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February 20 2017

Commentary by Eoin Treacy

Mondelez, Kellogg, et al -- Let the Deal Frenzy Begin

This article by Brooke Sutherland and Gillian Tan for Bloomberg may be of interest to subscribers. Here is a section:

The buyout firm's typical playbook has been to target companies with weak margins and then slash costs like crazy to boost profitability. But even a cost-cutter extraordinaire like 3G needs to eventually find revenue growth. Sale gains at Unilever's personal-care business slowed in the most recent quarter, but that industry is certainly growing faster than the staid cereal and sandwich-spreads markets.

The bid may fail. Unilever has rejected Kraft Heinz's offer and at least one analyst is bashing the idea, calling it a "sloppy" combination with questionable logic. There may also be antitrust pushback. But it's hard to see 3G going back to hunting for slow-growth food brands after this. It clearly has its eyes on a different sort of prize. That should be a wake-up call for packaged-food investors who may have been hoping for salvation via 3G and Warren Buffett, the firm's dealmaking billionaire sidekick. 

Would-be 3G targets Kellogg, Mondelez, Campbell Soup and General Mills have all implemented some form of zero-based budgeting -- one of the buyout firm's favorite tools whereby every expense has to be justified each year -- as well as other productivity self-help efforts such as shedding lower-margin and non-core assets. Kellogg is targeting an operating margin of nearly 18 percent by 2018, while Mondelez is aiming to cut $3 billion in costs. Campbell on Friday upsized its cost-savings target to $450 million by fiscal 2020, while General Mills says its on track to drive down expenses by $880 million with its margin-management and efficiency plans. 

Eoin Treacy's view -

Interest rates are low, but rising, so the window for attractive borrowing costs with which to fund takeovers is closing. On the flip side the prospect of synchronised global fiscal stimulus is improving so there is ample scope for the market for global demand for consumer staples to continue to increase. Therefore the rationale for takeovers now, despite the relatively high price tag is still attractive. 



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February 20 2017

Commentary by Eoin Treacy

Email of the day on the cost of gold mining

Thank you for another very well done Friday audio. Your comments on gold were very interesting for me. I wonder if you or the collective have an idea about the possibility of technological innovation that might make gold production cheaper, the way oil production has become cheaper.. Thanks in advance

Eoin Treacy's view -

Thank you for your kind words and I am delighted you are enjoying the new format of videos and audios. Anglogold Ashanti have been pioneering a number of new technologies not least reef boring and thermal spawning. Both are designed to economically extract gold from previously uneconomic regions such as very thin reefs or the supporting walls of old mines. As with any new technology, development takes time but the company is hopeful about the prospects for future production. This informative section from Anglogold Ashanti’s site may also be of interest. 



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February 20 2017

Commentary by Eoin Treacy

Email of the day on the Dow/Gold ratio scenarios

I have been following your Dow/ gold analysis, but while in the long term you are probably right, in the short term there are other interpretations of how the ratio could move, especially if you put the ratio on a log scale 

I’m attaching another possible and probable path in normal scale, and in log scale. the short term rise could be a pause before the real bottom, it has happened in the past. 

PS: considering you are a real international traveler and investor, where would you say are the safest banks today?  I think Singapore, but I heard it is getting difficult to open an account there 

Eoin Treacy's view -

Thank you for these nicely illustrated charts. Is there the possibility that the Dow/Gold ratio pull back? Absolutely. It posted a higher reaction low in the early 1930s and a lower low in the early 1980s. In both cases it pulled back following the initial breakout out. 



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February 20 2017

Commentary by Eoin Treacy

Citigroup Pays Fine to Settle South African Rand Collusion Probe

This article by Vernon Wessels and Renee Bonorchis for Bloomberg may be of interest to subscribers. Here it is in full:

Citigroup Inc. agreed to pay an administrative penalty of 70 million rand ($5.4 million) to settle a South African antitrust investigation that it participated in a cartel to manipulate the value of the rand.

The figure does not exceed 10 percent of Citigroup’s annual turnover in South Africa and comes after the New York-based lender undertook to cooperate with the Competition Commission and “avail witnesses to assist the prosecution of the other banks that colluded in this matter,” the Pretoria-based commission said in an e-mailed statement on Monday.

“This settlement was done to encourage speedy settlement and full disclosure to strengthen the evidence for prosecution of the other banks,” Commissioner Tembinkosi Bonakele said in the statement. Barclays Africa Group Ltd. has also agreed to cooperate, people familiar with the matter said last week.

The commission on Feb. 15 referred a collusion case to the country’s Competition Tribunal for prosecution and identified lenders including Bank of America Merrill Lynch, HSBC Holdings Plc, BNP Paribas SA, Credit Suisse Group AG, JPMorgan Chase & Co. and Nomura International Plc as among those that participated in price fixing and market allocation in the trading of foreign-currency pairs involving the rand.

Commerzbank AG, Macquarie Group Ltd., Australia & New Zealand Banking Group Ltd., Investec Ltd. and Standard Bank Group Ltd. were also named.

Eoin Treacy's view -

This news item may be responsible for the spike in open interest in Rand options. The currency has been strengthening since the news broke, in line with other commodity currencies and suggests that a good many traders were short and that the continued resilience of the commodity complex is a tailwind for related currencies. 



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February 17 2017

Commentary by Eoin Treacy

February 17 2017

Commentary by Eoin Treacy

Beyond The Supercycle How Technology is Reshaping Resources

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

First came the “fly-up,” the price spike on world markets for oil, gas, and a broad range of natural resources that began in 2003. Then came the abrupt bust, as prices tumbled and global spending on natural resources dropped by half in the course of 2015 alone. Now, even as resource companies and exporting countries pick up the pieces after this commodity “supercycle,” the sector is facing a new wave of disruption.1 Shifts taking place in the way resources are consumed as well as produced—less noticed than the rollercoaster commodity price ride but no less significant—will have major first- and second order effects on both the sector and the global economy. These shifts are the result of technological innovation, including the adoption of robotics, Internet of Things technology, and data analytics, along with macroeconomic trends and changing consumer behavior.

We see three principal effects of this technological revolution:
Consumption of energy will become less intense as people use energy more efficiently thanks to smart thermostats and other energy-saving devices in homes and offices, and the use of analytics and automation to optimize factory usage. Transportation, the largest user of oil, will be especially affected, by more fuel-efficient engines and by the burgeoning use of autonomous and electric vehicles and ride sharing.

Technological advances will continue to bring down the cost of renewable energies such as solar and wind energy, as well as the cost of storing them. This will hand renewables a greater role in the global economy’s energy mix, with significant first- and second-order effects on producers and consumers of fossil fuels.

Resource producers will be able to deploy a range of technologies in their operations, putting mines and wells that were once inaccessible within reach, raising the efficiency of extraction techniques, shifting to predictive maintenance, and using sophisticated data analysis to identify, extract, and manage resources.

Scenarios we have modeled suggest that these developments have the potential to unlock $900 billion to $1.6 trillion in incremental cost savings throughout the global economy in 2035, an amount equivalent to the current GDP of Indonesia or, at the top end, Canada. As a result of lower energy intensity and technological advances that improve efficiency, energy productivity in the global economy could increase by 40 to 70 percent in 2035. We believe these changes will have profound implications not just for companies in the resource sector and for countries that export resources, but also for businesses and consumers everywhere.

 

Eoin Treacy's view -

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

The long-term cycles of supply and demand can be boiled down into the simply maxim that high prices encourage consumers to be efficient and suppliers to invest in expansion. Low prices encourage consumers to use more while suppliers are forced to be more efficient. Following a decade long super cycle producers are now much more efficient while consumers are really only beginning to increase demand as economic growth picks up. 



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February 17 2017

Commentary by Eoin Treacy

Email of the day on the VIX

Read on twitter the following "is this too-quiet market the calm before the storm" I am wandering storm or no storm if going long the VIX on the SP500 or a European VIX could be on a risk reward basis a sound trade with the VIX being at a historical low. or could the VIX go even lower to new lows? we also had/have negative interest rates. would appreciate your expert opinion 

Eoin Treacy's view -

The VIX is quite depressed right now because Wall Street is rallying so persistently and because that rally is relatively broad based. 
 

 



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February 17 2017

Commentary by Eoin Treacy

Biotechnology rotation

Eoin Treacy's view -

The Nasdaq Biotechnology Index is going through a significant rotation. Some of the biggest companies that led on the breakout from the long-term base in 2012 are now trending lower. Gilead Sciences is representative. It was among the best performers on the breakout but peaked in 2015 and has continued to trend lower while many of the other major constituents have spent a year ranging. 

The focus thrown on drug pricing during the US Presidential Election has long lasting repercussions because it has highlighted the practice of raising prices for legacy drugs. That is the exact opposite of what we see in other sectors where competition forces prices lower over time. The Trump administration is now talking about bringing down drug prices and enhancing the ability of Medicare to negotiate bulk prices and allow consumers to buy drugs overseas. These issues represents a significant issue for legacy pharmaceutical companies and established biotech companies without the compensating factor of a promising drug pipeline. It also means demand for M&A is likely to continue to increase. 

 



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February 16 2017

Commentary by David Fuller

Hotly Disputed, but No Longer Unthinkable: Could France be Ready for President Le Pen?

I have used the headline from Ambrose Evans-Pritchard’s article as shown in The Telegraph, in preference to the sensationalist online headline.  Here is the opening: 

If Marine Le Pen wins France's presidential elections in May, all talk of punishing Britain for the outrage of Brexit will become irrelevant.

French diplomacy will pirouette overnight under a National Front (FN) leader. The Élysée Palace will seek an Entente Cordiale with the British, offering a bilateral alliance on new foundations.

It will then be the European Union that faces an existential choice: whether to reinvent itself as a loose federation of nation states, or succumb to galloping disintegration

"What is the point in punishing a country? It is senseless, unless you think the EU is a prison, and you are condemned if you escape. I want to rebuild our damaged relations with the United Kingdom," she told the Daily Telegraph.

"A people decides its own destiny. You cannot force a country to do something that is against its own interests, or against the democratic process," she said.

It is a far cry from the language of President François Hollande, who told Europe that Britain must "pay a price" to deter any other country from toying with temptation.

Whether she has a chance of winning is hotly-disputed, but it is no longer unthinkable and the consequences are epochal. Bookmakers have lifted the odds to one in three as of February 13, an "alarming" development says Oxford Economics.

"France is the political heart of Europe, and the moment we leave the euro the whole project collapses," said Ms Le Pen. She leans across the table in her tiny office in the European Parliament with a glint of mischief.

French pollsters note her imperturbable serenity as the pillars of the French political system crumble around her, and the coronation of ex-premier François Fillon goes horribly awry. "She has established herself as an anchor of stability on the political landscape," says Frédéric Dabi from the polling group Ifop.

The latest L'Express poll found that she trails Mr Fillon by just 44 to 56 in a run-off election, nearing the margin of error in this ferbrile climate. The tabou of voting for the Front National is not what it was, and Britain's referendum shock has played into her hands.

"Brexit has been a powerful weapon for us. In the past our adversaries have always been able to say that there is 'no alternative' but now we have had Brexit, and then Trump, and Austria," she said.

"A whole psychological framework is breaking down. I think 2017 is going to be the year of the grand return of the nation state, the control of borders and currencies," she said.

David Fuller's view -

Most articles mentioning Marine Le Pen dismiss her chances in this year’s elections because they are written for or quoted from the French establishment.  I think Ambrose Evans-Pritchard has a better perspective, partly because he is an original thinker and also a Francophile who is fluent in the language. 

While the consensus view is that Le Pen cannot win the Presidency in this year’s elections, I think she will at least do better than the polls suggest.  Why? 

This item continues in the Subscriber’s Area.



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February 16 2017

Commentary by David Fuller

Tillerson Forced to Stay at Sanatorium in German Village for G-20.

Here is the opening of this report by Bloomberg:

On his first trip abroad as U.S. secretary of state, Rex Tillerson was forced to stay at a sanitarium in a German village known for its hot springs, 30 minutes from where other world leaders gathered. Diplomatic security agents mingled in the parking lot with elderly people in wheelchairs arriving for spa treatments.

Tillerson, the former head of Exxon Mobil Corp., was at the sanitarium because Bonn’s hotels were all booked by the time he confirmed his attendance at this week’s Group of 20 meeting. Counterparts including U.K. Foreign Secretary Boris Johnson had to make a trek out to meet him.

The unusual diplomatic debut continued during an awkward encounter with Russian Foreign Minister Sergei Lavrov. After Lavrov delivered some perfunctory opening remarks alongside Tillerson, U.S. aides quickly ushered reporters from the room. “Why did they shush them out?” Lavrov asked.

And:

The curious start to his first foreign trip may demonstrate little more than the adjustment Tillerson is making after years of traveling with a small entourage as chief executive officer of Exxon to being a highly sought-after Cabinet member in President Donald Trump’s administration. Two weeks after winning confirmation, Tillerson has yet to lay out his most urgent foreign policy priorities and hasn’t had a news conference.

The lack of outreach to the media extends to the State Department briefing room in Washington, where a spokesman’s normally daily question-and-answer exchanges with reporters have yet to resume since Trump took office almost four weeks ago. Tillerson also continues to lack a deputy secretary, who could help manage day-to-day issues at the department.

The few remarks Tillerson has made reflect the changed circumstances of his new job. In his meeting Thursday with Saudi Foreign Minister Adel al-Jubeir, the two bantered about Tillerson’s flight from the U.S., which arrived late Wednesday night.

"I’m not used to traveling like that you know,” Tillerson said. “I’m used to getting on at night, spending the night on the plane and then going to work. It’s quite civilized."

David Fuller's view -

What a childishly petty snub by the EU, most likely from an unelected bureaucrat who will hide behind his anonymity in connection with this incident.  



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February 16 2017

Commentary by David Fuller

Email of the day 1

On a small world:

David, I sincerely wish you a speedy recovery to full health. I have been a subscriber since I believe 1984 and met you at your second to last Chart Seminar in May 2006 and have truly benefitted from the service. My middle son works for Richard Chandler and is presently with Eoin at the seminar in Dubai. Again my best wishes and thanks.

David Fuller's view -

Many thanks for your kind words and interest in this service over so many years. 

I met your fine son and two of his colleagues at a lunch when they visited London around yearend 2016, to talk about the current seminar in Dubai.  He will certainly learn from Richard Chandler – an imposing leader, legendary investor and dedicated trainer of his team. 

I met the remarkable Chandler brothers when they attended one of my European 2-day workshops on behavioural technical analysis in autumn of 1987, a few days before the Crash.  I always worked with current market examples, as does Eoin.  Needless to say, delegates were able to identify plenty of behavioural and technical warning signals at that important time.    



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February 16 2017

Commentary by David Fuller

Jim Cramer: You Do Not Want to Be in Retail Stocks

The stock market has continued to churn out record high after record high, putting together the best record-breaking streak since the early 1990s. 

While the broader indices have been climbing, retail has been stagnant, with a number of these stocks acting just "dreadful," TheStreet's Jim Cramer, co-manager of the Action Alerts PLUS portfolio, said on CNBC's "Stop Trading" segment Thursday. 

Cramer highlighted a recent research report from JPMorgan analyst Matthew Boss. Boss "slashed numbers very big" for Macy's (M), Nordstrom (JWN) and J.C. Penney (JCP), Cramer pointed out. 

Macy's has been talked about as a takeover target, but with its fundamentals in decline, that may warrant a lower takeover price, Cramer reasoned. Boss's research report lays out a "chilling" situation of the mall, he added. 

But it's not just the big department stores, either. Stocks like Abercrombie & Fitch (ANF), Gap (GPS) and L Brands (LB) have been impacted, too. These stocks are not the place to invest, Cramer said, explaining that the truth is simple: consumers are staying home, playing video games, ordering deliveries and playing on their iPhone. 

That's where the money has been flowing, Cramer said, to at-home entertainment, not the mall. 

David Fuller's view -

Yes, fewer people are visiting the malls.  The real reason, which Cramer certainly knows but may have felt he should not mention, is that people are buying from Amazon, the most brilliant and efficient retail system ever invented.  



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February 16 2017

Commentary by David Fuller

Email of the day 2

On behavioural TA and pharmacology:

Neither have I had the pleasure of meeting you face to face, but having met Eoin at now 2 chart seminars, and read your comments from time to time as a subscriber, I have a mental picture of the sort of person you might be.

