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December 16 2013

Commentary by David Fuller

Energy and Jobs. The transformation of Americas energy market is starting to have a direct impact on vital British [and European] industries

Here is the opening from this important editorial from The Times, which is relevant not only to Britain but also most countries which have chemicals industries:

“Welcome to Boomtown USA,” says the sign at the entrance to Williston, North Dakota. Its unemployment rate is under 2 per cent. Its gas flares are visible from space, and its pride at helping to reverse America’s long slide towards energy dependency is palpable.

There are no such signs in Britain because there is still no large-scale British fracking industry. Instead the economy remains yoked to high energy costs and low growth that compare well only with its sluggish European neighbours.

Britain’s energy-intensive industries, chief among them chemicals manufacturers, are struggling with gas prices three times higher than in the United States. Electricity costs twice as much as in America and the chemicals sector across Europe is in a “fight to the death”, in the words of one analyst, as investment and jobs go elsewhere. Prompt steps must be taken to begin to bring them back. If the price is that the coalition’s green credentials are further undermined before the next election, it is one that must be paid.

For now, Europe’s largest maker of PVC is the giant chemical works owned by Ineos in Runcorn. It produces 38 varieties of polyvinyl chloride, used in hundreds of products from clingfilm and swimming pool liners to pharmaceuticals and drainpipes. It uses as much electricity, much of it from gas-fired power stations, as Liverpool. Historically it has exported much of its output to North America, but its future is now much less certain.

The Government’s Committee on Climate Change warned yesterday that low American shale gas costs as a result of fracking “could present a direct competitiveness risk to UK gas-intensive firms trading with the US”. The committee said that “in the longer term there is a risk that investment and jobs could relocate to the US”.

Viewed globally, this relocation is already under way. Taiwanese and Saudi chemicals firms are among those planning investments worth more than $90 billion in new US plants to take advantage of low energy costs. From being a net importer two years ago, America expects to be exporting chemicals worth $30 billion a year by 2018. At the same time it is preparing to boost its gas liquefaction capacity by a third in order to sell its shale gas surpluses abroad.

The impact on British industry will be profound, and the policy imperatives are clear. The Government should, first, avoid the trap of committing itself to high prices for future energy supplies when there is a clear possibility that wholesale prices will fall rather than rise in the medium to long term. That it has already guaranteed extravagant prices for power from new nuclear plants to woo foreign investors only makes it more important not to follow the same path for renewables. The result would be higher domestic energy bills and the risk of steep job losses for the sake of self-imposed carbon targets not observed even elsewhere in Europe.

David Fuller's view -

Wake up politicians, and smell the coffee.  You are weakening your economies and increasing unemployment by driving away energy dependent industries. 

This is not America’s fault.  In fact, the USA’s private sector has shown the way, by using Technology, commonsense and commercial initiative to lower its dependency on often hostile energy cartels.  Thanks to fracking Technology, which the USA’s private sector invented, it has lowered its energy costs and increased the efficiency of its economy.  In the ultimate riposte to militant green lobbyists, who would weaken our economies while darkening our homes and streets, the USA has also lowered its CO2 emissions by using fracking to produce much more natural gas.


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December 11 2013

Commentary by David Fuller

Email of the day on the new service and a very interesting article

“Firstly I'd like to congratulate you both on the launch of the new service, and also to praise David for his grace and wisdom in renaming the service in acknowledgment of Eoin's key role and contribution. I was intending to highlight some issues I see with the redesign, but will wait a little while for things to settle down (and thanks, Eoin, for the timely email today acknowledging some issues). This will be intended as constructive feedback, not moaning from someone resistant to change, so hopefully my comments may prove useful. In brief, the feedback will be on how the move to a more touch/mobile-device oriented "magazine" style interface may have inadvertently somewhat crippled the productivity an experienced subscriber could obtain from the old site design (especially in the Chart Library) when using a desktop interface or other large screen interface. As a mobile touch device, laptop and multi-monitor desktop user, I'm currently feeling that what one hand has giveth, the other has taken away! I shall be back in touch with details. An increasingly key theme of Comment of the Day is automation; as we know, the benefits are vast, but you've also wisely covered some the challenges and drawbacks. This is the subject of the following (lengthy!) article by Nicholas Carr, which I hope you'll find this article as thought-provoking as I did.  

“Carr is the author of the very interesting "The Shallows: How the Internet is Changing the Way We Think, Read and Remember". As a very long standing Internet user, and full time investor who spends a great deal of time reading and researching using Internet technologies, The Shallows resonated strongly with me. I was able to identify with many of the issues he raised, and as a result modified my Internet usage in order to retain its benefits while minimising the potential negative effects arising from its various "interruption technologies". Article Extract: "Most of us want to believe that automation frees us to spend our time on higher pursuits but doesn’t otherwise alter the way we behave or think. That view is a fallacy—an expression of what scholars of automation call the “substitution myth.” A labor-saving device doesn’t just provide a substitute for some isolated component of a job or other activity. It alters the character of the entire task, including the roles, attitudes, and skills of the people taking part. As Parasuraman and a colleague explained in a 2010 journal article, “Automation does not simply supplant human activity but rather changes it, often in ways unintended and unanticipated by the designers of automation.” Psychologists have found that when we work with computers, we often fall victim to two cognitive ailments—complacency and bias—that can undercut our performance and lead to mistakes. Automation complacency occurs when a computer lulls us into a false sense of security. Confident that the machine will work flawlessly and handle any problem that crops up, we allow our attention to drift. We become disengaged from our work, and our awareness of what’s going on around us fades. Automation bias occurs when we place too much faith in the accuracy of the information coming through our monitors. Our trust in the software becomes so strong that we ignore or discount other information sources, including our own eyes and ears. When a computer provides incorrect or insufficient data, we remain oblivious to the error. Examples of complacency and bias have been well documented in high-risk situations—on flight decks and battlefields, in factory control rooms—but recent studies suggest that the problems can bedevil anyone working with a computer. Many radiologists today use analytical software to highlight suspicious areas on mammograms. Usually, the highlights aid in the discovery of disease. But they can also have the opposite effect. Biased by the software’s suggestions, radiologists may give cursory attention to the areas of an image that haven’t been highlighted, sometimes overlooking an early-stage tumor. Most of us have experienced complacency when at a computer. In using e-mail or word-processing software, we become less proficient proofreaders when we know that a spell-checker is at work. The way computers can weaken awareness and attentiveness points to a deeper problem. Automation turns us from actors into observers. Instead of manipulating the yoke, we watch the screen. That shift may make our lives easier, but it can also inhibit the development of expertise. Since the late 1970s, psychologists have been documenting a phenomenon called the “generation effect.” It was first observed in studies of vocabulary, which revealed that people remember words much better when they actively call them to mind—when they generate them—than when they simply read them. The effect, it has since become clear, influences learning in many different circumstances. When you engage actively in a task, you set off intricate mental processes that allow you to retain more knowledge. You learn more and remember more. When you repeat the same task over a long period, your brain constructs specialized neural circuits dedicated to the activity. It assembles a rich store of information and organizes that knowledge in a way that allows you to tap into it instantaneously. Whether it’s Serena Williams on a tennis court or Magnus Carlsen at a chessboard, an expert can spot patterns, evaluate signals, and react to changing circumstances with speed and precision that can seem uncanny. What looks like instinct is hard-won skill, skill that requires exactly the kind of struggle that modern software seeks to alleviate." ” 

David Fuller's view -

Many thanks for your thoughtful and also insightful email. 

 The last thing any of us want, to paraphrase one of your important comments is to inadvertently cripple somewhat the productivity of any subscriber, let alone the cherished veterans and friends who have been sharing a long journey with me.  At the risk of being simplistic, if FT Money’s Technology is any good, once we have received the correct Chart Library data which has not yet been fully and correctly handed over, and once we have debugged and simplified the site, then it should help all subscribers.  Also, it would be a mistake if we just assumed that programmers know what is best, rather than subscribers, which is why we value the Collective’s views on what we are trying to achieve. 

 I read the excerpt from Nicholas Carr very carefully and look forward to the full article.  It is certainly interesting but I did not identify with many of the examples, at least not so far.  If I was playing boredom games or reading horoscopes all day, whatever remaining brain, and also body, would be mostly jelly.  I feel that computers inform and educate me, at least when they are not driving me around the bend because I cannot cope with the software.  Also, I was disappointed in seeing the title of Carr’s earlier article: “Is Google Making Us Stupid?”  I suppose it could, if I looked at banal things, but I know that Google educates me in so many different ways.

 I look forward to your further comments on how to improve our website.  Subscribers’ considered input and suggestions can only help us to make it more useful.      

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December 11 2013

Commentary by David Fuller

Fracking Boom Pushes U.S. Oil Output to 25-Year High

Here is the opening of this informative article from Bloomberg:

U.S. crude production rose to the highest level in a quarter-century as a shale drilling boom in states such as Texas and North Dakota cut the need for foreign oil and pushed the country closer to energy independence.

The U.S. pumped 8.075 million barrels a day in the week ended Dec. 6, a gain of 0.8 percent, or 64,000 barrels a day, the Energy Information Administration said today. It’s the most since October 1988.

“You can’t swing a cat without hitting a barrel of oil in North America,” saidStephen Schork, president of the Schork Group Inc., an energy consulting firm in Villanova, Pennsylvania. “It’s amazing how quickly things can change.”

U.S. oil output grew 18 percent in the past 12 months, the fastest pace on record, boosting fuel exports and reducing reliance on imports, according to the EIA. The boom will make the country the world’s largest producer by 2015, five years sooner than last year’s forecast, the International Energy Agency in Paris said last month.


David Fuller's view -

Remember growing up with all those stories about how we were going to run out of oil, to the point of being impoverished and sitting in the dark?  They persisted right into the 21st Century.  People are still inventing reasons to avoid tapping their natural resources, and paying much higher prices for their energy.  Who benefits from that?

 Technology is everything.  It improves our livelihoods, as most of us know.  We have only begun to see how it can reduce pollution, because that challenge was not sufficiently prioritised previously.     

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December 11 2013

Commentary by David Fuller

December 05 2013

Commentary by David Fuller

Email of the day on the difficult transition:

"Many of your subscribers have moved businesses before and know the pitfalls.  Yours is essentially all Technology and you both clearly expressed the challenges.  I can already tell the new system will be a winner.  As far as I am concerned take all of the time you need."

David Fuller's view -

Thank you for your understanding and reassuring support.  We will take whatever time and effort is needed to make this service better value than ever before.    


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December 02 2013

Commentary by David Fuller

"Green energy could kill Britain's economy"

Here is the opening of another excellent article by Matt Ridley for The Times (subscription required to read the full article but a PDF version is in the Subscriber’s Area.)

The Chancellor is to knock £50 off the average energy bill by replacing some green levies with general taxation and extending the timescale for rolling out others. On the face of it, the possibility that global energy prices may start to fall over the next few years might seem like good political news for him, and some of the chicken entrails do seem to be pointing in that direction. There is, however, a political danger to George Osborne in such trends .

For Government strategists reeling from the twin blows of Ed Miliband’s economically illiterate but politically astute promise of an energy bill freeze and the energy companies’ price hikes, the prospect of lower wholesale energy prices might seem heaven sent. But in many ways it only exacerbates their problems, for the Government is right now fixing the prices we will have to pay for nuclear, wind and biomass power for decades to come. And it is fixing those prices at quite a high level.

The more that oil, gas and coal prices drop, the worse these deals look and the more they threaten our economic competitiveness. The Liberal Democrats have not allowed the Chancellor to cut subsidies for the renewable energy industry, the most regressive redistribution of wealth since the Sheriff of Nottingham was in his pomp.

They argue that what has driven energy bills up threefold in ten years is mainly an increase in the wholesale price of energy, rather than any great lurch towards subsidising renewables. True, but most of the lurch is yet to come and as wind power capacity quadruples by 2020, it will add £400 to average bills — not to mention driving up the price of energy to industry, which will pass it on to consumers.

“There is not a low-cost energy future out there,” said Ed Miliband when Secretary of State for Energy and Climate Change in 2009, at the time an enthusiast for discouraging energy use by price rises. It even became fashionable to argue, when Chris Huhne filled that post, that higher prices would cut bills (yes, you read that right) by encouraging people to use less power.

Anyhow, the forces that have driven energy prices up in recent years appear to be fading. Consider some of the reasons that oil and gas prices rose in 2011, the year energy companies pushed up prices even more than this year. Japan suffered a terrible tsunami, shut down its nuclear industry and began scouring the world for gas imports to keep its lights on. At about the same time Libya was plunged into civil war, cutting off a key supplier of gas. Add in simmering tension over Iran, Germany’s sudden decision to turn its back on nuclear power, the legacy of a couple of cold winters and the lingering depressive effect on oil and gas exploration of low energy prices from much of the previous decade, and it is little surprise that oil and gas producers pushed up prices.

Contrast that with today. Several years of high prices have driven a surge of new exploration. Deep offshore Technology is advancing rapidly and huge gas fields have been found in the Mediterranean and in the Indian and Atlantic oceans. In the United States, the shale revolution has glutted both gas and oil markets, displacing imports. Iran is coming in from the cold, Libya is back on stream and Australia is preparing to export huge volumes of gas. Should the rest of the world start producing shale gas — China, Argentina, Poland and others are on the brink, even Britain might one day deign to join them — that would further add to supply.

David Fuller's view -

This is an excellent summary of what FT Money has been pointing out over the last four years, as the Archive will confirm.

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November 27 2013

Commentary by Eoin Treacy

Email of the day (1)

on "cheap" energy:

"There was a good article on Fracking in the Economist Magazine (still the best business magazine with no close second choices).  It was the 16-22 November issue. Sorry life has been to busy to bring this to your notice earlier.

"I am not taking sides in the argument of social versus business arguments for fracking. I personally not convinced Fracking is a cheap source of oil although in the short term it is providing the US with cheap gas.

"What I observe is fracking has created a collar in the oil market. If oil prices drop the frackers respond quickly and fracking stops. If oil prices rise frackers drill a lot more to meet the demand. T Boon Pickens commented recently that fracking is not in his experience cheap oil. I think we agree Mr Pickens knows the oil business in particular the economics of fracking.

"As the Economists Magazine article points out the economics of fracking is a combination of gas prices, other liquids and oil prices. I will not go into the boring arguments of the relative merits of different sources of gas. Australia has lots of gas. We always knew about coal seam gas (CSG) however the petroleum engineers used to tell us CSG was very poor quality gas with low heat qualities and of no commercial significance. Not a argument you hear today. 

"I guess the economics of fracking will improve. BHP are hoping they do. But unless they do improve even the dumb money (i.e. BHP) will get the hint and stop funding what has been so far a stupid idea.

"Hopefully see you in February at the Chart seminar."

Eoin Treacy's view -

Thank you for this insightful email which brings us to the question of what exactly the term cheap energy means. We have described the peak oil argument, for much of the last decade, in terms of the rising cost of production. As you point out, geologists have known about coal seam methane, shale oil and gas, tight gas, methane hydrates etc for almost as long as the fossil fuel industry has existed. The commercial viability of these resources has always been dependent on the application of Technology and the marginal cost of production.

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November 22 2013

Commentary by Eoin Treacy

Novartis Sets $5 Billion Buyback as It Seeks Faster Growth

This article by Eva von Schaper for Bloomberg may be of interest to subscribers. Here is a section: 

The drugmaker also said a review of its pipeline will lead to more approvals and higher sales by 2017. Novartis's stable of cancer drugs and sales are set to grow annually for the next five years, despite the anticipated loss of exclusivity on its cancer drug Gleevec, the company said.

The Alcon unit is now set to grow at a mid- to high-single digit rate. The company said last month group sales would do better than previously expected. Europe's biggest drugmaker by sales has begun a review of units such as its animal-health operation that lack global scale.

Novartis announced this month it would sell its diagnostics unit to Grifols SA for $1.68 billion, part of a strategic review of its market segments. The company now has three units with global scale, Jimenez said: pharmaceuticals, the eye-care business Alcon and the generics arm Sandoz. Novartis has said it wants its businesses to be among the industry leaders or it will consider divesting them.

Eoin Treacy's view -

The healthcare sector represents important cross currents from the perspective of a globally oriented thematic investor. From first principles the energy, Technology and healthcare sectors represent areas of research from which new inventions or discoveries can literally create value by changing forever how we live or lives. 

Healthcare tends to do this through investing in technological development which creates new therapies as well as lowering the cost and increasing the availability of existing products. The net result is that the sector is both large and diverse, with a comparatively small number of companies dominating the global market. 

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November 19 2013

Commentary by David Fuller

The Weekly View: When Yellen Talks, People Listen

My thanks to Rod Smyth, Bill Ryder and Ken Liu for their ever-interesting letter, published by RiverFront. It is posted in the Subscriber's Area but here is the opening

Clarifying her view of quantitative easing (QE) asset purchases during her Senate confirmation hearing last Thursday, Federal Reserve Chairman nominee Janet Yellen said that, at this point, "the benefits exceed the costs." Although some within the Fed want to start reducing purchases and replace them with extended forward guidance on zero interest rates, Yellen seems to currently favor both forward guidance and keeping the purchase program in place for now. That said, she framed her dovish stance as promoting more robust economic growth to "regain the ground lost in the crisis and the recession" with the intent to end extraordinary monetary policies as soon as possible. Regarding the duration of QE, Yellen acknowledged that the Fed cannot expand its balance sheet forever: "The committee is focused on a variety of risks and recognizes that the longer this program continues, the more we will need to worry about those risks. So I do not see the program as continuing indefinitely… at each meeting we're attempting to assess whether or not the outlook is meeting the criterion that we've set out to begin to reduce the pace of purchases.

David Fuller's view -

Despite the USA's considerable economic advantages of very competitive energy prices and a growing lead in Technology, Janet Yellen is unlikely to find the US economy growing at the pace she would like for commencing QE tapering.

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November 11 2013

Commentary by Eoin Treacy

Oil-to-gas switch in transportation

Thanks to a subscriber for this fascinating report from Deutsche Bank highlighting the point that while US natural gas exports will not take place until 2015, the adoption of Technology that promotes the use of the commodity is already occurring. The full report is posted in the Subscriber's Area but here is a section
Economic benefits of gas as an oil substitute stay intact
We believe the impact of the gas tariff hike in July 2013 on vehicle fuel switching to natural gas is limited as the lengthened payback period is still economically attractive for conversion. The planned diesel/petro upgrade as a move to reduce emission will enhance the cost competitiveness of natural gas as a fuel substitute and offset the negative impact from rising natural gas price. There is also downside potential for natural gas price in China in the long term on increasing supply from unconventional gas and US LNG exports.

Environmental benefits and improving infrastructure/supply
Compared with gasoline and diesel, CNG and LNG are much cleaner and can significantly reduce transportation-related emissions. Many local governments have laid out aggressive plans to roll out natural gas applications in public transportation, as an important part of raising gas usage in the total energy consumption mix. Accelerating construction of the gas refuelling station and strong growth in LNG imports will support continued growth in oil-to-gas switch in transportation.

Natural gas application in vessel and other areas; export market potential
LNG conversion in vessels could be another big growth driver with national development guidelines and target just released. Moreover, great potential exists in LNG-fuelled construction, drilling and mining machinery markets. As China is a pioneer in LNG vehicle application, domestic equipment players are well positioned to exploit overseas markets, especially the US market where gas price is most competitive vs. oil.
Eoin Treacy's view - It has been our view at FT Money since at least 2010 that the development of unconventional oil and gas resources represents a game changer for the energy sector and the wider global economy. This is now reasonably well understood by governments less encumbered by climate ideology. China’s policy makers have committed themselves to working out how they can best make this change in global energy dynamic work to their advantage. The obvious answer is to do whatever they can to produce more gas and consume more of it in preference to coal and oil.

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November 07 2013

Commentary by Eoin Treacy

Twitter: What's It Worth?

This article for [email protected] may be of interest to subscribers. Here is a section
Ramesh and Abrol expect Twitter's year-over-year revenue growth to steadily drift down, from 88% in 2013 to 17% in 2018. They see operating profit turning positive in 2015 and free cash flow to be in the black in another three years. “Our fundamental approach was to stay a little conservative,” Ramesh says. It seemed the most prudent approach, he notes, since Twitter did not disclose advertiser metrics such as how many users are on the platform and their churn rate. Advertising is the core driver of revenue, so these disclosures are critical for modeling projections. “It was the most crucial piece of information, and [Twitter] didn't provide it,” Ramesh points out.

The two students have a “buy” rating on Twitter because the IPO price range is below their fair value of $27.35. But Ramesh says he is not going to be buying the stock out of the gate. “I would be cautious until they reveal more of their revenue model,” he notes, adding that he predicts Twitter shares will go up on the first day of trading but then eventually float down over the next few months.
Eoin Treacy's view - The social media sector has made a splash in the stock market over the last few years and has been a bright spot on the IPO route following the credit crisis crash. The growth rates of these companies and the speed with which they have come from nowhere to carve out substantial niches in the Technology sector is a testament to the inventive capacity of their founders and the USA's technological and private equity ecosystem. However as investors we have additional considerations to weigh.

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October 29 2013

Commentary by Eoin Treacy

Correcting the curve

Thanks to a subscriber for this educative report from Deutsche Bank focusing on iron-ore. The full report is posted in the Subscriber's Area but here is a section
The chart below shows the performance of the Australian dollar to US dollar exchange rate and the spot iron ore price. While the general performance of the two track closely, there are periods of time where the performance is disconnected. From 2011 we saw iron ore prices weakening, but the Australian dollar remains strong, which made for tough operating conditions for the mining companies in Australia. These tougher conditions have prevailed in market sentiment over the last 6 months and haven't adjusted in our view for the closing of the pain gap, as the Australian dollar has finally weakened. In our view, we believe that the market has been comfortable pricing in a drop in the iron ore price, but not willing yet to price in the inevitable weakening of the operating currencies.

As an addendum to the A$ discussion, the other gap shown in the chart above occurred from the third quarter of 2007 when the spot iron ore price far exceeded the strength in the Australian dollar – This did not result in as large a boom as expected as the majority of iron ore exported at the time was sold on contract and not spot basis and the contract price was significantly lower than the spot prices achieved at the time.

The chart below shows the performance of the spot iron ore price in a number of operating currencies over the last ten years. The spot price is four and a half times higher than it was in 2003, but is three times larger in Australian dollar and Brazilian real terms (still a hefty increase, but not as large as the spot price suggests). The performance of the iron ore price in South African Rand has been significantly better with the received price in Rand terms now five and a half times more than it was in 2003.
Eoin Treacy's view - The consumer, healthcare and Technology sectors continue to lead and have been joined over the last year by the industrial sector. Resources shares on the other hand have been notable laggards. Oversupply of steel, new capacity coming on line and a generally weak global economy have all contributed to this condition. However, as the US recovers, Europe emerges from recession and Chinese growth rates improve, it may be time to re-evaluate the outlook for miners, not least because they are cheap relative to the wider market.

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October 28 2013

Commentary by David Fuller

Apple Forecasts Lighter Holiday-Quarter Margin on Costs

Here is a section from this after hours report from Bloomberg
"This is a company that has routinely blown the doors off their estimates so meeting or just exceeding is probably a disappointment," said Jack Ablin, chief investment officer at BMO Private Bank, which has $66 billion under management and owns Apple shares.

Apple has been busy updating its product lineup ahead of the holiday season. The company has said its new iPhones will be available in about 100 countries by the end of the year. The higher-end iPhone 5s costs $199 with a two-year wireless contract and includes a more powerful processor, improved camera and fingerprint-reading Technology.

The new iPhone 5c is mainly last year's model with colorful plastic cases. The handset is seen as Apple's bid to win more customers in emerging markets like China and Russia. Without a contract, the handset costs about $800, leading analysts to say it's too expensive for those markets and that demand is light.

A new iPad Air also goes on sale on Nov. 1, followed later in the month by an updated iPad mini with a high-definition screen.
David Fuller's view - Apple gave back today's gains of nearly $4 in after hours trading following its earnings report. Nevertheless, the share (weekly & daily) had been strong recently and these results are certainly not bad given the soft global economy.

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October 26 2013

Commentary by Eoin Treacy

A New Electric Competitor to Tesla, Porsche, Toyota

This video report from Bloomberg TV may be of interest to subscribers.
Eoin Treacy's view - Charging stations for electric cars are becoming increasingly visible and the innovations introduced by Tesla Motors are helping to reduce range anxiety. As an increasing number of auto manufacturers invest in electric car focused R&D, the cost of these cars should also decline. The viability of electric cars and how well they penetrate the wider auto market will in no small part be dependent on improvements in battery Technology, not least in achieving better power to weight ratios.

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October 24 2013

Commentary by David Fuller

Are Those White Elephants In The Water?

This is an excellent column by Matt Ridley for The Times (UK) (may require subscription registration but a PDF is posted in the Subscriber's Area). Here is the opening
Here's a short quiz. Question One: which source of energy is allowed to charge the highest price for its electricity? Question Two: which source of energy is expected to receive the greatest capital expenditure over the next seven years? The answer to both questions is offshore wind.

Offshore wind farms are the elephant in the energy debate. Today, the energy department estimates that electricity prices are 17 per cent higher as the result of green policies and that this will rise to 33 per cent by 2020 or 44 per cent if gas prices fall, as many expect. Offshore wind is the single biggest contributor to that rise. Of the £15 billion a year that the Renewable Energy Foundation thinks consumers are going to be paying in total green imposts by 2020, the bulk will go to support offshore wind.

Britain is a proud leader in offshore wind. "The UK has more offshore wind installed than the rest of the world combined and we have ambitious plans for the future," says Ed Davey, the Energy Secretary. I wonder why that is. Could it be that other countries have looked at the Technology and decided that it's far too costly? George Osborne says he does not want Britain out ahead on
green energy. He should take a long hard look at why we are so far out ahead on this extravagant folly.

