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August 16 2017

Commentary by Eoin Treacy

Japan: Ignore Autos and Electronics to Profit

Thanks to a subscriber for this article by Emma Wall for Morningstar may be of interest to subscribers. Here is a section:

With a shrinking working population, Japan has record low levels of unemployment and the economy is poised to receive a boost once this lack of supply filters down to wage growth. But there are equities which can profit from the tight labour market according to Weindling; he invests in recruitment firms that provide permanent and temporary workers.

Suppliers Immune from Domestic Threats
While the population is ageing, Weindling points out that a Japanese company does not need a Japanese customer base to thrive.

“There is no reason why Japan should not continue to make things. Factory automation and robotics are not a threat to Japanese industrials in the way that they are to US companies – they are the solution to a dwindling workforce,” he says. “More automation is a good thing, and the larger industrials will continue to take market share. It is a multi-year, structural shift.”

That does not mean he backs the exporters of old, however. The international names which have long been synonymous with Japan are electronics firms and auto-makers; Toyota, Canon, Mitsubishi and even Sony are no-go areas for Weindling.

“No one buys cameras anymore, so why would I buy Canon,” he says. “We don’t own any of those household names. Their prospects are considerably lessened. Japan’s export market is no longer about cars and electronics, it is about condoms, baby milk, skin cream, medicine. Japan is known across Asia for high-quality products, reliability and high safety standards. These are the companies you want to be invested in.”

 

Eoin Treacy's view -

Japan is an increasingly popular tourist destination for Asian, particularly Chinese, tourists who come with well-defined shopping lists from WeChat personalities that tell them exactly what and what not to purchase. On my family’s visit to Japan in April there were a number of consumer items Mrs. Treacy was very eager to try based on reviews she had seen in Chinese social media. 



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August 15 2017

Commentary by Eoin Treacy

Chinese automakers covet FCA

This article by Larry Vellquette for Automotive News may be of interest to subscribers. Here is a section:

Why, after two years on the block, is FCA apparently drawing interest from at least one potential Chinese buyer now?
The answer: FCA's global network and product — specifically Jeep and Ram — fit the requirements the Chinese government has set for attractive acquisitions.

Quality gap
Chinese automakers have openly dreamed of cracking lucrative North America for a decade, spending millions to display their vehicles at high-profile U.S. auto shows. Early efforts showed that Chinese automakers had a long way to go before they were ready to compete here.

But in more recent years — through knowledge and expertise gained via joint ventures with the world's largest and most successful automakers — Chinese companies have closed the quality gap.

And the automakers feel like they finally have closed that gap enough to start selling their products in the U.S., said Michael Dunne, president of Dunne Automotive, a Hong Kong investment advisory company and an expert on the Chinese auto industry.

They also are under pressure from the government to expand beyond China, Dunne said. A government directive dubbed China Outbound pushes Chinese businesses to acquire international assets from their industries and operate them "to make their mark," much as Geely has done since acquiring Volvo in 2010. Bloomberg reported last week that Chinese companies plan to spend $1.5 trillion acquiring overseas companies over the next decade — a 70 percent increase from current levels.

 

Eoin Treacy's view -

Germanys auto sector has been garnering all the wrong sorts of attention lately with increasingly evidence that the major manufacturers may have colluded in hoodwinking the globe into believing diesel engines are clean. On the other hand, China’s auto manufacturers have been among the best performers this year as they have increasingly focused on partnerships with international brands. 



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August 10 2017

Commentary by Eoin Treacy

Wall Street's "fear gauge" nears 3-month high as "fire and fury" sparked stock-market slump

This article from MarketWatch covers most of the relevant points on the uptick in volatility in response to heightening brinksmanship with North Korea. Here is a section:

The downdraft for the equity market comes amid rising geopolitical tensions, after a North Korean army commander said “sound dialogue” isn’t possible with U.S. President Donald Trump and “only absolute force can work on him,” according to state media. North Korea also laid out detailed plans of how it would launch a missile strike on U.S. military bases in Guam.

The recent testy exchange underlines mounting tensions between Pyongyang and Washington that Wall Street investors are fretting could risk an all-out nuclear war between the nations.

Against that backdrop, the VIX has been steadily rising over the past three sessions coinciding with a pullback in stocks and a jump in demand for assets perceived as havens including gold GCZ7, +1.03%   which was trading around a two-month high and 10-year benchmark Treasurys TMUBMUSD10Y, -0.47%, which were hovering at yearly yield lows around 2.22%. Bond prices move inversely to yields.

Eoin Treacy's view -

Betting on persistently low volatility has been among the best performing trades this year with stock markets continuing to advance while leveraged short VIX ETFs surged higher. Whether that strategy is likely to continue to perform is now being questioned.



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August 02 2017

Commentary by Eoin Treacy

Apple Signals Resilient IPhone Demand Helped by Supporting Cast

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

“There is some relief from the fear of a significant pause before the 10th anniversary iPhone refresh,” said Michael Obuchowski, chief investment officer at Merlin Capital LLC in Boston, which holds Apple stock. “I’m beginning to think it won’t matter if the new iPhones aren’t that exciting.”

Apple is likely to introduce three new handsets this year: a revamped top model, known for now as the iPhone 8, and upgrades to the existing iPhone 7 and iPhone 7 Plus, people familiar with the plans have told Bloomberg News. The high-end iPhone will include an organic light-emitting diode screen, and inadequate OLED supplies mean that it will not be as readily available as the cheaper handsets at launch, the people said.

Cook said reporting about the new versions of the iPhone “has created a pause” in consumer buying “that is likely larger than previously.” Apple’s stock has soared on expectations that the new high- end smartphone, which will also include a front-facing three- dimensional sensor to enable facial recognition, will spur a resurgence in demand that will carry into the holiday quarter and beyond. Sales growth of the company’s flagship product has slowed over the past two years as the market has become increasingly saturated and competitors have offered cheaper products with similar capabilities.

New Technologies
Slowing smartphone sales have prompted Apple to invest more heavily in developing new technologies. It’s working on smart glasses, an autonomous driving system, improved health and fitness offerings, and its own semiconductor technology.

Research and development spending jumped 15 percent to $2.9 billion in the most recent quarter. Apple unveiled the early fruits of its spending on augmented reality technology in June, releasing a set of tools which let developers build AR software for the iPhone and iPad when the next operating system for those devices is rolled out later this year. Cook has over the past 18 months repeatedly said how excited he is about the prospects for AR.

Cook is preparing to release Apple’s first new hardware category since 2015. The HomePod, the smart speaker that will go on sale in December, is the company’s response to Amazon.com Inc.’s Echo and Alphabet Inc.’s Google Home speakers. The company is hoping that advanced acoustic capabilities will encourage consumers to pay $349 for the device -- almost three times as much as the Google Home.

 

Eoin Treacy's view -

Apple faces stiff competition in the smartphone market but comes with two distinct advantages. The size and breadth of the app store is a considerable benefit for the company and acts as an anchor for customers. The second is Apple’s followers are among the most devoted fans of any brand and represent a latent source of demand for new products. 



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July 12 2017

Commentary by Eoin Treacy

Pepsi Says It's Facing the Same Trends That Are Battering Retail

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

Retail’s “shifting sands and macro headwinds will make near-term earnings beats challenging” for PepsiCo, Wells Fargo analyst Bonnie Herzog said in a note to clients. Still, PepsiCo gets a large proportion of revenue from snacks, which are easier to sell online than beverages, she said. That means the company is better positioned to adapt than some of its peers.

PepsiCo’s comments were similar to those made by Coca-Cola CEO James Quincey, who told Bloomberg in May that when shoppers skip trips to the local mall and shop online, they also forgo buying Coke at a vending machine or food court. Coca-Cola investors will be watching to see how that may hurt second-quarter results on July 26.

Nooyi’s remarks were “an acknowledgement to the intensifying competitive environment that will likely get more so with Amazon involved,” Bloomberg Intelligence analyst Ken Shea wrote in an email. Still, some consumer products companies will be more vulnerable than others to change, and PepsiCo’s “huge distribution reach and agility arguably make it less vulnerable” to changing shopper behavior than its peers, he said.

 

Eoin Treacy's view -

Amazon Prime Day was the firm’s highest grossing ever, with its discounted Echo speaker being the top seller yesterday. The company sells just about everything and is now offering try-before-you-buy on fashion, same day delivery and investigating how to sell pharmaceuticals and auto parts. It is logical that even companies which reside squarely in the consumer staples sector but also get part of their income from discretionary products would be affected by the demise of the shopping mall. 



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June 29 2017

Commentary by Eoin Treacy

New Cyberattack Goes Global, Hits WPP, Rosneft, Maersk

This article by Giles Turner , Volodymyr Verbyany , and Stepan Kravchenko for Bloomberg may be of interest to subscribers. Here is a section:

The hack quickly spread from Russia and the Ukraine, through Europe and into the U.S. A.P. Moller-Maersk, operator of the world’s largest container line, said its customers can’t use online booking tools and its internal systems are down. The attack is affecting multiple sites and units, which include a major port operator and an oil and gas producer, spokeswoman Concepcion Boo Arias said by phone.

APM Terminals, owned by Maersk, is experiencing system issues at multiple terminals, including the Port of New York and New Jersey, the largest port on the U.S. East Coast, and Rotterdam in The Netherlands, Europe’s largest harbor. APM Terminals at the Port of New York and New Jersey will be closed for the rest of the day “due to the extent of the system impact,” the Port said.

Cie de Saint-Gobain, a French manufacturer, said its systems had also been infected, though a spokeswoman declined to elaborate, and the French national railway system, the SNCF, was also affected, according to Le Parisien. Mondelez International Inc. said it was also experiencing a global IT outage and was looking into the cause. Merck & Co. Inc., based in Kenilworth, New Jersey, reported that its computer network was compromised due to the hack.

 

Eoin Treacy's view -

The Wannacry cyberattack occurred in May and hit a number of hospitals and transportation networks. The first conclusion we can draw from the new but similar Petya virus is that it has taken hackers less than a month to iron out the bugs with their first attempt. The next iteration of the attack will likely be even more sophisticated.  



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June 26 2017

Commentary by Eoin Treacy

Nestle Targeted by Dan Loeb in Activist's Biggest-Ever Bet

This article by Ed Hammond and Beth Jinks for Bloomberg may be of interest to subscribers. Here is a section:

“The L’Oréal stake could be divested via an exchange offer for Nestle shares that would accelerate efforts to optimize its capital return policies, immediately enhance the company’s return on equity, and meaningfully increase its share value in the long run,” said Third Point, which retained former Sara Lee Corp. Executive Chairman Jan Bennink to advise on the investment.

A L’Oréal spokeswoman declined to comment.
Consumer companies have become popular targets for activist shareholders. In 2015, billionaire hedge fund manager Bill Ackman amassed a $5.6 billion stake in snack giant Mondelez International Inc. and called for management to improve the company’s performance, leading to cost cuts. Procter & Gamble Co. attracted Nelson Peltz’s Trian Fund Management LP, which revealed its position in the consumer-products maker in February and has since amassed a stake valued at about $3.3 billion, according to its latest regulatory filing.

Loeb is aiming high with Nestle as activist investors enjoy a resurgence of client inflows and returns. Third Point’s flagship fund gained almost 10 percent in the first five months of 2017, part of an industrywide rebound that saw event-driven funds return 5.6 percent on an asset-weighted basis, the most among the main strategies tracked by Hedge Fund Research Inc.

 

Eoin Treacy's view -

Nestle has a large number of businesses and, in order to remain competitive, needs to reorient itself towards growth sectors in its largest developed markets. It is interesting however that the thrust of the activism is towards highlighting the significant cross ownership Nestle has in other European companies. 



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June 21 2017

Commentary by Eoin Treacy

Amazon Cometh to Grocery What Does it Mean?

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

2) Removing Consumers’ Online Grocery Pain Points…to Better Attack the$780bn US Grocery Market: The addition of WFM materially improves AMZN’s grocery user proposition and its ability to penetrate the ~$780bn US grocery market (See Exhibit 6). Grocery eCommerce penetration is still low (estimated 3% see Exhibit 7) in part because (per our AlphaWise survey data) consumers enjoy selecting their own food, value the in-store experience as well as the certainty that the food is correct (See Exhibit 5). The addition of WFM and its 465+ stores (across 3 countries and 42 US states) solves these points of friction. Bigger picture, this speaks to the importance of brick and mortar in certain e-commerce categories as AMZN (through WFM) and BABA (though Intime) continue to expand their attack on consumers’ wallets

3) WFM + Prime Now = A 1-2 Hour Prime Personal Shopper: The combination of WFM’s store footprint and grocery inventory with Prime Now will enable AMZN to improve the Prime Now product…as Prime Now will be able to offer consumers grocery delivery in 1-2 hours. AMZN will also be able to leverage the store footprint to house other inventory, to expand its Prime Now selection. Prime Now just became a 1-2 hour personal shopper.

4) Changing Consumer Behavior Again as 1-2 Hour Delivery Could Replace 2- Day Delivery Expectations: In our view, AMZN’s core business is behaviour modification, and a stronger 1-2 hour offering has the potential to further increase consumers’ expectations for e-commerce shipping times. Just as AMZN pushed expectations from a week delivery time (13 years ago) to 2 days (with Prime, introduced in 2005), a more robust Prime Now could further move the goal-posts to 2 hours. This will only further AMZN's competitive offering vs other retailers.

5) A further driver of Prime Subscriber growth. Our Alphawise data show that ~62% of Whole Food Shoppers are Prime Members (See Exhibit 2). Amazon's ability to convert more Whole Foods shoppers into its Prime membership has the potential to lead to faster long term growth and wallet share growth. Bigger picture, 2 hour delivery could also drive faster Prime sub growth. In the words of Jeff Bezos on April 2016 "We want Prime to be such a good value, you’d be irresponsible not to be a member". 

Eoin Treacy's view -

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

There has been a great deal of media coverage of Amazon’s foray into brick and mortar grocery stores, albeit at the high end side of the market. Kroger and Target extended downtrends on the news amid widespread speculation that the middle of the market is being hollowed out and that is an argument I have sympathy with as German discounters Aldi and Lidl expand in the US. 



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May 30 2017

Commentary by Eoin Treacy

We'll Live to 100 How Can We Afford It?

Thanks to a subscriber for this report from the World Economic Forum. Here is a section:

In Japan, which has one of the world’s most rapidly ageing populations, retirement can begin at 60. This could result in a retirement of over 45 years for those who will live to the current life expectancy of 1071 (see Figure 2). What is the impact of a population that will spend 20%-25% more time in retirement than they did in the workforce? How do we rethink our retirement systems that were designed to support a retirement of 10-15 years to prepare for this seismic shift? 

One obvious implication of living longer is that we are going to have to spend longer working. The expectation that retirement will start early- to mid-60s is likely to be a thing of the past, or a privilege of the very wealthy.  

Absent any change to retirement ages, or expected birth rates, the global dependency ratio (the ratio of those in the workforce to those in retirement) will plummet from 8:1 today to 4:1 by 2050. The global economy simply can't bear this burden. Inevitably retirement ages will rise, but by how much and how quickly demands urgent consideration from policy-makers. 

Given the rise in longevity and the declining dependency ratio, policy-makers must immediately consider how to foster a functioning labour market for older workers to extend working careers as much as possible. Employers also have a key role to play in helping workers reskill and adapt their work styles to support a longer working career. 

This paper focuses on the sustainability and affordability of our current retirement systems. To protect against poverty in old age, we believe that retirement systems should be designed to provide a level playing field and equal opportunity for all individuals. A well-designed system needs to be affordable for today’s workers and sustainable for future generations to ensure that all financial promises are met. 

Healthy pension systems contribute positively towards creating a stable and prosperous economy. Ensuring that the public has confidence in the system, and that promised benefits will be met, allows individuals to continue to consume and spend through their working and retired years. If this hard-earned confidence is lost, there is a significant risk that retirees will moderate their spending habits and consumption patterns. Such moderation would have a negative impact on the overall economy, particularly in countries where the size of the retired population continues to grow. 

Action is needed to realign our existing systems with the challenges of an ageing population. Those who take proactive steps will be better equipped in the years ahead.

Eoin Treacy's view -

Here is a link to the full report.

I’m 40 so according to this report I have a 50% chance of living to 94. The Chart Seminar is in its 48th year in 2017 so you never know I might manage to get it to the century because we are all going to be working a lot longer. It’s a good thing I’m doing something I enjoy and perhaps that is the best advice. You are going to be working for an awfully long time so be prepared to change jobs, adapt and enjoy what you do. 



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May 26 2017

Commentary by Eoin Treacy

VW's Diesel Defeat Devices Finally Located, Cracked Wide Open

This article by Joel Hruska for EmtremeTech may be of interest to subscribers. Here is a section:

But making those rules public does have a downside: It means companies know precisely how to cheat. Here’s how the Jacobs School describes the situation:

During emissions standards tests, cars are placed on a chassis equipped with a dynamometer, which measures the power output of the engine. The vehicle follows a precisely defined speed profile that tries to mimic real driving on an urban route with frequent stops. The conditions of the test are both standardized and public. This essentially makes it possible for manufacturers to intentionally alter the behavior of their vehicles during the test cycle. The code found in Volkswagen vehicles checks for a number of conditions associated with a driving test, such as distance, speed and even the position of the wheel. If the conditions are met, the code directs the onboard computer to activate emissions curbing mechanism when those conditions were met.

But VW didn’t stop there. The researchers who examined Volkswagen’s work pulled 964 separate versions of the Engine Control Unit (ECU)’s code from various makes and models of Volkswagens. In 400 of those cases, the ECU was programmed with defeat devices.

Now, you might be thinking that a single code model couldn’t possibly compare all the variables in play between various test facilities, and that some cars should have shown a fault simply due to random chance. But VW was aware of that possibility and took steps to prevent it. Their defeat device had ten separate profiles to allow it to detect various permutations in test scenarios.