I find your measured response to financial and political comments and news (in which we drown on occasions) is one of the main reasons I keep coming back. The world does not always make the same sense as say nature, mathematics or physics. Perhaps another reason I have endured here is a growing appreciation of the behavioural aspect of financial analysis, and how well it has been articulated by you and Eoin.

I was going to side step comment on your recent illness because it is a personal matter and I couldn't think of anything useful to add, except of course to add my best wishes for your recovery. Fatigue following a respiratory infection can be a real problem.

I enjoyed the anecdote about amoxycillin used for canine RTI and your pun in response. Dry. It reminded me of a series of articles on antibiotic resistance discussed a few months ago by Eoin. We are fortunate to live in an era (end of an era?) in which the majority of common bacterial infections are still sensitive to something (at least where I live). This aspect of pharma has been so successful in the past that they appear to have stopped developing new products. Are we living on credit?

David Fuller's view -

Thank you for this thoughtful, interesting and varied email.

Re behavioural technical analysis – the description for my field which I have used since the mid-1970s – is easily explained.  Don’t tell the market what to do because it probably isn’t listening. Instead, remember that the market eventually responds to fundamentals but will more often be volatile in the manner of a crowd.  So remain calm.  Watch the market by looking mainly at weekly and monthly charts, in the manner of David Attenborough peering through the reeds and observing a herd on the African plains.  The herd will mostly mill about, as price charts mainly range, before suddenly taking off.  Don’t stand in the way but run with the herd, at least until it clearly stops.

Re antibiotics, we have every reason to be grateful for them, not least because they have approximately doubled average life expectancy over the last hundred and fifty years or so, while wars have become less frequent and smaller. However, the bugs (germs) don’t stand still.  They adapt and come back.  The most vulnerable are young children, the unhealthy and the old.  Antibiotics may have extended my life recently, and I am still on them.  However, I will try to avoid a similar illness over the next several years, because the combination of antibiotics, including penicillin, may not be as effective for me anytime soon.      



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February 16 2017

Commentary by David Fuller

The Markets Now

The next Markets Now will be held in the Morrison Room at The Caledonian Club, on Monday 27th March

February 16 2017

Commentary by David Fuller

It Does Not Matter Whether the Trump Base Liked His Press Conference

As media Twitter had a field day with how unhinged President Donald Trump seemed in Thursday's press conference, there was the usual response from the Real America Whisperers that "his base eats this up" and that, to a lot of people, Trump looked like he was winning by dressing down the media.

All of this is beside the point.

Like any president, Trump has a large base of people who will always like him and a large base of people who will always hate him. In Trump's case, the latter group may be larger than normal. But neither of these is the groups that will decide his fate.

Trump's presidency lies in the hands of the Trump-curious: The approximately 15% of Americans who dislike him but tell pollsters they think he might do a good job. A lot of these are people who voted for Trump despite having an unfavorable view of him.

With these voters on his side, Trump can wield a fearsome coalition that will help him retain Congress in two years and persuade Republicans and Democrats in Congress to bend to his agenda in the meantime. Without them, he is unpopular and ridiculous.

The Trump-curious do not "eat up" whatever Trump does. They are guardedly optimistic about him (or were, a month ago) and hope that he will deliver positive change in their lives.

I doubt Thursday's press conference did much to move public feelings about Trump either way. The Trump we saw is one we've seen a lot before. But it also wasn't a brilliant strategy to remind the Trump-curious why they voted for him.

If Thursday's performance imposed a cost on Trump, it was because it did little to convey the messages that he is busily working to create good-paying jobs for Americans, or that he is breaking the logjams that have made Washington look so dysfunctional to so many, or that he is restoring whatever voters feel is lost in their communities.

Put another way, the biggest problem is not what he said, but what he didn't say.

He still has time to deliver on the hopes of the voters who took a chance on him. But the idea (either triumphant or defeatist) that Trump can build the public support he needs simply by attacking the media and playing on his hard-core voter base's resentments is incorrect.

David Fuller's view -

I don’t like Trump’s public persona, but I am less happy about the mutually destructive baiting game which we are witnessing.  As President of the United States, I wish him well, because that would be good for the global economy. 

 

Please note: I will be away on Friday but Eoin will be back.



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February 15 2017

Commentary by David Fuller

U.S. Spy Agencies, FBI Probing Trump Team Russia Calls, Officials Say

Here is the opening of this disturbing article from Bloomberg:

U.S. intelligence agencies and the FBI are conducting multiple investigations to determine the full extent of contacts that President Donald Trump’s advisers and associates had with Russia during and after the 2016 campaign, according to four national security officials with knowledge of the matter.

Several agencies are conducting the inquiries into Russia’s efforts to meddle in the U.S. election and coordinating as needed, said the officials, who requested anonymity to speak about sensitive matters. The investigations predate the dismissal of retired Lieutenant General Michael Flynn as national security adviser on Monday.

Trump associates whose activities the agencies are examining include his former campaign chairman Paul Manafort, energy consultant Carter Page, longtime Republican operative Roger Stone and Flynn, two of the officials said. Manafort, in a statement to Bloomberg, said he “never had any connection to Putin or the Russian government -- either directly or indirectly -- before during or after the campaign.”

The FBI has two parallel ongoing investigations, one official said. A counterintelligence investigation is looking at Russian espionage activities and to what extent, if any, they involve communications with or collusion by U.S. officials. The second, a cybersecurity investigation, is probing the hacking of U.S. political groups and operatives.

For example, investigators are focusing on a phone call Flynn had in December with Sergey Kislyak, Russia’s ambassador to the U.S., which was intercepted by intelligence agencies and shared with the FBI, the two officials said. The FBI interviewed Flynn about that communication shortly after Trump was inaugurated.

Leading congressional Republicans have joined calls by Democrats for a deeper look at contacts between Trump’s team and Russian intelligence agents Wednesday, indicating a growing sense of political peril within the party as new reports surfaced of extensive contacts between the two.

Senate Intelligence Committee staff started collecting information in January on its broader probe of Russia’s alleged interference in last year’s election, according to Democrat Senator Joe Manchin of West Virginia, who sits on the panel. Manchin said Wednesday he expects the committee to begin calling in witnesses starting later this month. Among those he would like to see testify are Flynn, Manafort and former acting Attorney General Sally Yates, who was fired after she refused to defend Trump’s executive order on immigration.

David Fuller's view -

This beggars belief. 

Worryingly, Trump has made far more enemies than friends since winning the US presidential election. This will both isolate and distract President Trump, to the detriment of his office. 

The smart move by Trump would be to welcome the multiple investigations by US intelligence agencies and the FBI, while promising full cooperation. 

This item continues in the Subscriber’s Area and discusses Wall Street.



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February 15 2017

Commentary by David Fuller

Richest Investors in the World Still Cautious On Equities Amid Populist Surge

Here is the opening of this topical article from Bloomberg:

Rich investors are shunning equities because of concerns about the political impact from Donald Trump’s administration and Brexit, according to Christian Nolting, chief investment officer at Deutsche Bank AG’s wealth management unit.

“People are still cautious; there is still demand for bonds and people are not ready to move into the more risky equity space,” Nolting said in an interview in Dubai. The perception “is that there are a lot of risks out there and a lot of uncertainty.”

Markets have been reeling from unexpected events including Britain’s vote to leave the European Union and the election of Trump as U.S. president. Populist candidates in the Netherlands, France and Germany are stoking fears of a breakup of the European Union, adding to the political uncertainty. Deutsche Asset Management has cut European holdings in its multiasset funds to the lowest on record due to uncertainty about how elections in Europe will impact markets.

Currencies are now one of the most important asset classes as investors keep cash on the sidelines or in bonds, Nolting said. “We don’t expect a massive shift from bonds into equities as equities still represent a different risk profile,” he said. Some larger clients will buy stocks if they are hedged but shares are not cheap, according to the CIO.

David Fuller's view -

If this is true, although some of these comments in the article above are dated, it is good news for stock markets.  Significant money on the sidelines will both cushion downside risk and help to fuel the rally which follows.

When markets experience explosive upside breakouts, you can be sure that there are plenty of investors kicking themselves for being underweight and praying for a correction.  



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February 15 2017

Commentary by David Fuller

What if Britain had never joined the EU in the first place?

Here is the opening and also part of the conclusion of this intriguing column by Philip Johnson for The Telegraph:

It is March 25, 1957. The place: Rome. Gathered in the Palazzo dei Conservatori on the Capitoline Hill are ministers and officials from seven European nations, there to sign a treaty establishing the European Economic Community. As the meeting ends, the British prime minister Harold Macmillan, appointed just a few weeks earlier, shakes hands with West Germany’s chancellor Konrad Adenauer. A new partnership has been forged, a momentous event for two nations that just 12 years earlier had been at war.

Except, of course, it didn’t happen. The Treaty of Rome was indeed signed on March 25, 1957; but the UK was not represented at the conference that brought the EEC into being. What if we had been? Would the EU be celebrating its 60th anniversary next month as a united entity or would Britain have pulled out long ago? Or, perhaps, had we been on board from the start it would never have grown into the unwieldy, unaccountable structure that we see today but would have remained the loose-knit trading zone we always wanted. 

And:

It is arguable that our economy began to recover in the 1980s because of the reforms of the Thatcher government, breaking the power of the trade unions, freeing up the labour market and selling off state assets. As we prepare to leave the EU it is at least worth considering what life might have been like on the outside. For a start we would have saved billions of pounds in net contributions and been free to strike trade deals with the emerging economies of Latin American and south-east Asia. This might have been to our considerable advantage: in the years since we joined the accumulated trade deficit with EU member states is about £500 billion.

One thing that was supposed to come from membership, but didn’t, was the returns of national self-confidence dented by the end of empire. Being part of a supranational body, especially after the Maastricht treaty forged much closer economic and political ties, diminished our sense of independence. It was intended to, of course; but while other EU countries were content with that, the British never were. So had we stayed out we would probably have had a very good relationship with the EU – certainly better than the one we are likely to end up with when the bruising Brexit negotiations are concluded.

Counter-factual histories usually try to legitimise the way things are today by implying they could have been a lot worse had matters taken a different course. Yet where our membership of the EU is concerned, the alternative might have been preferable to the reality. There is one other oddity about this: whether in the alternative world or the real one, the Germans always end up on top. Funny that.

David Fuller's view -

Very few people read the weighty documents detailing European leaders’ long-term ambition to form a Federal Super State.  I certainly didn’t.  Instead, practically everyone was enthusiastic about the sensible concept of a European Common Market, not knowing that it was only a halfway house. 

However, two interesting but very different politicians – Enoch Powell and Anthony Wedgwood Benn, who alarmed more people that they reassured during long careers, did know about the largely German and French ambitions for Europe. 

(Read: Enoch Powell and Tony Benn were right on Europe – it was a great deception, by Christopher Booker for The Telegraph)   

Lastly, I am far more optimist about the relationship between the UK and ongoing or former EU countries once the process of Brexit is completed and Britain has regained its sovereignty.  UK and European minds will then be able to focus on the importance of good trade and diplomatic relations between neighbours.   

A PDF of Philip Johnson's article is posted in the Subscriber's Area.



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February 15 2017

Commentary by David Fuller

Email of the day

On my medical setback (I’m restricting myself to just one):

Hi David, I am quite sure you have been inundated with get well messages from so many subscribers already. As I am of a similar age to yourself I would just like to add my own good wishes for a speedy recovery from your chest infection.

My interest in your site goes right back to the hard copy Chart Analysis days. Unfortunately, I have not met you in person at any of the events you host as I have now spent many retirement years in South Africa. We all I am sure appreciate your unique input and analysis especially to the attention you draw to relevant articles by some outstanding financial journalists. I have been very fortunate with my own health as of now but am aware of the time fuse getting shorter! (For your interest I found that Amoxicillin worked very well on many of my canine patients with bad chests!)

David Fuller's view -

Thank you so much. 

I have insufficient words to fully express my gratitude to subscribers for all the kind and thoughtful emails which I have received following a medical setback that I trust is only a temporary problem.

I posted this email because I have not met this gentleman, although we have exchanged emails over the decades.  That is also true of many other subscribers and I value our email connections, which are often informative.

I was also amused by the last sentence above which mentions Amoxicillin.  It reminded me that after a week or so of my chest infection I went to our local surgery and was prescribed Amoxicillin for a week.  It had no effect, unfortunately, so I may not be sufficiently dogged.

Continue to enjoy that fine South African weather and the wonderful fruit.



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February 15 2017

Commentary by David Fuller

The Markets Now

The next Markets Now will be held in the Morrison Room at The Caledonian Club, on Monday 27th March

February 14 2017

Commentary by David Fuller

China Steel Mills Hunt for High-Grade Iron Ore to Boost Output

Here is the opening of this topical article from Reuters:

Cashed-up Chinese steel mills are chasing top quality iron ore to help increase output and meet Beijing's tougher environmental standards, driving the premium for high-grade ore to its biggest in two years.

In the latest sign of renewed optimism among China's steel producers as capacity cuts boost steel prices, producers are turning away from cheaper ore with a lower iron content, contributing to growing stockpiles at domestic ports.

The preference will help boost top miners such as Brazil's Vale and Australia's Rio Tinto and BHP Billiton, whose premium quality ore has been taking market share from China's domestic producers.

Iron ore with a 61.5-percent ore grade was trading at a premium of 123 yuan ($18.42) a tonne to 58-percent grade at Chinese ports last week, a level last seen in mid-2014, according to data from industry website Mysteel. (tmsnrt.rs/2bwmHqj)

Chinese steel prices have risen following mill closures and output curbs flowing from an environmental crackdown and Beijing's efforts to tackle a supply gut, buoying mills' profitability. China has promised to slash steel capacity by 45 million tonnes this year.

"We've had pretty good sales over past few months, as steel mills are profitable again since June," said an iron ore trader in Beijing, who sells 65-percent iron ore.

"They like to buy higher grade ore as this can help increase steel output, leading to surging premiums."

A tonne of 61.5 percent ore is currently selling for 445 yuan a tonne at eastern Rizhao port versus 370 yuan for a 58 percent ore.[MYSTL-SIIO-RAYF][MYSTL-IO615-RAF]

Higher quality ores produce more steel for each tonne that is processed, helping to boost output, and can reduce emissions as less coke is used in the production process.

Some mills are also using larger volumes of more expensive lump ore to mix with fines to save on the sintering process, which creates a product that can be used in a blast furnace but is a major cause of pollution, traders said.

In July and August, Tangshan city ordered curbs and some suspensions at sintering and coke plants, which turn coal into a fuel for use in blast furnaces.

David Fuller's view -

This is one the better charts of Iron Ore (MBIO62DA Index) as it shows more back history. Quoted in USD, it shows the churning base formation between 2015 and three-quarters of 2016. Iron Ore exploded up out of that formation before consolidating near $80 for several months and then continuing its advance.  I would certainly give the upside the benefit of the doubt, provide Iron Ore remains above $80.

This item continues in the Subscriber’s Area.



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February 14 2017

Commentary by David Fuller

Yellen Sees More Rate Hikes Ahead If Economy Stays on Course

Here is the opening of this apt article from Bloomberg:

Federal Reserve Chair Janet Yellen said more interest-rate increases will be appropriate if the U.S. economy meets the central bank’s outlook of gradually rising inflation and tightening labor markets.

“At our upcoming meetings, the committee will evaluate whether employment and inflation are continuing to evolve in line with these expectations, in which case a further adjustment of the federal funds rate would likely be appropriate,” she told the Senate Banking Committee in prepared remarks Tuesday.

Yellen’s semiannual report on monetary policy is her first since Donald Trump became president vowing to boost U.S. growth, which could push the Federal Open Market Committee to pick up the pace of rate hikes if such steps fan higher inflation. She reiterated that falling behind on inflation could harm to the economy and possible cut short the expansion.

“Waiting too long to remove accommodation would be unwise, potentially requiring the FOMC to eventually raise rates rapidly, which could risk disrupting financial markets and pushing the economy into recession,” she added.

David Fuller's view -

Trump’s main effort is to strengthen the US economy.  Surely he knows how to do this.  He has also selected a very capable cabinet team of Wall Street experts to help him achieve this important objective. 

Yellen’s current concern is most likely the possibility of a trade war. This is understandable because Trump’s crude Art of the Deal tactics, supposedly to bully opposition into a weaker position, amount to playing with fire on the international stage.  These are obviously not one-off relationships; a president often has to negotiate with foreign leaders on numerous occasions. 

