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.

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. 

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."

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. 

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?

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. 

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. 

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. 

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.”

 

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. 

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.

 

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. 

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.

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. 

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.

 

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. 

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.”

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. 

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.

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:

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.”

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.

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. 

“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.”

 

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. 

“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.

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. 

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.

 

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. 

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.

 

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.

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

 

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. 

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.”

 

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. 

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? 

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. 

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.

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.

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.

 

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:

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.

 

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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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.

 

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.  

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.”

 

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.

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:

For the fourth quarter -- typically the most lucrative for the Web retailer because of the holiday shopping season -- net income declined 12 percent from $239 million a year earlier while sales rose 15 percent from $25.6 billion. Operating expenses climbed 15 percent to $28.7 billion, which was a slower rate of increase than the 20 percent jump a year earlier.

Excluding an $895 million hit from foreign exchange rates, net sales increased 18 percent from a year ago, the company said. Gross margin was 29.5 percent, up from 26.5 percent.

Amazon also forecast first-quarter sales of $20.9 billion to $22.9 billion, falling short of analysts’ average projection of $23 billion.

“It felt like Amazon had a great holiday because they started early and they carried strong through,” said Scot Wingo, CEO of ChannelAdvisor, which helps third-party merchants sell on Amazon.

 

With turnover in the hundreds of billions and one of the most recognisable brands in the online world Amazon is a major player and one of the original cast of Autonomies. However the lack of focus on profits over the last year has been highlighted by investors as a deterrent to investing. This contributed to the underperformance of the share since hitting an accelerated peak a year ago. 

There are other forces driving consolidation. An improving job market and the drop in oil prices are helping to stoke demand for consumer-related packaged products, said Panjabi of Baird. International Paper Wednesday reported fourth quarter sales that beat analysts’ estimates.
At the same time, materials costs are coming down, Panjabi said.

“The idea of increasing your exposure to that paradigm makes more sense,” he said. Companies are going to want to “capitalize on that dynamic” and merging with a peer will help reduce costs even further.

Packaging Corp. could be a potential takeover target or a merger partner, Anthony Pettinari, a New York-based analyst at Citigroup, wrote in a report on Tuesday. The company could also be an acquirer, according to Mark Wilde, a New York-based analyst at BMO. After buying Boise Inc. in 2013, it has the balance sheet flexibility to start looking at deals, he said.

 

As energy costs fall and consumers have more cash, the demand for and cost of manufacturing packaging should improve. The sector has been a solid outperformer over the last few years as consumer demand globally improved in line with the growth of the middle class but the fall in oil prices is an additional bullish catalyst. 

Other companies, like Honeywell International Inc., were able to anticipate the currency changes. Back in October, Honeywell CEO Dave Cote reversed his policy and started using currency hedges because he was -- rightly -- concerned the euro may sink further.

3M Co. today was another example of a global business weathering the dollar strength, partially with currency hedges. The St. Paul, Minnesota-based manufacturer beat fourth-quarter earnings estimates, countering the negative effects of foreign- exchange rates with stronger sales, especially in fast-growing markets.

P&G, which makes about two-thirds of annual sales outside of the U.S., said currency effects will continue to be a drag in the current fiscal year and reduce sales by 5 percent, leading to a decline of as much as 4 percent from a year earlier. Like Kimberly-Clark Corp. and other consumer companies, Cincinnati- based P&G was especially hurt by a slump in Venezuela, where falling oil prices have heightened the bolivar’s volatility.

Bristol-Myers, the New York-based maker of cancer treatments such as Yervoy for melanoma, gets about half its sales outside the U.S. The dollar’s strength weighs down the company as it pursues growth by focusing on a new class of cancer drugs.

 

The big fall in oil prices and the big rally in the Dollar continue to influence decisions in boardrooms. 3M and Honeywell were little changed today following their results not least because their currency hedging strategies paid off. Following a quarter where companies that hedged their exposure outperformed, we can anticipate that more companies will be hedging their currency exposure by the end of this quarter. 

You might think that such striking progress would be widely celebrated, and that people would rush to figure out what is working so well and do more of it. But they’re not, at least not in proportion to the progress. In fact, I’m struck by how few people think the world is improving, and by how many actually think the opposite—that it is getting worse.

I believe this is partly because many people are in the grip of several myths—mistaken ideas that defy the facts. The most damaging myths are that the poor will remain poor, that efforts to help them are wasted, and that saving lives will only make things worse.

I understand why people might hold these negative views. This is what they see in the news. Bad news happens in dramatic events that are easy for reporters to cover: Famine suddenly strikes a country, or a dictator takes over someplace. Good news—at least the kind of good news that I have in mind—happens in slow motion. Countries are getting richer, but it’s hard to capture that on video. Health is improving, but there’s no press conference for children who did not die of malaria.

The belief that the world is getting worse, that we can’t solve extreme poverty and disease, isn’t just mistaken. It is harmful. It can stall progress. It makes efforts to solve these problems seem pointless. It blinds us to the opportunity we have to create a world where almost everyone has a chance to prosper. 

If people think the best times are in the past, they can get pessimistic and long for a return to the good old days. If they think the best times are in the future, they see things differently. When science historian James Burke wrote about the Renaissance in The Day the Universe Changed, he pointed to one source for many of the advances that happened in that amazing period: the shift from the belief that everything was decaying and getting worse to the realization that people can create and discover and make things better. We need a similar shift today, if we’re going to take full advantage of the opportunity to improve life for everyone.

 

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

Apart from its deep pockets the Gates Foundation sets itself apart by exuding a sense of optimism that the problems affecting large portions of the global population can be solved within our lifetimes. The rise of China and India has already lifted a billion people out of abject poverty and improving governance is likely to achieve a similar feat in the next decade for even more countries. 

Thank you very much for getting involved in the new fund of Autonomies. I have been looking for such an instrument for a long time, and I am delighted you got involved in one. I do not know the person who will run it. But I figure, if he is good enough for you to give your name, he is good enough for me to invest. My question is: Is the timing correct now that many markets are over extended? Should I try to wait for the "famous correction" that many of us have been waiting for in the S&P500. I would be grateful for your views.

Once again thanks a lot.

 

Thank you for your kind words and for raising a question relevant to all investors. The S&P 500 broke out of a 13-year range nearly two years ago and continues to extend the uptrend. As you know the risk of remaining un-invested in the hope of a better buying opportunity is that the trend moves even higher before pulling back and then perhaps not to where you might have wanted to buy.

At some point the S&P500 will experience a deeper correction than any we have seen since 2011. As you will recall from The Chart Seminar, “a consistent trend is a trend in motion”. The somewhat larger reaction in October was an inconsistency and therefore worthy of mention. The sharp bounce back from that low reasserted the demand dominant environment and the Index continues to find support in the region of the 200-day MA. Until, it breaks the progression of higher reaction lows, currently near 1970, the benefit of the doubt must be given to the upside. 

The ECB’s massive QE program will put pressure on the BoE to delay any plans it may have had to raise short term interest rates. Along with its own easy monetary policy, the prospect of recovering demand on mainland Europe should be a positive for the UK’s economy and it may also be subject to additional capital flows since not all the money created by the ECB will stay inside the Eurozone. 

I thought it might be an opportune time to look at the FTSE 350 since its constituents may be among the beneficiaries of ECB largesse. The Index has surged over the last two weeks to retest its peak and a while some consolidation is possible in the current area a sustained move below 3500 would be required to question medium-term scope for additional upside. 

I clicked through the constituents of the FTSE 350 this morning and also created a section for the FTSE All Share REIT Index in the Chart Library. Here is a link to an Excel sheet of the FTSE350’s constituents ranked by sector then by market cap. 
Among Autonomies:

In the banking sector HSBC (Est P/E 10.65, DY 5.27%) has firmed in the region of 600p. It is now testing the 200-day MA and a sustained move below 600p would be required to question potential for additional upside.  

Toyota hopes to help jumpstart this future hydrogen society by sharing its intellectual property. This week's announcement represents the first time that it's sharing patents free of charge. The automaker helped to grow the gas-electric hybrid market in a similar manner, but those licensed technologies didn't come free.

"At Toyota, we believe that when good ideas are shared, great things can happen," said Bob Carter, senior VP of automotive operations at Toyota Motor Sales, USA Inc. "The first generation hydrogen fuel cell vehicles, launched between 2015 and 2020, will be critical, requiring a concerted effort and unconventional collaboration between automakers, government regulators, academia and energy providers. By eliminating traditional corporate boundaries, we can speed the development of new technologies and move into the future of mobility more quickly, effectively and economically."

 

I wonder if falling oil prices had any impact on Toyota’s decision to open its patent portfolio for hydrogen-fuelled vehicles to the masses? After all one of the most compelling reasons for considering alternative fuel vehicles was the high cost of gasoline. The technology has come a long way in the last twenty years and governments are now more amenable to emission free technologies because of environmental concerns. However the total cost of ownership is likely to continue to be the primary arbiter for the majority of car buyers. 

It comes as no surprise that the weakness of the commodity complex and particularly oil has taken a heavy toll on the value of resources companies. As a result they dominate 2014’s laggards. However it is worth considering that this year’s worst performers are often not next year’s worst performers because so much of the bad news has already been priced in. In some cases they can post outsized rallies, at least in percentage terms, because their prices have fallen so much. After all, a $1 rally from $20 is a more influential event than a $1 rally from $100. 

Among the S&P500’s top-10 worst performers this year:

Cattle on feed data partially vindicates last week’s stampede. Cattle markets locked limit-down early in the week as participants squared positions ahead of Friday’s Cattle on Feed report in the face of weakening slaughter data and concerns over potentially improving seasonal feeder cattle supply. The feeder cattle contract, which has outperformed live cattle by 1100 basis points YTD, lost 4% in the first three days of the week before recovering slightly on Friday. Live cattle faced a similar, though shallower decline, ending the week down less than 1% WoW. Friday’s data largely justified the bearish move, with Dec 1 feedlot inventories rising 1.4% YoY vs consensus expectations of a 1.2% increase. Some may read this report as more bearish for live cattle than for feeders, as an 11.1% decline in marketings YoY (vs consensus expectations of just a 9.8% decline) indicated continued weakness in slaughter demand. Meanwhile placements down 4% YoY (vs consensus predictions of a 3.4% decline) could be read as a sign that feeder supply remains challenged. However, we see the weakness in placements as signaling poor demand from feedlots rather than supply constraints. Average placement weights set a 5+ year high in Nov, signaling that ranchers are still holding back cattle to raise them to higher weights, artificially inflating prices. With high feeder cattle prices keeping feedlot margins under pressure and slaughter demand prospects weakening, feeder cattle prices may need to weaken further relative to live cattle to increase the flow of feeder cattle onto feed as winter reduces grazing options.

