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September 15 2017

Commentary by Eoin Treacy

September 15 2017

Commentary by Eoin Treacy

Electric Vehicle Boom: ICE-ing The Combustion Engine

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

Many manufacturers undertaking all-solid-state battery R&D Manufacturers that aim to make all-solid-state batteries commercially available in 20202025 include Toyota, Sekisui Chemical, Hitachi Zosen, and Ohara. There have been announcements also from Panasonic, Samsung Electronics, Daimler, Sony, and Hyundai Motor about R&D efforts, but it is not clear when these companies aim to start mass production. BYD says it has set up a research team that is focused on all-solid-state batteries. Bosch, which is the largest auto parts maker, has acquired the all-solid-state battery startup Seeo, while household appliance maker Dyson entered the battery industry with its acquisition of Sakti3. This suggests there are growing expectations for the potential use of all-solid-state batteries not only in automobiles, but also in household appliances. 

Advantages of all-solid-state batteries 
An all-solid-state battery has the potential to offer not only greater energy density, but also greater safety as well as flexibility in terms of operating temperatures. The advantage of these batteries is that they do not contain electrolyte solution, which is flammable and can react to temperature changes. The batteries also do not require separators, which eliminates the risk of damaged separators causing the battery to short-circuit. Moreover, sulfur-based solid electrolytes have the potential to substantially reduce recharging times as they demonstrate greater ion conductivity than electrolyte solution. 

Disadvantages of all-solid-state batteries 
We think the technological hurdles hampering mass production are the main drawback for all-solid-state batteries. Manufacturing all-solid-state batteries will require new production processes including pressing (in the case of sulfur-based batteries) and sintering (oxide-based batteries). In the case of sulfur-based batteries, which appear to be a strong candidate for automobiles, there is a risk that the sulfur-based solid electrolyte will react with moisture to create hydrogen sulfide. Companies are considering ways around this issue, which include housing the battery in a solid case to reduce the risk of it being damaged, or incorporating a hydrogen sulfide gas detector that would raise the alarm early. On the production side, it has been suggested that all-solid-state battery factories should have a super-dry room with a dew point of -100 degrees. There are also concerns that when all-solid-state batteries are used in automobiles, the vehicle’s vibration may reduce interface stability. It would appear that Toyota therefore faces a number of hurdles to overcome if it is to be ready to commercialize such batteries in 2022.   

 

Eoin Treacy's view -

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

Innovations in the energy sector have profound effects on all financial markets by reducing the cost of production and transportation of just about everything. That is why batteries represent the lynchpin for the dawn of a new energy future where electricity becomes a local industry and transportation is no longer dependent on extraction of resources from politically unpalatable regions. 



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September 15 2017

Commentary by Eoin Treacy

Portugal Regains Investment Grade Rating From S&P on Growth

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

Portugal’s credit rating was restored to investment grade by S&P Global Ratings as the country’s economic growth accelerates.

The rating was revised to BBB- from BB+, which was one level below investment grade, S&P said in a statement on Friday.

The outlook is stable. Portugal had been rated junk by S&P since January 2012, when the country was going through a bailout program provided by the European Union and the International Monetary Fund.

“The upgrade reflects our improved forecast for Portugal’s growth during 2017-2020, as well as the solid progress it has made in reducing its budget deficit and the receded risk of a marked deterioration in external financing conditions,” S&P said. The company raised its forecast for the country’s economic growth through 2020 to an average of about 2.2 percent a year. 

Tourism and exports have been boosting the economy, with the Bank of Portugal forecasting growth will accelerate to 2.5 percent this year. The faster growth is helping the country’s minority Socialist government manage the budget deficit, which last year was the narrowest as a percentage of gross domestic product in four decades of Portuguese democracy.

 

Eoin Treacy's view -

It’s been a decade of tough decisions for the Eurozone’s peripheral members but they are slowly but surely returning to growth; helped in no small part by the low borrowing costs the ECB has supplied through its quantitative easing program. 



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September 14 2017

Commentary by Eoin Treacy

September 14 2017

Commentary by Eoin Treacy

Pound Sentiment Is Now the Most Bullish in More Than Three Years

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

Currency traders haven’t been this upbeat on the pound in more than three years. 

The cost of owning one-month call options on sterling relative to puts reached six basis points, the steepest since February 2014, as the Bank of England said the market is underpricing the prospect of rate increases.

The premium on calls shows the market’s conviction that the currency’s more than 3 percent rally against the dollar this month has legs.

The key question on investors’ minds at the moment is: where does the pound go from here? To some extent, the currency’s fortunes against the dollar will be influenced by what the Federal Reserve does, and in this context next week’s FOMC meeting will take on added significance. Witness also that stronger-than-estimated consumer-price inflation data out of the U.S. on Thursday failed to damp bullish sentiment for the pound.

 

Eoin Treacy's view -

The Pound has the clearest signs of base formation completion against the Dollar not least because the Dollar has been so weak since early January. It is now breaking up out of a first step above the type-2 base and a clear downward dynamic would be required to question medium-term scope for some additional upside. 



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September 14 2017

Commentary by Eoin Treacy

Oil Breaches $50 as Worldwide Energy Demand Outlook Brightens

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

Oil topped $50 a barrel for the first time in more than a month amid heightened optimism that a demand resurgence is in the offing.

Futures rose as much as 2.4 percent in New York, extending the longest upswing since July. Two of the most influential organizations in world oil markets -- the International Energy Agency and OPEC -- nudged their demand forecasts higher, signaling continued erosion of a global glut that has weighed on prices.

Oil demand for 2017 will expand by the most in two years, the Paris-based IEA said on Wednesday. That followed OPEC’s increase of its estimate for how much crude buyers will seek from the cartel next year, driven by rising consumption in Europe and China. In the U.S., hurricane-driven refinery outages spurred fuel distributors to pull a record amount of gasoline from storage tanks to cope with shortages last week, government data showed.

“The market is continuing to digest that information and realizing that the rebalancing process is working,” Mark Watkins, a Park City, Utah-based regional investment manager at U.S. Bank Wealth Management, which oversees $142 billion in assets, said by telephone.

 

Eoin Treacy's view -

Saudi Arabia’s decision to sell a part of Aramco with the aim of setting a valuation so they could borrow against the balance led investors to conclude it believes oil prices are in terminal decline. Anecdotal evidence it is planning to delay the IPO has had the opposite effect on sentiment and is contributing to recent strength. 



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September 14 2017

Commentary by Eoin Treacy

Email of the day on China's real estate sector

A friend is telling me that XJP hates the real estate sector. He thinks it is a waste of capital. He wants China's money in infrastructure both domestic and abroad. Above all, in science and engineering. In fact, there appears to be a shortage of engineers in China now - can you believe it? And real estate companies are worried because XJP is cutting off their growth pathways at every turn.  If this is true, my respect for XJP has gone up a big step.

It tallies with this story attached.

Eoin Treacy's view -

China’s economic growth model depends on increasing the size of the services sector and ensuring higher value-added jobs are created to ensure productivity increases in line with labour costs. Creating a domestic microchip sector is a big part of that ambition. However, China’s ambitions are being stymied in Europe and the USA as an increasing number of acquisitions are facing government scrutiny. Here is a section from an article focusing on a Chinese-backed private equity firm’s attempts to take over Lattice Semiconductor and now Imagination Technologies: 

Canyon Bridge, which says it’s based in Silicon Valley with an office in Beijing, is keen to structure a bid to avoid scrutiny from U.S. regulators, said the people, who asked not to be identified because the matter is private. The company’s $1.3 billion purchase of Portland, Oregon-based Lattice Semiconductor Corp., whose programmable logic chips are used in military communications, is being opposed by U.S. national security officials, and President Donald Trump is considering whether to block the deal.



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September 14 2017

Commentary by Eoin Treacy

Truckers Are in No Hurry to Have Their Hours Tracked

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

Some smaller companies that operate just a few trucks and independent drivers are resisting the switch. “I don’t plan on it until the last minute,” said Monte Wiederhold, president of B.L. Reever Transport Inc., a six-truck fleet in Ohio.

He and other smaller fleet operators say allegations of cheating on paper logs are exaggerated and the safety benefits overstated. With drivers paid an average of 40 cents a mile, small operators say the $1,000 cost for an electronic log and the monthly service fees of around $40 per truck to process the data is a financial burden. Small fleets and owner operators account for about half of 1 million heavy-duty trucks for-hire in the U.S.

Acknowledging those concerns, the consortium of state and federal law enforcement agencies overseeing the change said last month that they will fine truckers found without electronic logs starting in December, but won’t force their trucks off the road until April. Fines for log violations are based on state statutes and vary from state to state.

 

Eoin Treacy's view -

On the flight home from Dubai earlier this year I chatted with the owner of a haulage company who stated the introduction of electronic log books was a much more pressing issue for his business than any speculation about impact of autonomous vehicles.



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September 13 2017

Commentary by Eoin Treacy

September 13 2017

Commentary by Eoin Treacy

Musings from the Oil Patch September 12th 2017

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

If a homeowner installs a charging station in his garage, there may not be much impact on the grid.  However, if all his neighbors do the same thing, there could be a problem.  Transformers are necessary to regulate the power flowing into a home, and they usually service multiple homes, generally four at a time.  A problem is that utility companies do not know exactly how much power is being used by a particular home relative to its neighbors until a transformer fails.  Upgrading transformers can be expensive and limited by weight limits for units mounted on power poles.  One estimate suggests moving from a 50KVA pad-mounted transformer serving four homes to a 75KVA unit costs about $3,000.   

For underground power installations, upgrading the transformer units may be easier, but not necessarily less costly.  One study by the Institute of Electrical and Electronics Engineers says that the problem is at the local level.  If multiple Level 2 chargers that fully recharge a car in 2-3 hours, are plugged in at the same time at night, they may prevent transformers from cooling as they are designed.  Sustained excess current will eventually ‘cook’ a transformer’s copper windings, causing a short and blacking out of the homes attached to the device.  This problem was observed from a study of the habits of EV owners in an Austin, Texas suburb.  Over a two-month period, the residents tended to recharge their EVs at the same time – when returning from work – that coincided with air conditioning loads increasing along with the use of other appliances. 

A similar study was conducted in the UK, which conducted an 18month study of resident habits when 100% were using EVs.  The study’s result show that at least a third of the UK’s power grid will need to be upgraded to support an EV sales rate of 40% of new car sales by 2023.  That doesn’t address the load issue if 40% of the entire UK vehicle fleet were plug-in EVs. 

 

Eoin Treacy's view -

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

The rollout of electric vehicles, which is anticipated to ramp up as manufacturing capacity for both batteries and cars comes on line in the next few years, is going to put strain on the electrical grid both from a generating and traffic perspective. While it can be argued how much additional supply with be required, the introduction of charging stations to the residential environment will certainly increase the consumption of electricity at individual homes. 



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September 13 2017

Commentary by Eoin Treacy

After hurricanes, flood of storm-damaged cars heading for market

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

Scafidi expects the number of flood-damaged cars to be greater for Harvey than it was for Hurricane Katrina in 2005, both because of Harvey's bigger footprint and because in the last 12 years more vehicles rely on computer technology and electronics.

"Beneath the surface, water can permanently damage computers that control everything from the gas pedal to steering," said Cliff Wood, chief operating officer at CarMax, a leading used car dealer.

Katrina damaged about 600,000 vehicles, Basso said. Carfax is still working on an estimate for Harvey.

 

Eoin Treacy's view -

It has been my experience that insurance companies are more than willing to write off cars even with little more than superficial damage, so they are likely to have little compunction in writing off flood damaged cars. Even if the estimates of upwards of half a million vehicles being written off are too high, there are still going to be a lot of new cars bought or leased in the next few months as people claim insurance. 



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September 13 2017

Commentary by Eoin Treacy

Yet Again?

