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November 14 2016

Commentary by Eoin Treacy

November 14 2016

Commentary by Eoin Treacy

Trump May Save Banks Billions by Disrupting Global Rules

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

The election of Donald Trump may allow banks to dodge the full impact of global regulators’ post-2008 crisis crackdown.

The Basel Committee on Banking Supervision is racing to complete a revamp of international capital standards by year- end. The U.S. has pushed for strict rules to protect against future market meltdowns, whereas Europe and Japan want to rein in proposals that could hit banks with billions in costs. Basel Committee members including the U.S. Federal Reserve and the European Central Bank are under enormous industry pressure to soften the rules.

Trump’s ascendancy and his vow to dismantle financial regulations could throw another wrench in the works. If he stalls U.S. implementation of the revised Basel Committee standards on how banks measure asset risk, or ignores them altogether, Europe could follow suit. And if the U.S. and Europe go their own ways, the last piece of the global response to the financial crisis could be undermined.

“I think that before Trump, Basel was going to be softened down significantly,” Sam Theodore, managing director for financial institutions at Scope Ratings AG, said in an interview. “And now with Trump, I think the whole thing is going to become more of a symbolic exercise.”

The memory of the crisis is fading, and “you have all the ingredients for the anti-regulation backlash to continue,” he said.

Eoin Treacy's view -

The international response to the twin threats of the US subprime credit crisis and the EU’s sovereign debt / banking crisis can best be described as reactionary. The first principles of regulation should be to create an equal playing field where risk takers are rewarded for their successes and punished for their failures. However rather than simplify the regulatory environment policy makers succeeded in creating an even more opaque system where the cost of compliance rocketed higher and where whole segments of a bank’s business became untenable.



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November 14 2016

Commentary by Eoin Treacy

Siemens boosts software business with $4.5 billion deal

This article by Maria Sheahan for Reuters may be of interest to subscribers. Here is a section: 

Mentor sells software and hardware used to design electronics for the semiconductor, automotive and transportation industries. The company reported a loss of $10 million in the six months ended July 31, compared with profit of $21 million in the same period last year, according to an Aug. 18 regulatory filing. The company forecast revenue of $1.22 billion for the 12 months through January.

Under Kaeser, Siemens has pushed deeper into software applications that are crucial to run its industrial equipment.

At the same time, Siemens is simplifying its sprawling portfolio, and the company announced last week that it wants to list its health-care subsidiary, among the biggest makers in the world of diagnostics and imaging equipment.

Eoin Treacy's view -

In the industrial automation sector there has been a wide gap in performance between the purveyors of hardware and software. A robot is really only a hunk of junk unless it is powered by intelligent software. Perhaps more importantly software and particularly optics companies have been innovating much faster than hardware companies not least because the relative of cost of development is so much smaller. By purchasing Mentor Graphics Siemens is aiming to provide a more holistic solution and therefore harness more of the revenue potential from industrial automation. 



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November 14 2016

Commentary by Eoin Treacy

Email of the day on gold

Gold is soft.  It's had some savage moves in the last few days.  Is it possible this due to new currency notes in India?  India is a large market for the jewellery trade.

Thank you for all your good work.

Eoin Treacy's view -

Thank you for this question which may be of interest to other subscribers. When the cash business in gold was clamped down on it marked an important turning point for the jewellery retail sector Los Angeles’ once vibrant jewellery district. The removal of large denomination bank notes in India will probably have an effect on how gold is purchased but is unlikely to have an influence on the cultural important of the metal particularly around wedding season. 



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November 14 2016

Commentary by Eoin Treacy

Abe Faces Challenges to Follow Trump With Fiscal Spending Burst

This article by Connor Cislo and Maiko Takahashi for Bloomberg may be of interest to subscribers. Here is a section:

A third supplementary budget is on the drawing board to reconcile current-year spending and revenue figures, according to government officials familiar with the talks who asked not to be named per ministry policy. As to whether it goes beyond being a clerical package and takes on stimulus measures, that’s a function of what happens with politics, they said.

A policy shift at the Bank of Japan and doubts about how much more Abe will accomplish in structural reforms is likely to increase pressure for a fiscal fillip.

"We can’t put any more pressure on monetary policy, so the government will have to do more with fiscal spending," according to Koya Miyamae, an economist at SMBC Nikko Securities Inc.

Yet tax revenue for the 12 months ending March 31 is likely to be lower than originally expected, as economic growth has been weaker than initially forecast, and government debt is already about 2.5 times the size of the economy.

Japan’s budget deficit was 5.8 percent of gross domestic product in 2014, compared with 3.9 percent in the U.S.

Asked about the need for another stimulus package this fiscal year, LDP Secretary General Toshihiro Nikai said last month it was "one option," according to Kyodo News.

Trump has indicated he’ll spend $550 billion on infrastructure, with his plans forecast to add more than $5 trillion in debt.

Satoshi Fujii, an adviser to Japan’s Cabinet Office, advocates looking at more fiscal stimulus as part of efforts to escape deflation. He said in a telephone interview on Nov. 11 that a third extra budget this year and a large initial budget next fiscal year may help Japan "fit very well with Trump’s policies."

Eoin Treacy's view -

By marrying itself to a target for JGB yields the Bank of Japan has made its monetary contingent on the market. Therefore the government is now under more pressure to stimulate through both spending and reform in order to revitalise growth. A weaker currency could certainty play a part of that strategy. 



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November 11 2016

Commentary by David Fuller

It Is All Bullish in the End as Stocks Post Best Week Since 2014

Here is the opening of this report from Bloomberg:

A stretch that goes down as the best week for U.S. stocks in two years has been anything but easy money for the traders who had to navigate it.

Three distinct narratives have driven trading, combining to lift the S&P 500 Index more than any time since 2014 and give the Dow Jones Industrial Average its best week in five years. Stocks rallied on Monday and Tuesday on speculation Hillary Clinton would win the presidency, then posted almost equally big gains Wednesday and Thursday as investors warmed to Donald Trump’s fiscal stimulus policies.

The week ended on a down note for the S&P 500, as gains in banks and drug stocks were pared. In the middle was an hour-long election night plunge that would’ve lopped $1 trillion from the S&P 500 had it come during regular trading hours.

“The last two to three days have had everything to do with re-pricing in a complete regime change,” said Kevin Caron, a Florham Park, New Jersey-based market strategist and portfolio manager who helps oversee $180 billion at Stifel Nicolaus & Co. “You have markets that now have to contend with the idea of a much larger fiscal push then they were expecting just a few days ago. You’re seeing a big rally in economically sensitive assets.”

The S&P 500 rose 3.8 percent in the five days, while the Dow rallied 959.38 points for its best week since 2011. Small caps in the Russell 2000 Index surged 10 percent. The Nasdaq 100 Index added 1.5 percent.

Along the way, the Dow also closed at record for the first time in three months as investors snapped up what they calculated would be beneficiaries of a Trump presidency. The surge in stocks following a presidential election echoed 1996 and 1972, when the blue-chip index made fresh highs after victories by Bill Clinton and Richard Nixon.

Exchange-traded funds tracking U.S. equities took in $16.3 billion of fresh cash on Wednesday and Thursday, data compiled by Bloomberg show. It included $8 billion of inflows into a security tracking the S&P 500 that was the biggest in 14 months. It was the first week in history that had two days with more than 12 billion shares traded.

David Fuller's view -

The S&P 500 Index had peaked in August and then drifted sideways to lower during the countdown to the Presidential Election on Tuesday.  We can assume that there had been some profit taking and also hedge shorting in anticipation of volatility.  Similarly, the sharp rally following the result will have included the reinvestment of cash and short covering.  Consequently, we are likely to see some consolidation of gains commencing next week. 

Looking further ahead, President Donald Trump and the Republican controlled houses of Congress have a rare and unexpected opportunity to realign the US economy for an increase in GDP growth. 

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November 11 2016

Commentary by David Fuller

Trump Victory Bodes Well for Investors, for Now

With benefit of hindsight, what’s extraordinary is how few professional investors saw it coming. Mr. Trump was derided as the candidate of “uncertainty,” which markets typically abhor, and many of his stated policies are vague, incoherent or inconsistent. But there was nothing uncertain about his overall pro-growth, pro-business and America-first tendencies, now backed by the firepower of a Republican House and Senate.

He is, after all, a real estate developer.

“We see tremendous opportunity for economic growth,” said John Engler, a former governor of Michigan who is now president of the Business Roundtable, an influential group of chief executives that was often at odds with Mr. Trump during the campaign, especially over trade and immigration. Now that the results are in, though, Mr. Engler sees a silver lining. “The Republicans understand,” he said, “that they’re on the spot to produce results.”

Simon Lack, founder of SL Advisors, an investment advisory firm and operator of a mutual fund that focuses on energy, carried the theme further. “Trump’s win is unambiguously positive” for many sectors of the economy, “especially energy infrastructure,” he said.

The doomsayers also ignored a century of market reactions to presidential elections. “We’ve done extensive research that suggests presidential elections don’t affect markets,” said James Stack, president of InvesTech Research. “The reality is that the market is influenced to the greatest extent by economic factors and monetary policy.”

“In almost all technical and macro aspects, this is still a bull market,” Mr. Stack said, and Mr. Trump’s election does not change that.

Markets generally rally the day after a presidential election, said Jeffrey Hirsch, editor of the Stock Traders Almanac, because elections, whatever their outcome, eliminate a measure of uncertainty. “It doesn’t matter if it’s a Republican or Democrat,” he said. Returns tend to be higher when an incumbent president is replaced or the party in power changes, as happened this week. And previous instances of the election of both a Republican president and Republican Congress have been followed, on average, by a first-year performance of 14 percent.

There are more specific reasons as well that investors applauded Mr. Trump’s victory:

David Fuller's view -

Trump’s immediate projects are likely to be sensible infrastructure spending, personal and corporate tax cuts, and deregulation.  These could transform sentiment and show positive results much more quickly than some commentators have suggested.  They should also be of considerable long-term benefit to the US economy.  



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November 11 2016

Commentary by David Fuller

Email of the day

On gold and mining shares:

Dear David, hello and hope everything is fine up there at beautiful London. Has the time arrived to exit gold and miners? Are we witnessing a new paradigm with higher rates, lower taxes and fiscal stimulus? Does it make sense to hold gold with this new scenario? Your thoughts will be very appreciated. Thank you very much!

David Fuller's view -

Thank you for this email of general interest.

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November 11 2016

Commentary by David Fuller

The Markets Now

Here is the new brochure for the next event on Monday evening 28th November, at London’s Caledonian Club.  

David Fuller's view -

OK, the US Presidential Election is over but what can we expect from Trump’s regime? 

Interestingly, infrastructure spending is back on a number of political agendas.  That should help GDP growth.  Commodities are generally firm, with ‘Dr Copper’ joining other metals in breaking to the upside.  A number of government bond yields bottomed in July, including US 10-Yr Treasuries.  

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

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

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



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November 11 2016

Commentary by Eoin Treacy

November 11 2016

Commentary by Eoin Treacy

November 11 2016

Commentary by Eoin Treacy

Trump Team Promises To 'Dismantle' Dodd-Frank Bank Regulations

This article by Marilyn Geewax from NPR may be of interest to subscribers. Here is a section:

During his presidential campaign, Republican Donald Trump said he would "get rid of" Dodd-Frank — the sweeping legislation passed in 2010 to address problems underlying the 2008-2009 financial crisis.

Many Republicans hate the 2,300-page law, saying it is layered with far too many regulations. But Democrats say it provides valuable oversight of an industry that they believe took too many risks on Wall Street and too much advantage of customers on Main Street.

Now President-elect Trump's transition team is promising to "dismantle" the complex Dodd–Frank Wall Street Reform and Consumer Protection Act.

"Bureaucratic red tape and Washington mandates are not the answer" to improving the financial system, the team said Thursday on its website.

 

Eoin Treacy's view -

No one would argue with the contention that banks need to be regulated and their risk taking closely scrutinised. However, Dodd Frank micromanages their operations, with the result that they are sharply inhibited in what they can do. Its primary benefit has been for lawyers and compliance officers since armies of them are required to navigate the Act’s complicated format. 



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November 11 2016

Commentary by Eoin Treacy

Dollar's Trump-Inspired Surge Sets Off Intervention Across Asia

This article by Narayanan Somasundaram and Lananh Nguyen for Bloomberg may be of interest to subscribers. Here is a section:

“We are seeing carnage in Asian FX markets,” said Robert Rennie, head of financial markets strategy at Westpac Banking Corp. in Sydney. “It’s providing a very strong reminder that the S&P 500 is not the correct barometer of Trump-driven risk aversion -- it’s Asian currencies.”

And 

Investors are betting Trump will cut taxes, ramp up infrastructure spending to spur economic growth and inflation, triggering Fed rate increases. Traders see an 84 percent probability of a quarter-point hike at the central bank’s December meeting, according to pricing in federal funds futures.

After Trump’s election, benchmark 10-year Treasury yields climbed above 2 percent for the first time since January on speculation the likely spending to spur growth will quicken inflation. Trump’s proposals include pledges to cut taxes and spend as much as $500 billion on infrastructure.

“The market’s tone remains negative on bonds, emerging markets, positive on U.S. stocks and the dollar,” said Nizam Idris, head of foreign-exchange and fixed-income strategy at Macquarie Bank Ltd. in Singapore.

 

Eoin Treacy's view -

Lower taxes, higher rates and outsized US growth are a powerful siren for US funds to be repatriated. That means the case for investing in emerging markets will have to be even more attractive than normal in order to compete on a risk-adjusted basis. Currency trends are a big part of that. US Dollar investors are less inclined to invest abroad when the currency market is not in their favour. 



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November 11 2016

Commentary by Eoin Treacy

Mosquito War: Voters Approve the Release of Genetically Modified Organisms

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

As Tuesday’s presidential votes were cast, Monroe County, part of the Florida Keys Mosquito Control District also voted to use genetically modified mosquitoes to fight their Zika-carrying cousins. The engineered mosquitoes were courtesy of British biotech company Oxitec, and received approval for trials from the US Food and Drug Administration (FDA) last August.

Monroe County would be the first in the US to carry out these trials. Oxitec CEO Hadyn Parry is optimistic, saying that the “ultimate goal of the trial is to prove what we say we can do, which is reduce the population significantly.” Previous reports indicate that these factory-made mosquitoes can effectively reduce Zika-carrying mosquito population by 90%.

 

Eoin Treacy's view -

By some measures malaria has killed more people than any other disease in humanity’s history. It is one of the primary contributing factors to the enormous challenge of sustaining economic development in the tropics and humanity has struggled to overcome the challenge represented by malaria for millennia. It has taken a separate virus threatening the unborn children of first world parents to galvanise support for a campaign to deliberately target the offending parasite; certain genus’ of which have evolved specifically to target humans.



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November 10 2016

Commentary by David Fuller

Trump Promises a Fiscal Boom and a Surging Dollar, if He Can Control Himself

The judgment call we have to make is whether he actually means the outlandish things he said - mostly flippantly, and in vague terms - and whether White House duties will compel him to retreat even if he did.

Washington's permanent government and the 'K' street lobbyists of corporate America have a way of co-opting US leaders. It is my tentative working premise that Mr Trump is not a new Mussolini and that he will ultimately trim his excesses. Call it a 'soft Trump' if you like, though this too entails its own political risks.

If so, an entirely different economic picture takes shape. His manifesto amounts to a massive fiscal stimulus, with tax cuts across the board, a $1 trillion blitz on infrastructure, and an imperial navy of 350 combat ships.

It is a replay of Reaganomics in the early 1980s, a form of turbo-charged Keynesian reflation, and damn the deficit. It promises a pro-cyclical economic boom, so long as Mr Trump quietly drops his threat of 35pc tariffs against Mexico and 45pc against China.

Mr Trump enjoys the huge advantage of Republican control over the House and Senate. This averts the paralysing gridlock and obstructionism that surely awaited Hillary Clinton had she won. He can overcome the ideology of austerity in a way that she could never hope to do.

There will be friction but House Republicans will hardly resist his plan to cut corporation tax from 35pc to 15pc, or to cut income tax from 39.6pc to 33pc for the rich, to 25pc for middle earners, to 12pc for those below $54,000, and to zero for those under $29,000.

Nor are they likely to block his call for national reconstruction on bridges, tunnels, telecommunications, cyber security, water systems, pipelines and the electric grid, all built with "American steel" and supposedly modeled on Eisenhower's highway expansion in the 1950s.

You might equally say it looks more like Roosevelt's New Deal, even if funded partially by private money and run on a fee-earning basis. Infrastructure spending of this kind is what Left-leaning economists such Larry Summers and Paul Krugman have been calling for all along.

It starts to plug the $3.6 trillion backlog of projects identified by the American Society of Civil Engineers. It address one cause of sliding US productivity growth. It soaks up the corporate cash hoard, helping to bring investment back into alignment with savings.

The budget deficit would probably balloon by at least $450bn - or 2.4pc of GDP - even after offsetting a hiring freeze for public employees. That is potent money.

Mr Trump's tax cuts for the rich are not to everybody's taste. Yet in broad macro-economic terms, this fiscal rebalancing is what Keynesian and monetarist doctors ordered. It becomes easier for the US to escape the 'Wicksellian' trap of a negative natural rate of interest, and therefore to escape clammy embrace of quantitative easing.

