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

We are living the innovation mind-set in all parts of our business across the globe,” Nair said in a news release. “Our employees are delivering exciting new technologies for our customers at record levels.

The Dearborn automaker was granted 1,700 more patents in other countries, bringing the total to more than 3,100 patents granted worldwide this year.

One of those patents was granted to engineers Tony Lockwood and Joe Stanek for an invention that equips autonomous vehicles with drones.

The system deploys a drone from an autonomous vehicle to map the surrounding area beyond what vehicle sensors can see. Passengers can control the drone using the car’s infotainment or navigation system.

 

Just about all car companies are exploring the autonomous vehicle market while at the same time they are investing in electric vehicles. After all, software is a lot cheaper to develop than hardware. 
This week Apple also had to lay out for regulators some of what it has planned for the transportation market. Here is a section from a story from USA Today: 

"The company is investing heavily in the study of machine learning and automation, and is excited about the potential of automated systems in many areas, including transportation," Kenner wrote in the letter of Apple's ambitions.

Kenner said Apple supports a proposal that companies share "de-identified" data from crashes or near-misses to help improve self-driving technology, but warns the policy must take consumers' privacy into account.

"Data sharing should not come at the cost of privacy," said Kenner. "Apple believes that companies should invest the resources necessary to protect individuals’ fundamental right to privacy."

The moves illustrate the tectonic shifts recalibrating the global mining industry after the commodities bust. The Stillwater purchase is Sibanye’s first foray outside of Southern Africa and its latest bold move to diversify beyond gold mining.

The acquisition is also a vote of confidence in the platinum group of metals, which includes platinum and palladium, most commonly used in the auto industry to reduce engine emissions, in addition to a strategic diversification away from the often-difficult operating environment in South Africa.
Sibanye has a long and storied history in the mining industry. It was spun off in 2013 from three aging South African mines held by Gold Fields Ltd., a company founded by colonial pioneer Cecil John Rhodes.

In a press release Friday, Stillwater, of Littleton, Colo., which has two mines in Montana and Colorado, said its board approved the deal. The $18-a-share bid represents a 23% premium to Stillwater’s closing price on Dec. 8. The two largest shareholders of Johannesburg’s Sibanye have confirmed their support of the deal.

Platinum is trading close to historic lows relative to the gold price. Part of the reason for this is because diesel has taken a hit from the Volkswagen emissions cheating scandal. Meanwhile the rise of electric vehicles represents an additional challenge since they do not require catalytic converters. These are important considerations but there is the additional fact that platinum is a small market, supply is limited and the cost of extraction is high. 

Global headwinds and domestic uncertainties prevail in Nov’16
November’16 was a perfect storm for India, as rising US bond yields, a strengthening USD, and EM risk aversion, coupled with an unprecedented demonetization drive in India, led to a significant decline in Indian assets. MSCI India was down 5.3% during the month – underperforming MSCI EM/Asia by ~300bps. While equity markets underperformed MSCI EM/Asia for a fourth month, INR performed better than many EM currencies. INR depreciated by 2.4% in the month while other EM currencies such as TRY, MXN, BRL, and IDR depreciated by 4%-10%.

Sectors relatively immune to demonetization were clear outperformers 
The sectoral performance during the month was clearly driven by the market’s assessment of the likely impact of the demonetization drive. Sectors with a global orientation or that saw significant cash inflows after demonetization were outperformers. Accordingly, BSE Metals, BSE Power, BSE IT, BSE Oil & Gas and BSE Healthcare were the outperforming sectors. On the other hand, given the disruptive ramifications of demonetization for (i) consumption sentiment, (ii) the operations of businesses with a meaningful reliance on cash transactions, (iii) the wealth effect and (iv) expectations of further follow-up action on unaccounted wealth, BSE Realty, BSE Consumer Durables and BSE Auto were the biggest underperforming sectors, with the respective indices declining by 18%/13%/9% during the month. 

Tale of two investors: 8-year-high selling by FIIs matched by record DII buying 
The flows of domestic and foreign investors touched multi-year records, albeit in different directions. Driven by hardening US bond yields and generic risk aversion towards EMs, foreign institutional investors [FIIs] were net sellers of Indian equities at US$2.6bn – the highest monthly outflows since the global financial crisis eight years ago. However, sharp FII outflows were matched by equally robust inflows from domestic institutional investors [DIIs], which net bought US$2.7bn – the highest since at least 2007 and most likely the highest ever monthly inflows. The sharp surge in DII inflows could be attributable to (i) strong inflows into mutual funds in the preceding months, (ii) a likely continuation of strong inflows into MFs in Nov’16, (iii) lower valuations for stocks hit by demonetization, (iv) a sharp surge in buying by insurance companies (at US$687mn) after eight months of net outflows/anemic inflows.

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

The Dollar surged to test its high against the Rupee following Trump’s election success and the demonetisation announced soon afterwards. It has unwound much of the It unwound much of that advance over the last 10 sessions as optimism about the success of Modi’s strategy to legitimise large parts of the economy improved. The concurrent release of 4G mobile services is an additional tailwind since it opens up whole new avenues for growth that did not exist a month ago, not least for mobile banking and payments.  

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

The euro tumbled with bonds as Mario Draghi signaled he stood ready to add to stimulus if a proposed reduction in the current level of asset purchases fails to shore up the economy. U.S. stocks fluctuated near all-time highs.

The European Central Bank’s pledge to cut bond buys while extending quantitative easing until the end of 2017 initially sent the euro higher. The currency reversed after the president kept the option open to add purchases. European stocks rallied with emerging-market equities. Yields on sovereign debt across Europe climbed and Treasuries fell. Oil advanced above $50 a barrel in New York.

“They’ve left themselves a degree of wiggle room between now and the end of March to say that if conditions are sufficient” they will maintain the current stimulus, said Jeremy Stretch, head of

Group-of-10 foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “There was clearly a degree of surprise in terms of the reference” to the cut from April, he said.

The euro slumped 1.1 percent to $1.0631 as of 10:15 a.m. in New York. The Stoxx Europe 600 Index jumped 1 percent, while the yield on 10-year Italian bonds climbed 11 basis points to 2 percent.

German two-year notes gained the most in more than two weeks as Draghi said the ECB will be buy assets yielding less than the deposit rate. The yield fell five basis points to minus 0.72 percent, the biggest decline since Nov. 22.

The S&P 500 Index slipped 0.1 percent after closing on Wednesday at a record high.

As I try to keep track of what is a swiftly evolving situation I am put in mind of fiddlers on the deck of the Titanic as it went down. The ECB has a clearly defined mandate to target inflation but without fiscal stimulus which is controlled by governments it has proven near impossible to foster in the manner they can measure. Meanwhile the political fabric that has held the currency union together is fraying and the ECB has no choice to continue to inject additional liquidity and to continue to buy the bonds of countries than may no longer be in the currency union a year from now. To do otherwise would only hasten the currency unions eventual demise but additional liquidity is unlikely to avert a crisis. 

Even as the yield on Treasury and agency benchmark has risen, spreads for investment grade and high-yield securities have remained stable and even declined, suggesting that investors do not yet see the prospect of a Trump administration as heralding a bear market in corporate debt. Our colleague Fred Feldkamp, who has spent decades tracking the relationship between corporate bond spreads and economic performance, believes that the movement in the Treasury benchmarks is a leading indicator. “Remembering the Carly Simon song ‘Anticipation,’” Fred notes, “a widening of long-short Treasury spreads is often associated with eventual corporate spread expansion. This time I think the word is simple inflation.”

In the Treasury bond market, at least, investors are certainly anticipating an increase in inflation compared with previous levels seen over the past decade. This change in the cost of funding and inflation expectations has not yet translated into elevated corporate spreads or default rates, although a number of observers have postulated that credit costs must rise after the lengthy period of FOMC market intervention.

The latest data from the Federal Deposit Insurance Corporation for U.S. banks bears out this idea, with default rates generally continuing to fall in many asset classes other than commercial loans, but other indicators suggesting that the increase in asset prices has distorted these same markets. While overall revenue for the U.S. banking system rose almost 10% to $47 billion in Q3 2016, net interest margins fell under the continued downward pressure of the FOMC’s low interest rate policy regime. Yet as we note in our Rating Outlook for US Banks, credit performance continues to be stable at most U.S. banks.

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

The banking sector has exploded higher on the steeper yield curve, the prospect of looser regulation, greater economic growth, lower taxes and investor enthusiasm they may be able to return to growing dividends in a more aggressive manner. At least some of these expectations will need to be achieved by the incoming US administration if the breakouts are to be sustained. 

While BP's operations are currently the most sophisticated, others have also begun developing U.S./Asia trade.

China's Unipec, the trading arm of Asia's largest refiner Sinopec (600028.SS), is shipping about 2 million barrels of WTI to China this month, while trading house Trafigura is also exporting some 2 million barrels of U.S. oil to Asia.

Incentives to bring U.S. crude into Asia have risen after the Middle East-led producer club of the Organization of the Petroleum Exporting Countries (OPEC) and Russia agreed to cut output, encouraging refiners across the region to seek alternatives to offset potential supply shortfalls.

"OPEC is putting U.S. shale oil to the test... (and) we will truly see what it can deliver," said Bjarne Schieldrop, chief commodity analyst at SEB. He predicted 2017 would be a "shale oil party" with a surge in U.S. exports after the OPEC production cuts.

The operation to send the oil, worth around $150 million, to Asia-Pacific buyers lasted four months and involved BP traders in the United States and Singapore, while colleagues from London were responsible for ship chartering, the sources said and data showed.

BP took advantage of arbitrage between cheaper U.S. West Texas Intermediate (WTI) CLc1 crude and the global benchmark Brent LCOc1.

The deal was aided by cheap tanker rates and a price/time curve, where future oil deliveries are more expensive than those for immediate discharge, making sourcing oil from as far away as North America profitable.

The US has just started exporting crude oil for the first time in decades and if the Keystone pipeline is finally permitted in 2017 if would give Canadian heavy crude an outlet to Texas’s refining and shipping infrastructure that would allow even greater volumes to be exported.

The expanded Panama Canal raises the prospect of a short-cut to Asia from Texas. That is of course once ships have been retrofitted to be tugged through the new canals which is taking somewhat longer than originally anticipated. 

With good water availability and good precipitation, the Australian grazing regions in South Australia, the Northern Territory and Queensland will be plentiful, the grazing regions along Western Australia will grow from IOD-created rainfall in the northern part of the province but will be poor in the southern part. Flood risks will lower mining yields along the northern part of Western Australia as well as create a higher property risk and insurance claims along the eastern shores. Finally the eco-friendly infrastructure in South Australia and Victoria have taken damage from recent flash floods. Look for the country to pursue investment opportunities into updating the infrastructure technology to handle more severe weather after repairs have been made.

One of the reasons the value investors get interested in stocks following a big decline is because it is relatively easy for a share to double from a very depressed level. The next doubling is usually when awareness has increased and new investors come in with a view to pushing prices higher overall.

The mining sector went through a deep correction where companies were forced to cut exploration and development budgets in order to manage their exposure to a falling price environment. The result is that they are going to be shy about spending a lot of money for the next few years and therefore cashflow should improve. That is part of the reason share prices have been rallying so strongly this year. As economic growth picks up that could well continue into next year before additional new supply comes on line.

Weather events like floods have the capacity to affect iron-ore production in particular, since so much global supply emanates from Pilbara. Nevertheless substantial damage would need to be inflicted to do more than temporary damage to infrastructure. 

The once-unlikely and remote prospect of an anti-euro government in Italy is suddenly becoming a real possibility, threatening to rock the European Union to its foundations within weeks. 

Events in Italy are moving with lightning speed. Key figures in the Democrat Party of premier Matteo Renzi have joined the chorus of calls for snap elections as soon as February to prevent the triumphant Five Star Movement running away with the political initiative after their victory in the referendum over the weekend.

Mr Renzi has not yet revealed his hand but close advisers say he is tempted to gamble everything on a quick vote, betting that he still has enough support to squeak ahead in a contest split multiple ways and that his opponents are not ready for the trials of an election. 

It could easily spin out of his control, opening a way for a tactical alliance of Five Star, the Lega Nord, and a smattering of small groups, all critics of 

The man tipped as possible finance minister of any rebel constellation is Claudio Borghi, a former broker for Merrill Lynch and Deutsche Bank, and now a professor at the Catholic University of Milan.

"We are coming to the point where Italy must make the real decision: are we for Europe or are we against it?" he told the Telegraph.

"What is emerging is a list of four parties or groups who all have one thing in common. We all agree that nothing is possible until we leave the euro."

"Europe has brought us a depression worse than 1929. It has led to entire peoples being broken and humiliated, like the Greeks, all for the sake of preserving the infernal instrument of the euro. This whole disaster has been adorned by a chain of lies, shouted ever louder because they are afraid that the colossal damage they have done will be discovered," he said.

Dr Borghi said the landslide 59:41 result in the referendum is a shock to Italy's powerful vested interests, or "poteri forti". "They are absolutely scared because none of their tools of control are working any more," he said.

"They invested huge prestige in the campaign. Confindustria [Italy's CBI], the chambers of commerce, and all of Italy's big employers were for the 'Yes' side. They said the banks would collapse, that we would lose all our savings, and that we would all go to Hell if we voted 'No', but it didn't work. It was Brexit reloaded," he said.

Professor Borghi said withdrawal from the euro would be messy but there are ways of mitigating the effects, first by creating parallel liquidity and letting it seep into daily life.

"The Italian treasury has €90 billion (£76 billion) in arrears on contracts. These could be paid with treasury bonds issued for as little as €50, €20, €10, or even €5, giving us time to create a second currency.

"When the time comes we can then switch to this new currency. It can be done electronically. We don't even need to print paper," he said.

Prof Borghi said the cleanest option is for Germany to leave the eurozone. If that is impossible Italy can pass a law to convert its debt obligations into lira overnight - or the 'florin' as he prefers to call it, harking back to the days of Florentine ascendancy under the Medici.

"The losses would shift to the national central banks through the Target2 system," he said. This means the Bank of Italy would repay €355bn on liabilities to eurozone peers (chiefly the Bundesbank) in devalued lira. The Bundesbank would face instant paper losses on its credits - effecting €700bn in the likely event that an Italian exit would lead to a general return to sovereign currencies.

The sums are in one sense an accounting fiction. The trial run was the collapse of the Swiss franc peg against the euro in January 2015. The Swiss National Bank suffered vast theoretical loses on its holdings of eurozone debt when the franc revalued, but life went on regardless.

The gamble is that large sums held by Italians in accounts in London, New York, Paris, or Munich, or held in safe-deposit boxes in Switzerland, would flow back into the system as soon as the boil is lanced, and once Italy has returned to exchange rate viability. Foreign investors would view Italy as a far more competitive prospect. 

"I don't see any disaster. There is no way to smash our currency since we have a trade surplus. If we had a weaker exchange rate we would have an even bigger surplus," he said.

For Italy's eurosceptics a return to the lira would be a liberation after fifteen years of economic decay that has hollowed out the country's manufacturing core. Industrial output has fallen back to the levels of 1980. Real GDP per capita is down 13pc from its peak.

A report this week from the statistics agency ISTAT said the numbers at risk from poverty and social exclusion last year rose to 28.7pc, and a fresh high of 46.4pc in South, and 55pc in Sicily - the epicentre of the 'No' vote in the referendum.

A study by Mediobanca found that Italy's growth rate tracked that of Germany almost exactly for thirty years. The pattern changed with the advent of the euro, which precluded devaluations and led to a slow but fatal loss of labour competitiveness  - like a lobster being boiled alive. 

Eurocrats remain in isolated arrogant denial.  Since the 1990s, numerous people have pointed out that no currency union in history has ever survived without fiscal union.  Having ignored this historical evidence in the interests of ‘discipline’, they have succeed in impoverishing countries which were certainly not bankrupting themselves as members of the post WWII alliance known variously as the European Common Market and the European Free Trade Association.  In fact, they were doing rather well, managing their own currencies in line with their economic performance. 

However, once they entered the European Exchange Rate Mechanism, the initial benefit of lower interest rates was eroded by the loss of control over their own currencies.  Economies known primarily for their agricultural products and tourism can be prosperous, not least Italy which has an industrial core, but their currencies seldom match those of the primarily manufacturing nations over the longer term.   

Without fiscal union, which understandably has even less appeal for the electorates in EU countries today, the currencies have to change.  Either Germany leaves the Euro returns to the Deutsche Mark, or the Southern European countries leave the Euro.  Germany will not want a stronger currency but Southern European nations would welcome an orderly return to their former currencies.  It is in everyone’s interests that this be done in a non-punitive manner, but wise leadership has not been a characteristic of Euroland.  

(Note this prescient advice from AEP nearly 6 years ago: Self-righteous Germany must accept a euro-debt union or leave EMU)

There have been many other things that Europe has got wrong, but the overarching one is monetary union. From this original sin flows so many of our current difficulties. We know this to be true because countries in the EU but outside the single currency, such as Britain and Sweden, have fared much better than those in it.

So how come the euro hasn’t already collapsed under the weight of its own contradictions? And with populist, nationalistic insurgency in the ascendant across western economies, are we finally approaching the end game?

The euro is virtually unique in the history of monetary economics in being a currency without a government. Rather it is a shared, or common currency, in which each member notionally has some sort of a say. Europe’s founding fathers knew that monetary union couldn’t be made to work without a high degree of accompanying fiscal and political union, but cynically regarded it as a means of achieving that end. A United States of Europe would be forged in crisis, they figured, driving through the goal of political union against the centuries old instincts of Europe’s many tribes.

And in theory it could indeed be made to work. But in a confederation of proud nation states which finds it virtually impossible to agree even common deposit insurance, let alone a proper banking or fiscal union, it seems ever less likely.

No monetary union can last for long without a unified system of deposit insurance. It would be unthinkable, for instance, for London to refuse to participate in  deposit insurance for the country as a whole because there is a bank in Yorkshire which it fears might go bankrupt. 

Yet that’s precisely what happens in the eurozone; Germany refuses common deposit insurance with Italy because it fears being left on the hook for essentially insolvent banks such as Monte Dei Paschi Di Siena. Similarly, it would be unthinkable for the citizens of Edinburgh to be made wholly responsible in extremis for bailing out the whole of Royal Bank of Scotland. Fiscally, it would break them beyond redemption. But that's essentially how it works in Europe.

The eurozone pretends to be a fully fledged monetary union while behaving as if it were still a collection of siloed nation states. 

In financial terms, EU officials are likely to be the last to accept that they are on the wrong side of a bad trade.  Too much uncertainty and anger are being felt right now.  Also, all those unelected and pampered EU bureaucrats in Brussels will prioritise keeping the EU show on the road, whatever the cost.

This item continues in the Subscriber’s Area where a PDF of Jeremy Warner’s article is posted.

Yesterday I attended the annual Milken Institute London Summit. I was invited by the organizers as a non-paying guest I am glad to say in view of the high registration fee. It was a great day, the organizers did a superb job, and  I have extensive notes  from several sessions that I am sure will be of interest to you and Eoin. I have attached a pdf containing my notes on the opening plenary which was a panel discussion on Brexit. I wrote this up first because I thought it would interest you. It was particularly thought-provoking and entertaining, as you can read! The video of the 1 hour panel is available today online at the Milken Institute website and I have added the URL within the pdf. If you think subscribers would be interested, then please feel free to post the notes in your daily update. Please feel free to name me as the contributor if you wish.

Other sessions I attended were about finance, investment, healthcare and new technologies. I will send more summaries in coming days.

