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The LME signaled a couple of months ago that it is assessing whether to split the nickel contract in two. The decision will hinge on whether they believe battery demand will in fact ramp higher as many of us expect. The demands from the emerging battery sector are much more stringent in terms of delivery specifications than are currently the norm for LME warehouses so there is a compelling argument for the creation of a new contract.

These tunnels would essentially function as fast freeways, where vehicles and passenger pods latch onto electric skates and get shuttled along at up to 150 mph (241 km/h). There would on and off ramps every mile or so, each with a dedicated side tunnel to avoid logjams. These tunnels could also form part of a Hyperloop system over larger distances between cities.

While all of that remains a ways off, the company is making progress on its proof-of-concept tunnel. Photos shared by Musk in October showed a fully concreted tunnel complete with tracks and cables that he said at the time measured 500 ft (152.4 m) and within three of four months would stretch to around 2 mi (3.2 km).

 

I have to admit that my first reaction to the Boring Company’s announcement of tunnels for the LA area was something to akin “Has anyone told Elon Musk that Los Angeles is prone to earthquakes?” After all the idea of tunnels is all well and good until they turn into coffins. 

The rejoinder today would be that tunnels are immune to wildfires. Less that 8 miles from where I live the mountain between here and the Valley is on fire, which makes me glad I work from home and on flat ground. A lot of the people who pay city taxes in Los Angeles live in the areas currently burning, suggesting the Boring Company may get a leg up from the fires regardless of the safety concerns inherent in its plan. 

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Some of the topics discussed include: precious metals pull back with gold testing the lower side of a two-month range. Wall Street pauses, Pound closes off its low on potential for the Brexit agreement to be concluded, commodities weak but oil continues to hold the $60 area. 

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Fiscal stimulus at a time of almost full employment and close to record low corporate spreads is a recipe for a boom. That is what the vast majority of people are focused on right now especially with the fact that corporations are likely to be the largest beneficiaries. For consumers the final text of the bill that is approved by the House and Senate will be a mix of the data in the below table but the net effect is a tax cut for many people which is likely to boost sentiment. 

“Industrial metals prices will consolidate due to a marked slowdown in China’s metals consumption growth,” BMI Research wrote in an emailed note.

China’s frenzied construction of roads, bridges and subways is set for a major slowdown, adding a headwind to economic growth in 2018. Fixed-asset investment in infrastructure will grow 12 percent next year, according to the median estimate in a Bloomberg survey, down from almost 20 percent in the first ten months this year.

All 18 economists in the survey anticipated a moderation, adding to reports by Morgan Stanley, Goldman Sachs Group Inc. and UBS Group AG predicting a similar trend.

Adding to the selloff is speculation that metals prices have overshot fundamentals in the recent run up. Nickel has retreated 13 percent since early November, giving up some gains from earlier in the year.

"The recent rally in nickel was mostly due to expectations of increased use of the metal in batteries, which will definitely realize some day, but right now stainless steel, not EVs, is still major consumer of nickel and its market driver," Boris Krasnojenov, an analyst at Alfa Bank in Moscow, said by phone.

 

China has infrastructure on par with many developed countries and has more spare steel capacity, for example, than the entire industries of Japan, South Korea and Taiwan combined. At some point there will be a rationalization of that industry. However the big question is what will replace it? 

The UK and other EU governments are planning a crackdown on bitcoin amid growing concerns that the digital currency is being used for money laundering and tax evasion.

The Treasury plans to regulate bitcoin and other cryptocurrencies to bring them in line with anti-money laundering and counter-terrorism financial legislation. Traders will be forced to disclose their identities, ending the anonymity that has made the currency attractive for drug dealing and other illegal activities.

Under the EU-wide plan, online platforms where bitcoins are traded will be required to carry out due diligence on customers and report suspicious transactions. The UK government is negotiating amendments to the anti-money-laundering directive to ensure firms’ activities are overseen by national authorities.

The Treasury said: “We are working to address concerns about the use of cryptocurrencies by negotiating to bring virtual currency exchange platforms and some wallet providers within anti-money laundering and counter-terrorist financing regulation.”

This article from TheStreet concerning the USA’s IRS tax treatment of bitcoin profits may also be of interest. 

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Some of the topics covered include: rotation underway in response to the passing of tax cuts in the USA. Technology overbought conditions being unwound, domestically oriented sectors breaking out, gold steady, Rupee firm, oil pulls back from $65, 5-year bond yield tests the upper side of its range. 

The text of the agreement has to be discussed in 27 national capitals, if EU leaders are to sign it off at a summit on 14-15 December. “The less time we have before the European council, the more difficult it becomes to run the text through 27 national administrations and get an agreement,” said one. “It is [the UK’s] decision to leave it to the last minute and it is [the UK’s] risk.”

Juncker and May attempted to put a brave face on the spectacular collapse of their plans in press statements at the end of the day. The commission president praised May for being a “tough negotiator” who was energetically fighting for Britain’s interests.

May insisted that progress was in sight and that the negotiators would reassemble by the end of the week, with Wednesday evening now sketched into officials diaries. “On many of the issues there is a common understanding and crucially it is clear we want to move forward together”, May told reporters. “There are a couple of issues, some differences do remain, which require further negotiation and consultation. And those will continue but we will reconvene before the end of the week and I am also confident we will conclude this positively.”

Government sources made clear that there were two key sticking points yet to be solved in the negotiations with the EU27 - the role of the European Court of Justice when it came to citizen rights and the Irish border.

 

The Democratic Unionists (DUP) must be thanking their lucky stars that Theresa May needs their help to keep her government afloat. She has little choice than to consider their interests in the negotiations. As I see it there are five potential options for the question of the Irish border to be resolved. 

The passage of the tax bill was initially seen as a bullish catalyst for Wall Street but the primary indices gave up much of their advances by the end of the session. If we drill down a little further we can see there are some clear winners and losers. 

Details of these trades are posted in the Subscriber's Area.

The issue goes beyond old worries during the Cold War that the Russians would tap into the cables — a task American intelligence agencies also mastered decades ago. The alarm today is deeper: The ultimate Russian hack on the United States could involve severing the fiber-optic cables at some of their hardest-to-access locations to halt the instant communications on which the West’s governments, economies and citizens have grown dependent.

While there is no evidence yet of any cable cutting, the concern is part of a growing wariness among senior American and allied military and intelligence officials over the accelerated activity by Russian armed forces around the globe. At the same time, the internal debate in Washington illustrates how the United States is increasingly viewing every Russian move through a lens of deep distrust, reminiscent of relations during the Cold War.

 

The USA is now the world’s largest oil producer, and its economy is not as dependent on energy as other major producers. At the other end of the spectrum Russia and Saudi Arabia are also major producers but their economies are close to totally dependent on energy. Just how much of a gamechanger unconventional oil and gas supply is cannot be underestimated as the geopolitical implications continue to unfold. 

Could you add and / or analyze the Cannabis Marijuana ETF isin code CA44054J1012? I'm sure the sector is of interest

Thank you for this suggestion. I agree cannabis is a very topical sector not least as the USA’s opioid epidemic continues to make headlines. 

The chart for Total Known ETF holdings of Gold has started to accelerate upwards in the last few days. Could you comment as to whether this is significant.

Thank you for bringing this chart to my attention. 

Rated at 10 kilowatts, the Kilopower reactor puts out enough power to support two average American homes and can run continuously for ten years without refueling. Instead of plutonium, it uses a solid, cast uranium 235 reactor core 6 inches (15 cm) in diameter. This is surrounded by a beryllium oxide reflector with a mechanism at one end for removing and inserting a single rod of boron carbide. This rod starts and stops the reactor while the reflector catches escaping neutrons and bounces them back into the core, improving the efficiency of the self-regulating fission reaction. Until activated, the core is only mildly radioactive.

And

The design is modular, so the self-contained reactor units can be hooked together to provide as much power as and where it's needed, whether it's a deep space probe or a Martian outpost. According to Lee Mason, STMD's principal technologist for Power and Energy Storage at NASA Headquarters, the technology is "agnostic" to its environment, allowing it a wide range of applications.

 

Small, modular and safe reactors, that can be produced in factories and transported to their destination via regular roads represent perhaps the only feasible future for the nuclear industry. The fact NASA is moving ahead with such designs, for its own purposes, increases the potential similar programs will find utility in the wider economy. 

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The stock market is a discounting mechanism which takes expectations for future potential and gives them a present value. That’s pretty much an accepted truism in any markets. The big question is always just how much future potential has been priced in? 

The content of the Flynn-Kislyak conversations deepens the narrative that special counsel Robert Mueller has been building: Earlier guilty pleas revealed Russian efforts to connect with the Trump campaign; this one reveals official contacts between the Trump team and Russia after the election -- contact significant enough for Flynn to lie to the FBI about.

The fact that the lies concern Russia makes it politically harder for Trump to fire Mueller or to pardon Flynn than if the charge had involved Flynn's other legal woes over his unreported lobbying for Turkey.

 

The Mueller investigation of ties between the Russian government and the Trump administration represents a potential powder keg for the political arena which could potentially bleed into the markets. It is looking increasingly likely that the tax legislation will get passed ahead of the release of whatever conclusions the investigation reaches but it is a wild card that could contribute to volatility. 

A section from a note by Russell Napier is posted in the Subscriber's Area.

The announcement by the Commodity Futures Trading Commission (CFTC) paves the way for CME and CBOE to become the first traditional U.S. regulated exchanges to launch trading in bitcoin-related financial contracts, in a watershed moment for the cryptocurrency that should lead to greater regulatory scrutiny.

Trading in the CME and CBOE bitcoin futures contracts, which will be priced against and settled in the cash bitcoin market, should begin by year end, a CFTC official said.

Bitcoin soared above $11,000 for the first time this week, up 10-fold year-to-date and prompting multiple warnings of a bubble.

To guard against volatility, CME and CBOE will put in place stricter than usual risk-management safeguards, including initial margin requirements of between 35 percent and 40 percent.