Trump needs to keep smart daughter Ivanka close to hand.  This kept him in line with Canada’s Justin Trudeau and should also help elsewhere. 

Meanwhile, the next quarter-point rate hike from the Fed could occur in March, although commentators only rate this as a 34% possibility.  That may be too low.

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February 14 2017

Commentary by David Fuller

Yellen Says Reducing the Regulatory Burden is a Legitimate and Important Goal and Bank Stocks Are Rising

Federal Reserve Chair Janet Yellen spoke to Congress on Tuesday in her first congressional testimony since President Donald Trump took office, and bank stocks are rising.

In the speech, Yellen stressed the importance of mitigating financial regulation, specifically the Dodd-Frank financial reforms created after the Great Recession. 

Yellen said that she would work with Treasury Secretary Steven Mnuchin to conduct a comprehensive review of post-crisis regulations and told the Senate Banking Committee it was important for regulators to constantly be looking for ways to reduce the burden on institutions.

She described the exercise in reducing the regulatory burden as a "legitimate and important goal" for the Fed and other regulators. 

Financials are soaring on the back of the news.

David Fuller's view -

 

This is very positive and largely unexpected news from the Fed Chairman.  Bank shares soared again, as one would expect.

This item continues in the Subscriber’s Area.



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February 14 2017

Commentary by David Fuller

The Markets Now

The next Markets Now will be held in the Morrison Room at The Caledonian Club, on Monday 27th March

David Fuller's view -

I am delighted to say that our guest speaker at this event will be Charles Elliott, founder of Inflection Point Investments.  The first half of his talk will be on ‘Mega-Cap Tech’, including big and well-known names such as Apple, Microsoft, Google/Alphabet & Amazon.  This will be followed by ‘Emerging Tech’ in which he specialises. 

The new brochure will be available shortly.  



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February 14 2017

Commentary by Eoin Treacy

Email of the day on protectionism representing a headwind for global companies

I would like to know your opinion on this article about Autonomies the recently appeared in The Economist

Eoin Treacy's view -

This is the second article I’ve seen the Economist run focusing on the threat to big global companies represented by protectionism so they certainly have an axe to grind. It’s funny because I was just off a long overnight flight the last time I wrote about this topic so let me try to do a better job this time after a 16-hour flight to Dubai.



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February 14 2017

Commentary by Eoin Treacy

Bottom is in for Uranium; Gold & Silver Off to the Races in 2017

Thanks to a subscriber for this report from Cantor Fitzgerald which may be of interest. Here is a section on uranium

Kazatomprom that it plans to cut its annual uranium production by 10%, or by 5.2M lbs U3O8. This amount translates into roughly 3% of 2015 global production and marks an inflection point in the space. Since at least 2001, Kazatomprom has relentlessly increased production into an oversupplied market and is arguably the single biggest cause for the weakness in the commodity aside from the Fukushima disaster. In fact, we had long since given up on expecting Kazatomprom to exercise production restraint as its mines were the lowest cost operators in the world and constant production increases appeared to be a cultural focus in Kazakhstan.

While some skepticism exists on whether Kazatomprom will actually follow through with this cut (as opposed to OPEC style “cuts”), we suspect that at least some of the production reduction will occur among joint venture operations managed by western producers such as Cameco. Moreover, we believe the impact will be more than the announced cut amount because the market was likely factoring in a typical Kazatomprom increase as opposed to a cut. So instead of a 3-5% increase we are expecting a reduction of 10%, or a 13-15 percentage point swing.

Cameco’s announcement of Tokyo Electric Power Holdings’ (“TEPCO”) termination of its supply contract has cast some concern over what will happen with the U3O8 pounds that were earmarked for the Japanese utility. In total, the contract was for 9.3M lbs U3O8 to be delivered from 2017-2028, this works out to 775,000 lbs annually. TEPCO was selling some if not all of the material it was contractually obligated to purchase already. As such, we believe the worst case scenario arising from the cancellation is that Cameco does the exact same thing and sells the material into the spot market. However, we think there is room for potential positivity from this announcement, as Cameco could instead elect to not produce the pounds at all (and further cut costs by doing so) or it could elect to store them in inventory to await higher prices. Either of those two actions would effectively be removing some of the excess supply in the market. 

Eoin Treacy's view -

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

azakhstan stamped its dominance on uranium market by engineering a multi-year decline and succeeded in driving a significant number of small explorers out of business.  Last week’s news Tokyo Electric cancelled a major Cameco contract highlights just how successful their policy of flooding the market with supply has been. Having achieve their goal, the decision to limit supply is an important catalyst for the uranium market. 



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February 13 2017

Commentary by David Fuller

February 13 2017

Commentary by David Fuller

Trump Gives Trudeau Assurance on Canada Trade Relationship

Here is the opening of this article on a productive meeting

President Donald Trump assured Prime Minister Justin Trudeau that Canada isn’t the main target of his plans to reset U.S. trade relationships, as both leaders said they are committed to maintaining commercial ties and economic integration that support millions of jobs on both sides of the border.

At a joint news conference with Trudeau at the White House, Trump emphasized that, in dealing with the U.S.’s two North American Free Trade Agreement partners, he’s more bothered about trade imbalances with Mexico than with Canada.

“We have a very outstanding trade relationship with Canada,” Trump said, adding that they will be “tweaking it” in order to make it better for both countries. “It’s a much less severe situation than what’s taken place on the southern border.”

Trump’s comments mark a victory for Trudeau, whose government has sought for weeks to distance itself from Mexico on trade matters in a bid to protect a relationship with the U.S. that is worth $541 billion a year. The conciliatory remarks are also in line with investor expectations, which have shown little concern about a major trade upset between Canada and the U.S.

David Fuller's view -

Given all the uncertainty and bluster coming from the White House, this was obviously a successful meeting between Trump and Trudeau.  Thank heavens. 

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



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February 13 2017

Commentary by David Fuller

The Demise of Deadly Diesel

Here is the opening of this sobering article from Bloomberg:

Diesels make up about half of Europe's car sales. In 10 years time, I'd wager the percentage will be far closer to zero and that diesel's demise is going to cost the autos industry billions.

In Britain, the government is toying with the idea of a diesel scrappage plan to tackle the nitrogen oxide (NOx) emissions that kill about 75,000 Europeans prematurely each year.

EUROPEAN NOX-RELATED DEATHS EACH YEAR

75,000

It’s the latest in a succession of European measures which could see diesel cars barred from cities, their fuel incentives removed and parking made more expensive. Last month London issued a “black" alert because of high air pollution, prompting one school to restrict the time kids were able to play outside. Diesel is becoming stigmatized: sales have started to decline in the U.K. and Germany, albeit slowly.  

Diesel Downer

Diesel sales in Germany have fallen as a percentage of total vehicles sold

Last month, Fiat Chrysler Automobiles NV became the latest automaker to be accused by the U.S. of violating pollution laws over its diesel emissions. Meanwhile, France has referred Peugeot and Renault to prosecutors. Elzbieta Bienkowska, the EU industry commissioner overseeing the VW scandal told the Financial Times that her patience was wearing thin with national regulators over their lack of haste in examining carmakers other than VW.

VW's rivals all deny wrongdoing, and it's possible none has broken the law. "Existing models comply with the EU law against which they were approved," the European Automobile Manufacturers' Association (ACEA) says of the large discrepancies between laboratory and real-world emissions.  

But given the deaths from disease linked to air pollution, it seems a little arcane to be arguing about whether technology that -- for example -- switches off NOx emission controls at low temperature fits the legal definition of a "defeat device". At the very least, carmakers have done a poor job of explaining that diesel cars are much dirtier than the public had reason to expect.

David Fuller's view -

The emissions discrepancies of automobile companies were outrageous, and a number of them have been fined.  Many others will suffer financially because they are holding billions of euros in diesel vehicles for which the market is rapidly vanishing.  However, the bigger scandal was the push by European governments and their advisors to favour diesel vehicles.  They did this in spite of evidence from the USA that NOx pollution from diesel was lethal. 



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February 13 2017

Commentary by David Fuller

Trump: A Two-Year Presidency

My thanks to a subscriber for this topical article by Kathleen Parker for The Washington Post. Here is the opening:

Good news: In two years, we’ll have a new president. Bad news: If we make it that long.

My “good” prediction is based on the Law of the Pendulum. Enough Americans, including most independent voters, will be so ready to shed Donald Trump and his little shop of horrors that the 2018 midterm elections are all but certain to be a landslide — no, make that a mudslide — sweep of the House and Senate. If Republicans took both houses in a groundswell of the people’s rejection of Obamacare, Democrats will take them back in a tsunami of protest.

Once ensconced, it would take a Democratic majority approximately 30 seconds to begin impeachment proceedings selecting from an accumulating pile of lies, overreach and just plain sloppiness. That is, assuming Trump hasn’t already been shown the exit.

David Fuller's view -

This has to be a real possibility. In the eyes of most democrats, Trump is the mad king: volatile, vainglorious and untrustworthy.  More than a handful of republicans agree, although most of them remain quieter.

The irony is that Trump has appointed the best business team that I have ever seen. Don’t take my word for it – look at Wall Street which has risen strongly since 8th November.  This is logical because the money men correctly anticipate lower corporate profits, less regulation, fiscal spending and stronger economic growth. This is Trump’s rally.  Moreover, it has encouraged similar policies in a number of other countries where stock markets and GDP forecasts are also rising.  However, if Trump harangues Cabinet colleagues in the manner of his former game show, The Apprentice, he will continue to lose crucial support.  Moreover, sharp-edged Art of the Deal tactics with international leaders will lead to further isolation.

Trump has a window of opportunity in which to save himself by becoming a president who is both widely respected and popular.  However, that would be a pleasant surprise because it does not appear to be in his nature. 



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February 13 2017

Commentary by David Fuller

Does This Government Have Guts Enough to Solve the Housing Crisis?

Last week’s housing White Paper showed that the Government is well aware that the ludicrously high price of British property is a manifestation of terrible failure. Moreover, the document explicitly recognises that Britain’s housing crisis is not only about the unaffordability of houses to own but also about the appallingly high level of rents.

It clearly states that fundamentally, both prices and rents are high because, given our rising population, we have not built enough homes.  This is a welcome departure from so many previous Government initiatives, some of which are unfortunately still with us, that have focused on helping this or that “deserving” group to get on the “housing ladder”.

If all you do is to boost the demand for housing then the only result can be higher prices, without anyone, on average, enjoying any improvement in their accommodation. 

Having said that, there are several unimpressive aspects to this document. It used to be said that getting radical reform of the educational system faced enormous opposition from “the Blob”, that is to say the entrenched interests of teachers and civil servants. The housing market also has its Blob, and there is more than its fair share of sloppy thinking dotted around this document, including the ritual snipes at landlords and developers and references to “unfair” rents, whatever that means. 

David Fuller's view -

The biggest housing crisis is in greater London.  One solution is to build more quality housing blocks with attractive middle-income flats, as we have been seeing in the expanding City and also in previously derelict sites as we also saw with the Olympic Village.  

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



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February 13 2017

Commentary by David Fuller

The Markets Now

The next Markets Now will be held in the Morrison Room at The Caledonian Club, on Monday 27th March

David Fuller's view -

I am delighted to say that our guest speaker at this event will be Charles Elliott, founder of Inflection Point Investments.  The first half of his talk will be on ‘Mega-Cap Tech’, including big and well-known names such as Apple, Microsoft, Google/Alphabet & Amazon.  This will be followed by ‘Emerging Tech’ in which he specialises. 

The new brochure will be available shortly.  



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February 13 2017

Commentary by Eoin Treacy

February 13 2017

Commentary by Eoin Treacy

Email of the day on accelerating trends in the currency markets

Just finished to watch the video

Interesting take on India and the Rupee

Last week I entered a short Non Deliverable Forward NFD on USDINR for myself for the same reasons you mentioned in the video . Now I feel mentally confirmed …confirmation bias through an expert opinion J

I did the same in December with MXN . I will start to place stops here - in case we have some kind of “Trump induced” relapse

On TRY I still don’t dare..(though the Turkish  ISE index equity market is the best market YTD if you have noticed , even in USD and EUR terms) . but TRY has just started to barely move below the 4 level on the €

Thank you for the lots of insight in the commentaries . The next challenge will really be the bond market 

 

Eoin Treacy's view -

Thank you for sharing your views and congratulations on seizing opportunities in what have all been counter trend moves against accelerating moves. 

At The Chart Seminar we describe acceleration as a trending ending. In an uptrend the trading activity which creates the acceleration expends the available demand very quickly so that the point when there are no more buyers available is quickly reached. At that point all that are left are overextended leveraged holders sensitive to even small moves against their positions. When the reversal comes it can be violent as stops are hit. The pullback is often contrary to the received wisdom propagated by the media which is exactly what we have seen recently in the currency markets. . 



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February 13 2017

Commentary by Eoin Treacy

Silicon will blow lithium batteries out of water, says Adelaide firm

Thanks for a subscriber for this article by Benn Potter for the Australian Financial Review. Here is a section:

Chairman Kevin Moriarty says 1414 Degrees' process can store 500 kilowatt hours of energy in a 70-centimetre cube of molten silicon – about 36 times as much energy as Tesla's 14KWh Powerwall 2 lithium ion home storage battery in about the same space.

Put another way, he says the company can build a 10MWh storage device for about $700,000. The 714 Tesla Powerwall 2s that would be needed to store the same amount of energy would cost $7 million before volume discounts.

 

Eoin Treacy's view -

A race is underway to develop new types of batteries and, for the foreseeable future, there is room for a number of competing technologies. The reason for this is the pace of innovation is slower than in other sectors but also because energy storage is required for widely differing sectors. Batteries need to be small and light for handheld devices, big and have almost infinite recharging capabilities for utilities and need highly efficient power to weight ratios for transportation. That suggests there is ample potential for a number of different technologies to play roles in all of these sectors. 
 

 



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February 13 2017

Commentary by Eoin Treacy

Africa's Cities: Opening Doors to the World

This heavyweight 166-page report from the World Bank may be of interest to subscribers. Here is a section:

How can Africa’s leaders and policymakers spring cities from this trap? Crucially, they must first realize that the problem does not begin with low capital investment and the lack of physical structures, or even with undersized infrastructure. To be sure, low investment in structures limits urban economic density; it exacerbates spatial fragmentation, and it precludes agglomeration economies. But the lack of investment results from low investor expectations, which result when cities are spatially dispersed and disconnected.

When potential investors and trading partners look at African cities, they see spatial fragmentation and a lack of connections. They know that such fragmentation constrains public service provision, inhibits labor market pooling and matching, and prevents firms from reaping scale and agglomeration benefits. So the key to freeing Africa’s cities from their low development trap is to set them on a path toward physical and economic density, connecting them for higher efficiency and boosting expectations for the future. The first priority is to reform land markets and land use planning — to promote the most efficient uses of urban land, and to develop land at scale.
Informal land markets are not good enough for African cities. Urban land is a vital economic asset, and asset transactions are viable only where purchasers can rely on enduring extra-legal documentation of ownership. A formal market both offers purchasers the protection of the state and — because transactions are readily, observable and recorded — generates the public good of accurate valuation.

Clear rights to urban land are a precondition for formal land markets. African cities struggle with overlapping and sometimes contradictory property rights systems — formal, customary, and informal (box 3). When these systems pose barriers to urban land access, they impede the consolidation of plots and the evolution of land use. Firms cannot readily buy downtown land to convert it from low-density residential use into higher-density apartments, or to build clusters of new commercial structures. Land transactions are long, costly, and complicated (World Bank 2015c). Such market constraints reduce the collateral value of structures, giving developers little incentive to invest in residential height — while tempting all parties to enter informal arrangements (Collier 2016).

 

Eoin Treacy's view -

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

Africa is going to account for a billion new consumers within the next couple of decades so improving standards of governance are going to be essential if that demographic dividend is not going to be squandered. 
 



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February 10 2017

Commentary by Eoin Treacy

February 10 2017

Commentary by Eoin Treacy

A must read: ballast water convention

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

The convention will reinforce multi-year shipping upcycle
The Ballast Water Management Convention, which is scheduled to come into force in September 2017, requires all ships sailing in international waters to install a Ballast Water Management System (BWMS). In light of the high cost and uncertainties associated with BWMS, we expect shipowners to scrap most of their vessels of above 15 years in the coming 2-3 years. We estimate global dry bulk fleets will shrink 1.5% in 2018 and 3.9% in 2019 while VLCC utilization will pick up starting 2018. Buy Pacific Basin and CSD.

