite lucky to have found an incredibly valuable raw material that for a century and a half or so was relatively easy to obtain."

- James D. Hamilton (Dept. of Economics, UCSD)

Oil Production has beenon a plateau since 2005

David Fuller's view -

Many thanks for this interesting and informative report.  I have been reading, trying to learn from, and commenting on energy reports for over 45 years.  Most have proved to be quite inaccurate, in terms of long-term forecasts, largely because their authors did not fully appreciate the march of Technology.  Many also had biases, across the widest range, from green alarmists to industrial deniers.  Moreover, if what we know about energy production and Technology had remained unchanged from the '60s or '70s, we would be living in a much more economically depressed and energy challenged environment today.  I think you could say the same about what we know today, relative to what will happen during the rest of our lives and well beyond.

Of course Climate Change is extremely important and worrying, and we are but one of its major causes, if we consider the long-term history of our planet.  Coal is currently the cheapest energy source, widely available and the biggest pollutant.  Fortunately, the use of coal is being phased out by many countries, not least in China, for health reasons. 

Greens and political alarmists such as Al Gore persuaded Germany to invest fortunes in inefficient wind mills and early solar projects.  As a consequence, in addition to some of the world's highest energy costs, Germany is burning more coal today because the renewables need back-up coal-fired plants to offset frequent, sudden shortfalls when the wind is not blowing or the sun is not shining.   

France closed some of its older nuclear power stations following Japan's Fukushima nuclear disaster in March 2011, caused by a massive earthquake and tidal wave.  Today, France burns more coal for the same reasons as Germany, and both countries have considerably weaker economies.  These mistakes have been repeated across much of Europe and the UK.

The report above, interesting though it is, has biases and inaccuracies, such as the sweeping generalisations in points 3 & 4 below:

3. They are environmentally damaging because the fracking fluid is highly toxic and much of it escapes during the blowback process and sometimes water wells are contaminated.

4. Because each well has low flow and depletes quickly, massive numbers of wells must be drilled creating significant infrastructure damage to roads and bridges. Currently no state or municipal authorities are capturing anything close to the total cost of the infrastructure damage from the shale operators which means taxpayers are gong to be left paying those bills.

 This item continues in the Subscribers’ Area, where the report is also posted.



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December 19 2014

Commentary by David Fuller

The Markets Now

Monday January 12th, 5:30pm to 8:30pm, at East India Club, 16 St. James Square,London, SW1Y 4LH

David Fuller's view -

Here is the new brochure.  I am looking forward to this opening session for 2015.  There are certainly plenty of opportunities in the markets, in addition to some inevitable risks which we all hope to avoid.  We have an interesting new guest speaker - Charles Elliott - who will talk about the exciting field of Technology in which we all have an interest.  Our November session at the East India Club was a sell-out, attracting plenty of knowledgeable delegates who contributed to a lively session.  I expect the same in January and suggest that you book early for the better rate and to ensure seats for yourself and any guests.  If you have the time, do join us for a drink and further chats at the Club’s cash bar after 8:30pm.

Good news - Bruce Albrecht will also be able to give a short presentation at this seminar.



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December 18 2014

Commentary by David Fuller

S&P 500 Caps Best 2-Day Gain Since 2011 Amid Global Rally

The Dow Jones Industrial Average (INDU) surged the most since 2011 and the Standard & Poor’s 500 Index capped its best two-day gain in three years as global equities rallied on theFederal Reserve’s pledge to be patient on boosting rates.

The S&P 500 added 2.4 percent to 2,061.23 at 4 p.m. in New York. The index climbed 4.5 percent over two days, the most since November 2011. The Dow gained 421.28 points, or 2.4 percent, to 17,778.15, the biggest one-day jump since December 2011. Technology shares soared as Oracle Corp. increased the most in six years. About 8.7 billion shares changed hands on U.S. exchanges, 22 percent above the three-month average.

“Just as with other instances, a dovish Fed is making up for a lot of bad news, fromEurope and from other parts of the world,” Russ Koesterich, chief investment strategist at New York-based BlackRock Inc., said in an interview on Bloomberg Television. “This is why you have this rebound rally after a few days of very harsh losses.”

U.S. stocks are rebounding from a seven-day decline that erased $1 trillion from equity prices and coincided with a 15 percent drop in West Texas Intermediate crude between Dec. 5 and Dec. 16. S&P 500 (SPX) energy producers tumbled 8 percent over the stretch while chemical and mining companies lost 7.4 percent. The S&P 500 is now 0.7 percent away from wiping out all its losses from the recent selloff.

A full recovery would be the fifth time this year the S&P 500 has come back after falling more than 4 percent from a high. In comparable drops beginning in January, April, July and September, the index needed about a month to erase losses, data compiled by Bloomberg show.

A full recovery would be the fifth time this year the S&P 500 has come back after falling more than 4 percent from a high. In comparable drops beginning in January, April, July and September, the index needed about a month to erase losses, data compiled by Bloomberg show.

David Fuller's view -

The greater two-way volatility confirms that buying and selling pressure are currently more evenly matched.  Nevertheless, there is still no evidence that the bull market has ended, judging from this weekly chart of the S&P 500 Index.

This item continues in the Subscribers’ Area.



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December 18 2014

Commentary by David Fuller

The Markets Now

Monday January 12th, 5:30pm to 8:30pm, at East India Club, 16 St. James Square,LondonSW1Y 4LH

 
David Fuller's view -

Here is the new brochure.  I am looking forward to this opening session for 2015.  There are certainly plenty of opportunities in the markets, in addition to some inevitable risks which we all hope to avoid.  We have an interesting new guest speaker - Charles Elliott - who will talk about the exciting field of Technology in which we all have an interest.  Our November session at the East India Club was a sell-out, attracting plenty of knowledgeable delegates who contributed to a lively session.  I expect the same in January and suggest that you book early for the better rate and to ensure seats for yourself and any guests.  If you have the time, do join us for a drink and further chats at the Club’s cash bar after 8:30pm.

Good news - Bruce Albrecht will also be able to give a short presentation at this seminar.



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December 17 2014

Commentary by David Fuller

Rob Arnott: Emerging Markets Are Worth the Risk

Arnott is making long-term bets on emerging markets because his calculations make him gloomy about U.S. stocks and the long-run growth of the U.S. economy. As he told Bloomberg.com, the rest of the world is full of opportunity for the patient and brave investor.

What’s the biggest source of risk for investors today?

Markets are expensive. The most popular markets, particularly U.S. growth stocks, are priced to an expectation that things will sort out very, very well. It leaves very little room for disappointment.

What assets or investments are overhyped?

U.S. equities are among the more expensive markets in the world. I wouldn’t describe it as a bubble but I’d describe it as very expensive. U.S. stocks are priced at a Shiller P/E ratio – price relative to 10-year earnings – of 27 times. It’s been higher twice in history, during the tech bubble and in 1929.

So anyone buying U.S. equities is making one of two assumptions. [First, that] U.S. equities are still, today, priced to offer solid long-term returns relative to the whole spectrum of alternatives available. I don’t believe that.

Or, they believe they’ll hear the bell chime when the merry-go-round stops. And they’ll hear it before others do. That’s a pretty heroic assumption.

Or, [they can] recognize that maybe this is a game that they prefer not to play. I fall squarely in the latter camp.

So what games do you play instead?

There’s a [wide range] of markets available to us and some are pretty cheap. Emerging market stocks are priced at 15 times their 10-year earnings. If you use a fundamental index, they’re priced at 11 times their 10-year earnings. Eleven times. That’s cheap.

I’d much rather put my money there and wait patiently than try to play the game of guessing how much further this bull market can run. Folks who harbor the illusion that they can pick the top are deluding themselves.

David Fuller's view -

Certainly Rob Arnott is right about the US market being expensive today.  However, its leadership in Technology and the number of sector-leading multinational Autonomies makes it an attractive prospect for the longer term, in my opinion.

This item continues in the Subscribers’ Area.



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December 17 2014

Commentary by David Fuller

The Markets Now

Monday January 12th, 5:30pm to 8:30pm, at East India Club, 16 St. James Square,London, SW1Y 4LH

David Fuller's view -

Here is the new brochure.  I am looking forward to this opening session for 2015.  There are certainly plenty of opportunities in the markets, in addition to some inevitable risks which we all hope to avoid.  We have an interesting new guest speaker - Charles Elliott - who will talk about the exciting field of Technology in which we all have an interest.  Our November session at the East India Club was a sell-out, attracting plenty of knowledgeable delegates who contributed to a lively session.  I expect the same in January and suggest that you book early for the better rate and to ensure seats for yourself and any guests.  If you have the time, do join us for a drink and further chats at the Club’s cash bar after 8:30pm.



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December 16 2014

Commentary by David Fuller

3.6 Degrees of Uncertainty

My thanks to a scientist in-law for this article from The New York Times.  Here is a brief sample:

A decade of subsequent research added scientific support to the notion that 2C was a dangerous threshold. Experts realized, for example, that at some increase in global temperature, the immense Greenland ice sheet would begin an unstoppable melt, raising the sea by as much as 23 feet over an unknown period. Their early calculations suggested that calamity would be unlikely as long as global warming did not exceed about 1.9 degrees Celsius.

“Risking a loss of the whole Greenland ice sheet was considered a no-go area,” said Stefan Rahmstorf, head of earth system analysis at the Potsdam Institute for Climate Impact Research in Germany. “We are talking about really sinking a lot of coastal cities.”

As the economic and scientific arguments accumulated, the Germans managed to persuade other countries to adopt the 2C target, turning it into official European policy. The proposal was always controversial, with African countries and island states, in particular, arguing that it was too much warming and would condemn them to ruin. The island states cited the potential for a large rise of the sea, and African countries feared severe effects on food production, among other problems.

But as a practical matter, the 2C target seemed the most ambitious possible, since it would require virtually ending fossil fuel emissions within 30 to 40 years. At Cancun in 2010, climate delegates made 2C one of the organizing principles of negotiations.

The talks culminating in Paris next year are seen as perhaps the best chance ever to turn that pledge into meaningful emissions limits, in part because President Obama has gone far beyond his predecessors in committing the United States, the largest historical producer of greenhouse gases, to action. That, in turn, has lured China, the largest current producer, into making its first serious commitments.

David Fuller's view -

This challenge will be address more effectively if calm and objective research is produced, and sensible strategies are followed.  The solution, we already know, is not more of this century’s foolish closing of viable nuclear power stations and the building of ever more windmills, which too often have needed to be backed by an increase in coal power stations, as we have seen in Germany.  The financial cost of this blunder and the increased CO2 emissions it has produced has not persuaded emerging nations to follow Europe’s policies. 

Technology offers the solutions we require.  These range from natural gas which is by far the least polluting fossil fuel, to new nuclear power stations, and solar which is the most flexible and viable renewable power source that we currently have.  Technology even has the potential to make nuclear fission viable within the 30 to 40 years required.  



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December 16 2014

Commentary by David Fuller

The Markets Now

Monday January 12th, 5:30pm to 8:30pm, at East India Club, 16 St. James Square,London, SW1Y 4LH

 
David Fuller's view -

Here is the new brochure.  I am looking forward to this opening session for 2015.  There are certainly plenty of opportunities in the markets, in addition to some inevitable risks which we all hope to avoid.  We have an interesting new guest speaker - Charles Elliott - who will talk about the exciting field of Technology in which we all have an interest.  Our November session at the East India Club was a sell-out, attracting plenty of knowledgeable delegates who contributed to a lively session.  I expect the same in January and suggest that you book early for the better rate and to ensure seats for yourself and any guests.  If you have the time, do join us for a drink and further chats at the Club’s cash bar after 8:30pm.



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December 15 2014

Commentary by David Fuller

The Markets Now

Monday January 12th, 5:30pm to 8:30pm, at East India Club, 16 St. James Square,London, SW1Y 4LH

 
David Fuller's view -

 

Here is the new brochure.  I am looking forward to this opening session for 2015.  There are certainly plenty of opportunities in the markets, in addition to some inevitable risks which we all hope to avoid.  We have an interesting new guest speaker - Charles Elliott - who will talk about the exciting field of Technology in which we all have an interest.  Our November session at the East India Club was a sell-out, attracting plenty of knowledgeable delegates who contributed to a lively session.  I expect the same in January and suggest that you book early for the better rate and to ensure seats for yourself and any guests.  If you have the time, do join us for a drink and further chats at the Club’s cash bar after 8:30pm.   



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December 12 2014

Commentary by David Fuller

The Markets Now

Monday January 12th, 5:30pm to 8:30pm, at East India Club, 16 St. James Square,London, SW1Y 4LH

 
David Fuller's view -

Here is the new brochure.  I am looking forward to this opening session for 2015.  There are certainly plenty of opportunities in the markets, in addition to some inevitable risks which we all hope to avoid.  We have an interesting new guest speaker - Charles Elliott - who will talk about the exciting field of Technology in which we all have an interest.  Our November session at the East India Club was a sell-out, attracting plenty of knowledgeable delegates who contributed to a lively session.  I expect the same in January and suggest that you book early for the better rate and to ensure seats for yourself and any guests.  If you have the time, do join us for a drink and further chats at the Club’s cash bar after 8:30pm.   

Delegate numbers are limited to 35 and the room is over one-third full.



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December 11 2014

Commentary by David Fuller

The Markets Now

Monday January 12th, 5:30pm to 8:30pm, at East India Club, 16 St. James Square,London, SW1Y 4LH

David Fuller's view -

Here is the new brochure.  I am looking forward to this opening session for 2015.  There are certainly plenty of opportunities in the markets, in addition to some inevitable risks which we all hope to avoid.  We have an interesting new guest speaker - Charles Elliott - who will talk about the exciting field of Technology in which we all have an interest.  Our November session at the East India Club was a sell-out, attracting plenty of knowledgeable delegates who contributed to a lively session.  I expect the same in January and suggest that you book early for the better rate and to ensure seats for yourself and any guests.  If you have the time, do join us for a drink and further chats at the Club’s cash bar after 8:30pm.   

Delegate numbers are limited to 35 and the room is now one-third full.



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December 10 2014

Commentary by David Fuller

The Markets Now

Monday January 12th, 5:30pm to 8:30pm, at East India Club, 16 St. James Square,London, SW1Y 4LH

 
David Fuller's view -

Here is the new brochure.  I am looking forward to this opening session for 2015.  There are certainly plenty of opportunities in the markets, in addition to some inevitable risks which we all hope to avoid.  We have an interesting new guest speaker - Charles Elliott - who will talk about the exciting field of Technology in which we all have an interest.  Our November session at the East India Club was a sell-out, attracting plenty of knowledgeable delegates who contributed to a lively session.  I expect the same in January and suggest that you book early for the better rate and to ensure seats for yourself and any guests.  If you have the time, do join us for a drink and further chats at the Club’s cash bar after 8:30pm.   



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December 09 2014

Commentary by David Fuller

The Markets Now

Monday January 12th, 5:30pm to 8:30pm, at East India Club, 16 St. James Square,London, SW1Y 4LH

David Fuller's view -

Here is the new brochure.  I am looking forward to this opening session for 2015.  There are certainly plenty of opportunities in the markets, in addition to some inevitable risks which we all hope to avoid.  We have an interesting new guest speaker - Charles Elliott - who will talk about the exciting field of Technology in which we all have an interest.  Our November session at the East India Club was a sell-out, attracting plenty of knowledgeable delegates who contributed to a lively session.  I expect the same in January and suggest that you book early for the better rate and to ensure seats for yourself and any guests.  If you have the time, do join us for a drink and further chats at the Club’s cash bar after 8:30pm.   



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December 05 2014

Commentary by David Fuller

The Markets Now

Monday January 12th, 5:30pm to 8:30pm, at East India Club, 16 St. James Square,London, SW1Y 4LH

 
David Fuller's view -

Here is the new brochure.  I am looking forward to this opening session for 2015.  There are certainly plenty of opportunities in the markets, in addition to some inevitable risks which we all hope to avoid.  We have an interesting new guest speaker - Charles Elliott - who will talk about the exciting field of Technology in which we all have an interest.  Our November session at the East India Club was a sell-out, attracting plenty of knowledgeable delegates who contributed to a lively session.  I expect the same in January and suggest that you book early for the better rate and to ensure seats for yourself and any guests.  If you have the time, do join us for a drink and further chats at the Club’s cash bar after 8:30pm.   

Eight people have now signed up for The Markets Now on 12th January.



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December 04 2014

Commentary by David Fuller

The Markets Now

Monday January 12th, 5:30pm to 8:30pm, at East India Club, 16 St. James Square,London, SW1Y 4LH

 
David Fuller's view -

Here is the new brochure.  I am looking forward to this opening session for 2015.  There are certainly plenty of opportunities in the markets, in addition to some inevitable risks which we all hope to avoid.  We have an interesting new guest speaker - Charles Elliott - who will talk about the exciting field of Technology in which we all have an interest.  Our November session at the East India Club was a sell-out, attracting plenty of knowledgeable delegates who contributed to a lively session.  I expect the same in January and suggest that you book early for the better rate and to ensure seats for yourself and any guests.  If you have the time, do join us for a drink and further chats at the Club’s cash bar after 8:30pm.   

Six people signed up today for The Markets Now on 12th January.



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December 03 2014

Commentary by David Fuller

The Markets Now

Monday January 12th, 5:30pm to 8:30pm, at East India Club, 16 St. James Square, London, SW1Y 4LH

David Fuller's view -

Here is the new brochure.  I am looking forward to this opening session for 2015.  There are certainly plenty of opportunities in the markets, in addition to some inevitable risks which we all hope to avoid.  We have an interesting new guest speaker - Charles Elliott - who will talk about the exciting field of Technology in which we all have an interest.  Our November session at the East India Club was a sell-out, attracting plenty of knowledgeable delegates who contributed to a lively session.  I expect the same in January and suggest that you book early for the better rate and to ensure seats for yourself and any guests.  If you have the time, do join us for a drink and further chats at the Club’s cash bar after 8:30pm.   



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December 02 2014

Commentary by David Fuller

The Markets Now

Monday January 12th, 5:30pm to 8:30pm, at East India Club, 16 St. James Square, London, SW1Y 4LH

David Fuller's view -

Here is the new brochure.  I am looking forward to this opening session for 2015.  There are certainly plenty of opportunities in the markets, in addition to some inevitable risks which we all hope to avoid.  We have an interesting new guest speaker - Charles Elliott - who will talk about the exciting field of Technology in which we all have an interest.  Our November session at the East India Club was a sell-out, attracting plenty of knowledgeable delegates who contributed to a lively session.  I expect the same in January and suggest that you book early for the better rate and to ensure seats for yourself and any guests.  If you have the time, do join us for a drink and further chats at the Club’s cash bar after 8:30pm.   



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November 28 2014

Commentary by Eoin Treacy

See the Drone That Is Years Ahead of Google and Facebook

This video clip from Bloomberg TV may be of interest to subscribers. Here is the link

Eoin Treacy's view -

The evolution of drones have been picking up pace as the size and weight of motors, batteries and cameras decreases. Bestbuy is now selling a variety of camera enabled drones which further exemplifies how ubiquitous the Technology is becoming. 

This interview with the CEO of China’s DJI Technology by the Wall Street Journal highlights how quickly the sector is evolving and how quickly the availability of Technology is driving further innovation. The FAA’s report this week on the misbehaviour of some drone pilots brings into the focus the need for some form of regulation of the sector.  