The exchanges have also agreed to enter into information sharing agreements and to send the CFTC data on the settlement process so the regulator can conduct its own surveillance.    

 

When I have traded bitcoin via spread-bets over the last year the minimum margin requirement has been somewhere in the region of 20% and increases to over 30% depending on the size of the position. For futures contracts where the positions are generally larger, the margin requirement of 35-40% is in line with bitcoin’s volatility since 30% drawdowns are not at all uncommon. What that also means is that the ROI of trading bitcoin is quite high, in other words the quantity required in the pay to play environment is quite high relative to other assets. 

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Some of the topics discussed include: Dow Jones beginning to accelerate higher, 5-year yields testing the upper side of their range, oil steady above $60, US house prices at new all-time high, buy the dips strategies still in evidence. 

An up-or-down vote on the Senate’s tax bill could happen before the end of this week. While McCain’s support helped bring the measure one step closer to passing, Republican Senator Susan Collins of Maine said it “would be very difficult” for her to support the proposal in its current form. The party can only afford to lose two of its 52 members to pass the bill without Democratic support. Bob Corker of Tennessee, Jeff Flake of Arizona, James Lankford of Oklahoma and Ron Johnson of Wisconsin are all seen as potential “no” votes.

Data showed U.S. consumer spending settled back in October to a still-decent pace after the biggest increase since 2009, as a post-storm surge in auto sales cooled. Incomes remained robust and inflation showed progress toward the Federal Reserve’s goal. Treasuries sank, driving the benchmark 10-year yield to the highest in a month.

The most dominant strategy evident in the US equity market this year has been an automated process to buy the dips. What has become obvious over the last few months is that what is considered a dip is getting progressively smaller. 

OPEC and Russia are ready to extend their oil production cuts until the end of next year to ensure global stockpiles keep falling and prices maintain recent gains.

All OPEC members and Russia, the biggest producer outside the group to join the deal, agree the cuts should last until the end of 2018, according to delegates in Vienna to attend Thursday’s meeting. On Wednesday, a committee charged with overseeing the agreement on behalf of the whole group also recommended extending until the end of next year, two delegates said.

"Everybody’s working toward that nine-month extension,” Nigerian Petroleum Minister Emmanuel Kachikwu said in a Bloomberg television interview.

OPEC’s strategy to restrict supply in order to raise prices took more than a year to reduce excess inventories and improving global growth has certainly helped to achieve that goal. Surging supply from domestic onshore US sources continues to represent a challenge and not least as exports pick up. That has ensured the run-up in prices has not been more aggressive. 

Some economists are bullish on ideas like Speedfactory and see it as the start of a much larger trend. “We are finally escaping from the manufacturing trap that we’ve been in for the last 20 years,” says Michael Mandel, chief economic strategist at the Progressive Policy Institute in Washington, DC, referring to the mass offshoring of production to Asia.

Improvements in automation can now finally substitute for cheap foreign labor, which will naturally push factories closer to where the consumers are. As manufacturing shifts from offshore mass production to customized, local fabrication, new jobs will open up for human workers, some of which have yet to reveal themselves. “We used to have distribution built around manufacturing,” Mandel says, referencing the centrality of offshore factories, “and now I think that manufacturing is going to be built around distribution.”

The growing role of automation in the garment and shoe sector has been a topic I’ve written about extensively over the last few years. Textiles remain one of the most labour intensive of all industries and has also played a pivotal role as a first step on the road to development for many developing countries. 

A new low-cost nanomaterial developed by New York University Tandon School of Engineering researchers can be tuned to act as a secure authentication key to encrypt computer hardware and data. The layered molybdenum disulfide (MoS2) nanomaterial cannot be physically cloned (duplicated) — replacing programming, which can be hacked.

In a paper published in the journal ACS Nano, the researchers explain that the new nanomaterial has the highest possible level of structural randomness, making it physically unclonable. It achieves this with randomly occurring regions that alternately emit or do not emit light. When exposed to light, this pattern can be used to create a one-of-a-kind binary cryptographic authentication key that could secure hardware components at minimal cost.

The research team envisions a future in which similar nanomaterials can be inexpensively produced at scale and applied to a chip or other hardware component. “No metal contacts are required, and production could take place independently of the chip fabrication process,” Shahrjerdi said. “It’s maximum security with minimal investment.”

Cybersecurity is a major evolving problem both from the perspective of consumers and corporations but also nations because the barrier to entry by competing regimes is falling all the time. 

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Bitcoin is on a tear in 2017, a 10-fold surge that took off even more after CME Chief Executive Officer Terrence Duffy announced in October that the company would offer futures trading by the end of the year. The move is considered key to Wall Street’s broader embrace of the crypotcurrency, likely enabling increased speculation and -- perhaps some day -- products such as exchange-traded funds.

Still, bitcoin’s jump has been met with caution in some circles, and outright dismissal in others. Vanguard Group Inc. founder John Bogle advised investors on Tuesday to avoid the virtual currency “like the plague,” while JPMorgan Chase & Co. CEO Jamie Dimon has called it an asset bubble and a fraud.

Under U.S. law, exchanges like CME, which profit from increased trading volumes, can approve new futures contracts themselves. The process, which is used in most cases, is known as self-certification and involves sending a written confirmation to the CFTC that the contract complies with relevant rules. Often, agency officials will engage in a back-and-forth with a company.

Bitcoin has doubled since November 12th and the pace of the advance has definitely picked up since the introduction of futures and options became more likely in August.  

“It’s the tax bill hurting tech,” said Frank Ingarra, head trader at Greenwich, Connecticut-based NorthCoast Asset Management LLC, which oversees $1.8 billion. “When you have something that’s got so extended and done so well, and people start thinking about these things, of course you’re going to have profit taking.”

Equities were caught in another violent rotation Wednesday, with financial stocks poised for the best two-day rally in more than a year and tech shares their worst rout since last August’s meltdown. Companies from Nvidia Corp. and Facebook Inc., up more than 50 percent in 2017, are nursing losses of 3 percent or more Wednesday. Their effective tax rates are 6.5 percent and 10.1 percent, respectively, data compiled by Bloomberg show.

The technology sector has delivered some of the most impressive performance of any sector this year with the result that a considerable number of wide overextensions relative to the trend mean are now evident. Mean reversion is therefore an increasingly likely possibility. 

Really enjoying the service and the big picture videos.

The scenario of US physical retail imploding over the next couple of years is a plausible potential scenario. In this instance, where consumer sentiment could decrease, how would this affect gold do you think? I note that gold is approaching the $1,300 mark which could be an interesting buy should it break through.

Thank you for this question of general interest and I’m delighted you are enjoying the service.

The competition was one of many examples cited in a report by a U.S.-based think tank about how China’s military might leverage its country’s rapid advances in artificial intelligence to modernize its armed forces and, potentially, seek advantages against the United States.

“China is no longer in a position of technological inferiority relative to the United States but rather has become a true peer (competitor) that may have the capability to overtake the United States in AI,” said the report, written by Elsa Kania at the Center for a New American Security (CNAS) and due to be released on Tuesday.

Future U.S.-China competition in AI, Kania wrote, “could alter future economic and military balances of power.”

Alphabet Inc’s Executive Chairman Eric Schmidt, who heads a Pentagon advisory board, delivered a similar warning about China’s potential at a recent gathering in Washington.

Schmidt noted that China’s national plan for the future of artificial intelligence, announced in July, calls for catching up to the United States in the coming years and eventually becoming the world’s primary AI innovation center.

Developing hardware is technically difficult and requires highly specialized machinery which a relatively small number of countries control the manufacture of. That has precluded China from developing a domestic semiconductor business despite the fact it is a major assembler of computing products. Software is not subject to those kinds of limitations.

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Some of the topics covered include: Brexit negotiations move closer to a positive resolution, Republican tax plan continues to progress, stock markets firm, bonds unchanged, Dollar weak, oil steady, China tightening up on shadow banking.

Negotiators are working on how to present the settlement as a net estimate, with the UK side pressing for an implied figure of between €40-45bn once UK receipts and other deductions are taken into account. “They have promised to cover it all, we don’t care what they say their estimate is,” said one senior EU diplomat. “We’re happy to help them present it.”

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It has been my view for some time that the resolution to the Brexit negotiations would be that there will be a deal. As the above quote highlights the UK government remains concerned about how to frame the concession to a hostile UK public. However, the harsh reality is that UK business wants a deal, the City, which represents a significant proportion of the UK’s economy, needs a deal and therefore a deal will be struck. 

Jerome Powell, appearing before the Senate panel weighing his nomination to be Federal Reserve chairman, aligned himself with a more dovish wing of the U.S. central bank that believes the labor market can get even stronger without creating inflation worries.

President Donald Trump’s nominee said the current jobless rate of 4.1 percent is at or below many estimates of full employment, and then pointed to other measures that suggest remaining slack like historically low participation rates.

“There’s no sense of an overheating economy or a particularly tight labor market,” Powell said in response to a question from Senator Jack Reed, a Rhode Island Democrat. “There may be more slack, more people that can come back to work. I think we are looking at an economy that is going to go under 4 percent unemployment.”

His comments suggest he shares current Fed Chair Janet Yellen’s view that there are still pools of potential workers who can be drawn into the labor force, giving the Fed scope to continue its go-slow approach to raising interest rates.

I believe it is safe to assume President Trump wants a strong economy and is more than happy to use procyclical policies to achieve it. Having a dove at the Fed is a big part of achieving his ambitions and Powell is very close to Yellen in his views. That suggests the Fed is less likely to compete with fiscal stimulus by raising rates aggressively under a Powell governorship. 

I think veteran subscribers will recognise a number of the themes I have been discussing in recent big picture long-term audios in this podcast. 

