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November 14 2019

Commentary by Eoin Treacy

Luckin Coffee's Stock Shoots Up After Revenue Rises Above Expectations

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

Shares of Luckin Coffee Inc. (LK) shot up 7.6% in premarket trading Wednesday, after the China-based coffee seller reported wider third-quarter loss but revenue that rose above expectations. The net loss was RMB531.9 million ($74.4 million), or RMB3.60 per American Depository Share, after a loss of RMB484.9 million, or RMB2.24 per ADS a year ago. Excluding non-recurring items, the adjusted per-ADS loss was RMB2.08, compared with the FactSet consensus for loss per ADS was RMB2.75. Revenue rose to RMB1.54 billion ($219.6 million) from RMB240.8 million, to beat expectations of RMB1.47 billion. Average monthly items sold were 44.2 million, up from 7.8 million a year ago, while the average monthly transacting customers grew to 9.3 million from 1.9 million. "During the third quarter, sales from freshly-brewed coffee drinks continued to maintain very strong growth, and we believe we will reach our goal to become the largest coffee player in China by the end of this year," said Chief Executive Jenny Qian. The stock. which went public on May 17, has tumbled 22.7% over the past three months, while the S&P 500 has gained 5.7%.

Eoin Treacy's view -

I wanted to try a Luckin Coffee while in Guangzhou over the summer but I was voted down by my daughters who could not get enough of boba tea. Since they discovered smores frappacinos the two alternatives are more balanced but they will always still choose a boba tea over a trip to Starbucks.



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November 13 2019

Commentary by Eoin Treacy

Google Deepens Push for Financial Data With Citigroup Tie-Up

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

“We’re exploring how we can partner with banks and credit unions in the U.S. to offer smart checking accounts through Google Pay, helping their customers benefit from useful insights and budgeting tools,” Google said in an emailed statement, adding that the accounts will carry federally guaranteed insurance.

The move is the latest sign of Silicon Valley’s determination to muscle in on financial firms’ territory, looking to expand their hold on customers and accumulate data on their finances. At the same time, it shows banks are more willing to pair up with technology companies in their quest to avoid getting shut out of the relationship entirely. In the Google arrangement, the financial institutions will handle most of the compliance requirements.

Google has spent years building out its payments capabilities, offering consumers the ability to send money to friends and check out both online and in stores through Google Pay. With the checking accounts, consumers will be able to receive their paychecks and transact solely inside the Google ecosystem.

Eoin Treacy's view -

Apple has teamed up with Goldman Sachs to branch into consumer credit while Amazon, Berkshire Hathaway and JPMorgan are planning on tackling the health care market. Google is partnering with Citigroup on consumer credit but Ascension on patient data. These stories highlight how eager tech companies are to branch into these data-rich sectors, where legacy players are ill-equipped to monetise the value, they have access to.



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November 11 2019

Commentary by Eoin Treacy

Electric cars are changing the cost of driving

This article by Michael J. Coren for Quartz may be of interest to subscribers. Here is a section:

It’s difficult to know how representative this data is of Teslas overall, given that Tesloop’s fleet is small, but it likely includes a large share of the highest-mileage Teslas on the road—several are nearing 500,000 miles. Finding conventional vehicles to compare is virtually impossible since most fleet cars are typically sold off after 100,000 miles.

But the implications could be huge. Every year, corporations and rental car companies add more than 12 million vehicles in Europe and North America to their fleets (pdf). Adding EVs to the mix could see those cars lasting five times longer—costing a fraction of conventional cars over the same period—while feeding a massive new stream of used electric cars into the marketplace. Whether the future of fleets is really electric, however, depends on the data. And that’s still in short supply.  

The promise of EVs
Most commercial vehicle fleets still run on gasoline and diesel, David Hayward, a fleet expert with Deloitte consulting, said. But EVs are top of mind. “Everyone is excited about it and everyone wants it,” he told Quartz. “But there’s trepidation.” The potential savings are huge. Fleet owners’ biggest expenses after depreciation (44%) are fuel (22%) and maintenance and repairs (11%), according to Deloitte.  EVs could slash those by more than half.

Eoin Treacy's view -

The original electric vehicles that entered service about ten years ago have some of the lowest resale values and steepest depreciations of any car. Meanwhile the Tesla Model 3 was the car with the least depreciation of any vehicle this year. That is a function of both supply and built up demand but the success in limiting the erosion of the battery’s charge potential has reversed the economics of the electric vehicle market. If a car can comfortably drive 500,000 miles with little to no maintenance, other than tyres, the only limitation is range. Right now, a Model 3 has about a 300 miles range which more than enough for most people. My SUV will do around 480 miles on the highway to a tank but probably closer to 200 in the stop/go of the city so the range issue is less of an issue today.



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November 08 2019

Commentary by Eoin Treacy

Inside Amazon's plan for Alexa to run your entire life

This article by Karen Hao for the MIT Technology Review may be of interest to subscribers. Here is a section:

In another scenario, you might ask Alexa through your communal home Echo to send you a notification if your flight is delayed. When it’s time to do so, perhaps you are already driving. Alexa needs to realize (by identifying your voice in your initial request) that you, not a roommate or family member, need the notification—and, based on the last Echo-enabled device you interacted with, that you are now in your car. Therefore, the notification should go to your car rather than your home.

This level of prediction and reasoning will also need to account for video data as more and more Alexa-compatible products include cameras. Let’s say you’re not home, Prasad muses, and a Girl Scout knocks on your door selling cookies. The Alexa on your Amazon Ring, a camera-equipped doorbell, should register (through video and audio input) who is at your door and why, know that you are not home, send you a note on a nearby Alexa device asking how many cookies you want, and order them on your behalf.

To make this possible, Prasad’s team is now testing a new software architecture for processing user commands. It involves filtering audio and visual information through many more layers. First Alexa needs to register which skill the user is trying to access among the roughly 100,000 available. Next it will have to understand the command in the context of who the user is, what device that person is using, and where. Finally it will need to refine the response on the basis of the user’s previously expressed preferences.

“This is what I believe the next few years will be about: reasoning and making it more personal, with more context,” says Prasad. “It’s like bringing everything together to make these massive decisions.”

Eoin Treacy's view -

A year ago Google gave a sample of what its artificial intelligence was capable of when it made a restaurant booking for some users by phoning a restaurant and impersonating a person. The company received a great deal of backlash from the liberal media about how much data it had to collect from a person to make that kind of service available and whether the company could be trusted with the information.



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November 07 2019

Commentary by Eoin Treacy

Expedia and TripAdvisor Lead Sharp Sell-Off in Online Travel

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

According to Piper Jaffray, “the most concerning trend” in the quarter was “the reduced efficiency of SEO,” or search engine optimization. Google, part of Alphabet Inc., is favoring its own “Hotel Finder” platform, along with paid links for search results, and this trend could require higher marketing costs.

D.A. Davidson noted that Expedia is exploring alternatives to mitigate its “reliance on search/Google,” but wrote that it sees “no alternatives that will be able to efficiently ‘move the needle’ from a volume perspective anytime soon.” Morgan Stanley wrote that Alphabet is now the “best way to invest in travel.”

TripAdvisor’s adjusted earnings and revenue both missed the lowest analyst estimates. The results “more than disappointed,” Jefferies wrote, reiterating its underperform rating. Analyst Brent Thill added that TripAdvisor’s preliminary 2020 outlook “is not encouraging,” in part because of “continued SEO pressure from Google.”

Eoin Treacy's view -

Third party vendors learned a long time ago that the biggest threat from selling on Amazon is being too successful. When sales move the needle enough to pique the attention of some quant, the risk of Amazon deciding to sell the same product, but cheaper, increases exponentially. The rise of the Amazon Basics line of products is a perfect example.



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November 04 2019

Commentary by Eoin Treacy

Rates Could Soar or Go Negative as Fed Pause Divides Wall Street

This article for by Liz Capo McCormick Bloomberg may be of interest to subscribers. Here is a section:

The message from the Fed, combined with solid U.S. job creation last month and optimism about U.S.-China trade talks, has pushed expectations for the next rate cut well into 2020. Fed fund futures aren’t penciling in a full quarter point cut until about September.

The yield move London-based Panigirtzoglou envisions would mirror what happened when the Fed engineered a similar three-quarter-point cut in a counter cycle maneuver in 1995. JPMorgan’s U.S.-based rates team is more sanguine, lifting its Treasury yield forecasts to 1.65% for year-end 2019 and 1.85% for mid-2020. That would be little changed from around 1.79% Monday.

Panigirtzoglou did add some big caveats to his bolder prediction. It assumes that the U.S. macro picture remains consistent with a mid-cycle adjustment, with resilience in employment and consumer confidence, as well as a rebound in manufacturing.

Eoin Treacy's view -

These two views are not mutually exclusive. The outlook for rates is quite capable of fulfilling both scenarios, just not at the same time. Right now, the case for a mid-cycle slowdown, like what was seen in the mid ‘90s, is looking increasingly credible as stock markets push new highs and cyclicals return to outperformance. The argument for even lower yields is looking like an increasingly distant possibility.



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November 01 2019

Commentary by Eoin Treacy

State of AI Report 2019

Thanks to a subscriber for this report for stateof.ai which may be of interest. Here is a brief section on robotics:

Certain Chinese industrial companies have automated away 40% of their human workforce over the past 3 years. This could be due in part to China’s annual robot install-base growing 500% since 2012 (vs. 112% in Europe). However, it’s unclear to what extent AI software runs these installed robots or has contributed to their proliferation.

Eoin Treacy's view -

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

The drive to automate manufacturing is one of the most challenging for any company but is also a major consideration in which countries benefit from manufacturing as a large, relatively well-paying employer. Many low-tech businesses have already migrated away from China while higher value-added businesses are under increasingly pressure to increase productivity by adopting technological solutions.



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October 31 2019

Commentary by Eoin Treacy

Shell Shares Continue Slide After Tense Call With Analysts

This article by Kelly Gilblom and Javier Blas for Bloomberg may be of interest to subscribers. Here is a section:

At one point, van Beurden quipped that the buyback program would be cheaper now because the shares were falling, which invited a terse response from an analyst who said: “I agree.”
“Please help me with my confused state,” said Christopher Kuplent, an analyst at Bank of America Corp., before asking the penultimate question on the call about whether they are
disclosing information in the right way.

Van Beurden responded that they could have avoided the cautionary note about the buybacks completely. He said that people could have done the math that lower oil prices make life more financially challenging for Shell, however, he said it was better to acknowledge a likely stormy year ahead to the market.

Then he offered another mind-bending answer as shares slipped further. “That macro does actually have an effect on our cash flow is obviously a statement of the obvious. So we could also have said: ‘Well that’s hopefully all understood isn’t it?”’ he added. “But not making a statement of the obvious it is also making a statement.”

Eoin Treacy's view -

When CEOs are candid and state the obvious it tends to have unintended consequences. Royal Dutch Shell’s management just told the market they may not have the money to buy back as many shares next year because oil prices are low and are likely to stay that way for the next 12 months. That’s not exactly what investors were expecting to hear.



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October 30 2019

Commentary by Eoin Treacy

GE Soars as Another Boost to Cash Forecast Buoys Turnaround

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

General Electric Co. surged the most in eight months after the manufacturer raised its 2019 cash-flow forecast for the second straight quarter, giving Chief Executive Officer Larry Culp’s turnaround effort a much-needed boost.

The industrial businesses will generate as much as $2 billion in free cash this year, GE said Wednesday as it reported third-quarter earnings. The company previously projected no more than $1 billion in cash flow.

The revised forecast bolsters “another quarter of progress” as GE also works to improve operations and bring down debt, Culp said. That came despite headwinds from tariffs and a cash strain on the jet-engine business from the grounding of Boeing Co.’s 737 Max.

“There’s still a lot to do, it is a reset year,” he said in an interview. “But net-net, we’re pretty encouraged.”

Eoin Treacy's view -

The story of GE’s demise from bluest of blue chips to near bankruptcy will likely be studied at business schools for generations to come. The hubris of management, selling off the most productive assets to plug holes in the balance sheet, focusing on the industrial sector at the beginning of the trade war and coming to terms with the overvaluation of intangible assets will all be considered in retrospect as huge mistakes but what does the outlook for the future look like?



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October 25 2019

Commentary by Eoin Treacy

Microsoft Rallies as Results Beat "Virtually Every Metric"

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

Growth in commercial bookings highlight “an impressive start” to the year. The results also featured a strong second-quarter earnings outlook, operating margins that “significantly outperformed,” and “solid” growth with Azure. “Microsoft remains the best positioned name in tech for the emerging Hybrid Cloud architecture, with improving margins sustaining a durable mid-teens total return profile.” Overweight rating, price target raised to $157 from $155.

Bernstein, Mark Moerdler
The company “beat virtually every metric driven by strength in Cloud, Sever & Tools, and Windows Pro.” Outperform rating, price target raised to $167 from $162. The analysts “remain positive & like buying” the stock.

RBC Capital Markets, Alex Zukin
This was “a strong start” to the year, “with bookings strength across the board” and “no macro weakness.” The revenue outlook “was lower than expected but with stronger margins, as gaming is expected to be weak.” Outperform rating, price target raised to $163 from $160.

Eoin Treacy's view -

Microsoft has transformed itself from a software maker to a software as a service company (SaaS). In the process it has transformed its lumpy cyclical cashflows into a steady revenue stream which is much more easily modellable. That allows analysts a much higher degree of comfort with the balance sheet and that generally commands a higher multiple. This subscription business model affords Microsoft and other companies growth rate and margins of a tech company but with the cashflows of a consumer staples company.



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October 23 2019

Commentary by Eoin Treacy

California's Gasoline Panic

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

But about 95% of gas stations with convenience stores are independently owned, which includes mom-and-pops that license brand names. Some consumers will pay more for brand-name gas as they will for Prada purses or Starbucks lattes. As gas prices rise, consumers may also burn more money than they save driving in search of the cheapest stations.

Notably, the commission ignores that retail margins include labor costs, utilities, rent and taxes. In 2012 the state increased taxes on high earners, which hit many small businesses. California’s minimum wage has increased by 50% since 2013. According to the Bureau of Labor Statistics, worker wages at California gas stations over the last five years have increased 50% more than nationwide.

Mr. Newsom has threatened legal action against oil companies to “protect the public.” But liberals have long wanted higher gas prices so folks will ditch gas-powered cars. The Governor last month ordered revenue to be redirected from the last gas tax hike, which was supposed to fund highway construction, to projects that “reverse the trend of increased fuel consumption and reduce greenhouse gas emissions.”

So Californians in the future can look forward to paying more to drive on deteriorating roads as they head to homes without electricity due to blackouts. How long will it take California voters to figure out that these are problems made in Sacramento by politicians?

Eoin Treacy's view -

Spikes in crude oil prices are associated with recessions because they represent a tax on consumption. It’s not coincidence that one of the reasons Europe’s economies have subpar growth is because they tax economic output through regulation and carbon trading with the express aim of increasing costs. California is well on the way to achieving the same outcomes.



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October 22 2019

Commentary by Eoin Treacy

Normal Yield Curve Doesn't Mean Everything's Normal

This article by Mohamed A. El-Erian for Bloomberg may be of interest to subscribers. Here is a section:

The more that markets internalize this shifting monetary policy sentiment inside central banks, the more that they will unwind the policy expectations that fueled several forces acting to invert the U.S. yield curve, including indirect ones such as the enormous pressure on foreign investors to flee negative yields in Europe and Japan and go into longer-dated U.S. bonds. Look for this phenomenon to also maintain the yield spread between German and U.S. bonds at its current lower range despite what will continue to be relative economic outperformance by the U.S.

