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

Some of the topics discussed include: Pound continues to hold its breakout, Bond yields contracting globally, Indian Rupee breaks above the trend mean, Australian Dollar tests its lows, Industrial resources ease with China, but commodity exporter stock markets outperforming. Wall Street quiet.

One senior EU source predicted that the leaders would be uncompromising and some, if not all, would lean on the prime minister to extend Article 50 as long as possible.

“Every time Mrs May has spoken to the leaders, their final decision has been tougher than was predicted by their officials,” the source said, pointing out the prime minister’s dismal record at the European Council.

“None of the leaders want to be blamed for a no deal Brexit," said one EU diplomat, “but they know that if they will be by their businesses if there is one.”

It is up to Donald Tusk, the president of the European Council, to broker a consensus between the EU-27.  On Thursday morning, he made it clear he would ask the heads and state of government to look favourably on a request for a long extension, understood to be between nine months and a year, which opens the door to a general election or second referendum.

Meanwhile influential MEPs such as Guy Verhofstadt and Manfred Weber are adamant that a British extension cannot hijack the European Parliament elections.

Broadly, countries with socialist governments hanker for a longer extension in the expectation of more left-wing British MEPs being elected in upcoming European Parliament elections, while centre-right governments fear a Eurosceptic surge if Britain is forced to run the vote in May.

Officials in Brussels, veterans of many marathon late night summits, are fond of saying, “you can never predict what will happen when the leaders get together”.

But here is a look at the EU’s movers and shakers on Brexit stand on extension today.

The decision to hold a third vote on May’s deal on the eve of the summit with European leaders is a cynical, though perhaps not unexpected move, by the UK government to have another stab at getting the deal passed. That is aimed at imposing a “my deal or no Brexit ultimatum” on the hold outs in the Eurosceptic movement. It also puts pressure on the European side since they will not know whether the deal is to be accepted or not until the night before they propose their conditions for an extension.

This story started with the loans made by DHFL to four developers. When the developers bought a stake in Darshan Developers, the money moved to Kyta. Kyta used most of the proceeds, Rs 1,324 crore, on a joint venture, details on which are not available in the company’s filings.

The remaining Rs 100 crore was used to repay unsecured loans it had received from unknown sources.

In February, BloombergQuint asked DHFL about the use of its loan funds by these developers and the connection with Wadhawan entities. The company said it was awaiting the outcome of an internal investigation into the Cobrapost allegations.

"You are aware that over the last two weeks, we have issued various media statements as also clarifications. The clarifications issued by us clearly sets out the motivation of the complainant, and also states that statements, allegations and accusations contained in the complaint are utterly false and baseless.

As happens with all major collapses, the details of the wrongdoing and the untangling of the web of deceit that led to the collapse happens well after the decline. Dewan Housing Finance collapsed abruptly from its September peak, falling from INR700 to its recent low of INR100 as the full extent of the misallocation of capital started to become clear. That was helped along by the RBI stepping in to instil discipline in the banking sector which resulted in a number of privately held banks pulling back sharply.

They use these six entangled photons to create two alternate realities—one representing Wigner and one representing Wigner’s friend. Wigner’s friend measures the polarization of a photon and stores the result. Wigner then performs an interference measurement to determine if the measurement and the photon are in a superposition.

The experiment produces an unambiguous result. It turns out that both realities can coexist even though they produce irreconcilable outcomes, just as Wigner predicted.  

That raises some fascinating questions that are forcing physicists to reconsider the nature of reality.

The idea that observers can ultimately reconcile their measurements of some kind of fundamental reality is based on several assumptions. The first is that universal facts actually exist and that observers can agree on them.

But there are other assumptions too. One is that observers have the freedom to make whatever observations they want. And another is that the choices one observer makes do not influence the choices other observers make—an assumption that physicists call locality.

If there is an objective reality that everyone can agree on, then these assumptions all hold.

But Proietti and co’s result suggests that objective reality does not exist. In other words, the experiment suggests that one or more of the assumptions—the idea that there is a reality we can agree on, the idea that we have freedom of choice, or the idea of locality—must be wrong.