Thanks to a subscriber for this memo by Howard Marks at Oaktree which may be of interest. Here is a section on Bitcoin: 

So what’s my real bottom line?

Advocates say if Bitcoin is accepted as described above, you’ll make more than 50 times your money. Thus success doesn’t have to high probably for buying Bitcoin to have a huge expected return. This is called “lottery-ticket thinking”, under which it seems smart to bet on an improbably outcome that offers a huge potential payoff. We saw in in full flower in the dot-com boom in 1999-2000, and I think we’re seeing it in action again today with regard to Bitcoin. Nothing is as seductive as the possibility of vast wealth. 

Several of the “seeds for a boom” that I listed in “There They Go Again…Again” are at work in the Bitcoin surge (a) there is a grain of underlying truth as set out above; (b) there’s the prospect of a virtuous circle: widespread demand will lead to wider acceptance as legal tender, which will lead to widespread demand; and (c) thus this tree may grow to the sky, as there is no obvious limit to this logic. None of these necessarily make Bitcoin a mistake. They merely say elements that contributed to past bubbles can be detected today with regard to Bitcoin. 

Finally, Bitcoin isn’t alone. There are hundreds of digital currencies already – including electric with market capitalisations of over a billion dollars – and no limits on the creation of new ones. So even if digital currencies are here to stay, who knows which one will turn out to be the winner? Hundreds of e-commerce start-ups appreciated rapidly in the tech bubble based on the premise that “the Internet will change the world” It did, but most of the companies ended up worthless. 

 

Eoin Treacy's view -

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

The key advantage government backed currencies have is the high barrier to entry in created new currencies. However, cryptocurrencies do not enjoy that privilege. It is getting progressively easier to mint new tokens and the number is proliferating. That both increases supply, which is symptomatic of market tops but it also saps demand for the established brands because new entrants are expected to perform better.



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September 12 2017

Commentary by Eoin Treacy

September 12 2017

Commentary by Eoin Treacy

Apple Unveils iPhone X With New Display as Rivals Grow

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

Apple Inc. unveiled its most important new iPhone for years to take on growing competition from Samsung Electronics Co., Google and a host of Chinese smartphone makers.

Chief Executive Officer Tim Cook showed off the iPhone X with an edge-to-edge screen during an event at the company’s new $5 billion headquarters in Cupertino, California, on Tuesday. Cook pronounced the name "ten," but it’s written as "X." The device, coming a decade after the original model, is Apple’s first major redesign since 2014 and represents a significant upgrade to the iPhone 7 line.

 

Eoin Treacy's view -

At almost 2 hours the Apple event was a serious time commitment but two things stood out to me apart of course from the price. Animated emojis are something that a lot of people will appreciate but the augmented reality features will also speak directly to the younger generation. 



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September 12 2017

Commentary by Eoin Treacy

U.K. Inflation Jumps More Than Forecast to Match 4-Year High

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

The numbers, as well as intensifying a squeeze on households, may put fresh pressure on Bank of England policy makers, who are grappling with price growth above their 2 percent target. While just two of the nine-member Monetary Policy Committee voted to increase interest rates from a record-low 0.25 percent last month, some economists say a third -- Andy Haldane -- could join them at this week’s meeting.

A 6-3 vote “could prompt a re-appraisal of the potential path of interest rates,” said James Knightley, chief international economist at ING in London. “But we feel that the economic uncertainty brought about by Brexit will lead the committee to hold fire until there is much greater clarity on the U.K.’s post Brexit environment.”

The data on Tuesday from the Office for National Statistics also showed that core inflation accelerated more than economists expected last month, reaching the most since 2011. The pound climbed to a one-year high, jumping 0.9 percent to $1.3281 as of 11:46 a.m. London time.

 

Eoin Treacy's view -

The UK has previously been willing to run inflation hot to allow it to erode the massive quantity of outstanding debt. BoE Governor Carney has clearly stated that the repercussions of the Pound’s decline would stoke inflation and contribute to lower living standards. Whether than means he is willing to raise rates to temper inflation is a big question. 



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September 12 2017

Commentary by Eoin Treacy

Email of the day on Chinese online retailers and online universities

Hello as you are familiar with China, what do you think of JD.com? I was also wondering if you could analyze universities who enable you to do their programs online 

Eoin Treacy's view -

– Thank you for these questions which may also be of interest to the Collective. I reviewed the online retail sector when I was in China in July. It has developed considerably since my last visit two years ago together with online payments, banking and same day delivery services. Here is a link to comment of the Day on July 25th. 



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September 12 2017

Commentary by Eoin Treacy

Email of the day on the ground experience from the Texas panhandle

I had the pleasure of spending several days with a friend who is an executive in a drilling company. He indicated that the recovery had brought a boom in drilling, but that customers were demanding the latest high-tech drilling rigs (faster, more efficient, much bigger pumps, able to drill longer laterals). This requires very large capital investments with uncertain payback times. Older, lower tech rigs are left unused, which creates dramatically lower rig utilization rates for drillers. Unfortunately, the past month has seen a bit of a slowdown, with some new tech rigs coming off of pads with no new contract (meaning the rig goes to the yard and sits, and the crew have no jobs). While this may be a short-term issue, it could alternatively be a sickly-looking canary.

Unlike last year, when vast numbers of pump jacks were idle (indicating the well is not producing at that moment), this year more than 75% of the pump jacks I saw were pumping, and most looked well-maintained. Pump jacks do not normally pump full-time, as they shut down for maintenance, and when their storage tanks are full, etc. A lot of the oil in the area is pumped into tanks and then picked up by trucks. 

The beef, pork, chicken, and nuclear weapon businesses all appeared to be thriving.

Probably needless to say, but the Texas Panhandle is about 700 miles from the flooding.

Eoin Treacy's view -

Thank you for this trip report which I’m sure will be appreciated by subscribers. Relatively low prices, at least compared to a few years ago, put pressure on services businesses to employ the most sophisticated technology which requires fewer people and more capital. That benefits larger companies with the financial heft to prosper while it is likely to have a negative effect on smaller operations. 



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September 11 2017

Commentary by Eoin Treacy

September 11 2017

Commentary by Eoin Treacy

Dollar Advances From 2015 Low Before UN Meeting on North Korea

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

“Markets seem to have headed into the weekend priced for the worst -- a North Korean missile test and maximum financial damage from Irma,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “The dollar seems overdue for a bounce. The dollar should return to 109 to 110 yen early in the week.”

The dollar is also supported by “decent” U.S. economic data momentum and a deal between President Donald Trump and the Democrats suspending the debt ceiling to December, Callow said.

Still, traders said some short-term accounts took long-yen positions after the state-run Korean Central News Agency said Monday morning that the U.S. will pay a "due price" if harsher sanctions were imposed on North Korea at an expected United Nations Security Council meeting.

 

Eoin Treacy's view -

The Dollar has a widening interest rate differential with its largest trading partners, an economy that is expanding, a hot technology sector, full employment and the prospect of reduced supply as the Fed begins to tinker with the size of its balance sheet. 



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September 11 2017

Commentary by Eoin Treacy

September 11 2017

Commentary by Eoin Treacy

Email of the day on the deflationary impact of technology

I have noticed from your recent postings that while you recognize all the great outcomes technology will bring, you also recognize the downside consequences of all the displaced labor. Another effect on labor has been the financialization of our economy. Check out this article (open domain) Thank you for your continued great work!

Eoin Treacy's view -

Thanks for this link may also of interest to subscribers. I found the chart of wages and salaries as a percentage of GDP to be particularly interesting. 

Technology is inherently deflationary which means we can do more with less and each of us can easily come up with examples of how innovations have improved different aspects of our lives. However, the rapid pace of innovation in artificial intelligence, robotics and healthcare while representing truly exciting developments for corporations also mean that millions of jobs are going to be under pressure. 

 



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September 11 2017

Commentary by Eoin Treacy

The Equifax Situation Continues to Worsen

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

First, while Equifax is offering a free year of credit monitoring for anyone who wants it, this isn’t a philanthropic gesture. Equifax owns Trusted ID. Furthermore, the ToS associated with the product states that customers who sign up for the service will be billed for it thereafter unless they call the company to cancel the product. Equifax has stripped out other clauses in its ToS that deal with service billing in the last 48 hours, but it left the clauses about automatically renewing the service for those who do not cancel.

And let’s be clear: At least some people are going to feel as if they need this kind of monitoring for longer than 12 months. Equifax leaked both social security numbers and birth dates, meaning identity thieves now have everything they need to launch credit-destroying attacks against much of the US population at any point over the next few decades. Neither your social security number or your birth date are going to change, after all. But wait, there’s more!

Let’s say you want to lock your credit file anyway, even though it’ll only protect you from one-third of potential searches. Equifax requires you to input a 10-digit PIN to request an account unlock. A 10-digit code would typically be difficult to break, if Equifax didn’t auto-generate PIN numbers that corresponded to the date and time you requested the lock. If you locked your credit file on September 10th at 11:45 AM, your PIN number would be 0910171145. That’s September 10 2017, at 11:45 AM. It’s also the kind of security one might expect in a Mel Brooks movie, and it’s a horrifying choice for a company whose own servers were just aggressively penetrated and robbed.

 

Eoin Treacy's view -

Since I moved to the USA three years ago my personal details have been stolen four times. Breaches at Target, Home Depot, Anthem and now Equifax suggest that a significant cross section of the US population’s data is now to be found somewhere on the web. 



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September 08 2017

Commentary by Eoin Treacy

September 08 2017

Commentary by Eoin Treacy

CAR-T therapies a blue-sky scenario

Thanks to a subscriber for this report from HSBC focusing on Novartis which may be of interest. Here is a section:

Kymriah indicated for refractory ALL patients, but other indications are larger. Although Kymriah is only approved in the US to treat the small number of patients with refractory acute lymphoblastic leukaemia (ALL), additional indications such as Diffuse Large B-Cell Lymphoma (DLBCL) represent a significantly larger addressable patient population. Kymriah is the first Chimaeric Antigen Receptor T-cell (CAR-T)-based treatment approved globally. 

Blue-sky scenario not that much of a stretch…Over 100,000 patients die from leukaemias, lymphomas and myelomas (haematological cancers) annually in the US and Europe. They are largely, by definition, refractory to available treatments. In due course, this patient group, or a proportion of it, could be addressed by CAR-T-based treatments. Further, CAR-T-based treatments could potentially be used earlier in the treatment of cancers and potentially in some solid tumours as well. Note that these figure do not include Japan, China, or elsewhere. 

…25% of refractory blood cancers, 2.5% of other cancers.  In our blue-sky scenario for CAR-T treatments, an assumption that 25% of refractory blood cancers and 2.5% of other refractory cancers in the US and EU could be treated with CAR-T therapies in due course (although this would require sizeable manufacturing expansion by all CAR-T manufacturers) would yield peak sales of just under USD26bn. If Novartis garnered 50%, it would generate peak sales of just under USD13bn for Kymriah and other CAR-T therapies versus USD3.3bn that we currently forecast (27,000 patients treated versus 7,200 on our current forecast). In our view, this bluesky scenario is not an unrealistic possibility in terms of patient numbers.

Eoin Treacy's view -

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

Immuno-oncology is the leading growth sector within the healthcare sector because for the first time it holds out the promise of curing cancer. What is so compelling about Novartis’ newly approved drug is that it succeeded in achieving a 90% remission rate for people that failed to respond positively to conventional chemotherapy and other treatments.   



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September 08 2017

Commentary by Eoin Treacy

Email of the day on how to invest in bitcoin:

I was wondering how one invests in bitcoin, is there a future? Thanks and regards

Eoin Treacy's view -

Thank you for this question which may be of interest to other subscribers. The fact is that there is no futures contract on bitcoin. Personally, I use spread-betting services to trade bitcoin, and Ethereum is also available. 