Just as I argued in March that it was unwise to react to the inversion of the Treasury yield curve with extreme anxiety about a U.S. recession, it would be premature to celebrate the recent partial reversion as an indicator of significant strengthening of U.S. economic prospects. Instead, both are reminders of the extent to which traditional economic signals have been distorted by a prolonged period of extraordinary central bank policies. And they should also been seen as just one of the unusual consequences of a monetary stance that, imposed for several years on central banks by the lack of proper policy action elsewhere, will now see the hoped-for benefits give way to a broadening and deepening recognition of the unintended consequences and collateral risks.  

Eoin Treacy's view -

An inverted yield curve has been one of the most readily available lead indicators for a US recession for decades. There is always an argument that this time is different and that it only works for the USA’s economy. It is also worth remembering that no US recession has occurred without an inverted yield curve first but is a very small number of false positives. When considering the history of the measure anyone who is willing to buck the historical trend is betting on the signal giving a false positive.



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October 11 2019

Commentary by Eoin Treacy

U.S., China Said to Reach Partial Deal, Could Set Up Trade Truce

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

The U.S. and China reached a partial agreement Friday that would broker a truce in the trade war and lay the groundwork for a broader deal that Presidents Donald Trump and Xi Jinping could sign later this year, according to people familiar with the matter.

As part of the deal, China would agree to some agricultural concessions and the U.S. would provide some tariff relief. The pact is tentative and subject to change as Trump prepares to sit down with China’s Vice Premier Liu He later Friday.

Stocks jumped Friday after the news. Equities had advanced globally earlier in the day amid growing conviction that the U.S. and China would negotiate a trade truce. Trump tweeted earlier Friday that “good things” were happening in the meetings -- and that if the countries did reach an agreement, he would be able to sign it without a lengthy congressional approval process.

On Thursday and earlier Friday, Liu and U.S. Trade Representative Robert Lighthizer held the first senior-level discussions between Washington and Beijing since a previous agreement fell apart in May and tariffs were raised in the months after. The world’s two biggest economies have been trying for the past year and a half to settle their trade dispute.

Eoin Treacy's view -

The words from Bill Clinton’s early ‘90s election campaign must be ringing in President Trump’s ears, “It’s the economy, stupid”. There is a clear rationale for pressuring China on trade but is it worth losing the election for? The hardest hit parts of the US economy just about all voted for President Trump in the last election and have been specifically targeted by Chinese tariffs. Little wonder then that agricultural imports are front and centre in whatever deal is to be announced. With the election less than 13 months away it’s time to at least put the trade war on hold and let animal spirits loose. 



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October 10 2019

Commentary by Eoin Treacy

Market Internals

Eoin Treacy's view -

I have to admit I don’t look at the internals of the market all that often because it is the trend rather than the day to day moves which lend some insight into the health of the market. I thought it might be useful to look at some of the most common measures to discern if any clues to market direction are evident.

The Total Number of New 52 Week Highs on the NYSE Index is coming back down towards the lows December 2018 and towards the end of 2015. The significant spike on the upside in late 2017 was an anomaly suggesting a period of underperformance ahead, but generally lows are better predictors of market bottoms than spikes are of tops.



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October 03 2019

Commentary by Eoin Treacy

The Global Internet Phenomena Report

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

Google (Alphabet): YouTube, Google Cloud, Google Play, Google Search, Google Docs, Google Drive, DoubleClick, Gmail, and Crashlytics
Netflix: Netflix Video
Facebook: Facebook, Instagram, Facebook Video, WhatsApp, Facebook Messenger, Oculus Rift Microsoft: Xbox Live, Windows Update, Skype, Outlook 365, Office 365, SharePoint, OneDrive, Windows Store, LinkedIn
Apple: iTunes, iCloud, Apple Software Update, FaceTime, Apple Music, Apple.com, iCloud Photo Stream, Mac App Store

The brands with video traffic have a significant advantage on the downstream. Google (YouTube), Netflix, Facebook, and Amazon (Amazon Prime) have strong video offerings. Apple soon will, and Microsoft’s entry into gaming streaming (Mixer) will likely move them up this list if they can continue to recruit high profile gamers.

As shown in the chart, Google is #1 overall and on the upstream. The combination of YouTube, Google Search, and Google Cloud are the biggest contributors to the upstream traffic, as they are an integral part of any Android device’s experience.

Netflix is the #1 on the downstream and #2 overall as the only pure play in the bunch. As we mentioned last year, if Netflix was not the most efficient streamer at every resolution, their total could easily be twice what it is today, and they continue to excel in video codec work and efficiency in resolution downshifts and upshifts.

Google is also #1 on connections. This is a much more collaborative effort among Google apps. YouTube, Google Cloud Messaging, Google Search, Crashlytics, DoubleClick, and even Nest are the biggest contributors to Google connections per device.

Amazon: Amazon Prime, Twitch, Amazon.com, Alexa, Amazon Glacier, Amazon Music

When combined, these brands took up over 43% of all traffic volume on the internet: The details are interesting. Overall, Google edged out Netflix as the top consumer of bandwidth on the internet (as well as upstream) and dominated in the percentage of connections. Unsurprisingly, Netflix was the single largest consumer of traffic downstream, but Google was not far behind. This is confirmation that brands can build synergies, expand their business, and succeed. The obvious outlier in this case is Netflix, which does one thing and does it exceedingly well, albeit at very high volume. With new streaming services coming out from Facebook and Apple, with 4K and live streaming taking hold, these numbers might climb even higher next year.

Eoin Treacy's view -

The companies that dominate the internet have almost all adopted some form of the subscription business model. Their success in capturing the attention of hundreds of millions of consumers and the ad revenue and spending power that goes with it represent powerful cashflows. Their success also encourages competition and the evolution of new streaming services is a challenge to the early hegemony of some companies.



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October 01 2019

Commentary by Eoin Treacy

Xi Says China's Rise Unstoppable in Face of Protests, Trade War

This article by Annie Lee, Peter Martin and James Mayger for Bloomberg may be of interest to subscribers. Here is a section:

President Xi Jinping declared that no force could stop China’s rise, exuding confidence during a key
anniversary as he faced unprecedented challenges from protesters in Hong Kong and Donald Trump’s trade war.

Speaking at the start of grand parade marking 70 years since the founding of the People’s Republic, Xi called for stability in Hong Kong, unity among Chinese ethnic groups, and the “complete unification” of the country. Xi delivered the remarks at the site where late Communist Party patriarch Mao Zedong proclaimed the nation’s founding on Oct. 1, 1949.

“Today, a socialist China is standing in the east of the world and there is no force that can shake the foundation of this great nation,” Xi told a crowd of carefully vetted guests under smoggy skies in the center of the capital. “No force can stop the Chinese people and the Chinese nation forging ahead.”
Xi’s rallying cry came before an hours-long pageant showcasing China’s industrial and scientific achievements, including sophisticated weaponry such as DF-17 ballistic missiles believed capable of circumventing U.S. defense systems.

The closely scripted proceedings sought to reinforce the strength of a party facing multiple threats, from the slowest economic growth in decades to violent unrest in one of Asia’s top financial hubs.

Eoin Treacy's view -

Sometimes I feel like a broken record always repeating the same point about China, but governance is everything. The ranks of apologists for tyranny continue to advocate strongly for China despite its record on human rights, the environment, intellectual property, corruption, censorship and a host of additional factors.

The one thing China has going for it, is its economic expansion. Investors will be willing to give it the benefit of the doubt provided the expansion persists. It will an entirely different narrative if China has a recession.



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September 20 2019

Commentary by Eoin Treacy

Round numbers and indecision

Eoin Treacy's view -

One would be forgiven for concluding that algorithms have been programed with round numbers in mind. Roundophobia has been a topic of conversation at The Chart Seminar for decades but it is particularly relevant now because so many instruments have paused in the region of big round numbers. I’m greatly looking forward to the next event which will be in London on October 3rd and 4th.



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September 18 2019

Commentary by Eoin Treacy

FedEx Plunges After Slashing Forecast on Trade War, Slowdown

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

“In reality, FedEx’s release is largely the result of many management missteps over the years, including overspending on aircraft despite weaker returns in Express over the long-term, and acquisition debacles,” he said in note to investors.

Trade-War Impact
The U.S.-China trade war has weighed on manufacturers, disrupting a key market for FedEx. A surge in industrial jobs seen in the first two years of Trump’s presidency has reversed in parts of the country, and there’s evidence that some corners of the U.S. economy are sliding toward recession. Companies have slowed business investment and capital expenditures as uncertainty over trade policies has clouded the outlook for future growth.

For FedEx, the weaker outlook underscored the hurdles as the company introduces costly changes to its ground network to handle surging e-commerce deliveries while contending with rising competition from Amazon.

Eoin Treacy's view -

Amazon is now a larger shipper of items than either UPS or Fedex within the US market, from a standing start a couple of year ago. UPS still ships items for Amazon but that business is declining while Fedex is attempting to forge relationships with upstarts in the warehousing sector like Deliverr and Shopify. If the share price is any guide that latter strategy is in its infancy at best. Meanwhile it has been my experience that Fedex is successfully. competing on price for international bulk shipping business to Amazon’s European warehouses.



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September 13 2019

Commentary by Eoin Treacy

Sturdy Sales, Confidence Show U.S. Consumer Holds Up as Pillar

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

Spurred by a resilient labor market and income gains, the consumer remains the chief source of firepower for economic growth that’s slowed amid fragile global demand, uncertainty surrounding trade policy and lackluster factory output. The report suggests another solid quarter of household consumption, which grew in the April-June period at the fastest pace since 2014.

“At a time when recession risk dominates most economic discussions, the strength of the U.S. consumer is among the more compelling examples of an economy that is still firing on all cylinders,” Tim Quinlan, senior economist at Wells Fargo Securities LLC, said in a report.

Eoin Treacy's view -

The consumer has been largely shielded from the inflationary pressures of the trade war by the lack of duties on imported apparel and some other manufactured goods. That is now changing with new tariffs on these goods being implemented and the wholly domestic factor of rising health insurance costs pushing inflation higher.



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September 11 2019

Commentary by Eoin Treacy

Factors or Fundamentals, Quant Tremor Is Field Day for the Geeks

This article by Sarah Ponczek and Vildana Hajric for Bloomberg may be of interest to subscribers. Here is a section:

You wouldn’t know it from benchmarks, but beneath a tranquil surface violent swings are lashing traders along obscure fault lines. Companies like real-estate firms that rose the most in 2019 are plunging, and some that have trailed are being pushed out front. It’s been a mild reckoning for hedge funds and others who have bet on the status quo persisting.

Amid all the churn has been a renewed focus on a quantitative concept known as factor investing, which groups companies not by industry but traits such as how fast their prices move or profits rise. A question gaining currency in the past few days is whether these categories are just handy descriptions of twists in the market -- or are at some level guiding them.

“It seems very mechanical right now,” said John Swarr, investment specialist at Penn Mutual Asset Management, which has $27 billion under management. “If you look within some of these stocks that are being hit the hardest, some are in much better shape than others and yet they’re all being affected similarly,” he said. “It does feel like it’s a rules-based rotation.”

Eoin Treacy's view -

The total of negative yields bonds was at $17 trillion for a brief time at the end of August and has since contracted to $14.3 trillion. That’s a big more in a little less than two weeks.

The failure of the German government to sell a full allocation of bonds and failed auctions at the US Treasury in August were probably the catalysts for sapping investor demand for bonds globally. The unwinding of leveraged long positions now has the scope for meaningfully move bond yields higher with clear upward dynamics evident across multiple markets.



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August 16 2019

Commentary by Eoin Treacy

Alibaba's Financial Superstar is Shining Once More

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

At 1.63 billion yuan ($237 million), Alibaba’s share of Ant’s profit was the highest in almost two years. In three of the past eight quarters, Ant ran at a loss or provided zero earnings to Alibaba, according to the data. Despite this uptick, Ant’s contribution to Alibaba’s bottom line remains minor at around 7% of operating income. It could shrink again if Alibaba’s e-commerce business dwindles.

Yet Ant has plans to expand its reach throughout China’s economy, including moves deeper into wealth management and other financial products. This could make it relatively robust against any weakness in online and offline commerce should a macroeconomic slowdown continue. 

Given Alibaba’s moves to broaden its business into offline shopping, cloud computing and entertainment, investors may not need to get panicky about retail just yet. But when that time comes, Ant may have grown large enough to shine a bright enough light across the rest of the business. 

Eoin Treacy's view -

Both Amazon and Alibaba are discovering that the future of retail is a hybrid online and bricks & mortar experience. That is not what investors believed would be the case when they accepted massive valuations. The theory was the high costs of physical infrastructure on the high street would be replaced by smaller workforces and remote warehouses. The truth is we need both and that comes at a cost. The benefit both companies have is they are in a better position to provide this kind of hybrid experience than many established retailers.



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August 09 2019

Commentary by Eoin Treacy

Revealed: how Monsanto's 'intelligence center' targeted journalists and activists

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

The documents, mostly from 2015 to 2017, were disclosed as part of an ongoing court battle on the health hazards of the company’s Roundup weedkiller. They show:

Monsanto planned a series of “actions” to attack a book authored byGillam prior to its release, including writing “talking points” for “third parties” to criticize the book and directing “industry and farmer customers” on how to post negative reviews.

Monsanto paid Google to promote search results for “Monsanto Glyphosate Carey Gillam” that criticized her work. Monsanto PR staff also internally discussed placing sustained pressure on Reuters, saying they “continue to push back on [Gillam’s] editors very strongly every chance we get”, and that they were hoping “she gets reassigned”.

Monsanto “fusion center” officials wrote a lengthy report about singer Neil Young’s anti-Monsanto advocacy, monitoring his impact on social media, and at one point considering “legal action”. The fusion center also monitored US Right to Know (USRTK), a not-for-profit, producing weekly reports on the organization’s online activity.

Monsanto officials were repeatedly worried about the release of documents on their financial relationships with scientists that could support the allegations they were “covering up unflattering research”.

Eoin Treacy's view -

It’s hard to imagine how much more toxic Monsanto’s reputation can get but as the record of the company’s nefarious actions come to light it is understandable why they were so willing to be taken over by Bayer. They are now attempting to settle the Roundup weedkiller class action lawsuits for $6-$8 billion while lawyers are looking for more upwards of $10 billion.



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August 08 2019

Commentary by Eoin Treacy

Bridgewater's Ray Dalio Discusses the Impact of China's Growth on the World Economy

This is a fascinating interview where Ray Dalio discusses the merits of betting on China.

Eoin Treacy's view -

There are two very big questions we have to answer which are fundamental to the construction of a long-term portfolio. The first is does governance really mean anything? The second is how do you value private assets in a portfolio?
 
At this service we have long held that governance is everything. Is that still true? Ray Dalio appears to be agnostic on whether property rights, respect for minority shareholder interests, an independent judiciary and a free press are important. What I personally find particularly interesting is that the performance of China’s stock market, during the decade where it has achieved the heights of its ambition has been dismal.



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July 30 2019

Commentary by Eoin Treacy

Musings From The Oil Patch July 30th 2019

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

Eoin Treacy's view -

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

Autonomous vehicles represent the marriage of hardware and software but perhaps more importantly the transition of the automotive industry from the industrial to the consumer electronics sector. Electric vehicles have a lot fewer parts, are a lot easier to manufacture and the cosmetic features are mostly about fit and click rather than precision welding. That’s the primary challenge facing legacy automotive companies. Coupled with slowing economic growth the sector remains under pressure.



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July 26 2019

Commentary by Eoin Treacy

Starbucks Looks Like Its Old Self Again as Brisk Growth Returns

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

The strong report comes one year after longtime leader Howard Schultz retired from the chairman’s job and left the company, putting decision-making squarely in the hands of Chief Executive Officer Kevin Johnson, who’d been in the post for about a year at that point. Johnson got right to work, bringing life back to an aging brand that had started to lose its cachet among the hipper, smaller chains sprouting up in its shadow.