Fiscal expansion allows the Federal Reserve to raise interest rates faster, ceteris paribus. Vice-chairman Stanley Fischer has even put a figure on it, suggesting that every one percentage point of GDP in fiscal loosening implies rate rises of 50 basis points.

Trumpanomics shifts the structure of US and global credit, and exchange rates. It was the same regime of "loose fiscal/tight money" that catapulted the dollar sky high in the early 1980s, with dramatic global consequences. 

David Fuller's view -

We should recognise that Trump the campaigner is not the same as Trump the President-elect.  The transition was evident from his first, gracious speech a few hours after winning the election.  It continued with his comments following an initial meeting with President Obama today: “Mr. President, it was a great honor being with you, and I look forward to being with you many more times.”

From the moment Trump entered the Republican Primaries he was outspoken, brash and often vulgar.  He knew how to get media attention and it worked.  His often outrageous or bizarre statements dominated news coverage.  Established Republican candidates in the ring became invisible, causing them to lose support and eventually drop out.  Trump used a similar approach against Clinton and remained the focal point of press attention. 

Few pundits took him seriously but Trump was smart enough to do the seemingly impossible, surprising us all.  He galvanised white, mostly working class voters who formed his base.  He also attracted just enough support from diverse groups including Hispanic, Afro-American, and Asian minorities.  Additionally, sufficient business personnel and Wall Street executives were drawn to Trump by promises of fiscal stimulus, less regulation and lower taxes.  These were beyond the reach of that other rich but more traditional Republican, Mitt Romney, although he was also up against tougher opposition.

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November 10 2016

Commentary by David Fuller

The man who will likely lead the Navy under Trump means business in the South China Sea

When President-elect Donald Trump spoke about expanding the Navy to 350 ships in his September national security speech, he's most likely taking his cues from Randy Forbes, the Republican Congressman from Virginia poised to take over as Secretary of the Navy in a Trump administration.

“The 350-ship navy, cruiser modernization – those naval planks [in Donald Trump’s policies] are lifted from Randy Forbes,” a source familiar with the matter told USNI News.

The president appoints a Secretary of the Navy to "conduct, all affairs of the Department of the Navy," which includes the Marine Corps. Trump, during his speech, said he wants to greatly increase the size of both the Navy and the Marines, and to generally "rebuild our military."

Additionally, Trump mentioned buying newer destroyers to bulk up the Navy's fleet of 272 ships, most likely with Zumwalt class destroyers, but the Navy has struggled so far to field those.

Forbes, a military adviser to Trump during his campaign, serves as a senior member of the House Armed Services Committee, and makes it plain on his website that he is "one of the nation’s most forceful advocates for a strong national defense."

In September, Forbes asserted before Congress that "more than rhetoric is required to counterbalance China’s growing military power and assertiveness," referring to China's artificial island building and militarization in the South China Sea, as well as China ignoring an international court ruling that said its claims in the region were illegal.

China has declared "no fly" and "no sail" zones in international waters in the Pacific that have gone unchallenged by the US in the last few years. Increasingly Beijing bullies ships from its neighbors, some of whom are US allies.

David Fuller's view -

Unfortunately, I think the USA has to do this.  We live in a dangerous world and Obama’s reluctance to spend on military expansion has emboldened both Russia and China.  



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November 10 2016

Commentary by David Fuller

The Markets Now

Here is the new brochure for the next event on Monday evening 28th November, at London’s Caledonian Club.  

David Fuller's view -

OK, the US Presidential Election is over but what can we expect from Trump’s regime? 

Interestingly, infrastructure spending is back on a number of political agendas.  That should help GDP growth.  Commodities are generally firm, with ‘Dr Copper’ joining other metals in breaking to the upside.  A number of government bond yields bottomed in July, including US 10-Yr Treasuries.  

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

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

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



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November 10 2016

Commentary by Eoin Treacy

Tech Defanged as Stocks From Amazon to Netflix Left Out of Rally

This article by Lu Wang and Rebecca Spalding for Bloomberg may be of interest to subscribers. Here is a section:

Losses among computer and software makers mushroomed Thursday and were pronounced in the FANG block of Facebook Inc., Amazon.com Inc., Netflix Inc. and Google parent Alphabet Inc., each of which fell at least 3.6 percent. The Nasdaq 100 Index slumped 2.3 percent as of 10:58 a.m. in New York, the biggest retreat since Sept. 9.

While opinions vary about what’s going on, one possibility was concern about the impact of Trump’s policies on trade overseas, where U.S. technology companies thrive. Others saw a rational retreat for a group that through Election Day had surged 11 percent in 2016, or even the potential for retaliation by the president-elect against an industry that didn’t exactly cozy up to him during the campaign.

“Amazon is not worth $42 less than it was yesterday. It’s just that there’s been these violent moves as investors try to sort out what the election means,” said Terry Morris, manager director of equities at BB&T Institutional Investment Advisors in Wyomissing, Pennsylvania. “These exaggerated moves are just that, and I think we’re going to come back to more reasonable valuations.”

Facebook slid as much as 6.4 percent to $115.27. Amazon was down 4.7 percent to $735.66 after falling as much as 7 percent earlier. Netflix declined 5.4 percent to $115.57 in its biggest slide since July. Alphabet lost 3.8 percent to $774.77.

Trump’s presidency leaves the U.S. tech industry in an uncomfortably uncertain position. Total contributions to Hillary Clinton’s campaign from the internet industry came in at 114 times the level they did for Trump, according to statistics compiled by the Center for Responsive Politics. Facebook CEO Mark Zuckerberg gave a strongly worded rebuke to Trump’s views on immigration at the company’s developers conference in April, although he never called him out by name.

 

Eoin Treacy's view -

Quite apart from the election highflying mega-cap technology shares were due a reversion towards the mean and pre-election jitters provided the catalyst for some profit taking, but the result has what has so far been a subpar rebound. 



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November 10 2016

Commentary by Eoin Treacy

Merkel's conservatives warn of Trump effect in Germany

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

"Things are getting simplified, black or white, good or bad, right or wrong. You can asked simple questions, but one should not give simple answers," Oettinger told Deutschlandfunk radio.

He said politicians and media should better explain complicated things with facts, but they should also embrace social media to reach younger voters in the new digital world.

The AfD, polling at around 13 percent, on Wednesday welcomed Trump's victory as the disempowerment of political elites.

INSA chief Hermann Binkert told Bild politicians had not taken on board the warning signs and a growing number of people had rejected the established parties and turned to the AfD.

However, polls show a majority of Germans still reject rabble rousing slogans. A Politbarometer poll for broadcaster ZDF showed some 82 percent of Germans think it is bad or very bad that Trump became president.

Experts also argue that Germany's political system, established after World War Two to avoid the rise of another dictator after Hitler, makes the rise of individual politicians like Trump or even a single party difficult.

 

Eoin Treacy's view -

When considering where the hydra of populism is most likely to sprout next Germany is not the most likely candidate. Its federal political system, high barrier to entry into the Bundestag and the simple fact that, despite discontent among the so called Wutbürger class of disaffected citizens, Germany was perhaps the least affected of any European country by the credit / sovereign debt crises. 



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November 10 2016

Commentary by Eoin Treacy

Robots and industrialization in developing countries

This report from the UN Conference on Trade and Development may be of interest to subscribers. Here is a section:

A country wishing to benefit from such effects must deploy more robots than others. According to data from the International Federation of Robotics, recent deployments of industrial robots in developing countries have been concentrated in China, and the country is expected to maintain its front-runner status (figure 1). In response to a shrinking working-age population and rising labour costs, which have eroded the country’s cheap-labour advantage, China has embarked on a government-backed robot-driven industrial strategy entitled “Made in China 2025”. Each year since 2013, China has bought more industrial robots than any other country and, by the end of 2016, is likely to overtake Japan as the world’s biggest operator of industrial robots. While its robot density - robots per industrial workers – continues to fall short of that of Germany, Japan and the Republic of Korea, the rapid pace of robot deployment is likely to significantly reduce the erosion of China’s comparative advantage in labour-intensive manufacturing.

The data also show, however, that industrial robots have primarily been deployed in the automotive, electrical and electronics industries (figure 2). This means that in developing countries – such as Mexico and many countries in Asia – those engaged in export activities in these two sectors are the most exposed to reshoring. By contrast, in many labourintensive industries, such as garment-making, widespread automation is not yet suitable. While robots have become cheaper, some developing countries continue to have a large pool of cheap labour. Thus, for those countries whose major challenge is to create jobs for a large number of low-skilled entrants to the labour force – such as in many parts of Africa – deploying robots under current cost structures may drive production costs up, rather than down.

 

Eoin Treacy's view -

Manufacturing is not a one size fits all solution. The primary reason humans still predominate in low cost manufacturing is because they do not require retooling or programming but can adapt quickly to emerging situations. However the challenge is that robotics, machine learning and artificial intelligence are getting better all the time and the ability of the low skilled human workforce to innovate is not as swift as technological innovation. 



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November 10 2016

Commentary by Eoin Treacy

The Chart Seminar 2016

The Chart Seminar is coming to London on November 24th and 25th

Eoin Treacy's view -

The Chart Seminar will be in London on November 24th and 25th. We will be working with a partner to co-promote the event and expect a full house (we cap the event at 50). The Radisson Blu Edwardian Vanderbilt on Cromwell Road will be the venue for the seminar.  

If you are interested in securing your place please contact Sarah Barnes at [email protected]

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.

You can download the brochure here.

 



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November 09 2016

Commentary by David Fuller

Wall Street Rises, Bets on Donald Trump Inflation

Here is the opening of this topical article by John Kehoe of Financial Review:

American investors are surprisingly upbeat about Donald Trump's shock ascension to the US presidency, saying the big spending real estate mogul could trigger overdue inflation via his debt-funded plan to unleash a wave of infrastructure investment and to slash taxes.

Shares on Wall Street lifted about 1 per cent on bets the Republican clean sweep of the White House and Congress is poised to end six years of legislative gridlock and deliver a pro-business agenda on tax and regulation.

US markets failed to follow the 4-plus per cent dive in the S&P 500 futures index or earlier global stock rout in response to Mr Trump's upset victory.

Investors pointed to Mr Trump's magnanimous victory speech pledging to unite a divided country and his vow to invest in underfunded infrastructure, which would take pressure off the US Federal Reserve to keep interest rates near zero.

Fund managers expressed hope that conservatives in Congress would constrain his trade protectionist populism and try to keep the budget deficit under control.

The potential for a fiscal stimulus and Trump inflation wave caused the yield on the ten-year US Treasury bond to surge above 2 per cent, from 1.71 per cent, even as economists trimmed bets on the Fed raising rates next month due to political uncertainty from the billionaire's shock election.

"Inflation is the big issue," Bernstein Advisors chief investment officer Richard Bernstein said.

Mr Trump has vowed to go on a spending spree on infrastructure and defence, which could lift subdued inflation and allow the Fed to raise rates more in the longer term.

The president-elect wants to slash the US corporate tax rate to 15 per cent, from 35 per cent, and reform the system to encourage multinationals such as Apple and Google to repatriate $US2.5 trillion stashed offshore.

The real estate tycoon has also threatened to impose tariffs on foreign goods and to cut the amount of foreign workers, both of which would push up prices on imports and wages.

David Fuller's view -

Most of us were surprised by this election result, not least Donald Trump and Hillary Clinton, judging from their campaign teams as the counting of votes commenced.  Before any results were in, Trump’s team was described by one network as “having the atmosphere of a morgue”.  In contrast, Clinton’s was moderately upbeat. 

This gradually changed as the evening progressed, with the optimism of Clinton’s team giving way to concern, anxiety and eventually despair several hours later.  Trump’s campaign leaders looked initially surprised by the first results, followed by increasing hope and eventually the first hugs of joy as Florida became a probable win.  At that point I knew I was in for a long evening. 

Trump had been described as “the least nervous person in his family suite” by one commentator.  Later, he was reassuringly calm, if slightly nervous, and appropriately inclusive in his victory speech.  I suspect Clinton may not have had a concession speech until today.     

Initial financial gyrations as Trump’s victory was being realised reflected thin market conditions and the dominance of machine trading.

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



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November 09 2016

Commentary by David Fuller

Trumped America and Brexit Britain are Both Calling the Bluff of the Established Order

The Brexit view is a good deal more coherent than the Trump one. Brexit’s leaders, for example, want to open up world markets rather than put up new tariff walls. But both share a desire to bring power home to the nation’s own citizens. Both recognise that everything is different now.

Part of the great bluff of the Washington elites and their Europhile cousins is that there is only one sensible way of doing things and they, being the experts, can tell the rest of us what it is. But since 2001 in relation to security, and 2008 in relation to money, their way doesn’t look so sensible.

Does Mr Obama’s deal to let Iran off the hook about nuclear weapons feel outstandingly rational? Does Angela Merkel look wise to have let in 1 million Middle-Eastern immigrants? Does reinforcing the euro seem like the way of the future after its imposition has impoverished the younger generation right across southern Europe? A growing constituency calls the bluff of the established order.  

Once you start on this road, establishment disapproval only makes you feel stronger. Why vote for an elderly groper with strange hair and no political experience? Why incur the anger of the 27 other EU member states by Brexiting?

Partly because of seeing the pursed lips of the powerful when you do so. The only person who piped up to say the emperor had no clothes was a child: being electoral naughty boys proves to be fun.

It is not within the power of electors to run their country. It is within their power to point out to the self-righteous mighty when they are wrong. That is what has happened, first in Britain, now in America. By that logic, Mrs Clinton had to lose to Mr Trump.

I can think of at least one difference between Brexit and Mr Trump’s administration. The former will be led by a woman who didn’t even vote for it, the latter by the man himself.

The British situation may be the better, because it is less likely to inspire false hopes. It wouldn’t take all that many errors for Mr Trump’s vision to turn into Brexit minus minus minus.

David Fuller's view -

I am feeling an eerie calm for the second time in five months, during a period of considerable emotion in the markets, the press, on TV and apparently within public gatherings.  The calm is not due to numbness in response to events, or disinterest.  Perhaps a little fatigue is a factor having stayed up to watch an extraordinary election result. Mainly, however, I think these emotional reactions to shock events which have not actually harmed us are seldom warranted.

Consider sudden market surges in response to elections.  It is often a case of garbage in and garbage out, as trading systems are programmed to buy or sell following a specific result.  The sudden moves are alarming, but seldom based on wisdom, and are soon reversed. 

Extreme reactions to the UK’s Brexit vote in June or Trump’s “Brexit plus plus plus” prediction before he had won are another example.  Will he be as objectionable with the gravity of office as he was during the campaign which he probably did not expect to win?  It is possible, but I doubt it in terms of most issues, especially if he surrounds himself with a knowledgeable team of specialists to deal with the complexities of high office.    

This item continues in the Subscriber’s Area, where a PDF of Charles Moore's column is also posted.



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November 09 2016

Commentary by David Fuller

November 09 2016

Commentary by David Fuller

The Markets Now

Here is the new brochure for the next event on Monday evening 28th November, at London’s Caledonian Club.  

David Fuller's view -

OK, the US Presidential Election is over but what can we expect from Trump’s regime? 

Interestingly, infrastructure spending is back on a number of political agendas.  That should help GDP growth.  Commodities are generally firm, with ‘Dr Copper’ joining other metals in breaking to the upside.  A number of government bond yields bottomed in July, including US 10-Yr Treasuries.  

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

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

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



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November 09 2016

Commentary by Eoin Treacy

Investment ramifications of a Trump Presidency

Eoin Treacy's view -

It was a bruising campaign but with control of all three branches of government the Republican Party now has a relatively unfettered path to introducing a broad range of policy options. The one obstacle of course is that the entrenched bureaucracy in Washington and the various unions are totally opposed to just about any change to the status quo. 

Corporate taxation and the tax code more generally could be up for debate. Securing a budget large enough to make a dent in the deferred maintenance of the USA’s infrastructure is perhaps the clearest ambition of a Trump Presidency. Protectionism is also high on the agenda and the responses of NATO and EU spokespeople to the news was a picture of unease at this new source of uncertainty. Immigration is also likely to be a major topic of conversation for this administration. 

 



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November 09 2016

Commentary by Eoin Treacy

November 09 2016

Commentary by Eoin Treacy

The world has just become a more dangerous place

This article by Lara Marlowe for the Irish Times may be of interest to subscribers. Here is a section:

White Americans are traumatised to know they will become a minority within 50 years. The French extreme right believe there’s a conspiracy to replace the European population with Africans and north African Arabs. Like Trump supporters, they hark back to the “good old days” and want France to be “great again”.

Virtually all western democracies appear to be infected with the anger and disillusion that brought Trump to power. An opinion poll published by Le Monde on November 8th showed that close to three-quarters of the French electorate believe their elected officials are corrupt. They believe elections serve no purpose, and that political parties, trade unions and media block the country. Trump’s promise to “drain the swamp” has certain resonance.

During the campaign, Le Pen told the right-wing magazine Valeurs Actuelles: “What Americans like is that he’s a free man. If I were American, I’d choose Donald Trump.”

On Wednesday morning, she tweeted congratulations before final results were in.

 

Eoin Treacy's view -

This has been a year in which the “perceived wisdom” has been proved not to hold true. The UK voted to leave the EU, the Chicago Cubs won the World Series for the first time in more than a century, the Irish rugby team beat the All Blacks for the first time,(although it was only a friendly) and now a rank outsider has won the US Presidential Election. The question now is whether this trend of surprises and disruptions to the status quo will continue and most particularly in Europe?