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

Cattle prices have been among the best performing commodity contracts this year. Part of the reason for this was that the 2013 surge in grain and feed prices advanced the slaughter schedule resulting in a smaller herd and an inability to increase supply in 2014. Against this background demand has been relatively stable. 

A look at a long-term chart of cattle pricing highlights its cyclical nature. What has been different about this move has been its size and longevity which can at least be partially explained by rising feed and energy costs as well increasing demand from the global middle class. 

With all the innovation happening across the software layers mentioned above, and all the new ways to engage with users across these many new device types in the Connected Life era, the next logical question to ask is “what is this all worth to an ecosystem?” Below we attempt to answer that question from the standpoint of software, services and advertising. Importantly, we do not attempt to quantify the hardware opportunity. What we attempt to quantify is once Apple or Google or Xiaomi has a user in its ecosystem, what kind of ARPU is likely to be generated from all the software, services and advertising opportunities.

As we mentioned above, given how engagement models are changing rapidly in the Connected Life era, we firmly believe the right approach when assessing the monetization potential per user is measured in terms of sessions (not time spent). We further analyze the respective monetization potential for different engagement models (push vs. pull vs. paid) on various devices. Breaking down user sessions based on commercial intent and the ad engagement approach on various devices is important because different engagements and behaviors monetize at different rates. For example – a search on Google for a commercial term carries a very high eCPM, whereas a newsfeed ad on Facebook or Twitter may not carry the same level of user intent. If we extend to ad formats we are likely to see in the Connected Life era like push notifications and card-based offers, displayed on smaller screens, the commercial intent of these engagements is going to fragment further. Lastly, a number of new services are being introduced on mobile devices for the first time, and those subscriptions and in-app-purchases carry very high revenue per session and eCPM equivalent rates. For example, if a user pays $10 per month for a Spotify subscription, and accesses the service three times per day (~100 times per month) each session would amount to around $0.10, or the equivalent of a $100 ad eCPM. 

 

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

The evolution of the internet experience over the last decade has been nothing short of remarkable and is still having profound effects on how we are marketed to and how people respond to these additional stimuli. 

Young people spend much more time on Facebook, Twitter, Instagram, YouTube, Amazon Prime etc than they do consuming conventional media. Since they represent the prime 18-34 age bracket prized by advertisers, companies are eager to capture their attention. 

This is a rapidly developing sector so we can anticipate continued aggressive competition. However, as anyone who has moved from an Android to Apple device or vice versa can testify, you need a good reason to migrate from one ecosystem to another. 

A great deal of good news has already been priced into related shares. 

We believe there has been a long-standing frustration within Diageo as to the UK investor base being underweight the stock (22% vs. 33% for the peer group, see Figure 13 and Figure 14, page 15) with various iterations of management seeking to address the relative imbalance.

Since SAB listed, Diageo (with Unilever) has been a significant underperformer relative to the peer group. That underperformance has coincided with Diageo and Unilever’s EPS growth materially underperforming the same peer group. UK investors have been right to be underweight Diageo.
One clear MUST DO

Too simplistic, but in order to rectify the relative imbalance of the UK investor weighting Diageo needs to do only one thing: grow its EPS in line with, or ahead of the peer group. Execute that MUST DO (in a sustainable way) and the ‘issue’ of the UK investor base will likely disappear over the long-term. 

August 2011 targets 
In August 2011, then CEO Walsh established a set of what we consider excessive targets. Expecting any large FMCG business to grow EPS at double digits over a sustained period is too aggressive in our view as it likely ultimately undermines sustainability; ‘even’ PMI gave up its double digit target in 2014.

 

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

China’s crackdown on lavish gifts between party cadres and the ban on imbibing expensive liqueur at “business dinners” weighed on the shares of luxury drinks producers. Diageo straddles both the retail and luxury sides of the market and as such underperformed for the last year. 

The introduction of digital technologies (social, mobility, analytics and cloud)  heralds the start of a new decadal tech cycle, which could potentially lead to significant changes to the existing revenue streams of the Indian vendors.

We believe the Indian IT services industry could still report healthy growth rates over the long term. The IT services market is still fairly underpenetrated from an offshore standpoint (see Figure 10 and Figure 11) and we believe vendors need to follow a three-pronged strategy to gain share: 

1. Deepen existing relationships by achieving strategic vendor status 
2. Geographic and vertical expansion 
3. Capability enhancement to address the threat/opportunities from digital technologies

 

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

India’s service sector has been competing successfully on the world stage for more than a decade and was among the greatest beneficiaries of a weak Rupee. As the global outsourcing sector responds to growth in networked services/cloud computing there will be a requirement for more technically proficient staff but also potential for margin expansion given India’s increasingly well education work force.  

Would you kindly add BAMXF to the chart library? Much appreciated. Also, following TCS, I have been on a quest to identify promising looking charts. I'd be interested in you view on the weekly chart of NVS. Thank you

Thank you for this suggestion and we have added the US listing of BMW to the Chart Library. Both BMW and Novartis are global Autonomies not least because of their truly global footprints, dominant positions within their respective niches and strong balance sheets. 

Mining is an energy-intensive industry and lower oil costs have a deflationary impact on producers, according to Macquarie Group Ltd. Copper also declined as a strike was set to end at Peru’s Antamina mine, the world’s sixth-largest copper mine.

“Whatever positive connotations lower energy might have for global growth, the extent and pace of the decline in oil seems the more worrying factor for the moment,” RBC Capital Markets Ltd. said in a note.

 

Shale gas and oil are gamechangers for the energy sector has been a refrain here at FullerTreacyMoney since 2007. Just how much of a gamechanger is quickly coming into focus. Oil is by far the most globally significant commodity because of its utility, portability and energy intensity. Increasing global supply prompted by the high price environment represent a problem for traditional producers. Additionally, rising energy prices were a substantial component in the rising cost of producing just about all commodities. 

Falling energy prices improve the economics of mining operations, allowing greater production. However, in a falling price environment this is not a positive factor. The medium-term result of falling energy prices will be to encourage economic growth and therefore demand but prices could easily fall further before a rebalancing is achieved. 

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

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

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

 

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

Hi David & Eoin, I wanted to get FTM thoughts and opinion on where the best investment returns could be had over the next 12 months and what would be the key things to watch for? Thanks for an excellent service 

Thank you for your kind words and your question. This is a topic we cover almost daily in the written commentary and the audio but it is a good time to summarise our views. 

Let’s ruminate for a moment though on the timing of your question. Generally speaking, the last six weeks of the year is given over to thinking about the possibility of a Santa Claus rally and people don’t generally look at the outlook for the next year until the last week of December or the first week of January. It made headlines during the week that Goldman Sachs had released its prognostication for the coming year, which may have prompted your email. However I believe it is worth considering that the stock market is a discounting mechanism and as a bull market progresses we tend to want to discount cash-flows from increasingly further into the future. It is a measure of how strong the market has been over the last month that investors are already planning for next year. Five consecutive weeks to the upside suggest some consolidation is increasingly likely.

The two discounters are chipping away at the market share of their bigger competitors. Aldi's market share is now 4.9 percent, up from 3.9 percent a year ago; Lidl is up to 3.5 percent from 3 percent. Tesco, meantime, is down to 28.7 percent from almost 30 percent 12 months ago. Asda, which is owned by Wal-Mart Stores, is unchanged at 17.2 percent, while J Sainsbury has slipped to 16.4 percent from 16.8 percent.

Overall grocery sales are down 0.2 percent in the past year, which Kantar says is the first contraction since it began surveying the market in 1994. Kantar also tracks a basket of 75,000 products; it says shoppers are paying 0.4 percent less for their groceries than they did a year ago.

U.K. food prices have declined for four consecutive months, according to the Office for National Statistics, dropping at an annual pace of 1.4 percent in both September and October:
Lewis, who's been at Tesco since Sept. 1, is unlikely to be looking forward to Christmas. The race to the bottom in prices will make it hard to generate yule-time profit, and his company is still under investigation by the U.K. Serious Fraud Office for fiddling its accounts in recent years. Only five of the 26 analysts who cover the company recommend that investors buy Tesco shares, with 14 holds and seven saying sell.  

In a report published this week, Goldman Sachs analysts said the only way for U.K. supermarkets to make money is to close stores and cut capacity. They're correct; Internet shopping and delivery-to-home services are making edge-of-town superstores increasingly anachronistic, while town centers are flooded with smaller stores that are indistinguishable from the supermarket chains. As well as ending some of its overseas adventures, Tesco needs to shrink more than its prices.

 

A share doesn’t more than halve in value without there being some reason. The issues with Tesco business model at home, accounting irregularities and difficulties with its overseas operations have garnered a great deal of media attention as the price accelerated to the September low. The commonality evident with shares such as Sainsbury and Morrison highlight that Tesco is not the only company feeling the pinch from the entry of discounters to the market. 

On October 10th I reviewed the constituents of the Autonomies section of the Chart Library. At the time approximately half were trading above or in the region of their 200-day MAs, while the remainder were in varying stages of trend deterioration. Since then the wider market has rebounded impressively, the Japanese market has been given a new injection of liquidity and the US Dollar has been quite firm. I clicked through the constituents once more this morning to identify those exhibiting relative strength. 

Morgan Stanley said in its note on Wednesday that a series of external and internal shocks had forced it to downgrade a more upbeat macro-economic forecast at the beginning of this year.

Foremost of these was oversupply in bulk commodities such as iron ore, which has driven down the price of Australia's biggest export to near five-year lows, along with "further signs" that China would have to accelerate its own economic rebalancing act away from property and exports.

The bank also singled out the federal government's "alarmist" narrative about a budget emergency, which had dissuaded discretionary consumer spending and private sector capital expenditure. It also accused the government of lacking focus in its infrastructure agenda.