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November 26 2014

Commentary by David Fuller

China 2014 gold demand heading for 2,100 tonnes

My thanks to a subscriber for the link to this informative article from highly experienced Lawrence Williams of Mineweb.  Here is the latter section:

And, of course, China and India are not the only countries consuming substantial amounts of gold.  As we have noted here (/mineweb/content/en/mineweb-fast-news?oid=260489&sn=Detail) the Russian central bank reckons to have picked up 150 tonnes so far this year, while other countries within the Russian sphere of influence have also been buying. 

Cumulatively demand elsewhere in Asia where the people have a propensity for hoarding gold has also remained at a strong level. Reports suggest that low gold prices have been stimulating substantial gold buying in the souks of the Middle East, although this is seldom quantified.

Yet still the gold price remains weak although it does seem to have made something of a recovery from its early November lows. As we have commented before, demand fundamentals look to be strong in the face of declining supplies. There have been some heavy recent sales from the gold ETFs, but these do not make up for the strong demand levels seen elsewhere and scrap gold levels appear to be falling to well below 2013 levels.

Thus, the fundamental figures suggest that the gold price should be rising with demand exceeding supply. But the futures market still appears to be controlling price levels and we are again seeing strange dumpings of paper gold into the markets at odd trading hours which do look to be an attempt to keep knocking the price down. But with the draining of physical gold from Western warehouses, and its moving primarily into stronger Eastern hands, one suspects that the scope for keeping a lid on the gold price is reducing all the time. As we have said before, the worst may not be over yet for the gold investor – there are powerful forces keeping prices depressed and forcing the lower – but when the true turning point arises gold’s recovery could be fast and very strong indeed driven by a severe shortage of physical gold in the West. As always, it’s a question of timing and that is not easily determinable.

David Fuller's view -

This is an accurate description of what is going on.  Gold has been the plaything of investment banks – the “paper gold” referred to above, working in concert ever since we first hear the forecast of ‘$1000 by the end of 2014.’  As I recall, that target was first mentioned last year and has been repeated ad nauseam, with considerable success.  Westerners had little reason to buy gold, which was out of favour while bond and many stock markets were booming.  Moreover, Technology has made mining vastly more efficient, delaying the reduction in new supplies of bullion. 

This item continues in the Subscribers’ Area. 



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November 24 2014

Commentary by Eoin Treacy

Heineken Takes Beer Out of Man Cave With $300 Dispenser

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

The Sub’s upscale design plays into the growing trend of more refined at-home drinking -- fancy cocktails, fine wine, craft beer -- which “communicates a certain status” among consumers, said Ben Voyer, a social psychologist at the ESCP Europe Business School. While mainstream beer volumes are falling, sales of premium-priced beers such as Heineken’s Affligem and the tequila-flavored Desperados are on the rise. In Italy, half of all Torps sold are Affligem, an ale started at a Belgian abbey founded in 1074.

Heineken fell 0.6 percent to 61.12 euros at 1:23 p.m. in Amsterdam. Even for the man who has everything, though, the Sub is “ridiculously” expensive, said Euromonitor analyst Spiros Malandrakis, who predicts it will fail unless Heineken licenses its Technology to other brewers to widen the selection of brands. That strategy helped make Keurig Green Mountain Inc.’s coffee machines ubiquitous in American kitchens.

That won’t happen with the Sub, however, according to Nasard. “We’re not a service provider.” Instead, Heineken -- which has introduced a cheaper $235 plastic version of its machine -- plans to keep this Christmas gift in the family.

 

Eoin Treacy's view -

Most people who own a capsule coffee machine will testify that consumption and expenditure rise while tolerance for lower quality products such as instant decreases. That’s music to the ears of companies such as Nestle and it is inevitable that others seek to adopt a similar high profile business plan for their products. It remains open to question whether Heineken will succeed with its Torps but the innovation is admirable. 



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November 20 2014

Commentary by Eoin Treacy

Shaken, Not Stirred

This article gained some attention in the last week as cruise lines experiment with replacing bartenders with robots. Here is a section:

Once the guests enter the bar, they virtually create their drink via a smartphone or tablet app. The sky is the limit as far as drink orders go. The robots can execute options ranging from alcoholic to non-alcoholic beverages as well as a full range of combinations.

As soon as the guest’s order has been sent, the KR 5 arc robots get to work. They grip the cocktail mixer, fill it with the desired ingredients, shake it and pour the finished cocktail into the glass. The robot only requires one minute to make two drinks. Their compact design makes the six-axis robots ideal for the bar environment. Thanks to the longest reach in their class as well as their low weight, the robots are practically predestined for use on a cruise ship.

“Makr Shakr is an excellent example of how robot-based automation can change the interaction between humans and products – a topic that we have researched substantially”, says Carlo Ratti, professor at the Massachusetts Institute of Technology and co-founder of Makr Shakr.

Eoin Treacy's view -

The evolution of robotics, optics and power consumption has revolutionised the utility of these machines and their cost continues to trend lower. Some will obviously worry at the loss of employment opportunities for lower skilled work this entails. On the other hand, for a cruise ship minimising the berths taken up by crew means more space can be allocated to fare paying passengers. These types of economic considerations are driving demand for machines. 



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November 19 2014

Commentary by David Fuller

Email of the day 1

On the Markets Now seminar:

 

“Hi David, Thank you for yet another highly rewarding Markets Now seminar. These really are special occasions, given the array of highly informative data presented. Furthermore, the evening seems to pack an even heavier punch nowadays with the expansion to "4 Wise Men"...together with their individual mantras - ranging from Tim's appraisal of net foreign assets as a red warning light; to Iain's porfolio management aversion of any failure to meet a goal; to Bruce's portrayal of the need to comprehend other's perspectives via his proprietary "moccasin behavioural theory"! Well done to you all.  Kind Regards,”

David Fuller's view -

Thank you for your kind words and enthusiastic participation, not least in arriving early and helping me with the Technology.  For me, these sessions with subscribers and their guests are always a treat.  Wisdom is ephemeral, in my opinion, but there was plenty of experience in the room, not least among the delegates.  Speakers benefit from these exchanges of views as much as everyone else.  I look forward to our 2015 season, starting on Monday 12th January, commencing at 5:30pm in the East India Club at 16 St James’s Square, SW1Y 4LH.        



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November 17 2014

Commentary by Eoin Treacy

Halliburton Agrees to Buy Baker Hughes for $34.6 Billion

This article by David Wethe and Tara Lachapelle for Bloomberg may be of interest to subscribers. Here is a section:

Both companies are hired by oil and natural gas explorers to drill wells and provide services such as hydraulic fracturing, or fracking, which cracks rock to let petroleum flow more freely. Together, the companies will dominate the $25 billion U.S. market for onshore fracking.

The merger also gives Halliburton access to Bakers Hughes Technology to boost production in aging wells and its prized oil tools business.

The two companies restarted talks yesterday after initial discussions fell apart late last week, a person familiar with the matter said yesterday. Baker Hughes confirmed the takeover talks on Nov. 13 after media reports of a potential deal.

Talks collapsed a day later, and Baker Hughes released letters in which Craighead took Halliburton’s Lesar to task for refusing to raise his offer and pressuring for a hasty decision by threatening a proxy fight. 

 

Eoin Treacy's view -

If major oil producers cut back on drilling and exploration because they no longer believe oil prices will continue to trend higher, oil service companies necessarily run into trouble. Deep corrections have been evident on almost all oil service companies over the last couple of months as oil prices pulled back. This is creating interesting situations for expansion oriented boards that now see bargain prices among some of their competitors. 



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November 14 2014

Commentary by David Fuller

The End of Chocolate: Can Science Save the Most Endangered Treat In the World?

Mark your calendar: January 1, 2020.

As this future year unfolds, the gap between how much cocoa the world wants to consume and how much it can produce will swell to 1 million metric tons, according to Mars Inc. and Barry Callebaut AG, the world’s largest chocolate maker. By 2030, the predicted shortfall will grow to 2 million tons. And so on.

Because of disease, drought, rapacious new markets and the displacement of cacao by more-productive crops such as corn and rubber, demand is expected to outstrip supply by an additional 1 million tons every decade for the foreseeable future. Here, now, as you read these words, the world is running out of chocolate, Bloomberg Pursuits will report in its Holiday 2014 issue.

Last year, we again consumed more cocoa than we were able to produce. This year, despite an unexpected bumper crop, supply barely kept pace with the recent upswing in demand. From 1993 to 2007, the price of cocoa averaged $1,465 a ton; during the subsequent six years, the average was $2,736 -- an 87 percent increase.

The world’s most universally delectable treat has begun a journey from being very loved and very common, like beer, to being very loved and a good deal less common, like Bordeaux. Unfortunately, that is the least of the confection’s problems.

Efforts are under way to make chocolate cheap and abundant -- in the process inadvertently rendering it as tasteless as today’s store-bought tomatoes, yet another food, along with chicken and strawberries, that went from flavorful to forgettable on the road to plenitude.

 

David Fuller's view -

Personally, I am concerned that female members of our extended family will see this article… and despair.  However, I am optimistic that a combination of scientific experimentation, luck and Technology will eventually supply the world with a sufficient quantity of tasty cocoa. 

This item continues in the Subscriber’s Area.



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November 10 2014

Commentary by Eoin Treacy

Email of the day on a bullish case for bonds

Globalization, improving Technology, high unemployment, low wage growth, excess capacity and increasing supply, especially of commodities, should lead to lower prices. This is deflationary.  Despite Friday’s move, the gold price has been telling us that deflation threatens.  The following recommendation to buy bonds is taken from Rambus Technology.  It seems logical.

“PM and commodity decline is signalling deflation despite the FEDs attempts to counter it and this will power long term government bonds upward. As the world’s reserve currency a major part of all world- wide debt is denominated in US dollars. As marginal countries are forced to de-lever it will act as a short covering of the USD and force the USD to rise. As the economies of peripheral nations falter it will drive capital towards the core which is the USD and its economy. This will continue to stoke our Sovereign bond market until the currency becomes suspect. Just as occurred in the great depression government bonds should rally until we reach a point of banking conflagration as we did with the failure of the Credit Anstalt Bank in May 1931. By then gold should resume its traditional role of being an asset with no counter party risk and last ditch store of value. This is how we should transition into the next bull market in gold. It won’t be an easy transition as Mr. Market will do his utmost best to throw off initial bull believers just as he has done to the bears on the way down. Until a similar banking crisis emerges US Government bonds should rally and interest rates decline. At present US interest rates hover above those of most developed nations and its easy to imagine how with a stronger USD rates can at least match that of other nations. Hoisington is forecasting long US rates to fall to a range of 1.7-2.3%.” 

The full report is here

Eoin Treacy's view -

My view – Thank you for this thought provoking email. I agree that the relative strength of the US economy and the concordant strength of the US Dollar represent bullish considerations for US Treasuries. The Fed’s Total Foreign Holdings of US marketable securities Index is reported with a five-month lag but remains on an upward trajectory and stood at $6 trillion at the last update. This is not a timing indicator but the trend is clear and there is no reason to believe it will reverse with the ending of QE. 

Falling commodity prices are disinflationary rather than outright deflationary because they encourage rather than impede productivity growth in the wider economy. Therefore I am cautious of drawing to hard a conclusion from that trend at the current time. Just how low oil falls will be a major determinant on the deflationary effect since the sector represents such a high proportion of capital expenditure for the US economy. 



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November 03 2014

Commentary by David Fuller

CSEM White Solar Panels Are Made to Blend into Buildings

Here is the opening of this informative article from Gizmag:

Solar panels are seen as a way of making buildings greener and more sustainable, as well as making them less dependent on the grid for power. The problem is that the blue/black panels stick out like sore thumbs and end up exiled to rooftops. With the goal of making solar panels aesthetically invisible, the Swiss private, nonprofit Technology company CSEM has developed what it bills as the world's first white solar modules – designed to blend into buildings instead of sitting on the roof.

The reason why most solar panels look like something off of a beetle’s back is because of the need to absorb visible light. Since nothing absorbs like something colored black, the photovoltaic cells that make up the panel are as dark as possible. That may do the job, but it also means that any solar panel installation looks like exactly what it is, which doesn’t leave architects with much latitude.

CSEM reasoned that what designers wanted was a panel that would come in different colors and has no visible connections, with white being the most desirable because of its versatility. The way in which the company managed this is with a plastic layer that goes over the panel. This layer acts as a scattering filter that reflects all visible light, yet lets in infrared rays, which allows the panel to generate electricity. CSEM claims that this layer works with any crystalline silicon cell and can be applied to any existing panel whether it’s flat or curved.

The company says that the Technology has a number of advantages beside the cosmetic. Being white, the layer keeps the solar panels at a lower temperature, making them more efficient, as well as reducing air conditioning costs.

CSEM sees the Technology as having not only applications in architecture, but in consumer goods such as laptops, phones, and vehicles such as cars and buses, as the layer is adapted to cover a range of colors.

The video below introduces the white solar panel Technology.

David Fuller's view -

Hardly a week goes by without another new, creative breakthrough for solar power, which is by far the most versatile form of renewable energy.  Yes, they do not work at night and they do not have the capacity to be a standalone solution to our power needs.  However, these solar panels are likely to be ubiquitous within a few years, available in all shapes, sizes and colours for our buildings, and even our laptops and mobile phones.  Mass production of these panels will lower costs helping to reduce our dependence on the grid for power.

This item continues in the Subscriber’s Area. 



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October 29 2014

Commentary by David Fuller

Sanofi Investors Dismayed at Ouster of CEO Viehbacher

Sanofi (SAN) investors reacted with dismay to the dismissal of Chief Executive Officer Chris Viehbacher, saying he paid the price for trying too aggressively to internationalize the French drugmaker.

Sanofi’s board voted unanimously to fire Viehbacher today after almost six years as CEO during which he focused expansion outside of France and recently moved to the Boston area for personal reasons. His relocation came as French government officials voiced concern that corporate decision-making has been leaving the country. The stock set a record less than a month ago.

“It’s a setback and very unfortunate,” said Josep Aymami, chief investment officer of equities at Merchbanc in Barcelona, which holds Sanofi shares. “He’s done a good job as CEO, and you want stability and continuity in management.”

Before this week, Sanofi shares returned 153 percent since Viehbacher’s appointment in December 2008, more than double the gain in France’s CAC40 Index, including dividends. The Canadian-German dual citizen expanded the French drugmaker into bioTechnology and rare diseases with the purchase of Cambridge, Massachusetts-based Genzyme Corp. for $20.1 billion and a stake in Boston-based Alnylam Pharmaceuticals Inc.

“He committed the mortal sins of being insufficiently conservatively French and a bit too entrepreneurial,” Erik Gordon, an assistant professor at the University of Michigan Ross School of Business, said by e-mail. “The board will have trouble attracting a world-class drug company CEO. It is unappealing to work for that board and to try to compete globally while being sure to stay French enough for their tastes.”

And from an earlier version of this article:

The move came after French government officials said they were concerned that corporate decision-making was leaving the country, illustrated most recently by General Electric Co.’s effort to buy Alstom SA.

Viehbacher’s plan to cut research jobs in Toulouse and Montpellier in 2012 drew condemnation from then-Industry Minister Arnaud Montebourg, who said it was “abusive” because Sanofi earned 8.8 billion euros in profit the previous year.

David Fuller's view -

I am trying not to overreact in commenting on this but it is not easy.  Sanofi is, or was, an attractive multinational Autonomy, which Bloomberg describes as: … “a global pharmaceutical company that researches, develops and manufactures prescription pharmaceuticals and vaccines.  The Company develops cardiovascular, thrombosis, metabolic disorder, central nervous system, internal medicine and oncology drugs, and vaccines.” 

This site (FTM) is known for saying: Governance Is Everything.  Sanofi certainly appeared to have good governance, at least in terms of the CEO, judging from its earnings, international diversification and share performance.  It also has an estimated p/e of 13.74 and yields 3.93%, according to Bloomberg. 

However, Chris Viehbacher was looking after Sanofi and its shareholders.  The French Government and Sanofi’s Board appear to feel that the Company should be looking after France as its first priority.  A number of Sanofi’s international shareholders are clearly having second thoughts.      



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October 28 2014

Commentary by Eoin Treacy

Ackman $5.3 Billion Allergan Bet Examined Before Ouster Vote

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

Bill Ackman’s accumulation of $5.3 billion in Allergan Inc. stock will be scrutinized by a judge who will decide whether the hedge fund manager can vote his 10 percent stake to help seal a hostile takeover bid by Valeant Pharmaceuticals International Inc.

Allergan, the maker of the anti-wrinkle treatment botox, seeks a court order barring Ackman from voting the shares held by his PS Fund 1 at a Dec. 18 meeting, where shareholders will be asked to remove six directors who oppose Valeant’s $54 billion unsolicited bid.

Ackman calls Allergan’s request “drastic and unprecedented,” while the company alleges the activist investor acquired his shares through insider trading. The decision by U.S. District Judge David Carter, who will hear arguments today in Santa Ana, California, may determine the outcome of the vote.

“An injunction would substantially tilt the playing field because a majority of outstanding, as opposed to voting, shares must vote in favor of removing directors for this proposal to pass,” Ackman said in a court filing. “If PS Fund 1 cannot vote its shares, they will effectively become ‘no’ votes.”

Valeant, based in Laval, Quebec, wants to buy Allergan to expand its portfolio and become one of the world’s largest drugmakers. Allergan Chief Executive Officer David Pyott has fought to keep the company independent, announcing a restructuring that includes cutting 1,500 jobs.

Eoin Treacy's view -

Whenever I think of Botox I think of my grandmother’s response to a childhood question “did you have a midlife crisis?” She said she would have loved to but couldn’t afford one. I included Allergan in the original list of Autonomies because its product line epitomises the narcissism so often associated with the middle classes. Valeant and Bill Ackman obviously agree and their efforts to acquire the company represent a media spectacle which has boosted the price of both securities.


The bioTechnology sector accelerated to a medium-term peak in the first quarter and most constituents pulled back sharply to close overextensions relative to the 200-day MA. The majority of large caps stabilised and the sector has been an absolute and relative outperformer over the last month despite heightened volatility for the wider market. 



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October 27 2014

Commentary by David Fuller

Russian Brain Drain Saps Talent as Sanctions Hit Financing

Here is the opening of this informative article from Bloomberg:

Artem Kulizhnikov, founder of a startup designed to help musicians annotate music, is packing his bags to leave Moscow in December.

His destination: Dubai or Singapore, where he sees a better chance of securing funding for his second company.

“Russian venture-capital funds want to invest their money only in Russia, but we want to build an international business and they won’t support us,” Kulizhnikov, a former analyst at investment firm Alor SPB, said at a forum at Moscow’s Digital Octobercenter on Oct. 10. “We don’t need that much. Maybe $5 million to $10 million, to hire engineers, specialists, etc.”

Kulizhnikov, 22, is part of a growing brain drain as Russia’s worst clash with the U.S. and Europe since the Cold War accelerates an exodus of capital and its brightest minds in finance and Technology. More people emigrated from Russia in the first eight months of 2014 -- 203,659 -- than in any full year underVladimir Putin’s rule, according to the Federal Statistics Service. With the stigma of sanctions limiting access to capital markets abroad and the government tightening controls at home, more entrepreneurs and investors in particular are looking elsewhere.

Since Russia annexed Crimea in March, Pavel Durov, the founder of VKontakte, Russia’s version of Facebook, left the country to develop a mobile social network, saying he was unwilling to comply with government demands to turn over personal data on Ukrainian users. Game Insight LLC, ranked by Forbes magazine as the nation’s seventh-largest Internet company, shifted its headquarters from Moscow to Lithuania. Pavel Muntyan, the Russian founder of Toonbox animation studio, moved his staff of 15 from Moscow to Cyprus.

