An 10-day Chuseok autumn holiday in October hit fourth-quarter industrial output, just as a slump in car exports erased the gains from booming overseas sales of computer memory chips.

Hyundai Motor and its Kia Motors affiliate said earlier this month 2017 shipments were a million vehicles below their 8.25 million target after struggling with competitiveness problems and trade issues.

The Bank of Korea said on Thursday that gross domestic product fell by a seasonally adjusted 0.2 percent in the fourth quarter, sliding from bumper growth of 1.5 percent in the third quarter, which was the fastest expansion in seven years.

“There is a strong base effect after particularly high third quarter growth and as irregular factors such as the Chuseok holiday shortened the number of working days for businesses,” said Chung Kyu-il, director general at the bank’s Economic Statistics Department said at a news conference.

In a period of synchronized global economic expansion we have to remain alert for any signs of weakening expansion. There are exogenous factors such as the mid-Autumn festival that dragged down South Korea’s growth in the fourth quarter but the decline in vehicle exports is not so easily explained away. 

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The argument about whether electric cars are less polluting on an all-in basis is likely to continue to rage, with the crux of the argument focusing on what kind of generating capacity is used to produce electricity in any given country. However, the fact electric cars contribute to a country being less dependent on imported oil represents a powerful argument for adoption. 

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Some of the topics discussed include: Dollar rallied off its low which has a knock-on effect for bond yields and currencies, Dow Jones extends advance but early leaders like Starbucks and Disney are sitting out the rally. 

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The USA led the world into recession in 2008 and out of it onto an historically lengthy expansion in 2009. The Federal Reserve started out on the road to normalizing policy last year and fiscal stimulus will be picking up some of the slack in monetary accommodation this year. The above statistics suggests at least some Asian countries are now following a similar trajectory. 

German benchmark yields climbed to the highest level in more than two years after European Central Bank President Mario Draghi disappointed investors who had expected him to take a tough stance against recent euro strength.

Peripheral sovereign bonds led declines across the currency bloc as Draghi warned that foreign-exchange volatility required monitoring, but also noted that economic growth could surprise to the upside. With comments on the shared currency identified as the main barometer of the ECB’s thinking before the meeting, Draghi’s reluctance to take a tougher stance on the euro triggered the selloff in government securities, according to Toronto-Dominion Bank.

Draghi didn’t take a “strong swipe at euro strength” and “that has bled into rates,” said Richard Kelly, Toronto- Dominion’s head of global strategy. “He upgraded growth and hasn’t yet said anything new on inflation. So it all adds up to a slight drift higher for rates.”

German 10-year bund yields climbed four basis points to 0.63 percent as of 2:34 p.m. in London, after touching 0.64 percent, the highest since December 2015. Those on Italian peers increased six basis points to 1.96 percent, while comparable Spanish yields jumped six basis points to 1.42 percent.

It’s a testament to how low yields are when a 2-basis point move can be described in headlines as a surge. Bund yields are now testing the upper side of a yearlong range and will need to sustain the move above 0.6% to confirm a return to demand dominance.

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Last year marked the pont at which that narrative finally collapsed. The existence of internet skeptics is nothing new, of course; the difference now is that the critical voices increasingly belong to former enthusiasts. “We have to fix the internet,” Walter Isaacson, Steve Jobs’s biographer, wrote in an essay published a few weeks after Donald Trump was elected president. “After 40 years, it has begun to corrode, both itself and us.” The former Google strategist James Williams told The Guardian: “The dynamics of the attention economy are structurally set up to undermine the human will.” In a blog post, Brad Burnham, a managing partner at Union Square Ventures, a top New York venture-capital firm, bemoaned the collateral damage from the quasi monopolies of the digital age: “Publishers find themselves becoming commodity content suppliers in a sea of undifferentiated content in the Facebook news feed. Websites see their fortunes upended by small changes in Google’s search algorithms. And manufacturers watch helplessly as sales dwindle when Amazon decides to source products directly in China and redirect demand to their own products.” (Full disclosure: Burnham’s firm invested in a company I started in 2006; we have had no financial relationship since it sold in 2011.) Even Berners-Lee, the inventor of the web itself, wrote a blog post voicing his concerns that the advertising-based model of social media and search engines creates a climate where “misinformation, or ‘fake news,’ which is surprising, shocking or designed to appeal to our biases, can spread like wildfire.”

For most critics, the solution to these immense structural issues has been to propose either a new mindfulness about the dangers of these tools — turning off our smartphones, keeping kids off social media — or the strong arm of regulation and antitrust: making the tech giants subject to the same scrutiny as other industries that are vital to the public interest, like the railroads or telephone networks of an earlier age. Both those ideas are commendable: We probably should develop a new set of habits governing how we interact with social media, and it seems entirely sensible that companies as powerful as Google and Facebook should face the same regulatory scrutiny as, say, television networks. But those interventions are unlikely to fix the core problems that the online world confronts. After all, it was not just the antitrust division of the Department of Justice that challenged Microsoft’s monopoly power in the 1990s; it was also the emergence of new software and hardware — the web, open-source software and Apple products — that helped undermine Microsoft’s dominant position.

Theresa May's spokesman said the "dedicated national security communications unit" would be charged with "combating disinformation by state actors and others".

"We are living in an era of fake news and competing narratives," he said.

The phrase "fake news" has recently emerged and is frequently used by US President Donald Trump.

Am I the only one who is unsettled by the idea of government sponsored, endorsed or created “narratives”?

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Some of the topics discussed include: Dollar breaks down, commodities jump in response with oil above $70, copper rebounding and gold testing the upper side of its range, stock markets pause, bonds ease back, Pound testing the upper side of its range against the Euro.

As you say, US indices seem to be in cyclical blow off and so in the end phase for this cycle. However, you also say that the move in the Japanese market is in the earlier stages. Question: will the Wall Street leash effect mean that the Japanese market move also ends when the US move ends even though it's in a much earlier stage?

Thank for you for this question which raises an important point about what to expect from the third psychological perception stage of a medium-term cyclical bull market.

I believe Wall Street entered a secular bull market in 2012 when the S&P500 broke out to new all-time highs. That was the rationale behind writing Crowd Money. I wanted to put down a marker so that by the time 2035 rolls around I will have something to look back on to confirm, at least to me, what the dawn of a secular bull market looks like.

Generally speaking, we only get to live through two entire secular cycles. I arrived in London in the spring of 2000, so my first experience was of a stock market bubble bursting and 12 years of volatile ranging. At the same time, we were treated to an historically powerful bull market in commodities. 

The U.K. has revealed for the first time what kind of trade deal it wants businesses to have with the European Union after Brexit -- and in British eyes, nothing will change.

Brexit Secretary David Davis said Britain will stay close to the EU’s regulatory regime after it leaves the bloc and only wants “the freedom” to go its own way if it chooses in future.

It’s quite possible that the U.K. will decide to replicate European regulations on financial services and other areas indefinitely, he suggested.

Davis’s comments represent the clearest statement so far on what U.K. Prime Minister Theresa May’s government is planning to do after Brexit. EU negotiators in Brussels have been calling for such clarity from the U.K. for months. However, there are signs already that Britain’s willingness to accept EU rules will infuriate the euroskeptic hardliners in her Conservative Party.

“The aim in this whole exercise will be to maintain the maximum possible access to the European market whilst at the same time exercising our own freedom over what we are going to do in the future,” Davis said. “I see my task as creating that freedom -- how far apart we diverge will be a matter for the government thereafter.”

It has been my view for some time that we have to not only think about what we view as the correct course of action, but to also examine the people who are in fact charged with making decisions, if we are to have any hope of predicting in what direction negotiations are to evolve. Personally, I would have voted for Brexit. If the election was held again today I would still vote for Brexit. I share the revolutionary zeal of many UK citizens to recapture autonomy from an increasingly authoritarian bureaucracy. However, regardless of my personal feelings the reality is that the people making the decisions are doing so for the whole economy and the vast majority of law makers voted to stay inside the EU.

Please review the charts below "Mine Supply since 1970 and Projection to 2030" produced by Dan Popescu via Thomson Reuters Eikon.  These charts indicate that in the coming years, the mine supply will be reduced by half of its supply during 2018.  Mr. Popescu is an independent gold/silver analyst whose projections in the mining supply are consistent with my own.  Few investors understand the gold industry, and the reasons for the approaching decline are numerous and industry specific.  An understanding of the gold mining industry is necessary in order to understand why the mining supply of gold is dramatically and rapidly shrinking.  Junior gold producers and new miners will have an almost impossible task to achieve what Tanzanian Royalty has already achieved thus far.  The analysis to support these charts is dry and complex subject matter, which I hope to provide in the most easily understandable read...  

Secular bull markets in commodities result in step-ups in the marginal cost of production. Prior to the commodity bull market, it was common to see production costs at around $200- $400. Today that figure is generally between $700 and $1000. Additional new supply needs to come in below $1200 to have any chance of development. Additionally, since prices were trending lower between 2013 and 2016 there were very few people who were willing to finance mining expansion plans of any hue, much less gold. 

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Some of the topics discussed include: Wall Street accelerating, Hong Kong Financials breaking out, gold steady at the upper side of its range, Bonds steady from oversold condition, discussion of high yield spreads as a lead indicator.

