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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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January 22 2016

Commentary by Eoin Treacy

Mean reversion and the Autonomies

Eoin Treacy's view -

Yes, breadth has deteriorated, stock market indices have pulled back violently, volatility has been troublesome for most and market commentary has been bordering on apocalyptic. However there are still shares trading above their respective 200-day MAs with all of these negative factors contributing to mean reversion. That would suggest they are marching to a very different beat. 



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January 05 2016

Commentary by Eoin Treacy

The Last Innings

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

While it is hard to gauge the extent to which these three factors have slowed this recovery we believe that they have had some impact. The long-term benefits of information technology will likely more than offset such short-term disruptions to fixed asset investments. Similarly, we think the drag from offshoring to China has run its course as China has become a less competitive exporter.

With respect to the excess capacity from China and the drag on global growth, we believe that China’s ongoing investments in new industries such as airplanes and arms will affect the profitability of other multinational companies, reduce their prospective growth trajectories and indirectly lower growth in fixed asset investments.

Finally, we conclude with some data from the seminal work on financial crises by Carmen Reinhart and Kenneth Rogoff, This Time is Different: Eight Centuries of Financial Folly, which shows that the recoveries from financial crises are systematically more muted.44 What is most relevant in the context of our cautiously optimistic outlook for growth and financial markets is the fact that in the 10-year windows following severe banking crises that Reinhart and Rogoff examined, growth picked up substantially in the second five year period relative to the first. In the post-WWII era, on average, developed economies grew 2.1 percentage points faster in the second five-year period relative to the first five years after the onset of the crisis. Similarly, emerging market economies grew an average 3.2 percentage points faster.

 

Eoin Treacy's view -

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

The news headlines are afire with tales of terrorism, war, environment disaster and human misery and yet the stock market has been rallying for more than six years. There is no doubt geopolitical tensions have increased and the Fed is raising rates, from incredibly low levels, for the first time in almost a decade.so there is some justification for anxiety. However that does not mean all stocks are performing in a similar manner. 



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January 05 2016

Commentary by Eoin Treacy

Gene-Editing Drugmaker Backed by Google, Gates Files for IPO

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

Editas Medicine Inc., the drugmaker whose backers include Bill Gates and Google Ventures, filed to become the first publicly traded company to specialize in a new technology to edit flaws in genes.

The company, which uses a gene-editing technique called Crispr, filed Monday for the IPO with an initial size of $100 million. That’s a placeholder amount used to calculate fees and will probably change.

Gene-editing startups have drawn more than $1 billion in private venture-capital investments since 2013, according to Boston Consulting Group, with investors hopeful that new, more precise DNA-editing capabilities will yield treatments for conditions as diverse as blood diseases, cancers, auto-immune disorders and inherited eye disorders. 

Cambridge, Massachusetts-based Editas has raised $163.3 million from selling preferred stock, its filing said. Venture capital firms Flagship Ventures and Polaris Partners each hold more than 15 percent of the company before the offering. Google Ventures -- the unit of Alphabet Inc. that goes by GV for short -- has also bought private shares, along with Gates and Khosla Ventures.

Rodger Novak, chief executive officer of Basel, Switzerland-based Crispr Therapeutics Ltd., has said he would consider an IPO this year. Both companies have said their first in-human trials won’t start until 2017. Other closely-held gene editing firms include Intellia Therapeutics Inc. and Poseida Therapeutics Inc. Bayer AG and Crispr Therapeutics also started a joint venture in December with a $335 million investment from Bayer.

 

Eoin Treacy's view -

There is still an ongoing emotive debate about the virtues of genetically modified food with North America championing the sector while Europe has taken a much more cautious and often aggressive opposing view. Despite fear of the unknown, which would appear to inspire much of the emotive commentary on genetics, the potential for truly life changing innovation is undiminished. 



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December 31 2015

Commentary by Eoin Treacy

Forget El Nini: La Nina Poised to Storm the Markets

This article by Lucy Cramer for the Wall Street Journal on the 23rd may be of interest to subscribers. Here is a section: 

“The likelihood that the current El Niño peaks soon and turns into a potentially strong La Niña by late 2016 or early 2017 is something that participants in agricultural markets should track closely,” Mr. Norland said.  

And

“El Niño gets all the buzz, but La Niña does not get enough credit,” said David Ubilava, a lecturer at the University of Sydney’s School of Economics, who has written on the correlation between climate anomalies and commodity prices. For example, Canada and the U.S. are more likely to get more droughts in La Niña years than during an El Niño year, which can tighten food supplies and push up prices, Mr. Ubilava said.  

 

Eoin Treacy's view -

With floods across much of the Mid West USA and Europe snowless talk of climate change and its effects on weather is widespread. Crops don’t care if the extremity of the current El Nino is influenced by climate change but we do know that volatile weather makes for volatile pricing. 



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December 29 2015

Commentary by Eoin Treacy

Musings From The Oil Patch December 29th 2015

Thanks to a subscriber for this edition of Allen Brooks’ ever interesting report for PPHB. Here is a section: 

California’s proposed rule that a driverless vehicle must contain a steering wheel and a brake pedal for emergencies, goes against the grain of the technology industry that has been leading the development of these vehicles and cannot imagine a situation where the specified equipment would be necessary. It is akin to the continued existence of the emergency brake, a seldom used feature on a car, or directional signals, which many people seem to consider as unnecessary. The mandated equipment will certainly alter a passenger’s experience from that of a 21st Century, space-age vehicle to merely being a passenger riding in a modern automobile.

And   

Stretching out the transition time to a totally driverless vehicle fleet will also delay some of the anticipated economic and energy benefits envisioned. The world of a complete fleet of autonomous vehicles would allow them to be smaller and lighter, reducing the energy needed to produce them and power them. The absence of accidents would reduce the economic impact of injuries, physical damage and deaths, along with limiting or even ending the need for personal automobile insurance and the costs of accident litigation. If driverless vehicles could operate without human drivers, many families might also eliminate the need for second or third cars by being able to overlap their use of one vehicle, even though it would mean that vehicle would drive considerably more miles per year than the typical family’s current vehicles do. Net-net there should be an energy savings. Lastly, fewer vehicles would mean less need for expanded highways and parking spaces, freeing up urban land for alternative uses. California’s stance on driverless vehicles would seem to be slowing down the shift to our transportation nirvana and actually extending the petroleum age.

 

Eoin Treacy's view -

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

California’s laws on what need to be inside an autonomous vehicle, including a driver for example, are likely to represent a brake on the sector’s progress. However as anyone who actually drives a car knows there is a difference between what the law says and what the experience of driving is. 



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December 21 2015

Commentary by Eoin Treacy

Email of the day on Amazon and its marketplace partners

Does the equation work both ways? Could the shippers cut deals with the manufacturers and in essence back door Amazon by having the superior delivery portion of the transaction? If so what are your thoughts on valuation disparity?

Eoin Treacy's view -

Thank you for this important question and it’s something I’ve also been thinking about given Tesla Motors control of its entire sales process. In addition to the other major initiatives pioneered by the company, its decision to forego the dealership route in favour of selling cars directly is an example of how a manufacturer does not need to rely on bulk sales as it builds scale. 



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December 11 2015

Commentary by Eoin Treacy

Nasdaq leadership #2

Eoin Treacy's view -

On Monday I led off with a piece highlighting the fact seven of the largest companies on the Nasdaq also had among the largest overextensions relative to the respective trend means. With so much of the Index’s weighting already having performed so well and with such narrow breadth it was looking unlikely that a move to new highs could be sustained before those shares went through a process of mean reversion. It’s been an interesting week but I thought it was worth re-highlighting some of those charts today so subscribers could see updated charts.



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December 10 2015

Commentary by Eoin Treacy

Lululemon Or Puma Could Be Answer to VF's Deal Drought

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

VF hasn't publicly announced any deals for four years -- its longest drought ever, according to data compiled by Bloomberg.

It's last big takeover was the $2 billion purchase of boot maker Timberland in 2011, and  it dropped a pursuit of surf brand Billabong in 2013 after the company wanted more than VF thought it was worth.

The dearth of new deals is starting to make itself felt: Analysts are projecting VF's sales will rise just 2.8 percent this year, the smallest gain since 2009.

Part of that slowdown is tied to a broader trend among retailers from which VF hasn't been immune. Cheap, fast-fashion brands such as H&M and Zara are drawing customers away from middle-of-the-road purveyors of basics like jeans and T-shirts, just as they get slapped by the strong dollar. Weaker demand and piled-up inventory forced VF to cut its profit forecast in October, sending the shares into a tailspin. 

VF still has a lot going for it. The company's brand mix is diversified enough to help shield it from downturns in specific categories and a robust supply chain lets it better manage inventory levels in response to changes in demand, says Canaccord analyst Camilo Lyon. All of that should position VF to ride out the retail industry's current hardships. But taking advantage of opportunities to bargain shop for more brands as others struggle would put it in an even better position.

 

Eoin Treacy's view -

Companies like H&M and Inditex have new lines hitting stores every week. As I mentioned on my return from China in November there are shops in major cities with new lines every day. For companies still wedded to the idea they can do a new collection for every season this represents a major wakeup call and there are clear winners and losers. 



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December 08 2015

Commentary by Eoin Treacy

JAB Trio Creates Global Coffee Empire for Billionaire Backers

This article by David de Jong for Bloomberg may be of interest to subscribers. Here is a section:

The Luxembourg-based group, known as JAB, has spent more than $30 billion in the past four years acquiring coffee companies in the U.S. and Europe to challenge global leader Nestle SA. Run by a trio of well-connected executives with decades of experience in food and beverage, JAB has bought assets including D.E Master Blenders 1753 NV, Mondelez International Inc.’s coffee unit and high-end chain Peet’s Coffee & Tea.

“This is part of a much, much bigger strategy. JAB wants to be the Budweiser of the coffee space,” Pablo Zuanic, a Susquehanna Financial Group analyst, said, referring to Anheuser-Busch InBev NV, the world’s biggest brewer. “Just as you’ve seen Bud consolidate beer, they want to consolidate coffee.”

 

Eoin Treacy's view -

Coffee is big business and with approximately 20-25 espressos from a pound of beans it is a high margin business. Little wonder then that the bulk of spending from coffee companies goes in the form of marketing and physical locations. Coffee also represents a growth market since it is considered a bourgeois drink in China and for many exemplifies modern living.  

Another way of thinking about coffee is that consumption tends to trend higher as the pace of everyday life increases. People with busy work, family and social commitments tend to get less sleep either because of time or worry and need a pick-me-up in the morning. As the pace of economic development continues to trend towards urbanisation the pace of life inevitably picks up. That’s good news for coffee producers and helps to explain the race to dominate the market.

 



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December 07 2015

Commentary by Eoin Treacy

December 01 2015

Commentary by Eoin Treacy

Musings From The Oil Patch December 1st 2015

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

A final batch of questions focused on how important major oil company dividends were to holding up their share prices? We believe it is an important consideration, but the question of dividends and the major oil companies may actually foreshadow a discussion of their future business models. If a company is stuck in a low-growth industry, which oil certainly is, then spending inordinate sums of money to lift the growth rate may not be worth it. For oil companies, the cost for finding and developing new oil production to boost a company’s output growth rate from 2% to 3% to say 5% to 6%, without the company having any control over the price it receives for the product, should raise questions about their long-term business strategy. Maybe it is better to develop a steady, albeit low, production growth profile while using the surplus cash flow to maintain, and potentially increase, the dividend to shareholders. That might be a way to sustain a company’s stock market valuation and secure stable shareholder support. This strategy implies that capital spending would always be at risk in low commodity price environments, but the strategy could lead to stable employment, which is critical for securing and sustaining the technical talent required in the petroleum business. This strategy, however, wouldn’t work for smaller E&P companies needing capital to grow as their ability to tap the capital markets likely requires that they demonstrate rapid production growth. As we are learning, that strategy can be deadly in a period of low commodity prices. So if major oil companies were to adopt slow-growth production goals while defending and increasing their dividends, their share prices might not decline.