His playbook included closing underperforming locations in densely penetrated U.S. markets, turning over some foreign regions to licensees and revamping the chain’s loyalty program. He has also expanded food offerings to compete with trendy salad shops and found ways to launch the new drinks that Gen Z and millennial customers want, like Nitro cold brew and high-protein offerings, in as little as 100 days. In the past that may have taken up to 18 months.

Eoin Treacy's view -

The strong performance of Starbucks, McDonalds and Beyond Meat highlight the fact that small changes to menus which gel with consumer demand can have an outsized impact on results as customers re-engage with the brand. Whether that is protein-infuse drinks at Starbucks, better breakfasts at McDonalds or vegetarian offerings at fast food restaurants, these new product offerings have revitalised interest and highlight the strong cashflows of consumer- oriented companies.



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July 23 2019

Commentary by Eoin Treacy

Record $100 Billion Buyback Proves Strategy to Beat U.S. Stocks

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

European companies’ equity buybacks have surged to a record $100 billion over the past 12 months, with the strategy of betting on those firms beating returns from U.S. counterparts over the past five years, according to Morgan Stanley. The strategy is also rewarding company stocks more than the payment of high dividends, according to the bank.

“This is the first time we have seen strong buyback performance outside of bear markets or recessions,” strategists led by Graham Secker wrote in a note Tuesday. “More striking, our net buyback factor has shown much greater efficacy in Europe than the U.S. over all time frames.”

One of the reasons European stock repurchasers are faring better is that the practice is less common in the region than among American firms, said the strategists. Buying back equity can provide a much-needed boost to the world’s most-shorted equities, which have been seeing almost non-stop outflows for more than a year amid sluggish economic growth and political uncertainty. Doing so should boost earnings growth, trading liquidity and demand for shares, Morgan Stanley wrote.

Eoin Treacy's view -

European shares are trading at lower valuations than US shares so stock buybacks should have a positive impact simply because of the base effect. However, $100 billion is not all that much in comparison to what US companies are spending. Clear signaling from European corporations that they are willing to step in to support the value of their shares is probably going to be required to change perceptions.



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July 17 2019

Commentary by Eoin Treacy

Most of the World's Companies Are Duds

This article by Vildana Hajric for Bloomberg may be of interest to subscribes. Here is a section:  

Investors have heard this refrain before, that just a scant few pull the pack. And it’s easy to see their outsize influence: Microsoft, Apple, Amazon.com and Facebook Inc. account for more than 20% of the S&P 500’s returns this year. That number is even starker for the tech-heavy Nasdaq 100, for instance, where those four companies account for about 50% of gains.

But Bessembinder and his team, including two co-authors from Hong Kong Polytechnic University and Goeun Choi of Arizona State, are among the first to look at the phenomenon long-term. The best-performing 306 firms accounted for about three-quarters of global net wealth creation during the 28-year period of the study, they found. Just 811 companies could be framed as accounting for all of it.

Their findings echo Bessembinder’s previous work. In looking at nearly nine decades of U.S. stock and bond performance, he found that out of 26,000 stocks, about 58% underperform Treasury bills in their lifespan.

Eoin Treacy's view -

There are two lessons from this data. The first is it has been hard to outperform bonds during one of the greatest bull markets in history. With forty years of history that is a lot of empirical data to base conclusions on. However, it also assumes the status quo remains intact indefinitely.



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July 12 2019

Commentary by Eoin Treacy

Can Low Rates Explain High Stock Prices? Not So Fast

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

One such model was proposed in a 2017 article in the Journal of Portfolio Management by Research Affiliates founder Robert Arnott and several colleagues. They found that P/E ratios tend to be lower when real interest rates, or those adjusted to remove the effects of inflation, are either too high or too low. The “sweet spot,” as far as P/E ratios are concerned, is when real rates are between 3% and 4%. Since real rates currently are below 1%, Mr. Arnott’s research provides no support for the above-average current P/E ratio.

In an email, Mr. Arnott poses a rhetorical question for those who believe that today’s low interest rates should automatically translate into higher P/E ratios. If that were the case, “then why don’t negative real interest rates in Europe and Japan justify even higher valuation levels [than in the U.S.]?! Instead, these markets are priced 20-40% cheaper than the U.S.” as judged by their P/E and CAPE ratios, he writes.

Eoin Treacy's view -

Taking historical comparisons as a basis for a world with trillions in negative yielding bonds does not make sense. Once interest rates go below zero it sets of a stampede for yield among yield-to-worst investors and creates a momentum driven trade in the opposite direction for traders. The big difference between Europe and Japan compared to the USA is urgency.



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July 11 2019

Commentary by Eoin Treacy

Walmart's Supplier Says Chinese Factories in "Desperate" State

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

“U.S. clients are definitely very, very worried,” Fung said in an interview with Bloomberg. “Everyone is making razor-thin margins already and most people have a huge percentage in China. So if the biggest source increases the price by 25%, they are worried,” he said, referring to the scale of tariffs threatened on all Chinese imports to the U.S. by President Donald Trump.

Though Fung didn’t specify Walmart by name, the U.S. retailer is the company’s second-biggest customer after Kohl’s, accounting for 7.6% of revenue, according to Bloomberg data. A spokeswoman for Walmart declined to comment.

Eoin Treacy's view -

The size of China’s manufacturing sector dwarves that of any other country and therefore the migration of US business is hitting choke points because of a lack of infrastructure elsewhere to deal with the demand. That represents a once in a lifetime opportunity to spur manufacturing in cheaper locations like India and Africa to pick up US business.



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July 10 2019

Commentary by Eoin Treacy

Powell Signals Rate Cut as Trade War Outweighs Strong Job Market

This article by Craig Torres and Katia Dmitrieva for Bloomberg may be of interest to subscribers. Here is a section:

Powell carefully explained the reasons why the policy committee has shifted its views this year, and noted that “crosscurrents have reemerged, creating greater uncertainty.” Despite a current trade war truce with China, he continued to stress downside risks to the outlook.

“Uncertainties about the outlook have increased in recent months,” Powell said in the text of his remarks. “Economic momentum appears to have slowed in some major foreign economies, and that weakness could affect the U.S. economy. Moreover, a number of government policy issues have yet to be resolved, including trade developments, the federal debt ceiling, and Brexit.”

He noted that policy makers are carefully monitoring developments including the risk that weak readings on inflation could be “even more persistent than we currently anticipate.”

In addition, Powell pointed to a slowdown in business investment, decelerating global growth, and declines in housing investment and manufacturing output.

“It strongly suggests they’re going to be inclined to ease at the meeting later this month,” Michael Feroli, chief U.S. economist at JPMorgan Chase & Co., said in a Bloomberg Television interview. “He continued to highlight the uncertainties that are weighing on the outlook rather than highlighting the better jobs report.”

Eoin Treacy's view -

The Fed has been saying for a decade that they are going to be data dependent. However, that leaves a lot of leeway over what kind of data they will be swayed by. This graphic of the rate at which people are voluntarily quitting their jobs overlaid with the Fed Funds Rate suggests the domestic US consumer is confident about the economy but the Fed is still getting ready to cut rates.



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June 28 2019

Commentary by Eoin Treacy

Elliott's $34 Billion Roundup Fix Is No Magic Pill

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

Fighting to settle, rather than win, would be the best approach. Bayer has argued Roundup is safe when correctly used, but it has lost three consecutive cases. Its expert evidence has been weighed by juries and has failed to convince them.

A new legal team could try to put different arguments and experts in front of jurors. But consider, too, the heavy punitive damages being awarded – $2 billion in the last case. These are likely to reflect jurors’ dim view of Monsanto's corporate conduct as concerns about the weedkiller’s safety emerged. This issue will recur in every future case.

Appealing would cost Bayer time. By the same token, a settlement would deliver a certain and faster resolution for the thousands of plaintiffs. The individual circumstances of each case make it hard to gather them together into a swiftly-resolved class action.

The snag is that even a fair settlement would not mean a return to business as usual. The best financial scenario for the company would be a deal that is affordable, with farmers continuing to use glyphosate and Roundup staying on sale, perhaps with modified instructions about how consumers should use it appropriately. This is not assured.

Moreover, Bayer will still merit a management discount for all that has happened, and a conglomerate discount given its unproven strategy of combining pharmaceuticals and crop science. CEO Werner Baumann misjudged the risks of buying Monsanto, a deal that brought Roundup with it; he has taken too long to revise his litigation strategy. He could yet turn the situation around by resolving the lawsuits and extracting synergies from the acquisition. Until he does, the jury is out both on his future and a break-up.

Eoin Treacy's view -

Bayer made a mistake in taking on Monsanto’s Roundup liability. However, it also underestimated the animus directed at the company for its work practices over years of rising seed prices, cases against farmers and the anti-GMO movement. Anything that can arrest the risk of both more negative headlines will be a positive, not least because the market has already priced in a disaster.



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June 26 2019

Commentary by Eoin Treacy

Google's Quantum Processor May Achieve Quantum Supremacy in Months

Thanks to a subscriber for this article from Interesting Engineering. Here is a section:

After the list goes above 6, the numbers start becoming so large and abstracted you lose the sense of the gulf between where Google is and where it will be at the next step.

In the case of Moore's Law, it started out in the 1970s as doubling every year, before being revised up to about every two years. According to Neven, Google is exponentially increasing the power of its processors on a monthly to semi-monthly basis. If December 2018 is the 1 on this list, when Neven first began his calculations, then we are already between 5 and 7.

In December 2019, only six months from now, the power of Google's quantum computing processor might be anywhere from 24096 times to 28192 times as powerful as it was at the start of the year. According to Neven's telling, by February--only three months after they began their tests, so 3 on our list--, there were no longer any classical computers in the building that could recreate the results of Google's quantum computer's calculations, which a laptop had been doing just two months earlier.

Neven said that as a result, Google is preparing to reach quantum supremacy--the point where quantum computers start to outperform supercomputers simulating quantum algorithms--in a only a matter of months, not years: “We often say we think we will achieve it in 2019. The writing is on the wall.”

Eoin Treacy's view -

Double exponential growth takes the doubling we have been accustomed to and turns it into powers. Therefore, instead of 2, 4, 8, 16 improvements we get 4, 16, 256, 65,536. With that kind of growth rate, the pace of innovation becomes so rapid that new chips become instantly obsolete. It makes a nonsense of ever owning a quantum computer and means provision of cloud services will likely be the primary way in which this kind of computing power is accessed. IBM has already been trialling that kind of access with its Watson artificial intelligence and nascent quantum service.



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June 18 2019

Commentary by Eoin Treacy

Visa, Mastercard, PayPal Join Facebook to Form Crypto Effort

This article by Julie Verhage, Jenny Surane and Kurt Wagner for Bloomberg may be of interest to subscribers. Here is a section:

The currency, called Libra, will launch as soon as next year. It’s what’s known as a stablecoin, one that can avoid massive fluctuations in value so it can be used for everyday transactions. Industry experts and insiders say the payments companies want a seat at the table to help shape the new currency.

“It’s not unusual for the incumbents -- Visa, Mastercard, PayPal -- to partner with a disruptor,” Harshita Rawat, an analyst at Sanford C. Bernstein, said in an interview. “They would at least want to participate in how this product is being developed.”

New payment methods such as Apple Pay and other mobile wallets are often slow to take off, so any competition is likely to be years away. Still, the earlier payments companies come to the project, the more time they have to ensure their businesses don’t suffer.

Eoin Treacy's view -

A stablecoin is specifically designed to hold parity with a base fiat currency and therefore is not suited to speculative investment. They do, however, have attractions as being easy to convert into other crypto assets and have the same portability features. The one challenge stablecoins have had is there have a couple of instances of them being used as Ponzi schemes, because the provider did not have the assets on deposit to support the currency’s value. Facebook will likely solve for that problem at least, considering its substantial cash pile, but the much bigger issue will be in how it can monetise the financial transactions of its billions of users. That is where the clear investment opportunity resides.



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June 12 2019

Commentary by Eoin Treacy

How to Keep Thieves From Stealing Your PIN at the ATM

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

What’s more, no-name ATMs are often free-standing and not built into the wall, like those at banks. That means they’re easier to get inside of and thus more susceptible to skimming and other crimes, says Brian Krebs, who covers computer security and cyber crime at krebsonsecurity.com. (In fact, if you can see the top of an ATM, that’s a big warning sign, he says.)

That said, third-party ATMs are hardly the only machines to look out for. Says Mr. Rosenberg: “I’m pretty sure every type of ATM has had skimmers on them.”

Eoin Treacy's view -

There is no justifiable reason to use a debit card. They offer unparalleled access to one’s bank account with no protection and therefore the risk is simply too great relative to the benefit. Credit cards are insured, often have no fees tor holding the card and can be paid off automatically at the end of the month, plus they help to build credit. At least if your credit card is stolen you have recourse to the card issuer for recompense. That is a lot more difficult to with debit cards.



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June 03 2019

Commentary by Eoin Treacy

Google, Facebook Tumble Amid Heightened Antitrust Scrutiny

This article by Gerrit De Vynck and David McLaughlin for Bloomberg may be of interest to subscribers. Here is a section:

American antitrust officials are under increasing pressure from both Democratic and Republican lawmakers to step up scrutiny of technology giants, and several presidential candidates have already weighed in. Massachusetts Senator Elizabeth Warren laid out a detailed plan for breaking up the
tech giants in March.

European officials have already been aggressively pursuing antitrust cases against American tech firms, including Google, while so far the U.S. has been mostly hands-off.  That may be changing amid continuing criticism that lax enforcement in the U.S. has allowed tech platforms to dominate their markets. The FTC earlier this year set up a task force to examine the conduct of tech companies and their past mergers.

President Donald Trump and many Republicans have complained that Facebook, Google and Twitter Inc. suppress conservative views.

Google, with a sprawling empire of businesses that could feasibly be targets, is in the dark about the focus of the investigation and hopes to learn more this week, according to another person familiar with the situation.

Eoin Treacy's view -

Capitalism trends towards concentration but ultimately runs up against the barrier of antitrust. The size and influence of companies like Amazon, Google and Facebook is the primary obstacle they face rather that the monopolies they control, although this latter point will be used to justify and attempted action.



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May 15 2019

Commentary by Eoin Treacy

Alibaba Defies China Slowdown; Sales, Earnings Top Estimates

This article by Lulu Yilun Chen for Bloomberg may be of interest to subscribers. Here is a section:

Revenue climbed to 93.5 billion yuan ($13.6 billion) in the three months ended in March, about 1.8% above estimates as adjusted earnings-per-share of 8.57 yuan topped projections for 6.5 yuan. Alibaba expects sales in the current year to jump at least 33% to more than 500 billion yuan.

As Alibaba pushes deeper into businesses like cloud computing, it’s getting better at understanding e-commerce customers and making money from recommendations based on their preferences. The move is driving more sales than traditional search and boosting its ability to sell targeted advertising to merchants on its main Taobao platform. That is bolstering revenue growth even as escalating U.S.-Chinese tensions threaten to further dampen the world’s No. 2 economy.

“The results were really good, especially given how the macro economy hasn’t been that great," said Steven Zhu, an analyst with Pacific Epoch in Shanghai. “It’s a great sign that core e-commerce was growing strong.”

Eoin Treacy's view -

Ecommerce has more penetration among consumers in China than in the USA or Europe not least because consumer attitudes towards consumption are not as embedded with brick and mortar as they are elsewhere. That is driving consumption, particularly among the high spending millennial generation towards online shopping and following brand representatives on social media.