“The tax package is probably giving institutional investors more confidence about the shape of corporate balance sheets,” said Matt Maley, a strategist at trading firm Miller Tabak + Co. “Thus they might be making up for the selling that is coming from these products geared towards individuals, who are worried about the rise in government yields.”

U.S.-listed corporate bond ETFs are headed for a second consecutive month of outflows, the first time that’s occurred in at least seven years. The pain is across ratings. The iShares iBoxx Investment Grade Corporate Bond ETF, LQD, had the biggest day of losses last week since 2016, while BlackRock’s high-yield equivalent, HYG, is in the midst of its biggest two-month outflows on record.

If the withdrawals are a symptom that retail funds are losing their taste for fixed-income, the impact could be far-reaching. A tweet from DoubleLine Capital LP co-founder Jeffrey Gundlach Thursday -- who has previously warned underperformance may portend a selloff for risk assets -- noted the gap between junk ETF prices and stock gains.

On Bloomberg TV yesterday I was asked to comment on the uptick in high yield spreads. It was unfortunate that I did not have access to the chart, because I was speaking into a camera, so I had to rely on memory. However, I find it interesting that the junk bond market is garnering attention right now because the move has been so minor.  

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Brent Crude oil has not pulled back by more than $5 since June and continues to trend higher in a reasonably consistent staircase step sequence uptrend. Consistent trends are usually the easiest to analyse, so we can say with confidence that a reaction of more than $5 would be required to question the consistency of the advance. 

Modi, making the forum’s first speech by an Indian head of state in more than two decades, did not mention Trump by name but he criticized the rise of protectionism in remarks delivered three days before the U.S. President will address the summit.

“Instead of globalization, the power of protectionism is putting its head up,” Modi said, speaking in Hindi and causing an initial flurry in the audience of business and political leaders as people reached for their translation headsets.

“Their wish is not only to save themselves from globalization, but to change the natural flow of globalization.”

Modi is leading a big government and business delegation to the summit in the Swiss ski resort of Davos, aiming to showcase India as a fast-growing economic power and a potential driver of global growth.

Modi’s speech in Hindi was as much about speaking to the people at home as it was about sending a message to the international community that India is open for business. 
 

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Hong Kong interest rates rise with those of the Fed. The Chinese export engine is back in fine fettle with Purchasing Managers Indices trending higher just about everywhere, but especially in Europe which is a major destination for goods. Additionally, Chinese banks trade at significantly lower multiples to their global peers. That is translating into a positive environment for the region’s banks. 

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Some of the topics discussed include: Wall Street hits new highs, Asia Firm, Germany testing its highs, UK softer on strength of the Pound, gold steady, platinum key day reversal, Treasury yields at new recovery highs.

In a quirk of the globalized technology arena, Dr. Wu can forge ahead with the tool because he faces few regulatory hurdles to testing it on humans. His hospital’s review board took just an afternoon to sign off on his trial. He didn’t need national regulators’ approval and has few reporting requirements.

Dr. Wu’s team at Hangzhou Cancer Hospital has been drawing blood from esophageal-cancer patients, shipping it by high-speed rail to a lab that modifies disease-fighting cells using Crispr-Cas9 by deleting a gene that interferes with the immune system’s ability to fight cancer. His team then infuses the cells back into the patients, hoping the reprogrammed DNA will destroy the disease.

In contrast, what’s expected to be the first human Crispr trial outside China has yet to begin. The University of Pennsylvania has spent nearly two years addressing federal and other requirements, including numerous safety checks designed to minimize risks to patients. While Penn hasn’t received final federal clearance to proceed, “we hope to get clearance soon,” a Penn spokeswoman said.

Let’s for a moment consider that different countries have different ethical priorities. After all, we come from highly varied cultural and religious backgrounds. However, the cold reality is China is the wild west of biomedical experimentation. That virtually ensures there will be a human cost. These might be brushed off, by claiming the patient would have died anyway, but there is no doubt the standard of care and Hippocratic oath do not mean the same in China as it does elsewhere. 

Very good weekly video last Friday, Eoin. Your comment that Africa could be the next India in 20 years was very interesting: I agree given the demographics, but am sure it will be a bumpy ride, with different countries as winners and losers. Can you recommend some good Africa funds / ETFs for a UK based investor?

Thank you for your kind words and I’m delighted you enjoyed the weekend big Picture Long-Term Audio. It is hard to fathom just how underdeveloped Africa is so the bumpy ride is virtually assured.

The continent is truly vast; encompassing a land mass equal to China, India and much of Western Europe combined. It is home to a massive diversity of peoples and languages, but more important than those factors is to appreciate just how underdeveloped the continent’s capital markets are. There are 1528 companies listed on the continent of Africa.  405 of those are listed in South Africa and 259 in Egypt. Therefore, two countries account for almost half the listed companies in Africa. 

If we see mortgage rates at more historical levels, house prices can’t stay where they are,” Stack said. Corp

A rate rise from 4 to 5 percent for a 30-year loan would drive up monthly mortgage costs by 12 percent. For buyers, that’s on top of the annual median price gain -- 7 percent for existing homes in November, according to CoreLogic. By comparison, disposable income, or earnings adjusted for taxes and inflation, increased just 1.9 percent, according to data from the Bureau of Economic Analysis.

Bill McBride, who runs the Calculated Risk blog and also called the crash, doesn’t think home prices are inflated this time around. Unlike in 2005, lenders are acting responsibly and the Wild West of real estate speculation hasn’t returned, he said. There is less to speculate on, too. Compared with the overbuilding that preceded the bust, today’s pace of construction isn’t fast enough, he said.

“Lending standards are still pretty good,” McBride said, and he doesn’t expect mortgage rates to “take off” in the short term.

There is no doubt the US housing market is heating up. The number of fliers coming through my letter box has been trending higher, particularly since October. The latest one arrived on Saturday and detailed the asking price, final sale price and number of days on the market for a 5 square block area around my home. The majority sold in less than 7 days and for $100,000 over asking. One sold in 22 days and for a $100,000 less than asking, but the final sale figure was in line with what was paid for the other homes. 

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"I don’t think the deal per se will end" as inventories near the five-year average, said Bjarne Schieldrop, chief commodity analyst at SEB AB. The Declaration of Cooperation -- the 2016 accord that first established the group of 24 oil producers-- will still stand, but be modified to allow for production cuts to gradually unwind from mid-2018, he said.

Giovanni Staunovo, commodity analyst at UBS Group AG, expects a similar outcome. Citigroup Inc., whose data show that global oil stockpiles are already back in line with the five- year average, predicts a summer agreement to ramp up production.

The oil producers themselves say they’re sticking to the plan. While Russia’s Energy Minister Alexander Novak told reporters on Jan. 12 that the meeting in Oman could include discussion of mechanisms for gradually exiting the cuts, four days later he affirmed that the pact should continue. Ministers from the United Arab Emirates, Iraq and Kuwait also insisted there’s no need to change tack.

Sometimes it is imperative to keep an eye on the price action. Over the course of the last few days I’ve seen one headline after another reporting the ‘collapse’ in oil prices or the major reversal seen from the intraday peak. I’m reminded of Mark Twain’s quip “the report my death was an exaggeration.” 

The upstart Indian mobile carrier backed by the country’s richest person posted its first quarterly profit almost 16 months after storming into the market with free calling and data at no charge on an introductory basis.

Net income at Mukesh Ambani’s Reliance Jio Infocomm Ltd. was 5.04 billion rupees ($79 million) for the three months through December, the company said Friday. It posted operating revenue of 68.79 billion rupees and had 160.1 million subscribers at the end of the quarter.

Jio’s ability to add subscribers and hold down costs suggests its gains on rivals including No. 1 carrier Bharti Airtel Ltd., which reported Thursday that profit fell for a seventh straight quarter, may be sustainable. After starting a price war that forced some smaller providers out of the industry, Jio is acquiring spectrum, tower and fiber assets from debt-laden Reliance Communications Ltd., controlled by billionaire sibling, Anil Ambani.

That deal puts Mukesh Ambani back in control of assets he handed to Anil Ambani in 2005 as part of an agreement to settle a family dispute.

Jio, now the country’s fourth-largest carrier, is also getting a tailwind from declines in its costs for interconnection fees. The Telecom Regulatory Authority of India reduced interconnect charges by 57 percent to 0.06 rupees a minute from October last year and plans to cut them to zero starting Jan. 1, 2020.

Jio spent 10.8 billion rupees on access charges in the third quarter, compared with 21.4 billion rupees it had spent in the three months through September, the company said.

Veteran subscribers will be familiar with my enthusiasm with the roll out of 4G mobile internet connectivity in India but I don’t think it can be underestimated. India has a major issue with the lack of educational achievement and availability for its millions of impoverished people.  Illiteracy is one of the most profound obstacles to personal development so anything that helps to promote productivity growth potential is to be welcomed.

Deemed repatriation is significantly less fictional than remeasurement of deferred tax assets. Under the old tax system, U.S. companies were taxed on all of the income they earned everywhere, but only when they brought it back to the U.S.; they could defer taxes on foreign income by keeping it offshore. The new tax system is mostly territorial -- U.S. companies pay U.S. taxes on U.S. income and foreign taxes on foreign income -- but there is a one-time "toll tax" on foreign income previously earned abroad. That tax is at a much lower rate than the old (or new) corporate tax rate -- 8 or 15.5 percent instead of 35 (or 21) percent -- but it has to be paid over the next eight years, whether or not the money is actually brought back onshore. So, for companies that were planning to keep their foreign profits offshore forever, this is an actual new cost. (For companies like Apple Inc. that had already accounted for the cost of bringing the money back at 35 percent, though, it creates an accounting profit.) American Express really will have to pay that $2 billion of taxes over the next eight years. Perhaps it would have ended up paying more than that anyway under the old regime, if it had brought the money back, but it will definitely pay that much under the new regime. So, it needs to find $2 billion, and that is money that it cannot pay out to shareholders.