MSCI India consumer staples P/E shows downside potential … The MSCI India consumer staples’ P/E with respect to the MSCI India P/E chart shows that the sector-relative P/E is still high at +1 STDEV. This would seem to indicate potential for de-rating. Over the past 12 months, the Consumer index has delivered 36% absolute return (outperformed the Sensex by 6ppt).

… and we recommend investors use DBCMI Consumer sector valuations are still expensive as per DB Consumer Momentum Indicator (“DBCMI”, key to our sector top-down view – Figure 4). We believe the DBCMI is a good reflection of relative valuations (22-year backtested lead indicator), as it considers relative earnings momentum. According to DBCMI, the sector could relatively correct 12% to be in line with relative earnings, in our view (or relative earnings need ~13% upgrade).

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The India consumer is benefitting both from improving standards of governance and the introduction of 4G late last year. Economic growth coming in above inflation coupled with a stable currency have all contributed to a steady environment for both consumers and investors with the stock market continue to march higher in a reasonably consistent manner.

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Some of the topics discussed include: the consistency characteristics of bitcoin's bull market. generally quiet day on stock markets, Dollar Index encounters resistance in the region fo the trend mean, precious metals firming, 

Bitcoin blew past $9,700 just a week after topping $8,000 and approached its closest ever to five figures, gaining mainstream market attention as it defies bubble warnings.

The biggest price jump since August consolidated during Japanese trading hours and vaulted the largest cryptocurrency’s value in circulation above the market caps of all but about 30 of the S&P 500 index members. The increase also buoyed its 10-day volatility to more than 15 times the level of the euro-dollar, the most traded currency pair.

What I find interesting about the bitcoin market is how fervent the bulls are and how skeptical the bears are. It represents a perfect example of the sharp discrimination evident in a crowd as the polarization in performance between the winners and losers grows progressively wider. 

Another dynamite audio last weekend - much appreciated, and thank you.

I came across this report from Huawei and Oxford Economics the other day. I'm still reading but it really ups the argument about the effect of digital technology using what it calls the spill-over effect within and across industries.

Some of the report’s key findings are:

The true size of the 2016 digital economy is US $11.5 trillion globally, or 15.5% of global GDP. This is roughly 3 times larger than traditional measurements. The base digital assets comprise 1/3 or $3.8 trillion, while digital spillover effects account for the remaining 2/3 or $7.5 trillion

The digital economy is 18.4% of GDP in advanced economies, ranging in size from 35% to 10%. The US has the largest digital economy at 35% of GDP.

The global digital economy has almost doubled between 2000 and 2016, growing 2.5 times faster than global GDP over this period. China’s share has tripled from 4% of GDP in 2000 to 13% in 2016.

Over the past three decades, every dollar invested in digital technologies added $20 to GDP on average, 6.7 times higher than non-digital investments which added $3 for every dollar invested.

Assuming current growth rates of digital investments over the next 10 years, the report estimates that by 2025 the digital economy will be US $23 trillion globally, or 24.3% of global GDP, up from 15.5% in 2016.

 If you download, I found the graph on 9.17, Fig 3 particularly interesting and unexpected.

Thank you for your kind words and I’m delighted you are enjoying the big picture long-term videos. If the viewer numbers on Vimeo are anything to go by they are the most popular feature on the site apart from the Chart Library.

This is a very welcome contribution to the debate on how much the digital economy contributes to productivity growth. Some are still arguing that the productivity gains from the internet peaked more than a decade ago and use that to explain why growth has been less than impressive since. However, as the complementary evolution of artificial intelligence, automation, cloud computing, social media, 4G connectivity and Internet of Things advance they all contribute to productivity gains when viewed from a wider digitisation theme. 

The CSI 300 Index of large-cap stocks closed down 1.3 percent, with ZTE Corp. and BYD Co. both falling the 10 percent limit in Shenzhen, while BOE Technology Group Co. slid 9.7 percent. Shanghai-listed liquor giant Kweichow Moutai Co. couldn’t maintain its brief foray into positive territory and closed down 1.4 percent, its seventh straight loss since state media warned it was climbing too fast. The stock has slumped 14 percent since Nov. 16.

“Institutional investors are choosing to cash in toward year-end as valuations are near historic highs and market sentiment deteriorated after official media targeted Moutai,” said Shen Zhengyang, Shanghai-based analyst at Northeast Securities Co. He said the market “lacks steam” for further gains.

The pace of the CSI300’s advance has picked up over the last six months and has outperformed the bank-heavy Shanghai A-Share Index. The institutional memory of the bubbly activity which contributed to the surge and collapse of the market in 2015 is still relatively fresh and the government does not want to see a repeat. That suggests some pressure may be coming to bear on the highest-flying shares, to instil some discipline among investors. 

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For Sun Jianbo, president of China Vision Capital Management Co. in Beijing, valuations among large-cap shares are too expensive for state-backed funds to intervene.

The CSI 300 traded at its highest level relative to the broader Shanghai Composite Index in at least 12 years at the start of this week as investors flocked to large caps such as Moutai and Ping An Insurance (Group) Co.

"There’s no need to prop up the market yet," Sun said. "A lot of big caps are still expensive and it would do more harm than good to state-backed funds if they buy now."

The divergence between large-cap shares and the rest of the market may be one reason why the government took aim at Moutai. Before Xinhua warned last week that gains in the liquor maker were excessive, the stock had more than doubled this year.

Following the botched introduction of options trading in 2015 the Chinese administration introduced new rules on disclosures and selling by company principles. It also banned short selling for a time. Through steady purchases by various state-owned vehicles, they manufactured the slow and steady pace of the stock market’s advance since the low in early 2016. 

Crowds at stores in many locations around the country were reported to be strong, according to analysts and retail consultants monitoring shopper traffic across the U.S.

“The turnout is clearly better than the last couple of years,” said Craig Johnson, president of Customer Growth Partners. “The parking lots are full and the outlet malls are busy.”

The retail consultancy has 20 members studying customer traffic in different parts of the country.

Moody’s retail analyst Charlie O’ Shea, who was in Bucks County, Pennsylvania, reported healthy traffic at local stores including consumer electronics chain Best Buy, clothing store Old Navy and retailer Kohl’s Corp.

I definitely get the sense that deals on Black Friday are somewhat more aggressively priced this year. $50 back from Apple on a $400 iPad mini with free engraving, fully loaded Dell XPS laptops for $500 off on Costco, which is considerably cheaper than the Dell website, and a slew of additional deals all point to a retail sector eager to overcome the slump of the last few years. 

In its latest Platinum Quarterly report, the World Platinum Investment Council predicts a deficit of 275 koz of the precious metal for 2018 caused by an increase in jewellery and industrial demand.

Overall supply is probably going to drop by 1% next year “due in part to a 2% reduction in South African mine supply compounded by closures in the second half of 2017,” the report states.

In the third quarter of 2017, production from Zimbabwe declined to 95 koz owing to furnace maintenance work, while Russian supply fell to 185 koz, which is lower than the 205 koz produced in Q2’17. “Overall, global refined production for Q3’17 is estimated at 1,495 koz, which is a 4% reduction from Q2’17 and an 8% fall year-on-year.”

When it comes to next year’s overall demand, the WPIC says it is going to grow by 2% when compared to 2017. In particular, platinum jewellery demand will rise by 3%, which would represent its first spike since 2014. Behind this recovery is the double-digit growth in the rapidly expanding Indian market.

Platinum is trading at a significant discount to both gold and palladium which is a rather odd circumstance for a metal which is the used in all of the most expensive jewelry. However, the revolt against diesel engines, prompted by the Volkswagen cheating scandal, has cast a pall over the sector which has confined prices to a reasonably tight range over the last year. 

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Some of the topics discussed include: the 3rd psychological perception stage of a bull market, lead indicators, dominance of tech, resurgence of resources, bitcoin looking frothy. 

But there are cautionary tales to be seen in the chart, too, since any individual stock can either over- or under-perform. That's why so many experts suggest that, to get started in the stock market, you consider index funds, which hold every stock in an index such as the S&P 500, including big-name companies such as Apple, Microsoft and Google, and offer low turnover rates, so the attendant fees and tax bills tend to be low as well. Warren Buffett, Mark Cuban and Tony Robbins all agree index funds are a safe bet, especially for new investors, since they fluctuate with the market, stay pretty constant and eliminate the risk of picking individual stocks.

The subtext of this statement, quoting some of the most venerable investors in the business, is that owning Index trackers is risk free. I’m sure that is not what the likes of Warren Buffett and Mark Cuban mean but both are on the record as saying that ordinary investors have no hope of achieved the same results they have. The article implies you need to own the Index because you have no hope of picking the big winners. 

Cameco (ticker: CCJ), which provides roughly 17% of the world’s uranium production, announced on Nov. 8 that it will temporarily suspend production at its McArthur River mining and Key Lake milling operations in Canada by the end of January. It blamed weakness in uranium prices, which it said had fallen by more than 70% since the Fukushima accident in March 2011. McArthur River is the world’s largest high-grade uranium mine.

The news sent weekly spot prices for uranium up by nearly $3, to $23 a pound, on Nov. 13, according to nuclear-fuel consultancy Ux Consulting. Weekly prices stood at $20.25 a pound on Nov. 6, ahead of the announcement, holding in the tight range of $19.25 and $20.75 they had traded at from late May. January uranium futures traded on Globex settled at $24.40 on Thursday. “This is the last gasp of the uranium bear market,” says Christopher Ecclestone, a mining strategist at investment bank and research firm Hallgarten & Co., adding that the market is likely to “perk up” from here

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Uranium prices have stabilized near $20 following news of a supply disruption. The fact that closure was voluntary helps to highlight just how much stress the sector is under. The Fukushima disaster has set back the cause of uranium by at least a decade despite the reliability and abundance of the power it provides and the inherent safety of generation IV reactors.

Just eight companies -- Facebook Inc., Apple, Amazon.com Inc., Netflix Inc., Alphabet Inc., Baidu Inc., Alibaba Group Holding and Tencent -- have increased by $1.4 trillion in market cap in 2017, a sum roughly equivalent to the combined annual GDP of Spain and Portugal.