Not all the defeat devices were sophisticated. The Fiat 500X (not manufactured by VW) has a much simpler defeat device. The vehicle’s emission control system runs for 26 minutes and 40 seconds after you first start the car, period. That’s long enough to pass most emission tests, and it doesn’t try to detect if the vehicle is being tested. But VW’s work was extremely sophisticated, it evolved over time, and the company’s claims that this was all instituted by a few rogue engineers are more farcical than ever.

Eoin Treacy's view -

The fact that it has taken this long to figure out just how the diesel defeat mechanisms function highlights the fact that Volkswagen and Bosch have not been entirely forthcoming with investigators. The emerging reality is that defeating emissions testing was a long-term highly orchestrated endeavour that must have required the efforts of teams of engineers and years of work to achieve such impressive results. 



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May 25 2017

Commentary by Eoin Treacy

May 12 2017

Commentary by Eoin Treacy

Amazon Makes Major Push Into Furniture

This article by Brian Baskin and  Laura Stevens for the Wall Street Journal may be of interest to subscribers. Here is a section: 

The online retail giant is making a major push into furniture and appliances, including building at least four massive warehouses focused on fulfilling and delivering bulky items, according to people familiar with Amazon’s plans.

With that move, the Seattle-based retailer is taking on the two companies that dominate online furniture sales— Wayfair Inc. W -5.95% and Pottery Barn owner Williams-Sonoma Inc. Furniture is one of the fastest-growing segments of U.S. online retail, growing 18% in 2015, second only to groceries, according to Barclays. About 15% of the $70 billion U.S. furniture market has moved online, researcher IBISWorld says.

But even the biggest players in online furniture are struggling to get the market right. Unlike established categories such as books and music or even apparel, retailers are still hammering out basic concepts like how much variety to offer on their sites and the most efficient ways to deliver couches and dining sets to customers’ homes.

While Amazon has been selling furniture for years, it has lately decided to tackle the sector more forcefully.

“Furniture is one of the fastest-growing retail categories here at Amazon,” said Veenu Taneja, furniture general manager at Amazon, in a statement. He said the company is expanding its selection of products, with offerings including Ashley Furniture sofas and Jonathan Adler home décor, and it is adding custom-furniture design services. Amazon is also speeding up delivery to one or two days in some cities, he adde

Eoin Treacy's view -

Free returns and secure transactions make online shopping risk free and painless from the perspective of consumers. Amazon is employing that strategy in an increasing number of sectors but most particularly in furniture and fashion. The number of brands Amazon now carries as well as sporting its own designs represent not only a direct threat to Williams Sonoma but to departments stores generally. 



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May 10 2017

Commentary by Eoin Treacy

Day One for President Moon Sees Korea Stocks in Retreat With Won

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

The Kospi index dropped the most since March as North Korea reiterating its pledge to push forward with another nuclear test showed Moon Jae-in, the victor in Tuesday’s presidential vote, is unlikely to get a honeymoon. While Citigroup Inc. to Morgan Stanley are betting on further upside for South Korea’s record- setting stocks, analysts and investors are seeking more from Moon, who ran on a platform of corporate reform and rapprochement with North Korea.

“Markets will take this on the chin,” said James Soutter, who helps manage the equivalent of about $500 million at K2 Asset Management in Melbourne, referring to the election.
“Rumblings out of North Korea on further nuclear tests should have a bigger influence on markets than the election.”

While Korean technology shares rallied on bets Moon will bolster the sector as a way of delivering more jobs, the Kospi spiked lower, declining 1 percent Wednesday -- the most since March 3 -- as utilities and banks paced losses. Markets in Seoul were closed for the election Tuesday, so the drop came after a 2.3 percent surge in the Kospi on Monday, its best day since September 2015

Eoin Treacy's view -

The South Korean Kospi Index has been ranging for six years but broke out ahead of the election to new all-time highs. Increased tensions with North Korea coinciding with a short-term overbought condition suggest there is scope for some consolidation of the recent run-up. However a sustained move below the trend mean would be required to question medium-term scope for additional upside. 



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May 05 2017

Commentary by Eoin Treacy

Can Wal-Mart's Expensive New E-Commerce Operation Compete With Amazon?

This article by Brad Stone and Matthew Boyle for Bloomberg caught my attention. Here is a section:

The video worked exceedingly well. In August, Wal-Mart Stores Inc. announced it would acquire Jet.com for $3.3 billion in cash and stock. It was an extraordinary sum for a 15-month-old, purple-hued website that was struggling to retain customers and is still far from making a profit. Even more astonishing, Lore and his management team in Hoboken, N.J., were put in charge of Wal-Mart’s entire domestic e-commerce operation, overseeing more than 15,000 employees in Silicon Valley, Boston, Omaha, and its home office in Arkansas. They were assigned perhaps the most urgent rescue mission in business today: Repurpose Wal-Mart’s historically underachieving internet operation to compete in the age of Amazon. “Amazon has run away with it, and Wal-Mart has not executed well,” says Scot Wingo, chief executive officer of Channel Advisor Corp., which advises brands and merchants on how to sell online. “That’s what Marc Lore has inherited.”

Lore’s ascendancy at Wal-Mart adds bitter personal drama that wouldn’t seem out of place on Real Housewives of New Jersey to a battle between two of the most disruptive forces in the history of retail. In 2010, Wal-Mart tried to buy Lore’s first online retail company, Quidsi Inc., which operated websites such as Diapers.com for parents and Wag.com for pet owners. But it moved too slowly and lost out to a higher bid from Amazon.com Inc. Lore then toiled at Amazon for over two years before quitting, in part out of disappointment with its refusal to invest more in Quidsi and to integrate his team into the company, according to two people close to him.

 

Eoin Treacy's view -

You get a lot with your Amazon Prime membership from free 2-day shipping to photo storage and Amazon TV but you do not get the cheapest price on the majority of goods and Prime is not free. It costs $99 a year so you really need to shop, archive and watch Amazon to get your money’s worth and for many people that works out since it has built its subscriber base to 80 million people from 40. 



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May 04 2017

Commentary by Eoin Treacy

Seeking a policy response to the robot takeover

This article by Alice M. Rivlin for Bloomberg may be of interest to subscribers. Here is a section:

If driverless deliveries prove faster, cheaper, safer, and more accurate, they would likely be adopted quickly and affect all parts of the country. Truck driving is much less concentrated in particular areas than, say, coal mining or steel making.

In 2016, there were 1.7 million heavy and tractor-trailer truck drivers, with a median annual wage of $43,590; 859 hundred thousand light-truck and delivery workers, who earned $34,700; and 426 hundred thousand driver/sales workers, who earned $28,449. So a rough estimate would be that driverless deliveries would put at least 2.5 million drivers out of work, not counting drivers’ helpers and a substantial number of workers in truck stops and roadside services patronized by truckers. Truck drivers drink a lot of coffee.

Like many lost manufacturing jobs, truck driving requires skill, some special training, hard work, and fortitude, but not much formal education. If you did not go beyond high school, but are a reliable, safe driver—especially if you are willing to work the demanding schedules of long-haul truckers—you can support a family and have decent benefits by driving a truck.

The transition to driverless deliveries would also create some new jobs, many of them technical jobs involving software development and programming that would command relatively high wages. Vehicle maintenance jobs would still be necessary, and would likely require enhanced electronic skills with higher pay than current truck maintenance jobs. Expanded demand for the cheaper delivered products would likely create additional jobs in the transportation sector. It is impossible to predict the ultimate effects of any major technological change, but in the short run it is a good bet that a lot of former drivers would be looking for work and finding their skills and experience ill-suited to available jobs at comparable wages.

Eoin Treacy's view -

The one question I get wherever I go to talk is what am I going to do when the robots take my job? It’s a big question but over the last year it has really moved into the public consciousness. The prospect of machines driving down our roads with no human behind the wheel has lent a sense of reality to the debate that was not present in years past. 



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May 03 2017

Commentary by Eoin Treacy

One Sign That the Retail Industry Isn't Dead Yet

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

There’s plenty of talk about the retail industry dying, with malls closing and the slump stressing iconic chains like Sears Holdings Corp. and J. Crew, but healthier big-box giants such as Wal-Mart Stores Inc. and Costco Wholesale Corp. are still chronically in need of employees, at least for now. The number of U.S. retail jobs was about the same last year compared with 2015, according to the Bureau of Labor Statistics. What’s really bedeviling retailers is annual turnover -- at 65 percent, it’s the highest since before the Great Recession -- making it necessary to keep hiring. The chains are so hungry for good help they’re poaching workers from fast-food restaurants.

“Those jobs tend to be more transitional, they tend to be more fluid, and as a result there tends to be higher turnover,” said Michael Harms of Dallas-based researcher TDn2K. “Even though you hear headlines like retail is dying and the robots are coming, there’s still a lot of things that need human touch points. It’s a dogfight over good employees.”

Eoin Treacy's view -

What interested me most about this story was not so much the fact big box stores need more workers as their share of the retail market increases, but the effect this is having on restaurant wages. 



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May 02 2017

Commentary by Eoin Treacy

Can the Synchronous Recovery Last?

Thanks to a subscriber for this report from Morgan Stanley which has a number of interesting nuggets. Here is a section:

For the first time since 2010, the global economy is enjoying a synchronous recovery (see chart). The developed markets’ (DM) private sector is exiting deleveraging after several years of slow growth due to a focus on balance sheet repair and, after four years of adjustment, the emerging markets are in a recovery mode. These trends create a positive feedback loop. Indeed, the DM economies account for 60% of emerging market (EM) exports, so as their real import growth accelerates, EM exports are rebounding. What’s more, an improving EM outlook reduces DM disinflationary pressures. 

How sustainable is this recovery? Typically business cycles end with macrostability risks (price, external and financial) spiking, forcing policymakers to tighten monetary and/or fiscal policy. In this cycle, considering that emerging markets inflation and current account balances are moving toward their central banks’ comfort zones, it is unlikely that macrostability risks will surface soon. Moreover, the emerging markets now have high levels of real rate differentials vis-àvis the US, providing adequate buffers against normalization of the Federal 

DEVELOPED MARKET RISK. In our view, the key risk to the global cycle is apt to come from the developed markets— most likely the US, considering that it is most advanced in the business cycle. Moreover, the US tends to have an outsized influence on the global cycle, particularly the emerging markets. While price stability features prominently in debating the monetary policy stance of any central bank, financial stability is clearly emerging as an equally important factor.

How will it play it out? For insight, we can look at history. The late ’60s saw fiscal expansion at a time of strong growth and low unemployment. In the mid ’80s, the US pursued expansionary fiscal and protectionist policies in an improving economy. We look at similarities and differences versus today, analyzing asset class performance by fiscal deficit and unemployment quartiles.

To that end, private-sector leverage has picked up modestly in the US. In fact, the household-sector balance sheet, which was the epicenter of the credit crisis, had been deleveraging until 2016’s third quarter. Moreover, the regulatory environment has been relatively credit-restrictive. Hence, we see moderate risk to financial stability. However, risks could rise, considering that monetary policy is still accommodative, and particularly so if the administration eases financial regulations. Price stability is a critical risk, too—especially since the core Personal Consumption Expenditures Index inflation rate is close to the Fed’s target and US unemployment is around the rate below which inflation could accelerate. Reflecting this, we expect the Fed to hike rates six times by year-end 2018 (see page 3). We expect other major DM central banks to take a less dovish/more hawkish stance

Eoin Treacy's view -

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

The MSCI World Index broke out to new all-time highs in March and continues to extend that breakout. There is no denying that the Index is heavily weighted by the USA but it has been a generally firm period for global stock markets as economic growth figures pick up against a background where interest rates are still relatively accommodative. 



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April 26 2017

Commentary by Eoin Treacy

Leveraging Platform Synergies to Break Adoption Barriers

Thanks to a subscriber for this heavyweight report from Deutsche Bank focusing on payments. Here is a section:

Although initial mobile payment developments were geared toward driving adoption and acceptance, focus has shifted to improving monetization. We believe Pay with Venmo remains a significant opportunity and conservatively estimate potential contribution to revenue growth in FY20 of ~3.5pts and given the higher transaction margins driven by cheaper funding sources (ACH, Balance), estimate potential EPS contribution of $0.28 in FY20. In addition, working capital loans to merchants and/or installment plans provided by PayPal, Square, and Alipay leveraging Big data offer high margin revenue opportunities. Providers are also emphasizing efforts on channels where adoption is easier as well as use cases which offer differentiated value propositions. Accordingly, we believe in-app and inbrowser will dominate mobile payments while in-store mobile payments will be predominantly focused on differentiated value propositions such as omni-channel support, order ahead, and offer/coupon redemption. 

Eoin Treacy's view -

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

One of the big questions for every online business is how to make it easier to take people’s money. Impatience, number of clicks, creating urgency, ensuring security and insuring purchases represent important considerations that have in many respects been solved by the various providers, with software and encryption getting better all the time. 



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April 07 2017

Commentary by Eoin Treacy

Winners and losers of the Industrial Internet

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

Industrial end-markets are still at the beginning of their digitalization journey
The Industrial Internet is about optimizing entire manufacturing systems, including products, processes, supply chains and business models. We estimate digitized solutions could generate c.15% annual opex savings in industrial markets by making assets more efficient. This could reduce the addressable market size for traditional manufacturers of big iron machines. However, this should translate in a market opportunity of c.$200bn for IIoT suppliers in areas like predictive maintenance or operation optimization.

IIoT strategies are as much defensive as they are offensive 
Industrial companies will have to be good at software to remain successful as an increasing share of the manufacturing value chain could shift to providers of sensors, data analytics and industrial cloud architectures. For example, a key risk for the manufacturers of large pieces of equipment requiring maintenance/retrofit is that software companies specializing in analytics or 3D printing might take a growing share of the lucrative service business pie.

3 building blocks for success: Siemens and Schneider well placed
We believe successful companies in an IIoT world will combine an integrated platform of digital solutions; deep domain know-how to give context to data analytics and automation/control activities to in real-time the insights from data analysis on manufacturing processes. Siemens stands out for its comprehensive portfolio of automation and software tools but, the group faces significant digital disruption risks on servicing of its installed base. We rank Schneider and ABB highly. Both have relatively similar IIoT competencies but in different end-markets. We also estimate Schneider is running 5 years ahead of ABB in implementation of its group-wide digital platform and strategy.

 

Eoin Treacy's view -

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

China’s labour costs have been on an upward trajectory for some time and they have already lost many low cost manufacturing jobs to even cheaper locales. With more than a billion people they have an interest in enhancing productivity to ensure they retain the moniker of “workshop of the world”. 



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April 06 2017

Commentary by Eoin Treacy

Bezos is selling $1 billion of Amazon stock a year to fund rocket venture

This article by Irene Klotz for Reuters may be of interest to subscribers. Here is a section: 

“My business model right now … for Blue Origin is I sell about $1 billion of Amazon stock a year and I use it to invest in Blue Origin," said Bezos, the chief executive of Amazon.com Inc (AMZN.O) and also the owner of The Washington Post newspaper.

Ultimately, the plan is for Blue Origin to become a profitable, self-sustaining enterprise, with a long-term goal to cut the cost of space flight so that millions of people can live and work off Earth, Bezos said.

Bezos is Amazon's largest shareholder, with 80.9 million shares, according to Thomson Reuters data. At Wednesday's closing share price of $909.28, Bezos would have to sell 1,099,771 shares to meet his pledge of selling $1 billion worth of Amazon stock. Bezos' total Amazon holdings, representing a 16.95 percent stake in the company, are worth $73.54 billion at Wednesday's closing price.

For now, Kent, Washington-based Blue Origin is working toward far shorter hops - 11 minute space rides that are not fast enough to put a spaceship into orbit around Earth.

 

Eoin Treacy's view -

Amazon is a behemoth which has benefitted enormously from Bezos’ stewardship over the last two decades. However it must raise the eyebrows of investors when they hear he is willing to dispense with a $1 billion in stock per annum to fund what is an interesting, potentially worthwhile but ultimately an expensive vanity project. 



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March 31 2017

Commentary by Eoin Treacy

The Mad Rush to Undo Online Privacy Rules

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

Republicans in Senate and then House did the opposite this past week, voting along party lines to reverse the consumer protections. Comcast, AT&T, Verizon, and other companies have long wished to leverage personal data, seeing Google and Facebook making billions from it through customized advertising revenue. Most web sites, including Bloomberg.com, track Web use in order to deliver relevant advertisements to users.

The ISP’s could not win a policy argument before the FCC, but Congress was willing to act quickly amid the flurry of big issues confronting the public in the first 100 days of the new administration.

Once President Trump signs this bill into law, as he has pledged to do as part of his assault on Obama-era regulation regardless of their value, these telecommunication companies will be able to monitor all sorts of data use and cross-reference it with a user’s location, the time of day, and even the concentration of other service users. As more commerce occurs through phones, these companies could launch payment applications that muscle out similar services from Apple or Google. That kind of consumer data is especially valuable. Then, telecommunication companies could sell ads on the locked or home screen of a phone -- something even Google and Facebook can’t do.

Beyond that, Congress is also removing regulations that made telecommunication companies responsible for the leads of valuable -- and possibly dangerous -- private information through security breaches.

 

Eoin Treacy's view -

I can imagine that many US citizens are not particularly happy with the move to allow internet service providers to sell our household’s browsing history. Nevertheless, if this does in fact pass into law it will afford a number of, what are otherwise considered rather staid, companies the opportunity to compete for ad revenue with the likes of Google and Facebook. 



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March 22 2017

Commentary by Eoin Treacy

Nike Sinks After Sales Slowdown Suggests It's Losing Share

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

Nike Inc. tumbled the most in 19 months after third-quarter sales missed estimates, renewing concern that the long-dominant athletic brand is losing market share to Adidas AG and Under Armour Inc.

Revenue rose 5 percent to $8.43 billion, the Beaverton, Oregon-based company said after the market closed on Tuesday. Analysts estimated $8.47 billion, on average.