Apple has decided to bring its money home so it will pay the tax on it and is hoping to boost its domestic image by hiring more people and building a new campus much as Amazon is doing. For Citigroup the tax code change is an accounting fillip but nothing more, while for companies like Amex it is rather meaningful.
 

Global holdings in gold exchange-traded funds soared to the highest level since 2013 as investors got behind a rally in the metal. Most of the inflows were into SPDR Gold Shares, a U.S.-based ETF favored by money managers with a short-term view for its relatively high liquidity and narrow bid-offer spread. Gold has jumped 2.4 percent this year, touching the highest price in four months, as the dollar fell, Chinese consumers stocked up for the Lunar New Year and signs of global inflation picked up.

ETF holdings of gold represent an important and potentially pivotal marginal buyer for the yellow metal. Central banks are generally not overly volatile in their actions while jewelry demand, which admittedly is subject to season variations, is also reasonably steady. Investors on the other hand tend to come back to the gold market in times of uncertainty such as when the Dollar weak of inflationary pressures are mounting. 

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Consumers are increasingly asking: Is this a need or a want? A discernible gap between the rate of price increases for necessities and the one for discretionary purchases is putting the Federal Reserve’s tightening path at risk of veering off course.

Making matters more difficult, the Fed’s preferred inflation gauge does a pitiful job of capturing the quandary facing many households that live paycheck to paycheck. The so- called core PCE is the central bank's go-to inflation metric. It is derived by netting out the necessities of food and energy from personal consumption expenditures. But the core PCE also minimizes the weight of rent and over-emphasizes health care due to Medicaid and Medicare’s inputs.

Classify the following items within the core PCE as necessities and then track them as an aggregate using what we can call the Household Budget Inflation Gauge. Included are food and nonalcoholic beverages, fuels, clothing, housing, utilities, health care, health insurance, homeowners’ insurance, auto insurance, higher education and the phone, utility and internet bills. As of the latest reading, these costs are rising at a 2 percent rate compared with last year.

Now throw all of the rest of the discretionary items into what we can call the Household Wish List Inflation Gauge and you will see that these items’ prices have been rising at a pace of 1.5 percent.

Yet if you insist on comingling these baskets and then throwing out food and energy, you will by flying as blindly as the most dovish members of the Federal Open Market Committee.

The triumph of the subscription model means that there is an increasing number of calls on income that did not exist a decade ago. Only today my iPhone told me I needed to upgrade my iCloud storage. Netflix is now a staple for many households, Amazon Prime has hundreds of millions of subscribers. Microsoft has also successfully transitioned to a subscription model with Office 365. 

There is a “clear danger” that South Africa’s state-owned power utility, Eskom Holdings SOC Ltd., could default on its debt, S&P Global Ratings said.

“We are very concerned about liquidity issues,” Konrad Reuss, the managing director of S&P for sub-Saharan Africa, said at an event in Johannesburg Thursday.

Eskom is the biggest recipient of state guarantees at a time when domestic power demand is the lowest in more than 10 years and as South Africa’s finances buckle under lower tax revenue and rising debt. The company needs 20 billion rand ($1.6 billion) of funding by the end of its fiscal year on March 31, the Mail & Guardian newspaper reported last week, citing the utility.

Yields on Eskom’s bonds climbed after the comments, with the rate on dollar debt due in January 2021 rising 54 basis points to 6.37 percent, the highest since Nov. 14, at 1:29 p.m. in Johannesburg.

Finance Minister Malusi Gigaba on Tuesday said Eskom’s state keeps him awake and is his “biggest worry.” He spoke before meeting some of the utility’s lenders on the same day to address the utility’s financial problems.

Goldman Sachs Group Inc. in September said that Eskom was the biggest single risk to the South African economy and that the government needed to replace its management.

The South African economy has endured years of mismanagement under Zuma’s administration with the net result that the national power utility is barely fit for purpose and educational achievement is worse than during the apartheid era for black children. Keeping the lights on is a basic requirement but the prospect of a new administration is bolstering investor opinions about the prospect for improvement. 

"There’s still a mountain of debt and major structural challenges to address. But compared to hard-landing fears in early 2016, and expectations of a pronounced slowdown at the start of the year, China’s economy outperformed in 2017."

In a year that began with fears of a trade war with a newly elected Donald Trump, exports turned back into a growth engine for the world’s factory floor. The contribution of net external trade to growth improved by around 0.4 percentage point in real terms last year, “more than fully explaining the pick-up” in GDP growth, said Louis Kuijs, head of Asia economics at Oxford Economics in Hong Kong.

Reflation was also key to boosting company profits and raising their ability to service debt. The GDP deflator for the full year, a gauge of economy-wide inflation, came in at 4.33 percentage points, while nominal growth accelerated to 11.2 percent. GDP in those terms grew to 82.7 trillion yuan ($12.9 trillion) -- up 8.4 trillion yuan in the year.

"Another Indonesia created in one year!" said Jim O’Neill, former chief economist at Goldman Sachs Group Inc. "The nominal GDP size confirms China has diminished the previous deflation risk and silly comparisons with 1980s Japan were just that, silly."

There is nothing quite like synchronised global economic expansion to flatter the prospects for exporters as demand increases for just about everything. That is helping China to outperform expectations and eases the burden on the economy from the efforts underway to deleverage the shadow banking system which primarily affects unlisted regional lenders. 

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Some of the topics covered include: Wall Street rebounds with decline in VIX from intraday highs, bonds weak, commodities steady, continued optimism about the role of tax cuts in boosting earnings, pace of innovation in cryptocurrencies a threat to bitcoin.

Taxes drove much of the gains. Financials were strong after Bank of America Corp. beat estimates and indicated that it could benefit from the U.S. tax overhaul by reducing pressure to cut future costs. And Apple Inc. climbed after saying it will bring hundreds of billions of dollars back to the U.S. from overseas to invest in jobs and facilities.

“We’re all really trying to figure out the real impact off tax reform on some of the major sectors,” said Jamie Cox, a managing partner for Harris Financial Group in Richmond, Virginia. “Financials in particular have been in the news because you’ve seen some weird things with some of their deferred tax assets being reported in earnings. I think a lot of people misunderstood and don’t understand how the deferred tax assets work, and so they’re seeing these massive charges that the banks are taking as a result of tax reform and they can’t see too clearly into the future about how much the impact on tax reform is going to have on their bottom line three quarters from now.”

And

“A lot of the move that we’ve been seeing has been just the beginning,” said John Stoltzfus, chief market strategist at Oppenheimer & Co. “It’s hard to quantify, but we see some evidence of bull market bears as well as skeptics of this bull market finally beginning to capitulate. And when that capitulation starts, it’s a process.”

Buy and the dip strategies have been programmed into algorithmic systems so that every time the VIX index rallies more than 2 points the flow of funds moves back into equities and out of bonds. This is a very short-term example of how risk parity strategies are maneuvering in the current environment. 

The Brexit probe is part of a broader reckoning that Facebook, Twitter Inc. and Google’s YouTube are facing globally, as governments come to grips with the companies’ far-reaching influence on society, as well as vulnerability to manipulation.

Damian Collins, the chairman of the digital, culture, media and sport committee that’s leading the investigation, said social media companies must be more proactive in investigating the misuse of their services rather than wait for prodding from regulators. "They are best placed to investigate activity on their platform," he said.

Twitter, which has until Thursday to offer its own response to U.K. lawmakers, declined to comment.

Also on Wednesday Twitter said it would begin notifying U.S. users who had been exposed to Russia propaganda. In a hearing in Washington, U.S. lawmakers pressed executives from Facebook, Twitter and YouTube to act more aggressively to prevent the spread of terrorist-related content.

Responding to a broadening backlash, Facebook Chief Executive Officer Mark Zuckerberg has vowed to "fix" the social network, and last week made changes to its main news feed to ratchet back posts from businesses and media outlets in favor of those from friends and family.

There are a number of aspects to this story. The first from a British perspective is if Russian tampering in the Brexit vote is proven then it would lend support to those looking to hold another referendum. The basis of course being that the first plebiscite was tainted by propaganda which was also a charge during the campaign. I doubt it would overturn the decision.

Although rate normalisation has begun in the US, UK and Canada, we expect the RBA to stay on hold until the end of 2019. The Board are facing near-term weakness in domestic demand and continued sluggish wage growth, which will result in GDP growth undershooting productive potential and core inflation remaining around 2%. Against this backdrop, loose monetary policy is needed to support the economy2, and we expect the cash rate to remain at 1.5%.