Currently we get under 3 per cent of our electricity from offshore wind, or less than 0.5 per cent of our total energy. If Mr Davey's ambitions are realised and 20 per cent of our electricity comes from offshore wind in 2020, then we will need 20 gigawatts of capacity because wind turbines, even at sea, operate at less than 40 per cent of capacity. That's about six times what we have today and the cost of building it would be greater than the investment in nuclear energy over the period
David Fuller's view - I have long been an opponent of wind farms because they are the most expensive and least reliable source of renewable energy. They are also a monstrous blot on the countryside and for sea views, taking up far more space than any other sources of energy, and for less output. They are murderous cuisinarts for birds and we are only beginning to understand the extent to which they adversely affect sleeping patterns for anyone living within approximately a mile of these towering, noisy eyesores.

The UK Government has been incredibly naïve about wind farms, and apparently no one more so than the Prime Minister. The current Energy Secretary mentioned above appears to have learned nothing and is little more than a cheerleader for a bad policy which he temporarily oversees. This incompetence has jeopardised Britain's energy security and increased prices far more than would have been necessary with sensible policies, starting with fracking for shale oil and gas.

(There are 26 Archived articles and comments on this subject which you can access via the 'Search' facility shown upper-left, fourth item down. Click on that and it will open a window; type in wind farms and then click on the blue Search button to the right of the window.)

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October 22 2013

Commentary by David Fuller

High-Frequency Trades Face EU Curbs in Draft Deal, Lawmaker Says

Here is the opening from Bloomberg's report
European Parliament lawmakers have reached a draft deal with national governments on high-frequency trading curbs as part of a push to toughen the bloc's financial market rulebook, said the chief legislator working on the plans.

"The negotiation team achieved a significant breakthrough on this issue," Markus Ferber, the lawmaker leading the measures, said in an e-mail. "The area of high-frequency trading is lacking suitable regulation. This is why it was high time to find a decent solution to this pressing problem."

The provisional deal, reached by legislators and officials from Lithuania, which holds the EU's rotating presidency, includes a so-called tick size regime limiting the minimum size of price movements on financial markets, Ferber said. "This will slow down high-frequency trading significantly," he said.

High-frequency trading in stocks came under increased regulatory scrutiny after the so-called flash crash in May 2010, during which the Dow Jones Industrial Average briefly lost almost 1,000 points.

The practice involves using powerful Technology and complex computer programs to execute orders in milliseconds and profit from fleeting discrepancies in security prices across different trading venues. Companies active in high-frequency trading have warned that interfering with their strategies would raise investor costs and harm financial stability.
David Fuller's view - It will take more that this to curb the dangerous development of high-frequency trading which Eoin and I have campaigned against for several years. Unfortunately, HFT is quietly encouraged by too many brokers and exchanges because they earn fees from it.

This is short-sighted because high-frequency trading is illegal front-running at best. At worst, without firm regulation and a level playing field in the interests of all investors and individual traders, high-frequency trading will result in an eventual market doomsday caused by these machines and their programmers.

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October 21 2013

Commentary by Eoin Treacy

GE: 3D Printers To 'Touch' Half Of Its Manufacturing

This article by Gillian Rich for Investor's Business Daily may be of interest to subscribers. Here is a section
GE already uses 3D printing in a variety of areas from making medical devices and jet engine parts to prototyping components for washing machines.

Three-dimensional printing works by layering material, like plastic or ceramic, into a desired shape. Traditional manufacturing works the other way, by cutting out an object from a larger piece of material.

At GE, 3D printing isn't just a way to make products. It's also a way to try out new tools that could make products better.

"We don't have to invest the time and money into making a permanent tool, but we can 3D print one and be able to see if it really has the type of benefits we dream of," Furstoss said.

GE still plans to use conventional manufacturing techniques, especially for large components. But 3D printing, or additive manufacturing as GE calls it, is still seen playing a role, such as providing tools or repairing parts.
Eoin Treacy's view - Above all else 3D printing, or additive manufacturing as it is also known, represents a breakthrough in how our imagination can take physical shape. While the above article focuses on the conventional use of 3D printing in industry, which remains a sizeable growth opportunity, the Technology is increasingly being used in other fields, not least medicine. For example, this article from Gizmodo highlights how a team at Huazhong University in China have printed a working kidney

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October 16 2013

Commentary by Eoin Treacy

October 15 2013

Commentary by Eoin Treacy

Rio Reports Record Iron Ore, Coal Output as China Demand Surges

This article by Elisabeth Behrmann for Bloomberg may be of interest to subscribers. Here is a section
Iron ore production was 53.4 million metric tons in the three months to Sept. 30, compared with 52.6 million tons a year earlier, the London-based company said today in a statement. That compares with the 53.3 million ton median estimate of five analysts surveyed by Bloomberg.

Economic growth in China, Rio’s biggest customer, is showing signs of rebound after a two-quarter slowdown. Australia, the largest iron ore exporter, this month raised its price estimates on buying from steel mills in China, while the Asian nation’s copper imports rose to an 18-month high.

“The highlights for us are obviously the growth in iron ore shipments and production,” Peter Esho, chief market analyst at Invast Securities Co., said in an e-mail. “Copper is also the big standout.”

Rio, seeking to cut $5 billion in costs by the end of next year, rose 2.5 percent to A$63.20 in Sydney trading. BHP Billiton Ltd., the world’s biggest miner, gained 1 percent.

“In iron ore, we achieved record production and shipments in Western Australia,” Chief Executive Officer Sam Walsh said in the statement. “We are also making further important gains in productivity across our operations and continue to drive costs out of the business.”
Eoin Treacy's view - China’s Communist Party will meet next month for a major policy setting session which is being eagerly awaited by China watchers since it is likely to set the tone of the administration’s ambitions over the next five years. We can expect continued emphasis on improving human capital through supports for the consumer sector, healthcare, Technology and social security. Infrastructure development and affordable housing provision are also likely to feature.

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October 08 2013

Commentary by Eoin Treacy

Email of the day (2&3)

on additions to the Chart Library
"Could you add this fund to the chart library? Thanks!"


"Please could you add:
" Ocean Rig UDW Inc. (ORIG) to the library.
ING Information Technology Fund Inc (ISIN NL0006311821)
ING Europe Small Caps Fund (ISIN NL0006311730)
ING Premium Dividend Fund (ISIN NL0006311748)
BlackRock Global Funds - Latin American A2 EUR (ISIN LU0171289498)"

Eoin Treacy's view - Thank you for these suggestions which have been added to the Chart Library.

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October 08 2013

Commentary by Eoin Treacy

Investing in global megatrends: Stop digging for gold, sell shovels instead

Thanks to a subscriber for this heavyweight 236-page report from Deutsche Bank. The full report is posted in the Subscriber's Area but here is a section
The European companies with the highest share of sales to Asia are mostly from Industrial Goods & Services, Basic Resources, Personal Goods/Luxury Goods and Technology sectors (see Figure 305 for details). The top-ranked company DKSH has 97% sales exposure to Asia and derives only 3% of its sales from Europe. Dialog Semiconductor, CSR, Aixtron and ASML are the Technology companies among the top 10 European companies with the highest exposure to Asia. Also, the two large Mining players Vedanta Resources and BHP Billiton are among the top 10 European companies with exposure to Asia. For investors with a specific sector/country focus, Figure 306 and Figure 307 provide the top five companies by sales exposure to the Asia/Pacific region for each of the 19 Stoxx600 super-sectors and 16 major European countries, respectively.

3.2 Highest sales exposure to the Americas
The European companies with the highest share of sales to the Americas include Industrial Goods & Services, Healthcare, Food & Beverage and Media sectors (see Figure 308 for details). Healthcare companies with high sales share to the Americas include BTG plc. (87% of sales), Elan (74%) and Shire PLC (68%). Industrial Goods & Services companies with a high sales share to the Americas include Ashtead Group (83% of sales), Experian (69%) and MTU (66%). For investors with a specific sector/country focus, Figure 309 and Figure 310 provide the top five companies by sales exposure to the Americas for each of the 19 Stoxx600 super-sectors and 16 major European countries, respectively

3.3 Highest sales exposure outside of Europe
The European companies with significant share of sales from outside Europe in 2012 are given in Figure 311. Again, Industrial Goods & Services, Technology and Healthcare companies dominate. As many as four Technology companies (CSR, ASML, Aixtron and Dialog Semiconductor) feature in the top 10 companies with significant sales exposure outside Europe. For investors with a specific sector/country focus, Figure 312 and Figure 313 list the top five companies with highest sales exposure outside of Europe for each of the 19 Stoxx600 super-sectors and 16 major European countries, respectively.

Highest positive and negative changes in the absolute level year-on-year
Companies that increased their sales exposure outside Europe the most from 2011 to 2012 are given in Figure 314. Industrial Goods & Services companies increased their sales share outside of Europe the most with 8 companies in the top 25 list, followed by Oil & Gas and Healthcare companies. Large caps on this top 10 list include Aggreko and Kering.
Eoin Treacy's view - This report helps to highlight the extent to which companies are outgrowing their respective domestic markets, which is a point we have emphasised at Fullermoney through our Autonomies theme for several years. Subscribers interested in this way of viewing markets are likely to find value in the numerous tables of companies posted.

Mario Draghi is using every opportunity to reiterate that the ECB is willing to do whatever is necessary to ensure the survival of the banking sector, the currency and the smooth operation of the economy. Therefore with the Eurozone economy back on a modest growth trajectory, the direst predictions have been proved wrong. As a result, Europe is likely to pose less of a headwind for its globally oriented companies.

Some of the more interesting chart patterns include:

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September 27 2013

Commentary by Eoin Treacy

Stanford scientists build first carbon nanotube computer

This article by Brian Dodson for GizMag may be of interest to subscribers. Here is a section
This is the main advance accomplished by the Stanford group. They have developed a method to remove metallic and shallow-bandgap semiconducting CNTs by exploding them as if they were tiny electrical fuses. Combined with their recent introduction of a technique for designing circuits that are robust against the sort of uncontrolled wiring errors associated with misaligned CNTs that remain on the surface, they were able to construct a very simple, but general-purpose, von Neumann computer using CNT-based devices. This architecture also allowed them to use off-chip silicon memory with the CNT-based processor, again simplifying the structure of the processor.


The Stanford CNT processor is clearly nowhere near ready for prime time. The clock speed is 1 kHz, and the restriction to one bit operations using a single instruction would be impractical even at clock speeds a million times faster. It primarily serves as a demonstration of potential, and as such is a major step forward in our attempts to escape the predicted end of the Moore's Law era.
Eoin Treacy's view - The evolution of the carbon nanotubes sector can best be described as a baby steps approach which has been gaining pace as the exponential rate of development and need for new technologies encourages investment in new ideas. Nevertheless, we are still years away from mass production of chips based on this development but what looks increasingly likely is that it will happen. We can look forward to technologies such as carbon nanotubes and graphene playing an increasingly vital role in our lives.

NanoTechnology has been touted as a breakthrough for decades but the pace with which products are reaching market is accelerating which suggests the sector's appeal is likely to widen. This is being reflected in the performance of related shares.

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September 27 2013

Commentary by David Fuller

Shale Gas Study Showing Minimal Methane Leakage Exposes Rifts in Enviro Movement

Here is the opening from the Huffington Post's article on this study
A new Environmental Defense Fund-University of Texas methane gas study has exposed deepening rifts in the environmental movement over the future of natural gas.

One of the central tenets of anti-shale gas activists -- such as green campaigner Bill McKibben, NGO's like Environmental Working Group or websites like Desmogblog -- is that methane leaked during the hydraulic fracturing extraction process makes natural gas more carbon polluting than coal carbon. The assertion that 'natural gas is bridge to a low carbon energy future' is a sham, they claim. But a growing number of progressive-minded energy experts at the EDF, Natural Resources Defense Council, Council on Foreign Relations and elsewhere are taking a more science-based approach, and letting the empirical evidence guide their views.

Indeed, methane is a potent greenhouse gas, so leaks could theoretically wipe out the documented climate benefits with respect to reduced carbon emissions of natural gas, a comparatively clean fossil fuel. But the fears were based almost entirely on a contested study presented as a letter and released two years ago by two Cornell University scientists who claimed catastrophic levels of methane were being leaked by fracking operations.

In its most recent estimate based on ancient data extending back to 1990 to the Paleolithic era of shale gas extraction Technology, the Environmental Protection Agency had estimated that "natural gas systems" emit about 1.3 percent of total natural gas production. Many in the natural gas industry had asserted that this estimate was outdated and way too high, while anti-fracking campaigners said it understated the methane leakage problem.

Now we almost certainly know the answer. Released September 23, the report led by David Allen at the University of Texas found that methane emissions from new wells being prepared for production, a process known as completion, captured 99 percent of the escaping methane -- on average 97 percent lower than the 2011 EPA estimates. It is the most comprehensive shale gas emissions study ever undertaken on methane leakage, covering 190 well pads around the United States.

Energy experts and environmentalists celebrated the finding that almost all the escaping methane could be captured by state of the art equipment. "The good news is that under EPA regulations issued in April 2012 most fracked natural gas wells will have to capture or flare methane during well completions staring in 2015," wrote Dan Lashof on his blog at the Natural Resources Defense Council.
David Fuller's view - This is welcome news and another triumph for technological innovation. If you agree, tell your politicians because the world needs to use more natural gas and fracking provides access to the shale reserves in most countries

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September 24 2013

Commentary by David Fuller

Email of the day

On a 'Technology bubble'
"I was recently in San Francisco and heard from people on the ground that Technology is in a bubble about to pop! This is based on the high level of angel investment from a high number of sources into start-up companies and hence people are drawing parallels with the tech bubble bursting in '01.

"Further today I came across this on the internet seemingly making this type of Angel Investing more accessible:

'"On September 23, 2013 (that's today), the world of start-up financing changes forever. It's a truly historic moment.

'"Previously, I couldn't publicly share deals with you. Now, thanks to an unprecedented legal change, I can offer a portion of my start-up investments to any of you who qualify as "accredited investors."

"Will this further increase the rate of tech innovation or is there a potential bubble here? I would, as always, be interested in your opinion.

"Also, despite the talk of a bubble and high risk etc I would be interested in Angel Investing. If you happen to have information (I'm assuming I need to visit a solicitor?) on how I could qualify for Angel Investing in the US while I am from Ireland it would also be appreciated (specifically I am interested in a group scheme but must be an accredited investor as per the quote above)?

"FYI.. my own opinion (influenced by FM) on the above, as I argued back to these doomsday forecasters, is the trend (NDX 100) is not overextended/ is on a consistent uptrend so I am holding on to my spread bet there. This frenzied hype may be concentrated in the world's no. 1 tech hub and there is plenty of global demand for new technologies."
David Fuller's view - My recollection of the Technology bubble at the end of the last century and which burst in 2000 is that a number of companies floated had no earnings and no prospect of earnings for several years, not least because they had little in the way of products and minimal business plans. Most of them disappeared. There were also tech companies which had promising products and good business plans but they also crashed because they had no earnings and therefore infinity multiples at the time. Many of these recovered a number of years later and did very well.

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September 18 2013

Commentary by David Fuller

African states push back on Chinese oil deals

Here is the opening for this interesting article from the NYT & IHT, using the latter paper's headline
NIAMEY, Niger - In Niger, government officials have fought a Chinese oil giant step by step, painfully undoing parts of a contract they call ruinous. In neighboring Chad, they have been even more forceful, shutting down the Chinese and accusing them of gross environmental negligence. In Gabon, they have seized major oil tracts from China, handing them over to the state company.

China wants Africa's oil as much as ever. But instead of accepting the old terms, which many African officials call unconditional surrender, some cash-starved African states are pushing back, showing an assertiveness unthinkable until recently and suggesting that the days of unbridled influence by the African continent's mega-investor may be waning.

For years, China has found eager partners across the continent, where governments of every ilk have welcomed the nation's deep pockets and hands-off approach to local politics as an alternative to the West.

Now China's major state oil companies are being challenged by African governments that have learned decades of hard lessons about heedless resource-grabs by outsiders and are looking anew at the deals they or their predecessors have signed. Where the Chinese companies are seen as gouging, polluting or hogging valuable tracts, African officials have started resisting, often at the risk of angering one of their most important trading partners.

"This is all we've got," said Niger's oil minister, Foumakoye Gado. "If our natural resources are given away, we'll never get out of this."
David Fuller's view - There are two important aspects to this situation: 1) Africa's governments are becoming worldlier, which is certainly in their own interests; 2) Worldwide demand for crude oil, natural gas and all other forms of energy can only rise as the global economy recovers.

Currently, few developed economies have secured their future energy supplies at internationally competitive costs, although many still have a window of opportunity in which to do so. The main exceptions are Canada, the USA, Norway and Australia. Yes, they have their own domestic supplies of crude oil and natural gas. However, most other developed economies could improve both their energy supplies and costs if they prioritised development of their own shale resources. The USA pioneered this Technology and has utilised it increasingly successfully, with little evidence to date of serious earthquakes or the contamination of water supplies predicted by naysayers.

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September 13 2013

Commentary by David Fuller

Wildcatter Hunch Unlocks $1.5 Trillion Oil Offshore U.S.

Here is the opening section for this important discovery and development story by Edward Klump for Bloomberg
Texaco Inc. geologist Robert Ryan didn't suspect he was helping change the energy future of the Gulf of Mexico when he gave the go-ahead for a well that would break the world record for deep-water drilling.

The project known as BAHA, undertaken in 1996 by Texaco and its partners, Royal Dutch Shell Plc (RDSA), Amoco Corp. and Mobil Corp., was a dry hole. That normally would've made it a flop. Instead, BAHA's discovery of oil-rich sands where none were thought to exist was the first step in unlocking a $1.5 trillion trove of crude that's revived the prospects of a body of water many thought had long ago given up most of its fossil-fuel riches.

Just as Technology has allowed explorers to tap vast new oil and natural gas supplies in onshore shale fields, it's now reinventing the Gulf. BAHA was the first deep-water well to try plumbing the Lower Tertiary, a layer of the earth's crust formed more than 25 million years ago after mammals had replaced dinosaurs as the dominant life form.

A series of recent finds in the ultra-deep has profoundly changed the thinking on U.S. offshore geology, with 2013 seeing the Gulf of Mexico become one of the most promising frontier oil plays in the world and the fastest-growing offshore market.

New seismic equipment and computer power has allowed explorers to see into once-invisible layers of rock. Engineering innovations enable them to drill five miles into the earth through waters more than 10,000 feet deep, where temperatures are more than hot enough to boil water and high pressures approach the weight of four cars resting on one square inch.

The Gulf is heading for record deep-water output equivalent to almost 2 million barrels of oil a day in 2020, according to industry researchers Wood Mackenzie Ltd. The U.S. estimates about 15 billion barrels of recoverable oil remain to be found in the Lower Tertiary.

While most U.S. shale fields have now been identified and mapped, the Gulf is seen as having much bigger yet-to-be-discovered potential -- 48 billion barrels of oil compared to the 13 billionbarrels estimated for onshore and coastal oilfields, according to U.S. data.

Investment is pouring in, with 42 drilling rigs operating in 1,000 or more feet of water as of Sept. 9 -- 35 percent more than four years earlier, according to U.S. data on the Gulf. By the end of 2015, 60 rigs are slated to be working in the deep water off U.S. shores, estimates Brian Uhlmer, an analyst at Global Hunter Securities LLC in Houston.
David Fuller's view - This is a fascinating and hugely significant discovery and development project which is only now coming into production. Importantly, Technology is once again proving that Mother Earth remains a cornucopia of oil and gas supplies for our rapidly developing global economy. Indeed, it actually underpins our global economic expansion for many more decades, during which renewable energy sources, led by solar power, will be refined and perfected to the point where they can eventually become the major sources for our inexhaustible energy requirements.

Lest future generations take this almost for granted, think back over the second half of the last century and the earlier years this century. Most forecasters were convinced that recoverable supplies of global oil were rapidly diminishing. They feared that the free world would be held to ransom by a dwindling, mostly despotic and unstable group of energy suppliers. They forecast that energy prices would only rise in real rather than inflationary terms.

Fullermoney has forecast that technological innovation would result in a much more favourable outlook for both energy supplies and their real cost before the end of this decade, not least since US oil companies invented hydraulic fracturing Technology, commonly know as fracking

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September 12 2013

Commentary by Eoin Treacy

Stanford scientists use DNA to assemble graphene transistors

This article by Dario Borghino for GizMag may be of interest to subscribers. Here is a section
As it turns out, DNA molecules are approximately as big as the graphene nanoribbons that researchers are trying to create, and they also carry carbon atoms, which are the only constituent of graphene. This gave Stanford researcher Zhenan Bao and colleagues the idea to use DNA to help them assemble graphene nanoribbons.

Using a known technique, the researchers first "combed" the DNA strands into relatively straight lines. They then exposed them to a solution of copper salt, which resulted in copper ions being absorbed into the DNA itself.

The DNA was then heated and surrounded in methane gas. The heat freed carbon atoms from both the DNA and the methane, and through a chemical reaction the carbon atoms quickly and orderly assembled to form graphene ribbons that followed the structure of DNA.

After succeeding in the experiment, the team took things a step further and actually used the technique to manufacture working graphene transistors.

While the assembly process still needs to be refined (the carbon atoms sometimes bunch up together instead of forming in a clean one-atom-thick sheet), this work is truly paving the way toward a highly scalable, cheap and precise way to manufacture graphene electronics.
Eoin Treacy's view - Materials science represents a significant growth industry as the promise of nanoTechnology increasingly reaches commercial utility. Graphene and carbon nanotubes might be described as the cutting edge of innovation but to the best of my knowledge there are no pure plays on these sectors just yet.

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September 11 2013

Commentary by Eoin Treacy

How Technology Is Destroying Jobs versus Stop Saying Robots Are Destroying JobsâThey Aren't

Thanks to a subscriber for these competing articles published by MIT. Here is a section from the former
Not everyone agrees with Brynjolfsson and McAfee's conclusions—particularly the contention that the impact of recent technological change could be different from anything seen before. But it's hard to ignore their warning that Technology is widening the income gap between the tech-savvy and everyone else. And even if the economy is only going through a transition similar to those it's endured before, it is an extremely painful one for many workers, and that will have to be addressed somehow. Harvard's Katz has shown that the United States prospered in the early 1900s in part because secondary education became accessible to many people at a time when employment in agriculture was drying up. The result, at least through the 1980s, was an increase in educated workers who found jobs in the industrial sectors, boosting incomes and reducing inequality. Katz's lesson: painful long-term consequences for the labor force do not follow inevitably from technological changes.

Brynjolfsson himself says he's not ready to conclude that economic progress and employment have diverged for good. “I don't know whether we can recover, but I hope we can,” he says. But that, he suggests, will depend on recognizing the problem and taking steps such as investing more in the training and education of workers.

“We were lucky and steadily rising productivity raised all boats for much of the 20th century,” he says. “Many people, especially economists, jumped to the conclusion that was just the way the world worked. I used to say that if we took care of productivity, everything else would take care of itself; it was the single most important economic statistic. But that's no longer true.” He adds, “It's one of the dirty secrets of economics: Technology progress does grow the economy and create wealth, but there is no economic law that says everyone will benefit.” In other words, in the race against the machine, some are likely to win while many others lose.

Here is a section from the latter:

Brynjolfsson and McAfee's mistake comes from considering only first order effects of automation where the machine replaces the worker. But when a machine replaces a worker, there is a second order effect: the organization using the machine saves money and that money it flows back into to the economy either through lower prices, higher wages for the remaining workers, or higher profits. In all three cases that money gets spent which stimulates demand that other companies respond to by hiring more workers.

This common sense view is borne out virtually all economic studies looking at the relationship between productivity and jobs. While some studies have found that productivity growth does have some short-term negative job impacts, all the studies find either no impacts or positive impacts on total jobs in the longer term. As the OECD stated in a definitive review of the studies on productivity and employment:

Historically, the income-generating effects of new technologies have proved more powerful than the labor-displacing effects: technological progress has been accompanied not only by higher output and productivity, but also by higher overall employment.

Sure, but those that argue that robots kill jobs argue that this time it's different. As the article states, “Technologies like the Web, artificial intelligence, big data, and improved analytics—all made possible by the ever increasing availability of cheap computing power and storage capacity—are automating many routine tasks.”

But there are two problems with this argument. First, it assumes that productivity growth rates will increase significantly. But there is little evidence that the United States will see productivity growth in excess of 3 percent a year (the best we have ever done). This is in part because despite IT advances that boost productivity in information-based functions, a growing share of jobs involve interacting with people (e.g., nursing homes, police and fire) or doing physical tasks that are difficult to automate (e.g., construction, janitorial services).
Eoin Treacy's view - Something that has been at the back of mind for some time is that productivity is an economic concept while employment is a social concept. There is no doubt that the exponential rate of technological development, not least in the automation of industrial, logistics and clerical functions is enhancing productivity.

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September 11 2013

Commentary by David Fuller

Eagle slaughter: Wind farms kill 67 eagles in 5 years

Here is the opening from this alarming but all too predictable report from The Washington Times
WASHINGTON (AP) - Wind energy facilities have killed at least 67 golden and bald eagles in the last five years, but the figure could be much higher, according to a new scientific study by government biologists.

The research represents one of the first tallies of eagle deaths attributed to the nation's growing wind energy industry, which has been a pillar of President Barack Obama's plans to reduce the pollution blamed for global warming. Wind power releases no air pollution.