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May 13 2019

Commentary by Eoin Treacy

China Hikes Tariffs on U.S. Products as Trade-War Divide Deepens

This article by Shawn Donnan and Miao Han for Bloomberg may be of interest to subscribers. Here is a section:

China announced plans to raise duties on some American imports starting June 1, defying a call from President Donald Trump to resist escalating a trade war that is sending stocks tumbling and clouding the outlook for the global economy.

Less than two hours after Trump tweeted a warning that “China should not retaliate -- will only get worse!” the Ministry of Finance in Beijing unveiled the measures on its website. The new rate of 25% will apply to 2,493 U.S. products, with other goods subject to duties ranging from 5% to 20%, it
said.

The next salvo was poised to come later Monday, when the Trump administration is expected to provide details of its plans to impose a 25% additional tariff on all remaining imports from China -- some $300 billion in trade.

Eoin Treacy's view -

There are a large number of companies that both manufacture in China but also rely on Chinese orders to support growth. There has been some speculation in the media about China’s desire to sell its holdings of US Treasuries but that would do as much damage to themselves as to the USA. Meanwhile making life difficult for the USA’s largest companies is an obvious strategy to exert the maximum possible shock on the US administration.



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May 10 2019

Commentary by Eoin Treacy

China Armed With Powerful Market Weapons in Duel With Trump

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

Chinese policy makers could devalue the yuan to offset the impact of U.S. duties on China’s economy. The offshore yuan weakened 5.5% against the dollar in 2018, drawing Trump’s ire and fueling speculation that the country was deliberately weakening its currency. While it has fallen 1.8% this week, the currency rose on Friday after the People’s Bank of China set its daily fixing at a stronger-than-expected level.

However, China’s painful experience with devaluing the yuan in 2015, which prompted capital to flee the nation, is likely to dissuade a similar move, according to Tao Wang, UBS Group AG’s chief China economist and head of Asia economic research. “China doesn’t like the self-fulfilling outflows that come as a result of depreciation, which tend to diminish domestic confidence,” she said. “In addition, yuan depreciation last year angered the Trump administration and led to higher U.S. tariffs.”

Eoin Treacy's view -

Watch your own backyard first, worry about everything else afterwards has been the Chinese response to the imposition of additional tariffs on its US exports. The first order of business appears to have been to do what was necessary to avoid a negative reaction in the domestic stock market. That was achieved by clear support coming through for the A-shares market and it posted an upside key day reversal. This action is a testament to the fact that bull markets in China are state sponsored.



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April 30 2019

Commentary by Eoin Treacy

Alphabet Tumbles Most Since 2012 After Sales Growth Disappoints

This article by Gerrit De Vynck for Bloomberg may be of interest to subscribers. Here is a section:

Another concern is whether competition is starting to limit growth. Google’s search engine is usually the first place consumers go when looking for products, letting the internet giant charge premium prices to retailers and other advertisers looking to reach customers online. But people have been increasingly going straight to Amazon.com Inc. to hunt for products and the e-commerce giant has been grabbing a larger share of the digital ad market, chipping away at Google’s lead.

In an interview with Bloomberg TV, Porat shrugged off Amazon’s foray into advertising and said there’s still lots of room for growth for all digital ad companies because so much marketing money is still spent offline.

"Nearly half of ad budgets in the U.S. are still spent offline," Porat said. "Ninety percent of commerce in the U.S. is offline and we are focused on digital playing a big role in that."

The number of clicks on Google ads rose just 39 percent, the lowest year-over-year growth since 2016. The price, or cost per click, fell 19 percent.

Eoin Treacy's view -

This figure about 90% of commerce being offline is a standard fallback that claims ecommerce is still in its infancy. However, it glosses over the fact that homebuying, healthcare and automotive sales are included in this figure and none are about to readily transition to a handy ecommerce advertising platform.



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April 12 2019

Commentary by Eoin Treacy

Disney Leaps to Record as Investors Cheer Streaming Service

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

For Iger, Disney+ is a bit of a swan song. The company’s longtime steward reiterated Thursday that he expects to step down as CEO at the end of 2021, when his contract expires. During the presentation to investors, Disney gave a peek at how the service will work. It features five tiles devoted to key Disney brands, including Pixar, Marvel, Star Wars and National Geographic. The 4K-resolution content will be available on internet-connected TVs, smartphones, tablets and other devices. The look and feel of Disney+ isn’t radically different from Netflix’s design. But Disney is betting that its devoted fan base will find reason to add another streaming service.

DC Edge
At $6.99, Disney+ also is beating a comic-book rival: AT&T Inc.’s DC Comics introduced a service at $7.99 a month that includes material from characters like Wonder Woman, Batman and Superman.

The new product isn’t Disney’s only streaming platform. It acquired majority control of the Hulu TV service with the $71 billion Fox deal, and it’s now considering whether to expand
that product overseas.

A Hulu price cut, which lowered its entry-level, ad- supported version by 25 percent to $6 a month, helped bring a surge of customers, Disney said. Hulu expects to double its ad
revenue over the next few years.

“Hulu is doing just great,” said Kevin Mayer, chairman of Disney’s direct-to-consumer and international operations. “We are really pleased.”
 
And

“You can figure that we will bundle ESPN+ and Disney+ fairly soon,’’ Iger said.

Eoin Treacy's view -

Netflix demonstrated that it is possible for a content provider to prosper out the umbrella of the distribution networks by availing of the market access provided by broadband, mobile devices and smart TVs. That first mover advantage has allowed it to build the company into a $155 billion market cap but the allure of global market access without having to pay distribution companies ensures competition for viewers is going to be pick up quickly.



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April 11 2019

Commentary by Eoin Treacy

Bezos Just Confirmed Amazon's Growth Is Slowing

This article by Shira Ovide and Sarah Halzack for Bloomberg may be of interest to subscribers. Here is a section:

But there’s a dark cloud in Amazon’s figure. The growth of Amazon’s total merchandise sales slowed considerably last year, according to Bloomberg Opinion calculations based on Bezos’s disclosures. This figure is not the first sign than Amazon’s retail juggernaut may have slipped a bit. 

In 2018, Amazon’s nearly $300 billion in GMV was about a 19 percent jump from the prior year. That was notably slower than the rates of increase of 24 percent and 27 percent, respectively, in 2017 and 2016. 

Eoin Treacy's view -

Elizabeth Warren is campaigning on the platform of splitting up Amazon and the more sectors it competes in the louder that call will be. However, while a populist assumption, it is not accurate to state Amazon is going to completely control retail. The shop online and pick-up market for goods is thriving and conventional retailers are outperforming Amazon. 



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April 11 2019

Commentary by Eoin Treacy

Kids Love These YouTube Channels. Who Creates Them Is a Mystery

This article by Yoree Koh and Betsy Morris for the Wall Street Journal may be of interest to subscribers. Here is a section:

Some parents say they find certain YouTube content disturbingly effective in enrapturing young children.

Johanna Peyton, an Austin, Texas, mother of three, said she initially welcomed YouTube as a distraction for her children—until her daughter, then nearly 2 years old, became fascinated with videos of adults and children opening eggs with surprises inside.

“It was disturbing to me that somebody was working so hard on the videos—intricately editing them and using so many eggs. I remember thinking, ‘What was their agenda?’ ” Ms. Peyton said. “It just felt odd that somebody would be doing this.” She no longer allows her kids to watch YouTube.

The CoCoMelon channel joined YouTube on Sept. 1, 2006, according to its “about” page, which says its goal is “to make learning a fun and enjoyable experience for kids by creating beautiful 3D animation, educational lyrics, and infectious, toe-tapping music.”

The business took off last year, when its view count jumped to 1.96 billion views in October 2018 compared with 123 million views a year earlier. It now has 43 million subscribers, according to Social Blade.

Eoin Treacy's view -

My brother and sister have pretty much banned their young children from using YouTube and their smart phones because the content accessible is clearly designed to be addictive. When conventional tv channels dominated programming the advertising aimed at children was regulated and we still yearned for the toys.

In Ireland, the Late Late Toy Show was the highlight the Christmas season when we were growing up but for marketers it was an opportunity to showcase toys and kids outside of the regimented advertising structure. In many ways it represents the forerunner of the boom in dedicated content appealing to babies and young children that pervades YouTube.



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April 04 2019

Commentary by Eoin Treacy

Fastest Electric Car Chargers Waiting for Batteries to Catch Up

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

“The charging capacities of electric vehicles have doubled in the space of a few years,’’ Wolfsburg, Germany-based Volkswagen said in an email. “We expect that fast-charging in public spaces will become the norm.’’

Tesla, which has more than 12,000 chargers globally, is boosting the speed of its own refueling units to cut time at the pump by as much as half. The upgrade promises to add as much as 75 miles of charge in five minutes -- still lagging the ultra-fast models.

The speed at which current EVs can recharge is limited by such factors as the size of their battery, the voltage the pack can accept and the charger’s current.

While it may be years before battery packs able to handle the power surge from ultra-fast chargers go mainstream, some new EVs -- including Hyundai Motor Co.’s Kona Electric and Jaguar Land Rover Automotive Plc’s I-Pace -- already can recharge faster than previous generations.

Volkswagen’s Porsche brand will introduce its electric Taycan sports car later this year. It’s the first vehicle capable of taking full advantage of the fastest chargers, with a larger battery and the ability to operate at a higher voltage.

“The cars are coming,” said Marty Andrews, CEO of Chargefox Pty, which installed ABB’s fastest units at some Australia charging stations. “The carmakers want ultra-rapid chargers because they want this to be future-proof. This is not a six-month plan, it’s a 10-year plan.”

Eoin Treacy's view -

Refueling infrastructure during the era of internal combustion engines was built out by the oil companies and they still own large parts of the filling station market. What was particularly interesting about Royal Dutch Shell’s announcement last month that it aims to become the world’s largest power producer by 2030, is that this dovetails with the proposed increase in demand from electric vehicles. 
That has little to do with the environmental impact of the move and more to do with protecting a significant portion of its business from terminal decline.



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March 22 2019

Commentary by Eoin Treacy

What Is the Future of Ecommerce? 10 Insights on the Evolution of an Industry

This article by Aaron Orendorff for Shopify may be of interest to subscribers. Here is a section:

For all its enduring hype — physical versus digital, offline versus on — the old war is over. In fact, it’s always been a lie. Choice, not location, is commerce’s greatest opportunity and its most-looming threat.

In defense of retail’s “apocalypse,” brick-and-mortar losses are mounting; the four-year bankruptcy count now sits at 57 once-landmark chains. Manufacturing market share and in-store sales for consumer packaged goodsare flat or declining. Born-online “microbrands” have devoured the lion’s share of growth. And ecommerce’s gains continue to trounce retail as a whole.

Here’s the uncomfortable twist: brick-and-mortar still dominates online sales by over $20 trillion. And the gap will widen. After a quarter century, ecommerce’s spread is slowing, 80% of 2018’s gains belonged to Amazon, and (in the U.S.) the top five online retailers own 64.7% of sales:

Eoin Treacy's view -

I found this report to be very interesting because it comes from a company whose business model is to supply small and start up sellers with an ecommerce platform and provides a partial counterweight to Amazon’s more than 50% share of the online retail market in the USA.



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March 15 2019

Commentary by Eoin Treacy

Wireless Set to Transform Communications/Cloud

Thanks to a subscriber for this report from Oppenheimer, dated June 2018, which is one of the best primers on the evolution of 5G I have seen. Here is a section:

Eoin Treacy's view -

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

5G is what I regard as an enabling technology. It is an investment theme in its own right because it will displace the legacy infrastructure we use today. but it also acts as the framework upon which additional services can be built. Telecom companies are selling the first 5G plans at present and Samsung and others are in the process of rolling out the first dedicated 5G handsets. Additionally, the roll out of products like smart speakers, digital assistants, web-connected doorbell cameras, etc, give us a clue to how the initial phase of the Internet of Things is going to progress.



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March 14 2019

Commentary by Eoin Treacy

A quantum experiment suggests there's no such thing as objective reality

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

They use these six entangled photons to create two alternate realities—one representing Wigner and one representing Wigner’s friend. Wigner’s friend measures the polarization of a photon and stores the result. Wigner then performs an interference measurement to determine if the measurement and the photon are in a superposition.

The experiment produces an unambiguous result. It turns out that both realities can coexist even though they produce irreconcilable outcomes, just as Wigner predicted.  

That raises some fascinating questions that are forcing physicists to reconsider the nature of reality.

The idea that observers can ultimately reconcile their measurements of some kind of fundamental reality is based on several assumptions. The first is that universal facts actually exist and that observers can agree on them.

But there are other assumptions too. One is that observers have the freedom to make whatever observations they want. And another is that the choices one observer makes do not influence the choices other observers make—an assumption that physicists call locality.

If there is an objective reality that everyone can agree on, then these assumptions all hold.

But Proietti and co’s result suggests that objective reality does not exist. In other words, the experiment suggests that one or more of the assumptions—the idea that there is a reality we can agree on, the idea that we have freedom of choice, or the idea of locality—must be wrong.

Eoin Treacy's view -

I apologise if this going to sound a little wonkish but there are important considerations raised that have a direct impact on the nature of markets and crowd psychology.

Every electrical engineer is taught that you change a system by measuring it. The change is obviously very small but there are phase modulations that occur when you interfere with the system to measure it. That is a clear fact.

At The Chart Seminar, I often talk a little about Heisenberg’s Uncertainty Principle which is that the more you know about the position of the particle the less you know about its velocity.

Then we have the above piece citing the assumption that the choices people make do not have an influence on the choices other make. In the markets we absolutely know that the choices other people make have a definite impact on the decisions of everyone who has yet to make a decision. We also know that the more a winning strategy is seen to work the greater the reliance investors place on it.



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March 12 2019

Commentary by Eoin Treacy

The Sharing Economy Was Always a Scam

This article by Susie Cagle for Medium.com may be of interest to subscribers. Here is a section:

In some instances, the sharing economy appeared to inflame the very problems it purported to solve. The supposed activation of underutilized resources actually led to more, if slightly different, patterns of resource consumption. A number of studies have shown that the ease and subsidized low cost of Uber and Lyft rides are increasing traffic in cities and apparently pulls passengers away from an actual form of sharing: public transportation. Students at UCLA are reportedly taking roughly 11,000 rides each week that never even leave campus. In putting more cars on the road, ride-hail companies have encouraged would-be drivers to consume more by buying cars with subprime loans or renting directly from the platforms themselves.

Alongside making it easy to rent out spare rooms, vacation rental platforms encouraged speculative real estate investment. Whole homes and apartment buildings are taken off the rental market to act as hotels, further squeezing housing markets in already unaffordable cities.

Early sharing champions were ultimately correct about technology enabling a shift away from an ownership society, but what came next wasn’t sharing. The rise of streaming services, subscription systems, and short-term rentals eclipsed the promise of nonmonetary resource sharing. The power and control wasn’t decentralized; it was even more concentrated in the hands of large and valuable platforms.

Why go through the trouble of swapping your own DVDs for a copy of Friends With Benefits, after all, when you can stream it through Amazon Prime Video for $2.99? The idea of paying for temporary access to albums rather than outright owning them may have been galling at first, but we’re increasingly comfortable with renting all our music, along with our software, and our books. Downloading and sharing the materials that live on these streamed resources is impossible, illegal, or both.

Eoin Treacy's view -

The evolution of the subscription business model has helped to streamline balance sheets and has essentially turned the lumpy cashflows of technology companies into the equivalent of consumer staples. That is one of the primary reasons they have continued to be able to command such high valuations.



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March 11 2019

Commentary by Eoin Treacy

Apple Upgraded at BofAML as Pullback Presents Opportunity

This article by Ryan Vlastelica for Bloomberg may be of interest to subscribers. Here ii is in full:

Apple Inc. was upgraded to buy from neutral at BofAML, which wrote that it saw “ten reasons to be bullish” on the iPhone maker. It also raised its price target to $210 from $180.