Thank you, David, and I am sure subscribers would be interested to hear your further notes on topics of interest from the Milken Institute Summit.  However, having read your droll summary of the first session, which I would call the mostly anti-Brexit panel notes, I was very glad that you did not have to pay the “high registration fee”. 

I hope you were able to ask questions of the panel members, or at least throw fruit.  I would have liked to ask Anton Muscatelli why he thought the negative impact in loss of GDP for the UK by 2030 was going to be 2.7%-9.5%, rather than perhaps 2.8%-9.6%.

I like Niall Ferguson and find him somewhat abrasive but always interesting and generally well informed. I am sure he saved the panel as an event, although they appeared to ignore his sensible challenges.  They were frightened and rude, it seems.

Good point on the Russian chief economist of the European Bank for Reconstruction and Development, who sounds like an EU propagandist.       

Roland Rudd’s quip about “the great lesson of the referendum is you have to be mad to hold one”, is amusing but also suggests that he does not really believe in democracy.  After all, what could be more democratic than a referendum, with a straightforward In or Out vote?

I thought Ferguson’s follow-up challenge was most apt and I’m not surprised that they ignored him for saying, correctly in my view, that they were condescending and patronising. 

The chair’s concluding statement: “Does Democracy only work in a society of intelligent people?” – is indeed stunning.  We hear some of that from Remainers, and many Democrats have uttered very similar comments following Trump’s victory. The President-elect’s apt, unstated riposte is the stunning new all-time highs on Wall Street following two or more year long trading ranges for most US stock market indices.   

(Note: the email and Brexit panel notes are from Dr David Brown who will be the guest speaker at our next Markets Now on 16^th January. David’s fascinating topic will be: “Our new Industrial Revolution”.  I can’t wait.)    

Iain Little and I will be joined by the distinguished speaker, Dr David Brown, discussing one of his favourite topics: ‘Our new Industrial Revolution’. 

We will have a few political revolutions to discuss as well.  I look forward to seeing our interesting subscribers at another lively and enjoyable evening.  

Here is Iain Little’s excellent presentation, delivered on 28^th November.  Unfortunately, I am unable to post Clive Burstow’s timely presentation on Global Resources for reasons of compliance, including some of the proprietary material covered. 

Please note: I will be otherwise engaged on Thursday & Friday, but will resume my commentary on Monday, including an Audio.    

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

Lithium, frequently referred to as "white petroleum," drives much of the modern world, as it has become an irreplaceable component of rechargeable batteries used in high tech devices.

The market, while still relatively small — worth about $1bn a year — is expected to triple in size by 2015, according to analysts at Goldman Sachs

That should be great news for Chile, as the country contains half of the world’s most “economically extractable” reserves of the metal, according to the US Geographical Survey (USGS). It is also the world’s lowest-cost producer, thanks to an efficient process that makes the most of the country’s climate.

Chile is essentially “the Saudi Arabia of lithium,” according to Marcelo A. Awad, executive director of the Chilean brand of Wealth Minerals, Canadian company that also has interests in Mexico and Peru.

The country, he noted in a recent interview, is perfectly positioned, with ports across the Pacific from the world’s largest car market, China, which is expected to increase electric vehicles production in years to come. There, lithium is also used to manufacture rechargeable ­batteries that power hundreds of millions of smartphones, digital cameras and laptops.

The challenge for foreign investors, particularly the Asian conglomerate, is to persuade Chilean authorities of making the leap from exporting the white metal to producing lithium batteries at the point of extraction.

Estimates from the group’s advisors believe opening the proposed plant would make the value of the product 35 times higher than what it could be obtained by just selling it as lithium carbonate

Elon Musk might be one of the world’s great promotors but there is no denying that he has upended the automotive sector with just about every major auto manufacturer planning to release a range of electric vehicles within the next few years. 

Wood Mackenzie’s view echoes the International Energy Agency, which last month forecast global gasoline demand has all but peaked because of more efficient cars and the spread of EVs. The agency expects total oil demand to keep growing for decades, driven by shipping, trucking, aviation and petrochemical industries.

That’s more conservative than Bloomberg New Energy Finance’s forecast for EVs to displace about 8 million barrels a day of demand by 2035. That will rise to 13 million barrels a day by 2040, which amounts of about 14 percent of estimated crude oil demand in 2016, the London-based researcher said. Electric cars are displacing about 50,000 barrels a day of demand now, Wood Mackenzie said.

 

There is the world of difference between predicting that electric vehicles will account for an increasingly large portion of the global automobile market and predicting that aggregate demand for crude oil will decline meaningfully.  

According to a joint study by Thomson Reuters GFMS and the Silver Institute, the global silver market will record a supply deficit this year for the fifth year in succession. However, at 52.2 million ounces (1,623 tons), this is less than half what it was last year (chart 7). Silver demand should have fallen by 9% to a 4-year low of 1,064.6 million ounces (33,109 tons), while silver supply should fall by “only” 3% to 1,012.4 million ounces (31,486 tons). The biggest drag on the demand side is a 24% decline in demand for coins and bars. Jewellery demand is also expected to dip by nearly 8%. Industrial demand, which accounts for around half of total demand for silver, also declines, albeit only slightly. A steeper fall has been prevented by the rise in photovoltaics which is projected to have risen by 11% to a record level.

On the supply side, 2016 should see the first – albeit slight – fall in global mining production for 13 years (chart 8, page 5). This is because, following the closure of numerous zinc and lead mines, less silver is produced as a by-product. Due to liquidation of hedging positions (dehedging) by mining producers, additional supply has been withdrawn from the market. The supply of scrap silver, however, remained virtually unchanged. Owing to a significant rise in demand for silver ETFs – GFMS assumes net inflows of 71.4 million ounces (2,220.5 tons) for 2016 – and almost as large an increase in exchange-registered stocks, the broader market deficit has increased to 185.5 million ounces (5,769 tons). This is the highest figure since 2008.

The deficit should turn out somewhat lower due to recent large ETF outflows, though.
For 2017, Thomson Reuters GFMS and the Silver Institute except silver demand to decline by a further 3% to 1,035.0 million ounces. The supply of silver on the other hand should rise by around 1% to 1,024.8 million ounces. All demand components apart from jewellery are expected to decrease, with coins and bars once again falling the most, dipping by 9%. Industrial demand should fall by 2%, as demand from the photovoltaic sector – in contrast to the previous year – is also expected to decline, meaning that it can no longer compensate for persistent weakness in other sectors. Industrial demand would thus shrink for the seventh year in a row (chart 9). The increase in the supply of silver is almost entirely due to a larger supply of scrap silver, which should rise by 11% in response to higher prices. This will largely compensate for the accelerated decline in mining production by around 2% compared with the previous year. At the same time, de-hedging by silver producers will decline next year, meaning that less supply will be withdrawn from the market. Consequently, the deficit on the physical silver market is expected shrink to only 10.2 million ounces. This would be the smallest deficit since the last surplus year of 2012. ETFs are expected to record inflows of 40 million ounces. The broader market deficit would thus amount to 50.2 million ounces, a reduction of more than 70% compared with 2016.

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

The bond market has priced in the return of some inflation, at least the kind central banks measure. However it has yet to appear in official statistics with the result that real interest rates have posted a rather large move. Precious metals tend to do best when inflation is outpacing interest rate increases (negative real interest rates) which is not currently the case. There is ample potential for inflation to pick up if fiscal stimulus is implemented next year which suggests there is scope for precious metals to regain some of their lost lustre next year. 

Helmut Kohl brushed aside all arguments against the single currency. President Chirac invited me to the Elysee Palace to hear the virtues of monetary union. Seventeen years later, the question is whether their successors will have the vision to dismantle their monumental mistake, now a prime cause of unemployment, stagnation and populist fury. 

Those of us who were sceptical of the euro argued that a monetary union would inevitably require a political union, centralising decisions about tax and public spending, and that we didn’t want to be part of that.

While we were right about that, we actually underestimated the problem – the euro has become so damaging and divisive that public opinion within it will not tolerate a political union. So not only was the cart put before the horse, but the horse will not now contemplate even following the cart at a distance.

The second respect in which the euro has exceeded our worst fears is that it has made some countries, like Italy and Greece, poorer while others get richer.

We always maintained that forcing many countries to have the same interest rates and exchange rate would be a problem: some would have booms followed by big busts, as has happened in Ireland, Portugal and Spain. The enthusiasts told us that this would be temporary and “convergence” of all the members would follow. 

Again we sceptics were right. But we could have gone further. Not only are eurozone economies not converging, they are conspicuously diverging. The per capita income of Italians is lower now than in 2000, which is why they are – not surprisingly – getting increasingly restive. In the meantime, the German economy has kept on growing, and the average German is about 20 per cent better off over the same period.

Why is this? Because the euro is a cheaper currency than Germany would have if it still had the deutschmark, while it is more expensive than Italy would have if it still used the lira. Germans therefore keep exporting easily and running up a surplus, while the Italians struggle and go deeper in to debt.

Furthermore, the freedom of movement of capital in Europe probably makes this worse – why would you put your euros in an Italian bank when you can invest them in Germany?

Membership of the euro has thus put the Italians on a permanent path to being poorer. Unless Mr Renzi was going to enact such extraordinarily bold reforms as to raise the productivity of Italian workers to the same level as their German counterparts, there was nothing he could do to stop this.

His defeat has not made the eventual break-up of the euro more certain, because that is coming anyway. It has simply made it more obvious.

Leaving the euro, however, is a far more difficult problem than leaving the EU. As everyone now knows, Article 50 provides for leaving the latter. It may be a vague and inadequate rule, on which our Supreme Court is now deliberating at length, but it is nevertheless a rule that provides for getting out.

The eurozone has no such rule. This is a burning building you are never meant to leave. What is more, you are barricaded in. If you contemplate leaving, you have to face not having any notes and coins of your own; the need to default on debts that will be even bigger when your new currency goes down in value; and the collapse of your banks because being in the eurozone means they were able to borrow money they should never have been lent. 

Tens of millions of people in southern Europe will increasingly find that they cannot tolerate staying in the euro, but nor can they leave it without great cost.

Their anger and resentment will only intensify. The question now is whether Europe’s leaders will cling to a project that has failed even more spectacularly than its critics imagined, or have the statesmanship to provide a way out for those who conclude they have to go.

The euro is going to need a financial Article 50 – a way of providing for exit, which shares the costs of leaving and gives international help to those departing a scheme they should never have joined. Of course, the mere admission that such thinking is necessary would damage confidence in the single currency.

It would mean going back on the dream of the 1990s. That is why no one in authority in the eurozone will want to admit that they need to invent an orderly exit. It is anathema to them – the collapse of their beliefs. But those who have trapped entire countries in a vast, failed experiment have a responsibility to help them get out.

In the long, sad history of bad ideas, one of the worst was the creation of a single currency without having first created a fiscal union with a central government.  This should have been able to smooth out differences in economic growth and development, with more prosperous states subsidising weaker ones via the transfer of capital and developmental projects. 

Anyone with a basic understanding of economic history knew this, and many said so, often repeatedly.  However, Germany and France did not want a fiscal union of very different nations, with long and often rivalrous histories in the post-WWII environment.  Similarly, there was little support for a superstate of Europe among the various European populations.  It was, however, a political ambition of many European leaders. 

Europe’s best idea during the recovery following WWII was the creation of the European Common Market.  What could be better than an economic zone in which citizens of the new European democracies were able to travel and trade freely with each other? It worked well in terms of GDP growth and a reassuring harmony among the region’s populations.  It also had the blessings of other democracies around the world, but it was not a global power. 

Convergence first started to go wrong in the exchange rate mechanism (ERM) introduced in 1979, misguidedly intended to reduce currency swings and create monetary stability in Europe.  ERMs will reduce currency differentials but at the cost of growth in less competitive economies which are required to keep their currencies within specified boundaries and no longer have the freedom to devalue.  This was made tighter when it became the European Currency Unit (ECU) in 1995.

The introduction of the euro in 1999 has been a disaster for all but Germany, as most people now know.  The EU has consistently underperformed economically and the unemployment levels in Southern European Countries are obscene.  The headline above describes Italy as a poor country.  Yes, it is today but Italy was quite prosperous prior to the European ERM, the ECU and now the Euro.

The important question today, emphasised by William Hague above, is whether the EU’s leaders from Germany, France and the unelected Brussels bureaucracy have the statesmanship to assist Italy and any other countries which wish to leave the Euro, to do so without suffering unnecessarily punitive damages.    

(Please note: I emboldened a paragraph in the portion of William Hague’s article above.)

(See Also: It’s time Blair, Major and Clegg spared us their patronising guff on Brexit, by Allison Pearson of The Telegraph)

PDFs of the two articles are posted in the Subscriber's Area.

A wave of new technologies led by robotics and artificial intelligence; the opening up of China’s equity markets, with all that country’s vast potential, to global investor; recovery of global trade; or a boom in mergers and acquisitions as companies revive their appetite for dealmaking – there are plenty of forces which could give this bull market fresh impetus, drive equities higher throughout 2017, and make it one of the longest upturns in stock prices since records began.

But here is one that few people have noticed: corporate tax cuts. On Wall Street, the “Trump Bump”, to use the term traders have latched upon for the way Wall Street surged ahead since Donald Trump found his way into the White House, has been largely driven by his promise to reform the United States’ crazily high corporate taxes.

But it is not just the US that is cutting the amount companies have to pay. In this country, corporation tax is being driven down to historic lows; the Swiss are cutting canton by canton; and the Japanese have already started edging rates down.

As corporate taxes are reduced around the world, some of that money will go to staff in higher wages, some to consumers in lower prices. But in the first instance, it will translate into higher profits and dividends, and that is inevitably going to push every major index upwards.

In the run-up to the US presidential election, it was widely assumed that the steady, experienced, if slightly dull Hillary Clinton would usher in a rally on Wall Street, while the wild, unpredictable, protectionist Trump would trigger a wave of panic selling. As it happened, much like Britain’s vote to leave the European Union back in the summer, it did not work out like that.

Instead, after initial nervousness, the main markets are all up strongly. The S&P 500 slumped to 1,800 after the election, but has since bounced back to 2,200, while the Dow has broken through its all-time high and is closing on the 20,000 barrier.

The explanation? Trump turned out not to be quite as completely unhinged as he sometimes appeared on the campaign trail, and he has assembled an economic team with plenty of Wall Street experience. But one of the main reasons has been his pledge to significantly reduce the rate of corporation tax.

At 39pc, once state and federal taxes are combined, the US has one of the highest corporate rates in the world – only the United Arab Emirates and Chad take more from businesses. It was so high that companies were starting to move abroad.

Clinton’s only answer to that was to impose heavy “exit taxes” on anyone impudent enough to leave – the kind of thing the East German Politburo might have come up with on a bad day. Trump by contrast has promised to dramatically slash it, taking it all the way down to 15pc. Whether he can get that through Congress remains to be seen. But there can be little doubt the bill is going to come down significantly.

This is a very upbeat article by Matthew Lynn, as he extrapolates the initial response to President-elect Trump’s plans for a bold programme of economic stimulus led by dramatic cuts in corporate taxes.  Markets also like the Wall Street leaders who will be Trump’s advisors. 

This item continues in the Subscriber’s Area, where a PDF of Matthew Lynn's article is posted..

Iain Little and I will be joined by the distinguished speaker, Dr David Brown, discussing one of his favourite topics: ‘Our new Industrial Revolution’. 

We will have a few political revolutions to discuss as well.  I look forward to seeing our interesting subscribers at another lively and enjoyable evening.  

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

To be sure, all of this fits with our thesis the equity markets are transitioning from an interest rate-driven to an earnings driven secular bull market. To that point, many of y’all know we are on an email “string” with folks like Arthur Cashin, David Kotok, Dennis Gartman, Bob Pisani, etc. It is a freewheeling exchange of thoughts that provides very interesting insights. Last Thursday, the savvy Bob Pisani wrote this: 

President-elect Trump's proposed nominee for U.S. Treasury Secretary, Steven Mnuchin, said on our air yesterday that the administration was still targeting a reduction in the corporate tax rate from 35% to 15%. The current 2017 estimate for the entire S&P 500 is roughly $131 per share. Thompson estimates that every 1 percentage point reduction in the corporate tax rate could "hypothetically" add $1.31 to 2017 earnings. So do the math: if there is a full 20 percentage point reduction in the tax rate (from 35% to 15%), that's $1.31 x 20 = $26.20. That implies an increase in earnings of close to 20%, or $157. What does that mean for stock prices? The S&P is currently trading at a multiple (PE ratio) of 17, high by historical standards. Applying that 17 multiple to earnings of $157, we get a price on the S&P 500 of roughly 2,669 for 2017. That is 469 points or roughly 20% above where it is today.

Our sense is the new administration will not be able to get the corporate tax rate down to 15%, but even at a 25% rate, it implies an additional $13.10 to the S&P 500’s bottom up operating earnings number ($1.31 x 10 = $13.10). Using Bob’s same math produces an earnings estimate of $144.10, and at 17 times earnings, it renders a price objective of roughly 2450 for the S&P 500.

 

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

A successful transition from an almost total reliance on easy monetary policy to an expansion predicated on improving profitability can be considering the best possible scenario. With corporate margins at record highs cuts to corporate taxes could well be what is required to lend an additional boost to justify higher equity prices. 

I am intrigued by the move in the Euro, moving stronger when all sense says the Italian referendum vote is a negative and the Austrian Presidential vote is an escape (the winner is still a fringe candidate). I have copied a quote from Reuters report this evening. The bounce was chiefly down to over-extended bets against the euro, traders said, with investors choosing to cash in gains and lighten their short positions ahead of Thursday's European Central Bank policy meeting. "I think the euro is going to strengthen a lot now. I think it is way oversold," said Nick D'Onofrio, chief executive at London-based hedge fund North Asset Management. My question, did the charts show an over extension or is this reverse logic to explain the unexplainable reaction? With uncertainty one might expect the dollar to continue to strengthen and gold to go with it for the risk haven, first reaction to the Italian vote followed this path then as Europe opened, then US, all changed. Is this "go figure" or was it all in the charts! Yours Confused

Thank you for this question which may be of interest to other subscribers. As a veteran subscriber you will have seen us comment about bear markets before and may recall this maxim: A crisis needs to be seen to be getting worse for it to continue to have an increasingly bearish impact on prices. The Italian referendum highlights the disaffection of the Italian electorate with Mario Renzi but since there is not going to be an election that is about all we can say. That was already priced in with the Euro falling from $1.10 to $1.05 over the last month and the situation did not get worse immediately after the vote. 

“We’re no longer trying to convince the investment world this is a legitimate business,” Fred Tuomi, Colony Starwood’s chief executive, said in an interview. “We’re not in this to simply fix and flip. We’re in this for the long-term, steady and growing income stream.”

Though the chance has passed to acquire thousands of houses at steep discounts, Colony and its competitors are still buying individual homes here and there as well as groups of homes bundled by other investors during the crisis, Mr. Tuomi said. Colony, he said, could manage about 100,000 homes without having to invest much more in the systems it built to manage them.

Economic factors have helped the stocks in the sector. Home prices have risen above their 2006 peaks in much of the country, boosting the value of these firms’ holdings. That and rising interest rates have pushed homeownership out of reach for many. Lately, the homeownership rate has hovered around its lowest level in at least 50 years, according to U.S. Census data.

Meanwhile, rental vacancies, including apartments, are at their lowest level in at least a decade at 6.8% in the third quarter. Rents are up, particularly in single-family homes, where rents are growing faster than at apartments, according to Green Street Advisors LLC.