Tech giants' powerful user networks, large cash piles and access to consumer data have led many investors to expect the big will only get bigger.

"You need critical mass to support continuing innovation," said Christopher Dyer, director of global equity at Eaton Vance. While there are exceptions, "China and the U.S. would be natural destinations for incremental dollar investment within tech," he said.

The return to outperformance of emerging markets has been a major topic of conversation for investors this year but it is worth highlighting that Tencent Holdings, Alibaba, Samsung and Taiwan Semiconductor represent 17% of the MSCI Emerging Markets Index.

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

Some of the topics discussed include: flattening yield curve, low volatility, high yield spreads, generally consistent stock market trends, gold and oil steady, 

He presented the Budget as a set of measures to tackle the long-term problems in the British economy, including a dysfunctional housing market, low productivity growth and geographic inequality. Mr Hammond said “money, planning reform and intervention” would be needed to solve the housing crisis. Apart from the stamp duty cut for first time buyers, the government will give local authorities the power to charge double the amount of council tax on empty properties.

And

The government will introduce a £1.5bn package to smooth the implementation of universal credit by removing waiting times for families to receive their payment. The so-called national living wage, a higher minimum wage for those aged over 25, will increase from £7.50 to £7.83 in April. The tax-free personal allowance for income tax will rise to £11,850 and the higher rate threshold for income tax to £46,350. Both increases are in line with inflation at 3 per cent. Spending on the NHS will increase by £1.6bn next year and £350m this winter.

The UK faces unusual challenges in negotiating its exit from the EU and with a tenuous grip on power the Chancellor had little choice than but to pitch his budget at where some of the greatest threats to the administration lie. 

The UK on-trade looks not dissimilar to the UK grocery sector, which too has a few dominant operators that take share from a weak underbelly of independents and supplier-tied franchises. The big grocers resemble the big pub chains inasmuch as they are all about buying power, efficient logistics, wage capping, centralised cost savings and economies of scale. It might also be noted that Wetherspoon’s 4m square feet of productive floor space is about equal to the whole Tesco Express estate. And while Wetherspoon’s revenue of £450 per square foot or thereabouts is half the level expected from a big-four grocer, its 7.7 per cent operating margin compares pretty well to Tesco’s 1.8 per cent at group level last year.

It’s a comparison endorsed by Tim Martin, Wetherspoon’s founder and chairman, who is often found astride his hobby horse that supermarkets and pubs should be taxed equally. Mr Martin has been less vocal on whether pubs and supermarkets should be regulated equally.

Because here’s the thing with supermarkets: they can’t engage in local price wars. Every single UK branch of Tesco Express has to charge the same. That’s because since 2002, the supermarkets have been bound by a code of practice drawn up in response to a Competition Commission review a couple of years before. 

If the performance of Wetherspoons compared to Tesco is any guide the difference in competitive pricing laws has a considerable effect on performance. Meanwhile there is also a clear difference between what are the higher overall margins on discretionary spending and staple spending at supermarkets where competition is increasingly aggressive.  

One in three Chinese children faces an education apocalypse. An ambitious experiment hopes to save them – This article by Dennis Normile for Sciencemag.com may be of interest to subscribers. Here is a section:

The result is a widening gap between urban and rural educational achievement in China, Rozelle says. Many urbanites fit the stereotype of "tiger" parents, pushing kids to excel in school. After hours, their schedules are packed with music and English lessons and sessions at cram schools, which prepare them for notoriously competitive university entrance exams. More than 90% of urban students finish high school.

But only one-quarter of China's children grow up in the relatively prosperous cities. Rural moms have high hopes for their children; Rozelle's surveys have found that 75% say they want their newborns to go to college, and 17% hope their child gets a Ph.D. The statistics belie those hopes: Just 24% of China's working population completes high school.

Rozelle believes such numbers bode ill for China's hopes of joining the ranks of high-income countries. Over the past 70 years, he explains, only 15 countries have managed to climb from middle- to high-income status, among them South Korea and Taiwan. In all those success stories, three-quarters or more of the working population had completed high school while the country was still in the middle-income bracket. These workforces "had the skills to support a high-income economy," Rozelle says. In contrast, in the 79 current middle-income countries, only a third or less of the workforce has finished high school. And China is at the bottom of the pack. School dropouts don't have the skills needed to thrive in a high-income economy, Rozelle says. And, worryingly, the factory jobs that now provide a decent living for those with minimal training are moving from China to lower-wage countries.

Rozelle thinks a lack of opportunity isn't the only factor holding back China's rural children. Physically and mentally, they are also at an increasing disadvantage, hampering their performance in school and their prospects in life.

You might remember last year the OECD’s Pisa rankings of schools was released and China featured particularly highly. That is because the data only looked at Beijing, Shanghai, Guangdong and Jiangsu where the best of the country’s education resources are concentrated. As the above article highlights the real story is of a country that still has a long way to go in equipping its population with the tools necessary to succeed in the 21st century. 

A closer look at the assumptions of the theory
The obvious conclusion for gold investors would be to celebrate the coming era of skyrocketing gold prices, as supply dwindles, and the greatest gold rush of all time ensues in the markets. Such a scenario sounds very enticing. However, instead of taking the news at face value, it is worth examining the matter in more detail and understanding what the decline in production actually means for gold in the mid- and long-term. 

One of the main problems with most peak gold analyses and projections is that they are based on estimates of known mineable reserves of gold.  However, the number of known reserves increases over time as new discoveries are made thanks to technological and scientific advances. Even as the currently operational mines might be slowly exhausting their reserves, new projects and potential discoveries remain untapped.

In this context, “peak gold” can be seen as the gradual depletion of the current, relatively easily accessible deposits. Once these are completely mined, the industry would be forced to move on to new locations that are currently not preferred, because they either involve higher production costs or present other challenges. Nevertheless, higher gold prices would motivate miners to seek out and explore new discoveries and deposits, as well as invest in research and new technologies.

Furthermore, one must bear in mind that the gold market is extensive and quite complex. Currently, the precious metal is being mined in every continent except Antarctica. However, as gold traditionally holds its value and does not corrode, it also has a strong recycling industry, refining and re-smelting the metal, which accounts for 1/3 of the total supply on average.

Therefore, “peak gold” can be viewed as a temporary supply restriction, which would trigger gold price increases in the mid-term. But it also has a much more important aspect to it: over the long term, the depletion of mines currently in operation translates to a “gap-up” of the gold price, as the production costs for new discoveries are drastically lifted. In other words, “peak gold” might not mean the end of our gold supply, but it could introduce a whole new average price range and “price floor” for gold.

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The price of any commodity tends to fluctuate mostly above the marginal cost of production. Oil experienced a step up in production costs over the last decade with the $40 area representing a new floor whereas it had previously been a ceiling. The big question for gold is where the marginal cost of production now rests 

Details of this trade are posted in the Subscriber's Area. 

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

Some of the topics discussed include: China's outperformance, Japan finds support, ASEAN extends breakouts, Wall Street Leash Effect, precious metals and oil steady,  

In order to comply with impending MIFID II regulations we will not be posting excerpts from reports in the free area from December 1st. However we will continue to post reports in the Subscriber’s Area. 

Dear Eoin, could you comment on Niall Ferguson's market prediction in the Sunday Times: 

Thank you for this article which may be of interest to subscribers. It is always a useful exercise to contemplate the end of the financial world but in the full knowledge it doesn’t happen all that often. Niall Ferguson does a good job of articulating the potential causes of future problems in this article which is sure to garner attention for his new book. 

Between 2010 and 2016, coal’s share of U.S. energy fell from 23% to 15.8%, while renewables’ share climbed from 1.7% to 3.7%.  In the EU, coal’s share fell from 16% to 14.5%, and renewables more than doubled its share, going from 3.9% to 8.3%.  This emissions and economic progress by the EU is in jeopardy following the election of President Trump who is determined to boost U.S. oil, natural gas and coal industries, and push back on green mandates and subsidies.  The EU’s response has been to isolate the United States for its climate position.  Their strategy for overcoming high energy costs and exposure to energy disruptions is to make people choose expensive renewable energy in the guise of it being the only logical choice when confronted with the alternative of a disastrous environmental outcome if we continue burning fossil fuels.  

As the EU’s strategy seems not to be working as well as planned, it has become more radical with governments seeking to ban internal combustion engine cars.  This, its leaders believe, will force American auto companies to compete in the marketplace of zero-emission vehicles.  Little is mentioned about the fact that the carbon emissions legacy associated with building electric cars requires years of driving them before it is neutralized.  Electric car promoters also never mention the environmental and social costs of mining the rare earth minerals required in rechargeable batteries.  If fairly presented, people might question whether there are other alternative solutions that are less-costly and do more to mitigate the environmental hazards of electric batteries and renewable energy sources.  

While the goal to level the economic playing field with respect to energy’s cost in manufacturing remains an EU objective, the path to achieving that goal has changed.  The choice presented is impending environmental disaster with continued use of fossil fuels versus feeling good about saving the planet with high cost renewables and zero-emission electric vehicles.  Expect more of rhetoric as we move forward.  Maybe President Trump understands that the climate change movement is really an economic war in the guise of climate change.

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The simple fact is the EU imports a lot of its energy and the USA is close to being energy independent. Quite whether the EU is so cynical in its attempts to pioneer high cost power is questionable, but if everyone were to adopt the same cost base for energy production it would certainly create a more level playing field for a lot of important industries and help European competitiveness.  

Infrastructure plays a crucial role in the region’s economic, social and environmental development, including boosting regional connectivity. Greater connectivity of the transport infrastructure enhances logistical efficiency and supports the growth of investment, trade and commerce while reducing business costs. While countries have invested in infrastructure to varying extents over the years, development has been gaining momentum, with more than US$275bn key pipeline projects across ASEAN, as we detail in this report.