On the property boom, it noted that "the housing recovery has come through even more quickly than we forecast, pulling some growth into 2014 at the expense of 2015". It urged a "delicate mix of jawboning and macro-prudential policies" to cool prices and speculative investment.

Morgan Stanley said all this "puts an already weak labour market at greater risk". Job-shedding from the resources sector and a spluttering "East Coast recovery" would drive the jobless rate from 6.2 per cent now to 6.8 per cent, it said.

 

As commodity demand growth forecasts undershoot and prices decline, Australia needs a weak currency in order to spur non-resources sections of the economy. Record low interest rates are certainly a help. The recent weakness of the Australian Dollar is an additional benefit for exporters that have seen their competitiveness eroded by the currency’s world beating strength over the last decade. 

The Australian Dollar had been ranging above 86¢ for much of last month but broke downwards today to hit a new three-year low.   A clear upward dynamic will be required to check momentum, while a sustained move above the 200-day MA would be needed to begin to question medium-term scope for continued weakness. 

Since Samsung Group's Chairman Lee began experiencing health issues in May of this year (based on press reports from Chosun Ilbo, etc.), the group has announced a series of internal business transactions including IPOs and reorganizations of its subsidiaries. Although Samsung Group has not formally indicated that transition in management control is in process, we believe the market regards this as the primary motivation for the recent developments. Based on our extended analysis of these events and the evolving regulatory backdrop, we see Samsung Life (Buy) and Samsung C&T (Buy) as key beneficiaries that also offer upside to target prices. 

Recap of key events since May 2014 
Over the last five months, Samsung Group has announced a number of transactions to recalibrate its businesses, which many investors appear to believe are likely also designed to strengthen management control for the next generation. Key announcements include IPOs of Samsung SDS and Cheil Industries (aka Samsung Everland), a merger between Samsung Heavy and Samsung Engineering, and removal of cross-holdings. 

Samsung Life a likely beneficiary of further restructuring 
Given potential revisions to the Insurance Act, we believe that a likely additional transaction is for Samsung Life to spin off a separate non-financial entity that holds shares in Samsung Electronics. We would view this as a positive for Samsung Life’s shares, as it should lead to improvement in ROE on the back of a lighter capital base. We estimate that the Samsung Life operating entity’s ROE ratio should double to 10% from 5% as a result of a spin-off. Although the Samsung Life operating company’s RBC (risk-based capital) ratio could decline to about 250% from the previous 379%, this would still be one of the highest RBC ratios in the Korean insurance sector. 

SEMCO and Samsung C&T to recognize gains from IPOs 
Samsung Group has announced its intent to IPO Samsung SDS and Cheil Industries, which may consist mainly of shares owned by affiliate companies. The Lee family has a majority stake in both companies and, while it is apparently not planning to sell its shares during the IPO, the family could utilize the shares at a later point to help fund potential inheritance or strengthen control in key affiliates. Our analysis shows that SEMCO and Samsung C&T should recognize valuation gains worth 21% and 14% of market capitalization, respectively, upon IPO. According to regulatory filings, SEMCO will be the only major shareholder to sell its SDS shares through the IPO, and we expect SEMCO to use the proceeds to strengthen its balance sheet.

 

Some of Asia’s largest companies have been built up on a patriarchal structure so the aging of these important figures represents a challenge for boards as successors are chosen and corporate structures are massaged. Samsung is one example, 86 year old Li Ka-Shing’s eventual retirement will be another major event while 84 year old Warren Buffet has been planning for his eventual demise for quite some time. 

Facebook - Leave aside Mark Zuckerberg's dystopian goal of "connecting the whole world". Before then investors must think about the eight per cent drop in Facebook's share price since Wednesday. To understand why jitters surround a company that is growing sales and earnings 60 and 90 per cent respectively, look through a DuPont analysis lens. Multiply the current ebit margin of about 40 per cent by an asset-turn of 0.6 times and a leverage ratio of 1.2. That spits out a return on equity of 17 per cent, adjusted for tax. Given that asset-turn and leverage are unlikely to change much, shareholder returns become a margin game. Hence the reaction when Facebook said spending would increase 50 to 70 per cent in 2015. The rise equates to almost half of current ebit or the entire projected increase in gross profits next year.

The full note is posted in the Subscriber's Area.

Facebook will reinvest next year’s expected profits in expanding its business which for a company with a lower P/E would be welcomed by investors. However with the leverage Facebook has in its business, reinvesting everything means it has no choice but to meet or exceed sales targets if investors are to be placated. 

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

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

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

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

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

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


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

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

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

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

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

 

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

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

The ECB is slow to call its monetary intervention quantitative easing but the LTRO program and its successor amount to the same thing.  The key difference between the Eurozone and the USA is that the Fed has the ability to expand its balance sheet and leave the additional money in the system while the ECB has so far been forced to completely unwind its programs once they conclude. Despite the fact that the ECB is more constrained in what it can do than the Fed, it is worth remembering that it has only one key mandate i.e. an inflation target of close to 2%. The Eurozone is a long way from that and lower oil prices make inflation even more difficult to achieve. The case for stimulus, simply to achieve its primary mandate, is well made. 

From the Fed’s experience we can conclude that quantitative easing is best suited to boosting the price of fixed and financial assets rather than achieving outsized growth numbers. The ECB does not have a growth mandate but it does have a price mandate so QE is well suited to its objectives. The purchasing of Spanish and French bonds yesterday and Italian bonds today suggest the ECB’s stimulus is now underway. This is particularly noteworthy considering how abrupt the sell-off has been in Eurozone equities over the last month.  

“Fantastic commentary and impeccable timing as always. Thank you both so much.

“I have been looking through the Autonomies and Aristocrats following your various commentaries. I wonder if it is possible (and easy) to provide us with an updated list and table on their current EY and DY, possibly including ranking and comparison over say 3 years, i.e. price and EY and DY for each period. Obviously price action is paramount but it would be good to be able to assess possible opportunities for topping up in the market and possible best fade fundamental returns. Thanks once again for a superb service.”

 

Thank you for your kind words and I agree that this represents an interesting time to monitor the Autonomies and Dividend Aristocrats. When I reviewed the Autonomies last week approximately half were in various stages of mean reversion while the uptrend consistency of the other half had deteriorated, some markedly so. 

I’ve created sections in the International Equity Library for the US, Canadian, European and Asian Dividend Aristocrats as well as US Dividend Champions and Contenders. Links to all of these lists can be found at the top of the left column here. 

A table with Earnings Yield, 12-month Gross Dividend Yield, Historic P/E and Estimated P/E for next year for the Autonomies and the various S&P Dividend Aristocrats indices which is posted in the Subscriber's Area.

We created the Autonomies designation because it was evident from late 2009 that some very important secular themes were coalescing around a group of companies that benefit from lower energy prices, the expansion of the global middle class and the accelerating pace of technological innovation. These types of companies have global reach, the freedom to take maximum benefit from the global economy, dominate their respective niches, have established businesses that foster brand loyalty and often pay solid yields.  

Such qualities represent important reasons why they should be considered for entry in investment portfolios with a relatively long time horizon. More than a few subscribers have told me that they use the universe of Autonomies as a pool from which they pick emerging trends to participate in for as long as they remain consistent and we anticipate they the group will continue to provide investment opportunities for the foreseeable future.  

As the Fed’s third QE program draws to a close, the liquidity fuelled rally which has had such an effect on both markets and investor psychology is coming into question. I thought it would be an opportune time to review the Autonomies considering the spike in volatility posted this week. 

I suspect a big question for many investors will be whether the current pullback will represent something akin to that posted in 2011. It might, but in a good many cases this reaction is already larger and occurring from a higher point. 

“Apple Watch is the most personal device we have ever created,” Cook said at the event. “We set out to create the best watch in the world.”

Cook unveiled the watch after earlier introducing Apple Pay, the mobile payments system. Apple is partnering with credit-card companies including American Express Co., MasterCard Inc. and Visa Inc. for the service, which will be offered in the U.S. starting next month.

In introducing a mobile-payments service, Apple squarely took aim at existing payments services. “Our vision is to replace this and we’re going to start by focusing on payments,” Cook said as a picture of an old wallet was flashed on screen.

The company also posted an image of a leather billfold on its website with a message saying, “Wallet, your days are numbered.”

Apple Pay will work with services including mobile car- booking application Uber Technologies Inc., restaurant reservation system OpenTable and daily deals company Groupon Inc., the company said.

 

I watched the Apple presentation this morning and I want an Apple Watch for the fitness tracking apps but I’m not sure I need one when I already have a FitBit Flex and an iPhone. The share had rallied to a new high over the last month on expectations of big news in the product line up. The watch is a new product but it is open to question whether it is meaningfully better than the Samsung products already in the market. That would suggest that it will be up to Apple to demonstrate that the apps are better and the ecosystem more attractive than other product stables. 

Hello, could you take a look at the agricultural sector (Deere, CNH, Monsanto, Potash) and also could you comment Amazon? I find it too expensive, but I fear that they are building a monopoly in the retail sector, so it is expensive now, but nobody can really compete , especially book stores or electronic retailers

Thank you for this question which raises a number of items that may be of interest to subscribers.

With bumper crops and comparatively low prices it is an open question as to what extent farmers will be able to invest in new plant,  machinery, nutrients and/or seeds. I wonder to what extent crop switching will be a factor in the next season since prices for just about all grains and beans have fallen. With cattle contracts still close to all-time highs, demand for more feed in the coming year is a certainty as herds are rebuilt. That suggests beef farmers are likely to be better positioned than tillage farmers

I was wondering if I can tap in on your common sense approach to retirement planning for global citizen (read UK/US). I know this may be outside areas you wish to comment on - but thought I would try. Given the amount of noise and exaggerated return assumptions (which is only possible for active portfolio traders/managers), I felt some common sense feedback will be helpful to help me (and some of my colleagues) think through this. 