 

Large funds are betting big on the inability of a large demographic that will never be able or inclined to afford a home. Record student debt, underemployment of highly educated workers and rising living costs have all fed into the conclusion that millions of Americans will not be able to save enough to pay for a down payment. 

Mice bred to develop Parkinson’s were put in cages that were either sterile or non-sterile. The mice in the germ-free cages manifested less motor degeneration, and their brains had reduced tangling of the protein a-synuclein. They had “almost normal performance” in motor tasks. The researchers injected gut bacteria from human Parkinson’s patients into these mice, and they deteriorated quickly. This effect did not occur with bacteria taken from healthy humans.

The mice in the normal, non-sterile cages developed the expected symptoms of Parkinson’s. When treated with antibiotics, their symptoms were reduced, suggesting effectiveness in a microbial approach to the disease.

Gut bacteria taken from healthy people didn’t have the same effect.

 

There are more nerve endings in your gut than your brain so in one sense you gut is smarter than you think. That makes intuitive sense considering the work that goes into breaking down everything we put into our mouths into useable fuel and waste. The microbiome living in each of our gut’s has an inordinate effect on both health and mood. With advances in genetics it represents a rapidly evolving field of study we are sure to hear more about in 2017. The more I read about the subject the better my diet has become, you really are what you eat. 

It is high noon for Britain’s fledgling energy policy. Years of failed interventions, arbitrary green targets and damaging subsidies will come to a head in this week’s capacity auction, when we will either see investors commit to building desperately needed new power plants or simply walk away. 

The stakes could not be higher, for the Government and for those policymakers who believed they had designed a credible strategy to keep the lights on.

How have we got here and why does so much in this sector now hang on a complicated and little-known auction process? 

The overriding issue remains the urgent need to replace old coal-fired power stations, which have served the UK since the 1960s, with new plants that burn natural gas to generate electricity. At this stage, we can forget Hinkley C, as it will not be ready in time.

These gas-fired power stations,  known as CCGTs, can be built relatively quickly, are much cheaper than new nuclear plants, and are 50pc cleaner than coal; however, they are years behind schedule, because of a failure by government to deliver the right investment landscape.

Very few economies are relatively strong without competitive energy costs.  The UK has not been in this position since North Sea oil revenues from approximately 1981 through 2003 went into significant decline thereafter, leading to increased energy import dependency from 2004 onwards (see graph which Telegraph subscribers can access via the link above).  

Thereafter, inadequate long-term planning by successive UK governments, combined with EU group think on leadership in emissions control.  Unfortunately, this was achieved at the cost of future energy supplies.  Until this problem is adequately addressed by the government, commencing with extensive fracking, UK energy costs will remain higher than necessary and supplies will be barely adequate. 

A PDF of The Telegraph’s article is posted in the Subscriber’s Area.

Italy's Matteo Renzi thought the "silent majority" would save him, if only he could chivvy enough of them to polls. The prime minister misjudged disastrously.

The voters certainly turned out. They smashed through the 60pc threshold that Mr Renzi thought would secure him victory in the constitutional referendum, but only to register their silent anger  - with him, with his government, with Brussels, and with an Italo-European establishment that has run the Italian economy into the ground.

"I didn't realise they hated me so much," he confessed before his resignation, the wunderkind of European politics no more. 

Markets have reacted with insouciance to the epic scale of Mr Renzi's defeat, betting that the Italian political class will somehow put together a new caretaker government and that business will carry on as usual.  "It's not a psycho-drama," said the EU economics commissioner, Pierre Moscovici.

The reflex of traders after Brexit and the Trump shock is to "buy the dip" on political upsets, but it is far from clear whether the tumultuous events unfolding in Italy have anything in common with Anglo-Saxon episodes, or indeed with any other episode in modern Italian history. 

The European Central Bank has bought calm for now by intervening in the bond markets, holding down yields on 10-Italian debt to 2pc. This in turn has steadied the currency markets. The euro has risen slightly against the dollar. 

But the ECB is effectively "front-loading" purchases of Italian bonds on a short-term basis, which means it will have to buy less early next year since it cannot alter the total volume under its €80bn programme of quantitative easing each month.

"I am worried about what is going to happen in February when the Italian treasury has to redeem €49bn of bonds. The ECB may not be able to remain aggressively in the markets that long," said Professor Erik Jones, director of European studies at Johns Hopkins University in Bologna.

The ECB cannot legally step in as a lender-of-last resort for Italian bonds unless Rome requests a formal bail-out under the European Stability Mechanism (ESM), and this requires votes in the German and Dutch parliaments, among others. 

The terms would be draconian. Italy would lose even more control over its budget. It would amount to a Troika-style take-over of the economy, or a "commissariato" in the horror parlance of Italian politics. "If Europe humiliates Italy and puts the government under a tight rein, then you really will see a popular insurrection," said Professor Jones.

Belying the apparent calm, the Italian authorities are scrambling to prevent the collapse of their intricate rescue plan for banks, knowing that failure would set off a dangerous chain-reaction. 

Mario Draghi calmed the markets by purchasing more Italian Government bonds with his £80bn a month programme.  However, troubles lie ahead, from Italy’s need to redeem €49bn of bonds in February to a possible request from Rome for a formal bail-out, as AEP points out above. 

Matteo Renzi would still be in office, for better or worse, had he not made a tactical error in thinking a referendum was similar to a general election.  In the referendum, he was on his own and lost with approximately 40% of the vote.  As one of several candidates in a general election, he would have won with the same 40%.  His age is only 41 and he has some charisma, so we may see him run again at some stage.  However, unless Brussels and Germany tread softly in dealing with Italy’s financial problems, which they may not, Beppe Grillo’s Five-Star Movement could succeed with an anti-Euro campaign.      

A PDF of AEP’s article is posted in the Subscriber’s Area.

Following Tony Blair's 'logic', this is what should have happened when he was elected in 1997. The losers in the general election should have demanded another vote until voters 'get it right', when of course no more voting would be allowed. What a pity we did not do that to the man who inherited the best economy the UK had in a century and who then proceeded to make the country bankrupt - while stuffing his own pockets.
Sorry if this is blunt, but the dishonesty and deviousness of the man is shocking. I guess he still aches to lead the EU, and is so full of himself that he cannot see they will never consider him.

"Blunt", yes but I am glad you said it and I think many subscribers will agree with you.

The build-up to Blair was also depressing because the Conservatives had lost their way. After forcing out Margaret Thatcher - the best Prime Minister I have ever seen - the Tories were divided and had a weak government led by John Major who unwisely joined the EU's Exchange Rate Mechanism. 

In 1997 Labour's Tony Blair appealed as a fresh-face and politically middle-of-the-road candidate. Following 9/11 in 2001, he became much closer to George W Bush (perhaps to escape from power-hungry Gordon "big clunking fist" Brown?). When Blair was eventually pushed aside by Brown in mid-2007, the new Prime Minister opened the financial taps even wider, encouraging more leveraged borrowing and a bigger house price bubble, heading into the Crash of 2008.

Let’s hope those mistakes are not repeated in the next few years.   

Iain Little and I will be joined by the distinguished speaker, Dr David Brown, discussing one of his favourite topics: ‘Our new Industrial Revolution’. 

We will have a few political revolutions to discuss as well.  I look forward to seeing our interesting subscribers at another lively and enjoyable evening.  

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

The common European currency rose against the dollar even as Italy slid into political limbo after Italian Prime Minister Matteo Renzi’s resignation opened the door to fresh elections. The euro earlier fell to its weakest in 20 months. European shares headed for the biggest gain three weeks, while the cost of insuring Italian bank bonds against default jumped. Gold headed for the lowest close since February, Treasury 10-year yields rose to 2.42 percent and a gauge of equity-market volatility slid.

Political risk from Italy hasn’t spread beyond its borders as markets were correctly positioned for the anti-establishment mood sweeping around the world. This was a departure from the Brexit referendum and Donald Trump’s surprise election, when traders were caught out by populist votes.

“After Brexit, it took three days for markets to shake it off, with Trump it took three hours, with Italy it took three minutes,” said Guillermo Hernandez Sampere, head of trading at MPPM EK in Eppstein, Germany. His firm oversees $260 million. “The outcome was not as much of a surprise as many expected it to be -- markets learned their lesson.”

 

The Italian decision to vote No on the referendum was widely anticipated with the risk residing in whether a snap election would be called. With that option being swept aside soon after the decision, some of the shorts on the Euro were closed in what is a classic example of “sell the rumour, buy the news”. 

This article argues that information gaps—pockets of information that are pertinent and knowable but not currently known—are a byproduct of shadow banking and a meaningful source of systemic risk. It lays the foundation for this claim by juxtaposing the regulatory regime governing the shadow banking system with the incentives of the market participants who populate that system. Like banks, shadow banks rely heavily on short-term debt claims designed to obviate the need for the holder to engage in any meaningful information gathering and analysis. The securities laws that prevail in the capital markets, however, both presume and depend on providers of capital playing the lead role performing these functions. In synthesizing insights from diverse bodies of literature and situating those understandings against the regulatory architecture, this article provides one of the first comprehensive accounts of how the information related incentives of equity and money claimants explain many core features of both securities and banking regulation.

The article’s main theoretical contribution is to provide a new explanation for the inherent fragility of institutional arrangements that rely on money claims. The literature on bank runs typically focuses on either coordination problems among depositors or information asymmetries between depositors and bank managers to explain bank runs. This article provides a third explanation, one which complements the established paradigms. It shows how information gaps increase the probability of panic by increasing the range of signals that can cast doubt on whether short-term debt that market participants had been treading like money remain sufficiently information insensitive to merit such treatment. It further examines how information gaps also impede the market and regulatory responses required to dampen the effects of a shock once panic takes hold. Evidence from the 2007-2009 financial crisis is consistent both with the article’s claims regarding the ways shadow banking creates information gaps and how those gaps contribute to fragility.

The shadow banking sector has benefitted inordinately from quantitative easing because the cost of leverage has been so low and access to the sea of liquidity issued by central banks has been limited to a relatively small number of market participants. That fact alone has contributed to the rise of populist movements, but the prospect of rising interest rates in response to proposed fiscal stimulus represents a challenge for the shadow banking sector. 

"Perovskites came out of nowhere in 2009, with an efficiency rating of 3.8 percent, and have since grown in leaps and bounds," said Anita Ho-Baillie, a Senior Research Fellow at the UNSW's Australian Centre for Advanced Photovoltaics. "I think we can get to 24 percent within a year or so."

The solar cells are made from crystals grown into a particular structure called perovskite. Smooth layers of perovskite with large crystal grain sizes allow the cells to absorb more light. The technology has been advancing fast and attracting plenty of attention thanks to its ease of production and low cost compared to silicon cells.

"The diversity of chemical compositions also allows cells be transparent, or made of different colors," said Ho-Baillie. "Imagine being able to cover every surface of buildings, devices and cars with solar cells."

Perovskite cells do have downsides like much less durability, something Ho-Baillie and her team say they're confident they can improve, while also shooting for higher levels of efficiency.

Perovskite is a development stage technology that is likely to play an important role in the future of solar cells but it could be a decade before it reaches commercial utility. The primary argument supporting perovskite is the relative cost of producing the crystals versus the panels used today. That enhances the technology’s competitiveness so that cells do not need to be as efficient because they are so much cheaper. However what do need to be overcome are the issues described above regarding durability which are non-trivial.

The changes around the world will have major consequences especially for small, open countries like Singapore, said Mr Lee. 

“We have always depended on open trade, making friends around the world, looking for opportunities to cooperate with others,” he said. “We have relied on a secure, peaceful Asia, an international order where countries big and small cooperate and compete according to rules which are fair to all; where small countries have a right to their place in the sun.” 

“That is how we have prospered these last 50 years.” 

He added: “Yes, we worked very hard, and earned our success. But we were also very lucky to enjoy this international environment. We attracted foreign investments, negotiated FTAs, worked with other countries, expanded our exports, traded, prospered.” 

But now, said Mr Lee, other countries are flexing their muscles and becoming increasingly assertive. 

“Nobody can tell how relations between the big powers will develop,” he admitted. “If US-China relations grow tense, Singapore is going to be in a very difficult spot, because we regard both as our friends and do not want to have to choose between them.

 

As a major centre for asset management and private banking Singapore has no choice but to remain open and neutral, as competition between much larger countries increases. There has been a great deal of internal debate about the role of foreigners in pushing up the price of real estate and the rising cost of living and it is probably these points the PM is referring to in his statement. Negotiating a path forward during what is likely to be a time plagued by higher political uncertainty all over the world is going to take a deft hand and strong governance. Against that background Singapore is in a positive position.  

In January 2009, Barack Obama began his presidency by removing a bust of Winston Churchill from the Oval Office. Eight years later, President-elect Trump will likely bring it back, in a symbolic gesture that will speak volumes. America’s hard-fought presidential election will have far-reaching consequences for the  Special Relationship, the most important bilateral partnership in the world. For the first time in a quarter century, conservatives are in charge on both sides of the Atlantic, offering a historic opportunity to re-energize the alliance. 

Under Barack Obama the relationship was critically weakened. The White House showed little enthusiasm for it, preferring instead to cultivate ties with Angela Merkel’s Germany, François Hollande’s France, and a decaying European Union. His first Secretary of State, Hillary Clinton, was happy to knife Britain in the back, standing shoulder to shoulder in 2010 with Cristina Kirchner in Buenos Aires, when the Argentine President called for UN-brokered negotiations over the sovereignty of the Falkland Islands, a British Overseas Territory whose 3,000 inhabitants overwhelmingly voted to remain British in a subsequent referendum. And President Obama himself eagerly proclaimed that America has no “stronger ally” than France when then President Nicolas Sarkozy came to call in 2011, at a time when British troops were fighting and dying in large numbers alongside their American allies in Afghanistan. 

A deep-seated Eurofederalist mindset was pervasive throughout the Obama years, with Vice President Joe Biden even proclaiming that Brussels had a legitimate claim to be the “capital of the free world” in a speech before the European Parliament. It culminated in President Obama’s decision not only staunchly to oppose Britain’s exit from the EU, but also directly to intervene in the domestic debate. Just weeks before the EU referendum he warned the British people, in front of Downing Street, that they would be at the “back of the queue” for a free trade deal with the United States if they dared vote to leave it. 

Similarly, Hillary Clinton spoke out against Brexit during the presidential campaign, believing it to be a dangerous development for Europe. Her opponent had no such qualms  declaring on British soil the day after the referendum that Britons “basically they took back their country.” Trump saw the vote as a momentous victory for sovereignty in the face of supranationalism. Unlike his Democrat rival, he prefers the idea of working with nation states over negotiations with multilateral organisations.

The Brexit vote was a shot across the bow of not only the EU elites but also the Obama presidency. For the next US administration, Brexit is not a threat but an opportunity for the United States, a country with a huge economic stake in the UK. As the Congressional Research Service notes, there are $5 trillion of US corporate assets in the UK, representing 22 per cent of total US corporate overseas assets. Britain is America’s largest foreign direct investor, and roughly a million US jobs depend on British companies based in America. 

A Trump administration should make a US-UK free trade deal a foreign policy priority, riding a wave of momentum on Capitol Hill. There are already no less than five pieces of Congressional legislation calling for an Anglo-American free trade deal, the most prominent being the United Kingdom Trade Continuity Act, introduced in the Senate by Mike Lee of Utah and Tom Cotton of Arkansas, both rising stars in the Republican Party. It is also the view of Paul Ryan, the pro-British Speaker of the House of Representatives and a long-standing admirer of Churchill, that America must pursue a trade agreement with the UK. As he puts it, “we need to emphasise that they are our indispensable ally.”

Everyone has an opinion of Trump, and I personally think I need to keep reassessing my view, not least as the President-elect is not the same as the presidential candidate.   

While the Trump campaign certainly had a wacko element, I like his initial economic policies more than those of President Obama over eight years, or anything suggested by Hillary Clinton.  Wall Street seems to have a similar view.  

A PDF of Nile Gardiner's article is posted in the Subscriber's Area.

Just get on with it! That is the consistent message from Leave voters up and down the country. For such people, it’s simple: “There was a vote, the Leave side won and now the UK has to leave the EU. No ifs or buts”. It’s an instruction that our MPs would do well to heed, and one that permeates all of the findings from a fascinating series of focus groups that I have been shown. 

Change Britain, a new Eurosceptic campaign, has been speaking to voters in Yorkshire, in the Midlands, in the North East and North West. One of the most striking findings is the complete absence of any buyers’ remorse. Those who voted to quit the EU are happy; their frustration stems purely from the stalling of the Brexit process, and the return of finger-wagging, preachy Remainers telling them that it can’t be done.

Many have been supportive of Theresa May, who is saying many of the right things, but patience is wearing thin. As one Leaver put it last week: “Now I want to see something. You have said it, now do it. They seem to get there and it fizzles out like a Roman candle.” Many are demanding “a plan” and some “action”. Plenty are upset at the lack of communication, smelling a rat. “They asked us to make a decision. We’ve done what we were asked to do. They should let us know what’s happening.” There is a widespread suspicion that a deeply untrustworthy establishment is preparing to sell them out, that “there’s obviously some wheeling and dealing going on”.

The tragic, explosive reality is that “ordinary Leave voters”, as they are often called by London-based commentators, are right: the Brexit process is on the verge of going badly wrong, even though the economy has been astonishingly resilient since the vote.

The Remainers are on the march, with Tony Blair and his vast financial and human resources returning to the fray; the legal complications relating to Article 50 are becoming ridiculously onerous; and foreign leaders are making the most of our divided, unsettled establishment to humiliate Britain as often as possible. 

Barack Obama’s infamous intervention ahead of the referendum backfired; it is a fair bet that reading about the Maltese prime minister who wants the UK to “be worse off” or the Polish foreign minister who said that we may never leave the EU will have driven many into an even greater rage.

Angela Merkel’s decision to block any fast-track deal over European expats was a seminal moment this week, as was the news that some lawyers believe that the Supreme Court could yet allow Scotland or even the European Court of Justice to have the final say over Article 50. 

The reason why so many Remainers now feel able so openly to undermine Brexit is because the government has allowed itself to portray Britain as a supplicant, a divided, rudderless country. To European diplomats, it looks as if our government’s heart is not really in this, and that our strategy is purely defensive, a bid to retain as close links to the EU as possible

Allister Heath makes some very good points, although I hope he has overstated risks regarding the eventual outcome following the Brexit vote.  I also think that Prime Minister May is trying to juggle all the various commercial and private interests regarding Brexit, while also attempting to do the right thing on behalf of the UK in leaving the EU while also remaining a close and valuable ally. 

Not all of this is likely to be possible at this time, with the EU showing signs of imploding in an atmosphere of shock, anger and disillusion.  That is a problem which Mrs May has neither caused nor which she can effectively address, let alone resolve.  The EU has been deteriorating since the single currency was launched in 1999, without the federal union which none of the participating states actually want. 

Meanwhile, Mrs May’s cautious approach to Brexit is worrying her supporters among Leavers, while emboldening Remainers who neither accept the democratic result of Britain’s Referendum, nor appear to understand the speed with which the EU is now unravelling. 

It is very unlikely that Brexit can be negotiated successfully in line with the EU’s ‘Rules’, which exist solely to deter countries from leaving.  Additionally, Brexit is now a side issue on the Continent because Mrs Merkel has lost electoral support and faces a difficult fourth term challenge.  The woeful Hollande has already withdrawn from France’s election which is an open race between several widely different candidates.  Italy is in a similar state of turmoil and may even seek its own version of Brexit. 

It is highly risky for Mrs May to hold back during the EU’s chaos and assume that she can declare Article 50 at some point in mid-2017 and commence a rational process of withdrawal from the EU.  She should focus her Brexit efforts on the swiftest exit from the EU which is possible. 