Singapore: To fulfil Singapore’s 6.9mn population target (+25% from the current size) by 2030, the government is steering infrastructure development towards greater public network connectivity, usage of personal mobility devices, as well as usage of digitalisation to transform the city state into a Smart Nation. These infra developments, amounting to US$44bn will help Singapore cope with population increase and prevent traffic congestion.

Malaysia: In the 10th Malaysia Plan (2011-2015), the government highlighted its commitment to infrastructure development. One focus is on building railways (MRT 2, MRT 3, LRT 3) to alleviate traffic congestion. Another focus is on connecting rural areas to urban clusters to ensure equitable development through the Pan Borneo Highway. Infrastructure growth is driven by China, having committed US$34bn (RM144bn) to infrastructure projects such as the East Coast Rail Link, Kuantan Industrial Park and Melaka Gateway. 

Indonesia: In the post-Suharto era, infrastructure development stalled and has not been able to keep up with economic growth amid the commodities boom. The inefficient transport network has resulted in acute distribution bottlenecks, driving up logistics cost. When President Jokowi took office, he diverted a portion of the energy subsidies to infrastructure development. Through priority infrastructure projects totalling US$41bn, the government seeks to boost connectivity in the archipelago to increase business competitiveness.   

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In a period of synchronised economic expansion it is natural for emerging markets to engage in infrastructure development since credit is generally still accommodative and the need remains compelling. That will also help to lay the foundation for future growth as the region evolves economically amid a trend of generally improving standards of governance. 

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Some of the topics discussed include: Recap from The Chart Seminar, stock markets steady, bitcoin at a new high, short-term bond yields continue to rise, Brent Crude steady, precious metals unwind Friday's bounce.

It is always a pleasure to meet subscribers but doubly so when we get to spend two days together discussing the outlook for psychological makeup of the market, where we are in the big cycles and which sectors are leading and which are showing relative strength. I had three big takeaways from last week’s seminar in London.

As anyone who has attended the seminar will know, I do not have examples but offer delegates the opportunity to dictate the direction of the conversation. That ensures the subject matter is relevant to what they are interested in and also highlights the fact that subject matter is applicable to all markets where an imbalance between supply and demand exists. The second benefit of allowing delegates to pick the subject matter is that it is offers a window into what is popular in markets right now and what might be getting overlooked. 

German Chancellor Angela Merkel said she would prefer to go ahead with new federal elections rather than try to form a minority government, as Europe’s most powerful leader weighs her options after the collapse of four-party coalition talks late Sunday.

Seeking her fourth term, Merkel is “skeptical” about a minority government as it may not bring about necessary stability and is open to another so-called grand coalition with the Social Democratic party, she said in an interview with ARD television. In the absence of an agreement to secure a majority in Germany’s Bundestag, “I’m certain that new elections are the better way,” she said.

Disputes among parties over migration and other issues led the Free Democrats to walk out of the talks. German President Frank-Walter Steinmeier urged the country’s political parties to return to the negotiating table, saying “those who seek political responsibility in elections must not be allowed to shy away from it when they hold it in their hands.”

Small parties face difficult choices when they enter government. If they are to ever have a chance of achieving the change they seek, they have no choice but to enter a coalition. However, they seldom get everything they wanted and are often seen by their voters as sellouts when they fail to achieve lofty goals. Therefore, the fate of small parties is often to taste power but to have their support evaporate at the following election. That is as true of the Liberal Democrats in the UK as it is of many small parities in the Eurozone. 

The U.S. jobless rate, which was 4.1 percent in October, may reach 3.5 percent in late 2019, Goldman predicted. That would be the lowest level since the late-1960s.

“Our projections would imply an evolution over the current cycle from the weakest labor market in postwar U.S. history to one of the tightest,” the economists said in a summary of their report. “We expect that a tight labor market and a more normal inflation picture will lead the Fed to deliver four hikes next year.”

That’s one more rate increase than the median forecast of Fed officials, and more than financial markets are currently pricing in. One of the reasons why Goldman Sachs economists said they disagree with market expectations is “we see little evidence that soft inflation is structural in nature.”

The USA’s economic expansion might be modest by historical standards but it is still one of the longest in history. The prospect of adding a fiscal stimulus when growth is already mature and unemployment low is the epitome of procyclical policy and increases the likelihood that inflation will increase. 

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The sector’s valuation looks attractive at current levels compared with its own trading history and also with the index. The P/Es of most stocks are below/close to their average minus one standard deviation since 2015, in terms of both their own PE and also relative PE to MSCI China. We think that the sector’s current valuation offers decent safety margins to buy into most stocks.

China usually strengthens environmental enforcement during the last three years of Five-Year Plan periods as the country gets closer to assessment deadlines. We expect the same to take place from 2018, especially as the CPC's 19th National Congress recently mentioned that China plans to set up a "National Natural Resources and Ecology Administration" soon. We expect these factors to benefit this laggard sector, together with improving cashflow profile/earnings quality with selective companies over the next few years

 

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By all accounts New Delhi’s pollution is quickly catching up with Beijing’s but China is further along on its development track that India. The thick soup of smog that clings to Northern China during the winter is a political liability as the middle class evolves and demands better conditions. The closing down of inefficient production facilities and fabricators is driven both by a desire to cut back on overcapacity and to tackle nonperforming loans. Improving the environment at the same time is a bonus.

Though there is an overall tendency for velocity of money to fall over time, Napier noted, the accelerated decline we’ve seen in recent years is due to the nature of the money that is being created. This money primarily takes the form of bank reserves, which are not inherently fungible and are now stuck in the banking system.

Banks have chosen not to increase the size of their balance sheets and create deposits, which is the money that circulates in the actual economy, as opposed to the asset economy. This is why Napier thinks the velocity of money has fallen.
“There’s a form of money there that is stuck in the ‘asset ghetto,’ if you like, and not yet spreading out to normal GDP,” he said.

This plays in part into the assumption most people make that the world is awash in money. While there is a lot of money in the asset markets, the reality is that M2 growth in the United States is 5 percent, which is one of the lowest levels recorded in the past 30 years, Napier noted. Apart from the 2008 to 2009 crisis, we’re back to very low levels of total money creation.
This is true of other countries, as well. China is close to a new record low in the growth of its money supply. India is also showing levels of growth in its money supply not seen since 1963.

 

The Velocity of M2 is at a record low based on the last update of September 30th. If Russell Napier’s contention the Index has plumbed new depths since 2010 because of stranded reserves at banks then the reduction of the Fed’s balance sheet could have a positive effect by pushing responsibility for credit creation onto the banking sector.  

Two Reasons Adoption Is Slowing... First, the benefits of growing awareness among online consumers in the US/Europe are slowing/topping out, as Airbnb awareness among our survey respondents increased by only 800bps to 80% in '17 (vs. a 2,000bps increase in '16). We see awareness as a smaller driver going forward. Second privacy/safety are material and growing barriers to adoption, as the percent of non Airbnb users citing these factors to not use it increased by ~700bps/400bps, and the absolute number of people concerned about these issues increased by 10%/25% Y/Y. This, in our view, could speak to two potential truths: 1) How Airbnb/sharing lodging could be more niche than previously expected, and 2) How the lobbyists/opponents of Airbnb may be gaining traction.

...Causing Us to Lower Our Airbnb Forecast...This slowing adoption causes us to reduce our forward user/room night forecast for the US/Europe, now expecting ~12% '16-'20 room night growth, vs 29% previously. We now model Airbnb to grow to 6% of lodging demand across US/Europe by '20, vs. 9% previously.

...Making Us Incrementally More Bullish on the Lodging Space... While surveyed hotel cannibalization inched up slightly to 51% from 49% (and expected to be 54% in '18), a slowing user adoption curve suggests Airbnb is less of a threat to hotels. We estimate that Airbnb had a 50bps impact to '17 RevPAR growth across US/Europe, down from our prior estimate of 90bps. We now forecast it will have another 50bps impact on '18 RevPAR growth, down from our prior 80bps impact. As such, we expect US RevPAR to be relatively stable at +2.3% and +1.6% growth in '18 and '19, respectively.

 

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The travel sector is likely to get a boost from the expansion in the number of airlines, signalled by impressive sales at the Dubai Air Show. That should be positive for hotels and particularly so if AirBnb’s penetration is peaking. Personally my experience with AirBnb has been mixed and I suspect many people have had similar experiences. 

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

The Senate plan also departs from the House bill by delaying the corporate tax-rate cut by one year. And it includes a proposal to repeal a key provision of the Obamacare law -- saving the government $318 billion over 10 years to help pay for the tax cuts, but leaving 13 million Americans uninsured by 2027, according to official estimates.

Many of the Senate provisions are designed to cut the bill’s cost and meet budget rules that will allow GOP leaders to pass a bill with only Republican votes. Differences between the House and Senate legislation will have to be worked out between the chambers -- and then both the House and Senate will have to approve the final result.

House Ways and Means Chairman Kevin Brady said he’s going to focus on preparing for a conference committee with the Senate. He added that lawmakers were working to improve provisions related to international taxation, address specific industries’ concerns and try to work with lawmakers from high- tax states.

“This is certainly not the last step in our tax reform journey,” Brady said after the vote. But he pledged lawmakers will “make this better every step of the way.”

 

Optimism about the prospect of tax cuts has been flagging over the last 10 days so today’s vote was greeted with enthusiasm by markets with the major Wall Street indices all finishing in positive territory and the VIX index pulling back from the 14 area. 

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Norway, which relies on oil and gas for about a fifth of economic output, would be less vulnerable to declining crude prices without its fund investing in the industry, the central bank said Thursday. The divestment would mark the second major step in scrubbing the world’s biggest wealth fund of climate risk, after it sold most of its coal stocks.

“Our perspective here is to spread the risks for the state’s wealth,” Egil Matsen, the deputy central bank governor overseeing the fund, said in an interview in Oslo. “We can do that better by not adding oil-price risk.”