But at a minimum, the scientists wrote, wind farms in 10 states have killed at least 85 eagles since 1997, with most deaths occurring between 2008 and 2012, as the industry was greatly expanding. Most deaths - 79 - were golden eagles that struck wind turbines. One of the eagles counted in the study was electrocuted by a power line.

The president of the American Bird Conservancy, Mike Parr, said the tally was "an alarming and concerning finding."
David Fuller's view - This is a disgrace and Fullermoney is among others who have long described wind farm Technology as Cuisinart for birds.

The plight of eagles understandably attracts headlines but think of the many thousands of smaller birds that are being killed by windmills, and barely noticed, if at all.

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September 10 2013

Commentary by David Fuller

Dow Jones Industrials to Add Goldman Sachs, Nike Shares

And Visa as you will see in the introduction to this report from Bloomberg
Goldman Sachs Group Inc., Visa (V) Inc. and Nike Inc. (NKE) will be added to the Dow Jones Industrial Average (INDU), replacing Bank of America Corp. (BAC), Hewlett-Packard Co. (HPQ)and Alcoa Inc. (AA) in the biggest reshuffling since April 2004.

The changes will boost the influence of banking and computer companies in the 30-membergauge as the fifth-biggest U.S. bank by assets and the largest payment network join seven other financial and Technology firms, such as JPMorgan Chase & Co. and Cisco Systems Inc. Bank of America exits even after rising 109 percent in 2012, the Dow's largest gain. The changes will take effect after the close on Sept. 20.

Moves announced today by a committee that includes editors of the Wall Street Journal will give extra influence to the average's newest members, due to the way the gauge is designed. Since Dow proportions are determined by stock price rather than market value, shares of Visa and Goldman Sachs, which trade above $160 apiece, will have about seven times the weighting as the constituents they replace.

"The Dow is going to look and act very differently," Dan Greenhaus, a strategist at BTIG LLC, said in a note to clients. "Visa would become the second-most important stock in the index and Goldman Sachs the third-most important."

The Dow's price-weighting system has proven a barrier to inclusion for some of America's most-heavily traded Technology stocks. Apple Inc. (AAPL) and Google Inc. (GOOG), which change hands above $500, have been left out. At the same time, the three companies to be removed had the lowest prices in the average.
David Fuller's view - Higher prices for the incoming shares will certainly make the Dow livelier. Here are the incoming shares: Goldman Sachs, Nike and Visa. Here are the outgoing three: Alcoa, Bank of America and Hewlett-Packard.

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August 30 2013

Commentary by Eoin Treacy

Verizon-Vodafone Seen Yielding Over $240 Million in Fee Bonanza

This article by Aaron Kirchfeld for Bloomberg may be of interest to subscribers. Here is a section
Verizon Communications Inc.'s buyout of the rest of its wireless venture may yield more than $240 million in fees for the bankers lucky enough to win a role on the biggest transaction in more than a decade.

Vodafone Group Plc is in advanced talks to sell its 45 percent stake in Verizon Wireless to its U.S. partner for about $130 billion, said people with knowledge of the matter. At that price, the banks guiding Verizon may earn as much as $125 million in fees, while Vodafone's advisers could make up to $118 million, estimates from Freeman & Co. show. That doesn't include potential underwriting fees for financing.
Eoin Treacy's view - Competition in the market for handheld devices remains fierce as demand for mobile internet connectivity replaces desktops. Some of the greatest beneficiaries of this migration are the providers of wireless access, since they sell subscriptions regardless of the Technology used to avail of their services. Verizon's move to acquire the remaining portion of its wireless business from Vodafone suggests they continue to see this as a major growth story. (Also see Comment of the Day on March 6th 2013).

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August 23 2013

Commentary by Eoin Treacy

Tesla Model S receives top marks in NHTSA safety testing

This article for GizMag by Angus MacKenzie may be of interest to subscribers. Here is a section
Tesla reports that the all-electric sedan received a 5 stars in every NHTSA category. Only 1 percent of all manufacturer vehicles achieve a five star rating and the NHTSA does not publish a star rating above 5. However safety levels better than 5 stars are captured in the overall Vehicle Safety Score (VSS) provided to manufacturers. The S scored a record 5.4 VSS rating and set a new record for the lowest likelihood of injury to occupants.

The test scores are based on figures obtained during front, side, rear and rollover incidents. Tesla's high front collision score was achieved in part due to its large front crumple zone. With no massive gas/diesel engine up front, the Model S' front hood becomes more effective in diffusing energy because the entire zone being dedicated to safeguarding occupants.
Eoin Treacy's view - While Tesla has made waves in the electric car sector by delivering on the type of range people require of a car that costs from $64000 to $85000, the fact that it is also an industry leader in safety will help to alleviate concerns consumers might have about what is still a very new Technology.

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August 23 2013

Commentary by Eoin Treacy

Every U.S. Home Becomes a Power House in Utility Grid's Twilight

This article by Christopher Martin, Mark Chediak and Ken Wells for Bloomberg highlights some important dynamics in the energy markets. Here is a section
“Renewable energy is so unlike fossil fuel energy,” says John Farrell, a senior researcher with the Minneapolis-based Institute for Local Self-Reliance, a group pushing distributed generation. “You don't need large amounts of capital to build it, you don't need to produce it all in one place and use high- voltage transmission lines to transport it somewhere else. The idea that we would continue to have a centralized form of ownership and control of that system is really inconsistent with what the Technology enables.”

Farrell is a supporter of distributed power. However, the Bernstein energy industry black book, a kind of bible of energy trends published by Sanford C. Bernstein that's followed devoutly by institutional investors, also predicts that parity in the cost of unsubsidized solar and conventional electricity will radically change the energy dynamic.

“The Technology and energy sectors will no longer simply be one another's suppliers and customers,” the report finds.

“They will be competing directly. For the Technology sector, the first rule is: Costs always go down. For the energy sector and for all extractive industries, costs almost always go up. Given those trajectories, counter-intuitively, the coming tussle between solar and conventional energy is not going to be a fair fight.”
Eoin Treacy's view - My view – Themes such as the growth in natural gas supply from what were previously considered unconventional sources, the high price of energy encouraging efficiency, the pace of technological development and a regulatory environment heavily skewed in favour of wind and solar is creating a highly disruptive environment for utilities. Those that keep pace with change will survive and possibly thrive. The outlook is likely to be much more uncertain for those that fail to innovate.

The Dow Utilities Average (P/E 14.4, DY 4.07%) has a long record of dividend growth and competitive yields and it performed impressively from the 2009 lows as demand for investments with defensive characteristics increased. The Average surged higher from November in a manner inconsistent with the previous three-year uptrend and subsequently experienced its largest decline since early 2009. The net result is a loss of momentum with prices currently trading at the same level as this time last year. A sustained move above 500 will be required to reaffirm medium-term demand dominance and question current scope for additional volatility and ranging.

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August 22 2013

Commentary by Eoin Treacy

Email of the day (1)

on the medium to long-term outlook for oil
“Please find attached a report plus slides from DNB Markets on the long term trends of the oil market. DNB got considerable media coverage with their bold – and disputed – forecast in the summer of 2012 that 2013 and 2014 oil prices would drop from the levels seen in 2011 and 2012. So far DNB has been right. Well, since last summer many other analysts have had to change their earlier optimistic (i.e. high) oil price scenarios to take into account the shale revolution and weaker demand. DNB Markets confirms its earlier predictions of cheaper oil in coming years, but not a return to cheap oil as such. The report includes a good overview of the North American shale revolution.”But does that mean Saudi Arabia will choose to cut to protect prices this time? We are not sure. The fact is that Saudi Arabia does not really need a certain oil price to balance their budget, the kingdom needs revenues. The revenues from oil sales are a function of both price and volume. It is of course not a factor of price alone. Here is some food for thought when it comes to what kind of strategy Saudi Arabia will choose the coming years:

Currently Saudi Arabia is producing about 9.8 million b/d which at 100 $/b is worth 358 billion USD per year. If as an example Saudi Arabia have to cut output by 1.5 million b/d to 8.3 million b/d to maintain 100 $/b, revenues will drop to 303 billion USD per year. How far can the oil price drop and still provide the same revenues of 303 billion USD per year? The answer is 85 $/b. Saudi Arabia could in other words earn the same oil revenues by maintaining production at 9.8 million b/d and let the oil price slip to 85 $/b as the kingdom would receive by cutting output to protect the oil price. This is just an example to illustrate the strategic choices that could soon face Saudi Arabia. The benefit for the kingdom of maintaining output at a higher level to a lower oil price is that it would provide a larger oil market share for them, and also probably higher global oil demand.

What the kingdom will choose to do is not “written in stone”. During the 1980's the Saudis cut massively to protect the oil price but changed that tactic after losing too much market share and then targeted volume instead. This time it might be a better strategy to let prices slide towards 85 $/b instead. The Saudis are fully aware of the cost curves for the shale oil industry and they know that many sellers would disappear if the oil price drifted lower than 80 $/b. Why not let the market take care of this adjustment and just let oil prices slide 15-20%? As already described if the price falls more than that, then non-OPEC will come to the rescue instead and start cutting output (drilling less shale wells).
Eoin Treacy's view - It has been our view at Fullermoney since at least 2010 that shale oil and gas represent a game changer for the energy sector, not least because the additional supply unlocked with new Technology and an innovative state of mind among wildcatters changes the dynamics of the market.

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August 22 2013

Commentary by David Fuller

Stocks Climb With Metals on Factory Data as Dollar Gains

Stocks and metals gained on data showing improvement in manufacturing and the U.S. labor market as a computer error halted trading on the Nasdaq Stock Market. The dollar rose as signs of an improving global economy increased speculation the Federal Reserve will reduce stimulus.

Germany led growth in manufacturing and services in the euro area, while a gauge for China's factory output unexpectedly showed expansion. The fewest workers in more than five years applied for U.S. jobless benefits over the past month, indicating the labor market continues to improve, and an index of leading indicators rose in July by the most in three months.

"We're seeing better economic data out of Europe and China, with several positive surprises," Thomas Haerter, who helps oversee about $54 billion as chief strategist at Swisscanto Asset Management AG in Zurich, said in a telephone interview today. "Getting better-than-forecast numbers out of Europe is even more positive for stocks than better-than-forecast data out of the U.S., as the growth problem is mainly in Europe."
David Fuller's view - Global economic data in recent months has remained mixed but with overall evidence of gradual improvement in leading economies. This is consistent with the views of Kenneth Rogoff, Carmen Reinhart and other economists who have pointed out that it takes at least five to seven years for countries to recover from a financial crisis. Less than five years have passed since global GDP began go bottom after 4Q 2008.

Obviously most stock markets have been considerably stronger, with companies benefiting from record low interest rates, quantitative easing (QE), Technology enhancements and gradually returning confidence.

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August 16 2013

Commentary by Eoin Treacy

Chinese Stocks Roiled as Shanghai Composite Trading Surges 53%

This article from Bloomberg News may be of interest to subscribers. Here is a section
Everbright Securities, the nation's ninth-largest brokerage by assets, disclosed the trading error in a statement filed to the Shanghai exchange. Board Secretary Mei Jian declined to comment further when contacted by Bloomberg News. The company's shares were suspended in Shanghai trading. China Everbright Ltd., which owns a stake in Everbright Securities, declined 5.5 percent in Hong Kong.

PetroChina Co. and Industrial & Commercial Bank of China Ltd., the nation's two biggest companies by market value, jumped as much as 10 percent in Shanghai before paring gains to trade little changed by the close. Volume in PetroChina was 239 percent above the three-month average and it was 269 percent greater than the average for ICBC, according to data compiled by Bloomberg.
Eoin Treacy's view - In an era of increasingly automated trading, “fat finger” mistakes are becoming uncomfortably frequent. More often than not, these types of events result in sharp declines but on this occasion the intraday rally was unwound steadily following the lunch time break. However, the impact of sentiment in either scenario is to increase uncertainty.

The valuations of the Chinese market are in its favour. However, continued speculation about the scale of the non-performing loans issues and how exposed regional governments are continues to weigh on sentiment. Until we have some visibility on how large this issue is and how it will eventually be dealt with, uncertainty is likely to continue to take a toll on sentiment.

The healthcare sector pulled back sharply this week, suggesting a process of mean reversion is underway. The information Technology sector has paused below 1600 since the beginning of the month in a process of mean reversion. A sustained move below the 200-day MA would be required to question medium-term potential for higher to lateral ranging.

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August 15 2013

Commentary by Eoin Treacy

Email of the day (1)

on solar innovation
"Thank you for the chart showing the efficiency of various types of solar panel. Here is a popular press article just published making the point that solar is now nearly ready to compete - without subsidy - even with low priced coal and gas.

"The Technology is advancing rapidly and there are more recent advances not mentioned in the chart nor the newspaper article. Graphene may have the potential to trump the best of existing Technology by delivering over 60% efficiency in capture of sunlight.

“So, no need for those ugly inefficient subsidized windmills!

“I observe that the share price of some solar power companies has sky-rocketed in recent months, with some being up 4-5x this year.

“What a wonderful age of opportunity we live in!"
Eoin Treacy's view - I share your optimism about the future and thank you for these informative articles which help to highlight the pace of technological innovation in solar cells and how this is altering perceptions of the sector's viability for electricity production. As you point out solar cell manufacturer shares have been rallying impressively since January. (Also see Comment of the Day on July 19th) It is worth considering the cause and effect of the rally in renewable energy shares.

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August 15 2013

Commentary by David Fuller

U.S. Stocks Drop as Economic Data Fuel Stimulus Concern

Here is the opening from Bloomberg's report on Wall Street's setback today
U.S. Stocks Drop as Economic Data Fuel Stimulus Concern - Here is the opening from Bloomberg's report on Wall Street's setback today:

U.S. stocks fell the most since June as forecasts from Cisco (CSCO) Systems Inc. and Wal-Mart Stores Inc. disappointed while improving economic data pushed bond yields higher amid concern the Federal Reserve will reduce stimulus.

All 10 major industries in the S&P 500 retreated, with Technology and consumer-discretionary shares dropping more than 1.8 percent. Cisco and Wal-Mart lost at least 2.9 percent after reporting earnings. Gannett Co. tumbled 4.8 percent after Warren Buffett's Berkshire Hathaway Inc. exited its stake in the newspaper publisher. Homebuilders rallied as confidence in the industry rose to the highest level since 2005 despite rising mortgage rates.

The Standard & Poor's 500 Index slipped 1.5 percent, the most since June 24, to 1,660.26 at 3:17 p.m. in New York. The Dow Jones Industrial Average dropped 231.26 points, or 1.5 percent, to 15,106.40, the lowest since July 5. Trading in S&P 500 stocks was 15 percent higher than the 30-day average at this time of day. Treasury yields rose to the highest levels in two years.

"With weaker earnings, higher interest rates and geopolitical concerns, risk assets like stocks don't do well in that type of environment," Jim Russell, the senior equity strategist for U.S. Bank Wealth Management, said in an interview from Cincinnati. His firm oversees $110 billion. "The jobless claims numbers were sufficiently strong that taper fears are probably front and center in terms of display today."

Reports today showed claims for jobless benefits unexpectedly dropped last week to the lowest level in almost six years, signaling the U.S. job market continues to mend. The cost of living rose in July for a third month, supporting the Federal Reserve's forecast that inflation will move closer to its target
David Fuller's view - High valuations, mixed earnings results relative to the 1st quarter, uncertainty over quantitative easing (QE), a somewhat overextended rally relative to the 200-day moving average and today's downward dynamic have combined to check Wall Street's advance (weekly & daily).

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August 13 2013

Commentary by Eoin Treacy

Email of the day (1)

on solar innovations
“An interesting Technology development in energy production. Fullermoney readers may be interested in this video report on research into the printing of solar cells just like Australia's polymer banknotes.”
Eoin Treacy's view - Thank you for this informative article highlighting the different ways in which solar power production can be enhanced. The evolution of polymer solar cells evokes the trade-off that occurred in chip manufacture with the advent of cheap memory in the 1980s. This allowed Intel's higher energy consumption models to dominate until ARM gained an advantage in handheld devices where heat and energy consumption trumped brawn.

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August 13 2013

Commentary by Eoin Treacy

State Council issues policies to form a Rmb4.5tn market

Thanks to a subscriber for this interesting report by Michael Tong and Jun Ma for Deutsche Banks which may be of interest to subscribers. The full report is posted in the Subscriber's Area but here is a section
On 11 August, China's State Council published a detailed set of guidelines to boost the environmental protection and energy conservation industries and ncrease their domestic demand and improve their economic structure. The State Council aims to raise the total output value of the environmental protection industries to Rmb4.5 trillion (USD730 billion), or a CAGR of 15%, by 2015 to form a new pillar industry for Chinese economic growth. In this note, we provide a summary of this newly announced policy document and a list of the major players which may benefit from increasing investment and expanding market demand as a consequence of strong government support.

Guiding principles
The faster development of the energy conservation and environmental protection industries should 1) stimulate potential market demand to form a new economic growth driver, 2) expand domestic consumption, stabilize growth, and optimize the economic structure, 3) improve the environmental quality of certain livelihoods and accelerate ecological development.

A Rmb4.5 trillion market by 2015
By spurring technological innovation and expanding demand for green and energy-saving products and related services, the government aims to grow the energy conservation and environmental protection industries at a CAGR of 15% or above, with total industrial output value to reach Rmb4.5tn by 2015.

Key areas of environmental protection
Key areas of environmental protection: denitrification and desulphurization equipment, new water treatment technologies and equipment, integrated system solution for solid waste treatment, technologies for remediation of contaminated soil, development and application of environmental monitoring instruments.

Key areas for energy conservation
Key areas for energy conservation: high-efficiency boilers, high-efficiency electrical motors, regenerative combustion Technology and equipment, new energy vehicle technologies, industrialization of semiconductor lighting Technology
Eoin Treacy's view - The success of China's development plans rests on enhancing the productivity of its human capital. Improving the living conditions of its citizens through the provision of sewage, clean air and fertile land are among the administrations priorities as the economy transitions to more of a services and valued-added focus.

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August 09 2013

Commentary by David Fuller

August 09 2013

Commentary by David Fuller

August 06 2013

Commentary by David Fuller

Battle of Biometric Gear

This is an interesting video from CNBC
David Fuller's view - These products will be an immediate hit with fitness fanatics and hypochondriacs. Let me know how you get on with them.

Seriously, these are self-empowerment devices, which can help people to monitor their state of health and look after themselves, without time consuming and often expensive visits to doctors. Additionally, these smart sensor systems will inevitably become move sophisticated and reliable as the Technology develops.

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August 06 2013

Commentary by David Fuller

American Account: Call it moderate, it's still a recovery

Here is the opening for this latest interesting column by Irwin Stelzer for The Sunday Times, UK (subscription registration required for the full article, PDF in Subscriber's Area)
Spare a bit of sympathy for the Federal Reserve Board's monetary policy gurus. They have said they will begin to taper their purchases of bonds and mortgages when the unemployment rate falls to 6.5%. So July's dip from 7.5% to 7.4%, to the lowest rate since December 2008, should edge the Fed closer to reducing its purchase programme. Alas, life is not so simple for the Fed.

The rate dipped, but only 162,000 jobs were created in July, down from 188,000 in June and below the approximate 200,000 average in the first half of the year. Worse, previously reported job creation figures for May and June were revised down by 26,000. What is a poor monetary policy maker to do?

In one sense, these figures burnish the forecasting credentials of Fed chairman Ben Bernanke and his colleagues. Earlier this week, before the latest jobs figures were announced, they concluded their latest meeting by announcing that the economy is no longer expanding at the "moderate" pace they previously thought. Instead, the pace of recovery is merely "modest". If you think that's a distinction without a difference, think again. The "moderate" pace was fast enough to trigger a market sell-off in the belief the Fed's programme of buying bonds and mortgages (known as QE3) to keep interest rates down would be cut sharply and soon. The "modest" pace is slow enough to give bond prices a bit of support and make market-watchers believe the day QE3 will head for dry dock might not be close after all, despite the fact that the Fed did not retreat from hints it might wind down its purchases next month. After all, Bernanke would like to get the process of tapering started before he turns his chair over to the man or woman President Barack Obama picks to head the Fed for the next four years.
David Fuller's view - Ben Bernanke and the Fed may be 'hoist by his petard' in terms of the 6.5% employment target. Companies are hiring but we are unlikely to see anything like the employment rates of the 1990s, even when the US economy is stronger. Today, unlike 20 years ago, the big productivity gains are coming from Technology, and it is far cheaper than a hiring spree.

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August 05 2013

Commentary by David Fuller

July 31 2013

Commentary by David Fuller

Scientists make "Impossible Material" ⦠by accident

Here is a brief section from this informative scientific article from Gizmag
In an effort to create a more viable material for drug delivery, a team of researchers has accidentally created an entirely new material thought for more than 100 years to be impossible to make. Upsalite is a new form of non-toxic magnesium carbonate with an extremely porous surface area which allows it to absorb more moisture at low humidities than any other known material. "The total area of the pore walls of one gram of material would cover 800 square meters (8611 sq ft) if you would 'roll them out'", Maria Strømme, Professor of NanoTechnology at the Uppsala University, Sweden tells Gizmag. That's roughly equal to the sail area of a megayacht. Aside from using substantially less energy to create dryer environments for producing electronics, batteries and pharmaceuticals, Upsalite could also be used to clean up oil spills, toxic waste and residues.
David Fuller's view - When in commercial production, this sounds like it has the potential to be extremely useful.

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July 26 2013

Commentary by David Fuller

George Mitchell, Billionaire Behind Shale Boom, Dies at 94

This is an inspirational story, and one that America can be proud of. Here are two brief sections
"My engineers kept telling me, 'You are wasting your money, Mitchell," he told Forbes in 2009. "And I said, 'Well damn it, let's figure this thing out, because there is no question there is a tremendous source bed that's about 250 feet thick.'"

As other companies adopted Mitchell's techniques, U.S. gasproduction rose 25 percent in the past decade, pushing prices to a 10-year low in April 2012. The nation now has an estimated 890 trillion cubic feet equivalent of recoverable natural gas, according to ITG Investment Research. That's enough fuel for almost 40 years at current consumption rates.


Mitchell donated more than $175 million, with the largest gifts going to Texas A&M, the University of Houston and M.D. Anderson Cancer Center. A tennis center at Texas A&M bears his name. His wife, Cynthia, who died in 2009, helped develop the Cynthia Woods Mitchell Pavilion, an outdoor concert venue, in The Woodlands.

In addition to his "great love" for The Woodlands, Richmond said, Mitchell had "an enormous passion" for his hometown of Galveston, Texas, where he bought and renovated older buildings in the downtown area.
David Fuller's view - With an inventive mind and a generous spirit, George Mitchell's development of fracking Technology is an inestimable contribution to the future of global GDP growth.

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July 25 2013

Commentary by David Fuller

Megan McArdle: Obama's Speech is a Confession of Impotence

Here is the opening from this good but sobering column published by Bloomberg
"What we need," President Barack Obama told a group in Galesburg, Illinois, today, "isn't a three-month plan, or even a three-year plan, but a long-term American strategy, based on steady, persistent effort, to reverse the forces that have conspired against the middle class for decades."

nequality, layoffs, economic insecurity -- it's a conspiracy! Sounds sinister . . . and yet, in a way, oddly comforting. A conspiracy is something you can do something about: find the villains and slay them. On the other hand, titanic and impersonal forces like globalization and technological progress are harder to vanquish.

Unfortunately, there's no easy villain to be conquered, no easy fix to bring the middle class back to the glory days of the 1950s and 1960s. Inequality and economic insecurity are rising everywhere in the developed world, not just in America. This is not a matter of policy tweaks or bad, greedy people. It's a matter of seismic shifts in the global economy.

Nonetheless, in his speech, Obama claimed that he could do something about the ills facing us -- that he had a plan to bring back the bourgeois boom. But the strategies themselves were less than promising.

"The first cornerstone of a strong and growing middle class has to be an economy that generates more good jobs in durable, growing industries," the president told his audience. "Over the past four years, for the first time since the 1990s, the number of American manufacturing jobs hasn't gone down; they've gone up. But we can do more."

"So I'll push new initiatives to help more manufacturers bring more jobs back to America. We'll continue to focus on strategies to create good jobs in wind, solar, and natural gas that are lowering energy costs and dangerous carbon pollution. And I'll push to open more manufacturing innovation institutes that turn regions left behind by global competition into global centers of cutting-edge jobs."

Obama has been promising green jobs for years, and failing to deliver them for just as long. There's little evidence that more environmentally friendly energy sources will be net job creators. The middle class may enjoy bluer skies if we convert more of our power generation capacity to wind and solar. But we've no reason to think that they'll enjoy more green in their wallets.

The manufacturing innovation institute, meanwhile, is just another iteration of an idea that's been around for longer than Barack Obama has. Go to any Rust Belt city and you'll find research campuses, innovation institutes and similar institutions named after hopeful politicians who promised that a new manufacturing base would coalesce around this exciting agglomeration of creative minds. Unfortunately, in most instances it has turned out that manufacturing bases would rather coalesce around cheap land, low taxes and acres of uncongested freeway.

Besides, the problem in America is not that we suddenly lost our manufacturing mojo. In fact, we're still very good at it; according to the Boston Consulting Group, the inflation-adjusted value of our manufacturing output has more than doubled since 1972. But our manufacturing employment is down by one-third, because production is highly automated in most industries. Even small metalworking operations now use computer-aided design and robots as much as they do grizzled machinists.
David Fuller's view - Following on from the last sentence above, manufacturing bases also need competitive energy costs. I maintain that the USA would be struggling to avoid recession, had it not been for private industry's invention and utilisation of fracking Technology. However, that was opposed by President Obama, at least until it became obvious that fracking was lowering the USA's energy costs, which were enticing manufacturing businesses back to America and creating more jobs in the process than any other programme.