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September 08 2017

Commentary by Eoin Treacy

September 08 2017

Commentary by Eoin Treacy

Hurricane Irma set to squeeze a lot more than just Florida's oranges

This article by Myra Saefong may be of interest to subscribers. Here is a section:

Frozen concentrated orange juice for November delivery OJX7, +2.98% rose 5.3 cents, or 3.8%, to $1.461 a pound in Thursday dealings on the ICE Futures U.S. exchange. It’s up more than 9% so far this week and is poised for the highest settlement since mid-May.

“The damage to the orange crop is twofold: both short term disruption but also, to the extent crops are completely destroyed, it could have a longer term effect since it takes a few years to grow an orange tree to production, thus limiting supply for a longer period,” said Alan Konn, partner and managing director of Price Asset Management.

Cotton prices have also rallied. December cotton CTZ7, +0.23%  settled at nearly 75 cents a pound Tuesday, the highest since mid-June, though prices pulled back Wednesday and Thursday.

Cotton markets are also nervous because Harvey did an as yet uncalculated amount of damage in Texas,” which is the country’s top grower of cotton, said Gilbertie. “And if Irma affects Georgia, the country’s number three producer of cotton, the U.S. cotton industry will be dealt an immensely damaging blow.”

Eoin Treacy's view -

Energy companies will be working day and night to overcome the challenges Hurricane Harvey represented and refining capacity will likely be back online in the relatively near future. If orchards are damaged by a hurricane, debris can be cleared away the trees cared for but one still has to wait lost fruit to grow again. 



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September 07 2017

Commentary by Eoin Treacy

September 07 2017

Commentary by Eoin Treacy

September 07 2017

Commentary by Eoin Treacy

Ray Dalio's TED Talk on Idea Meritocracy

Thanks to a subscriber for this article from Marketfolly.com containing a link to Ray Dalio’s TED Talk. Here is a section:

He notes, "In order to be an effective investor, one has to bet against the consensus and be right." 

Dalio walks through the biggest mistake he ever made and how it made him ask himself in any future decisions: "How do I know I'm right?"  He gained humility.

The Bridgewater founder also takes us inside a meeting at Bridgewater and shows how they collect data on each person's ideas and believability.  Dalio says they do this because people naively and arrogantly hold opinions in their mind that are wrong.  But if you zoom out and gain perspective, you can see things through everybody's eyes and view things collectively. 

"Collective decision making is so much better than individual decision making if it's done well.  It's been the secret sauce behind our success."

Eoin Treacy's view -

What I found most interesting about this talk was the discussion about the reliability of opinions. It is very difficult to form an unbiased opinion of someone else’s decision-making skill and whether they are objectively right. The conclusion is complicated by the fact that we all possess different strengths and weaknesses which means we are better at making some kinds of decisions that others or that we are more creative in certain fields that others. 



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September 07 2017

Commentary by Eoin Treacy

How a Bird Charity's Battle Against a Wind Farm Backfired

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

When plans for Neart na Gaoithe started being developed in 2008, Siemens AG’s 3.6 megawatt turbine was the most popular among developers. Now manufacturers are working on machines that could be four times bigger, helping companies like Dong Energy A/S build projects cheaply enough to make money at market prices. The collapse in oil prices has also helped lower offshore wind costs, by making the sea vessels needed to install projects cheaper to hire.

Eoin Treacy's view -

I’ve haven’t seen a satisfactory solution for the problem of wind turbines impact on migratory bird populations regardless of the fact offshore turbines help create artificial reefs for sea life. However, the economies of scale that can be gained from going offshore has altered the wind turbine sector beyond recognition. 



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September 06 2017

Commentary by Eoin Treacy

September 06 2017

Commentary by Eoin Treacy

North Korea Q&A Summary

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

The North Korean government fully knows that it cannot afford a war against South Korea, let alone the US as that would spell the end of the KJU regime. The strategy is to blackmail the US and other neighbouring countries into as many concessions as possible through brinksmanship sabre-rattling. The North Korean leadership is calculating that the US (G1), China (G2), Japan (G3) and South Korea (G10) cannot simply go to war over North Korea (G197) as they collectively have too much to lose.

North Korea, on the other hand, has relatively speaking very little to lose from escalation tactics and will continue to threaten the US and South Korea. The calculation also is that Donald Trump needs a symbolic win abroad and that both sides could benefit from a ‘middle ground compromise’, either for real or perceived. That would be most likely in the form of North Korea halting its nuclear programme in exchange for lifted sanctions or direct cash support.  However, North Korea is highly unlikely to give up its nuclear arsenal.

 

Eoin Treacy's view -

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

North Korea exists because China’s self-interest is served by having a series of communist leaning buffer states around its border. That doesn’t mean the two countries necessarily see eye to eye on every topic but it does mean there is what might be described as a symbiotic relationship between them. 



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September 06 2017

Commentary by Eoin Treacy

Investment Gurus Counsel Catching Reform Tailwinds in Latin America

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

“The broad outperformance in Latin America -- particularly Argentina, Mexico, and Brazil -- speaks to the broad reform programs we have seen in each of these countries and the stable backdrop these reforms have provided,” said Kofi Bentsi, a money manager focused on emerging-market corporate bonds at Pimco, the second-largest U.S. fixed-income management firm. He says Argentina and Brazil are likely to continue to outperform. 

Jim Barrineau, the co-head of emerging-markets debt at Schroders in New York, said the region has benefited from a combination of the highest yields among emerging markets and improving economies, especially in Argentina and Brazil, which overcame deep recessions. This backdrop, he says, tends to favor corporate bonds over government securities.

“They are more responsive to changes in economic growth,” said Barrineau, who helps oversee Schroders’ $520 billion in assets. His emerging-market bond fund has outperformed 81 percent of peers this year.

Eoin Treacy's view -

The LME Metals Index has been on a recovery trajectory since January 2016 and has rallied to break a lengthy medium-term downtrend.
The CRB Index, which is skewed by energy prices, has been ranging below 200 since late 2015 but is currently bouncing, having found support in June. 



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September 06 2017

Commentary by Eoin Treacy

September 06 2017

Commentary by Eoin Treacy

Apple's Rain of Cash Washes Away Debt Doubts

This article by Lisa Abramowicz Shira Ovide for Bloomberg may be of interest to subscribers. Here is a section:

Stock investors love it, of course. Why wouldn't they? Apple is the third-biggest dividend payer in the U.S. behind Fannie Mae and Exxon Mobil Corp., which is music to any investor's ears when bonds are paying historically little. And debt investors seem to be just fine with forking their money over to the company; they've eagerly bought up multiple debt offerings from Apple so far this year, with the seventh 2017 bond sale on track to get the company's usual warm reception. 

This raises longer-term risks and threats to the company that aren't highlighted often, if ever.

As long as Apple keeps churning out loads and loads of cash, all this is fine. Apple generates more cash than any other public U.S. company, and it's spending its money both to invest in its business and to return money to stockholders. Apple's spending on research and development has also increased sharply in recent years, as have its capital expenditures on things like manufacturing equipment, computer centers and its retail stores. In short, Apple produces enough cash to do everything a business is supposed to do: reward its owners, support its existing products and plan for the future.

Eoin Treacy's view -

Apple has mastered the art of milking its legions of fans by bringing out new products on a predictable schedule that iterate on previous offerings by being just better enough to justify the outlay.

Additionally, it is among an increasing number of companies that have employed an innovative strategy to bring its money home from overseas by issuing debt so that it can be returned to investors without paying corporate taxes. As the above article highlights, that policy will be fine as long as revenues remain robust. 



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September 05 2017

Commentary by Eoin Treacy

September 05 2017

Commentary by Eoin Treacy

Hurricane Irma Strengthens to a Category 5 Storm

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

 

Beyond the threat to people and property in the Caribbean, the focus so far is on agriculture with the storm, "being a case of being long orange Juice futures rather than gasoline futures," Jakob said.

Irma will probably cross the northern Leeward Islands Tuesday into Wednesday, according to the NHC, which said it’s still too early to determine what impact it might have on the U.S. Hurricane warnings have been issued for the U.S. and British Virgin Islands, Puerto Rico, Vieques, and Culebra. Tropical-storm-force winds could arrive in the British and U.S. Virgin Islands and Puerto Rico by early Wednesday.

About two-thirds of Florida’s citrus crop is located in the lower two-thirds of the peninsula. Frozen concentrated orange juice futures in New York already rose last week on speculation the storm could strike, though prices are down almost 30 percent since January.

Eoin Treacy's view -

Hurricane Katrina hit New Orleans in 2005. Hurricane Harvey hit Houston in 2017 and in between we have seen some of the quietest storm seasons in years. I think that is worth remembering that when so many stories running right now talk about accelerating climate change. Hurricane Irma has not yet made landfall but at Category 5 it is going to create a lot of damage somewhere. If Irma makes landfall it will be the first time the USA is hit by two such powerful storms in one season.   



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September 05 2017

Commentary by Eoin Treacy

September 05 2017

Commentary by Eoin Treacy

Revisiting Rare Earths: The Ongoing Efforts to Challenge China's Monopoly

This article by Mayuko Yatsu for TheDiplomat.com may be of interest to subscribers. Here is a section:

For instance, Australian companies have been working to open rare earth mines in Australia and Tanzania for producing elements such as neodymium and dysprosium. Likewise, Canada, through collaboration with the national government and industrial associations, seeks to gain up to 20 percent of global rare earth production by 2018.

Japan has also explored non-Chinese suppliers of rare earth metals, reaching co-development agreements with countries like Australia, India, Kazakhstan, and Vietnam. A research group from the University of Tokyo in 2012 even found a significant amount of rare earth minerals around Minami-Torishima, the easternmost island of the country (located in the Western Pacific). In 2016, Japanese auto giant Honda invented an advanced motor which does not require rare earth elements. More recently, in June 2017, Japanese scientists discovered a massive amount of cobalt-rich crusts, which often contain cobalt, nickel, and some rare earth elements. Even if it is very challenging and costly to extract those minerals from the deep sea, Japan will seek to do so in order to boost its long-run natural resource self-sufficiency.

For the United States, re-opening the Mountain Pass mine in California has been a strategic goal. After the shutdown of the mine in 2015 (following the bankruptcy of then-owner Molycorp), several companies expressed interest in purchasing the mine. There has been discussion of the economic and security considerations of the U.S. giving a Chinese-affiliated company some control over the mine, even before the court made its final decision. It is still unclear whether any higher U.S. authority such as Congress will step in to stop the deal, although several experts have address potential risks surrounding the court’s decision.

Eoin Treacy's view -

This article quoting Vladimir Putin caught my attention. Here is a section:

AI development “raises colossal opportunities and threats that are difficult to predict now,” Putin said in a lecture to students, warning that “it would be strongly undesirable if someone wins a monopolist position.”

Future wars will be fought by autonomous drones, Putin suggested, and “when one party’s drones are destroyed by drones of another, it will have no other choice but to surrender.”



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September 05 2017

Commentary by Eoin Treacy

The Times, They Are A-Charging

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

In the near-term, adoption is likely to be constrained by this slightly extended payback, concerns over driving range and thus, charging infrastructure. That said, investors may be surprised at the speed at which infrastructure can be built out (Tesla has constructed 830 SuperCharger locations in 31 countries to date, expected to double in 2017). However, the short driving range (~200 miles) is likely to constrain the market to specific use cases, until battery technology improves/costs decline. We forecast 10% adoption by 2027 within the NAFTA Class 8 market.

The shorter, closed-loop nature of typical medium-duty truck routes should yield faster adoption of electric trucks vs. heavy-duty. Range is not a major concern for medium-duty trucks, given that they tend to drive much shorter routes (well below 200 miles/day), haul less tonnage, and often follow closed-loop networks, allowing for night-time charging. As such, we agree with consensus on this topic – medium-duty adoption of electric vehicles is likely to be much faster than with heavy-duty trucks. We project 15% adoption by 2027 within the NAFTA Class 5-7 market.