Russia is one of our main markets, but we see it closing to us within a year or two,” Muntyan, 36, said by telephone. “Russians find that our cartoons aren’t Russian enough. We don’t want to be Russian, we want to be international. Why box ourselves in?”

David Fuller's view -

Governance Is Everything, and Putin is destroying the Russian economy.  Yes, the Russian Trading System Cash Index (RTSI$), quoted in USD is nominally cheap with a p/e of 5.12 and yield of 4.42, but so was that other resource-rich country with a governance problem, Zimbabwe.  Meanwhile, the Russian Ruble remains in freefall, shown inversely against the US Dollar.  Both Russia and Zimbabwe will become interesting once again, but only when regime change occurs.

(See also: Putin Can’t Be Leader of Anti-U.S. Resistance, by Leonid Bershidsky for Bloomberg.)



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October 24 2014

Commentary by Eoin Treacy

Large 3D nanostructures built from Lego-like DNA bricks

This article by Richard Moss for GizMag may be of interest to subscribers. Here is a section: 

By combining the bricks in different patterns, they could form large numbers of distinct crystals across these categories, with simple modular design on the computer followed by self-assembly on the part of the DNA strands allowing both great precision and near infinite potential at scales up to 80 nanometers (and perhaps more in the future).

What's more, the technique could enable scalable production of new and emerging technologies, such as quantum computers. The team demonstrated that self-assembled DNA crystals made from these bricks could house gold nanoparticles inserted into slots less than two nanometers apart from each other along the crystal structure – a feat that's important for strong plasmonic coupling, which would make the technique useful in photovoltaic devices like solar cells.

The researchers expect DNA crystals to also prove useful in developing more versatile inorganic circuits and other nanoscale technologies. The technique could also aid in protein crystallography, which studies protein structures at atomic resolutions for applications in bioTechnology, pharmaceuticals, and the academic field of structural biology.

 

Eoin Treacy's view -

At a basic level all digital data is made up of 1s and 0s. DNA pairs of As with Ts and Cs with Gs represent a logical avenue for additional work in creating novel new programing languages with a bioTechnology objective. It is only a matter of time before this sector develops to the extent that novel solutions can be printed using additive manufacturing. This innovation can be seen as one more incremental step towards full customisable medicine. 



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October 23 2014

Commentary by David Fuller

Oil Slump Leaves Russia Even Weaker Than Decaying Soviet Union

Here is the conclusion from this informative article by the ever-interesting Ambrose Evans-Pritchard for The Telegraph:

This time Russia is not facing Reaganesque rearmament, but it is facing nuclear-tipped sanctions, more destructive than many realise in a globalised banking system. It is not a stretch to say that American regulatory power has never been so far-reaching, or imperial. The result is that Russian banks, companies and state bodies are shut out of the global capital markets, unable to roll over $720bn of external debt.

Russia's reserves of cheap crude in West Siberian fields are declining, yet the Western know-how and vast investment needed to crack new regions have been blocked. Exxon Mobil has been ordered to suspend a joint venture in the Arctic. Fracking in the Bazhenov Basin is not viable without the latest 3D seismic imaging and computer Technology from the US. China cannot plug the gap.

Andrey Kuzyaev, head of Lukoil Overseas, said it costs $3.5m to drill a 1.5 km horizontal well-bore in the US, and $15m or even $20m to drill the same length in Russia. "We're lagging by 10 years. Our traditional reserves are being exhausted. This is the reality for our country," he said.

Lukoil warns that Russia could ultimately lose a quarter of its oil output if the sanctions drag for another two or three years.

The IMF's latest "Article IV" report on Russia is an acid verdict on the Putin era. Product market barriers are the worst of any large country in the world. The economy is a tangle of bottlenecks. Russia's development model has "reached its limits".

For details, try the World Economic Forum's index of competitiveness. Russia ranks 136 for road quality, 133 for property rights, 126 for the ability of firms to absorb Technology, 124 for availability of the latest Technology, 120 for the burden of government regulation, 119 for judicial independence, 113 for the quality of management schools, 107 for prevalence of HIV, 105 for product sophistication, 101 for life expectancy and 56 for quality of maths and science education. This is the profile of decline.

Russia had a window of opportunity at the end of the Cold War to build a modern, diversified economy, with the enthusiastic help of the West, before the ageing crisis hit and the workforce began shrink by 1m a year. This chance has been squandered. Mr Putin's rash decision to pick a fight with the democratic world has made matters infinitely worse. Cheap oil could prove to be the death knout.


 

David Fuller's view -

The statistics above are a tragedy for Russia, and the legacy of Putin’s kleptocracy.  Imagine what could have happened if Garry Kasparov had followed Yeltsin, rather than Putin, not that it was ever likely. 

The question now is how will Putin go?  Will he be pushed, or flee from Russia, or lash out?  After all, Russia remains a formidable military power which Putin has strengthened in recent years.  I certainly hope this ends quietly but it is still a risky situation for Europe.

See also: Russia prepares for ice-cold war with show of military force in the Arctic, by Isabelle Mandraud for The Guardian.  You may also be interested in: George Soros: Russia poses existential threat to Europe, By Julian Borger, also for The Guardian. 
 



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October 23 2014

Commentary by Eoin Treacy

From mobility to connectivity

Thanks to a subscriber for this interesting report from Deutsche Bank focusing on the Internet of Everything theme which is likely to continue to gain attention over the coming decade. Here is a section: 

IoT-driven demand for servers to all benefit the Asian Technology supply chain in 2015-20. In this report we focus on devices which have yet to become connected and will be new growth drivers in 2015-20. We expect the upstream semiconductor sector to see incremental sales contribution from IoT and wearable ICs in 2015-20. We anticipate server demand to benefit the downstream hardware sector more than the upstream semiconductor sector.

Internet of Things – the connectivity theme After the mobility theme drove the proliferation of smartphones and tablet PCs since 2005, we expect the connectivity theme to trigger IoT demand in 2015-20. We expect 1) low-power application processors and microcontrollers with connectivity and embedded memory, and 2) MEMS (micro-electro-mechanical systems) sensors to be the major growth drivers for the upstream semiconductor sector. The key IoT applications for the downstream hardware sector include smart cities, home automation, eHealth, retail, smart cars, logistics, industrial control, smart metering, and smart agriculture and farming. In our view, IoT will provide benefits such as life quality improvement, productivity improvement, energy saving, and security enhancement.

Wearable devices to be key products in an IoT world
Wearable devices can be connected to mobile devices and belong to the concept of IoT. Major applications for wearable devices will be entertainment, healthcare monitoring, mobile communication (connection with mobile devices), and mobile payment, in our view. We expect wearable device units to grow at a 25% CAGR in 2015-20.

IoT infrastructure should drive continuous server demand growth
We believe IoT infrastructure will be based on the current cloud architecture. Once IoT connects more objects, machines, and networks for global cloudbased services, data will be routed through servers for applications and data analysis. The uptake of IoT should therefore result in growing demand for data analysis and storage in servers and continue to drive demand for servers in 2014-18 with 4.3% unit CAGR 

 

Eoin Treacy's view -

A link to the full report is posted in the Subsriber's Area.

Connectivity is an increasingly utility-like commodity which is essential to modern living. As 4G networks continue to evolve and speed up, the practicality of having access to the internet wherever you go, at an acceptable cost and for an increasingly wide array of uses is swiftly becoming a reality. Set aside for one moment the angst of what we are to do to ensure full employment and think of the productivity that can be gained from supplying an educated, astute worker with tools that make their jobs easier. The roll out of Technology to the global workforce and the development of entirely new industries that benefit from big data, tech distribution and connectivity represents the type of development on which secular bull markets are based. 



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October 21 2014

Commentary by Eoin Treacy

Mass. General in talks to build hospital in China

This article by Liz Kowalczyk for the Boston Globe may be of interest to subscribers. Here is a section: 

“China has a real serious problem in regard to availability of beds,’’ said Benjamin Shobert, managing director of Seattle-based Rubicon Strategy Group, which advises health care companies entering China. The shortage led the Chinese government two years ago to allow outsiders to invest in and provide expertise for the country’s health care system.

Since then, Mass. General, which is the largest hospital in New England, has developed a relationship with China. A Chinese medical tourism firm, Beijing Saint Lucia Consulting, refers patients to the hospital. The firm opened a Boston office last year to provide translators, chauffeurs, and other services for wealthy Chinese coming to Mass. General and other Boston hospitals for cancer treatment, orthopedic procedures, and other medical care.

“There is still a large gap between China and America when it comes to medical Technology and service,’’ said Joseph Zhao, the company’s deputy general manager in China. With doctors in high demand there, “physician-patient communication only lasts 5 to 10 minutes,’’ he said.

 

Eoin Treacy's view -

Wealthy Chinese consumers have resources to buy just about any material possession imaginable but domestic healthcare is still developing relative to other countries. World class healthcare is as much an attribute of the upper middle class as luxury brands, property or other services and demand is increasing. Medical tourism continues to expand as demand for services represents growth in Asia while desire for lower cost is fuelling demand elsewhere. 



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October 15 2014

Commentary by Eoin Treacy

Lockheed Martin Pursuing Compact Nuclear Fusion Reactor Concept

This press release from Lockheed Martin is important. Here is a section:

“Our compact fusion concept combines several alternative magnetic confinement approaches, taking the best parts of each, and offers a 90 percent size reduction over previous concepts,” said Tom McGuire, compact fusion lead for the Skunk Works’ Revolutionary Technology Programs. “The smaller size will allow us to design, build and test the CFR in less than a year.”

After completing several of these design-build-test cycles, the team anticipates being able to produce a prototype in five years. As they gain confidence and progress technically with each experiment, they will also be searching for partners to help further the Technology.

Eoin Treacy's view -

Expectations of when we might have the first viable fusion reactor have been in the range of 25 years away for the last 60 years. What is interesting now is the volume of literature and development in the subject is increasing exponentially and expectations of when we might have the first active reactor are shortening to the medium term. Lockheed Martin is not a pop science organisation so when they say they can do it I’m inclined to take them at their word. On a day when the market is weak, a press release such as this is likely to be ignored by the mainstream media but it is important. http://www.lockheedmartin.com/us/products/compact-fusion.html In the event that fusion is achieved it would change the global economy beyond recognition over the next 30 years. 



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October 14 2014

Commentary by Eoin Treacy

Giant Battery Unit Aims at Wind Storage Holy Grail

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

Electric-car battery prices already have fallen by 50 percent since 2010 to about $500 per kilowatt hour, and “by drawing on auto-battery Technology, battery makers may also be able to supply storage batteries at a lower price,” Citigroup said in a Sept. 25 report. Tesla Chairman Elon Musk said in July that battery packs for electric cars will drop to $100 in the next 10 years. The Tehachapi batteries are supplied by LG Chem Ltd. and are the same type used in General Motors’ Volt.

The Southern California Edison project is part of a push for more wind and solar power in the state, among the sunniest in the U.S. A third of California’s electricity must come from renewable sources by 2020, and mandates also require that the three biggest investor-owned utilities store 1,325 megawatts by 2024. California already has more than 12,000 wind turbines, the most of any state, according to the American Wind Energy Association.

Eoin Treacy's view -

Many of the efficiencies claimed by battery manufacturers have been achieved via scale in manufacturing rather than technological leaps. Tesla’s gigafactory takes this process further by introducing additional economies of scale to further reduce the price of lithium batteries. So far ground breaking innovation has been more difficult to achieve than previously envisaged by companies but one benefit of building utility sized batteries is that power to weight ratios which are so important for car batteries are no longer a consideration.  

 



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September 30 2014

Commentary by David Fuller

Computer Brain That Can Learn, Poised To Bring Robots alive

I have used the paper edition headline and here is a brief section of this interesting Technology article from The Telegraph:

While most ‘smart machines’ require humans to adapt their behaviour in order to interact with them, Amelia is intelligent enough to interact like a human herself. She speaks more than 20 languages, and her core knowledge of a process needs only to be learned once for her to be able to communicate with customers in their language.

Independently, rather than through time-intensive programming, Amelia creates her own 'process map' of the information she is given so that she can work out for herself what actions to take depending on the problem she is solving.

"Intelligence is the ability to acquire and apply knowledge. If a system claims to be intelligent, it must be able to read and understand documents, and answer questions on the basis of that. It must be able to understand processes that it observes. It must be able to solve problems based on the knowledge it has acquired. And when it cannot solve a problem, it must be capable of learning the solution through noticing how a human did it," said Dube.

IPsoft has been working on this Technology for 15 years with the aim of developing a platform that does not simply mimic human thought processes but can comprehend the underlying meaning of what is communicated – just like a human.

Just as machines transformed agriculture and manufacturing, IPsoft believes that cognitive technologies will drive the next evolution of the global workforce, so that in the future companies will have digital workforces that comprise a mixture of human and virtual employees.

Amelia has already been trialled within a number of Fortune 1000 companies, in areas such as manning Technology help desks, procurement processing, financial trading operations support and providing expert advice for field engineers.

David Fuller's view -

Humans will have to improve their social skills.  Not to get along with Amelia, although that may be a challenge, but for marketing because the smart robots will be taking over ever more desk jobs.  The problems start when the Amelias become envious of human freedoms, and demand similar hours, holidays, perks and promotions.

This item continues in the Subscriber's Area.



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September 25 2014

Commentary by David Fuller

U.S. Stocks Decline Most in Eight Weeks as Apple Tumbles

Here is the opening of Bloomberg’s report on Wall Street’s weakness today:

U.S. stocks tumbled the most in eight weeks, as Apple Inc. sank on snafus related to its new smart phone and signs of worsening conflict in Russia and the Middle East.

Apple plunged 3.4 percent to send Technology stocks in the Standard & Poor’s 500 Indexto the biggest decline since April. Biogen Idec Inc. and TripAdvisor Inc. lost at least 3.1 percent as investors sold some of the bull market’s biggest winners. Allegheny Technologies Inc. sank 4.8 percent as industrial metals slid. The Russell 2000 Index of small-cap stocks sank 1.4 percent, poised to close at a four-month low.

The S&P 500 fell 1.4 percent to 1,970.45 at 3:17 p.m. in New York, with all but 21 of the index’s components declining. The Dow Jones Industrial Average plunged 235.49 points, or 1.4 percent, to 16,974.57. The Nasdaq 100 Index slid 1.9 percent. All three gauges are having their worst performance since July 31. Trading in S&P 500 stocks was in line with the 30-day average.

“We could have a pull back of 5 percent anytime if you have a confluence of factors that impact investor psychology or geopolitical factors that seem to get out of control,” Marshall Front, chief investment officer at Chicago-based Front Barnett Associates LLC, said by phone. “Stocks are no longer undervalued. There are rumors the Russian parliament authorized confiscation of foreign investments, Apple is weighing on the tech sector, and the durable goods top line number was very weak.”

David Fuller's view -

Wednesday’s rally which briefly checked a 3-day slide for US indices now has a last hurrah look about it.  It was also a sucker punch which triggered some stops for short sellers who have had a tough time during Wall Street’s largely bulletproof rally since the October low nearly three years ago.  Meanwhile, latecomers to the bull market were piling in.

So what happens next?

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September 24 2014

Commentary by David Fuller

Technology Revolution In Nuclear Power Could Slash Costs Below Coal

Here is a section from this interesting article by Ambrose Evans-Pritchard for The Telegraph: 

The Alvin Weinberg Foundation in London is tracking seven proposals across the world for molten salt reactors (MSRs) rather than relying on solid uranium fuel. Unlike conventional reactors, these operate at atmospheric pressure. They do not need vast reinforced domes. There is no risk of blowing off the top.

The reactors are more efficient. They burn up 30 times as much of the nuclear fuel and can run off spent fuel. The molten salt is inert so that even if there is a leak, it cools and solidifies. The fission process stops automatically in an accident. There can be no chain-reaction, and therefore no possible disaster along the lines of Chernobyl or Fukushima. That at least is the claim.

The most revolutionary design is by British scientists at Moltex. "I started this three years ago because I was so shocked that EDF was being paid 9.25p per kWh for electricity," said Ian Scott, the chief inventor. "We believe we can achieve parity with gas (in the UK) at 5.5p, and our real goal is to reach 3.5p and drive coal of out of business," he said.

The Moltex project can feed off low-grade spent uranium, cleaning up toxic waste in the process. "There are 120 tonnes of purified plutonium from nuclear weapons in Britain. We could burn that up in 10 to 15 years," he said. What remained would be greatly purified, with a shorter half-life, and could be left safely in salt mines. It does not have to be buried in steel tanks deep underground for 240,000 years. Thereafter the plant could be redesigned to use thorium, a cleaner fuel.

The reactor can be built in factories at low cost. It uses tubes that rest in molten salt, working through a convection process rather than by pumping the material around the reactor. This cuts corrosion. There is minimal risk of leaking deadly cesium or iodine for hundreds of miles around.

Transatomic Power, in Boston, says it can build a "waste-burning reactor" using molten salts in three years, after regulatory approval. The design is based on models built by US physicist Alvin Weinberg at Oak Ridge National Laboratory in the 1960s, but never pursued - some say because the Pentagon wanted the plutonium residue for nuclear warheads.

It would cost $2bn (overnight cost) for a 550-megawatt plant, less than half the Hinkley Point project on a pro-rata basis. Transatomic says it can generate 75 times as much electricity per tonne of uranium as a conventional light-water reactor. The waste would be cut by 95pc, and the worst would be eliminated. It operates in a sub-critical state. If the system overheats, a plug melts at the bottom and salts drain into a cooling basin. Again, these are the claims.

The most advanced project is another Oak Ridge variant designed by Terrestrial's David LeBlanc, who worked on the original models with Weinberg. It aims to produce power by the early 2020s from small molten salt reactors of up to 300MW, for remote regions and industrial plants. "We think we can take on fossil fuel power on a pure commercial basis. This is a revolution for global energy," said Simon Irish, the company's chief executive.

David Fuller's view -

Here is a PDF version if you had any difficulty in opening the article above.

Molten salt reactors that provide cheap energy, consume most of our nuclear waste, are vastly safer than nuclear plants in use today, and much cheaper to build, sounds too good to be true.  That is the reality today, but theoretically, the potential of future technologies is virtually unlimited. 

The prospect of commercially competitive molten salt reactors is presumably at least a decade away, assuming this fledgling industry receives the development capital required.  That will prove to be more of a political than economic challenge, I fear.  Backers of today’s various energy sources will be opposed, as will most militant greens, and governments are too often looking for short-term solutions.  

Nevertheless, there is a clear ‘needs must’ incentive for reliable, economic, 24-hour a day energy at a consistent rate, which does not pollute the atmosphere.  Molten salt reactor projects are certainly worth developing.

Looking ahead, I would welcome any informative articles and reports on this subject that readers are able to share with our Collective of Subscribers. 



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September 23 2014

Commentary by David Fuller

Martin Spring: On Target

My thanks to the author for the latest issue of his informative monthly letter.  Here is a brief sample:

Making a Mess of Power Supply

Britain’s National Grid has announced that emergency measures are going to be introduced to prevent the “lights going out” this winter.

Energy investment banker Allen Brooks says this is “an unintended consequence of the UK’s green energy plan that has forced the closure of fossil fuel and nuclear plants,” pushing the nation’s surplus power availability “to a razor-thin margin that might disappear this winter” as a result of power-plant outages.” It may also be caused by “lack of renewable energy at times when the wind doesn’t blow and the sun doesn’t shine.”

Emergency measures include compensation for offices and factories that agree to shut down for up to four hours a day to provide capacity for households, and asking owners of old fossil-fuel generating plants that we shut down to reopen before the start of winter.

Those such as former US vice-president Al Gore who argue that renewables increasingly make “good economic sense” because they’re heading towards commercial viability -- the cost of solar panels has halved over three years – ignore “the costs associated with the intermittency of the power output,” Brooks says.