The bigger long-term problem for employment is automation, due to this era of accelerating technological innovation. Wonderful technologies are making many of us more efficient, and corporations are the biggest beneficiaries. However, as technological innovation increases, it is replacing jobs more rapidly than they are being created elsewhere. This is a problem for all developed economies and increasingly, also for developing economies.

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July 23 2013

Commentary by Eoin Treacy

Arrow-Avnet Signal Tech Growth as PC Sales Fall: EcoPulse

Thanks to Anthony Field at Bloomberg for this article he wrote with Anna-Louise Jackson . Here is a section
The Federal Reserve Bank of Dallas noted progress in the July 17 Beige Book business survey, saying “high-tech orders and production were flat to slightly up” since the June 5 report. The San Francisco Fed's Tech Pulse Index also reflects the shift, rising for a fourth consecutive month to 98.67 in June, the highest since 2008. This index tracks the health of the U.S. IT industry using investment, consumption, employment, industrial-production and shipment data.

The pace of tech-hardware spending is picking up as“purchasing managers are starting to press on the gas a little,” said Christian Bertelsen, who oversees more than $1.5 billion in assets as chief investment officer of Global Financial Private Capital in Sarasota, Florida . Companies are investing in part to replace old equipment after purchases were delayed last year, he said.
Eoin Treacy's view - The sharp pullback experienced by Microsoft and Intel last week has weighed on the Nasdaq but as highlighted in yesterday's review of network and cyber security firms, the outlook for the Technology sector is far from uniform.

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July 23 2013

Commentary by Eoin Treacy

China Sees 7% as Bottom-Line Growth Tolerable in Slowdown

This article from Bloomberg may be of interest to subscribers. Here is a section
Lu Ting, head of Greater China economics at Bank of America in Hong Kong, said the transcript was “important information,” with Li indicating that the “floor” for growth this year was 7.5 percent, while 7 percent was the lower limit for the period through 2020. Lu said that the government may roll out a “small scale fiscal expansion” including spending on railways, social housing and environmental and information-Technology infrastructure.

Shen Jianguang, chief Asia economist at Mizuho in Hong Kong, said 7.5 percent is the lower limit this year and percent is the boundary starting next year. The government is already trying to support expansion with spending on railways, city infrastructure and environmental protection, Shen said.

Finance Minister Lou Jiwei said in a press briefing in Washington on July 11 that growth as low as 6.5 percent may be tolerable in the future. While the government in March set a 2013 growth goal of 7.5 percent, Lou said he's confident 7 percent can be achieved this year.
Eoin Treacy's view - As a country moves up the GDP per capita scale, outsized growth rates become progressively more difficult to sustain. In simple terms, less is needed in terms of productivity gains to move GDP per capita from $1 to $2 than from $1000 to $2000. China has succeeded in lifting its per capita GDP impressively over the last 30 years. As the absolute wealth of the country increases, the pace of the expansion can logically be expected to moderate even in the most bullish scenario.

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July 22 2013

Commentary by David Fuller

Never Again Droughts: Solid Rain, a Mexican Innovation

Here is an interesting, short article from the World Farmers' Organisation
As an alternative to the problem of drought suffered by some northern states in Mexico and in order to improve the efficiency of agricultural irrigation systems, a Mexican engineer, Sergio Jesus Rico Velasco, has developed a system for planting solidified water in crop fields.

The Technology developed by Rico Velasco consists in the activation series of components - and namely Water silos (which are potassium polyacrylate powder particles) - whose molecular structure allows them to absorb and retain up to 500 times their liquid weight and form small potential water reservoirs, becoming Solid Rain when they are hydrated and grow thanks to the water's effect.

Solid Rain is the result of Water Silos bonding together with previously captured rainwater - which is usually collected from roofs, in the necessary quantities (i.e. 10 grams per liter of water) - and is stored in a location which is not exposed to the sun, with a view to subsequently being used even one year after being collected in plantations and crops.

The Water Silos particles - which can be removed and then be re-hydrated at every crop cycle - have a life span of up to 10 years, during which time they will provide plants with a regular supply of water by allowing the plant to be ventilated and preventing evaporation.

Water silos' effectiveness has been fully proven. Mr. Rico Velasco conducted, in fact, in 2005 a comparative study of the corn fields located outside the village of Aguahedionda in the Jalisco region, during which he applied the two irrigation systems, and namely a traditional, rain-fed liquid irrigation system, which harvested 600 kilograms per hectare, and a Solid Rain irrigation system, with which he collected 10 tons of grain per hectare.

This Technology has also been successfully used in India in the cultivation of papaya, mango, peanut, cotton, wheat and coconut palms, as well as in Colombia in rose and carnation greenhouses. Researchers recorded 75% savings in irrigation costs, as well as a 100% increase in foliage and flowers and a 300% in root development.

The ongoing process of desertification, climate change and uncertainty about rain seasons make this project of vital importance since it offers the possibility of storing rainwater in bags and in solid form, allowing it to be transported to places which can reached with great difficulty.

The aforementioned Technology has, moreover, not been patented and, as such, is in the public domain, with the result that it can be used for the benefit of all mankind.

Mr. Rico Velasco's solid water irrigation system has led to the latter being nominated for the Global Water Award 2012, which is awarded each year by Stockholm International Water Institute (SIWI) located in Stockholm, Sweden.
David Fuller's view - This seems too good to be true, but hopefully is not. I do not know anything about absorbent polymers but we need to know if there are any downsides to potassium polyacrylate? For instance, is it absorbed by food crops, and if so, what would be the effect on humans and animals? The articles say it remains effective in soils for 10 years, but what happens to this absorbant thereafter? Does it biodegrade or does it become a sludge which is potentially harmful and needs to be removed?

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July 19 2013

Commentary by Eoin Treacy

July 19 2013

Commentary by David Fuller

Bernard McAlinden: ESN Fundamental Value Monitor

My thanks to the author for this latest fascinating report, published by ESN. It is posted in the Subscriber's Area but here is a brief sample from pages 9 and 10
Earnings have recently been seeing a cyclical recovery as severe recessionary conditions in the global economy have given way to a renewed expansion (albeit erratic and geographically uneven). Underlying structural developments will be key to the extent and sustainability of the earnings recovery as global cyclical conditions continue to improve (albeit erratically).

Over recent years, corporate earnings have benefited from major sustained structural forces. Globalisation, free trade, migration, the opening of China, Technology advance, the spread of capitalism, etc have greatly enhanced the supply and productivity of labour on a worldwide basis progressively since around the mid 1990's. The bargaining power of capital relative to labour has therefore seen major sustained improvement and margins / returns on capital have expanded accordingly. These structural forces are currently sustaining US earnings at higher levels than would otherwise be cyclically consistent with a still anaemic economic expansion and are sustaining European earnings at a higher level than would otherwise be cyclically compatible with the ongoing recessionary environment in Europe.

In the established environment of increasingly free and efficient global markets, it is inevitable that market forces would eventually compete margins and returns back down to the long run required levels, whereupon the cyclically neutral level of earnings would structurally revert towards the long run trend line. On the assumption that the forces of globalisation etc are unlikely to go into reverse, it would take ongoing reflation of the global economy to achieve such structural mean reversion. Global final/consumer demand would have to expand to the point where global labour markets tighten sufficiently to allow labour to claw back some pricing power at the expense of capital. Meanwhile, the outlook needs to be bright enough to tempt the global corporate sector to more aggressively chase the supernormal returns on offer by stepping up capital spending to create sufficient new capacity to eventually compromise the pricing power of capital relative to labour. Periods of cyclical economic weakness such as the recent "great recession", when worries focused on the risk of demand deflation, put earnings under significant downward cyclical pressure, but also delay any structural mean reversionary process because they weaken the labour market while restraining investment in new capacity by the corporate sector.

The success of companies in aggressively managing costs and defending margins in the recent recessionary conditions suggests that the structural environment is still quite favourable for earnings with capital maintaining pricing power at the expense of labour. US earnings had recently been recovering surprisingly quickly from their headlong collapse below the 32-year trend line. They are already back well above trend but are now suffering from more recent deceleration in the economy. However, they can yet make new highs if, as we expect, the economy continues its cyclical recovery. European earnings are once again under recessionary pressure due to the Eurozone debt crisis, but will ultimately be governed by the same global structural and cyclical forces that pertain to the US.

In short, we expect that an ongoing (albeit erratic) cyclical expansion in the global economy can yet push earnings to new cyclical highs as there are few signs yet that mean reversionary forces have begun to undermine the structurally favourable environment for profitability. We nonetheless consider it prudent to assume that the structural benefit to margins has peaked and that eventual structural mean reversion of profitability will ultimately create a significant structural headwind for earnings.
David Fuller's view - Fullermoney has a high regard for Bernard McAlinden's analysis but I confess to having found the opening section of this report daunting. If some of you do as well, my advice is to stick with it, because the informative graphics commence on page 4 and his subsequent analysis is also very interesting.

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July 18 2013

Commentary by Eoin Treacy

First MaK dual-fuel engine shipped from Rostock Facility to Japanese customer

This press release from Caterpillar dated July 15 th may be of interest to subscribers. Here is a section
The very first MaK dual-fuel engine left Caterpillar's facility in Rostock, Germany, to be shipped to the customer Mitsubishi Heavy Industries (MHI) in Japan June 5. Together, with three regular 12 M 43 C engines, the 12 M 46 DF will power the first of two cruise ships of the new generation ordered by German AIDA Cruises.

These innovative marine engines were developed by Caterpillar Motoren in Kiel, Germany, (Kiel Engine Center, KEC) and manufactured at the Rostock subsidiary. AIDA's new generation of ships also sets the standard when it comes to protecting the environment. An AIDA ship currently consumes only 3 liters of fuel per passenger per 100 kilometers. The new AIDA vessels will consume even less. The ships of the new AIDA generation are fitted with MaK dual-fuel engines, meaning they can also run on liquefied gas, depending on its availability in the port. The use of eco-friendly liquefied natural gas (LNG) substantially reduces CO2 and particle emissions.

"With these ships, AIDA will set new industry standards for the future both with regard to their new and innovative product features as well as in terms of protecting the environment. In 1996, AIDA sparked a revolution at sea with the relaxed cruising concept. We are convinced that the German cruise market will continue to grow and that we will provide further momentum for the market with our new generation of ships," said Michael Ungerer, President of AIDA Cruises.
Eoin Treacy's view - Natural gas is an increasingly popular fuel for heavy machinery. This represents a significant growth story not least because of the commodity's cost, efficiency, increasing ease of transportation and relatively green credentials. Burlington Sante Fe is already testing natural gas fuelled locomotives and Union Pacific was quoted today as saying the Technology is interesting. The advent of LPG fuelled ships represents an additional demand driver.

US natural gas futures have been ranging above $3.50 for the last month which also represents the region of the 200-day MA. A sustained move below that level would be required to question medium-term scope for continued higher to lateral ranging.

Caterpillar has been ranging in a volatile manner, mostly above $80, since 2011.It bounced from that area again this month and a sustained move below it would be required to question potential for continued ranging.

Both Cummins and Paccar specialise in natural gas drive trains. (Also see Comment of the Day on November 16th 2012). Cummins has been mostly rangebound since 2011 but has exhibited an upward bias over the last year. The share found support in the region of the 200-day MA from April and a sustained move below $105 would be required to question medium-term scope for additional upside.

Paccar has been trending persistently higher since June and is now closing in on the 2007 peak $60. While somewhat overbought in the short-term, a sustained move below $51 would be required to question medium-term upside potential.

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July 18 2013

Commentary by David Fuller

Bloomberg: Lift the Ban on U.S. Oil Exports

Here is a section from this informative editorial
The last time serious talk about exporting oil was heard in Washington, the Soviet Union still loomed, the Reagan Revolution had yet to take place and the National Basketball Association had an equitable distribution of talent.

It was the 1970s, and with the Arab oil embargo a fresh memory and fears that domestic drilling had peaked, Congress instituted fuel-economy standards for cars, an energy-conservation program for consumer products and the Strategic Petroleum Reserve. It also banned all exports of U.S. oil except for small amounts to Canada.

Four decades later, that ban is threatening to put a damper on the shale-oil boom in the U.S., and Congress or the president should find a way to reverse, or at least temporarily suspend, it.

Consider how drastically the U.S. oil picture has changed. Production has increased to 7.4 million barrels a day from 5 million in 2008, thanks to new methods of extracting oil from deep rock using horizontal drilling and hydraulic fracturing, or fracking. In the past year alone, these techniques have boosted output by a million barrels a day.


The point is, unless some of the shale oil is exported, it will be stranded, or simply left in the ground. And though to some environmentalists that may sound like a tempting prospect, it would not reduce global consumption of oil -- just the consumption of U.S. oil. Lessening total use will take efforts more directly targeted to that end, including programs to develop renewable energy and efficiency and to put a price on carbon emissions.

By increasing exports even as it continues importing oil, the U.S. can exercise maximum flexibility in world oil markets. It can keep U.S. oil flowing, encouraging further exploration and drilling. And it can help maintain relatively stable gasoline prices, because these are largely determined by world markets.
David Fuller's view - Those in the USA who oppose the exporting of oil from their country cite two arguments: 1) It would be a selfish, short-term gain and deprived future generations of this valuable resource; 2) We should stop polluting the planet by producing and burning fossil fuels.

The first argument above has been around for decades, and it has been proved to be wrong as the Technology for extracting oil has progressed. It is a finite resource but the invention of fracking (long described by Fullermoney as a 'game changer') not to mention future improvements in extraction techniques, should ensure that known reserves of oil and gas last into the next century, at the current rate of production.

As for the second argument above, Fullermoney understands the environmental risks, and maintains that the world needs some luck regarding the future rate and nature of climate change. We have to take that risk because if the world stopped using fossil fuels, the global economy would be plunged into the severest of depressions. So we need time and ever improving technologies, to both reduce CO2 emissions and also extract CO2 from the atmosphere. Additionally, we need time to improve the efficiency of solar and other renewable energy sources. We also need time to improve and construct new generation nuclear plants.

Will it all work? Hopefully, and awareness of the problems is sufficient to ensure an increasing technological effort on all fronts.

By exporting oil, even if only a small amount, the US can help its own economy and also global GDP growth. Japan, the USA's most important Asian ally, would be an obvious candidate. Oil exports would increase the US's influence in this industry, and encourage other countries to tap their own shale reserves. It might also pull some of the speculative funds out of the oil market.

Despite generally soft commodity markets, oil prices have rallied (WTI & Brent), and further strength would weigh on global GDP growth which is still struggling from the lingering effects of the credit crisis recession. Brent crude is not yet a problem as it is only recovering from the lower side of its range for the last two-and-a-half years, but the amber warning lights will be flashing if it approaches $120.

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July 17 2013

Commentary by David Fuller

Bernanke Says Fed Bond Purchases Not on 'Preset Course'

Here are some highlights from Bloomberg's interesting report on the Fed Chairman's statement
Federal Reserve Chairman Ben S. Bernanke said the central bank's asset purchases "are by no means on a preset course" and could be reduced more quickly or expanded as economic conditions warrant.

"The current pace of purchases could be maintained for longer" if inflation remained too low, the outlook for employment became less favorable or "financial conditions -- which have tightened recently -- were judged to be insufficientlyaccommodative to allow us to attain our mandated objectives," Bernanke said today to the House Financial Services Committee.

If the economy improved faster than expected, and inflation rose back "decisively" toward the central bank's 2 percent target, "the pace of asset purchases could be reduced somewhat more quickly," the 59-year-old Fed Chairman said in prepared testimony. The Fed would also be prepared to increase the pace of purchases "for a time, to promote a return to maximum employment in a context of price stability."

The Fed chairman's remarks highlight the Federal Open Market Committee's desire to assure that the economy and labor markets have sufficient momentum before reducing its $85 billion in monthly bond purchases. Treasury yields have jumped since June 19, when Bernanke outlined a possible timetable for tapering purchases.


In today's testimony, the Fed chairman described labor markets as "far from satisfactory, as theunemployment rate remains well above its longer-run normal level, and rates of underemployment and long-term unemployment are still much too high."

While risks to the economy have diminished since late last year, Bernanke said, "the risks remain that tight federal fiscal policy will restrain economic growth over the next few quarters by more than we currently expect, or that the debate concerning other fiscal policy issues, such as the status of the debt ceiling, will evolve in a way that could hamper the recovery."

The slow pace of the recovery means that it remains "vulnerable to unanticipated shocks, including the possibility that global economic growth may be slower than currently anticipated."


Bernanke and policy makers have had to gauge how much government spending cuts and higher tax rates are sapping consumer confidence and growth. JPMorgan Chase & Co. economists estimate that an expiration of tax breaks could reduce take-home pay this year by more than $100 billion.

Retail sales climbed 0.4 percent last month, about half of what economists forecast, and the figures showed households are replacing outdated vehicles and furnishing new homes while cutting back on electronics and meals outside the home.

"The consumer is under pressure," said Bob Sasser, chief executive officer of Chesapeake, Virginia-based discount retailer Dollar Tree Inc. "They're now facing higher taxes," a weak job market, "and the uncertainty around the economy," Sasser told analysts and investors on a conference call in May.

The U.S. faces a "very troublesome and challenging recovery," Kendall J. Powell, chairman and chief executive officer of Minneapolis-based General Mills Inc., said in a June 26 conference call with shareholders and analysts.

Still, Fed stimulus has helped fuel a housing-market rebound and this year's 17.5 percent surge in the Standard and Poor's 500 Index of stocks.


Slack in the labor market, including 7.6 percent unemployment last month, helped keep inflation for the 12 months ending May a full point below the Fed's 2 percent goal, reducing the odds of any tightening based on that measure. the participants on the FOMC. In December, when the committee expanded the program of $40 billion in monthly buying of mortgage bonds with purchases of $45 billion of Treasuries, about half of FOMC participants wanted to halt the stimulus around the middle of this year, according to minutes from the meeting.

The language suggests that concern over the risks from the program extends beyond the four Fed regional bank presidents who have publicly spoken out against it: Esther George of Kansas City, Jeffrey Lacker of Richmond, Richard Fisher of Dallas and Charles Plosser of Phildelphia.
David Fuller's view - Ben Bernanke is inevitably a somewhat controversial figure, although obviously not due to his mild and studious demeanour. Instead, it is entirely because of the power and influence his unprecedented quantitative easing (QE) policies wield over the US economy and financial markets.

I have no issue with this, recalling that Mr Bernanke was appointed Fed Chairman precisely because he was the academic expert who said he knew how to avoid a repeat of the USA's 1930s Depression, and also a lengthy Japanese-style deflation. Today, we can credit him with avoiding another depression. However, we know there are some deflationary pressures in the US and also the global economy, not least because of the depression in parts of Europe, plus slumps experienced by South American resources economies following China's slowdown.

The US economy has recovered somewhat but is far from robust. While this is consistent with the data I have previously cited, stating that 'it takes at least five to seven years to recover from a credit crisis recession', it would be premature to call Mr Bernanke's QE's experiment an unqualified success. Moreover, half the Fed appears to believe that the risks of QE now outweigh the potential additional benefits.

What is beyond any doubt is that Wall Street (S&P 500 & Russell 2000) has been a big beneficiary of QE, which has also helped to lift a number of other stock markets, in addition to their own national policies. Nevertheless, US equities are currently clear outperformers, as you can see from this chart of the DJ World Stock Index Ex USA.

Is this outperformance due to the USA's three strong cards which I often mention: 1) competitive energy costs thanks to fracking; 2) superior Technology in many areas; 3) many of the most successful corporate Autonomies?

They are certainly bullish factors, not least for the long term. However, a number of momentum players have clearly genuflected before Mr Bernanke and bought on the back of his QE largess. Wall Street is overbought, albeit still in form, but susceptible to a disappointment which will most likely be confirmed by the next clear downward dynamic. To see what those can look like, note the key day reversal which occurred on May 22nd.

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July 16 2013

Commentary by Eoin Treacy

Lynas Corporation Ltd

Thanks to a subscriber for this heavyweight report on the rare earth metals that may be of interest to subscribers. Here is a section
After rising up to 650% in the first seven months of 2011, rare earth prices have continued to slide to return to pre-crisis levels (see Figure 1). Global economic uncertainty has curtailed demand and stockpiles are being worked down. A Chinese production response occurred in late 2012, with Baotou (600111.CH, not covered) temporarily ceasing production activities at the world's largest REE mine, Bayan Obo.

Rare earth elements provide productivity efficiencies in many applications than cannot be reproduced by lower quality alternatives, but price increases in 2011 forced endusers to investigate ways to decrease rare earth intensity in a number of products. In more price-elastic applications, structural changes in rare earth use occurred, including:

La oxide content in fluid catalytic cracking units (3% w/w to 2% w/w in 2011).
Increased recycling in polishing powders and automotive catalysts (La, Ce, Pr).
Improvements in LED Technology threatening rare earth phosphors (Y, Eu, Tb).
R&D to decrease dysprosium consumption in rare earth magnets.

By 2018, rare earths with exposure to magnets and glass (neodymium, praseodymium and yttrium) will be in undersupply and have strong price support, in our view:
Eoin Treacy's view - Rare earth elements exemplify the old commodity market adage “the cure for high prices is high prices”. The surge in rare earth element prices was driven primarily by a supply deficit and encouraged consumers to explore alternatives. The success of consumers in developing new technologies to displace rare earth elements is a testament to the power of human ingenuity in a high price environment. The majority of rare earth element shares declined sharply over the last few years but a number are now worthy of mention.

As the largest rare earth element company outside China, Lynas has trended lower since April 2011, falling from A$2.50 to less than 50¢. While somewhat oversold relative to the 200-day MA, a sustained move back above the 200-day MA would be required to question the consistency of the medium-term decline.

US listed Molycorp lost downward momentum from November and has entered a process of base formation development. However, a sustained move above $8 will be required to break the progression of lower rally highs and signal a return to demand dominance beyond the short-term. Ucore Rare Earths, 5N Plus, Rare Element Resources, Quest Rare Minerals, Tasman Metals, Hudson Resources and Rare Earth Metals share similar base formation characteristics.

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July 16 2013

Commentary by David Fuller

Email of the day (2)

More on technologies for the developing world
"You and the Collective may be interested in these two articles. The first is the latest on the Aakash tablet. The other article gives greater insight into the future of this very cheap computing space..... Technologies like the Aakash tablet have unleashed a massive tidal wave of competition and investment in producing very cheap computing devices, and this undoubtedly will have profound impacts on life around the globe."
David Fuller's view - Thank you for these articles which are greatly appreciated. The second one above: Power to the people: India's IT revolution, from The Australian Financial Review is a must read item if you are interested in this subject. Here is a futuristic sample:

To add to the increasing accessibility of Technology and its benefits, India has launched an initiative to connect 250,000 villages via optical fibre cable. The fibre-optic lines will provide cheap, affordable internet. Regardless of whether the government delivers on these plans, India's cell phone carriers already provide affordable data plans. Newer versions of Datawind tablets, or "phablets" as they are colloquially referred to, have cell phone capabilities and come with unlimited web access for Rs.100 (US$1.75) per month.

India's population currently has around 900 million mobile phones, which typically cost $30 or more. When the cost of the "phablets" reaches this price point, they will undoubtedly become the replacement device for cell phones. I expect that India, because of tablets, will have more than 100 million new internet users in the next three years. This number will grow to more than 500 million within five years, and one billion by the end of the decade.

The Indian government has inadvertently started a revolution that will transform India and shake up the world. It has lowered the expected base price of tablet technologies to a range of $35 to $50. Chinese vendors are competing with Datawind to bring production costs below $35.

Cheap tablets will make it possible for farmers to watch weather reports, for village children to access MIT courseware, and for artisans to sell their goods online. They will also enable the development of Silicon Valley-style apps to transact commerce, play games, and manage transport schedules. Don't be surprised to see villagers developing apps that solve their unique problems.

The benefits of these tablets will be astonishing, not least in terms of education. However, the competition in manufacturing these devices is becoming even more cut throat. We have already seen the share prices for manufacturers of many IT products soar, only to drop back even more dramatically as they fall out of favour because their products are no longer leading in the accelerating rate of technological innovation.

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July 15 2013

Commentary by David Fuller

To Re-Start Nukes, Japan Must Raze 'Nuclear Village'

Here is a sample from this interesting editorial by Bloomberg
The governing coalition led by Japan's pro-nuclear Liberal Democratic Party is predicted to win a majority in the July 21 Upper House elections.

That prospect might alarm the almost half of all Japanese citizens who say they don't want to restart the 48 nuclear reactors that remain offline for safety checks after the March 2011 earthquake and tsunami that triggered a catastrophic meltdown. Even now, engineers are struggling to contain the radioactive water seeping into the groundwater under the crippled Fukushima Dai-Ichi facility.

Yet nuclear power, which before the tsunami generated almost 30 percent of Japan's electricity, is reliable, safe and climate-friendly, and should remain part of the country's energy mix. The challenge Japan faces is to tear down the "nuclear village" -- the collusive nexus of government and industry that drove the country to pursue atomic energy at the expense of its citizens' safety.

The relationship was so cozy that even months after the disaster, more than 50 ex-government officials were still working at the Tokyo Electric Power Co. (9501), Fukushima's operator.

Last September, Japan's previous government took an important first step by creating theNuclear Regulation Authority. Unlike the Nuclear and Industrial Safety Agency that it replaced, the NRA is not housed within the Ministry of Economy, Trade and Industry, which aggressively promoted Japan's nuclear industry. The new agency has been granted more bureaucratic independence and has strict rules governing personnel transfers -- once you work there, for instance, you can't go back to your ministry. Already, the NRA has declared that the Tsuruga reactor of the Japan Atomic Power Co. sits on an active seismic fault, a finding that could keep the plant closed and lead to the company's collapse.
David Fuller's view - Prime Minister Shinzo Abe will know that Japan's expensive and largely imported energy supplies represent one of the biggest hurdles faced by his economic recovery. Therefore, restarting Japan's nuclear programme is essential. However, this will encounter significant and justified opposition if the government only reopens nuclear power stations, following inspections, of plants that are currently closed.