An introduction of this convention 
Initiated by the IMO in 2004, the Ballast Water Management Convention was designed to prevent transfers of invasive aquatic species via ships’ ballast water. After the accession of Finland, the convention was ratified in Sept. 2016, and will enter into force in Sept. 2017. Thereafter, new vessels will have to install the BWMS on delivery date. For existing vessels, they are required to carry out retro-fit until their next International Oil Pollution Protection (IOPP) renewal survey (conduct every five years). While some vessels could get a grace period of up to five years (assuming the IOPP is renewed just before September this year), there are high levels of uncertainty over this exemption as the IMO is scheduled to further debate this exemption in July.

Potential impacts on shipping market
The BWMS is expensive (USD2.5m for a VLCC and USD1.5m for a Capesize). This extra cost, along with higher maintenance expense, would substantially lift the breakeven level for 15+ years old vessels. Alongside the freight rate discount (to new ships) and rising demolition prices, our analysis shows that scrapping is the best option for shipowners. Currently, 14% of dry bulkers and 19% of VLCCs are above 15 years old and we expect this proportion of capacity to largely exit in the coming 2-3 years. Coupled with falling newbuild deliveries, we expect dry bulk supply growth to drop to 0.9% in 2017, and decline 1.5% in 2018 and 3.9% in 2019 (vs. 2.3% in 2016). Similarly, we expect VLCC utilization rates to pick up to 85.1% in 2018, in part due to the 2015-16 peak cycle.

 

Eoin Treacy's view -

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

The Baltic Dry Index has been ranging in a volatile manner for eight years because a lot of the new ships ordered in the commodity bull market were delivered at just the time that global economic activity collapsed. The result has been a surplus of ships, where the lives of old vessels were prolonged because it was more economic to keep them in service than to scrap or sell them. The introduction of the Ballast Water Management Convention has the potential to represent a significant bullish catalyst for the sector. 



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February 10 2017

Commentary by Eoin Treacy

Reckitt Has a $16.6 Billion Way of Fending Off Boredom

This article by Chris Hughes and Andrea Felsted for Bloomberg may be of interest to subscribers. Here is a section:

Infant nutrition is a new area for Reckitt. The company’s traditional strengths were once in household products. Think stuff you put on the floor rather than stuff you pop in the mouth. Through a series of takeovers, consumer healthcare has become an important part of Reckitt’s business -- its brands include Strepsils and Nurofen. Baby formula is another new departure and will put Reckitt in head-on competition with formidable rivals like Nestle SA and Danone SA.

Believing this is a good move means believing the growth rate for infant nutrition will be much faster than Reckitt’s existing markets. Perhaps it will. While growth has stuttered in recent years, it is poised to rebound, according to estimates from Euromonitor International, a research firm.

The lack of overlap with Reckitt's businesses means cost savings are relatively low given the size of the deal – just 200 million pounds ($250 million) annually after three years. As a result, it will take as long as five years for the returns to cover the threshold 7 percent to 8 percent cost of capital.
That’s a long time to wait.

Some investors have been concerned about the amount of debt being taken on to fund this all-cash transaction: net debt will initially be about four times the companies' combined Ebitda in 2017. That concern is valid, but it shouldn't be overdone: credit ratings companies have barely blinked and leverage should fall quickly from that level.

Reckitt has done deals well in the past and probably needs one to regain momentum. Fourth-quarter sales were disappointing, with like-for-like sales growing a measly 1 percent. Guidance for growth this year is lower than analysts hoped.

 

Eoin Treacy's view -

This is not the first time one Autonomy has consumed another and is a further example of how capitalism trends towards concentration. In the other words the large consume the weak. 



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February 10 2017

Commentary by Eoin Treacy

Copper Jumps Most Since 2013 as Strike Combines With China Boost

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

“We continue to see concerns about the deficit in the copper market,” Bart Melek, head of global commodity strategy at TD Securities in Toronto, said in a telephone interview. “We could have a significant deficit if this strike continues for a while.”

Copper for delivery in three months climbed 4.6 percent to settle at $6,090 a metric ton at 5:50 p.m. on the London Metal Exchange. That’s the biggest gain since May 2013. Aluminum, lead, nickel, tin and zinc also advanced on the LME.

An index of 18 base-metal producers climbed as much as 3.4 percent, with shares of Freeport-McMoRan Inc. and Rio Tinto Plc among the biggest increases.

 

Eoin Treacy's view -

Strike action at the world’s largest copper mine is the catalyst which has spurred interest in copper prices over the last couple of days. However the bigger picture is that global economic growth is picking up following a lengthy period of disappointment and commodity producers are cautious about investing in new supply following the trauma of a significant bear market. 



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February 10 2017

Commentary by Eoin Treacy

Backing into World War III

This article by Robert Kagan for the Brookings Institute is well worth taking the time to ponder. Here is a section:

Coming as it does at a time of growing great-power competition, this narrowing definition of American interests will likely hasten a return to the instability and clashes of previous eras. The weakness at the core of the democratic world and the shedding by the United States of global responsibilities have already encouraged a more aggressive revisionism by the dissatisfied powers. That, in turn, has further sapped the democratic world’s confidence and willingness to resist. History suggests that this is a downward spiral from which it will be difficult to recover, absent a rather dramatic shift of course by the United States.

That shift may come too late. It was in the 1920s, not the 1930s, that the democratic powers made the most important and ultimately fatal decisions. Americans’ disillusionment after World War I led them to reject playing a strategic role in preserving the peace in Europe and Asia, even though America was the only nation powerful enough to play that role. The withdrawal of the United States helped undermine the will of Britain and France and encouraged Germany in Europe and Japan in Asia to take increasingly aggressive actions to achieve regional dominance. Most Americans were convinced that nothing that happened in Europe or Asia could affect their security. It took World War II to convince them that was a mistake. The “return to normalcy” of the 1920 election seemed safe and innocent at the time, but the essentially selfish policies pursued by the world’s strongest power in the following decade helped set the stage for the calamities of the 1930s. By the time the crises began to erupt, it was already too late to avoid paying the high price of global conflict.

In such times, it has always been tempting to believe that geopolitical competition can be solved through efforts at cooperation and accommodation. The idea, recently proposed by Niall Ferguson, that the world can be ruled jointly by the United States, Russia, and China is not a new one. Such condominiums have been proposed and attempted in every era when the dominant power or powers in the international system sought to fend off challenges from the dissatisfied revisionist powers. It has rarely worked. Revisionist great powers are not easy to satisfy short of complete capitulation. Their sphere of influence is never quite large enough to satisfy their pride or their expanding need for security. In fact, their very expansion creates insecurity, by frightening neighbors and leading them to band together against the rising power. The satiated power that Otto von Bismarck spoke of is rare. The German leaders who succeeded him were not satisfied even with being the strongest power in Europe. In their efforts to grow still stronger, they produced coalitions against them, making their fear of “encirclement” a self-fulfilling prophecy.

 

Eoin Treacy's view -

US isolationism in one form under Obama and taking another form under Trump represents a change to the global geopolitical balance. It leaves an opening for increasing “assertiveness” from Russia, China and their proxies. That represents a medium-term risk premium for markets but is unlikely to represent a problem in the short term. 



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February 09 2017

Commentary by Eoin Treacy

February 09 2017

Commentary by Eoin Treacy

Musings from the Oil Patch February 7th 2017

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

Prior to OPEC’s Vienna Agreement last November, putting oil in storage because of its higher future value was a strong motivation for growing storage volumes. Now the curve is much flatter, and for oil priced three years in the future, that price is lower than the current one, providing a strong disincentive for putting oil in storage. Backwardation plays a significant role in oil producers’ decisions to hedge their production since they risk the potential of the price moving higher if the more traditional contango environment returns. As Rob Thummel, a managing director and portfolio manager at Tortoise Capital Advisors LLC put it, "What happens to the curve does depend on how the OPEC cuts will be carried out. The oil futures curve is indicating that the current OPEC cuts are here to stay for a while." U.S. oil producers will be very happy if that proves to be the case. While history would suggest otherwise, the pending (early 2018) initial public offering for Saudi Arabia’s state oil company, Saudi Aramco, an important component of its domestic economic restructuring effort, might force the country to hold its output down much longer than it has indicated. The reality may be that hundreds of small U.S. oil producers may screw up Saudi Arabia’s grand plan while hurting speculating oil traders with their record bullish oil price bet. A lower future oil price after a record bullish oil futures bet would be consistent with our recent history.

Eoin Treacy's view -

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

BP and Exxon Mobil spend a great deal of time and effort producing annual reports on energy use and issue predictions on how it will evolve over the time. That helps keep investors informed on how the companies plan to mobilise capital to take best advantage of how they see events unfolding. Saudi Arabia, as the world’s largest low cost producer, does not issue public annual reports. However its plans to IPO the company tell us more than any report ever could about the conclusions the Saudi Arabian administration has reached about the future of the oil market.



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February 09 2017

Commentary by Eoin Treacy

Markets on the cusp ...?

Thanks to a subscriber for this report by James W. Paulsen for Wells Fargo may be of interest to subscribers. Here is a section

Trends matter, for among other reasons, because they impact the impressions, expectations and actions of policy officials, investors, consumers and businesses. For this reason, we think investors should be aware of just how many financial market trends are on the cusp this year threatening to breach significant milestones.

Undoubtedly, not all of the trends we highlighted will actually break new ground this year and perhaps none will reach levels that draw much investor focus. However, in 2017, the following list of financial market trends are worth monitoring because they are “on the cusp”…

1. Evidence of inflation is broadening and inflation expectations embedded in the 10-year Treasury TIP bond is only about 0.5% below the highest level in at least 20 years.

2. Three major themes are on the cusp in the U.S. stock market. First, is the recent breach of a two-year old trading range in the S&P 500 Index to a new recovery high possibly suggesting a third leg in this bull market? Second, the relative total return performance of conservative investments is nearing its lowest level of the entire recovery. And finally, the relative performance of small cap stocks is within 10% of rising to a new all-time record high relative to large cap stocks.

3. Bond investors face several important trends on the cusp including the potential end of a 30-year bond bull, a flatter Treasury yield curve and investment grade yield spreads about to reach new narrows for the recovery.

4. The U.S. dollar is in a two-year old trading range which, with a break, will settle whether this is just a pause in an ongoing dollar bull market or the start of a fresh dollar bear market.

5. In the commodity markets, crude oil is on the cusp of breaking out of a two-year old trading range above $60 and industrial commodity prices are within 10% of rising to a new six-year high.

So far, this year has been dominated by political news and what it means for future economic and regulatory policies. Perhaps, however, in a year with so much on the cusp, investor mindsets will eventually become more impacted by financial market trends breaking outside old recovery trading ranges? 

 

Eoin Treacy's view -

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

I find the choice of words “on the cusp” to be very interesting because it represents a point of view which is outside. It suggests an investor is out of the market and potentially on the cusp of investing again. 

Perhaps that’s not overly surprising. The main stock market indices spent almost two years ranging and endured some scary pullbacks during that time. Bonds have sold off aggressively in the last few months which would have prompted at least some investors to raise cash. Commodities prices are rallying of off very depressed levels but with since they are already a year into an advance there are logical questions being asked by those on the side lines centring on whether they are already too late.

 



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February 09 2017

Commentary by Eoin Treacy

Machines Can Replace Millions of Bureaucrats

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

In some countries, some of the people in these jobs -- such as postal employees -- are public sector workers. But government clerks who do predictable, rule-based, often mechanical work also are in danger of displacement by machines. In a recent collaboration with Deloitte U.K., Profs. Osborne and Frey estimated that about a quarter of public sector workers are employed in administrative and operative roles which have a high probability of automation. In the U.K., they estimated some 861,000 such jobs could be eliminated by 2030, creating 17 billion pounds ($21.4 billion) in savings for the taxpayer.

These would include people like underground train operators -- but mainly local government paper pushers.

This week, Reform, the London-based think tank dedicated to improving public service efficiency, published a paper on automating the public sector. It applied methodology developed by Osborne and Frey to the U.K.'s central government departments and calculated that almost 132,000 workers could be replaced by machines in the next 10 to 15 years, using currently known automation methods. Only 20 percent of government employees do strategic, cognitive work that requires human thinking -- at least for now, while artificial intelligence is as imperfect as it is. Most of the rest are what the Reform report calls the "frozen middle" -- levels of hierarchy where bureaucrats won't budge without approval from above.

Almost all British government departments have 10 employee grades or more. The department for environment, food and rural affairs has 13. Most of the middle-level tasks are routine and rigidly regulated and motivation is low: Only 38 percent of middle-level bureaucrats say they feel good about what they do.

In the U.K., the average civil servant takes 8 sick days a year, while a private sector worker takes 5. In the last two decades public sector spending rose by an average 3.1 percent a year, about 16 times faster than productivity.

 

Eoin Treacy's view -

The majority of commentary is focusing on the how, what and when of Brexit but there also needs to be some thought for how the UK is going to enhance its competitive position in a post EU world. Tax structures, trade deals and deregulation all need to be high on the agenda but so does limiting needless spending in government. 



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February 08 2017

Commentary by Eoin Treacy

February 08 2017

Commentary by Eoin Treacy

The Dow/Gold Ratio

Eoin Treacy's view -

The Dow/Gold Ratio is one of the most storied ratios in finance not least because it is made up of two of the instruments with the longest back histories. We can spend a great deal of time thinking and writing about secular bull and bear markets but the Dow/Gold ratio gives us evidence of how major bull markets transition into decade long periods of underperformance of stocks versus gold before transitioning again into decades long bull markets of relative outperformance by stocks.
 
There are three major peaks and two confirmed major lows on the above chart. 

 



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February 08 2017

Commentary by Eoin Treacy

On Target Japan

Thank to Martin Spring for this edition of his ever interesting newsletter. Here is a section on Japan: 

Dividends are “being raised relentlessly,” says Price Value Partners? Tim Price. Incredibly, some international analysts say Japan is now an equity income play, after decades when its companies were notorious for neglecting their shareholders.

Whereas “the balance sheets of US companies are groaning with years of accumulated debt, Japanese balance sheets are now the strongest in the world,”

Tim says. Stock buybacks are now accelerating, and unlike the US, where buybacks are “debt-fuelled,” those in Japan are funded out of cash. John Seagrim of CLSA says: “The deep value opportunities in Japan are almost endless,” with 1.480 listed companies trading below their tangible book values.

For the first time in years, the Japanese stock market now has strong domestic support. Jeffrey Gundlach says the government is encouraging it via three sources of “pretty much automatic buying” at an annual rate in excess of 5 per cent of total market capitalization. The central bank is buying ¥6 trillion (about $53 billion) worth of equities every year, corporate Japan is investing about the same amount, the state pension fund ¥5 trillion, private investors about ¥4 trillion.

 

Eoin Treacy's view -

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

Japan posted its largest current account surplus in a decade in the 2016 suggesting the country is benefitting low oil prices, the weakness of the Yen, improving global GDP growth and tourists from neighbouring countries flocking to its shores.



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February 08 2017

Commentary by Eoin Treacy

Email of the day on uranium charts

There seems to be an error with the chart of uranium which you referenced last month, would it be possible to please update it (see the enclosed chart)?

Eoin Treacy's view -

Thank you for this email which may be of interest to subscribers. Uranium is not a freely traded commodity so there is only one daily price. Therefore it is best to view it as a line chart. I am not sure why we receive open, high, low, close data but I have now switched the chart to default to line in the Chart Library.



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February 07 2017

Commentary by Eoin Treacy

February 07 2017

Commentary by Eoin Treacy

February 07 2017

Commentary by Eoin Treacy

BOE's Forbes Says U.K. Economy May Soon Need a Rate Increase

This article by Jill Ward for Bloomberg may be of interest to subscribers. Here it is in full:

“If the real economy remains solid and the pickup in the nominal data continues, this could soon suggest an increase in bank rate,” BOE policy maker Kristin Forbes says in text of speech released on Tuesday.

MPC should be willing to move policy in either direction as needed “even if it means reversing recent adjustments”

NOTE: BOE cut rate 25bps to 0.25% in Aug.