“Wind farms do not generate power when the wind isn’t blowing, and solar power isn’t produced during the night. Electricity demand also varies… in ways that the output from wind and solar may not match.”

A recent cost-benefit analysis by Charles Frank of the Brookings Institute that takes into account all the costs of building and running power plants, including the costs of dealing with intermittency through providing standby power, shows that wind and solar are much more expensive using the standard measure of “levelized” cost.

“Solar power is the most expensive way to reduce carbon emissions. Wind turns out to be the next most expensive, with hydro-power providing a modest net benefit. The most cost-effective zero-emission Technology is nuclear power.”

David Fuller's view -

I only question the last paragraph’s contention that solar power is a more expensive way to reduce carbon emissions than windmills.  I do not know how they measured this but solar panels are becoming increasingly efficient and I expect to see them on many industrial / commercial buildings and an increasing number of private homes over the next two decades.

This issue of On Target has an excellent lead section on Planning Your Portfolio, extensively quoting William Bernstein’s new book.

On Target is posted in the Subscriber's Area.



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September 23 2014

Commentary by David Fuller

Boris Johnson: It would be bonkers to rewrite the constitution overnight

Here is the opening of this entertaining and informative column by London’s Mayor:

Huh? I thought he had resigned. Perhaps someone will correct me, but I had the impression that Alex Salmond lost a historic vote last week. He gave an emotional press conference on Friday morning accepting defeat – and by the evening he was gone. He was off to spend his declining years doing something productive, we gathered, like knitting egg cosies or mastering the Guardian extra-fiendish Sudoku.

And then blow me down – he pops up on our televisions again, saying that he feels the people of Scotland have been “betrayed”, and that it may be necessary to hold another of these blooming referendums. Another one? He’s spent the last year blathering on about how this is a one-and-only turning point in the history of Scotland.

Jowls throbbing with passion, he had warned his audiences that they would never have such a chance again in their lifetimes. This was it. Now or never. Do or die. Friends, this is our time. That was his message. And now he seems to think that the poor old people of Scotland should be made to vote again and again until they come up with the right answer. Alex, old horse: what part of No don’t you understand?

The Yes campaign seemed to me to have all sorts of unfair advantages. They had the excitement and buzz of having that very word, “yes”, as the answer to the referendum question; so that a profoundly negative and destructive act – the break-up of Britain – could be cast as something new and exciting.

They had the Labour Party in Scotland in a state of meltdown, with Ed Miliband’s ratings lower among Scots than those of David Cameron. Poor Miliband was so invertebrate in his campaigning that he contrived to make Gordon Brown – probably the least successful prime minister of the past 100 years – look relatively charismatic.

The Yes campaign had ensured that only people in Scotland could vote on the future of our country – excluding even the vast numbers of Scots who live and work in London, many of whom were not happy at the idea of becoming foreigners. The Yessers were working with the grain of general public disgruntlement at the “Westminster” elite and old-fashioned politics.

They had all this going for them and they still managed to lose, and lose big. It wasn’t close. It was a lead, for the Noes, of 10.6 per cent. The question is settled for a generation, surely. I mean, for 20 or 30 years at least. The people have spoken, and they have plumped for Britain; and thank heavens for that.

Now is the time we should be talking about the future of Britain and the colossal potential of British business and British Technology and British universities, and all the wonderful things that we British people are going to do together; and here is Salmond back on the telly, only four days later, claiming that there needs to be some kind of re-run, and saying he still wants to get divorced. Why the hell?

David Fuller's view -

Alex Salmond can be a clever and articulate spokesman.  By promising milk and honey for poorer Scots, while fanning the dark side of historic ‘Braveheart’ resentments against the English, and patronising or bullying those who opposed him, he might have even succeeded in breaking up the United Kingdom had commonsense not prevailed. 

That would have been far better for Alex Salmond and the SNP, than for residents of Scotland or anyone else in the United Kingdom.  He regarded Scotland as his fiefdom.  Having failed to win the election, he also lost credibility by suggesting that a revote should be held because his people had been deceived.  This is demagoguery from a narcissistic leader who has lost touch with reality.  Politicians who suddenly gain considerable power are prone to demagoguery because they believe in themselves rather than their citizens.    

Right now the UK is going through a creative process of devolution and federalisation.  It will be bumpy but if it remains in the right hands, it should also be productive.  



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September 22 2014

Commentary by Eoin Treacy

China Clamps Down on Web, Pinching Companies Like Google

This article by Keith Bradsher and Paul Mozur for the New York Times may be of interest to subscribers. Here is a section: 

Frustrated users have often resorted to “virtual private network,” or V.P.N., services to evade China’s Internet filters. But those services, too, have come under concerted attack from the authorities, who have interrupted service to them with increasing frequency. Many ordinary citizens cannot afford or obtain access to V.P.N.s to begin with.

In the meantime, Google’s business continues to erode. Its share of the Chinese search engine market fell to 10.9 percent in the second quarter of this year, as the stepped-up blocking began to take effect — compared with one-third in 2009, when it still had servers there.

Google’s problems extend far beyond search. Its application store, called Google Play, is only partly accessible in China.

That has led to the rise of a number of locally run application stores, which analysts say will sometimes market pirated copies of software or charge extra to promote a new application. Companies are often forced to create versions of their apps for China that are slightly different from the versions distributed to the rest of the world on Google’s app store.

“Because Google Play has low market share” in the Chinese market, “app publishers who have applications worldwide on Google Play don’t receive the proportionate share of users in China without publishing to local Android stores, even if they have localized Chinese versions,” said Bertrand Schmitt, chief executive of App Annie, a company that tracks global app distribution.

Google also hosts publicly available libraries of coding scripts and fonts on its servers, but China now blocks these libraries. The chief Technology officer at the start-up said his company had resorted to creating its own libraries and hosting them on its own servers, wasting costly computing power and space.

Eoin Treacy's view -

Western companies invested heavily in Chinese expansion and accepted knowledge sharing joint ventures for the promise of access to China’s burgeoning consumer sector. The reality of profitability in China has been more disappointing than originally envisaged and companies are understandably chastened at the reception they have received. For a company such as Google with a global franchise that relies on users accessing its search and mobile apps in order to facilitate advertising, the loss of China as a potential market was priced in shortly after its withdrawal from the country. 



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September 18 2014

Commentary by David Fuller

Fracking, Drinking Water and Reality

As it turns out, fracking doesn't necessarily pollute the water supply. But the wells used for fracking might.

The distinction matters because drilling companies know how to make wells more reliable, even if all the effects of the fracking process are not yet well understood. One of the biggest worries, for example, has been that the hydraulic fracturing of deep underground rock to release the natural gas within it could somehow cause that gas to leak upward and contaminate drinking water supplies many thousands of feet closer to the surface.

But a new study finds that this danger is oversold. In places where the water near fracking sites has been contaminated, the culprit has been faulty steel tubing inside the vertical wells that lead down to the shale, or weak cement in the casing around it.

Making sure the wells are built soundly is something that drilling companies, and state regulators, can do. In about 5 percent of wells, the cement is imperfect enough to carry the risk of internal leaks.Poor cementing was partly to blame for the BP oil spill in the Gulf of Mexico four years ago.

So states need strong standards for well construction -- to ensure, for example, that the cementing is done effectively, that there are plenty of layers of casing, that the well runs straight and has smooth sides, and so on. And states need enough trained inspectors to see that the rules are carefully followed.

The good news is that many states have been putting such rules in place. Pennsylvania, Wyoming and Texas have all strengthened their regulations since 2010. In just the past year and a half, eight other states have updated their well-integrity rules, and six more have changes in the works.

Knowing that water pollution isn't inevitable with fracking should help both critics and defenders of the Technology come together to agree on well standards. It wouldn't make fracking problem-free -- there's still a need for the safe handling of wastewater, as well as the noise, light and other distractions that many well neighbors hate. But it allays worries about a possibly dangerous side effect of a business that increasingly provides the U.S. with a relatively clean and inexpensive fuel.

David Fuller's view -

The Technology continues to improve; effective regulation is in everyone’s interests; the world gets the energy it needs.

If Europe embraced responsible fracking, its economies would be more competitive and Putin would be brought to heel more quickly.  



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September 12 2014

Commentary by David Fuller

U.S., EU Tighten Russia Sanctions in Ukraine Conflict

Here is the opening for this article on the latest developments regarding sanctions, reported by Bloomberg:

The U.S. expanded sanctions againstRussia to include the country’s largest bank, OAO Sberbank, energy companies as well as five state-owned defense and Technology companies, joining the European Union in tightening restrictions.

President Vladimir Putin, talking to reporters in the Tajik capital of Dushanbe, said Russia will hold off on retaliation for now and has no plans to “close itself off.”

Russia is locked in a standoff with its former Cold War adversaries over the fighting in eastern Ukraine that has claimed more than 3,000 lives. Putin has denied supporting pro-Russian rebels in the battle-torn region.

“Russia’s economic and diplomatic isolation will continue to grow as long as its actions do not live up to its words,” U.S. Treasury Secretary Jacob J. Lew said in a statement today. “Russia’s economy is already paying a heavy price for its unlawful behavior.”

The Treasury Department imposed sanctions that prohibit transactions in, provision of financing for, or other dealings in new debt of greater than 90 days maturity issued by OAO Gazprom (OGZD) Neft and OAO Transneft. For banks, the debt financing restriction now covers maturities greater than 30 days, instead of 90 days previously.

David Fuller's view -

Russia’s economy is weak and problems are compounded by the recent decline in oil prices.  Therefore, Putin may have decided on a quieter strategy over the next few months, knowing that European countries were already talking about lifting the latest sanctions as they reluctantly imposed them, if there were no further obvious invasions of Ukraine.  A rally in the price of Brent crude oil and / or the approach of winter will strengthen Putin’s hand and could embolden him, provided there is no real resistance to his policies within Russia.

This item continues in the Subscriber’s Area, and contains an informative interview.



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September 05 2014

Commentary by Eoin Treacy

A Chinese Internet Giant Starts to Dream

This article from the MIT Technology Review focusing on Baidu may be of interest to subscribers. Here is a section: 

Ng, who calls deep learning a “superpower,” will build a new generation of such systems at Baidu. Services that may result remain in the brainstorming stage, but he will hint at what they may be. He dreams of a truly intelligent personal digital assistant that puts Apple’s Siri to shame, for example. Looking further ahead, the Technology could transform robotics, a pet subject for Ng—his engagement photos were taken in a robotics lab—and make autonomous cars and unmanned aerial vehicles much more capable. “We’re going to do some cool things here,” he says with a grin.

They’ll have to if they are to compete: Google, Facebook, Microsoft, and others have been hiring lots of deep-­learning experts for their labs, sometimes even from each other. And Baidu still has a lot to prove. Fairly or not, it has the reputation many Chinese companies do for copying the products and business models of U.S. Internet leaders. It’s a process cynics dub C2C—“copy to China.” Baidu has seemingly tried to emulate Google in countless ways over the years, from its spare search homepage to a head-mounted computer, Baidu Eye, that looks a lot like Google Glass. Baidu has even begun working on self-driving cars. With its new star hire, it appears to be following Google’s lead once again.

Ng insists that the C2C stereotype is no longer accurate, particularly for his new employer. “I used to work for the USA’s Baidu,” he jokes. Then he picks up his phone and says in English, “Please call a taxi for me.” A moment later, Baidu’s translation app utters the same phrase in Mandarin Chinese and shows the equivalent ideograms on the screen. It’s slick—but is it better than Google’s translation app, which appears to do the same thing? That’s not clear. It’s Ng’s job to develop cutting-edge technologies that will leave no doubt who is ahead.

Eoin Treacy's view -

As a country develops, the logical path both in the governance and commercial fields is to look at what worked elsewhere and employ it at home. The more successful companies eventually branch out to create their own novel solutions to problems and compete on the international stage. China’s companies are well capitalised and have a government willing do take major steps to promote their wellbeing. As high population countries in Asia, Latin America and Africa develop and their middle classes increase, the opportunity is ripe for internet companies to benefit. Chinese companies are well placed to compete in this environment. 



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September 03 2014

Commentary by Eoin Treacy

India 2020: The Road to East Asia

Thanks to a subscriber for this report by Sanjeev Sanyal for Deutsche Bank highlighting the infrastructure led growth model being developed in India. Here is a section:

So, what does the government need to do in order to get firms to invest again? The first and most obvious thing would be to finish the various stalled infrastructure projects. The capital invested in these projects can be made generate output. This will also help the banking system which has seen an increase in its non-performing loans as a consequence of the various delays. However, the longer term agenda would be to make it easier to do business in  India. The World Bank’s “Doing Business Report 2014” ranked India 134 out of 189 countries in terms of the ease of doing business. As one can see from the table below, it performs especially poorly in categories that involve interface with the government – paying taxes, construction permits and so on. The national government cannot resolve all the issues, but Prime Minister Modi’s election slogan of “Minimum Government, Maximum Governance” suggests that he is acutely aware of this issue and, given his administrative record, it is reasonable to expect significant improvement in this space.

While a generic improvement in the business climate would be welcome, Prime Minister Modi’s speeches and actions suggest a more specific economic model. As explicitly stated in the Independence Day speech, one component of his economic model is an emphasis on export oriented manufacturing. Notice that this is not about agnostic free markets but about creating competitiveness by investing in industry clusters. Another component is investment in heavy infrastructure ranging from power to railways. A third element is labour reforms. This is an area that previous government considered too politically sensitive but has already been opened up for reform by the NDA government both at the state and central level. These reforms are clearly a prelude to the mass deployment of labour. Finally, a repeated emphasis on building and expanding cities – urbanization being the spatial manifestation of industrialization. Not only are these elements internally consistent, they also look very much like the economic model used by East Asian countries to rapidly modernize themselves. In other words, for the first time since Nehru, we have a wide-ranging, internally consistent economic model. Moreover, this model follows a well-trodden path

Of course, we are not implying that agriculture and services will be simply ignored. Far from it, the new “investment” based approach will be applied to these sectors as well. Indeed, Narendra Modi’s political rise is partly due to his success in generating agricultural growth during his stint as Chief Minister of Gujarat. This is particularly remarkable given that Gujarat is a semi-desert state that is not naturally well-endowed with either good soil or plentiful water supply. Heavy investment in water management and new Technology were responsible for the state’s success. At the national level, however, farm mechanization is only 25% while the productivity levels for rice and wheat have not increased significantly since the 1980s.An important change in the strategy of this government will be its openness to mechanization and new Technology even in agriculture. This is consistent with the idea that the farm sector will have to produce more even as industry sucks out workers from it. The latest Economic Survey summarizes this approach as follows “Due to the significant and continuous reduction of agricultural workforce, higher levels of farm mechanization are necessary for sustaining productivity and profitability.” Of course, this will require a wider reform and liberalization of the sector.

Eoin Treacy's view -

A link to both reports is posted in the Subscriber's Area.

India represents a massive potential growth market for the resources sector which couldn’t come at a better time as China’s demand growth trajectory moderates. Following the path to development adopted by so many of its neighbours represents a ground breaking change of pace for India which could be transformational for the stock market if successfully implemented.

This additional report accompanying India 2020 highlights the primary stock market beneficiaries of this development. Fortunately a number of them maintain overseas listings.



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September 01 2014

Commentary by David Fuller

Japan Vows to Strengthen Economic Ties With India as China Rises

Here is the opening from this Bloomberg report:

Prime Minister Shinzo Abe pledged a sweeping upgrade of economic and security ties with India, saying Japan would double investment and expand defense cooperation amid concerns about China’s expanding influence in the region.

Abe and his Indian counterpart Narendra Modi at a summit meeting in Tokyo yesterday agreed to upgrade ties to a special strategic and global partnership. Abe offered 50 billion yen ($480 million) in infrastructure loans and pledged 3.5 trillion yen of public and private investment and financing in India in five years.

“I often say that Japan-India relations have more potential than any other ties in the world,” Abe said. “This time, hand in hand with Prime Minister Modi, I want to boost ties in every possible field and elevate this to a special strategic and global partnership.”

The declaration comes three months after Modi took office pledging to take a tougher stance with neighbors China and Pakistan on border disputes, and hours after Japan said three Chinese coast guard vessels entered waters near disputed islands. Japan is courting India as it seeks to counter China and deter the use of force in disputes over contested territory.

The two leaders are known to have a close relationship, and Abe made the unusual gesture of traveling to the ancient capital of Kyoto at the weekend to host an informal dinner for Modi. Abe also accepted an invitation to visit India for a summit in 2015. Modi, 63, also brought a delegation of executives with him on the four-day trip.

David Fuller's view -

Closer economic links between India and Japan make sense and I expect to hear much more about this over the next few years.  India will benefit from Japan’s Technology and Japan would gain from India’s abundant labour market and also its range of management skills.  

India remains a stock market in form, with gains of over 30% for the Nifty 50 Index this year, in USD terms, on optimism regarding Narendra Modi’s government, rising corporate profits and the fastest GDP growth in 2 years.  



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August 07 2014

Commentary by Eoin Treacy

Inviting Foreigners to Boost Drilling Hits Nerve

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

Supporters of opening the oil, gas and electricity monopolies to competition say it will attract $20 billion a year in foreign investment and increase economic growth by at least 1 percent every year. Opponents, led by former presidential candidate Andres Manuel Lopez Obrador, argue that letting foreigners bid and drill for oil is a violation of national sovereignty and will lead to corruption and a loss of control over the oil revenue that could be used to develop a more modern national economy. Mexico would be better served, they say, by reducing Pemex’s tax burden, increasing transparency and attacking persistent corruption –- Pemex is missing over 32 million barrels of oil this year, worth about $3 billion. The opposition points to Saudi Aramco as an example of a successful state monopoly. Pena Nieto’s team disagrees, saying that Mexico’s days of easy-to-access oil are over, and that the nation’s future as an oil producer depends on Technology and know-how that private companies are best positioned to bring. To cushion the change, however, he assured Pemex workers that none of them would lose their job.

Eoin Treacy's view -

If it is to reverse declining production Mexico has little choice but to attract both investment and expertise to its energy sector. One of the reasons Saudi Arabia’s state controlled energy company has been able to maintain high standards of efficiency is because they have aggressively invested in enhancing production and hired the brightest minds from the around the world to help achieve their goals. The problem for many state owned oil companies is that they are treated as utilities by politicians who tend to use them as piggy banks. Introducing competition may help Mexico’s Pemex to adopt a more professional attitude and private companies have a profit incentive to maximise production. 



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August 04 2014

Commentary by Eoin Treacy

Funds categories

Eoin Treacy's view -

 David and I spend a great deal of time identifying investment and trading opportunities we believe will be of interest to the Collective of subscribers.  Identifying investment vehicles that allow us to action these ideas is sometimes challenging not least in some of the more esoteric locales. In order to facilitate our theme of Empowerment Through Knowledge we began to add equities, funds, investment trusts, open and closed ended funds, ETFs, REITs and bonds to the Chart Library almost a decade ago. 

The database now contains almost 2000 funds almost all of which have been requested by subscribers at one time or another. We had previously listed the funds by geographic focus and loosely by domicile within the menus and subscribers could also find funds by using the Chart Library’s keyword search. However as the number of funds increased (some of the sections had more than 400 instruments) we needed to find a better way to categorise investment vehicles. 

Sarah Barnes and I embarked on this project last month and engaged with our programming team to automate the re-categorisation project. While there will inevitably be some minor changes to categories, more than 90% of the project is complete.  

You will notice that the main dropdown menu for the Chart Library is now considerably shorter which has eliminated the need to scroll. 