To address the nuclear safety issue, Japan needs a medium to longer-term programme, including the following steps: 1) Permanently close the Tsuruga reactor, mentioned above, and any others that the NRA regards as unsafe; 2) Announce that only stations approved by the NRA will be reopened, but only for a limited period because they are 'old nuclear' in terms of Technology; 3) Commence a 'new nuclear' programme, based on improved technologies, and locate these plants in regions that do not sit on seismic faults.

Japan needs to focus on all competitive and reliable sources of energy, from oil and gas, including shale projects, to nuclear, hydroelectric and solar. Where these are not economically feasible within Japan's national territory, they can be developed in conjunction with energy industries in less developed countries. As a high-tech economy, Japan has the skills to become a leader in energy development programmes.

Meanwhile, helped by a reinvigorating economy, Japan's stock market recovery is already well on its way to qualifying as a cyclical bull market. A return to the 18,000 - 20,000 region appears achievable during the remainder of this year. Additionally, subject to competitive energy costs, Japan is a candidate for a secular (long-term) uptrend.

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July 15 2013

Commentary by David Fuller

Email of the day (3)

On Technology levelling the playing field
"It occurred to me overnight, that there is an even bigger issue here. This historic emergence event, where the BRICS and Next-11 etc are experiencing a few decades of massive economic development has only been made possible by the technologies of affordable high-speed internet (enabling service providers in the emerging world to compete directly for jobs in the developed world) and affordable fast and efficient international transport systems (air and sea) to compete directly for manufacturing jobs in the developed world. So again, Technology is central to the most rapid period of change that probably has ever been seen. The rapid decline in the price of internet-enabled computing Technology, to empower the poorest peoples in the developing world, is just part of that much bigger historic emergence event."

"I attached an article from the AFR today about very cheap tablet computers in India (and they seem likely to get cheaper). I believe this is part of a massive world-changing event that will have a massive impact in the emerging world, making education, knowledge, (& ability to make money) much more accessible to billions more people. You slogan "empowerment through knowledge" seems particularly pertinent here.

"It strikes me that this will help fuel another wave of emerging-world competition on the West - possibly highly deflationary.

"This also seems like a major democratising force, which seems to be starting to reduce corruption in India (and undoubtably elsewhere), and is increasingly a means of holding politicians more accountable.

"Cheap, small, web-capable computers are rapidly changing the world."
David Fuller's view - Thanks for an informative email of general interest.

I certainly agree with what you say and would summarise by adding: The accelerated rate of technological innovation is accelerating the rate at which many emerging economies develop.

Yes, there are definitely some deflationary consequences to this spread of education, knowledge and expertise. However, this will have far more benefits than downsides as it also boosts global GDP growth. I hope it is a democratising force, although history too often shows that this is a struggle.

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July 15 2013

Commentary by David Fuller

Email of the day (2)

More on technological innovation - robotics
"David - not sure if this meets your criteria but it certainly astonishs me [Ed: quoting Barry Ritholtz, below]:"

"In a jaw-dropping feat of engineering, electronics turn a person's thoughts into commands for a robot. Using a brain-computer interface Technology pioneered by University of Minnesota biomedical engineering professor Bin He, several young people have learned to use their thoughts to steer a flying robot around a gym, making it turn, rise, dip, and even sail through a ring.

"The Technology may someday allow people robbed of speech and mobility by neurodegenerative diseases to regain function by controlling artificial limbs, wheelchairs, or other devices. And it's completely noninvasive: Brain waves (EEG) are picked up by the electrodes of an EEG cap on the scalp, not a chip implanted in the brain."

"A report on the Technology has been published in the Journal of Neural Engineering.":
David Fuller's view - These developments are interesting and the process of interfacing with helpful robotic devices is still in its infancy. The upside from these technological advances is enormous. Currently, the main downside is unemployment because Technology is beginning to replace jobs more quickly than most economies can create them, although this article from The Washington Post disagrees:

Have the Robots Come for the Middle Class?

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July 11 2013

Commentary by Eoin Treacy

A review of the Autonomies

Eoin Treacy's view - The last few months have been characterised by a deep pullback for the majority of Asian stock markets, relatively steady action by Wall Street, significant Dollar strength, weakness in sovereign bond markets, a revival in oil markets but an otherwise moribund environment for the commodity complex.

At this stage the Dollar is somewhat overbought and some further consolidation of gains is likely. Treasury prices are oversold in the short-term and potential for an additional relief rally has increased. Asian stock markets in particular have at least paused in their declines and potential for an unwind of short-term oversold conditions relative to the 200-day MAs has increased.

Against this background, a significant number of the companies we regard as Autonomies have reverted back to their means where demand appears to be returning to dominance. I thought it might be instructive to conduct a comprehensive review of this group of companies since they continue to represent our best bet for a stable of shares which are likely to outperform over the next decade. We define Autonomies as large internationally diversified companies that dominate their respective niches and had in many respects outgrown their domestic markets. They often had solid records of dividend increases and have balance sheets strong enough to sustain them. They tend to benefit from superior corporate governance and have some of the most recognisable global brands.

The list of companies that can be considered Autonomies is constantly evolving not least as our knowledge of individual companies expands and as globalisation remains a powerful theme. I created this table for all 134 companies in our list to date and highlighted in yellow those which are also dividend aristocrats. I also highlighted in green those which are former dividend aristocrats. In an effort to complete this review in a single day I have not had time to add individual charts for each company but they are of course available in the Chart Library and can be added to your Favourites as your wish.

I reviewed the restaurants sector in yesterday's Comment of the Day but to recap, both McDonald's and Yum Brands have been mostly rangebound for a year and will need to hold breakouts to new highs to reconfirm medium-term demand dominance. Starbucks is currently testing the $70 area and while somewhat overbought in the short-term, a sustained move below the 200-day MA, currently near $60, would be required to question medium-term upside potential.

In the alcoholic beverages sector Diageo, Anheuser-Busch, Heineken and SAB Miller pulled back to test the region of their 200-day MAs where they have found support. Diageo has posted the more impressive rebound to date. Remy Cointreau has had a deeper reaction and has paused in the region of the October lows near €80. It will need to hold above that level if the medium-term upside is to be given the benefit of the doubt. Pernod Ricard has also experienced a deeper reaction.

In the soft drinks sector Coca Cola has found at least short-term support in the region of $40 which represents the region of the 200-day MA and the upper side of the underlying trading range. Pepsi is outperforming somewhat.

In the processed foods and ingredients sector Nestle, Unilever, Mondelez International, Danone, Ingredion, International Flavors & Fragrance and McCormick have all found at least short-term support in the region of their 200-day MAs. ADM and Kerry Group have had some of the more impressive rebounds to date.

In the vitamins and supplements sector DSM has held a progression of higher reaction lows since 2011 and continues to extend its uptrend. Herbalife continues to consolidative above the 200-day MA. Mead Johnson Nutritionals had to cut its prices by up to 15% in China and this has cut margins. It found support this week in the region of $70 but a sustained move back above $80 will be required to confirm a return to demand dominance beyond the short term.

In the household goods and cosmetics sector, Procter & Gamble continues to consolidate its earlier breakout and is bouncing from the region of the 200-day MA. Kimberly Clark, Colgate Palmolive, Uni-Charm, Estee Lauder and L'Oreal have all found support in the region of their MAs. Hengan International continues to range with a mild upward bias. Reckitt Benckiser fell less than the sector and has rebounded to test the psychological 5000p level. NuSkin Enterprises surged to new highs yesterday on positive earnings expectations.

In the luxury goods sector, Christian Dior, Prada, Compagnie Financiere Richemont, Tiffany and Swatch have all found support in the region of their 200-day MAs. LVMH continues to range with a mild upward bias.

In the toys and entertainment sector, Disney, 21 st Century Fox Entertainment and Mattel continue to trend consistently higher; holding progressions of higher reaction lows. Hasbro and Activision Blizzard found support in the region of their 200-day MAs.

In the retail sector, Amazon broke out to new all-time highs this week while Wal-Mart, Dairy Farm International found support in the region of their 200-day MAs. Casino Guichard and Tesco experienced deeper declines but have at least paused over the last couple of weeks.

In the shoe and clothing sector, Nike and Adidas Solomon both rallied from the region of their MAs while Inditex has firmed in the region of the MA. Shenzhou International has pulled back sharply to test the region of the MA while H&M remains confined to a two-year range.

In the pharmaceuticals sector, Bayer, Biogen, Pfizer, Novartis, Amgen, Sanofi, Merck and Eli Lilly have all returned to test the region of their 200-day MA where they have firmed. Novo Nordisk is bouncing from the lower side of its range and the region of the 200-day MA. Johnson & Johnson and Bristol Myer Squibb have so far had shallower reactions while Allergan pulled back sharply from the April peak and found at least short-term support this week. It will need to push back above the psychological $100 area to suggest a return to demand dominance.

In the tobacco sector both Philip Morris International and British American Tobacco continue to hold progressions of higher reaction lows and found support in the region of their MAs over the last couple of weeks.

In the Technology sector ARM Holdings, MediaTek, Taiwan Semiconductor, Intel and have all pulled back to test the region of their respective 200-day MAs. Google, Lam Research, Microchip Technologies, Hewlett Packard, Sony, Cisco Systems, Microsoft and Tata Consultancy remain relative strength leaders and have posted comparatively shallow reactions. Apple and Lenovo appear to be building bases. Qualcomm, IBM, Samsung Electronics, Oracle, SAP experienced deeper reactions and will need to post more impressive rallies to repair investor confidence.

In the publicity and lobbying sector, WPP, Publicis and Omnicom continue to hold progressions of higher reaction lows.

In the banking sector HSBC, Standard Chartered and Barclays all found support at the lower side of medium-term ranges in the last couple of weeks, Goldman Sachs, JPMorgan and Citigroup are rebounding having closed the majority of their overextensions relative to the 200-day MA. BBVA retains a downward bias.

In the insurance sector AIG Group, Prudential, Chubb, AIA Group and AXA continue to trend higher in a reasonably consistent manner.

In the credit card and credit checking sector, Visa and Mastercard continue to extend their already impressive uptrends while Experian found support in the region of the 200-day MA three weeks ago.

In the automotive sector, Nissan, Honda, Toyota and Greatwall Motors are rebounding having reverted towards the respective trend means. BMW remains mostly rangebound while Volkswagen found support above the April lows two weeks ago. Following a difficult couple of years Kia Motors is now holding a progression of higher reaction lows.

In the aeronautics sector, Boeing continues to extend the breakout from its two-year range but is becoming increasingly overextended as it approaches its all-time highs. EADS continues to hold a progression of higher reaction lows.

In the industrial sector, Danaher, Tyco International, GE, Rolls Royce, Honeywell, 3M, United Technologies, Ecolab, Illinois Tool Works and Berkshire Hathaway have had relatively shallow reactions and an increasing number are breaking out to new all-time highs. Emerson Electric, Intertek Group, ABB and Fanuc all found support in the region of their MAs, while Siemens continues to underperform and remains mostly rangebound.

In the packaging sector, Rexam has firmed above 450p but will need to sustain a move above 500p to reconfirm demand dominance. Brambles and Amcor continue to benefit from the weakness of the Australian Dollar as they trend higher.

In the industrial gases sector, Linde, Praxair and Air Liquide all found support in the region of their MAs.

In the chemicals sector, PPG Industries, BASF and Dow Chemical found support near their trend means. DuPont is consolidating in the region of the upper side of a two-year range. Akzo Nobel has posted a progression of lower rally highs since March which it will need to break it to reassert medium-term demand dominance.

In the seeds and fertiliser sectors, Monsanto has found support in the region of its 200-day MA, while Potash Corp has firmed at the lower side of its medium-term range.

In the mining sector, both BHP Billiton and Rio Tinto are currently trading at the lower side of their medium-term ranges.

In the oil and oil service sectors, Exxon Mobil, Chevron, Royal Dutch Shell and Schlumberger are all rallying from areas of previous support.

On even a brief perusal of the above companies, mean reversion is the most common quality. However, it is also notable how few companies have broken their respective uptrends. The relative strength of the industrial, aeronautics and pharmaceutical sectors is particularly notable not least since these sectors represent the cutting edge of technological innovation which is likely to help drive productivity growth in future.

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July 10 2013

Commentary by Eoin Treacy

Email of the day (2)

on additions to the Chart Library
“Please could you add Private Equity Investor plc (PEQ) to the Chart Library? PEQ is a London-listed investment trust trading at a large discount to its portfolio of US private equity / venture capital Technology holdings. Thanks for your help. ”
Eoin Treacy's view - Thank you for this suggestion which has been added to the Chart Library.

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July 09 2013

Commentary by Eoin Treacy

New All Time Highs on NYSE.AMEX and NASDAQ

Eoin Treacy's view - The relative strength of the US Dollar, the outperformance of the banking sector and the Russell 2000 breaking upwards to new all-time highs are all noteworthy and can be considered positives from the perspective of stock market investors. The speed with which the S&P500 rallied from the October/November lows to the June peak and the size of the subsequent pullback suggests that some time is required for the market to regroup before significant new highs can be sustained.

However, even assuming that the wider market is likely to range, some shares are already breaking upwards to new all time highs. I used the Chart Library's High/Low Filter to identify companies on the NYSE, AMEX and NASDAQ exchanges that have posted new all time highs in the last five days. I then used Bloomberg to create a table displaying market cap, P/E ratio, dividend yields, price, the latest value for the 200-day MA and the industry subsector. I then segmented the results by companies with a market cap of greater than $1billion and those with a smaller market cap. A number of ETFs also appeared in the results and I grouped these at the end of the list.

A delegate at the May venue for The Chart Seminar mentioned that my view of the world seemed to be like that espoused by Peter Diamandis and Steven Kotler in their book, Abundance: The Future is Better Than You Think. I just finished reading it. The central premise of the book is that technological innovation is occurring at an exponential rate, that change is occurring at such a prodigious pace that the vast majority of people have no conception how much their lives are likely to change and that the shortage of resources we are all accustomed to dealing with is likely to become a thing of the past. I found it a compelling read and the optimism expressed is welcome, particularly when many pundits seem to spout nothing but pessimism. We can only guess at the timeline of exactly when these innovations will make a difference to our lives and at Fullermoney we will of course be guided by the price action.

The book came to mind when viewing the results of the above filter this morning. Of the ETFs, the Powershares Aero & Defence, Powershares Dynamic Biotech & Genomics, Powershares Dynamic Technology and Vanguard Consumer Discretionary have all posted new all-time highs in the last five trading sessions. Here are the top-10 holdings for each: Powershares Aero & Defence, Powershares Dynamic Biotech & Genomics, Powershares Dynamic Technology and Vanguard Consumer Discretionary. Veteran subscribers will be familiar with many of these shares from the various chart reviews posted in the Comment of the Day over the last five years. Many of these companies represent the confluence of major themes we have highlighted for a number of years i.e. the greatest urbanisation in history, the increasing pace of technological innovation and the potential for energy prices to trend lower in real terms from the latter half of this decade. The Autonomies represent a group of some of the most globally oriented companies we believe are most likely to benefit from these themes.

Some of the most noteworthy chart patterns include:

Carefusion completed a three-year base in January and continues to trend consistently higher. The most recent reaction is similar to that posted in March and a break in the progression of higher reaction lows would be required to question medium-term scope for additional upside.

Applied Industrial Technologies is an intermediary for industrial parts. In common with W.W. Grainger, it continues to trend consistently higher.

Stericycle completed a two-year range in March and found support near $105 from mid-June. A sustained move below that level would be required to question medium-term scope for additional upside.

Western Digital is particularly noteworthy for its low valuations. The share broke emphatically out a three-year base in April and while somewhat overbought in the short-term; the upside can continue to be given the benefit of the doubt provided it holds above the 200-day MA.

Whole Food Markets formed a reasonably orderly consolidation between October and May and a sustained move below $48 would be required to question medium-term scope for additional upside.

EnPro Industries is in the process of completed a six-year base and a break in the progression of higher reaction lows would be required to question medium-term upside potential.

Moog Inc broke successfully above $50 in May before consolidating for six weeks. It reasserted the medium-term uptrend last week and a sustained move below $50 would be required to begin to question medium-term upside potential.

It occurs to me that the outperformance of a significant portion of the military industrial complex may be influenced by the increasingly potent civilian applications of their Technology.

Despite widespread pessimism about the pace of the US economic expansion, the fact that such a large number of restaurants, retail chains and regional banks are in positions of outperformance would suggest that there is cause for medium-term optimism.

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July 09 2013

Commentary by Eoin Treacy

Email of the day (2)

on shale oil
“There was also an excellent piece by Matt Ridley on shale oil last week which increased my own understanding in some specific areas. It may also be of interest to the collective.”
Eoin Treacy's view - Thank you for this enthusiastic article which may be of interest to subscribers. Here is an important section:

Thanks to faster and cheaper drilling (which means less-rich rocks can be profitable) and things such as “zipper fracturing”, where two parallel wells are drilled and alternately fractured to help to release oil for each other, the oil recovery rate is rising from 2 per cent towards 10 per cent in places. Gas is now nearer 30 per cent. Well productivity has doubled in five years.

Now the Bakken is being eclipsed by an even more productive shale formation in southern Texas called the Eagle Ford. Texas, which already produces conventional oil, has doubled its oil production in just over two years and by the end of this year will exceed Venezuela, Kuwait, Mexico and Iraq as an oil “nation”.

Then there's the Permian Basin in west Texas, which looks as big as the other fields, and the Monterey shale in California — the source rock for all California's ordinary oilfields — which, at 15 billion recoverable barrels, could be bigger than the Bakken and Eagle Ford combined, according to a new report prepared for the Energy Information Administration.

Political lobbying represents one of the greatest threats to the USA's ability to develop its natural resources using the technological prowess the country is so noted for. Texas and California may as well be in different countries such is the difference in their respective energy policies. Texas has long fostered wildcat explorers and innovators while California prefers to believe in the ability of Technology to overcome the need for fossil fuels regardless of the impact this has on pricing and how long it may take.

Solar Technology holds great promise over the medium to long-term but in the meantime producing as much cheap oil and gas will be essential to enhance economic productivity and to tackle the USA's trade and budget deficits.

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July 09 2013

Commentary by David Fuller

IMF Reduces Global Growth Outlook as U.S. Expansion Weakens

Here is the opening for this relevant report from Bloomberg
World economic growth will struggle to accelerate this year as a U.S. expansion weakens, China's economy levels off and Europe's recession deepens, the International Monetary Fundsaid.

Global growth will be 3.1 percent this year, unchanged from the 2012 rate, and less than the 3.3 percent forecast in April, the Washington-based fund said today, trimming its prediction for this year a fifth consecutive time. The IMF reduced its 2013 projection for the U.S. to 1.7 percent growth from 1.9 percent in April, while next year's outlook was trimmed to 2.7 percent from 3 percent initially reported in April.

"Downside risks to global growth prospects still dominate," the IMF said in an update to its World Economic Outlook. It cited "the possibility of a longer growth slowdown in emerging market economies, especially given risks of lower potential growth, slowing credit, and possibly tighter financial conditions if the anticipated unwinding of monetary policy stimulus in the U.S. leads to sustained capital flow reversals."

The fund urged central banks in wealthy nations facing low inflation and economic slack to keep injecting stimulus until recovery is entrenched, saying rising longer-term interest rateshave hurt emerging markets the most. The developing economies need to be alert for financial risks if the "anticipated unwinding" of the U.S. Federal Reserve's bond-buying program reverses capital flows, the IMF said.

"The growth in the U.S. has slowed down, and they're catching up to that," Jay Bryson, a global economist at Wells Fargo Securities LLC in Charlotte, North Carolina, said after the IMF released its report. "This is not the U.S. economy of the 1990s that was a locomotive for the rest of the world" though the U.S. remains "one of the primary engines of growth."
David Fuller's view - Wall Street has seen a good recovery over the last three weeks, fuelled by money coming out of cash, bonds, and emerging markets. The appeal of US equities has been apparent for several years and is not difficult to appreciate. Here is a brief summary of America's advantages, frequently referred to by Fullermoney during the bull market to date:

1) The USA has a huge advantage in terms of competitive energy costs among large, developed economies, thanks to its invention and utilisation of fracking technologies, enabling it to tap its large reserves of shale gas and oil.

2) The success of fracking Technology has helped to reinvigorate America's inventive, entrepreneurial culture, which is pulling away from other countries, in an era of exponential technological innovation, long forecast by Fullermoney.

3) The USA has the largest number of successful, multinational corporate Autonomies, by far. These leading firms have become increasingly powerful, despite the valuation contraction cycle often discussed by Fullermoney over the last dozen years.

These dynamic themes bode well for the longer term. However, the powerful additional stock market rally experienced by the USA and a number of other countries since mid-November 2012, increased valuations and led to overextensions relative to the trend means, approximated by 200-day moving averages, as you can see from the S&P 500 Index.

Currently, US indices are near their highs, at a time when a strengthening dollar, slowing global economy, and higher US taxes have reduced the growth rate in corporate profits. Nevertheless, global investors view the USA as a safe haven in an uncertain world that has seen Treasury bond yields rise in recent months.

America is somewhat safer for investors, despite an administration that is not known for its economic prowess. Among equities, favour relative strength, but watch out for overextensions relative to MAs, and expect some market turbulence over the medium term.

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July 03 2013

Commentary by Eoin Treacy

What Drives 21st Century Cities?

Thanks to a subscriber for this interesting report from Deutsche Bank which is posted without further comment. Here is a section
Cities have increasingly become the hubs for innovation and creativity as value generation has become more about breaking down silos. Till the late of the 19th century, most innovation was driven by generalists and tinkerers. This meant that knowledge accumulation was relatively slow, but its application across different fields was quick. In the twentieth century, knowledge creating became the job of specialists in universities and government/private labs. This dramatically sped up knowledge accumulation within silos but slowed cross disciplinary application and understanding. Although resources are still being poured into specialist innovation systems, there are signs that this source of technological change is slowing. Estimates by Pierre Azoulay (MIT) and Ben Jones (North-Western) suggest that the total factor productivity contribution of an American R&D worker in 2000 was a mere 15% of a similar researcher in 19503! Yet, we seem to live in a world of constant innovation – where is all this innovation coming from? It appears that value generation and innovation is increasingly about connecting the dots between different silos. Thus, we are witnessing extraordinary innovations in diverse fields such as gastronomy, entertainment, media and lifestyle made possible by mixing different technologies and skills (Facebook and Twitter, for instance, are not technological innovations, but are better seen as social innovations made possible by the application of communications Technology). As readers would have guessed, this environment dramatically increases the economic value of certain kinds of cities that are able to concentrate different kinds of human capital and to encourage random connections and face-to-face interactions between people4. This, in turn, allows the urban economy to flexibly mix-and match different skills and knowledge silos that generates large productivity increases. Studies show that a doubling of a city's population can increase economic productivity on average by 130%.5 Certain kinds of cities can do much better than the average
Eoin Treacy's view -

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July 03 2013

Commentary by David Fuller

Shale gas revolution 'could halve oil price'

This is an interesting article from The Times (UK) - (subscription registration required, PDF also provided). Here is the opening
The price of oil could halve within the next decade because of a shale revolution, according to industry experts.

John Llewellyn, the former head of international forecasting at the Organisation for Economic Co-operation and Development, said that most oil price forecasts underestimated radically the impact of new extraction techniques for shale oil and gas on supply.

Official estimates last week revealed that Britain was sitting on enough shale gas to power the country for 43 years, although it remains years from extraction. Cheap gas helps to lower the oil price and many shale rocks also contain oil.

In a report written with Puma Energy, the fuel business owned by Trafigura, Dr Llewellyn said that a shift taking place in oil markets between now and 2020 could reverse the significant change that took place in the 1970s, when the price doubled and the United States became a large net importer of oil. Oil costs more than $100 a barrel today.

"[That change] contributed importantly to the quadrupling of the world price of energy in 1973-74 and the further double in 1978-79. If, as expected, the US becomes energy self-sufficient over the coming 20 years, the shift could be equally profound," the report states.

One chief executive of a FTSE 100 oil and gas producer said that if shale gas did result in a long-term US gas price close to $5 or $6, that would equate to only $35 a barrel for oil. Even with a premium paid for oil being in a more convenient form than gas, that puts the likely future price of oil at a fraction of current expectations.
David Fuller's view - Fullermoney has been saying for several years that shale gas and oil was a vital 'game changer' in terms of energy supplies.

However, most countries have been slow to adopt the fracking Technology, whether due to their lack of technical ability, or political / environmental considerations. The latter is their choice. Nevertheless, I would rather see the serious environmental issues tackled by government funded scientific programmes. The alternative is for economies to weaken themselves with increasingly expensive energy policies, as we currently see in most of Europe.

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July 02 2013

Commentary by David Fuller

Martin Feldstein: The Fed Should Start to 'Taper' Now

Here is the opening from this interesting and important article, published by The Wall Street Journal (subscription registration required to read the full article, PDF also provided)
The Federal Reserve should begin now to end its program of long-term asset purchases. It should not wait for the improved labor market that it predicts will come later this year, an improvement that is unlikely to occur. Instead, the Fed should emphasize that the pace of quantitative easing must adjust to the likely effectiveness of the program itself, and to the costs and risks of continuing to buy large quantities of bonds.