Yes, this would almost certainly occur without any long-term agreements with the EU in place.  More importantly, Mrs May should focus on a trade agreement with President-elect Trump, because that could be achieved both quickly and successfully.  Whether the EU survives in its current state or not during 2017, the leading European economies will have every interest in negotiating mutually beneficial trade deals with an independent UK which is not part of the EU.    

A PDF of Allister Heath's article is posted in the Subscriber's Area.

President-elect Donald Trump turned to some of Wall Street’s biggest names to create a panel of business leaders that will give him strategic advice on the economy after he takes office, including two financiers with deep Democratic roots.

Blackstone Group LP Chief Executive Officer Steve Schwarzman will chair the President’s Strategic and Policy Forum, which will begin meeting with Trump in February, according to a statement Friday from his private equity firm. JPMorgan Chase & Co. CEO Jamie Dimon and BlackRock Inc. CEO Laurence Fink, major donors to Democratic politicians, will also sit on the panel.

“This forum brings together CEOs and business leaders who know what it takes to create jobs and drive economic growth,” Trump said in a statement issued by Blackstone. “My administration is committed to drawing on private sector expertise and cutting the government red tape that is holding back our businesses from hiring, innovating, and expanding right here in America.”

Presidents traditionally turn to business leaders for advice on the economy. President Barack Obama named CEOs from companies including Xerox Corp. and Dow Chemical Co. to an advisory committee on international trade, while Schwarzman has partnered with the current administration on efforts to hire veterans.

Trump asked him to pick the group’s members, Schwarzman said Friday in a Bloomberg Television interview, recounting his discussions with the president-elect and adding that the executives are hopeful their advice will benefit the country.

“He said, ‘It’s really for me to learn what people have to say in an unconstrained way: they don’t report to me, they’re independent, and I want to know what they know,’” said Schwarzman, 69, a billionaire who has historically backed the Republican Party’s presidential nominee but didn’t publicly voice support for Trump during the campaign. “It was nice to see people put aside narrow interests.”

This is a good move.  It shows that Trump is sufficiently secure to want advice from very successful business people, whether they supported him during the election or not.  Partisan politics are no longer relevant now that he is President-elect.  He wants to be a successful President.   

A linlk to today's video is posted in the Subcsriber's Area. 

People’s Bank of China Governor Zhou Xiaochuan already has one policy headache with the currency falling to near an eight-year low. He could have an even bigger one next month.

That’s when a $50,000 cap on how much foreign currency individuals are allowed to convert each year resets, potentially aggravating capital outflow pressures that are already on the rise. If just 1 percent of China’s almost 1.4 billion people max out those limits, that’s an outflow of about $700 billion -- more than the estimated $620 billion that Bloomberg Intelligence estimates indicate has already flowed out in the first 10 months of this year.

Middle class and wealthy Chinese have been converting money into other currencies to protect themselves from devaluation, exacerbating downward pressure on the yuan. Outflows could intensify if Federal Reserve interest-rate hikes fuel further dollar appreciation.

That leaves Zhou in a bind identified by Nobel-prize winning economist Robert Mundell as the “impossible trinity” -- a principle that dictates nations can’t sustain a fixed exchange rate, independent monetary policy, and open capital borders all at the same time.

"At a moment like this, you have to compare two evils and pick the less-worse one," said George Wu, who worked as a PBOC monetary policy official for 12 years. "Capital free flow may have to be abandoned in order to maintain a relatively stable currency rate."

 

The $50,000 limit of foreign transfers is per person, so a family with two parents, one child and four grandparents can send $350,000 overseas with no need to resort to more sophisticated methods of transferring funds. There are of course many alternative routes to sending money overseas. So far rules aimed at controlling flows have focused on corporations and purchases of foreign real estate in the order of $1 billion but the flow of retail funds on aggregate represents a very large figure overall. 

The cramped crew capsule hasn't nearly as much room as the ISS, and because it's designed to operate in deep space, its payload weights are much tighter. Still, it needs to carry enough food for the crew as they spend weeks or even months in long-range missions but cannot be resupplied from Earth, nor can it dump its rubbish until it returns home.

To cut down on space and weight, NASA wants astronauts to substitute breakfast for food bars. The bar has to provide enough calories as well as a carefully balanced diet, need no special storage or cooking facilities, and leave no waste beyond its minimal packaging. In addition, it needs to lightweight and have a shelf life of several years.

Commercial breakfast bars are designed for relatively sedate people who have easy access to other foods. There aren't any food bars that meet NASA's requirements and no one wants to use lifeboat rations, so NASA had to take on the task of designing it in house.

What it is working on is a breakfast bar that provides 700 to 900 calories and balanced nutrients to act as a meal substitute. The goal is to provide flavors like orange cranberry or barbecue nut to have enough taste and variety to keep morale high and the astronauts wanting to eat them even after weeks in space – though what the final bars will ultimately look and taste like has yet to be decided.

 

We had a good laugh about this story this morning because I’ve been making my own breakfast bars for a year and personally have been very happy with the results. The fact NASA is getting in on the game is a testament to how large the sector for purportedly healthy snack foods has become. 

Starbucks’ digital and technology prowess has put it ahead of its peers, allowing it to serve more customers faster. Same- store sales rose 5 percent in the Americas region in the most recent quarter. Mobile payments accounted for about 25 percent of U.S. transactions in that period.
     
Starbucks built on its tech leadership with an order-ahead feature, which lets customers select and pay for drinks in advance. They then can pick up the beverages at a shop without waiting in line.

Since Johnson became operating chief, Starbucks has rolled out mobile ordering across the U.S. and even tested delivery.

The Seattle-based company also is boosting spending on digital ventures, including taking its app and rewards platform to countries such as China.

Though shares of Starbucks tumbled immediately after the announcement, they recovered some of that ground during extended trading. As of 9:53 a.m. in New York on Friday, the stock was down 2.4 percent to $57.11

Starbucks sells coffee and snacks, technology might ensure the lines are shorter but unless it has ambitions on selling that technology to a wider market the business is unlikely to change much. Losing Schulz as a figurehead is a blow and investors are likely to want to see improving sales if the new CEO is to be given the benefit of the doubt. 

The lira has weakened faster than that of any fellow emerging market's this year except Argentina, as a failed coup — and the crackdown that's followed — spooked foreign investors, exacerbating the effects of the stronger dollar that's greeted the election of Donald Trump. 

After a 25 basis point rate hike to the central bank's overnight lending rate last month failed to prevent the rout, clamors for householders to risk their savings have grown. The odds are stacked against them. Turkish central bank data show that banks worldwide trade $17 billion liras every day; a volume which every adult in Turkey would have to change more than a daily $300 dollars to overpower.

Still, the efforts of those fighting the fallout have taken varied forms. While some businesses are rewarding those dumping dollars, farmers in the central Anatolian province of Aksaray staged a symbolic protest at one of the country's largest livestock markets on Wednesday, burning bills "in retaliation at the U.S. and Europe," according to Ihlas news agency. 

“Europe and America now want to realize economically the coup that they failed to carry out with tanks, rifles and F-16s on July 15,” Ihlas cited Hamit Ozkok, chairman of Aksaray Commerce Exchange, as saying. He was referring to the date of the failed putsch earlier this summer, in which hundreds lost their lives. While Erdogan blames a former political ally, Fethullah Gulen, for instigating the coup, the cleric resides in Pennsylvania, and Turkey has sparred with the U.S. about his extradition. Gulen has denied the allegations.

"I think there's a failure to appreciate that some of the rhetoric smacks of desperation," said Paul McNamara, a fund manager at GAM Ltd in London who oversees around $5 billion in assets. He said only a strong increase to central bank borrowing costs can halt the currency's declines.

 

Local currency five-year bonds yield over 10% while US Dollar denominated bonds yield half that. Brazil’s local currency bonds have a higher yield while its US Dollar debt is lower. Both countries face challenges but Turkey is receiving more attention because it is much less politically stable. 

The painful saga of Italy is by now well-known. The country is stuck in a depressionary debt trap. Trend growth is below zero. GDP is still 9pc below its pre-Lehman peak. Industrial output is back to levels reached thirty-five years ago.

The contours are worse than the 1930s. It is a lost decade turning into a second lost decade. No large developed country in modern times has ever suffered such a fate.

Italy is the victim of a vicious cycle of labour hysteresis as economic stagnation and weak productivity reinforce each other. Its exchange rate is overvalued by 20-30pc against Germany.

How easily we forget that Italy used to run a big trade surplus with Germany in the old days of the lira, and its real growth rate tracked German growth almost exactly with the help of devaluations. Each country was true to its political anthropology.

Italy cannot now deflate its way back to viability since this shrinks the underlying base of nominal GDP and automatically steepens the debt trajectory. It is impossible task for a country with a public debt ratio of 133pc of GDP, and is self-defeating in mechanical terms.

Reform is a beautiful word, but is almost meaningless at this juncture. There is no plausible way out for Italy within the current contractionary structure of monetary union. Only ECB bond purchases forever can keep the lid on this pressure cooker.

Yet it is patently obvious that QE is nearing political, legal, and technical limits. The ECB already faces a lapidary attack by Otmar Issing, its founding chief economist and a figure of towering authority in Germany.

He accused the bank of sliding down a "slippery slope", straying from genuine monetary policy and instead rescuing bankrupt states in violation of the treaties. "The no bailout clause is violated every day," he said.

The ECB has so far bought €1.4 trillion of bonds. Its balance sheet will reach 35pc of eurozone GDP by the end of the year at the current torrid pace, much higher than it ever reached in the US. Mr Issing said QE is nearing the point where the ECB may not be able to extricate itself without disastrous losses.

The inevitable taper battle is now raging within the ECB's governing council, with the two German members leading a swelling mutiny before the next meeting on December 8. Any suggestion that the programme will not be rolled over in full when it expires in March risks a financial storm. Italy will be the epicentre.

The context is fundamentally more dangerous than the events leading up  to the US taper tantrum in May 2013, when the Federal Reserve first began to talk tough.

It invites the perennial question whether Italy, Portugal, and perhaps others, can fund themselves at all in the capital markets, given that the eurozone has done almost nothing since the debt crisis of 2011-2012 to put monetary union on workable foundations.

There is still no fiscal union, no shared debt issuance, no banking union worth the name, and no expansionary New Deal to lift the economy off the reefs once and for all.  All it has done is to tighten surveillance, hoping somehow that it can muddle through by riding on world demand.

So Europe's taper tantrum - when it comes - ineluctably turns into a fresh stress test of monetary union itself. "The feeling once again is that the eurozone is not entirely safe," said David Owen from Jefferies.

The EU is unravelling at an accelerating pace.  This both saddens and disgusts me, because these are obvious, self-inflicted wounds, caused by an arrogant and corrupt Brussels bureaucracy.  I won’t vent further today, because I have so often been critical of the EU, not least since the Brexit vote.  Subscribers know my views.

However, here are 38 short Comments published by The Telegraph in response to Ambrose Evan’s Pritchard’s column.  I have copied them exactly as they appeared and deleted none.  They are varied and mostly interesting on the EU.  A few fret about AEP’s erudite and multilingual vocabulary.  I enjoy it and welcome the addition of new words or phrases.   

So there you have it. Next year’s French presidential election will be contested between the hard Right and the far Right; between the no holds barred free-marketeer Francois Fillon, who has just won the republican nomination, and the Neo-Fascist Marine Le Pen. It is a catastrophe of democracy, an argument for the withdrawal of the franchise from the plebs, who have proved themselves utterly unworthy of the vote, stupid racists that they are.

That is the narrative that is now being spun in some quarters in France, where a demoralised Socialist party – its leader ridiculed, its support in tatters – is looking for answers to its great collapse. But the story they are telling themselves could not be more wrong.

For a start, it features traditional characters cast in a traditional plot – where politicians of Left to Right slug it out against each other until their champions from the centre ground vie for victory. Not this time.

This time the fringes are flourishing. Jean-Luc Mélenchon, who has just been endorsed by the Communist Party, is predicted handsomely to beat François Hollande, France’s centre-Left president, in the first round of next year’s presidential polls – if Hollande even stands. Fillon himself will get less support than Le Pen before the two of them go head-to-head in the second, decisive round of voting.

Mélenchon is often described as Marine Le Pen’s “rival”, as though the pair were locked in some Newtonian experiment, in which any political action by the one leads to an equal and opposite reaction by the other. This may be comforting for those on the “progressive” Left, for whom Le Pen is the very devil. But it is not true. Mélenchon is fiercely anti-free market, cherishing the rights and welfare of those in what he calls his “workers movement”. Marine le Pen too is a heartfelt protectionist promising to defend workers benefits. Both loathe the EU.

A PDF of this article is in the Subscriber's Area.

I don’t think many French citizens will miss Hollande. 

France is the military power within the EU’s ruling alliance with Germany.  However, in every other aspect of this relationship, France is now more than ever the junior partner due to its weak economy. 

Angela Merkel’s influence within the EU is theoretically stronger than ever.  Nevertheless, given the populist outrage sweeping across the West, her prospects for a fourth consecutive election victory are far from certain.  In fact, they may be decided by events currently unfolding in Italy and France.  Merkel will not escape blame for the EU’s failure.    

Clive mentioned that the Trump build program will hit in 2018 just as copper runs into a multi-year deficit (it is balanced in 2016-7) but, if anything, this pending shortfall is being "dragged forward". He also stated in the lithium conversation that the issue facing Govs in their EV infrastructural support build-out is that "the biggest bottleneck they face is not being able to get enough copper out of the ground for all this"............

 As you know, his favourite metal is zinc and when I asked how he would play that he mentioned Boliden, (approx 45% zinc / 55% copper). Boliden absorbed Outokumpu in 2003 to create, I believe, the 4th largest zinc company in the world (at a time when I was visiting both companies for our on-line bulk shipping logistics management system). 

Thanks for this follow-up.  You certainly know more about these companies than I do, but looking at this chart of Boliden, I think it is at least temporarily very overbought after this year’s move from an oversold decline to Swedish Krona 100 to a high this week of 252.30.  You can keep an eye on it in the Chart Library and I think it would look more timely following the next shakeout which probably moves temporarily below the rising 200-day (40-week) MA.  

Dear Sarah

Could you please pass on my thanks to David for providing a thoroughly thought provoking evening? To confirm what the gentleman said from Cumbria it was well worth the effort of travelling down from the North.

I wish you all well and look forward to attending again in the New Year.

Good health

Thank you so much for this thoughtful email. It was a treat to see you.  The enthusiasm and interest of subscribers is what makes these sessions so enjoyable for me.

President-elect Donald J. Trump said on Wednesday that he would separate himself from his businesses before he enters the White House. More details about the arrangement will be announced in mid-December, but it sounds as if he plans to step away from only the management of his business, which presumably will be turned over to his children, while retaining ownership.

This is not enough. There has been much discussion of Mr. Trump’s business dealings’ putting him in violation of the Emoluments Clause of the Constitution, which prohibits government officials from accepting gifts and payments from foreign governments or corporations controlled by foreign governments. But there are other conflict-of-interest issues that have gotten less attention and could cause Mr. Trump — and America — much trouble as well. To prevent this, he must sell or give away his ownership interest in his global business empire as soon as possible.

One of Mr. Trump’s most lucrative initiatives has been the licensing of the Trump brand — and name. There are Trump-branded properties like towers and hotels in some 20 countries. .

This first presents an ethical problem: No president should allow his name to be put on commercial properties in return for payment. The presidency is not a branding opportunity. President Trump can’t do this unless he wants to create the impression that he is being paid off.

But it also presents a global security risk. A building branded with the name of an American president — any president, but perhaps especially Mr. Trump — would be a tempting target for terrorists and other enemies of the United States. Who is going to protect the buildings? Will the Trump organization hire a security firm to do the job, or will the American taxpayer be on the line for the bill? Will foreign governments offer to pay to secure the properties — a subsidy of the Trump organization that would probably violate the Emoluments Clause? If a terrorist attack, a botched security operation or some other tragedy happens on a Trump property, the United States could easily get drawn into a conflict abroad. And our adversaries know this. This is one of the most dangerous aspects of Mr. Trump’s conflict-of-interest problem.

Then there is the litigation risk. In Clinton v. Jones, the Supreme Court ruled that the president can be sued in his personal capacity and required to testify in depositions and at trial. Sexual misconduct is a litigation magnet; extensive business operations are another. If Mr. Trump owns his businesses while he is president, it will be a lot easier for plaintiffs’ lawyers to sue him on behalf of customers, counterparties, investors and others, and to require his testimony under oath.

Whatever one thinks of President-elect Donald Trump, and I imagine he will always be a highly controversial figure, I think it would be a shame if an international real estate developer, or any other businessperson, was discouraged or prevented from becoming president because of assets held in his or her name. 

I do not think that any democracy is improved by governance which is led primarily by career politicians.  Yes, the situation regarding successful outsiders running for top office is more complicated in a global economy.  Nevertheless, their perspectives, experience and commercial skills can be worthy attributes.    

This menacing paragraph from the NYT does not help:

“This problem does not go away because someone else is managing the business. It is still his money, and if he is president, he can’t take it. The only remedy for a serious violation of the Emoluments Clause is impeachment.”

This ‘solution’ obviously does not help the president-elect, and I doubt it helps the country. 

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

OPEC has just decided a headline cut of 1.2 million b/d

We calculate that compared with October secondary sources in the OPEC report, the net OPEC cut from the 11 participating countries in the deal is 0.982 million b/d

Angola was allowed to use September output as the base instead of October

The cartel will use secondary sources to monitor output reductions
Indonesia, Libya and Nigeria is not part of the deal

Since the cartel has distributed quotas to the different countries, have organized a monitoring committee and are using secondary sources, the deal is very bullish to the oil price

 

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

Brent crude oil hit a new recovery high today and upside follow through tomorrow would confirm a return to demand dominance beyond what has been an impressive two-day rally. Considering the fact that the price has been rangebound for the last six months the potential for a breakout that is outsized relative to the amplitude of the congestion area cannot be discounted. 

Last year you expected “some increase” in the 10-year Treasury yield. On November 30 of last year it was at 2.21% and on Friday it closed at 2.34%, so your forecast was accurate. What is your forecast now for interest rates? Have we finally seen the end of the 35-year secular downtrend in rates? 

Rates took a huge jump after the Trump election. They are going to work their way higher. Again, there is a lot of uncertainty about what policies will be enacted, but I would not be surprised to see the ten year between 2.5% and 3% by the end of next year. That is a rate that should not be threatening for equities. If rates move well above 3% without a corresponding big increase in economic growth, it’s a problem. If there’s a big increase in economic growth, a move above 3% could still be all right. But if there is an inflation problem, the Fed will fight by increasing rates even more. That certainly would be a challenge to the equity market. 

President-elect Trump has criticized the Fed for being too dovish. Would he be wise to appoint a new chairperson or governors who are more hawkish? 

Janet Yellen’s term doesn’t end until January 2018. Vice Chair Stan Fischer’s term ends about six months after that. Trump has given no indication that he’ll ask either to step down now, although he has definitely said that he wants to replace Yellen when he becomes president. 

Yes, Trump has criticized the Fed for keeping interest rates down too much. After accusing the Fed of trying to help Clinton and Obama by keeping rates low, Trump might have to welcome low rates if he wants to implement the infrastructure program that he desires. In fact, I believe the Fed is going to move with the 10-year rate next year. If the 10-year Treasury continues to rise to 2.5%, 2.75% or 3% or more, you are going to see two or three Fed rate hikes. We are certainly going to see one in December. That’s a slam dunk. But there could be anywhere from two to three hikes next year depending on how high that 10-year rate goes. 