Shares rose 2.1 percent, taking the stock to its highest level since December.

The firm’s 10 reasons touched on a number of factors, including valuation, an “overshoot in negative estimate revisions,” a reacceleration in the company’s services division and a growing base of users. The company has a “highly loyal user base,” with “low churn where demographic changes are in Apple’s favor,” analyst Wamsi Mohan wrote.

The firm was also positive on the company’s critical iPhone line, which has been the subject of investor anxiety given demand issues, particularly in China. BofAML now forecasts “stability of supply chain order cuts,” as well as a “large reversal of inventory overhang in iPhones.”

The lower inventory is “a net positive, which after [the first quarter of 2019] could start to drive some stability in supply chain orders with new builds picking up after the next few months.”

Shares of Apple have gained more than 20 percent from a January low, though they remain more than 25 percent below a record hit in October, a pullback that BofAML wrote “presents opportunity.”

According to Bloomberg data, BofAML’s call marks the first Apple upgrade since New Street Research raised its view on the stock in early January.

Eoin Treacy's view -

Few companies are as exposed to China’s economy as Apple. It both depends on China for manufacturing and as a major demand growth market for its products. Therefore, it was only a matter of time before the share declined in line with pessimism about a trade accord. As perceptions have improved the outlook for the status quo persisting has lifted the share.



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February 26 2019

Commentary by Eoin Treacy

Your Avocados and Olives Are Pricier Because Fat Is In Fashion

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

The average prices of avocados, butter, olive oil and salmon have climbed as much as 60% since 2013, after stripping out seasonal price patterns and the effects of unusual weather events, according to various sources. Over the same period, prices of corn, soybeans, sugar and wheat either fell or didn’t change significantly.

These changes in fortune reflect the broad dietary shifts of recent years. Many people have switched to eating more foods that are high in natural fats from high-carbohydrate, low-fat diets. And government agencies and nutritionists are recommending that people avoid consuming industrial-made fats and margarines and instead eat more fish, nuts and healthier oils.

Stephan Hubertus Gay, a senior agricultural policy analyst at the Organization for Economic Cooperation and Development, said consumers are eating products that contain fat again. But he said “we were a bit surprised that it came so fast,” referring to the sharp increase in demand.

Eoin Treacy's view -

The write down of goodwill in Kraft Heinz is a clear signal sugar is out of fashion and the foundation of many snack food brands is based on the addictive qualities of the sweetener.

Kraft Heinz remains weak and a clear upward dynamic will be required to check momentum beyond a pause.



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February 22 2019

Commentary by Eoin Treacy

Walmart's US e-commerce sales up 43% in Q4, thanks to growing online grocery business

This article by Sarah Perez at Techcrunch.com may be of interest to subscribers. Here is a section:

Walmart has also made shipping to your home more affordable. In 2017, Walmart introduced an alternative to Amazon’s pricier Prime membership with free, two-day shipping on orders of $35 or more. This past year, it expanded free, two-day shipping to its marketplace items by working with hundreds of its top sellers and third-party fulfillment providers, like Deliverr.

The company last year also launched a new, more personalized website, which included a revamped Home section, as well as a cleaner, more modern design and sections that showcased items trending in the shoppers’ local area. The redesigned website made it easier to order groceries and reorder favorites, too.

In November, eMarketer noted Walmart had overtaken Apple to become the No. 3 online retailer in the U.S., with Walmart (including its Jet and Sam’s Club brands) poised to capture 4 percent of all online retail by year-end. Amazon, of course, remained No. 1, followed by eBay.

Eoin Treacy's view -

Walmart is making a big push into free 2-day shipping which is effectively the gold standard of online service provision. I sat in on a conference call last week with the company and the CEO of Deliverr, which is offering third party sellers the opportunity to circumvent Walmart’s own criteria for two-day shipping by sending inventory directly to Deliverr’s warehouses. That is an analogue for the Fulfilled by Amazon program which is the foundation of Prime delivery.



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February 19 2019

Commentary by Eoin Treacy

Facebook's AI Chief Researching New Breed of Semiconductor

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

"We don’t want to leave any stone unturned, particularly if no one else is turning them over," he said in an interview ahead of the release Monday of a research paper he authored on the history and future of computer hardware designed to handle artificial intelligence.

Intel Corp. and Facebook have previously said they are working together on a new class of chip designed specifically for artificial intelligence applications. In January, Intel said it planned to have the new chip ready by the second half of this year.

Facebook is part of an increasingly heated race to create semiconductors better suited to the most promising forms of machine learning. Alphabet Inc.’s Google, which has created a chip called a Tensor Processing Unit that helps power AI applications in its cloud-computing datacenters. In 2016, Intel bought San Diego-based startup Nervana Systems, which was working on an AI specific chip.

In April, Bloomberg reported that Facebook was hiring a hardware team to build its own chips for a variety of applications, including artificial intelligence as well as managing the complex workloads of the company’s vast datacenters.

Eoin Treacy's view -

There is a growing understanding that deep learning and artificial intelligence are developing to such an extent that the future of computing is not going to be based on programming and programming languages.



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February 11 2019

Commentary by Eoin Treacy

Fear of Filing? Some Taxpayers Finding Tax Bills, Not Refunds

This article by Ben Steverman and Laura Davison for Bloomberg may be of interest to subscribers. Here is a section: 

“Most people don’t know how much they pay in taxes,” said Bob Kerr, who leads the National Association of Enrolled Agents, a trade group for tax preparers. “But the refund is the wrong
metric to measure it.”

Right or wrong, the drop in expected refunds is creating fear and anger in accountants’ waiting rooms. “Every single person” who walks in is dreading how much they’re going to owe the IRS, said CPA Gail Rosen, who heads the Martinsville, New Jersey, office of WilkinGuttenplan. “They come in and they worry.”

But telling people they paid fewer taxes throughout the year doesn’t help the sticker shock felt by filers who’ve become accustomed to getting a check, not writing one. Only about 5 percent of taxpayers -- about 7.8 million people -- are expected to pay more under the new law. But about 5 million, according to the Government Accountability Office, will find their typical tax refund replaced by a tax liability. “A lot of people are going to be surprised,” Rosen said.

Eoin Treacy's view -

Every politician knows that when it comes to policy, perception is often much more important than substance. If people had been asked whether they would prefer more money every month in lieu of receiving a chunky refund cheque they might not be nursing a surprise now. The reality is many people are likely coming out better off. However, if they had been using the refund as a saving mechanism, instead of saving monthly from their paycheques, this situation is going to feel like a tax hike.



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February 04 2019

Commentary by Eoin Treacy

Alphabet 4Q Operating Margin Down YOY; Shares Fall

This note by Cara Moffat for Bloomberg may be of interest to subscribers. Here it is in full: 

Alphabet 4Q operating margin +21% compared to +24% YOY.

4Q revenue ex-TAC $31.84 billion, estimate $31.33 billion (range $30.35 billion to $31.81 billion) (Bloomberg data)
4Q paid clicks on Google properties +66%
4Q cost-per-click on Google properties -29%
4Q EPS $12.77
4Q operating income $8.20 billion
4Q capital expenditure $7.08 billion, estimate $5.66 billion (range $4.74 billion to $6.33 billion) (BD)
4Q Google advertising revenue $32.64 billion
4Q Google properties revenues $27.02 billion
4Q Google other revenue $6.49 billion
4Q Other Bets revenue $154 million
4Q other bets operating loss $1.33 billion
Shares down 3.5% post-market

Eoin Treacy's view -

When one of the most consistent trends in the world becomes inconsistent, we have no choice but to sit up and pay attention. In the run-up from 2009 Alphabet/Google never pulled back by more than $100. The reactions were all of different durations but the staircase step sequence uptrend was undeniable. Additionally, it paused continually at big round numbers like $600, $800, $1000 and $1200. Investors had come to expect a $100 pullback to be followed by a $200 rally. That sequence ended in 2018 when it pulled back first by $200 and then by $300. That represented a significant loss of consistency for what had been among the most consistent trends in the world.



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February 01 2019

Commentary by Eoin Treacy

Modi Woos Voters With $13 Billion Largesse Before India Election

This article by Abhijit Roy Chowdhury, Bibhudatta Pradhan, Shruti Srivastava and Siddhartha Singh for Bloomberg may be of interest to subscribers. Here is a section:

The government will allocate 750 billion-rupee ($10.6 billion) a year for the cash plan for about 120 million farmers and give taxpayers 185 billion rupees of relief in the year to March 2020, Finance Minister Piyush Goyal said in his budget speech in New Delhi on Friday.

In the process, the government will widen its fiscal deficit targets for the current financial year and next to 3.4 percent of gross domestic product and borrow more. Bonds and the rupee fell on news of the debt plans, while the tax cuts helped to buoy stocks.

“Ongoing slippage from the government’s budgeted fiscal deficit targets over the past two years, and our expectation that the government will face challenges meeting its target again this coming fiscal year does not bode well for medium term fiscal consolidation,” said Gene Fang, an associate managing director at Moody’s Investors Service. “We view this continued slippage as credit negative for the sovereign.”

Eoin Treacy's view -

Narendra Modi made history by getting an outright majority for the BJP at the last election and was the first person from a low caste to become Prime Minister. The big challenge heading into the election this year will how to hold onto those gains. The answer so far has been to emphasise Hindu nationalism and to boost spending. It was inevitable Modi would try to buy the election and the budget is the clearest signal how much he is willing to spend.



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January 31 2019

Commentary by Eoin Treacy

BAT Upgraded to Overweight at Piper; Risks Look Priced In

This note by Lisa Pham for Bloomberg may be of interest to subscribers. Here it is in full:

Philip Morris’s patent lawsuit against British American Tobacco in Japan, which is seeking a sales injunction of BAT’s Glo heated tobacco product, is still a risk, but BAT has “several methods of defense” and the earnings impact would probably be modest, Piper Jaffray analyst Michael Lavery writes in a note.

Risk on possible U.S. menthol cigarette ban looks priced in and Piper doesn’t see any operational impact “for years and years”

Also notes that consumers can adapt

Piper doesn’t see any risk to dividend growth, allaying concerns from investors; says BAT’s cash flows don’t seem to be at risk in a way that would hurt the dividend

Upgraded to overweight from neutral; PT kept at GBP30

NOTE: BAT shares down 51% in last 12 months vs 19% drop for Imperial Brands, 31% decline for Philip Morris and 35% fall for Altria

Eoin Treacy's view -

The tobacco sector is not for everyone but it is inherently defensive considering they are selling an addictive product and therefore have reliable cashflows. The performance of defensive sectors is something that is important to monitor in the latter stages of a cyclical bull market because they typically tend to be depressed by disinterest when growth stocks are outperforming but turn to outperformance when investors start to value security.



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January 25 2019

Commentary by Eoin Treacy

Email of the day on reliable dividend companies

Your copy on global pay-out ride is coming back to earth is timely. The well-regarded fund manager Neil Woodford has given Imperial Brands a significant 8% asset allocation in his flagship income fund. Imperial pays a hefty dividend, growing at 10% rate. It generates good cash, but has huge BBB+ debt outstanding. It has come down quite a bit from its peak, but it’s valued at 17 times earning which may roll back to the 10 times earnings it had around 2000. Is there a case for holding Imperial Brands as primary source for dividends for the long run? I wonder if you could review some good dividend paying companies, net cash global companies with strong balance sheets, that will not get caught in the pending investment grade bond crunch. Thanks!

Eoin Treacy's view -

Thank you for this question which I’m sure is something a number of subscribers are pondering. More than half of all investment grade bonds are rated BBB and approximately $600 billion are up for refinancing this year. Against a background of tightening liquidity conditions that represents a risk some companies are going to have issues sourcing funding at the highly attractive rates which have been on offer for the last decade.
 



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January 08 2019

Commentary by Eoin Treacy

Is an 'Apple Prime' the Answer to iPhone Troubles?

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

Since then, the hypothetical of a monthly subscription to All Things Apple has assumed an extremely unofficial name—Apple Prime—based on Amazon’s bundle of free shipping, movies, music, photos and various other services. Last week, the notion took on sudden urgency, as Cook sliced Apple’s sales outlook, sending the company’s stock plunging 8 percent for the week and nearly taking the rest of the stock market down with it.

Proponents of Apple Prime are now reading tea leaves and seeing puzzle pieces moving into place. In his note to shareholders last week, Apple’s chief executive officer wrote under the heading of “other initiatives to improve our results” that Apple was working on “making it simple to trade in a phone in our stores, finance the purchase over time, and get help transferring data from the current to the new phone.”

The idea is that instead of paying a cool grand for a new iPhone every year, devotees might pay Apple a monthly stipend for automatic access to the latest device. Apple already has an iPhone upgrade program that costs $37 a month, administered by Rhode Island-based Citizens One. Presumably Apple could then bundle this with access to music, storage, the AppleCare warranty program, and the much ballyhooed but still largely invisible stable of Apple-financed TV shows and films, like an upcoming animated movie. “This is Apple Prime. And it is coming,” tweeted investor and Apple watcher MG Siegler, after reading Cook’s letter.

Eoin Treacy's view -

The subscription business model is the tech industry’s answer to the cyclicality which has plagued it since its dawn. By creating products that are essential to modern living they have turned a boom to bust pattern into an easily modellable stream of cashflows that any fundamental value-oriented investor can justify having a position in.
 



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January 03 2019

Commentary by Eoin Treacy

January 02 2019

Commentary by Eoin Treacy

Quality Equities: The Solution to Today's Equity Conundrum

Thanks to a subscriber for this report by Tom Hancock for GMO. Here is a section:

Eoin Treacy's view -

A link to the full report and a section from it are posted in the Subscriber's Area.

When David and I came up with the idea of the Autonomies back in 2010 we were thinking of companies that could perform come hail or shine in the evolving secular bull market. There are three fundamental strands to that belief and one technical.

The rise of the global consumer is a euphemism for the spread of capitalism and improving standards of governance which have historically delivered improving standards of living and higher consumption of goods and services. As long as capitalism continues to spread and governance improves millions of people are likely to be lifted out of poverty and into the middle classes. Asia and Africa are ground zero for that trend to persist in the coming decades



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December 31 2018

Commentary by Eoin Treacy

Best and Worst of 2018

Eoin Treacy's view -

The big drawdown that began in January represented a major inconsistency for what had previously been an impressively consistent trend. The subsequent ranging belied the churning that was taking place inside the major Wall Street indices as leadership narrowed to focus on the mega-cap technology companies.  Facebook peaked in the summer and Apple in October and that was one of the causal factors in the ensuing sell-off as large cap underperformance weighed on ETFs.



The fact that Advanced Micro Devices was the best performing share on the S&P500 this year is a testament to the extraordinary volatility we have seen in single stock names. The share opened in January at $10.42, peaked in September at $34.14 and closed today close to $18.32.



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December 19 2018

Commentary by Eoin Treacy

Here is the text of a bulletin from Bloomberg on today's Fed Meeting.

Here are the Key Takeaways from today's FOMC events:

The FOMC hiked rates a fourth time this year to a decade high, ignoring President Trump’s criticism, and lowered its outlook to two hikes from three next year.

Powell specifically endorsed the dots, citing them in his press conference as a guideline for the committee and a useful tool.

The committee tweaked its guidance to ``some further gradual increases’’ -- a more hawkish development compared with the alternative of dropping the guidance.

Powell said all meetings are live for possible moves next year, but gave no strong hints as to when the Fed would raise next.

There was unanimous support for the hike.

Powell said that Trump's comments had no impact on policy and that the Fed is committed to doing what it thinks is best.

Powell said financial conditions caused a slight downgrade in 2019 forecasts but no real change in the outlook.