Although the economy is weak, experience shows that further bond-buying will have little effect on economic growth and employment. Meanwhile, low interest rates are generating excessive risk-taking by banks and other financial investors. These risks could have serious adverse effects on bank capital and the value of pension funds. In Fed Chairman Ben Bernanke's terms, the efficacy of quantitative easing is low and the costs and risks are substantial.

At his June 19 press conference, Mr. Bernanke described the Fed's plan to start reducing the pace of bond-buying later this year and to end purchases by the middle of 2014. He stressed that those actions are conditional on a substantial improvement in the labor market, leading to an unemployment rate of about 7% by mid-2014 with solid economic growth supporting further job gains. He emphasized that the "substantial improvement" would be judged by more than the unemployment rate.

Over the past year, unemployment has declined to 7.6% from 8.2%. However, there has been no increase in the ratio of employment to population, no decline in the teenage unemployment rate, and virtually no increase in the real average weekly earnings of those who are employed. The decline in the number of people in the labor force in the past 12 months actually exceeded the decline in the number of unemployed.
David Fuller's view - I agree that Mr Bernanke or his successor will have to abandon his 6.5% unemployment rate target for withdrawing quantitative easing (QE). This figure is unlikely to be reached anytime soon for the following reasons: 1) GDP growth is slow; 2) Corporations may not find the skills they require among the USA's unemployed; 3) The big multinationals (Autonomies) may prefer to hire workers closer to their overseas markets; 4) An accelerating rate of technological innovation is replacing some blue and white collar jobs more quickly than they can be replaced, and this trend is more likely to increase than decrease over the medium to longer term.

I commend the rest of Martin Feldstein's article to you. It makes a number of good points with which I agree. These are likely to cause some more market turbulence over the short to medium term as Fullermoney has been saying in recent months.

Nevertheless, I maintain that the USA is in a comparatively strong position: 1) Thanks to its advantage in energy costs among large, developed nations, having invented and utilised gas and oil fracking Technology; 2) The USA's overall lead in technological innovation has actually increased in recent years; 3) The USA has more corporate Autonomies than any other country, making it the most established global competitor.

On the negative side and despite the paragraph above, the USA still has budget and trade deficits, high corporate taxes, and a government that appears more interested in wealth redistribution than wealth creation. There is also a possibility that the US Dollar will appreciate more than many American companies would like to see.

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June 27 2013

Commentary by Eoin Treacy

Musings from the Oil Patch

Thanks to a subscriber for this edition of Allen Brooks' ever insightful report for PPHB which may be of interest to subscribers. Here is a section
To examine the relationship between China's economic growth and its oil consumption, production and imports, we plotted figures from BP's statistical database. We measured China's economic growth as calculated in purchasing power parity terms. Until 1993, China was a net producer of crude oil, but as consumption began accelerating the country was forced to begin importing oil. That demand acceleration came as the economy's growth ramped up from 8% to 14% between 1993 and 2000. The growth was surprising given the Asian currency crisis of the late 1990s, but demonstrated how the Technology boom of that decade was powered by manufacturing in China. The tech implosion and 9/11 created a global economic contraction that was felt by China as its economic growth slumped to 4% before rebounding back to double-digit growth. With the exception of a brief slump to 9% growth in 2006, China has enjoyed double-digit growth until the global financial crisis exploded in 2008. Despite slowing growth, China's oil consumption has accelerated – both due to infrastructure investment and the start of a huge strategic oil storage program.

Taking a closer look at China's oil demand and economic growth, we can see how the country's demand has slowed along with the economy. The chart in Exhibit 11 (below) shows that the three smallest yearly oil demand increases coincided with years of serious economic downturns. However, when we look at the oil demand growth projections for 2013 and 2014 from the U.S. Energy Information Administration's (EIA) Short Term Outlook, they will rank among the lowest annual increases in the last 17 years. The key question is do the small yearly increases suggest significantly slower Chinese economic growth or does it reflect a shift in oil use?
Eoin Treacy's view - China continues to represent one of the primary demand drivers for the global energy sector but is by no means the only one. India's growth can best be described as erratic but it is slowly moving up the GDP per capital tables which is consistent with higher demand growth for energy. The revolution in supply related technologies increases the possibility that the trend in global demand growth will not result in an energy crisis. In fact we believe energy prices will trend lower in real terms from later this decade.

Brent Crude returned to test the psychological $100 level and has been ranging mostly above it for the last two months. It has firmed this week and a sustained move below $100 will be required to check potential for additional higher to lateral ranging.

WTI Crude has been ranging with a mild upward bias, below $100, since September. A break in the progression of higher reaction lows, currently near $93, would be required to question potential for a successful upward break.

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June 27 2013

Commentary by Eoin Treacy

Email of the day

on the impact of technological innovation
“As I am a diamond diver I am quite interested in the diamond industry and its outlook. My current and mid-term investments are focused on the acquisition and development of Technology that can build my business into a sustainable enterprise notwithstanding the existential challenges we are facing from climate change and resource depletion.

“To this end I was in Southampton earlier this year to attend the Ocean Business trade fair which enabled me to identify and acquire a very good sonar imaging system for seabed classification.

“The way in which software development is bringing hi-tech within reach of people like myself who have no specialist training or background was quite an eye opener and I suspect that there is enormous growth potential for hi-tech companies in using software development to enable lay people to use all kinds of Technology that has only been accessible in the past to specialists.

“In the near term I will not be investing in financial markets but I find Fuller Money very helpful in constructing my world view and the articles on robots, machines and Technology resonate deeply with my own feelings of how the world is changing.

“Thank you for the great wisdom I have gained in the past as a Daily Comment subscriber and for the future as a full subscriber.”
Eoin Treacy's view - Thank you for this generous email and welcome to the Service. As you point out we firmly believe that the exponential rate at which Technology is both developing and becoming available to ever more people is a true game changer for how we live our lives as well as conduct and manage our businesses.

The march of robotics, rapid prototyping, automated manufacturing, software development, data warehousing, handheld devices, optics, measuring devices, wireless connectivity, nanoTechnology, biomechanics and a host of additional strands of innovation all represent efficiency and productivity gains when taken in isolation. When they are combined the capacity of additional innovation holds the potential to accelerate the pace of development so that productivity is increased by multiples over the next few decades.

The order given to so many students over the years has been to "Stay in school". However this is far too restrictive. Many worry that the pace of development will lead to mass unemployment and this will be a challenge for some. What we can also see is that those who prosper are likely to be the people that view schooling as a foundation for lifelong learning regardless of whether our individual proclivities take us down the academic or practical paths.

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June 27 2013

Commentary by David Fuller

U.K. Says Shale Gas Fields Twice Size of Previous Estimates

Here is the opening from this important report from Bloomberg, released today
The U.K. said fields of shale gas in northern England are twice as large as previously estimated, offering the potential to spur economic growth, replace depleted North Sea deposits and cut energy imports.

The shale rocks under counties including Lancashire and Yorkshire may hold as much as 1,300 trillion cubic feet of gas, Treasury Chief Secretary   Danny Alexander   said in parliament today, citing the British Geological Survey. While only a fraction of that gas will be extracted, a recovery rate of 10 percent -- similar to fields in the U.S -- would give the U.K. enough gas to meet demand for about 47 years.

The government is pushing for shale exploration to replicate the boom in U.S. gas output that's cut energy costs and boosted the economy. To win support for drilling, which requires the controversial technique of hydraulic fracturing, explorers promised local communities incentives including a 1 percent share of production revenue.

“The next step for industry is to establish how much gas is technically and commercially recoverable,” Energy Minister Michael Fallon   said in a statement. “We welcome the commitments from industry on community benefits. This will provide a welcome boost for communities who will host shale exploration and production.”
David Fuller's view - Similar studies in other countries which have conducted them are also boosting known reserves. The key question, which I also asked following Tuesday's lead article on fast developing shale industry, is: “How are other countries doing with their energy policies?”

Impressed by the USA 's rapid progress in producing shale gas and oil, including making the Technology safer and more reliable, the UK looks as if it is finally serious about developing this resource. Better late than never, I certainly hope so, because significant shale production would be a boon for the UK economy.

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June 26 2013

Commentary by Eoin Treacy

Technology Spending Showing First Signs of a Recovery, EMC Says

This article by Sam Chambers for Bloomberg may be of interest to subscribers. Here is a section
The uptick isn't concentrated in any one area, though Goulden said EMC has seen interest in new applications built for cloud Technology, mobile devices or the storage and interpretation of the increasing volume of data that companies collect, otherwise known as big data.

“Progressive companies are looking at how they can leverage these new platforms to change the way they do business,” he said. “Although no one is declaring a complete global recovery,” Goulden said, the “early signs of a pickup” are positive after EMC reported two years of slowing sales growth.
Eoin Treacy's view - Cloud computing shot onto the investment scene from early 2010 and surged in popularity during 2011 as the efficiency gains from this Technology revolution gained wider acceptance. The majority of related shares have been rangebound for the last two years as sales growth slowed but as the acquisition of BMC Software by a consortium of private equity interests exemplifies, this is still regarded as a growth sector. .

Amazon is particularly noteworthy. The share has been consolidating mostly above $250 since January and a sustained move below that level would be required to question medium-term upside potential.

Microsoft is also a notable outperformer. It rallied impressively on Monday from above the psychological $35 which represented an area of resistance on a number of previous occasions. A sustained move below that level would now be required to question medium-term upside potential.

Google continues to pause in the region of $900 as it unwinds its overbought condition relative to the 200-day MA. A sustained move below the trend mean would be required to begin to question medium-term upside potential. Cisco Systems has also paused following an impressive advance.

EMC and Check Point Software are testing areas of previous resistance but will need to rally sufficiently to break their progressions of lower rally highs if a return to medium-term demand dominance is to be confirmed.

IBM, Lam Research, Qualcomm, Microchip Technology, Citrix Systems, Autodesk, Teradata, Cognisant Technology Solutions and Altera, have all pulled back to test important areas of previous support. They will need to hold in the current area if medium-term potential for additional higher to lateral ranging is to be given the benefit of the doubt. and Oracle have experienced deeper pullbacks and will need to sustain moves back above their respective 200-day MAs to suggest a return to demand dominance beyond the short term.

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June 25 2013

Commentary by David Fuller

Frack Music Attracts Halliburton to Submarine Spy Tool

Here is a sample from this fascinating article from Bloomberg
A gossamer-thin glass line threaded two miles underground is allowing oilfield engineers to listen to a new kind of music: the sounds of fracking.

Halliburton Co. (HAL) and competing providers of drilling gear are adapting acoustic spy Technology used by U.S. submarines to record sounds made deep in the earth that can guide engineers in finishing a well and predicting how much oil will flow.

The ability to hear inside a well enables producers to fine-tune hydraulic fracturing, or fracking, the process that blasts underground rock with water, sand and chemicals to free trapped oil and natural gas. The Technology is targeted at an estimated $31 billion that will be spent this year on fracking stages that yield less-than-optimal results, a majority of the work at 26,100 U.S. wells set to be pressure-pumped in 2013, according to PacWest Consulting Partners LLC.

"We're creating a new science," said Magnus McEwen-King, managing director for OptaSense, a Qinetiq Group Plc (QQ/)unit that's one of the fiber-optics pioneers for the energy industry. "From an acoustic perspective, this is very much the start of what I think is going to be a revolutionary Technology."


Halliburton, the world's largest provider of fracking services, is working on cataloging the combination of sounds that signal the perfect frack: an explosion, cracking rock, and eventually the gurgle of hydrocarbons seeping into the well bore, said Glenn McColpin, director of reservoir monitoring at Halliburton's Houston-based Pinnacle unit. A bad frack means the rock didn't crack as much as it could have.

When perfected, a computer will convert the sounds to a graph that will show how deeply and thoroughly cracks penetrate the rock surrounding the well, indicating the success of each frack stage. The longer and more numerous the cracks, the more oil and gas will flow.


Contractors ranging from Halliburton to Exiius LLC have begun permanently installing fiber optic lines in U.S. wells. During completion of a just-drilled well, the fiber can listen for subtle noises that suggest sealing the well with cement didn't work properly.

Then the fiber can listen for good and bad fracking stages, and finally it'll be able to confirm if oil and gas is flowing. Eventually they'll be able to actually measure production flow based on sounds, McColpin said. He compares it to a flute: as different holes in the well's casing are open or clogged, the sound pitch of fluids flowing through the well are affected.

Programmers also are working on algorithms to detect the difference in sound for water versus oil flowing into the well from surrounding rock. Then valves for different areas in the well bore could be opened or closed as needed to minimize water incursion, which is a waste.
David Fuller's view - The entrepreneurial USA is racing ahead with these technologies. Note this year's 26,100 wells mentioned in the third paragraph above, which will be made more productive and also safer in terms of reducing possible leaks, as you will see from the three paragraphs immediately above.

The national benefits of competitive energy prices, achieved with technological advances, are enormous for a highly developed country as Fullermoney has often discussed. They permeate throughout the entire economy, lowering costs and inspiring other entrepreneurial achievements. They also attract inward investments and highly skilled job applicants.

How are other countries doing with their energy policies?

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June 24 2013

Commentary by Eoin Treacy

Email of the day

on companies with reliable dividend policies
“Thank you for the update on S&P Dividend Aristocrats. These are blue chip aristocrats limited to major indices. Readers might be interested to know that there are other Aristocrats and even junior ones with potentially higher growth rates. The Dividend Champions (25 years or more of dividend growth) is a list that is not limited to the S&P 500. A current monthly view of the Dividend Champion (with relevant fundamental data) is maintained by David Fish at DRiP Resource Centre ( ) .

“The Dividend Achievers are liquid US stocks that have raised their dividends 10 years or more. There are a few Dividend Achievers indices maintained by Nasdaq ( ). These include an International Dividend Achievers list , a UK Dividend Achievers and a Canada list. There are also some ETF's: (eg Vanguard's VIG for the US and Powershares PID for International). I could not find the full list and do not have all the related ETFs, but the Collective may know. It may be useful to table these lists on Fullermoney, and the ETFs in the Chart Library. If time is at all available it may be useful if Fullermoney could host all the lists including Autonomies in the Chart Library. I for one would really appreciate that. Thank you for continued super service, especially the big picture outlook...”


"Oops, in the message I just sent you I should have also said that the DRiP Resource also maintains (in Excel spreadsheet) the Dividend Contenders and Dividend Challengers. Dividend Contenders include US companies that have had annual dividends raised 10-24 years in a row, and Dividend Challengers for US companies doing the same for 5-9 years. There are no liquidity requirements for these Achievers."
Eoin Treacy's view - Thank you for your kind words and especially these informative emails contributed in the spirit of Empowerment Through Knowledge which I'm sure will be welcomed by the Collective. As you point out, the S&P dividend aristocrat indices are somewhat restrictive which has both positive and negative aspects.

On the one hand it is useful to have a list of large liquid shares from which to choose potential investments. However, at the margin, these indices also omit companies that may not have been in existence long enough to qualify and yet have solid records of dividend increases. They also omit companies that do not have sufficient average daily volume but are nonetheless liquid. In the normal business cycle, a company may maintain its dividend without increasing it on consecutive years. It would still be attractive from the perspective of a yield investor but would not qualify as a dividend aristocrat.

All of the indices mentioned above have now been added to the Chart Library where possible.

The lists you highlighted are extensive and will take time to add to my Favourites list. I will endeavour to do this over the next week or two. There are some clear standouts from the spreadsheet posted on Drip investing:

UK listed Astra Zeneca has been increasing dividends for at least 9 years and hit a new all time high in May. It has since pulled back below its 200-day MA and a clear upward dynamic will be required to check momentum. It currently has a P/E of 8.7 and dividend yield of 5.96%.

US listed Visa is also worthy of mention. It has also been increasing its dividend of 6 years but with an estimated P/E of 25 is not cheap and a pullback towards the MA is more likely than not.

Although the Technology sector is not normally associated with reliable dividends, an increasing number of companies have instituted payouts and generally have solid records of sustaining them. These companies are conspicuous for the length of time they have sustained dividends: Microchip Technology (12 years), Maxim Integrated, Xilinx & Qualcomm (11 years), Microsoft (10 year) and Intel (9 years).

In the food sector, Lancaster Colony Corp (51 years), Flowers Foods (12 years), General Mills (10 years) and Conagra Foods (6 years) are all reverting towards their respective means following impressive breakouts earlier this year. They are approaching the first area of potential support in the region of the upper side of their bases and/or thier MAs and clear upward dynamics would indicate returns to demand dominance near areas of previous psychological resistance.

During the current process of deleveraging, the attractive attributes of shares with reliable dividends are likely to be less appreciated than might otherwise be the case. However, as overextensions relative to the trend mean are unwound, yields increase and valuations improve, the sector's appeal will become more compelling.

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June 21 2013

Commentary by David Fuller

Bernanke's Forward Guidance Is Transparent as Mud

I do not agree with the headline but here is the opening from this interesting column by Clive Crook for Bloomberg
Federal Reserve Chairman Ben S. Bernanke seemed a little nervous at his June 19 news conference. His recent comments about the future course of monetary policy had rattled investors and driven bond yields up, tightening financial conditions in a way the Fed didn't want. Formally unperturbed, Bernanke said he was leaving policy unchanged -- but in trying, yet again, to elucidate the Fed's thinking, he tacitly admitted that something had gone wrong.

Fortunately, the policy itself, I think, is basically good -- but that's despite, not because of, the ever-evolving formulas used to explain it.

Growth in the U.S. is still sluggish, unemployment is still high and inflation is (a) running well below the Fed's target and (b) falling. That suffices to justify interest rates at zero until further notice, together with additional large-scale asset purchases -- which is what the Fed intends.

There are dangers in this policy, to be sure. Quantitative easing is an experiment and involves risks. Bernanke summed these up drily in a recent speech: There's the risk that long-term interest rates will remain low (leading investors to recklessly "reach for yield") and the risk that they won't (imposing losses on investors when rates rise and bond prices fall). The point is, in current circumstances, every course involves risk. Tightening monetary policy prematurely, as Bernanke has often explained, courts the greatest danger -- that of bringing a hesitant recovery to a stop. On a balance of risks, aggressive monetary stimulus still makes sense.
David Fuller's view - The problem is not with Mr Bernanke who's every word and gesture is uber analysed; it is with the markets. Trillions of various currencies are invested or gambled in an effort to make more money. People pile in and pile out, as they always have, only the numbers are bigger and the Technology faster.

In government bonds, which we could call a crowded trade, the traditional buyers have increased positions over the years because they were still making money in a secular bull market. In recent years, battalions of additional investors joined them, buying bonds because that was what the Fed was also doing.

These momentum trades are logical strategies, until the music stops, to coin a phrase. The problem is, one seldom knows when that will happen. Moreover, reasonably consistent one-way traffic in markets can lull most people into a false sense of security. The temptation when nervous is to listen to what one's companions with similar positions are saying.

People who are piggybacking on the Fed think they can get out when the central bank stops buying. However, some people conclude that that might be a crowded trade, so they anticipate. If they sell too soon, they will have to scramble to get back in at a higher price. If they time their exit correctly, their biggest challenge will be to avoid rushing back in prematurely when the crowd is panicking.

So where are we today? I think one of the most revealing charts is the Merrill Lynch 10yr+ US Treasury Total Return (historic monthly & weekly). I believe that it has done something which we have not previously seen. First, it broke up out of a trading range as we have seen on plenty of previous occasions. Then it had an upside failure, as we have occasionally seen. Finally, it followed that upside failure with a clear break beneath the above mentioned trading range's lows.

To repeat myself, I do not think that we have seen this upside failure and subsequent break of the previous lows before, and it is a bearish signal. In an uncertain world, I would give it the benefit of the doubt, unless it rallies back above the early-May high near 2028.

Additionally, these 10-year weekly charts for US 30-Yr and US 10-Yr Treasury Bonds show how quickly yields can rise and I do not think we will see the lows near 2.5% and 1.38%, respectively, tested again. However, watch for a reaction and consolidation before long, eventually followed by additional gains.

(T-Bonds are discussed in more detail in today's Big Picture Audio.)

(See also Friday 7th June 2013)

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June 18 2013

Commentary by Eoin Treacy

SAG Solarstrom May Buy Inverters in China to Offset EU Duties

This article by Stefan Nicola and Gelu Sulugiuc for Bloomberg may be of interest to subscribers. Here is a section
S.A.G. Solarstrom AG, a German developer of solar-power plants, may buy inverters in China to offset falling margins from European anti-dumping duties that have made Chinese cells and modules more expensive.Solarstrom, which has sourced its inverters in Europe from producers including SMA Solar Technology AG, is looking at alternative suppliers including China's Sungrow Power Supply Co., Chief Executive Officer Karl Kuhlmann said today in a phone interview. The Freiburg-based company may also purchase modules in India and Korea, he said, adding that he expects a “revival” for thin-film panels.
Eoin Treacy's view - In order to connect solar panels to the electricity grid an inverter is an indispensible piece of equipment. Therefore, related shares offer a high beta avenue for participating in the build-out of solar capacity. Just as most solar companies crashed in 2011 and 2012, giving up their entire bull market gains, inverter companies fell even harder. From January this year solar panel companies have turned to outperformance and an increasing number are breaking medium-term progressions of lower rally highs. Solar inverter companies are following suit.

German listed SMA Solar Technology bottomed in November near €15, ranged above €17 from February and pushed back above the 200-day MA for the first time since 2010 in May. It has been consolidating in the region of the 200-day MA for the last couple of weeks but a sustained move below €21 would be required to question medium-term recovery potential.

Among the leading solar panel producers Trina Solar, First Solar, Canadian Solar and JA Solar Holdings all paused over the last few weeks in at least a partial reversion towards the mean. Sustained moves below their respective 200-day MAs would be required to question medium-term scope for additional upside.

LDK Solar has returned to test the region of the 200-day MA and recovery potential can continue to be given the benefit of the doubt provided it continues to hold above the $1.30 area.

Hanwha SolarOne is the result of a merger between Korean Hanwha and Chinese SolarFun. The share broke out of an almost yearlong base in late May and continues to consolidate in the upper region. A sustained move below the trend mean would be required to question medium-term recovery potential. China Sunergy and ReneSolar have broadly similar bases but have not yet broken out.

Suntech Power has unwound its deeply oversold condition to test the region of the 200-day MA. A break in the six-week progression of higher reaction lows would be required to question medium-term demand dominance.

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June 18 2013

Commentary by David Fuller

Even Pessimists Feel Optimistic About the American Economy

This is an informative article by Nelson Schwartz for the NYT & IHT (may require subscription registration, PDF also included). Here is the opening
For more than a decade, the economy has failed to grow the way it once did. Unemployment has not stayed this high, this long, since the 1930s.

But could the New Normal, as this long economic slog has been called, be growing old?

That is the surprising new view of a number of economists in academia and on Wall Street, who are now predicting something the United States has not experienced in years: healthier, more lasting growth.

The improving outlook is one reason the stock market has risen so sharply this year, even if street-level evidence for a turnaround, like strong job growth and income gains, has been scant so far.

A prominent convert to this emerging belief is Tyler Cowen, an economics professor at George Mason University near Washington and author of "The Great Stagnation," a 2011 best seller, who has gone from doomsayer to a decidedly more optimistic perspective.

He is not predicting an imminent resurgence. Like most academic economists, Mr. Cowen focuses on the next quarter-century rather than the next quarter. But new technologies like artificial intelligence and online education, increased domestic energy production and slowing growth in the cost of health care have prompted Mr. Cowen to reappraise the country's prospects.
David Fuller's view - It is all in the prior history, as I keep mentioning. Economic historians have pointed out that it takes at least 5 to 7 years before GDP growth in an advanced economy returns to what we would regard as normal, following a credit crisis recession. Conditions in the US began to improve after 2008, so approximately 5.5 years have elapsed since the trough.

The so-called 'new normal' mentioned above refers to a period when frightened consumers were trying to reduce their debts, while corporations were cautious and governments experienced widening deficits following a decline in tax receipts.

Inevitably, not all countries will recover at the same rate. For instance, some Asean developing economies were less damaged by 2008 and are currently doing better. Conversely, Europe's economic problems could easily persist for longer, although much delayed economic and political reforms which are now occurring with Mario Draghi's considerable help at the ECB will assist the eventual recovery.

Meanwhile, the USA has some significant advantages. Chief among these is America's current competitive position in energy costs among developed economies. US private industry invented fracking Technology and the additional natural gas produced is helping to reduce America's CO2 emissions. America's favourable energy costs are attracting both domestic and foreign manufacturing to the USA. Moreover, there are more corporate Autonomies in the USA. These big, multinational companies are both contributors to and prime beneficiaries of America's technological lead during an accelerated rate of innovation.

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June 17 2013

Commentary by Eoin Treacy

Not Much of a Discount at Groupon

This article by Rolf Winkler for the Wall Street Journal may be of interest to subscribers. Here is a section
Groupon's initial public offering price of $20, some six times forward revenue for a then-unprofitable company, was absurd. But the Internet-coupon company deserves credit for its staying power.

When Groupon filed documents to go public in 2011, marketing costs absorbed more than half its revenue. By the first quarter, they ate up just 8%. Such shrinkage has hit growth but not caused the tailspin some feared.

Moreover, Groupon actually does have barriers to entry, including its big user base and a world-wide sales force of over 4,000. Granted, labor isn't as valuable a differentiator as Technology. But Groupon's most formidable long-term rival for local ad dollars, Google, would prefer merchants buy its ads on their own. The truth is, most merchants need help, and relationships with them should prove strategic over time.

The question is whether Groupon can maintain growth while hitting long-term margin goals. The top line has been hampered by the company's messy international segment, which Groupon is still trying to integrate after several deals.