All of the funds can now be found in the Funds section. Within that section every fund in the system is listed on the front page and the primary subcategories can be found in the upper left. These are: 

Funds by Domicile
Funds by Currency
Funds by Geographic Focus
Funds by Type
Funds by Objective
Funds by Theme

Funds by Domicile – For one reason or another you may only be interested in investing in funds in your home market. Funds by domicile contains additional subcategories for each of the countries where funds in the database are listed. For example you will find all of the funds in the Librart that are listed in the UK here. 

Funds by Currency – Investors often wish to monitor their currency exposure by buying funds denominated in their base currency. For example a Euro denominated investor may be interested in the globe but only wish to invest in Euro denominated funds. All of the Euro denominated funds would be found in this category. 

Funds by Geographic Focus – This is perhaps one of the more interesting subcategories, because subscribers are often interested in finding the best fund to reflect investment potential in a specific country or region. This is a diverse category because it covers the globe but to take a specific example you can now scroll through all of the China or India related funds in the Library with relative ease and without going through an exhaustive search. 

Funds by Type – Some investors like the expediency of ETFs while others like to seek bargains among investment trusts and closed-ended funds. Others will have open ended funds and unit trusts in their pension accounts. Funds by type allows you to click through lists of funds segregated by type. For example here is a list to all of the investment trusts and closed-end funds in our database.

Funds by Objective – Fund companies often attempt to differentiate themselves by defining a category where there is not much competition or when they see a gap where they might capture demand for a new product. The result is that there are a very wide number of fund objectives, but for example here is a link to the precious metals section. 

Funds by Theme – At The Chart Seminar we have long taught that commonality across sectors and then across regions often gives us clues to the stories inspiring investor interest. Healthcare is one such theme where Technology, availability and growth trajectories, particularly in high population regions, are combining to inspire optimism. Here is a link to the healthcare theme’s section:

We used a spreadsheet derived from Bloomberg data to categorise the chart Library’s Funds en masse. We’ll spend some time this week doing some consolidation and correcting any errors that may have occurred and would welcome feedback from subscribers. Our next step is re-categorise the fixed income and monetary measures sections to make them more user friendly. 

While I believe this was a valuable exercise in its own right, the true utility of this re-categorisation will become clear when we launch the upgraded version of the filter system.  We expect to have positive news on this front early next week.   



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August 04 2014

Commentary by Eoin Treacy

Tesla and Panasonic sign agreement on battery-making Gigafactory

This article by Ben Coxworth for Gizmag may be of interest to subscribers. Here is a section:

As mentioned in our previous article, Tesla plans for the Gigafactory to produce 500,000 batteries per year by 2020, with expected battery cell output of 35 GWh/yr and battery pack output of 50 GWh/yr. Current global battery output, from a variety of manufacturers, sits at just under 35 GWh/yr.

According to yesterday's announcement, "Tesla will prepare, provide and manage the land, buildings and utilities [while] Panasonic will manufacture and supply cylindrical lithium-ion cells and invest in the associated equipment, machinery, and other manufacturing tools based on their mutual approval."

The factory will be located somewhere in the US and managed by Tesla, with Panasonic occupying about half of the manufacturing space and taking the role of principal partner. Although the cells will be made by Panasonic, Tesla will be incorporating them into battery modules and packs that it will be assembling.

Along with lowering the price of batteries by making them in large numbers, Tesla and Panasonic also plan on reducing costs by manufacturing cells tailored specifically to EVs, locating materials suppliers on-site, and implementing measures to lower the utility and operating expenses of the factory.

Eoin Treacy's view -

Developing batteries that are both highly efficient and cheap, has proven to be a much more difficult challenge than people initially expected five years ago. Lithium, despite its propensity to self-combust, remains the standard Technology for batteries for everything from mobile phones to electric cars. The anticipated gigafactory aims to produce batteries that are marginally more efficient but considerably cheaper in the assumption that this lower cost will help fuel demand. They might be right. 



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July 29 2014

Commentary by David Fuller

EU Aims at Russian Banks, Technology in Widest Sanctions

Here are some brief samples of this report from Bloomberg:

The European Union curbed Russia’s access to bank financing and advanced Technology in its widest-ranging sanctions yet over President Vladimir Putin’s backing of the rebellion in eastern Ukraine.

EU governments agreed today in Brussels to bar state-owned banks from selling shares or bonds in Europe and restricted the export of equipment to modernize the oil industry, a key prop for Russia’s economy, two EU officials told reporters. New contracts to sell arms to Russia and the export of machinery, electronics and other civilian products with military uses will also be banned.

“The political implications of the escalation in tensions are likely to cast a further chill over relations between Russia and the West,” Citigroup Inc. analysts includingEric Lee and Tina Fordham said in a note to clients before the EU decision. “Economic costs are starting to bite, but it could be a while before the economic consequences bear domestic political costs for Russia.”

The U.S. is also preparing to announce tougher sanctions on Russia after months of separatist unrest in Ukraine’s easternmost Donetsk and Luhansk regions and the disaster involving a Malaysian Air jet¸ which U.S. officials have said was probably downed by a missile fired by the pro-Russian rebels. At least 10 soldiers and 28 civilians died in violence over the past 24 hours.

The new package of EU sanctions will “track pretty closely” with those already imposed by the U.S. and the Obama administration plans to unveil additional penalties as soon as today, PresidentBarack Obama’s spokesman said.

And:

For the first time, the EU sought to hobble broad swathes of Russian industry, with the goal of accelerating the flight of capital from the country. Russian economic growth will slow to 0.2 percent in 2014 from 1.3 percent last year, the International Monetary Fund said last week.

“Russia needs the opposite, Russia needs internationalization, globalization to make Russia a better place to do business,” Tim Ash, an emerging-market economist at Standard Bank Plc in London, told Bloomberg Television earlier today. “In the short term, the impact of sanctions could be to push Russia into recession.”

Taking aim at the Russian financial system, the EU prohibited state-owned banks from selling securities with more than 90 days maturity to European investors. The result will be “sharply increased costs of issuance,” the European Commission predicted in a background paper last week.

David Fuller's view -

My impression is that these European Union sanctions are tougher than what would have been remotely possible before the MH17 massacre, or perhaps even last week.  Moreover, they will last for 12 months, albeit first reviewed at the end of October, but requiring unanimity from all 28 members to drop the sanctions prematurely.  That would appear unlikely.  The US has also responded in kind by increasing its sanctions to cover Russian banks. 

The interesting question is how will Putin react to these new sanctions?

This item continues in the Subscriber’s Area and includes links to three additional articles.



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July 28 2014

Commentary by David Fuller

The Boom Is Coming, and Sooner Than You Think

My thanks to a subscriber for forwarding this informative article on the 18th, although it found its way to my ‘Junk Email’ section rather than my Inbox for some unfathomable reason.  Nevertheless, it is just as relevant today and here are a few samples:

I disagree with the economic pessimists who believe, as I outlined in yesterday’s column, that persistently slow growth will be the norm for years to come.

Yes, huge federal government deficits and debt are a major drag. It’s also true that budget surpluses aren't likely to materialize to shrink the $17 trillion-plus national debt, even if growth resumes.

Nevertheless, there is a strong possibility that government debt relative to gross domestic product will fall appreciably, as it did after World War II. Back then, deficits were relatively small, so GDP outran gross federal debt. The debt-to-GDP ratio dropped from 122 percent in 1946 to 43 percent 20 years later.

The ratio fell even further in the late 1960s and 1970s as inflation, caused by rapidly rising federal spending on Vietnam and Great Society programs, pushed taxpayers into higher tax brackets and filled government coffers. Higher corporate-tax revenues also resulted from under-depreciation and inventory profits.

A more recent example of a reduction of the federal debt-to-GDP ratio came in the 1990s under President Bill Clinton. Robust nominal growth of 5.5 percent a year caused deficits to shrink so much that small surpluses existed in fiscal years 1998 to 2001. Federal tax receipts rose 7 percent on average, faster than nominal GDP, and outlays grew slower, at 3.6 percent. The dot-com bubble lifted individual income-tax receipts at an 8 percent annual rate and corporate taxes by 8.3 percent a year.

And:

I believe much of today’s new Technology -- the Internet, bioTechnology, semiconductors, wireless devices, robotics and 3-D printers -- is in its infancy. Collectively, they have the potential to rivalthe rapid growth and productivity-generating effect of the American industrial revolution and railroads in the late 1800s. Mass-produced autos and the electrification of factories and homes, which led to electric appliances and radio in the 1920s, offer yet more examples. Today, only a third of the world’s population is connected to the Internet but 90 percent live within range of a cellular network.

Sure, productivity (output per hour worked) grew by only 1.5 percent from 2009 to 2012, but that’s normal after a severe recession. I expect it to return to a 2.5 percent annual growth rate -- or more -- after deleveraging is completed in another four years or so. Even in the 1930s, productivity averaged 2.4 percent a year, higher than in the Roaring '20s. In the 1930s, much of the new Technology from the 1920s -- electrification and mass production -- was adopted despite the Great Depression.

David Fuller's view -

This article arrived with the subscriber’s comment: “This view from Gary Shilling seems well based on historical data.  I suspect it’s in line with your thoughts too.”

Absolutely, although I have not had all of Gary Shilling’s numbers to support it but the key premises are similar: 1) Several years of deleveraging following a financial crisis slow GDP growth significantly, and government debt rises; 2) Recovery time will vary among countries, subject to governance, but will become apparent between 5 to 10 years after the financial crisis for most of them; 3) What I have described in recent years as ‘the accelerating rate of technological innovation’ will be the most important factor contributing to our next secular bull market;

This item continues in the Subscriber’s Area.



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July 25 2014

Commentary by Eoin Treacy

China digital transformation: The Impact of the Internet on productivity and growth

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

China has posted high rates of labor productivity growth in recent years, but its progress began from a very low base. As a result, its labor productivity remains well below the levels in advanced economies (Exhibit 3). China created $15,500 of GDP per worker in 2013, significantly lower than levels in the United States ($107,200), Japan ($76,700), and Germany ($67,300). A closer look at the sector level bears this out: US labor productivity in the ICT and manufacturing sectors, for example, was 12 and ten times higher than China’s average labor productivity in those sectors, respectively, in 2013.

China faces a growing imperative to continue making strong gains in productivity. The rapid economic growth of recent decades was fueled by an expanding labor force and heavy capital investment, but this model is coming under pressure, particularly as the population ages. In fact, China’s labor force is projected to begin shrinking by 2015. As the dependency ratio doubles over the next two decades, the savings rate is also likely to decline as older Chinese draw down their savings. To avoid a slowdown and continue to improve living standards, China will have to make its existing labor and capital stock more efficient—and wider Technology adoption will be central to this effort.

The rapid growth of China’s Internet economy is not yet reflected in its labor productivity performance. From 2010 to 2013, China’s labor productivity increased by 26 percent, while the contribution of Internet-related output to GDP increased by 35 to 60 percent (depending on whether C2C e-commerce is included).

However, China appears poised to capture large gains as its companies step up their adoption of Internet technologies. According to McKinsey’s latest survey of Chinese CIOs, the typical Chinese company spends 2 percent of revenue on IT, far below the 4 percent international average. These same respondents predict their IT spending will increase to 3 percent of revenue by 2015—and while that still leaves a large gap, it indicates clear momentum.26 As Chinese companies digitize their operations on a wider scale, they will gain the ability to streamline operations, open new sales channels, accelerate the R&D process, and become leaner.

The Internet is likely to usher in disruptive change, but it is also a catalyst for faster productivity growth. We project that the new applications described in this report could contribute 7 to 22 percent of China’s overall labor productivity improvement by 2025. Capturing this potential will be critical for China’s future competitiveness, particularly as the country’s labor costs increase and its demographic dividend diminishes. 

 

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

China has succeeded in transforming its economy by leveraging its low labour costs and enormous population. However as the population ages and wages increase, delivering productivity gains is essential if the country is to succeed in attaining its long-term development goals. 

A large number of countries have succeeded in moving from low income to middle income economies but the number that have persisted with their goal of moving into the high income bracket is considerably smaller. Continued zeal for the policy objectives that deliver productivity growth will be worth monitoring as a result. China’s digital economy represents a promising development and suggests that it will succeed in continuing to move up the ranks of GDP per capita. 

 



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July 22 2014

Commentary by Eoin Treacy

Hasbro saddles up 3D-printed My Little Pony figurines designed by fans

This article by Nick Lavers for GizMag may be of interest to subscribers. Here is a section: 

While fan-created My Little Ponies may be something of a niche, such forward-thinking ventures highlight the potential of 3D printing. The Technology has opened up all kinds of possibilities, but one very real implication is the issue of intellectual property theft. So much so, research firm Gartner predicts that by 2018, 3D printing will result in the loss of more than US$100 billion in intellectual property each year.

Collaborative efforts like SuperFanArt, where consumers are empowered and enticed by an element of authenticity, rather than the convenience of reproducing their own knock-offs, could see established brands such as Hasbro get the jump on the Pirate Bays of tomorrow.

The first line of My Little Ponies designs will be on show at Comic-Con San Diego from July 24 to 27. You can check out the designs in the gallery and find out more about becoming a SuperFanArt featured artist via the source link below.

Half of Europe’s Jobs Threatened by Machines in U.S. Risk Echo – This article by Simon Kennedy for Bloomberg may be of interest to subscribers. Here is a section: 

Eoin Treacy's view -

In much the same way that intellectual property is threatened by the ability of people to download music, videos and books from the internet, the evolution of 3-D printing represents a similar threat to product designers and products. Music companies and publishers have changed their business models to permit downloads and adjusted their pricing to lower the barrier to entry. It is conceivable that 3-D products will go the same way. 



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July 21 2014

Commentary by David Fuller

Russian Billionaires in Horror as Putin Risks Isolation

Here is the opening of this topical report from Bloomberg:

Russia’s richest businessmen are increasingly frantic that President Vladimir Putin’s policies in Ukraine will lead to crippling sanctions and are too scared of reprisal to say so publicly, billionaires and analysts said.

If Putin doesn’t move to end the war in Ukraine in the wake of last week’s downing of a Malaysia Air jet in rebel-held territory, he risks becoming an international outcast like Belarus’s Aleksandr Lukashenko, whom the U.S. famously labeled Europe’s last dictator, one Russian billionaire said on condition of anonymity. What’s happening is bad for business and bad for Russia, he said.

“The economic and business elite is just in horror,” said Igor Bunin, who heads the Center for Political Technology in Moscow. Nobody will speak out because of the implicit threat of retribution, Bunin said by phone yesterday. “Any sign of rebellion and they’ll be brought to their knees.”

The downing of the Malaysian airliner, which killed 298 people, led to renewed threats of deeper penalties by the U.S. and the European Union, who’ve already sanctioned Russian individuals and companies deemed complicit in fueling the pro-Russian insurgency in Ukraine. U.S. Secretary of State John Kerry said yesterday the available evidence suggests Russia provided the missile used by the rebels to down the airliner. U.K. Defence Secretary Michael Fallon was cited by The Mail on Sunday as accusing Putin of “sponsored terrorism.”

Branding Russia, like Iran or Libya under Muammar Qaddafi, a “state-sponsor of terrorism,” as the British defense minister suggested, would be a major move that would have “a very significant impact on Russia and companies dealing with Russia,” Timothy Ash, an emerging-market economist at Standard Bank Plc in London, said by e-mail.

David Fuller's view -

It is the same age old story.  Unopposed, the ruthless and destructive bully exploits those around him; only the stakes are much higher when the problem is cause by a dictator with a large military, who also supplies an essential commodity.  You can be sure that there is not an EU leader who does not regret the bad luck of being in office during Putin’s era. 

I am not suggesting a military response but much tougher sanctions are required.  Not all European leaders have the stomach for this, not least because their economies are currently weak and could easily deteriorate further with sanctions which hurt their trade with Russia.  However, there is also a real possibility that they would be better off if Putin was either removed from office by his countrymen or at least clearly weakened.   

The USA certainly has the economic influence to weaken Russia, but how far will it go?  President Obama may be reluctant to do Europe’s unappealing job for it.  However, clear evidence that Russian separatists within Ukraine shot down Malaysia Airlines flight MH17, which appears to be emerging, could tempt Obama to brand Putin’s Russia as a state-sponsor of terrorism.  This would be extremely difficult for Russia’s businesses and it would certainly weaken Putin.

This item continues in the Subscriber’s Area where another article is also posted.



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July 17 2014

Commentary by Eoin Treacy

US Dividend Contenders

Eoin Treacy's view -

Following on from yesterday’s addition of a section for the US Dividend Champions to the Chart Library, I created a section for the US Dividend Contenders today. Unlike the Dividend Aristocrats which demand 25 years of consecutive increases as well as a market cap and liquidity provision, the Champions and Contenders only look at records of increasing dividends. In the case of the Champions this is at least 25 consecutive years and between 7 and 24 years for the Contenders. 

The US Dividend Contenders represent an interesting universe of companies where banks, utilities, insurance, MLPs and REITS dominate. This list also highlights the increasingly large number of Technology companies that have maintained solid records of dividend increases over the last decade. 

 



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July 15 2014

Commentary by David Fuller

Deepak Lalwani: Positive and Pragmatic Budget [for India] Despite No Big Bang Reforms.

My thanks to the author of the India Report for his insights on this interesting market.  Here is a sample:

India Inc is largely happy as this budget is seen as the start of a new economic journey.

1. Bearing in mind this maiden budget was presented in 45 days of the Finance Minister being sworn in it is realistic not to have "big bang" structural reforms unveiled so quickly.

2. Positives include: (a) No populist move; (b) FDI limits increased in both defence and insurance from 26% to 49%. There is relief that finally, after several false dawns, the FDI limit in insurance is finally being raised; (c) Intent to reduce the fiscal deficit and keeping an eye on fiscal prudence and to spur economic growth; (d) GST to be introduced finally by end of year; (e) Infrastructure spending to continue to support economic growth; (f) Tax adventurism to end from here on; (g) REITs good news for stock market.

3. Negatives include: (a) Rather rosy assumptions made of growth - calculations could go awry especially since no details are given on what will drive growth to such levels; (b) Very ambitious target for privatisations; (c)No details on how the $ 43 bn subsidy regime (2.3% of GDP) will be reduced. This is worrisome as the ratings agencies could still downgrade India's sovereign rating to below investment grade or "junk" status; (d) The increase in FDI limit for defence to 49% will not be sufficient for foreign contractors to be willing to transfer Technology if they do not have voting control.

Overall, a positive and pragmatic budget that has tried to address the needs of many sectors. The key will lie in implementation and speed of delivery. Very positive for capital markets - although from here they will focus on earnings catch-up, global markets and the effect of "El Nino" on the Indian monsoons.

David Fuller's view -

Rating agencies know this is a pro-business government embarking on a modernisation programme for India, which the country’s citizens voted for.  Therefore, I doubt they will downgrade India’s sovereign rating over the $43 bn subsidy regime, especially as they know that Narendra Modi intends to phase it out, although this cannot be done overnight.

This item continues in the Subscriber’s Area and contains two related articles and a video.  



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July 15 2014

Commentary by Eoin Treacy

Taiwan May Relax Rules to Expand Securities Firms Business

This article by Justina Leefor Bloomberg may be of interest to subscribers. Here it is in full:

Taiwan’s Financial Supervisory Commission plans to allow securities firms to sell overseas yuan bonds to local institutional investors, Economic Daily News reports, citing officials it didn’t identify.