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November 09 2016

Commentary by Eoin Treacy

India scraps 500 and 1,000 rupee bank notes overnight

Thanks to a subscriber for this article from BBC news which may be of interest. Here is a section:

The surprise move, announced on Tuesday evening, is part of a crackdown on corruption and illegal cash holdings.

Banks will be closed on Wednesday and ATM machines will not be working.

India is overwhelmingly a cash economy. New 500 and 2,000 rupee denomination notes will be issued to replace those removed from circulation.

"Black money and corruption are the biggest obstacles in eradicating poverty," Mr Modi said.
People will be able to exchange their old notes for new ones at banks over the next 50 days but they will no longer be legal tender.

The announcement prompted people across the country to rush to ATMs that offer 100 rupee notes in an attempt not to be left without cash over the next few days.

 

Eoin Treacy's view -

Bribes are most often paid in cash so removing high value notes makes it somewhat more difficult to stuff money into an envelope. For a country like India where the government needs tax income to fund social and infrastructure projects, the war on cash is an understandable project. Even the ECB has committed to stop printing €500 notes by the end of 2018 because of the role these high value denominations have in allowing money to be moved around often for nefarious activities. 



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November 08 2016

Commentary by Eoin Treacy

November 08 2016

Commentary by David Fuller

Hillary Clinton has enough electoral Votes to Win the White House in final Fix map

The presidential election ends — we hope! — Tuesday.

Below we offer our last ratings of the race, our look at the truly competitive states on the eve of this most unpredictable of elections. While we are moving two states in Donald Trump’s direction on this second-to-last day of the campaign, the overall map still clearly favors Hillary Clinton: She has 275 electoral votes solidly or leaning her way — five more than she needs to win the White House on Tuesday night. In fact, even if Trump holds all of the states either solidly or leaning his way and wins all three states currently rated as “toss-ups,” he is still seven electoral votes short of 270.

Our big change on the eve of the election is to move North Carolina from “lean Democratic” back to “toss-up.” From mid-September to mid-October, Clinton led in 19 of the 20 polls conducted in the state. But, of the nine most recent polls, four show Clinton ahead, three show Trump in the lead and two project a tie. Trump has a 1.4 percent edge in the RealClearPolitics polling average.

David Fuller's view -

I imagine our American subscribers are looking forward to the end of this election campaign which seems interminably long.  I assume the view that if Trump cannot win Florida, which should declare shortly after 10:00pm EST, Clinton has won this election.  The Washington Post is calling Florida a “toss-up” in the article above.  Wall Street has bet on a Clinton victory this week following the FBI’s comment that there were no new findings in its review of her emails.   

Let’s hope for a clear result and a dignified conclusion to this election.  



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November 08 2016

Commentary by David Fuller

The Upside of Russian Interference

Figures on both the left, such as journalist Glenn Greenwald, and the pro-Trump right, such as the Republican nominee's friend Roger Stone, have spoken of a "new McCarthyism."

I'm not ready to subscribe to that notion yet, if only because, as a Russian citizen, I am not merely able to work for a mainstream U.S. news organization: I've been welcomed by the many Americans I have interviewed while covering this campaign. These span a political spectrum from fiery progressive Liz Garst in Iowa -- a person that, to me, embodies the best of Russia's old-time influence on the U.S. -- to far-right militia members in northern Florida, who are perhaps the most susceptible to the current brand of Russian propaganda.

Americans are generally nice to visitors -- and uncommonly helpful to journalists -- but they used to be far more suspicious of Russians while the Soviet Union was still around. Despite the best efforts of supposedly progressive Hillary Clinton, that suspicion has not yet returned. It may do so if the Russia-bashing continues after the election; I suspect it will die down somewhat as the electoral battle recedes into history.

In any case, it's worth considering how the U.S. will internalize the real and perceived Russian meddling this year. Americans are hard-headed and used to doing things their own way; they turned the previous Russian influence campaigns, often waged with the worst of intentions, to their advantage. Can Putin's propaganda and perhaps cyber-espionage campaign also serve a useful purpose?

I believe it can. Putin is providing a useful service to the U.S. by holding his malicious mirror to its political establishment. It's a troll's mirror, but it does reflect a nasty reality: A complacent, clannish elite that has written convenient rules for itself but not for the society it governs. Much of this society, both on the right and on the left, doesn't like what it sees.

As with previous Russian attempts to change the U.S., this one should lead to a realization that it's time to clean up U.S. democracy and make it more representative and inclusive, perhaps by stripping away some obsolete voting rules, perhaps by breaking the destructive stranglehold of the ossified two-party system.

The country I have seen this year -- the big cities and small towns I've explored, the progressives and Second Amendment zealots I've met, this whole vast, great land -- deserves far better than what I watched it live through. I'd like to help in my small way, and I think my country will end up helping, too, even though it may be trying to inflict damage.

David Fuller's view -

The two-party system mentioned in the penultimate paragraph above is often criticised on the basis that it is not sufficiently representative and inclusive.  That is a valid point in both the USA and UK.  However, I have always preferred the two-party system because it does produce stronger governments. 

I have seldom been impressed by the multi-party governments that we usually see in continental Europe and some other democratic regimes.  They are weaker and consequently less decisive and effective.  They are also beholden to special interest pressure groups.  The consequences are weaker governments and more frequent elections. 

What I would advocate is term limits.  If the two-term presidential system is good enough for the USA, and I believe it is, I would prefer the same for Prime Ministers. I also think representatives in the Senate, Congress and UK Parliament should have time limits of perhaps three terms.  Yes, it would remove some successful, effective politicians but it would also reduce the number of cliques while introducing new talent and energy.  Career politicians remain in office well beyond their sell-by date.   



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November 08 2016

Commentary by David Fuller

November 08 2016

Commentary by David Fuller

Referendums Are Now Part of Our Democracy. If Judges Reverse Them, We Are In a Dangerous Place.

'Remember, remember the Fifth of November” some of us chant on this day. The rhyme goes on about how Guy Fawkes wanted to blow up the King and Parliament: “Threescore barrels of powder below/ Poor old England to overthrow.” We do things differently nowadays. For “barrels of powder” read “QCs arguing”.

The legal confusion about how to trigger Article 50 has left both sides in the Brexit story striking some odd attitudes. The Leavers – of whom your columnist is one – look as if they are saying that Parliament should not have the power of decision over Article 50. Yet it was they who spoke so often about recovering parliamentary sovereignty.

The Remainers, many of whom have devoted more than 40 years to undermining our national independence, have suddenly decided to uphold the rights of our sovereign Parliament. Human rights lawyers who have argued for entire careers that Britain’s home-grown tradition of rights is grossly inadequate for the modern world have gone all gooey about the Bill of Rights of 1689 and the limits it sets upon the royal prerogative.

Personally, I have particularly enjoyed watching Lord Kerr of Kinlochard stepping forward to speak for England. John Kerr, former UK Permanent Representative to the European Union, former head of the Foreign Office, billed by the BBC as the “author” of Article 50, is known by former colleagues as “Machiavelli” (with emphasis on the “Mac”, Lord Kerr being Scottish). He is a man of great charm and brilliance. I have always profited from my conversations with him about the life of Lady Thatcher. But I must admit that I had never before seen him as the defender of this nation’s ancient liberties.

Now The People’s Kerr explains that Article 50 is not irrevocable, and every possible opportunity must be given to Parliament and electors to vote again. Come to think of it, I don’t know why I am surprised: it would be entirely in character for the inventor of the device for leaving the EU to have so drafted it that it forces us to stay.

David Fuller's view -

In December the UK’s Supreme Court will commence its review of the recent High Court’s decision that only Parliament can trigger Article 50.  If it reverses that decision because Parliament backed the June 23rd Referendum by no less than a 6 to 1 majority, then Mrs May will be free to commence negotiations to leave the EU. 

However, if the Supreme Court upholds the High Court decision, then it is very likely that the Prime Minister will trigger a General Election in 2017.  I maintain that Mrs May would win that election with an increased majority.  

A PDF of Charles Moore’s column is posted in the Subscriber’s Area along with an Editorial.  



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November 08 2016

Commentary by David Fuller

The Markets Now

Here is the new brochure for the next event on Monday evening 28th November, at London’s Caledonian Club.  

David Fuller's view -

OK, the US Presidential Election is over… we hope.  Interestingly, infrastructure spending is back on a number of political agendas.  That should help GDP growth.  Commodities are generally firm, with ‘Dr Copper’ joining other metals in breaking to the upside.  A number of government bond yields bottomed in July, including US 10-Yr Treasuries.  

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

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

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



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November 08 2016

Commentary by Eoin Treacy

Not With A Bang But A Whimper (and other stuff)

Thanks to a subscriber for this report by Ben Inker and Jeremy Grantham for GMO which may be of interest. Here is a section:

At GMO we have put particular weight for identifying investment bubbles on the statistical measure of a 2-sigma upside move above the long-term trend line, a measure of deviation that uses only long-term prices and volatility around the trend. (A 2-sigma deviation occurs every 44 years in a normally distributed world and every 35 years in our actual fat-tailed stock market world.) Today’s (November 7) price is only 8% away from the 2-sigma level that we calculate for the S&P 500 of 2300.

13. Upside moves of 2-sigma have historically done an excellent job of differentiating between mere bull markets and the real McCoy investment bubbles that are likely to decline a lot – all the way back to trend – often around 50% in equities. And to do so in a hurry, in one to three years.

14. So we have an apparent paradox. None of the usual economic or psychological conditions for an investment bubble are being met, yet the current price is almost on the statistical boundary of a bubble. Can this be reconciled? I believe so.

15. There is a new pressure that has been brought to bear on all asset prices over the last 35 years and especially the last 20 that has observably driven the general discount rate for assets down by 2 to 2.5 percentage points. Tables 1 and 2 compare the approximate yields today of major asset classes with the average returns they had from 1945 to 1995. You can see that available returns to investors are way down. (Let me add here that many of these numbers are provisional. We will try to steadily improve them over the next several months. Any helpful inputs are welcome.) But I do believe that readers will agree with the general proposition that potential investment returns have been lowered on a wide investment front over the last 20 years and that stocks are generally in line with all other assets.

Eoin Treacy's view -

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

I agree that the topic of bubbles is central of what our job as analysts is. If we can succeed in identifying the latter stages of a bubble, we can avoid the worst effects of the subsequent bear market, so that we are in the privileged position of having ample liquid capital with which to participate when a new bull market evolves. The big question now is to what extent the major stock market indices exhibit bubble characteristics. 



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November 08 2016

Commentary by Eoin Treacy

Voters could legalize marijuana for quarter of all Americans

This article from Reuters highlights one of the more important decisions to be taken by US voters today. Here is a section:

In California, where medical marijuana has been legal since 1996, a recent poll by the Public Policy Institute of California showed 55 percent of likely voters supported a ballot initiative that would authorize the state to tax and regulate retail cannabis sales much like it does alcoholic beverages.

That was similar to the numbers favoring legalization from opinion polls in Massachusetts and Maine. Slimmer majorities or pluralities also point to legalization in Arizona and Nevada.

Approval by California alone, America's most populous state with 39 million people, would put nearly a fifth of all Americans living in states where recreational marijuana is legal, according to U.S. Census figures. That number grows to more than 23 percent if all five state measures pass.

Backers of legalized marijuana sales have tried for decades to win support at the ballot box, with little success until the past few years, starting with victories in Colorado and Washington state in 2012.

Experts say the latest initiatives include more sophisticated regulatory mechanisms aimed at keeping cannabis away from children and banning the involvement of criminal gangs and drug cartels. Public opinion has rapidly swung toward favoring legalization.

"It's changed in the minds of these voters from being like cocaine to being like beer," said University of Southern California political scientist John Matsusaka.

 

Eoin Treacy's view -

Time and again prohibition has been demonstrated as a failed strategy. There are of course very real side effects that result from smoking cannabis and most particularly for young people. The problem for those campaigning against legalisation is proving cannabis has no health supporting effects. Millions of people have personal experience to the contrary and that has helped drive wider acceptable of the plant’s curative properties. This is especially true for ailments modern medicine is not a good fit for such as chronic pain, migraines and posttraumatic stress.



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November 08 2016

Commentary by Eoin Treacy

Adobe gets experimental: Photoshopping voices, drawing hacks and VR editing

This article by Emily Ferron for Newatlas may be of interest to subscribers. Here is a section:

According to Jin, the software needs about 20 minutes of voice recording to learn the speech patterns and wave forms of the original speaker's voice. Then, the user can simply type in the edited version of the text and hear the desired changes played back practically instantly. In the demo, Jin playfully altered a sentence, "I kissed my dogs and my wife" to "I kissed Jordan three times." New words that were not in the original recording were re-created in the speaker's tone and timbre.

While this technology has obvious applications in the entertainment and voiceover industries, it could have long-reaching societal repercussions as well. Just as Photoshopping allegations come into play when the veracity of an image is suspect, VoCo could open voice recordings to the same kind of scrutiny. To counter security concerns, Jin said that features like watermarking and anti-forgery measures are on the way.

Other notable Adobe "sneaks" include Project Stylit and CloverVR. The former is a tool for creating digital art with traditional fine art looks. The latter tackles a more-cutting edge issue, introducing new methods for editing 360-degree videos for virtual reality applications.

 

Eoin Treacy's view -

Online retail is in many respects the business of selling pictures since the customer has no other way of inspecting the product. By successfully implementing a subscription pricing model Adobe succeeded in making its Photoshop suite of products the industry standard. Its Maya animation and graphics package is now also on a subscription model and is one of the most widely used tools in the gaming and advertising sectors. 



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November 08 2016

Commentary by Eoin Treacy

Copper Enters Bull Market as Declining Stocks Ease Glut Concerns

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

“We’re getting the idea that these markets are a lot tighter than many people think, particularly as China continues to do pretty well,” Bart Melek, the head of commodity strategy at TD Securities in Toronto, said in a telephone interview. “The PBOC is saying interest rates are in line with fundamentals, meaning they won’t be doing anything new and they see stability there.”

Copper for delivery in three months rose 2.7 percent to settle at $5,235.50 a metric ton in London. That marked a more- than 20 percent gain from a low in January, meeting the common definition of a bull market. The metal touched $5,250.50, the highest since October 2015.

 

Eoin Treacy's view -

Copper held a progression of lower rally highs for five years but had developed type-2 bottom characteristics since January’s mean reversion rally and is now breaking out. 



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November 07 2016

Commentary by David Fuller

Clinton 3 Points Ahead of Trump in Final Bloomberg National Poll

Hillary Clinton leads Donald Trump by three percentage points among likely voters nationally, the latest sign that her campaign's painstaking focus on women, Latinos and blacks could help propel her to the White House.

The final Bloomberg Politics national poll before Tuesday’s election has Clinton ahead of Trump, 44 percent to 41 percent, when third-party candidates are included. In a two-way contest, she's also up by three points.

Interviews were conducted Friday evening through Sunday afternoon, before FBI Director James Comey announced his decision that Clinton shouldn’t face criminal charges related to use of a personal e-mail server as secretary of state.

Comey’s initial letter informing Congress—11 days before the election—that the FBI was conducting a review of newly discovered e-mails breathed new life into Trump’s candidacy at a time most polls showed Clinton with a bigger lead. The FBI's decision Sunday brings a positive burst of news for Clinton in the campaign’s critical home stretch.

The tightness of the race highlights the importance of turnout for both sides, as the final wave of campaign events, door-knocking, e-mailing, and phone-calling comes to a close.

More than a third of likely voters, 37 percent, say they’ve already voted and Clinton is leading Trump with that group, 46 percent to 38 percent.

The results offer a national snapshot of the race, but they fail to reflect the reality of the state-by-state pursuit of the 270 electoral votes needed to win the White House. Trump has strong support in the South, the survey shows, while Clinton has the advantage in the Northeast, Midwest and West.

“The poll reflects a tight race, for sure, but what is so striking is the sour mood of the electorate,” said pollster J. Ann Selzer, who oversaw the survey. “Looking forward, they see scandals aplenty and sizable segments of each side vow to keep fighting even after all the votes are counted.”

David Fuller's view -

I think serious people everywhere will be relieved to see the end of what is certainly the most sordid US Presidential Election in living memory. I am assuming that Clinton will win, not because she is popular, but because Trump is a wild card, to put it politely.  Additionally, Clinton appeals to a much wider demographic base, including women who have the most votes in this election.  Wall Street’s rally today undoubtedly includes a considerable amount of short covering in anticipation of a Clinton victory.

The one important quality which Clinton has in spades is experience.  The far greater quality which I hopes she will demonstrate is wisdom.  She will need it given this divisive election and the challenges which lie ahead, in terms of reuniting the country and leading democratic nations.    



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November 07 2016

Commentary by David Fuller

The High Court Article 50 Ruling Highlights the Gulf Between the Country and the Elete

Here is the opening of this excellent article by Daniel Hannan for The Telegraph; the original printed edition title was Hypocrisy and Breathtaking Brazenness

During the referendum campaign, the Government controversially spent £9.3 million on distributing a brochure to every British household making its case for remaining in the EU. That official publication contained a clear statement: “This is your decision. The Government will implement what you decide”.

Remainers defended the leaflet on grounds that it was not simply a campaigning tool, but a formal statement of Government policy.