OEMs that offer the best payback period/total cost of ownership are likely to win share. Tesla will be a new entrant in the market, which presents risk to existing OEMs in itself (Daimler, Volvo, Navistar, PACCAR) – we believe the company that provides the best combination of average selling price with battery range/cost will win, and Tesla will have many advantages in this regard. Nonetheless, today it seems that all OEMs are developing electric trucks with range in the ~200-mile zone, which shifts the focus to the ASP. At this point, Daimler, MAN/Scania and Tesla appear to be preparing to launch electric truck offerings, so they could potentially have a head start vs. Navistar and PACCAR.

Legacy components suppliers could face significant headwinds. This centers around components that will be phased out in a fully electric world, such as the transmission (Allison Transmission) and engine (Cummins). Note that in conjunction with this report, we have downgraded Allison Transmission (covered by Nicole DeBlase) to Sell (price as of 8/31: $34.54), as we match longer-term electrification concerns with shorter-term earnings headwinds.

Eoin Treacy's view -

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

Intel acquired Mobileye earlier this year to gain access to the autonomous vehicle sector because cars and trucks are going to require a lot more computing power in future regardless of how quickly autonomous features develop. 



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September 04 2017

Commentary by Eoin Treacy

September 04 2017

Commentary by Eoin Treacy

Reminiscences

Thanks to a subscriber for this note from Birinyi Associates which may be of interest. Here is a section:

In truth, the positive arguments are not especially helpful either.  One major investment banking firm wrote: “the bull market is still healthy but the risks for a crash are increasing.”  And “the bull market has ten more years to run” which is not an argument we would like to defend.

In summary, sentiment is negative and even the bullish arguments are muted.  While several firms have slightly upgraded their year-end targets, perhaps the bulls with a capital B might be ourselves, David Tepper (‘nowhere near an overheated market’) and Morgan Stanley (‘Bull market check list remains intact’).

To us the abundance of bears and the lack of strong, positive arguments for a rally is a positive.  We agree that the rally is lengthy and perhaps even boring of late, but it is still a bull market.  For those who argue that it exceeds the average of the last ten rallies we might again mention that last year when we spoke at the Columbia B School we asked one of the professors: if averaging three numbers does not make sense, then how many data points does one need to make a meaningful average?

He said the conventional response is 30. Thus, it is not statistically sound to average ten rallies or declines despite one’s understandable inclination to do so.

Eoin Treacy's view -

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

“A bull market climbs a wall of worry” is about the oldest of all stock market adages and plenty of people are still worried, if the news flow surrounding the uptick in the volatility in early August is any guide. 



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September 04 2017

Commentary by Eoin Treacy

Bitcoin Tumbles as PBOC Declares Initial Coin Offerings Illegal

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

China’s central bank said initial coin offerings are illegal and asked all related fundraising activity to be halted immediately, issuing the strongest regulatory challenge so far to the burgeoning market for digital token sales.

The People’s Bank of China said on its website Monday that it had completed investigations into ICOs, and will strictly punish offerings in the future while penalizing legal violations in ones already completed. The regulator said that those who have already raised money must provide refunds, though it didn’t specify how the money would be paid back to investors.

It also said digital token financing and trading platforms are prohibited from doing conversions of coins with fiat currencies. Digital tokens can’t be used as currency on the market and banks are forbidden from offering services to initial coin offerings.

Eoin Treacy's view -

Initial coin offerings (ICOs) have proliferated this year with some using them as a means of circumventing the venture capital and initial public offering route for funding expansion. Meanwhile there have been a slew of fraudulent initial offerings which have offered nothing more than the promise of riches packaged in a glossy prospectus or often little more than a catchy title. 



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September 04 2017

Commentary by Eoin Treacy

Comparing Risk and Opportunity

Thanks to a subscriber for this summary by Byron Wein for Blackstone, from his series of discussions with investors. Here is a section:

There was general agreement that both inflation and productivity were understated. Housing is a big part of the inflation calculation and, for most of the country, housing costs have been rising modestly. The prices of services like healthcare and lifestyle-supporting needs used by everyone, such as haircare and cleaning services, have risen sharply but don’t show up in the numbers. As for productivity, the measurement techniques were developed in the 1950s when the U.S. was more of a manufacturing economy. Now with services and knowledge-based industries so important, the historical measurement approaches, which underestimate the impact of computer software developments, understate productivity improvements. Time spent posting and reading posts on Facebook during working hours, however, detracts from productivity. One technology person pointed out, though, that the video games of today are intensely interactive and represent a learning experience for the kids playing them. This is in sharp contrast to the passive watching of television by previous generations.

We talked a bit about inequality and agreed the problem was likely to become worse because of globalization and technology. One investor was optimistic, however, because of the positive impact machine learning was making in improving the outlook of disadvantaged Americans and educational opportunities in the emerging markets. Another pointed out that 60% of the jobs held in 1980 don’t exist today and still unemployment is down to 4.3%. On-demand services, such as Uber, are creating jobs, but technology displacing workers is a problem throughout the world.

Even though there was an apprehensive mood at the lunches few were buying gold as a safeguard. In spite of the strong performance of the Japanese economy this year and the rise in its stock market, the group remained wary of Japan. There was no clear consensus on why the dollar was weak, but a lack of confidence in the new administration in Washington was clearly a factor in spite of strong U.S. growth and a rising stock market. One of the lunches was decidedly bearish. Overall, a vote on market performance between now and year-end showed that 60% believed it would be higher in spite of the caution expressed in the discussion.

Eoin Treacy's view -

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

What I spend money on every month is going up in price yet official inflation measures tell me there is little inflation. I took a look at my family’s expenditures on a year over year basis at the weekend. My health insurance went up 30% last year, my children’s tuition increased 10%, my car insurance went up 8%, food was relatively unchanged and gasoline was volatile. Meanwhile my mobile phone service got cheaper.



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September 01 2017

Commentary by Eoin Treacy

September 01 2017

Commentary by Eoin Treacy

Campbell Drops After Bleak Outlook Follows Blow From Buffet

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

Over the past three years, the 10 largest packaged-food companies have seen about $16 billion in revenue evaporate as consumers change how they eat and shop. Shoppers are seeking out more natural and organic food, shifting away from the staples that have dominated supermarket shelves for decades.

Whole Foods Deal
Amazon.com Inc.’s deal to buy Whole Foods also has fueled pessimism about packaged-food giants, with analysts predicting that the e-commerce titan will favor private-label products and squeeze the profit margins of its suppliers. In June, when that deal was announced, the 10 largest U.S. food companies lost almost $8 billion in market value combined.

In a bid to add more natural products, Campbell agreed to buy Pacific Foods of Oregon, a maker of organic soup and broth, for $700 million in June. Campbell also acquired Bolthouse -- a producer of carrots, juices and salad dressings -- for $1.55 billion in 2012. That business, now part of the Campbell Fresh unit, has struggled with poor harvests and a drink recall.

 

Eoin Treacy's view -

Leaner and fitter isn’t just a maxim for personal health but is increasingly being foisted upon consumer goods companies as the supermarket sector comes under pressures from low cost new entrants willing to compete on razor thin margins. Amazon’s focus on Whole Foods’ own brands coupled with Aldi and Lidl’s low cost own- brand focus represent challenges for other supermarket chains which are inevitably going to be passed on to their suppliers. 



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September 01 2017

Commentary by Eoin Treacy

Email of the day on cobalt

Nickel is an important metal in itself for battery technology, but 2/3 of nickel goes into stainless steel, so from this perspective nickel isn't a very highly leveraged play on battery advances. Whilst Cobalt is a by-product of nickel mining, it is my understanding that this is mainly the case from lateritic nickel deposits, and there is a much lower % of cobalt by-product from deep mines. 

Eoin Treacy's view -

Thank you for this educative email, from a subscriber who literally wrote the book on mining economics. I agree that not every nickel company produces cobalt which is why the three large miners I mentioned all specifically state they do produce it. 



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September 01 2017

Commentary by Eoin Treacy

These Robots Are Using Static Electricity to Make Nikes

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

In the past month, Grabit has begun providing facilities that make Nikes with a handful of upper-assembling machines that can work at 20 times the pace of human workers. By the end of the year, about a dozen of these machines will be operating in China and Mexico. This could be a step forward in Nike’s attempt to change the economics of shoemaking so it can relocate manufacturing closer to the big consumer markets in the U.S. and Europe.

Pretty much every company that makes physical objects is interested in automation. Robotic arms have been doing much of the labor in car factories for years, and Amazon sponsors an annual contest to get academics to make robots smart enough to pick up objects they’ve never seen before. For Grabit, the partnership with Nike shows its work is catching the eye of the world’s more prominent apparel companies.

Despite its name, Grabit’s innovation isn’t based on having robots mimic the human-style grabbing motion. Instead, the company implements flat pads of electrodes that, when charged correctly, create an electric field that adheres to nearly any surface. This makes Grabit able to do things robot-hand companies are unlikely ever to conquer, says Greg Miller, Grabit’s chief executive officer. “The things we’re getting pulled into, we’re getting pulled into because they can’t be done another way,” he said.

 

Eoin Treacy's view -

Automating the production of clothing and footwear represents a key objective of the textile trade but also poses one of the largest challenges for the labour market in newly industrializing nations they are ever likely to face.



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September 01 2017

Commentary by Eoin Treacy

Kenya presidential election cancelled by Supreme Court

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

Justice Maraga said the election commission had failed "to conduct the presidential election in a manner consistent with the dictates of the constitution".

He said the commission had committed irregularities "in the transmission of results", adding that the court would provide details in a full judgment within 21 days.

Dissenting judges said that the Nasa opposition alliance - which had petitioned the Supreme Court - failed to prove claims that the polls had been rigged.

The election sparked days of sporadic protests, in which at least 28 people were killed. The vote had raised fears of major political violence - as was the case after a disputed poll in 2007.

 

Eoin Treacy's view -

Governance is Everything. The annulment of Kenya’s election is a landmark event but the true measure of a democratic society is whether the opposing parties can agree to another election and accept the result without resorting to what could be cause for a civil war. 

 



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August 31 2017

Commentary by Eoin Treacy

August 31 2017

Commentary by Eoin Treacy

U.S. Jobs Engine Keeps Defying Forecasts for 2017 Slowdown

This article by Shobhana Chandra may be of interest to subscribers. Here is the relevant section:

 

A confluence of reasons helps explain the outperformance, including steady consumer spending; bullish business sentiment on hopes President Donald Trump will cut taxes and boost growth; stabilization in oil prices; and improving export markets. Moreover, weak wage gains suggest employers are adding workers instead of investing in technology, something reflected in sluggish productivity. Recent hiring has been driven by typically low-paying industries such as restaurants, home health-care services and leisure.

“There is enough supply of labor to keep hiring growing at a fairly robust pace,” said Michael Gapen, Barclays Plc’s chief U.S. economist, who projects payrolls grew 200,000 in August. There’s also still plenty of demand for workers in this “slow but super-durable expansion,” he said.

Eoin Treacy's view -

Declining labor force participation has been a thorn in the side of policy makers for much of the recovery but that should begin to improve as the number of job openings increases and wages edge higher. The upgrading of GDP figures to 3% combined with surprisingly firm Chinese factory gauges point toward the continuation of this period of synchronized global economic expansion. 



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August 31 2017

Commentary by Eoin Treacy

Gasoline Surges as Harvey Traps Gasoline in the South

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

 

Gasoline extended its longest rally since 2013 as traders assess how quickly key Gulf Coast refineries and pipelines are able to return to service following Harvey.