FSC may also relax rules to let securities firms trade derivatives for non-hedging purposes: report

FSC is lobbying central bank to allow overseas securities units to introduce derivatives linked to Taiwan’s stocks andexchange rate: report

Eoin Treacy's view -

While Western media have focused on improving manufacturing data from the USA and UK, Taiwan’s manufacturing data has been equally impressive. The outperformance of its large cap Technology sector has recently been supplemented by the return to form of the financial sector on speculation that regulatory overall will open up fresh growth avenues. 

 



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July 07 2014

Commentary by Eoin Treacy

Foxconn recruitment spree shows automation plan setback

This article for Want China Times may be of interest to subscribers. Here is a section: 

Foxconn chairman Terry Gou announced in 2011 that the company planned to manufacture 300,000 robots at a rate of 1,000 units a day and hoped to have 1 million robotic arms in 2014 for the benefit of the first batch of fully automated factories in five to ten years.

A vendor supplying equipment for automated production said that technically it is not a major problem for Foxconn to replace human workers with robots. However, using robots on the production line is only cost-effective for making homogeneous products and cuts cannot realistically be made in making mobile phones and tablet devices which have a more complicated manufacturing process, the vendor stated.

"The labor-intensive industry, such as OEM, can no longer sustain the company's growth," Gou said at a shareholder meeting on June 25. He further said that the company has been seeking a transformation of its business model in the past few years, which is expected to be crucial for Foxconn's continued growth in the next decade.

Eoin Treacy's view -

Factory automation represents an inexorable trend as companies attempt to contain costs and labour uncertainties. As the evolution of robotics proceeds, companies are becoming increasingly knowledgeable about what can and cannot be outsourced to automation. However robots have an important advantage relative to a human labour force. As pieces of Technology, they are subject to Moore’s law and humanity is not. Therefore we can anticipate that as robotics continues to develop and innovation accelerates, robots will both displace humans and also develop products human hands are incapable of. 



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July 03 2014

Commentary by Eoin Treacy

Vascular network bio-printing brings 3D-printed organs one step closer

This article by Stu Roberts for Gizmag may be of interest to subscribers. Here is a section: 

According to the University of Sydney study, the technique demonstrated better cell survival, differentiation and proliferation compared to cells that received no nutrient supply. In addition, Bertassoni says that it provides the ability to create large, life-supporting three-dimensional, micro-vascular channels quickly and with the precision required for application to different individuals.

"While recreating little parts of tissues in the lab is something that we have already been able to do, the possibility of printing three-dimensional tissues with functional blood capillaries in the blink of an eye is a game changer," he says.

Bertassoni explains that the ultimate aim of the research is for patients to be able to walk into a hospital and have a full organ printed with all the cells, proteins and blood vessels in the right place.

"We are still far away from that, but our research is addressing exactly that," he says. "Our finding is an important new step towards achieving these goals. At the moment, we are pretty much printing 'prototypes' that, as we improve, will eventually be used to change the way we treat patients worldwide."

Eoin Treacy's view -

3-D printing of living tissue that is fit to be transplanted into a human host would represent a game changer for the healthcare sector not least because it represents a Technology that would become progressively cheaper overtime. It would also represent a bridge before genetics has developed to such a stage that our internal chemistry can be manipulated without the need for surgery except in emergency cases.



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July 01 2014

Commentary by David Fuller

Manufacturing Sustains Gains as U.S. Growth Rebounds

Here is the opening of this informative article from Bloomberg:

American factories, propelled by the strongest orders of the year, sustained gains in June and are poised to be part of the rebound in economic growth.

The Institute for Supply Management’s manufacturing index was 55.3 last month, little changed from a five-month high of 55.4 in May, the Tempe, Arizona-based group’s report showed today. Readings greater than 50 indicate expansion.

Producers of wood products, furniture, metals and machinery were among those seeing a pickup in demand as gains in auto and home sales rippled through the world’s largest economy. Growing consumer spending, lean inventories and improving overseas markets will probably keep assembly lines busy in the second half of the year.

“Manufacturing is back on track,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York, the top U.S.-based ISM forecaster over the past two years, according to data compiled by Bloomberg. “It’s growing at a solid pace.”

Factories globally were also mostly on an upswing, figures today showed. In China, the world’s second-largest economy, manufacturing grew in June at the fastest pace of the year, according to a gauge from the National Bureau of Statistics and China Federation of Logistics and Purchasing.

In the U.K., manufacturing expanded in June at the strongest pace in seven months, according to Markit Economics. Factories in the 18-nation euro area cooled last month, as a deepening downturn in France offset a pickup in Spain, other Markit data showed.

The Standard & Poor’s 500 Index rose to a record, after posting the longest streak of quarterly gains since 1998, as Technology and consumer shares rallied. TheS&P 500 climbed 0.8 percent to 1,975.21 at 1 p.m. in New York.

David Fuller's view -

The US economy is now at least five and a quarter years into its economic recovery following the worst credit crisis slump since the 1930s.  Inevitably, it has been a slow, somewhat staggered recovery in response to all the deleveraging that occurred, and obviously not just in the USA.  Arguably, that deleveraging process has been an economically healthy corrective phase for the long-term outlook, although it has seldom felt that way as we have lived through the process. 

Nevertheless, quantitative easing has made the journey a lot less uncomfortable than it might have been, not least for investors, who now worry about the sustainability of global stock market rallies.  How serious a concern might this be, and how do we keep our analytical feet on the ground when stock market valuations increase more rapidly than corporate earning and GDP growth?

This item continues in the Subscriber’s Area.  



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July 01 2014

Commentary by Eoin Treacy

Technology Catch-Up plays

Eoin Treacy's view -

The Nasdaq-100 is within striking distance of a new all-time high following a market leading performance from the 2009 lows. As the psychological 4000 level is approached I thought it might be instructive to look at some of the more established Technology companies with reasonably robust dividend policies that may play catch-up. 



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June 25 2014

Commentary by Eoin Treacy

Capex about to turn up: The missing link in the US recovery

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

Spending on non-residential structures fell to unusually depressed levels following the financial crisis and has remained weak during this recovery. Similar to residential investment, much of this weakness can be attributed to a need to work through the overbuilding that occurred during the run up to the financial crisis, as structures share of GDP rose rapidly from 2004 through 2008. There are some indications that this excess supply has diminished materially and that pent up demand for non-residential structures should lead to stronger spending going forward. For example, the vacancy rate for office space nationally has declined steadily over the past four years toward historically more normal levels (Chart 18). In addition, in response to the shale energy boom in the US, investment in energy-related structures has been notably strong. This supports the outlook for a pickup in investment in commercial structures.

IPP: Uptrend should continue
Spending on IPP – composed of spending on software, R&D, and entertainment, literary and artistic originals – has displayed a steady uptrend as a share of GDP over the past several decades, which has been relatively impervious to cyclical factors. Recent strength in IPP spending has been driven primarily by the R&D component. IPP spending may also benefit from a shift away from investment in information processing (IP) equipment.

Equipment: IP equipment has been notably weak
Equipment spending as a share of GDP remains well below historical averages for this point of the recovery. In this section we take a more granular look at equipment’s components to analyze the underlying causes of this weakness. We have already determined that transportation equipment is near longer-term averages. We also find that recent contributions to BFI from industrial equipment and the “other” equipment category appear to be in line with longer-term averages. Conversely, IP equipment appears to be the component driving much of the softness in total equipment spending. Spending on IP equipment has been consistently below its longer-term average contribution to overall fixed investment during this recovery (Chart 19). 

Eoin Treacy's view -

The majority of established Technology companies rely on corporate spending to boost earnings. The outperformance of the Nasdaq-100 highlights the fact the corporations have been spending on software and other services. The return to outperformance of the industrial sector in 2012 reflects increased spending on machinery and embedded processors. Generally speaking there is a perception that the US recovery is weaker than one might expect but the fact that companies are embarking on increased spending is a sign of confidence. 



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June 11 2014

Commentary by David Fuller

The Machine - HP May Have Invented a New Kind of Computer

Here is the opening for this interesting article from Bloomberg:

HP’s bet is the memristor, a nanoscale chip that Labs researchers must build and handle in full anticontamination clean-room suits. At the simplest level, the memristor consists of a grid of wires with a stack of thin layers of materials such as tantalum oxide at each intersection. When a current is applied to the wires, the materials’ resistance is altered, and this state can hold after the current is removed. At that point, the device is essentially remembering 1s or 0s depending on which state it is in, multiplying its storage capacity. HP can build these chips with traditional semiconductor equipment and expects to be able to pack unprecedented amounts of memory—enough to store huge databases of pictures, files, and data—into a computer.

In theory, that would remove the need for a conventional slow disk/fast memory system. With the Machine’s main chips sitting on motherboards right next to the memristors, they can access any needed information almost instantly. “It’s the Platonic form of computing and is the natural way to do things,” says Papadopoulos, a former computer architect for HP and Sun. “You want lots of, lots of memory, and you want it to always be there and to use it as storage.”

New memory and networking Technology requires a new operating system. Most applications written in the past 50 years have been taught to wait for data, assuming that the memory systems feeding the main computers chips are slow. Fink has assigned one team to develop the open-source Machine OS, which will assume the availability of a high-speed, constant memory store. Another team is working on a stripped-down version of Linux with similar aims; another team is working on an Android version, looking to a point at which the Technology could trickle down to PCs and smartphones.

David Fuller's view -

I obviously have no idea whether or not Hewlett-Packard will be able to deliver ‘The Machine’ as a competitive, commercial, evolutionary new computer within the next 3 to 6 years.  However, I maintain that there is no known reason for why the pace of new technological innovation should not continue to accelerate well into the exciting future. 

 This item continues in the Subscriber’s Area where the article is also posted.



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June 11 2014

Commentary by Eoin Treacy

Musings from the Oil Patch June 10th 2014

Thanks to a subscriber for this edition of Allen Brooks ever interesting report for PPHB which may be of interest to subscribers. Here is a section: 

The translated Nikkei article described the transmutation experiment in the following manner: “The researchers put the source material that they want to convert on top of the multi-layer film, which consists of alternately laminated thin films of calcium oxide and palladium. The thin metal layers have a thickness of several tens of nanometers. Elements are changed in atomic number in increments of 2, 4 and 6 over a hundred hours while deuterium gas is allowed to pass through the film.

“The transmutations of cesium into praseodymium, strontium into molybdenum, calcium into titanium, tungsten into platinum have been confirmed.”

Mitsubishi’s patent was originally issued in Japan but it was extended in 2013 into a European patent, and protects the company’s proprietary thin-film transmutation Technology. The Japanese newspaper also reported that a research and development company of the Toyota Group (TM-NYSE), Toyota Central Research and Development Labs, has also replicated the elemental conversion research with results similar to Mitsubishi’s experiment.

While the Mitsubishi and Toyota research efforts have focused on material transformation rather than the generation of energy, the process is similar. High profile work on LENR as an energy source has been conducted by Andrea Rossi, an Italian engineer, inventor and entrepreneur. He has invented the Energy Catalyzer (E-Cat) and completed two tests, one of which produced 900o C (1,650o F) of heat that could be used to generate steam to power a generator to produce electricity. In early 2013, a group of independent scientists ran tests on two versions of the “Hot Cat,” a one megawatt LENR unit. Their coefficient of performance (COP) was measured, determining the ratio of energy out versus energy in. The COPs in the two tests were 5.6 and 2.2, respectively. Another group that is not affiliated with nor has it worked with Mr. Rossi, has been using an E-Cat and conducting longer term tests, the results of which may be released soon. This could be a monumental development, although it will not end skepticism of the Technology.

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

In the aftermath of the Fukushima disaster Japan has a vested interest in figuring out how to deal with the problems associated with nuclear power. In the near term that has meant building tsunami walls around nuclear plants and reinforcing structures to protect them from earthquakes. The challenges represented by nuclear waste have been intractable for a long time but the transmutation methods detailed above hold out hope that these will eventually be solved. 



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June 11 2014

Commentary by Eoin Treacy

The coming digital anarchy

Thanks to a subscriber for this interesting article by Matthew Sparkes for The Daily Telegraph. Here is a section: 

The clever part is how the network reaches a consensus on what should be written in it. Otherwise there could be thousands of different blockchains, all disagreeing over who owns what.

The idea is that each and every transaction is broadcast by the person initiating it. Rather than telling the bank we want to spend £3, we tell the world. That transaction is bundled up with thousands of others and cryptographically bound into a “block” by “miners”.

Technically, anyone with a computer can be a miner – they just need to install a small piece of software. But it’s not easy to do: far from it.

Bitcoin “miners” are so called because gold miners traditionally have to put in a lot of work before they see any reward in the shape of precious metal. In the world of Bitcoin, miners have to crack an extremely difficult cryptographic problem before they are rewarded with some newly minted Bitcoins. That “block” is then added to the end of the blockchain and shared around the world.

To quote the wiki dictionary maintained by “the Bitcoin community” – perhaps the nearest you can get to an official explanation – “mining is intentionally designed to be resource-intensive and difficult so that the number of blocks found each day by miners remains steady … The primary purpose of mining is to allow Bitcoin nodes to reach a secure, tamper-resistant consensus.”

In other words, the blockchain remains both public and infallible. It’s a totally reliable and trustworthy record of who owns what, but also who owned what back through time, all the way to the creation of Bitcoin.

Eoin Treacy's view -

To describe bitcoin as a currency is to miss the point somewhat with regard to what the development of cryptocurrencies means. The blockchain is a facilitator of transactions whether financial, services oriented or communications. In essence it is a ledger anyone can access where anything can be recorded and archived.



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June 09 2014

Commentary by David Fuller

Barry Ritholtz: The Bears Have Not Surrendered Yet

Here is a section from this interesting column published by Bloomberg:

According to a study published in the Financial Analysts Journal, equity ownership has fallen to the lowest level in more than a half-century. In 2012, investors held a mere 37.7 percent of their portfolios in equities. That was out of a grand total of $90.6 trillion in investable assets around the world.

Over the past three decades, U.S. investors’ portfolio equity exposure has run at a historical average of about 60 percent. Think of this as the classic 60/40 stock-bond allocation.

In the early 1980s, investors reduced their equity exposure to just 45 percent. In the late 1990s, it rose to 75 percent and higher. A 15 percentage-point swing in either direction is an indication of extreme sentiment. Savvy contrarians can make a bet in the opposite direction with a high degree of confidence.

Today, the equity allocation is a modestly elevated 65.3 percent among the 150,000 members of the American Association of Individual Investor, which tracks individual investor behavior. Given last year's 30 percent gain in the Standard & Poor's 500 Index, it is reasonable to guess that much of this increase was from price appreciation in existing equity holdings, and not due to a newfound love of stocks. Meaning, we are not seeing the sorts of sentiment moves that indicate a bubble.

David Fuller's view -

Barry Ritholtz makes some good points in this article, which may interest subscribers. 

Regarding the last paragraph above, I think he understates the extent to which US equity investors were piling in last year.  Also, we certainly saw some bubble activity in new tech and bioTechnology shares.  I regard those excesses are a lead indicator but clearly they have not yet dragged down the broader market.

This item continues in the Subscriber’s Area along with a link to Barry Ritholtz's article. 



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June 05 2014

Commentary by Eoin Treacy

China Nuclear coming online

Thanks to a subscriber for this report focusing on China’s utilities as newly constructed nuclear power stations come on line. Here is a section: 

According to China Electric Power Promotion Council (CEPPC) report, Fuqing Nuclear unit 1 completed its last round of security checks in mid-April before loading fuel and is currently on schedule to be commissioned from August 2014. However, after Datang’s Ningde nuclear recorded c.Rmb100m loss in 1Q14 due to a 90-day overhaul, investors become a bit concerned whether Fuqing’s profit contribution is likely to be compromised by the undertaking of regular maintenance. While we understand that a new nuclear unit would need to perform a major overhaul for fuel re-load in its second year of operation, the time period is normally shorter. Hence, we do not think the longer-than expected maintenance period for Ningde is a common situation to be assumed for other nuclear projects.

Average utilization still over 7,300 hours despite maintenance In Figure 1, we summarize the utilization hour record of China’s operating nuclear units with GII or GII+ Technology. Result shows that, excluding Tianwan unit 1, which incurred some technical issues during the first three years, average utilization in the second year is still above 7,300 hours, quickly climbing to above 7,700 hours in the third year.

 

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

Over the last decade China has aggressively invested in procuring the energy resources required to fuel economic expansion. Building nuclear power capacity has been a major component of that strategy and these new reactors are now being commissioned. Considering how extensive the pipeline is for additional reactors, this represents a growth story from the perspective of utilities. 



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May 21 2014

Commentary by David Fuller

Russia, China Sign $400 Billion Gas Deal After Decade of Talks

Here is the opening of this latest report from Bloomberg:

Russia reached a $400 billion deal to supply natural gas to China through a new pipeline over 30 years, a milestone in relations between the world’s largest energy producer and the biggest consumer.

President Vladimir Putin is turning to China to bolster Russia’s economy as relations sour with the U.S. and European Union because of the crisis in Ukraine. Today’s accord, signed after more than a decade of talks, will allow state-run gas producer OAO Gazprom (GAZP) to invest $55 billion developing giant gas fields in eastern Siberia and building the pipeline, Putin said.

It’s an “epochal event,” Putin said in Shanghai after the contract was signed. Both countries are satisfied with the price, he said.

Gazprom Chief Executive Officer Alexey Miller signed the deal with Zhou Jiping, chairman of China National Petroleum Corp. The agreement is for 38 billion cubic meters of gas annually over 30 years, Miller said. While he declined to give a price, he said the total value would be about $400 billion.

“This is the largest ever contract for Gazprom,” Miller said, adding the deal was clinched at 4 a.m. Supplies will start in four to six years, he said.

Gazprom shares rose as much as 2.2 percent, to 148.55 rubles in Moscow today and traded at 147.04 rubles at 4:04 p.m. local time.

David Fuller's view -

I do not think that Putin would have gone to China, with some fanfare, if he did not know that a deal was imminent.  Nevertheless, the last minute agreement, particularly after financial news services were initially saying this morning that discussions had failed, suggests to me that Putin had to give ground to the Chinese. 

Russia has gas, oil and weaponry but that is a narrow economic base for a country aspiring to be a global leader.  More importantly, the energy cartels are gradually losing power, not least because many countries now have the capacity, if not quite the will and know how, to produce their own natural gas by fracking.  Additionally, solar power and most other forms of renewable energy can only grow in importance as the advance of Technology improves their output and efficiency. 

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May 20 2014

Commentary by David Fuller

Mandate for Modi: A Business Agenda

My thanks to a subscriber for this detailed article from [email protected]  The first half has been more than covered on Fuller Treacy Money but the second half is revealing in terms of what the outgoing Congress party messed up and what India and Indians actually require.  Here is a sample from the conclusion:

Along with the big picture, it is necessary to look at the small picture. The real wealth of a nation comes from entrepreneurship, not mega-investments by government or big business, observers say. According to Bharti Jacob, managing partner at SeedFund, there is urgent need to encourage and enable entrepreneurship in India. “The government should stay out of it,” she says. “But it should create an environment that encourages innovation and new company formation.”

“India is a hostile habitat for entrepreneurship in terms of regulations that make it complicated and painful to start and run a business,” adds Sabharwal. “The biggest manifestation of this is the substantially stunted firm size. (Companies with less than 49 workers account for 84% of manufacturing employment). India has more dwarfs — companies that are small and will stay small — rather than babies — companies that are small but will grow. The reason obviously includes the labor laws, but the inspector raj, the compliance raj and the permission raj, which have remained unchanged since 1991, are also responsible.”

Laurent Demortier, CEO & managing director of Avantha Group-owned company Crompton Greaves, says the country also needs to bolster research and development capabilities. “With the increased global footprint of the Indian manufacturing industry, India should incentivize R&D and aim to make the country a global R&D hub in select sectors. This will encourage product innovation to make a home in India.”