Question - Given the Potential for a Japan like situation in Western world (low I admit): e.g i) a) low rate of returns in Fixed income, b) potential sideways equity market c) propensity for looser money policies by Central banks (leading to inflation in asset classes that squeeze traditional middle class assets, public services etc.) & d) Jobless growth I ) What would be a) a sensible portfolio return to expect for retirees planning retirement for next ten years (if one is not an active stock picker and trader) b) What asset allocation would you suggest. c) what inflation should one plan for ? II) Any sensible websites or material you could direct me to research this ? Many Thanks

 

Thank you for this question which I’m sure will be of interest to the Collective of subscribers who may also have additional input. 

Generally speaking the last 10-years of one’s working life are devoted to building assets for retirement once mortgages and college education for one’s offspring have been paid off. This goal is achieved in the main by investing more of one’s income in what is hopefully a low risk / reasonable reward spread of asset classes. More often than not the low risk portion has been made up of bonds and the higher return by equities. Unfortunately, this model is less likely to be successful in future for some of the reasons you highlight above. 

Crop conditions are the best in a decade for this time of year, government data show, with 75 percent rated good or excellent as of July 27. The USDA probably will boost its production estimate in its monthly crop report on Aug. 12, said The Linn Group, a broker and adviser. The U.S. is the world’s largest grower and exporter.

“There will not be enough storage space for all the extra bushels this fall,” said Roy Huckabay, an executive vice president at The Linn Group in Chicago. He predicted on July 1 that the crop would increase 2.8 percent to 14.314 billion bushels with yields around 170 bushels an acre.

 

Corn prices continue to extend their decline but the pace of the fall has moderated somewhat since early July. A break in the short-term progression of lower rally highs, currently near 380¢, would signal more than a short-term low has been reached. 

Management communication, credibility “appear on the line” after profit warning, Berenberg says in note.

In golf, mkt “over-bloated” with inventory, U.S. chains such as Dicks have to right size existing goods, cut future orders

TaylorMade-adidas Golf restructuring may cost ~EU25m-EU30m ex loss of sales, profit anticipated in 2H14

In Russia has done an about-face, will now accelerate store closings, big effect is associated loss of 2H sales, profit, as E. Europe ~14% sales, 20% Ebit, Russia is >90% of that region

Scope of downgrade hard to quantify

Baader Bank says share price reaction “adequate,” sees potential downside revision for mkt consensus of 20%-25%

Profit warning expected, but sharper than seen.

Adidas’ expansion into Eastern Europe has not been as successful as planned and the closing of stores in Russia reflects this. Tighter sanctions imposed on Russia by Europe may have been the final catalyst for this decision. By contrast the reorganisation of TaylorMade is a significant but much smaller issue.  

Adidas’ share price has been deteriorating since late last year and it began to encounter resistance in the region of the 200-day MA from March. Today’s action represents an acceleration of the downtrend but there is no evidence yet that it is over. Some scope for a reversionary rally exists but a potentially lengthy period of support building will be required before investors are likely to support significantly higher levels. 

Beer takes share from a readily addressable market in the form of cheaper,  often illicit and non-commercial alcohol. The level of local alcohol in a market  is strongly correlated to national income as per Figure 9.

This readily available market accounts for over 50% to 90% of alcohol consumption in Africa, with growing markets like Nigeria, Democratic Republic of Congo and Ethiopia particularly attractive. Other emerging markets have lower, but nevertheless interesting figures which range from 15% to 40%. Markets like Latin American Ecuador and Peru and Asian markets such as Myanmar and Cambodia looking interesting to the brewers. 

Beer is a luxury 
The barrier to conversion from illicit alcohol to beer is the affordability of beer.  Per capita consumption in a market is relation to the amount of time a consumer has to work to afford a beer. As seen in Figure 11, the first inflection point for growth acceleration is around 120 minutes of work to afford a beer.

A second inflection can be found at 30 minutes worked for a beer. Not only does beer consumption accelerate to the levels seen in developed markets, consumers also move up in the portfolio towards more premium brands. 

There are market dependent limits to per capita growth 
There is a limit to how much alcohol and beer one can drink. For beer, the per capita average of 10 liters of pure alcohol translates to 200 liters which approximates consumption in core beer markets such as Germany and Czech. 

As markets mature, our analysis indicates a range of 70-90 liters per capita being the developed market norm over time. For most emerging markets with favorable population and illicit alcohol profiles, this is a growth destination; for developed markets this may translate into more declines.

 

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

The last few paragraphs above highlight just how important international expansion is for larger brewers. The profile of consumption in emerging middleclass economies represents where they have the best potential to grow their businesses. The pace of M&A activity within the sector highlights the fact that international expansion and establishing  brand loyalty remains a priority. 

An artificial winter has begun to stretch across the country, through its fields and its ports, its logistics hubs and freeways. China had 250 million cubic feet of refrigerated storage capacity in 2007; by 2017, the country is on track to have 20 times that. At five billion cubic feet, China will surpass even the United States, which has led the world in cold storage ever since artificial refrigeration was invented. And even that translates to only 3.7 cubic feet of cold storage per capita, or roughly a third of what Americans currently have — meaning that the Chinese refrigeration boom is only just beginning.

And

Despite the expansion in frozen foods and refrigerators, the critical growth area is what’s known in the logistics business as the “cold chain” — the seamless network of temperature-controlled space through which perishable food is supposed to travel on its way from farm to refrigerator. In the United States, at least 70 percent of all the food we eat each year passes through a cold chain. By contrast, in China, less than a quarter of the country’s meat supply is slaughtered, transported, stored or sold under refrigeration. The equivalent number for fruit and vegetables is just 5 percent.

The evolution of cold storage capacity tends to move hand in hand with the instant gratification often associated with a developing consumer economy. Having a large refrigerator in one’s home means a large selection of food is available whenever we wish. As the article points out the roll out of a refrigerated food chain doesn’t necessarily reduce food waste over the long term. However it changes food waste from being an inevitable fact to being dependent on people’s purchasing and consumption choices.  While China is on its way to surpassing the USA in terms of refrigeration capacity, India is only now beginning to introduce refrigerated warehouses suggesting there is substantial growth in this sector. 

Brazil’s flavor of the Baidu search engine went live this morning, giving it a presence in one of the growing BRICS countries and helping it stand out more against competitors like Google, Yahoo, and Microsoft’s Bing. The Baidu search engine has also popped up in Egypt, Japan, and Thailand.

The Brazil rollout comes a couple years after Baidu opened up shop in Brazil. Next up, we can imagine an operational Baidu search engine in the United States, the home of the top search engines in the world.

After all, Baidu co-founder and chief executive Robin Li harbors ambitions of making the company a brand name in half of all countries in the world, according to a 2011 report in PCWorld.

Baidu opened a lab in Silicon Valley two months ago. Artificial intelligence smarts for a U.S. version of the Baidu search engine could certainly be possible, given that Baidu hired Andrew Ng, founder of Google’s deep-learning project and director of Stanford’s artificial intelligence lab (and a co-founder of massively open online course provider Coursera). And the Baidu lab is hiring.

 

One of the arguments levelled against China’s development strategy has been that the command capitalism it has championed stifles entrepreneurship. Compared to the private sector led growth of India, China has relatively few internationally competitive companies. However, that situation is gradually changing. India’s new administration looks likely to espouse a wide ranging infrastructure development strategy while China’s companies are increasingly making their presence felt on the international stage. Baidu is a good example of this. 

While IoT spans a variety of industrial sectors, the focus of this report is on Home Automation. Previous reports in this series addressed the applications of IoT to CommTech, Semiconductors and Software. In this report, we address the impact of the IoT on the industrials space, with a deeper dive into Home Automation within the Building Automation opportunity below. We expect a series of follow-up reports touching the following topics.

Building Automation focuses on improving energy efficiency and occupant comfort/utility within the home or commercial building. Key advantages include improved security, remote monitoring of devices, and energy management.

Manufacturing applications of IoT could help facilities to reduce downtime through predictive maintenance, have better visibility into inventory and energy management, and improve operational efficiencies overall.

Resources could benefit from real-time equipment monitoring, energy efficiency (smart meters), and fuel reduction (O&G).

 

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

The frivolity of much of the social media space has led some to believe that future productivity gains will be limited. However, the increasing application of new technologies to the industrial sector almost certainly insures that this assumption will prove false. Rapid prototyping, embedded sensors, processors and transmitters are driving efficiencies that are transforming the industrial sector. This is important because productivity growth is a necessary component in the evolution of a secular bull market. It is for this reason that veteran subscribers will be familiar with our continued emphasis, particularly in the Friday audio, that we are in a technological golden age more commonly referred to as the Third Industrial Revolution. 

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

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

Big retailers, however, are clearly taking these partnerships seriously. Instead of sending mid-level business development executives to strike deals with Google, some are negotiating at the top. Costco’s CEO, for instance, flew out to Google’s Mountain View, Calif., campus to meet with Google CEO Larry Page before agreeing to participate in the Google Shopping Express program. Costco CFO Richard Galanti also met with execs at Google on a separate trip. Galanti said it’s important for Costco to consider new sales channels as more shoppers make purchases online.

“Why wouldn’t Google just eliminate the merchant from the middle?” Faisal Masud, e-commerce chief at Staples

“We’re pretty good at knowing what we know how to do and what we don’t,” Galanti said.

“We’re not arrogant about it.”

What’s keeping some retail bosses awake at night, however, is the ongoing suspicion that Google could eventually build an Amazon-like marketplace in which the search giant sells products directly to shoppers and cuts out brick-and-mortar retailers altogether. Even some current Google Shopping Express partners see the potential for such an approach.

Fallows, for his part, was adamant that Google will not pursue this strategy.

“Very firmly no,” he said. “Google is a platform and partnership business. We can’t say that strongly enough.”

Another fear among some retailers, according to RetailNet Group’s Anderson, is that as long as the purchases keep running through Google instead of the retailer’s site, Google will start to collect more and more valuable information on who buys what. Google could then use that data to attract more money from brands looking to promote their own product through Shopping Express no matter which retail store it comes from. Some of that marketing money, Anderson believes, could in turn be shifted away from funds these brands typically allocate to retail stores to promote individual products.

“Google may be in a position to go to Procter & Gamble and say, ‘Why would you give [marketing] dollars to Target when you can just give them to us and we’ll promote the brand whether the shopper decided to buy from Target or another retailer?’” Anderson said.