Motor-fuel prices jumped as much as 15 percent in New York. Harvey has shuttered about 23 percent of U.S. refining capacity since its first landfall as a Category 4 hurricane on Friday. While refineries in the Port Arthur, Beaumont and Houston areas remain off line, some plants in the Corpus Christi area -- where Harvey first hit -- are working to restart and the Strategic Petroleum Reserve on Thursday approved the release of 1 million barrels of crude to a Gulf Coast refinery.

Colonial said its Lines 1 and 2 are operating east of Lake Charles and it will be able to bypass any shuttered terminals near Port Arthur, Texas when it resumes shipments Sunday from Houston-area origin points.

The focus is on how long refineries will take to get back online, according to Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors LLC, in a telephone interview. “This is more of an unleaded gasoline story. The impact on the whole Texas area--the story is still developing.”

Eoin Treacy's view -

Today was the last day of trading for the September gasoline contract. Anyone who needed to take delivery and waited till the last minute was forced to pay whatever the market offered today and the contract surged higher. However, with southwest Texas refineries already starting back up and Harvey being downgraded to a tropical storm, the October contract does not have quite the same time pressure as the September. 



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August 31 2017

Commentary by Eoin Treacy

August 31 2017

Commentary by Eoin Treacy

Gordhan Expects Charges as South African Succession Battle Rages

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

The National Prosecuting Authority has been probing the unit in an investigation that Gordhan, opposion parties and civil-society groups say is politically motivated. The former finance minister described the latest moves as an attempt to discredit politicians who oppose Zuma and are fighting against the plunder of state resources in Africa’s most-industrialized economy.

Scandals have shadowed Zuma, 75, during his eight-year presidency, including a finding by the nation’s top court that he broke his oath of office by refusing to repay taxpayer funds spent on his private home.

‘State Capture’

The nation’s graft ombudsman accused him of allowing members of the Gupta family, who are in business with his son, to influence cabinet appointments and the award of state contracts, referred to as “state capture.” Zuma and the Guptas deny wrongdoing.

On Aug. 8 more than two dozen of the ruling African National Congress’s lawmakers backed an opposition motion of no confidence in Zuma in a secret ballot in parliament. While he survived, the party fired Makhosi Khoza as chairwoman of a portfolio committee and wrote to Derek Hanekom, the head of its disciplinary committee, rebuking him for his Twitter postings calling for the president’s removal.

Zuma is due to step down as the ANC’s leader in December, with his ex-wife, Nkosazana Dlamini-Zuma, and Deputy President Cyril Ramaphosa seen as the leading contenders to replace him.

“It’s a massive tussle -- it’s about the future of the ANC as we’ve known it,” Gordhan said. “Either you follow the capture of the ANC,” or change the party’s character and “recapture the state, which has now gotten into the wrong hands. People like ourselves are backing Mr. Ramaphosa, because we believe he has the integrity, to put it bluntly. And secondly, he has the modernity to innovate, to allow new ideas to emerge, understands the economy. ”

Eoin Treacy's view -

In much the same way Winnie Mandela took a dominant position in the ANC, Zuma’ ex-wife is likely to be a formidable opponent not least because of the support she will receive from Jakob Zuma’s tenure.  However, despite the continued deterioration of standards of governance under Zuma the existence of opposition both within and outside the ANC is positive as is the freedom of south Africa’s judiciary. 



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August 31 2017

Commentary by Eoin Treacy

Email of the day on Type-2 endings

In today's video, when listing the usual three types of endings of which there was no sign, you also said "and there is no loss of momentum or development of a wedge" or something similar. Could you elaborate on precisely what you are looking for there? Is this maybe a type 4 ending? 

Eoin Treacy's view -

Thank you for this question which may be of interest to the Collective. The defining characteristic of a Type-2 top is a massive reaction against the prevailing uptrend. However, what comes before that proverbial bolt-from-the-blue often gives us a clue what to expect. This is a subject we cover in detail at The Chart Seminar. 

A Type-1 top is characterised by acceleration. When such a wide overextension is evident relative to a trend mean, the potential for it to be followed by a massive reaction increases so we then get a Type-2 reaction following a Type-1 acceleration. 

Not every market accelerates higher. Sometimes they lose momentum, spending a longer time ranging. A phrase David coined decades ago is that a “lengthier range is seldom a reliable continuation pattern” and this is often the case with Type-2 tops. When the market either spends longer ranging or develops a rising wedge characteristic it suggests the imbalance between supply and demand which animated the bull market has changed. In short, some dissonance appears in rhythm of the trend. These characteristics are not necessary conditions for a massive reaction against the prevailing trend but they happen with sufficient regularity that we need to be alert to what they might portend. 

Let’s look at an example. Cast you mind back to 2007 when the DAX Index had been trending consistently higher since 2003. It lost momentum in July but the progression of higher reaction lows remained intact. The failed upward break in December followed by the massive drawdown in January 2008 concluded the top formation development phase. That did not give us a clue to how much it would subsequently fall but it certainly suggested a medium-term peak was in place. 



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August 30 2017

Commentary by Eoin Treacy

August 30 2017

Commentary by Eoin Treacy

Breakthrough Cancer Therapy for Dire Cases Gets FDA Approval

This article by Michelle Fay Cortez, Anna Edney and James Paton for Bloomberg may be of interest to subscribers. Here is a section: 

“We’ve never seen anything like this before,” said Stephan Grupp, director of the cancer immunotherapy frontier program at Children’s Hospital of Philadelphia, the first medical center to study Kymriah in children. “I believe this therapy may become the new standard of care for this patient population.”

Novartis said that it’s made an agreement with the U.S. government to pay for the drug only when paediatric or young adult patients with the cancer respond to treatment by the end of their first month. That agreement could have implications for other drugmakers developing expensive, specialized treatments, such as one-time therapies meant to cure rare genetic diseases. Novartis said its working on similar agreements with other payers.

Kymriah will carry a boxed warning because of the treatment’s potential to cause deadly side effects, including neurological complications and what’s known as cytokine release syndrome, a systemic reaction triggered by the destruction of the cancer cells. The FDA also approved Roche Holding AG’s Actemra to treat patients with cytokine release syndrome, pointing to research that shows 69 percent of patients suffering from it improved completely after one or two doses.

 

Eoin Treacy's view -

It’s been a busy week for the immuno-oncology sector with Gilead Sciences announcing a bid for Kite Pharmaceuticals over the weekend and Novartis getting the go ahead for its CAR T-cell treatment today. A point I have been making for more than a year is that the first place we are going to see personalised medicine evolve is in the oncology sector. Every cancer is genetically unique and the number of types they can be categorised into is mind boggling. Even with limited tools tailored treatment programs are already the norm so the evolution of better tools not least through re-educating the immune system is a logical progression. 



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August 30 2017

Commentary by Eoin Treacy

Musings from the Oil Patch August 29th 2017

Thanks to a subscriber for this edition of Allen Brook’s ever interesting report for PPHB. Here is a section on lithium and cobalt:

We don’t know the details behind the Morgan Stanley electric vehicle forecast, but we know there are both more and less aggressive forecasts.  We wonder if those forecasters have considered the potential constraints from lithium carbonate supply.  There is a greater issue with cobalt, which accounts for 58% of a battery by weight, more than the lithium in a battery, and consumes 42% of all cobalt output.  The problem is that cobalt supplies are smaller and about 60% comes from the Democratic Republic of Congo, which is controlled by war lords and relies on child labor for mining the ore.  The governments we will have to deal with to meet the demand for rare minerals to meet electric vehicle forecasts present many moral and financial question marks.  In fact, when we were in Tibet earlier this summer, we followed Chinese trucks hauling bags of lithium carbonate from mines to shipping depots.  That supply is likely committed to the Chinese electric vehicle industry, which needs it to meet its anticipated growth outlook.   

As a result of the growing demand for lithium and other rare minerals, their prices are climbing, and in some cases at alarming rates.  Since 2015, lithium prices have quadrupled, while cobalt prices have doubled.  What will rising prices and limited availability mean for the forecasts of ever cheaper batteries?   

 

Eoin Treacy's view -

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

Forecasts for where lithium and cobalt demand is going to be in 2025 are being used to drive investment in new supply today, but it takes years to bring new supply to market. In that window between when demand increases and supply responds there is room for prices to increase meaningfully; in a rerun of the Supply Inelasticity Meets Rising Demand dynamic that animated the commodity bull market from the early 2000s. 



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August 30 2017

Commentary by Eoin Treacy

Artificial intelligence cyber-attacks are coming but what does that mean?

This article by Jason Straub from theconversation.com may be of interest to subscribers. Here is a section: 

AI, however, could help human cybercriminals customize attacks. Spearphishing attacks, for instance, require attackers to have personal information about prospective targets, details like where they bank or what medical insurance company they use. AI systems can help gather, organize and process large databases to connect identifying information, making this type of attack easier and faster to carry out. That reduced workload may drive thieves to launch lots of smaller attacks that go unnoticed for a long period of time – if detected at all – due to their more limited impact.

AI systems could even be used to pull information together from multiple sources to identify people who would be particularly vulnerable to attack. Someone who is hospitalized or in a nursing home, for example, might not notice money missing out of their account until long after the thief has gotten away.

Improved adaptation
AI-enabled attackers will also be much faster to react when they encounter resistance, or when cybersecurity experts fix weaknesses that had previously allowed entry by unauthorized users. The AI may be able to exploit another vulnerability, or start scanning for new ways into the system – without waiting for human instructions.

 

Eoin Treacy's view -

How secure is your password? Do you use some combination of birthdays and family names to make them easily recallable? The digitisation of information that was once only held on paper means it is comparatively easy to now find out personal details for just about anyone on the web. The increasing number of thefts of the data corporations hold about clients only exacerbates the problem. All you need to do is Google someone and you will likely be surprised by what is available online. It is therefore conceivable that an AI could form a picture of your family and correctly guess your password. Wherever possible set up two-factor logins, so you get a text message with a code before you can login and do not have a password that is your name and date of birth or indeed “password1”. Best practice is that you have a separate computer only used for banking and paying bills but never check email or surf the web on it, in addition to two-factor logins. 



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August 30 2017

Commentary by Eoin Treacy

The Fat Tech Dragon

This report by Scott Kennedy for the Center for Strategic & International Studies may be of interest to subscribers. Here is a section:

China’s embrace of intellectual property (IP) is highly positive when contrasted with the country’s original disdain for property rights of any sort and widespread violation of IP rights. However, China’s efforts to develop and obtain more IP is driven heavily by bureaucratic imperatives as opposed to market incentives. Moreover, China may now be a “large” IP country, but it is still a “weak” one. Whether one is discussing licensing and royalties, mergers and acquisitions, or dispute settlement, Chinese patents still have little commercial value. 

China’s commercial success has outstripped its progress in technology innovation. Chinese companies are acquiring greater market share in high tech, particularly in the most commodified segments of sectors. The value-added contribution to manufacturing is growing in absolute terms, and domestic companies are contributing a growing share to China’s high-tech exports. 

Overall, China’s high-tech drive may be characterized as “good-enough innovation.” From a negative perspective, China is investing—and may be wasting—a great deal of human capital and funding, but is still far from a leader in high tech. From a more positive perspective, China is achieving incremental progress by benefiting from its strong capacity in manufacturing, the accumulation and diffusion of tacit knowledge, and the opportunities provided by such a large market. 

Regardless of the level of support they receive from their government, Chinese companies will face growing challenges in their interactions with multinational businesses and in overseas markets. Foreign governments and multinational businesses likewise need to decide how to strategically respond to China’s approach. They could take a firm stand in opposition, try to influence China’s approach at the margins, or go along with the strategy as best they can. In any case, if they are not careful, they could end up under the heavy foot of a fat tech dragon.