Markets took FOMC and Powell as hawkish, with the yield curve flattening and stocks falling.

Eoin Treacy's view -

The dot plots suggest two interest rate hikes next year but Jay Powell basically said they are going to be data dependent next year. The one thing that stood out to me from the press conference was that no one asked questions about the pace of balance sheet run off. That says a lot.



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December 07 2018

Commentary by Eoin Treacy

One Fed official suggested on Friday delaying a December rate hike, the first to do so

This note by Thomas Franck for CNBC may be of interest to subscribers. Here is a section: 

St. Louis Federal Reserve President James Bullard reportedly said on Friday that the central bank could consider postponing its widely anticipated December rate hike because of an inverted yield curve.

“The current level of the policy rate is about right,” Bullard said in a prepared presentation to the Indiana Banker’s Association, according to Reuters.

Bullard is the first member of the Fed to speak publicly about a delay in December. The Fed president — while not a Federal Open Market Committee voter in 2018 — will be able to participate in rate hike decisions in 2019.

Eoin Treacy's view -

10-year Treasury yields dropped below the trend mean this week and despite a short-term overbought condition on the futures, a meaningful catalyst is now likely required to check the rally.



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December 03 2018

Commentary by Eoin Treacy

Email of the day on my central bank total assets chart:

You have mentioned that the graph showing central bank assets is one of the most important. Consequently, I wondered how the fact that they are reducing this tied in with your moderately optimistic views on the stock market. Do you think the US Fed Reserve will continue to reduce its balance sheet given recent market turmoil?

Eoin Treacy's view -

Thank you for this question which I believe is of general interest and is something I have also been pondering. There are two reasons the chart has been contracting since March. The first is because the Federal Reserve is reducing the size of its balance sheet and other central banks are reducing infusions. The second is the strength of the Dollar has flattered the contraction by reducing the relative value of other currencies held on global central bank balance sheets.



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November 29 2018

Commentary by Eoin Treacy

Long-term themes review October 29th 2018

Eoin Treacy's view -

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Let me first set up the background; I believe we are in a secular bull market that will not peak for at least another decade and potentially twice that. However, it also worth considering that secular bull markets are occasionally punctuated by recessions and medium-term corrections which generally represent buying opportunities.

2018 has represented a loss of uptrend consistency for the S&P500 following a particularly impressive and persistent advance in 2016 and 2017. Many people are therefore asking whether this is a medium-term correction or a top. There is perhaps no more important question so let’s just focus on that for the moment.



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November 28 2018

Commentary by Eoin Treacy

Powell Sees Solid Economic Outlook as Rates 'Just Below' Neutral

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

Federal Reserve Chairman Jerome Powell said interest rates are “just below” the so-called neutral range, softening previous comments that seemed to suggest a greater distance and spurring speculation central bankers are increasingly open to pausing their series of hikes next year.

Treasuries and stocks rose, as Powell’s “just below” comment tempered remarks he made last month that markets had interpreted to mean that a larger amount of tightening was likely. Speaking at an event on Oct. 3, Powell said that “we may go past neutral. But we’re a long way from neutral at this point, probably.”

In his speech Wednesday to the Economic Club of New York, Powell said the Fed’s benchmark interest rate was “just below the broad range of estimates of the level that would be neutral for the economy -- that is, neither speeding up nor slowing down growth.”

If rates are closer to what policy makers ultimately judge is the neutral level, that could signal the Fed will tighten monetary policy less than previously projected. Eurodollar futures pricing reacted to Powell’s comments, reflecting even firmer expectations that the Fed will hike only once next year.

Eoin Treacy's view -

Investors are on tenterhooks at the prospect of central bank balance sheet unwinding persisting indefinitely. Therefore, they are highly alert to any sign the Fed’s appetite for additional tightening is waning.



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November 28 2018

Commentary by Eoin Treacy

Salesforce Helps Drive Software Index on Revenue Forecast

This article by Nancy Moran and Nico Grant for Bloomberg may be of interest to subscribers. Here it is in full:

Salesforce.com Inc. climbed as much as 9.5 percent on an intraday basis Wednesday, helping to drive a third session of gains in the S&P 500 Software & Services Index, after
issuing a revenue forecast that topped analysts’ estimates.

Sales may reach as much as $3.56 billion in the fiscal fourth quarter, the San Francisco-based maker of cloud-based applications software said in a statement Tuesday. Analysts on average estimated $3.53 billion, according to data compiled by Bloomberg.

Eoin Treacy's view -

I chose Salesforce as one of the original cast of Autonomies back in 2012 when I was writing Crowd Money because it was a leader in the cloud computing sector. In doing so I was betting that it would grow its international revenues to become a truly global company. In the last decade revenues have grown 10-fold but the international spread has remained above the same with about 70% of revenue from the USA.



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November 26 2018

Commentary by Eoin Treacy

RBC Wealth Management 2019 Investment Stance

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

Eoin Treacy's view -

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

US Corporate Profits spent about four years ranging between 2012 and the end of 2016 and then broke out on the upside. The measure is reported in arrears with a one quarter lag so we will not have another reading until the end of this year and that will reflect the third quarter.



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November 23 2018

Commentary by Eoin Treacy

2019 US Equity Outlook: The Return of Risk

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

Eoin Treacy's view -

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

At The Chart Seminar we talk about how the majority of people predict markets. The simple answer is we tend to predict what we see. Over the course of the last eight weeks a very notable rotation into higher quality companies has been underway. Interest rate sensitive businesses have been the big decliners while those angled towards the consumer, with long records of dividend increases have been the clearest outperformers. Since that is what has been working it is the easiest prognostication to think it will persist.



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November 23 2018

Commentary by Eoin Treacy

BP Starts Production at Massive North Sea Oil Development

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

Clair Ridge is expected to reach a production plateau at a peak of 120,000 barrels of oil a day and is designed to run for 40 years. The companies are currently evaluating the potential for a third project within the field to expand output even further.

It’s BP’s sixth new project to start production this year, the latest marker of the company’s return to growth after years of retrenchment in the wake of its fatal blowout in the Gulf of Mexico. To pay for the 2010 disaster, which killed 11 people and caused the worst offshore oil spill in U.S. history, BP was forced to sell off billions of dollars of assets, shrinking its production.

But a string of new developments that started up over the past two years is reversing that trend, and BP is closing in on its ambition to regain its former size. The company’s production averaged 3.6 million barrels a day in the first nine months of the year, up nearly 3% compared with the same period in 2017. Output will receive a further boost from its recent $10.5 billion acquisition of BHP Billiton Ltd’s shale assets.

Eoin Treacy's view -

Saudi Arabia pumping at capacity is one factor in the decline of oil prices and speculation is rife whether that is a quid pro quo for President Trump’s assistance in Khashoggi assassination scandal.



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November 19 2018

Commentary by Eoin Treacy

Technology Megatrends Leading to the Disruption of Transportation 2020-2030

Thanks to a subscriber for this presentation by Tony Seba which may be of interest.

Eoin Treacy's view -

Perhaps the most interesting part of the discussion focuses on the rate at which the cost of producing batteries is accelerating to almost 20% per annum.
 
That holds out the prospect of batteries becoming commoditised in the same way as solar cells when production comes on lines. For the shares of battery producers that is likely to represent a challenge but not quite yet considering the supply inelasticity argument that still prevails within the market.



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November 09 2018

Commentary by Eoin Treacy

November 01 2018

Commentary by Eoin Treacy

Email of the day on balancing a portfolio

Yesterday’s article in The Wall Street Journal raises an interesting issue that may be interesting for discussion (see attached and the link - https://www.wsj.com/articles/octobers-market-rout-leaves-investors-with-no-place-to-hide-1540978259 ).

“Adding to the stock market’s anxieties has been a rare simultaneous drop in bond prices that has pushed yields near their highest levels in years. The dual breakdown in stock and bond prices has upended investors’ traditional safety tool kit of buying Treasurys during periods of volatility, leaving many with losses.”

Traditional investment portfolios of 60% equities and 40% bonds lost more than 3% in October and are down 1.2% this year, on pace for a rare annual loss that was last seen in 2008, as well as during volatile periods in 1990, 2001 and 2002, said Luca Paolini, chief strategist at Pictet Asset Management, which manages $191 billion. Even investors who are heavier on fixed income would still be in the red, with allocations of 75% bonds and 25% equities falling more than 2% this month to drag their performance down 1.1% for the year… Declines in bond prices, meanwhile, have exacerbated investors’ pain. Annualized losses among U.S. Treasurys and investment-grade bonds are at 9.7% and 4%, respectively, the third-steepest declines since 1970, according to a recent Bank of America Merrill Lynch report.”

Portfolio with 60% equities and 40% bonds allocation has been the most traditional advice for individual investors for decades. But I just thought, those were decades of the secular, almost 40-year bull trend in the bond market. If, as you and David often say, we are now witnessing the beginning of the secular bear market in bonds, then this 60-40 allocation represents troubles ahead. Bonds will probably stop being the same safe haven they were in the past. Yes, they will continue to provide some stability to a portfolio in a sense that they won’t fall 10% as equities but instead of rising in times of turmoil, they will also slump.

If this is the case, how allocation can be changed and where investors will look for safe heavens?

As always, it would be interesting to know your view.

Eoin Treacy's view -

In a period of disinflation or deflation fixing the interest rate you receive works wonderfully because its value increases over time. That has been one of the primary tailwinds for fixed income portfolios for decades. If on the other hand you are looking at a time of rising interest rates and rising yields then floating rate instruments become more attractive.



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October 31 2018

Commentary by Eoin Treacy

Equity and Quant Hedge Funds Hit Hardest by Stock Market Rout

This article by Saijel Kishan and Suzy Waite for Bloomberg may be of interest to subscribers. Here is a section:

The selloff underscores the perils that funds face when they pile into the same stocks. Equity funds suffered after the top 10 stocks they’re most “crowded” in underperformed the S&P 500 Index by almost 3 percent on Oct. 29, the worst day since 2010, Morgan Stanley said. In addition, the top 10 stocks that funds bet against outperformed the index by more than 1 percent.

Funds that use computer-driven models to follow big market trends were whiplashed as price volatility spiked. Among the casualties: Leda Braga’s BlueTrend hedge fund, GAM Holding AG’s Cantab unit and Man Group Plc’s AHL unit. Other quant models that lost money include Renaissance Technologies’ U.S. equity fund.

Eoin Treacy's view -

Never mistake a bull market for brains is one of the most important pieces of advice anyone can receive when momentum strategies in all their forms are the most fashionable investment vehicles. If all algorithms are taught to do is remember the trend is your friend then automatic sell signals go in at the first failure of the price at the moving average. Meanwhile indices are generally market cap weighted so that ETF passive investing is essentially a momentum strategy biased towards mega-caps. Nevertheless, a crisis has to be seen to be getting worse in order to continue have a deleterious effect on markets and there is increasing evidence of volatility abating. 



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October 31 2018

Commentary by Eoin Treacy

The Opportunity in Criss-Border E-Commerce

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

Cross-border e-commerce1 has developed into a large, quickly growing ecosystem – and has become a great success story for many e-tailers, meaning retailers and manufacturers selling their products over the Internet directly to end consumers.

This success can be shown in real numbers: in 2015, the cross-border e-commerce market accounted for USD 300 billion GMV2, about 15% of e-commerce overall. This rapid growth, however, has just begun and will continue: the cross-border market is expected to grow by about 25% annually until 2020 – nearly twice the rate of domestic e-commerce and a growth rate that most traditional retail markets would dream of achieving. In 2020, it is expected to account for about USD 900 billion GMV, translating into a roughly 22% share of the global e-commerce market. This growth momentum yields unrivaled opportunity for retailers and manufacturers. As this report will show, crossborder e-commerce is not an e-commerce giant story – all types of manufacturers and retailers will be able to successfully go global.

Even beyond 2020, all evidence shows that demand for products from abroad is not going to recede. That said, considering the patterns according to which e-commerce companies expand their regional footprint today, one could assume that every e-commerce purchase will eventually become a local purchase. This is mainly due to the higher cost efficiencies that localized fulfilment and the quicker shipments that shorter distances naturally promise at first glance. However, even e-commerce giants such as Amazon, Alibaba, and Zalando, which already operate local distribution centers in several countries, ship a significant part of their sales cross-border. This is driven by, for instance, the enormous number of stock-keeping units (SKUs) offered by some of these players. But having slow-turning SKUs sitting in inventory everywhere – a prerequisite for pure local fulfilment – is much more costly than shipping a certain share of orders cross-border. And in order to fulfill consumers’ wishes for faster delivery, many e-tailers offer premium international shipping options to their customers, e.g., for a surcharge. This is testimony that cross-border is not a passing phase or trend, but rather a significant staple in the e-commerce market that requires premium shipping.

Eoin Treacy's view -

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

The global postage and shipping industry represents a number of competing trends right now. On the one hand you have companies like Amazon which is prevailing on its largest sellers to expand internationally by making their products available in countries like Canada, Mexico, UK, Germany, France and Spain. That requires bulk shipping of inventory to its international fulfilment centres and often requires an increased compliance cost to manage multiple sales tax regimes.



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October 25 2018

Commentary by Eoin Treacy

Long-term themes review October 4th 2018

Eoin Treacy's view -

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.



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October 22 2018

Commentary by Eoin Treacy

Howard Marks: Why the Word "When" Is Dangerous

This interview from the Motley Fool may be of interest to subscribers. Here is a section:

3. The words you should never say

Bill Mann: Do you think that there are opinions or beliefs in the market that you find to be particularly unhealthy for investors?

Howard Marks: The first thing (and I try to make this clear in the book, and it's essential if people are going to be able to deal with cycles) is everybody wants an easy answer. Everyone wants to know how long an upswing lasts. And the first step is you must dispense with any concept of regularity.

The whole book is based around Mark Twain's statement that history does not repeat but it does rhyme. When he says it doesn't repeat, in our case he wasn't talking about the market. He was talking about history. But the truth is market cycles vary one to the next in terms of their amplitude, their speed, their violence, their duration. It's all different. And so people want to know how long an upswing is and the answer is we absolutely can't tell them. So expecting regularity and, thus, predictability is wrong.

And then you can go from there to the whole concept of predictions. What makes the market go up and down? To a small extent it is what I call fundamental developments in the economy and the companies. But to a large extent it's psychology or, let's say, popularity. And it should be clear by now to everyone that the swings in popularity are unpredictable. And if they are, then most forecasts are not going to work.

So the next concept is that people say to me, "OK, when will the market turn down?" And I never answer a question that starts with the word "when." In the investment business, sometimes we know what's going to happen. We never know when. So I would dispense with that immediately.

You must accept the ambiguity in the situation and accept the need to live with uncertainty. And that's why in the book I say there are certain words that every good investor should drive out of his vocabulary. Things like never, always, must, can't, has to. These words are out. We can talk about likely events. We can talk about probabilities. More and less likely. But we can never say has to or won't.

Eoin Treacy's view -

One of the biggest lessons from The Chart Seminar in my view is that it is senseless to tell the market what to do. It doesn’t listen. We need to foster the humility to allow the price action to unfold as it will and tailor our tactics accordingly. To do other than react to reality is to engage in fantasy.

At The Chart Seminar, we talk about distilling everything in the market down to two things. Money flows and crowd psychology. We use charts to monitor both. It is impossible to predict exactly where a top might appear but we can narrow the range down to when monetary policy is restrictive and investors are overenthusiastic.

The three primary trends are acceleration, a massive reaction against the prevailing trend and ranging, time and size. Let’s look at some examples.