The plan would entail the fund, which controls about 1.5 percent of global stocks, dumping as much as $40 billion of shares in international giants such as Exxon Mobil Corp. and Royal Dutch Shell Plc. The Finance Ministry said it will study the proposal and decide what to do in “fall of 2018” at the earliest.

Norway’s proposal to diversify its exposure to the oil sector makes sense but the timing of the decision, ahead of the proposed Saudi Aramco IPO and after the successful sale of Abu Dhabi’s Adnoc retail gasoline stations’ business says more about the trauma of the crash lower from above $100 than the state of the sector at present. 

Most of the tweets seen by this newspaper encouraged people to vote for Brexit, an outcome which Russia would have regarded as destabilising for the European Union. A number were pro-Remain, however, suggesting that the Russian goal may have been simply to sow division. “This is the most significant evidence yet of interference by Russian-backed social media accounts around the Brexit referendum,” said Damian Collins, the Tory MP who chairs the digital, culture, media and sport select committee. “The content published and promoted by these accounts is clearly designed to increase tensions throughout the country and undermine our democratic process. I fear that this may well be just the tip of the iceberg.”

On Monday Theresa May accused Moscow of using fake news to “sow discord” and of meddling directly in elections. President Trump has said that he believes Mr Putin’s denial that Russia interfered in the American presidential race.

The Swansea and Berkeley paper says that a “massive number of Russian-related tweets was created a few days before the voting day, reached its peak during the voting and the result and then dropped immediately afterwards”. Tho Pham, one of the paper’s authors, said that “the main conclusion is that bots were used on purpose and had influence”.

 

Russia and China invest significant sums in attempting to influence Western public opinion whether it is to co-opt university professors, fund socialist/communist/reactionary/militant organisations, create so-called Confucius Institutes and more recently Twitter and Facebook posts. 

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Some of the topics discussed include: Wall Street continues to exhibit relative strength but consolidation is underway in stock and commodity markets generally. The dollar firmed somewhat and gold was unable to hold its earlier rally. Bitcoin rebounds in emphatic fashion. 

The trajectory of the S&P 500 has been extremely closely tied to that of earnings during the course of this recovery and remains so. Following the ECB’s move to negative rates in mid-2014 and the subsequent dollar and oil shocks, earnings growth First slowed then turned negative and equities became range bound for a year and a half. In the context of the trend channel, the range bound S&P 500 moved from the top to the bottom of the trend channel, falling briefly below during the Q1 2016 growth scare and the trough in earnings. Following the Q1 2016 bottom in earnings, equity prices began to rise, briefly breaking their 1½ year range to reach a new peak in mid-2016; then paused as is typical in the run up to close Presidential elections before rebounding strongly after.

The trajectory of the S&P 500 year to date has continued to closely track that of earnings. Indeed the market rallied in the first half of the year only during earnings seasons which saw well above average beats and paused between reporting seasons. Trailing earnings were up 10% through Q3, held back in the quarter by the impact of the unusually severe hurricane season, while our estimate is for 12% growth through Q4.

The S&P 500 trailing multiple meanwhile fluctuated in a relatively narrow range of 3.5% until September before moving up by a modest 2%. The rise in the multiple in late September though is consistent with the market simply looking through the impact of the hurricanes on earnings, ex which they would have grown for a third quarter in the solid double digits.

 

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In the normal run of a trend we expect the consistency to improve as it progresses. The simple reason for this is that as buy and hold investors are vindicated in their resolve available supply decreases, meanwhile continued headlines about stellar persistent performance encourages more people in off the side-lines. The gap between supply and demand expands and the trend therefore becomes more consistent. 

“The MSCI Japan Index now trades on 15.1x 12-month forward earnings, or an 18 per cent discount to the MSCI USA Index’s 18.4x,” Wood reports. “It is also a major structural positive that earnings growth is increasingly coming from domestic-focused [rather than export-focused] corporates.” That means shares generally are less dependent on favourable moves in the yen-dollar exchange rate. 

The worsening labour shortage should lead sooner or later to accelerating wages, boosting consumption. 
“This dynamic has already been evident for some time in the case of temporary workers. But to the longstanding frustration of both the Abe government and the Bank of Japan, wage rises for permanent employees have remained minimal, primarily because the trade unions have been more concerned about keeping their employees “permanent”, since such permanent full-time staff, on average, still earn 1.8 [times] the hourly wage for part-time workers.”  

Companies have been keeping a tight grip on pay increases – one reason why listed firms are enjoying record profits and sitting on record amounts of cash, even allowing for the effect of increasing share buybacks. 

There is a long-term trend for Japanese companies to be more generous with their dividend payouts to shareholders. Back in 2004 the payout ratio (dividends as a proportion of earnings) for the Topix index was only 17 per cent. Now it’s up to 30 per cent.

 

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Japan’s economy is recovering momentum and the uptick in performance by domestic companies has been readily observable in the performance of the Topix 2nd Section Index. This revolution has been enabled both by the Bank of Japan’s quantitative easing program and that government’s willingness to run simultaneous fiscal stimulus.

Globally, gold prices rose for a third day, helped by a weaker dollar and falling US bond yields ahead of inflation data later that could influence how quickly the Federal Reserve will raise interest rates.

Palladium continues to outperform in the precious metals sector because of its relationship to the gasoline market and continued ambivalence towards diesel engines. However, gold, silver and platinum have been much quieter as they waited for a catalyst to reignite interest. Some consolidation on stock markets may be signalling a flip to risk-off trading which should be positive for a safe haven like gold. 

The Chart Seminar 2017 

Our remaining venue for the 48th year of the seminar is:

London November 16th and 17th at The Caledonian Club

If you are interested or would like to suggest a venue please contact Sarah at sarah@fullertreacymoney.com 

The full rate for The Chart Seminar is £1799 + VAT. (Please note US, Australian and Asian delegates, as non EU residents are not liable for VAT). Subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.

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

Some of the topics discussed include: mean reversion underway in Europe and Japan, Euro firms, small downside key reversal in China, commodities pull back, junk bonds remain weak. 

Hughes is no basic income purist. He believes, for instance, that for this economic moonshot to be politically palatable, it would have to be tied to work. “Not just because it seems more intuitive for people,” he says, “but because work is a key source of purpose in our lives.” But the changing nature of work, particularly among top tech employers, is still a critical problem for the American workforce. One illuminating New York Times article illustrated how the men and women who scrub toilets and do other low-skilled work for companies like Apple are hired from contracting companies which set the terms of their employment. Those workers are cut off from the benefits and upward mobility that the company’s engineers and marketers enjoy. Because the workers are contractors, the big tech companies feel no pressure to raise their wages, and aren’t responsible for offering health-care coverage. In 2015, Facebook’s bus drivers voted to unionize in order to secure themselves the kind of worker protections that the social networking giant refused to provide.

Looked at in this light, the tech-led efforts to push a basic income can appear hypocritical. In a new economy that mints billionaires overnight, giving millions of dollars away for experimentation is the easy part. It’s taxpayers, after all, not individual tech companies, who would have to pay for a basic income should one ever come to pass.

 

I think I need to do some self-reflection because of the sense of anger I feel bubbling up whenever I hear the idea of Universal Basic Income being lionized in the media. It’s not healthy to have such a visceral reaction to the idea of giving everyone a stipend, especially when it is being proposed with increasing frequency. I read the opening of this article and almost stopped but it proved to be quite measured in its conclusions and time well spent. Let’s attempt to unpack the idea and what it represents. 

Indeed. And what we’re referring to is the High Yield bond market which tends to lead equities. Junk bond spreads have widened out to a two-month high of 380 basis points. That is over a 40 basis point widening in barely more than two weeks (and the selling have been taking place on rising volume too…to nearly a two-year high in junk bond ETFs. 

As the weekend WSJ aptly pointed out, the bubble hit its peak a couple of months ago when “money losing” Tesla offered up an eight year $1.8 billion with a puny 5.3% yield – which was so oversubscribed in an income starved world that the issue was boosted by $300 million. We are talking about a B3 rated company here. And now in a classic signpost of late cycle behavior, these bonds are trading at 94 cents on the dollar (from par in August). 

For the first time in years, planned bond sales are being pulled. And we also are seeing some big redemptions - $2.5billion have withdrawn in the past month. 

 

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

The rally from the 2009 lows was liquidity fueled as central banks flooded the market with new money and bought up bonds to depress yields. That allowed companies to refinance debt at highly accommodative rates and buy back shares with borrowed money. This trend suggests the equity market is uniquely sensitive to credit flows so high yields spreads are worth watching. 

Nickel slumped by the most in almost two months as a late-night selloff in Chinese metals spilled over to the London Metal Exchange.

Prices dropped as much as 5.9 percent to $11,755 a metric ton, the biggest drop since September. A slump that big has happened only a handful of times in the past five years.

Nickel bore the brunt of selling in metals, with volumes traded electronically surpassing aluminum, usually the LME’s most liquid contract. The slump came after data showing weaker Chinese industrial production and fixed-asset investment.

 

Stock markets have at least paused and outside of Wall Street are increasingly engaged in mean reversion. That evolving risk-off environment took its toll on commodities today with oil copper and nickel pulling back. 

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

Some of the topics discussed include: stock markets consolidating, bonds yields widen, oil steady, industrial commodities rally, topix 2nd section remains a lead indicator, 

Microtransactions have been hotly debated since they began debuting in mobile games almost ten years ago. While they’d been used sporadically in various games for years, the rise of mobile games and their extremely low-to-free pricing made them a functional necessity for developers working in Android or iOS. The AAA PC gaming industry quickly took notice of this, and began offering games with microtransaction options. There’s been a great deal of pushback from the community at various points (Dead Space 3 got hosed for it, as did Bethesda and its horse armor), but microtransactions are clearly here to say. Ubisoft just reported that it took in more money in microtransaction sales than it did in game sales for the first time ever.