Forbes says wage growth and inflation could pick up faster than expected, though uncertainty over Brexit may make firms reluctant to increase pay

Risks to forecast depend on how pound drop impacts inflation, how wages evolve and consumers respond

“It will become increasingly difficult for me to justify tolerating such a large and likely overshoot of inflation -- especially when compared to such a small and uncertain softening in growth and unemployment:” Forbes

Disagrees with MPC on equilibrium unemployment rate; says it is likely below 5%, but not as low as 4.5% published by BOE last week

 

Eoin Treacy's view -

I think it is safe to say the Bank of England will not raise rates until it absolutely has to. In the period following the credit crisis the bank was willing to run inflation a little hot to erode the outstanding debt and there is no reason to suspect that it will not do the same considering the uncertainty Brexit represents to its forecasts. 



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February 07 2017

Commentary by Eoin Treacy

Australia's Stock Market Is Decoupling From the World

This article by Adam Haigh  and Garfield Clinton Reynolds for Bloomberg may be of interest to subscribers. Here is a section:

``The banks are in a different dynamic,'' said James Audiss, a senior wealth manager at Shaw and Partners in Sydney, where he helps oversee about A$10 billion. ``U.S. banks make good money from trading and as rates go higher they have more spread to work with. Aussie banks don't really have that and if anything there is going to be a compression of the spread between central bank rates here and there.''

Trump's rise to the presidency has buoyed U.S. bank shares since early November, with the financial sector among the biggest winners under the new administration. While American lenders made little headway in January as the rally stalled, a gauge of Australia's biggest banks posted the worst month since August.  

It's unusual to see this decoupling. Moves on Australia's benchmark stock index are more closely tied to those on both the S&P 500 and the MSCI World index than any other major gauge in the region over the past five years, as this chart shows. Financial shares often tip the balance as they comprise more than one third of the Australian index.

 

Eoin Treacy's view -

Ahead of the financial crisis the market cap of BHP Billiton and Rio Tinto was roughly equivalent to the combined valuation of Australia’s four largest banks. That all changed with the collapse in commodity prices. The miners went through a painful bear market, while low interest rates raised the allure of banks’ competitive yields. The S&P/ASX 200 Financials Index now represents 37.6% of the broader S&P/ASX 200 Index. 



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February 07 2017

Commentary by Eoin Treacy

France and Le Pen

Eoin Treacy's view -

It’s hard to put one’s faith in polls when the question elicits embarrassment or fear of rebuke for the person answering it. That was a good part of the reason pollsters got Brexit and Trump so wrong. There is the additional question of how successful companies taking polls are at reaching the right kinds of people. For example my 10 year old loves taking online polls because she wants to feel her opinion matters but I can think of nothing more boring. What then for France and the National Front?



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February 06 2017

Commentary by Eoin Treacy

February 06 2017

Commentary by Eoin Treacy

February 06 2017

Commentary by Eoin Treacy

Why Hollywood As We Know It Is Already Over

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

When Netflix started creating its own content, in 2013, it shook the industry. The scariest part for entertainment executives wasn’t simply that Netflix was shooting and bankrolling TV and film projects, essentially rendering irrelevant the line between the two. (Indeed, what’s a movie without a theater? Or a show that comes available in a set of a dozen episodes?) The real threat was that Netflix was doing it all with the power of computing. Soon after House of Cards’ remarkable debut, the late David Carr presciently noted in the Times, “The spooky part . . . ? Executives at the company knew it would be a hit before anyone shouted ‘action.’ Big bets are now being informed by Big Data.”

Carr’s point underscores a larger, more significant trend. Netflix is competing not so much with the established Hollywood infrastructure as with its real nemeses: Facebook, Apple, Google (the parent company of YouTube), and others. There was a time not long ago when technology companies appeared to stay in their lanes, so to speak: Apple made computers; Google engineered search; Microsoft focused on office software. It was all genial enough that the C.E.O. of one tech giant could sit on the board of another, as Google’s Eric Schmidt did at Apple.

These days, however, all the major tech companies are competing viciously for the same thing: your attention. Four years after the debut of House of Cards, Netflix, which earned an astounding 54 Emmy nominations in 2016, is spending $6 billion a year on original content. Amazon isn’t far behind. Apple, Facebook, Twitter, and Snapchat are all experimenting with original content of their own. Microsoft owns one of the most profitable products in your living room, the Xbox, a gaming platform that is also a hub for TV, film, and social media. As The Hollywood Reporter noted this year, traditional TV executives are petrified that Netflix and its ilk will continue to pour money into original shows and films and continue to lap up the small puddle of creative talent in the industry. In July, at a meeting of the Television Critics Association in Beverly Hills, FX Networks’ president, John Landgraf, said, “I think it would be bad for storytellers in general if one company was able to seize a 40, 50, 60 percent share in storytelling.”

 

Eoin Treacy's view -

The march of technology enabled content creation is undeniable and irreversible. The simple reason from a business perspective is that relying on human beings to be individually creative is fraught with uncertainty, ambiguity and time management issues. Computers on the other hand excel at getting the job done on time and within budget. The challenge has always been to try and teach computers how to be creative. 



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February 06 2017

Commentary by Eoin Treacy

Email of the day - on nickel's underperformance

Do you know why Nickel is not joining in the commodity boom and whether eventually it might? Wonderful service

Eoin Treacy's view -

Thank you for your kind words and this question which may be of interest to other subscribers. Indonesia has historically been the primary supplier of nickel but from 2014 it toyed with banning exports of ore in an effort to stimulate domestic production of refined metal This article from Stratfor, dated October 12th carries some additional detail. Here is a section:  

The decision to delay the ban once again, announced by the acting chief of the Energy and Metals Resources Ministry on Oct. 4, comes as little surprise. Though foreign investors have committed some $12 billion to build 27 smelters nationwide in the past four years, anecdotal reports and trade data indicate that much of that money has yet to generate higher exports of refined metal products. In one example, the value of Indonesian exports of raw nickel ore — of which the country was once the world's largest producer — has collapsed. In 2013, the year before the first ban took effect, it stood at $1.65 billion, but by 2014 that figure had dropped to $85 million; by 2015, it had fallen to zero. Though exports of refined nickel products rose in 2014 from 2013, they, too, plunged in 2015 and continued to decline in value through the first four months of 2016. Nickel is not unique in this respect, either: The value of metal ore exports as a whole has collapsed, and that of most refined metal products has stagnated or declined.

The 2014 ban came on the heels of a slowdown in China's economy and a dip in metals prices, caused in part by the increasing ore supplies of key competitors such as the Philippines. Low prices then undercut investor interest in building smelting facilities, as did uncertainty surrounding the status of Indonesia's regulations. Meanwhile, the lack of even minimal support infrastructure for construction operations meant that the companies that agreed to build smelters often found themselves responsible for building and funding roads, power generators and other basic utilities to support them. Nevertheless, despite these headwinds, many smelting projects are still underway or in the planning stages.

 



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February 03 2017

Commentary by Eoin Treacy

February 03 2017

Commentary by Eoin Treacy

Australia's record-breaking mining exports hint of new sector boom

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

The encouraging data sharply contrasts with the record deficit of $4.3 billion the country recorded only 12 months ago.

HSBC chief economist Paul Bloxham told AAP the export boom should considerably boost company profits, dividend payments, share prices and wages in the mining sector.

His comments will be tested beginning next week, as some of Australia's top mining companies including Rio Tinto (ASX, LON:RIO), BHP Billiton (ASX:BHP), Newcrest Mining (ASX:NCM) and South32 (ASX:S32) are set to start reporting their 2016 results.

This is only the second monthly trade surplus Australia has recorded in nearly three years, which evidences once again the country’s continued reliance on and vulnerability to changes in commodities markets.

The news comes on the back of a report from the Department of Industry, Innovation and Science, which predicted that Australia’s mining and energy export earnings would jump by 30% between 2016 and 2017, hitting a small yet encouraging record of $204 billion.

 

Eoin Treacy's view -

Australia exported more than a billion tons of iron ore last year for the first time. At the same time prices broke out of a more than yearlong base so higher volumes were greeted with higher prices which has certainly helped to improve the country’s trade balance. The surge in coking coal prices due to temporary shortages will also have acted as a short-term boost. However with coking coal now well off its peak it is less likely to represent the same positive influence on trade this year. 



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February 03 2017

Commentary by Eoin Treacy

New Nafta Could Settle Canada-U.S. Lumber War, Resolute CEO Says

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

A renegotiation of Nafta could be used to settle a lumber dispute that’s been simmering between Canada and the U.S. for decades and threatens to make housing unaffordable for thousands of Americans, according to the world’s largest newsprint maker.

The Canadian government will probably want lumber included in a new North American Free Trade Agreement, Richard Garneau, chief executive officer of Montreal-based Resolute Forest Products Inc., said by phone. “I think that makes sense,” he said.

The U.S. has initiated an investigation into softwood lumber imports amid allegations Canadian timber is heavily subsidized and shipments are harming U.S. mills and workers. President Donald Trump has also signaled that the U.S. may seek more favorable terms in trade pacts such as Nafta.

A previous softwood lumber agreement expired in October 2015. That was followed by a 12-month moratorium, during which Canada was able to continue shipping lumber tariff-free.

 

Eoin Treacy's view -

Lumber is a highly political commodity since the US has a domestic industry but also needs to import from its northern neighbour to supply is burgeoning housing market. Home starts hit their highest level since 2007 in December which is a testament both to high home prices and the health of the US economic expansion. 



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February 03 2017

Commentary by Eoin Treacy

February 02 2017

Commentary by Eoin Treacy

February 02 2017

Commentary by Eoin Treacy

Philippines to shut half of mines, mostly nickel, in environmental clampdown

This article from Reuters appeared in Singapore’s The Edge newsletter and may be of interest to subscribers. Here is a section:

The Philippines ordered the closure on Thursday of 21 mines, mainly nickel producers that account for about half of output in the world's top nickel ore supplier, in a government campaign to fight environmental degradation by the industry.

Manila also suspended operations at another six mines, including the country's top gold mine operated by Australia's Oceanagold Corp, as Environment and Natural Resources Secretary Regina Lopez vowed to put the public's welfare above mining revenues.

"My issue here is not about mining, my issue here is social justice," Lopez, a staunch environmentalist, said at a briefing that showed footage of damage from mining to an audience including priests and residents of mining communities.

 

Eoin Treacy's view -

To the best of my knowledge, Nickel was the worst performing LME traded industrial metals over the last couple of years. Indonesia’s decision to relax export restrictions was a major influence on that outcome but the result has been that many mining operations are not economic at today’s prices. 



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February 02 2017

Commentary by Eoin Treacy

Rupee Advances to 8-Week High After Modi Budget

This article by Subhadip Sircar for Bloomberg may be of interest to subscribers. Here it is in full:

Rupee rose to strongest in 8 weeks as PM Modi stuck to fiscal prudence in budget presented Wednesday, Fed signaled it wasn’t in a hurry to raise U.S. rates.

USD/INR falls 0.2% to 67.3725, lowest since Dec. 8; seventh day of losses is longest losing streak since Dec. 8

Positive stock sentiment in response to budget may keep INR bears at bay for now, Citibank says in note. Medium-term trend remains dependent on broader USD trend, global risk sentiment, oil prices

Tailwinds from declining oil prices, widening real rates now dissipating, issues of competitiveness may soon arise. Stays tactically neutral INR, no longer bullish for medium term

Buy rupee as India budget shows fiscal prudence, Scotiabank says

Contained budget gap to give RBI room to cut rates, S&P Global Ratings says Govt endeavor is to improve on FY18 fiscal gap est., 

Economic Affairs Secretary Das says Expect bond yields to remain range bound over the next 5-6 weeks on positive investment demand from banks, CPI expected to stay sub-4% in Jan./Feb. and supply lull in February and March, says Morgan Stanley in note dated Monday
Expectations for RBI rate cut at the Feb. 8 monetary policy meeting Yield on govt bond due Sept. 2026 drops 3bp to 6.40%

 

Eoin Treacy's view -

The Rupee had been reflecting widespread angst that the Indian budget would be inflationary in nature and that fear had been weighing on sentiment not least in the aftermath of demonetisation. With a more fiscally responsible tone being set, the Dollar has pulled back to test its progression of higher reaction lows. A sustained move below it would signal Rupee dominance beyond the short-term. 



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February 02 2017

Commentary by Eoin Treacy

The latest "nightmare inducing" Boston Dynamics robots

This YouTube video highlights a presentation from Boston Dynamics at a recent Singularity University event. The newest robot is previewed 3:53 minutes into the video. 

Eoin Treacy's view -

Boston Dynamics was an aspiring defence contractor when it was acquired by Google. Since Google’s long held mantra is to do no evil that pretty much precluded the company from selling robots that might one day be designed to kill people. The problem is that it’s hard to design robots to displace manual labour outside of strictly controlled environments. The company is making rapid strides in that field but the primary growth avenue is in places where humans would be in danger, not least from other humans. That is at least part of the reason Alphabet is looking for a buyer for the company.   



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January 31 2017

Commentary by David Fuller

The City Finally Sees the Light On Brexit

Wow. As U-turns go, this one takes some beating. TheCityUK, the main lobbying arm for the financial and associated business services sectors, appears to have suddenly embraced Brexit. In common with all the other big City groups and all the big banks, it was strongly in favour of remaining in the EU, seemingly at almost any cost. It argued loudly that the status quo, and especially the rules governing access to EU markets, was worth the cost in terms of counter-productive regulations, such as banking bonus caps or inappropriate, absurd Solvency II insurance rules.

No longer: its latest missive appears to have been penned with the zeal of the convert. The press release is entitled “TheCityUK hails opportunity for trade and investment policy reset”. While it obviously remains worried about the threat of protectionism from the EU, its new report emphasises the upsides of developing new markets.

Around 33pc of the UK’s exports of financial services go to the EU, which also accounts for roughly 40pc of Britain’s trade surplus in financial services. There is no doubt, therefore, that Europe is a crucial market for UK financial services firms. But it’s not that simple. The EU actually matters more to other sectors of the economy (44pc of all our exports of goods and services now go to the EU, a fast-declining share). Even more importantly, as TheCityUK points out in its new report, “over the next 10-15 years, 90pc of global economic growth is expected to be generated outside Europe and these markets – developed and emerging – must be a priority focus for the country post-Brexit”. In other words, we need to fight to retain as much access as possible to the EU, but our long-run future lies in trading a lot more with other economies, including emerging and already developed countries.

A recent Financial Services Briefing by Shanker A Singham and Victoria Hewson, published by the Legatum Institute, put this very well. It points out that international and wholesale banking business related to the EU is between 20pc-25pc of the total. That’s a big number, helped by the availability of passporting, but still means that a huge amount of business is conducted by the City without any passporting mechanism. We shouldn’t obsess about the minority of activity that goes to the EU while neglecting the majority that doesn’t.

David Fuller's view -

Allister Heath describes himself an optimist.  He certainly is but a very sensible rather than greedy optimist.  If you can keep that emotional balance and are interested in the markets, and also look at charts for evidence of relative strength plus the eventual crossover to weakness, you will do well in the markets. 

A PDF of Allister Heath’s article is in the Subscriber’s Area, along with a second article.



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January 31 2017

Commentary by David Fuller

French Race Blown Wide Open as Le Pen, Macron Wait in Wings

Here is the opening of this informative article from Bloomberg:

Francois Fillon’s French presidential campaign plunged deeper into trouble on Tuesday after further revelations about his use of public funds to employ members of his family.

The Republican candidate’s daughter and son allegedly earned 84,000 euros ($91,000) from 2005 to 2007 while working for him when he was a Senator, Le Canard Enchaine said. His wife, Penelope Fillon, earned more than 900,000 euros during over a decade as a parliamentary assistant and a contributor to a magazine, according to Le Canard.

The newspaper’s initial report on Penelope’s job last week triggered a prosecutor to open a preliminary probe into the family’s affairs. The candidate says he’s innocent.

“I am confident, I am calm and I’m waiting for the end of the investigation,” Fillon said in Paris. “Never has a situation like this one occurred. Never, three months before an election, was such an big and professional operation set up to eliminate a candidate other than through a democratic vote. Everyone will reap the consequences.”