Eoin Treacy's view -

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

Capital Expenditure budgets have evaporated as companies deal with the revised economics of oil and gas development. On the plus side they have already taken significant write downs so any production that comes online as a result of previous investment can be considered already funded. Companies like Exxon Mobil, at a rating of AAA, are considered better credits than many sovereigns and the removal of the burden of capital expenditure leaves them in a better position to sustain their businesses into the medium term.



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November 30 2015

Commentary by Eoin Treacy

Volkswagen Closes In on Fixes for Dirty Diesel Motors in Europe

This article by Birgit Jennen and Christoph Rauwald for Bloomberg may be of interest to subscribers. Here is a section:

The most important next step will be as and when VW will conclude its internal investigations,” Arndt Ellinghorst, a London-based analyst for Evercore ISI, wrote in a note Monday. A program the company set up to encourage whistle-blowers expires Monday, and VW plans to present interim results of its internal inquiry in mid-December.

The carmaker is facing an emissions scandal on three fronts: cheating software it installed in about 11 million cars worldwide; irregular carbon dioxide ratings on about 800,000 vehicles in Europe; and additional questionable emissions software in about 85,000 VW, Audi and Porsche cars with 3.0-liter diesel engines in the U.S. Approval of repairs in Germany, and by extension the rest of Europe, doesn’t guarantee a thumbs-up in the U.S., where regulators first uncovered Volkswagen’s diesel deception.

For the smaller diesels, the German manufacturer has submitted a plan to repair nearly half a million cars to U.S. regulators. A response is due in December. For the bigger diesels, the company plans to alter the questionable software, known as an auxiliary emissions control device, and resubmit it for approval.

 

Eoin Treacy's view -

Volkswagen has sustained a great deal of damage to its reputation as a result of its subterfuge in marketing “clean diesel”. The big question is how they can contain the cost of fixing it and if that can be achieved with introducing an additional filter which does not impact performance that would be very good news. 



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November 13 2015

Commentary by Eoin Treacy

Nordstrom, Macy's Suffer as Americans Skip Trip to the Mall

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

The problem? Department stores aren’t drawing the same foot traffic. Though the job market is improving and the U.S. economy is chugging along, Americans would rather spend their money elsewhere. Nordstrom’s results sent its shares down as much as 22 percent in early trading on Friday, following a similar swoon for Macy’s after it released weak earnings earlier this week.

“It’s kind of bizarre,” said Dorothy Lakner, an analyst at Topeka Capital Markets in New York. “People have money. The economy isn’t bad, but they’re not spending on apparel.”

Nordstrom’s stock tumbled as low as $49.75 in premarket trading in New York. The shares had already slid 20 percent this year through the close of regular trading Thursday.

Cautious Outlook
Even J.C. Penney Inc., which beat sales estimates in the third quarter, is approaching the holiday cautiously. The retailer didn’t raise its annual guidance despite posting a same-store sales gain of 6.4 percent last quarter. That exceeded the 4.5 percent increase analysts expected.

J.C. Penney shares fell as much as 11 percent to $7.82 in early trading on Friday. The company, benefiting from a turnaround plan, had gained 36 percent this year through Thursday.

Retailers and clothing suppliers have struggled to pare down excess inventories, forcing them to rely more on discounts.

Nordstrom’s results reflected softer sales “across channels and merchandise categories,” the Seattle-based company said.

“It’s just a traffic problem," James Nordstrom, president of stores, said on a conference call. “We’ve got less people buying clothes this quarter than we expected.”

Eoin Treacy's view -

Wal-Mart, Macy’s and Nordstrom have come through with earnings that took analysts by surprise and their respective shares have experienced sharp declines as a result. TJX and Ross Stores have also been affected as pessimism about their earnings announcements next week increases.  

These declines are raising big questions. Are retailers suffering because they were overenthusiastic and built up inventory to unsustainable levels? Is it because shoppers are not spending due to insufficient funds or are they choosing to purchase elsewhere? Has online grown to such an extent that shopping at department stores is passé? Are consumers already pricing in the potential impact of a Fed rate hike? Considering how accustomed consumers are to being offered deals are they simply waiting for better prices ahead of the holiday season? 

 



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October 21 2015

Commentary by Eoin Treacy

Email of the day on General Electric

The 10 year weekly chart of General Electric suggests an important break out from a long term range and a move towards the old highs.

Eoin Treacy's view -

General Electric floated the idea of dispensing with its finance arm more than a year ago but confirmed the decision in April with the aim of getting back to its industrial roots. We are now seeing the fruits of that decision. GE represents a dominant player in a number of finance businesses not least aircraft leasing and had become among the world’s largest banks ahead of the financial crisis. It had fallen into a practice where it was making more money from financing the sale of its products than it was from selling them and this left the company exposed to a credit shock which saw the share fall 75% in 2008. 



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October 21 2015

Commentary by Eoin Treacy

Welcome to the future: Three things Back to the Future got right

This article by Darrell M. West and Nick McClellan for the Brookings Institute may be of interest to subscribers. Here is a section: 

Good morning and welcome to the "future." At approximately 4:29 p.m. Hill Valley time on Oct. 21, Doc Brown and Marty McFly arrive at the present day. For many millennials especially, the 1985 film series Back to the Future represented the far-flung fantastical future that many dreamed would come. But how does the Reagan-era vision of a future where we don't need roads compare to our daily lives today?

Sadly, you probably came to work today on the same street you may have trodden as a child back in 1985 without a hover board. But our future is still pretty fantastic, and many of the outlandish futuristic devices you saw in the 1989 film Back to the Future II are closer than you think—or already here. Here are three predictions that the film made that today might actually turn the head of an ‘80s time traveller 

 

Eoin Treacy's view -

Back to the Future was a fun franchise and growing up we all looked forward to owning a hoverboard. Despite Lexus’ rather cool demo product which they seem to have designed just for fun, we are still a long way from flying cars. Drones on the other hand are going from strength to strength as the cost of production continues to decline and GPS is integrated with progressively more products. We don’t have flying cars either but Stanford just releases a video of a DeLorean autonomously turning donuts on a test track which signals where scientists think the future will be.



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October 20 2015

Commentary by Eoin Treacy

Yum! Brands to Split China Division Into Separate Company

This article by Kevin Orland may be of interest to subscribers. Here it is in full:

Yum! Brands Inc., whose restaurants have been selling crispy chicken in Beijing since 1987, plans to split its China business off into a separate publicly traded company following pressure from activist investor Keith Meister.

The new company will be led by Micky Pant, who was named the China unit’s chief executive officer in August, the Louisville, Kentucky-based company said Tuesday in a statement. Greg Creed will continue to lead Yum.

Yum is hiving off the China business after a prolonged sales slump caused by food-safety scandals and increasing competition from local fast-food chains. Meister, a protege of billionaire Carl Icahn, has said the company’s Asian market could be better served with a more focused business and that the move could boost Yum’s value by $7 billion. The company said Tuesday that it is committed to returning "substantial capital" to shareholders in connection with the split.

Yum shares rose 4.2 percent to $74.75 at 7:09 a.m. in early trading in New York. The stock had slid 1.6 percent this year through Monday.

Eoin Treacy's view -

Splitting up the company is a big decision which was probably precipitated by the large profit miss earlier this month. KFC has been enormously successful in China but the question now is whether it has reached capacity. It is certainly ubiquitous in the larger cities so the company’s Chinese growth will depend on incomes rising, for what is a premium product, in tertiary cities particularly in the west. 



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October 20 2015

Commentary by Eoin Treacy

NSA, Apple Chiefs Decode Encryption Views

This discussion highlighted by the Wall Street Journal may be of interest to subscribers. In particular, the second comment by Nathan LaFrance is in my view a good representation of how many consumers feel about the issue. Here is a section: 

Mr. Cook, appearing later, disagreed on the latter point. “I don’t know a way to protect people without encrypting,” he said. “You can’t have a backdoor that’s only for the good guys.”

Apple and federal officials have been at odds for more than a year, since Apple issued a new version of its mobile-operating system that it said safeguards user information, even from law enforcement. But the White House signaled recently that it won’t seek new laws to force tech companies to make products that allow law enforcement to eavesdrop.

 

Eoin Treacy's view -

The USA is finally introducing chip and PIN technology and not before time. My credit card details have been compromised at least four times in the last two years. I’ve now got identity protection from ULCA Health, Anthem, Target, Home Depot but the letter I received yesterday was the one I was most surprised about. Experian, the firm other companies use to check the credit of a customer has been hacked with the loss of untold quantities of client data. In many respects I hope its Chinese government backed hackers since they have little interest in me specifically but after so many incidents one simply has to assume that our most personal data is out there in the public domain. 



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October 14 2015

Commentary by Eoin Treacy

Toyota Maps Out Decline of Conventionally Fueled Cars

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

Yet for now, Toyota is still highly reliant on gasoline- and diesel-powered cars. Last year, around 14% of Toyota’s global sales were hybrid vehicles, including plug-ins. Most of the remaining sales were vehicles powered by gasoline and some diesel, though a detailed breakdown wasn’t available.

Toyota has posted record profits in recent years, partly thanks to growing sales of profitable but gas-guzzling sport-utility vehicles and pickup trucks in the U.S., backed by lower fuel prices.

The vision to eliminate gasoline- and diesel-powered cars was a part of Toyota’s wider green car strategy unveiled Wednesday.

By 2020, Toyota aims to cut carbon-dioxide emissions from new vehicles by more than 22% compared with its 2010 global average. It ultimately hopes to take that to a 90% reduction by 2050, the auto maker said.

To do so, Toyota plans to sell roughly 7 million gas-electric hybrid vehicles world-wide over the next five years, it said. Toyota has sold around 8 million hybrids since it started selling them 18 years ago.

Toyota also plans to sell at least 30,000 fuel-cell vehicles a year world-wide by around 2020, it said.

 

Eoin Treacy's view -

The fallout from Volkswagen’s diesel emissions scandal means other manufacturers, that had not focused on a “clean diesel” marketing campaign, are capitalising on the story by promoting their own innovations.  Toyota has made some big bets on hybrid and fuel cell cars and the debacle of Volkswagen’s fraud enhances the potential that these decisions will succeed in enticing consumers to try a new solution over the medium term. 



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October 09 2015

Commentary by Eoin Treacy

3D-printed Adidas running shoe should fit like a glove

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

The Futurecraft 3D midsole was developed in partnership with 3D printing specialist Materialise. It is designed to provide the cushioning needs of the wearer, matching contours and pressure points of each individual foot. Adidas describes it as a "flexible, fully breathable carbon-copy of the athlete’s own footprint."

Gizmag has requested some additional info from Adidas on the specific materials and processes used to create the Futurecraft 3D, but has yet to receive a response. The sportswear manufacturer does say in a press release, however, that its ultimate aim for the technology is for customers to be able to walk into a store, spend a short time running on a treadmill, then leave the store with a 3D-printed running shoe. 

Eoin Treacy's view -

There is nothing quite like finding a pair of shoes that fits just right. Nike was talking about scanning people’s feet in store and mailing them their shoes a few years ago but nothing has happened on that front just yet. Adidas’s solution would appear more workable because the consumer would be able to walk out of the store holding or wearing the product. It’s still in the future but it does help to exemplify the trend of customisation that physical locations need in order to encourage shoppers to leave their homes. 



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October 07 2015

Commentary by Eoin Treacy

DuPont Breaking In Two After CEO Exit Seen Raising Value 31%

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

DuPont shares surged Tuesday by the most in six years in anticipation that more value will be unlocked. The Wilmington, Delaware-based company said Kullman will be replaced later this month as both CEO and chairman on an interim basis by board member Edward Breen, who oversaw the dismantlement of Tyco International Plc.