The Australian dollar displayed its usual volatility in 2017, starting the year at below US73 cents, then rising and peaking above US81 cents in September, before drifting back to US75 cents in early December. The AUD finished 2017 at US78 cents, driven up in the last few weeks of the year by rises in key commodity prices. Moving through 2018, we expect this position to gently unwind. Iron ore and coal prices are expected to fall, with supply increases from major producers (including Australia) coming together with slower demand growth for both commodities. Coupled with this, our current macroeconomic outlook is significantly below consensus (2.5% v. 2.8%, Consensus Economics December 2017 survey), and we expect market sentiment to move against Australia as the economy underperforms current expectations and it becomes clear that the RBA won’t be raising rates in the near term (in contrast to the US, where we expect to see three rate rises this year). As a result, we expect to see the AUD drift down towards 75 US cents per dollar as we move through 2018. 

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Australia might be lagging in raising interest rates because of the overhang of consumer debt and high property prices but the 10-year yield is firming from the lower side of a yearlong range. 

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Huawei’s deal with AT&T to sell its phones in the USA has also fallen on hard times and suggests the Trump administration is willing to take a tougher line on Chinese overseas acquisitions. The arrest yesterday of a former CIA agent, suspected of leaking the identities of US agents in China, is another branch of what is a continually developing story of competition between two great powers. 

Thanks for the info on your personal portfolio. Is it possible to indicate in the first sentence if there has been an update in the text during that day? Thanks very much!

Thank you for this suggestion. So far, every time I have made a change to the portfolio I change the date in the title. In the section below, you can see that the last change I made was on January 16th. Additionally, any change will be found at the top of the section so you do not have to scroll to find it.

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

Some of the topics discussed include: A whiff of risk off coming into markets but Wall Street pares decline. commodities lower but reasonably steady, Dollar reverses rally, Bitcoin falls sharply

In weighing the two sets of forces that bear upon our clients’ portfolios, we draw the same conclusion now that we have since November 2013when US equities entered the ninth decile of valuations: that clients should remain fully invested in equities and beta-driven assets despite high valuations. We show why we believe US equities are not yet in bubble territory, and are driven instead by underlying earnings and continued economic growth. We also analyze the current low level of inflation volatility and its impact on equity valuation metrics. Finally, we provide our expected returns for 2018 and the next five years, including our tactical asset allocation recommendations, and dispel the persistent myth of mean reversion in equities and fixed income yield levels. We conclude with our key takeaways.

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I saw a headline this morning that the Dow Jones was more overbought on an RSI reading than at anytime in the last 114 years. That’s quite a record and highlights just how well the market has done since September amid a period of extraordinarily low volatility. 

A “dramatic” increase in U.S. bond supply over the next year risks unhinging global markets from their bullish foundations, warns Torsten Slok at Deutsche Bank AG.

The supply of U.S. government debt will almost double to $1 trillion this year to finance a widening budget deficit as the Federal Reserve whittles down its holdings. Unless new buyers emerge, the overhang could be far-reaching.

“If demand for U.S. fixed income doesn’t double over the coming years then U.S. long rates will move higher, credit spreads will widen, the dollar will fall, and stocks will likely go down as foreigners move out of depreciating U.S. assets,” the chief international economist at the German lender wrote in a note Tuesday. “And this could happen even in a situation where U.S. economic fundamentals remain solid.”

Those fears aren’t shared widely on Wall Street, where spreads on corporate bonds have sunk to 2007 lows and bullish indicators abound. The rally in credit appears relentless, retail demand for bonds is insatiable and tax cuts may reduce corporate borrowing.

Commercial banks, emerging-market reserve managers and pension funds are all set to plug the $1.1 trillion hole in global bond demand left by central banks this year, according to JPMorgan Chase & Co.

The US Treasury has a great deal of debt that matures in 2018 as we approach the 10-year anniversary of the global financial crisis. That is at least part of the reason the Federal Reserve is paring its holdings of debt, with plans to roll-off about half of the total maturing this year. Nevertheless, that still represents over $200 billion, in addition to whatever is required to fund the deficit, that needs to be absorbed by the market this year. 

I'm not sure whether you include 'The Economist' in your regular reading material. If so, you will have noticed that they have recently published several articles critical of India and in particular, critical of the BJP and of Modi. In last week's edition, a lead article plus a 'Briefing' suggested that wealth in India was confined to very few people and to get into the top 1% of earners you only needed an income US$20,000 a year. The articles were critical of infrastructure, of education, of the bureaucracy and of both the pace and direction of reform. They concluded that the Indian economy may be running out of puff and wondered from where it might get its second wind. As a consequence of an Asian-centric background, I have reasonably large weightings in China, India and Japan. I have no intention of reducing exposure to India (nor to China or Japan) but I would be interested in your views on The Economist's assertions particularly given your high regard for Modi and his government. All best.

Thank you for this topical question. Governance is Everything has been a mantra at this service since before I joined David in 2003. However, governance is not a static measurement. It is a relative consideration and the trajectory of governance rather than its absolute value is what we strive to identify. 

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Some of the topics discussed include: Third Psychological Perception Stage of a Bull Market, downside key reversal in China, stock markets susceptible to some consolidation of recent powerful gain, Euro, Pound and precious metals remain firm, Bund yields testing the upper side of a yearlong range.

It looks to me that European shares are lagging more and more the US and Far east shares. with this euro/usd head storm instead of headwind Europe will follow the USA a little on the way up but I fear will probably follow the USA every step of the way down when this market eventually starts to correct. I fail to see the reasons for this strong euro. could you please give your expert opinion?

Europe has lagged for much of the decade for a variety of reasons, but the region’s decision to impose a sovereign debt crisis rather than force bankruptcies is among the chief reasons for underperformance. The questions about the sustainability of the Eurozone that the fiscal austerity pledge engendered have been partially averted by the ECB’s massive quantitative easing program but tapering is already underway so growth will need to continue to trend higher if more revolts against the status quo are to be avoided. 

South Africa’s Hawks police unit has obtained an arrest warrant for at least one of the members of the politically connected Gupta family, City Press reported.

The unit is now waiting for prosecutors at the National Prosecuting Authority to sign the warrants so that the arrests can be made, the Johannesburg-based newspaper reported on its website, citing an official at the Hawks it didn’t name. The official couldn’t say which of the three Gupta brothers -- Ajay, Atul or Rajesh -- would face arrest.

Former Public Protector Thuli Madonsela had ordered an inquiry into allegations that the Guptas may have influenced the appointment of cabinet members in President Jacob Zuma’s administration and received special treatment for a coal business linked to the family and one of the president’s sons.

This was part of Madonsela’s report about state capture, a term used to describe influence over government appointments and the awarding of state contracts.

Zuma and the Guptas have denied wrongdoing.

“We have not applied for an arrest warrant against any member of the Gupta family,” Hawks spokesman Brigadier Hangwani Mulaudzi said by phone from Johannesburg. “We are investigating a number of cases related to the issue of state capture, some of which have passed their stage-one levels, and we are awaiting direction from the National Prosecuting Authority.”

Ajay Gupta didn’t immediately respond to a phone call and text message seeking comment.

Power is always subject to corruption so the strength of a nation’s checks and balances goes a long way towards informing out view of whether governance is improving or deteriorating. South Africa has an independent judiciary. That is not a boast many emerging markets can make and it has been the cornerstone of attempts to combat the deteriorating standards of governance represented by Zuma’s premiership. 

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The triumph of the buy and hold strategy is representative of the 2nd psychological perception stage of a bull market. Both share buybacks and passive investing withhold supply from the market which widens the imbalance between supply and demand and contributes to trends becoming more consistent. When this is considered an inevitability rather than a possibility we can conclude the transition in the 3rd psychological perception stage has begun.

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Here comes another sign that the few remaining bears are finally giving up.

Investment flows going into stock funds worldwide jumped to $24 billion in the week to Jan. 10 - the sixth largest weekly inflows ever - while $13 billion went into corporate and emerging markets bonds, according to strategists at Bank of America Merrill Lynch, who said the data show the market is reaching “maximum bullish” levels.

“Peak positioning on its way, but we expect asset prices to overshoot first,” the strategists led by Michael Hartnett wrote in a note, saying that to get a proper “sell signal,” they still need to see fund managers’ cash levels falling below 4.3 percent in their next monthly survey, as well as further inflows into high-yield bonds, emerging market equities and emerging market debt in the coming weeks.

Among recent signals that stocks are overheating: the proportion of bullish participants in the American Association of Individual Investors hit a seven-year high earlier this month, most major equity benchmarks around the world trade at overbought levels, and the S&P 500 has reached its most expensive level since 2002.

Among many investors there is a realization that we are in the latter stages of an expansion although there is little evidence of top just yet, much less any sign of recession. 

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Vietnam benefits from its close proximity to China, low labour costs, large young population, trade friendly administration and a desire to progress from being a frontier market to a more conventional investment destination. 

The pound jumped to the strongest level since the Brexit referendum as Spanish and Dutch finance ministers were said to be working together for a deal that keeps Britain as close to the European Union as possible. Gilts declined.

Sterling rallied as much as 1.1 percent, the biggest intraday gain since mid-September, as the news rekindled optimism about the U.K. having continued access to Europe’s single market. Still, the rally was greeted with caution even by top sterling bulls, who said a more meaningful development is needed to maintain the currency’s strength.

“We’ll need substance in these reports plus a transition deal and positive U.K. data to keep the pound supported here,” said Viraj Patel, a currency strategist at ING Groep NV. “But it means the pound has taken out a really important resistance area and makes our call for $1.40 all the more likely.”