Amazon has a history of accelerating. It’s half the reason people want to own the share. Every time it accelerates it has reverted to the mean so each of the accelerations is a minor trend ending. The primary consistency of the trend is it finds support in the region of the trend mean, consolidates for a while and rebounds. It has paused at big round numbers like $1000, $1500 and $2000 so the current pullback falls into the ‘normal’ category provided it finds support in the region of the trend mean.

Microchip Devices has posted a massive reaction against the prevailing trend over the last few weeks. Prior to that it exhibited a loss of momentum, greater volatility and failed upside breaks which all constituted a lengthier range. The clear downward dynamic is a trend ending characteristic.

It is quite normal that after a Type-2 topping characteristic we see a range develop below the peak, which can be considered a period of right-hand extension or a first step below the top.

Oil ranged mostly between $100 and $120 between 2011 and the middle of 2014. That lengthy range corresponded with a high degree of confidence the $100 level would hold so when it declined below that level it triggered a lot stop and the price collapsed. The prior to formation was represented by ranging, time and size.

Meanwhile, Microsoft remains in a reasonably consistent medium-term uptrend, characterised by a succession of short-term ranges one above another. Provided the $100 level holds as an area of support during this reaction the trend can be considered consistent.

The next venue for The Chart Seminar will be in London on November 12th and 13th. Please contact Sarah at sarah@fullertreacymoney.com to secure your place.



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October 17 2018

Commentary by Eoin Treacy

Trump Opens New Front in His Battle With China: International Shipping

This article by Glenn Thrush for the New York Times represents a further deterioration in the US/China international relationship. Here is a section:

The withdrawal is part of a concerted push by Mr. Trump to counter China’s dominance and punish it for what the administration says is a pattern of unfair trade practices. The move is expected to be announced on Wednesday, according to senior administration officials.

The Universal Postal Union treaty, first drafted in 1874, sets fees that national postal services charge to deliver mail and small parcels to countries around the world. Since 1969, poor and developing countries — including China — have been assessed lower rates than wealthier countries in Europe and North America.

While the lower rates were intended to foster development in Asia and Africa, Chinese companies now make up about 60 percent of packages shipped into the country, taking advantage of the lower rates to ship clothing, household gadgets and consumer electronics. Many websites now offer free shipping from China, in part because of the cheap postal rates, administration officials say.

Eoin Treacy's view -

Privately-owned Chinese companies are among the largest third-party sellers on major internet venues like eBay and to a lesser extent Amazon. A US based seller pays a minimum of $2.66 for a small package with tracking from the US Postal Service. Sellers from China pay domestic local rates on international shipping. It might take longer to arrive but there is no way to beat Chinese sellers on price and particularly for small-sized goods.



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October 03 2018

Commentary by Eoin Treacy

Long-term themes review August 15th 2018

Eoin Treacy's view -

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Let me first set up the background; I believe we are in a secular bull market that will not peak for at least another decade and potentially twice that. However, it also worth considering that secular bull markets are occasionally punctuated by recessions and medium-term corrections which generally represent buying opportunities. 



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September 27 2018

Commentary by Eoin Treacy

H&M Soars Despite Record Inventories as CEO Says Worst Is Over

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

H&M’s inventories have been a persistent problem, rising steadily as the Stockholm-based fast-fashion chain failed to keep up with consumers’ tastes and was struck by logistics woes.

The company says it’s working through the excess stocks and will be able to scale back discounting as a result, even as it irons out its supply problems. “We are in a better position now than we were last year,” CEO Karl-Johan Persson said on a conference call Thursday. “We’re buying less and being smarter about our purchases.”

The shares soared as much as 13 percent in Stockholm trading. Analysts at RBC Capital Markets pointed to H&M’s forecast that fourth-quarter markdowns will be about flat with last year’s, as well as a third-quarter gross margin that beat estimates.

Eoin Treacy's view -

Fast fashion has relied on footfall at its stores but faces the twin challenges of discounters like TJMaxx and Ross Stores as well as the evolution of online sales like Amazon’s own brand goods and Stitch Fix. The challenge for the sector is not simply to ensure they are on trend but to contain prices in order to remain competitive. That has represented a painful challenge for companies like H&M and Inditex.



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September 26 2018

Commentary by Eoin Treacy

Sony finally gives into 'Fortnite' PS4 cross-play demands

This article by Swapna Krishna for engadget.com may be of interest to subscribers. Here is a section:

PlayStation gamers have been frustrated by the lack of cross-platform support for the popular game Fortnite. But now Sony has some good news. Today, the company announced an open beta that will allow for Fortnitecross-platform play between the PlayStation 4 and iOS, Android, the Nintendo Switch, Xbox One, Microsoft Windows and Mac.

The aim of the beta is to test the user experience on this kind of cross-platform play, which is the first time Sony Interactive Entertainment has experimented with this feature. The release makes clear that, if this test goes well, the company may be open to cross-platform play on other games in the future.

Part of the appeal of Fortnite has been the ability to play with other gamers, regardless of the platform you are on. PlayStation users were unable to partake in that aspect of the game. To make matters worse, SIE's restrictive policies ensured that players weren't able to sign into an Epic Games account linked to PSN from their Nintendo Switch.

Eoin Treacy's view -

This is a watershed moment for the computer gaming sector because it highlights that games are more important than platforms. For years consumers have had to choose between Microsoft’s Xbox, Sony’s PS4, Nintendo’s Switch, PC or now mobile with each representing a significant outlay in terms of capital investment.

However, if you only had one of these platforms you were restricted in what games you could play. Even when the games had online group-play features participants had to all have the same hardware and software. Fortnite changed that. It has been such a wildly successful game, built exclusively on a Battle Royale/Lord of Flies group play model that companies have been forced to cave to consumer demand for cross platform solutions.



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September 19 2018

Commentary by Eoin Treacy

Bezos Unbound: Exclusive Interview With The Amazon Founder On What He Plans To Conquer Next

This article by Randall Lane for Forbes.com may be of interest to subscribers. Here is a section:

Nevertheless, during the morning he spent with Forbes outlining how he channels innovation and chooses where to expand, a road map for Amazon's future emerged. Given Amazon's size, it moves both vertically and horizontally, each direction portending a lot more disruption. Even five years ago, Bezos seemed content merely to try to sell everything to everybody, becoming the bane mostly of retailers and wholesalers. But this master innovation artist now has the ultimate palette: any industry he chooses.

For this unconstrained era, the most important word at Amazon is yes. Bezos explains, correctly, the traditional corporate hierarchy: "Let's say a junior executive comes up with a new idea that they want to try. They have to convince their boss, their boss's boss, their boss's boss's boss and so on—any 'no' in that chain can kill the whole idea." That's why nimble startups so easily slaughter hidebound dinosaurs: Even if 19 venture capitalists say no, it just takes a 20th to say yes to get a disruptive idea into business.

Accordingly, Bezos has structured Amazon around what he calls "multiple paths to yes," particularly regarding "two-way doors": decisions that are often based on incremental improvements and can be reversed if they prove unwise. Hundreds of executives can green-light an idea, which employees can shop around internally. "He knows and we know that you can't invent or experiment without some failure," says Jeff Wilke, the long-time Bezos lieutenant who runs Amazon's consumer and retail operations. "Those we sort of celebrate. In fact, we want them to occur all over the place. Jeff doesn't need to review those. I don't need to review those."

Eoin Treacy's view -

The bigger Amazon gets and the more industries it disrupts the greater the potential there is for antitrust advocates to gain traction. Amazon currently accounts for about half of all ecommerce traffic in the USA so it is no exaggeration to state that if you are not selling on Amazon you are leaving half the population untapped. That position lends the company enormous power and the EU is currently investigating how much advantage it gets from knowing product segments its third-party sellers are succeeding in. 



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September 18 2018

Commentary by Eoin Treacy

See Food: Why Robots Are Producing More of What You Eat

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

Food manufacturers have been early adopters of new technologies from canning to bread slicers, and vision automation has been used for many years for tasks such as reading bar codes and sorting packaged products. Leaders now are finding the technology valuable because robot eyes outpace the human eye at certain tasks.

For years, Tyson Foods Inc. used sensors to map chicken fillets so they could be cut to the precise specifications required by restaurant customers that need them to cook uniformly. But exposure to the high pressure, high temperature water there kept causing equipment failures.

Now technical improvements, tougher materials and declining prices mean the company can integrate vision technology in facilities including the new $300 million chicken-processing plant in Humboldt, Tenn., said Doug Foreman, who works in technology development at the Springdale, Ark.-based food company. The technology could help optimize the use of each part of the bird, he added.

Eoin Treacy's view -

Robotics, artificial intelligence and computer vision all need to work seamlessly together in order for computers to fulfil the same tasks as humans. Creating systems that work together in such a manner is a time-consuming process but progress has been underway for decades and the breadth of what is now possible has improved considerably.



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September 13 2018

Commentary by Eoin Treacy

How Amazon Plans To Use Its E-Commerce Dominance To Transform Healthcare

This report from CBInsights may be of interest to subscribers. Here is a section: 

The pharmaceutical supply chain in the US is convoluted, filled with middlemen and confusing business models. For example, more than three entities are involved in bringing a drug from manufacturer to patient, and each party takes a percentage of 2 the profit along the way.

Amazon has the opportunity to simplify the supply chain and improve the experience/cost matters for patients, payers, and manufacturers. The company has made significant headway into the pharmaceutical distribution space with its ~$1B acquisition of mail-order pharmacy PillPack. With this purchase, Amazon gained a $100M revenue runrate business, a built-out pharmacy supply, and pharmacy licenses in all 50 states.

PillPack is a good fit for Amazon. The company is loved by its customers, claiming an NPS score of 80 compared to the pharmacy average of 26. Customer demand also helped the company re-establish its partnership with pharmacy benefits giant Express Scripts after a public falling out.

Eoin Treacy's view -

Amazon’s march through previously ringfenced sectors remains a powerful disruptive influence that has the potential to streamline supply chains and deliver better value to end customers. At the same time this is going to represent a significant challenge for the middlemen that characterise the healthcare, commercial and industrial sectors today.  



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September 12 2018

Commentary by Eoin Treacy

Asian Stocks Are Caught in the Longest Sell-off in 16 Years

This article by Ian C Sayson for Bloomberg may be of interest to subscribers. Here is a section:

“We see that light at the end of the tunnel, but we’re still kind of in the darkness ourselves,” Citi’s Peng said. Investors need more concrete catalysts before they step in to buy stocks. “So that’s the challenge for money managers.”

“We are looking to be more constructive on Asian equities in the next quarter, if the current correction continues. Valuations will be more attractive and worth a look then,” said Jason Low, senior investment strategist at DBS Bank Holdings Ltd.

“The good news is that valuations are looking more attractive now and technicals are oversold, which suggest that Asian stocks could be poised for a rebound in the next few months,” Jasslyn Yeo global market strategist as JPMorgan Asset Management.

Eoin Treacy's view -

Among the top 18 holdings in the iShares MSCI Emerging Markets ETF, 9 are from China. The addition, first of overseas Chinese companies and Hong Kong listed companies followed by mainland listed shares has represented a significant reweighting of the basket over the last decade. Since so many commodity producers rely on Chinese demand growth for exports the country’s influence is even greater than might initially be apparent.



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September 12 2018

Commentary by Eoin Treacy

FDA Threatens to Pull E-Cigarettes to Fight Rise of Youth Vaping �

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

“There is no question that a lot of the youth use is being driven by Juul,” Gottlieb said.

Produced by San Francisco-based Juul Labs Inc., Juul devices resemble a USB thumb drive and have become popular among students. The company has more than two-thirds of the U.S. e- cigarette market, according to Nielsen data. The FDA is currently developing a survey to determine what percentage of youth vapers are using Juul products, Gottlieb said.

A nationwide sting operation from June through August resulted in more than 1,300 warning letters and fines to retailers who sold Juul products and other e-cigarettes to kids.

It was “the largest coordinated enforcement effort in the FDA’s history,” according to the agency.

Gottlieb recently began to ask whether the use of Juul and other similar products by kids is overshadowing any benefit to adult smokers using the devices to help them quit cigarettes. He said in June tobacco companies “better step up and step up soon” but he didn’t divulge what consequences the industry could face -- until now.

In July 2017, the FDA said it was considering lowering nicotine levels in traditional cigarettes. In addition, the agency pushed back until 2022 a deadline for electronic- cigarette companies to submit applications to the FDA. Gottlieb said at the time he was trying to ease the regulatory pathway for products that are potentially less harmful sources of nicotine than smoking. Critics of pushing back the deadline raised concern that more kids would take up vaping.

Congress gave the FDA the authority to regulate tobacco products in 2009. The agency extended that reach to other tobacco products, including e-cigarettes, in August 2016 and allowed those products that were already on the market to continue sales while preparing an application for FDA clearance.

The FDA is investigating whether some products on the market were introduced after the 2016 date and may need to halt sales, though didn’t name which ones may be violating the law.

Eoin Treacy's view -

I had a discussion with my children about addiction and the cashflow seepage from their savings that would occur were they to take up vaping. We also looked at the cashflow of tobacco companies and talked about how much money they make from addiction. I’ve found it is not much use talking to children about their long-term health because it is no relatable. However, talking to them about not being able to afford a squishy or computer game because of an addiction gets a lot more traction. This conversation resulted from the fact that many of the videos they have encountered on YouTube or iFunny highlight children and young teenagers engaging in vaping.



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September 05 2018

Commentary by Eoin Treacy

Honey, I shrunk the stock market

This report from Navallier Calculated Investing is a promotional piece but it contains a number of interesting charts and statistics relating to share buybacks. Here is a section:  

Apple had completed $200 billion in share buy-backs since 2012. Apple’s cash hoard is so monstrous that six out of the 10 biggest share buy-backs in U.S. history were done by Apple. The $200 billion they’ve bought since 2012 is enough cash to buy all of Verizon, Coca-Cola, or Boeing. Chew on that for a minute.

Now, contemplate this: U.S. companies announced $201.3 billion in stock buybacks and cash takeovers in May 2018 alone. That’s a record monthly amount. Apple represents nearly half of that! Apple recently said it would buy back $100 billion more of its own stock. They didn’t specify when or how long that would take, but that’s about 10% of the market cap, currently at $1 trillion, the first trillion-dollar stock.

The buy-back announcements keep coming:
Broadcom (AVGO) pledged a $12 billion buy-back.
Micron (MU) pledged a $10 billion buy-back.
Facebook (FB) pledged a $9 billion buy-back.
T-Mobile (TMUS) pledged a $7.5 billion buy-back.
Qualcomm (QCOM) just upped the ante on their previous announcement to buy back $8.8 billion. On July 25th, 2018 QCOM said they would buy back $30 billion, more than 30% of the float!

Eoin Treacy's view -

Social media companies led an early pullback on the Nasdaq today as Facebook, Twitter and Alphabet were grilled in Washington. The questions being asked of these companies with regard to how they police their forums and the nature of the advertising being served to consumers/voters is understandably weighing on their performance. It is also leading to headlines along the lines of “technology stocks collapse” which if we look at the Nasdaq is clearly a case of hyperbole.



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September 04 2018

Commentary by Eoin Treacy

Soon, the most beautiful people in the world may no longer be human

This article by Peter Holley for the Washington Post may be of interest to subscribers. Here is a section:

But a British company that launched in April is already marketing itself as an alternative to human models. Irmaz Models calls itself an “Imagined Reality Modeling Agency.” The company’s website says its designers can “make faces to fit” any marketing campaign. Another advantage: Digital models “never argue, need to eat, throw tantrums or get tired,” the company notes.

“Brands can specify the look they’re exactly after, down to the race, gender and hairstyle,” Philip Jay, a former Playboy photographer who founded Irmaz Models with Irma Zucker, told CNN.