Despite these concerns, Google has assembled a respectable group of partners to the program. Several of them say participating in the Google Shopping Express program gives them a way to evaluate whether it’s more cost effective to offer same-day and next-day delivery themselves, through a partner or whether they should at all.

 

The retail sector is in a constant state of transformative development. This is particularly true in the USA where penetration of online shopping is higher than elsewhere. Since moving to Los Angeles, it is apparent that there is no shortage of retail space in West LA. Whether this is as a result of online eating into high street market share, the slow recovery of consumer appetites, high rents or the dominance of big box stores and malls is debatable. What seems clear is that the survivors on the high street are service oriented or tailor to a very specific niche. 

The entry of Amazon and Google into the grocery market is a fresh interesting development. Since realising that we could do our Costco shopping online so that we could outsource the porting of heavy bulk items such as gallons of washing detergent etc. to someone else we’ve concentrated on pleasure shopping for fruit, veg and meat at Bristol Farms and Whole Foods. Both Amazon and Google’s delivery trucks are regular sights around our neighbourhood. 

Higher quality stocks—as identified by the Northern Trust Quality Score (NTQS) definition—tend to outperform lower quality stocks and do so with considerably less risk. This phenomenon is seen across domestic, international developed and emerging markets.

Unlike value or size, there is no single generally accepted definition of an equity quality factor. Although a wide range of attempts have been made to define quality, their ability to capture the quality phenomenon has been extremely varied.

Much of the difficulty in defining quality stems from the lack of a theoretical justification. Classic models such as CAPM suggest the quality phenomenon should not exist so we lack a practical framework with which to form a definition. However, these models make restrictive assumptions such as uniformity of investor risk posture.

On the other hand, our model of heterogeneity in investors’ views toward risk does a better job of explaining the quality phenomenon as well as the asymmetry of returns to quality during crises and recessions.

Heterogeneity of risk postures suggests risk-seeking investors drive up the price of lowquality/ high-risk stocks until their expected values are negative. Risk-averse investors gravitate toward low-risk stocks where positive expected values, i.e., positive risk premia, are an equilibrium condition.

With this guidance we can define quality as those features of a company that appeal to risk-averse investors – a definition that is inherently multidimensional and will vary by market segment.

With metrics encompassing multiple dimensions of quality, the NTQS has performed exceptionally well relative to other alternative definitions. Implementation of Northern Trust’s quality philosophy, while integrated into the consistent framework that underlies our active equity products, varies by strategy and market segment.

Tactically rotating in and out of quality is impractical since “junk rallies” are tied directly to macroeconomic cycles and are, hence, even more difficult to predict. Further, most of the return for holding low-quality names is concentrated into a few, relatively brief periods which are easily missed with factor rotation. 

The quality and low-volatility phenomenon are only partially related. While there is strong overlap between low quality and high-volatility stocks, there is only a weak relationship between high quality and low-volatility stocks. Thus, the two phenomena are fundamentally different.

 

The full report is posted in the Subscriber's Area.

Quality is a poorly defined term, but is a characteristic investors tend to prize more than traders. When we created the Autonomies designation, it was with a view to finding companies that have grown into truly international businesses.

Today’s multinationals are in many respects globally mobile, not least in where they choose to pay taxes, but also in terms of where their respective processes are centred. As truly global companies their revenue is sourced internationally and is less focused on the country they originated in. Together with the fact that they generally have sound balance sheets and competent management structures, the Autonomies share a number of characteristics with “quality” companies. 

India's insurance business was full of promise when it was thrown open to competition in 2000, but has been hobbled by losses, regulatory change, uncertainty and a sharp slowdown in the economy.

The federal government's approval for a proposal to raise the limit to 49 percent has been kept pending for a long time due to opposition by nationalist politicians, frustrating many overseas investors lured by low penetration rates in India.

Life insurance penetration in India is about 3.2 percent of gross domestic product in terms of total premiums underwritten in a year, much lower than more than 10 percent in Japan and nearly 6 percent in Australia.

Dutch banking and insurance group ING Groep NV and New York Life have quit their Indian ventures in recent years, while some other foreign investors were said to be weighing their options.

At the end of Sept 2013, India had 24 life insurers, which accounts for 80 percent of the sector's business. Only 17 of the 24 reported profits in the fiscal year ended March 2013, according to latest data available with the regulator.

State-owned Life Insurance Corp of India Ltd controls about 70 percent of the life insurance business.

"This measure should provide impetus for spurring growth of the insurance industry and enable foreign players to bring in capital required for growing distribution (and) product suite," said Shashwat Sharma, partner at consultant KPMG.

 

India represents a potent market for western multinationals but has been a disappointing investment for a number of companies who failed to deal effectively with the bureaucratic quagmire, regulatory roadblocks to growth and depreciation of the Rupee. With a new administration and a greater potential share of the profits, internationally oriented companies may be re-enticed to consider India. 

“You mention the Autonomies in your comment of the day quite regularly - Is there a fund I can invest in?”

A number of subscribers have asked this question over the last few years but until now the closest proxy has been the Dow Jones Industrials Average. However a few months ago a UK based fund manager, who read Crowd Money, approached me about consulting on an Autonomies fund which he envisaged running a smart beta strategy. In other words it would seek to run trends in the Autonomies but would lighten when an instrument was heavily overextended relative to the 200-day MA and seek to increase positions following reversions to the mean. I believe this fund will be launched in early September

This week I have spent each day reviewing a different Dividend Aristocrats index, as defined by S&P, and adding the respective constituents and former constituents to the Dividend Aristocrats section of the International Equity Library. Today I will focus on the Autonomies, a term we coinded a number of years ago, which is a list I compiled to reflect the types of companies that should benefit from the confluence of themes represented by the Greatest Urbanisation in History, the Golden Age of Technological Innovation and the game changing nature of innovation in energy production

Our original aim in creating the list was to recognise the fact that companies have grown so much in terms of influence and dominance of their respective niches that they are now akin to mobile principalities.  The globalisation of economies means that corporations can make the best use of their platforms to optimise sourcing of raw materials, manufacturing, R&D, marketing and sales. They also have the ability to choose where they eventually pay taxes and how to limit their exposure to regulation.

Capitalism trends towards concentration as the strongest eventually consume the weakest. It is therefore no surprise that the Autonomies include a range of sectors dominated by oligarchies whether iron-ore, industrial gases, social media, marketing, convenience foods, snack foods etc.

In an exchange between Iain Little, Pascal Morin and I this week Pascal suggested the following as a definition for autonomies:

An autonomy is a company which displays leadership characteristics in its sector and operates on a global scale; it is relatively “autonomous” from any given country, including where its head office is located, with respect to tax, governmental interference, regulation, labour inputs and end-markets, and can freely choose where to allocate its resources to best fulfil its objectives.   

This encapsulates the most important factors we seek to highlight with the list. In this regard it is a somewhat qualitative definition and differs from the Dividend Aristocrats which is a purely quantitative designation. I devoted the final section of my book, Crowd Money, to the Autonomies because they represent a fertile pool from which uptrends continues to evolve. 

Nike versus Adidas - Forget about bragging rights during the World Cup (Nikes enclosed 70 per cent of those Brazilian and Croatian feet last night while a quarter wore Adidas boots) what matters to investors are returns. Here the big question is whether it is time to buy Adidas after years of underperformance versus Nike - although both share prices have more than quadrupled over the past decade. The German company is a third cheaper based on multiples of forward earnings. Partly that is due to forex headwinds and its struggling TaylorMade golf business (rounds played in America fell another 5 per cent in the first quarter). But what really matters is that Adidas’s footwear sales in the US are 30 per cent down on last year with a 9 per cent market share falling fast. Stop that slide and a switch looks more compelling.

Both Nike and Adidas are Autonomies. While one way to look at them is to debate which is more likely to outperform, the other is to accept they are by far the largest sporting goods companies in the world. Under Armour certainly has a cool cache but has yet to venture beyond its domestic US market and is a fraction of their size. The same can be said for other popular local brands globally. However one sees the future, it is likely to incorporate both Adidas and Nike.

A company needs to increase dividends for at least 5 years in order to gain access to the Canadian Dividend Aristocrats. For a country with such a wide array of income bearing securities, the time hurdle for entry is lower than other jurisdictions and highlights the fact that while income trust structures pay out high percentages of their profits, those dividends can be highly variable. 

The Canadian list is the only one of the Dividend Aristocrat groups that has a substantial weighting of banks and mining companies. This is a testament both to the country’s sound financial system and the size and maturity of its resources sector. The Total Return Index’s uptrend has picked up pace since October and while it is becoming increasingly overextended relative to the 200-day MA, a break in the progression of higher reaction lows would be required to signal mean reversion is underway.

List of the current and former constituents can be found in the International Equity Library. 

Some of the instruments with interesting chart patterns include:

In order to gain access to the S&P Pan Asia Dividend Aristocrats a company must increase its dividend for at least 7 consecutive years. S&P made constituents of the Index freely available until 2011 but then decided to make them proprietary. As a result in reviews of the sector over the last few years I have been limited to using out of date information. Happily, S&P have changed their policy and the constituent data is available once more.

The Index still has 57 members but there have been 31 changes. The number of Australian and Indian companies has decreased while the Japanese and Chinese weightings have increased. The Philippines and Indonesia are no longer represented while South Korea only has only one member.

The performance of the Index is quite different from either the US or European equivalents; highlighting the more difficult trading environment evident in Asia over much of the last 18 months; with the exception of Japan last year. 

The S&P Europe 350 Dividend Aristocrat Index has less stringent requirements for entry than the US Index with only 10 consecutive years of dividend increases needed for entry. This results in much more volatility in the makeup of the Index. Additionally, the other less mentioned requirements for entry, such as requisite free float and liquidity play a greater role for the European index. This means that companies such as Astra Zeneca, Essilor International and Enagas have been dropped only to be added back in later. 

I originally began to keep a record of former constituents of the Dividend Aristocrat indices because I noticed that companies often moved to positions of outperformance following their ejection. Occasionally, a company dropped out because its liquidity was too low or because it failed to raise the dividend for a single year. However these proved temporary aberrations and the shares shook off this hiccup and moved to new highs. Both the constituents of the S&P Europe 350 Dividend Aristocrats Index and the former constituents can now be found in the International Equity Library. 