It has been my contention for months that a negotiated settlement remains the most likely outcome from the Brexit talks. That doesn’t mean it is the best solution or indeed the worst just the most likely. 

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Silver is often described as high beta gold and is best bought following reaction. The most react of these was in December when it tested the lower side of a more than yearlong range. It is now in the middle of that congestion area with the upper side somewhere in the region of $18.60. 

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

Some of the topics discussed include: Commonality in both equity markets appreciating but also government bond yields looking likely to breakout. oil pauses near $70, gold firms, resources sectors breaking out, Japanese banks extend breakout. 

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The primary message from this webcast is that a lot of good news is already in the price and the biggest surprise on the horizon is likely to be on the downside. 

Happy new year! The BoJ has surprised us! At yesterday's tender, it offered to buy Y190bn of bonds in the 10 - 25 year maturity range, a reduction of Y10bn. It similarly reduced bonds purchased in the 25+year maturity category. Well, this was unexpected and the 10-year yield has risen to around 8bps (!!). The BOJ's target, as we know, is zero. The yen has rallied sharply over the last couple of days. It's worth recalling that at this time last year, the BOJ was purchasing Y190bn of JGBs with 10 to 25 years of maturity left and Y110bn of 25 to 40-year JGBs. Thus, while the BOJ remains extremely accommodative, any change at the margin, however small, will cause a ripple or two. BOJ's action coincided with the stock market looking quite overbought in the short term and USD/Yen finding resistance around 114. All said and done, I can't believe that the BOJ will let bond yields rise too far away from their target.

Thank you for this informative email. Japan is one of the only countries in the world right now running both accommodative monetary and fiscal stimulus. However, let’s not also forget that creating inflation is the primary goal of these operations, hopefully from outsized domestic growth, but any inflation will do to help erode Japan’s massive quantity of debt. 

Russia’s Finance Ministry will buy about $4.5 billion in foreign currency over the next three weeks, increasing purchases after changes aimed at further limiting the economy’s dependence on oil.

The amount of additional budget revenue earned in January from oil and gas is expected at 257.1 billion rubles ($4.5 billion) as a result of higher crude prices, the Finance Ministry said on Wednesday. Under a so-called budget rule, the entire windfall will be spent on buying foreign currency in the domestic market, with daily purchases at 15.1 billion rubles from Jan. 15 to Feb. 1, it said in a statement.

The operations will help insulate the economy from the ups and downs in crude and shield the ruble’s exchange rate from volatility. The government is absorbing all revenue earned when Russia’s Urals export blend is above $40 a barrel, channeling the excess income into its sovereign wealth fund.

The Ruble accelerated to an important low in early 2015 which prompted the central bank to intervene and to push interest rates up to 17%. The collapse in oil prices into the 2016 low saw the currency hit a nadir but the interest rate and oil’s recovery resulted in a major short covering rally. 

In the video today, you emphasized the significance of recent moves by China regarding its currency and inflation.  These issues were discussed in length in a Mises Institute report which will be of interest to many readers.

Thank you for this interesting article which is representative of monetary conservativism that is a central theme in decrying the loss of purchasing power in fiat currencies since the abandonment of gold as a monetary base. 

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Some of the topics discussed include: Discussion of China's motivation in upsetting the Treasury market, yen firm, gold steady, oil rallies, stocks steady, industrial resources continue to outperform. Bund and Treasury yields testing the upper side of their respective ranges. 

At the same time, though, China is so heavily invested in U.S. public debt that it has an interest in keeping the market healthy, said Nathan Sheets, chief economist for PGIM Fixed Income, who served as Treasury undersecretary for international affairs in the administration of former President Barack Obama.

“If China were to do something that created uncertainties in the government securities markets, China is a major foreign holder of U.S. Treasuries, so it’s deeply invested in that market” and wouldn’t want to make any moves that could hurt its own position, Sheets said.

Sheets said the U.S. has withstood similar tests before over the past 15 years. China and Japan are the two largest holders of U.S. Treasuries and each have ramped up purchases due to currency interventions, only to slow down and cause market jitters. China most recently spurred concern in 2015 when it slowed investments. “That leads me to be pretty relaxed about this,” Sheets said. “There’s lots of demand for Treasuries from the U.S. and abroad.”

Nonetheless, China’s position as a major purchaser of Treasuries gives it some leverage to try to shape U.S. responses -- including the Trump administration’s tough talk on trade policy.

Why does China buy so many Treasuries? The simple answer is they need to sanitise the constant inflow of funds from the nation’s myriad exporting businesses lest the Renminbi soar. So, if the Chinese were to stop buying Treasuries, are they about to invest in Bunds at close to zero yields? That seems unlikely so this statement sounds like politicking rather than substantive action. 

The new system is codenamed Tangle Lake, a reference to an Alaskan lake chain and the tangled state of the electrons themselves. Quantum computers are extremely different from standard (classical) computers, and can tackle problems modern classical machines can’t handle. The reason increasing the number of qubits in the system is important is because it also allows for a significant amount of additional work to be done and for more complex problems to be considered. And according to Intel, the gap between where we are today and where the company thinks we need to be for commercialization of quantum computing is enormous.

“In the quest to deliver a commercially viable quantum computing system, it’s anyone’s game,” said Mike Mayberry, corporate vice president and managing director of Intel Labs. “We expect it will be five to seven years before the industry gets to tackling engineering-scale problems, and it will likely require 1 million or more qubits to achieve commercial relevance.”

Intel is also investigating another type of qubit, spin qubits, to see if they can be implemented in silicon. Spin qubits are much smaller and can potentially be implemented in CMOS and Intel has invented a spin qubit fabrication flow on “300mm process technology.” This is oddly phrased, but seems to indicate Intel is building these chips on its 300mm wafers as opposed to some new process node.

The fallout from the exposure of vulnerabilities in the vast majority of chips currently in computers all over the world is going to necessitate a rethink of how to deliver the best possible processing speeds at an attractive price. For too long the semiconductor business has paid scant attention to the threat of hacking but with the increasing digitization of the global economy it is an issue that can no longer be simply ignored. 

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The mining sector went through a painful process of rationalization between 2011 and 2015 which resulted in exploration being cancelled and development of new mines being shelved. A substantial and sustained price rally is generally required to encourage new supply into the market following such an event. After two years of rallies the first signs of interest in developing new supply are now being seen but it will take time for it to come on line. 

“The investment in Nickel West makes sense regardless,” said James Eginton, an analyst at Sydney-based Tribeca Investments Partners Pty, a BHP shareholder that’s urged the producer to extend its suite of commodities to tap rising battery demand. Efforts to refocus the business will either boost the value of a sale, or lift the unit’s cashflow if the assets are retained, he said.

BHP began building a nickel sulphate plant at Nickel West in recent weeks and is considering a slate of further expansions to make it the largest source of the material and a hub for other battery ingredients. It’s aiming to sell 90 percent of output into the battery supply chain by about 2021, from less than a third at the end of last year. Global nickel demand could more than double by 2050, fueled in part by rising electric vehicle sales, Bloomberg Intelligence said in a June report.

The world’s biggest mining companies are ratcheting up their response to the booming demand for battery raw materials.

Rio Tinto Group is developing a lithium project in Serbia, while Glencore Plc plans to double production of cobalt and is effectively “a one-stop-shop” for investors seeking exposure to EV gains, Sanford C. Bernstein Ltd. said in a note this month.

A measure of just how technology focused the automotive sector has become is how many CEOs have turned up at the Consumer Electronics Symposium (CES) this year. When I attended two years ago Faraday Futures stole the show but this year Ford and other manufacturers were keen to lay out their electric car ambitions. 

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

Thanks for your insights as always into the markets.

I didn't fully understand what you meant by 'social media inflation' and wondered whether you could expand on this?

All the best

Thanks for this question which may be of interest to subscribers. I’m pretty sure I said socially driven inflation but in an hour long broadcast I could certainly have been subject to a Freudian slip. The essence of the question is if technology is inherently deflationary and commodity use represents a fraction of its former influence on the economy, what will be responsible for driving a fresh inflationary cycle? 

Is it possible for you to publish a table of the Autonomies according to their dividend yield? This would be of interest to subscribers who need dividend income.

Thank you for this request and here is an up to date version of the spreadsheet I use to reweight the Autonomies fund on a quarterly basis. 

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Saudi Arabia is not exactly the most politically secure place in the world right now which is going to have an influence on the valuation of Saudi Aramco. Exxon Mobil is the company that tends to get the most accommodative treatment from investors because of its long history of dividend increases and good governance. The big question for Saudi Arabia, regardless of reserves, is what kind of discount the market will demand for accepting the governance risk attached to the company. That is especially true with the UK having had to alter disclosure rules in its efforts to secure the IPO. 

A very happy new year to you and David. I just watched this TED Talk from October and found it important enough to share. I've passed it on to friends and family because I believe the message is even more important today. As most equity markets seem to be accelerating to the upside, don't you think the downside risks become more pronounced? Would like your thoughts on the talk -  All the best!

Happy New Year and thank you for this question which is an important consideration as the cycle matures. 

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China’s property market represents a potent source of potential trouble at some point in the future. However, it has not stopped going up, and until it does the layers of leverage that constitute every bull market will not be exposed. 

The company is also looking at a joint venture with OCI Company Ltd. to build a separation plant in South Korea.