It’s one thing to finance infrastructure at a near-zero rate, which is where short-term rates are. But if short rates rise to 1.5% and the long rates approach 3%, it is going to be more of a challenge. Trump may not appoint someone who is very hawkish, such as John Taylor, and maybe we’ll find that Yellen’s dovishness will be welcome at a later date. 

I should mention that for quite a while there have been two openings on the Board of Governors of the Federal Reserve and the Board wants them filled. They want to be at full strength. There are only five governors now and there should be seven. Trump will have the opportunity to appoint two new governors very early in his term.

 

US 10-year Treasury yields surged again today and have now comfortably broken the progression of lower rally highs evident since the yield peak that accompanied the taper tantrum. This move is amicably being referred to as the Trump tantrum. There is some weight to the argument it will be temporary since many investors have been conditioned to buy-the-dip and the Presidential inauguration will not be until January 20th. 

Any idea why NASDAQ 100 dropped 50+ points yesterday?

This has been a spectacular year for some technology shares, with companies like Nvidia performing beyond the expectations of even the most ardent bulls. However the prospect of rising interest rates is potentially an issue for companies that are reliant of cheap financing to fund growth. 

OPEC is near an agreement to cut production for the first time in eight years, sending oil prices surging on optimism a deal will start to drain record global inventories.

Under the terms being discussed by ministers in Vienna, the group would cut production by 1.4 million barrels a day, equivalent to about 1.5 percent of global production, according to a delegate. In addition, oil producers outside OPEC, including Russia, would contribute cuts of about 600,000 barrels a day, they said.

The outlines of the deal emerged as ministers on their way into the meeting struck a markedly more optimistic tone than in recent days, signaling the group’s three largest producers -- Saudi Arabia, Iran and Iraq -- have overcome differences on how to share the burden of cuts. It appears Iran will be able to raise production as it recovers from sanctions on its oil industry.

“I am very optimistic we’re going to come up with very fruitful results,” Iraqi Oil Minister Jabbar al-Luaibi said, before sitting down for the final ministerial meeting. “There will be a cut, yes, definitely."

Benchmark Brent oil futures rose as much as 8.8 percent in London trading, the biggest gain since February, to $50.45 a barrel.

Potentially, a credible deal to cut up to 1.5% of global production would enable Brent Crude Oil to range above $50 a barrel for an indefinite period.  However, there has long been a credibility issue with OPEC announcements, and we should really be talking about OPEC plus Russia.   

An understandably cynical market will monitor developments for this OPEC ‘deal’ very closely.  They know that it could just be another ruse to lift crude prices for long enough so that producers can hedge up to a year forward at higher prices in this contango market.  For instance, Brent crude for December 2017 is reasonably liquid and trading over $3 higher than the shortest duration contract which is now February 2017. 

This item continues in the Subscriber’s Area.

The European Union desperately needs finance from Britain and will face severe knocks to its economy if  member nations do not agree to a transitional period to give banks and finance firms time to adapt to Brexit, Mark Carney has warned.

The Governor of the Bank of England wants a smooth changeover when Britain leaves the EU, to give companies time to adapt to the new setup, and avoid any wrenching change in the economy or in the financial markets.

That means Britain would not necessarily switch overnight from one regime to another when leaving the EU, which is expected to take place in early 2019.

“Banks located in the UK supply over half of debt and equity issuance by continental firms, and account for over three-quarters of foreign exchange and derivatives activity in the EU,” Mr Carney said.

“If these UK-based firms have to adjust their activities in a short time frame, there could be a greater risk of disruption to services provided to the European real economy, some of which could spill back to the UK economy through trade and financial linkages.”

That potential disruption comes from Britain’s status as the EU’s major global financial hub.

“The UK is effectively the investment banker for Europe,” Mr Carney said, noting that funds are raised by British-based banks from British-based investors, to fund economic activity.

“These activities are crucial for firms in the European real economy, and it is absolutely in the interests of the EU that there is an orderly transition and there is continual access to those services.”

The Governor has been criticsed for his interventions on Brexit in the past, facing accusations that he wanted the UK to remain in the EU and tried to sway the debate.

Presenting the Bank of England’s financial stability report, he sought this time to align himself with Theresa May.

“As the Prime Minister has said, it is preferable that the process is as smooth and orderly as possible,” he said.

“It is preferable that firms know as much as possible about the desired end point [of the Brexit negotiations] and as much as poss as soon as possible about the potential path to that end point.”

That should mean businesses on both sides of the Channel are able to prepare for Brexit when it takes place, minimising any disruption.

Some more common sense and leadership from Mark Carney, now that he no longer feels a debt of loyalty to David Cameron and George Osborne.  He is wise to direct these comments in the EU’s direction because one can hear the degree of panic and uncertainty coming from their officials.

Whether or not Italy actually pulls out of the Euro, as I think it should, or just struggles on in the manner of Greece, I would not be surprised to see the EU breaking apart in 2017.  How might that affect stock markets?

This item continues in the Subscriber’s Area, where a PDF of the article is also posted.

Iain, David

Thank you for an all-encompassing evening on Monday - I really enjoyed all your presentations and was particularly captivated by Clive's input which I found "doubly" interesting as I found myself on the same page as him across the very extensive subject matter that he so diligently covered. (I now also consider myself enlightened as to the possibilities with lithium, which I had so far interpreted as being a potentially dangerous sector to be involved in - having been rather let down by none-too-dissimilar "possibilities" with graphite a couple of years back).

 Clive does seem to take a somewhat innovative approach to the way he looks at the commodity sector and I found myself deeply absorbed in his content. In this respect it was well worth my London "overnighter" from Cumbria in order to attend!

 This was my first time at the CC for a MN and, as David was highlighting, what a thoroughly "civilized" place it is (it makes the EI Club look a bit "pokey" by comparison!). Having a late dinner upstairs was an unexpected privilege and I can't conceive that I will ever spend a better £25 for such rewarding culinary input!

 Well done to you all and I wish you well on your extensive travels, Iain.

 Please find below some commentary on lithium, "The Race for White Oil Is Heating Up" (Agora), together with some stock suggestions. 

Many thanks for your comments on the Markets Now and also The Caledonian Club. I thought Clive Burstow, introduced by Iain Little, was a great addition to our list of speakers. I particularly enjoy the chats after presentations.  The dinner was unplanned but a relaxing, spontaneously arranged event and a nice conclusion to the evening.  Thanks also for the commentary on lithium.  I would like to have a look at those shares and aim to post it later this week.  

First notice: our next Markets Now will be held on Monday evening 16^th January, also at the Caledonian Club.  Dr David Brown will be our guest speaker, discussing technology.  The brochure for this event will be available before the end of next week.  

After years of slowing earnings growth and little in the way of excitement for many Wall Street analysts, many are now hopeful that President-elect Donald Trump will finally make things interesting.

When collating data for the Goldman Sachs Group Inc. Analyst Index — a proprietary measure of growth across different sectors of the S&P 500 — the firm included a question this month on what the election of Donald Trump will mean for the industries covered by those surveyed. Turns out, they are rather optimistic. 

"This month, we asked analysts to comment on how the results of the U.S. election will affect companies in their respective sectors," the team led by Avisha Thakkar writes in the new note. "While their responses suggest that there is still uncertainty about the sector-level impact, the majority of sectors are anticipating favorable effects," they say, adding that expectations of lower tax rates and economic stimulus are among key reasons for the favorable outlook.

Goldman certainly isn't the first to hail the potential benefits of a Trump presidency. Dubravko Lakos-Bujas and Marko Kolanovic, quantitative analysts at JPMorgan Chase and Co., also wrote that many of Trump's policies would be "pro-growth," even while uncertainty about specifics remains high.

They wrote this week that if the campaign promises that have the potential to stimulate growth get implemented, the S&P 500 could see as much as $20 in additional earnings-per-share growth over the next few years. 

The US stock market has been very enthusiastic about President-elect Trump’s stimulative programme, discounting a considerable amount of good news well before he takes the Oath of Office and becomes president on 20^th January.  Some consolidation of these gains is likely before that date.

This item continues in the Subscriber’s Area.

A link to today's audio/video commentary is postsed in the Subscriber's Area. 

Renzi, 41, has staked his political future by suggesting he would resign if he were to lose, and the first projections of the result are due just before midnight Rome time.

“You have to ask how much the market will react to something they are expecting,” said Andy Soper, head of Group of 10 foreign-exchange options at Nomura in London. "The difference this time is that it might be less about the result and more about how the vote is won or lost. There are a lot of unknowns.”

 

If you look back at history you don’t often see old revolutionaries. The leaders might be mature adults but the people on the streets doing the fighting tend to be young, idealistic, ready for anything, and glorying in the freedom they have suddenly been allowed to grasp. 

A big part of the reason Europe has not had more social unrest is because it simply does not have a large population of young people. We’ve all seen the headlines talking about youth unemployment but the reality is that the 18-25 year old bracket is small relative to the massive aging populations in Spain and Italy.

8. Inflation: Moving higher across DM
‘Reflation’ is the theme du jour following Donald Trump’s unexpected emphasis on infrastructure spending in his acceptance speech on election night. Since then, market participants have been hard at work trying to figure out the policy agenda that Trump the president might pursue (distinct from the rhetoric of Trump the candidate). What seems clear to us, as argued above, is that economic issues, notably tax cuts, infrastructure spending and defense spending, are high on the agenda — a recipe for reflation.

There was a strong case for rising inflation in the US even before Trump’s victory. Our call for higher rates in long bonds this past year was premised more on a repricing of inflation risk and inflation risk premia than on a rise in real rates. And, globally, we expect rising energy prices to push up headline CPI across the major advanced economies in early 2017. After years of deleveraging and highly accommodative monetary policy, we expect inflation to gain momentum in 2017 just as many countries are shifting their policy focus to fiscal instruments. For example, we are forecasting large boosts to public spending in Japan, China, the US and Europe, which should fuel inflationary pressures in those economies. Moreover, having had to work so hard for so long to get inflation even to the current low levels, the major central banks in developed markets sound increasingly willing to let inflation run above 2% targets

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

As recently as early this month a significant number of investors were betting the discount rate was never going to go up. That has definitely changed with the bond markets rapidly pricing in the potential for inflation to pick up as fiscal stimulus is expected to kick in. 

China’s economy is recovering. Accommodating monetary policy is being augmented by expanding the fiscal deficit which might include tax cuts. Construction is beginning to recover since total surplus inventory has fallen to the key seven-month level. The NDRC has released 25 infrastructure projects most of which were frozen earlier this year because cases of corruption were detected. Both wages and consumer spending continue to increase. In some key manufacturing sectors inventories have been reduced. Many private sector companies are now managing cash flow appropriately so are improving profitability. Investment will follow in 2017. Against this background real consumption of metals has begun recovering and will gather pace in 2017.

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

One of the reasons China has been going through such a difficult time is because many of the markets it sends exports to have been in difficulty. The US credit crisis, the EU’s sovereign debt and banking crisis and the collapse of commodity prices all hit demand for China’s exports.   

As in just about every other notable case, the way to get on top of the Italian debt problem is through economic growth. It would help if there were a return to positive rates of inflation, rather than the stuttering deflation that currently envelops the country. In many ways, though, these financial problems are less serious than the underlying economic weakness. Some readers may remember that in the 1950s, 1960s and 1970s Italy was a powerhouse of economic growth. At one point its GDP passed the UK’s, an event trumpeted by the Italians as “Il Sorpasso”.

But recently it has been a very different story. It is common to compare the performance of the world’s major economies since the onset of the financial crisis in the first quarter of 2008. All industrial countries suffered a loss of output in the first few years, but most then managed to recover. Since the beginning of 2008, the US and the UK are currently registering output up by about 12pc and 8pc respectively. Over the same period, Italy’s GDP is down by 8pc.

If this comparison seems pretty stark, then you should reflect on Italy’s performance since the euro was established in 1999. You may recall that this bold monetary construct was supposedly going to unleash a wave of prosperity across Europe, including Italy. Britain, which stood aside from the single currency, risked being left behind, mired in comparative poverty. Staying out of the euro was the Brexit of its time. The warnings of looming under-performance, accompanied by forebodings of the imminent departure of key Japanese and American firms, were its version of Project Fear.

To put it mildly, the outturn has been somewhat different. Since the beginning of 1999, the UK economy has grown by almost 40pc, against about 25pc in Germany and France. But Italy’s performance is in a different league. Over the last 17 years it has managed to grow by less than 6pc. In other words, since the formation of the euro, Italy’s economy has essentially stagnated. Along with this stagnation has come an employment disaster. Unemployment now stands at about 12pc of the workforce.

Nor is the long-term outlook very promising. The Italian birth rate is running at about 1.4 per woman. The United Nations projects that by 2035, Italy’s population will have fallen by about 2pc. Quite apart from what that would do directly to reduce the size of the Italian economy, this is not exactly an environment in which Italian businesses will be galvanised into investment.

It is pretty clear what would bring a revival of the Italian economy and ease many of its financial problems, if not solve its population crisis. Italy needs a much lower exchange rate. While it is in the euro, of course, it does not have a currency of its own to depreciate, and the exchange value of the euro is determined more by the performance of its Teutonic neighbours.

Not that a weaker currency would solve all problems. Italy needs fundamental reform, and not only to the powers and practices of parliament. But if it could enjoy a boost to competitiveness of 20 to 30pc through a lower exchange rate, this would lead to a surge in net exports and higher economic growth, with corresponding gains to employment. In such an environment, it might be easier to get through some of the many reforms that Italy needs.

You may think that a referendum on the powers of the Italian Senate does not promise to be anything like as exciting as the Brexit vote or the US Presidential election. But it is well worth keeping an eye out for the result of Sunday’s vote. Among other things, it may set Italy on the path to leaving the euro. Whatever the outcome on Sunday, though, I have come to believe that this is not a matter of if but when.

Italy’s economic decline since its considerably more prosperous 1950s, 1960s and 1970s, mentioned by Roger Bootle above, is shocking.  It may be tempting to blame this on the Italian political system, and not without some justification.  However, the decline also asks questions? 

Why have most EU nations declined during what has been largely a peacetime era in Europe?  Also, why has this decline become precipitous since 1999, when individual currencies were abandoned in favour of the Euro?

This item continues in the Subscriber’s Area and contains a second article.

 Dear David,

Among the various consequences of the Trump victory suggested by the author of this article is that the protectionism that the new USA administration will apply will have negative consequences of multinational firms - i.e. our favourite Autonomies. What do you think about this hypothesis? Regards

Many thanks for the interesting article and your topical question relevant to many of us.

This item continues in the Subscriber’s Area.

Electric avenues that can transmit the sun’s energy onto power grids may be coming to a city near you.

A subsidiary of Bouygues SA has designed rugged solar panels, capable of withstand the weight of an 18-wheeler truck, that they’re now building into road surfaces. After nearly five years of research and laboratory tests, they’re constructing 100 outdoor test sites and plan to commercialize the technology in early 2018.

“We wanted to find a second life for a road,” said Philippe Harelle, the chief technology officer at Colas SA’s Wattway unit, owned by the French engineering group Bouygues. “Solar farms use land that could otherwise be for agriculture, while the roads are free.”

As solar costs plummet, panels are being increasingly integrated into everyday Materials. Last month Tesla Motors Inc. surprised investors by unveiling roof shingles that double as solar panels. Other companies are integrating photovoltaics into building facades. Wattway joins groups including Sweden’s Scania and Solar Roadways in the U.S. seeking to integrate panels onto pavement.

To resist the weight of traffic, Wattway layers several types of plastics to create a clear and durable casing. The solar panel underneath is an ordinary model, similar to panels on rooftops. The electrical wiring is embedded in the road and the contraption is topped by an anti-slip surface made from crushed glass.

A kilometer-sized testing site began construction last month in the French village of Tourouvre in Normandy. The 2,800 square meters of solar panels are expected to generate 280 kilowatts at peak, with the installation generating enough to power all the public lighting in a town of 5,000 for a year, according to the company.

For now, the cost of the Materials makes only demonstration projects sensible. A square meter of the solar road currently costs 2,000 ($2,126) and 2,500 euros. That includes monitoring, data collection and installation costs. Wattway says it can make the price competitive with traditional solar farms by 2020.

Theoretically, this is an interesting idea and an ambitious challenge.  I hope it can be perfected although the overall cost, safety and susceptibility to damage may be too great for existing technologies.  Nevertheless, it shows the incredible adaptability of solar technology, in terms of projects both great and small.   

The sun is the greatest source of energy with which we have any personal experience.  The number of manmade products exposed to sunlight, which can be captured and turn into energy, is practically unlimited.  

Here is my presentation from Monday’s Markets Now. 

It was another lively, enjoyable session and The Caledonian Club is proving to be one of the better venues.

A new guest speaker, Clive Burstow of Barings, gave an extremely interesting, timely and informative talk on The Global Mining Sector.  I hope to provide his presentation shortly, in addition to Iain Little’s latest update on favoured Investment Trusts.  

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

You read it here first – tomorrow the members of the Organization of Petroleum Exporting Countries (OPEC) will announce an agreement to limit its output. You will have to wait for the details, and more importantly you will have to wait to see whether OPEC members actually do what they say they will do. For those of us who have seen this show before (often with even greater drama/showmanship), the issues with every OPEC agreement are the details and then its execution. Often the details and the execution are not what the public is led to expect at the time of the announcement. 

OPEC has little choice at this point but to attempt to salvage some degree of respectability, especially following the debacle of the Doha meeting last spring at which a preconceived agreement blew up at the last minute. We are not going to debate the viability of OPEC as a cartel – to us it has always been an excuse to travel to Vienna and Europe for shopping and partying. On the other hand, OPEC does play an important role in helping to corral a number of important crude oil producers into supposedly one voice, although the power of that voice has been diminished by the evolution of energy markets over the last 25 years, and especially in the last few years. 

The key factor for the oil market that OPEC understands is that it is in a recovery mode. That is not due to a miracle, or can be attributed to the efforts of anyone in particular. Rather, it is the result of economic discipline being restored to the oil market. Fewer uneconomic prospects are being drilled. Assets are moving from weak hands into stronger hands – hands that don’t necessarily have to drill in order to generate revenue to attempt to keep the doors of the companies open. 

Additionally, companies are figuring out how to operate more efficiently – fewer employees, more efficient operations and employing greater technology. Producers at the moment have benefited from destroying the pricing structure of the oilfield service industry, enabling the producers to lower operating costs. The producers have driven oilfield service company prices down to levels that are not sustainable for the long-term. Short-term gains for producers will have to yield to higher oilfield service prices if the producers wish to have the equipment, technology and employees that deliver the field services that they need. The question becomes how quickly oilfield service prices rise and how much of those increases can be offset by further efficiency gains. 

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

This is a logical argument. If OPEC cannot act in unison to fulfil its role as a swing producer then what purpose does the group have as anything more than a talking shop? If they fail to announce a deal it will signal the group’s increasing irrelevance so they have little choice but to announce something. Quite whether they can succeed in implementing anything is another subject entirely. 

“Oppo and Vivo are willing to share their profit with local sales. The reward was an extremely active and loyal nationwide sales network,” said Jin Di, an IDC analyst based in Beijing. While they declined to detail their subsidy program, she estimates the two were the top spenders in the past year. “They’re doing something different -- they do local marketing.”