Earlier on Monday, Trian Fund Management, the activist investor that argues DuPont would be worth more as two companies, announced it had added to its stake in the company.

In May, Trian co-founder Nelson Peltz led the firm in its proxy fight in a doomed attempt to get three board seats.

"It’s kind of bittersweet, because Trian is vindicated in some respects," said Hank Smith, who helps manage $6.5 billion as chief investment officer at Haverford Financial Services Inc.

in Radnor, Pennsylvania. "If DuPont had embraced Trian earlier on and welcomed Peltz on the board, Ellen Kullman would still be CEO."

 

Eoin Treacy's view -

Speciality chemicals is an amorphous terms used to describe businesses leveraged to everything from agriculture, energy, healthcare, home improvement and anything in between. The drawdown in commodity prices affected at least two of those segments and the difficulties experienced by Latin American countries has been an additional headwind particularly for DuPont. 

One of the original reports on the potential of unconventional gas was written by analysts at Citigroup and titled “Shale Gas: a gamechanger for the chemical sector”. The boom in unconventional oil and gas drilling was a major benefit for chemical companies supplying the “mud” that lubricated the drill bit and keeps the fractures open so oil and gas can flow. The reduction in drilling activity has been an additional headwind and contributed to the relative underperformance of chemical companies. 

 



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September 23 2015

Commentary by Eoin Treacy

VW Chief Winterkorn Steps Down After Emissions Scandal

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

The new CEO’s top priority will be getting to the bottom of a scheme intended to dupe regulators and consumers about emissions of diesel engines installed in 11 million cars worldwide -- more vehicles than VW sells in a year. The automaker set aside 6.5 billion euros ($7.3 billion) on Tuesday to cover potential costs.

VW’s Achilles heel remains the American market. Even before the revelations of the last week, the VW marque was struggling in the U.S., despite investing $1 billion on a new factory in Tennessee to build a stripped-down, cheaper version of the Passat sedan. The brand’s U.S. sales have dropped, in contrast to growth in the overall market, as VW delayed decisions on building sport utility vehicles that would appeal to American consumers. The automaker is also grappling with a slowdown in China, the company’s biggest national market.

Working in the new CEO’s favor is an automaker that for the moment is financially sound. Volkswagen’s automotive division had net liquidity of 21.5 billion euros at the end of June, and posted record profit of 12.7 billion euros in 2014, helped by its strong presence in China and the expansion of the Audi and Porsche nameplates in the lucrative luxury-car segment. VW surpassed Toyota Motor Corp. in the first half to take the top spot in worldwide vehicle sales -- a goal that Winterkorn set early in his tenure to reach in 2018.

 

Eoin Treacy's view -

Unfortunately this is not corporate Germany’s first corruption scandal. Over the last decade there have been a number not least at Siemens, Commerzbank, Deutsche Bank, Man AG, and Infineon among others. Often these have centred on faking expenses and bribery but this may be the first exhibiting outright fraud. These articles from NBS News in 2005, the New York Times in 2008 and the Economist in 2009 may be of interest for historical perspective. Despite these lapses in the standards of governance at large corporations the German stock market has been among the strongest in the region. 

The DAX has paused in the region of the August low but a sustained move below that level would be required to question scope for some additional steadying in this area which would at least allow the oversold condition relative to the trend mean to be unwound. 

As this article points out cheating on emissions isn’t exactly new either. 

 



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September 21 2015

Commentary by Eoin Treacy

How Warner Bros. Battled Its Way to No. 1 in Video Games

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

Burton has another advantage, a base of fans who have snapped up more than 150 million copies of his Lego-themed titles since Lego Stars Wars: The Video Game came out in 2005.
Burton sold U.K.-based TT Games, which he co-founded, to Warner Bros. in 2007. He said 75 percent of Lego video games are purchased by 12-year-olds and up. By including characters from “Ghostbusters” and “Scooby-Doo,” Warner Bros. aims to make Dimensions appeal to older customers.

Warner Bros. Interactive is betting on another common theme in Burton’s Lego games universe, a sense of humor. In Lego Dimensions, Batman whines, “Why do these things always have to be so bright,” as he falls through a portal to another land. A whimpering Homer Simpson, meanwhile, pops up tied to a wrecking ball that players use to knock open a treasure chest.

“For years, you had movie video-game makers trying to copy what was on screen,” said Scott Steinberg, an industry consultant. “That began to work less and less. Consumers are more demanding with their experiences.”

 

Eoin Treacy's view -

Computer games generate more revenue than Hollywood. My daughter was tuning in to the Nintendo World Championships over the weekend and team-based Minecraft games are starting to take off in local cinemas suggesting games are now encroaching on movies’ home turf. The rapid evolution of virtual reality represents a fresh avenue for growth in the sector with just about every firm planning new games. 



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September 21 2015

Commentary by Eoin Treacy

Volkswagen Drops 23% After Admitting Diesel Emissions Cheat

This article by Richard Weiss Naomi Kresge for Bloomberg may be of interest to subscribers. Here is a section

Diesel and VW’s reputation for German engineering were cornerstones of Winterkorn’s effort to catch up in the U.S. market. The violations, which affect nearly half a million vehicles, could result in as much as $18 billion in fines, based on the cost per violation and the number of cars. Criminal prosecution is also possible.

“If this ends up having been structural fraud, the top management in Wolfsburg may have to bear the consequences,” said Sascha Gommel, a Frankfurt-based analyst for Commerzbank AG, whose share rating is under review.

The Wolfsburg, Germany-based company admitted to fitting some of its U.S. diesel vehicles with software that turns on full pollution controls only when the car is undergoing official emissions testing, the EPA said Friday. Affected are diesel versions of the VW Jetta, Golf, Beetle and Passat and the Audi A3.

 

Eoin Treacy's view -

Governance really is Everything and Volkswagen’s management have engaged in scandalous behaviour. With a vote on Friday whether to renew Winterkorn’s contract it is to be hoped the board decide on putting a fresh pair of hands at the helm. 



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September 16 2015

Commentary by Eoin Treacy

AB InBev Approaches SABMiller in Record Industry Combination

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

The two largest brewers have been seen as the end game for global beer mergers. An acquisition of SABMiller, led by CEO Alan Clark, would give AB InBev access to more than $7 billion of revenue in Africa with brands including Castle lager and almost $4 billion of sales in Asia, reducing AB InBev’s dependence on the Americas and Brazil.

With Latin America representing SABMiller’s biggest market, a deal would also broaden AB InBev’s presence in countries such as Colombia, Ecuador and Peru. Its Latin American brands include Cristal and Aguila.

AB InBev’s growth has been based largely around acquisitions since it was formed through a series of purchases by a group of Brazilian businessmen led by Jorge Paulo Lemann. Some analysts have speculated that Lemann’s 3G Capital could help orchestrate a takeover of SABMiller, just as it did when InBev NV bought Anheuser-Busch in 2008.

 

Eoin Treacy's view -

Capitalism trends towards concentration as the strong consume the weak. This has created a situation where groups of companies we might consider oligarchies control substantial footholds in a large number of sectors. A potential tie up between Anheuser-Busch InBev and SAB Miller would represent a further iteration of this trend. 



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September 16 2015

Commentary by Eoin Treacy

As the World Gets Fatter, This Pharma Giant Gets Richer

This article by Makiko Kitamura Albertina Torsoli for Bloomberg may be of interest to subscribers. Here is a section:

After the Tresiba setback, Novo quickly began a heart safety trial demanded by the U.S. Food and Drug Administration. The company submitted a revised application in the U.S. this March -- almost a year ahead of plan. It will know around Oct. 1 whether interim trial results point toward the introduction of Tresiba in the U.S. next year.

Even without that, Soerensen insists Novo has enough products in the pipeline to sustain sales for years. The company in August said it would proceed with late-stage testing of an oral version of a GLP-1 -- until now only available as an injection. And it’s working on an oral insulin, a formidable challenge given the difficulty of regulating absorption through the gut and managing swings in blood glucose. Though even many of Novo’s top researchers doubted the idea of pills to treat diabetes, “I said: ‘Do it anyway! Try it!”’ Soerensen said. 

 

Eoin Treacy's view -

Unfortunately diabetes is a growth sector. It thrives in an environment where people eschew exercise and indulge in sugary, savoury and spicy foods. There have been some encouraging advances in treatment and awareness of the need for lifestyle change helps, but the fact that it is a chronic condition means demand for treatment remains on a growth trajectory. 



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September 02 2015

Commentary by Eoin Treacy

Email of the day on Fanuc and robotics

“I would like to read your comments, if possible, about Fanuc, this leader Japanese company that, although its brilliant prospects it took a dive in the last weeks. Thank you.”

Eoin Treacy's view -

Thank you for this question which others may have an interest in. Industrial automation represents a growth theme dominated by companies supplying robots, software and optics. 

Robots are made from machined parts which is why Fanuc has refused to move manufacturing outside Japan due to the risk of imitation. Nevertheless, the growth of the sector acts as an incentive for other companies to compete not least by taking apart a finished product and reproducing the parts with small changes to avoid litigation. 



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August 27 2015

Commentary by Eoin Treacy

Email of the day on China and market complexion

The following article, seeking to explain China's recent missteps in handling its domestic stock market, is quite interesting: And congratulations on writing some excellent (& cool-headed) analysis this week

Eoin Treacy's view -

Thank you for your kind words and I’m delighted you’re enjoying the commentary. David and I have been working together since the winter of 2003 and I started filling in for him on Comment of the Day in the summers from 2004 when he used to embark on his annual Land’s End to John O’ Groats cycling holidays. Back then you could be reasonably assured of quiet markets during the sleepy summer months but that all changed in the aftermath of the credit crisis when the role of algorithmic traders took centre stage.

Historically, traders use public holidays and vacation periods to initiate counter trend positions in the hope of triggering stops for a quick profit. Computer programs have taken this process to the extreme. The most recent instance was in late July when gold sank to a new low during Asian trading while Japan was on holiday. All too often we now see times most people are on holiday and market liquidity is low fuels volatility and this is particularly true of moves in single stocks. 



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August 26 2015

Commentary by Eoin Treacy

Email of the day on Royal Dutch Shell

Hi Eoin, I love my daily read of your great service.

What is your opinion on Royal Dutch Shell, I am under water by about 30% not counting dividends.

Eoin Treacy's view -

Thank you for this question which is sure to be of interest to other subscribers and I’m delighted you’re enjoying the service. The steep decline in a large number of sectors, particularly energy has left a lot of people in a similar dilemma. My first thought is that with a share yielding 7.71% today it would be rash to ignore the dividend even if the yield was lower when you purchased it. 



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August 24 2015

Commentary by Eoin Treacy

Buy the dip?

Eoin Treacy's view -

In a bull market buying the dips is a winning strategy and is a policy that gains ever more credence as evidence compounds that it generates outsized returns. Investors and traders with orders in the market well below Friday’s close had favourable short-term buying opportunities today, which lent further evidence to the view that buying the dips works. However we also know that at some point buying the dips will not work so the big question is whether this is one of those occasions? 

At The Chart Seminar we define a Type-2 top as a massive reaction against the prevailing uptrend. It often occurs following a loss of momentum or a wedging characteristic but the massive reaction is the defining characteristic. The speed of the decline is unnerving because participants have so little time to react. Many are often left casting around for reasons to explain the move. Those using mental stops are left asking whether it is better to sell at a potential bottom or to wait for a rally. Many people with stale bull positions are less likely to participate in bargain hunting because the impact on their average buy prices would be too much of burden. 