Under Armour and a resurgent Adidas have been grabbing market share from Nike, especially in the U.S. That’s led investors to sour on the stock, which had its first annual decline in eight years last year. And last quarter’s results only reinforced Nike’s woes as North American sales rose just 3 percent. Executives on a conference call didn’t provide much reason for optimism, either. Worldwide futures orders, excluding the effects of currency fluctuations, fell 1 percent, the first drop since 2009. Analysts had predicted a 3.4 percent gain.

 

Eoin Treacy's view -

Nike produces great products and has a dominant position in the apparel sector which makes it a target. With Adidas moving to a fast fashion model, Nike is under pressure to innovate and most particularly by moving to an online presence. Under Armor might be grabbing market share but it has also struggled to boost its online offering and as a customer of all three, I personally find the online shopping experience far from compelling with all their sites. 



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March 15 2017

Commentary by Eoin Treacy

Zara Owner's Margin Shrinks to Eight-Year Low on Currencies

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

Inditex put greater emphasis on online expansion last year, cutting its target for new brick-and-mortar stores. The retailer is also making changes to some of its brands to gain market share, with the most recent example being February’s foray into men’s clothing by the Stradivarius brand, which has focused on women.

After starting online sales in Singapore and Malaysia this month, the company plans to add such services in Thailand and Vietnam in the next few weeks and also in India this year.

“India is a very attractive market for us,” Isla said on a conference call with analysts. This year Zara will open a 5,000 square-meter flagship store in Mumbai, which will be its largest store in the country. Inditex has 21 stores in that market.

 

Eoin Treacy's view -

Fast fashion is a major business but is also highly competitive and gaining access to consumers is the key to unlocking growth potential. Moving into high population countries with expanding middle classes is one solution to that challenge and expanding online is another. Creating multiple product lines in a short period of time and getting them to market instantaneously is what has allowed companies like Inditex, H&M and more recently Primark to expand globally but it’s a ruthless sector with clear winners and losers.  



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March 14 2017

Commentary by Eoin Treacy

Email of the day - on vapes and e-cigarettes

Hope you are keeping well.

We are getting loads of orders for Vape labels at the moment and talking to other guys in our industry they are all getting the same - we are talking millions of labels. The industry is seriously expanding, at this time it appears to be multi small to medium players but there must be some serious money to be made somewhere!

The label, bottle, liquid etc. can't come to more than £1.50 so potential profit is there.
I know you've probably already had a look but thought I'd mention it!

 

Eoin Treacy's view -

Thank you for this insightful email. The market for e-cigarettes has been somewhat overshadowed by the hoopla surrounding the evolution of the cannabis industry in the USA. Part of the reason for this is because there has been considerable controversy about the safety of the chemicals used in the vapourising process and the fact that some of the flavours such as bubble gum appear to be directly aimed at children. That resulted in related shares initially surging but subsequently collapsing because the cost of getting new products approved by regulatory authorities surged. 



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March 13 2017

Commentary by Eoin Treacy

Intel to Acquire Mobileye

This press release may be of interest to subscribers. Here is a section:

“As cars progress from assisted driving to fully autonomous, they are increasingly becoming data centers on wheels. Intel expects that by 2020, autonomous vehicles will generate 4,000 GB of data per day, which plays to Intel’s strengths in high-performance computing and network connectivity. The complexity and computing power of highly and fully autonomous cars creates large-scale opportunities for high-end Intel® Xeon® processors and high-performance EyeQ®4 and EyeQ®5 SoCs, high-performance FPGAs, memory, high-bandwidth connectivity, and computer vision technology.

Eoin Treacy's view -

Intel missed a trick when mobile phones took off. It had simply ignored the market for years, preferring instead to concentrate on desktops where it has a strong lead in what is a declining market. When mobile phone demand exploded in popularity companies like ARM Holdings and Qualcomm took the initiative and the bulk of the profits. Since the market for desktop computers is shrinking Intel can’t afford to miss out on the evolution of autonomous vehicles since it is likely to become a major destination for both chips and sensors over the next decades. 



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March 06 2017

Commentary by Eoin Treacy

IBM thinks it's ready to turn quantum computing into an actual business

This article by Mike Murphy for Quartz may be of interest to subscribers. Here is a section: 

As it stands, IBM’s largest quantum computer has five qubits. By contrast the average laptop has hundreds of millions of bits in its processors, although the two types of computers are not directly comparable. IBM hopes, however, to continue its research with the aim of building quantum computers with roughly 50 qubits. For comparison, an IBM spokesperson told Quartz, you can simulate the computational power of a 25-qubit quantum computer on a regular laptop. At about 45 qubits, you’d need the world’s fastest supercomputers, and above 50, “you couldn’t build large enough classical computing systems to simulate that size of a quantum system.”

In IBM’s vision of the future, quantum computers could be used for discovering new drugs, securing the internet, modeling the economy, or potentially even building far more powerful artificial intelligence systems—all sorts of exceedingly complicated tasks. One area the company is looking at right now is in chemistry, attempting to simulate what’s going on in a molecule. “Even for simple molecules like caffeine, the number of quantum states in the molecule can be astoundingly large,” the spokesperson said, “so large that all the conventional computing memory and processing power scientists could ever build could not handle the problem.”

When Quartz visited IBM’s quantum computing lab in Yorktown Heights in 2015, the work being done was viewed as fundamental—research for the sake of research—rather than anything tied to specific business goals. But then again, so was the research that has since led to the creation of Watson. Originally conceived of to take on the question-as-answers gameshow of Jeopardy!, which researchers saw as a “unique and compelling AI question,” Watson has become a set of machine-learning and AI services that IBM sells, and intends to invest $1 billion into.

 

Eoin Treacy's view -

IBM is still in the throes of a major transition from physical hardware manufacturing to an almost total focus on knowledge based services. Artificial intelligence (Watson), and the tools to leverage that technology (massive & fast processing power) represent the key areas of focus in what is a new era for the company. 



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March 03 2017

Commentary by Eoin Treacy

NBCUniversal Invests $500 Million in Snap IPO Amid Digital Push

This article by Gerry Smith and Alex Barinka for Bloomberg may be of interest to subscribers. Here is a section:

Comcast Corp.’s NBCUniversal invested $500 million in Snap’s initial public offering, expanding its reach into digital media by acquiring a stake in the $28 billion disappearing-photo service popular with millennials.

NBC Chief Executive Officer Steve Burke, in a memo to staff Friday, called the move a “significant milestone” in the media company’s partnership with Snap. The Comcast unit will be subject to a 12-month lockup period as part of its investment, meaning it can’t sell Snap’s shares for a year, according to a person familiar with the matter.

Snap surged 44 percent Thursday on their first day of trading, and gained another 12 percent Friday.

With the latest investment, NBC has now committed over $1.5 billion to digital businesses in the last 18 months, including two separate $200 million investments in BuzzFeed, and a $200 million investment in Vox Media, the online publisher of the Verge, Eater and Recode.

Last summer, NBC produced a Snapchat channel featuring Olympic content run by BuzzFeed, which generated over two billion views, Burke said in the memo. With the Snap investment, NBC will expand its partnership with the social-media network and BuzzFeed for the 2018 Winter Games in South Korea, and launch more shows with additional NBC brands in the coming weeks, he said.

 

Eoin Treacy's view -

Snap Inc. is another major venue for social media and particularly for the mid-teen to mid-20s demographic. One of the slides from the above report from Torsten Slok highlights the fact that the 26-year old demographic is the single largest in the USA so it is important both from a size and spending perspective which is why there is such interest in Snapchat from companies like NBC.  



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February 27 2017

Commentary by Eoin Treacy

Wal-Mart launches new front in U.S. price war, targets Aldi in grocery aisle

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

The big box retailer also held meetings last week in Bentonville, Arkansas with food and consumer products vendors, including Procter & Gamble (PG.N), Unilever PLC (ULVR.L), Conagra Brands Inc (CAG.N), and demanded they reduce the cost they charge the retailer by 15 percent, sources said.

Wal-Mart also said it expects suppliers to help the company beat rivals on head-to-head pricing 80 percent of the time, these vendor sources said. The wide-ranging meeting with suppliers - where Wal-Mart discussed other topics - was also attended by Johnson & Johnson (JNJ.N) and Kraft Heinz Co (KHC.O), among others, sources told Reuters. The consumer goods companies did not respond to Reuters requests seeking comment.

These Wal-Mart moves signal a new front in the price war for U.S. shoppers, as the pioneer of everyday low pricing seeks to regain its competitive pricing advantage in traditional retailing.
For more than a year, Wal-Mart said it is investing in price while not sharing specifics. When asked by Reuters about the test and demands on grocery suppliers, Wal-Mart spokesman Lorenzo Lopez said the company is "not in a position to share our strategy for competitive reasons."

Germany-based discount grocer Aldi is one of the relatively new rivals quickly gaining market share in the hotly competitive grocery sector, which already boasts Kroger, Albertsons Cos Inc and Publix Super Markets as stiff competitors on price. A second Germany-based discount grocer, Lidl, is planning to enter the U.S. market this year, and together the German discounters pose a serious threat to Wal-Mart's U.S. grocery business.

 

Eoin Treacy's view -

Wal-Mart is investing heavily to take on Amazon in the online arena but faces attacks on its home turf of low cost retailing from interlopers like Aldi and Lidl which it has little choice but to outbid for custom. With progressively more competition in the consumer sector major producers of packaged goods are likely to come under increasing pressure to trim margins. That suggests they will invest even more heavily in technology and branding to protect their market shares. 



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February 20 2017

Commentary by Eoin Treacy

Mondelez, Kellogg, et al -- Let the Deal Frenzy Begin

This article by Brooke Sutherland and Gillian Tan for Bloomberg may be of interest to subscribers. Here is a section:

The buyout firm's typical playbook has been to target companies with weak margins and then slash costs like crazy to boost profitability. But even a cost-cutter extraordinaire like 3G needs to eventually find revenue growth. Sale gains at Unilever's personal-care business slowed in the most recent quarter, but that industry is certainly growing faster than the staid cereal and sandwich-spreads markets.

The bid may fail. Unilever has rejected Kraft Heinz's offer and at least one analyst is bashing the idea, calling it a "sloppy" combination with questionable logic. There may also be antitrust pushback. But it's hard to see 3G going back to hunting for slow-growth food brands after this. It clearly has its eyes on a different sort of prize. That should be a wake-up call for packaged-food investors who may have been hoping for salvation via 3G and Warren Buffett, the firm's dealmaking billionaire sidekick. 

Would-be 3G targets Kellogg, Mondelez, Campbell Soup and General Mills have all implemented some form of zero-based budgeting -- one of the buyout firm's favorite tools whereby every expense has to be justified each year -- as well as other productivity self-help efforts such as shedding lower-margin and non-core assets. Kellogg is targeting an operating margin of nearly 18 percent by 2018, while Mondelez is aiming to cut $3 billion in costs. Campbell on Friday upsized its cost-savings target to $450 million by fiscal 2020, while General Mills says its on track to drive down expenses by $880 million with its margin-management and efficiency plans. 

Eoin Treacy's view -

Interest rates are low, but rising, so the window for attractive borrowing costs with which to fund takeovers is closing. On the flip side the prospect of synchronised global fiscal stimulus is improving so there is ample scope for the market for global demand for consumer staples to continue to increase. Therefore the rationale for takeovers now, despite the relatively high price tag is still attractive. 



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February 14 2017

Commentary by Eoin Treacy

Email of the day on protectionism representing a headwind for global companies

I would like to know your opinion on this article about Autonomies the recently appeared in The Economist

Eoin Treacy's view -

This is the second article I’ve seen the Economist run focusing on the threat to big global companies represented by protectionism so they certainly have an axe to grind. It’s funny because I was just off a long overnight flight the last time I wrote about this topic so let me try to do a better job this time after a 16-hour flight to Dubai.



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February 10 2017

Commentary by Eoin Treacy

Reckitt Has a $16.6 Billion Way of Fending Off Boredom

This article by Chris Hughes and Andrea Felsted for Bloomberg may be of interest to subscribers. Here is a section:

Infant nutrition is a new area for Reckitt. The company’s traditional strengths were once in household products. Think stuff you put on the floor rather than stuff you pop in the mouth. Through a series of takeovers, consumer healthcare has become an important part of Reckitt’s business -- its brands include Strepsils and Nurofen. Baby formula is another new departure and will put Reckitt in head-on competition with formidable rivals like Nestle SA and Danone SA.

Believing this is a good move means believing the growth rate for infant nutrition will be much faster than Reckitt’s existing markets. Perhaps it will. While growth has stuttered in recent years, it is poised to rebound, according to estimates from Euromonitor International, a research firm.

The lack of overlap with Reckitt's businesses means cost savings are relatively low given the size of the deal – just 200 million pounds ($250 million) annually after three years. As a result, it will take as long as five years for the returns to cover the threshold 7 percent to 8 percent cost of capital.
That’s a long time to wait.

Some investors have been concerned about the amount of debt being taken on to fund this all-cash transaction: net debt will initially be about four times the companies' combined Ebitda in 2017. That concern is valid, but it shouldn't be overdone: credit ratings companies have barely blinked and leverage should fall quickly from that level.

Reckitt has done deals well in the past and probably needs one to regain momentum. Fourth-quarter sales were disappointing, with like-for-like sales growing a measly 1 percent. Guidance for growth this year is lower than analysts hoped.

 

Eoin Treacy's view -

This is not the first time one Autonomy has consumed another and is a further example of how capitalism trends towards concentration. In the other words the large consume the weak. 



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February 09 2017

Commentary by Eoin Treacy

Machines Can Replace Millions of Bureaucrats

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

In some countries, some of the people in these jobs -- such as postal employees -- are public sector workers. But government clerks who do predictable, rule-based, often mechanical work also are in danger of displacement by machines. In a recent collaboration with Deloitte U.K., Profs. Osborne and Frey estimated that about a quarter of public sector workers are employed in administrative and operative roles which have a high probability of automation. In the U.K., they estimated some 861,000 such jobs could be eliminated by 2030, creating 17 billion pounds ($21.4 billion) in savings for the taxpayer.

These would include people like underground train operators -- but mainly local government paper pushers.

This week, Reform, the London-based think tank dedicated to improving public service efficiency, published a paper on automating the public sector. It applied methodology developed by Osborne and Frey to the U.K.'s central government departments and calculated that almost 132,000 workers could be replaced by machines in the next 10 to 15 years, using currently known automation methods. Only 20 percent of government employees do strategic, cognitive work that requires human thinking -- at least for now, while artificial intelligence is as imperfect as it is. Most of the rest are what the Reform report calls the "frozen middle" -- levels of hierarchy where bureaucrats won't budge without approval from above.

Almost all British government departments have 10 employee grades or more. The department for environment, food and rural affairs has 13. Most of the middle-level tasks are routine and rigidly regulated and motivation is low: Only 38 percent of middle-level bureaucrats say they feel good about what they do.

In the U.K., the average civil servant takes 8 sick days a year, while a private sector worker takes 5. In the last two decades public sector spending rose by an average 3.1 percent a year, about 16 times faster than productivity.

 

Eoin Treacy's view -

The majority of commentary is focusing on the how, what and when of Brexit but there also needs to be some thought for how the UK is going to enhance its competitive position in a post EU world. Tax structures, trade deals and deregulation all need to be high on the agenda but so does limiting needless spending in government. 



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February 06 2017

Commentary by Eoin Treacy

Why Hollywood As We Know It Is Already Over

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

When Netflix started creating its own content, in 2013, it shook the industry. The scariest part for entertainment executives wasn’t simply that Netflix was shooting and bankrolling TV and film projects, essentially rendering irrelevant the line between the two. (Indeed, what’s a movie without a theater? Or a show that comes available in a set of a dozen episodes?) The real threat was that Netflix was doing it all with the power of computing. Soon after House of Cards’ remarkable debut, the late David Carr presciently noted in the Times, “The spooky part . . . ? Executives at the company knew it would be a hit before anyone shouted ‘action.’ Big bets are now being informed by Big Data.”

Carr’s point underscores a larger, more significant trend. Netflix is competing not so much with the established Hollywood infrastructure as with its real nemeses: Facebook, Apple, Google (the parent company of YouTube), and others. There was a time not long ago when technology companies appeared to stay in their lanes, so to speak: Apple made computers; Google engineered search; Microsoft focused on office software. It was all genial enough that the C.E.O. of one tech giant could sit on the board of another, as Google’s Eric Schmidt did at Apple.

These days, however, all the major tech companies are competing viciously for the same thing: your attention. Four years after the debut of House of Cards, Netflix, which earned an astounding 54 Emmy nominations in 2016, is spending $6 billion a year on original content. Amazon isn’t far behind. Apple, Facebook, Twitter, and Snapchat are all experimenting with original content of their own. Microsoft owns one of the most profitable products in your living room, the Xbox, a gaming platform that is also a hub for TV, film, and social media. As The Hollywood Reporter noted this year, traditional TV executives are petrified that Netflix and its ilk will continue to pour money into original shows and films and continue to lap up the small puddle of creative talent in the industry. In July, at a meeting of the Television Critics Association in Beverly Hills, FX Networks’ president, John Landgraf, said, “I think it would be bad for storytellers in general if one company was able to seize a 40, 50, 60 percent share in storytelling.”

 

Eoin Treacy's view -

The march of technology enabled content creation is undeniable and irreversible. The simple reason from a business perspective is that relying on human beings to be individually creative is fraught with uncertainty, ambiguity and time management issues. Computers on the other hand excel at getting the job done on time and within budget. The challenge has always been to try and teach computers how to be creative. 



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February 02 2017

Commentary by Eoin Treacy

The latest "nightmare inducing" Boston Dynamics robots

This YouTube video highlights a presentation from Boston Dynamics at a recent Singularity University event. The newest robot is previewed 3:53 minutes into the video. 