The scandal has gripped France over the last week and offers the prospect of another twist in a race that has the nationalist Marine Le Pen leading the polls and has already seen household names like President Francois Hollande and his predecessor, Nicolas Sarkozy, fall by the wayside. That said, polls show that Le Pen is still a long shot for victory in the second round of voting, with Emmanuel Macron also poised to benefit -- at least in the short term -- from Fillon’s woes.

“His image has been seriously damaged, and what’s worrying for him is that even among his supporters many are not convinced,” said Yves-Marie Cann, director of political studies at pollster Elabe in Paris. “The fire is not contained.”

David Fuller's view -

We have known for a long time that 2017 was going to be an important year in terms or EU elections.  Well, we are only one month into the year but it would be premature to describe it as a non-event.  This would be a scandal in the UK but my impression is that the French may only shrug their shoulders. 

Interestingly, Marine Le Pen continues to lead the polls while everyone who claims to be knowledgeable about French elections says she has no chance.  After all, the French have never been shy about doing what they want in the EU, where they are the junior partner to Germany. 

That may sound like groupthink but why take the risk of voting for someone who actually wants to leave the EU?  Well, the French economy has experienced a depressingly large amount of terrorism over the last year or so.  The crippling strikes continue; it is so much harder to run a business in France with all the French/EU regulation, and the brain drain continues. 

London is described as the fourth or fifth largest ‘French City’, and millions of classy, well-educated and commercially successful French families are thriving over here.  They spend their holidays in France, understandably, but I see no evidence that they are thinking of leaving because of the Brexit vote.    



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January 31 2017

Commentary by David Fuller

Trump Is Right: Germany Is Running An Illegal Currency Racket

As a matter of strict objective fact, Donald Trump’s trade guru is correct. Germany is the planet’s ultimate currency manipulator.

The implicit Deutsche Mark is indeed “grossly undervalued” The warped mechanism of monetary union allows Germany to lock in a permanent ‘beggar-thy-neighbour’ trade advantage over Southern Europe, inflicting mass unemployment on the victim countries and blighting their futures.

Whatever you think of Peter Navarro’s trade philosophy, he is right that Germany’s chronic, huge, and illegal current account surplus - 8.8pc of GDP - saps global demand and seriously distorts the world economy.

Let us concede that this super-surplus is an accident of history, rather than the result of a strategic conspiracy by Chancellor Helmut Kohl in the early 1990s. The German people never wanted the euro in any active sense.

The Bundesbank went to some lengths to head off the creation a ‘greater euro’ with too many ill-suited countries, constructed on the unworkable foundations that we can all see so clearly today.

That said, monetary union was never entirely innocent. The German Chambers of Commerce and Industry (DIHK) railed against the periodic devaluations by Italy and France in the various fixed exchange experiments of the pre-euro era. They were fully aware of the mercantilist advantage of fixing the D-Mark rate in perpetuity, and their influence played its part in the German acceptance of the Maastricht Treaty.

Once the euro was underway, GermaAs a matter of strict objective fact, Donald Trump’s trade guru is correct. Germany is the planet’s ultimate currency manipulator.

The implicit Deutsche Mark is indeed “grossly undervalued” The warped mechanism of monetary union allows Germany to lock in a permanent ‘beggar-thy-neighbour’ trade advantage over Southern Europe, inflicting mass unemployment on the victim countries and blighting their futures.

Whatever you think of Peter Navarro’s trade philosophy, he is right that Germany’s chronic, huge, and illegal current account surplus - 8.8pc of GDP - saps global demand and seriously distorts the world economy.

Let us concede that this super-surplus is an accident of history, rather than the result of a strategic conspiracy by Chancellor Helmut Kohl in the early 1990s. The German people never wanted the euro in any active sense.

The Bundesbank went to some lengths to head off the creation a ‘greater euro’ with too many ill-suited countries, constructed on the unworkable foundations that we can all see so clearly today.

That said, monetary union was never entirely innocent. The German Chambers of Commerce and Industry (DIHK) railed against the periodic devaluations by Italy and France in the various fixed exchange experiments of the pre-euro era. They were fully aware of the mercantilist advantage of fixing the D-Mark rate in perpetuity, and their influence played its part in the German acceptance of the Maastricht Treaty.

Once the euro was underway, Germany then pushed through policies in labour law and tax policies that amounted to an ‘internal devaluation’ - cutting unit labour costs in manufacturing in the single year of 2005 by 4.4pc, for example - and continued to screw down its intra-EMU exchange rate long after there was any justification for doing so. The effect was to further entrench commercial supremacy.

Large current account surpluses are invariably the result of tax policies, regulations, hidden barriers, and an overall governing structure that punishes consumption and fosters exports. Germany - for example - forces households to cross-subsidize the power costs of export industries.

This would not matter much if Germany had a floating exchange rate: the currency would correct for the distortions over time. But such practices within the euro system are an entirely different matter. Nothing self-corrects.

David Fuller's view -

It is easy to lose sight of what is going on here, with all the insults, protests and inflammatory tweets appearing every day.  Trump certainly has an obnoxious side and he is not afraid to use it.  This is in some respects a very effective verbal military campaign. 

Inevitably there will be costs with this approach, particularly when Trump backs a questionable cause, as will certainly happen.  However, he has picked an awesomely strong business team – the best that I have ever seen. 

In confronting China and Germany, forget Marquess of Queensberry Rules – Trump is a street fighter.  Pick the right targets, Donald. 

A PDF of AE-P's column is in the Subscriber's Area. 



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January 31 2017

Commentary by David Fuller

The Markets Now

The next Markets Now will be held in the Morrison Room at The Caledonian Club, on Monday 27th March

David Fuller's view -

I am delighted to say that our guest speaker at this event will be the interesting Charles Elliott, founder of Inflection Point Investments.  The first half of his talk will be on ‘Mega-Cap Tech’, including big and well-known names such as Apple, Microsoft, Google/Alphabet & Amazon.  This will be followed by ‘Emerging Tech’ in which he specialises. 

The new brochure will be available shortly.  



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January 30 2017

Commentary by David Fuller

Sometimes Dow Peaks Are Followed by More Peaks

Last week, much attention was rightly focused on the Dow Jones Industrial Average as it breached the 20,000 mark for the first time.

In past cycles, such peaks have led to bouts of euphoria as investors had a fear of missing out on further gains. Although a similar feeling could be motivating some investors today, many seem to still be scarred by the two crashes of the past 16 years or so in which the market was cut in half each time.

The thinking is that any time stocks reach a new high it must mean that we are close to a peak that will surely bring the market crashing down. That is always a possibility, of course, but investors in stocks have to remind themselves that they will see many highs in a lifetime of investing. Generally speaking, stocks go up most of the time. A few of those highs will be temporary peaks but most will simply lead to even more highs down the road.

For example, looking at over 100 years of data on the Dow going back to 1915 shows that stocks have had 1,252 highs. That works out to an average of about 12 new highs every year. Assuming the average investor is in the markets for 40 years, that would be almost 500 highs in a lifetime of investing in stocks.

This table shows the number of highs by decade going back to 1915: (see article)

There was an enormous dry spell following the Great Depression, but beyond the aftermath of that cataclysmic period, new highs in stocks are perfectly ordinary. Almost five percent of all trading days over this time span have seen new highs.

To take this a step further, it can also be useful to look at how well stocks have performed in the ensuing years after reaching highs. This table shows how the Dow has performed one, three and five years after reaching a new high:

The average total returns for one, three and five years are right around the long-term average in the stock market  of about 9-10 percent annually over this period. And stock market returns have been positive for most of the time following these events over all three time horizons.

There are some caveats. If five percent of all trading days have led to highs, That means stocks are trading below a high 95 percent of the time. So the majority of the time stocks are in a state of drawdown, which can affect the psyche of any investor who doesn’t understand this fact. Most of your time as a stock market investor is spent in a state of regret.

David Fuller's view -

Investors will need to click on the article above to access these important tables but few of you will be surprised.  The last two sentences posted above, which I have set in bold, are hugely significant and should never be forgotten.  Moreover, they should be shown to any novice investor. 

If you have a pessimistic disposition, you will struggle to make money in stock markets over the longer term.  



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January 30 2017

Commentary by David Fuller

Buffett Go-To Billionaire Dealmaker Has Wall Street on Edge

Here is the opening and also a latter section of this interesting article from Bloomberg:

It’s time for Jorge Paulo Lemann to get back in the hunt.

That, anyway, is the word inside the food industry, where the Brazilian billionaire has been doing blockbuster deals roughly every two years. In 2013, he persuaded Warren Buffett to team up on H.J. Heinz. Then, in 2015, the duo orchestrated the $55 billion merger of Heinz and Kraft Foods.

“It’s logical that this would be the year,” said David Palmer, a food industry analyst at RBC Capital.

The talk has traders on edge. Last month, a story in a little-known Swiss magazine, resurfacing well-worn speculation about Lemann’s plan to buy Mondelez with Buffett, spurred an immediate pop in the U.S. snack giant’s shares. (They soared 28 percent in just a few minutes.) So far, no deal has been announced. Regardless, the question of what Lemann might go after in 2017 has just about everyone grasping for leads. Besides Mondelez, some other names include General Mills, Kellogg and Campbell Soup.

And:

Buffett’s Berkshire Hathaway is Coke’s biggest shareholder (with a 9 percent stake) and Lemann once called the company his dream acquisition.

To swallow the $179 billion soft-drink maker, an offer would probably need to come from Anheuser-Busch InBev, which Lemann controls along with other Brazilian billionaires and wealthy Belgian families. AB InBev and Coke both declined to comment.

As recently as 2015, Buffett said a deal was “very unlikely” because Coke wasn’t looking for one. But last month, his son Howard announced he wouldn’t stand for re-election to the company’s board. CEO Muhtar Kent also said he will step down next year and hand the reins to his lieutenant, James Quincey. That’s fueled speculation a deal is more likely now.

“This seems like a situation tailor-made for a 3G transformation,” said Steve Wallman, a fund manager and longtime Berkshire shareholder.

David Fuller's view -

Warren Buffett’s cash and cash equivalents currently sits at $85 billion, according to Bloomberg.  That is Berkshire Hathaway’s biggest cash holding since at least 1900 and most likely an all-time record.  Moreover, it is presumably still growing.  

We can interpret that in two ways.  1) Buffett is concerned about valuations and is building-up his cash reserves so that he can buy following at least a sharp correction. This has proved to be his preferred strategy over the decades.   2) Buffett may feel that with global GDP improving, plus Trump’s domestic economic policies, Wall Street may be right in propelling US share indices to new all-time highs.  In that event, he may help Jorge Paulo Lemann to arrange a buyout of Coca-Cola.

This item continues in the Subscriber’s Area. 

 

 



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January 30 2017

Commentary by David Fuller

Email of the day

On Theresa May’s power dressing at the White House:

January 30 2017

Commentary by David Fuller

Mexico Unites In Anger Over President Trump Plan for Sanctions

President Donald Trump’s escalating threats against Mexico have led to calls for a guerrilla struggle of national resistance from across the political spectrum, uniting the Mexican people as almost never before in modern times.

A string of elder statesmen warn that the country faces grievous injury and is now in a state of de facto hostilities with Washington, forcing Mexicans to fight back on every front and whatever the cost.

“An eye for an eye, and a tooth for a tooth,” said former president Vicente Fox. “Trade is important, jobs are important, but they are not as important as dignity. We must not be cowed or it will paralyse us,” he said.

Felipe Calderon, who led the country a decade ago, said Mexico must retaliate immediately and where it hurts most, targeting counter-sanctions against the districts of US congressmen who have been the most vocal supporters of Mr Trump’s plans for a border wall and his talk of trade tariffs.  

“We are seeing the behaviour of a bully. He who declares war against us will have to respond. There are going to be costs. Mexico will suffer. But we’ll show the size of our country and what our people are made of,” he said.

“We must have a retaliation strategy in every area where the bilateral relationship with Mexico has value. We must put everything in the balance,” he told a forum on Mexico City’s Televisa.

Mr Calderon said Mexico should fight tactically in the US courts and global bodies to tie the US administration in knots, targeting the lines of cleavage in Mr Trump’s own political base. It is a strategy used before in a cross-border trucking dispute, but this time it would be on a much greater scale.

“We must revise the whole relationship point by point, including the presence of US agents in our country,” he said. Anti-terror co-operation on Isis should be frozen.

“They have to understand that they cannot take Mexican support for granted. Trump has no idea what this means in terms of security and fighting organised crime and narco-traffic,” he said.

David Fuller's view -

Could we have already seen the best of Trump in less than ten days as President?  I certainly hope not as that would be the ultimate nightmare, and not just for the USA.  

I am assuming that he is more sensible than that.  However, what we know is that he has a huge ego and shoots from the hip, not least on a range of topics which neither he nor any other individual could fully understand on their own.

I credit Trump with appointing a strong, independently minded cabinet.  While they are all very likely to be appointed, Democrats are in no hurry to end the hearings, which will not be completed before sometime in February.  Rex Tillerson, Secretary of State, is the most important and very capable but he will not hold office before this Wednesday, at the earliest.  

I do not think any of them would hesitate to confront Trump on a serious issue, but we will soon find out.  Trump respects them so he is likely to listen.  Meanwhile, Trump has already started some potentially destructive fires, with countries, some of his own powerful CEOs and the US population which did not support him. 

Wake up Trump and smell the coffee.

A PDF of AE-P’s article is posted in the Subscriber’s Area



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January 30 2017

Commentary by David Fuller

The Markets Now

The next Markets Now will be held in the Morrison Room at The Caledonian Club, on Monday 27th March

David Fuller's view -

I am delighted to say that our guest speaker at this event will be the interesting Charles Elliott, founder of Inflection Point Investments.  The first half of his talk will be on ‘Mega-Cap Tech’, including big and well-known names such as Apple, Microsoft, Google/Alphabet & Amazon.  This will be followed by ‘Emerging Tech’ in which he specialises. 

The new brochure will be available shortly.  



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January 30 2017

Commentary by Eoin Treacy

January 30 2017

Commentary by Eoin Treacy

The retreat of the global company

Thanks to a subscriber for this article from the Economist which may be of interest to subscribers. Here is a section:

It looks as if, in the future, the global business scene will have three elements. A smaller top tier of multinational firms will burrow deeper into the economies of their hosts, helping to assuage nationalistic concerns. General Electric is localising its production, supply chains and management. Emerson, a conglomerate that has over 100 factories outside America, sources about 80% of its production in the region where it is sold. Some foreign firms will invest more deeply in American-based production in order to avoid tariffs, if Mr Trump imposes them, much as Japanese car firms did in the 1980s. This is doable if you are large. Siemens, a German industrial giant, employs 50,000 in America and has 60 factories there. But midsized industrial firms will struggle to muster the resources to invest more deeply in all their markets.

Politicians will increasingly insist that companies buying foreign firms promise to preserve their national character, including jobs, R&D activity and tax payments. SoftBank, a Japanese firm that bought ARM, a British chip company, in 2016, agreed to such commitments. So has Sinochem, a Chinese chemicals firm that is buying Syngenta, a Swiss rival. The boom in foreign takeovers by Chinese firms, meanwhile, may fizzle out or explode. Many such deals, reliant on subsidised loans from state banks, probably make little financial sense.

The second element will be a brittle layer of global digital and intellectual-property multinationals: technology firms, such as Google and Netflix; drugs companies; and companies that use franchising deals with local firms as a cheap way to maintain a global footprint and the market advantage that brings. The hotel industry, with its large branding firms such as Hilton and Intercontinental, is a prime example of the tactic. McDonald’s is shifting to a franchising model in Asia. These intangible multinationals will grow fast. But because they create few direct jobs, often involve oligopolies and do not benefit from the protection of global trade rules, which for the most part only look after physical goods, they will be vulnerable to nationalist backlashes.

Eoin Treacy's view -

Since I wrote a book championing the big global companies, which dominate their respective niches, we refer to as Autonomies and co-manage a fund devoted to investing in them I think it is safe to say I have a bias in commenting on this story. Nevertheless, it raises some important questions.

Big global companies do well when the global economy is expanding so a transition from synchronized global monetary stimulus to synchronized global fiscal stimulus is a positive potential development which is already being reflected in stock prices. In addition, the potential for lower US corporate taxes is an important consideration since it is still the world’s largest economy by a long shot.  



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January 30 2017

Commentary by Eoin Treacy

Email of the day on leverage and the repercussions of quantitative easing

Thank you for this extensive overview of the rates and currencies situation, which deservedly so need our full attention.