As government and corporate bond yields have compressed, the relative attraction of shares where the dividend is increasing above the rate of inflation is obvious. S&P kindly make the constituents of their Dividend Aristocrats indices available through their website and they have represented a useful resource for identifying companies with solid balance sheets and respect for minority shareholder interests over the last five years.

Generally speaking the constituents of the S&P 500 Dividend Aristocrats do not have the highest yields, not least because capital appreciation tends to compress them. In order to achieve 25 consecutive years of dividend increases the companies concerned maintain conservative dividend policies where they increase their pay-out incrementally year in year out. The result is that the constituents are generally well-established companies with reliable franchises and the competitive edge within their respective niche that allows them to prosper. 

I was wondering why Abercrombie doesn't qualify as an autonomy? The graph is basing out it seems, and in Milan while the other stores are empty (except the Ferrari store); you have to practically line up to get in and to pay at Abercrombie. / Hollister. It is the one of the favorite brands among teenagers here along with Bershka. Also, I hope you plan to alternate the audio comments between Mr. Fuller and Mr. Treacy because even though the research and conclusions are the same, the styles are different and I like to listen to both of you regularly

Thank you for this question and I’m glad you enjoy the audio commentaries. I agree that Abercrombie and Hollister are very popular brands among teenagers but Bershka, as an offshoot of Inditex, has greater Autonomy characteristics. 

Cocoa shortages are poised to extend into the next decade as West African growers struggle with underachieving farms or switch to more lucrative crops, such as rubber.

As worldwide demand increases -- the average Chinese consumer eats only a little more than two candy bars’ worth of chocolate a year -- producers are considering ways to boost grower income and coax higher yields from cocoa farms in Ivory Coast and Ghana. Despite two years of shortages, prices haven’t risen enough to persuade many farmers to stick with cocoa while other crops pay more.

“Cocoa farmers are becoming more aware of the bad deal they’re getting on the cocoa value chain,” said Edward George, head of soft commodities research at Lome, Togo-based lender Ecobank Group. “It takes something quite dramatic to get a farmer who has been cultivating cocoa his entire life to tear up his cocoa plantation and switch to rubber. But you can see a trend is under way.”

Worldwide cocoa demand will outpace production again in the next season that starts Oct. 1, according to a Bloomberg survey of five analysts and traders. The deficit is expected to grow ninefold to 1 million metric tons by 2020, which would equal about one-quarter of global output if growers maintain the current rate of production, said Zurich-based Barry Callebaut AG, citing an industrywide forecast. How to satisfy global demand will be a topic discussed at the World Cocoa Conference, which starts June 9 in Amsterdam.

Sustainable Farming
Part of the problem is unrealized potential, said Damien Thouvenel, a cocoa trader for Sucres et Denrees SA, or Sucden, in Paris. Growers in Ivory Coast, which, combined with neighboring Ghana, is the source of 55 percent of the world’s cocoa, harvest an average of 400 kilograms (882 pounds) of beans per hectare (2.5 acres) while a farm that’s well-managed with fertilizers and pesticides can yield up to 1.5 tons per hectare, Thouvenel said.

To address this, 12 of the world’s largest chocolate and cocoa companies, including Barry Callebaut, Ferrero SPA, Hershey Co., Mondelez International Inc., Mars Inc., Cargill Inc. and Nestle SA, signed an agreement with the Ivorian government in Abidjan on May 20 to “accelerate actions to make cocoa farming in the country sustainable,” according to a statement on the website of the World Cocoa Foundation, which will coordinate strategy.

The life cycle of a cocoa tree means that new supply is difficult to bring on line quickly. Additional measures such as modern farming methods including fertilisers and pesticides are required to boost yields over the next few years. Both London and New York traded Cocoa are in backwardation and both exhibit consistent medium-term uptrends suggesting demand dominance.

In absolute terms prices are still well below the highs reacted in 2010 which means they could rise further before demand destruction becomes a factor. A break in the progression of higher reaction lows currently near £1790 and $2850 respectively would be required to question medium-term uptrend consistency.

“Since 1980, no country has made significant progress in reducing the rates of people being overweight or obese,” Christopher Murray, the study author, said in an e-mail.

“Obesity is now a major public health epidemic in both the developed and the developing world.”

Obesity can raise the risk of diabetes, osteoarthritis, heart disease and cancer, among other health-threatening conditions, according to the U.S. Centers for Disease Control and Prevention. Being overweight was estimated to have caused 3.4 million deaths worldwide, said Murray, director of the Institute for Health Metrics and Evaluation at the University of Washington in Seattle.

“Countries need to be looking at how they communicate effectively both what people eat and how much they should be eating,” Murray said. “Because what we’ve been doing up until now isn’t working. Strategies to tackle obesity need to address both physical activity, total caloric intake and the different foods we eat.”

At a playdate for our daughters last weekend, one of the other parents recounted a story how her 6-year old daughter had learned a naughty work that sounded like duck. The little girl came back the next day and said she had learned another dirty word that started with ‘f’. She told her mother it wasn’t fart but before uttering the newly learned taboo, she furtively looked around to make sure no one else could hear and whispered the word ‘fat’.

Schools are spending a great deal of time trying to teach children about the virtues of eating well and staying active. The above review of chocolate companies illustrates how powerful an addiction a “sweet tooth” can be and the war against obesity remains an uphill struggle which is gaining importance as the cost of treating obesity related illnesses balloons. 

“Hello, I read your book as soon as it was published and I plan on going to one of your courses in London in the fall or in 2015, in the meanwhile I practice. So, I would like an opinion on the Microsoft graph, seems like it is breaking out, so you agree? If it holds 38 / 40 dollars on monthly graph seems it will go up, I am looking at the long term graph from 1999 to today”

Thank you for this question and I look forward to welcoming you to a future venue for The Chart Seminar. Microsoft is one of the original cast of Autonomies because of its global franchise, leadership in its niche, solid balance sheet and impressive record of dividend increases. The market appears to be reacting well to the company’s change of leadership. 

Sprouts Farmers Market Inc. (SFM) said its first-quarter profit surged 86% as the specialty grocer's revenue beat expectations.

Shares rose 6.1% to $29.06 in recent after-hours trading as adjusted earnings also beat estimates and it raised its 2014 guidance.

For the year, Sprouts raised its per-share adjusted earnings estimate by a nickel and now expects 63 cents to 65 cents. The grocer also increased its projection for net sales growth by two percentage points and now expects an increase of between 18% and 20%. The company also boosted its same-store-growth estimate by 1.5 percentage point to between 8.5% and 9.5%

The competition in the organic and natural foods space has intensified, as established supermarket chains beef up their higher-end offerings and other niche players embark on expansion plans.

Phoenix-based Sprouts reported a profit of $33.7 million, or 22 cents a share, up from $15.6 million, or 14 cents a share, a year earlier. Excluding secondary offering expenses and other items, adjusted earnings rose to 23 cents from 14 cents. Analysts polled by Thomson Reuters expected per-share profit of 20 cents.

Revenue increased 26% to $722.6 million, topping the company's forecast for $720 million. Same-store sales increased 13%.

Rival Whole Foods Market Inc. (WFM) reported late Tuesday that fiscal second-quarter earnings were flat from a year ago, at $142 million, albeit revenue was up nearly 10% at $3.32 billion. The company also trimmed its annual sales and profit forecasts.

 

A lot of the steam has been squeezed out of recent IPOs regardless of sector. A number of new entries face challenges associated with growing quickly. They often absorb some of their smaller competitors in the race to seek a stock market listing. This means they are left with a number of units that do not fit cohesively with the whole. This is as true of 3D printing shares as it is of internet security and while the challenge is not as great for supermarkets, creating and inseminating a company culture remains a challenge. 

For Nestle SA, life at the top of the $81 billion coffee market just got more difficult. The world’s biggest coffee maker, which derives about a fifth of its $100 billion in sales from java, faces a new number two after Mondelez International Inc. agreed to combine its coffee unit with its D.E Master Blenders 1753 BV. The new company, Jacobs Douwe Egberts, is the latest step by Master Blenders owner JAB Holding Co. to create a caffeine-fueled global powerhouse in one of the few vibrant areas of the $1 trillion food and beverage sector.

That creates headaches for Vevey, Switzerland-based Nestle, whose coffee business has slowed of late after driving revenue and margin expansion for much of the past decade. Sales growth at the unit that includes most of the coffee portfolio has halved, while the single-serve Nespresso division has lost market share to copycats in Europe and failed to make a dent in the U.S.

“Nestle now has proper competition just at a time when they’re struggling,” Jonny Forsyth, an analyst at Mintel, said in a phone interview. “They should be worried.” Nestle declined to comment on the new company.

The combination is the largest in an industry that has rapidly consolidated in the past five years, with more than 100 deals worth almost $23 billion, according to data compiled by Bloomberg. The largest of those deals was Master Blenders takeover by JAB last year.

 

In many respects coffee is a beverage consumed by the middle classes. Consumption has increased over the last decade and is likely to increase further. The consolidation of the sector suggests that related companies are well aware of this fact and they have been competing to gain the critical mass necessary for global expansion. 

Mondelez International’s partnership with D.E Master Blenders can be viewed as a positive for both companies. Quite how much of a threat to Nestle it represents remains open to question. After all, it might be competitive but the sector remains on a strong growth trajectory. 

 

Buying the Merck unit adds the allergy medicine Claritin and Coppertone sunblock to a Bayer portfolio anchored by the iconic pain pill aspirin. Bayer, based in Leverkusen, Germany, had 3.9 billion euros ($5.4 billion) in sales of non- prescription medicines last year, accounting for about 9.7 percent of the drug and chemical conglomerate’s revenue.

“We are strong in the over-the-counter business with Bayer aspirin and other products, so this was a great opportunity for us to strengthen the business and truly become a global leader,” Chief Executive Officer Marijn Dekkers said in an interview with Bloomberg Television.

Bayer ranks second in over-the-counter drugs by sales, behind Johnson & Johnson, according to a ranking compiled by the German company. After the Bayer-Merck transaction closes and Glaxo and Novartis form their venture, that venture will be the largest, followed by Bayer and then J&J, according to Bayer.