Eoin Treacy's view -

Boston Dynamics was an aspiring defence contractor when it was acquired by Google. Since Google’s long held mantra is to do no evil that pretty much precluded the company from selling robots that might one day be designed to kill people. The problem is that it’s hard to design robots to displace manual labour outside of strictly controlled environments. The company is making rapid strides in that field but the primary growth avenue is in places where humans would be in danger, not least from other humans. That is at least part of the reason Alphabet is looking for a buyer for the company.   



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January 26 2017

Commentary by Eoin Treacy

China's Consumers Greet Year of the Rooster with Bling Splurge

This article by Bruce Einhorn and Daniela Wei for Bloomberg may be of interest to subscribers. Here is a section:

Retail sales rose 10.9 percent in December from a year earlier, the best monthly result in 12 months. Chinese imports of Swiss watches are up after falling for seven consecutive months through July, rising 7.9 percent in November from a year earlier. Led by its best-selling Macan SUV, Porsche had a 12 percent sales increase in 2016. Tiffany on Jan. 17 reported “strong growth” in China. On Jan. 19, Luca Marotta, chief financial officer of Rémy Cointreau, said the outlook for the Chinese New Year was “very, very positive.” Xi hasn’t ended his anticorruption drive, but its chilling effect on spending is easing. “A rebound across all luxury categories is now in progress,” Bloomberg Intelligence analyst Deborah Aitken wrote on Jan. 9.

During the Lunar New Year holiday, millions of Chinese will travel and shop at home and overseas. Bookings for international air travel made in December for Chinese New Year rose 9.8 percent from the previous year, according to ForwardKeys, an analyst of tourism data. Mainland tourist arrivals in the gambling hub of Macau jumped 7.8 percent in December, the largest increase since February 2015. Chinese consumers “are still very confident,” says Amrita Banta, managing director of Agility Research & Strategy, a consulting firm focusing on the affluent.

In Macau, tourist arrivals from mainland China for the first three days of the holiday period increased 9.1 percent to 234,000 compared to Chinese New Year in 2016, the Macau Government Tourism Office reported on its website Thursday.

Yet they may not be prepared to spend as much. Rather than purchase expensive items as gifts, Chinese are buying more for personal use, says Bruno Lannes, a Bain partner in Shanghai.

Eoin Treacy's view -

The strong weakness of the Yuan might currently be offering a tailwind for luxury goods companies since consumers have an incentive to buy now rather than pay more later. Additionally the potential for stronger economic growth and the knock-on effect that would have on consumer spending may be an additional factor in the outperformance of luxury goods’ stocks. 



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January 19 2017

Commentary by Eoin Treacy

FANG was so 2015

Eoin Treacy's view -

Remember 2015 when the F.A.N.G, stocks were all the rage and media pundits were falling over themselves to tell us how you had to own them if you were to have any chance of outperforming the major indices. 2016 was predictably a tamer year for those shares with some spending much of their time consolidating 2015’s powerful gain. However with Netflix making headlines today on successfully boosting subscribers, following an international expansion, I thought it might be worthwhile to revisit this acronym. 



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January 13 2017

Commentary by Eoin Treacy

The FTSE-100

Eoin Treacy's view -

The UK’s largest cap index is in the process of completing a 16-year range by breaking on the upside. The Index has rallied for six consecutive weeks, hit new all-time highs last week and improved on that performance this week. Prior to this breakout it had spent three years ranging below, but in the region of, its previous peaks. While a short-term overbought condition is evident that is consistent with what is to be expected from a major breakout. 



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December 23 2016

Commentary by Eoin Treacy

The bizarre business of intentional product failure: planned obsolescence

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

Today built-in obsolescence is used in many different products. There is, however, the potential backlash of consumers who learn that the manufacturer intentionally make the product obsolete faster. Such consumers might turn to an alternative producer (if any exists) that offers a more durable alternative. In other words, this nasty strategy is not available for small companies who would only lose customers.

Given today’s tremendous increase of international corporate power and severely reduced competition, planned obsolescence has become an attractive possibility for products than ever in human history.

Built-in obsolescence was already used in the 1920s and 1930s when global mass production became possible and rigorously optimized. 

 

Eoin Treacy's view -

I have to have my car smog tested soon and coincidentally the check engine light came on just ahead of when the test was due. In talks with the chaps at the dealership and with other customers while I was waiting the scale of obsolescence by design is quite astounding. 

For example, one of the technicians recounted how he bought a manufacturer’s original part for his Audi Q7 on eBay. He thought he had gotten a wonderful deal only to find that Audi’s computers will not code any part that is more than three years old; even if it is unused, one of their own and appropriate for the car in the question. 

 



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December 21 2016

Commentary by Eoin Treacy

How One Huge American Retailer Ignored the Internet and Won

This article by Kim Bhasin and Lindsey Rupp for Bloomberg may be of interest to subscribers. Here is a section:

But don’t expect a trend heading back in time. This is a difficult system to replicate, said Simeon Siegel, an analyst at Instinet. TJX boasts a wide net of inventory buyers who find small batches of desirable clothing, then make a small bet on those goods. This is unlike the traditional department store model, where buyers look at runway trends and make large orders of a few items, hoping that they’ll be the winner for the season.

“You’re buying closed-out product and you’re buying samples,” said Siegel. “You have to be very attuned to the numbers and very attuned to the fashion. The vendor base that you need to be plugged into and the intelligence that goes into buying the product is the most important asset they have. You need to find the most compelling stuff.”

When stores like T.J. Maxx do it right, they leave their shoppers filled with feelings of adventure and serendipity, says Jordan Rost, vice president of consumer insights at Nielsen, a research firm. Even an unsuccessful trip to a discount store can reinforce the thrill of the hunt. The instincts driving customers into parking lots is similar to those shopping online, Rost says. They’re searching for deals and the best item to fill some broad want or need without a target in mind.

As shoppers across generations and demographics become more focused on value than ever before, the excitement of finding something on sale has an even broader appeal. Millennials who grew up relying on e-commerce for all their needs are coming through the doors, too.

“Younger consumers are really open to that kind of open- minded approach to shopping, not necessarily coming in with a specific brand or product in mind,” says Rost. “Discovery is part of the experience.”

 

Eoin Treacy's view -

Retail is anything but simple however there would appear to be three primary business models. A business can compete on price, convenience or exclusivity. Amazon has mastered convenience, TJX competes on price while luxury brands offer exclusivity. In an increasingly connected world it is possible for all three business models to survive but it is hard to excel at more than one. 



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December 13 2016

Commentary by Eoin Treacy

Email of the day on luxury goods companies

Hello I’ve noted that high level luxury looks pretty bad, but medium level luxury have interesting graphs. Tods Safilo and Luxottica seem to be basing, Tods is high quality but not flashy for example 

Piquadro has stopped going down IT0004240443

Ferragamo I can’t figure out the graph yet but it is to watch as well 

Yoox looks bad to me, the site is awful compared to mytheresa.com 

LVMh has broken out too it seems 

I’m asking because I thought that with the dollar so strong , Asians would lower consumption, buy maybe they are buying less Prada and more sober brands I haven’t figured it out yet I read Dolce and Gabbana are going badly 

Saluti!

 

 

Eoin Treacy's view -

Thank you for this thoughtful email and I think it is the right time to be looking at some of Italy’s exporters rather than focusing on the melodrama of politics which is likely to remain tortuous for the foreseeable future. A weaker Euro, or even the remote near-term possibility of a new Florin, both represent bullish potential outcomes for nominal Italian share prices.  



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December 09 2016

Commentary by Eoin Treacy

Ford leads automakers in patents for 2016

This article by Greg Gardner for Detroit Free Press may be of interest to subscribers. Here is a section:

We are living the innovation mind-set in all parts of our business across the globe,” Nair said in a news release. “Our employees are delivering exciting new technologies for our customers at record levels.

The Dearborn automaker was granted 1,700 more patents in other countries, bringing the total to more than 3,100 patents granted worldwide this year.

One of those patents was granted to engineers Tony Lockwood and Joe Stanek for an invention that equips autonomous vehicles with drones.

The system deploys a drone from an autonomous vehicle to map the surrounding area beyond what vehicle sensors can see. Passengers can control the drone using the car’s infotainment or navigation system.

 

Eoin Treacy's view -

Just about all car companies are exploring the autonomous vehicle market while at the same time they are investing in electric vehicles. After all, software is a lot cheaper to develop than hardware. 
This week Apple also had to lay out for regulators some of what it has planned for the transportation market. Here is a section from a story from USA Today

"The company is investing heavily in the study of machine learning and automation, and is excited about the potential of automated systems in many areas, including transportation," Kenner wrote in the letter of Apple's ambitions.

Kenner said Apple supports a proposal that companies share "de-identified" data from crashes or near-misses to help improve self-driving technology, but warns the policy must take consumers' privacy into account.

"Data sharing should not come at the cost of privacy," said Kenner. "Apple believes that companies should invest the resources necessary to protect individuals’ fundamental right to privacy."

 



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December 02 2016

Commentary by Eoin Treacy

As Schultz Steps Down, Next Starbucks CEO Brings Tech Savvy

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

Starbucks’ digital and technology prowess has put it ahead of its peers, allowing it to serve more customers faster. Same- store sales rose 5 percent in the Americas region in the most recent quarter. Mobile payments accounted for about 25 percent of U.S. transactions in that period.
     
Starbucks built on its tech leadership with an order-ahead feature, which lets customers select and pay for drinks in advance. They then can pick up the beverages at a shop without waiting in line.

Since Johnson became operating chief, Starbucks has rolled out mobile ordering across the U.S. and even tested delivery.

The Seattle-based company also is boosting spending on digital ventures, including taking its app and rewards platform to countries such as China.

Though shares of Starbucks tumbled immediately after the announcement, they recovered some of that ground during extended trading. As of 9:53 a.m. in New York on Friday, the stock was down 2.4 percent to $57.11

Eoin Treacy's view -

Starbucks sells coffee and snacks, technology might ensure the lines are shorter but unless it has ambitions on selling that technology to a wider market the business is unlikely to change much. Losing Schulz as a figurehead is a blow and investors are likely to want to see improving sales if the new CEO is to be given the benefit of the doubt. 



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November 29 2016

Commentary by Eoin Treacy

How Apple Lost China to Two Unknown Local Smartphone Makers

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

“Oppo and Vivo are willing to share their profit with local sales. The reward was an extremely active and loyal nationwide sales network,” said Jin Di, an IDC analyst based in Beijing. While they declined to detail their subsidy program, she estimates the two were the top spenders in the past year. “They’re doing something different -- they do local marketing.”

China had for years driven Apple’s and Samsung’s growth. The U.S. company generated almost $59 billion of sales from the region in fiscal 2015, which was more than double the level just two years earlier. During that time its shares surged more than 60 percent. At its peak, Greater China yielded almost 30 percent of its revenue and Apple was neck-and-neck with Xiaomi for the mantle of market leader as users clamored for the larger iPhone 6 models. Even as the domestic economy began to sputter, Chief Executive Officer Tim Cook spent a good chunk of an earnings call last year talking up the country’s promise, saying Apple’s investing there “for the decades ahead.”

 

Eoin Treacy's view -

Mobile devices is an increasingly competitive market. The speed with which new companies seem to come and go is alarming from an investors’ perspective because no sooner does one seem to have conquered the world than they are being supplanted by an even more revolutionary start up. 



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November 28 2016

Commentary by Eoin Treacy

Holiday Price War Heats Up as Wal-Mart, Target Chase Amazon

This article by Lindsey Rupp and Sarah Very for Bloomberg may be of interest to subscribers. Here is a section: 

“With the lines between traditional brick and mortar and e-commerce continuing to blur, the need to make a big splash during large retail events like Black Friday is significant,” Traci Gregorski, senior vice president of marketing at Market Track, said in an e-mailed statement. “The ease of comparison shopping across channels is creating a situation that puts a definitive advantage in the consumers’ hands.”

Wal-Mart and others also are steering customers toward online deals, rather than just physical stores. While the chain still offers Black Friday specials at its supercenters, the day marks the beginning of a streak of online promotions called “Cyber Week.” Wal-Mart has tripled its e-commerce selection to 23 million products this year, aiming to better compete with Amazon. The world’s largest retailer said in a statement Friday that Thanksgiving was one of its top online-shopping days this year and that about 70 percent of the traffic to its website came from mobile devices.

Target, meanwhile, is offering 15 percent off almost everything in its stores and website for two days: Sunday and Monday. The aggressive discounts come at a cost. When Target slashed prices last holiday season, its profit margin slipped to 27.9 percent from 28.5 percent.

 

Eoin Treacy's view -

Retail is becoming increasingly competitive but online only companies like Amazon have a distinct advantage relative to those maintaining large brick and mortar locations. Nevertheless, the benefit of a large physical location network is brand awareness; meaning companies have to work less hard to create an online shopping footprint. High competition however is likely to ensure margins continue to compress. 



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November 03 2016

Commentary by Eoin Treacy

Facebook Projects Greater Costs, Slowdown in Ad Sales Growth

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

In the third quarter, Facebook increased its monthly active users 4.7 percent from the previous quarter to 1.79 billion, topping analysts’ estimates of 1.76 billion. Daily users rose to 1.18 billion.

Facebook expanded its mobile ads business to Instagram, its photo-sharing application, which has started to contribute to the growth. While the company doesn’t break out sales, Instagram’s advertising revenue is rising faster than for Facebook’s main product, Wehner said in an interview. Still, Facebook’s main app was the bigger contributor to the sales increase, he said.

Even if Facebook’s sales gains start to slow by the middle of next year, Chief Executive Officer Mark Zuckerberg has plenty of other levers he can pull to make money. In addition to Instagram, the company has two chat apps, Messenger and WhatsApp, with more than 1 billion users each. Facebook is testing models for revenue from the properties, such as letting users talk to businesses to book trips or send flowers.

Meanwhile, Zuckerberg is changing the nature of the Facebook app to focus more on video.

“In most social apps today, a text box is still the default way we share,” Zuckerberg said. “Soon, we believe a camera will be the main way that we share.”

Eoin Treacy's view -

Facebook has defied the expectations of many people, myself included, to become a genuinely innovative company that has made smart acquisitions to dominate the social media sector. Like Google/Alphabet, it might do many other things but its financial health is reliant on advertising, so monetising the active young user base of Instagram has to be high on their list of priorities. 



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October 28 2016

Commentary by Eoin Treacy

Chip Makers Cut Deals as Cars Get Smarter

This article from the Wall Street Journal may be of interest to subscribers. Here is a section:

Ford Motor Co.,  BMW AG and others have said they would have self-driving cars on the road in the next few years, while Tesla Motors has a semiautonomous system already on the road. Tesla last week began shipping vehicles that include hardware that could one day be empowered by software, which must be validated and approved by regulators, to operate in a fully autonomous mode. Tesla Chief Executive Officer Elon Musk aims to demonstrate fully autonomous cross-country drive by the end of next year.

Analog Devices Inc. cited auto applications as a key motivation in a deal announced in July to buy Linear Technology Corp. in a cash-and-stock deal valued at $14.8 billion. NXP became the top auto chip supplier by striking a deal valued at nearly $12 billion last year to buy Freescale Semiconductor Inc.

But the market for years has been fragmented among many suppliers with different specialties competing on price. Where an iPhone has one central chip to power its computing functions, many parts of cars have long used separate chips—a situation that could become even more complex as car makers add more features for safety and other purposes.

“Those will all require more processing capability and likely will be supplied by different suppliers who are not exactly working together,” said Dave Sullivan, an automotive industry analyst at AutoPacific, in an interview.

The push toward autonomous driving is a countervailing force, requiring more powerful chips and software that can analyze feeds from cameras, radar and other sensors using technologies such as deep learning. Tesla Motors Inc. has moved toward a central computing system, announcing last week it had picked chip maker Nvidia Corp. as part of the self-driving hardware it has vowed to include in all its new vehicles.

 

Eoin Treacy's view -

There is not going to be a single day when someone turns a switch and the global vehicle fleet becomes autonomous. Rather it is going to happen in a piecemeal fashion and regulators will hopefully pay attention to what is happening in other parts of the world to come up with an idea of best practice. 

If we set aside the timeline for when cars are likely to be fully autonomous for a moment, the big question for auto manufacturers is still how to make new cars attractive enough to encourage people to pay up but not so attractive that they will cannibalise next year’s sales. The answer would appear to offer more added extras in the form of electronics and connectivity regardless of whether cars are autonomous. 

 



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October 26 2016

Commentary by Eoin Treacy

Tesla Earnings: The Moment of Truth

This article by Stephen Russolillo for The Wall Street Journal may be of interest to subscribers. Here is a section:

Using generally accepted accounting principles, Tesla is expected to log a loss of 59 cents a share. Since going public in 2010, Tesla only has reported one profitable quarter under this basis. That came in 2013, when the stock surged from the mid-$30s to nearly $200. It has been volatile ever since, currently still trading around $200 with a silly valuation.

Whether or not the quarter is profitable, investors will want to hear about future production, which they are counting on to justify Tesla’s share price. Earlier this month, Tesla reported third-quarter deliveries of its vehicles more than doubled from a year earlier to 24,500. It also reiterated its forecast earlier this month that it would produce 50,000 vehicles in the second half of 2016. And it maintains it will deliver 500,000 cars by 2018, thanks to the Model 3 mass-market sedan.

But Tesla has repeatedly overpromised and underdelivered. In the past five years, Tesla has failed to meet more than 20 of Mr. Musk’s projections, according to an analysis by The Wall Street Journal.

 

Eoin Treacy's view -

This is a big week for earnings with Apple yesterday, Tesla today, Alphabet tomorrow and Amazon on Friday. Tesla makes cars people aspire to own and want to be seen driving. That’s something not many car manufacturers can brag about. However there is nothing easy about starting a car company from scratch even if electrc cars have nearly two thirds fewer parts than conventional vehicles.