China had for years driven Apple’s and Samsung’s growth. The U.S. company generated almost $59 billion of sales from the region in fiscal 2015, which was more than double the level just two years earlier. During that time its shares surged more than 60 percent. At its peak, Greater China yielded almost 30 percent of its revenue and Apple was neck-and-neck with Xiaomi for the mantle of market leader as users clamored for the larger iPhone 6 models. Even as the domestic economy began to sputter, Chief Executive Officer Tim Cook spent a good chunk of an earnings call last year talking up the country’s promise, saying Apple’s investing there “for the decades ahead.”

 

Mobile devices is an increasingly competitive market. The speed with which new companies seem to come and go is alarming from an investors’ perspective because no sooner does one seem to have conquered the world than they are being supplanted by an even more revolutionary start up. 

European Equity Strategy - Weekly Fund Flows - Andreas Bruckner Over the course of last week, DM investors remained energized by heightened expectations of a regime change from monetary to fiscal policy. DM bond funds lost $3bn of assets, which is somewhat lighter than the previous week’s $8bn of outflows, but keeps DM bond fund redemptions on the fastest pace since the 2013 taper tantrum. Meanwhile DM equities garnered $7bn, which showed more constraint than the record-setting $33bn of the week prior, but still accentuated the rotation from bond funds to equity funds that has characterised investor flows since Donald Trump’s election victory on Nov 8. To put this in perspective, DM bond funds have seen $750bn more inflows than DM equity peers since 2007 ($1tn versus $250bn). Looking at the year on year changes of this ‘over-allocation’ since 2004, it seems to be primarily driven by the yearly changes in the US 10-year Treasury yield.

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

The sell-off in bonds will have sparked the interest of investors who have been conditioned to buy the dip. That is exactly what happened following the taper tantrum and on every other occasion when bonds sold off during what has been one of the most persistent bull markets in history. 

Eoin, Are you still holding on to your precious metal positions?
http://citywire.co.uk/wealth-manager/news/omgi-s-naylor-leyland-investors-still-don-t-get-gold/a968487

 

 

Thank you for this question and please let me refer you to this post on the day after the election detailing my trades in gold and silver. 
 

I’d like to compliment the new video commentary by Eoin. It is especially helpful when he discusses individual markets/stocks from a technical perspective. Seeing the chart as he speaks is excellent. Well done.

 

I’m delighted you are enjoying the videos which I believe offer a more immersive experience overall. The challenge is ensuring I don’t ramble on because there are few things I like more than talking about charts. 

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

Indian companies including Tata Consultancy Services (TCS), Infosys and Wipro have long used H1-B skilled worker visas to fly computer engineers to the U.S., their largest overseas market, temporarily to service clients.

Staff from those three companies accounted for around 86,000 new H1-B workers in 2005-14. The U.S. currently issues close to that number of H1-B visas each year.

President-elect Trump's campaign rhetoric, and his pick for Attorney General of Senator Jeff Sessions, a long-time critic of the visa program, have many expecting a tighter regime.

"The world over, there's a lot of protectionism coming in and push back on immigration. Unfortunately, people are confusing immigration with a high-skilled temporary workforce, because we are really a temporary workforce," said Pravin Rao, chief operating officer at Infosys, India's second-largest information technology firm.

 

India has benefitted enormously from the offshoring of jobs in the customer service, programming, IT and pharmaceuticals sectors. However a number of these large Indian companies are dependent on ready access to their US based customers so they can offer the best possible service which is why India has tended to dominate H1B visa applications. When headlines such as this one highlight how India got 84% of such visas in 2014 there are very real risks that a more protectionist administration could pose a threat to India’s heretofore comfortable access to Silicon Valley. 

“With the lines between traditional brick and mortar and e-commerce continuing to blur, the need to make a big splash during large retail events like Black Friday is significant,” Traci Gregorski, senior vice president of marketing at Market Track, said in an e-mailed statement. “The ease of comparison shopping across channels is creating a situation that puts a definitive advantage in the consumers’ hands.”

Wal-Mart and others also are steering customers toward online deals, rather than just physical stores. While the chain still offers Black Friday specials at its supercenters, the day marks the beginning of a streak of online promotions called “Cyber Week.” Wal-Mart has tripled its e-commerce selection to 23 million products this year, aiming to better compete with Amazon. The world’s largest retailer said in a statement Friday that Thanksgiving was one of its top online-shopping days this year and that about 70 percent of the traffic to its website came from mobile devices.

Target, meanwhile, is offering 15 percent off almost everything in its stores and website for two days: Sunday and Monday. The aggressive discounts come at a cost. When Target slashed prices last holiday season, its profit margin slipped to 27.9 percent from 28.5 percent.

 

Retail is becoming increasingly competitive but online only companies like Amazon have a distinct advantage relative to those maintaining large brick and mortar locations. Nevertheless, the benefit of a large physical location network is brand awareness; meaning companies have to work less hard to create an online shopping footprint. High competition however is likely to ensure margins continue to compress. 

With regard to electric cars decreasing the world's need for fossil fuels, how is the electricity going to be generated? I have heard the Netherlands, who are one of the world leaders in using electric cars, have had to build three new generating plants already to meet the demand and these are coal fired. It is true that electric cars will laudably reduce urban pollution, where 85% of CO2 generation is created. But CO2 production will simply be transferred to rural areas, where electricity generating plants are normally situated. Energy consumption not be reduced and, since the energy production will be a two-step procedure instead of a single stage, it may well be increased.

Thank you for this email which raises important questions and highlights that the energy sector is not suitable for a one size fits all solution. I agree that an electric vehicle is, on aggregate, only as clean as the fuel used to generate its power. This graphic from shrinkthatfootprint.com is a useful barometer for how successful countries are in that regard. 

The resurgent ‘Trump’ dollar is setting off an incipient credit crunch across large parts of the world economy, forcing countries to tighten monetary policy or intervene in the exchange markets to defend their currencies.

The dollar index (DXY) reached a fresh 14-year high of 102 overnight as global markets rotate violently into the US “reflation trade’, betting that Donald Trump’s eye-watering fiscal expansion will prove a replay of Reaganomics in the early 1980s.

Rocketing US bond yields have triggered a global stampede into US assets, draining the international system of dollar liquidity. It is the exact opposite of what happened in the glory days of the emerging market boom when quantitative easing by the US Federal Reserve flooded the world with cheap dollar credit.

The Indian rupee fell to a record low of 68.87 to the dollar on Thursday as foreign investors continue to pull money out of emerging market funds at the fastest rate since the China panic last August.

Traders say China’s central bank has been intervening heavily over recent days to slow the slide in the yuan, fearing that capital outflows could escalate into a full blown-cascade. The currency reached a six-year low of 6.96 against the dollar on the offshore market in Hong Kong, approaching the psychological threshold of 7 RMB that could the rattle nerves of Chinese investors.

Interbank lending rates have climbed for the last eleven days in a row in Shanghai, an even longer stretch than during the ‘taper tantrum’ in May 2013 when the Fed first began to talk tough. Shibor rates have been spiking across all maturities.

“In our view this could be even more serious than the taper tantrum in 2013,” said Stephen Jen from Eurizon SLJ Capital.

Mr Jen said higher bond yields and borrowing costs may be appropriate for America in its current particular circumstances, but they are toxic for most emerging markets still struggling with the fall-out from debt bubbles. 

“The US is out of synch with the rest of the world, and under Trump there will now be an ‘America First’ policy so they won’t to care what happens to anybody else,” he said.

The core problem is that global finance is more dollarized today than at any time in history, with $10 trillion of dollar debt trading globally outside US jurisdiction and beyond full control, up fivefold since 2002.

This is why I expect to see a continuation of somewhat choppy stock markets over the next three to four years as the world moves away from quantitative easing (QE), towards infrastructure spending leading to a gradual improvement in the global economy and an eventual normalisation of interest rates, albeit at lower levels than we have seen in previous cycles over the decades. 

The main reason for this is the disinflationary influence of an accelerating rate of technological innovation, which has many benefits in terms of efficiencies and keeping inflation lower than in previous cycles over the last several decades.

This item continues in the Subscriber’s Area, where a PDF of Ambrose Evans-Pritchard’s article is also posted.

Saudi Arabia pulled out of planned talks with non-OPEC nations including Russia as disagreements about how to share the burden of supply cuts stood in the way of a deal to boost prices just days before a make-or-break meeting in Vienna.

OPEC officials were scheduled to meet with non-members including Russia on Monday before a ministerial meeting in Vienna two days later. The meeting was later canceled entirely after the Saudis decided not to take part.

Instead, the group called another internal meeting to try to resolve its own differences, particularly the question of whether Iran and Iraq are willing to cut production, said two delegates, asking not to be identified because the deliberations are sensitive. Saudi Arabia wants an OPEC deal in place before conversations with other producers such as Russia, one delegate said.

The setback suggests that Saudi Arabia remains split from its two biggest Middle Eastern rivals at the Organization of Petroleum Exporting Countries. Iran insists it should be allowed to restore output to pre-sanctions levels, while it remains unclear if Iraq is still disputing the OPEC supply estimates that would provide the basis for any cuts. With less than a week until the crucial ministerial meeting, the refusal of just one major producer to participate could scuttle the whole of the agreement reached in September in Algiers.

"The whole Algerian deal wasn’t clear from beginning and their approach was ‘leave it to later’,” said Abdulsamad al-Awadhi, a former OPEC official for Kuwait who is now an independent analyst in London. Two months after the initial accord "OPEC leaders are confused and the group’s founding members can’t solve differences, but they want to have a deal with non-OPEC. This a tough call."

Brent crude fell in London 3 percent to $47.50 a barrel as of 5:37 p.m. Friday. In New York, West Texas Intermediate fell to $46.42 a barrel.

It’s a bit like herding angry cats.  OPEC members plus Russia are not the best of friends, to put it politely, and they don’t trust each other.  Those are big obstacles in the path of any agreement.  Nevertheless, if common sense prevails, they will ‘surprise’ the markets with production cuts, rather than just freezes at record high levels. 

This item continues in the Subscriber’s Area, where another article is also posted.

Washington: The Trump brain and its fabulous functioning will fascinate researchers long after POTUS 45 leaves the Oval Office. But as he arrives, we can only wonder at where Donald Trump sits on a great American continuum - at one end, sweet innocence and Willy Wonka; at the other, the ethical netherworld of Don Corleone.

There's an element of the Wonka chocolate factory in the crowds that queue around the block at Trump Tower in Manhattan, patient and wide-eyed as they wait to shell out $US100, even $US200, for a swag of hot new presidential memorabilia at the gift kiosk, which is sandwiched between the Trump Ice Cream Parlour and the Trump Grill on the ground floor.

There are little chocolate bricks with "Trump" stamped on their foil wrappings; and sweaters, towels and glassware - all with a discreet Trump monogram. Fans can't leave without a MAGA baseball cap - Make America Great Again. There's even a Trump cologne for men - it's called Success.

But there are shades of The Godfather in how the Trump family permeates the business, the business permeates the presidency and the presidency permeates the family. And in defence of all this, the emerging argument, implied as much as stated, is that the Trumps ought to be trusted to do the right thing - and hiding in plain sight behind that, a dismissive "we don't care if you don't".

So, sons Eric and Donald jnr and daughter Ivanka help to run the executive overseeing Dad's transition to power; but the kids, we were told, were to be taking the running of the business off Dad's hands. The daughter moves seamlessly from Dad's meetings with foreign leaders, to Dad's meetings with foreign business partners.

While the daughter vets would-be cabinet members, her staff tend to an unprecedented new line in presidential product placement. And as a power behind Dad's throne, the daughter's husband, Jared Kushner, wants to be a White House adviser - and despite the obvious nepotism, he'll most likely get the gig, because Dad thinks he's capable of negotiating an Israeli-Palestinian peace deal - after he's purged the transition team of those he suspects as disloyal interlopers.

We had a window into this family-first ethic in son Eric's priorities while commenting to CNN on Mike Pence's performance in the vice-presidential candidate's debate in October: "I really think he represented the family, and I think he represented the party incredibly, incredibly well tonight."

The family firm is booming - as Trump said this week, his stunning victory makes the Trump brand "hotter". The newest property, Trump International Hotel in Washington's old Post Office building, is booked out - and fawning foreign diplomatic delegations most likely will keep it that way.

As Trump flits between his Manhattan skyscraper; a New Jersey golf club, the entrance to which reminds him of 10 Downing Street; and his Mar-a-Lago club in Florida, which The New York Times likens to the Palace of Versailles, the President-elect keeps the firm's key brands in the public eye - ka-ching!

Meanwhile, business partners from Baku in Azerbaijan to Mumbai in India congratulate themselves on their very good foresight in getting into business with a realtor who they can't have seriously countenanced would become leader of the free world - ka-ching! ka-ching!

 

 

I don’t know if Trump will be impeached eventually or rated as one of America’s better presidents, but it will certainly be interesting.

The shock US Presidential result is known but what can we expect from Trump’s regime, and how might it affect the markets? 

Here is another important, far reaching development worth discussing at Markets Now – the US Dollar Index.  A number of government bond yields bottomed in July, including US 10-Yr Treasuries.  I don’t expect to see those lows again… ever.

Groupthink pundits are saying nothing much will change but that is a contrary indicator. 

This is a great time to have an exciting new speaker in Clive Burstow.  Come along and participate in the discussion of market opportunities – the last session for 2016. 

I look forward to another lively session at The Markets Now seminar, attended by highly experienced international investors, led by our long-term subscribers.  Iain Little has more interesting material, including his popular “Trusts In Focus” programme.  Iain also introduced Clive Burstow of Barings, a specialist in the analysis and management of mining stocks – a hot topic this year.  

I can’t wait and it is always fun to chat with delegates at the cash bar following the three presentations.

OPEC’s final push to implement the Algiers supply accord and boost oil prices shifted focus to Iran and non-members such as Russia as Iraq appeared to reverse its opposition to output cuts.

The extension of shuttle diplomacy -- including a visit to Tehran from an architect of the September agreement and an unusual Vienna breakfast with non-OPEC ministers -- comes after an OPEC committee failed this week to hammer out details of how producers will share the burden of cuts. With less than a week until the crucial Vienna ministerial meeting, the refusal of just one major producer to participate could scuttle the whole deal.

Algeria’s Energy Minister Noureddine Boutarfa will travel to Tehran on Saturday in an effort to bring a deal closer, said a person familiar with the matter, who asked not to be identified because the information isn’t public. Algeria is the ninth-largest producer in OPEC and has limited international clout, but in September played a central role in clinching the preliminary agreement on output cuts that had eluded its more formidable counterparts throughout the two-year oil slump.

Boutarfa will also meet his Iraqi counterpart in Vienna on Nov. 28 or 29, although that country is now less of a problem after positive statements from Baghdad, the person said.

Oil prices rose Wednesday as Iraqi Prime Minister Haider Al-Abadi said his country would shoulder part of the burden of output cuts. That assertion still leaves unresolved the significant issue of exactly how much the country would reduce, and from what level, said a Gulf OPEC delegate. Iraq has been disputing the OPEC supply estimates that would form the basis of cuts, saying they underestimate its production.

What a humiliating experience these negotiations must be for OPEC’s main participants, not that they will receive much sympathy.  Nevertheless, frackers in the USA will regard any success by OPEC plus Russia in cutting oil supplies as an early Christmas present, and with good reason.  Any price rise above $50 will increase their profits and also production.  Additionally, it will enable them to lock in higher prices for the future by hedge shorting more distant contracts in this contango market.  Jan ’17 Brent crude currently sells at $49, with prices rising gradually over the next 12 months.  The most liquid distant contract is Dec ’17, which closed today at $53.71.     

The belief is that utilities are becoming “uncovered”; with spot prices so low, they have resisted locking themselves into long-term contracts. This could leave them scrabbling for supply at the end of the decade, giving producers the upper hand on prices.

It’s a view shared by analysts at Cantor Fitzgerald, who predicted this year that a “violent increase” in uranium prices was on the way.

Cantor predicts that up to 80pc of the uranium market could be uncovered by 2025. Moreover, it believes demand will outstrip supply, saying: “The low-price environment has choked off exploration activity for uranium and we are at the point where there are not enough uranium projects in the pipeline that can adequately meet the coming demand.”

Peter Reeve, executive chairman of Aura Energy, describes the spot price as an “irrelevance”.

“I don’t believe the supply side is what’s hitting the spot price. It’s more just speculators playing that part of the market,” he says. 

Aura, which like Berkeley is listed in Australia, joined Aim in September, with a view to progressing uranium projects in Mauritania and Sweden.

Reeve also believes a “demand avalanche” is coming. Uranium is a relatively common metal, found in rocks and even seawater. Locating it in the right concentrations can be difficult, however. 

As Reeve says: “It’s not found near London or Paris. It’s all in very curious locations. That doesn’t make it easy to get at or develop.”

What goes around, comes around. The world needs nuclear power but serious accidents are understandably terrifying, as we know from: 1) Three Mile Island March 28 1979, 2) Chernobyl April 26 1986, and 3) Fukushima Daiichi March 11 2011.  These incidents have left deadly, very long-term contamination in their nearby surrounding regions. 

This item continues in the Subscriber’s Area, where a PDF of the article above is also posted.

We expected the initial panic over Trump’s surprise election to create an attractive buying opportunity in global equity markets.  Instead, Trump’s acceptance speech arrested an equity market freefall, and by the time US markets opened the morning after his election, equity prices had fully recovered.  We believe the quick recovery and subsequent moves higher by global equity markets were driven by Trump initially emphasizing policies favourable to investors (e.g. tax reform, deregulation and stimulus) and deemphasizing policies that could impair corporate earnings (e.g. renegotiating NAFTA).

Although our portfolios were denied an opportunity to “buy low”, we nonetheless executed our “Trump Sweep” strategy (see Strategic View dated 11/8/2016 for more on our “Trump Sweep” scenario) of more aggressively positioning portfolios for rising equity markets.  This more aggressive positioning is consistent with our belief that the likely policies of a Trump administration will prove, on balance, favourable for equity markets. However, the Trump presidency could significantly change which asset classes and market sectors lead the market higher.  

A PDF of The Strategic View is posted in the Subscriber’s Area.

The shock US Presidential result is known but what can we expect from Trump’s regime, and how might it affect the markets? 

Here is another important, far reaching development worth discussing at Markets Now – the US Dollar Index.  A number of government bond yields bottomed in July, including US 10-Yr Treasuries.  I don’t expect to see those lows again… ever.

Groupthink pundits are saying nothing much will change but that is a contrary indicator. 

This is a great time to have an exciting new speaker in Clive Burstow.  Come along and participate in the discussion of market opportunities – the last session for 2016. 

I look forward to another lively session at The Markets Now seminar, attended by highly experienced international investors, led by our long-term subscribers.  Iain Little has more interesting material, including his popular “Trusts In Focus” programme.  Iain also introduced Clive Burstow of Barings, a specialist in the analysis and management of mining stocks – a hot topic this year.  

I can’t wait and it is always fun to chat with delegates at the cash bar following the three presentations.

Philip Hammond has succumbed to the fatal caution of the Treasury.  A rare chance has been wasted.

Britain must now face the full storm of the Brexit downturn next year and the year after without any precautionary buffer worth the name. A hard landing is all but guaranteed.

If the Chancellor had wished to launch a barrage of investment on the country’s rickety infrastructure and do something to lift productivity from the bottom ranks of the OECD league, there could scarcely have been a better global climate. All the stars are aligned.

The whole world is shifting on its economic axis. The era of fiscal austerity is over. The US, Japan, and even the eurozone, are all are switching to net stimulus, painfully aware that zero rates and quantitative easing have run their useful course.

Donald Trump wants an infrastructure blitz of $550bn over five years, buttressed by even bigger tax cuts than Ronald Reagan’s ‘supply-side revolution’ of the early 1980s.