 



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August 13 2015

Commentary by Eoin Treacy

Retail Sales Show Broad Gain as U.S. Consumers Spur Growth

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

Amazon.com Inc. held a Prime Day on July 15 to mark its 20th anniversary, featuring reduced prices on television sets, lawnmowers and other goods. The company said the promotion helped to drive orders surpassing Black Friday, an annual U.S. sales event following the Thanksgiving Day holiday that kicks off the year-end shopping season.

The job market is giving consumers the wherewithal to keep spending. Payrolls grew in July by 215,000 workers following a 231,000 gain in the prior month, and the jobless rate held at a seven-year low of 5.3 percent.

Eoin Treacy's view -

Low energy prices and cheaper imports have acted as an enabler for consumers which has helped Consumer Staples shares retain a position of relative strength. However, that does not negate the fact the retail sector remains intensively competitive particularly between bricks and mortar stores and online platforms. This has forced the former to open e-commerce sites while some youth oriented brands now maintain physical locations so potential customers can try on items but then buy them online. 



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August 10 2015

Commentary by Eoin Treacy

Farm machinery

Eoin Treacy's view -

Against a background where commodity related businesses have been under rather extreme pressure, farm machinery shares have exhibited relative strength. Crops have generally been favourable which has contributed to falling prices and the strength of the US Dollar has contributed to weakness. However as potential that agriculture prices have found at least a near-term low improves, the farm machinery sector may be worth studying in great detail. 



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August 10 2015

Commentary by Eoin Treacy

Buffett Says a Deal for Mondelez Would Be Difficult to Envision

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

Warren Buffett said buying Mondelez International Inc., the maker of Oreo cookies and Ritz crackers, would be difficult for him and his partners at 3G Capital because they’re still working on last month’s purchase of Kraft Foods Group Inc.

“It’s quite unlikely that Kraft Heinz will be doing a big acquisition in the next couple of years,” Buffett said Monday in an interview on CNBC. “We’ve got our work cut out for us for a couple of years.”
H.J. Heinz acquired Kraft last month with the backing of 3G Capital and Buffett’s Berkshire Hathaway Inc.

Activist investor Bill Ackman revealed last week that he has built a 7.5 percent stake in Mondelez valued at $5.6 billion. Shares of Deerfield, Illinois-based Mondelez climbed after the announcement, contributing to a 12 percent gain since July 3.

“Most of the food companies sell at prices that would be very hard for us to make a deal even if we had done all the work needed at Kraft Heinz,” Buffett said.

 

Eoin Treacy's view -

Warren Buffet and 3G Capital paid an all-time high for Heinz in 2013 which was ultimately the correct decision. Capitalism trends towards consolidation as the strong acquire the assets of the weak and become stronger. Nestle, Unilever, Colgate Palmolive, Mondelez and Kraft Heinz represent heavy weights in the global processed foods sectors which continue to benefit from the growth of the global consumer and the desire for quick snack foods as the pace of life accelerates with the demands of a modern economy. 



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August 07 2015

Commentary by Eoin Treacy

Email of the day on companies that rely on Eurozone growth

RiverFront Investments have been telling us that European stocks are interesting investments now that a recovery of the EU economy is happening. Over the last few years you and David have correctly argued in favour of investment in European Autonomies because such a large proportion of their sales takes place outside Europe. If RiverFront is correct, should we not be investing in European firms that do most if not all their business inside Europe? Which European firms correspond to this criterion?

Eoin Treacy's view -

Thank you for a topical question of general interest. Europe has been through an extraordinary period of economic upheaval characterised by unprecedented fiscal austerity that has sapped enthusiasm for bullish future potential. The ECB’s decision to adopt a €1,000,000,000,000 stimulus package in order to boost availability of credit and devalue the Euro represents the same kind of bullish catalyst which the USA enjoyed for much of the last six years. This helps to explain the Euro STOXX Index’s relative strength, at least in nominal terms. 



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August 06 2015

Commentary by Eoin Treacy

Michael Kors Shares Soar After Overseas Sales Fuel Profit Gain

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

Same-store sales fell 5 percent last quarter, excluding currency fluctuations. That was a slightly better performance than the 5.4 percent decline analysts predicted. Michael Kors expects comparable sales to decline by a low-single-digit percentage on that basis in the second quarter.

To help spur demand, the brand has been slashing prices on many of its products. Kors is contending with sluggish mall traffic and a strong dollar, which has reduced tourist spending.

The company also is adding new products in the second half and improving its digital operations.

Sales in the handbag business remain “robust,” though they aren’t growing at the same rates as previous years, executives said on the earnings conference call. Backpacks are getting more popular, and millennial customers in particular prefer smaller bags and cross-body purses, which typically have lower retail values. Watch sales also dragged down the company’s North American same-store sales, the company said.

 

Eoin Treacy's view -

Mid range luxury goods companies have been under pressure to offer more mass market offerings while even the uber-luxurious brands have been offering discounts in Hong Kong in order to spur demand. Michael Kors in particular boosted supply in order to capture market share from Coach, but suffered from the loss of its cache in doing so. Both companies are suffering from interlopers such as Tory Burch. The question now is how much of this is already in the price?



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August 05 2015

Commentary by Eoin Treacy

U.S. Stocks Rise Amid Priceline Results, Weaker ADP Payroll Data

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

The Standard & Poor’s 500 Index rallied 0.9 percent to 2,111.19 at 10:43 a.m. in New York, after slipping 0.7 percent over the previous three sessions. The Dow Jones Industrial Average climbed 91.67 points, or 0.5 percent, to 17,642.36 with its rise partially muted by Disney’s drop. The Nasdaq Composite Index advanced 1.2 percent.

“The market has been under a little bit of pressure looking for a reason to go back up,” said John Manley, who helps oversee about $233 billion as chief equity strategist for Wells Fargo Funds Management in New York. “The market’s moving in the right direction. A slow, steady recovery is probably a good thing. The single most important factor affecting stock markets is what the Fed is doing.”
 

Eoin Treacy's view -

The fact that two thirds of companies reporting earnings have so far beaten expectations belies the rather extreme single stock volatility that has been evident. Google surged, Biogen collapsed, Amazon surged and Apple surged before giving it all up. An investor in an ETF will have been relatively unaffected by these gyrations but individual investors are being held hostage to earnings announcements. 



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August 03 2015

Commentary by Eoin Treacy

Blue Chip Yielding 5% Beckons Daredevils to Catch Falling Knife

This article by Michael P. Regan for Bloomberg may be of interest to subscribers. Here is a section: 

After reporting its lowest profit since 2009 and cutting in half its plans for buybacks this quarter, Exxon Mobil’s vice president of investor relations Jeffrey J. Woodbury told analysts on a conference call: ‘‘Fundamentally, we’re committed to our shareholders to continue to provide a reliable and growing dividend.”

Said Chevron Corp. chief financial officer Patricia E. Yarrington on her company’s earnings call: “We said we would cover the dividend from free cash flow in 2017. We stand by that commitment.”

Chevron is paying almost 5 percent of its share price in dividends, the most since 1992 and near the highest above 10- year Treasury yields in data going back to 1991. It’s one of 19 energy companies in the S&P 500 with dividend yields above 10- year notes, and in recent weeks it exceeded Verizon Communications Inc. as the highest yielding blue chip in the Dow Jones Industrial Average.

Can’t you almost taste the salt-water taffy, kids? Like others who have addressed the “are we there yet” question in recent months, Martin Adams at Wells Fargo offers a less-than-satisfying answer: not quite yet, kids.

 

Eoin Treacy's view -

The energy sector offers an interesting perspective on the motivations of investors in purchasing shares over the last number of years. Often the size of the buyback program has been a more alluring factor than the dividend. The low interest rate environment has played a role in this preference and helps to throw light on why the security of energy companies’ dividends are receiving less attention than the fact that they will be buying less of their shares. 



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August 03 2015

Commentary by Eoin Treacy

Virtual Reality Is Not Just About Games: Nongaming applications sneak up on an unsuspecting public

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

Imagine a version of Google Maps that doesn’t end at the front door of buildings, or an Instagram consisting of immersive experiences rather than snapshots.

“Immersive 3-D content is the obvious next thing after video,” Facebook CEO Mark Zuckerberg said during a recent earnings call.

All of this is possible because, like the PC and the smartphone, virtual reality isn’t so much a single technology as the happy coincidence of a bunch of related ones. Motion tracking, 3-D capture, ultra-high-resolution displays, fast graphics chips and a deep library of 3-D software developed for games and other applications are coming together at just the right time. Google, Facebook, Sony, HTC, Microsoft and countless smaller competitors have already made public their plans for VR, and given its hiring and patents in the area, it’s likely Apple is working on it too.

VR is a technology that is truly in its infancy, despite decades of work in academia, industry and the military. Rapid progress in frame rates, displays, interfaces and more realistic rendering are already in everyone’s development pipeline.

“Keep in mind, this is just the Atari 2600 of VR,” says Cymatic Bruce, head of developer relations at Altspace VR, as he helps me take off a bulky headset I wore to experiment inside the company’s VR play space.

 

Eoin Treacy's view -

Microsoft’s release of Windows 10 appears to represent a change of focus for the software company since the product is now free but comes with a suite of features aimed at encouraging spending. The purchase of Minecraft last year and bundling an Xbox controller with every Oculus Rift when they are eventually shipped represent additional insights suggesting Microsoft sees its future as a media enabling platform rather than simply a spreadsheet builder and user interface. 



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July 31 2015

Commentary by Eoin Treacy

Diageo Expects Return to Sales Growth After Two-Year Slump

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

The outlook reflects the prospect of stronger growth in selling volumes in the 12 months through June 2016, Chief Executive Officer Ivan Menezes said in a statement Thursday. He forecast “mid-single-digit” organic sales growth in the following financial years and a 1 percentage-point improvement in the operating margin within three years.

The guidance is “conservative and undemanding,” said Eddy Hargreaves, an analyst at Canaccord Genuity in London. “It’s below what we already have in our model and it’s a positive that they have reinstated guidance.”

As he starts his third year as CEO, Menezes has tried to gain more control over his sprawling liquor empire and restore sales growth after a two-year slump. He’s bought out India’s United Spirits Ltd., taken full ownership of Don Julio tequila and dissolved a South African joint venture. Diageo is also shifting to a model focused on purchases by consumers, rather than the amount of bottles it ships to distributors.

 

Eoin Treacy's view -

Premium distillers such as Diageo trended higher in 2010 and 2011 as Chinese demand surged not least on the back of Communist Party cadre largesse. They have subsequently had a more difficult time repeating those growth figures following Xi Jinping’s anti-corruption drive, contraction of the European economy and stagnant North American sales. Diageo is betting that India and Africa will represent its primary growth engines in future but it will take time to generate results large enough to move the needle in terms of earnings growth. 



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July 23 2015

Commentary by Eoin Treacy

New Japanese hotel has robot staff and no room keys

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

Robots are deployed at the front desk to help guests check-in and out. According to the Henn-na Hotel, it's possible to hold a conversation with the "warm" and "friendly" robots while they get on with their work. Alternatively, self-service check-in and check-out eliminates the need to go to the front desk or to wait in line.

There are porter robots employed to carry luggage to and from rooms, and cleaning robots employed to keep the hotel spotless of their own accord. There is also a robot employed in the cloak room. Objects up to the size of small bags can be handed over and the robot will put them away in secure lockers. When the belongings are needed, the robot will locate them in the correct locker and hand them back to the guest.