The pace of M&A activity in the healthcare sector continues to increase. While an argument continues to run in the bond markets over when interest rates will begin to rise and what effect that will have on borrowing costs, corporations are clearly voting with their wallets. They appear more willing to pay reasonably high prices with cheap credit rather than wait for the possibility of lower prices but perhaps more expensive funding.

The consumer and large cap pharmaceuticals sector had been mostly rangebound over the last year but as the wider market has ranged, these sectors have moved to positions of outperformance.

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

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

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

Please keep up the good service.

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

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

Even after Pfizer’s 63.1 billion-pound ($106.5 billion) sweetened offer for AstraZeneca was rejected, the government said it was pressing Pfizer for assurances on jobs and the U.K.’s place as a center for the life-sciences industry. The government will carefully weigh Pfizer’s proposals to see “whether they offer sufficient protection of our priorities,” Cameron’s office said today.

The fact that Astra Zeneca shares held their gain following the refusal of Pfizer’s offer suggests investors believe the acquisition will eventually be successful. Europe is proving a fertile hunting ground for well-capitalised US companies in search of acquisitions. GE’s attempt to acquire Alstom’s core power plant unit represents another such example. Considering the relative difference in valuations between the two continents, this trend is likely to continue.  

The geopolitical price premium started to blow out as the market started fearing shut out oil from Russia related to the Ukraine crisis. What if Russian troops really enter the eastern parts of Ukraine and the western powers are forced to impose much stricter sanctions towards Russia. Will oil be part of any sanctions from the western powers? Will Russia be able/willing to use oil as a weapon to retaliate stricter western sanctions?

These mentioned worries have led to financial players adding to their net long oil holdings in the Brent market since the start of April. The buying pressure has come both from adding new long positions but also from squaring short positions as can be seen in the graph below. Money Managers have rarely held fewer short positions in Brent futures and also rarely held more long positions. This close to record net length in Brent futures held by financial players always represent a downside risk for oil prices in the short term. During the last 15 months we have had two major sell-offs of net long positions by these kinds of players. We had one last year from mid-February that lasted into April which chopped 18 $/b off the Brent price and we had one in September-November last year that shaved 10 $/b off the Brent price. As we are again close to record net length held by these players this is a large bearish mark in our score card for the short term (reverse indicator). The longer the net length held by Money Managers the larger the short term downside risk.

 

A great deal of attention is currently centred on political tensions between Russia and Europe/USA. However, despite the leveraging up of long positions Brent Crude Oil prices have been reasonably static; ranging between $105 and $112 since at least November. 

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

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

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

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

 

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

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

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

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

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

“Corporations are flush with cash and are beginning to pick up M&A activity as well as share buybacks and dividend increases,” said Eric Teal, who helps oversee $3.5 billion as chief investment officer of First Citizens BancShares Inc. in Raleigh, North Carolina. “These activities will continue.”

The cash pile reached $2.02 trillion in the latest quarterly filings of 2,300 non-financial companies in the Russell 3000 Index, according to the data compiled by Bloomberg as of April 21. The total rose about 13 percent from a year earlier in each of the two latest quarters, the fastest six- month gain since mid-2011. For comparison, Russia’s annual gross domestic product was about $2.01 trillion last year.

 

The USA is the only country where taxation becomes a topic of conversation at The Chart Seminar not least because of the significant implications of realising paper profits on one’s tax liability. Companies have the same concerns, which is part of the reason they are so slow to repatriate profits. 

Against this background Europe is still recovering from a low base, perceptions of further upside potential are improving and valuations are reasonably attractive; particularly on a relative basis. The potential for additional merger and acquisition activity could act as a tailwind for the wider European markets. 

 

“Does the following analysis in the FT raise questions about a central plank our your argument in favour of a long term secular bull market in Autonomies?” 

Thank you for this question which others may also have an interest in. Here is a section:

In an interview, Kaushik Basu, the World Bank’s chief economist, warned that many of those people who had emerged from poverty in recent years remained “very vulnerable” to slipping back. He also said the world economy faced risks, including the possibility that China’s growth could slow even more than it has already, something that would have big repercussions for the developing world.

Even if that risk did not materialise, Mr Basu said, current growth would not be enough to return to the sort of poverty reduction seen in recent decades.

To make up for that, he said, “governments need to do more, much more, in terms of structural reforms in developing countries”.

BMO Research expects 42% of the 136 stocks in its mining coverage universe to generate free cash flow in 2014E. In 2015E, the percentage is expected to increase to 56% of the entire stock coverage.

BMO Research recommendations tend to reflect a preference for strong free cash flow generation at spot commodity prices.

Iron ore and steel, then aluminum and diversified miners have the strongest FCF for 2014-2015E; coal, diamonds and copper have the weakest using spot.

Price to Net Present Value
BMO Research mining stocks demonstrate a wide range of price to net present value multiples when calculated using a 10% discount rate and spot commodity prices. A number of companies trade at high multiples due to high debt or low project value while others trade at lower multiples reflecting political or execution risk.

Steel, iron ore, diamonds and copper stocks miners have the most attractive valuations using spot prices.

Price to Earnings
BMO Research estimates for 2014E price to earnings at spot prices display a wide range of results. In general, most of the diversified, copper, iron ore, and steel producers tend to cluster around 10-15x EPS, while precious metal producers average around 25-35x EPS.

At spot prices, many coal, uranium, and aluminum producers would not be expected to report meaningful earnings

Enterprise Value to EBITDA
Enterprise Value to EBITDA results appear much more consistent than EPS measures with the distribution of company multiples clustered closer to sector averages.

Diversifieds, iron ore, steel, diamond and larger copper companies tend to trade around 5x 2014E EBITDA at spot prices.

Copper developers, senior gold producers, and silver companies are generally observed at 5-10x EBITDA with relatively few exceptions. Uranium, coal, and PGM stocks appear the most expensive.

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

Free cash flow has been the buzz word in the mining sector over the last couple of years as companies have been forced by declining commodity prices to cut back on aggressive expansion programs. The net result has been a tighter supply environment in the industrial metal complex. Nickel has broken out of a six-month base while both zinc and lead are firming from previous areas of support and look primed for additional upside.

Hello, could Campari quoted on the Italian stock exchange be considered a potential autonomy?

Thank you for this question which may be of interest to subscribers. Campari is globally diversified, has a recognisable brand and has a solid record of paying a modest dividend. However we could not describe Campari as a leader when compared to the titans of the international beverages sector. It is for this reason I did not include Campari in the original list of Autonomies. 

 

Health care is a large and important segment of the US economy that faces tremendous productivity challenges. It has multiple and varied stakeholders, including the pharmaceutical and medical products industries, providers, payors, and patients. Each of these has different interests and business incentives while still being closely intertwined. Each generates pools of data, but they have typically remained unconnected from each other. A significant portion of clinical data is not yet digitized. There is a substantial opportunity to create value if these pools of data can be digitized, combined, and used effectively. However, the incentives to leverage big data in this sector are often out of alignment, offering an instructive case on the sector-wide interventions that can be necessary to capture value.

The public sector is another large part of the global economy facing tremendous pressure to improve its productivity. Governments have access to large pools of digital data but, in general, have hardly begun to take advantage of the powerful ways in which they could use this information to improve performance and transparency. We chose to study the administrative parts of government. This is a domain where there is a great deal of data, which gives us the opportunity to draw analogies with processes in other knowledge worker industries such as claims processing in insurance.

In contrast to the first two domains, retail is a sector in which some players have been using big data for some time for segmenting customers and managing supply chains. Nevertheless, there is still tremendous upside potential across the industry for individual players to expand and improve their use of big data, particularly given the increasing ease with which they can collect information on their consumers, suppliers, and inventories.

 

At the Global Strategy Session last week a discussion evolved about the disruptive impact the third industrial revolution would have on employment trends. People are understandably worried about the pace of mechanisation and how quickly humans are being replaced by robots. 

One delegate highlighted how 4000 people had previously been employed in Bolton by BAE Systems whereas now the workforce is a fraction of that number and there is little hope of these employees ever finding work in the area again. 

Another delegate highlighted the fact that there are more than 4 million jobs open in the big data sector, between the USA and Europe, but that there is a shortage of people with the requisite skills to fill them. 

Clearly the message is that the technical skills needed to thrive in the modern economy have changed beyond recognition in the life span of many workers. As we live longer, the challenge will be to find jobs we can be happy in and which encourage us toward continuous learning. Anyone who fails to embrace this reality will be more likely to have to depend on a state ill prepared for mass unemployment. 

It was a pleasure, as always, to spend time discussing the outlook for the markets in a convivial environment where experienced delegates shared their considerable knowledge of various sectors. Perhaps the most important question discussed was whether we are in the latter stages of a cyclical bull or the early stages of a secular bull? 
 

A new "C" class of Google shares will begin trading on Thursday under the familiar GOOG ticker. This stock gives its owners zero votes at the annual shareholder meeting. That sounds bad. In practice, however, the nonvoting shares won't be so different from holders of Google's "A" class shares, which get one vote apiece. Both groups are dominated by holders of the only shares that matter: class "B" shares with 10 votes each. Most of those are owned by Google's founders, Sergey Brin and Larry Page.

Page and Brin aren't satisfied with the 55.7 percent majority of votes they already control today. As Google issues less-potent "A" shares to compensate employees or to finance acquisitions, the company's founders have seen their voting power diluted. Now that the company is issuing the neutered "C" shares to ensure Page and Brin retain control far into the future, they're free to create as many shares as they like without giving up an iota of their grip on Google's direction.

 

Google remains a core constituent of the Autonomies not least because of its global reach and dominance of the online marketing sector. However, the creation of an additional non-voting share class suggests a lack of respect for minority shareholder opinions. On the other hand, the performance of Google's shares is likely to continue to reflect the opinions of those shareholders. The share continues to extend its decline back towards the 200-day MA. 

Due to this restructuring of the equity, the new non-voting C Class of shares are listed under the GOOG ticker while the back history from the 2004 IPO is now contained in the new GOOGL ticker. 

The regulatory action ends a probe that began in January, when China's State Administration for Industry & Commerce began investigating the company following media reports.

"We continue to believe in the potential of China's large and growing market," said Dan Chard, Nu Skin's president of global sales and operations, in a statement. "We remain committed to working cooperatively with the Chinese government to ensure the healthy, long-term growth of our business."