 

Eoin Treacy's view -

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

In addition to its race to become a centre for high tech innovation China is also intent on a “China first” policy of making sure it is producing its own semiconductors without having to rely on US, Japanese, Taiwanese and South Korean manufacturers. That raises important questions about M&A activity since so much of it is state sponsored. The reality is that if China gains the technology to produce its own semiconductors it will seek to flood the market with cheap products and that could represent a significant issue for the global tech ecosystem. 



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August 29 2017

Commentary by Eoin Treacy

August 29 2017

Commentary by Eoin Treacy

Time to get serious about Brexit talks, EU tells Britain

This article by Oliver Wright for The Times may be of interest to subscribers. Here is a section:

British and EU diplomats privately acknowledge that a solution to Britain’s exit bill must come in part from a transitional arrangement, which would effectively continue the UK’s budget contributions.

This would cover the gap in the EU’s budget for the two years after Brexit, while allowing Britain to portray the payments as the cost of an implementation period to benefit business, rather than as debts.

Britain pays about £9 billion a year to the EU. Brussels is expected to demand a total net Brexit divorce payment in the region of £40 billion.

 

Eoin Treacy's view -

The EU needs the money the UK contributes to its budget. That’s more important that either the Irish border or the rights of its citizens. For the UK, tariff free access to the single market is at the top of its wish-list. Everything else is secondary. 
If we ignore our emotional attachment to either side in the evolving negotiations and simply think about the actions of both parties from the negotiating tactics they are employing, perhaps we can come up with a better understanding of what is in fact going on. 

 



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August 29 2017

Commentary by Eoin Treacy

Harvey Recharges Offshore as Crippled Houston Counts the Cost

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

Gasoline futures in New York extended gains a sixth session Tuesday as more than a million barrels of fuel-making capacity was knocked offline; and natural-gas fields and offshore-drilling rigs shut down. The motor fuel advanced 0.4 percent to $1.7183 a gallon at 5:09 a.m. New York time.

Ports along a 250-mile stretch of Texas coast were closed to tankers. Twenty-two vessels laden with a combined 15.3 million barrels of crude from as far afield as Brazil and Colombia were drifting off the coastline, waiting for the all clear.

Ten of the state’s 25 refineries are shut down, accounting for about half the 6 million barrels per day of capacity, said Christi Craddick, chairman of the three-member Texas Railroad Commission, which regulates the industry. Companies will have to wait for floods to recede before they can evaluate damage, she said.

“Hopefully within the next week to two weeks, we’ll see refineries back online,” Craddick said.  

 

Eoin Treacy's view -

Hurricane Katrina resulted in a surge in natural gas prices because so much supply depended on Gulf of Mexico platforms. The rise of onshore shale supplies has reduced reliance on offshore gas so hurricane Harvey has had little impact on gas prices. On the other hand, gasoline refining is heavily concentrated on the Gulf coast and not least around Houston. Therefore, it is the commodity most likely to be affected by hurricane induced damage. 



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August 29 2017

Commentary by Eoin Treacy

August 29 2017

Commentary by Eoin Treacy

Fitbit aims to topple smartwatch kings with feature-packed Ionic

This article by David Nield for New Atlas may be of interest to subscribers. Here is a section:

Fitbit is having another crack at taking on the likes of Apple, Garmin, and LG with its newly unveiled Ionic smartwatch. The wearable packs in a bunch of tracking sensors, plus some useful extras like mobile payments, to make it the most advanced device yet to appear from the Fitbit stable.

Fitbit is describing the Ionic as the company's "first ever smartwatch," which we find a little confusing as it launched the Fitbit Blaze last year, another device that straps around the wrist to tell the time and monitor various health and fitness metrics. Is that not also what you would describe as a smartwatch?

Perhaps Fitbit just wants us to forget the Blaze ever happened, and whatever the nomenclature, the Ionic looks like being an upgrade in every department. What does distinguish it from its predecessor is support for third-party apps, so developers outside of Fitbit can build their own apps for the device. 

Eoin Treacy's view -

For some people wearing a belt is enough to monitor personal shape and size. I’m not that fortunate and personally having a wrist-mounted fitness tracker twinned with a calorie counting mobile phone app has been a recipe for keeping me on a successful fitness and dietary regime. 

I bought a Fitbit Blaze for Mrs. Treacy because it has the option to change wristbands which was necessary to get around her silicon allergy. It lasted about three weeks before dying. The build quality left a lot to be desired. On the other hand, I have been wearing a Garmin Vivosmart HR all year and it is still going strong. 



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August 25 2017

Commentary by Eoin Treacy

August 25 2017

Commentary by Eoin Treacy

August 25 2017

Commentary by Eoin Treacy

Draghi Says Protectionism Is a Threat to Global Economic Growth

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

The euro extended its gains, as some investors had hoped Draghi would try to talk down the single currency amid fears it’ll undermine the euro-area recovery. The single currency had already climbed to the highest level against the dollar since January 2015, and was up 1 percent at $1.1923 at 3:24 p.m. in New York.

The ECB chief also eschewed any comments that could be seen as prejudging the outcome of the Sept. 7 Governing Council meeting, when policy makers are planning to review their unconventional stimulus policies against the backdrop of strong growth but still-subdued inflation

 

Eoin Treacy's view -

Both Janet Yellen and Mario Draghi avoided talking about interest rates in their speeches choosing instead to focus on regulation. What appears clear is they claim to see no relationship between the lack of evidence of tightness in credit and the extraordinary largesse they have heaped on markets. Saying that regulation has not impacted the availability of credit when one is pouring a torrent of money into the market is somewhat disingenuous at least to my eyes. Surely, we could only possibly draw that conclusion when monetary policy is neutral?



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August 25 2017

Commentary by Eoin Treacy

Macron Tells Poland It's Headed for the 'Margins' of Europe

This article by Mark Deen and Marek Strzelecki for Bloomberg may be of interest to subscribers. Here is section: 

The specific issue being discussed is the use of “detached” or “posted” workers. Those employees typically are brought from low-wage eastern European countries to higher-cost ones such as France or Austria to perform tasks that would be more expensive to hire for locally.

There are an estimated 300,000 such workers in France. For employers, the advantages are obvious. The minimum wage in France is about 1,480 euros ($1,740) a month. In Poland, it’s about 450 euros.

Macron wants to reduce the length of working stays to one year in every two and increase cooperation to ensure that minimum wage and social charges are applied through cooperation between EU governments. He is seeking an agreement on the matter at an EU summit in October and said in Varna that he is confident an accord can be reached by year-end. The decision requires only a qualified majority of EU countries.

 

Eoin Treacy's view -

It is valid to talk about whether it is entirely fair to import workers on low wages from Eastern Europe to compete directly with local workers. However, the much broader question is how Macron is going to deal with France’s militant unions. Raising the question of “posted workers” is but the opening volley in what is likely to be a terse face off. 



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August 25 2017

Commentary by Eoin Treacy

World's Cheapest Currency Has Goldman and BlueBay on Its Side

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

 

Appetite for lira assets remains strong among foreign investors chasing higher returns. The currency is the highest yielding among major liquid emerging markets, and when adjusted for volatility pays almost twice as much as the runner up, the Mexican peso.

Offshore funds bought a net $5.4 billion worth of local currency government bonds this year, the most for the period since 2013. They also bought a net $3 billion of the nation’s stocks, helping fuel a 40 percent rally that pushed the benchmark stock index to a record high.

Expectations that inflation will slow as the central bank holds funding costs at near a six-year high are fueling interest in the nation’s debt and helping the currency too, said Werner Gey van Pittius, the London-based co-head of emerging-market debt at Investec Asset Management Ltd.

“The central bank is doing the right thing,” he said. “We are positive on lira.”

Eoin Treacy's view -

The Turkish Lira is the latest in a string of emerging market currencies to accelerate to historic lows over the last few years. However, while the Brazil Real, South African Rand or Indonesian Rupiah collapsed because of the decline in commodity prices for the Turkish Lira it has been about the dictatorial aspirations of its President. 



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August 25 2017

Commentary by Eoin Treacy

Dear iPhone: Here's Why We're Still Together After 10 Years

This article by Brian X.Chen for the New York Times may be of interest to subscribers. Here is a section:

 

Many eyes are now on Apple’s 10th anniversary event for the iPhone, which is expected to be held next month. There, Apple is set to introduce major upgrades for the next iPhones, which could stoke our appetites again for the gadget. Or not.

Chief among the changes for the new iPhones: refreshed versions, including a premium model priced at around $999, according to people briefed on the product, who asked to remain anonymous because they were not authorized to speak publicly. Apple made room for a bigger screen on that model by reducing the size of the bezel — or the forehead and the chin — on the face of the device. Other new features include facial recognition for unlocking the device, along with the ability to charge it with magnetic induction, the people said.

Here’s a look back at the last 10 years of why the iPhone still has us in its grip — so much that people keep coming back for more.

Eoin Treacy's view -

Rather than think of the iPhone as a product iteration it is probably better to describe it as an ecosystem. The phone itself represents a hefty initial outlay but the AppStore, while generating considerably less revenue, acts as an anchor for the brand because apps are transferrable between phones of the same brand but push up the cost of switching. 



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August 25 2017

Commentary by Eoin Treacy

Thorium salt reactor experiments resume after 40 years

This article by David Szondy for Newatlas.com may be of interest to subscribers. Here is a section:

 

Working in cooperation with the European Commission Laboratory Joint Research Center, NRG's SALt Irradiation ExperimeNT (SALIENT) is a multi-stage experiment aimed at turning Thorium Molten Salt Reactors (TMSR) into an industrial scale energy source with commercial possibilities.

According to advocacy group Thorium Energy World, the first phase of the experiment is focusing on removing the noble metals produced by the thorium fuel cycle. That is, the metals created in the steps in the nuclear fission process where the thorium transmutes into uranium before splitting to give off energy.

Once this has been achieved, the next step will be to determine how well commonplace materials used in the construction of TSRMs stand up to the corrosive high-temperature salt mixture or to find alternatives to keep down maintenance and operation costs. These might include an alloy of nickel called hastelloy, or Titanium-Zirconium-Molybdenum (TZM alloy

The ultimate goal is to create TMSRs that are modular and scalable to meet local energy demand, yet provides 24-hour power that is available year round. In addition, using molten salts mean that refueling can take place while the reactor is still in operation, drastically reducing downtimes.

Eoin Treacy's view -

Molten Salt reactors never got the go ahead in the early days of nuclear development because of the difficulty of producing weaponised materials from them. In the current age that is one of the primary points in their favour since what we need is a non-proliferation friendly design that is less susceptible to meltdowns. Nevertheless, it will be years before we have a working prototype.  



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August 24 2017

Commentary by Eoin Treacy

August 24 2017

Commentary by Eoin Treacy

Amazon to Cut Prices at Whole Foods as Acquisition Closes

This article by Mark Gurman and Matt Townsend for Bloomberg highlights the continued polarisation in the retail sector between those with a technological/low cost advantage and conventional stores. Here is a section:

The company said it will begin slashing prices on a broad cross section of Whole Foods groceries Monday -- the same day the $13.7 billion deal is set to close. That will start with items such as chicken, eggs, some vegetables, and some types of organic fish. Amazon reeled off a long list of other plans to combine its leading e-commerce and delivery assets with the physical locations of Whole Foods stores.

"This is a pretty impressive array of bold moves on the first day of an acquisition -- unprecedented, we would say," said Carol Levenson, an analyst at Gimme Credit.

The moves by Amazon inflame an already raging price war in U.S. groceries -- a sector known for razor-thin profit margins.

German discount grocers like Lidl and Aldi are expanding in the U.S. and Wal-Mart Stores Inc. has been investing in more discounts too. Low prices are familiar terrain for Amazon, which has operated with little profitability for more than a decade. Shares of grocery-store chains fell on the announcements.

Kroger Co. declined as much as 2.4 percent while Sprouts Farmers Market Inc. sank 2.5 percent. Wal-Mart Stores Inc., which sells the most groceries in the U.S., also dropped 0.8 percent.