Not a single Stronger In campaigner, as far as I’m aware, took issue with the sentence I have just quoted. Confident that they would win, they were happy to treat the referendum as final and binding.

Which is what makes all this pomposity about constitutional propriety so preposterous. Pro-EU campaigners, having won the first round of their legal battle to prevent the Government disengaging without another parliamentary vote, are now claiming that all they want is due process. It’s not their hypocrisy that shocks; it’s their sheer brazenness.

Does anyone imagine that the corporations which funded the court case were interested purely in the constitutional niceties? Does anyone believe that the remnants of Stronger In who have been cheering the challenge would be taking the same line had there been a 52-48 vote to stay?

After all, the people now huffing and puffing about the sovereignty of parliament have, in many cases, spent the past 43 years undermining it.

Now, in the most sudden somersault since Western Communists backed the Molotov-Ribbentrop Pact, they have gone from deriding parliamentary supremacy as a Victorian hang-up to posing as its defenders.

The case wasn’t really about parliamentary sovereignty. Everyone agrees that Parliament has the ultimate power to leave the EU.

But this particular Parliament voted – by six to one in the Commons – to put the question of EU membership to the voters. It didn’t tack on a reservation saying that it might think again if the voters surprised it. 

David Fuller's view -

One should not blame everything on the EU but I will say that it has not helped attitudes towards democracy within the UK over the last 40 years, across all political parties.  I believe Theresa May understands this and is trying to address it.  However, if the UK Supreme Court does not reverse last week’s High Court’s ruling that the Government does not have the power to trigger Article 50 without parliamentary approval requiring a vote from MPs, the Prime Minister may have to call a snap General Election in 2017.  

Presently, Mrs May does not have enough cross-party support within Parliament where some MPs regard the EU political gravy train as a cushy personal option, should they be defeated in a UK general election.  Inevitably, there is an element of uncertainty in any election but if the Prime Minister was asking the country to give her the support to regain full UK sovereignty via Brexit, I think she would win with a landslide.  

A PDF of Daniel Hannan's article is posted in the Subscriber's Area.



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November 07 2016

Commentary by David Fuller

The Markets Now

Here is the new brochure for the next event on Monday evening 28th November, at London’s Caledonian Club.  

David Fuller's view -

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

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



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November 07 2016

Commentary by Eoin Treacy

Tesco Bank Halts Web Trades as Money Taken From 20,000 Accounts

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

About 40,000 of the bank’s 136,000 checking account holders experienced suspicious transactions over the weekend, Tesco Bank Chief Executive Officer Benny Higgins told BBC Radio 4’s Today program. About half of those had money taken from their account, he said. The problem has only affected checking accounts, a representative for the bank said.

Some of the world’s biggest financial institutions, including JPMorgan Chase & Co., HSBC Holdings Plc and the Federal Reserve Bank of New York, have all been cyberjacked in some way in the past couple of years. In the second quarter of this year, there was a 50 percent jump in activity by cybercriminals injecting malware programs into financial companies worldwide from the same period in 2015, according to Kaspersky Lab, a global cybersecurity company.

“Banking fraud is unfortunately very prevalent, and has been for a while,” said Tom Kirchmaier, researcher at the financial markets group at the London School of Economics. “The industry is not very forthcoming with sharing data with the police, and so we only hear about the worst cases, and Tesco’s can be considered one such instance.”

 

Eoin Treacy's view -

Inventory shrinkage (shoplifting) costs the retail sector about 1.5% of revenue per annum. When businesses move online they have to account for other kinds of theft such as when a buyer claims the item did not arrive and demands a refund. Online retailers often fear negative reviews so they put up with this petty theft as a matter of course and rarely talk about it.  



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November 07 2016

Commentary by Eoin Treacy

China Ousts Finance Minister Lou Jiwei as Xi Jinping Turns to Allies in Surprise Reshuffle

This article by Lingling Wei and Jeremy Page for the Wall Street Journal may be of interest to subscribers. Here is a section:

“Lou Jiwei’s abrupt ouster sends a strong signal that any prospects of even limited economic reforms are falling prey to President Xi’s focus on consolidating his power,” said Eswar Prasad, a Cornell University professor and former China head of the International Monetary Fund.

Since coming to power in late 2012, Mr. Xi has been moving away from the party’s decadeslong collective leadership model and centralized decision-making within a number of small committees he heads. Last month, he was named the “core” of the party’s leadership—a designation giving him an even stronger perch to influence the outcome of the congress in late 2017.

At that time, up to five of the seven current members of the Politburo Standing Committee, the top leadership body, are due to retire. In addition, more than 60% of the 376-seat Central Committee—which includes ministers, state industry chiefs and army generals—are expected to be replaced. Still, despite his consolidation of power, party insiders say Mr. Xi still has to vie with departing and retired leaders seeking to promote their own favorites.

 

Eoin Treacy's view -

With so many powerful positions becoming vacant over the next two years it is little wonder that Xi is attempting to ensure his favourites accede. Not only does it give him the potential to strengthen his own power base but perhaps even more importantly it gives him to the opportunity to encroach on the power structures of his adversaries. As a result we can anticipate a great deal of activity around which group within the Party will succeed in holding what positions. 



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November 07 2016

Commentary by Eoin Treacy

What drove the October ferrous rally?

Thanks to a subscriber for this report from Goldman Sachs covering the iron-ore market. Here is a section:

$/CNY was one of the most important market drivers of 2H 2015. When China weakened its currency in August 2015, it sent shockwaves around the globe with the S&P 500 index falling 10%. In the third quarter of 2016, $/CNY stayed range-bound between 6.6 and 6.7. In October, however, the depreciation resumed and $/CNY is now approaching 6.8.

The recent CNY depreciation is different from previous rounds of $/CNY moving higher. It has not generated the same international spillover effects as it did back in 2015. This implies further room for the Chinese government to weaken its currency against the US Dollar without negatively affecting global demand for its exports. On the other hand, the link between $/CNY and capital outflows remains strong. Our China Economics team estimated that FX outflows from China rose to US$78 billion in September and are likely to be even higher in October (Exhibit 7). This implies that there is an underlying desire among onshore investors to move into dollar-linked assets. Such desire may become particularly strong whenever the pace of CNY depreciation picks up. In fact, onshore commodities prices increased across the board on October 25 after the $/CNY moved higher for three consecutive days.

There are reasons why iron ore may be the first in line to benefit from onshore investment flows into commodities amidst renewed CNY depreciation. For example, the iron ore futures curve is almost always backwardated, making long iron ore a positive-carry trade. To the extent that a higher $/CNY also leads to a weaker local currency on a trade-weighted basis, iron ore may benefit from potentially higher Chinese steel exports. Additionally, rebar and iron ore are the most traded commodities in the onshore futures exchanges. Exhibit 8 shows the positive correlation between iron ore futures trading volumes and the $/CNY in recent months. By our estimates, about 60% of the iron ore price rally in October can be explained by the CNY depreciation.

Eoin Treacy's view -

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

If the correlation between the appreciation in iron-ore prices and the deprecation of the Renminbi are indeed causal rather than coincidental that could continue to be positive for commodity prices considering how much a weak currency benefits China’s economy. 



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November 07 2016

Commentary by Eoin Treacy

November 04 2016

Commentary by Eoin Treacy

November 04 2016

Commentary by Eoin Treacy

Payrolls in U.S. Rise 161,000 in October as Wages Accelerate

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

Wage gains picked up, with average hourly earnings rising 0.4 percent from a month earlier to $25.92. The year-over-year increase was 2.8 percent, compared with 2.7 percent in the year ended in September.

Higher wages are starting to encourage more Americans to quit their jobs with the confidence they’ll find other work that pays more. The number of job leavers as a share of unemployed rose to 12.1 percent in October, the highest since February 2007.

The average work week for all workers held at 34.4 hours in October. Among service providers, education and health services led with an increase of 52,000 jobs, followed by professional and business services at 43,000. Retailers pared payrolls by 1,100 on declines at electronics and appliance stores and clothing shops.

Factories reduced payrolls by 9,000 after an 8,000 decline the month before, in line with a report earlier this week that showed manufacturing barely expanded in October while orders moderated. Employment at construction companies rose by 11,000. Governments added 19,000 workers.

 

Eoin Treacy's view -

Wage growth broke out on these figures. Considering it is almost the one measure of inflation that cannot be hedonically moderated it carries weight in the Fed’s decision on whether to raise rates. In fact all other factors being equal the pop in wage demands is likely the figure that pushes the Fed over the line into definitely raising rates in December. The only thing that could derail such a move would be market tumult following a surprising US election result not least if it is deadlocked. 



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November 04 2016

Commentary by Eoin Treacy

Email of the day on residential healthcare properties

Do the healthcare indices only cover the pharmaceutical companies or are healthcare homes also included? Are the profits of these homes also threatened?  

Eoin Treacy's view -

Thank you for this email which raises an important question. The residential healthcare sector stands to benefit from the increased demand for their services resulting from the aging Baby Boomer generation which is increasingly moving into the stage of life where unassisted living is more challenging. 



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November 04 2016

Commentary by Eoin Treacy

China Tangshan City Halts Steel Production on Smog

This article by Alfred Cang for Bloomberg may be of interest. Here is a section:

Tangshan, China’s largest steel-making city, orders mills, coking plants, cement and glass industry to halt production because of heavy air pollution, consultant Mysteel says in note Friday.

City halts production in all factories that discharge “volatile organic compounds”

City halts production of coal-fired boilers except ones used for central heating

Suspension starts 3pm local time

City also bans trucks with articulated five axles or more from 6pm. Tangshan is about 180 kilometers east of Beijing

 

Eoin Treacy's view -

It’s that time of year again when Beijing is shrouded in smog and when parents really worry whether that lung infection their only child has is ever going to get better. In winter the prevailing wind generally blows from the Northwest. While Tangshan is a major steel and heavy industry hub, it is unlikely to be the only source of pollution since it lies to the east of the city. 

The gradual rationalisation of heavily polluting, inefficient steel production is good news for the global sector because it helps to reduce the overhang of cheap supply coming from China. Clicking through the constituents of the steel section of the Chart Library there is evidence of some steadying following sharp pullbacks last year. 

 



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November 03 2016

Commentary by David Fuller

Brexit Is Nothing Like the Rise of Donald Trump, Whatever He Might Think

All over the Western world, electorates are angry at their self-satisfied, arrogant political classes; they want their views reflected, including, of course, on immigration, and feel that they have been ignored for too long.

Manual workers and the lower middle classes are especially fed up, and feel under pressure financially as a result of the legacy of the Great Recession, automation and globalisation.

First the Leave campaign in Britain and now Donald Trump in America have sought to harness these populist rebellions. But I have news for Mr Trump: he may become the next US president but he never will be Mr Brexit. It’s not even close.

In all of the ways that really matter, the Brexiteer agenda is dramatically at odds with what passes for Trump’s world-view.

The Donald wants to walk away from America’s free trade deals; Brexiteers are desperate to sign as many as possible as quickly as possible.

Leavers here would love to join Nafta; Trump wants to quit it. Almost all Brexiteers want to use Nato to help protect the West and project UK and US power; Trump sees it as a drain on resources.

The utter incompatibility of visions ought to be obvious. Brexit is the politics of hope, of positive change, of radical reform; Trump is the politics of despair, of powerlessness, of retreat.

Brexit was primarily about regaining Britain’s self-government; it is a bold, powerful statement that liberal, independent, free-trading democracies are the best way for countries and their people to prosper in a modern, complex world.

It is a denunciation of post-war technocracies, a rejection of top-down rule, and a commitment to a massive increase in democratic control.

David Fuller's view -

This is one of the best articles on Brexit that I have seen, and I commend it to you.  If you agree, feel free to forward it, including over the Atlantic because most of the American newspapers appear not to understand why the UK voted for Brexit.   

A PDF of Allister Heath’s column is in the Subscriber’s Area.



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November 03 2016

Commentary by David Fuller

Email of the day

On Brexit Challenge:

November 03 2016

Commentary by David Fuller

Europhile Treasury Accused of Acting as Fifth Column in Government Over Brexit Warning

Leaked draft papers have revealed Cabinet ministers are being told tax revenues could plummet by £66billion a year if the UK opts for a ‘hard’ Brexit.

The documents, prepared for Cabinet committee discussions, warn Britain’s GDP could fall by as much as 9.5 per cent if the country leaves the EU without securing a trading agreement with the bloc.

The revelation Whitehall is continuing to pump out the same ‘Project Fear’ message officials produced before the EU referendum has sparked fury among Brexit campaigners.

Patrick Minford, a former economic adviser to Margaret Thatcher, hit out at the “outrageous” Brexit warnings being produced on the basis of Treasury estimates, which he suggested is stuffed full of officials who don’t want Britain to quit the EU.

The Cardiff University academic told Express.co.uk: “The Treasury is acting as a sort of fifth column in the Government.”

The leaked forecasts are based on the same controversial Treasury study into the impact of Brexit its officials produced in April under ex-Chancellor George Osborne - the architect of the Remain camp’s ‘Project Fear’ scaremongering.

The April forecast included the same £66bn shortfall warning still reportedly being handed to ministers now. 

Professor Minford said it was “outrageous” the Treasury had “learnt nothing from its mistakes” earlier in the year, as he pointed out how their April study had “already been shown to be complete nonsense”.

He pointed out how the Treasury’s growth forecasts included in their pre-referendum estimates had already been proved wrong, while they had also based their figures on “arbitrary uncertainty effects which had no basis”.

At the end of last month, GDP growth in the second quarter of 2016 - the period straddling the June 23 referendum - was was revised upwards, suggesting the economy has been largely unaffected by the Brexit vote.

Professor Minford, a member of the Economists for Brexit group, said: “Their forecast has been completely disproved and they should be hanging their heads in shame, not going back to this completely discredited forecast.”

The ex-Treasury adviser said he expects the UK economy to “grow substantially in the third quarter” when figures are published later this year.

Professor Minford criticised the Treasury’s “completely absurd assumption”, included in its April study,that Britain would continue with the same level of trade tariffs it places on non-EU countries once it leaves the bloc.

He said: “The Government policy now is to go towards free trade agreements with the whole world and a free trade agreement with the EU.

“So what are the Treasury doing assuming that we will have protectionism against both the EU and the rest of the world?”

The economist insisted “the whole point in leaving the EU is to get rid of this protection”.

Professor Minford, who helped craft areas of Mrs Thatcher’s economic policy during the 1980s, suggested the Treasury could face action if they continue to base forecasts on their pre-referendum studies.

He said: “Now that they’ve been proved wrong by events, they should be revising these reports, not carrying on producing the same discredited message. It’s outrageous.

“If they continue with this, there’s going to have to be an inquiry into how the Treasury can persist in these outrageous pieces of analysis that have been discredited and are at variance with Government policy as well.”

David Fuller's view -

I agree with Patrick Minford, and not for the first time.  I am surprised UK Chancellor of the Exchequer Philip Hammond has not queried the Treasury’s forecasts in terms of at least asking what they are based on. He should also be asked whether he agrees or disagrees with his department’s forecasts.

The Brexit debate was always going to be contentious.  Opening it up to Parliament may seem more democratic but it ignores the intention of the Referendum.  In deciding to hold the national vote, David Cameron and George Osborne were the original, most outspoken and committed Remain advocates.  If Remain had won the biggest election in the UK’s history by 52 to 48 percent, instead of losing it by that amount, would there be complaints that the public were not informed, whatever that means?  I doubt it and there would be no demands for another vote, or a soft Remain. 

A so-called ‘soft Brexit’ ignores the Referendum result.  It would mean staying in the single market, paying our huge contribution to the inefficient EU, having no control over our own immigration policies, subservience to EU rules and regulations, and no freedom to negotiate trade deals with countries outside the EU.  In other words, it would completely ignore what a majority of the UK public voted for.  That does not sound very democratic to me. 

Patrick Minford said it first – get out of the EU quickly. The alternative is to be strung along by the EU which is hoping that the Brexit decision will somehow be reversed.  Getting out quickly clearly means a hard Brexit, which may sound frightening but rather than being ‘a leap in the dark’, it is the only basis for sensible negotiation. The UK will be amenable to negotiating on the basis of mutual interests.  Similarly, the EU will be negotiating not on the basis of what it has to lose, but what it has to gain by maintaining close ties with an independent UK which is still the world’s fifth largest economy.



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November 03 2016

Commentary by David Fuller

Top Money Manager: We Avoid Tesla Because of Elon Musk

When funds restrict their investments to those companies that are “ethical” or “sustainable”, many investors assume that poor returns will have to be accepted as a trade-off.

But that is not necessarily the case. Royal London Sustainable World Trust is a multi-asset fund, with just over 80pc invested in global shares and UK companies and the rest in corporate bonds and cash. Among its peer group, it ranks second out of 134 funds for return over five years.

The manager, Mike Fox, applies an ethical policy that prevents the fund from investing in a variety of areas. Tobacco companies, companies involved in worker exploitation, and those profiting from countries with poor human rights records are all off limits, among a host of others.

Telegraph Money spoke to Mr Fox about the benefits of choosing well governed companies, and why he won’t invest in Tesla because of Elon Musk. 

 

 

David Fuller's view -

I confess to not having heard of Mike Fox before but comments in this article ticked a number of boxes for me, in terms of my own personal interests.  

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

 



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November 03 2016

Commentary by David Fuller

The Markets Now

Here is the new brochure for the next event on Monday evening 28th November, at London’s Caledonian Club.  