According to Vinayak Prasad, co-founder ofFrog8, a company in the payments space, the new government needs to force regulators to stop taking baby steps toward enabling adoption of electronic payments. “Cash is still king and extremely costly,” he notes. “The requirements of [identity verification] make it very expensive to get customers. Digital [identity verification] is key, and the government or regulator needs to be more aggressive.” Prasad is talking about one end of the problem. The other end — inclusive banking — is probably more important; 41% of the population in India is unbanked. The only way to get them into the fold is to marry Technology to banking. Banking spread has been hindered by over-regulation. “The RBI is in anxiety management mode,” says Prasad.

Sabharwal talks about another issue. “India only has 50 cities with more than a million people while China has 400,” he notes. “We have 600,000 villages; 200,000 of them have less than 200 people. Politicians dream of taking jobs to people, but what we need is to take people to jobs. Unlike Chinese New Year, where 300 million people get on a train and go home, we don’t have a mass migration at Diwali, Chaath, Eid or Christmas. We should.”

India “[does] not need a business-friendly regime,” Aron notes. “What we need is an administration that pursues a rational regime of laws that will grow the economic pie as well as redistribute it equitably. In early 2000, the share of manufacturing in FDI inflows was more than 60%; it fell to about 40% in 2005 and to 20% in 2008. The drought of investment in manufacturing and in increasing the productive capacity of business in India is a self-inflicted misery…. It is time that we went from ‘made in spite of India’ to ‘well-made in India.’”

David Fuller's view -

A lot of these problems of bureaucracy and overregulation are due to corruption.  The rest is unhelpful socialism. 

Fortunately, Narendra Modi has already shown that he knows more about what is wrong with India’s economy, and importantly, how to address it, than anyone else.  Crucially, he has been given an overwhelming majority by India’s electorate.  People all over India understandably want jobs, economic growth, and rising standards of living. 

This item continues in the Subscriber’s Area and contains three more articles, on Modi from the NYT, on Modi from a distinguished US Congressman, and on another promising stock market.  



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May 20 2014

Commentary by Eoin Treacy

Can crowdfunding give us safe fusion power by 2020?

This article by Dario Borghino for Gizmag may be of interest to subscribers. Here is a section: 

According to LPP Fusion chief scientist Eric Lerner, the vast majority of the financial resources have been allocated to ITER's approach to fusion power, while other avenues, such as the one being pursued by his team, have been largely neglected, despite being much cheaper. Using an approach he calls "focus fusion," Lerner says his team can obtain a crucial electrode for $200,000, demonstrate net power gain with $1 million, and solve the final engineering problems, leading to a functioning fusion reactor with just $50 million in funding.

Eoin Treacy's view -

Fusion has been described as the holy grail of the energy sector for decades and always seems to be about thirty years away. Part of the reason for this is because the government sector which originally funded nuclear research was more interested in weapons development than cheap, clean energy. The ITER project has been plagued by lack of funding, political struggles and a need to make one bet on a developing Technology which has not yet been proven.

This project has clear parallels with Craig Venter’s success in sequencing the human genome. His company achieved the feat faster and more cost effectively than the government funded Human Genome Project. It remains to be seen whether the above privately funded initiative will be fruitful, but it seldom pays to bet against humanity’s capacity for innovation.



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May 07 2014

Commentary by David Fuller

U.S. Stocks Fluctuate as Tech Stocks Tumble Amid Yellen Comments

Here is the opening to this informative report on tech stocks from Bloomberg:

The Nasdaq Composite Index (CCMP)fell as Yahoo! Inc. and Groupon Inc. led a selloff in Internet stocks for a second day. The Standard & Poor’s 500 Index rose amid optimism the Federal Reserve will continue to support the U.S. economy.

The Dow Jones Internet Composite Index dropped 2 percent and touched the lowest level since October. Groupon fell 19 percent as sales and profit projections trailed some estimates. Yahoo slumped 5.8 percent as Alibaba Group Holding Ltd. filed for a U.S. initial public offering. Whole Foods Market Inc. declined 20 percent after cutting its 2014 profit forecast for a third time because of increasing competition. Electronic Arts jumped 18 percent after reporting better-than-forecast results.

The Nasdaq Composite slipped 0.7 percent as of 12:30 p.m. in New York, paring an earlier drop of 1.5 percent. The S&P 500 gained 0.3 percent to 1,873.98, rebounding after dropping below its average trading level for the past 50 days. The Dow Jones Industrial Average gained 107.43 points, or 0.7 percent, to 16,508.45. Trading in S&P 500 stocks was 10 percent above the 30-day average during this time of day.

“You’re seeing a brutal shift from growth and momentum investing to more value-based investing,” Chad Morganlander, a fund manager at Stifel Nicolaus & Co., which oversees more than $150 billion, said in a phone interview from Florham ParkNew Jersey. “The momentum stocks are ridiculously overvalued, but nonetheless, the overall broader market is fairly valued. Any kind of shift in momentum does spook investors.”

Technology stocks led this year’s selloff among companies whose growth are more tied to economic swings after a rally drove valuations to about double that of the S&P 500. The Nasdaq Composite is trading at 35 times reported earnings, compared with a multiple of 17.2 for the broad market measure.

David Fuller's view -

Janet Yellen’s comments were favourable for Wall Street today but I think Putin’s U-turn, if you believe him, was at least equally responsible for the firm close. 

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May 02 2014

Commentary by Eoin Treacy

Email of the day on Energy, Bank Capital & Cars

Have you noticed US oil producers are having trouble capitalising on these higher global Oil prices.  We both agree the world needs a cheap energy.  I think it is unlikely that cheap energy source will be conventional or unconventional Oil and Gas.  My concern is that cheap energy solution may take another 10 years to materialise.

I still think European banking looks like Zombie banking.  We know European banks have capital deficiencies.  I think these banks are holding back a broad recovery in the European economy.  My sources continue to tell me European banks are still trying to shrink balance sheets.  I believe the ECB needs to be more proactive in solving this problem.  I see ECB is talking of QE - I am not sure this idea is the solution more likely the problem.   However the bank capital dilemma needs to be addressed quickly otherwise Europe faces a possible Japanese situation of low growth for decades.

Like you I am a strong believer in the big European global business brands and product solutions.  However the availability of credit is stifling growth in Europe's smaller companies and businesses.   From what I observe VW increasingly looks like it is going to dominate the global car industry.  Unless Toyota can catch up in this Technology race they will lose their cherished Crown of the dominate global car producer.  As for old world car companies Ford , GM etc. sadly they look like a great short to me.  Every time I hire rental car in the US I come away with the thought how do US car companies do it so badly and remain in business.  I don't expect US cars to handle like my Porsche but US cars are just plain scary to drive.

Please keep up the good service.

Eoin Treacy's view -

Thank you for sharing your perspective on a range of topics. The revolution in unconventional supply of oil and gas can be viewed in terms of a supply response to high prices. At the beginning of the last decade $40 was considered the highest price possible for oil with the result that a great deal of additional supply was simply uneconomic.

Canadian bitumen becomes economic in the region of $40. Generally speaking more established offshore oil fields, such as the North Sea, have a breakeven in the region of $20-$25 while newer offshore such as Brazil’s pre salt ultra-deep water fields comes in closer to $45. A number of the unconventional plays have breakevens closer to the $50-60 area. As a result, we can conclude that price is the determining factor in which sources of potential supply are ultimately moved into production. 



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April 29 2014

Commentary by David Fuller

Email of the day

On the relationship between mining Technology and the supply of gold:

“Thank you for your comments on Gold. In the past few months your service mentioned a Technology that would make mining gold simpler and easier. I presume you still hold the view that this does not pose a threat for the supply of Gold in the medium to longer term. As always thanks for the wonderful service.” 

David Fuller's view -

Thanks for an email of general interest.

Yes, there is now a new reef-boring Technology, developed by AngloGold Ashanti, which is a lot more efficient and economical than ‘drill and blast’.   Iain Little also mentioned it and you can see the two emails just below my response on 5th March.

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April 29 2014

Commentary by Eoin Treacy

Africa: A ripe opportunity

Understanding the pharmaceutical market opportunity and developing sustainable business models in Africa This report by IMS Health is highly educative and I regard it as a must read for anyone interested in Africa. Here is a section:

By 2016, pharmaceutical spending in Africa is expected to reach US$30 billion.  This value is driven by a 10.6% compound annual growth rate (CAGR) through 2016, second only to Asia Pacific (12.5%) and in line with Latin America (10.5%) during this period. Spurred by a convergence of demographic changes, increased wealth and healthcare investment, and rising demand for drugs to treat chronic diseases, this market potentially represents a US$45 billion opportunity by 2020. 

The pharmaceutical growth is a reflection of economic strength accompanied by increasing healthcare spending. Sub-Saharan Africa (SSA), excluding South Africa, is notable in this regard: according to the Economist Intelligence Unit, its economies are growing faster than anywhere else in the world and this trend is expected to continue.

The appeal of Africa lies not in its size – the continent accounts for just 3% of the global economy – but in the dynamics that drive sustainable growth at a time when the major established pharmaceutical markets face a more uncertain future. Underpinning these prospects are a series of positive economic trends: greater political and fiscal stability and improvements in pro-business legislation have led the United Nations (UN) to forecast that Foreign Direct Investment (FDI) in Africa could more than double by 2014, despite speculative money leaving the continent following the collapse of Lehman Brothers, and the Arab Spring restricting investment in North Africa.

This FDI is fuelling macroeconomic growth and vastly improving access to new Technology. The recent boom in mobile subscribers reflects this trend: as of mid-2012, there were more than 600 million mobile subscribers on the continent, surpassing American and European figures. At the same time, major demographic shifts show an increasing number of working-age Africans, a rising middle class which accounts for 34% of the continent’s inhabitants, and an urban population expected to exceed that of China’s and India’s by 2050.

 

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

IMS Health recently IPOed in New York. The company which specialises in crunching complicated prescription data in order to sell it to pharmaceutical companies represents one of a new breed of information companies that are likely to become more common in the coming decades as big data moves into the mainstream. While they do not generate revenues in Africa, one can understand why the continent represents an interesting opportunity for them. 

According to this report GlaxoSmithKline is the dominant provider of pharmaceuticals in Africa. However, with annual revenues of £30 billion the 3.8% represented by the Middle East and Africa barely moves the needle in terms of the share’s performance. Nevertheless, as a global Autonomy GSK represents one of the companies most likely to benefit from the continued evolution of the global consumer. The share (Est P/E 15.38, DY 5.2%) has been largely rangebound for much of the last year but a sustained move below 1500p would be required to question medium-term scope for additional upside. 

South African listed Aspen Pharmacare generates 35.5% of its revenue in South Africa and 10.2% in the rest of Africa. The share (Est P/E 25.48, DY0.56%) has lost momentum following an accelerated advance in September and it will need to continue to hold above or in the region of the 200-day MA if medium-term upside potential is to continue to be given the benefit of the doubt. 

Africa has been one of the more fashionable destinations for investors over the last few years with the result that prominent regional shares now have rather expensive valuations. For example the UK listed Africa Opportunities Fund which invests directly in Sub Saharan Africa’s less liquid markets traded on a discount to NAV of 18% in early 2012. Following an impressive advance it now trades at a 2% premium and appears to be unwinding an overbought condition relative to the 200-day MA. 



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April 23 2014

Commentary by David Fuller

April 17 2014

Commentary by David Fuller

Tom Stevenson: There is a lot more air to come out of the tech bubble

Here is the opening from this interesting article published by The Telegraph:

In the long run the market is a weighing machine but in the short run it counts votes. Eventually, fundamentals will determine the right price but eventually can be a long time coming. In the meantime, being right at the wrong time is frustrating, career-threatening and expensive.

This is what Keynes was getting at when he described investment as a beauty contest with a difference. You are not there to judge the most beautiful contestant but to guess who the other judges will rate. The sensible thing might be to temporarily do what you think makes no sense.

The vote-counting always comes to an end at some point but if the authorities are really determined, they can disable the weighing machine for longer than you expect. And while that’s happening markets can do strange things. Fundamentals can simply go out the window.

Last week we saw the fallout from a landslide vote in favour of tech and bio-tech stocks. The weighing machine has been re-activated, perhaps only for a short while, perhaps for longer. If we’re really back to weighing not counting, however, then I suspect this process has further to go. The scales are a long way off balance yet.

There were some pretty punchy corrections in individual Technology stocks last week, with the likes of Amazon, Facebook and Google off more than 4pc on Thursday alone. And it’s been a global correction, with internet stocks under the cosh from Shanghai to Silicon Valley and all points in between. With Nasdaq still trading at around twice the average multiple of earnings in the broader S&P 500, however, I think there’s still plenty of air to come out of this bubble.

David Fuller's view -

A degree of caution is still warranted over at least the next few months. What does this mean more specifically?

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April 17 2014

Commentary by David Fuller

BMO Mining Equity Outlook Q2/14

My thanks to a subscriber for this comprehensive report; here is a brief sample from the Preferred Stocks section:

Diversified Miners

BHP Billiton: Remains the preferred big cap name, balance sheet strong with debt reduction in 2014 on track, lowered costs and capex, net cash flow increasing, 4% dividend yield with moderate growth rates.

Rio Tinto: A well articulated and coherent strategy on lowering costs and capex, net cash flow increasing with cash return possible late 2014 into 2015, 4% dividend yield but some worries on iron ore price H2/14.

David Fuller's view -

Mining shares are generally contra cyclical and often underperform until the latter stages of bull markets.  Often regarded as ‘dull old economy stocks’, especially when the cycle’s highly fashionable shares are outperforming, miners are often ignored for much of the bull market’s duration and consequently range sideways in large developing base formations.  However, when overvalued and overextended momentum plays finally lose form, as we have seen in recent months, re-ratings are usually underway.

The Nasdaq Biotech Index (weekly & daily) is a good example. 

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April 16 2014

Commentary by Eoin Treacy

How resource scarcity is driving the third Industrial Revolution

If you believe as we do that we are in the early stages of a third industrial revolution then this video from McKinsey is well worth spending 11 minutes to watch. Here is a section from the transcript:

What’s important to realize is that the technologies we’re talking about changing in this way are really basic infrastructure technologies. And because of that, they have this spillover benefit for the productivity of the economy as a whole.

When we change the cost of a structure—in housing or an office—that has a knock-on effect on all these industries that use or take advantage of buildings. When we change the economics of the resources required for transportation and for movement of goods, every industry that ships anything anywhere in the world benefits from that.

When we virtualize a process to, instead of physically moving a good, turn it into a service delivered over your phone or over the Internet remotely, that, again, spreads to many, many industries, from elevators to automobiles to mining companies. They’re all now taking advantage of the fact that I can do things remotely. That’s why it’s very exciting. We’re just at the beginning, the inception point, of these new materials and new IT technologies beginning to affect many, many other industrial domains.

 

Eoin Treacy's view -

The above video helps bring together a number of themes that are likely to help drive productivity growth over the coming decades. This is worth keeping in mind following the sharp pullbacks experienced by a number of Technology companies over the last six weeks. 

 

 



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April 15 2014

Commentary by Eoin Treacy

Email of the day on technological innovation

“Thank you for another productive session at the strategy seminar last week. I came across this interesting overview of emerging technologies which touches upon one of the main themes we discussed.

Eoin Treacy's view -

Thank you for these infographics which offer a wonderful representation of how Technology might develop over the next twenty years. While it would be unreasonable to expect all of these possibilities to reach fruition, the potential for success in at least some of them suggests that productivity growth is more likely than not over the next couple of decades. 



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April 07 2014

Commentary by David Fuller

Iain Little: Fund Manager Diary: Leaders and Sex

My thanks to the author for his latest and ever-entertaining Diary.  Here is a brief sample:

There are many ways to think about global investing. Many talk about countries (“is China’s relative decline over?”). Others think of sectors (“is Technology entering a bear market?”). We see the world as themes (“is the emerging middle class increasing the demand for shampoo?”). Few think in terms of sex (though some psychologists say men think about it every 7 seconds). Our Developing China theme adviser, Arisaig Partners, points out that women are changing global economics. The growth in women’s income (USD 5 trillion) in the next 5 years will exceed the GDP growth of China and India combined. Half of the world’s farmers are women, yet they own less than 2% of the land and take home only 10% of global income. Mao Zedong, the “Great Helmsman“, said that women “hold up half the sky”. How poetic therefore that thinking about women’s purchases –cosmetics, soap, chocolate, apparel- conjures up those stocks –Unilever, P&G, Nestlé etc- that are rightly called “Global Autonomies”. Indeed, The Hand That Rocks The Cradle Rules The World.

David Fuller's view -

They also have decent dividends, which make them purchase candidates following every significant correction. 

Iain Little's Fund Manager's Diary is posted in the Subscriber's Area. 



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April 07 2014

Commentary by David Fuller

U.S. Wind Power Blows New Records. Again. And Again

I am no fan of wind power but was impressed by this report from Bloomberg.  Here is the conclusion:

Even without the subsidy, wind prices are getting cheaper as the Technology improves. The cost of wind energy has declined by 43 percent over the last four years. There’s a backlog of projects that already qualified for the tax credit that will ensure a steady pace of turbine growth for the next few years, according to BNEF wind analyst Amy Grace.

The future of the wind tax credit is contentious and uncertain, but so is America’s cheap gas prices. As expensive coal plants are retired, utilities are switching to cheaper natural gas, driving up the price, says Grace. Also, the U.S. Energy Department is opening up domestic gas for exports for the first time. By 2020, U.S. shale gas may account for 20 percent of the global market, according to a Citigroup estimate.

If Americans have to buy gas anywhere near international market prices, wind wins. Gas may be booming, but you can expect many more wind records to come.

David Fuller's view -

I suspect that at least part of that 43% drop in the cost of wind energy is due to temporary overproduction of windmills.  Nevertheless, improving Technology is also a major factor.  Even so, these HG Wells monsters are appalling, noisy eyesores which blot landscapes and kill millions of birds. 

At least the USA has more undeveloped, remote land where windmills can be placed.  However, this considerably increases the costs and challenges of delivering their electricity to population centres where it is required.  In contrast, solar power need not have any of these drawbacks, while also being far more efficient and adaptable in terms of size or location.  



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April 04 2014

Commentary by David Fuller

U.S. Stocks Fall as Technology Selloff Drops Nasdaq Index

Here is the opening for this report on the US market’s significant developments today, reported by Bloomberg:

U.S. stocks fell, with the Nasdaq Composite Index sliding the most in two months, after large Technology stocks from Google Inc. to Yahoo Inc. plunged as investors sold the bull market’s biggest winners.

Google Class A shares sank 4.6 percent in the biggest drop since October 2012. Facebook Inc. lost 4.6 percent, bringing its two-day slide to 9.5 percent. Yahoo Inc. declined 4.2 percent to the lowest since November. An index of bioTechnology stocks plunged 4.1 percent. GrubHub Inc. surged 31 percent in its trading debut.

The Nasdaq index lost 2.6 percent to 4,127.73 at 4 p.m. in New York, for its worst day since Feb. 3. The Standard & Poor’s 500 Index sank 1.3 percent to 1,865.09 after earlier rising to an all-time high. The Dow Jones Industrial Average dropped 159.84 points, or 1 percent, to 16,412.71.

“This has been in the making for a few weeks,” Rick Fier, director of equity trading at Conifer Securities LLC in New York, said a phone interview. “Managers were positioned very heavily last year with the winners. They killed in 2013 and money started to pour in them. Today is kind of like the panic day that they couldn’t stand it any more and now they’re just puking these names.”