Kelvin Boon, the owner of Boon Models, an agency with branches in New York and the District, said he sifts through a daily stream of modeling portfolios in search of “quality models.” Aspiring models don’t always resemble their photos, he said, and those that do often require training before they’re ready for professional work.

If credible-looking digital models emerge, he said, “it’s going to affect the industry a lot.” Why, he asked, would a brand spend thousand of dollars to hire models and photographers for a single photo shoot when you can hire an artist to create images for far less?

Eoin Treacy's view -

This is a very emotive topic and the headline above is what my daughters refer to as clickbait. People love their heroes so brands will always be on the lookout for someone they think can epitomise their image. However, there is a lot of work that is oriented towards the online market where photos are routinely doctored anyway that is ripe for digitisation. 



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August 30 2018

Commentary by Eoin Treacy

Nestle Wants Your DNA and Foodie Pics to Sell You Supplements

This article by Lisa Du, Corinne Gretler and Maiko Takahashi for Bloomberg may be of interest to subscribers. Here is a section:

“Health problems associated with food and nutrition have become a big issue,” said Kozo Takaoka, head of the company’s business in Japan, in an interview in Tokyo. “Nestle must address that on a global basis and make it our mission for the 21st century.” He said the wellness segment could eventually account for half of Nestle’s sales in Japan.

The investments come with the burgeoning interest in so- called nutraceuticals -- food-derived ingredients that are processed and packaged as medicine or wellness aids -- among consumers that are increasingly skeptical about mass products.

Nestle employs more than a hundred scientists in areas including cell biology, gastrointestinal medicine and genomics at the Nestle Institute of Health Sciences and has been developing tools to analyze and measure people’s nutrient levels.

“Decades in the future, all companies will probably have to be doing it,” said Jon Cox, an analyst at Kepler Cheuvreux. “The industry has probably had a setback as consumers also want natural and less processed products while adding supplements is seen as artificial or creating Frankenstein food.”

Some nutritionists are skeptical that tailored diet plans based around supplements are useful and that they may have more of a psychological effect than a medical one.

“Nestle’s program is designed to personalize diets in ways unlikely to be necessary,” said Marion Nestle, a nutrition professor at New York University who isn’t linked to the KitKat maker. “If we think something will make us healthier, we are likely to feel healthier.”

Eoin Treacy's view -

I had my 23andMe results analysed by DNAFit and their conclusion was that I process carbohydrates rather efficiently so I should eat less of them. They also pointed out something I have noticed myself which is that when I commit to a training regime I progress quickly, but when I stop I go backwards faster than most people.

I also tend to accumulate cholesterol, so I have to be very careful with what kinds of fats I consume if I want to maintain healthy levels i.e. more nuts and avocados with fewer shrimps and chicken thighs.

I have been particularly interested in the range of new products offering genetic profiling of our individual microbiomes but my conclusion is these are still very developmental in the range of insights they can offer. With that as a background I expect I am exactly who Nestle will be targeting their products at when they expand beyond Japan.



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August 29 2018

Commentary by Eoin Treacy

Amazon and Alphabet Have a New Number One Fan on Wall Street

This article by Joe Easton for Bloomberg may be of interest to subscribers.

Morgan Stanley just became the biggest Amazon.com Inc. and Alphabet Inc. bull on Wall Street.

The bank upped its price targets for the tech giants’ stocks by 35 percent and 14 percent respectively on Wednesday, to levels higher than any other of the analysts surveyed by Bloomberg.

Amazon’s high-margin revenue from advertising, cloud and subscription services like Prime are growing at such a rapid pace that the Seattle-based firm’s profits should increase even further, analyst Brian Nowak wrote in a note to clients.

Meanwhile, Google parent Alphabet is still only in the early stages of monetizing the seven platforms it owns that have more than a billion users, according to New York-based Nowak.

The launch of a ride-hailing service by Alphabet’s self-driving technology unit Waymo could also spur further share gains, he said.

Both companies had already garnered a slew of price target increases after surpassing expectations for second-quarter earnings last month, and not a single analyst tracked by Bloomberg recommends selling either stock.

Amazon’s stock price has doubled over the past 12 months, trailing only Netflix Inc. and Align Technology Inc., the maker of Invisalign orthodontics equipment, in terms of percentage gains for a Nasdaq 100 index member. Alphabet has rallied about 34 percent, a bit ahead of the benchmark

Eoin Treacy's view -

One of the hallmarks of the third psychological perception stage of a bull market is analysts competing to be the biggest bull. The way to make a name for yourself when prices are rising is to come out with a forecast that is well above the consensus and send it to as many journalists as possible, arrange interviews on financial TV channels and have the entire sales force talk about it with clients.



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August 16 2018

Commentary by Eoin Treacy

Amazon's Real Rival in India Isn't Walmart

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

Meanwhile, Indian-managed companies like Ambani’s Reliance Retail Ltd. will be free to control and improve their supply chains while building a fearsome online presence in partnership with his mobile operator, Reliance Jio Infocomm Ltd.

That’s not the only onerous aspect of the policy. The draft speaks of a two-year period after which data generated in India – on social media (Facebook Inc.), via search engines (Alphabet Inc.’s Google), or e-commerce (Amazon) – will have to be stored on local servers. As the Wall Street Journal noted this week, the move is bound to push up costs for Western firms.

This new restriction will probably make it to the final law. The Indian central bank is already directing all payment firms like Visa Inc., Mastercard Inc. and PayPal Holdings Inc. to keep their Indian data exclusively in the country by October, so there’s little reason to expect that rules for e-commerce data will be much less stringent.

Besides, similar laws already exist in China. Amazon sold its Chinese servers and some other cloud assets to a local partner to comply with Beijing’s local storage rules. Alphabet, which has no data centers in China, is also looking for a local partner to bring its Google Drive and Google Docs to that country, Bloomberg News reported recently.

Other aspects of the policy may die without Bezos needing to move a muscle. Indian privacy activists will balk at the idea of a “social credit database,” to be set up — in a very Chinese fashion — by mixing state and non-state citizen data. While the goal of the database is to promote digital lending, there’s no guarantee it won’t be used to stifle dissent. 

A more problematic suggestion in the draft is that the Indian government would have access to the data stored in India, “subject to rules related to privacy, consent etc.” A proposed Indian data-privacy law is yet to be passed by parliament, and whatever makes it onto the books will in turn be shaped by the Indian apex court’s verdict in a case challenging the constitutional validity of a biometric identification system that the government has rolled out to 1.2 billion Indians.

Eoin Treacy's view -

India is on the cusp of digital revolution following the roll out of 4G at the beginning of 2016. It has been transformative for Reliance Industries’ shares but the broader impact of taking shopping, banking, music, books and just about everything else we take for granted online is likely to be a major catalyst for growth in the Indian economy. The clearest comparison is that India’s digital market is where China’s was approximately 5 years ago.



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August 09 2018

Commentary by Eoin Treacy

Some Mutual Funds Have Avoided the Recent Tech Pain

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

The average large-cap mutual fund holds 1.3% of its portfolio in Facebook, 0.2 percentage points less than its benchmark; 2% in Amazon, compared with the benchmark’s 2.4%; and 0.3% in Netflix, versus the benchmark’s 0.5%. The funds are overweight only in Alphabet, by 0.19 percentage points.

Those slim allocations helped shield the funds from the recent losses suffered by Facebook and Netflix that bled over into the broader tech sector and S&P 500. Large-cap growth funds have outperformed the broad stock market index over the past month and year to date, rising 3.9% and 11% over those periods, according to Morningstar. That’s versus gains of 3.3% and 6.6%, respectively, for the S&P 500.

Eoin Treacy's view -

I get the sensation that there is a lot of schadenfreude in the actively managed segment of the market because they sidestepped the recent setbacks in Facebook and Netflix. No mention is being made of how much they underperformed over the last three years because they were so underweight the so-called FANGs.



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August 02 2018

Commentary by Eoin Treacy

Email of the day on Facebook and FAANG

Many people are worried that Facebook collapse may have wider implications for not only the tech sector but also by contagion the broader market. What do you make of FB and its future and effect on tech / broader market? This is an important question as you know.,,,tech has been a cycle leader many thanks for your continuing good service

Eoin Treacy's view -

Thank you for this question which as you say is something a lot of people are ruminating on. Leaders tend to lead in both directions has been an adage at this service for decades so Facebook’s large downside weekly key reversal is a significant development. Equally Apple reaching a $1 trillion market cap today is an important development not least because it closed on the high of the day.



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August 01 2018

Commentary by Eoin Treacy

China trip report July 2018

Eoin Treacy's view -

This was another highly enjoyable and educative trip to China for the Treacy family. One of the reasons we love visiting Guangzhou is because it is close to the factories Mrs. Treacy deals with but is also the gastronomic capital of China. The city is replete with wonderful dining options and the quality of food on offer is of a high standard. I’ll write a separate review of restaurants on another occasion.

This poster is in just about every public space from railway stations to the tube, to the barriers around building sites in Guangzhou. The first question I asked myself is why it needs to be in English as well as Chinese. Internet searches using English language terms do not return results even if one is using Baidu or other Chinese search engines and the vast majority of the domestic population does not read English. Therefore, the message is meant for a wider audience or the use of English is intended as a form of legitimisation of the ideals expressed.



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July 17 2018

Commentary by Eoin Treacy

Long-term themes review July 17th 2018

Eoin Treacy's view -

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.



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July 16 2018

Commentary by Eoin Treacy

Long-term themes review June 22nd 2018

Eoin Treacy's view -

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

I realise this summary at 4600 words is getting rather lengthy which is why I decided to right another book to more fully explore the issues represented by the rise of populism and what that means for markets and the global economic order. I’ve agreed an August/September deadline so hopefully it will be available this year.



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June 29 2018

Commentary by Eoin Treacy

Email of the day on Amazon's impact on pharmacies

Thank you for your superb service. Can you please advise your views on how vulnerable do you think the pharmacy shares are in the US after Amazon's entry to the field? Thank you in advance.

Eoin Treacy's view -

There are obvious fears that the introduction of Amazon’s business model to the pharmacy sector will have the same effect it had on the big retailers. However, I suspect the most profound effect will be felt among the smaller independent pharmacies that command about half the total US market. Here is a section from an article by bizjournals.com that may be of interest:

There are currently about 22,500 independent pharmacies in the United States, and these pharmacies dispense nearly half of the nation's retail prescription medicines, Norton says.

All told, independent pharmacies are an $81.4 billion marketplace annually. They fill 1.38 billion prescriptions a year — about 201 a day, per pharmacy — and employ 314,000 people on a full- or part-time basis.



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June 28 2018

Commentary by Eoin Treacy

Imperial Brands Joins Snoop Dogg as Cannabis Investment Heats Up

This article by Lisa Pham for Bloomberg may be of interest to subscribers. Here it is in full:

The U.K.’s medical cannabis industry is getting another boost, with cigarette maker Imperial Brands Plc investing in a British startup that’s developing treatments derived from the marijuana plant.

Imperial Brands Ventures Ltd. and rapper Snoop Dogg’s Casa Verde Capital have invested in Oxford Cannabinoid Technologies, or OCT, which focuses on researching, developing and licensing compounds and therapies based on the plant. The total investment is approaching $10 million, with pain, inflammation, cancer and gastrointestinal diseases among areas of focus, Casa Verde Capital managing partner Karan Wadhera said in a Bloomberg TV interview.

“Cannabinoid products have significant potential and our investment enables Imperial to support OCT’s important research while building a deeper understanding of the medical cannabis market,” Bristol, England-based Imperial Brands said on its website Thursday.

Belief in the potential of medical cannabis is gaining steam with the U.S. Food and Drug Administration’s approval this week of Cambridge, England-based GW Pharmaceuticals Plc’s Epidiolex epilepsy treatment. The liquid is made from a compound in the marijuana plant called cannabidiol, a different chemical from tetrahydrocannabinol, or THC, which gets users high.

The investment in OCT comes as tobacco companies look for new business lines amid slowing sales and tightening regulations for cigarettes. Imperial Brands’ stake in OCT is “the most significant move among the global tobacco players in the cannabis industry to date,” Cowen analyst Vivien Azer wrote in a note Thursday. “We continue to expect to see more activity in cannabis from both global tobacco and global alcohol.”

Simon Langelier, who had a 30-year career with Philip Morris International Inc., joined the board of Imperial Brands as non-executive director in June 2017. He is chairman of PharmaCielo Ltd., a supplier of medicinal-grade cannabis oil extracts.

Eoin Treacy's view -

Here is a link to a CNBC interview of Karan Wadhera of Casa Verde Capital discussing the medium-term outlook for cannabis. Even when I worked in Amsterdam I never had any interest in smoking cannabis so I cannot speak from personal experience about the sector. However, it is hard to argue with people who suffer from chronic pain conditions who attest to the easing of symptoms they experience when consuming cannabis products over the highly addictive and often unsatisfactory results they get from consuming opioid painkillers.



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June 25 2018

Commentary by Eoin Treacy

Supreme Court Rules States Can Collect Sales Tax on Web Purchases

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

“Many states will pick up on those details and incorporate them into their own regulatory regimes,” said Eric Citron, an attorney who represented South Dakota. He said he expected nearly every state with a sales tax to move legislation or regulations to enforce collections. “Complete compliance will become the norm within the next year or two,” he said.

Amazon originally set up its business model to avoid state sales taxes, limiting its physical presence to a handful of warehouses. But it changed strategy to build more warehouses closer to consumers as it has relied more on its Prime two-day shipping offer—and started charging sales tax on items it sells directly.

Amazon hasn’t collected the taxes for most independent merchants who sell on its platform. About $200 billion in sales originated with independent merchants selling on Amazon world-wide last year, according to Factset analyst estimates, compared with about $116 billion in direct sales by Amazon. The company declined to comment on the ruling.

Eoin Treacy's view -

The cost of compliance is rising in just about every sector. Since the credit crisis the burden of regulatory compliance has been a significant headwind for the banking sector and it has changed the nature of how they do business. The UK’s Retail Distribution Initiative resulted in the cost of doing business rising for financial advisors. The EU’s drive to introduce GDPR has seen some company email lists drop from hundreds of thousands to the tens of thousands. Asking online retailers to monitor how much and how often they sell into each state will increase compliance costs regardless of whether tax is then due.



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June 21 2018

Commentary by Eoin Treacy

Long-term themes review May 16th 2018

Eoin Treacy's view -

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Here is a summary of my view at present:



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June 20 2018

Commentary by Eoin Treacy

Germany's Largest Auto Makers Back Abolition of EU-U.S. Car Import Tariffs

This article by William Boston and Bojan Pancevski for the Wall Street Journal may be of interest to subscribers. Here is a section:

That would mean scrapping the EU’s 10% tax on auto imports from the U.S. and other countries and the 2.5% duty on auto imports in the U.S. As a prerequisite, the Europeans want Mr. Trump’s threat of imposing a 25% border tax on European auto imports off the table.

Over the past few weeks, Mr. Grenell has held closed-door meetings with the chiefs of all major German automotive companies, including bilateral meetings with the CEOs of Daimler AG , BMW AG and Volkswagen AG , which operate plants in the U.S. Overall, Germany’s auto makers and suppliers provide 116,500 jobs in the U.S., according to the Association of German Automotive Manufacturers.

During these talks, which the ambassador initiated, the managers said they would back the scrapping of all import tariffs on trans-Atlantic trade in automotive products as the keystone of a broader deal covering industrial goods. The German government is on board and Mr. Grenell promised to support the idea, according to U.S. and German officials.

Eoin Treacy's view -

Trade tensions are ebbing and flowing on almost a daily basis. Efforts led by the German auto manufacturers to defray risks to their US business obviously highlight how seriously companies are taking the threat of trade friction and what it could mean for their businesses. That is particularly true in the aftermath of the diesel cheating scandal which continue to make headlines.



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