 

Eoin Treacy's view -

This Huffington Post article from more than a year ago highlights how technology that already exists can be combined to displace waiting staff at restaurants. Today’s news that New York has voted to increase fast food wages to $15 following Los Angeles’ decision to raise its minimum wage to $15 earlier this year will only accelerate the incentive for technological integration 



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July 22 2015

Commentary by Eoin Treacy

Email of the day on the Autonomies and valuations

I have been looking at the charts for the global autonomies recently and have a question about your approach. Specifically, how much do you take market valuation (PE ratio) for a share into account when you buy / sell? I have read your book (twice, it is excellent by the way), so I understand your overall approach, but do you ever decide not to buy a share that has a great story / chart, but a very high valuation as well? Salesforce.com is a good example: nice story, nice chart, astronomic PE. Or Nike: nice story, nice chart, pretty high PE. By the way, I ask this question as an unleveraged investor, not a trader. Thanks.

Eoin Treacy's view -

Thank you for a question of general interest and for your kind words. I’m delighted you enjoyed Crowd Money. Valuations are important but the perceptions of those valuations are often more important to a share’s performance. I agree Nike’s historical P/E of 30 is high but its Estimated P/E of 27 suggests revenue growth is expected to continue. Investors also look at additional features such as the steady 16% dividend growth rate and the company’s dominant position as the global leader in the shoe and active wear sector when deciding whether to buy. 



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July 15 2015

Commentary by Eoin Treacy

The Five Things Wall Street Wants From the New CFO at Google

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

“Most people aren’t expecting an official number, but they just want to see her talk about it -- that she’s focused on it,” said Robert Peck, an analyst with Suntrust Robinson Humphrey Inc. “It’s not that investors don’t necessarily want spending -- it’s investors want to know it’s being prudently done.”

Pichette had been talking up efforts to be careful with spending, pointing out the company pulled back on underperforming projects such as Google Glass. While operating expenses climbed 21 percent to $6.46 billion in the first quarter, it was less than the increases of more than 30 percent in the previous two periods.

The rate of hiring has slowed as well the past two quarters, even as the total workforce remains at more than 55,000 employees.

Unit Detail
Investors want more transparency around how much each business delivers to the company.

Porat could give more sales numbers around business units such as the video-sharing service YouTube, display advertising, mobile and Google Play, the digital store for buying applications and entertainment content, analysts said. She also could give specifics on the core business: search.

Analysts cited Amazon.com Inc.’s decision earlier this year to break out for the first time how much it makes in its cloud-computing business.

“Here is an easy opportunity for a new CFO to establish a fresh, constructive approach toward the market,” RBC Capital Markets analysts wrote in a note to clients earlier this month.

Eoin Treacy's view -

Google often succeeds in ranking as one of the companies most people would like to work for because it has such an inspiring message of optimism and innovation. However, it is worth remembering that despite forays into an array of additional fields advertising represents more than 90% of earnings. The introduction last year of its C class of shares makes sure that the company’s founders will continue to have wide discretion in how they choose to manage the company and particularly on direct investment in R&D. The performance of the share will depend on the company’s ability to grow profits. 



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July 15 2015

Commentary by Eoin Treacy

Starbucks to Enter Sub-Saharan Africa With Taste Coffee Deal

This article by Janice Kew and Christopher Spillane for Bloomberg may be of interest to subscribers. Here is a section: 

“Starbucks is very excited to sell coffee for the first time in some of the same places in Africa where it sources it,” Gonzaga said in an interview. “It’s very important to figure out how to make the stores locally relevant, and Starbucks has excelled at this in other regions.”

Taste shares rose 20 percent to 5 rand in Johannesburg, the biggest gain since June 2011. That values the company at about 1.5 billion rand ($120 million). Starbucks’ stock was little changed in New York, trading at $55.56 as of 10 a.m.

Restaurant chains, retailers and consumer-goods companies are expanding in sub-Saharan Africa, where the number of middle-class households -- those consuming $15 to $115 a day -- is expected to grow to 40 million by 2030 from 15 million now, according to Johannesburg-based Standard Bank Group Ltd. Yum! Brands Inc.’s Pizza Hut returned to South Africa last year after a seven-year absence to compete with Domino’s Pizza, which is operated locally by Taste Holdings.

 

Eoin Treacy's view -

With its population growth and improving standards of governance (albeit from a low base) Sub Saharan Africa represents a major emerging market for global consumer discretionary companies. In China, Starbucks succeeded in developing a coffee culture by making Wi-Fi freely available and sticking to a premium pricing model. This made it a destination for young fashionable people looking to appear cool, well-off and eager to sport the most recent technological gadget. It is reasonable to assume they will follow a similar model in Africa. 



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July 15 2015

Commentary by Eoin Treacy

Uniqlo Parent Forecasts Slower Japan Sales on Cool Summer

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

Same-store sales in Japan dipped 12 percent in June as the cooler weather curbed demand for summer clothes, the company said earlier this month.

Net income surged 36 percent in the three months ended May to 27.6 billion yen, based on nine-month figures the company released Thursday in Tokyo. Sales gained 23 percent to 398.4 billion yen in the quarter.

Investors have bet billionaire Tadashi Yanai’s clothing retailer, which offers basic designs made with advanced materials at low prices, will grow by exporting its model to faster-growing markets like China and the U.S.

The shares trade at about 41 times projected earnings, compared with about 31 times for Inditex, which sells Zara casual clothes and is Uniqlo’s bigger global rival and 24 times for Hennes & Mauritz AB, which retails the H&M brand.

 

Eoin Treacy's view -

As the largest company in the price weighted Nikkei-225, Fast Retail exerts an influence on the direction of the overall market. As it expands internationally, the company will be consolidating more foreign earnings into a Yen which continues to weaken. 



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July 10 2015

Commentary by Eoin Treacy

Email of the day on mining shares:

Anglo-American, BHP and RTZ all seem to be breaking below the bases of their ranging zones. Commonalty. The dividend yields look attractive. Buy or sell?

Eoin Treacy's view -

Thank you for this question which I believe is of general interest to subscribers. Mining shares and metal prices did not respond particularly favourably to the run-up in China’s stock market earlier in the year but have been influenced by its recent decline because of fears the economy is slowing. If there is commonality in the mining shares it is because there has been such commonality in the commodity prices for their major products. Iron-ore, coal, oil, copper and aluminium prices are all at depressed levels. 



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July 09 2015

Commentary by Eoin Treacy

Coty Agrees to Buy P&G Beauty Brands for $12.5 Billion

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

Coty Inc. agreed to buy 43 of Procter & Gamble Co.’s beauty brands for about $12.5 billion in a deal that would more than double its sales and transform it into one of the world’s largest cosmetics companies.

The transaction will be conducted as a Reverse Morris Trust, meaning P&G will spin or split off the business, which will then merge with a Coty subsidiary, the companies said in statements Thursday. The arrangement is meant to reduce taxes for the companies’ shareholders.

The acquisition will add Hugo Boss and Gucci to Coty’s fragrances offerings and CoverGirl and Max Factor to its cosmetics portfolio. The deal also brings Coty into the hair-color business with P&G’s Wella and Clairol brands. All told, the combined businesses have annual revenue of more than $10 billion, compared with $4.55 billion for Coty in its most recent fiscal year.

 

Eoin Treacy's view -

There is a great deal of M&A activity happening at present with companies feeling under pressure to complete deals before borrowing costs rise. Heinz’s acquisition of Kraft’s US division and P&G’s decision to offload less profitable brands can be seen in this context. By the same token the IPOs of retail chains from Sprouts to Michaels over the last year is part of the same process. 



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July 07 2015

Commentary by Eoin Treacy

Carnival aims to launch Miami to Cuba cruises in May

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

The world's largest cruise company could be heading to Cuba.

Starting in May, Carnival Corp. plans to offer trips from Miami to the Caribbean island nation, the company announced Tuesday. Carnival says it would become the first American cruise company to visit Cuba since the 1960 trade embargo. The trips will be through its new brand, fathom, which focuses on trips where passengers sail to a destination in order to volunteer there.

"This is an important first step for our company and the cruise industry," CEO Arnold Donald told The Associated Press in an email. "It begins our efforts to shape a long sustained industry experience in Cuba."

The weeklong cruises will be aboard the Adonia, which carries 710 passengers. The ship is relatively small for the industry; ships sailing under the company's namesake line carry nearly 3,000 passengers.

Carnival is expecting high demand for the voyages and has priced them accordingly. Prices start at $2,990 per person plus taxes and port fees. A similar service-oriented trip on the same ship to the Dominican Republic starts at $1,540 per person.

 

Eoin Treacy's view -

Closer ties between the USA and Cuba are not without controversy but the tourist industry is a clear beneficiary not least because so few Americans have had the opportunity to visit one of the Caribbean’s largest islands. Carnival is also keenly aware of the demand growth represented by the Chinese tourist market and is shaping its Asian offering accordingly. 



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July 06 2015

Commentary by Eoin Treacy

Email of the day on valuations for the Autonomies and the Autonomies fund

Could you let me know please where I can find charts related to the global corporate autonomies funds and I think there is an income one also? Could you provide a link please to find this funds? Also I am interested to find info on P/E ratios and dividend yields for autonomies in Europe and beyond. Is it possible to find this info on the site? Thanks in advance

Eoin Treacy's view -

Thank you for your questions. Yes, there are income and accumulation versions of the FM WP Global Corporate Autonomies Funds which is open ended, UK listed and British Pound denominated. They can both now be found in the Chart Library in the Autonomies section of the Chart Library, in the Funds section and via the search. 

We do not have fundamental data for individual securities in the Library but here is a link to a spreadsheet for the universe of 160 Autonomies sorted by their overextensions relative to the 200-day MA. As you will see 90 are trading above their respective MAs while 80 are within a margin of 5% above or below their MAs.  The funds were launched in March, currently hold approximately 5% in cash and are still on the way to building a full allocation of 100 positions. 

 



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June 11 2015

Commentary by Eoin Treacy

The virtual reality revolution, if it's coming at all, starts tomorrow

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

Perhaps game consoles (appropriately) will be the most likely role models for VR platforms. As a child in the 80s, my first experiences with the Atari and NES kindled a wide-eyed sense of wonder that's harder to replicate as an adult. Though those same games only give me slight glimmers of that feeling today, VR rekindles that childlike sense more than any form of entertainment since (certainly more than today's cinematic AAA video games or fads like 3D movies ever did).

Gaming spent many years as a "kids' product," but as that first generation of child gamers grew up – and realized there was no reason for them to leave their hobby behind – it blew up as a lucrative industry that now knows no generational boundaries (well, almost no boundaries – gaming demographics do still lean more towards younger adults than older ones).

Perhaps, like gaming, VR will start with the most wide-eyed of users, and only gradually erode the stigmas and unfamiliarity that keeps the rest of the world from joining the party.

So what do we think? Well, in our eyes, any technology that can rekindle, and perhaps surpass, the pure joy and awe of playing Super Mario Bros. or Mike Tyson's Punch-Out for the first time – only 30 years later – has a great shot at widespread success. Whether it's in a year or a decade, it may simply be a matter of a) getting VR to a consumer-ready, high-quality stage and then b) getting enough people to try it. That first step began years ago, but the second step starts tomorrow.

Eoin Treacy's view -

As a child of the ‘80s and a watcher of Star Trek the Next Generation in the ‘90s I was one of those who was excited about the impending wide scale release of virtual reality technology that did not happen. It takes a long time for new technology to advance enough for it to become a major new consumer product. NASA was one of the primary early developers of the technology in the 1980s. They envisaged virtual reality as a way for astronauts to control robots remotely in order to reduce the risk to human operatives. The results of DARPA’s robotics competition earlier this week highlight how much robotics technology has improved but also how far it still has to go. 



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June 11 2015

Commentary by Eoin Treacy

Email of the day on the lack commonality in luxury goods companies

I read this article about luxury goods in today's FT  and then ran through your luxury goods section in your Favourites in the Chart Library. I cannot see a common pattern in the charts. Since this a major element of what you teach in the Chart Seminar, I would like your thoughts on this particular case.