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October 26 2016

Commentary by Eoin Treacy

Email of the day on virtual reality and augmented reality

The Gartner curve you posted indicates that Augmented Reality and VR are approaching or in 'payback' phase. If so this ETF could be a good investment vehicle. Purefunds Video Game Technology ETF (GAMR) Can you please add it to the Chart Library. Grateful thanks

Eoin Treacy's view -

Thank you for this suggestion and I agree that the video gaming sector is a growth engine quite apart from the evolution of virtual and augmented reality gaming. The question is no longer about whether people will play games, regardless of gender, age or ethnicity, but rather which will be the most effective platforms to deliver the media. Right now mobile apps are by far the most popular because everyone has a phone. 



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October 13 2016

Commentary by Eoin Treacy

Email of the day on the influence of mega-caps on the performance of the S&P 500:

Given that (apparently) the FANGS account for about 50% of the total gains in the S&P500 over the last 2 years, it would be interesting to see what a chart of the S&P500 minus the FANGS would look like. Does such a chart exist?

My gut feel is that the chart would look more like the Dow Jones Industrial Index

 

Eoin Treacy's view -

Thank you for raising this important question. I don’t have a chart that removes Apple, Alphabet, Microsoft, Amazon and Facebook from the performance of the overall index but I did create this spreadsheet ranking the constituents of the Index by market cap. 



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October 12 2016

Commentary by Eoin Treacy

Baidu is bringing AI chatbots to healthcare

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

The Chinese search engine launched "Melody" on Tuesday, a chatbot that uses artificial intelligence to help doctors care for patients over text.

Baidu (BIDU, Tech30) aims to make medical consults more accessible and help patients determine whether or not they should see a doctor in person.

For instance, if you tell Melody your child is sick, it might ask whether she has a fever or is jaundiced and follow up with additional questions.

Melody integrates with the Baidu Doctor app, which already lets patients ask doctors questions, make appointments and search for health information. Melody asks the patient preliminary questions and pulls data from digitized textbooks, research papers, online forums and other healthcare sources.

The app produces a hypothesis regarding treatment options that a human doctor edits and sends to the patient. The self-learning bot will continue to sponge up information and improve conversation as time goes on.

 

Eoin Treacy's view -

Ray Kurzweil made clear in his talk at the ExMed conference earlier this week that “life begins at a billion impressions” when it comes to artificial intelligence (AI). In other words if you want to teach a computer how to recognise an image you need to feed it a billion examples before it can make the leap to recognition. 



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October 11 2016

Commentary by Eoin Treacy

Email of the day on South Korea

I would like to draw your attention to the 20 year Korean Kospi chart... An explosion waiting to happen ???

Eoin Treacy's view -

Thank you for this question and I displayed a number of long-term charts in the big picture long-term audio / video on Friday. A number of Asian markets are in very long-term ranges and some are testing their long-term highs so I agree it is a good time to ask a question whether they represent explosions waiting to happen now or perhaps later?



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October 07 2016

Commentary by Eoin Treacy

Follow Your Nose

Thanks to a subscriber for this interesting report from Deutsche Bank. Here is a section:

Key Themes to Drive Industry Shift
Minimally Invasive Treatment is Large and Underpenetrated: Balloon sinus dilation (BSD) is a minimally invasive alternative to functional endoscopic sinus surgery (FESS). The procedure was introduced in 2005, but remains underpenetrated (we estimate 20% today). We view penetration increasing to 26% in 2021 lead primarily by continued economic and clinical data.

From the Operating Room to the Physician’s Office: We believe an increasing number of chronic sinusitis procedures will shift from the operating room to the physician’s office setting moving forward. This shift provides benefits to all: patients, physicians, and payors.

DB Survey Supports View of Market Growth and Penetration
We conducted a survey of 30 US based, board certified otolaryngologists. We asked our survey respondents to comment on volume expectations, procedure settings, and market share trends. Our results indicate increased volume across procedure types, a move toward office based procedures, and further penetration of minimally invasive treatment options.

Opportunities for Technologies that Lower Costs and Improve Outcomes
New technologies that further enable minimally invasive procedures and the shift to physician’s office based care are also garnering more attention. Medical supplies and devices companies have taken note with recent launches of more compact navigation systems, steroid eluting stents, and more compact surgical tools and technologies.

 

Eoin Treacy's view -

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

Technology is evolving at a pace that is difficult for many people to keep up. That is the challenge of living in a time where exponential growth in understanding innovation, technology and science are competing and complimenting one another. I’m heading to San Diego this afternoon for Singularity University’s ExMed conference where the primary topic of conversation will be what the future holds for the healthcare sector. I look forward to sharing any insights I gain with you when I get back. 



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October 07 2016

Commentary by Eoin Treacy

Wal-Mart's next move against Amazon: More warehouses, faster shipping

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

The world's largest retailer is now on track to double the number of giant warehouses dedicated to online sales to 10 by the end of 2016, according to Justen Traweek, vice-president of e-commerce supply chain and fulfillment.

That pace is faster than the 8 large warehouses that industry consultants expected Wal-Mart to build by the end of 2017.

At the same time, Wal-Mart in the last year has installed new technology such as automated product sorting and improved item tracking that for the first time puts them on par with Amazon's robot-staffed facilities, according to supply-chain consultants.

"We have doubled our capacity in the last twelve months and that allows us to ship to a majority of the U.S. population in one day," Traweek said.

Wal-Mart is holding its annual investor day on Thursday when, among other topics, it is expected to update on the progress it has made in its e-commerce business.

Wal-Mart, which has about 4,600 stores in the United States and over 6,000 worldwide, has been investing in e-commerce for 15 years, but it still lags far behind Amazon.

"These additions definitely give Wal-Mart the opportunity to compete better than other companies going head-to-head with Amazon," said Steve Osburn, director of supply chain with consultancy Kurt Salmon, referring to the likes of Target (TGT.N) and others. "Having said that, choosing to race with Amazon is different than catching up with them."

 

Eoin Treacy's view -

As the number 1 online venue for shoppers Amazon is the obvious target for aspirational brick and mortar retailers who wish to leverage their own customer bases. Amazon is no longer concentrating on being the cheapest venue, having succeeded in developing a large loyal following of consumers by offering outstanding   quibble free customer service. Wal-Mart on the other hand will have to deal with its caché of appealing to the lower income consumer if it wants to compete with Amazon Prime.



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September 29 2016

Commentary by Eoin Treacy

D-Wave Systems previews 2000-qubit quantum processor

This press release from D-Wave Systems may be of interest to subscribers. Here is a section:

“As the only company to have developed and commercialized a scalable quantum computer, we’re continuing our record of rapid increases in the power of our systems, now up to 2000 qubits.  Our growing user base provides real world experience that helps us design features and capabilities that provide quantifiable benefits,” said Jeremy Hilton, senior vice president, Systems at D-Wave. “A good example of this is giving users the ability to tune the quantum algorithm to improve application performance."

“Our focus is on delivering quantum technology for customers in the real world,” said Vern Brownell, D-Wave’s CEO. “As we scale our processors, we’re adding features and capabilities that give users new ways to solve problems. These new features can enable machine learning applications that we believe are not available on classical systems. We are also developing software tools and training the first generation of quantum programmers, which will push forward the development of practical commercial applications for quantum systems.

Eoin Treacy's view -

D-Wave Systems has received investment from companies like Google and Lockheed Martin as well as NASA but its press releases have tended to trend towards exaggeration. There is considerable debate about the efficacy of the solutions they propose and if one is keeping up with the news there is obviously a chasm between the size of the computers D-Wave claims to be producing and those created by other more conservative companies. 



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September 27 2016

Commentary by Eoin Treacy

Iger's Legacy at Stake in Possible Disney Deal for Twitter

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

The 65-year-old chairman and chief executive officer of Walt Disney Co. is scheduled to retire in June 2018. He’s already achieved a number of milestones, including Disney’s revival of the “Star Wars” film series and the opening in June of the company’s $5.5 billion Shanghai resort. But one issue bedevils him and most other media executives: how to transition to a world where mobile devices, not TV screens, dominate news and entertainment.

The question underscores Disney’s interest in Twitter Inc. The Burbank, California-based company has hired an investment bank to advise on a possible Twitter merger, Bloomberg News reported Monday. A deal would unite the world’s largest entertainment company, the home of ABC, ESPN and Mickey Mouse, with the technology pioneer that created the 140-character tweet. It could let Iger leave knowing he’s given Disney a big presence in digital media and advertising.

“That would be his final stamp on Disney,” said Tim Galpin, a professor of management at Colorado State University and co- author of “The Complete Guide to Mergers and Acquisitions.” “If he could get that behind him, he could walk off with a final major success story.”

Twitter, whose co-founder and CEO Jack Dorsey sits on the Disney board, has already been dipping his toes in live sports, airing National Football League’s night games. That’s a business that Disney, the parent of the leading sports TV network ESPN, knows well and that clearly intrigues Iger

Eoin Treacy's view -

The acquisition and successful reboot of Star Wars coupled with the opening of the Shanghai resort were major successes for Disney. However that does not obscure the fact that the company’s broadcasting and cable divisions represent almost half of revenues and face challenges from interlopers like Netflix, Hulu and YouTube. These challenges have yet to be addressed. 



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September 15 2016

Commentary by Eoin Treacy

U.S. Stocks Rise on Apple Rally as Oil Advances; Bonds Mixed

This article by Oliver Renick and Jeremy Herron for Bloomberg may be of interest to subscribers. Here is a section: 

U.S. stocks rose from a two-month low as Apple Inc. extended a rally, while a rebound in crude boosted shares of energy producers. The selloff in longer-dated bonds eased amid data showing the American economy is on uneven footing.

The S&P 500 Index jumped as Apple pushed its four-day gain past 11 percent. The index slipped toward its 100-day moving average before pushing higher as the level held for a fourth day. Industrial production contracted more than forecast and retail sales unexpectedly slid, sending the odds for a rate increase next week below 20 percent. The dollar was little changed after initially turning lower on the sales data.

Sterling slid after the Bank of England said another rate cut this year is possible. Oil erased gains to fall back below $44 a barrel. 

Equities continued to whipsaw investors after Friday’s rout jolted markets from a two-month torpor and wiped almost $2 trillion in value from stocks amid concern that central banks would deliver smaller doses of stimulus even as the global economy sputters along. Apple’s advance has buttressed U.S. equity indexes, as consumers snapped up the new iPhone model.

 

Eoin Treacy's view -

Apple still has the world’s largest market cap at $620 billion so its underperformance over the last year has represented a drag on the wider market. In fact the drag has been compounded by the impact Apple’s decline in sales growth has had on its suppliers. 



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September 13 2016

Commentary by Eoin Treacy

Dairy Farmers Think Almond Milk Is Bogus But Americans Love It

This article by Leslie Patton and Lydia Mulvany for Bloomberg may be of interest to subscribers. Here is a section:

Almond milk is boosting the nut’s popularity, too. Last year, Americans bought $890 million of the stuff, three times the amount of soy milk’s $286 million, according to IRI. By contrast, consumers bought $9.2 billion of lowfat and skim milk. Retailers have caught on to the trend. Starbucks Corp. is adding almond milk to its lineup of non-milk alternatives, which already includes coconut and soy milk. And as of last month, Dunkin’ Donuts offers it in all its stores.

Milk alternatives have faced scrutiny for not containing very many nuts or natural ingredients. WhiteWave Foods Co.’s Silk brand of almond milk, for example, also contains sugar, salt, gellan gum and sunflower lecithin.

A lawsuit filed last year against Blue Diamond Growers, which supplies Dunkin’ Donuts, said its almond milk contained just 2 percent almonds. Blue Diamond’s U.K. website confirms the product’s almond content. Water and sugar are listed as ingredients before almonds. Alicia Rockwell, a company spokeswoman, declined to comment.

Among the biggest almond-milk sellers are WhiteWave and Blue Diamond, along with retailers like Target Corp. and Aldi Inc. that have private-label brands. Niche companies are also riding the wave, like NüMoo Nut-Milks, which makes an organic, cold-milled chocolate almond milk.

 

Eoin Treacy's view -

Almond milk with its low fat / high protein / low glycemic index credentials tends to tick a lot of boxes for the current trend of health conscious diets. As a result it is boosting demand for the nut amidst what has already been a growth trend in Asian consumption. In a battle of marketing against regular milk it is winning and gaining market share. A clear health scare or drop in Asian demand would likely be required to check that trend. 



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September 12 2016

Commentary by Eoin Treacy

What Samsung's Disastrous Galaxy Note 7 Recall Means for Apple

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

The announcement of the iPhone 7 and 7 Plus was "lackluster," in the view of Gartner analyst Tuong Nguyen, who expressed skepticism that the problems with Samsung's flagship smart phone will lead to an outflowing of customers to Apple.

"We've chosen our battlegrounds already," Nguyen said, suggesting that U.S. users are mostly either in the Android an iOS camps. Shifting from one to the other is "at the least annoying" and involves relearning the quirks of a new platform and accounting for apps that have been bought or downloaded.

"I feel it's more likely that the Samsung incident will push people towards other Android makers like LG more so than towards Apple," Nguyen said. Shifts to a new platform could be more pronounced in emerging markets with burgeoning middle classes who may not have been able to afford iPhones before.

 

Eoin Treacy's view -

The app ecosystem of various platforms represents a significant hurdle to moving from an iOS based phone to Android. That represents a major incentive for companies like Apple and Google to encourage as many programmers as possible to develop apps for their respective languages. Google’s announcement in July that it plans to fund education for up to 2 million programmers in India is a direct reflection of that theme.



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September 01 2016

Commentary by Eoin Treacy

IBM's Watson supercomputer creates a movie trailer

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

But perhaps the most beguiling, and subversive, aspect of Watson's trailer was how much it de-emphasised the monstrous nature of the human/nanotech hybrid. The irony of this entire project is that we have a film where a form of AI turns violent and kills humans, but the AI tasked with making the film's trailer ends up playing down that entire facet of the narrative.

Aside from being a fun experiment in computer-generated creativity, this project also proposes a speedy alternative to a generally costly and time-consuming process. The construction of a film trailer is usually an intensive practice taking several weeks to produce, but this trailer took only 24 hours to construct, from Watson "watching" the film to a human editor delivering the final product.

Making a good film trailer is a delicate balance between art and commerce. If anything this experiment still goes to show that a strong human hand is necessary even when producing what many would determine to be a disposable advertisement. Still, I wouldn't mind getting Watson's perspective on a few sci-fi films that vilify artificial intelligence. Maybe there is a Terminator trailer on the cards that sympathizes with Skynet or a view on 2001: A Space Odyssey where HAL 9000 is the film's hero?

 

Eoin Treacy's view -

IBM is in the midst of redeploying its knowhow from a company that delivered hardware to one almost entirely focused on software/computing as a service and Watson represents a big part of that. Meanwhile IBM is also advancing the development of quantum computers where it already has a 5-qubit prototype that it hopes to offer third party access too shortly. 



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August 30 2016

Commentary by Eoin Treacy

How the European Commission calculated 13bn tax bill

This article by Suzanne Lynch for the Irish Times may be of interest to subscribers. Here is a section:

Ms Vestager said on Tuesday that the commission had concluded that the splitting of Apple’s profits between the two parts of the AOE and ASI companies “did not have any factual or economic justification.”

In short, the commission has concluded that Ireland gave illegal state aid to Apple, in breach of EU law.

It will now fall to lawyers for the accused to contest this.

The refrain from Government circles has long been that the EU may not have liked the tax structures that were in place at the time when the Apple deal was struck but that does not mean that they were illegal.

It may be some years before a definitive answer on this question will be reached.

 

Eoin Treacy's view -

The European Commission has raised important issues for Ireland not least because without its sovereign ability to set taxation there is very little reason for such a large number of Silicon Valley’s best and brightest companies to choose the little island in the North Atlantic as their favoured destination for European headquarters. 



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August 30 2016

Commentary by Eoin Treacy

Ports, a Sign of Altered Supply Chains

This article from the Wall Street Journal may be of interest to subscribers. Here is a section:

“The running joke going around is that flat is the new growth,” said Jett McCandless, chief executive of transportation-technology startup project44.

Freight volumes are stagnating despite strong consumer spending, which rose for a fourth-straight month in July. The problem for traditional retailers: More of those dollars are being spent online, or on entertainment and services such as health care.

Many retailers are stuck with large amounts of unsold goods as a result, reducing their need to import more merchandise. Even after a year of attempting to slim down inventories, retailers’ ratio of inventories to sales, a measure of excess stocks, touched 1.5 in June, close to a seven-year high, according to the Census Bureau. In their most recent earnings reports, Target and Lowe’s reported inventories up more than 4% over the same period last year.

J.C. Penney is placing “slightly smaller orders…or holding back quite a bit” to reduce inventories, Mike Robbins, J.C. Penney’s executive vice president for supply chain, told investors in June. The company has reduced the size of some orders at the beginning of major shopping seasons by as much as 70%.

The focus on reducing inventories is proving to be a drag on growth because it signals that businesses are spending less, and might be pessimistic about future demand. Inventory drawdowns cut second-quarter growth by 1.26 percentage points, to just 1.1%.

Shipping lines are struggling to plan their routes as order volumes become more difficult to predict, said Niels Erich, spokesman for a group of 15 major shipping lines known as the Transpacific Stabilization Agreement. In the past, carriers could count on the peak summer months to make up for slower winter trade.

 

Eoin Treacy's view -

There is no doubt that the disintermediation which characterises online retail has a deflationary impact on how economic growth is measured because it inhibits the velocity of money. I do not view it as a coincidence that the Velocity of M2 has been contracting since 1997 when the internet began to have an impact on the retail sector. 



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August 30 2016

Commentary by Eoin Treacy

The Frozen Concentrated Orange-Juice Market Has Virtually Disappeared

This article by Julie Wernau for the Wall Street Journal may be of interest to subscribers. Here is a section:

Americans drank less orange juice in 2015 than in any year since Nielsen began collecting data in 2002, as more exotic beverages like tropical smoothies and energy drinks take market share and fewer Americans sit down for breakfast.

When they do drink orange juice, they aren’t drinking it from concentrate.