David Fuller's view -

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

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

 

Please note: I will be away on Friday.



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November 03 2016

Commentary by Eoin Treacy

California Proposition 61, Drug Price Standards

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

A "yes" vote supports regulating drug prices by requiring state agencies to pay no more than the U.S. Department of Veterans Affairs (VA) pays for prescription drugs.

A "no" vote opposes this measure to require state agencies to pay no more than the VA pays for prescription drugs.

Proposition 61 is the most expensive ballot measure battle in 2016, and could be the ballot measure with the most money spent on it ever in the nation's history, with the combined amount of money raised by the support and opposition campaigns totaling over $125.89 million as of November 2, 2016.

The AIDS Healthcare Foundation, a prominent backer of the campaign supporting Proposition 61, is also backing a drug price standards initiative appearing on the November 2017 ballot in Ohio.

 

Eoin Treacy's view -

On the way to school yesterday we passed two bill boards one declaring yes was the only way forward and the other saying that to vote no on Proposition 61 was the only moral course of action because it would raise the price of drugs for veterans. My daughters asked what all the fuss is about and after a little digging of course it comes down to money. 



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November 03 2016

Commentary by Eoin Treacy

The U.S. dollar is a crowded consensus

Thanks to a subscriber for this note by James Paulsen for Wells Fargo Asset Management. Here is a section:

Most anticipate a modest and relatively slow tightening by the Federal Reserve primarily because a consensus believes tightening efforts will lead to a much stronger U.S. dollar. However, we suspect a surprising decline in the U.S. dollar will exacerbate inflation anxieties and accelerate the pace of Fed tightening from what is currently anticipated.

Looking into 2017, we recommend investors position portfolios as a dollar contrarian. Crowded consensus trades are not often fruitful and frequently prove risky. If the consensus is surprised by a falling dollar, many portfolios will need to be adjusted. Surprising dollar weakness will benefit commodity prices and penalize high-quality bond investors. It would also favour international stocks, particularly emerging market equities.

Moreover, it would likely extend the leadership of small and mid-cap stocks evident so far this year. Finally, a weaker dollar would probably focus investors on the materials, industrials, technology and financials sectors within the U.S. stock market.

Eoin Treacy's view -

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

The Dollar Index has been largely rangebound since early 2015 and pulled back this week from the region of the upper side of the congestion area. With such a clear downward dynamic it is now for the bulls to prove their case by posting at least an equally impressive upward dynamic to retake the initiative as the short-term overbought condition is quickly unwound. 

 



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November 03 2016

Commentary by Eoin Treacy

Facebook Projects Greater Costs, Slowdown in Ad Sales Growth

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

In the third quarter, Facebook increased its monthly active users 4.7 percent from the previous quarter to 1.79 billion, topping analysts’ estimates of 1.76 billion. Daily users rose to 1.18 billion.

Facebook expanded its mobile ads business to Instagram, its photo-sharing application, which has started to contribute to the growth. While the company doesn’t break out sales, Instagram’s advertising revenue is rising faster than for Facebook’s main product, Wehner said in an interview. Still, Facebook’s main app was the bigger contributor to the sales increase, he said.

Even if Facebook’s sales gains start to slow by the middle of next year, Chief Executive Officer Mark Zuckerberg has plenty of other levers he can pull to make money. In addition to Instagram, the company has two chat apps, Messenger and WhatsApp, with more than 1 billion users each. Facebook is testing models for revenue from the properties, such as letting users talk to businesses to book trips or send flowers.

Meanwhile, Zuckerberg is changing the nature of the Facebook app to focus more on video.

“In most social apps today, a text box is still the default way we share,” Zuckerberg said. “Soon, we believe a camera will be the main way that we share.”

Eoin Treacy's view -

Facebook has defied the expectations of many people, myself included, to become a genuinely innovative company that has made smart acquisitions to dominate the social media sector. Like Google/Alphabet, it might do many other things but its financial health is reliant on advertising, so monetising the active young user base of Instagram has to be high on their list of priorities. 



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November 03 2016

Commentary by Eoin Treacy

The 2016 Harold Wincott Memorial Lecture

Thanks to subscriber for the transcript to this lecture by Harold James with comments by Robert Tombs focusing on the differences in political culture between the UK and Europe which I found very educational and commend to subscribers. Here is a section from the former:

The divide is likely to produce a reshaping of the party political landscape.  The same problem – how to confront globalization – are destroying of twentieth century parties everywhere, European Christian Democrats and Social Democrats, or the Republican Party in the United States.  The Labor Party has already disintegrated; the Conservative Party will be torn apart as Brexit becomes imminent.  The development is analogous to two of the great transformations of British life: the aftermath of the 1688 Revolution, when the modern party system polarized around Whigs and Tories; or the legacy of Robert Peel’s conversion to repeal of the Corn Laws in 1846, in a debate that was also centered around the clash of commercial interests with the “territorial constitution” of Britain.  The only way of holding off the disintegration is to extend, extemporize and equivocate.  Or to repeat that “Brexit means Brexit.”  

Eoin Treacy's view -

There are deep philosophical arguments that bear deeper scrutiny by all who wish to debate the merits of Brexit. However what appears clear at this stage is that the British people put their sovereign concerns ahead of their economic interests when they voted to leave the EU and it would be a very unwise politician to vote against the will of the people. 



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November 02 2016

Commentary by David Fuller

Energy Giant Shell Says Oil Demand Could Peak in Just Five Years

Royal Dutch Shell Plc, the world’s second-biggest energy company by market value, thinks demand for oil could peak in as little as five years, a rare statement in an industry that commonly forecasts decades of growth.

“We’ve long been of the opinion that demand will peak before supply,” Chief Financial Officer Simon Henry said on a conference call on Tuesday. “And that peak may be somewhere between 5 and 15 years hence, and it will be driven by efficiency and substitution, more than offsetting the new demand for transport.”

Shell’s view puts it at odds with some of its biggest competitors. Exxon Mobil Corp., the largest publicly traded oil company, said in its annual outlook that “global demand for oil and other liquids is projected to rise by about 20 percent from 2014 to 2040.” Saudi Arabia, the biggest producer, with enough reserves to last it 70 years, has said demand will continue to grow, boosted by consumption in emerging markets.

If renewable energy and other disruptive technologies such as electric cars continue their rapid advance, petroleum use will reach its maximum level in 2030, the World Energy Council has forecast. Michael Liebreich, founder of Bloomberg New Energy Finance, predicts a peak in 2025 and decline in the 2030s.

“For the first time, oil companies have to think seriously about the future,” Alastair Syme, an oil analyst at Citigroup Inc. in London, said by phone. Drillers that even a couple of years ago believed “every molecule of oil we produce will have a market,” have come to realize they “can afford to bring on only the most competitive assets.”

Gas, Biofuels

Shell will be in business for “many decades to come” because it is focusing more on natural gas and expanding its new-energy businesses including biofuels and hydrogen, Henry said.

“Even if oil demand declines, its replacements will be in products that we are very well placed to supply one way or the other, so we need to be the energy major of the 2050s,” Henry said. “That underpins our strategic thinking. It’s part of the switch to gas, it’s part of what we do in biofuels, both now and in the future.”

Shell sees “oil and gas as being part of the energy mix for many decades to come,” it said in a statement Wednesday.

 

David Fuller's view -

As Yogi Berra said: “It’s tough to make predictions, especially about the future.”

Nevertheless, Shell’s forecast by Chief Financial Officer Simon Henry: “… that peak [for oil demand] may be somewhere between 5 and 15 years hence…” makes sense to me.  It is backed by the continued development of alternative sources of energy, from renewables to natural gas and nuclear power. 

This item continues in the Subscriber’s Area.



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November 02 2016

Commentary by David Fuller

The Weekly View: How Much Risk Should You Take?

My thanks to Rod Smyth for this interesting report, published by RiverFront Investment Group. Here is the opening:

In a letter regarding the potential permanency of the new US constitution, Benjamin Franklin famously said that “in this world nothing can be said to be certain except death and taxes.” As investors, we deal with the reality of uncertainty every day and have to decide how much we want to expose our portfolios to these uncertainties. Equally however, one of the realities we face today is that, with interest rates so low, traditionally “safer” investments like cash and Government bonds carry the risk that their returns do not keep pace with inflation.  We call this purchasing power risk, and over longer term horizons it is the reason many investors including major pension funds and endowments chose to accept the uncertainty of investing in more volatile investments such as stocks. In our opinion, investors who focus on a timeframe of five years or more can reduce the risk of losing money in stocks, potentially allowing them to participate in the possibility of higher returns.  

David Fuller's view -

That is the introduction and this issue becomes quite interesting.  I think subscribers will gain perspective from the two historic graphs.

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



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November 02 2016

Commentary by David Fuller

The Markets Now

Here is the new brochure for the next event on Monday evening 28th November, at London’s Caledonian Club.  

David Fuller's view -

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

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



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November 02 2016

Commentary by Eoin Treacy

Musings from the Oil Patch November 1st 2016

Thanks to a subscriber for this edition of Allen Brooks' ever interesting report for PPHB which may be of interest. Here is a section:

It appears to us that everyone in the energy industry is fixated on whether the OPEC oil ministers meeting in Vienna, Austria on November 30th will produce an agreement to limit the group’s output, and how that production volume will be shared among the group’s 12 members. Also, it will be important to see who among the 12 OPEC members will be exempted from a monthly production quota and what those countries near-term output goals are. Lastly, we need to see some support from Russia for OPEC’s production cap to have much strength. While all these details are important to the outcome of the OPEC meeting and how the energy world reacts to whatever is agreed to, the lack of executive thinking about what happens to energy demand if the U.S. enters a recession could be the pothole everyone steps in. The duration and depth on any recession will determine how much oil demand might be lost due to weaker economic activity. We suggest you should pay attention to this hidden elephant in the OPEC meeting room. 

Eoin Treacy's view -

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

While Allen Brooks is not predicting a recession more than a few analysts have floated the idea. It’s an important consideration that would of course have a significant impact on the energy markets but also on just about every other asset class. Perhaps it would be timely to review some of the leading indicators for recessions to see where we are in the cycle. 



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November 02 2016

Commentary by Eoin Treacy

The World's $49 Trillion Infrastructure Problem May Not Get Solved Anytime Soon

This article Sid Verma may be of interest to subscribers. Here is a section:

An abundance of global savings. Trillions of dollars of negative-yielding bonds. And a bevy of institutional investors hungry for positive, long-dated yields to match their liabilities.

Conditions are ripe for an avalanche of private-sector capital to flow into unlisted infrastructure, turning an industry facing an estimated $49 trillion shortfall into an asset class which, its sponsors say, offers strong cash flows, uncorrelated returns and positive real yields.

58 percent of active investors surveyed in the second quarter of the year by data provider Preqin will invest more than $100 million in unlisted funds over the next 12 months compared to 42 percent who said that in the corresponding period last year, underscoring the increasing allure of alternative assets amid ultra-low yields from more conventional capital-market instruments.

 

Eoin Treacy's view -

It’s been a while since there was dynamism in the case for funding infrastructure spending. Part of the reason of course is that the environmental movement is highly active in demonstrating against any energy infrastructure projects, the case for new roads comes up against similar arguments while water and power suffer more than any from not in my backyard (NIMBY) arguments. Added to that has been the reluctance of governments to commit to big projects when their coffers are empty and unfunded liabilities are a constant bugbear. 



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November 02 2016

Commentary by Eoin Treacy

Aussie dollar's surge may signal good times for global economy

This article by Narayanan Somasundaram for the Sydney Morning Herald may be of interest to subscribers. Here is a section:

Goldman Sachs and the Commonwealth Bank say inflation has bottomed out, while traders are starting to speculate that policy makers are done with cutting interest rates. The world's fifth-most traded currency climbed for a third-straight day on Tuesday after the RBA left its benchmark interest rate unchanged and said consumer-price increases are likely to pick up.

Australia's economy sits astride emerging and developed markets, making the currency a favoured bellwether for worldwide growth. As the biggest iron-ore exporter and a major supplier of coal, wool, gold and liquefied natural gas, the country's fortunes are wedded to those of China.

But it's about more than just raw materials - tourism and education are also major exports - and the Aussie is the highest-yielding AAA currency. That combination helped it lead a resurgence in developed markets in 2009 as the dust settled after the GFC.

 

Eoin Treacy's view -

If inflation has indeed bottomed and there are increasing signs globally that it has then it is unlikely the RBA will cut interest rates further. The Australian Dollar has been ranging with a mild upward bias for nearly four months and firmed again today from the region of the trend mean. A sustained move below 75¢ would be required to question medium-term scope for additional upside. 



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November 01 2016

Commentary by David Fuller

Election Polls Tighten but Turnout is the Real Key to Clinton Versus Trump

Here is the opening of this topical article from The Guardian on a race which may have tightened significantly:

Polls are often conducted over multiple days, so we’re only just starting to measure the effect of the FBI’s decision to release new details of its investigation into Hillary Clinton’s private email server to lawmakers on Friday. According to the ABC/Washington Post tracking poll published on Tuesday (conducted October 27-30), the Democratic candidate has now slipped behind Donald Trump, on 45% to her Republican opponent’s 46%. The polling average calculated by RealClearPolitics, a much better indication of national sentiment, shows Clinton is now leading by just 2 percentage points, down from 5 percentage points a week ago.

Those numbers are interesting but not necessarily indicative – polling won’t neatly translate to votes. Far more important will be the turnout- especially since the two leading presidential candidates are so close in terms of unpopularity. And the candidates know it. A senior adviser to Donald Trump reportedly revealed last week that “we have three major voter suppression operations under way” intended to reduce votes for Clinton among African Americans, white liberals and young women.

Even though election day is still a week away, we already have some clues about whether turnout is lower among those groups – because more than 25m ballots have already been cast under the US early voting system. Approximately 125 million to 145 million Americans are predicted to vote in the 2016 election, so those early votes represent a significant share of the expected total.

Higher turnout than at this time in 2012

Of the 15 states that provide detailed information about those ballots, North Carolina, California and nine other states report more early voters than at the same point in the 2012 election. Ohio, Nevada, Colorado and Iowa showed a decline in early voting, and those declines were small.

Early signs of declining turnout from black voters and young voters

The early results offer mixed news for Clinton. Early votes suggest that young voters – who are much more likely than older voters to lean Democratic – might be staying at home. In 12 states, fewer Americans aged 18 to 29 have cast a ballot so far in this election compared with this point in 2012. This could be especially problematic for Clinton if this group is indicative of a broader “Bernie or bust” sentiment in which supporters of the former Democratic candidate Bernie Sanders choose to stay at home rather than voting for Clinton.

Young voters aren’t the only demographic group that appears put off. Early votes suggest that black turnout has fallen in eight states – especially in North Carolina, a state that yields 15 of the 270 electoral college votes needed to win the election and where polling suggests Clinton is in a close contest. If Trump’s strategy is indeed to suppress the black vote, that makes a lot of sense – those voters could be crucial for Clinton to secure the White House.

David Fuller's view -

Just when we all thought the US Presidential Election could not possibly be lost by Hillary Clinton – ‘the least awful candidate’ in this soap opera has apparently had her comfortable lead wiped away by FBI Director James Comey (is a ‘d’ missing from that surname?).  

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November 01 2016

Commentary by David Fuller

Shell Back in the Black as BG Takeover Boosts Production

Royal Dutch Shell has cheered investors with a $1.4bn (£1.1bn) profit for the third quarter, as the takeover of BG Group boosted production and it rebounded from a massive $6.1bn loss caused by writedowns in the same period last year.

Underlying profits at the Anglo-Dutch energy giant - excluding reduced writedowns of $1.3bn - rose by 18pc to $2.8bn, significantly beating analyst expectations, as the extra production and cost-cutting helped offset the impact of lower oil prices.

Shares rose almost 4pc as chief executive Ben van Beurden credited "strong operational and cost performance".

But he warned that "lower oil prices continue to be a significant challenge across the business, and the outlook remains uncertain". 

Simon Henry, Shell's chief financial officer, said lower oil and gas prices had reduced its earnings by about $1bn year on year. Despite this, the upstream exploration and production division posted a small $4m profit, confounding expectations of a loss.

Production was up 25pc to 3.6m barrels of oil per day, including an extra 800,000 barrels per day from former BG assets.

"Operating expenses were lower, more than offsetting the impact of the consolidation of BG," Shell said.

Mr Henry said the "most impressive performance" in cost reduction had been in the North Sea, a traditionally high-cost basin, where Shell has made 1,000 job cuts. Production costs had come down by as much as 50pc, he said.

While it was clearly "not the most profitable asset in the portfolio", excluding major ongoing investments the rest of the North Sea was "cash positive". 

"The North Sea's performance is beginning to look considerably better than it was. That however does not mean we hold onto all the assets," he said.

Shell is looking to offload some of its ageing North Sea assets as part of its target to divest $30bn by the end of 2018 to help pay off the debts of the BG takeover. "The question is can we get value for that asset?," he said.

Shell said it was currently working on 16 asset sales across its portfolio but that it was a "value-driven not a time-driven divestment programme".

"We are not planning for asset sales at giveaway prices," he said. However, he insisted there was "no reason today to think the $30bn figure will not be achieved".

Shell also indicated that capital expenditure next year would be at the lower-end of the $25-30bn range.