Eoin Treacy's view -

Remy Cointreau was among the greatest beneficiaries of the largesse of Chinese officialdom since its expensive liquors were consumed at so many dinners. This all came to a halt in 2013 when Xi Jinping’s corruption crackdown gained traction. Conspicuous consumption suddenly became unfashionable as bloggers posted photos of cadres wearing luxury watches. This was highlighted most poignantly at this year’s annual Party meeting when a number of high profile wives of senior officials were seen holding cheap plastic handbags rather than the Chanel and Hermes bags of previous years. 



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June 08 2015

Commentary by Eoin Treacy

From cars to power grids: battery technology from Daimler is accelerating the transition to renewable energy generation

This article from Daimler highlights its entry into the domestic and commercial energy storage sectors. Here is a section:

Daimler is entering into business in the field of stationary energy storage plants with its one hundred percent subsidiary Deutsche ACCUmotive. The first industrial-scale lithium-ion unit is already on the grid and is being operated by the partner companies The Mobility House AG and GETEC Energie AG. For business with private customers in the area of energy storage in Germany, Daimler AG is planning to collaborate with EnBW AG. Daimler is also aiming to enter into cooperation with other sales and distribution partners both in Germany and at international level. "Mercedes-Benz energy storages provide the best confirmation that lithium-ion batteries Made in Germany have a viable future," says Harald Kröger, Head of Development Electrics/Electronics & E-Drive Mercedes-Benz Cars. "With our comprehensive battery expertise at Deutsche ACCUmotive we are accelerating the transition to sustainable energy generation both on the road and in the field of power supply for companies and private households. The technology that has proven its worth over millions of kilometres covered in the most adverse conditions, such as extreme heat and cold, also offers the best credentials for stationary use. We have been gathering initial experience in this field since 2012."

Eoin Treacy's view -

Daimler was in the news last month for its introduction of driverless haulage vehicles to Nevada following the state’s legislation on autonomous vehicles. The company’s entry into the domestic and commercial energy storage sectors is equally ground breaking and suggests it has ambitions of being a pioneer in the future of transportation and energy storage. 



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May 28 2015

Commentary by Eoin Treacy

What Google Just Announced Is a Bombshell

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

For instance, while listening to music in Spotify you can search for more info on an artist, or if you're talking about a restaurant in WhatsApp, Google can pull up data on the place and even help you make reservations. And this is not a feature of the app itself, rather a helper that lives inside of the entire operating system.

This is a major move for two reasons. The first is that it really brings Google back to a place of dominance as the glue that holds your digital life together. The web has thrived and grown in no small part because of Google's ability to track, organize, and understand all of its disparate pieces. Now it's able to do the same thing with every app running on your phone. It allows Google to get back into the search game by speaking the common language of apps. It gives the company a second life with access to user behavior and needs.

But secondly, it starts to show how Google can be an interconnecting layer between the apps themselves — a kind of neutral staging ground between one action and another. This is a sea-change for how we use our mobile devices and how mobile apps interact with one another. Currently, we use OS-defined tools which let apps interact with each other (with rules defined by the OS-makers, not developers). But imagine if developers didn't have to think about how their work connects to the rest of your world? Imagine if Now on Tap is aware enough of the core functions of those apps that it can predict what you'd most likely want to do with them, and then execute on those needs?

Eoin Treacy's view -

We have become somewhat inured by Google’s announcements of what can realistically be described as vanity projects; plans for a massive new headquarters which had to be shelved being the most recent. However today’s release is important because it takes Google back into where it makes the vast majority of its money. I downloaded the Google search app onto my phone last week. The linking together of various different elements of search results is a positive development in my opinion. I’ve been using it more as a result and this type of user engagement should be beneficial for the company’s bottom line. 



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May 21 2015

Commentary by Eoin Treacy

CalAmp and the Internet of Things

Thanks to a subscriber for this note from Canaccord Genuity on CalAmp which may be of interest to subscribers. Here is a section: 

We hosted upbeat investor meetings with CalAmp CEO Michael Burdiek on April 29th, in the mid-Atlantic region. Following our meetings, we maintain our belief CalAmp is well positioned for solid long-term growth in the Industrial IoT market through both organic initiatives that include entering new markets and through potential acquisitions. In fact, we believe CalAmp’s recent $150M low-interest rate convertible offering provides the company with increased financial flexibility for its M&A strategy focused on accretive acquisitions in targeted IoT verticals. We remain impressed with management’s longer-term strategy to build upon its strong hardware portfolio and offer an increasing mix of higher-margin recurring revenue solutions. Finally, as evidenced by the strong Q4/F2015 results, we believe CalAmp’s Wireless DataCom business is well positioned to drive strong F2016 and F2017 sales and earnings growth driven by ramping sales to Caterpillar, growing insurance telematics sales, ramping international sales, a growing product portfolio, an increasing list of new customer opportunities, and anticipated steady growth of higher-margin recurring revenue sales. We maintain our BUY rating and $26 PT. 

Eoin Treacy's view -

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

The Internet of Things represents a myriad group of themes often with little relation to one another. CalAmp for example focuses on automobile connectivity particularly for those with large fleets of vehicles they need to monitor. On the other hand Sensata Technologies produces the sensors that allow diesel vehicles in particular to run self-diagnostics. Both are leveraged to the auto sector and both are in the sensor and enhanced communication segments that contribute to the Internet of Things theme but they are not strictly related. 



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May 19 2015

Commentary by Eoin Treacy

Euro Drops After ECB Official Pledges to Speed Up Bond Purchases

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

Improving economic data from the euro area has fueled speculation policy makers may curtail asset purchases before a September 2016 end date, lifting the euro from a 12-year low.

ECB President Mario Draghi attempted to quell such talk last week, saying the program would be implemented “in full.”

The euro fell versus 15 of 16 major peers as Coeure’s comments about injecting money more quickly into the euro-zone economy emerged early Tuesday in the text of a speech delivered in London the day before. ECB Governing Council member Christian Noyer said separately in Paris on Tuesday that the central bank is ready to extend QE if needed.

“The euro has looked pretty shaky after those comments, especially that they’re front-loading the effort of QE,” said Fabian Eliasson, head of U.S. corporate foreign-exchange sales at Mizuho Financial Group Inc. in New York. “The overall direction is fairly skewed toward the downside.”

 

Eoin Treacy's view -

Having embarked on an 18-month process of re-expanding its balance sheet, it would be cavalier of the ECB to think that it had achieved success in reigniting economic activity after only three months. There is little prospect of the ECB ceasing its purchase program as long as the size of the balance sheet is still below €3 trillion but they may alter the types of instruments they purchase. 



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May 19 2015

Commentary by Eoin Treacy

BHP left with $2.8bn of reject assets after spinoff

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

Despite BHP Billiton’s spin off and sale of about $15 billion of unwanted assets over the last three years, the biggest miner remains saddled with a portfolio of even harder-to-shift rejects.

A total of nine assets — from a US thermal coal mine to UK oil and gas platforms — haven’t made the cut for a new slimmed-down parent or the demerger company South32.

The unloved operations, valued at more than $2.8 billion according to RBC Capital Markets, are hampering Chief Executive Officer Andrew Mackenzie’s quest to halve the size of BHP’s core portfolio to focus on big ticket earners including crude oil, iron ore and copper.

“They did the big clean up with South32 and these are what are left,” said Michelle Lopez, a Sydney-based investment manager at Aberdeen Asset Management Ltd., which holds BHP shares. “I’m sure they’ve been on the sale slate for a long time. It’s a disappointment.”

Global mining companies are trimming portfolios to focus more closely on their most profitable operations as commodity prices have tumbled and amid a drive to reduce costs.

BHP, Rio Tinto Group and Glencore Plc have agreed the sales of $14.3 billion of assets since 2012, according to data compiled by Bloomberg.

An attempt to sell one of BHP’s reject assets, the Nickel West unit of mines and facilities in Australia, ended in November after it failed to attract a suitable bid. BHP has taken $1.8 billion in writedowns on the operation since 2012.

 

Eoin Treacy's view -

BHP Billiton has a market cap of approximately £78 billion. South32, which represents the spin-off of industrial metal businesses not least alumina, has a market cap of over £6 billion so the additional assets the company could neither sell nor spin-off represent a comparatively small proportion of the overall business. I have added both the UK and Australian listings of South32 to the Chart Library. 



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May 14 2015

Commentary by Eoin Treacy

Google reveals lessons learned (and accident count) from self-driving car program

This article by Francis X Govers III for Gizmag may be of interest to subscribers. Here is a section: 

Urmson's statements came in the form of a post on Backchannel, which followed an Associated Press report revealing the accident count in the wake of a new California law requiring Google and others to report accidents involving its self-driving cars to the state. Google reported three accidents between May 2014 and May 2015, while Delphi, which has its own version of a self-driving car, an Audi SQ5, reported its vehicle was struck while waiting to turn at an intersection and not under autonomous control.

In his post, Urmson details that the Google Cars were rear-ended seven times by other cars, side swiped twice, and hit once by a car running a stop sign, with the majority of the accidents occurring on city streets rather than highways. The 1.7 million miles (2.7 million km) the cars are reported to have traveled combines the distance traveled autonomously and under manual control.

Eoin Treacy's view -

The more data that is recovered from self-driving cars, the more confidence we can have that they are approaching commercial utility. Last week’s announcement that Nevada is pressing ahead with legalising autonomous vehicles is a major step forward for companies like Daimler and Google pioneering the rollout of this technology. 



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April 24 2015

Commentary by Eoin Treacy

Amazon, Microsoft Profit From Cloud as Nasdaq Reaches Record

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

Minutes after the Nasdaq Composite closed at a record, three of the biggest bellwethers in technology reminded the market precisely why investors are so bullish on companies that do business through the Web.

Amazon.com Inc. for the first time broke out sales from its division that sells computing power and software via the Internet, reporting a 49 percent jump last quarter. Microsoft Corp. posted profit that topped analysts’ estimates, also underscoring healthy demand for software delivered through the cloud. Google Inc. benefited from rising volume of online ads.

The numbers are a testament not only to the endurance of the Internet as a conduit of commerce and information, but also to the ways it has revolutionized how the world’s biggest corporations operate. All three companies have been at the heart of these changes since the Web’s inception as a business tool, and are now vying for a bigger slice of the still-fledgling market for cloud computing.

Google is seeking to extend its lead in online search and advertising, Amazon is spending billions of dollars to expand in e-commerce and data centers, and Microsoft is building on its dominance of the business-software market.

“We are innings one or two of the cloud,” said Kim Forrest, an analyst at Fort Pitt Capital Group Inc., which oversees about $1.8 billion in Pittsburgh.

 

Eoin Treacy's view -

This is a big day for the Nasdaq. Back in 2003 no one anticipated the Index would surmount its bubble peak in little more than a decade. Of course the relative weightings of the Index have changed almost beyond recognition in that time but above all else, the Nasdaq’s performance is a testament to how successful the USA is at creating companies that fill market niches we never knew existed. 



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April 23 2015

Commentary by Eoin Treacy

Tesla Wants to Power Wal-Mart

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

Jackson Family Wines, based in Santa Rosa, has a new partnership with Tesla involving battery storage and several vehicle charging stations, according to the February issue of Wine Business Monthly. The winery declined to comment.

Mack Wycoff, Wal-Mart’s senior manager for renewable energy and emissions, said the company is intrigued by energy storage. “Instead of pulling electricity from the grid, you discharge it from the battery,” he said. “Ideally you know when your period of peak demand is, and you discharge it then.”

Mike Martin, Cargill’s director of communications, declined to provide details about how the company plans to use Tesla batteries at the Fresno plant. The 200,000-square-foot facility, one of the largest of its type in California, produces nearly 400 million pounds of beef each year.