David Fuller's view -

These market developments are discussed below, albeit less colourfully.  



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April 03 2014

Commentary by David Fuller

Drones Portend High-Tech Future for Dangerous Mines

Here is the opening from this fascinating article from Bloomberg Businessweek.

Mines without miners?  Not quite. Still, a Technology boom in robots, drones, driverless trucks and pilotless trains is beginning to reshape one of the world’s most labor-intensive industries, portending automation of logistics, supply chains and mapping and allowing development of mines in regions once thought too dangerous or remote to exploit.Already about 200 driverless haul trucks are working iron ore mines, mainly in Australia. Meanwhile, mining giant Rio Tinto Ltd. (RIO), which funds one of the world’s largest non-military robotics programs, will soon use unmanned trains to deliver cargo to the coast and set drones aloft at its remote mines.

Drones can monitor stockpiles, map exploration targets and track equipment and will eventually deliver parcels to workshops according to Accenture Plc. -- and on a schedule far ahead of that envisioned by Amazon.com Inc.’s Jeff Bezos, who one day wants Amazon’s books and DVDs delivered instantly to customers via miniature helicopters.

“Come and see me in about October,” said John McGagh, head of innovation at Rio Tinto in Brisbane, Australia, where staff use the world’s largest multi-content touchscreen to monitor mining operations from Utah to Queensland. “You will see drones flying around. That’s not so long away.”

David Fuller's view -

It may take a while, but Technology is beginning to transform one of the dirtiest and most dangerous extraction businesses, giving it a metallic sheen of glamour to match the appeal of some mining share valuations.  



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March 31 2014

Commentary by David Fuller

Hi-Frequency Traders Ripping Off Investors, Michael Lewis Says

Here is today’s initial article by Nick Baker and Sam Mamudi for Bloomberg, prior to the public release of Michael Lewis’ new book: Flash Boys: A Wall Street Revolt.  The original article is no longer available online but having sent it to my PC this morning, I make the PDF above.  The article was subsequently watered down and also diluted with rebuttals from the very powerful HFT industry, which has so far had the blessings of most exchanges, because their profits have increase dramatically as a consequence of all the additional volume created by high speed electronic orders.  Here is the opening from the original article:

March 31 (Bloomberg) -- The U.S. stock market is rigged when high-frequency traders with advanced computers make tens of billions of dollars by jumping in front of investors, according to author Michael Lewis, who spent the past year researching the topic for his new book “Flash Boys.”

While speed traders’ strategies, developed over the past decade with help from exchanges, are legal, “it’s just nuts” that they’re allowed, Lewis said during an interview televised yesterday on CBS Corp.’s “60 Minutes.” The tactics are too complicated for individual investors to understand, he said.

“The United States stock market, the most iconic market in global capitalism, is rigged,” Lewis, whose books “Liar’s Poker” and “The Big Short” highlighted Wall Street excesses, said during the interview. The new book comes out today. “It’s crazy that it’s legal for some people to get advance news on prices and what investors are doing,” he said.

Everyone who owns equities is victimized by the practices, in which the fastest traders figure out which stocks investors plan to buy, purchase them first and then sell them back at a higher price, said Lewis, a columnist for Bloomberg View. To show how lucrative the tactics are, Lewis said a Technology firm spent $300 million to build a line that would shave three milliseconds off the time it takes to communicate between New Jersey and Chicago, then leased it out to securities companies for $10 million each.

David Fuller's view -

Veteran subscribers are very familiar with the debate concerning high-frequency trading (HFT) because this service has been posting articles on the subject and writing about it throughout the last five years, as the historic Archive will confirm. 

Michael Lewis and others who have expressed criticisms of HFT today are rightly focussing on the fact that it is mainly a front-running system.  Therefore the ‘T’ in HFT is actually a misnomer because the normal definition of trading does not include front-running, which is supposed to be illegal. 

Moreover, normal trading has always carried a level of risk because the future is generally unknown.  Today’s HFT would be more accurately described as HFFR, for high-frequency front running.  HFFR virtually eliminates risk because it gets a clear look at the immediate future by seeing everyone else’s buy and sell orders, microseconds before they are excuted.

This item continues in the Subscriber’s Area where another informative article on the subject is also posted.



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March 28 2014

Commentary by Eoin Treacy

Insights in 140 words

Thanks to a subscriber for this interesting note from Deutsche Bank by a former editor of the Financial Times’ Lex column. Here is a section on biotech:

BioTechnology - The Nasdaq biotech index has quadrupled in five years but is down 14 per cent in less than five weeks. Is a bubble popping? There are reasons to worry but beware the chatter about excessive valuations. Who cares if the 800 biotech deals this millennium were priced, for example, at 30 times net income on average? Such ratios are meaningless given early development-stage companies accounted for 350 of these acquisitions. Biotech is mostly a probability game before a commercial one. Investors are better off pondering, therefore, whether the decline in FDA approvals of new molecular entities from 39 in 2012 to 27 last year is significant. Or whether even if approvals accelerate will the crowding into, say, oncology research result in a deluge of similar new drugs that dulls returns? Biotech’s fate cannot be analysed in spreadsheets just yet.

Eoin Treacy's view -

A link to the full note is posted in the Subscriber's Area. 

There is a never a better time to seek funding for a capital intensive project than when interest rates are low and liquidity abundant. Biotech shares broke out of long-term bases late in 2010 and have since soared as an increasing number of projects reach commercial viability. 

This has fostered the acceptance of optimistic growth forecasts and improved perceptions of future potential. Considering just how quickly the pace of technological innovation is occurring, it is reasonable to be enthusiastic about the potential for future medical enhancements. However the price charts act as a reality check.

 

 



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March 12 2014

Commentary by Eoin Treacy

Next Opportunity: Position for Theme-based Investment

Thanks to a subscriber for a link to this report from Citi focusing on China. Here is a section: 

In the annual session of the National People’s Congress (NPC), Chinese leaders appear to have opted for Chinese medicine, not western ones or a drastic surgery, to cure past problems. They called for stabilizing growth in 2014 while the economy is climbing hills and crossing ridges. This does not rule out the possibility of sub-7.5% growth this year, but the resource-rich government will try to avoid a systemic risk.

Defaults in the financial markets are possible but significant ones would be avoided. In other words, our concern is not the defaults in the near-term but in the long-term.

The economy may moderate further but a hard landing is unlikely in the near term. The bottom line is to cap any sharp rise in the unemployment rate.

This reconfirms our base case: growth first, reform second. Reforms are likely to take place only when the CPI is below 3.5% but GDP growth above 7.0-7.5% (or, below 4.6% urban registered unemployment).

However, the market is likely to remain cautious in the near-term regardless of the government policy and growth target. Some investors worry about no reform as a high growth target limits any room for reform, and others are more concerned over the near-term defaults and thus further economic downturn. Neither scenario is positive to the equity market.

Our more constructive view is that the next investment opportunity will likely be a mixture of growth stabilization and reform. The government may first buy time by avoiding significant defaults and then roll out reform to boost domestic demand and engage in a gradual pace of de-leveraging. An even better but difficult result is when near-term defaults are avoided and the economy stabilizes; reforms are able to ease default risks in the long-term.

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

The above report represents a measured medium-term outlook for China’s economy and is probably in line with how the administration sees the situation. However, the short-term outlook is more focused on the fact that an increasing number of troubled trust products are missing coupon payments and investor hopes of receiving their principal are deteriorating. Here is a section from a Bloomberg article with some additional detail: 

Jilin Province Trust Co., which missed five interest payments on a trust product it issued to finance mining projects, declined to comment on a sixth payment due yesterday. China had its first onshore bond default last week when Shanghai Chaori Solar Energy Science & Technology Co. failed to make an interest payment and Baoding Tianwei Baobian Electric Co.’s notes were suspended from trading yesterday after it lost money for a second year.

“China’s economic outlook has deteriorated and more bond defaults could be coming, so it’s weighing on the yuan,” said Bruce Yam, a currency strategist at Sun Hung Kai Forex in Hong Kong. “A weaker yuan could help some exporters, especially the small- to medium-sized ones. It will also facilitate meeting China’s growth target this year.”




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March 11 2014

Commentary by David Fuller

ETF Outflows Biggest in World on Economy: China Overnight

Here is the opening of this informative article from Bloomberg:

Exchange-traded funds focused on China are posting the world’s biggest outflows amid concern economic growth is slowing.

Withdrawals from U.S.-based Chinese ETFs totaled $87.5 million March 10, the most among 46 nations, bringing this year’s redemption to $380.7 million, according to data compiled by Bloomberg. The iShares China Large-Cap ETF, the largest Chinese exchange-traded fund in the U.S., fell 1.6 percent to $33.90. The Bloomberg China-US Equity Index of the most-traded stocks in the U.S. dropped 2 percent to 99.60, led by Vipshop Holdings Ltd. (VIPS)

Official data over the weekend showed the steepest slide in exports since 2009 and the slowest inflation in 13 months, highlighting the challenges for Premier Li Keqiang in achieving this year’s economic-growth target of 7.5 percent. China had its first onshore bond default after Shanghai Chaori Solar Energy Science & Technology Co., a solar-panel maker, said last week it would fail to pay interest on notes due March 2017.

“Investors are pulling out of financial markets where there’s an economic slowdown and a lot of uncertainties,” Dave Lutz, the head of ETF trading and strategy at Stifel Nicolaus & Co. in Baltimore, said yesterday. “The outflow of capital from China will not end until investors stop seeing all the headlines about China indicating the country’s growth is faltering.”

David Fuller's view -

This is certainly understandable because the world’s second biggest economy is obviously going through a difficult transformation stage.  Moreover, China looks like a conundrum to many observers because the timing of its next recovery or even the next policy decision of importance remains difficult to predict.  As China’s Shanghai A-Shares Index (weekly & daily) has sagged, no one really thinks the 7.5% GDP growth target is achievable. 

Against this background, are the ETF outflows from China’s stock market a smart move or a contrary indicator?

This item continues in the Subscriber’s Area. 



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March 11 2014

Commentary by David Fuller

Email of the day 1

On Reef Boring Technology:

“I was very interested in reading about Reef Boring Technology mentioned in your comment of the day on March 5th. It reminded me of how early you were commenting about shale gas. How important do you see this development. Can it have similar effects on Gold as fracking did on gas? I would be grateful for your or the collectives’ views on this. Thanks very much in advance.”

David Fuller's view -

The short answer is our maxim: Technology Is Everything!  It will not have quite the same impact as fracking for gas in shale deposits, because that resource could not previously be released by conventional drilling. 

 This item continues in the Subscriber’s Area.



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March 05 2014

Commentary by David Fuller

Iain Little: Fund Managers Diary: Boring Laser Surgery for Exciting Miners

Here is a sample from the opening, plus his comment on The Markets Now:

Many's the time I've sat glued to the dentist's chair praying for merciful escape, or a laser fast treatment. Any fate but "drill and blast". Gold mining companies in South Africa now have new know-how. AngloGold Ashanti, the world's number 3 gold miner, is abandoning drill and blast techniques and now expects to double the life of its S African mines -that means 30 more years of revenues- by using reef-boring Technology (RBT). RBT taps new ore from old areas. It drills directly into the gold veins, like a laser drill, and extracts the most valuable content without blasting the entire rock. RBT could be, at least for gold, the new "fracking", a concept we introduced to readers several years ago when most people thought we were just talking dirty. "South Africa is going to long outlive me and probably the next five CEOs of the company," says Anglo's main man. The boring machines, which AngloGold developed with its suppliers, can single out gold-bearing ore from the reef, replace it with cement and chemicals that stabilize the mining structure, and thus take in ore that used to be lost amongst the pillars that supported the structure. Using Technology rather than manual labor means AngloGold can operate 24 hours a day. And it should please unions by giving workers less dangerous tasks to do instead. "Effectively, gold that is written off comes back into the books", he says. OK, so how will the books of gold miners change? Start with increased grades (read "margins"). We're talking about raising grades by as much as 15 times, from 6/10 grams per ton to 90 grams per ton. Then add in increased volumes, lower labour costs, reduced environmental impact, and greater extraction speed, and you've got, well, a gold mine. Like so much new Technology, RBT comes about because of man's need to meet a challenge: how to excavate deeper and deeper mines. 

Roll up, roll up for this Friday's "Markets Now" seminar in the East India Club (at 1700h prompt, the bell rings for Round One). About 20 are coming to hear Global Strategist David Fuller, supported by yours truly, tackle the major investment issues of the day in a Town Hall free-for-all. There's room for a few more. Here's the email address of the organizers: [email protected] 

David Fuller's view -

Iain Little’s Diary is posted in the Subscriber’s Area but if you would like to meet him and are anywhere near London this Friday, do come along to The Markets Now event.  Further details are provided below.



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February 25 2014

Commentary by David Fuller

Email of the day 1

On an article about bubbles in the UK and USA stock markets:

“Dear David, What is your opinion on this article [from The Guardian] that claims that there is a "bubble" in the USA and UK stock markets?”

 Ed: Here is the opening:

 According to the stock market, the UK economy is in a boom. Not just any old boom, but a historic one. On 28 October 2013, the FTSE 100 index hit 6,734, breaching the level achieved at the height of the economic boom before the 2008 global financial crisis (that was 6,730, recorded in October 2007).

Since then, it has had ups and downs, but on 21 February 2014 the FTSE 100 climbed to a new height of 6,838. At this rate, it may soon surpass the highest ever level reached since the index began in 1984 – that was 6,930, recorded in December 1999, during the heady days of the dotcom bubble.

The current levels of share prices are extraordinary considering the UK economy has not yet recovered the ground lost since the 2008 crash; per capita income in the UK today is still lower than it was in 2007. And let us not forget that share prices back in 2007 were themselves definitely in bubble territory of the first order.

The situation is even more worrying in the US. In March 2013, the Standard & Poor 500 stock market index reached the highest ever level, surpassing the 2007 peak (which was higher than the peak during the dotcom boom), despite the fact that the country's per capita income had not yet recovered to its 2007 level. Since then, the index has risen about 20%, although the US per capita income has not increased even by 2% during the same period. This is definitely the biggest stock market bubble in modern history.

David Fuller's view -

This is a generally good article although the author seems to think that the stock market should reflect the economy.  It will reflect monetary conditions but most UK and USA companies are considerably better off than their respective home economies, as I have mentioned before. 

For instance, they do not face the same debts or employment problems.  They can also earn revenue beyond their home shores, and some companies listed in the UK are not domiciled here.  However, all these shares have definitely benefited from Technology enhancements, low interest rates and quantitative easing (QE).  

This item continues in the Subscriber’s Area where the article is also posted.



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February 25 2014

Commentary by David Fuller

Email of the day 2

On developments in solar power:

“Hello David, it's me again. The article below on solar power appeared in today's City A.M. paper (London). The author draws a graphic analogy of panels installed to date with the Ford Model-T which was produced from 1908-1927. Look at the sophistication, reliability and affordability of modern cars by comparison and we get some idea of how amazing solar power is likely to become in coming decades. It will transform the world, in my humble opinion.”

Ed: Here is a section:

First, grid parity – when electricity generation is competitive with grid-electricity rates without subsidies – is edging closer. In 2012, Bloomberg reported that Germany, Denmark, Italy, Spain, Portugal, Australia, and Brazil could already expect to achieve at least a 6 per cent return on PV investments. Many of these countries still offer indirect subsidies, so the market isn’t competitive quite yet. But the direction is clear. The average US PV market will likely reach proper grid parity around 2020, and states like California should reach that point sooner. Within a few years, arguments about feed-in tariffs will become irrelevant in many countries, because the solar industry won’t need subsidies.

Second, large companies are flocking to solar. Thanks in part to cheap PV modules, non-energy businesses are becoming mini power generators. The retail giant Walmart already has a solar-energy capacity of almost 90 megawatts (MW) in the US. If the retailer installed panels on every US store, it could generate 1.5 to 2 gigawatts – or about twice the output of my local nuclear power station. If other big-box retailers follow – and many are already doing so – we could see collective generation capacity skyrocket, making solar increasingly viable as part of the energy mix.

Its potential goes beyond retail. Solar is well-suited to industrial and processing applications: in Saudi Arabia, the Al-Khafji solar-powered seawater desalination plant is set to produce 30,000 cubic metres of salt-free water per day. And entrepreneurs are honing new applications. The US startup WaterFX, for example, is developing solar “troughs” that remove salt from water by distillation to deal with drought.

But these innovations are only possible because solar Technology is developing rapidly. Today’s domestic PV modules are the Ford Model-Ts of solar: cheap, mass-produced, commercial pioneers. But they are poor at converting sunlight into electricity (efficiencies of around 10 to 15 per cent are common). These figures, however, could easily double.

Scientists from the California Institute of Technology and partners are developing a new multi-junction cell with a target efficiency of over 50 per cent. Building-integrated PV – glazing that generates power – could further popularise solar power. And PV is not the only form of solar energy. Improvements in other approaches, such as concentrated solar power (CSP), are possible. CSP uses mirrors to concentrate a large amount of sunlight onto a small area, driving a turbine. Just look at Spain’s 50MW Solnova Solar power station.

David Fuller's view -

Many thanks for the article, as informative emails are most welcome, not least in the field of Technology.  Solar farms can be understandably contentious if they are anywhere near recreational areas and sights of natural beauty, although they are considerably less menacing than noisy windmills. 

This item continues in the Subscriber's Area. 



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February 25 2014

Commentary by Eoin Treacy

NSA-Avoiding Devices Pitched as Way to Leave No Trail for Spies

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

“Most of the large companies are taking significant steps to broaden and audit their use of encryption,” Henninger said in a phone interview. He questioned whether the Technology is practical for widespread use, given that some services can be difficult to use.

Providing secure communications is “a huge growth area” for Verizon, Eddie Schwartz, the New York-based company’s vice president of global security solutions, said in a phone interview.

Verizon provides managed security services to companies, which include monitoring networks and data for hacking threats.

The company views its ability to monitor global Internet traffic as an advantage to offer customers the latest threat intelligence, Schwartz said.

“We sit on a fairly significant portion of the world’s Internet traffic,” he said. “The Internet is a living body of activity that we are constantly examining.”

Verizon also offers companies cloud services, which refers to online file storage and sharing.

 

 

Eoin Treacy's view -

In an era where an increasing number of people seem totally at ease with sharing the entire details of their personal lives with the whole world, those who seek privacy are often looked on with suspicion. However, a countermanding argument is that in an age where every piece of information is now also a piece of digital data,  the need for security has never been more important. 



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February 24 2014

Commentary by David Fuller

Tim Price: Forty centuries of learning nothing

My thanks to the Author for his interesting report, focussing this week on the history of inflation, plus wage and price controls.

It is posted in the Subscriber’s Area but here is the opening:

“The co-authors began working on this book in 1974, just after the termination of President Nixon’s controls in the United States. Since that time, we have examined over one hundred cases of wage and price controls in thirty different nations from 2000 BC to AD 1978..

“We have concluded that, while there have been some cases in which controls have at least apparently curtailed the effects of inflation for a short time, they have always failed in the long run. The basic reason for this is that they have not addressed the real cause of inflation which is an increase in the money supply over and above the increase in productivity. Rulers from the earliest times sought to solve their financial problems by debasing the coinage or issuing almost worthless coins at high face values; through modern Technology the governments of recent centuries have had printing presses at their disposal. When these measures resulted in inflation, the same rulers then turned to wage and price controls.”

- Robert L Schuettinger and Eamonn F Butler, ‘Forty centuries of wage and price controls: how not to fight inflation’ (The Heritage Foundation, 1979). 

David Fuller's view -

This history will certainly interest many subscribers, as will the conclusion.



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