According to Arafura the Nolans Bore rare earths-phosphate deposit is "one of the largest and most intensively explored deposits of its kind in the world." The deposit contains a JORC-compliant mineral resource of 56 million tonnes at an average grade of 2.6% TREO that extends to 215 metres below the surface. Two-thirds of the contained rare earths are in the measured and indicated category.

Arafura estimates the project would create an investment of about $900 million in Central Australia, as well as 250 to 300 permanent jobs.

An environmental approval from the Australian government and a final approval from the state government still need to be obtained.

The mine could supply up to 10% of world demand for neodymium and praseodymium, used in the manufacture of magnets for wind turbines, and electric vehicles.

Rare earth metals represent vital parts of the evolving technology sector and not least for renewable energy, batteries, defence and computing. Since China dominates the sector and has already demonstrated it is willing to use its position as both a geopolitical and economic tool, there are solid arguments for developing more varied sources of supply. 

Shares of Tesla jumped Tuesday after Morgan Stanley's Adam Jonas, a widely-followed analyst on Wall Street, raised his 12-month price forecast on the electric vehicle maker.

General Motors recently announced plans to roll out a line of 20 all-electric vehicles over the next six years. Ambitious plans like these from traditional automakers have raised fears about more competition ahead for Elon Musk's company, but Jonas said Tesla's existing infrastructure "footprint" will be a "key differentiator" over the coming years, further boosting the stock.

"Infrastructure (of lack thereof) is the 'elephant in the room' of the EV revolution," wrote Jonas in a note late Monday. "Compared to other OEMs (Original Equipment Manufacturer), Tesla has made the biggest proprietary investment in superchargers and destination chargers globally. In most communities, we believe this infrastructure is larger than it needs to be in preparation for the expansion of the serviceable and charge-thirsty fleet. Other OEMs will closely watch how consumers react to this infrastructure."

Hardware is hard. GoPro is in search of a savior and Fitbit is languishing. Both rely on OEM manufacturers to produce their products while Tesla has broken the mold for new hardware companies by building manufacturing capacity from scratch. It helps that the company is building big ticket items like cars instead of trinkets but still manufacturing is fraught with complexity. 

Following a breakthrough in Brexit negotiations late last year, May starts 2018 in a stronger position than she has enjoyed any time since her disastrous general election performance, which saw the Tories lose their Parliamentary majority.

Even so, as Brexit continues to dominate British politics, May must strike a delicate balance by maintaining equal numbers of euroskeptics alongside those advocating for close ties to the European Union.

Brandon campaigned against the U.K. leaving the EU, subsequently accepting the result of the 2016 referendum.

Meanwhile, we analyzed what the unexpected departure of the experienced James Brokenshire as Northern Ireland secretary could mean for Brexit given that the border issue is one of the trickiest in negotiations. Read about it here.

The nature of coalitions is they offer outsized influence to small parties who subsequently fail to achieve the majority of their aims despite the lift power gives to their profile. The Liberal Democrats in the UK and the Labour Party in Ireland are both good examples of the dangers of power for small parties. 

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Brevan Howard Asset Management’s flagship macro hedge fund lost 5.4 percent last year, recording its worst annual performance since starting in 2003, according to an investor letter.

The Brevan Howard Master Fund, which managed $5.5 billion at the end of November, was flat last month, the letter showed. The full-year loss reverses the money pool’s 3 percent gain in 2016. A spokesman for the Jersey-based investment firm run by billionaire Alan Howard declined to comment.

Some of the largest hedge funds betting on economic trends in developed markets continued their poor performance in 2017 as a lack of volatility and central-bank interventions made it difficult for them to make money. Macro hedge funds returned an average of 3.8 percent on an asset-weighted basis during the first 11 months of last year, making them the worst-performing strategy of the year, according to Hedge Fund Research Inc.

This additional article highlights how Crispin Odey’s fund lost 20% last year. The lack of volatility means that long/short strategies under perform. Hedging strategies deter for performance when they expire worthless. In fact, anything other than a leveraged momentum strategy would have been unlikely to outperform the primary indices last year. An alternative would have been to be highly concentrated on the FAANG stocks but that is not what hedged fund clients pay such high fees for.

“Because there is only one lithium ion per one cobalt, that limits of how much charge can be stored. What’s worse is that current batteries in your cell phone or laptop typically only use half of the lithium in the cathode.”

The [Northwestern] fully rechargeable battery starts with four lithium ions, instead of one. The current reaction can reversibly exploit one of these lithium ions, significantly increasing the capacity beyond today’s batteries. But the potential to cycle all four back and forth by using both iron and oxygen to drive the reaction is tantalizing.

“Four lithium ions for each metal — that would change everything,” Wolverton said. “That means that your phone could last eight times longer or your car could drive eight times farther. If battery-powered cars can compete with or exceed gasoline-powered cars in terms of range and cost, that will change the world.”

Cobalt is both expensive and rare so it is not the best candidate for use in mass market applications; particularly where there is significant room to scale such as in electric vehicles. Therefore, a race is underway to get an alternative chemistry up and running which can replace cobalt. Lithium iron oxide is one of a number of candidates vying for attention so are solid state batteries and zinc oxide batteries.

Colombia’s currency is the world’s top performer in the early days of 2018, and Renaissance Capital is forecasting more gains ahead for what it sees as one of the best bets in emerging markets.

The peso has rallied 3 percent this month following a lackluster 2017 that left it almost unchanged and toward the bottom of the pack for developing-nation currencies. It closed at 2,887 per dollar Thursday, its strongest level since May, amid gains in oil, the country’s biggest export. The peso slipped 0.4 percent Friday to 2,899 per dollar as of 9:28 a.m. in New York.

Even so it’s almost 40 percent undervalued in a real effective exchange rate model, according to Charles Robertson, the global chief economist at RenCap in London, who said the dramatic difference had him double-checking his worksheets.

The Colombian Peso almost halved in value between the middle of 2014 and early 2016 as the value of the legitimate commodities it exports collapsed in value. The continued strength in oil prices coupled with synchronized global economic expansion suggests the outlook for Latin America’s commodity producers is improving. 

Re Japan, you discussed previously how one might get exposure to the Japanese financial sector. One obvious candidate would be the NYSE quoted ADRs in Nomura. In the past the Topix Securities Index has moved in line with the Japanese Banks Index. My question is do you think that times have changed so much that a stock like Nomura is no longer a good geared play on the Nikkei?

Thank you for this question which may be of interest to other subscribers. Japanese banks have been laboring under the low interest rate regime for what must feel like forever but the introduction of simultaneous monetary and fiscal stimulus during a period of synchronized global economic expansion has the potential to kick start inflation not least because of labour shortages. 

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Some of the topics covered include: evolution of the third psychological perception stage of the bull market. gold potentially picking up some interest following bitcoin's peak, stock market leadership and potential for catch up. 

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We do not yet have evidence of bubbly activity in the majority of assets, with bitcoin and the other cryptocurrencies representing the most obvious exception. 

News of the weakness, found last year and reported Tuesday by The Register technology blog, weighed on shares of Intel, the biggest semiconductor maker, while boosting rivals including Advanced Micro Devices Inc. Intel’s silence for most of Wednesday added to investors’ unease.

Late in the day, Intel, Microsoft, Google and other tech bellwethers issued statements aimed at reassuring customers and shareholders. Intel said its chips weren’t the only ones affected and predicted no material effect on its business, while Microsoft, the largest software maker, said it released a security update to protect users of devices running Intel and other chips. Google, which said the issue affects Intel, AMD and ARM Holdings Plc chips, noted that it updated most of its systems and products with protections from attack. Amazon.com Inc., whose AWS is No. 1 in cloud computing, said most of its affected servers have already been secured.

Every other month we have news of just how porous the devices we rely on for just about everything are to exposing our personal information. This is a significant challenge for the IT sector in all its forms. The argument for increasing reliance on the internet, cloud and Internet of Everything is completely dependent on security, lest the devices we employ be used against us. This represents a cost which both in terms of speed and convenience but potentially also money for consumers and represents a challenge for corporations to keep under control.

Boeing Co.’s XS-1 (Experimental Spaceplane), which the company dubs “Phantom Express,” got a green light this week by the Defense Advanced Research Projects Agency, or Darpa. The XS-1 is designed to quickly lift satellites as heavy as 3,000 pounds into orbit for $5 million or less, launching from the ground, deploying a small upper-stage module, and then landing like a traditional airplane—the key to reuse and lower operating expense. Darpa also has a separate program aimed at launching 100-pound satellites for less than $1 million per launch, using conventional aircraft.

“The XS-1 would be neither a traditional airplane nor a conventional launch vehicle but rather a combination of the two, with the goal of lowering launch costs by a factor of ten and replacing today’s frustratingly long wait time with launch on demand,” Jess Spoonable, a Darpa program manager, said in a May 24 statement.

It has long occurred to me that the stealth bomber had its maiden flight in the late 1980s, but only entered service years later. Then I think about how different the original iPhone is from what I carry around. 

The Trump administration on Thursday will free federal prosecutors to more aggressively enforce marijuana laws, effectively threatening to undermine the legalization movement that has spread to six states, most recently California.

The Justice Department is expected to rescind an Obama-era policy of discouraging federal prosecutors from bringing charges of marijuana-related crimes in states that had legalized sales of the drug.

It was not immediately clear whether the administration intends to carry out a federal crackdown on marijuana dispensaries, or is merely rattling its saber.