Janet Dixon is director of facilities at the Temecula Valley Unified School District in southern California, which plans to install solar panels at 20 of its 28 schools this summer. Dixon said that SolarCity is the solar provider, and five of the facilities will have Tesla batteries.

“We spend roughly $3 million a year on electricity, and most of that is lighting and air conditioning,” said Dixon. “We are going solar to reduce our overall costs and the battery storage should help us manage our peak demand.”

Eoin Treacy's view -

Tesla trades on aggressive multiples. Since its car sales are a fraction of even the smallest auto manufacturer, it will be quite some time before the company will compete on that front even if one assumes that large numbers of people will be driving electric vehicles 10 years from now. Batteries are a much bigger story for Tesla which is why they are investing so much capital in building a “gigafactory” which they anticipate will deliver the economies of scale necessary to drive down the cost of their products.

At the present moment almost no one has a battery in their home. As solar technology improves and the prospect of containing volatility on energy spending becomes a realistic possibility demand is likely to increase. At the present moment the solar cells companies like SolarCity are installing in homes are not particularly efficient. However, as the efficiency rates of laboratory tested products reach commercialisation the energy generation capacity of one’s home will rapidly improve. Therefore the efficiency of solar and the potential demand landscape for home batteries are linked. 



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April 23 2015

Commentary by Eoin Treacy

Email of the day on oil prices

Today I listened to a presentation by Torbjørn Kjus, oil analyst at DNB Markets. He has become quite a guru in the last years so it was interesting to hear what he had to say. Interestingly, after having been possibly the most bearish oil price analyst for quite some time, he is now among the most bullish forecasters, see pages 7-9 in the presentation. He believed that the oil producers would continue to cut investments and particularly exploration costs, even if we see a move to $70-80 bbl. The majors will prefer to maintain dividend payouts. This will be particularly painful for oil services. As such one should expect oil producers to gain more from any oil price rise, rather than oil service companies.

Eoin Treacy's view -

Thank you for this topical report and informative email. With oil prices stabilising above the psychological $40 level and as the Dollar unwinds its short-term overbought condition it makes sense to be more positive on the oil prices for at least as long as it takes to unwind the oversold condition relative to the 200-day MA, which at present is near $72.

Here is a summary of the arguments set out in the above report:



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April 21 2015

Commentary by Eoin Treacy

Buttered Coffee Could Make You Invincible. And This Man Very Rich

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

He calls the mixture Bulletproof coffee. Drink it, the name implies, and you’ll feel invincible. “Fats and caffeine help stimulate the brain,” Asprey says in his office, taking another sip. The coffee, along with the drug cocktail he’s just downed, which includes vitamins K and C as well as aniracetam, a pharmaceutical designed to improve brain function, is intended to provide hours of enlightenment. “There’s a sense of cognitive ease, where everything you want to say is at the tip of your tongue,” he says. “It’s like getting a new computer—you never want to go back to the old one.”

Eoin Treacy's view -

In the videos on Mr.Asprey’s website he is sporting the near ubiquitous beard of the hipster generation and his fad is likely to be popular among those searching for the next new health craze. The evolution of demand for grass fed dairy and beef products could not be more welcome news for Irish and New Zealand dairies and beef exporters.



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April 20 2015

Commentary by Eoin Treacy

Report from The Chart Seminar in Singapore

Eoin Treacy's view -

Last week’s event was another enjoyable visit to Singapore and was an apt time to ruminate on Lee Kwan Yew’s legacy of turning a tropical backwater into a first world private banking and high end manufacturing centre. Delegates came in from Argentina, Australia, Japan and of course Singapore which led to some interesting and varied discussions.

Singapore’s stock market is being led higher by the banking sector and shares a high degree of commonality with Taiwan and South Korea. The Index is somewhat overbought in the short-term and some consolidation of recent gains in looking likely. However a sustained move below the 200-day MA, currently near 3400, would be required to question medium-term scope for additional upside.

As one might imagine the main topic of conversation was on the outlook for the Asian region not least following China’s explosive breakout over the preceding three weeks.  Delegates were also interested in the outlook for the European region and we also looked at the S&P 500. We looked at the oil price and a number of related instruments. We also looked at gold prices and a number of miners, select Singapore shares as well as a wide range of international bank shares. We also had a wide ranging discussion on currencies. 



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March 24 2015

Commentary by Eoin Treacy

The Tricorder, An All-In-One Diagnostic Device, Draws Nigh

Thanks to a subscriber for this article from readwrite.com concentrating on the Qualcomm sponsored Tricorder X-Prize. Here is a section: 

“We’re pretty confident that the majority of the 10 finalist teams will actually be able to deliver,” senior director Grant Company said. “Some may merge, and some may fall out, just because they can’t pull it together. And that just reinforces how big of a challenge this really is. It’s because the goals are very high.”

The winning “tricorder”—and its competitors—likely have a long FDA approval process ahead of them, which means their consumer release could be years away. But when they do arrive, they will be able to diagnose problems like stroke, anemia and tuberculosis—tasks that have always been reserved for doctors.

Diagnosis: Home Diagnosis
Such devices will arrive at an interesting time in medical history. With the emergence of mobile phones and wearable devices, home diagnostics are poised to explode.

Company said the Apple Watch and affiliated software development, will be a welcome boost for the space.

“I think it’s a good first step, and a useful barometer of what the public’s appetite is for this type of technology,” Company said. “There’s going to be a need of collection and analysis, and these types of tools are going to be absolutely critical. If the masses are able to start building capabilities, using these research kits, it’s the first step toward adoption.”

 

Eoin Treacy's view -

I grew up watching Star Trek The Next Generation with my father and brothers and I suspect a number of people engaged in developing new technologies such as a tricorder are of a similar vintage. 

This article by Anna McCollister-Slipp highlights how the vast majority of the health system is geared towards acute care when chronic conditions represent a major challenge. It is this latter group that will be helped most by a more cohesive data acquisition and interpretation strategy. This is likely to be pioneered by new technologies such as tricorders and wearables. 

 

 



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March 20 2015

Commentary by Eoin Treacy

U.Ks FTSE 100 Rides Past Record, Reaching 7,000 for First Time

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

“U.K. stocks have had a strong rise given the headwinds,” Richard Hunter, head of equities at Hargreaves Lansdown Plc in London, said by phone. “Mining, oil and bank stocks make up a big part of the index, and we all know the difficult time these three sectors have had. Despite that, the FTSE 100 has managed to make progress.”

It’s been a good week for the benchmark: Chancellor of the Exchequer George Osborne on Wednesday unveiled higher economic growth and lower deficit and unemployment forecasts along with help for the North Sea oil industry. The latter has helped energy stocks trim declines spurred by a rout in oil and metals prices. Banking shares have been hurt by a series of scandals ranging from manipulation of interest-rate benchmarks to tax- evasion schemes.

Even with the FTSE 100 at a record, the advance in British equities this year is about a third that of gains in European peers, which was boosted by additional stimulus from the region’s central bank.

Eoin Treacy's view -

Clicking through the constituents of the FTSE-350 sector Indices section of the Chart Library, we can see that the UK stock market’s rally is well supported, It is also worth noting that the banking, resources and oil & gas sectors are no longer acting as headwinds, have all found at least near-term support this week. 

We are in the final stages of testing for the new filter system and hope to re-launch it soon. Perusing the results of this high/low filter for the FTSE-350 we can see that the majority have been trending for some time which highlights just how much of a brake the above sectors have represented for the UK stock market. 

In the table, the columns represent performance over 1 month, 3 months, 6 months, 12 months, 3-years and 5-years. It will only show data for when the respective share has hit a new high. Therefore at the top of the table you will see all the columns are filled because prices have hit new five-year highs while further down the list a share may only have hit a new 3-month high. 

 



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March 19 2015

Commentary by Eoin Treacy

Radical new high-speed liquid technology could bring 3D printing into mainstream manufacturing

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

The technology, called Continuous Liquid Interface Production (CLIP), manipulates light and oxygen to fuse objects in liquid media. It works by projecting beams of light through an oxygen-permeable window into a liquid resin to rapidly transform 3D models into physical objects.

Working in tandem, UV light, which triggers photo polymerization, interacts with oxygen, which inhibits the reaction, to control the solidification of the resin, creating commercially viable objects that can have feature sizes below 20 microns, or less than one-quarter of the width of a piece of paper. This is the first 3D-printing process that uses tunable photochemistry instead of the layer-by-layer approach that has defined the technology for decades.

Faster, stronger, predictable
CLIP enables a very wide range of materials to be used to make 3D parts with novel properties, including elastomers, silicones, nylon-like materials, ceramics and biodegradable materials, and could allow for synthesizing novel materials that can advance research in materials science.
Conventionally made 3D printed parts are notorious for having mechanical properties that vary depending on the direction the parts were printed because of the layer-by-layer approach. Much more like injection-molded parts, CLIP produces consistent and predictable mechanical properties, smooth on the outside and solid on the inside, the company says.

“By rethinking the whole approach to 3D printing, and the chemistry and physics behind the process, we have developed a new technology that can create parts radically faster than traditional technologies by essentially ‘growing’ them in a pool of liquid,” said Joseph M. DeSimone, professor of chemistry at University of North Carolina-Chapel Hill and of chemical engineering at North Carolina State and CEO of Carbon3D, who co-invented the method.

 

Eoin Treacy's view -

It’s not difficult to get excited when you look at the pace of technological innovation. The above invention has been featured on CNBC with someone attempting to print an AR-15 which shows the negative connotations of the development. Setting that example aside, this represents an important step towards having a practical tool in one’s home but there are more important considerations from an investment perspective. 



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March 19 2015

Commentary by Eoin Treacy

Tag Heuer teaming up with Intel and Google for Android Wear-powered smartwatch

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

The collaboration was announced at a press event at the Baselworld watch show in Switzerland, with Tag Heuer CEO Jean-Claude Biver welcoming Android Wear director David Singleton and Intel's Michael Bell to the stage to discuss the project. While the announcement served as official confirmation that a luxury, Swiss "connected watch" is on the way from the company, we'll have to wait until the end of the year to get details on the device.

Powered by Intel, it's unclear whether the device will include features specific to the Tag Heuer product, or whether it will run the exact same version of Android Wear that we've seen on the Moto 360, Asus ZenWatch and others. To this point, Google has forbidden OEMs from "skinning" Wear with custom UIs (though they can throw in their own add-on apps).

While Tag Heuer was keen to point out that up to 80 percent of the components and labor for the watch will take place in Switzerland, the fact that the device's processor will be constructed outside of the country means that it will be not legally be able to carry the respected "Swiss made" label.

 

Eoin Treacy's view -

The upcoming release of Apple’s next big product category has been touted as a major challenge for Switzerland’s watch sector because of the price tag attached to the Edition category; starting at $10000. It’s open to question whether the cool apps of the Apple Watch will supersede the craftsmanship and simple elegance of conventional timepieces but LVMH is taking no chances. What appears clear is that as competition increases there will be an increasing suite of products offering a range of functionality for considerably lower price points in addition to luxury offerings.



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March 17 2015

Commentary by Eoin Treacy

Macau Gaming

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

No signs of improvement. Since our previous adjustment of gaming revenue assumptions in early-January, Macau’s gaming market has shown further deterioration. In 2M15, gross gaming revenue (GGR) dropped 48.6% yoy to MOP43.3b, with VIP and mass-market GGR falling 40.3% yoy and 25.8% yoy respectively. As the trend suggests that 1Q15 GGR will fail to meet our previous MOP75.1b expectations, and various factors suggest fundamentals may deteriorate further before reaching the bottom, we further cut our expectations on future gaming revenue assumptions, with growth assumptions reduced to -21.2% (from -3.1%) for 2015 and +9.0% (from 12.7%) for 2016.