Still, a flip in Groupon's business model to make it more useful for customers should reignite momentum. It now keeps deals active on its site for longer so customers can get the ones they want, when they want them. That is preferable to the email blasts it has long relied on.
Eoin Treacy's view - There was a great deal of hype surrounding social media companies last year; when they were fetching princely sums at their initial public offerings. Following what have been in some cases quite precipitous drops, at least some valuation contraction has occurred and investors have had greater opportunity to address their business models. The sharp pullbacks experienced following their IPOs prompted many social media companies to rationalise their business models and those that have successfully instituted reforms have been rewarded with some firming in their share prices.

Groupon bottomed in November, broke its progression of lower rally highs by January and continues to trend steadily higher. It found support two weeks ago in the region of the 200-day MA and a sustained move below $6.80 would be required to question medium-term scope for continued upside.

LinkedIn has been ranging above $160 for the last few months in a relatively gradual process of mean reversion. It firmed from that level last week and a sustained move below the 200-day MA, currently near $150, would be required to question medium-term upside potential.

Yelp hit a medium-term low near $15 in November and continues to trend consistently higher. A sustained move below the early June low near $28.75 would be required to question medium-term upside potential.

Pandora Media hit a medium-term peak near $20 in May and has pulled back to test its progression of higher reaction lows. A sustained move below $14 would be required to question medium-term potential for additional upside.

Yahoo and Yahoo Japan had surged higher from December and at least paused over the last month in a process of mean reversion. A sustained move below the 200-day MA would be required to question medium-term scope for additional upside.

AOL returned to test the region of the 200-day MA in May and firmed from it last week. A sustained move below $35 would be required to question the consistency of the medium-term advance.

WebMD Health Corp bottomed in November and has held a progression of higher reaction lows since. It has paused in the region of $30 for more than a month and a sustained move below $27.75 would be required to question potential for continued upside.

Both Facebook and Zynga remain under pressure and will need to sustain moves above their respective 200-day MAs to confirm a return to demand dominance.

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June 17 2013

Commentary by David Fuller

Quandary For China As More Graduates Chase Fewer Jobs

Here is a brief section of this informative article from the NYT & IHT (may require subscription registration, PDF also provided), now appearing under a different headline
HONG KONG - A record seven million students will graduate from universities and colleges across China in the coming weeks, but their job prospects appear bleak - the latest sign of a troubled Chinese economy.

Businesses say they are swamped with job applications but have few positions to offer as economic growth has begun to falter. Twitter-like microblogging sites in China are full of laments from graduates with dim prospects.

The Chinese government is worried, saying that the problem could affect social stability, and it has ordered schools, government agencies and state-owned enterprises to hire more graduates at least temporarily to help relieve joblessness. "The only thing that worries them more than an unemployed low-skilled person is an unemployed educated person," said Shang-Jin Wei, a Columbia Business School economist.

Lu Mai, the secretary general of the elite, government-backed China Development Research Foundation, acknowledged in a speech this month that less than half of this year's graduates had found jobs so far.

Graduating seniors at all but a few of China's top universities say that very few people they know are finding jobs - and that those who did receive offers over the winter were seeing them rescinded as the economy has weakened in recent weeks.

"Many companies are not expanding at all, while some of my classmates have been hired and fired in the same month when the companies realized that they could not afford the salaries after all," said Yan Shuang, a graduating senior in labor and human resources at the Beijing Institute of Technology.
David Fuller's view - Insufficient jobs for graduates has often been a problem in developed economies over the last fifteen years but it is a comparatively new concern for China as the economy has slowed in recent years.

China's stock market has continued to underperform, despite a good rally from December 2012 into February 2013 (weekly & daily). It remains historically cheap (P/E & Yield) for one of the world's faster growing economies but this latest pullback may continue to deter investors, leading to a further stage of base formation extension before the next significant recovery occurs. Meanwhile, some significant upward dynamics are required to indicate that investment demand is returning.

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June 14 2013

Commentary by Eoin Treacy

Email of the day (1)

on cold spray Technology
"I would like to inquire of the Fullermoney Collective if anyone knows of a publicly traded company, especially on a U.S. exchange, that specializes in cold spray Technology? From my VERY limited knowledge of this new hi-tech manufacturing process, it sounds every bit as innovative & exciting as 3D printing."
Eoin Treacy's view - Thanks you for bringing this fascinating Technology to our attention. Here is a link to the Wikipedia page on the subject. I'm afraid I do not know of any listed companies but Rus Sonic Technology holds a number of patents in the sector.

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June 14 2013

Commentary by Eoin Treacy

Apple's Return to U.S. Assembly Is More Than Good Optics

This article from Bloomberg may be of interest to subscribers. Here is a section
But the sheer number of jobs isn't necessarily the best measure of success. More important, as Willy Shih, a Harvard Business School professor of management explains, is constant innovation, quality control and having engineers, production
lines and suppliers in close proximity. The rush to low-cost China interrupted a lot of the progress U.S. companies had made -- and created new costs.

Inventing products is only a part of the value proposition. Taking an idea from the laboratory to the production line is equally important. The manufacturing process can give vital information to engineers, who in turn can use it to improve designs or manufacturing methods. All of this ultimately leads to greater efficiencies, fatter profits, faster economic growth -- and yes, better-paying jobs.

Insourcing can help speed this process along. Washington could reinforce the trend with a mix of pro-manufacturing policies, starting with taxes. By lowering the corporate income-tax rate from the current 35 percent -- one of the highest in the world -- Congress could stem the flow of jobs overseas. Lawmakers should also make permanent the research-and-development tax credit and liberalize trade with Europe and Asia.
Eoin Treacy's view - As global competition in manufacturing and innovation intensify, every opportunity is being explored to enhance companies' unique advantages. More and more, the knowledge that can be gleaned from an intimate understanding of the manufacturing process is being looked into for productivity gains and as sources of future innovation. The high cost of energy and how this has contributed to transportation expenses are additional considerations that have become more relevant over the last decade.

As the value proposition for domestic US manufacturing becomes more compelling, companies engaged in insourcing are utilising the most advanced manufacturing processes in order to ensure they have visibility on future production costs. This is fuelling significant demand growth in automated manufacturing.

Japanese listed Fanuc has returned to test the region of its 200-day MA near ¥14,000. While this represents a potential area of support, a clear upward dynamic will be required to confirm a return to demand dominance. THK Corp and Omron Corp are still unwinding their respective overextensions following impressive rallies earlier this year.

US listed Cadence Design Systems has been trending steadily higher since 2009. During this time every overextension relative to the MA has been followed by a reversionary move which have tended to overshoot somewhat. Potential for mean reversion has therefore increased following the recent powerful rally.

Mentor Graphics has rallied impressively to retest the psychological $20 area which has offered resistance on a number of occasions over the last decade. A sustained move above that level will be required to confirm medium-term demand dominance.

Dover Corp has a growing industrial automation unit and rallied impressively from the April lows to test the $80 region where it has at least paused. Potential for some consolidation of recent gains remains more likely than not.

Rockwell Automation has been ranging mostly below $90 for much of the year and found support this week in the region of the 200-day MA, a sustained move below $80 would be required to question medium-term scope for continued higher to lateral ranging.

Brooks Automation steadied this week near $10 and a sustained move below $9 would be required to question medium-term potential for higher to lateral ranging.

Aspen Technology has lost momentum following what had previously been quite a consistent advance. It will need to hold above the April low near $26.50 during this consolidation if the medium-term upside is to continue to be given the benefit of the doubt.

In Europe, Swiss listed ABB has been ranging for the last few months and found support this week in the region of the 200-day MA. A sustained move below CHF20 would be required to question medium-term potential for continued higher to lateral ranging.

German listed Krones AG encountered resistance at the 2011 peak near €60 from April and continues to consolidate its earlier impressive rally. However, a sustained move below the €50 would be required to question medium-term upside potential. Kuka AG has lost momentum following an impressive advance over the last year and will need to hold above €30 if the medium-term uptrend is to continue to be given the benefit of the doubt.

Finnish listed Metso OYJ has returned to test the 18-month progression of higher major reaction lows. A clear upward dynamic is now needed to indicate a return to demand dominance in this area.

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June 14 2013

Commentary by David Fuller

World Bank Forecasts Slower but Smoother Growth

Here is the opening from this interesting article by Annie Lowrey for the NYT & IHT (may require subscription registration, PDF also provided
WASHINGTON - The world economy will face slower but less volatile growth in the coming months and years, the World Bank forecast on Wednesday, as dire risks from the financial crisis in Europe fade and emerging economies confront new challenges adapting to softer commodity prices and the prospect of rising interest rates.

"There's a growing recognition that this is not the aftereffect of the crisis," Andrew Burns, the lead author of the report, said in an interview. "It is a new normal."

All in all, the bank's economists forecast that the global economy will grow about 2.2 percent this year and 3 percent in 2014 in the latest periodic update to its Global Economic Prospects report. That is slightly weaker growth than the World Bank forecast in January.

The report's authors said they expected sluggish growth from high-income countries, with the euro area remaining weak but finally emerging from recession and Japan gaining some momentum from the government's aggressive fiscal and monetary measures after a decade of malaise and stagnation. The bank raised its estimate of 2013 growth for Japan to 1.4 percent from its earlier prediction of 0.8 percent.

The United States is expected to be relatively strong among the world's rich nations. Even so, the World Bank, which is responsible for encouraging development around the globe, anticipates that the American economy will grow only about 2 percent this year, in line with its performance over the last three years.

For emerging economies, conditions vary widely, the report said, but the picture is broadly good. Across large parts of Latin America, East Asia and sub-Saharan Africa, countries are growing close to their potential capacities, tied to factors like increases in productivity and the working-age population, and should expect little acceleration in the coming years, the report said.
David Fuller's view - I think the World Bank's estimates on global GDP growth are about right, based on what we currently know, but I do not agree with Andrew Burns' comment that, "It is a new normal".

History shows us that it takes at least 5 to 7 years before GDP growth returns to what we would regard as normal following credit crisis recessions. Conditions began to improve after 2008, so approximately 5.5 years have elapsed since the trough.

Inevitably, not all countries will recover at the same rate. For instance, some Asean developing economies were less damaged and are currently doing better. Conversely, Europe's economic problems could easily persist for longer.

Energy costs will also be a big factor. The USA invented fracking Technology and is currently the leading beneficiary in terms of lower energy costs. Canada is in a similar position, and interestingly, China appears to have made rapid progress in producing much needed cleaner energy from a variety of sources, including hydropower, solar, wind and nuclear. Moreover, China should be in a strong position to develop its enormous reserves of shale gas, subject to the availability of sufficient water resources. This informative article covers part of the story on China's rapid renewable energy adoption: A Look at the Development of China's Renewable Energy Sector.

Currently, energy costs are high in Asia but there are economies of scale and other countries should be able to follow China's lead in the next few years. Theoretically, this should be true of Europe but the EU is currently locked into energy costs and unnecessarily restrictive policies which can only delay economic recovery. The UK is in a similar position.

Energy costs are the single biggest variable influence, in my opinion, on regional GDP growth prospects. The outlook is improving, thanks to an increasingly concentrated and creative effort to produce both cleaner and more abundant energy. The motivating forces behind this effort are high energy costs, energy shortages, the need for efficiency gains, and the alarming risks of global warming. There are always bumps in the road, but in my opinion, the prospects for cleaner, cheaper and more abundant energy will be considerably greater over the next thirteen years and beyond, than they have been during this century to date.

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June 14 2013

Commentary by David Fuller

June 12 2013

Commentary by David Fuller

Putin's promises slide out of view as economy slows

This is an informative article by Ben Hoyle for The Times UK (requires subscription registration, PDF provided). Here is a brief section
Mr Putin returned to power in May last year with a populist manifesto that many experts think is unaffordable and an introspective, conservative domestic agenda which has done nothing to halt Russia's brain drain. An independent survey last week revealed that 45 per cent of students and 38 per cent of businessmen want to leave.

He has allowed Mr Medvedev, who represented the liberal economist faction in government, to become a national laughing stock. He has committed Russia to staging a series of harrowingly expensive sporting events, notably the Sochi Winter Olympics next year, for which the official budget is already almost four times the cost of the London Olympics and the 2018 football World Cup.

Gazprom, Russia's biggest company, is a quarter of the size it was five years ago and struggling. Bloomberg ran an article by a senior fellow at the influential Peterson Institute for International Economics under the headline "Gazprom's Demise Could Topple Putin". "Where Gazprom goes," Anders Aslund argued, "so does Russia and the Putin government."

Demand for Russian exports is waning, with the emergence of US shale gas a particular headache for the Kremlin, and the price of oil has dropped. Inflation has unexpectedly accelerated to 7.4 per cent, leading the central bank to yesterday keep interest rates at 8.25 per cent for the ninth month running.
David Fuller's view - Fullermoney has long regarded shale oil and gas as hugely significant game changers in terms of global energy supplies, more than capable of lowering energy costs over the medium to longer term. This has already happened in the USA, which invented the fracking Technology.

Many other countries are capable of adopting and mastering this extraction process for their own reserves of shale gas and oil. However, they have been slow to do so, to date, partly due to reservations about the fracking process and also prior commitments to other forms of energy development which are currently viewed as more socially acceptable.

Nevertheless, a new era of multiple energy sources, more efficient energy consumption, and slower global GDP growth following the West's credit crisis recession have combined to lower the price of crude oil relative to most forecasts in the previous decade. This has weakened Russia's economy which was spending on the outdated basis that energy supplies were increasingly scarce, ensuring that the demand for them could only drive the price of crude oil higher. Russia is also feeling the effects of lower than expected metal prices.

These factors are reflected by Russia's stock market (historic monthly & weekly) which has been an underperformer since 2Q 2011. It is approaching prior support from the October 2011 and June 2012 lows but a clear upward dynamic followed by a rally back above 1500 are the minimum required to indicate that demand beyond short covering is returning. This is unlikely while the global stock market correction continues.

Brazil's performance is even worse (historic monthly & weekly), sliding beneath the psychological 50,000 level to test the 2011 lows, but with more overhead supply evident this time. Here also an upward dynamic and push back above 57,500 are the minimum required to remove downward pressure. Peru is even weaker. Colombia and Chile are holding up somewhat better within lengthy ranges but all of these markets will need very clear upward dynamics to check the current downward bias.

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June 11 2013

Commentary by Eoin Treacy

Big bang measures to fight air pollution

Thanks to a subscriber for this insightful report covering potential measures to improve China's air quality. Here is a section
Among the many policies, we believe the following two sets had made the most visible impact:

1. Emission control: The Clean Air Act in 1956 instituted “smoke control area” in cities where only smokeless fuels could be burnt. It also promoted clean coal heating in households and relocated power plants away from downtown. The 1968 Clean Air Act reinforced the provision for abating sulphur dioxide emission, by introducing tall chimneys for coal burning factories to disperse pollution. The Control of Pollution Act in 1974 finalized the cap of sulphur content in fuels. As vehicle exhaust pollution became serious after 80s, the catalytic converters, devices designed to reduce nitrogen oxides emissions, have been required in all new cars in UK by The Road Vehicles Regulations since the early 90s.

2. Energy diversification and upgrade: Coal accounted for 76% of primary energy consumption in the UK in 1958. The British government has directed a successful structural shift by encouraging the switch from coal to oil, gas and later on renewable energy. Thanks to joint efforts of government R&D expense and private sector exploitation, sufficient gas reserve was discovered in North Sea in mid-60s, which was later commercialized in 70s. The increased popularity of natural gas (40+% of total consumption today) has squeezed the coal consumption to less than 20% of total energy usage;


These figures show that massive structural changes in the UK economy during the two decades were fundamentally responsible for the improvement of the air quality. The logic is simple: only when the industry sector shrinks relative to the size of the economy, energy consumption would decline; only if cleaner energy consumption as % of total energy consumption rises sharply, can the sulfur dioxide emission be controlled. These mean that, in China, the tasks for improving air quality are not merely the job of the MEP, but much more the responsibility of the top policy makers who can shape the direction of the overall economic and energy structure.
Eoin Treacy's view - While anyone who has visited Beijing in the last decade may despair that the air quality can ever be improved, London's experience from the 1950s argues otherwise. With the right set of policies, significant inroads into the nation's pollution problems can be made. However, these will only be put in place with sufficient political will and against a background where the consumer and services sectors are healthy enough to take up some of the slack from the rationalisation of heavily polluting industries.

Since the utility, steel, materials and energy sectors represent significant vested interests within the upper echelons of the Communist Party; the case for reform is likely to meet stiff internal opposition. It remains to be seen if the new administration has the wherewithal to push through such reform. This will become clearer as the year progresses and some key posts are filled.

From an investment perspective, the consumer, healthcare and information Technology sectors are likely to continue to benefit from this migration of official emphasis.

Natural gas demand remains a clear beneficiary both of China's continued development but also of any measures that will be put in place to improve air quality. This suggests that in addition to efforts to boost domestic supply, the outlook for LNG demand growth is likely to remain on an upward trajectory.

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June 11 2013

Commentary by David Fuller

Email of the day

On the US continuing to outperform
"Hope you had a great holiday. Been quite volatile in bond mkts. What is your take on the view that the US is due to outperform EM over the next five years? I have heard this several times the past week."
David Fuller's view - We had a great time, thanks.

This is an interesting question and the US is currently outperforming most emerging markets. That certainly gives some validity to the question, although a lot can obviously happen over the next five years.

I do not wish to make a political point but my view is that US outperformance prospects over five years would be more certain if Mitt Romney had won the presidency. However, he did not and I understand why lots of Americans do not like Republicans in this era. Too many of them have an off-putting streak of provincialism and social intolerance, unlike the Eisenhower or even Nixon era Republicans.

I maintain that the US economy will not do as well under President Obama's leadership, although some redistribution of wealth is justified, in terms of fairness and social cohesion. I do not think that Obama has Romney's interest in or grasp of economic issues. Instead, he is more concerned with helping poor people by subsidising them.

Additionally, there is too much regulation in the US economy, in my opinion, and I was interested to see Jack Welch making the same point on CNBC this morning. Irresponsible and dishonest executives should be held accountable by either political Party but this does not mean that everyone else has to be held back by bureaucratic 'red tape'. I also think that US corporate tax rates are too high, causing many of America's Autonomies to keep considerable cash reserves off shore.

Nevertheless, the main reason for the USA's current outperformance is its huge advantage in energy costs relative to Europe and Asia, thanks to fracking Technology. This is a triumph for US innovative private sector capitalism. It was initially opposed by the White House which favoured green energy for understandable atmospheric reasons, but regardless of the costs, inefficiencies and health hazards that we have seen with windmills.

The USA is building on its energy advantage and beginning to reverse its long industrial decline. American companies are beginning to increase their US divisions, and overseas firms are making inward investments in the USA. Consequently, the USA is now attracting more skilled workers. This is a virtuous cycle and the US is enhancing its lead in the crucial field of Technology.

As a consequence of these developments, the USA is likely to remain highly competitive for at least a number of years. Nevertheless, other countries can also lower their energy costs by adopting the latest technologies. Good governance is the long-term key to outperformance, and where we see it in emerging markets, they too are likely to outperform.

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June 10 2013

Commentary by David Fuller

Email of the day (2)

On a Robotics Fund
"Bonjour, First of all many thanks for your daily work with which I start every week day. Following your Comments and Audios I am quite interested by the theme of robotics and industrial automation and looking for a mutual fund with a global approach to cover it and play the US industrial recovery, the Japanese and German problem of young workforces, the Chinese increasing labor costs...

"Do you, or the Collective, know such a fund if it already exists?"
David Fuller's view - Thanks for your interesting question. Someone within the Collective of Subscribers would know if a fund similar to your specifications exists. However, the fund industry has gone through a tough period and will be wary of

There are Technology funds, of course, which can certainly perform when in fashion. Nevertheless, I think the more industrialised Autonomies will be among the major benefactors of technological innovation. Eoin's reviews include them and the best time to pick them up, I suggest, is when they are coming into form and the overall chart pattern indicates plenty of unfulfilled upside potential. At least half a dozen of these from different industries would give you fund-type exposure, without the costs.

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June 10 2013

Commentary by David Fuller

American Expansion Lasting Longer Than Most as Muted Growth Deters Excess

Here is the opening from this interesting article from Bloomberg, for which the headline keeps changing
The modest pace of the U.S. economic recovery has a silver lining, as the expansion shows signs of lasting almost twice as long as average.

Four years into the upswing, the economy isn't seeing many of the excesses that often presage the start of contractions. Inflation is slowing, not quickening. Household debt is shrinking, not expanding. The labor market is slack, not tight.

Pent-up demand also bodes well for the longevity of the recovery, which has averaged annual growth of about 2 percent since its start in June 2009. Confronted by elevated unemployment and a depressed housing market, Americans put off forming families, buying homes and acquiring cars. Now, with house prices rising and payrolls expanding more rapidly, their behavior is changing.

"The current expansion can continue another four to five years," said Robert Gordon, a professor at Northwestern University in Evanston, Illinois, who's a member of the National Bureau of Economic Research committee that determines when recessions begin and end.

That would make this upswing the second longest on record, behind only the 10-year period that spanned the 1990s. The average since the end of World War II is just shy of five years, at 58 months.

Reflecting the slow, steady pace of the recovery, payrolls rose 175,000 last month, in line with the average over the past year, Labor Department figures released on June 7 showed.
David Fuller's view - The US economy's growth rate is in line with the aftermath of credit crisis recessions. Economic evidence previously cited by Fullermoney states that it takes at least 5 to 7 years before GDP growth returns to what most commentators would describe as normal. If we take the end of 2008 as the approximate nadir for the USA's economic contraction, it is currently in the 6th month of the 5th year of this process.

On a global comparative basis, the US economy has two distinct advantages during this recovery phase and beyond.

1) Technology - The US is experiencing a resurgence in its pace of technological development. Powerful corporate Autonomies are at the forefront of this innovative process but they are also assisted by American universities and the US Government. Moreover, the entrepreneurial and democratic USA remains a magnet for global talent.

2) Energy costs - Thanks to private industry and cutting-edge experience in the extraction of fossil fuels, the USA was the first country to develop an effective Technology for extracting shale gas and oil. While this process remains controversial, not least given the debate over fossil fuels versus so-called green energy, fracking Technology has considerably lowered energy costs in the USA relative to other large industrialised economies. This has made the USA more competitive and its increased use of natural gas has lowered the country's atmospheric pollution.

These two developments have been beneficial for the US stock market and should remain so over the longer term. However, the bull market to date has discounted gradual economic recovery and the growth in corporate profits. Both have been considerably helped by massive quantitative easing (QE) from the Federal Reserve. Anticipation of a reduction in the amount of monthly QE, and its eventual removal as the US economy continues to recover, will cause some stock market turbulence over the lengthy medium term.

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June 07 2013

Commentary by Eoin Treacy

Is the Information Technology Revolution Over?

Thanks to a subscriber for this interesting report by David M. Byrne, Stephen D. Oliner, and Daniel E. Sichel for the Federal Reserve. Here is the abstract
Given the slowdown in labor productivity growth in the mid-2000s, some have argued that the boost to labor productivity from IT may have run its course. This paper contributes three types of evidence to this debate. First, we show that since 2004, IT has continued to make a significant contribution to labor productivity growth in the United States, though it is no longer providing the boost it did during the productivity resurgence from 1995 to 2004. Second, we present evidence that semiconductor Technology, a key ingredient of the IT revolution, has continued to advance at a rapid pace and that the BLS price index for microprocesssors may have substantially understated the rate of decline in prices in recent years. Finally, we develop projections of growth in trend labor productivity in the nonfarm business sector. The baseline projection of about 1¾ percent a year is better than recent history but is still below the long-run average of 2¼ percent. However, we see a reasonable prospect — particularly given the ongoing advance in semiconductors — that the pace of labor productivity growth could rise back up to or exceed the long-run average. While the evidence is far from conclusive, we judge that "No, the IT revolution is not over."
Eoin Treacy's view - Veteran subscribers will be familiar with our view that technological innovation is very much on track and is likely to lead to outsized productivity gains in future. This report from the Fed echoes Mr. Bernanke's tone at a graduation ceremony he spoke at last month. (Also see Comment of the Day on May 21st). They are both notable for narrow focus on the benefit of technological development for the domestic US economy, By setting such limits they fail to address the major productivity gains that can be made from simply making current Technology available to more of the world's population.

Even as the USA is likely to maintain its technological edge, the modernisation of productive capacity globally is creating wealthier trading partners and larger markets for US goods and services. Therefore a holistic approach to assessing potential is likely to prove invaluable as the pace of technological development and access accelerate.

The Nasdaq-100 is often considered a barometer for Technology company performance. The Index posted a downside key day reversal on May 22 nd and continues to pause in the region of the psychological 3000. It bounced well today but some additional ranging is probably required before the medium-term uptrend can be reasserted. A sustained move below the 200-day MA, currently near 2780, would be required to begin to question consistency of the four-year advance.

If the Nasdaq represents technological development, we might consider the Dow Jones Industrials Average as a barometer for the sale of existing Technology to as wide a global market as a possible. The Average found support this week in the region of 15000 but some additional ranging is likely required to support a reassertion of the medium-term uptrend.

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June 06 2013

Commentary by Eoin Treacy

The Autonomies

Eoin Treacy's view - From early 2011 we began to identify large multinational companies that were exhibiting both relative strength and temporal leadership. As the commonality among this group became clearer a number of shared characteristics were evident. These are large internationally diversified companies that dominate their respective niches and had in many respects outgrown their domestic markets. They often had solid records of dividend increases and have balance sheets strong enough to sustain them. They tend to benefit from superior corporate governance and have some of the most recognisable global brands. From August 2011 we began to refer to these companies as Autonomies.

The Autonomies reflect the confluence of three important themes that are likely to persist for much of the next decade if not longer. The Greatest Urbanisation in History represents the fact that the global population moved from being mostly rural to mostly urban in the last few years. Increased urbanisation generally leads to higher standards of living, greater productivity and increasing per capita consumption of just about everything.