The Associated Press first reported the announcement, and a government official familiar with the matter confirmed that the change would be announced later on Thursday.

This announcement acted as a catalyst for profit taking on cannabis related shares today as it introduces an additional risk to the market. Nevertheless, it also highlights the potential for a confrontation between the states and the Federal government about what is and is not permissible and who has sway over what can be consumed. Until the situation is resolved the potential for volatility is non-trivial. 

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Today's video focused on a review of commodities, related stock markets and individual companies.

New Year greetings to you and David and all FT members. About a year ago on the site there was a presentation on the new technological revolution, given by Mr. David Brown. It covered AI, robotics, cyber security, biotechnology, healthcare and the like. It was all wonderful stuff, but how do I deal in the shares and ETF's mentioned? I'm with Barclays - an ISA and spread betting account - and they have little coverage of these areas.

Happy New Year to you and to everyone in the Collective of subscribers Thanks for this question which is sure to be of interest to other subscribers. This article from the Telegraph dated 2014 explains how to invest in overseas shares through your ISA. Here is a section:

A crucial question: can you put your overseas stocks in your Isa or pension? HM Revenue & Customs' rules forbid foreign currency in an Isa, so you have to use the costlier, sterling conversion approach to buy foreign shares in your Isa, converting back to pounds when you sell. The Isa accounts operated by Hargreaves and TD allow foreign stocks to be held in this way.

Disappointingly, Barclays' systems do not allow any overseas stocks to be held within an Isa.

With self-invested pensions, or Sipps, you can hold and trade in foreign currencies. So you can have part of your Sipp denominated in dollars if your broker (such as TD) offers the facility. Hargreaves Lansdown doesn't offer the service and Barclays, again poor in this respect, doesn't allow any overseas stocks within its pension accounts.

Thanks to a subscriber for this interview of Charlie Munger at the University of Michigan which is worth taking the time to watch not least for his unique iconoclastic perspective, comments on cryptocurrencies and management styles.  

We can see immediately that more production means a larger GDP and that more production requires more workers, ceteris paribus (that is setting aside other considerations that can affect employment such as automation, productivity etc.). Most of the workers in any country would be its nationals. So usually a country’s desire to raise its GDP has a lot to do with the wish to create more employment for its people. But I would argue that Japan’s situation is quite different.

Japan’s labour force is shrinking. It has been shrinking at the rate of 0.4% in the past decade and by all accounts the rate of decline will rise in the coming years. So unsurprisingly Japan’s unemployment rate is very low. Unemployment rate has fallen below 3% recently, which makes Japan’s unemployment rate among the lowest in the world. True, Japan still has a large source of untapped labour; women’s participation in the job market is very low. And that is a pressing issue but it is not really relevant to this discussion. Perhaps I might write about women’s participation in the job market one day but for now, regarding whether moving some manufacturing to the US isn’t such a bad idea, suffice to say that Japanese manufacturers are facing difficulties filling job vacancies in Japan because of Japan’s shrinking labour force and ultra low unemployment rate.

Japan’s challenge today is not about reducing unemployment. Japan’s challenges today are about coping with the social costs of and economic headwind from an aging population and a shrinking labour force. 

So we see that the raison d’être for GDP is no longer that compelling for Japan. Japan should aim to maximise its gross national income (GNI) instead.

Japan is a case study for how other countries with substantial national assets, globally oriented manufacturing centres, aging populations and threatening deflation can cope and prosper.
 

Prices for the heating fuel rose to the highest in a month as the U.S. burned the most natural gas ever on Monday, breaking a record set during the so-called polar vortex that blanketed the nation’s eastern half with arctic air in 2014, Bloomberg News reports. America consumed 143 billion cubic feet of gas as temperatures dipped to all-time lows on New Year’s Day, topping the previous high of 142 billion from four years ago, data from PointLogic Energy show. Ice in the Hudson River delayed fuel-barge deliveries, as the government warned of a home heating-fuel shortage from the East Coast to Texas. Natural gas prices have jumped 19 percent from a 10-month low on Dec. 21. U.S. retail diesel prices averaged $2.87 a gallon on New Year’s Day, the most since June 2015, according to AAA.
 

I drove up to Big Bear Lake Tuesday afternoon and there is no sign of the cold wracking other parts of the USA. Talk around town is much more about global warming and the shortening season because of the lack of snow. We took ski lessons this morning which is responsible for the late posting of Comment of the Day and the Subscriber’s audio for which I apologise.  

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

The currency jumped, sapping stocks, and bonds slid as a slew of data signaled a potential uptick in inflation in the euro area, after manufacturing growth accelerated to a record in December. The numbers followed comments at the weekend from European Central Bank policy maker Benoit Coeure, who said that unless inflation disappointed there’s a “reasonable chance” the central bank’s extension of QE in October could be the final one.

While Coeure didn’t mention the exchange rate, his comments were a boon for euro bulls and coincided with a period of ongoing dollar weakness. The common currency’s strength is translating into a painful start to the year for Europe’s export-heavy stock markets, while bonds have picked up where 2017 left off, with benchmark German bund yields rising to the highest since October.

“The ECB suggestion that bond buying will not be extended is likely behind the recent push higher in the euro,” said Neil Jones, head of currency sales at Mizuho Bank Ltd. in London. “My sense is the euro will extend beyond its three-year high in the next two weeks.”

If I had to pick one market to watch on a daily basis in 2018 it is German Bunds. Germany has benefitted enormously from the ECB’s bond buying program and has enjoyed borrowing costs that were previously unimaginable. With negative yields on bonds out to seven-year maturities there is significant scope for re-rating when the ECB eventually exits its program. 

Happy and prosperous New Year to you and David and all the staff at “Fuller Tracey Money”.

I compliment you on the outstanding “Year-end Big Picture” video.  Your assessment of the interaction between the social, political and financial considerations is particularly insightful and gives me, and all your readers, a firm base on which to plan our investing for 2018.  Towards the end of the video you discussed the inter-relationship between AI and big data.  You said health care and biotech sectors would be major beneficiaries of these developments. 

Only today I read a comprehensive “Seeking Alpha” biotech sector report which may be of interest to readers.

Thank you for your kind words and I’m delighted you enjoyed the yearend video. At The Chart Seminar, I spend a good deal of time on the first day talking about the dangers of myopia when looking at markets. This is even more important when we have open positions that we monitor on a daily basis. It is too easy to focus only on what we own and to fall into the temptation of thinking we understand everything about them because we are looking at them every day. That is why when analysing any market, we recommend starting with as much data as you can get your hands on. A long-term chart tells us instantly whether we are in a secular bull or bear market. My resolution in 2018 is spend more time focusing on long-term charts.

But PwC said in a report earlier this year that some industry stakeholders felt the federal government’s “tight timeframe” for recreational legalization would lead to a lack of consultation and the potential to miss the opportunity to right the medical regime.

“Because decision-makers will have so little time for regulatory development, the focus will be exclusively on recreational cannabis, to the detriment of changes that may be required for medical cannabis,” PwC warned, adding that changes to the medical regime could be as far away as three years as a result.

One outstanding problem is that doctors may still be hesitant to prescribe cannabis to their patients, creating a bottleneck in the system for both patients and producers.

2018 will see Canada become the first G7 nation to adopt recreational cannabis laws. That will subsequently represent significant challenges for the medical cannabis sector which will is dependent on prescription reimbursements from the national health system. 

A link to this year-end Big Picture Long Term Video is posted in the Subscriber's Area.

Losers

RESEARCH ANALYSTS. Those that aren’t ranked in the top three or four in their sector could be axed from trading floors.

McKinsey & Co. expects banks to cut about $1.2 billion of spending in the area. INVESTOR RETURNS? Fewer analysts means less research, which means some fund managers may have to shrink the universe of companies they invest in. Missed opportunities could potentially limit returns, while less oversight could impact decision-making. 

BOUTIQUE INVESTMENT BANKS. Independent research firms will see new competition once banks roll out their new offerings. MiFID II may also trigger a price war in execution, which could see bulge-bracket investment banks drive boutiques out of equities trading.

STOCK EXCHANGES. Bourses such as Euronext NV and Deutsche Boerse AG could also lose out. Even if regulators close the pricing loophole that currently give SIs an advantage, bank-run platforms may still be more attractive as banks roll out increasingly competitive stock-trading options, such as low execution prices and larger “risk trades” to lure business.   

SMALL-TO-MEDIUM-SIZED ENTERPRISES. Smaller companies are expected to see less coverage from research analysts, potentially reducing their shareholder base. That could make it hard for investors to price the shares and make stocks more illiquid. London-based Toscafund Asset Management, which invests in U.K. small caps, wrote a letter to 30 such companies urging them to pay for research on their own stocks.

MIFID II comes into effect in the New Year and will represent a considerable challenge for large numbers of people in the financial sector but most especially those in the small to mid-sized sector that benefitted from soft dollar arrangements with their clients. The effect of the rule changes is akin to taxing benefits in kind and will result in fewer analysts covering companies and a narrowing in the breadth of opinion available to institutional investors. This article from the Financial Times dated September 15th includes a number of helpful graphics on who is likely to be most affected. 

The old tax regime allowed companies to defer U.S. taxes until they brought back earnings held abroad. Under the new law, U.S. companies’ overseas income held as cash would be subject to a 15.5 percent rate, while non-cash holdings would face an 8 percent rate. Companies can make the payments in eight annual installments.