Besides declining revenue, we foresee that rising labour cost due to a labour shortage will put additional pressure on casino operators’ earnings. Several casino operators will be raising casino workers’ salaries by 5% in 2015. Hence, we lower 2015 and 2016 industry EBITDA assumptions by 27.0% and 32.4% respectively vs our previous estimates. We also lower our valuation multiples for casino operators because of the worsening market outlook

 

Eoin Treacy's view -

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

The anti-corruption campaign in mainland China has taken a toll on the fortunes of casinos, luxury goods and luxury drinks manufacturers. However while the leather goods and spirits companies are showing signs of renewed investor interest, Macau casinos are accelerating lower. 



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March 17 2015

Commentary by Eoin Treacy

AIG Targets 8% Debt in Buyback Plan for More Than $1 Billion

This article by Sonali Basak and Doni Bloomfield for Bloomberg may be of interest to subscribers. Here is a section: 

American International Group Inc., the largest commercial insurer in the U.S. and Canada, has offered to buy back more than $1 billion of its bonds as the company targets debt issued when interest rates were higher.

The insurer is redeeming notes in currencies such as the dollar, the yen and the Swiss franc, New York-based AIG said Tuesday in a statement. An offer for securities including $1.2 billion of 8.175 percent junior subordinated debentures expires April 13, subject to extension. Those bonds were issued near the depths of the financial crisis.

AIG has been repurchasing stock, expanding through acquisitions and redeeming old debt after returning to profitability and repaying a taxpayer bailout that started in 2008. Debt-reduction efforts last year cut annual interest expenses by about $250 million, the company said in a Feb. 13 conference call.

“AIG’s leverage metrics are now on par with higher rated peers” Fitch Ratings said in a statement on March 2. The firm raised its outlook on the insurer to positive, citing “improvement in AIG’s capital position and debt servicing capabilities over the past several years.”

 

Eoin Treacy's view -

AIG has become synonymous with the credit crisis not least because its bailout was so large and because its bailout funds were used to pay down its liabilities to other major financial sector organisations. The era of ultra-low interest rates and abundant liquidity has allowed hundreds of companies to retire old expensive debt and to reduce the weighted average cost of capital in the process. This has contributed the robust performance of the stock market over the last five years. 



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March 16 2015

Commentary by Eoin Treacy

Email of the day on investing in a British Pound denominated fund when a Euro investor:

I have decided to invest in the new Autonomies fund but the fact that I live inside the Eurozone poses a problem. My income and liquid assets are in Euros. The euro seems to be oversold against sterling. I am tempted to make a small invest in the Autonomies fund now and wait for a rally in the euro to increase my investment. What is your opinion on this strategy? 

Eoin Treacy's view -

Thank you for this topical question and for your interest in the Autonomies fund, which will begin trading on March 27th. The Euro found at least short-term support on Friday versus the British Pound so there is scope for some short-term steadying. 

With the Bank of England becoming nervous about the strength of the Pound and the Euro having been so weak it is natural to ask whether this is the opportune time to buy Pounds. If you were thinking of buying a house in London this would be a major question. However, if you are buying a basket of internationally listed securities whose earnings are truly international, the risk to the performance of the portfolio from the Euro/Pound exchange rate is not the same as if you were buying a UK share listed share whose earnings are all in Pounds. 

Take a look at this spreadsheet of the Autonomies ranked by percentage of earnings that are dependent on their country of domicile. The vast majority generate more than 40% of earnings from outside their home market. More than half generate greater than 60% of revenue from outside their home country. 



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March 05 2015

Commentary by Eoin Treacy

Top 10 Emerging Technologies of 2015

This article from the Scientific American may be of interest to subscribers. Here is a section:

Neuromorphic technology
Computer chips that mimic the human brain

Even today's best supercomputers cannot rival the sophistication of the human brain. Computers are linear, moving data back and forth between memory chips and a central processor over a high-speed backbone. The brain, on the other hand, is fully interconnected, with logic and memory intimately cross-linked at billions of times the density and diversity of that found in a modern computer. Neuromorphic chips aim to process information in a fundamentally different way from traditional hardware, mimicking the brain's architecture to deliver a huge increase in a computer's thinking and responding power.

Miniaturization has delivered massive increases in conventional computing power over the years, but the bottleneck of shifting data continuously between stored memory and central processors uses large amounts of energy and creates unwanted heat, limiting further improvements. In contrast, neuromorphic chips can be more energy efficient and powerful, combining data-storage and data-processing components into the same interconnected modules. In this sense, the system copies the networked neurons that, in their billions, make up the human brain.

Neuromorphic technology will be the next stage in powerful computing, enabling vastly more rapid processing of data and a better capacity for machine learning. IBM's million-neuron TrueNorth chip, revealed in prototype in August 2014, has a power efficiency for certain tasks that is hundreds of times superior to a conventional CPU (central processing unit), and more comparable for the first time to the human cortex. With vastly more computing power available for far less energy and volume, neuromorphic chips should allow more intelligent small-scale machines to drive the next stage in miniaturization and artificial intelligence.

Potential applications include: drones better able to process and respond to visual cues, much more powerful and intelligent cameras and smartphones, and data-crunching on a scale that may help unlock the secrets of financial markets or climate forecasting. Computers will be able to anticipate and learn, rather than merely respond in preprogrammed ways.

Eoin Treacy's view -

IBM was a major contributor to the above article and as a result it mentions a number of areas where the company has a competitive advantage. We have all marvelled at the ability of its Watson program to compete against humans in real life tests of mental agility and at the company’s continued ability to develop cutting edge technology. However there has been a gap between development and delivery that has resulted in a lacklustre performance.



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February 27 2015

Commentary by Eoin Treacy

Vivendi to Return $6.4 Billion to Shareholders After Asset Sales

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

Vivendi said its board approved an agreement to sell its remaining 20 percent stake in cable and wireless carrier Numericable-SFR to Altice SA for 3.9 billion euros.

Chairman Vincent Bollore has been leading the discussions on how to spend Vivendi’s cash pile as it scouts potential acquisitions. The company, based near the Arc de Triomphe in Paris, has divested telecommunications assets including a stake in Maroc Telecom and its French mobile unit SFR, with the latter sold to billionaire Patrick Drahi for 17 billion euros. In September Vivendi agreed to divest its Brazilian broadband business GVT to Telefonica SA for about 7 billion euros.

Vivendi reported fourth-quarter net income of  2 billion euros, compared with 556 million euros a year earlier. Sales rose 0.4 percent to 3 billion euros, in line with analysts’ estimates.

Of its remaining assets, Universal Music Group is the world’s largest music company, while pay-TV provider Canal Plus mainly targets the French market.

In April last year, after Vivendi agreed to sell SFR, it said it would return as much as 5 billion euros to shareholders in 2014 and 2015 through dividends and share buybacks. Since then, it’s sold more assets including GVT as well as stakes in Activision Blizzard Inc. and Apple Inc.’s Beats.

 

Eoin Treacy's view -

Vivendi’s dividend is probably intact after its spat of sales which has left it with its French pay TV channels and music assets as well as a substantial cash pile. It remains to be seen just what management’s ambitions are regarding growth. 

The share (P/E 12.88, Est P/E 38.27, DY 4.58%) completed a six-year base this week and a sustained move below €20 would be required to question medium-term scope for additional upside. 

Elsewhere among French companies:

 



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February 26 2015

Commentary by Eoin Treacy

Mattel Vows Makeover After Slumping Sales, CEO Ouster

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

It has worked to diversify its toy offerings, but doll sales still account for 40% of Mattel’s business.

Net income was $149.9 million, or 44 cents per share, down 59% from $369.2 million, or $1.07 per share, a year ago. Total sales fell 6% to $1.99 billion.

Analysts polled by Thomson Reuters estimated per-share earnings of 96 cents and revenue of $2.14 billion.

With Stockton out, Mattel is looking for a new candidate for the top job. A change in leadership was necessary ”to change the trajectory of the business and maximize our potential going forward, and certainly to take advantage of our many assets,” said Sinclair on a conference call with investors.

Mattel said it won’t offer any outlook for the year amid the transition. Shares of Mattel are down 33.7% over the last 12 months and slid 1.5% to $26.50 in pre-market trading.

 

Eoin Treacy's view -

CEOs who have overseen massive declines in the shares of the companies they are responsible for are increasingly being fired by their boards. Over the last year there have been a number of instances where this has occurred among the Autonomies, not least Tesco which has since staged a rebound. Standard Chartered’s decision to remove the CEO today was also greeted with enthusiasm by investors and Mattel’s move on Monday was equally well received. 



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February 24 2015

Commentary by Eoin Treacy

Postal Savings Bank of China chases Pre-IPO investors

This article from the Financial Times may be of interest to subscribers. Here is a section: 

High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/5ccec596-b947-11e4-a8d0-00144feab7de.html#ixzz3SdAcm0uo

Postal Savings Bank is a fixture in rural China, where its network scoops up deposits from rural households. It has as much as $800bn in deposits, and puts its money into Chinese government bonds and the interbank market as well as lending to small and medium-sized enterprises and agricultural households.

Its branch network of about 40,000 is larger than more widely known state-owned banks, such as Industrial and Commercial Bank of China.

“It is a true and pure savings bank,” said the head of one Chinese investment fund that is considering buying a stake. “Its ability to collect deposits is very, very strong and because it doesn’t have a huge loan book, the overall risk is very, very low. But to turn it into a new retail bank may be way too difficult.”

Among the more interesting possible investors is Ant Financial, an affiliate of Alibaba, the US-listed ecommerce group. Alibaba already has a partnership with the International Finance Corporation, the private sector arm of the World Bank, to offer micro finance services in China. It could use the Postal Saving’s Bank’s cheap funding as a way to extend its financial muscle in the country.

 

Eoin Treacy's view -

Alibaba has been perhaps the most proactive of the globally significant technology companies in pursuing a dominant role in the financial services sector. Its Ali Pay service has allowed it to circumvent rules the major banks have to follow in terms of the deposit rates they can pay. This is achieved by leveraging the popularity of its online properties to attract customers. It is arguable whether tying up with a retail branch network is the most effective use of capital when the payments sector is increasingly online.  



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February 23 2015

Commentary by Eoin Treacy

Euro-Hedged Fund Poised to Dethrone Biggest Europe Stock ETF

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

Traders put a record $2.9 billion into the WisdomTree Europe Hedged Equity Fund last month, data compiled by Bloomberg show. The ETF attracted about the same amount during the fourth quarter and has absorbed $9.4 billion of inflows over the past year. The fund aims to protect against exchange-rate fluctuations with derivatives such as forward currency contracts, currency swaps and currency futures contracts, as its prospectus explained.

“Investors are thinking of using currency-hedged ETFs as strategic core holdings,” Dodd Kittsley, head of ETF strategy at Deutsche Asset and Wealth Management, said in a Feb. 6 interview on Bloomberg Radio with Catherine Cowdery. “By eliminating currency, you’re actually creating a currency- neutral position.”

 

Eoin Treacy's view -

The Euro Trade Weighted Index has been trending lower, in a volatile manner, since hitting a medium-term peak in 2008 and has stabilised in the region of the 2012 lows over the last few weeks following a particularly swift decline. Some additional steadying is possible in this area but a significant bounce and a potentially lengthy period of support building would be required to question the overall downward bias.



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February 18 2015

Commentary by Eoin Treacy

S&P Europe 350 Dividend Aristocrats

Eoin Treacy's view -

Following yesterday’s review of the outlook for the Eurozone’s QE program I thought it would be instructive to look at the upside potential for Eurozone companies with reasonably reliable records of increasing dividends. The Eurozone does not have the same regard for dividend sustainability as the USA and therefore the qualifications S&P imposes for membership of the European Dividend Aristocrats is not as stringent as for the USA, being only 7 years of consecutive increases versus 25 years. 

Some of the more interesting chart patterns where companies are paying reasonably competitive yields include:

 



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