Analysts at Barclays said strong cashflow, combined with the reduced operating and capital expenditure and divestments, "should prove enough to reassure investors that Shell is well on its way to resetting the business post the BG deal".

David Fuller's view -

Royal Dutch Shell B (est p/e 27.99 & gross yield 6.34%, according to Bloomberg) has sustained its dividend for longer than most analysts expected, rewarding shareholders in the process. 

Can it continue to fund this pay out which is in excess of current Cash Dividend Cover of 0.2?

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



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November 01 2016

Commentary by David Fuller

Buy Gold No Matter Who Wins the Election, HSBC Says

Here is the opening of this topical article from Bloomberg

There's one certain winner of next week's presidential election, according to HSBC Holdings Plc: investors in gold.

Although they deem a Donald Trump victory more supportive for the price of the metal than a win by Hillary Clinton, the bank's Chief Precious Metals Analyst James Steel says it'll enjoy at least a 8 percent jump whoever wins the race. 

Both candidates have espoused trade policies that could stimulate demand, with gold offering a potential "protection against protectionism," he says. Even the relatively more internationalist Democratic candidate has argued for the renegotiation of longstanding free-trade agreements. That's positive for gold — even if "not on the scale of Mr Trump’s agenda."
If the real-estate magnate triumphs, gold could rise to $1,500 an ounce, according to HSBC, up from around $1,289 at 10:55 a.m. in New York. 

David Fuller's view -

This is a bold forecast from James Steel who is a very experienced analyst.  I think he is right and the only surprise for me is that it took so long for the crowd to become more interested in precious metals.  But that is markets for you and gold, silver, platinum and palladium had plenty of competition from stock markets and especially government bonds. 

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November 01 2016

Commentary by David Fuller

The Markets Now

Here is the new brochure for the next event on Monday evening 28th November, at London’s Caledonian Club.  

David Fuller's view -

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

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



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November 01 2016

Commentary by Eoin Treacy

Trick or Tantrum?

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

Long duration has been the trade of the decade, as yields declined and curves flattened on ultra-loose monetary policy. Issuers and fund managers have jumped on the duration bandwagon: over a $1tr has flowed into income funds (IG, HY, REIT and dividend) since QE began, and corporates have taken advantage of low rates to issue ultra-long dated bonds (Brazilian oil company Petrobras issued a 100-year bond in 2015, despite having only 11 years in proven oil reserves). 

However, the duration-party is now over-extended. Savings are being eroded as real interest rates are negative in most developed markets, and central bankers are struggling to purchase bonds under their QE programmes. In our view, sovereign yields need to move higher, and a market correction may be ugly. This is especially as liquidity in the bonds markets has declined since the financial crisis in 2008, further exacerbated by the rise of Exchange Traded Funds which offer daily liquidity to their investors (IMF GFSR report, October 2015). 

4. More Fiscal Stimulus Is on the Way 
Another source of inflation pressure will come from a shift in global fiscal policy. Since the crisis, most developed countries have kept their purse strings tight given existing public debt overhangs. However, more fiscal spending could be on the way after elections. 

This is already happening in Japan, with PM Abe announcing a ¥28.1tn stimulus package after a strong victory in the July Senate elections. Canada and South Korea also pledged extra budgets to step up public spending this year.

Fiscal stimulus should also come in the US after elections, where both candidates have promised more spending, and in the UK as a response to Brexit. Europe is still lagging behind, with the size and implementation of President Juncker’s investment plan underwhelming. However, there is a better chance that governments could coordinate on a spending plan after the German and French elections in 2017.

While fiscal stimulus is also not the panacea to all existing structural problems, it could complement easy monetary policy and generate some positive growth shocks. In a good scenario, it could help to normalise interest rates.

Eoin Treacy's view -

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

Fiscal stimulus means the supply of bonds to fund government spending with increase. If central bank purchases do not keep pace, yields will need to rise in order to attract more investors into the market to soak up the additional supply. Considering how low yields are and how susceptible to interest rate hikes long duration bonds are it is at that end of the curve where the most risk resides. 



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November 01 2016

Commentary by Eoin Treacy

Renzi Looks to Ends of Earth for Referendum Votes to Save Job

This article by Lorenzo Totaro, Chiara Albanese and Marco Bertacche for Bloomberg may be of interest to subscribers. Here is a section:

A little more than five weeks before the ballot on reforms that Prime Minister Matteo Renzi says are needed to streamline the government, Italy’s main pollsters signal that voters are almost equally split, with the naysayers slightly ahead. While the surveys don’t take into the views of overseas voters, history suggests they might break in favor of Renzi. In the 2013 general election his Democratic Party was their No. 1 pick.

The most likely scenario is a victory for “No” by a small margin, JPMorgan economist Marco Protopapa wrote in a note on Friday. London-based Protopapa added that faced with a defeat, Renzi would likely offer his resignation to the president of the Republic, who would reject it and invite the premier to verify that he has the support of a majority in the parliament.

 

Eoin Treacy's view -

Renzi has already rolled back on his commitment to leave office if the referendum does not pass and little wonder considering how close the polls are. An Italian subscriber sent through this article which highlights the fact a number of politicians are beginning to float the idea of delaying the plebiscite to allow for greater focus on managing the response to last weekend’s earthquakes. 



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November 01 2016

Commentary by Eoin Treacy

Email of the day on nickel

I am looking for a way of investing in Nickel. David Suggested in 2014 he sold ETF Nickel but I can't find it anywhere - LSE, FT, your library. If it has gone out of business do you have any other suggestions? The good old Canadian company Inco was bought out by Vale, of which it represents on a small part. Wonderful service. Harry Schultz told me it was. He was right.

Eoin Treacy's view -

Thank you for your kind words and we are both delighted you are enjoyed the service courtesy of a recommendation by the inimitable Harry Schultz. In fact since we do not engage in advertising most of our new business comes from word of mouth so please feel free to proselytise. 



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November 01 2016

Commentary by Eoin Treacy

Time for an Upgrade

Thanks to a subscriber for this report from Deutsche Bank focusing on the India utilities sector: 

Why retirement? Substantial savings for state utilities, better efficiency
India is planning a retirement policy to dispose of 18% of India’s coal-fired old capacity (36GW) over 5-6 years, starting with 6GW (2.2%) by Mar’17. Stringent new pollution norms and a coal linkage transfer policy have been instigated to hasten the retirement. Retirement will lower coal consumption by ~30% and will also cut pollution and reduce the tariff burden for state utilities.

Replacement is warranted and pressing
The states’ role in power generation is declining and will trigger a new capex cycle, for energy security. Additionally, with shut-downs we estimate annual requirement of 19-22GW projects to avoid power shortages. Government (CEA) estimates corroborate the requirement of 24GW annually. Rising PLFs should exceed the 2008 peak by FY19-20e, necessitating further investments now – as the power project cycle is six years from concept to commissioning.

Stage-I Capacity utilisation recovery to benefit utilities (Prefer NTPC)
With higher retirement and lower supply addition (just a 2% CAGR over FY17-22E) – we believe capacity utilisation rates are likely to stage a strong recovery. We raise PLF estimates for utilities by 2-3pps beginning FY18E. With 37% volume growth over four years and valuations still at a c20% discount to the historical average, the sector looks attractive.

 

Eoin Treacy's view -

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

Revitalising the electricity utility sector to remove outdated coal fired stations and to build new more efficient operations is a very positive development. It is also a testament to the ability of the new government to remove roadblocks to Indian infrastructure development that investors despaired would ever be achieved under the last administration. 



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October 31 2016

Commentary by David Fuller

Carney to Stay at BOE Until June 2019 to Help Navigate Brexit

Bank of England Governor Mark Carney said he will extend his time in office by a year to 2019 to guide the economy through Britain’s split from the European Union.

Choosing a middle path between leaving in 2018 as planned or remaining until 2021 as entitled, Carney said in a letter to Chancellor of the Exchequer Philip Hammond that by staying until June 2019 he hoped to “contribute to securing an orderly transition to the U.K.’s new relationship with Europe.”

The decision ends months of speculation about Carney’s future that had raged as he led the charge to safeguard financial markets and the economy following June’s referendum.

By providing continuity at the central bank, the 51-year-old Canadian is likely to soothe market concerns over the uncertainties that still lie ahead as the U.K. negotiates its break with the EU.

Staying put is still likely to raise the ire of some Conservative lawmakers. His response to the Brexit vote and his underestimation of the economy’s resilience prompted calls for him to resign, and he had to fend off a clumsy critique of easy monetary policy from Prime Minister Theresa May.

David Fuller's view -

This is good news for the UK government, given occasional rumours that Governor Carney would actually resign or should even be replaced, given his pre-referendum negative views on the impact of a possible Brexit vote.   

Carney was selected and appointed by Prime Minister David Cameron and Chancellor of the Exchequer George Osborne.  Consequently, it is very likely that he was under considerable pressure to take a similar tone on Brexit, not least as anything else would have been very newsworthy, and possibly even seen as disloyalty in some quarters. 

(See also: Carney Backed by U.K. Business Secretary Amid Resignation Talk, from Bloomberg)



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October 31 2016

Commentary by David Fuller

After Descent to Hell, Miners Emerge Blinking Into Daylight

Here is the concluding section of this interesting article from Bloomberg:

“The diversified majors have responded admirably to the pressures they faced last year,” Investec analysts including Jeremy Wrathall, head of global natural resources, said in a note. “Mining companies took the requisite actions.”

Adkerson has also been swabbing the decks. Freeport has tapped shareholders for cash, and sold assets. It expects to get $5.2 billion from already announced sales in the fourth quarter, and this month reported its first quarterly profit in two years. Freeport shares are up more than 60 percent in 2016.

Glencore, the top commodity trader, sold shares, suspended dividends, reined in spending and offloaded unwanted bits of the business. It has pledged to cut debt to as low as $16.5 billion by the end of 2016 from about $30 billion last year. Anglo, after also halting its dividend, is radically shrinking with plans to sell more than half its mines. It’s set to meet a $10 billion debt target in 2016.

Glencore’s shares more than doubled this year and Anglo’s more than tripled as investors weigh the prospects for a return of dividend payments. The FTSE 350 Mining Index gained 0.7 percent on Monday to near a 16-month high.

Yet such gains are down to luck as much as management. China’s decision to reignite its growth with stimulus spending and U.S. reticence to damp its economy by raising interest rates have boosted asset prices. The cost of coking coal has more than tripled in 2016 and thermal coal gained about 90 percent.

Investors will be wary of any return to the overspending of past years.

“There’s a better chance than there has been in the past that management teams have got it,” said Clive Burstow, who helps manage about $475 million at Baring Asset Management Ltd. in London. “They seem to understand that they cannot just go back to the bad old profligate ways. Their destiny is in their hands.”

David Fuller's view -

Mining is the most cyclical of industries and veteran subscribers have seen the cycle repeated many times since the early 1970s.  1) Metal prices trade below the cost of production, causing a reduction in output and a marginal increase in demand.  2) The global economy finally improves but mining companies are very cautious because they over-expanded in the last boom.  3) Metals rebound from their lows and mining companies belatedly jump on the bandwagon by increasing production, although they lack the confidence, capital and manpower to do this rapidly.  4) Metal prices soar as demand increases more rapidly than supply; mining companies increase staff and borrow for expansion and also takeovers.  5) High metal prices weaken demand; central banks lift interest rates to slow GDP growth and curb inflation.  6) Metal prices fall but over-leveraged mining companies are slow to cut production, causing their shares to slump.  7) Corporate losses force miners to reduce manpower, halt or sell greenfield sites, and close less efficient mining projects. 

Where are we in this cycle?

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October 31 2016

Commentary by David Fuller

Capital Flight from China Flashes Warning as Property Boom Deflates

Capital outflows from China are accelerating. The hemorrhage has reached the fastest pace since the currency panic at the start of the year.

The latest cycle of credit-driven expansion has already peaked after 18 months. Beijing has had to slam on the brakes, scrambling to control property speculation that the Communist authorities themselves deliberately fomented.

How this episode could have happened is astonishing, given that premier Li Keqiang has warned repeatedly that excess credit is becoming dangerous and will ultimately doom China to the middle income trap.

It will be clear by early to mid 2017 that the economy is rolling over and that the underlying 'quality of growth' has deteriorated yet further. "We think the recovery will run out of steam early next year," said Chang Liu from Capital Economics.

This stop-go rotation - an all-too familiar pattern - coincides with an incipient liquidity squeeze in global finance as dollar LIBOR and Eurodollar rates ratchet upwards. A rate rise by the US Federal Reserve will clinch it.

Since the commodity rebound is in great part driven by demand for Chinese industry and construction - and by a touching belief that China's economy will sail majestically through 2017 - this looming slowdown spells trouble.

Stress is already visible in the capital account. Morgan Stanley estimates that net outflows reached $44bn in September. Capital Economics thinks the figure was closer to $55bn, led by a surge in purchases of off-shore securities through the Shanghai-Hong Kong Stock Connect Scheme.

This does not yet match the capital flight seen late last year when a mismanaged shift in exchange rate policy set off outflows averaging $70bn a month, and triggered the global equity rout of January and February. But it is nearing a neuralgic threshold for currency traders.

David Fuller's view -

China has an entrepreneurial, organised economy and an increasingly educated population.  However, it also has a heavy-handed ruling bureaucracy, which is a recipe for corruption.  Against that background it is hardly surprising that anyone who makes a significant amount of money, including bureaucrats, wants to get as much of it out of China as it can. 

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



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October 31 2016

Commentary by Eoin Treacy

China's Factory to the World Mulls the Unthinkable: Price Hikes

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

China’s factories may be on the cusp of delivering a new shock to the global economy after years of undercutting rivals with cheaper costs. This time, increases in prices could reverberate around the world.

To understand why, consider the dilemma facing Jiangmen Luck Tissue Mfy Ltd., now caught in a squeeze between surging wages and tepid demand. The company has already slashed staff by half, shaved prices and automated production to survive. Now, with margins razor thin, it’s weighing the first price increases since 2010.

"There’s just no possibility for me to cut prices any more," says deputy director Roger Zhao, 52, whose company is based in the city of Jiangmen in southern Guangdong province.

"Because costs are already pretty high and I don’t see any possibility they’ll go down, I’m seeking opportunities to raise prices a little bit."

That push to recover lost margins -- even as demand remains muted -- was shared by exporters of everything from clocks to jacuzzis interviewed in Guangzhou last week at the Canton Fair, a biannual gathering where 25,000 exhibitors and 180,000 mostly foreign buyers ink export deals in booths spanning exhibition space equivalent to about 3,400 tennis courts.

For the world economy, decisions from companies like Jiangmen Tissue to stop cutting prices -- and even raise them where demand allows -- removes a source of disinflationary pressure. To be decided is whether China, the factory to the world, swings from becoming a drag on consumer prices to a source of pressure nudging them higher.

Eoin Treacy's view -

Chinese factories have been dealing with margin compression for years. Labour costs have been on a steady upward trajectory while commodity prices have been a mixed blessing. However right now both are increasing and despite the danger of losing their competitive edge the first signs of price hikes are emerging. This article from a couple of weeks ago highlights the first rise in China’s producer price index in nearly five years.  



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October 31 2016

Commentary by Eoin Treacy

Gordhan Wins Reprieve as S. African Prosecutors Drop Charges

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

The announcement Monday by National Prosecuting Authority head Shaun Abrahams signaled a dramatic turnaround in the legal pursuit against Gordhan, who was under investigation over the early retirement of a former colleague at the national tax agency that resulted in 1.1 million rand ($80,149) of allegedly wasteful expenditure. Gordhan was scheduled to appear in court on Wednesday. He’s still being probed for overseeing the establishment of an allegedly illegal investigative unit when was the head of the revenue service.

Gordhan and two former colleagues “did not have the requisite intention to act unlawfully,” Abrahams told reporters in Pretoria, the capital. “I have decided to overrule the intention to prosecute. I have directed the summonses to be withdrawn with immediate effect.”

Gordhan, 67, has been a key driver of a campaign to maintain South Africa’s investment-grade credit rating, which is up for review over the next two months. He called the allegations a political stitch-up, and he’s clashed with Zuma over the affordability of nuclear power plants the president wants to build, and the management of state companies and the national tax agency.

“It is certainly ratings-positive,” Rian le Roux, chief economist at Old Mutual Investment Group in Cape Town, said by phone. “I still think there is some chance we may get a reprieve. It is fairly evenly balanced as to whether we get a downgrade.

Eoin Treacy's view -

This is a positive development from the perspective of South African institutional governance remaining resilient in the face of quite intense political pressure. The clashes, often public, between Gordhan and Zuma are a healthy sign that a debate is ongoing on how best to manage the largest economy on the continent. It is to be hoped that Zuma’s influence is contained and he loses the next election.



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October 31 2016

Commentary by Eoin Treacy

Rio Gives Away Giant Iron Ore Field Once Worth Fighting For

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

The writing has been on the wall for a while. The company took a $1.1 billion writedown on Simandou in February. New Rio Chief Executive Officer Jean-Sebastien Jacques said in August “there is no obvious way to take Simandou to the next phase,” and the company hasn’t been able to find a way to finance it.

“It cleans another dead asset off the portfolio,” said Hillcoat, who added that the market doesn’t apply any value to the asset. “In the brave new world we’re in now, you just can’t develop these projects.”

Guinea will want the new owner, also known as Chinalco, to fare better than Rio. The country is counting on the project to double the size of its $6.5 billion economy and turn it into the third-biggest exporter of iron ore. Earlier this year, Guinea blamed project delays on the “ramblings of the technical team in London,” a reference to Rio.