Over the past few years, Ubisoft has seen a notable shift in its earnings for various titles, SeekingAlpha reports. Game sales were buoyed this year by South Park: The Fractured But Whole and Assassin’s Creed: Origins, but microtransactions shot up even further, growing 1.83x in 12 months compared to 1.57x for game sales. Ubisoft also got a boost from the Switch, but even with Nintendo’s new platform, microtransactions brought home the bacon.

 

Once upon a time you bought a computer game and it included everything you would ever need to play that game. I started playing Diablo 2 as a teenager and the game is still available online with access to the Battlenet server, so players can join and play with or against others. It’s still free after more than 20 years. The updated version of the game, Diablo 3, has downloadable content (DLC as my daughters refer to it), and additional characters you can pay for. Overwatch, Activision Blizzard’s newest hit game releases animated shorts to build interest in characters, has built in loot boxes for extra gear and additional outfits for your favourite characters all of which represent additional revenue streams. 

In a report on Monday, the International Monetary Fund said growth across the European region -- which includes the euro area as well as developing economies in central and eastern Europe -- is having a positive spillover effect on the rest of the world. It also said those brighter prospects accounted for the bulk of the upward revision to its global outlook in October.

For the euro area, economists surveyed by Bloomberg have raised their growth forecasts eight times this year. Data due Tuesday is predicted to show the region gained more momentum in the third quarter by expanding 0.6 percent, faster than the long-term trend, according to Bloomberg Economics.

“More than four years into the current expansion, most indicators signal the euro-zone economy is still somewhere around mid-cycle,” Talavera said. “Absent an unexpected shock, we should see several more years of economic growth.”

 

The ECB has bought €2.373 trillion of government and corporate bonds since late 2014 and is only now beginning to talk about tapering. Government bond yields are at rock bottom levels and German yields are still negative out to 7-year maturities. The Euro collapsed as the introduction of QE was priced-in and even after an impressive breakout this year, it is still only a fraction of where it traded before 2014. 

“In every negotiation, each side tries to control the timetable,” Brexit Secretary David Davis said on Sunday. “The real deadline on this, of course, is December.” That’s when EU leaders will meet to decide whether the U.K. has made sufficient progress to move on to the next stage of talks. The EU wants May to improve her offer on the divorce bill by the end of the month.

The twists and turns of the Brexit legislation only serve to magnify May’s difficulties and provide an opportunity for her political enemies to make trouble for her -- not just those in her own party.

The main opposition is seeking a route to power with polls showing Labour ahead. Exploiting Tory divisions on Brexit and testing May’s slim working majority is one way for Labour leader Jeremy Corbyn to score political points.

 

The UK knows it has one big card to play which is its contribution to the EU’s coffers. The EU knows the UK needs a trade deal so it has every intention of squeezing as many concessions as possible from the UK. There was never a prospect that these negotiations would not come down to the wire because it is in neither party’s interests to concede early.

There's a strong temptation for Western commentators, especially U.S. ones, to portray MbS as a reformist trying to bring the House of Saud into the modern world and Putin as a retrograde dictator taking Russia into the past. But the only reason this temptation to differentiate exists is that Saudi Arabia is a traditional U.S. ally, and the enemy of an old enemy -- Iran. In reality, there are far more similarities than differences between the world's two most important oil dictatorships. Their interests align on their most important market. Together, they've talked up oil prices to a level that allows them to maintain spending on defense and mega-projects. Their geopolitical interests don't align today, but that won't stand in the way of their natural mutual attraction.

Absolutism, dictatorship and monarchy do indeed share many similar characteristics. The natural recourse for someone seeking to solidify a potentially tenuous grip on power is to pump up historic grievances, towards a domestic or foreign enemy, and to pursue a bread and circuses domestic policy which boosts morale if not necessarily living standards. In that context Russia and Saudi Arabia are quite similar. 

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

There are so many lawsuits against opioid manufacturers that it is hard to keep track of all of them. These suits stem from all levels of government (cities, counties, states), as well as private parties and organizations (e.g. NFL). Opioid manufacturers today are viewed similarly in public opinion to cigarette manufacturers in the 1990s. 

In October 2015 for the first time a doctor was convicted of murder for patient opioid overdose and was sentenced to 30 years. Other similar suits are in progress.

Insys’s Subsys (sublingual fentanyl spray) began to decline after experiencing strong sales growth over the first few years since launch. In December 2016 several senior executives were indicted over fraudulent sales practice.

The FDA has already approved one immediate release and nine extended-release opioids with abuse deterrent claims; with more likely on the horizon. As such, the field is becoming very competitive.

Market leader OxyContin has been in decline for the last two years, from ~450k scripts/month to ~260k scripts/month currently.

Newly launched abuse deterrent opioids are priced at 2-4x that of OxyContin before adjusting for discounting.
In a July 2017 report, ICER found abuse deterrent opioids to not be cost effective.

 

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

The USA’s opium epidemic has received a lot headlines, not least because on a per capita basis the USA consumes three time more opiates than Europe and six times more than Asia. This is not an issue specific to opiates but to prescription drugs in general. I remember arguing with pharmacists in Ireland about needing to buy 12 ibuprofen tablets instead of 6, whereas in the USA they are truly an over the counter drug and packages of 1000 are the norm. 

In the 2000s, China invited foreign banks into the domestic market, as it tried to manage down a legacy of bad loans. HSBC bought a share of Bank of Communications, Royal Bank of Scotland took a minority stake in Bank of China and Bank of America purchased a piece of China Construction Bank – helping them on their way to listing. Fast forward to 2017 and the bang is bigger. Based on an announcement Friday, limits on foreign ownership of Chinese banks and asset managers will be removed, and foreign firms will be able to take a 51% stake in securities and life insurance firms. But the aim is the same – helping clean up a financial mess, and prevent it from happening again.

Bloomberg Economics had flagged financial market opening as one of the possible deliverables from this week’s U.S. - China summit. Recognizing that the devil will be in the as-yet-unknown details, here’s our take on the implications:

There’s potential for a grand bargain here. China’s financial system will receive an influx of foreign capital and expertise.

That will help deal with the aftermath of a credit binge that has seen debt swell to 259% of GDP, and engineer efficiency gains that may help prevent a repeat occurrence. After paying the price of entry, foreign firms will get a piece of the Chinese market – the second largest and fastest growing in the world.

 

China has taken on a great deal of debt over the last couple of decades as the pace of infrastructure development has beaten all records. Quite what to do with it is a big question and there are three answers. However, perhaps the biggest takeaway is that the administration is taking substantive measures to tackle the problem.  

While bitcoin soared to a record $7,882 within minutes of news that it would avoid another split on Wednesday, the gains have evaporated. Bitcoin is now trading more than $1,000 below where it was after a faction of the community scrapped plans for a so-called hard fork. Bitcoin was down 8 percent to $6,575 at 2:19 p.m. in New York.

Some speculators are disappointed they won’t get the additional coins that would have been created by a hard fork. While bitcoin splits are potentially disruptive, they’ve so far amounted to free money for holders of the cryptocurrency. Bitcoin Cash, the result of a hard fork in August, has climbed to about $900 from as low as $565 on the day the split was canceled, while bitcoin has slipped almost 10 percent after touching a record right after the news.

 

Bitcoin is still a largely unleveraged market so when exchanges eventually begin to offer futures and options that is likely to be a powerful catalyst for speculative interest. Right now, the cancelation of the latest fork means present holders will not receive an equal number of new coins so there is less urgency to buy. 

Until this year, struggling retailers have largely been able to avoid bankruptcy by refinancing to buy more time. But the market has shifted, with the negative view on retail pushing investors to reconsider lending to them. Toys “R” Us Inc. served as an early sign of what might lie ahead. It surprised investors in September by filing for bankruptcy—the third-largest retail bankruptcy in U.S. history—after struggling to refinance just $400 million of its $5 billion in debt. And its results were mostly stable, with profitability increasing amid a small drop in sales.

Making matters more difficult is the explosive amount of risky debt owed by retail coming due over the next five years. Several companies are like teen-jewelry chain Claire’s Stores Inc., a 2007 leveraged buyout owned by private-equity firm Apollo Global Management LLC, which has $2 billion in borrowings starting to mature in 2019 and still has 1,600 stores in North America.

Just $100 million of high-yield retail borrowings were set to mature this year, but that will increase to $1.9 billion in 2018, according to Fitch Ratings Inc. And from 2019 to 2025, it will balloon to an annual average of almost $5 billion. The amount of retail debt considered risky is also rising. Over the past year, high-yield bonds outstanding gained 20 percent, to $35 billion, and the industry’s leveraged loans are up 15 percent, to $152 billion, according to Bloomberg data.

Even worse, this will hit as a record $1 trillion in high-yield debt for all industries comes due over the next five years, according to Moody’s. The surge in demand for refinancing is also likely to come just as credit markets tighten and become much less accommodating to distressed borrowers.

 

One of Warren Buffett’s most colourful adages is “you don’t know who has been swimming naked till the tide goes out” A great many companies have survived with high debt loads because liquidity was abundant, interest rates were at rock bottom levels and access to credit was easy. Until recently, refinancing has been easy which allowed companies to pile on additional debt. An obvious point is that highly leveraged companies are heavily exposed to refinancing issues as interest rates rise. 

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

Some of the topics discussed include: Volatility does not hold its intraday peak in Japan or Wall Street, continued evidence of quantitative and risk parity strategies. bond volatility pauses in its decline, oil continues to hold the move above $60.

Volatility roared back into the U.S. equity market as fresh concern about the prospects for tax reform sent the Cboe VIX Index to its biggest surge since August.

“In terms of how we see the world and the impact to our strategy, to the extent this reform causes some uncertainty, that could lead to a pickup in volatility,” said David Jilek, chief investment strategist for Gateway Investment Advisers. “But we don’t have any keen insights as to how the politics is going to play out.”