Frozen concentrated orange juice was invented in Florida in the 1940s, primarily as a way to provide juice for the military, readily storable and easy to ship. But frozen juice has been losing favor for years.

Not-from-concentrate orange juice surpassed the concentrated orange-juice market in the 1980s. Now, the 1.4 million gallons of frozen concentrate that Americans drink each month pales in comparison to the 19.1 million gallons of fresh juice consumed each month, Nielsen said.

Louis Dreyfus Co. is scaling back the one citrus facility in Florida that is devoted entirely to concentrated orange juice. The commodities giant is laying off 59 of the plant’s 94 workers as its sells the operation that packs frozen concentrated orange juice into cans for retail.

 

Eoin Treacy's view -

Changing consumption habits where people are more concerned not only with the taste but the quality of the foods they consume are having wide ranging effects on the commodity markets. To most people frozen orange juice does not taste as good as a freshly squeezed navel or Valencia orange. However since squeezing one’s own oranges is both time consuming and expensive the vast majority of orange juice consumed comes from either concentrate or is pasteurized. 



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August 12 2016

Commentary by Eoin Treacy

Global Equity Strategy Who sells where in 2016

Thanks to a subscriber for this heavyweight 118-page report from HSBC covering the international exposure of major companies on a global basis. Here is a section:

 

European equity markets are by far the most global, more than their economies, and are most exposed to Emerging Markets (EM)

US equity market is the most closed of the Developed Markets (DM), a key ingredient to the US’s relative ‘safer-haven’ status

Japanese overseas revenues have grown sharply in recent years, but are now threatened by yen strength

EM stock markets are the most closed, accounting for the bottom seven countries in our ranking
Economies are not stock markets. DM and EM have similar exports/GDP levels, but DM stock markets are twice as global

Chinese corporates going abroad, but only generate 10% overseas today. Brazil corporates only 20% overseas after commodity slump 

Italy and India have ‘globalized’ the most in recent years

IT is the most global US sector; Healthcare the most global European sector. Utilities and telecom are respectively the most local

Overall overseas revenue contribution has stalled (at 44%) the last three years, as globalization has come under pressure

Looking at indices based on revenue rather than domicile transforms the investment universe: EM much larger, whilst US a lot smaller

 

Eoin Treacy's view -

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

With the growth of the global consumer base we began to pay attention to large international businesses that dominate their respective sectors from about 2011. I developed the list of Autonomies by looking at data similar to that compiled in this report; using it to identify companies that have global businesses. In perusing the report veteran subscribers will no doubt be familiar with many of the names. 



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August 12 2016

Commentary by Eoin Treacy

Macy's is closing another 100 stores

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

Macy's closures come amid a sixth-straight quarterly decline in sales. However, sales fell less than feared and the company said it's "encouraged" by recent sales trends. Wall Street applauded the dramatic store closures, sending the stock surging 17%, its best day since 2008.

Macy's said its new strategy is to concentrate its financial firepower and talent on its best-performing locations. The department store plans to invest in strong stores by highlighting new vendors, increasing the size and quality of its staff and investing in new technology.

"We operate in a fast-changing world, and our company is moving forward decisively to build further on Macy's heritage," Macy's CEO Terry Lundgren said in a statement.

Macy's said the store closures could result in the loss of about $1 billion in sales, even after accounting for shoppers who would go online and to other Macy's locations. The company plans to offset that loss in sales by cutting costs, even beyond shutting down these stores.

It's not clear how many jobs will be impacted by these moves. Macy's told CNNMoney it won't detail layoffs until it finalizes its store closure list.

 

Eoin Treacy's view -

Macys, and a number of other big box retailers, have two problems. They rely on physical locations which tend to have a boring feel and their products are too expensive. Nevertheless they command sizeable, albeit shrinking shares of the consumer market and have impressive real estate holdings which have appreciated considerably since the credit crisis. 



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August 11 2016

Commentary by Eoin Treacy

"Speedfactories" to the US

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

Group executive board member at Adidas Eric Liedtke acknowledges that the firm has been producing goods in Asia "for years," helping it to keep costs down. He explains, however, that a new business model based on the Speedfactories will allow it to "decentralize" production to regional locations – in this case the US.

“We're fueling design at the ground level of creativity in Brooklyn and reinventing manufacturing with the first adidas Speedfactory in Atlanta," says Liedtke. "This allows us to make products for the consumer, with the consumer, where the consumer lives in real time, unleashing unparalleled creativity and endless opportunities for customization in America."

New customization options brought to consumers will include fit, comfort and look. The facilities will also allow Adidas to source materials and produce goods locally, helping to reduce transport emissions.

 

Eoin Treacy's view -

Automation and full customisation are likely to represent an important part of the future of the garment industry and companies like Adidas and Nike are leading the way for sporting goods. For every person that can wear whatever they wish, there must be ten more that find it difficult to find clothing that fits just right. Customisation together with 3-d scanning will fix that issue and, from speaking with some of the people developing robot seamstresses, it could be with us in as soon as 3 years. 



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August 11 2016

Commentary by Eoin Treacy

Alibaba's revenue beats estimates; mobile revenue soars

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

Alibaba's total revenue rose to 32.15 billion yuan, or $4.84 billion, in the quarter ended June 30 from 20.25 billion yuan a year earlier. Analysts on average had expected revenue of 30.17 billion yuan, according to Thomson Reuters I/B/E/S.

Mobile revenue from the company's China commerce retail business increased 119.3 percent to 17.51 billion yuan, while monthly mobile active users increased 39 percent.

"We passed an important milestone this quarter in achieving higher monetization of mobile users than non-mobile users for the first time," Chief Financial Officer Maggie Wu said.

The company said its gross merchandise volume (GMV) - the value of transactions carried out by third-party sellers on the company's platforms - rose 24.4 percent to 837 billion yuan.

Alibaba said in June it would in the future only release GMV figures on an annual basis. The change followed the disclosure that the U.S. Securities and Exchange Commission was looking into the company's accounting practices. 

 

Eoin Treacy's view -

Mobile is quickly becoming the dominant force in internet search, retail and advertising not least because of the heavy focus users of social media have on their handheld devices. That trend is even more pronounced in emerging markets; where many consumers first experience of the internet is via their mobile device. That represents a significant growth trajectory for companies that have dominant positions in the respective social media and mobile advertising markets. 



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August 10 2016

Commentary by Eoin Treacy

Palladium at Year High, Driving Precious Metals on Chinese Cars

This article by Eddie Van Der Walt and Ranjeetha Pakiam for Bloomberg may be of interest to subscribers. Here is a section:

Palladium is up 19 percent in the past month, the best performing commodity. Chinese vehicle sales in July gained the most in 17 months, data showed this week. A weaker dollar since late July has also spurred precious metals.

That “highlighted a generally supportive backdrop to palladium demand, exacerbated by ongoing concerns that output from top producers Russia and South Africa may be under threat,” said Jonathan Butler, a precious metals strategist at Mitsubishi Corp. in London. “We could see a bit of profit taking from here, but the $700 level seems to have been recaptured convincingly.”

 

Eoin Treacy's view -

Chinese car sales coming in well ahead of expectations has been positive for palladium prices due to increased demand for catalytic converters but has also been a contributing factor in the outperformance of the German DAX Index.



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August 09 2016

Commentary by Eoin Treacy

You're About to Find Out How Much Sugar is Added to Your Food

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

The U.S. Food and Drug Administration recently ordered up new nutrition labels for cereal boxes, candy bars, and every other packaged food item in the supermarket.

Soon, they will list not just how much sugar is inside, but whether that sugar was naturally occurring, as in raisins, or added later, as on the flakes that come with them. 

Though this additional information won’t be required until next year, health advocates predicted that such legally mandated disclosure would deliver less-sugary foods in its wake. They were right. 

Four Twizzler strawberry twists have the same sugar content as an apple, but clearly the fruit is a better choice—in no small part because it comes with fiber and Vitamin C. The FDA decision recognized that the source of sugar matters, and that listing “Sugars” alone doesn’t reflect that. The agency decision attempts to outsmart food manufacturers that commonly call added sugar ingredients by other names, such as high fructose corn syrup, agave, and fruit juice. Current-ingredients lists and nutrition-facts panels, the FDA was saying, can be surprisingly deceptive. 

Experts in both health and the food industry predicted that the new labels would lead to reformulated products, with those marketed as “healthy” likely to be the first to get makeovers.

Now that manufacturers would have to show in no uncertain terms how much sugar was being added, they would cut it, just as they did with trans fats when their disclosure became required.

 

Eoin Treacy's view -

This is a welcome development from the Food and Drug Administration not least because the number of ways sugar is defined on ingredient lists is dizzying to say the least. For school lunches my girls had been eating Clif bars until we realised brown rice syrup is the largest ingredient and is essentially 100% glucose. I make my own oatmeal bars now so I know what goes into them and blessedly my kids like them. 



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August 09 2016

Commentary by Eoin Treacy

August 05 2016

Commentary by Eoin Treacy

Bristol-Myers Plummets as Drug Misses Key Lung-Cancer Goal

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

“This is a major surprise -- possibly the biggest clinical surprise of my career,” Evercore ISI analyst Mark Schoenebaum, who recommends holding Bristol-Myers stock, wrote in a note. “Investors had high expectations for this trial.”

The results reflected a risky but potentially lucrative bet by Bristol-Myers, highlighting a difference in strategy with Merck. By designing its study to include patients with lower levels of a key biomarker thought to predict response to the drug, Bristol-Myers was aiming at a far larger market for Opdivo. Merck’s Keytruda trial, meanwhile, focused on a smaller subset with high levels of the biomarker, called PD-L1 -- fewer patients, but a better chance of success.

Opdivo didn’t meet its primary goal of lengthening progression-free survival in patients with previously untreated advanced non-small cell lung cancer, compared with chemotherapy, Bristol-Myers said in a statement. The New York-based company is working on completing an evaluation of the late-stage trial’s results.

Bristol-Myers Chief Executive Officer Giovanni Caforio said the company is now focused on combination therapies, which could potentially create a better outcome for the group of patients that don’t get results on drugs like Opdivo alone.

“We have a very broad development program in lung cancer and we are answering a number of very important questions,”

Caforio said in a phone interview Friday. “The role of monotherapy might be limited to a very small subset of patients in the first-line setting, which makes our program now ideally suited to address the next question, which is: ‘What is the role of combination therapy?”’ That will come from a study that analysts said would likely read out in 2018.

 

Eoin Treacy's view -

As a major Biotechnology company Bristol Myers Squibb benefitted enormously from being in a position to acquire promising research in the aftermath of the TMT bubble in the 1990s. That has led it to develop a broad spectrum product range that is cash flow positive and has allowed the share to hold a progression of higher reaction lows despite the turmoil that has affected the biotech sector from last year. 



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July 22 2016

Commentary by Eoin Treacy

Apple Watch Sales Fall 55% in Second Quarter, IDC Report Says

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

Apple Inc. sold 1.6 million watches in the second quarter of this year, down from 3.6 million units a year earlier, IDC said. Global smartwatch sales fell 32 percent to 3.5 million units.

While Apple held on to its position as the industry leader, with 47 percent of the market, it was the only company in the top five to see a decline. Samsung Electronics Co. saw its market share more than double to 16 percent.

“Consumers have held off on smartwatch purchases since early 2016 in anticipation of a hardware refresh, and improvements in WatchOS are not expected until later this year, effectively stalling existing Apple Watch sales," IDC analyst Jitesh Ubrani wrote in the report. “Apple still maintains a significant lead in the market and unfortunately a decline for Apple leads to a decline in the entire market.”

Apple Watch is the company’s first new hardware product since the iPad’s 2010 debut and is a key part of Chief Executive Officer Tim Cook’s strategy to find new areas of growth as sales of the iPhone slow. Apple is expected to introduce an updated operating system and an Apple Watch 2 this fall, promising new features and better performance.

IDC said despite Apple’s sharp drop it expects growth in 2017, as continued development appeals to a broader market.

“Every vendor faces similar challenges related to fashion and functionality, and though we expect improvements next year, growth in the remainder of 2016 will likely be muted,” said Ubrani.

 

Eoin Treacy's view -

Smart watches can measure steps, constantly record heart rate, display text messages, alert us to incoming calls and act as payment mechanisms when we don’t have our wallets. While each of these functions might have been the preserve of a single company when they were debuted most providers now offer some variation on all of them. That suggests the premium price point commanded by Apple Watch isn’t justified not least as a widely expected reboot of the product is expected later this year. That is likely to at least include enhancements to battery life that might allow for some of the more ambitious health related apps to be introduced.



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July 18 2016

Commentary by Eoin Treacy

Email of the day on the Autonomies

July 18 2016

Commentary by Eoin Treacy

Did Lenovo and Google Tango just hit an AR jackpot with this Pokemon Go phenomenon?

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

Put the two together and you have an amped-up version of Pokémon Go, where the monsters you're chasing know their environments. If people walk in front of the monsters, the people stay in the foreground; if the people walk behind them, the people go in the background. If there's a table in the middle of the room, the monster will walk around it instead of through it, and they'll also move around lampposts, signs or any other obstacles.

You get the idea ...

When Lenovo announced the Phab2 Pro, we thought it was an incredibly bold phone with a somewhat niche focus: things like seeing how a new couch will look in your living room, measuring objects from distance or playing with virtual pets. After Pokémon Go exploded and took over the world this week, though, this phone suddenly has the potential to go from niche to the hottest property around.

Of course this would require developer support from Pokémon Go creators Nintendo and Niantic, Inc. It isn't a stretch to imagine such a partnership, with a common connection: Until last year, Niantic was a company living under the Google umbrella (then known as Niantic Labs), and Google also creates the Tango tech that makes this AR mapping possible inside the Phab2 Pro. Surely the lines of communication have already been open on this, no?

 

Eoin Treacy's view -

Video games are often viewed by parents as the antithesis of a productive use of a child’s time. They sit motionless, while absorbed in whatever is happening onscreen and when doing something else only want to go back to playing the game. The additional sight of young people sitting side by side and texting each other rather than speaking is often something older people have great difficulty understanding. 



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July 11 2016

Commentary by Eoin Treacy

Google Plans to Train 2 Million Indian Developers on Android

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

Google launched a program to train 2 million developers in India for its Android platform as its fires up a race with Apple Inc. for the country’s developers to create innovative mobile apps.

The Android Skilling program will be introduced for free across hundreds of public and private universities and training schools through a specially designed, in-person program this year. The program would also be available through the government’s National Skills Development Corporation of India, the company said in a statement.

India is expected to have the largest developer population with 4 million people by 2018, overtaking the U.S., but only a quarter are building for mobile, said Caesar Sengupta, vice president of product management at Google.

“We believe India is uniquely placed to innovate and shape the internet experience of billions of users who are and will come online on the mobile platform,” he said in the statement.

Google plans to make the curriculum accessible to millions for free to help make India a global leader in mobile development.

 

Eoin Treacy's view -

Silicon Valley technology companies have been vocal in their desire to see more people take up coding as a profession and most particularly with a focus on their own operating systems. Google’s decision to facilitate more people learning how to code apps in Android is a direct attempt to challenge Apple’s dominance of the App market. Considering how much each of us use apps on a daily basis, and the insights they offer into the various facets of our lives, growth among operating system developers like Google, Apple and Microsoft is likely predicated on continued dominance of their niche within the wider technology sector and the high barrier to entry it offers.   



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July 07 2016

Commentary by Eoin Treacy

Danone To Acquire WhiteWave Foods In $10 Billion Milk Merger

This article by Maggie McGrath for Forbes may be of interest to subscribers. Here is a section: 

It’s a match made in milk heaven: Danone, the French dairy giant behind brands like Activa, Oikos and Dannon yogurt, announced Thursday morning that it will buy Silk Soy Milk maker WhiteWave Foods in a deal worth $10 billion.

Danone said Thursday that it will pay $56.25 per share to acquire WhiteWave, a price that marks a 24% premium to WhiteWave’s average closing price ($45.43) over the last 30 days. Including debt and other WhiteWave liabilities, the companies are valuing the deal at $12.5 billion. The deal is expected to close by the end of the year, pending all customary shareholder and regulatory approvals.

The acquisition is expected to be fully financed with debt. Danone said that it has received commitment from its banks for this debt, and that it expects to maintain a “strong” investment grade rating.

While the companies are calling the merger a “perfect match of vision, culture, and business,” the financial benefits are even more compelling: the acquisition will serve to almost double the size of Danone’s U.S. business, taking its North American footprint from 12% of Danone’s overall portfolio to 22%. Danone also said that merging with WhiteWave will make it one of the top 15 food and beverage producers in the U.S.

The companies are projecting $300 million in synergies by 2020, and Danone is saying that the merger will be accretive to its earnings within the first year of the deal’s closing.

 

Eoin Treacy's view -

Danone, despite being listed in France, has been relatively unaffected by the travails that have affected the majority of Eurozone shares this year. It is helped considerably by the fact that the vast majority of its revenue is sourced outside the EU and this acquisition brings its operations improved diversity. The result will be that about a third of revenues will come from the Americas, Asia and Europe respectively. 



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July 06 2016

Commentary by Eoin Treacy

U.S. Stocks Advance Amid Drug Maker Rally as Caution Subsides

This article by Anna-Louise Jackson and Bailey Lipschultz for Bloomberg may be of interest to subscribers. Here is a section: 

“There was a big flight to safety trade earlier and a lot of that has reversed,” said Michael Antonelli, an institutional equity sales trader and managing director at Robert W. Baird & Co. in Milwaukee. “You’re looking at a market that’s lacking direction right now. The primary driver for concern is what it always is -- a slow growth backdrop. We’re in a no-man’s land before the next Fed meeting and the kick-off of earnings next week.”

American equities shook off declines in global markets, which fell as knock-on effects of Britain’s vote start to materialize. Anxiety has increased over the potential for instability to spread after at least five asset managers froze withdrawals from U.K. real-estate funds following a flurry of redemptions, while data on Wednesday showed German factory orders were unchanged in May, disappointing forecasters who had called for an increase.