I will add to the “puzzle of what to make of all this" 4 further concerning facts

1 The evidence of constant decline in the global trade, referenced by a flow chart from the Dutch Central bank, I sent to David sometimes ago.

2 The concern of extensive froth in the supposedly growth of earnings supported by ever extended buybacks and ever extended gap (pun intended) between GAAP vs non GAAP while revenues are still stalling. This may be a strong argument for repatriation of $ to support balance sheets, but as any action begets a reaction, please see No 4

3 The leverage everywhere at levels that may not be healthy in this volatile environment.

4 And what could concern mostly everyone is the growing scarcity and consequently cost of US$ :

 

Eoin Treacy's view -

The world needs a growth spurt to help mitigate the issues with leverage and unimpressive lopsided expansions that have resulted from quantitative easing which you highlight above. Without growth in GDP and earnings, the inevitable conclusion to a period of expanding multiples is either a bubble or at least a period of heightened volatility. 



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January 30 2017

Commentary by Eoin Treacy

Tesla's Battery Revolution Just Reached Critical Mass

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

Three massive battery storage plants—built by Tesla, AES Corp., and Altagas Ltd.—are all officially going live in southern California at about the same time. Any one of these projects would have been the largest battery storage facility ever built. Combined, they amount to 15 percent of the battery storage installed planet-wide last year.

Ribbons will be cut and executives will take their bows. But this is a revolution that’s just getting started, Tesla Chief Technology Officer J.B. Straubel said in an interview on Friday. “It’s sort of hard to comprehend sometimes the speed all this is going at,” he said. “Our storage is growing as fast as we can humanly scale it.”

A Fossil-Fuel Disaster
The new battery projects were commissioned in response to a fossil-fuel disaster—the natural gas leak at Aliso Canyon, near the Los Angeles neighborhood of Porter Ranch. It released thousands of tons of methane into the air before it was sealed last February.

In its wake, Southern California Electric (SCE) rushed to deploy energy storage deals to alleviate the risk of winter blackouts. There wasn’t any time to waste: All of the projects rolling out this week were completed within 6 months, an unprecedented feat. Tesla moved particularly nimbly, completing in just three months a project that in the past would have taken years. 

Eoin Treacy's view -

The Porter Ranch gas leak made headlines in Los Angeles all last summer but it was a blessing for Tesla because it gave the company an opportunity to demonstrate how it can deploy its batteries at scale in a tight timeframe. 

Batteries are an essential piece of the renewable energy, electric vehicle puzzle. Every innovation that brings down battery costs has an outsized effect on a host of other sectors. Tesla, with its now completed giga-factory, is well placed to benefit from these emerging themes. 

 



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January 27 2017

Commentary by David Fuller

US Shale Surge Stalls Weekly Oil Price Gains

The steady rise of US shale production has stalled a strong week of oil price gains, as market fears grow that the extra oil flows could scupper Opec plans to drain the oversupplied market knocked a dollar from the price.

Oil prices have been buoyed this week by optimism that the deal between producers in the Organization of Petroleum Exporting Countries and major producers outside of the cartel is beginning to relieve the global glut.

The market climbed from around $54 a barrel late last week to $56.42, almost 5.5pc higher than the price before Opec agreed the historic supply deal in November.

By midday the oil price had retreated to $55.60 after new data showing the extent of the US shale industry recovery reignited market jitters.

US oil and gas flows were decimated by the two year oil rout due to higher costs for rig operators in shale-rich pockets of the States than in major producers in the Middle East and Russia.

As oil prices have doubled over the last year from lows of less than $28 a barrel to over $50 many shale producers have been able to restart flows, threatening the price rises which have allowed their revival in the first place.

Analysts at brokerage Cenkos said that the latest data shows that US output has risen by more than 6.3pc over the last six months, with some concerned that further rises will offset moves by Opec to curb output.

“Traders will look closely at the weekly rig count data, set to be released this afternoon,” Cenkos added.

David Fuller's view -

Crude oil may still be the world’s most important commodity in terms of production and consumption but its price volatility this year will probably be less than what we see for most other resources.

OPEC has abandoned its ruinous death spiral policy with which it was trying to wipe out the US shale oil industry.  Less productive shale resources have been abandoned and debt-leveraged shale companies have closed, but the US is still a major producer.  Moreover, the technology of shale production is now more efficient than ever. 

Therefore we are very unlikely to see further attempts by OPEC to flood the market with oil.  And while it was inevitable that US shale production would increase as the price rose above $50, the US oil industry has no interest in driving crude oil prices back below $30. 

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



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January 27 2017

Commentary by David Fuller

Trump Greets Prime Minister May as World Leaders Look For Cues

Here is the opening of this topical article from Bloomberg:

Theresa May will provide the first test for how world leaders can deal with Donald Trump when she arrives in the U.S. to welcome the new president to the global stage and lay the groundwork for a U.S.-U.K. trade deal.

“As we rediscover our confidence together –- as you renew your nation just as we renew ours –- we have the opportunity, indeed the responsibility, to renew the special relationship for this new age,” the U.K. prime minister will tell Republican lawmakers gathered in Philadelphia on Thursday, according to excerpts from her prepared remarks. “We have the opportunity to lead, together, again.”

The good news for May, who’s due to meet Trump at the White House on Friday, is that he’s eager to cement relations and nail down a U.K. trade deal too -- for his own reasons. He’d like to further drive a wedge into a fractured Europe and strengthen at least one trade relationship as he exits the Trans-Pacific Partnership and prepares to renegotiate Nafta.

A close relationship between the U.S. and U.K. would prove that neither nation is turning inward -- Trump after an election victory fueled by his “America First” campaign, and May as she takes Britain out of the European Union after last year’s Brexit referendum.

So May is opting to brush aside the worldwide protests that followed Trump’s inauguration and worked hard to secure Trump’s first meeting in office with a foreign leader.

David Fuller's view -

People are overreacting to Trump’s brashness and underestimating May.  These two leaders have already strengthened the Special Relationship well beyond what we saw during the Obama years.  This will be good for both countries.   



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January 27 2017

Commentary by David Fuller

The Weekly View: Focussing on Policy, Not Headlines: Investing in the Era of the Tweet News Cycle

My thanks to Rod Smyth for his excellent timing letter, published by RiverFront Investment Group.  Here is the opening:

2017 presents markets with significant potential policy changes on taxation, regulation, healthcare, infrastructure and trade.  After years of gridlock, where the main focus of policy has been on central banks, now the focus is squarely on the new administration and Congress.  On balance, we expect global stocks and interest rates to rise.

Since November, the prevailing mood of investors has been one of optimism about faster economic earnings growth from lower taxes and less regulation, and we agree.  For now, the more alarming rhetoric on trade seems to have been viewed as part of a negotiation.  At RiverFront, we recognize that policy negotiation through tweeting is just a part of the new world.  Our challenge is to avoid the emotional cycle generated by the headlines and seek to assess policy changes that we believe will actually occur.  For now, we will seek to make changes when we believe assets become mispriced.  The baton pass from the dry language of central banks to the colourful one of politicians is our new reality.  

David Fuller's view -

There is much of interest in this short letter, and I commend it to subscribers.  

The Weekly View is posted in the Subscriber’s Area.



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January 27 2017

Commentary by David Fuller

The Markets Now

The next Markets Now will be held in the Morrison Room at The Caledonian Club, on Monday 27th March

David Fuller's view -

 

I am delighted to say that our guest speaker at this event will be the interesting Charles Elliott, founder of Inflection Point Investments.  The first half of his talk will be on ‘Mega-Cap Tech’, including big and well-known names such as Apple, Microsoft, Google/Alphabet & Amazon.  This will be followed by ‘Emerging Tech’ in which he specialises. 

I can’t wait.



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January 27 2017

Commentary by David Fuller

January 27 2017

Commentary by Eoin Treacy

January 27 2017

Commentary by Eoin Treacy

France's Neighbors Sound Alarm Over Election 'Catastrophe' Risk

This article by Esteban Duarte  and Patrick Donahue for Bloomberg contains a useful calendar of political events for 2017 and may be of interest to subscribers. Here is a section:

Polls suggest that National Front leader Marine Le Pen will make it to France’s run-off vote on May 7, giving her a shot at claiming the presidency on anti-euro, EU-skeptic ticket. She shared a stage last weekend with Frauke Petry of Alternative for Germany and Geert Wilders, whose anti-Islam platform has helped propel his Freedom Party to within reach of winning the March 15 Dutch election.

Europe’s anti-establishment forces are drawing inspiration from Donald Trump’s surprise elevation to the U.S. presidency and unexpected victory of Brexit supporters in last year’s referendum. Another common strand is an anti-immigration stance that has flourished during the worst refugee crisis since World War II, with more than one million people fleeing war and oppression in Syria, Afghanistan and elsewhere having sought asylum in Germany alone.

Gabriel, who is poised to become German foreign minister in a cabinet reshuffle allied to the Sept. 24 election, pointed to France’s two-round ballot as the key moment that will shape Europe’s destiny. While no recent poll has shown Le Pen coming close to winning the second round, Brexit and Trump’s victory have made political analysts and investors reluctant to rule anything out.

“If Europe’s enemies, after Brexit last year, manage once again in France or in the Netherlands to be successful, then the threat to us is the collapse of the greatest civilization project of the 20th century, the European Union,” Gabriel said in a speech to lower-house lawmakers in Berlin on Thursday.

 

Eoin Treacy's view -

No one has much faith in polls anymore because people lie about their intentions and those that respond to polls are often not representative of the swing voters that shape results. Lurches to the right in the UK and USA represent dissatisfaction with the status quo. France’s generous social programs have helped nullify populist uprisings until now, but an unemployment rate stuck at 10.2% and youth unemployment of 24% are intransigent problems that the current political apparatus does not appear to have a solution for.



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January 27 2017

Commentary by Eoin Treacy

Latin America Abandons Fuel Subsidies in Shift to Austerity

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

"These countries are under enormous fiscal pressure and are reacting to it," said Samar Maziad, a sovereign analyst at Moody’s.

President Mauricio Macri has made Argentina’s economy more competitive since he took over in 2015, and an 8 percent gasoline price increase this month has contributed to Buenos Aires-based YPF’s recent rally to the highest in more than a year. Argentina is moving to completely liberalize prices by 2018. YPF declined to comment on its stock price.

Mexico has lifted prices about 20 percent this month as it opens state-owned Petroleos Mexicanos’s monopoly to foreign competition. It has pledged to completely phase out fuel subsidies over the course of the year. The so-called “gasolinazo,” or fuel-price slam, sparked protests across the country that curtailed fuel distribution and has left President Enrique Pena Nieto’s approval rating at an all-time low of 12 percent. Mexico is planning another fuel price increase on Feb.

The main outlier is Venezuela, the region’s biggest exporter with the cheapest gasoline in the world at about 15 U.S. cents to fill a tank, even after the first price increase in almost two decades last year. Colombia got a head start when it began tracking international prices in 2008, a year when fuel subsidies contributed to an economic contraction.

In Brazil, where subsidies drained an estimated $40 billion from Petrobras between 2011 and 2014, Chief Executive Officer Pedro Parente has shown greater independence from the government to set fuel rates. Under Parente, the company formally known as Petroleo Brasileiro SA set a new price methodology in October and has implemented five adjustments since then.

 

Eoin Treacy's view -

Fuel subsidies are politically popular but ruinous for oil companies. Subsidies represent a drag on finances which are at partially offset when oil prices are high but represent an existential threat when prices are low. The collapse of regional currencies, massive deficits and challenges to growth have resulted in populist socialist governments being replaced with more fiscally minded right wing parties across the continent. As commodity prices recover that is translating into their stock markets beginning to do better. 



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January 27 2017

Commentary by Eoin Treacy

Gold Goes Cold Turkey as Chinese Stop Buying for Year of Rooster

This article by Eddie van der Walt and Susanne Barton for Bloomberg may be of interest to subscribers. Here is a section:

"The Chinese holiday can exaggerate some of the moves," Bob Haberkorn, a senior market strategist at RJO Futures in Chicago, said in a telephone interview. "We’re going to get lighter volume coming in. A lot of the focus is moving into risk assets."

Gold futures for April delivery fell 0.1 percent to $1,191.40 at 11:08 a.m. on the Comex in New York. Futures earlier fell as much as 0.8 percent, touching the lowest since Jan. 11. The four-day losing streak would be the longest since Nov. 14.

After touching a two-month high earlier this week, gold’s rally has withered as surging stock markets fueled investor appetite for risk. The Dow Jones Industrial Average climbed above 20,000 for the first time this week and the MSCI All- Country World Index is near a record.
The metal pared earlier losses Friday after a report showed U.S. economic growth slowed more than forecast last quarter on the biggest drag from trade in six years and more moderate consumer spending. Business investment picked up, which may be a harbinger for faster expansion in 2017.

“We expect full year Chinese demand to still fall short of levels seen in 2015,” Nell Agate, a Citigroup Inc. metals analyst, said by e-mail from London. “It’s possible that Chinese jewelry sales are likely to slow as the Chinese break for new year festivities.”

 

Eoin Treacy's view -

Gold is at a pivotal juncture right now. Having unwound the majority of its overextension relative to the trend mean the questions now are how much of the short-term rally can be sustained, whether gold can successfully post a higher reaction low and subsequently hold a move above $1200 to confirm a return to demand dominance. 



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January 26 2017

Commentary by David Fuller

Trump Border Tax Threatens Global Dollar Chaos

The spread of 2-year US Treasury yields over German and Japanese yields - the classic driver of currency moves - has doubled to over 120 basis points since June. This is drawing powerful flows of money into US debt markets. It is a formula for a super-dollar, and it has further to run.

Everything has a late-cycle feel to it. The Cape-Shiller price-to-earnings ratio for the S&P 500 stocks is already above 24, higher than any time over the last 130 years with the exception of the 1929 and the dotcom peak in 2000.

Can Wall Street go higher? Certainly. The creator of the measure, Nobel laureate Robert Shiller, told me in Davos that there may be a final blow-off surge. Mood matters - he argues - and the animal spirits unleashed by Trump's pledge to cut taxes and slash regulations by 75pc could push the Cape-Shiller ratio towards the dotcom record of 45.

This would be followed by a cathartic crash and a day of moral judgment. The Shiller view is that Trump's own supporters will turn against him - and against his wealthy swagger - just as culture turned in the 1930s and people rejected the Coolidge ethos of the Roaring Twenties.

There is no sign yet that Mr Trump is willing to back down on any of his core policies. So my suspicion is that he will try to break out of this dollar trap by leaning on the Fed to delay rate rises and ultimately by ordering intervention to hold down the US exchange rate.

There are precedents for such currency action. The Swiss National Bank vowed in 2011 to spend unlimited sums to stop the franc rising above €1.20 as it battled deflation. The Japanese did it on a nuclear scale in 2003. The Chinese pursued a mercantilist strategy during its growth-spurt, keeping the yuan weak to gain export share.

Recourse to such methods by the holder of the paramount reserve currency would be a different kettle of fish. It would amount to a global free-for-all, a Hobbesian monetary disorder.

Currency intervention is by law a US Treasury prerogative. The New York Fed must in effect do what it is told, if ever ordered to buy foreign bonds. This is the means by which Mr Trump can bend the Fed to his will. Does anybody really think he will resist such a temptation?

David Fuller's view -

The Donald Trump bull market in US stocks has morphed into a Trump global uptrend, which has been very powerful in a number of countries since his election on 4th November.  Following that date it has been one-way traffic in the US stock market which always exerts a strong influence on equities in many other countries.

Why have the US and a number of other stock markets been so strong?  1) People were underinvested before the election result was known; 2) There were a number of short positions in the market; 3) Investors like Trump’s programmes for tax cuts and fiscal spending; 4) Animal spirits have been reawakened and not just in the US; 5) Interest rates remain low although they have started to rise in the US and many other countries will eventually follow this lead; 6) Investment liquidity has increased as fixed-interest investors sense that the bond market bubble is beginning to burst, causing them to sell and transfer some those funds to stock markets. 

How long will this bull market last?

This item continues in the Subscriber’s Area.  



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January 26 2017

Commentary by David Fuller

May Says Opposites Attract, Before Trump Meeting Tomorrow

Here is the opening of this article on a very important initial meeting Donald Trump and Theresa May:

It’s not what every woman would do as she prepares to meet Donald Trump, but on her flight to the U.S., Theresa May was sounding distinctly flirty.