Fiscal largesse has become the new global orthodoxy. The International Monetary Fund has converted. The bond vigilantes have been tamed. Vast sums of excess capital are sitting on the sidelines, searching for homes in infrastructure projects that pay for themselves. Yet the Chancellor has opted for caution.

There is nothing wrong with his list of targeted spending: £220m on ‘pinch points’ for congested roads, £450m for digital signalling on the railways,  £750m on 5G mobile networks. They are admirable. But they do not make a dent on Britain’s infrastructure deficit or come close to offsetting the slump in private investment that is all too likely once the traumatic process of EU extrication gets underway.

Mr Hammond describes Britain’s productivity failings as “shocking”. “We lag the US and Germany by some 30 percentage points. But we also lag France by over 20 and Italy by eight. Which means that in the real world, it takes a German worker four days to make what we make in five,” he said.

Quite so, but his National Productivity Investment Fund of £4.8bn a year is thin gruel in a £2 trillion economy and still leaves public investment trailing average OECD levels by roughly 1pc of GDP. For all the rhetoric, it will actually fall in real terms.

The Treasury itself says in its ‘National Infrastructure Delivery Plan 2016-2021’ that the country needs to spend half a trillion pounds to plug the gap over the next five years, identifying 600 projects ranging from smart power, to fast broadband, flood defences, roads, sewers, and such exotica as beamless light and semi-conductor catapults.

I agree with AEP.  This Autumn Statement is much too cautious given a barely recovering global economy, the low cost of government borrowing and as a cushion against Brexit uncertainty while the UK is in the process of leaving the EU. 

This item continues in the Subscriber’s Area where a number of comments from UK industry are posted, as is a PDF of AEP’s column.

The data-dependent Federal Reserve isn’t likely to contest the evidence: The economy looks strong enough to withstand another interest-rate increase.

It will take a couple of months for U.S. central bankers to figure out the economic policies of President-elect Donald Trump. What they know now is that stock markets are hitting record highs, market-expectations of inflation are moving up and consumer sentiment has improved since the election -- all of it signaling the time is right to raise the benchmark lending rate.

“They have talked it to death,” said Gennadiy Goldberg, interest-rate strategist at TD Securities USA LLC in New York. “December is on.”

Fed officials earlier this month saw a strengthening case to raise rates as the labor market tightened, with some saying a hike should happen in December, according to minutes of their Nov. 1-2 gathering released Wednesday in Washington. They made no direct reference to the national election a week later that would unexpectedly propel Trump to the White House.

“Some participants noted that recent committee communications were consistent with an increase in the target range for the federal funds rate in the near term or argued that to preserve credibility, such an increase should occur at the next meeting,” the record of the Federal Open Market Committee meeting showed. Many officials said a rate rise could be appropriate “relatively soon,” data permitting, it said.

‘Getting Stronger’

Fed officials will hold their final meeting of the year on Dec. 13-14. While it is still difficult to tell what policies Trump will put in place, market indicators are defaulting to a forecast of faster growth and higher inflation. That’s boosted expectations of a rate increase next month. Investors see a 100 percent probability of a move, according to pricing in federal funds futures contracts.

“The Fed meeting minutes say that the case for a rate hike keeps on getting stronger and stronger,” Christopher Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said in an e-mail. “Reading through their deliberations one cannot help but feel a rate hike in December is a done deal.”

Fed governors would have had reservations about Trump but they will feel reassured by the stock market rally following his election.  They certainly will not be postponing the December rate hike over what might happen at a later date once Trump is president. 

The Fed’s main concern right now, although it will not be enough to prevent the imminent rate increase, is the strength of the Dollar Index.

This item continues in the Subscriber’s Area.

An oil supply crunch could hit as soon as 2019 as investment in new projects dries up following the price crash, leading analysts have warned.

Delays and cancellations of projects by cash-strapped energy giants mean the volumes of new crude production coming onstream will not be enough to make up for the decline from existing fields and meet growing demand, Barclays analysts said in a research note.

They forecast that 2019 would see the "the lowest year for new capacity" on their records, which stretch back to the Nineties, with just 1.2m barrels per day (bpd) of new supply.

By contrast, decline from existing fields and growing demand would together equal 4m bpd, resulting in a gap of almost 3m bpd.

"2019 marks a juncture where supply becomes a concern. With current volatility and oil price uncertainty, project sanction approval continues to be difficult," they wrote.

The analysis comes after the International Energy Agency last week warned that the world was headed for another boom and bust cycle in the oil market, with supply shortages likely to cause rapid price increases by the early 2020s.

The IEA said that if project approvals remained at current lows through 2017, it was "increasingly unlikely that supply will be able to meet the rising demand without rapid price increases".

The Barclays analysis is even starker, suggesting that a supply crunch in 2019 may already be unavoidable.

Given long lead times for many projects that it is monitoring "no decision now makes 2019-20 start-up an impossibility", the analysts warned.

"Inventories could help fill the gap, as will the phased ramp-up of onshore developments and shorter development brownfield, but by then we feel it is not a question of the US shale ramping back up, but how much it can produce to fill the gap and how high an oil price is needed," they said.

Oil prices have rallied to near to $50 a barrel for Brent crude in recent days on rising optimism that Opec will agree new production curbs at a meeting in Vienna next week, helping to rebalance the market from the current supply glut. 

But the Barclays analysis suggests that regardless of whether Opec decides to cut next week the fundamentals are tightening and that an increase in production by the cartel may actually be needed within the next couple of years to fill a looming gap.

Ole Hansen, head of commodity strategy at Saxo Bank, said: "Crude oil has rallied strongly, despite headwinds from a rising dollar, in response to increased speculation that Opec will finally succeed in reaching a deal to cut production on November 30. The latest move once again highlights the cartel's role as a major driver of oil market volatility. 

"On the assumption a deal to cut production by a minimum of 800,000 barrels can be struck we could see Brent crude oil once again challenge the ceiling around $54 per barrel."

However, he warned: "The initial move would be driven by short-covering and once that is done the market may pause and retrace in the realisation that Opec's ability to comply with its own production targets have been very poor in recent years."

I do not agree with this forecast.  No disrespect to the International Energy Agency but I cannot think of any commodity agency which does not predict higher prices in most of their forecasts.  If prices are low, they use that as a determinant of higher prices at a future date.  This has sometimes worked given previous inflation and global GDP growth.  What the agency is not factoring in, is the increasing wish to reduce consumption of crude oil because of CO2 emissions. 

Even more importantly, oil has gone from supply tightness to abundance, thanks to technology.  Today, oil is much easier to find and most importantly, onshore oil can be produced far more cheaply thanks to the vast quantities available in shale formations.

This item continues in the Subscriber’s Area.

The shock US Presidential result is known but what can we expect from Trump’s regime, and how might it affect the markets? 

Here is another important, far reaching development worth discussing at Markets Now – the US Dollar Index.  A number of government bond yields bottomed in July, including US 10-Yr Treasuries.  I don’t expect to see those lows again… ever.

Groupthink pundits are saying nothing much will change but that is a contrary indicator. 

This is a great time to have an exciting new speaker in Clive Burstow.  Come along and participate in the discussion of market opportunities – the last session for 2016. 

I look forward to another lively session at The Markets Now seminar, attended by highly experienced international investors, led by our long-term subscribers.  Iain Little has more interesting material, including his popular “Trusts In Focus” programme.  Iain also introduced Clive Burstow of Barings, a specialist in the analysis and management of mining stocks – a hot topic this year.  

I can’t wait and it is always fun to chat with delegates at the cash bar following the three presentations.

The landscaped lawns and flowering shrubs of Country Garden Holdings Co.’s huge property showroom in southern Malaysia end abruptly at a small wire fence. Beyond, a desert of dirt stretches into the distance, filled with cranes and piling towers that the Chinese developer is using to build a $100 billion city in the sea.

While Chinese home buyers have sent prices soaring from Vancouver to Sydney, in this corner of Southeast Asia it’s China’s developers that are swamping the market, pushing prices lower with a glut of hundreds of thousands of new homes. They’re betting that the city of Johor Bahru, bordering Singapore, will eventually become the next Shenzhen.

“These Chinese players build by the thousands at one go, and they scare the hell out of everybody,” said Siva Shanker, head of investments at Axis-REIT Managers Bhd. and a former president of the Malaysian Institute of Estate Agents. “God only knows who is going to buy all these units, and when it’s completed, the bigger question is, who is going to stay in them?”

The Chinese companies have come to Malaysia as growth in many of their home cities is slowing, forcing some of the world’s biggest builders to look abroad to keep erecting the giant residential complexes that sprouted across China during the boom years. They found a prime spot in this special economic zone, three times the size of Singapore, on the southern tip of the Asian mainland.

The scale of the projects is dizzying. Country Garden’s Forest City, on four artificial islands, will house 700,000 people on an area four times the size of New York’s Central Park. It will have office towers, parks, hotels, shopping malls and an international school, all draped with greenery. Construction began in February and about 8,000 apartments have been sold, the company said.

It’s the biggest of about 60 projects in the Iskandar Malaysia zone around Johor Bahru, known as JB, that could add more than half-a-million homes. The influx has contributed to a drop of almost one-third in the value of residential sales in the state last year, with some developers offering discounts of 20 percent or more. Average resale prices per square foot for high-rise flats in JB fell 10 percent last year, according to property consultant CH Williams Talhar & Wong.

Country Garden, which has partnered with the investment arm of Johor state, launched another waterfront project down the coast in 2013 called Danga Bay, where it has sold all 9,539 apartments. China state-owned Greenland Group is building office towers, apartments and shops on 128 acres in Tebrau, about 20 minutes from the city center. Guangzhou R&F Properties Co. has begun construction on the first phase of Princess Cove, with about 3,000 homes.

Country Garden said in an e-mail it was “optimistic on the outlook of Forest City” because of the region’s growing economy and location next to Singapore. R&F didn’t respond to questions about the effects of so many new units and Greenland declined to comment.

Xi Jinping, China’s strongest ruler since Mao Zedong, must be worried about soft GDP growth during the transition from a metal bashing and export-led developing economy to a fully developed consumer-led society.  The consequence is another massive reflationary effort led by the building of more cities.  This will boost Asia Pacific economies and also the global economy.  

What are the implications?

This item continues in the Subscriber’s Area, where another article is also posted.

The Autumn Statement used to be a pretty humdrum affair, simply giving an update on the official  forecasts for the economy and public finances. In recent years, though, it has taken on the  character of a mini-Budget. It needs to revert to its earlier status. 

But this Wednesday may not be the right time to downgrade it. Mr Hammond has been in the job for only a few months and needs to make an impact. Meanwhile, the economy is at a critical juncture. 

Mind you, having just had Guy Fawkes night, there is no need for fireworks this week. A number of  commentators have accused “Spreadsheet Phil” of being dull. But seeing a former shadow chancellor disporting himself on the dancefloor is surely enough entertainment from the ranks of chancellors, actual and nearly. Dull but competent is fine by me.  

Mr Hammond’s task is made more demanding by greater than usual forecasting difficulties. Under George Osborne, the Treasury sub-contracted forecasting to the Office for Budget Responsibility (OBR). We all know that the record of most economic forecasters is pretty poor. Sadly, the OBR’s own is no exception.

The big forecasting issue at the moment is the impact of the Brexit vote. The forecasting establishment is mostly gloomy. It believes the impact on aggregate demand will be negative as the squeeze on consumers’ real incomes resulting from the lower pound – and the reduction in corporate investment caused by uncertainty – will outweigh any boost to exports. 

More importantly, it also believes Brexit will harm the UK’s medium-term productive potential because of reduced trade and investment. Yet this group of forecasters recently has been even more than usually inaccurate. The much-heralded Brexit recession still hasn’t appeared. Indeed, last week’s retail sales figures showed, yet again, how resilient the economy has proved to be.

We should learn a lot more about Chancellor Philip Hammond tomorrow.  I am optimistic, if that is the right word, that he will be bolder than Roger Bootle suggests.  That would involve risks (what doesn’t?) but the post-Brexit Autumn Statement needs to be bold, outlining unambiguous steps – from taxation to infrastructure – sending a message that the UK is a great place to do business.   

A PDF of Roger Bootle's column is posted in the Subscriber's Area. 

Twisting the knife deeper, the US is still drilling extra wells. The latest Baker Hughes rig count rose by two to 452 last week. Frackers have sold forward their production with hedge contracts, guaranteeing future supply whatever now happens.

"They took advantage of the window for a few weeks when oil was higher and locked in hedges of around $52 for 2017, and $55 for 2018," said Mr Hansen.

Esther George, the head of the Kansas Federal Reserve, told an oil forum on Friday that the average price needed by shale drillers to make a profit has fallen from $79 to $53 over the last two years as technology matures. Many are making money at prices well below that.

She had a warning for those who expect a return to business as usual in world oil, predicting that a "large amount" of production would come on stream as soon as prices push through the mid-50s. "I do not see much room for price appreciation," she said.  

Markets have grown cynical about Opec rhetoric on cuts. Yet it is increasingly clear that Saudi Arabia has genuinely reversed course under the new energy minister, Khaled al-Falih, and this has changed the character of the Vienna meeting entirely.

The Kingdom can no longer afford to fight a grueling war of attrition to force rivals out of the market. While it has succeeded in killing off $200bn of investment in deep-water projects, Canadian tar sands, and other high-cost ventures, this has come at a very high price.

The Saudis have been burning through foreign exchange reserves at a rate of $10bn a month, and contrary to general belief their usable reserve buffer is relatively thin. They face an internal banking and liquidity squeeze, a construction crash, and have had to tap the global bond markets on a large scale to pay their bills.

"The Saudis are the ones that have suffered the biggest hit in revenue and face the most financial pain, and it has gone on a lot longer than they ever anticipated," said Mr Fyfe.

Austerity policies are biting in earnest, threatening the social contract of cradle-to-grave welfare that underpins the Wahhabi regime. Cuts in salaries, perks, and allowances have reduced take-home pay for lower level state employees by as much as 60pc in some cases.

Intelligence analysts say the Saudi-led war in Yemen is proving far more expensive than admitted, suggesting that the budget deficit is significantly higher than the official figure of 13pc of GDP. It recently emerged from Pentagon papers that the Saudis have lost 20 of their state-of-the-art Abrams tanks.

Helima Croft from RBC says the Saudis are now throwing their full diplomatic weight behind the search for a deal, though markets have not yet grasped the significance of this. If the Saudis want a deal, a deal is what will almost certainly happen.

Crucially, they need a much firmer oil price to have any chance of floating a 5pc share of state oil company Saudi Aramco for a very ambitious $100bn. The country is about to release secret details about the true extent of Saudi reserves, frozen at a constant 260bn barrels since the inception of the modern oil age - a patently absurd estimate.

Saudi Arabia’s Tadawul All Share Index has had a good bounce since retesting the January low last month.  If it were to push above 7000 and hold those gains beyond the very short term, it would suggest to me that someone or more likely some group of investors was anticipating higher prices for Brent Crude Oil than current supply/demand figures suggest. 

This item continues in the Subscriber’s Area, were another article is also posted.

The shock US Presidential result is known but what can we expect from Trump’s regime, and how might it affect the markets? 

Here is another important, far reaching development worth discussing at Markets Now – the US Dollar Index.  A number of government bond yields bottomed in July, including US 10-Yr Treasuries.  I don’t expect to see those lows again… ever.

Groupthink pundits are saying nothing much will change but that is a contrary indicator. 

This is a great time to have an exciting new speaker in Clive Burstow.  Come along and participate in the discussion of market opportunities – the last session for 2016. 

I look forward to another lively session at The Markets Now seminar, attended by highly experienced international investors, led by our long-term subscribers.  Iain Little has more interesting material, including his popular “Trusts In Focus” programme.  Iain also introduced Clive Burstow of Barings, a specialist in the analysis and management of mining stocks – a hot topic this year.  

I can’t wait and it is always fun to chat with delegates at the cash bar following the three presentations.

Initially he bought and sold commodities, making his bets based on fundamentals such as supply and demand. He found the experience gut wrenching, so he turned to his network of cryptographers and mathematicians for help looking at patterns: Elwyn Berlekamp and Leonard Baum, former colleagues from IDA, and Stony Brook professors Henry Laufer and James Ax. “Maybe there were some ways to predict prices statistically,” Simons said in a 2015 interview with Numberphile. “Gradually we built models.”

At their core, such models usually fall into one of two camps, trend-following or mean-reversion. Renaissance’s system had a foot in both. Its results were mixed at first: up 8.8 percent in 1988, its first year, and down 4.1 percent in 1989. But in 1990, after focusing exclusively on shorter-term trading, Medallion chalked up a 56 percent return, net of fees. “I was confident that the models would work better,” says Berlekamp, who returned to academia in 1991 and is now a professor emeritus at the University of California at Berkeley. “I didn’t think they would be as good as they were.”

Eventually the scientists went so far as to develop an in-house programming language for their models rather than settle for a numbercentric option such as ASCII, which was popular at the time. Today, Medallion uses dozens of “strategies” that run together as one system. The code powering the fund includes several million lines, according to people familiar with the company. Various teams are responsible for specific areas of research, but in practice everybody can work on everything. There’s a meeting every Tuesday to hash out ideas.

The biggest crowds, in terms of wealth, move the markets with their money.  For this reason, the best black box or mathematical models, whatever you want to call them, will be technically rather than fundamentally driven.

Note the sentence which I emboldened above.

Scientists are struggling to understand why a burst of “scary” warming at the North Pole has pushed Arctic temperatures nearly 20C higher than normal for this time of year.

Experts in the US and Europe say they have been shocked by the soaring temperatures recorded in November, when much of the region is plunged into freezing winter darkness.

Temperatures this month have been as high as almost minus 5C when they are normally closer to minus 25C.

“We’ve been processing this data since 1958 and we haven’t really seen anything like this at this time of year,” said Rasmus Tonboe, a sea ice expert at the Danish Meteorological Institute. “We are watching the situation and trying to analyse what is going on but it’s very surprising.”

The unusual warmth has come as officials at the UN’s World Meteorological Organization said they were 95 per cent sure that 2016 would be the hottest year since records began in the 19th century. It would mean that 16 of the 17 warmest years on record have been this century.

The 17th year was in 1998 when there was a powerful El Niño weather event, as there was in 2015 and 2016.

But some scientists said climate change seemed to be more responsible for the unusual warming at the North Pole this month than the impact of the latest El Niño effect.

“I don’t think that’s a huge factor,” said Jennifer Francis, a Rutgers University climate scientist, explaining that a near-record fall in the extent of sea ice in the Arctic this summer had led to a warmer autumn.

This had reduced the temperature difference between the Arctic and more southerly regions, causing a “wavier” jet stream — a great river of fast-moving air about 10km above the earth that acts as a barrier separating the North Pole from warmer latitudes.

The changes in the jet stream had allowed more warm air to penetrate further north, which explained a lot of the “ridiculously” high Arctic temperatures, Ms Francis said.

“That is scary because it is showing us how rapidly the climate system is changing … We expected for a long time to see the ice disappear and the Arctic warm up and perhaps the jet stream doing bizarre things, but it’s happening much faster than I think anyone expected.

Global warming at today’s temperatures is a mixed blessing.  However, should temperatures continue to rise, it increasingly becomes a very serious problem. We need luck and better technologies to limit that problem.    

Prime Minister Theresa May acknowledged calls from British business leaders to avoid a “cliff edge” in which the U.K. leaves the European Union before sealing a fresh trade deal, signaling she may be open to seeking a transitional agreement to bridge any gap.