Before yesterday’s decline, the S&P 500 capped its strongest weekly rise since November, boosted by assurances that central banks are prepared to loosen monetary policy to limit the fallout from Brexit. The benchmark is trading at 16.6 times estimated earnings, a higher valuation than the MSCI All-Country World Index and above its own three-year average.

 

Eoin Treacy's view -

10-year Treasury yields steadied today in the region of 1.38% amid a deep overextension relative to the trend mean. Some consolidation in this area is looking likely but with absolute levels so low there has been a surge into assets with the prospect for a higher dividend yield or dividend growth.  



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June 24 2016

Commentary by Eoin Treacy

Email of the day on big UK listed international companies with attractive dividends

Thank you so much for taking the time to do the additional audio last night. I appreciated it very much. You did mention that some of the UK autonomies would probably be very attractive. Could you please share with us a few of the companies that you think are specifically attractive besides RD Shell that you mentioned. Thanks again.

Eoin Treacy's view -

Thank you for your kind email and I’m glad you found the additional audio commentary of use. It looks like I was not the only person coming to the conclusion that the UK stock market would benefit from the devaluation of the Pound, at least in nominal terms, and that the foreign profits of major corporations would be inflated by being repatriated. 



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June 16 2016

Commentary by Eoin Treacy

China's Wealthy Switch to Nike and Adidas for Inconspicuous Consumption

This article by Bruce Einhorn may be of interest to subscribers. Here is a section: 

For Beijing resident Alex He, the cost of a trip to the mall can easily top $3,000. He, 29, works in the finance industry and while he doesn't regularly go shopping for clothes, “when I do shop,” he said in an interview, “I buy a lot.”  Recent purchases include several pairs of Adidas shoes that he found at an outlet mall. He also fancies Under Armour shorts and shirts. “I used to buy a lot of luxury brands but in the last year or so I've been purchasing more of the sports brands because they are more comfortable and more fashionable,” said He.

Chinese consumers like He, who want to make statements when they go shopping, are turning more to Western sports brands. President Xi Jinping's multi-year campaign to reduce conspicuous consumption of luxury goods by public officials has hurt sales of Pernod Ricard, Hugo Boss and BMW. Even as sales of luxury fashion, cars and other prestige products suffer, sportswear brands are robust. Nike's Greater China sales are strong, with orders from September to April up between 27 and 35 percent. On June 6, the company announced it will work with the Chinese Ministry of Education to train up to 7,000 physical education teachers. “Today's generation is the least physically active in history and we can help change that,” Nike President and CEO Mark Parker said in a statement.

 

Eoin Treacy's view -

With one of the highest rates of diabetes in the world China is finally warming up to physical fitness. The service oriented nature of providing gyms and personal trainers also gels well with the government’s aim of fostering the domestic economy. The comparatively high cost of Adidas, Nike and Under Armour clothing relative to domestic brands acts as a diversifier between the well-heeled upper middle class and those for whom such outlays are too expensive. 



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June 13 2016

Commentary by Eoin Treacy

Microsoft to Buy LinkedIn in Deal Valued at $26.2 Billion

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

The deal is the largest under the tenure of Microsoft CEO Satya Nadella, who has been reshaping Microsoft since taking over in 2014 to appeal more to business customers with cloud-based services and productivity tools. LinkedIn isn’t an obvious fit in the ongoing restructuring, but gives Microsoft the biggest global social network for professional that’s used by job seekers, recruiters and human resources teams. In a statement, Nadella said the acquisition could drive growth for LinkedIn as well as Microsoft’s Office 365 and Dynamics services.

“Just as we have changed the way the world connects to opportunity, this relationship with Microsoft, and the combination of their cloud and LinkedIn’s network, now gives us a chance to also change the way the world works,” Weiner said in the statement.

 

Eoin Treacy's view -

It is very questionable whether Microsoft will get their money back following such a large outlay on a company like LinkedIn and the valuations on the sector generally are not exactly cheap. With the notable exception of Facebook social media/new economy services companies have been underperforming for quite some time. Today’s announcement of a major takeover in the sector has the potential to revitalise perceptions subject to sound fundamentals. 



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June 13 2016

Commentary by Eoin Treacy

Batteries Storing Power Seen as Big as Rooftop Solar in 12 Years

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

The spread of electric cars is driving up demand for lithium-ion batteries, the main technology for storage devices that are attached to utility grids and rooftop solar units.

That’s allowing manufactures to scale up production and slash costs. BNEF expects the technology to cost $120 a kilowatt-hour by 2030 compared with more than $300 now and $1,000 in 2010.
That would help grid managers solve the intermittency problem that comes with renewables -- wind and solar plants don’t work in calm weather or at night, creating a need for baseload supplies to fill the gaps. Today, that’s done by natural gas and coal plants, but the role could eventually be passed
to power-storage units.

The researcher estimates 35 percent of all light vehicles sold will be electric in 2040, equivalent to 41 million cars.

That’s about 90 times the figure in 2015. Investment in renewables is expected to rise to $7.8 trillion by then, compared with $2.1 trillion going into fossil-fuel generation.

“The battery industry today is driven by consumer products like computers and mobile phones,” said Claire Curry, an analyst at Bloomberg New Energy Finance in New York. “Electric vehicles will be the driver of battery technology change, and that will drive down costs significantly.”

The industry still has a long way to go. About 95 percent of the world’s grid-connected energy storage today is still pumped hydro, according to the U.S. Energy Department. That’s when surplus energy is used to shift large amounts of water uphill to a reservoir so it can be used to produce electricity later at a hydropower plant. The technology only works in areas with specific topographies.

There are several larger-scale battery projects in the works, according to S&P Global. They include a 90-megawatt system in Germany being built by Essen-based STEAG Energy Services GmbH and Edison International’s 100-megawatt facility in Long Beach, California.

“Utility-scale storage is the new emerging market for batteries, kind of where electric vehicles were five years ago,” said Simon Moores, managing director at Benchmark Mineral Intelligence, a battery researcher based in London. “EVs are now coming of age.”

 

Eoin Treacy's view -

Innovation in the chemistry that supports batteries has been a lot more difficult to achieve than the Moore’s law related enhancements that have been commonplace in chip manufacturing and increasingly in solar technologies. Nevertheless as the requirement for storage grows increasingly urgent, the capital expended on R&D is expanding and innovations are being achieved. In the meantime economies of scale through larger manufacturing plants are helping to drive efficiencies. 



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June 07 2016

Commentary by Eoin Treacy

Sushi Robots and Vending-Machine Pizza Will Reinvent the Automat

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

“I get it. But this is not a vending machine, it’s an automated restaurant,” he said. “There are real humans making the burritos. Everything is handmade.”

No, those humans are not super-small and no, they don’t toil in the machines. The burritos are made in kitchens that also supply restaurants, sometimes flash-frozen, and then shipped to the boxes. They’re defrosted before going into the machines. An employee checks the boxes once a day to make sure there’s fresh inventory.

The vending machines harken back to the Automat, a 20th- century fast-food restaurant that featured cubbyholes with food items behind glass doors. Put coins in a slot and the door would open for a gratuity-free snack or meal.

The bright orange Burritoboxes are higher tech. They have a touch screen, mobile-phone charging station and live-chat customer service in case there’s an issue. It takes about 90 seconds to heat a complete meal, including Cinnabon-brand gooey bites for dessert. Customers can watch music videos on the touch screen while waiting.

Unlike Burritoboxes, the pizza machines are unbranded so local pizzerias and packaged-food companies can label and fill the machines with their own pies. Pizzerias in Sarasota, Florida, and Chicago are experimenting with them. Each one holds 108 slices and reheats them in a conveyor oven in about one minute and 40 seconds.

Lynnie Cook, 65, the founder of 24/7 Pizza Box, said he has orders for more than 100 of the $29,920 machines. He expects to sell 2,500 in 2017.

“Our time is getting more precious,” Cook said. “You’re going to have people bringing food to where the businesspeople are working, or just making it more convenient.”

Robotics have made their way into the back of restaurants.

Sushi Station, a conveyor-belt-style sushi restaurant in Elgin, Illinois, has two sushi-roll makers from manufacturer Autec. Add rice paper, press a button, add a filling, and voila. The robot costs $19,000. There’s also a machine that makes perfectly shaped rice for nigiri. The robotics help the restaurant supply the roughly 1,000 rolls it sells each day.

 

Eoin Treacy's view -

On Star Trek everybody just went to the hole in the wall to order whatever they wished from the replicator. Vending machines defrosting burritos and pizzas isn’t quite on that level but the convenience of obtaining snack foods without having to spend time inside the restaurant will have appeal for a broad swathe of the population. 



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May 24 2016

Commentary by Eoin Treacy

Email of the day on secular bull markets

I was just listening to your big picture round-up from last Friday.

You mentioned a point that I have heard a number of variations on over the last year, from Fuller Money ..... and that is that we (I think you are taking of US shares) are near the beginning of a major secular bull market (in US shares).

I think the argument you made in last Friday's big picture round-up went something along the lines of:

That US shares have had a long period (16 years) of ranging after the peak in 2000 ....... and that  this is roughly the length of time that US shares ranged sideways in the period from the late 1960s until 1982 ....... when US share commenced it last major secular bull market.

Like you, I am very happy to acknowledge that I do not know the future.

BUT this is what makes me wary of your view that US share might be near the beginning of a major secular bull market:-

The Shiller cyclically adjusted P/E for US shares is above 25 .... which is an extremely high valuation. I am not aware of any example in history, where there have been good real returns for shares over the following 20 years. Shiller's research would suggest the next 20 year share returns would be more like something closer to 0%pa real.

The historically large debt bubbles in the West (but USA in particular) also warns of bad times ahead for investors. Most debt bubbles are followed by economic depression. I am aware of only 1 debt bubble where this has not occurred, namely Japan post 1989 ...... but the 19 years following 1989, delivered horrible returns for Japanese shares and property.

So you are saying I think, "This time is different".  As you know, these are some of the most dangerous words for investors. For US shares to embark on a major secular bull market, would be truly unique in history - at least from what I have found in my very long-term market research.

Your thoughts please?

 

Eoin Treacy's view -

Thanks for this question which in my opinion is of fundamental importance for investors. As you point out, we believe major breakouts from long-term ranges are generally a signal something has changed in how supply and demand are interacting. Provided the breakout is to the upside, this can lead to a new long-term or secular bull market. The possibility of a new secular bull market on Wall Street has been a persistent topic of conversation at this service since we observed large companies with global businesses (Autonomies) breaking out of long-term bases as early as 2011. We are already four years into a secular bull market. .



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May 23 2016

Commentary by Eoin Treacy

Monsanto Trading Below Bayer Bid Shows Regulatory Risk Concerns

This article by Lydia Mulvany and Simon Casey for Bloomberg may be of interest to subscribers. Here is a section: 

While the combination of Bayer and Monsanto makes sense operationally, it’s not clear yet how regulators will view this or other deals in the industry, said James Govan, a fund manager at Baring Investment Services Ltd. in London, who manages about 60 million pounds ($87 million) of agricultural and food-related stocks, including Monsanto shares. If they focus on the size of overall market share, as opposed to individual product categories, it may be harder for the deals to go through, he said in an interview Monday.

St. Louis-based Monsanto has yet to respond to Bayer’s offer. It’s not unprecedented for a target company to trade at less than an offer before the deal is later completed successfully. The current premium of Bayer’s offer to Monsanto’s share price is the 21st-biggest among 143 live deals tracked by Bloomberg.

Bayer’s offer is probably less than Monsanto’s valuation of itself, as the U.S. company expects significant growth between 2020 and 2025, said Jonas Oxgaard, an analyst with Sanford C.Bernstein & Co. in New York. Oxgaard said he expects an offer of $135 to be more palatable. Even then, he said, Monsanto would be reluctant to agree on a deal.

“Monsanto doesn’t want to be bought,” Oxgaard said by phone. “They have a history of being a standalone company, very focused long term, and they consider themselves the best company in the industry. It rankles a bit to be the best and then be acquired.”

 

Eoin Treacy's view -

Bayer and Monsanto represent two of the world’s largest seed producers and due to regulatory headwinds offer two very different ways of achieving more productive and bug or drought resistant plant strains. Monsanto is the world leader in genetically modified products while Bayer relies on bombarding seeds with radiation to induce mutation. A tie-up between the European and US leaders in seed technology represents a powerful proposition but it is unlikely to come cheap and regulators will undoubtedly have caveats. 



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May 06 2016

Commentary by Eoin Treacy

IBM brings quantum computing to the masses

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

Though not a full-blown quantum computer (the IBM processor comprises just five superconducting qubits) it does represent the latest advances in IBM's quantum architecture that the company claims may one day scale up to create very much larger, more complex quantum processors and eventually lead to the development of a universal quantum computer, which could solve some of the problems that simply can't be solved using classical computers.

"Quantum computers are very different from today's computers, not only in what they look like and are made of, but more importantly in what they can do," says Arvind Krishna, senior vice president and director, IBM Research. "Quantum computing is becoming a reality and it will extend computation far beyond what is imaginable with today's computers. This moment represents the birth of quantum cloud computing. By giving hands-on access to IBM's experimental quantum systems, the IBM Quantum Experience will make it easier for researchers and the scientific community to accelerate innovations in the quantum field, and help discover new applications for this technology."

Housed in the IBM T.J. Watson Research Center in New York, the processor uses five qubits formed by superconducting metals embedded on a silicon chip. As Gizmag reported last year, IBM researchers showed that breakthroughs in detecting quantum errors were possible by bringing superconducting qubits together in a lattice arrangement, and it is this quantum circuit design that is brought to bear in IBM's cloud-connected processor with advanced parity measurement error correction protocols.

Although universal quantum computers do not yet exist, IBM believes that medium-sized quantum processors of 50-100 qubits will be a reality within the next decade. A quantum computer created with just 50 qubits would already be more powerful than any of the world's top 500 supercomputers.

 

Eoin Treacy's view -

As silicon transistors get progressively smaller and draw closer to the absolute limit of one atom thick the race has been on to develop alternatives. So far there is no clear winner but there are a number of potential technologies that could hold the answer. Among these are quantum computing, DNA computing, optical or light based computing and graphene based chips.  



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May 02 2016

Commentary by Eoin Treacy

The Science of Fat: After The Biggest Loser, Their Bodies Fought to Regain Weight

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

Slower metabolisms were not the only reason the contestants regained weight, though. They constantly battled hunger, cravings and binges. The investigators found at least one reason: plummeting levels of leptin. The contestants started out with normal levels of leptin. By the season’s finale, they had almost no leptin at all, which would have made them ravenous all the time. As their weight returned, their leptin levels drifted up again, but only to about half of what they had been when the season began, the researchers found, thus helping to explain their urges to eat.

Leptin is just one of a cluster of hormones that control hunger, and although Dr. Hall and his colleagues did not measure the rest of them, another group of researchers, in a different project, did. In a one-year study funded by Australia’s National Health and Medical Research Council, Dr. Joseph Proietto of the University of Melbourne and his colleagues recruited 50 overweight people who agreed to consume just 550 calories a day for eight or nine weeks.

They lost an average of nearly 30 pounds, but over the next year, the pounds started coming back.

Dr. Proietto and his colleagues looked at leptin and four other hormones that satiate people. Levels of most of them fell in their study subjects. They also looked at a hormone that makes people want to eat. Its level rose.

“What was surprising was what a coordinated effect it is,” Dr. Proietto said.
“The body puts multiple mechanisms in place to get you back to your weight.
The only way to maintain weight loss is to be hungry all the time. We desperately need agents that will suppress hunger and that are safe with long-term use.” 

 

Eoin Treacy's view -

As someone who has seen their weight fluctuate by as much as 15kgs on a number of occasions over the last twenty years I can identify with the difficulty many people have in keeping the weight off. When I saw that my second daughter (age 8) was also having trouble with her weight I read and the whole family implemented the routine outlined in “Ending the Food Fight” by Dr. David Ludwig. She has dropped two dress sizes since then and is a much happier and energetic child as a result. One of the key points he covers in the book is the importance of replacing high calorie foods and carbohydrates with vegetables which tend to inhibit leptin resistance. . 



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April 27 2016

Commentary by Eoin Treacy

The forgotten but enduring emerging markets opportunity

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

As GDP goes, so does consumer products consumption
In these volatile times, the relationship between commodities, currency, pricing and consumption is as pronounced as ever, with inflationary pricing to offset f/x transaction driving bulk of EM growth as benign commodities and modestly improving macro drives modest growth in developed markets. As we discuss in this report, GDP growth is the primary industry consumption driver, with multiples tracking this growth trajectory. For instance, in 2010, when EM growth was solid and commodities high, US and EM-centric CPG companies traded at roughly the same 12% PE premium to the market; by 2015, US centric names jumped to a 40% premium versus 22% for the EM exposed names. With commodity complex still depressed and geopolitical risks omnipresent, we understand the consensus negative views on emerging markets but several stocks in our coverage have substantial leverage to improving trends in these demographically privileged markets.

BRIC by brick
Noting clear cultural, geopolitical and demographic differences across Brazil, Russia, India and China, in addition to myriad other developing markets, the per capita consumption opportunity is significant for branded consumer packaged goods manufacturers. Despite the recent malaise, emerging markets are still growing at least 3x faster than demographically challenged developed markets, with often cited but still powerful dynamics of younger, upwardly mobile populations, urbanization, female workforce participation and shift from agrarian to services jobs supporting sales, margin and cash flow growth for those who have already built the critical infrastructure.

Valuation supports market perform view on group
Group is trading above average relative to the market on historical P/E multiples; and industry DCF, which we use to derive our target prices and assumes 2.5% sales growth and 0.6 pts of margin expansion per year through 2023 (7% WACC, 1.5% TVG) suggests group is about 2% undervalued relative to its cash flow. Downside risks include cost inflation, rising rates, dollar strength, consumption declines and EM slowdown. Upside risks are US recovery, M&A rational pricing, flat commodities and f/x, accelerated restructuring, EM stabilization, and cost savings, and aggressive balance sheet redeployment.