Amazon will also begin selling Whole Foods branded products, including those that are part of the 365 brand, via its website, and through fast delivery services like AmazonFresh, PrimeNow, and Prime Pantry, the company said.

Beyond price cuts and increased distribution, Amazon Prime will become Whole Foods’ customer rewards program, allowing shoppers to rack up Amazon rewards when they purchase pasture-raised eggs, organic milk and kombucha.

 

Eoin Treacy's view -

Amazon Prime is no longer the cheapest venue for goods but is among the most convenient. That turn to mild profitability has allowed the share to perform admirably over the last 18 months. The decision to embark on a price war following its acquisition of Whole Foods, which has historically been among the most expensive vendors, is a threat to established stores that have never had to compete on price with a company possessing Whole Foods’ cache. 



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August 24 2017

Commentary by Eoin Treacy

America Is on the Verge of Ratpocalypse

This article by Emily Atkin for New Republic may be of interest to subscribers. Here is a section:

It’s no surprise that rats thrive in cities, where humans provide an abundance of food and shelter. But experts now agree that the weather is playing a role in these recent increases. Extreme summer heat and this past winter’s mild temperatures have created urban rat utopias.

“The reason the rats are so bad now, we believe, is because of the warm winters,” said Gerard Brown, program manager of the Rodent and Vector Control Division of the D.C. Department of Health, at a 2016 rat summit.
Rat pro Corrigan agrees. “Breeding usually slows down during the winter months,” he said. But with shorter, warmer winters becoming more common—2016 was America’s warmest winter on record—rats are experiencing a baby boom. “They have an edge of squeezing out one more litter, one more half litter,” Corrigan said.

One more litter or half litter makes a serious difference when a population boom is not only a nuisance, but a public health and economic crisis. Rats breed like rabbits; as this alarming Rentokil graphic shows, two rats in an ideal environment can turn into 482 million rats over a period of three years. Urban rats caused $19 billion worth of economic damage in the year 2000, partially due to the fact that they eat away at buildings and other infrastructure. Imagine how much they’re costing now.

 

Eoin Treacy's view -

Rats and other rodents are capable of breeding at exponential rates if the conditions are just right. With mild winters and a history of insufficient budgets to control populations the number of stories talking about the problem becoming a public health issue are proliferating. The increasing size of rats, with an increasing number approaching the size of small dogs, says a lot about the calorie content of the refuse they are consuming. 



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August 24 2017

Commentary by Eoin Treacy

Harvey Likely to Be First Hurricane to Strike Texas Since 2008

This article by Brian K Sullivan and Melissa Cheok for Bloomberg may be of interest to subscribers. Here is a section: 

“It could intensify right up to landfall on Friday,” said Jeff Masters, co-founder of Weather Underground in Ann Arbor, Michigan. “I expect a Category 1 hurricane at landfall, but I cannot rule out a Category 2.”

Harvey is expected to bring multiple hazards including heavy rainfall, storm surge and possible hurricane conditions to parts of the Texas coast on Friday. Heavy rainfall is expected to spread across portions of south, central and eastern Texas and the lower Mississippi Valley from Friday through early next week and could cause life-threatening flooding, according to the advisory.

The Gulf Coast from Corpus Christi, Texas, to Lake Charles, Louisiana, is home to nearly 30 refineries -- making up about 7 million barrels a day of refining capacity, or one-third of the U.S. total. It’s in the path of expected heavy rainfall. Flooding poses risks to operations and may cause power failures.

 

Eoin Treacy's view -

The last few years have been particularly quiet hurricane seasons and even though Harvey will struggle to exceed category one its location ensures there will be plenty of precipitation falling in the Corpus Christ through Louisiana areas which will disrupt businesses. 



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August 23 2017

Commentary by Eoin Treacy

August 23 2017

Commentary by Eoin Treacy

It's Hard to Keep Up With All That Lithium Demand

This article by Laura Millan Lombrana and Jonathan Gilbert for Bloomberg may be of interest to subscribers. Here is a section:

Producers everywhere have struggled to keep up with demand as electric cars went from almost no sales a decade ago to more than half a million vehicles last year. The battery in a Model S from Musk’s Tesla Inc. uses about 45 kilograms (100 pounds) of lithium carbonate. More mines are planned, but difficulties at Olaroz -- the first new South American lithium mine in two decades -- are limiting funding for new ventures in Argentina, home to the world’s third-largest reserves.

“The uncertainty on the supply side is driving prices up and making investors nervous,” said Daniela Desormeaux, CEO of Santiago-based lithium consulting firm SignumBOX. “We need a new project entering the market every year to satisfy growing demand. If that doesn’t happen, the market will be tight.”

 

Eoin Treacy's view -

Tesla gigafactory might be the first large-scale lithium battery plant for vehicles and powerplants but it is just the beginning of what is a significant build out in production capacity as progressively more auto manufacturers roll out plans for electric vehicles. Against that background miners are scrambling to keep up with supply. This is about as close as a throwback to the heady days of the commodity boom as one might wish for and is a fresh example of the supply inelasticity meets rising demand model. 



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August 23 2017

Commentary by Eoin Treacy

It's Not Just Provident, U.K. Dominates List of 2017 Stock Bombs

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

Provident Financial Plc’s 66 percent collapse yesterday -- the biggest one-day plunge in Europe’s Stoxx 600 this year -- followed the latest in a string of profit warnings from U.K. companies.

As a result, four of the five biggest one-day price retreats this year in the benchmark have come from U.K. stocks. Provident’s tumble was preceded by declines of more than 20 percent by Petrofac Ltd., Pearson Plc and BT Group Plc, according to data compiled by Bloomberg.

In fact, U.K. names make up 11 of the 20 steepest single-day losses in 2017, the data show.

The downward earnings revisions add to a landscape littered with the fallout from Brexit, rising consumer debt loads and a beleaguered pound. For those evaluating performance in euro terms, the FTSE 100 is the worst major index in Europe this year.

Eoin Treacy's view -

The low levels on volatility indices belie what has been a significant uptick in single stock volatility. While that might be most evident in the UK, where there is continued uncertainty about the outcome of the Brexit negotiations, it is a phenomenon that is becoming increasingly evident both on Wall Street on continental Europe. 



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August 23 2017

Commentary by Eoin Treacy

Copper rally lifts Antofagasta's profits, up 88% in first half of 2017

This article by Cecilia Jamasmie for Mining.com may be of interest to subscribers. Here is a section: 

Chile-focused copper miner Antofagasta Plc. (LON:ANTO) posted Tuesday an impressive 88% jump in earnings during the six months to June 30, thanks to a sustained rally in prices for the metal, which has surged 19% so far this year, as well as cost savings.

The miner, one of the oldest companies listed in London, said earnings before interest, tax, depreciation and amortization, or Ebitda, increased to $1.1 billion in the period, as revenues grew by 42% to $2 billion.

Chief executive Iván Arriagada, who has been at the helm for less than a year and a half, said the improved performance will allow the company to pay an interim dividend of 10.3 US cents a share, up from 3.1 a year ago. This is in line with Antofagasta’s policy of paying out a minimum of 35% of underlying net earnings to investors, he said.

 

Eoin Treacy's view -

During the expansion phase associated with the commodity boom, miners ploughed their earnings into investment rather than paying dividends. That meant they underperformed the rises in metal prices, particularly in the gold mining sector and left them with no cushion of support when commodity prices peaked. 



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August 23 2017

Commentary by Eoin Treacy

China's Robot Revolution May Affect the Global Economy

This article from Bloomberg caught my attention. Here is a section:

“By turbocharging supply and depressing demand, automation risks exacerbating China’s reliance on export-driven growth – threatening hopes for a more balanced domestic and global economy,” BI economists Tom Orlik and Fielding Chen wrote.
Pay gains are intact. Domestic manufacturing workers with a high-school education saw wages rise 53 percent from 2010 to 2014, according to China Household Finance Survey data cited by BI. 

“Increasing use of robots should be bad news for medium-skilled workers, especially those in sectors where routine work means scope for automation,” Orlik and Chen said. “Yet wage growth in China remains rapid, and if anything, medium-skilled workers conducting routine work are doing better than average.”

 

Eoin Treacy's view -

Technological innovation has led to the pace of development speeding up. It will not have escaped the attention of investors that the original Tiger economies were able to evolve economically much faster than the Europe or North America during the Industrial Revolution. More recently China has come from relative obscurity to be the world’s second largest economy. What used to take generations now takes decades and the pace of development is speeding up so that we may witness multiple iterations in our lifetimes. As much youngest daughter delights in telling me, she was born the same year as the iPhone. 



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August 22 2017

Commentary by Eoin Treacy

August 22 2017

Commentary by Eoin Treacy

Facebook Usage Among Teens Set to Drop in U.S

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

“Teens and tweens remaining on Facebook seem to be less engaged –- logging in less frequently and spending less time on the platform,” Orozco said. “At the same time, we now have Facebook-nevers, many children aging into the tween demographic that appear to be overlooking Facebook altogether, yet still engaging with Facebook-owned Instagram.”

Eoin Treacy's view -

A year ago my now 11-year old wanted to text her friends, but I had no intention of giving her a phone. Ever resourceful, she gave her friends my number with the result being, she co-opted use of my phone because her class’ group chat was constantly buzzing. As a compromise, I cloned my phone, so now I have two sim cards and two handsets. All messages arrive on both phones simultaneously. She gets use of a phone and I have real-time oversight.  



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August 22 2017

Commentary by Eoin Treacy

Demand remains robust for UK manufacturers

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

 

The survey of 432 manufacturers found that total order books and export order books were strong in August. The firming in export orders relative to the previous month reflected rising orders in 10 of the 17 manufacturing sub-sectors, led by mechanical engineering and aerospace.

And 

“There are further signs that exporters are feeling the benefit from the lower pound in this month’s figures, and output growth is expected to power on over the coming quarter.

“But after a brief pause last month, expectations for selling prices have rebounded, indicating that the squeeze on consumers is set to persist. We expect CPI (Consumer Price Index) to top out at around 3% towards the end of this year and remain close to that level during 2018, as the effect of the weak pound continues to feed through.”

Eoin Treacy's view -

The UK has demonstrated on successive occasions over the last decade that it is more than willing to allow the Pound to take the edge off macroeconomic headwinds. That is abundantly clear in the response of the economy to the threat posed by the uncertainty associated with Brexit. 



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August 22 2017

Commentary by Eoin Treacy

Sorry, Banning 'Killer Robots' Just Isn't Practical

This article by Igor Zarembow for Wired may be of interest to subscribers. Here is a section: 

 

Weapons systems that make their own decisions are a very different, and much broader, category. The line between weapons controlled by humans and those that fire autonomously is blurry, and many nations—including the US—have begun the process of crossing it. Moreover, technologies such as robotic aircraft and ground vehicles have proved so useful that armed forces may find giving them more independence—including to kill—irresistible.

A recent report on artificial intelligence and war commissioned by the Office of the Director of National Intelligence concluded that the technology is set to massively magnify military power. Greg Allen, coauthor of the report and now an adjunct fellow at nonpartisan think tank the Center for New American Security, doesn’t expect the US and other countries to be able to stop themselves from building arsenals of weapons that can decide when to fire. “You are unlikely to achieve a full ban of autonomous weapons,” he says. “The temptation for using them is going to be very intense.”

Eoin Treacy's view -

Automation is being driven by technological innovation and, unlike chemical weapons, is applicable to just about every area of our lives. That’s an important differentiator and virtually ensures the trend will continue despite the real threats posed by the increasing autonomy of weapons of war. 



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August 22 2017

Commentary by Eoin Treacy

Email of the day on moving averages

Hope you’re enjoying the warm weather in LA. We’ve had it quite cold here in Western Australia, the ‘sunshine state’.

Something I wanted to ask you at the last Chart Seminar in Singapore but did not get around to it.