Goldman Sachs, which gets more than 40 percent of its revenue outside the U.S., had $31.2 billion in earnings reinvested abroad as of the end of 2016, according to a regulatory filing.

Companies have to account for the tax changes in the period in which they were enacted. That’s left corporate accounting departments scrambling after President Donald Trump signed the bill into law last week.

The end of the US tax year has individuals in high tax states scrambling to get a head start on next year’s taxes in an effort to lock in the more attractive deductions they have right now. At the same time the corporate sector is weighing how much of an effect the change to overseas income tax treatment represents. 

I compiled a list on Bloomberg of the companies that derive all of their income from the USA on the basis that they will be among the greatest beneficiaries of the changes to the tax code. Here is are some of the more interesting charts:

It’s not just that we endure large basis risks here in the Hollow Market, unmanageable for many. It’s not just that all of our old signposts and moorings for navigating markets aren’t working very well. It’s not just difficult to identify predictive/derivative patterns in today’s markets. There is a non-trivial chance that structural changes in our social worlds of politics and markets have made it impossible to identify predictive/derivative patterns. THIS is basis uncertainty, and it’s as problematic for humans facing markets that don’t make sense as it is for bees facing weather patterns that don’t make sense.

Well, that’s just crazy talk, Ben. What do you mean that it might be impossible to identify predictive/derivative patterns? What do you mean that basis might not exist at all? Of course there’s a pattern to markets and everything else. Of course spring follows winter.

Nope. This is the Three-Body Problem.

Or rather, the Three-Body Problem is a famous example of a system which has no derivative pattern with any predictive power, no applicable algorithm that a human (or a bee) could discover to adapt successfully and turn basis uncertainty into basis risk. In the lingo, there is no “general closed-form solution” to the Three-Body Problem. (It’s also the title of the best science fiction book I’ve read in the past 20 years, by Cixin Liu. Truly a masterpiece. Life and perspective-changing, in fact, both in its depiction of China and its depiction of the game theory of civilization

The Three-Body problem and basis uncertainty is a fresh explanation of the concept some commentators refer to as a paradigm shift. In other words, we are so conditioned by the prevailing market conditions that it is almost impossible to imagine what the world would be like without the disinflation which has prevailed since the early 1980s. At a talk in 2015 Jeff Gundlach referred to this problem in terms of summer insects which have no experience of, and therefore cannot imagine, winter. 

According to the latest official data, China’s final consumption accounted for 63.4 percent of gross domestic product (Chart 2). Household consumption experienced exponential growth and climbed to $4.5 trillion (Chart 3). Retails sales have been growing at healthy pace of about 10 percent. Spending on Singles’ Day this year (Nov. 11), is impressive, registering $25 billion, almost double U.S. Black Friday online sales of $14 billion (Chart 4).

I have mentioned on multiple occasions how much of a transformation has occurred in China over the last few years where customer service has evolved out of nowhere. Our trip to Guangzhou in July provided a number of examples of this. We used ele.me to order a fruit platter. When the person at the store saw that the delivery address was a hotel they called and asked if we would like the fruit chopped because we probably wouldn’t have a knife in our room and at no additional charge. When Mrs. Treacy was buying a phone, my girls were playing on grab machines a little way off. They were getting frustrated by their unrelenting failure to win a toy so one of the girls from the phone store came over to show them how to pick the right machine so they could win. 

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

Billionaire Mukesh Ambani’s Reliance Jio Infocomm Ltd. agreed to acquire spectrum, mobile-phone towers and fiber assets of his brother Anil Ambani’s Reliance Communications Ltd. helping the younger sibling cut debt at the embattled wireless carrier, the two companies said in separate exchange filings.

Reliance Jio emerged the highest bidder for assets and the sale is expected to be closed in a phased manner between January and March 2018, according to a statement from RCom on Thursday.

The companies didn’t disclose a value for the transaction. The deal will include a cash payment and transfer of deferred spectrum installment payable to India’s Department of Telecommunication.

Mumbai-based RCom is seeking to cut total borrowings by $6 billion by March. RCom posted its first annual loss last March after Jio stormed into the market by offering free calls and data. That escalated a price war that has forced consolidation in the sector. RCom this week said it expects to get about 250 billion rupees ($3.9 billion) from the sale of its spectrum across four frequencies, its optical fiber network, and its more than 40,000 telecom towers. Entire proceeds will be used for repayment of RCom’s debt.

Reliance Jio is only paying for good quality assets that will enhance its depth of network, especially in rural areas, and raise data usage capacity, Shobhit Khare, a co-founder at Inertia Wealth Creators LLP, said via phone.

Reliance Industries spent a great deal of time developing a 4G network (Jio) and is now reaping the benefits. Reliance Communications, by selling its mobile assets, is essentially exiting the mobile telecommunications business. This article from livemint.com details where management see the company focusing next:

RCom will essentially be transformed from a business-to-consumer (B2C) into a business-to-business (B2B) entity, which will provide submarine cable systems that will deliver the latest sub-sea cable technology to meet growing cloud infrastructure and data capacity demand from global enterprises and over-the-top, or OTT, service providers.

Ambani said the new RCom will be valued at Rs15,000 crore. The business, he said in a presentation, will be based on a capex-light model and will generate sustainable cash flows, with 50% of revenue and 60% of operating profit coming from outside of India.

The euro zone’s third-biggest economy, whose recovery is trailing most of its peers, risks a hung parliament after the ballot. Opinion polls show the anti-establishment Five Star Movement, which wants a consultative referendum on abandoning the euro if European Union treaties aren’t renegotiated, leading Gentiloni’s Democratic Party and groups in a possible center- right coalition that would include former Premier Silvio Berlusconi’s Forza Italia.

But neither Five Star, the Democrats headed by former Prime Minister Matteo Renzi, nor the center-right bloc would win a parliamentary majority, according to the surveys. A possible “grand coalition” of the Democrats and Forza Italia would not have a majority either.

“It’s virtually certain that we won’t have a clear majority,” said Sergio Fabbrini, director of the school of government at Luiss University in Rome. “The talks to verify whether a new majority can be formed could last until the summer. In Germany, the talks have dragged on for ages, and in Italy we may end up with about twice as many parties in parliament as in Germany.”

Political sclerosis is nothing new for Italy. With little chance of a clear winner from elections, the country will continue to be rule taker rather than a leader in the discussions about how the EU can be reformed, which Macron wants to get started. 

“The government had warned several times that virtual coins cannot play a role as actual currency and could result in high losses due to excessive volatility,” the government said in a statement.

It noted that trading prices of most virtual currencies were much higher on South Korean exchanges than they were on exchanges in other countries, although it did not provide specific examples.

The steps will include a ban on opening anonymous cryptocurrency accounts and new legislation to allow regulators to close virtual coin exchanges if needed, a measure recommended by the justice ministry, the statement said.

South Korea had previously announced its plan to tax capital gains from cryptocurrency trading to tackle what it sees as the risk of excessive speculation.

South Korea, Japan and China have been among the hottest markets for Bitcoin. For a bubble to continue to expand it relies on the ability of progressively more people to participate in the advance. Anything that inhibits the flow of capital to feed the bubble is a potentially damaging headwind. 

Dec. 22 video/audio was posted on YouTube. Surely this isn't right as anyone can access it without needing a subscription?

Thank you for your concern and this question which will be of interest to subscribers. In many respects Vimeo and YouTube are exactly the same. However, they differ in one important aspect; cost. YouTube allows me to post my videos as unlisted and maintaining the archive is free. This means they do not appear in the search engines and are anonymous to anyone who does not have the URL. I only post that URL in Comment of the Day so therefore it is only available to subscribers.

I was forced to explore additional options because Vimeo are insisting that I move to a higher rate plan even though I am nowhere near hitting the limits on my current one.

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

Some of the topics covered include: China pulls back, Indonesia extends breakout, Korean Won and Taiwan Dollars at new highs, Rand extends rally, Resources shares break out.

Copper’s latest leg up follows news that Jiangxi Copper Co., China’s largest producer, had been ordered to stop output for at least a week before a further assessment based on local pollution levels. Earlier in the month, the No. 2 smelter, Tongling Nonferrous Metals Group, was asked to make similar cuts.

Jiangxi Copper gained 3.4 percent in Hong Kong and Tongling Nonferrous added 0.7 percent in Shenzhen to the highest close since Nov. 9.

“Copper stocks are rising as investors are bullish on copper prices amid an improving demand outlook from the U.S. and Europe in particular,” Yang Kunhe, an analyst with Pacific Securities Ltd., said by phone from Beijing. “The production cuts are temporary. A one-week halt won’t cause too big a problem for Jiangxi Copper. Smelters can also adjust by moving forward their annual maintenance.”

This quarter, Codelco said the company’s projections showed a sustained increase in deficits and “we don’t have any reason -- that we know of -- for closing them in the future.” The International Copper Study Group said the global deficit was 181,000 tons in the first nine months of 2017.

We are almost two full years into a recovery in metal prices which is being fueled on the demand side by a return to synchronized global economic expansion and on the supply side by a reluctance to invest following what was a major bust between the 2011 and early 2016. That is contributing to the relative strength of the mining sector not least since it is still trading at a discount to the wider market on a valuations basis.