 

Eoin Treacy's view -

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

The Consumer Staples and Consumer Discretionary sectors have been consistent outperformers over the course of the medium-term bull market from the 2009 lows. Part of the reason for this is because they offer exposure to the rise of the global middle class but also because they dominate their respective niches and often have reliable cash flows. 



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April 25 2016

Commentary by Eoin Treacy

For Counterfeit Fighters on Social Media, Fake Profiles Are a Real Ally

This article by Kathy Chu for the Wall Street Journal may be of interest to subscribers. Here is a section: 

Globally, sales of fake goods amount to between $250 billion and $600 billion each year, as products made mostly in China are dispersed through brick-and-mortar shops as well as online platforms from the Philippines to the U.S., government and industry groups say.

More than half of counterfeiters now use social media to sell their products, up from about 10% three years ago, estimates Ken Gamble, who tracks fake goods for global brands. Brands now want monitoring of counterfeit sales extended to social media, he said.

Ugg, the maker of sheepskin boots, created anticounterfeiting pageson Facebook and Twitter last year to alert consumers to the growing problem.

“You hear these stories about how they’re being duped and losing their money,” said Graham Thatcher, brand protection associate at Deckers Outdoor Corp., Ugg’s parent company.

Eoin Treacy's view -

Counterfeiting is big business and there is a well-trodden route for getting the goods in question out of China. It’s an issue that will always be with us because demand is steady and the profits than can be made, often in a short period of time, are large. Certainly, China is a major source of counterfeit goods and is unlikely to begin really enforcing patents until it has a vested interest in doing so. However even then, respect for patents is likely to remain spotty. Where counterfeiters becomes a problem for investors is when manufacturers can latch onto a large target to get a high profile win in their efforts to combat the practice. 



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April 22 2016

Commentary by Eoin Treacy

Record VIX Bets Keep Surging Amid Wall Street Mixed Signals

This article by Joseph Ciolli and Inyoung Hwang for Bloomberg may be of interest to subscribers. Here is a section: 

To Rocky Fishmanof Deutsche Bank, the recent lack of equity volatility has convinced some investors that price swings may return. With the volatility on the VIX itself likely to remain high, he recommends investors buy Standard & Poor’s 500 Index put spreads -- a strategy that involves purchasing and selling bearish contracts on the measure simultaneously.

“Investors don’t believe this low-volatility environment will continue,” said Fishman, an equity derivatives strategist at Deutsche Bank. “Seeing how low the VIX is, it’s an opportunity to buy inexpensive S&P 500 options.”

The CBOE VVIX Index has climbed 5 percent this quarter, and its average this year is about 8 percent higher than its historical average, data going back to 2006 show.

There may be another reason that call activity has continued to swell amid the stock rally, according to Deshpande.

Credit investors may be looking to protect recent gains delivered by a 29 percent contraction in the credit spread for investment-grade bonds since Feb. 11. That’s pushed more investors into fixed income trading.

“Credit spreads have rebounded and people are investing in the space again,” Deshpande said. “So they need hedging.”

 

Eoin Treacy's view -

Following the sharp pullback in January many investors woke up to the idea that hedging was a good idea which probably explains subsequent demand for VIX calls despite the fact equities were rallying and volatility measures contracting. The question now however is that while owning VIX hedges was a losing strategy for the last 10 weeks whether that will remain the case over the next 10 weeks. 

The Volatility of the VIX Index (VVIX) has been relatively inert since late January but the lows are rising within its range, albeit modestly. That suggests a move above 100 is looking more likely than no

 



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April 18 2016

Commentary by Eoin Treacy

Morgan Stanley Quarterly Profit Beats Estimates on Cost Cuts

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

First-quarter net income fell 53 percent to $1.13 billion, or 55 cents a share, from $2.39 billion, or $1.18, a year earlier, the New York-based company said Monday in a statement.

Profit surpassed the 47-cent average estimate of 22 analysts surveyed by Bloomberg. The decline in trading revenue was smaller than some analysts predicted.

While Chief Executive Officer James Gorman has been shrinking the fixed-income trading division to emphasize the less-volatile wealth-management business, Morgan Stanley is still exposed to slumping markets that hurt results across Wall Street. The firm follows JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. in lowering expenses to compensate for falling revenue. Goldman Sachs Group Inc., which reports results Tuesday, is embarking on its biggest cost-cutting push in years, people with knowledge of the effort said last week.

“If these markets were to continue as is, our goals will be extremely difficult to achieve, and we would therefore take additional appropriate actions,” Gorman said in a conference call with analysts. The company is reviewing every product and business to “convince ourselves that we need our footprint as it’s currently configured,” he said.

 

Eoin Treacy's view -

The fact the major investment banks are reporting earnings that are lower than last year but above analyst expectations helps to illustrate just how bearish sentiment has been. While the case for significant additional upside might be hard to rationalise there is scope for reversionary rallies across the sector.  



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April 07 2016

Commentary by Eoin Treacy

The World Is Getting Fatter and No One Knows How to Stop It

This article by John Tozzi may be of interest to subscribers. Here is a section: 

Researchers estimate that excess weight caused 3.4 million deaths worldwide in 2010. Being overweight or obese is a risk factor for chronic conditions like cardiovascular disease and diabetes. Those are rising worldwide, too. There were an estimated 422 million adults with diabetes in 2014, a rate of 8.5 percent, compared to 4.7 percent in 1980, according to new estimates published by the World Health Organization April 6.

Diabetes is rising fastest in low- and middle-income countries. It’s most common in the region that includes the Middle East and North Africa, where levels of physical inactivity are high.

The number of people who are overweight or obese is going up pretty much everywhere. The world has made progress against health threats from smoking and malnutrition to malaria and waterborne illnesses. No country has yet reversed the obesity epidemic. “Not only is obesity increasing, but no national success stories have been reported in the past 33 years,” researchers in the Lancet wrote in a 2014 report funded by the Bill & Melinda Gates Foundation.

A United Nations plan published in 2013 calls for halting the rise in diabetes and obesity by 2025. Though the pace of increase has slowed in some places, Lancet researchers recently called the chances of the world meeting that target “virtually zero.”

Eoin Treacy's view -

The vice sector including tobacco, alcohol, gambling, marijuana and pornography exists and thrives because as a species we have poor impulse control and are often slaves to the pleasure centres of our brains. Sugary and fatty foods and drinks target the same parts of the brain and this helps to explain why abstinence, self-control and regular exercise remain a hard sell despite the obvious health benefits.    



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March 07 2016

Commentary by Eoin Treacy

In JPMorgan Fintech Bunker, Coders Are Too Focused for Foosball

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

The bank has overhauled its website -- an unveiling is planned for Wednesday -- to make it easier and more intuitive to use. It consolidates about 300 pages from the old site so a visitor doesn’t have to hunt around to get things done. It also features a newsfeed with articles about personal finance. JPMorgan is slowly adding users to the new platform to gauge their reactions. It expects to add the rest starting this month and later release a new small-business banking website.

Tech competitors such as LendingClub Corp., On Deck Capital Inc. and Wealthfront Inc. threaten to disrupt banks’ relationships with clients by making transactions easier or cheaper. Traditional financial firms are responding by building their own technology in-house, including robo-advisers that give automated investment advice, partnering with the financial technology companies or purchasing them outright. New York-based JPMorgan will spend $3 billion on technology investments this year.

“All the startups, all the fintech guys are pushing very hard because they see opportunity,” said Parsey. “We have to take the banking world up to the same level as the rest of the digital industry. Beyond that, there are exciting ways to innovate how people feel about their finances.”

 

Eoin Treacy's view -

Consumers are no longer willing to take their lunch break or precious after work time to go to the bank, or other such mundane chores that could so easily be accomplished online. That represents a major challenge for companies reliant on bricks and mortar locations to conduct their business. The Millennial generation overtook Baby Boomers as the largest US demographic last year. It will be an increasing priority for companies to aim products directly at this group not least as they enter their prime earning years. 



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March 04 2016

Commentary by Eoin Treacy

Tesla's Getting More Rivals as VW Scandal Clouds Diesel Outlook

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

Volkswagen, meanwhile, has made electric vehicles a linchpin of its plan for recovering from the crisis, accelerating a push to add 20 additional plug-in hybrid and battery-powered cars to its lineup by 2020. That includes the first battery-powered vehicle for the Porsche sports-car brand as well as an electric Audi crossover. And it’s promising new leaps in technology, including ranges of more than 500 kilometers (310 miles) by the end of the decade.

“Charging will only take as long as a coffee break,” instead of hours, Volkswagen CEO Matthias Mueller said in Geneva. “And in the long term, an electric car will cost less than a car with an internal combustion engine.”

Such technology advances will help electric cars eventually. But in the meantime, demand is tepid, with the clean-running vehicles accounting for just 0.68 percent of sales in western Europe, according to Automotive Industry Data Ltd. Much of that demand comes from Norway, where electric cars enjoy generous perks such as tax exemptions and free charging. In Germany, where there are limited benefits, just over 30,000 have been sold to date. Cheap oil prices provide little incentive for consumers to take the leap.

Eoin Treacy's view -

Tesla, more than any other company, has succeeded in making electric vehicles desirable. I personally have very little interest in cars but I have to admit that their marketing is having an effect on me and there is no denying I see a lot more Tesla’s on the road today than a year ago. News last week that Tesla is outselling other luxury cars in the USA is a wake-up call for its German competitors. This lends additional support for the argument that companies need to compete in the electric vehicle sector.  



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February 24 2016

Commentary by Eoin Treacy

Boston Dynamics' Atlas The Next Generation

This video is worth watching because it gives us an idea of just how much progress robotics companies have made. 

Eoin Treacy's view -

The Atlas robot is not production ready but we can see from the above video that it is capable of doing at least some of the work currently done by teamsters. That suggests, a decade from now, when better robots are both cheaper and more intelligent the role to played by humans in labour related jobs will be under even greater stress. Stay in school kids!
 

 



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February 23 2016

Commentary by Eoin Treacy

Inside the New Microsoft, Where Lie Detection Is a Killer App

This article by Dina Bass for Bloomberg may be of interest to subscribers,. Here is a section:

Microsoft truly embraced the technology when it started Bing in an attempt to catch up with Google. Satya Nadella ran engineering and technical strategy for the search division before becoming chief executive officer two years ago and has been sprinkling machine learning like fairy dust on everything his company touches. "Microsoft is now in this place where they have machine learning very deeply embedded," Domingos says. "They’re investing a lot in making machine learning less Wild West."

Like Google and Amazon, which have both used the technology to improve their own products, Microsoft is weaving machine learning into its own operations. This isn't simply about helping the company save money and function better; the more Microsoft uses the technology itself, the easier it is to explain and sell. "Customers are confused," says Joseph Sirosh, lured from Amazon in 2013 to oversee engineering for Microsoft’s machine learning efforts. "Cutting through that noise has been a bit of a challenge. It has been also hard for our own field and sales people to go talk to customers and educate them about all the use cases."

CFO Amy Hood’s finance department has come to rely on algorithms—using them to help forecast sales and how many licenses the company will sell in a given period. "It turns out to be very, very accurate for that application," Sirosh says. "Amy Hood is a big fan of this. She can sleep nicer knowing that a machine learning model predicted her quarter."

 

Eoin Treacy's view -

Major technology companies are investing heavily in machine learning with the aim of answering questions we have not yet learning how to ask. It’s hard to take the ego out of decision making. Strong personalities generally tend to get their way not because what they want is the most appropriate course of action but because they can shout loudest, have the best connections or the most persuasive argument. Machine learning holds out the promise of creating data driven business models with reduced influence of big personalities. We might someday hope that governments adopt the same data driven methods.



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February 09 2016

Commentary by Eoin Treacy

Another Sign of Rough Sledding Ahead: Dividend Cuts Surpass 2008

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

Bespoke suggested that spreads in the high-yield debt market could signal whether more companies will be under pressure to cut or eliminate their dividends.

"Based on the trends of the last decade, when the credit markets are willing to lend, companies have jumped at the opportunity to borrow and increase their payouts," the analysts wrote. "The flipside is what we are seeing now, and when the credit markets start to turn off the spigot, some companies find they don’t have the cashflows to support their payouts."

 

Eoin Treacy's view -

Dividends represent an important component in total return over the long term and with interest rates so low they have been a competitive source of income for yield hungry investors over the last six years. The bond markets dwarf the equity markets in terms of the quantities of money moving around so it makes sense that widening spreads are having an effect on the balance sheets of companies as borrowing costs rise. 



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February 08 2016

Commentary by Eoin Treacy

Alphabet becomes the world's largest listed company

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

ON FEBRUARY 1st, the day that Ted Cruz defeated Donald Trump in the Republican caucus in Iowa, Google’s parent company, Alphabet, won a contest of its own, vaulting past its longtime rival, Apple, to become the most valuable listed company in the world by market capitalisation. Alphabet supporters are chuffed with the firm’s strong quarterly earnings and new corporate structure, announced last August. This was the first time Alphabet has shared more information about the performance of the firm’s “moonshot” projects, such as self-driving cars and Nest smart thermostats. In 2015, these projects (i.e., not including the core advertising business, Google) had an operating loss of around $3.6 billion—a hefty figure but less than some analysts had feared.

Alphabet is now predominantly an advertising firm, but it is selling a story about its ability to change and become more things to more people. Its believers think the firm will turn at least one of its moonshot projects into a significant earner of profits. The firm has a history of adeptly repositioning itself: it purchased Android in 2005 and YouTube in 2006, which helped it profit from the rise of smartphones and online video. It is also a leader in artificial intelligence, an important area of investment for internet firms today, with applications in everything from autonomous cars to photo-recognition, as well as in Google’s original internet-search business.

 

Eoin Treacy's view -

A week might be a long time in politics but it’s even longer in the markets when trades can be fired off in fractions of a second. Alphabet’s market cap has fallen by close to $50 billion over the last week so that Apple is once more the world’s largest company. Amid the headlines proclaiming Google’s rapid ascent there was one statistic that seems to have been overlooked. 



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January 29 2016

Commentary by Eoin Treacy

January 29 2016

Commentary by Eoin Treacy

Microsoft Cloud-Fueled Revival Persists as Azure Sales Jump

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

The gains add to optimism that Chief Executive Officer Nadella can revitalize growth by focusing on Web-based services and productivity applications. More than 70 percent of Fortune 500 companies are now using at least two different Microsoft cloud services, Nadella said on Thursday. His plan to focus on apps for rival platforms is also attracting users, with 340 million downloads of Office apps on Apple Inc.’s iOS and Google’s Android.

While Nadella pushes expansion, Chief Financial Officer Amy Hood is reining in costs.

“They have two things going for them -- one, the belief that Nadella is driving innovation towards the cloud, and No. 2, Amy Hood has had a blowtorch out on expenses," said Brent Thill, an analyst at UBS AG, referring to Microsoft’s chief financial officer. “It’s a totally different vibe coming out of that place that it was three years ago."

 

Eoin Treacy's view -

Governance is everything has been a refrain veteran subscribers will be familiar with. Microsoft offers a powerful example of how a newly energised board can have a transformative effect on earnings and perhaps more importantly perceptions of further potential. 



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January 28 2016

Commentary by Eoin Treacy

The Agony & The Ecstasy

Thanks to a subscriber for this report from JP Morgan Asset Management which may be of interest. Here is a section:

As mentioned in the Health Care section on page 23, while 2000-2001 was the peak distress period for biotech and life science companies, there has been a steady drumbeat since, with over 100 biotech and life science catastrophic loss events since 2002 (see bar chart). We referenced earlier research showing that even when a drug finally gets to Phase 3 trials, the probability of failure can still be as high as 50%. One possible emerging challenge for the biotech industry: patent trolls. For funding and other reasons, some universities are under pressure to monetize their patents by transferring rights to “assertion entities”. As per a 2014 paper from the University of California Hastings College of Law, as these patent sales take place, the risk to biotech and pharmaceutical companies with existing products on the market increases dramatically. Such patents can cover active ingredients of drugs, methods of treatment, screening methods to identify new drugs, manufacturing methods and dosage forms.

In the table, we show some of the more recent catastrophic losses (companies reaching the 70% decline threshold in 2012 or 2013). Biotech companies can experience periods of depressed stock prices as trials fail or have to be rerun, with some surging when/if success eventually occurs, or when they are bought by larger companies. As a result, the table below captures catastrophic loss at a point in time (Spring 2014), and does not represent a final assessment of each firm’s future prospects.

 

Eoin Treacy's view -

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

This is a useful report laying out the argument for a diversified approach to long-term investing while also highlighting just how much leaders outperform. A central part of the thesis we developed following the credit crisis was to rely on leadership and to favour pre-eminent companies within their respective sectors. Part of the reason for this is because capitalism trends towards concentration. This favours large companies that have the wherewithal to acquire emerging technology and the best assets of troubled competitors. As the report details, the majority of shares perform unremarkably while the leaders lead by a considerable margin. That is why we created the Autonomies theme. 



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January 25 2016

Commentary by Eoin Treacy

Email of the day on the Autonomies and the big picture:

By coincidence I did exactly the same exercise as you on Autonomies this week. I also find that the 10 year view is helpful in current market conditions. You put the emphasis on those Autonomies that are doing relatively well in the current market. What about those Autonomies that show much more bearish patterns? Are they in the majority among the overall number of such companies or not?

Eoin Treacy's view -

Thank you for this question sure to be of interest to subscribers. No Index has been immune to selling pressure in what is the largest stock market correction in seven years so it is a reasonable question how many of the Autonomies have bearish patterns. 

On Friday I focused on the 30 or so that are still trading above their respective trend means because following a large drawdown I think it is more useful to attempt to identify leadership not least following a process of mean reversion. I also mentioned that the majority of underperformers are in sectors exposed to the slowdown in China’s economic expansion and deteriorating commodity prices, especially oil. 

 



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