The parties should finalize the deal quickly to establish a new plan for Simandou’s development, Minister of Mines and Geology Abdoulaye Magassouba said in an e-mailed statement.

“This is a very positive event for the project, but we still have many months of work and major challenges ahead,” Magassouba said.

Before the deal was signed on Friday, Simandou was 46.6 percent owned by Rio, 41.3 percent by Chinalco, and 7.5 percent by the government.

 

Eoin Treacy's view -

Investors have lamented the inability of mining executives to conduct successful M&A activity and I’ve even heard more than a few suggest CEOs should be precluded from engaging in mergers as a condition of taking the job. Simandou is another example of a boondoogle project that was initiated when prices were high and abandoned when prices are bottoming. 



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October 31 2016

Commentary by Eoin Treacy

The Bank of Japan's Moment of Truth Decision Day Guide

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

The Bank of Japan’s two-day policy meeting ends Wednesday, with investors anxiously awaiting the outcome of a comprehensive policy review that may set the future course of Governor Haruhiko Kuroda’s monetary stimulus program.

The biggest questions for many are whether the BOJ is willing to increase the record scale of its asset purchases or to cut its negative interest rate further. By doing neither at recent meetings, even as some consumer prices were falling, Kuroda and his board have fueled speculation that the BOJ’s main policy tools are running up against their limits. Taking little or no action today risks reinforcing that view.  

A narrow majority of economists surveyed by Bloomberg expect the BOJ to announce expanded stimulus. Most of the rest forecast action in November, December or next year, while a few predict no additional easing at all. Any weakening of the BOJ’s commitment to push further with stimulus is likely to force the yen higher and weigh on stocks, while a boost from Kuroda may soften the currency and underpin Japanese shares.

 

Eoin Treacy's view -

The essence of the Bank of Japan’s commitment to hold JGB yields at 0% is that it is willing to monetise as much debt as is needed to stimulate asset price inflation in the wider economy which it hopes will lead to economic growth. 



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October 28 2016

Commentary by Eoin Treacy

October 28 2016

Commentary by Eoin Treacy

Tocqueville Gold Strategy Third Quarter 2016 Investor Letter

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

Gold is extremely under owned in Western investment portfolios. Because supplies of above ground stocks normally available to satisfy Western investment demand have been severely depleted by flows to Asian investors, the price dynamics could be explosive.

Gold has enjoyed a stealth bull market since the advent of radical monetary policies around 2000. As the chart below shows, gold has been the best performing asset class since then, a fact that is completely unrecognized by main stream media and conventional investors. The painful correction from 2011 to year end 2015 camouflaged gold’s strength and explains why most investors remain complacent as to systemic risk, intellectually understanding the unsustainability of radical monetary policy but unmotivated to seek gold’s protection.

It seems unlikely that the long term erosion of investment confidence, the onset of a secular bear market in financial assets, and further advances in the stealth bull market for gold will take place in a linear fashion. There are bound to be shakeouts and fake outs along the way to camouflage the underlying reality that the global financial system as we know it is in extremis. We also believe that the current sharp correction in the precious metals complex is a setup for another major advance toward new highs in metal and share prices. We therefore recommend taking advantage of current weakness to build or establish new positions.

Eoin Treacy's view -

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

 I often think that the role of gold as a hedge is misunderstood. It did well in the 1970s because investors were worried about inflation and outperformed from the early 2000’s because people were worried about deflation. Therefore it is probably best to think about gold as a hedge against the best efforts of the monetary authorities to debase the currency; regardless of what that currency might be. 



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October 28 2016

Commentary by Eoin Treacy

Chip Makers Cut Deals as Cars Get Smarter

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

Ford Motor Co.,  BMW AG and others have said they would have self-driving cars on the road in the next few years, while Tesla Motors has a semiautonomous system already on the road. Tesla last week began shipping vehicles that include hardware that could one day be empowered by software, which must be validated and approved by regulators, to operate in a fully autonomous mode. Tesla Chief Executive Officer Elon Musk aims to demonstrate fully autonomous cross-country drive by the end of next year.

Analog Devices Inc. cited auto applications as a key motivation in a deal announced in July to buy Linear Technology Corp. in a cash-and-stock deal valued at $14.8 billion. NXP became the top auto chip supplier by striking a deal valued at nearly $12 billion last year to buy Freescale Semiconductor Inc.

But the market for years has been fragmented among many suppliers with different specialties competing on price. Where an iPhone has one central chip to power its computing functions, many parts of cars have long used separate chips—a situation that could become even more complex as car makers add more features for safety and other purposes.

“Those will all require more processing capability and likely will be supplied by different suppliers who are not exactly working together,” said Dave Sullivan, an automotive industry analyst at AutoPacific, in an interview.

The push toward autonomous driving is a countervailing force, requiring more powerful chips and software that can analyze feeds from cameras, radar and other sensors using technologies such as deep learning. Tesla Motors Inc. has moved toward a central computing system, announcing last week it had picked chip maker Nvidia Corp. as part of the self-driving hardware it has vowed to include in all its new vehicles.

 

Eoin Treacy's view -

There is not going to be a single day when someone turns a switch and the global vehicle fleet becomes autonomous. Rather it is going to happen in a piecemeal fashion and regulators will hopefully pay attention to what is happening in other parts of the world to come up with an idea of best practice. 

If we set aside the timeline for when cars are likely to be fully autonomous for a moment, the big question for auto manufacturers is still how to make new cars attractive enough to encourage people to pay up but not so attractive that they will cannibalise next year’s sales. The answer would appear to offer more added extras in the form of electronics and connectivity regardless of whether cars are autonomous. 

 



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October 28 2016

Commentary by Eoin Treacy

Iron Ore Surges Amid Coal's Record Rally, Lifting Miners' Shares

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

Iron ore is rallying as coal prices surge, lifting the shares of producers in Australia, the world’s largest shipper. The benchmark spot price in China posted the biggest weekly increase since April after rising for the fourth day in five on Friday.

Ore with 62 percent content rose 1.5 percent to $63.96 a dry ton in Qingdao, the highest price since April, according to Metal Bulletin Ltd. Earlier in Asia, futures in Dalian rose for a seventh day, the longest run since 2013, as Singapore’s SGX AsiaClear most-active contract surged for a third week.

After three years of slumping prices as low-cost mine supply rose and China slowed, iron ore has surged in 2016 as Asia’s top economy boosted stimulus, supporting steel demand. Fortescue Metals Group Ltd.’s Chief Executive Officer Nev Power told reporters this week that the Perth-based company expected prices to hold firm in 2017. Recent advances in iron ore have been supported by gains in coal after a supply crunch in China.

“The price of coking coal continues to rise,” supporting iron ore, said Zhao Chaoyue, an analyst at China Merchants Futures Co. in Shenzhen. Coking coal, or metallurgical coal, has more than doubled this year, with futures in Dalian hitting a record on Wednesday. Prices rose Friday after sinking a day earlier.

 

Eoin Treacy's view -

China is now at a point in its development where pollution is costing it more money than it was making from the industries causing it. That’s an important tipping point and has been bullish for coking coal and iron-ore prices as some of the most marginal dirtiest Chinese mining operations have been forced to close. 

Iron-ore prices rallied from late last year to break a lengthy progression of lower rally highs and have been forming a first step above the base since April. A sustained move below the trend mean, currently near $56, would be required to question medium-term scope for a successful upward break. 

 



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October 27 2016

Commentary by Eoin Treacy

Swedish Krona Plunges as Riksbank Signals More Easing to Come

This article by Johan Carlstrom and Amanda Billner for Bloomberg may be of interest to subscribers. Here is a section:

Nordea’s chief analyst in Stockholm, Andreas Wallstrom, said he still expects more easing by the Riksbank, "including a rate cut” to minus 0.6 percent in December. “The government bond purchase program is forecast to be expanded by 30 billion kronor ($3.4 billion), equally distributed between government bonds and index-linked bonds,” Wallstrom said.

“The revised repo rate path delivers enough softness to keep the krona on the weak side,” said Knut Hallberg, an analyst at Swedbank AB in Stockholm. “It shows a bigger probability of a cut.”

Some analysts had predicted the Riksbank would announce more easing already on Thursday after inflation missed the bank’s forecasts by a wide margin last month. The annual inflation rate slowed to 1.2 percent in September after peaking at 1.6 percent at the start of the year.

The Riksbank also cut its inflation forecast for next year, from 1.8 percent to 1.4 percent, and for 2018, from 2.6 percent to 2.2 percent. It predicted that unemployment will average 6.7 percent next year, while economic growth will slow to 3.3 percent this year and 2 percent in 2017.

“I don’t really see the logic of making monetary policy more expansionary,” since the economy is doing well, Bergqvist said. Still, “it’s a good tactic that the Riksbank keeps the door open,” he said.

 

Eoin Treacy's view -

The video interview within the above article is quite illustrative of the complacency of central banks when married to a narrowly defined measure of inflation. Riksbank Governor Stefan Ingves quite clearly admits that a bubble is expanding in the Swedish property market and in the same breath says it is not within the remit of the central bank to do anything about it. In fact, like other central banks asset price inflation is viewed as a positive despite the fact household debt is at a record and the bubble is still inflating. 



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October 27 2016

Commentary by Eoin Treacy

Selling Sweeps Global Government Bonds; U.S. 10-Year Yield Above 1.8%

This article by Min Zeng for the Wall Street journal may be of interest to subscribers. Here is a section:

The combination of low global growth, subdued inflation and ultra loose monetary policy among major central banks has been sending bond yields to unprecedented levels. Yet over the past few weeks, the narrative has appeared to shift.

Concerns have been growing over less support for the bond market from central banks in Japan and Europe as their bond buying is reaching limits. Economists and analysts have started talking about a shift toward fiscal stimulus to combat low growth. Such fiscal action typically raises supply of government debt for funding and is seen as a negative for long-term government bonds.

Demand for haven bonds has also been diminishing as data lately have pointed to some positive signs on the global economic outlook. Meanwhile, inflation expectation is rising, driven by a rally in crude oil prices this month and comments from major central banks to tolerate inflation slightly above their desired targets to tackle still low inflation.

 

Eoin Treacy's view -

Central banks are expressing some reluctance to continue with the same tired strategies that have fostered perhaps the greatest asset price inflation across multiple asset classes in history while failing to stock the kind of inflation central banks measure. Concurrently inflationary pressures are mounting with healthcare and education leading but Chinese producer prices and wages are two important additional factors. 



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October 27 2016

Commentary by Eoin Treacy

OPEC May Need Help to End the Global Glut of Oil

This article by Grant Smith for Bloomberg may be of interest to subscribers. Here Is a section:  

If OPEC reduces output to 32.5 million barrels a day -- a cut of 900,000 a day from September levels -- it would be pumping slightly less than the amount needed to meet demand in 2017, the group’s monthly report from Oct. 12 shows. Inventories would contract as a result, but only by 36.5 million barrels over the course of the year, a negligible impact on a stockpile surplus the group estimated at 322 million barrels above the five-year average in August.

If OPEC doesn’t act to reduce stockpiles next year, Societe Generale’s price forecasts would probably have to be revised lower, Mike Wittner, head of oil-market research, said in an e-mailed note. Over the first three quarters of 2017, the bank currently sees Brent averaging $55 a barrel and West Texas Intermediate at $53.50.

 

Eoin Treacy's view -

If oil prices are to be massaged higher Saudi Arabia and Russia will have to come to an agreement to curtail supply and by more than has already been agreed. Such an agreement would require major sacrifices on both their counts since Saudi Arabia is engaged in a rationalisation of generous handouts its citizens have been accustomed to for decades. Meanwhile Russia is actively engaged militarily in both Ukraine and Syria as well as having expensive plans to revitalise its nuclear arsenal. These decisions would also have to be taken in the knowledge that any additional rally in oil prices will encourage even more US unconventional supply back into the market. 



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October 26 2016

Commentary by David Fuller

Jeremy Grantham Says Presidential Cycle Investing Is Dead

My thanks to a subscriber for this article about GMO’s Grantham, speaking at a Morningstar Investment Conference.  Here is the opening:

The rising power of the Federal Reserve has rendered the presidential cycle of market investing largely dead, according to Jeremy Grantham, the chief investment strategist of asset manager GMO.

“They are constantly looking for excuses to push down on interest rates and drive asset prices higher to get some wealth effect. I don’t trust them any more to play the easy presidential cycle,” Grantham said in a recent interview with the Financial Times.

The GMO founder, based in Boston, has shown through research dating back to 1932 that the third year of a president’s term could top those of the other three years of their leadership.

On average, U.S. stocks improve about 0.2% each month in the first, second and fourth years of a presidential cycle. However, in the third, stocks return an average 0.75% to 2.5%.

“The presidential cycle owed everything to the Fed. The Federal Reserve, completely innocently, always decided to come to the aid of the party in power,” said Grantham.

The general theory he has described entailed revving up the economy in the third year of a president’s term, so that the economic benefits would be felt as votes were cast in the fourth year. Stock markets, which generally signal anticipated economic developments, tend to move up ahead of this growth in year three, according to Grantham.

The Federal Reserve board members did not take action to stimulate the economy earlier in the cycle “or everyone would have forgotten about them by year four,” he states.

“The Fed can move stock prices. In the old days it was about all they did. They helped along year three, and their efforts in year three would feed through into the economy in year four -- which it did,” Grantham told the FT.

David Fuller's view -

I think Jeremy Grantham is right, although I have not previously heard this view stated so definitively.  However, veteran subscribers may recall me writing about this cycle in previous decades.  Beyond a brief post-presidential election honeymoon, I used to describe the first two years of a new four-year cycle as equivalent to Hercules cleaning the Augean Stables

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October 26 2016

Commentary by David Fuller

Email of the day

More on EU Brexit anger (note, emails are usually posted anonymously but this is an important follow-up from Dr David Brown’s online email posted yesterday, where subscribers who post emails are also named.  

David,
I thought subscribers might be 'amused' by the article copied below which was published recently. The author is a British lady, hailing from the Plymouth area, and she worked for a while in the hi-tech cluster around Cambridge before moving to Brussels. If one is looking for evidence of the 'anger and fear' of the first stage mentioned above, well here it is.

One can sympathise with her angst as she sees her apparently secure career potentially undermined after Brexit, if not before. But one can only wonder how she thinks this hysterical writing will help her gain employment back in the UK. 'Throwing toys out of the pram' comes to mind.

Her prospects apart, I can only assume her text reflects the mood in Brussels. If any subscriber has direct contact with Theresa May they may wish to forward it to her!

In the Brexshit, by Claire Skentelbery, Secretary General of the European Biotechnology Network.

Her comment on the impact on UK science and our universities does need answering. It is far from the black and white she suggests. Generally 5 of our universities rank in the top 10 in the world, with the remainder of Europe struggling to make the top 20.  It is often asserted that the UK's leadership depends on EU funding - if so why have other countries not kept up with the UK? It is also often asserted that the UK has received a higher percentage of funding from the EU for science than other EU countries. Our universities were strongly in favour of 'remaining' and Cambridge, where I live, was one of few cities returning a majority for 'remain', along with London.

However, the facts are not so clear. A House of Lords report published in April before the referendum states "Despite many assertions that the UK performs very well in terms of EU funding for science and research, it has proved challenging to define unambiguously the level of EU spending on R&D in the UK and how this compares with other Member States." That blows one huge hole in the statement made by Claire Skentelbery.

And the universities themselves are beginning to change their tune. The Russel 20 group is the 'trade body' for the UK's top 20 universities. Its chairman Sir David Greenaway has this week argued that a world where the UK is no longer part of the EU will give universities the freedom they need to exceed expectations.

Another blow for her article is the unmentioned fact that a country does not need to be a member of the EU to access research funding. The House of Lords report states: "Access to many research infrastructures is available to non-EU Member States in continental Europe as well as to countries outside Europe. We found there to be occasional confusion with regards to which infrastructures are EU-managed and which are European in nature." Matt Rigby has written and presented extensively on this misconception which continues to be perpetuated by remainers.

The House of Lords report also states:

"While the UK science community was enthusiastic about EU membership, we have uncovered some qualifications. We heard mixed views on the impact of EU regulations. The benefits of harmonisation were widely recognized but some specific areas, such as genetic modification and clinical trials, were highlighted as causing UK business and research to be disadvantaged compared to competitors outside the EU."

In my own field of research, some EU regulations have been highly damaging to the UK's science base. Problems were highlighted by this article published by the FT 3 years ago: Drug test rules ‘would eliminate biotechnology sector in UK’.

Professor John Bell of Oxford University recently pointed to other damage the EU has done to UK science in an article published by the FT in which he explained the destruction of the UK's leadership in human clinical trials of new drugs. 

He writes about Brexit:

The opportunities in this new world extend well beyond funding issues. The cultural, ethical and philosophical environment that supports science is in many ways fundamentally different in the UK compared to many European countries. Britain is more inclined towards a relatively liberal risk-based regulatory environment that allows fields to move quickly — to reflect on ethical issues but not to over-regulate.

The EU, by contrast, has a record of deep regulatory conservatism, attempting to legislate and control many aspects of science that are not deemed here in the UK to present a significant danger. Consider clinical trials. In the early 1990s Britain was recognised as one of the best places in the world to test new drugs on patients. Decisions were quick and bureaucratic obstacles were few.