Nu Skin was fined $524,00 for illegally conducting direct sales. The company was fined an additional $16,000 for product claims that Chinese regulators said did not have enough evidence. Six Nu Skin sales employees were fined a combined $241,000 for "unauthorized promotional activities."

Over the last few years, companies employing a direct selling strategy have come under scrutiny from both short sellers and regulatory authorities. Peer group and door-to-door selling strategies are employed because they succeed in tapping into retail markets without having to spend fortunes on leases and shop fittings. Unfortunately, this leaves companies open to the accusation that they are engaged in pyramid selling which has had outsized effects on their shares.

The disappearance of a Malaysian airliner about an hour into a flight to Beijing is an "unprecedented mystery", the civil aviation chief said on Monday, as a massive air and sea search now in its third day failed to find any trace of the plane or 239 people on board.

Dozens of ships and aircraft from 10 countries scoured the seas around Malaysia and south of Vietnam as questions mounted over possible security lapses and whether a bomb or hijacking attempt could have brought down the Boeing 777-200ER which took off from the Malaysian capital, Kuala Lumpur.

The area of the search would be widened from Tuesday, Azharuddin Abdul Rahman, the head of Malaysia's Civil Aviation Authority, told reporters.

 

2014 has been an active year so far in terms of news flow that has the capacity to move markets. While the disappearance of flight MH370 is undoubtedly a tragedy its impact has had little effect on airline shares with the obvious exception of Malaysian Airlines. 

From a broad perspective, the US and European sectors went through a process of rationalisation following the credit crisis, where a price war gave way to mergers and increasing margins. Asian carriers have not taken part in this process because the sector remains largely fragmented along national lines. Malaysian Airways has been among a group of serial laggards and has lost more than 90% of its value since 2007. It remains in a consistent five year downtrend but steadied today near MYR0.20  

Chiquita Brands International Inc., owner of the namesake banana label, agreed to buy Ireland’s Fyffes Plc to create the world’s biggest supplier of the fruit for about 407 million euros ($565 million).

The combined company will be called ChiquitaFyffes Plc, Chiquita and Fyffes said today in a joint statement. The all- stock offer represents a bid premium of 35 percent, data compiled by Bloomberg show. Shares of Chiquita and Fyffes rose.

The deal brings together two of the world’s oldest fruit importers, who between them have operations spanning the Americas, Europe and Asia. Chiquita Chief Executive Officer Ed Lonergan, who will become chairman of ChiquitaFyffes, has sought to reshape his Charlotte, North Carolina-based company as a high-volume seller of bananas and salads while winding down and abandoning other product lines.

“The deal is logical and will be a good fit going forward for both parties,” said David Holohan, an analyst at Merrion Capital in Dublin. “This is an excellent result for Fyffes.”

Investors will get 0.1567 of a share in ChiquitaFyffes for each Fyffes share, while Chiquita holders will receive one share in the new company for each one of the existing company.

Fyffes Chairman David McCann will become CEO of the combined company, which will be domiciled in Ireland, trade in New York and have annual sales of about $4.6 billion. The transaction is expected to close this year, pending approval by shareholders and the Irish High Court.

 

I originally ruled Fyffes out of our list of Autonomies because it was not liquid enough to be of interest to most institutional investors. However, other than size both Chiquita and Fyffes are worthy of consideration based on their other attributes which are that they dominate their niche as major fruit importers and the sector has a high barrier to entry. As such it represents an oligarchy. 
 

A number of subscribers have requested that we add a section to the Chart Library devoted to the companies we regard as Autonomies. Sarah completed this task today and you will now find the list in the International Equities section third down from the top of the left column.

We began to focus on large successful multinational corporations in 2010 as the global economy was led out of the credit crisis by Asia. In order to compile a list of suitable shares we looked for those that are truly global and defined that as having at least 50% of their revenues originating outside their home country. 

We also looked for those that dominated their respective niches. While not intentionally seeking oligarchies, the concentration that occurs as part of a capitalist system means that the Autonomies represent a number of oligarchies where a small number of companies dominate their entire markets. 

We did not make dividend growth a defining characteristic for the list because a number of high growth companies do not pay dividends. However, there is substantial cross pollination between the Autonomies and S&P’s Dividend Aristocrats because globally oriented companies with sound balance sheets generally have solid records of dividend growth. 

In my book, Crowd Money, I used the Autonomies as an example of a developing investment theme and depicted long-term charts so that base formation completion was abundantly clear. This helped to stress the point that ranges are explosions waiting to happen and that long-term bases give rise to impressive uptrends. 

You can now scan through the constituents of the Autonomies, using the View All Charts function, in the Chart Library. What is clearly evident is that commonality which was such a feature of the list for the first two years has broken down. Consumer focused sectors have spent much of the last 18 months ranging while industrially oriented sectors broke out of their bases later and continue to extend their uptrends.

“I was wondering if you agree that Porsche looks interesting isin DE000PAH0038”

Thank you for this question which others may also have an interest in. Porsche is representative of a group of companies within Europe with very low valuations. In fact, following a scan of the Europe STOXX 600, Porsche has the lowest combination of historic P/E of forward P/E in the region at 2.86 and 6.36 respectively and the share yields 2.64%. 

It will be interesting to see whether the Dreman screens pick up Rolls-Royce, which has gone from stock market hero to zero in the space of little over a week. 

The share price has tumbled over 16 per cent since February 13, when it said 2014 would see a ‘pause’ in revenue and profit growth in 2014. The warning wiped £3.5billion off the value of the jet engine maker. 

The movement out of the stock was pronounced and supported by heavy trading volumes up until Wednesday when the buyers returned. The analysts who cover Rolls reckon the sell-off has been overdone. 

The Broker Forecasts site monitors stock recommendations and price targets attached to shares. On the figures it has collated the average valuation for Rolls is 1,287p a share, or around 28 per cent above the current market price.

If that consensus target is correct then the investors who sold have pushed the price too far down, providing a buying opportunity. Most analysts (67 per cent) are positive on Rolls, according to Broker Forecasts. So Rolls looks, on the face of it, to be ‘oversold’. 

But there are several reasons why this may not be a slam dunk ‘buy’. It is worth remembering analysts are sometimes slow to recognise the magnitude of problems at companies they are paid to follow. It should also be noted the profit warning is just one reason sentiment has turned. 

There are also concerns about a Serious Fraud Office investigation into bribery allegations, potential accounting issues and fears Rolls might make an expensive and rash acquisition.

 

Rolls Royce was among the original cast of Autonomies because of its globally diversified revenues, dominance (with GE) of the international market for turbines, strong balance sheet and reasonably reliable record of increasing dividends. However, while those attractive characteristics helped propel the share from a 2008 low near 209p to a January peak of 1294p future prospects will be judged on its ability to further enhance shareholder value. 

 

“I was wondering if you would consider Luxottica Spa as a possible autonomy? It is a leader in Asia, I believe and it has become a dominant player, could you take a look at this? Thank you in advance”

Thank you for this email which others may also have an interest in. We define Autonomies as companies that are truly global in nature, dominate their respective niches and have generally strong balance sheets.

While in Singapore last Sunday I was nursing a sore throat following The Chart Seminar and Global Strategy sessions in Sydney, and decided to spend some time clicking through the constituents of the Euro Stoxx Index using a long-term time horizon in order to identify base formations. The reason
I chose the Euro Stoxx Index is because it has lagged the wider Europe Stoxx Index over the last two years not least because of the effect the Eurozone crisis has had on its respective stock markets. 

The Euro Stoxx Index has 292 constituents and broke out to new 5-year highs in October. It found support in the region of the 2011 peaks in December and late January and a sustained move below 290 would be required to question medium-term potential for additional upside. 

Following the click through, I winnowed the list down to 110 shares with promising characteristics. From past experience that is usually a reasonably good number to identify commonality. 
 

Options traders who piled into bullish bets on Amazon.com Inc. this week stand to lose their money today after profit at the world¡¯s largest Web retailer missed estimates by 26 percent.

The volume of calls rose to 113,681 contracts yesterday, the most since October and almost double the trading in puts, data compiled by Bloomberg show. The eight most-traded options were bullish. Calls giving the right to buy the shares at $430 changed hands the most, more than tripling their price to $6.20.

The contracts, which expire today, had an exercise price 12 percent above the Jan. 29 close. Amazon shares slumped 7.4 percent to $373.08 at 9:55 a.m. in New York today.

“Everybody got it wrong, seriously wrong,¡± said Jiban Nath, an equity-derivatives strategist at Solo Capital Partners LLP in London. “A lot of people were going by what the analysts say. Amazon all these years had been doing amazingly well. The analysts all got the direction wrong and no one saw it coming.”

A topic we cover at length at The Chart Seminar is myopia. The focus of market participants is becoming increasingly short term, and HFT takes this process to the ridiculous. The problem with this type of market view is that it is all too easy to miss what is happening beyond the narrow scope of intraday trading.

Amazon represents a very telling example of myopia at work. In a bull market investors become conditioned to buy pullbacks because that strategy works. As demand becomes increasingly dominant, the size of reactions often gets smaller because those seeking to buy wait less time to initiate positions. That strategy is self reinforcing for as long as it lasts.

Operating expenses, excluding a one-time charge related to settling merchant litigation, climbed 11 percent to $1.1 billion from $966 million a year earlier, according to the statement. MasterCard spent more on rebates and incentives tied to signing deals with card issuers, the firm said.

“The notorious lumpy rebate line was even higher than expected," said Jason Kupferberg, an analyst at Jefferies Group LLC in a note. "Our initial look shows no reason for significant concern. We view the pullback as an especially good buying opportunity."

Mastercard and other credit card companies are among the primary beneficiaries of the growth in the global middle class where instant gratification plays an important role is fuelling demand for goods and services. The growth of the online retailing sector, also on a global basis, represents an additional revenue stream which is likely to increase for the foreseeable future.

With the company increasing its dividend and buying back $3.5 billion in shares investors could be forgiven for thinking that all is as it should be since efforts are underway to support the price as valuations contract from a pricey P/E of 24.

This week has seen a great deal of volatility in stock markets and particularly among shares which have had some of the most consistent chart patterns over the last five years. On clicking through the constituents of my Autonomies folder in my Favourites a number of charts stand out as notable.