We are also living through one of the most exciting golden ages of technological development in the history for our species. The capacity for innovation in Technology and healthcare represent important potential for productivity gains over the next decade. The pace of patent filing alone suggests that this theme has considerably further to run.

The advent of unconventional oil and gas production in the USA represents a game changer for the energy sector which is still in its early stages. While these new methods have so far been most successfully employed in North America, the capacity for advanced drilling techniques to be employed elsewhere remains undiminished. Energy market tightness is likely to be less of an issue from later this decade.

The original list of 66 companies I compiled was heavily weighted by consumer, healthcare and Technology shares. In the last few months I have expanded the list to include more service, industrial, materials, chemicals, mining and energy companies so that it has swelled to 145 shares.

Another characteristic shared by this expanded list of Autonomies is the high number of monopolies and oligarchies represented. For example Coca Cola and Pepsi dominate the global soft drinks market. Linde, Air Liquide and Praxair dominate the global compressed gases sector. WPP, Publicis and Omnicom dominate the global public relations, lobbying and conventional advertising sectors. Experian is the most globally present credit checking company. BHP Billiton and Rio Tinto, with VALE dominate the global iron-ore market while Potash Corp of Saskatchewan is the largest producer of potash in the world. .

On a click through of this list mean reversion is a common characteristic. A substantial number have already returned to their trend means, represented by their 200-day MAs If medium-term uptrends are to remain consistent, they will need to demonstrate support in the current region. Coca Cola, Nestle, Colgate Palmolive, Mattel, Diageo, SAB Miller, Anheuser Busch, ARM Holdings, Heineken, Eli Lilly, Intertek Group, Unilever and Mondalez International are among those who have returned to test the region of their MAs.

Johnson & Johnson, Biogen, Bristol Myer Squibb, International Flavours & Fragrance, Kimberly Clark, Compagnie Financiere Richemont, Walt Disney, Google, Rolls Royce, Berkshire Hathaway and Ecolab exhibit some of the largest overextensions and are therefore some of the most likely to experience mean reversion.

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June 05 2013

Commentary by Eoin Treacy

Some companies likely to benefit from utilising embedded programming products

Eoin Treacy's view - In yesterday's Comment of the Day I reviewed a number of companies that are likely to benefit from demand for embedded processors over the medium-term. The appeal of these products is that the addition of computing power, sensors and communication Technology greatly improves the cost of operating large pieces of machinery and opens up new avenues for development that can lead to even greater productivity gains. The logical corollary is that the companies who make the best use of these products will be among those most likely to raise productivity and so create value.

Servicing large pieces of machinery in the industrial, aeronautics and defence sectors is a costly exercise and the advent of imbedded processors has the potential to significantly impact the sector. This is at least one of the reasons these types of companies have been completing decade long ranges over the last year.

In the defence/aeronautics sector the pace of M&A activity has picked up. Goodrich was acquired by United Technologies, Aerosonic Corp was taken over by Transdigm while EDAC Technologies has been acquired by Greenbriar in a private equity deal.

Northrup Grumman, Raytheon, Lockheed Martin, Boeing, Heico, Genuine Parts, Precision Castparts and BE Aerospace are all somewhat overbought relative to the 200-day MA and susceptible to mean reversion.

United Technologies, Triumph Group, Transdigm Group and Teledyne Technologies are less overextended but some additional consolidation is likely before an additional advance can be sustained.

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June 04 2013

Commentary by Eoin Treacy

Intel's Power-Saving Chips at Computex Help Fight PC Slump

This article by Ian King and Dina Bass for Bloomberg may be of interest to subscribers. Here is a section
From the start, Haswell was designed with mobility in mind. Intel streamlined manufacturing for this chip and built it to maximize power gating, a technique that turns off transistors that aren't in use and revives them only when needed. With on-chip power management and voltage regulation, Haswell has 20 times the energy efficiency in standby mode that Intel achieved with a processor released two years ago.

“The massive reduction in power does not come at the expense of compromised performance,” said Rani Borkar, a vice president of Intel's architecture group. While Haswell will bring mainstream laptops closer to tablet performance in terms of battery life and thinness, Intel is also readying the Silvermont mobile-processor design to go directly into smartphones and handheld machines. Silvermont will deliver three times the performance and is as much as five times more power-efficient than its predecessor, Intel said May 6.
Eoin Treacy's view - The advent of the tablet computer brings us that much closer to the standard of living many dreamed of when watching Star Trek. However even as sales of portable computers continue to set new highs, the microchip sector has set its sights on another under exploited market. ARM Holdings made more money in the fourth quarter of 2012 from embedded processing than mobile devices. Intel is hot on ARM's heels with its own suite of low energy / high efficiency chips.

Embedded processing is the practice of introducing computing power, sensors and transmitters to industrial machinery. This greatly improves their utility and lowers maintenance costs. The rapid pace of development in this sector has been dubbed "Industrialising the Internet" bt General Electric. (Also see Comment of the Day on March 25th).

Intel (DY 3.49%) found support in the region of $20 from December which represents the lower region of its decade long base. It is now mid-range and a sustained move above $30 would confirm a return to medium-term demand dominance.

ARM Holdings posted a large downside weekly key reversal three weeks ago and has fallen back to test the region of the 200-day MA. The 900p area represents a potential area of support but some consolidation is probably required before the medium-term demand dominated environment can be reasserted.

Elsewhere in the chip sector Qualcomm continues to range with an upward bias. Seagate Technology is becoming increasingly overextended relative to the 200-day MA. Symantec is currently unwind ing an overextension relative to the 200-day MA.

Broadcom, Texas Instruments, Cisco Systems, STMicroelectronics, Micron Technology, CA Inc., Xilinx, Linear Technology, Akamai Technology and Fairchild Semiconductor have all firmed within their respective lengthy bases and continue to represent some of the companies most likely to benefit from demand growth for high efficiency chips.

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May 31 2013

Commentary by Eoin Treacy

Shuanghui May Increase Smithfield Offer to Match Other Bids

This article from Bloomberg News may be of interest to subscribers. Here is a section
Acquiring Smithfield would give China's biggest pork producer access to more advanced production Technology as well as 460 farms that raise about 15.8 million hogs a year, according to Smithfield, Virginia-based Smithfield's website.

Valued at $7.1 billion including debt, the deal would be the largest for a meat producer and the biggest Chinese takeover of a U.S. company, according to data compiled by Bloomberg. Smithfield accepted Shuanghui's offer of $34-a-share on May 29, priced at a 31 percent premium to the close the day before, the companies said that day in a statement. The U.S. producer has 30 days to continue talks with possible buyers Charoen Pokphand Foods Pcl and JBS SA, people familiar said.
Eoin Treacy's view - The USA's meat processing sector is dominated by a small number of companies which represent an oligopoly. By acquiring Sanderson Farms, Shuanghui gains access to a brand but more importantly a foothold in the world's largest consumer market. The medium to long-term outlook for the sector remains positive considering the improving ability of more people to afford greater calorie intake. This is true across the processed food sector and potential for additional M&A activity remains positive. .

Pilgrim's Pride fell to as low as 25 ¢ in 2008 but rallied impressively into 2010. It spent much of the last three years ranging below $8.50. The share broke successfully above $10 earlier this month and rallied to test the 2010 peak near $12.60. While the potential for some consolidation of recent gains has increased, a sustained move below the 200-day MA would be required to question medium-term potential for additional upside.

Tyson Foods broke out to new all-time highs in March and despite some volatility has held a progression of higher reaction lows. A sustained move below $23 would be required to question medium-term scope for additional upside.

Sanderson Farms failed to sustain the break below $38 last year and quickly rallied to break out to new all-time highs. The share is becoming increasingly overextended relative to the 200-day MA but a break in the progression of higher reaction lows would be required to check momentum beyond a brief pause.

Hormel Foods broke out emphatically in January and rallied persistently to test the $43 area where it encountered resistance last week. A consolidation of recent gains is underway but a sustained move below the 200-day MA would be required to question medium-term potential for further upside.

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May 30 2013

Commentary by Eoin Treacy

China: Climbing the Wall of Worry

Thanks to a subscriber for this interesting report focusing on China's oil sector. Here is a section
Given conventional production in China has peaked, the government is encouraging foreign investment and Technology to help unlock unconventional gas potential (tight, sour, CBM and shale) to provide the next leg of production growth. As illustrated above, foreign company production remains marginal in the overall Chinese and global context.

ExxonMobil has no current production in China but in July 2011, signed a Joint Study Agreement covering 900k acres in the Sichuan Basin and is working with Sinopec to evaluate shale gas potential on the block.

Chevron has four operated PSCs in China – Chuandongbei natgas project in the onshore Sichuan Basin and three deepwater/shallow water blocks in South China Sea – and four non-operated PSCs. The company's net acreage in the country has fluctuated in the past four years, ranging from 294k acres at YE09 to 4,766k at YE10. Chevron held 921k acres at YE12. In 2012, CVX produced 20kb/d of liquids and 9mmcf/d of natgas in China, flat yoy, and commenced a shale gas drilling program in the Qiannan Basin in Guizhou province.

ConocoPhillips produced 39kb/d of liquids and 3mmcf/d of natgas in China last year, with Peng Lai operations (COP 49%) being conducted under the so-called reservoir adjustment and management plan supplement following the 2011 Bohai Bay spills. In December 2012, COP entered a two-year joint study agreement with Sinopec for the 1 million-acre Qijiang shale gas block in the Sichuan Basin.

Hess, which does not have production in the country, signed a joint study agreement with PetroChina in 2010 on enhancing output at the mature Daqing oil field in the Songliao Basin in NE China. Hess signed two agreements with Sinopec in 2011 to study tight oil and shale oil/gas at the Shengli oil field in the Bohai Bay Basin. And in 2012, Hess signed another joint study agreement with PetroChina to evaluate unconventional oil and gas resource potential covering 200k gross acres in the Santanghu Basin in Xinjiang province.
Eoin Treacy's view - As the world's largest energy consumer, China has little choice but to attempt to secure international supplies but also to do whatever it can to increase domestic production. Considering the technological finesse required to efficiently develop unconventional oil and gas reserves, the potential for US oil companies to benefit from China's production growth are considerable. (Also see yesterday's piece on LNG companies).

Chevron (P/E 9.79, DY 3.19%) broke successfully above the psychological $110 area in January and continues to find support in the region of the 200-day MA on pullbacks. While somewhat overextended at present, a sustained move below $115 would be required to question medium-term scope for continued upside.

PetroChina (P/E 11.67, DY 3.81%) has dropped to test the lower side of its more than two-year range. A clear upward dynamic will be required to check the downward bias and suggest a return to demand dominance.

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May 29 2013

Commentary by Eoin Treacy

Musings from the Oil Patch

Thanks to a subscriber for this edition of Allen Brooks' ever interesting report for PPHB. Here is a section from a detailed exposition of the global LNG market
A sub issue related to the U.S. LNG export battle is the question of regulation of hydraulic fracturing, which is a critical component of successful shale gas exploitation. If that Technology is regulated or outlawed, the domestic E&P shale gas industry will be forced to reconsider its future, along with the potential American re-industrialization. At the present time two LNG export terminals have been approved with several others close to being approved.

There are 19 additional export terminals in the approval pipeline, which if all were approved and operated at capacity would account for nearly 40 percent of current U.S. natural gas production. There is little likelihood all these export terminals will be approved given the conflict between industrial America and the E&P industry. But which ones will, or should be approved? Unfortunately, the history of regulation of the U.S. natural gas industry has been marked by missteps, which have contributed to periods of supply shortages or huge gas surpluses. Counting on regulators to get it “right” is a dangerous strategy.

At the heart of the LNG question lays the issue of the output performance of shale resources. The financial shambles the U.S. E&P industry finds itself in today is a reflection of poor resource performance coupled with overly optimistic financial expectations. This poor performance is leading to a restructuring of the U.S. E&P business. A lack of resource performance could also doom the American LNG export initiative with its knock-on effects for the global LNG business. A restructured U.S. gas producing industry will alter control over gas volumes available for export further impacting the dynamics of the global gas business. Five to ten years from now, we may find that the global LNG business has barely changed. That may be welcomed news for conventional gas exporting countries who may be worried about their future.
Eoin Treacy's view - It has been our view at Fullermoney since at least 2010 that unconventional natural gas represents a game changer for the energy sector. As with any major development the impact has been far reaching with competing interests lining up to take advantage. Suppliers who are presented with marginal economics at today's prices and consumers who are benefitting from a significantly improved cost structure would both benefit from a balanced regulatory structure. Just how likely that is in the current highly charged political environment remains doubtful. What seems clear is that some degree of exports will be allowed but not nearly as much as suppliers might have been hoping for.

Conoco Philips (P/E 11.36, DY 4.21%) broke out of a two-year range earlier this month and has been consolidating mostly above $62 since. A sustained move below $60 would be required to question medium-term scope for continued upside.

Exxon Mobil (P/E 11.47, DY 2.75%) has paused in the region of its historical peak near $95 and would need to sustain a move above that level to confirm a return to medium-term demand dominance.

Royal Dutch Shell (P/E 8.21, DY 4.87%) has been ranging mostly between 2000p and 2400p since 2011 and is currently trading in the region of the upper boundary. A sustained move above 2400p will be required to confirm a return to medium-term demand dominance.

British Gas (P/E 17.96, DY 1.53%) found support near 1000p from November. It is currently unwinding the short-term overbought condition developed since April. The benefit of the doubt can be given to additional higher to lateral ranging provided it holds the majority of the recent advance during this consolidation.

LNG and LPG tanker operator Exmar is listed in Belgium (P/E 12.08, DY 10.56%) and continues to form a first step above its three-year base. It is currently testing the upper boundary and a clear downward dynamic would be required to check potential for a successful upward break.

US listed Teekay LNG Partners is also an LNG tanker company (P/E 18.1, DY 6.09%) and broke out of a two-year range earlier this month. A sustained move below $40 would be required to question medium-term potential for additional upside.

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May 21 2013

Commentary by Eoin Treacy

Economic Prospects for the Long Run

Thanks to a subscriber for this speech delivered by Ben Bernanke at a graduation ceremony at Bard College on the 18 th . Here is a section
Moreover, even as the basic technologies improve, the commercial applications of these technologies have arguably thus far only scratched the surface. Consider, for example, the potential for IT and bioTechnology to improve health care, one of the largest and most important sectors of our economy. A strong case can be made that the modernization of health-care IT systems would lead to better-coordinated, more effective, and less costly patient care than we have today, including greater responsiveness of medical practice to the latest research findings.Robots, lasers, and other advanced technologies are improving surgical outcomes, and artificial intelligence systems are being used to improve diagnoses and chart courses of

treatment. Perhaps even more revolutionary is the trend toward so-called personalized medicine, which would tailor medical treatments for each patient based on information drawn from that individual's genetic code. Taken together, such advances could lead to another jump in life expectancy and improved health at older ages.

Other promising areas for the application of new technologies include the development of cleaner energy--for example, the harnessing of wind, wave, and solar power and the development of electric and hybrid vehicles--as well as potential further advances in communications and robotics. I'm sure that I can't imagine all of the possibilities, but historians of science have commented on our collective tendency to overestimate the short-term effects of new technologies while underestimating their longer-term potential.
Eoin Treacy's view - We might expect a speech delivered to graduating students to be enthusiastic about the future. However, I share Mr. Bernanke's optimism about the potential productivity gains that are likely from the golden age of technological development we are living through.

As he mentions, financial markets, in their efforts to discount future cash flows, tend to exaggerate how quickly products can be brought to market. This often causes new companies to become overvalued before the market's correcting function kicks in. From a behavioural perspective, we can also conclude that when the majority are most pessimistic about the future, it is generally a good time to be contrarian.

The boom in bioTechnology shares that occurred in the late 1990s was spurred by incredible optimism about the future. 13 years later many of the companies that survived the bear market are now delivering ground breaking products and treatments.(Also See Comment of the Day on October 28 th 2011).

The Nasdaq Biotech Index is becoming progressively more overextended relative to its 200-day MA. It has rallied particularly impressively over the last three months. The benefit of the doubt can continue to be given to the upside provided it holds a progression of higher reaction lows, but the potential for a reversion towards the mean has increased. Biogen continues to extend is remarkably powerful four-month advance while BioMarin Pharmaceutical posted a large downside weekly key reversal last week suggesting a least a pause is underway.

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May 15 2013

Commentary by Eoin Treacy

Musing from the Oil Patch

Thanks to a subscriber for this edition of Allen Brooks' ever interesting report for PPHB. Here is a section on autonomous vehicles
The energy industry and environmental movement see autonomous vehicles as a dramatic way for altering consumption and emissions. Vehicles that drive themselves and never have accidents can be built much lighter and designed to be more aerodynamic thereby reducing fuel consumption. We haven't even begun to deal with the social mores changes that autonomous vehicles would bring. Would texting and cell phone use restrictions, a.k.a. distracted driving, be relaxed? How about new rules for flirting while driving/traveling? Since the auto companies are determined to provide some of the systems to make driving more appealing and less stressful, we anticipate that over the next five years new vehicles will come equipped with these semi-autonomous driving features, but will allow the driver to choose whether he wants to use them or not, much like Active Park Assist and cruise control. Cars of the future will change and any change that makes them more efficient and safer will ultimately lead to a reduction in gasoline and diesel consumption, not necessarily good for the oil business. Only if these technological improvements encourage increased mileage per driver will it be good news for energy companies.
Eoin Treacy's view - Technology is an easy subject to get excited about. As new technologies are invented and the prospect of commercialisation increases the potential for truly life enhancing innovation, productivity gains and associated profits appear to know no bounds. However, the lead time from idea to full scale rollout can often disappoint and one has to question whether outsized valuations are justifiable when prices are accelerating higher. The pace of technological innovation represents an important theme in our medium to long-term bullish outlook but related shares would be best purchased following reversions towards their means.

Google currently trades at an historic P/E of 25.35 and Estimated P/E of 19.19 and remains on an exciting growth trajectory. The share has rallied from the region of the 200-day MA near $750 in late March to test the psychological $900; developing a short-term overbought condition in the process. For as long as momentum lasts, the benefit of the doubt can be given to the upside but the first clear downward dynamic is likely to signal a peak of at least near-term significance and probably the onset of a reversion back towards the mean.

Tesla Motors has attracted a great deal of interest of late with the announcement of its first revenue positive quarter. The company currently trades on an estimated P/E of 558. The share had been trending with a mild upward bias for the last 18 months but exploded out of its range in late March and has since tripled. (Also see Comment of the Day on August 12th 2012). It paused just below $100 yesterday and potential for at least some consolidation of recent impressive gains has increased.

In the online gaming sector Japanese listed Gungho Online Entertainment has an historic P/E of 80 and estimated P/E of 27. In the last four weeks the share has rallied from ¥400,000 to ¥1.6 million. There is little doubt that gaming is experiencing a renaissance following the advent of handheld devices and touch screen hardware. However, the surge in related share prices over the last month represents acceleration and at minimum suggests caution is warranted.

In the 3-D printing sector David highlighted 3-D Systems yesterday which has surged of late. The ExOne Company Inc IPOed in February and the pace of its advance picked up over the last three weeks with a rally of more than 60%. The share trades on an estimated P/E of 373 and remains in a momentum fuelled rally. This is a situation where a trailing stop would be advisable for those with long positions.

Some would argue that P/Es are not that relevant for companies with such incredible growth potential. However, considering the extent to which some have accelerated and the degree to which enthusiasm has propelled valuations, a great deal of good news is already in the price. I am reminded of BYD. The share accelerated from HK$10 in 2008 to a peak six months later near HK$90. It gave up the entire advance in the subsequent bear before building support above HK$10 from 2010. The share has an historic P/E of 761 and Estimated P/E of 56. Prices have also surged of late and the risk of mean reversion has increased. A sustained move below the 200-day MA would be required to question medium-term upside potential.

Social media were last year's cause celebre. A number of high profile shares were listed following a great deal of excitement and hype but Facebook (P/E 1365, Est P/E 40) and Groupon (Est P/E 42) experienced sharp declines as expectations were reined in.

Facebook has stabilised above $25 over the last five months and a sustained move below that level would be required to question potential for some additional support building

Groupon trended lower until November when it found support in the region of $2.60 and has held a progression of higher reaction lows since.

LinkedIn (P/E 544, Est P/E 131) broke successfully above $150 in early February and has been consolidating below $200 for six weeks. A sustained move below the 200-day MA would be required to question medium-term demand dominance.

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May 15 2013

Commentary by David Fuller

Rethink Robotics Opens Up Baxter Robot For Researchers

My thanks to a subscriber for this interesting article from Spectrum on robotics. Here is part of the introduction
Rodney Brooks, founder and CTO of Rethink Robotics, revealed a number of surprising things when Evan and I visited the company last year, just before it unveiled its Baxter industrial robot to the world. There was the robot itself, of course, designed to be safe, versatile, easy to program, and incredibly inexpensive-the opposite of what traditional industrial robots are. Its humanoid features were also a bit unexpected-a factory robot with a friendly face!

But another thing that surprised us was the company's emphasis on software. Rethink doesn't want to be just a robot maker. It wants Baxter to be a platform that anyone can use to improve on existing applications as well as develop completely new ones. To achieve that, Rethink needs to open up its Technology, and last week the company announced a major step in that direction: a version of Baxter designed for researchers.

Sure, Baxter's primary target is still industrial applications. But Rethink knows that, by enlisting the help of the robotics community to push the envelope of what its robot can do, it would have a major advantage over other robots. When Evan and I asked Brooks what he expected other roboticists would do with Baxter, he said he had no idea, and that was a good thing. Brooks recently said he hopes researchers and others will "use their creativity and programming skills to create never before seen applications."

So first let's see what Rethink is offering with its Baxter Research Robot. The hardware is exactly the same as the previous Baxter model. The robot has two 7-DOF arms, powered by series elastic actuators. It has integrated cameras, sonar, and torque sensors on every joint. The base price is also the same: US $22,000. So what's different? Software. The research model does't come with the manufacturing software installed, but rather runs the research software development kit (SDK).
David Fuller's view - This field is in its infancy but is likely to grow exponentially. To see some of the products and experiments, scroll down the article and click on the many links to the right.

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May 14 2013

Commentary by David Fuller

Your Future Will Be Manufactured on a 3-D Printer

Here is a section from this fascinating editorial produced by Bloomberg
Three-D printing a gun, like printing most other things, is pretty simple. You download a digital file for a design you like. The printer reads the file, then shoots out layer upon layer of specialized plastic -- or another raw material -- through a heated nozzle in the specified shape. Not long afterward, your gun parts materialize.

The Technology is roughly 30 years old, but has only recently become cheaply available and widespread. Global sales and services related to 3-D printing reached $2.2 billion in 2012, according to Wohlers Associates Inc., an increase of 28.6 percent over the previous year. The company expects that figure to increase to about $6.5 billion in 2019.

And no wonder. Consider the Urbee 2, a car being produced by Kor Ecologic using a 3-D printer. When completed, it will weigh some 1,200 pounds. Made with about 40 pieces of thermoplastic, it will be resilient, aerodynamic and mind-bogglingly efficient. Its production will require far less material than a traditional car. It will need almost no labor and take little time to assemble. Its designers can employ unorthodox shapes and materials to maximize efficiency, mold the lightweight plastic with precision to strengthen vulnerable areas, and fit most pieces together without joints or welding (although the engine and chassis will still be made of metal). In effect, they're compressing much of an automobile assembly line into a printing device.

The economic potential is stunning. Across a range of industries, R&D costs are already declining and product-development cycles are accelerating as more inventors experiment with cheap 3-D printed prototypes. The question is whether the Technology will transform manufacturing more broadly.

At the moment, 3-D printing is a very small part of the economy. The printers are typically slow, and the material they use is expensive and inconsistent. As the industry advances, however, printing on demand could reduce assembly lines, shorten supply chains and largely erase the need for warehouses for many companies. Reducing shipping and eliminating the waste and pollution of traditional subtractive manufacturing could be an environmental boon.

In a few decades, things could get really interesting. Engineers should be able to blend raw materials in new ways, endow products with nanoTechnology and artificial intelligence, and create objects that interact with their physical environment. Imagine military armor embedded with sensors that track wear and tear, or a turbine blade that monitors its own temperature.

The Technology is already liberating entrepreneurs. As consumer-grade printers improve, a basement enthusiast will be able to make replacement parts for products he owns, invent and sell customized objects online, and potentially create new industries. As Hod Lipson and Melba Kurman write in "Fabricated: the New World of 3D Printing," the Technology will be "the platypus of the manufacturing world, combining the digital precision and repeatability of a factory floor with an artisan's design freedom." In other words, the era of mass customization is quickly approaching.
David Fuller's view - 3-D printers will empower creative and clever individuals in ways that we are only beginning to imagine. On the positive side, these will include artists, healthcare specialists, engineers and all sorts of inventors.

As with most new inventions, 3-D printing will also empower some sociopaths and criminals, but that is a human rather than technological problem.

In addition to empowerment, the biggest contribution of 3-D printing, I believe, concerns the efficiencies that it will create on personal, educational, corporate and governmental levels. It is part of the accelerating pace of technological innovation that Fullermoney often mentions, for which there is no creative limit.

The leading manufacturer of 3-D printers is the US company 3D Systems Corporation (DDD US) (weekly & daily). Having accelerated higher once again, it is currently overextended. It is certainly not cheap, as you can see from this Bloomberg page. However, it should have an exciting future and I would regard it as a speculative buy following a pullback to the 200-day MA.

The main beneficiaries of 3-D printing, I imagine, will be inspired inventors and successful multinational corporations (Autonomies).

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