The introduction of the European Clinical Trials Directive in 2004 ended all this.

Needless regulatory hurdles associated with huge inefficiencies and delays in effect killed off the clinical trial industry in the UK, where it declined to just 2 per cent of global trials.

Maybe now we can regain our leadership in clinical research.

Finally, to address the issue of movement of scientists into the UK after Brexit, it beggars belief to think that skilled scientists would be denied entry. That seems highly unlikely to me.

In summary, there are gains and losses for UK science from EU membership. As you know, I voted 'remain' but only just, it was a close call. Brexit is certainly not 'all loss' as portrayed in Skentelbery's emotional and uninformed article. I am sure that UK science can thrive outside the EU once emotion fades and transitional issues are resolved.

 

David Fuller's view -

Thank you so much David.  On behalf of all subscribers you have generously offered a valuable service in speaking out on this issue.  I hope readers will repost or forward this email to anyone who may be interested in it, from politicians, including the Prime Minister, to university professors, Brexiteers and also Remainers.      



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October 26 2016

Commentary by David Fuller

The Eurozone is Turning Into a Poverty Machine

There are constant bank runs. The bond markets panic, and governments along its southern perimeter need bail-outs every few years. Unemployment has sky-rocketed and growth remains sluggish, no matter how many hundreds of billions of printed money the European Central Bank throws at the economy.

We are all tediously aware of how the euro-zone has been a financial disaster. But it is now starting to become clear that it is a social disaster as well. What often gets lost in the discussion of growth rates, bail-outs and banking harmonisation is that the eurozone is turning into a poverty machine.

As its economy stagnates, millions of people are falling into genuine hardship. Whether it is measured on a relative or absolute basis, rates of poverty have soared across Europe, with the worst results found in the area covered by the single currency.

There could not be a more shocking indictment of the currency’s failure, or a more potent reminder that living standards will only improve once the euro is either radically reformed or taken apart.

Eurostat, the statistical agency of the European Union, has published its latest findings on the numbers of people “at risk of poverty or social exclusion”, comparing 2008 and 2015. Across the 28 members, five countries saw really significant rises compared with the year of the financial crash. In Greece, 35.7pc of people now fall into that category, compared with 28.1pc back in 2008, a rise of 7.6 percentage points. Cyprus was up by 5.6 points, with 28.7pc of people now categorised as poor. Spain was up 4.8 points, Italy up 3.2 points and even Luxembourg, hardly known for being at risk of deprivation, up three points at 18.5pc. 

It was not so bleak everywhere. In Poland, the poverty rate went down from 30.5pc to over 23pc. In Romania, Bulgaria, and Latvia, there were large falls compared to the 2008 figures – in Romania for example the percentage was down by seven points to 37pc.

What was the difference between the countries where poverty went up dramatically, and those where it went down? You guessed it. The largest increases were all countries within the single currency. But the decreases were all in countries outside it.

David Fuller's view -

I receive the occasional very polite email from Europeans in the EU who generally say they like the service but couldn’t I post some more balanced comments on the EU, including both sides of the story? Well, I previously posted a few emails by an interesting multinational subscriber who for a while was a PR rep of sorts for the EU, until he too became disillusioned.    

Actually, and this may surprise a few of you, I genuinely wish the EU had turned out to be a great success.  That would have been wonderful for Europe and good for the global economy.  I always felt that Europe could have been a very successful free trade area of independent sovereign states, which is what I voted for in the mid-1970s. 

Unfortunately, that proved to be a Trojan Horse for ‘ever more Europe’ and a ruinous single currency without the Federal State, which Europe’s leaders actually decided they did not want.  The rest you know and there is no need for me to rake over those coals. Sadly, the EU is the biggest tragedy for the European Continent since WWII.   

A PDF of Matthew Lynn's report is posted in the Subscriber's Area.



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October 26 2016

Commentary by David Fuller

Sir Howard Davies: Heathrow Is the Only Choice For Airport Expansion

Here is the opening of this authoritative report on an inevitably contentious decision, reported by The Telegraph:

Heathrow Airport alone must be given the go ahead for expansion, the man appointed by the Government to review airport capacity says today.

Sir Howard Davies, the chair of the airports commission, said the case for expanding Heathrow is now "overwhelming" and has "strengthened in recent months" post-Brexit.

Writing in today's Daily Telegraph, Sir Howard's comments come just a day before Theresa May is set to announce the government's favoured option on airport expansion and are likely to reflect government thinking.

Last week it was suggested that Mrs May could announce expansion to both Heathrow and Gatwick, but Sir Howard's comments - coming just 24 hours before the announcement - suggest this is unlikely.

He warns that failure to expand Heathrow alone would be "a mistake".

Sir Howard, who spent four years examining the options on airport expansion on behalf of the government also criticises David Cameron over his failure to make a decision sooner.

He brands the former Prime Minister "an immovable object" 

Sir Howard says: "The arguments for making a decision now, and for Heathrow, have strengthened in recent months. Overseas, the lack of a decision is seen as a symbol of Britain’s inability to decide on its future as a trading nation.

"And the need for a clear strategic direction is more important since the referendum result. The rhetoric about becoming a European Singapore with a “blue water” trading focus seems empty if we cannot connect to the new markets we wish to serve.

"Gatwick is largely a European short-haul airport. It is also oriented towards outward tourism. About 70 per cent of its tourist passengers are Brits going to the sun. Sadly, relatively few residents of Marbella and Corfu come here for their summer break.

"At Heathrow the tourist traffic is largely inbound. With our huge balance of payments deficit we need more high-spending American and Asian tourists to balance the books."

David Fuller's view -

As a Londoner, I am not thrilled to have Heathrow expanded.  However, as a citizen of the UK, I think this is the sensible decision. 

Sir Howard Davies is a smart, experienced and unsentimental chair of the airports commission.  I cannot think of anyone better qualified to have made this decision.  Any decision was certain to be controversial.  However, as with Brexit, our politicians now need to unite behind the decision, approve it and move on in the interests of the country.  We would be a pathetic and poorer laughing stock nation if narcisstic, self-important politicians dragged this through the courts in a painful, expensive delay, which this country neither wants nor can afford. 

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

 

Please note: I will be away on Thursday and Friday.



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October 26 2016

Commentary by Eoin Treacy

Tesla Earnings: The Moment of Truth

This article by Stephen Russolillo for The Wall Street Journal may be of interest to subscribers. Here is a section:

Using generally accepted accounting principles, Tesla is expected to log a loss of 59 cents a share. Since going public in 2010, Tesla only has reported one profitable quarter under this basis. That came in 2013, when the stock surged from the mid-$30s to nearly $200. It has been volatile ever since, currently still trading around $200 with a silly valuation.

Whether or not the quarter is profitable, investors will want to hear about future production, which they are counting on to justify Tesla’s share price. Earlier this month, Tesla reported third-quarter deliveries of its vehicles more than doubled from a year earlier to 24,500. It also reiterated its forecast earlier this month that it would produce 50,000 vehicles in the second half of 2016. And it maintains it will deliver 500,000 cars by 2018, thanks to the Model 3 mass-market sedan.

But Tesla has repeatedly overpromised and underdelivered. In the past five years, Tesla has failed to meet more than 20 of Mr. Musk’s projections, according to an analysis by The Wall Street Journal.

 

Eoin Treacy's view -

This is a big week for earnings with Apple yesterday, Tesla today, Alphabet tomorrow and Amazon on Friday. Tesla makes cars people aspire to own and want to be seen driving. That’s something not many car manufacturers can brag about. However there is nothing easy about starting a car company from scratch even if electrc cars have nearly two thirds fewer parts than conventional vehicles.



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October 26 2016

Commentary by Eoin Treacy

Email of the day on virtual reality and augmented reality

The Gartner curve you posted indicates that Augmented Reality and VR are approaching or in 'payback' phase. If so this ETF could be a good investment vehicle. Purefunds Video Game Technology ETF (GAMR) Can you please add it to the Chart Library. Grateful thanks

Eoin Treacy's view -

Thank you for this suggestion and I agree that the video gaming sector is a growth engine quite apart from the evolution of virtual and augmented reality gaming. The question is no longer about whether people will play games, regardless of gender, age or ethnicity, but rather which will be the most effective platforms to deliver the media. Right now mobile apps are by far the most popular because everyone has a phone. 



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October 26 2016

Commentary by Eoin Treacy

Aetna CEO Says Young People Pick Weekend Beer Over Obamacare

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

“As the rates rise, the healthier people pull out because the out-of-pocket costs aren’t worth it,” Bertolini said at Bloomberg’s The Year Ahead Summit in New York. “Young people can do the math. Gas for the car, beer on Fridays and Saturdays, health insurance.”

Premiums for health plans sold to individuals under the ACA, known as Obamacare, are going up by about 25 percent on average for next year. Bertolini said that as costs rise, more individuals will decide not to buy health plans. That’ll push premiums even higher, unless a new president and lawmakers can find fixes for the new markets created by the 2010 health law.

“What happens is the population gets sicker and sicker and sicker and sicker,” Bertolini said. “The rates keep rising to try and catch it. It’s a fruitless chase, and ultimately you end up with a very bad pool of risk.”

The government has emphasized that subsidies are available for many people to help cushion the premium increases. When they are taken into account, about 77 percent of current ACA enrollees will be able to buy health insurance for $100 or less a month, the U.S. said in a report on Monday.

 

Eoin Treacy's view -

When I got my renewal for insurance from Covered California, the local health insurance marketplace, the premium had risen 29% over last year. The only reason it wasn’t higher is because they also raised the deductible and offered less coverage. That’s for a family of four who are healthy, have no allergies, take no medications and exercise regularly. I just did the math and I would be nearly $4000 better off if my family did not have health insurance and opted instead to pay the fine. I’ll buy insurance because I see the value in having cover but it’s not a no-brainer decision.   



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October 25 2016

Commentary by David Fuller

Metals Jump on Economic Optimism as Rand Strengthens With Miners

Here is the opening of this informative report from Bloomberg:

Metals are regaining their luster, a sign the global economy is becoming more resilient, helping to boost stocks and currencies of commodity-producing nations.

Iron ore surged by the daily limit of 6 percent on the Dalian Commodity Exchange and rising steel prices in China spurred a rally from aluminum to zinc. Currencies of resource-exporting nations, South Africa and Australia, led gains versus the dollar. The Stoxx Europe 600 Index headed for its strongest close in three weeks as earnings reports fueled optimism about the profitability of the region’s companies. Spanish and Italian bonds outperformed top-rated German bunds as the region’s improving political and economic outlook sapped demand for haven assets.

Industrial metals have gained steadily this year with an index of London Metal Exchange contracts poised for the first annual increase since 2012 as a pickup in manufacturing in the U.S. and euro area point to an economy that’s getting more robust. A report Tuesday showing German business sentiment rose to the highest level in more than two years in October added to the sense of optimism. Caterpillar Inc. is among companies scheduled to release earnings that may provide more insight on the sustainability of the recovery in energy and mining. Apple Inc. is due to announce earnings after markets close Tuesday.

“We’ve had a whole host of better-than-expected manufacturing data,” said Ole Hansen, the head of commodity strategy at Saxo Bank A/S in Hellerup, a Copenhagen suburb. “Strong gains in China, led by steel and iron ore, are supporting the sentiment, which in turn has attracted increased speculative trading across the metals space.”

David Fuller's view -

I think there are several key factors here.  1) Commodity producers are finally wising up and recalling that supply is the most important variable in the price structure, even for industrial resources.  Supply can change quickly, either due to accidents or wars in producer regions but the most significant change is producer cutbacks, preferably publicised.  Producers have gradually increased cutbacks in the production of metals this year. 

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October 25 2016

Commentary by David Fuller

Fixing American Infrastructure

Here is the opening of a Hillary Clinton fund raising program:

In my first 100 days as president, I will work with both parties to pass a comprehensive plan to create the next generation of good jobs. Now the heart of my plan will be the biggest investment in American infrastructure in decades, including establishing an infrastructure bank that will bring private sector dollars off the sidelines and put them to work there. 

In America, we build great things together—from the transcontinental railroad to the interstate highway system to the Hoover Dam. But today, our investments in infrastructure are roughly half what they were 35 years ago. That’s why Hillary Clinton has announced a $275 billion, five-year plan to rebuild our infrastructure—and put Americans to work in the process. She’ll work to pass her infrastructure plan in her first 100 days of office, as part of a comprehensive agenda to create the next generation of good-paying jobs.

David Fuller's view -

That is my bold highlight above focussing on the $275 billion, five-year plan to rebuild USA infrastructure.  This is a very sensible idea and about time.  It should also have bipartisan support, even if Democrats do not control Congress following the election. 

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October 25 2016

Commentary by David Fuller

Email of the day

On the EU’s response to Brexit:

The current response to Brexit from the EU leadership reminds me of the cycle of emotions that investors are said to go through when things turn against them. That cycle may provide a guide to coming events.

First there is denial, then anger and fear. The EU shows signs of being in these stages. One would hope to move on by next summer but I wonder if these stages may persist through most of 2017 due to rhetoric of politicians during the elections in France and Germany next year. 

Then there is desperation and panic. So the UK may have to handle these emotions from the EU in the future, probably after the continental elections as French and German politicians are unlikely to express such emotions when trying to get elected. 

Experienced investors will know this is followed by emotions such as despondency, capitulation and contempt for the market. The time-table suggested above would push this into 2018. If it coincides with a bear market too, with the EU / ECB having few viable policy options, then the mood in the EU will be bad!

It can be difficult to move beyond this and accept a new opportunity but that is the key transition required. We may be up against it time-wise after triggering Article 50 in the first quarter of 2017 if many months of possible negotiation are lost next year due to the French and German elections. 

So overall, I do not have high hopes for a negotiated settlement. I trust our government will realise it needs a strong and viable plan for this outcome. And if so, maybe they should just get on with it as soon as possible.

David Fuller's view -

Thank you for this very astute observation. I agree with you and maintain that we should leave the EU following the declaration of Article 50, once we see that subterfuge is being used as delaying tactic.

While we are still in the EU, their leaders will be negotiating on the basis of what they have to lose. However, once the UK has left, EU leaders will be negotiating on the basis of what they may wish to regain – free trade and mutual cooperation with the UK, for instance.   



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October 25 2016

Commentary by David Fuller

Mobius Says Gold Will Gain in 2017 as Fed Goes Slow on Hikes

Here is the opening of this interesting report from Bloomberg:

Mumbai: Gold is set to advance by as much as 15% before the end of next year as the Federal Reserve goes slow on increasing interest rates and the dollar remains subdued, buoying bullion demand, according to Templeton Emerging Markets Group.

“The Fed is going to increase the rates by a little bit but not excessively and there is no guarantee that a rise in interest rates will put people off,” executive chairman Mark Mobius said in an interview at a Bloomberg event in Mumbai. “A lot will depend on the real rates.”

Bullion has rallied 19% in 2016 as concern over the health of the global economy, loose monetary policies and the UK’s vote to leave the European Union fanned demand. After raising rates last December for the first time in almost a decade, Fed policy makers have stood pat on borrowing costs in the six meetings since. While the dollar gained to the highest since March on Friday on speculation that rates may soon climb, it remains lower this year.

‘Not that strong’

“The U.S. dollar is not that strong and may even decline,” said Mobius, who also highlighted prospects for increased central bank buying of bullion. “So if that happens, gold gets more expensive.”

David Fuller's view -

I have always liked Mark Mobius, a very knowledgeable and calm optimist who remains dapper at the age of 80.  I would not want his dry cleaning bill for those pale suits but I am sure he can afford it.

During their recovery phases precious metals often outperform during 4Q and 1Q, not least on Chinese and Indian buying.  I am not sure how much of a factor that might be in the current, uncertain environment.  Nevertheless, I would not rule out the possibility and they should at least see further recoveries from the current oversold positions.      



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October 25 2016

Commentary by David Fuller

October 25 2016

Commentary by Eoin Treacy

Ignoring the Debt Problem

Thanks to a subscriber for this article by Paul Volcker and Peter Peterson that appeared in the New York Times. Here is a section:

Whoever wins, the new president will eventually face fiscal realities that force him or her to develop strategies for decreasing the national debt as a share of the economy over the long term.

Our current debt may be manageable at a time of unprecedentedly low interest rates. But if we let our debt grow, and interest rates normalize, the interest burden alone would choke our budget and squeeze out other essential spending. There would be no room for the infrastructure programs and the defense rebuilding that today have wide support.

It’s not just federal spending that would be squeezed. The projected rise in federal deficits would compete for funds in our capital markets and far outrun the private sector’s capacity to save, to finance industry and home purchases, and to invest abroad.

Instead, we’d be dependent on foreign investors’ acquiring most of our debt — making the government dependent on the “kindness of strangers” who may not be so kind as the I.O.U.s mount up.

We can’t let that happen — not if we want an America that is able to provide growth and stability at home while maintaining global leadership. We would risk returning with a vengeance to stagflation — the ugly combination of inflation and economic stagnation that we tasted in the 1970s.

Eoin Treacy's view -

This is a cautionary tale from two highly experienced, credible students of the market. What they propose is simple and, if adopted now, would remove many of the issues fiscally minded citizens and investors worry about. However since it most often takes a crisis to force real change we can be almost assured that whoever wins the US presidential election the national debt will expand in order to fund a fiscal spending plan focused on infrastructure. 



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