In a year that’s been characterized by record calm, Thursday’s two-point intraday jump in the VIX was enough to push it above the average level for 2017. The gauge, which uses options-trading data to measure implied volatility of S&P 500 stocks, still sits below the bull-market average of 18.3.

Major U.S. equity benchmarks slid from record levels, with losses widening after the Senate revealed that its tax plan would delay lowering the corporate rate until 2019.

Wall Street has been rallying on speculation the Trump tax cuts would benefit corporations and boost consumer sentiment. News yesterday that the Senate proposal would defer tax cuts until 2019 was not greeted with optimism and introduced doubt about exactly what, if anything, will eventually get passed. 

El Mostrador suggested Tinto Rio had already made a bid, potentially trumping Chinese companies Sinochem, Tianqi and GSR Capital, all of which had also expressed interest in SQM.

The news came on the heels of PotashCorp and Agrium announcing Tuesday that China’s ministry of commerce had approved the merger, but required the sale of PotashCorp’s minority holdings in Arab Potash Company and SQM within 18 months of closing, and Israel Chemicals Ltd. within nine months.

SQM, which has a market value at just over $15 billion, produced roughly 44 million tonnes of lithium carbonate last year and is developing new projects in Chile and Australia.

Rio's current incursion in the lithium market is mostly limited to its 100%-owned lithium and borates mineral project in Jadar, Serbia, which is still in the early stages of development.

Rio Tinto generates 68% of its revenue from iron-ore and aluminium. Diamonds and minerals, copper and energy make up the balance of its operations in that order. Despite enthusiasm about lithium SQM generate about 26.5% of its revenue from the metal, with plant nutrition (32.2%) and potassium (20.8%) also representing major businesses for the company. 

I was thinking back to our dinner at the club in LA, and remembering that you stated that the Princes of the Sauds owed allegiance to their King, comparing them to the Barons of Europe in the middle ages. You said that sooner or later, the finances of the Kingdom would have to be enhanced, and that the Princes would be called upon to do so, just as the Barons of long ago were required to collect taxes and give treasure to the Crown. The parallels between today in the Kingdom of Saudi Arabia and those days so long ago are amazing!

We have now seen the first round of the tax collection begin, and those who were arrested were quite likely opposing the new "taxes", if not plotting actual rebellion (in which case they will almost certainly be executed). There is a clear message here for the rest of the Princes...

Now this is the stuff that historians truly love. 

 

Saudi Arabia has been held together by a series of transfers and concessions to families and tribes that agreed to set aside their enmity in return for a share in the nation’s oil wealth. That worked well as long as the population was small and oil revenues trended higher amid a century of oil’s dominance of the global economy. 

A few million will be put aside for ‘blue sky’ research but the real money will go to a consortium led by Rolls-Royce to develop a series of 440 megawatt SMRs for £2.5bn each, drawing on Rolls’ experience building PWR3 reactors for nuclear submarines. The company bills it as part of a “national endeavour’ that will create 40,000 skilled jobs. It requires matching start-up funds of £500m from the state. 

I find myself torn since these ambitions are commendable. They revive a homegrown British sector, akin to the success in aerospace. It is exactly what Theresa May’s industrial strategy should be. Rolls-Royce is a superb company with layers of depth and a global brand. It could genuinely hope to capture an export bonanza.  

Yet the venture looks all too like a scaled-down version of Sizewell, plagued by the same defects as the old reactors, less flexible than advertised, and likely to spew yet more plutonium waste.  

Rolls Royce insists that the design is novel and can slash costs by relying on components small enough to be manufactured in factories. “Everything can be cut down to size and put on a lorry,” said a spokesman.  

Rolls-Royce has said the design can slash costs by relying on components small enough to be manufactured in factories It aims for £65 MWh by the fifth plant, dropping to £60 once the scale is ramped up to seven gigawatts (GW), with exports targeting a putative £400bn global market.  

 

A decade ago the UK went from being an oil and gas exporter to an importer, as the North Sea oil fields hit peak production, and the cost of production began to rise. That represents a considerable headwind to growth from a sector which had been a tailwind for decades previously. When people bemoan declining living standards and the rising cost of living, one of the first places to look has to be the energy sector and absence of a clear strategy to promote energy independence. 

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

Some of the topics discussed include: bitcoin's consistency characteristics, Venezuela and oil prices, commonality in Asian breakouts, cocoa, palladium breaking out, Wall Street and Treasuries quiet, Japan remains firm,

Purchases dropped to 79.49 million tons in October, according to customs data on Wednesday. That’s down from September’s 102.8 million tons, and is the lowest amount since February 2016. Over the first 10 months, imports by the world’s top buyer still expanded 6.3 percent to 896 million tons.

Iron ore users and investors have been tracking China’s bid to rein in pollution this winter by imposing restrictions on mills’ production, in addition to curbs on other industrial activity. The drive has buttressed prices of higher-quality ores that are more efficient, while spurring speculation about a demand roller-coaster, with weaker consumption seen near term before a possible snapback in spring. At the same time, miners in Brazil and Australia have added supply.

The decline in China’s iron imports was the standout item amid a broader weakening of purchases, Daniel Hynes, a senior commodity strategist at Australia & New Zealand Banking Group Ltd., said in a note. “The closures of steel mills due to environmental concerns were behind the fall,” he said. Demand for raw materials imports is likely to rebound, according to the bank.

 

China’s pollution problem is a political liability. That fact highlights the evolution of a middle class, but it also reflects the transition underway as the consumer takes over as the engine for growth. China is gradually moving away from highly polluting industries while at the same time focusing on continued urbanisation and more value-added products. 

Prices on PDVSA’s $3 billion of bonds maturing in 2027 were quoted at 20 cents on the dollar at 9:23 a.m. in London, according to pricing source CBBT. Venezuelan government bonds maturing in 2018 slid 16 cents on the dollar to 63 cents, while longer-maturity debt was little changed.

Even after the oil producer known as PDVSA made an $842 million principal payment Oct. 27, the nation is behind on about $800 million of interest payments. All told, there’s $143 billion in foreign debt owed by the government and state entities, with about $52 billion in bonds, according to Torino Capital.

Sanctions imposed in August by the U.S. have made it difficult to raise money from international investors, and effectively prohibit refinancing or restructuring existing debt, because they block U.S.-regulated institutions from buying new bonds. It’s an unprecedented situation for bondholders, who have limited recourse as long as sanctions are in effect.

“I decree a refinancing and restructuring of external debt and all Venezuelan payments,” Maduro said. “We’re going to a complete reformatting. To find an equilibrium, and to cover the necessities of the country, the investments of the country.”

 

$60 is a big level for many higher cost private sector oil producers. It’s a number many companies have quoted as they struggled with cutting costs while prices traded below economic levels. Their fortunes are improving now that prices are at two-year highs. Venezuela’s breakeven is well above current levels so the recent rally is less of a salve, while bond payments are a constant drain on revenues. 

Specific financial disclosures around the new JV are limited, but management did note that NewCo will 1) be able to enter new markets outside of the current six country region, 2) the new entity has a current gross bookings run rate of $1.578B and a 5-6% penetration rate of the taxi market across the six markets and 3) that UberEATS and other logistical opportunities will be a part of this new operation. Assuming no unforeseen regulatory hang-ups, management anticipates they will have regulatory approval for the deal in 4Q17 and commence operations as planned shortly thereafter.

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

Ride sharing is one of the largest emerging new sectors but has so far been difficult for regular investors to participate in. Low interest rates, abundant liquidity and a dearth of yield have resulted in private companies managing to stay private much longer than anyone would have expected a decade ago. The result is that when they do eventually seek a listing what is being sold to investors is a much more mature company with less potential upside from growth. 

Palladium rallied successfully through $1000 today for the first time since 2001. The last time it traded at this level was following a massive rally spurred by a supply shortage. On this occasion the move might be somewhat overbought relative to the trend mean but is looks better supported. A break in the progression of higher reaction lows, currently near $950, would be required to question medium-term scope for additional upside. 

Details of this trade are posted in the Subscriber's Area. 

Looking at the world around us this morning and the events from Catalonia to Riyadh, from Brexit to quantitative easing, from blockchain to the Paradise Papers many of the issues which are at the centre of the respective debates and actions can and should be held up, looked at and then filtered through the Berlin’s weighing up of positive and negative liberty. In his paper Berlin distilled the essence of socio-political dialectic around the thesis and antithesis of freedom to and freedom from. 

It might be ironical that I am chewing over Berlin’s seminal paper on the somewhat forgotten, especially in Moscow, 100th anniversary of the October Revolution. I was born less than 40 years after the Bolshevik take-over of Russia and the creation of the Soviet Union and I grew up very much in the shadow of the daily threat of nuclear conflict between NATO and the Warsaw Pact, themselves some form of incarnation of freedom to and freedom from. I mentioned in a recent column a comment which had come out of Poland which, with the UK leaving the EU, becomes the next truculent child. The line had been that Warsaw had not fought to free itself from the diktat of Moscow only to find itself subject to equally stringent controls out of Brussels.

On September 11th 1990 – eleven years to the day before the attack on the Twin Towers, now known simply as 9/11 – President George Bush Sr gave a speech titled “Towards the new World Order” in which he embraced the polices of Mikhail Gorbachev and the dismantling of the Soviet empire. The dreams of democracy and self-determination for which NATO had stood and which were being pursued by way of the opening of borders across Europe though the structures of the EEC were in the ascendant. Twenty seven years later with the EEC having been replaced by the EU, with membership of 12 having been expanded to 28 and with the first ever member in the process of leaving again, the union looks ossified and in many respects now looks and behaves more like Soviet Moscow than it does like the old EEC. 

 

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

When I talk to people I meet in London and around the UK they seem to have a clear vision for what they want for the country. Self-determination, respect for property rights, acceptance that the nation was built on global trade and a desire for a more equitable society all feature highly. So, does the concern that the financial sector accounts for a substantial proportion of the economy and needs to be protected.