Asked how a pastor’s daughter with a reputation for caution would deal with a president regarded as brash and impulsive, May smiled. “Haven’t you ever noticed?” she said. “Sometimes opposites attract?”

While some countries seek distance from the billionaire Trump, May is going all-out for the closest possible relationship. As she prepares to meet him, the premier is hoping to capitalize on that bond as Britain negotiates its withdrawal from the European Union.

“We’re both very clear that we want a trade deal,” May told reporters aboard her Royal Air Force plane. “It will be in the interests of the U.K. from my point of view, that’s what I’m going to be taking in, into the trade discussions that take place in due course.”

On Friday, May will become the first foreign leader to meet Trump at the White House since he took office and ripped up the rule book, from trade policy to his use of Twitter. However, she flew into a diplomatic storm after Mexican President Enrique Pena Nieto canceled plans to see Trump because of a growing dispute over the wall he wants built along the border.

Reagan-Thatcher

May’s own playful overture will be welcome in the White House -- where Trump has talked of recreating the touchy-feely relationship between Ronald Reagan and Margaret Thatcher -- but they risk causing unease in Britain.

Tens of thousands of Britons joined the worldwide protests the day after Trump’s inauguration, attacking his statements about women. May faces domestic calls to hold Trump to account over comments he’s made on torture and over his climate policy.

David Fuller's view -

A strong, free-trade relationship between the USA and UK can only be in their mutual interests.  Moreover, Trump’s support will strengthen Britain’s hand in dealing with a disorganised and angry EU.  It is a wakeup call for EU leaders, showing them what they have to lose with self-destructive talk of “punishing” Britain wanting to regain its sovereignty.     

 



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January 26 2017

Commentary by David Fuller

UK Remains Fastest Growing Economy in Western World After Expanding 0.6pc In Final Quarter of 2016

Supermarket price wars will limit the strain on household budgets this year, the Chancellor said on Thursday, as official figures cemented the UK's position as the fastest growing major advanced economy in 2016.

Philip Hammond said the "incredible market share war" between supermarkets over the past few years would help to curb shop price rises and support consumer confidence, as he signalled that growth in 2017 could outpace official forecasts.

It came as data published by the Office for National Statistics showed the UK economy grew by 0.6pc in the final three months of 2016, matching the expansion in the previous quarter.

This is faster than the 0.5pc growth predicted by economists and compares with the Treasury's dire predictions ahead of the EU referendum that a vote to leave the bloc would trigger a year-long recession.

Thursday's figures mean the economy expanded by 2pc over the year.

While Britain is the first G7 nation to report fourth-quarter growth figures, International Monetary Fund estimates suggest that growth in Germany and the US, which are expected to have expanded by 1.7pc and 1.6pc respectively last year, will not outpace the UK.

Mr Hammond said he believed that the current subdued levels of business investment would "come back and mak[e] a significant contribution" to growth as the country's future trading relationship with the EU became clearer.

David Fuller's view -

This is significantly better than Project Fear groupthink led us to believe, and Sterling’s devaluation has helped the economy to grow.  Nevertheless, we are still in the EU, albeit on the way out.  The Trump / May Special Relationship free-trade deal will be a big boost for the UK economy, cushioning any temporary downside after Brexit becomes a reality.  

(See also: Trump Greets U.K.’s May as World Leaders Look For Cues, from Bloomberg) 



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January 26 2017

Commentary by David Fuller

Thanks to Gina Miller, Parliament is Again Supreme. But Now MPs Must Fear Voter Wrath

Well done Gina Miller. Not only has she won a famous legal victory but she has clarified what the June 23 referendum was all about. For many who voted to leave the European Union it was about restoring control and sovereignty to our nation.

So perhaps it was not what Mrs Miller intended, but the case before the Supreme Court has made a reality of Brexit. It can now proceed with the full wind of the law and Parliament in its sails. The very people who for decades were utterly indifferent to the fact that our Parliament had been emasculated by its self-imposed subservience to supra-national institutions have given it a new lease of life.

By challenging Brexit in order to stop it she has supercharged it. Remainers have become the great defenders of the sovereignty they previously wanted to see pooled.

Mind you, for a legal hearing of such constitutional magnitude it ended with something of a whimper. The Supreme Court reasserted what most people had always thought to be the case – that the Government cannot change the law by executive fiat. Indeed, even the Government never argued that it could. 

What was at issue was whether triggering Article 50 amounted to a change in the law. But so much of our legislation is tied up with EU membership that once the Attorney General, Jeremy Wright, had accepted that the departure procedure was irrevocable he was going to lose. His only point was that this was a treaty matter and therefore fell within the scope of an executive prerogative, but the judges did not agree (or rather, eight of them didn’t; the fact that three justices found for the Government shows this was not as clear cut as many had assumed).

What is less easy to explain is why the Remain side also accepted that triggering Article 50 was an irrevocable act. Arguably, Lord Pannick QC had to make this point to win his legal case, but politically it means that any Remainer hope of thwarting Brexit has been scuppered. The main parties too have declined to stand in its way, accepting that, to all intents and purposes, the June 23 referendum was the moment when we decided to leave. This is an important constitutional point that the court has not really addressed.

David Fuller's view -

This was an interesting, if somewhat complicated legal decision, which Mrs May’s government was well prepared for.  MPs who oppose the Government will have their say, although they have already had their chance to vote in the Referendum.  Additionally, public support in favour of Brexit is much stronger today than it was at the Referendum on 23rd June.  The Project Fear campaign was clearly wrong, and the EU has hardly distinguished itself with its post-Referendum threats.

If the Government cannot get Brexit past Parliament and the House of Lords – unlikely but possible – the Government will call a General Election and win with an increased majority.     



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January 26 2017

Commentary by David Fuller

The Markets Now

The next Markets Now will be held in the Morrison Room at The Caledonian Club, on Monday 27th March

David Fuller's view -

I am delighted to say that our guest speaker at this event will be the interesting Charles Elliott, founder of Inflection Point Investments.  The first half of his talk will be on ‘Mega-Cap Tech’, including big and well-known names such as Apple, Microsoft, Google/Alphabet & Amazon.  This will be followed by ‘Emerging Tech’ in which he specialises. 

I can’t wait.



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January 26 2017

Commentary by Eoin Treacy

January 26 2017

Commentary by Eoin Treacy

Italexit Risk Low, Debt Re-Profiling Better Option: Mediobanca

This note by By Francesca Cinelli summarises a report issued by Mediobanca earlier this week discussing the economic implications of Italy exiting the Euro. I’ve read the original report but we are precluded from posting it on the site.

Time costs money for Italy, due to collective action clauses (CACs) and thus, purely on financial grounds, it reduces Italexit risk and makes any voluntary debt re-profiling a better option to eventually sustain its borrowings, Mediobanca says in note.

Highlights no growth undermines debt sustainability; Sentix Index, which estimates the one-year probability of Italy leaving the monetary union based on the assessment of investors, signals stress

Says redenomination in any Eurozone country is a function of the freedom allowed on bonds issued under domestic law and the constraints of the recently introduced EU discipline on
CACs 

Quantifies cost of re-denomination, says four variables suggest EU280b loss, partly offset by EU191b gain from the Lex Monetae on bonds under domestic law

Compares CACs and non CACs pairs of Italian govies displaying similar features in order to test Mediobanca’s “time costs money” finding; that means as time goes by the
financial incentive for redenomination declines

Data suggest 30bps yield premium on 3.5yr non CACs bonds actually drops to 10bps on 12yrs

Says “Quanto” spread captures the “convertibility risk” implied in the premium between USD- and EUR-denominated CDSs

Data suggest that at end 2016 for the first time Italy’s “Quanto” exceeded Spain’s, confirming Italy crucial role for eurozone future given a 90% correlation the brokerage notes between Italexit probability and a euro break-up probability

Eoin Treacy's view -

I think most people would agree that if Italy quits the Euro the currency will be unable to function as a cohesive unit. Italy would use the opportunity of devaluation to flood the Eurozone with cheap goods which would encourage other countries to follow its lead. That’s not news and the EU is fully aware of the implications of a large country like Italy leaving the currency union. 



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January 26 2017

Commentary by Eoin Treacy

China's Consumers Greet Year of the Rooster with Bling Splurge

This article by Bruce Einhorn and Daniela Wei for Bloomberg may be of interest to subscribers. Here is a section:

Retail sales rose 10.9 percent in December from a year earlier, the best monthly result in 12 months. Chinese imports of Swiss watches are up after falling for seven consecutive months through July, rising 7.9 percent in November from a year earlier. Led by its best-selling Macan SUV, Porsche had a 12 percent sales increase in 2016. Tiffany on Jan. 17 reported “strong growth” in China. On Jan. 19, Luca Marotta, chief financial officer of Rémy Cointreau, said the outlook for the Chinese New Year was “very, very positive.” Xi hasn’t ended his anticorruption drive, but its chilling effect on spending is easing. “A rebound across all luxury categories is now in progress,” Bloomberg Intelligence analyst Deborah Aitken wrote on Jan. 9.

During the Lunar New Year holiday, millions of Chinese will travel and shop at home and overseas. Bookings for international air travel made in December for Chinese New Year rose 9.8 percent from the previous year, according to ForwardKeys, an analyst of tourism data. Mainland tourist arrivals in the gambling hub of Macau jumped 7.8 percent in December, the largest increase since February 2015. Chinese consumers “are still very confident,” says Amrita Banta, managing director of Agility Research & Strategy, a consulting firm focusing on the affluent.

In Macau, tourist arrivals from mainland China for the first three days of the holiday period increased 9.1 percent to 234,000 compared to Chinese New Year in 2016, the Macau Government Tourism Office reported on its website Thursday.

Yet they may not be prepared to spend as much. Rather than purchase expensive items as gifts, Chinese are buying more for personal use, says Bruno Lannes, a Bain partner in Shanghai.

Eoin Treacy's view -

The strong weakness of the Yuan might currently be offering a tailwind for luxury goods companies since consumers have an incentive to buy now rather than pay more later. Additionally the potential for stronger economic growth and the knock-on effect that would have on consumer spending may be an additional factor in the outperformance of luxury goods’ stocks. 



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January 26 2017

Commentary by Eoin Treacy

Blackstone's Fourth-Quarter Profit Rises 86% as Hilton, Holdings Gain

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

Shares of Blackstone rose 1.7 percent to $31.14 at 9:58 a.m. in New York, extending gains this year to 16 percent.

Blackstone, led by Chief Executive Officer Steve Schwarzman, sold $3.8 billion of private equity holdings during the quarter, including part of its stakes in food-service distributor Performance Food Group Co. and cement maker Summit Materials Inc. Its real estate business, which oversees $102 billion, disposed of $3.5 billion in assets, including the DoubleTree hotel in London, the Burlington hotel in Dublin and the Hyatt Regency Pier 66 hotel in Fort Lauderdale, Florida.

Hilton, Blackstone’s biggest public holding, jumped 19 percent during the quarter. The firm has been paring its Hilton stake through share sales and through an agreement to sell about $6.5 billion of the stock to China’s HNA Group.

Those private equity and real estate sales helped fuel $691.8 million of distributable earnings, which reflect cash profits on asset disposals and fund management fees, compared with $878 million a year earlier. Blackstone said it will pay stockholders a dividend of 47 cents a share on Feb. 13. 

 

Eoin Treacy's view -

Private equity firms were among the greatest beneficiaries of low interest rates and abundant liquidity, which allowed them to raise cash for acquisitions at very low levels. However the collapse in oil prices coupled with Fed tapering contributed to weak performance in many publicly traded funds. The potential for an uptick in economic activity resulting from the expectation that the new US administration will be more business friendly has contributed to a better performance recently. 



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January 25 2017

Commentary by David Fuller

Dow Jones Breaks 20,000 For First Time Ever and Global Stocks Hit 19-Month High as Markets Reignite Trump Rally

The Dow Jones smashed the landmark 20,000 barrier for the first time ever this afternoon as optimism about Trump’s pro-growth policies boosted financial markets.

Resuming a rally that began in the wake of Donald Trump’s shock US presidential election win, the index rose by as much as 0.73pc to 20,057.89.

The rally was reignited by Trump’s signing of numerous executive orders since his inauguration on Friday. Last night, he also tweeted about his intention to build a wall on the Mexican border.

The Dow Jones has surged by more than 10pc since November and it came within a whisker of touching the historic 20,000 mark on January 6. It fell in the run up to Trump’s inauguration as traders grew cautious of his protectionist policies and sought clarity on the administration’s new policies.

It has taken the index just two short months, or 42 sessions, to climb from the first close above 19,000 to 20,000. It’s worth noting the rise between 18,000 and 19,000 took some 483 trading sessions.

The biggest winners of the Trump rally include investment banks Goldman Sachs and JP Morgan, rising by 34pc and 26pc, respectively, amid hopes Trump’s fiscal stimulus package will trigger inflation and stoke a rise in interest rates.

Neil Wilson, of ETX Capital, said: "It’s psychologically huge and, after a bit of pullback ahead of the inauguration, really confirms that the ‘great rotation' from bonds to stocks is definitely upon us. Fears about protectionism are running second to optimism about inflation and growth – for now at least." 

David Fuller's view -

DJIA 20,000 is a nice round number milestone and several other important US indices have also been in very good form recently.  For instance, the tech-heavy Nasdaq Composite and also the Nasdaq 100 have also pushed steadily higher since Donald Trump’s presidential election victory.  The breadth of this advance is also confirmed by the Russell 2000 Index of mid-cap shares.  DJ Transports recorded a potentially important Dow Theory buy signal with their new all-time high nearly two months ago.

Some market commentators are stunned by this strong performance.  They find it hard to believe, noting that Donald Trump is an impulsive, narcissistic, wild card.  Well, he is also a successful businessman and investors like his promise of stimulative policies, from tax cuts to deregulation and infrastructure spending. If the US economy has finally commenced a period of stronger GDP growth, and all evidence was pointing to this before the election, Trump’s policies should only boost medium-term prospects for the US economy.  That should provide a significant boost to corporate earnings on average. 

So what could go wrong?

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



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January 25 2017

Commentary by David Fuller

The End of Terrible Wi-Fi ls Near

Everybody hates Wi-Fi. The boxes are ugly, and it never seems to work when you need it. But just when you thought wireless internet was unfixable, the most boring and hated appliance in your house may be on the verge of actually, um, working.

Many of today’s devices are overcoming the design and technological flaws that marred the industry throughout its existence. The latest gadgets boast more effective antennas and do a better job cutting through radio interference. Some just look nicer than the hideous routers of yesteryear, with their thicket of wires, blinking lights and plastic parts akimbo.

A review of four newly released devices that employ the latest home-wireless technologies showed impressive results. In Bloomberg’s tests, the wireless routers were dramatically more reliable than their predecessors and attractive enough to earn a place on the mantle.

Looks matter more than you might think. Most people tuck routers under a desk or behind a cabinet to hide their unsightly fixtures. This would be OK, if not for the laws of physics. Every wall, desk or dresser that stands between the router and whatever gadget is trying to connect to it degrades the signal. Ideal placement is in the middle of a room, with no obstructions to allow wireless signals to move freely.

David Fuller's view -

I can’t wait. 

For as long as I have had desktop computers and televisions, they have been surrounded by Sargasso Seas of ugly wires, cables, transformers and multiple relay plugin systems.  It looks like a slum.  And when something goes wrong, as it too frequently does, a tedious and lengthy process turning switches off and back on, while unplugging and plugging in again has to occur.  And if out of desperation I have to call in the local techy assistant to sort it out, I then ask what went wrong?  The usual answer is: ‘that’s just computers’.  Alternatively, something was loose because someone tripped over a wire or cats were running around behind the desk. 

Give me a break.  The end of terrible Wi-Fi will not come soon enough.    



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January 25 2017

Commentary by David Fuller

The Markets Now

The next Markets Now will be held in the Morrison Room at The Caledonian Club, on Monday 27th March

David Fuller's view -

I am delighted to say that our guest speaker at this event will be the interesting Charles Elliott, founder of Inflection Point Investments.  The first half of his talk will be on ‘Mega-Cap Tech’, including big and well-known names such as Apple, Microsoft, Google/Alphabet & Amazon.  This will be followed by ‘Emerging Tech’ in which he specialises. 

I can’t wait.



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