You are an advocate of the weekly 200 MA(40wk) for gauging trend direction and overbought/oversold situations. Whilst this method appears to work reasonably well on the institutional type stocks, can it be used the same way on the mid to small cap and penny stocks?  I know of some people using 100MA(20wk) for the latter.

Many thanks in anticipation of an answer.

Eoin Treacy's view -

Thank you for this question which may be of interest to the Collective. The orange trees in my garden were festooned with blossoms following the heavy rain this winter and there is a sizeable number of fruits developing, so we’re expecting a nice harvest of navels early next year.



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August 21 2017

Commentary by Eoin Treacy

August 21 2017

Commentary by Eoin Treacy

The S&P 500: Just Say No

Thanks to a subscriber for this report from GMO by Matt Kadnar and James Montier which may be of interest. Here is a section:  

In absolute terms, the opportunity set is extremely challenging. However, when assets are priced for perfection as they currently are, it takes very little disappointment to lead to significant shifts in the pricing of assets. Hence our advice (and positioning) is to hold significant amounts of dry powder, recalling the immortal advice of Winnie-the-Pooh, “Never underestimate the value of doing nothing” or, if you prefer, remember – when there is nothing to do, do nothing. 

Markets appear to be governed by complacency at the current juncture. Indeed, looking at the options market, it is possible to imply the expected probability of a significant decline in asset prices. According to the Minneapolis Federal Reserve, the probability of a 25% or greater decline in US equity prices occurring over the next 12 months implied in the options market is only around 10% (see Exhibit 12).

Now we have no idea what the true likelihood of such an event is, but when faced with the third most expensive US market in history, we would suggest that 10% seems very low. But, one thing we have a high degree of confidence in is that Trustee Smith’s recommendation to concentrate his portfolio into indexed US equites, shun diversification, and sell international equities will ultimately increase the real risk in his portfolio, i.e., losing money, and make it even more difficult to meet the required rate of return. Good luck to you, Trustee Smith. It seems you are going to need it.

 

Eoin Treacy's view -

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

The stock market has been rallying since 2009 and it is natural at this stage to question where are we in the cycle as a way of determining what we might hope to expect next. 



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August 21 2017

Commentary by Eoin Treacy

Fortescue Sees Dividend Bonanza as Miners Reward Investors

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

Fortescue Metals Group Ltd., the fourth- biggest iron ore exporter, tripled its full-year dividend and may lift returns further as top miners reward investors with higher payouts amid a price revival.

The Perth-based producer declared a total annual dividend of 45 Australian cents a share, compared with 15 cents a year earlier, topping the average 39 cent forecast among 19 analysts surveyed by Bloomberg. Fortescue expects to pay between 50 percent to 80 percent of net profit after tax in dividends in the current fiscal year, the company said Monday when reporting full-year earnings.

Rio Tinto Group aims to pay a $2 billion interim dividend and increased its share buyback by $1 billion this year on stronger materials prices, while Anglo American Plc last month announced plans to resume dividend payments about six months ahead of schedule. BHP Billiton Ltd. is forecast to raise its full-year payout almost to 88 cents a share when it reports earnings Tuesday, according to the average of 15 analysts’ forecasts.

“They are making hay while the sun shines, and it’s been a while coming,” said James Wilson, a Perth-based analyst at Argonaut Securities Ltd. “Hard times have driven a lot of innovation, and the miners are now very lean and extremely efficient -- when prices come back, they pop in a big way, and make a lot of money.”

Iron ore, the top earning material for Fortescue, BHP and Rio, has rebounded since mid-June on strong steel demand in China and weaker-than-expected gains in low-cost supply.

Fortescue, which cut cash operating costs 17 percent in fiscal 2017, plans to hold annual shipments at the current rate of 170 million tons, the producer said last month. 

 

Eoin Treacy's view -

Iron-ore prices posted a truly impressive rally in 2016 and an equally stunning setback at the beginning of this year which challenged the recovery hypothesis. The price found support in region of the upper side of the underlying base formation, near $60 in June and continues to rebound. 



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August 21 2017

Commentary by Eoin Treacy

Navigating China's post-congress landscape

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

Over the past five years, the Chinese leadership’s top priorities have proven extremely consistent, reflecting a consensus on broad goals. The leadership has remained steadfastly focused on strengthening the Communist Party, safeguarding stability, and enhancing China’s regional leadership and global standing. There have been changes to the manner in which Xi has centralized power and the party has headed off domestic and external challenges. But on the top priorities, the party has followed consistent north stars to guide policy.

To this end, the Chinese leadership will continue to emphasize financial and economic stability and guard against financial shocks. Particularly with the much-anticipated centenary of the founding of the Communist Party in 2021, Beijing will be determined to achieve its goal of becoming a “moderately well-off society,” which in practical terms means doubling per capita income and national gross domestic product from 2010 levels.

Over the past five years, when confronted with choices between greater control and greater openness to innovation, China’s leaders consistently have opted for the former. Expect economic policies to continue favoring state control and stability, even at the cost of some economic growth. This bias is likely to extend to policies related to the internet and social media, where heightened censorship over the past five years has demonstrated the leadership’s wariness of losing control of information in the digital age.

 

Eoin Treacy's view -

Political machinations are going into overdrive to ensure stability in the Communist Party’s handover of power to a new generation at the upcoming Congress. No fewer than five of the Standing Committee’s members are to be replaced while 40% of the wider Politburo are retiring as well. 



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August 21 2017

Commentary by Eoin Treacy

How Women Got Crowded Out of the Computing Revolution

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

For example, a female editor at Datamation, a computer magazine, noted that personnel managers in 1963 believed that “women have greater patience than men and are better at details, two prerequisites for the allegedly successful programmer.” Better yet, this article claimed, “women are less aggressive and more content in one position.” At the time, turnover among programmers averaged 20 percent a year, so the idea of a compliant force of female programmers seemed like a winning solution to staffing problems.

Even Helen Gurley Brown’s Cosmopolitan endorsed programming as a career. In 1968, it published “The Computer Girls,” an article that hailed computers as an area where “sex discrimination in hiring” didn’t happen because employers actually preferred women. “Every company that makes or uses computers hires women to program them,” the magazine declared, though it quickly reverted to form, telling readers that female programmers found it easy to get dates because the field was “overrun with males.”

In fact, men had begun to recognize that programming was the most important job in the new information economy. In order to elevate the importance of their work, the first generation of male programmers began crafting a professional identity that effectively excluded women. As historian Nathan Ensmenger has observed, “computer programming was gradually and deliberately transformed into a high-status, scientific, and masculine discipline.”

 

Eoin Treacy's view -

The ignominious history of gender pay gaps is apparently not something that is going to go away on its own. What is particularly interesting is that when we look at international figures countries which have generally been known for machismo like Italy and Spain have narrower gaps than the USA, UK or Australia. Meanwhile New Zealand has the narrowest gap while Asia has a long way to go in gender equality. 



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August 18 2017

Commentary by Eoin Treacy

August 18 2017

Commentary by Eoin Treacy

Hollywood, Apple Said to Mull Rental Plan, Defying Theaters

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

Movie studios are considering whether to ignore the objections of cinema chains and forge ahead with a plan to offer digital rentals of films mere weeks after they appear in theaters, according to people familiar with the matter.

Some of the biggest proponents, including Warner Bros. and Universal Pictures, are pressing on in talks with Apple Inc. and Comcast Corp. on ways to push ahead with the project even without theater chains, the people said. After months of negotiations, the two sides have been unable to arrive at a mutually beneficial way to create a $30 to $50 premium movie-download product.

The leading Hollywood studios, except for Walt Disney Co., are eager to introduce a new product to make up for declining sales of DVDs and other home entertainment in the age of Netflix. They have discussed sharing a split of the revenue from premium video on demand, or PVOD, with the cinema chains if they give their blessing to the concept. But the exhibitors have sought a long-term commitment of as much as 10 years for that revenue split, which the studios have rejected, the people said.

 

Eoin Treacy's view -

Movie theatres are in real danger of being disrupted in the much the same way as big box retail because many people would prefer to watch movies at home, studios would have to wait less time to monetise the movie and it would combat piracy. It seems to be only a matter of time before streaming replaces movie theatres in their current format. 



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August 18 2017

Commentary by Eoin Treacy

Email of the day on whether bitcoin is a currency

 

 

Hope you are well. And I hope David is recovering well?

Just a quick comment on cryptocurrencies.

I’ve thought about this a lot, and had a small mining setup a few years ago.

There is a kind of real value in them as they take electricity, cooling, tech knowhow, time and equipment to "mine" them. 

All those have a value. And it’s a massive community now.

As bitcoin has evolved, it now costs far more to mine one than 5 years ago due to its formula. The same with other coins.
In bitcoins case, I see them more of an asset in the cryptocurrency class. 

I also think everyone should have a bit of one just to find out how they work as they are definitely here to stay in some form. Plus, I feel they will constantly go up like other assets do, bubble or not. 

More of owning a small amount for fun, not an investment amount though, unless one has time to learn about them more.
Plus, you can legitimately, buy a lot of stuff with them now, so how do you define a currency?

Eoin Treacy's view -

Thank you for sharing your thoughts on cryptocurrencies. I am well and with Mrs. Treacy returning from China yesterday familial bliss has been restored. 



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August 18 2017

Commentary by Eoin Treacy

Email of the day on revisionist history

This article summarizes neatly the blend of politics and revisionist history present in China today, particularly how the Party is trying to introduce a stylized version of Chinese history and culture in order to paper over the "spiritual vacuum" that resulted from the Revolution. Also interesting is the idea that this could give rise to new economic industries and / or cultural products for export (movies, art, tourism, etc.) Most importantly, it hints at the sweeping power and autonomy that Xi Jinping presently enjoys ... well worth the read. 

Eoin Treacy's view -

Thank you for this thought provoking email. An authoritarian regime brooks no questioning of the narrative it crafts to sustain the mantle of legitimacy. If we look around the world today we have ample evidence of history being obviated in service to ideology so what is happening in China is regrettable but unfortunately not unusual.



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August 18 2017

Commentary by Eoin Treacy

Email of the day on Monsanto

Trust all’s well with you and your family. Thought you might be interested in the article below as reported on Bloomberg. 

Eoin Treacy's view -

Thank you for this article which may be of interest to subscribers. There appears to a be a drumbeat of discontent rising against the products pioneered by Monsanto from a vocal and active environment lobby. The revelation that it unequivocally attempted to bias scientific findings is not positive news not least because of the pall it casts over investor sentiment. 



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August 18 2017

Commentary by Eoin Treacy

Email of the day on knitting machines

Thank you for the excellent service and very interesting daily video commentary. Our company, Irelands Eye Knitwear in Dublin operates 15 knitting machines from manufacturer Shima Seiki that you referred to recently. They run 24 hours per day. We are off to Shanghai next month to see latest developments at a large machinery exhibition there. It’s a very interesting time. Many thanks again for an excellent service.

Eoin Treacy's view -

Thank you for your kind words and I’m sure the Collective would be enlightened if you have the time to share your impressions from what will be on offer at the Shanghai trade show. 



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August 18 2017

Commentary by Eoin Treacy

Email of the day on necessity is the mother of invention

You have to give it to the Chinese, they are great advocates of the dictum ‘Where there is a will there is a way’

How come my ethnic Chinese supervisors never told me of this method to shift concrete when I managed a mine in Malaysia?

We could have save the company a small fortune. 

 

Eoin Treacy's view -

Thank you for this video which is a testament to low-tech ingenuity.



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August 17 2017

Commentary by Eoin Treacy

Video commentary for August 17th 2017

Eoin Treacy's view -

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: the uptick in volatility and what that means for markets, increasing evidence of disillusionment with expectations for tax reform, precous metals steady, Europe close to the trend mean, Dollar mixed



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