"We want to get the arrangement that is going to work best for the U.K. and that will work best for business in the U.K.," May told the Confederation of British Industry’s annual conference in London on Monday. "I understand that people don’t want a cliff edge."

The CBI urged the government to clarify what happens on the day after Brexit amid concern companies could be hit by uncertainty, new regulations and tariffs if a new relationship hasn’t been arranged with the EU by then.

“Businesses are inevitably considering the cliff-edge scenario -- a sudden and overnight transformation in trading conditions,” Paul Drechsler, the president of the group, said before May spoke. “If this happens, firms could find themselves stranded in a regulatory no man’s land.”

May has said she wants to invoke Article 50 of the EU’s Lisbon Treaty by the end of March 2017, setting in motion two years of formal talks on the U.K.’s departure from the bloc. In that time, the government will have to draw up new rules for a range of economic activities currently governed by EU regulations as well as strike new trade deals. If no agreements are reached, trade between the U.K. and the EU would be governed by World Trade Organization rules.

The CBI conference precedes Chancellor of the Exchequer Philip Hammond’s Autumn Statement on the economy on Wednesday, when he will outline the government’s priorities for tax and spending.

Many business leaders favored staying in the EU. Since the June 23 vote went the other way, the CBI has led calls for the U.K. to maintain tariff-free ties to the bloc, while ensuring that British companies can continue to tap workers from the EU. May has pledged to curb immigration, a principal demand of the “Leave” campaign, but one that EU leaders have said is incompatible with continued single-market access.

Prime Minster Theresa May is not talking about a quick, hard-Brexit, although I maintain it would probably enable her to then negotiate the best free-trade post-Brexit deal for both Britain and the EU. 

However, May clearly wants to keep the UK’s corporate sector on side, including important overseas investors from US banks to Japan’s automobile companies, in addition to Remainers from the Referendum, preferably without shocks.  She is also hoping to avoid a legal struggle over Article 50.  Her strategy may seem less risky but it could also be more of a feared ‘leap in the dark’ than a hard-Brexit, given political upheavals underway in the EU.

That is my conjecture since the forthcoming European election results are currently unknown, not least in terms of the winning candidates’ views towards Brexit once they are in office.  What is not in doubt is the additional cost of remaining in the EU any longer than is absolutely necessary.  Moreover, a long drawn-out Brexit will create longer-lasting uncertainty for corporations, while also being politically divisive within the UK. Let’s get out of the stalled and increasingly unpopular EU, and then build new, mutually beneficial trading relationships with not only EU countries but the rest of the world as well.  

Former Prime Minister Francois Fillon, the new front-runner in France’s 2017 presidential election, is offering voters an economic-policy revolution inspired by Margaret Thatcher.

Fillon, 62, vaulted from third position in most polls to win the first round of the Republican primary by 15 percentage points from the veteran Alain Juppe on Sunday with the most free-market platform among the seven candidates. They’ll face each other again in next Sunday’s runoff and the winner will be favorite to become president in May 2017.

Lifelong politician Fillon is pledging to lengthen the work week to 39 hours from 35, to increase the retirement age to 65 and add immigration quotas. He’s vowed to eliminate half a million public-sector jobs and cut spending by 100 billion euros ($106 billion) over his five years in office. And he proposes a 40 billion-euro tax-cut for companies and a constitutional ban on planned budget deficits.

“Who is Fillon? The classic conservative, right-wing candidate,” Bruno Cautres, a political scientist at the Sciences Po Institute in Paris, said in an interview. “He wants a deep reform of the French model: shrinking the role of the state and cutting the welfare system.”

Compared with the brash style of former boss, Nicolas Sarkozy, Fillon has a more low-key approach but he makes a virtue of telling it straight. When he took office as premier in 2007, he shocked even Sarkozy by announcing that France was a bankrupt state. Today he’s promising to reverse that, just like his role model when she became U.K. prime minister in 1979.

“Thatcher was elected after a long and worrying period of decline” in the U.K., Fillon said in a book setting out his candidacy. “When she left office, the U.K. was no longer the sick man of Europe.”

Like Thatcher, Fillon may also find an affinity with the new Republican occupant of the White House. Fillon says he’s ready to work with Donald Trump and the two men share an admiration for Russian President Vladimir Putin.

Fillon has said repeatedly that he wants France to have a closer relationship with Russia, and with Putin himself, who was prime minister during the period when Fillon ran the French government. While other European leaders have called for Putin to stop bombing Syria, Fillon described the attacks as “cold but efficient pragmatism.”

Polls, albeit six months before the vote, suggest that whoever the Republicans nominate is likely to face National Front leader Marine Le Pen and her anti-European platform in the two-way presidential run-off in May, since Socialist incumbent Francois Hollande is posting the worst approval ratings in French history.

With Holland and Sarkozy now presumably out of the running, politics in France have become more interesting. I prefer Francois Fillon but can anyone in France rightfully claim the mantle of Margaret Thatcher?  I think that would be good for France if they could but I doubt it because a majority of French workers appear to love their Luddite, closed-shop unions.    

Tesla CEO Elon Musk said the solar roof that will be sold under a combined Tesla-SolarCity will likely cost less than a normal roof to install.

Tesla and SolarCity shareholders voted in favor of the merger, a deal worth $2 billion, Thursday. In late October, Musk unveiled a new solar roof product to show his vision for a combined company with SolarCity, but did not provide specifics on how much it would cost.

On Thursday after the shareholder vote, Musk said its solar roof will likely cost less than a normal roof:

“It’s looking quite promising that a solar roof will actually cost less than a normal roof before you even take the value of electricity into account. So the basic proposition would be, ‘Would you like a roof that looks better than a normal roof, lasts twice as long, costs less and by the way generates electricity?’ It’s like, why would you get anything else?”

Musk added the price he is speaking to factors in the cost of labor.

During a Nov. 1 conference call, SolarCity CEO Lyndon Rive said that the companies are aiming for 40 cents a Watt, which would put it in line with the competition.

Musk unveiled four solar shingle options for a solar roof at the Oct. 28 event. The solar roof will incorporate glass developed by Tesla’s new glass division.

Tesla will produce the solar cells for the roof with Panasonic at a manufacturing facility in Buffalo, New York.

Yes, solar power does not produce electricity after sunset or when you are beneath heavy clouds, but it is the most flexible and increasingly power.  Mrs Fuller and I have solar panels on our house in Devon and if the roof ever needs to be replaced, I would probably not hesitate to do so with solar roof shingles. 

This item continues in the Subscriber’s Area, where two further reports are posted.

One week after India’s sudden declaration that 500- and 1,000-rupee notes were no longer legal tender, the economy is in chaos. And that’s perhaps because the policy was designed as much to shock and awe observers with the government’s command of the Indian economy as to control India’s “black money” problem. What seemed at first to be a masterstroke by Prime Minister Narendra Modi now looks like a grave miscalculation.

Modi is beginning to sound like he may agree. His recent speeches on the subject have been frankly bizarre. In one, he seemed to laugh at those inconvenienced by the ban; in another, he broke down while speaking of the “sacrifices” he'd made for India, and warned that he might be assassinated by “forces” desperate to protect their “loot."

What’s changed in a week? Well, for one, it’s become clear that the government was simply too cavalier in its planning. Now that 86 percent of India’s currency is no longer valid, the central bank has struggled to print replacement denominations -- and the new notes are the wrong size for existing ATMs. Modi’s asked people to be patient for 50 days, but the process could take as long as four months.

You have to wonder if Modi truly sought expert advice, or relied once again on a small and trusted set of politicians to determine policy. India’s simply too big and complex for shock and awe. Large parts of the rural economy use cash for 80 percent of transactions and have been hard-hit. In seafood-mad West Bengal, for example, the fishing industry is in a state of near-collapse; in the wheat-growing states of the northwest, farmers halfway through the sowing season have run out of cash to buy seeds.

Few villagers have access to an ATM. Most have to trek to a bank branch to change their cash, which means losing out on crucial days of labor. Many Indians, particularly women, still don’t have an active bank account. Finance Minister Arun Jaitley wondered aloud how many poor people would even have 1,000-rupee notes -- probably a rhetorical question, but surely it shouldn’t have been. Someone should've sought the answer before shutting down India’s financial system.

Among India’s middle class, Modi’s “surgical strike on black money” still appears to be popular. It’s the old “vegan fallacy” -- if something tastes terrible, it must be good for you. Enough Indians are suffering that they believe it must be in a greater cause. It’s a moral project, not an economic one. Stand in line, we’re told, and you honor our brave soldiers at the border.

But will that support last? The government’s plan is likely to be ineffective in the long term. Economists agree it will have no effect on the generation of black money through corruption.

This incident has undermined confidence in both Modi and India’s economy for the medium-term.   India’s Mumbai Sensex Index is prone to volatility and the bank note debacle has occurred as resistance was beginning to be encountered near the early-2015 peak.  Medium-term uptrend consistency was interrupted with that first weekly downward dynamic in late September. 

Global investors are looking at charts of what had been their favourite emerging market and seeing a double top, with a break in the 200-day (40-week) MA which has now turned downwards.  While a short-term oversold condition has now occurred following the recent persistent decline, a sharp rally back above the MA is required to check downward momentum beyond the short term.  That may be a challenge in this environment.  While I have liked India for the long term since 2002, here is what I said in the conclusion to my comment in the lead article on 24^th October:

I do have some concerns over the short to medium term.  This year’s upward trend by the Mumbai Index shown above has lost consistency in the region of its 2015 peak.  This may lead to a further ranging consolidation phase, or a more significant medium-term setback if the rising 200-day (40-week) moving average turns downwards.  Nevertheless, I would regard any significant setback as a buying opportunity.    

This item continues in the Subscriber’s Area.

The shock US Presidential result is known but what can we expect from Trump’s regime, and how might it affect the markets? 

Here is another important, far reaching development worth discussing at Markets Now – the US Dollar Index.  A number of government bond yields bottomed in July, including US 10-Yr Treasuries.  I don’t expect to see those lows again… ever.

Groupthink pundits are saying nothing much will change but that is a contrary indicator. 

This is a great time to have an exciting new speaker in Clive Burstow.  Come along and participate in the discussion of market opportunities – the last session for 2016. 

I look forward to another lively session at The Markets Now seminar, attended by highly experienced international investors, led by our long-term subscribers.  Iain Little has more interesting material, including his popular “Trusts In Focus” programme.  Iain also introduced Clive Burstow of Barings, a specialist in the analysis and management of mining stocks – a hot topic this year.  

I can’t wait and it is always fun to chat with delegates at the cash bar following the three presentations.

A defiant Janet Yellen has vowed to complete her full term as chairman of the US Federal Reserve and defend the institution's independence, swatting aside vitriolic attacks on her policies by Donald Trump during the campaign.

“I was confirmed by the Senate for a four-year term, which ends in January 2018, and it's fully my intention to serve out that term,” she told Congress.

Mr Trump lambasted the Fed before his election for supposedly debauching the money supply, and accused Mrs Yellen personally of holding down interest rates to help the Democrats.

His attacks broke a long-standing taboo over Fed sanctity and raised fears that Mr Trump might try to turn the central bank into a White House political instrument, as it came close to becoming under the Nixon administration.

The irony is that Mr Trump may now face the rate rises that he demanded, and perhaps more than he bargained for.

Mrs Yellen gave the clearest signal yet that the Fed will raise rates a quarter point to 0.75pc in December, warning that waiting too long could store up serious problems and leave the bank scrambling to catch up later. “It could end up having to tighten policy relatively abruptly,” she said.

The Fed boss showed little concern about the surging US dollar, insisting that the latest rebound in economic growth and rising inflationary pressures implied rate rises “relatively soon”.

Her choice of words is as close as the Fed ever comes to a pre-announcement. “The coast is clear for multiple rate hikes in 2017,” said Michael Darda from MKM Partners.

The hawkish comments instantly tightened financial conditions, pushing up yields on 10-year US Treasury bonds to 2.28pc and lifting three-month dollar Libor rates to the highest level since since mid-2009.

These are the two key benchmark rates for the international system, setting the price for trillions of dollars of financial contracts.

The tightening was transmitted through the interlocking global nexus, with the usual amplification in southern Europe and across emerging markets. The US dollar index (DXY) surged to a 14-year high of almost 101 and this is compounding the effects.

And:

The Fed has more or less been forced to raise rates since the markets are already driving up long-term borrowing costs sharply. To resist this pressure is almost futile, and would fuel criticism that the central bank is falling behind the curve.

Yet there are risks to tightening at a time when nominal GDP growth is not far above recessionary stall speed, and when the strong dollar is causing ructions worldwide. Mrs Yellen said “global growth should firm” but this is questionable, and may prove a hostage to fortune.

The Fed has misjudged the global landscape time and again over recent years. It was stunned by the "taper tantrum" in May 2013, compelled to beat a hasty retreat when yields spiked and emerging markets crashed. Officials have since adjusted their model to take account of global effects and the "blow-back" into the US economy.

Yet doubts persist over whether the Fed has fully adapted to an international system with open capital flows that is more dollarised than at any time in history, with $10 trillion of dollar debt lying outside US control.

The Bank for International Settlements says there are already signs of a global "dollar shortage" and warns that the more the currency rises the more it forces automatic deleveraging for banks in Europe and Asia, and the more it sets off financial stress through complex swap contracts.

Paul Mylchreest from ADM says Chinese companies and entities probably hold $2 trillion of "short dollar" positions once contracts through Hong Kong, Singapore and Japan are included. This could lead to trouble as the dollar rises and funding costs jump.

“In our opinion, the risks facing China’s financial system – and therefore its economy – are far higher than is currently realised due to dollar illiquidity,” he said.

The Fed was hoping that the Dollar Index would spend more time in its consolidation range below 100, before resuming its secular recovery.  That might have given other large countries more time to strengthen their economies, theoretically allowing monetary policies to be coordinated in programmes of overlapping increases.  After all, that is what frequently happened during other recoveries over the last 70 years.

It was always wishful thinking.  The USA, despite an economically disinterested White House and dysfunctional House of Congress, has advantages that no other large country can match in this era: 1) self-sufficiency in the production of crude oil and natural gas; 2) a widening lead in the hugely important and accelerating rate of technological innovation; 3) far more world-leading multinational corporate Autonomies. 

Had the global economy remained locked in the post-2008 financial crash ‘new normal’ environment of minimal GDP growth and disinflationary pressures, as analytical group-think projected, the US Dollar might have remained rangebound for a longer period. 

This item continues in the Subscriber’s Area, where a PDF of AE-P’s article is also posted.

OK, the US Presidential Election is over but what can we expect from Trump’s regime, and how might it affect the markets? 

Here is an important, far reaching development worth discussing at Markets Now – the US Dollar Index.  A number of government bond yields bottomed in July, including US 10-Yr Treasuries.  I don’t expect to see those lows again… ever.

Groupthink pundits are saying nothing will change but that is a contrary indicator.  This is a great time to have an exciting new speaker in Clive Burstow.  Come along and participate in the discussion of market opportunities – the last session for 2016. 

I look forward to another lively session at The Markets Now seminar, attended by highly experienced international investors, led by our long-term subscribers.  Iain Little has more interesting material, including his popular “Trusts In Focus” programme.  Iain also introduced Clive Burstow of Barings, a specialist in the analysis and management of mining stocks – a hot topic this year.  

I can’t wait and it is always fun to chat with delegates at the cash bar following the three presentations.

Stop Press: If you are planning to attend Markets Now, you can still benefit from the ‘Early Bird’ rate if you enrol before November 21^st.

It will be hard for some to believe but Philip Hammond was once a colourful, buccaneering entrepreneur, the opposite of the grey-suited bean-counter he now purports to be. As a schoolboy in Essex, the man who today serves as our Chancellor of the Exchequer made good money renting out church halls for discos, before graduating to trading cars made at the local Ford factory.

He had a knack for spotting a profit opportunity and struck his first real deal aged just 24, when he bought out his employers’ medical products division for just £1. Over the years, Hammond had his fair share of successes as well as failures, like all entrepreneurs, but ended up making millions from a range of property and construction, manufacturing and energy businesses.

People don’t really change, which is why I’m hopeful that Hammond may rediscover his risk-taking instincts and ditch the ultra-cautious, lugubrious and bizarrely pessimistic persona he has acquired since entering politics. The world has shifted dramatically in the past five months, and Britain desperately needs a dose of the old, glass half-full Hammond. 

Governments must deal with reality as it is, not as they hoped it would be, and this applies even more to Trump’s triumph – which Downing Street neither predicted nor wanted – than it does to Brexit. Nobody knows, at this stage, whether Trump’s presidency will implode in an orgy of demagoguery, protectionism and corruption, or whether it will confound its critics by governing in a neo-Reaganite manner. 

Realpolitik must thus be the order of the day. Given the inflammatory elements of Trump’s campaign, the Government needs to remain vigilant; but it should also seek to make the most of the new world order and the imminent pro-Brexit and pro-growth shift in Washington. This is where Hammond comes in. Brexit alone would have required a radical response from the Chancellor; Brexit, Trump and the growing likelihood that strains in the eurozone will eventually reach breaking point make this an urgent necessity. 

His first Autumn Statement next week is the first real opportunity for the May Government to regain the initiative and to show that it has an exciting, optimistic plan for our post-Brexit prosperity. Hammond cannot afford to be hemmed in by the pessimistic consensus – the same duff predictions that claimed that the Brexit vote would trigger an immediate collapse in growth and jobs. He needs to break free from the constraints of the Treasury’s models.

The Chancellor should start off by pointing out – diplomatically, of course – that the rise in the deficit is largely the doing of his predecessor: the previous predictions never had any hope of coming true, Brexit or no Brexit. He must then retain an iron grip on almost all areas of current spending, while announcing his own, deliberate but carefully controlled loosening in fiscal policy. 

The first big change is that the Chancellor needs to be much more radical on tax, and unveil at least one flagship measure to improve incentives to work and invest. He should commission a major review of the tax system, with the aim of drastically simplifying and flattening it.

I agree with Allister Heath’s advice.  Brexit is no time for timidity at the Treasury.  Chancellor Hammond should be doing all that he can to help Britain become an even more entrepreneurial, low-tax, free-trading economy.  This would inspire talent across the United Kingdom, while also attracting foreign expertise and investment in our pro-business economy.  

The US economy is likely to grow, partly as a result of Mr Trump’s reflation plans, which could in itself provide a fourth supportive factor. After all, rising business confidence and activity typically boosts demand for financial services. In Europe, by contrast, economic gloom and intractable political splits have undermined confidence.

“Anything which can move to the US in the coming years will move — the US is ultimately going to be a huge beneficiary,” Gary Cohn, Goldman Sachs president, said this week. “As far as [financial and business] investment in Europe is concerned, that is going to be on hold.”

Of course, some European observers will dismiss this as a self-interested sales pitch. If Trumpian policies spark US social unrest or geopolitical uncertainty, or if Mr Trump unleashes a debt binge that goes bust, that will not create stability.

But, while those risks are real, the crucial point now is this: whatever Europeans think of Mr Trump, they need to recognise that animal spirits are rising in New York, and this is likely to boost finance and the standing of Wall Street. If London wants to fight back, the British authorities need to find a way to unleash some animal spirits of their own. Bickering about Brexit is not a good place to start.

New York is the obvious choice for any financial firm which chooses to reduce its business in London due to Brexit uncertainty.  However, the UK has a government capable of taking full advantage of the potential following Britain’s decision to leave the EU, including the provision of a very competitive economy.

There is a good chance that London will become an even stronger and more influential financial sector following the UK’s departure from the EU.  I wish New York well but it faces as many uncertainties as London.  Smart multinational businesses will do best by taking a glass half-full view of both London and New York.