I apologise if this going to sound a little wonkish but there are important considerations raised that have a direct impact on the nature of markets and crowd psychology.

Every electrical engineer is taught that you change a system by measuring it. The change is obviously very small but there are phase modulations that occur when you interfere with the system to measure it. That is a clear fact.

At The Chart Seminar, I often talk a little about Heisenberg’s Uncertainty Principle which is that the more you know about the position of the particle the less you know about its velocity.

Then we have the above piece citing the assumption that the choices people make do not have an influence on the choices other make. In the markets we absolutely know that the choices other people make have a definite impact on the decisions of everyone who has yet to make a decision. We also know that the more a winning strategy is seen to work the greater the reliance investors place on it.

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

Some of the topics discussed include: S&P500 pauses near 2800 again, technology leading on the upside, peak of the interest rate cycle, bond yields pause, gold steady, Pound surges, FTSE 250 steady, oil hits new recovery high, 

For years, the sum of China’s provincial GDP has exceeded the national figure, a clear sign of statistical inflation at the local level. The National Bureau of Statistics (NBS) has previously acknowledged that “some local statistics are falsified”, and in 2017 the central government accused three provinces in China’s north-east rust belt of fabricating data. 

The Brookings paper highlights how the NBS in Beijing struggles to make adjustments to the inflated data it receives from local officials. The analysis finds that the central government’s adjustments to local data are mostly accurate before 2007-08 but “after this date no longer appear to be accurate”. 

The NBS said last year that it would assert greater control over provincial data collection beginning in 2019 to eliminate discrepancies between local and national data. 

“NBS has done a lot of work to weed out the fake numbers added by local government, but it just doesn’t have enough power and capacity, nor the right incentives,” Michael Zheng Song, economics professor at the Chinese University of Hong Kong and a co-author of the paper, told the FT. “It would be unfair to blame NBS for fabricating GDP numbers.”

The reliability of Chinese data has been an enigma investors’ have been pondering for decades. It’s not really a question we can answer with any degree of confidence so the best course of action is to monitor the actions that can be backed up with some degree of confidence.

As the private equity industry gathers near record sums of assets, institutional investors aim to make big allocations to fewer firms with a wide range of products. Today’s deal creates such a one-stop-shop: it bolsters the credit business of Brookfield, which has traditionally focused on real estate, and provides Oaktree, a specialist in distressed debt, exposure to assets that thrive outside turbulent economic times.

“We had difficulty, up until now, meeting the strict terms of some of those mandates,” Brookfield Chief Executive Officer Bruce Flatt said in a phone interview. “Very few firms in the world are able to do that.”

Oaktree co-Chairman Howard Marks said in the interview that the two firms mesh “culturally and in terms of product lines without competing and overlapping.”

Warren Buffett has been preaching for years about the merits of owning a piece of a business and private equity investors have been listening. Private equity has taken private exactly the same kinds of companies Buffett favours, which are generally those with niche businesses, strong cashflows and low leverage.

Miners and bankers give a variety of reasons for why the gold mining merger wave hasn’t come. The poor performance of gold miners’ shares means that sellers want to hold out for better valuations and buyers are reluctant to use shares they believe are undervalued for acquisitions.

The S&P TSX Global Gold Index is down 51% since its 2011. The S&P 500 has doubled in value in that time.

The industry as whole has a poor record in M&A. Miners overspent during the decadelong bubble that ended in 2011. That put off investors and made some executives wary of doing deals.

In 2016, PwC calculated that big miners had written off $200 billion of the value in acquisitions and projects over the previous five years.

Executives may be reluctant for another reason, investors say. They don’t want to put themselves out of a well-paid job by merging or selling their mines.

Ore grades at gold mines have been contracting for years but the massive investment in additional new greenfield sites during the bull market did not result in massive new sources of supply. Nevertheless, mining productivity remains high because production is more efficient today because of technological improvements.

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

Some of the topics discussed include: Stock markets steady, Pound extremely volatile as Theresa May's deal is voted down again, China pauses, US inflation below forecasts compresses yields and supports gold, oil pauses, wheat rebounds, lumber weak as trading margins increase.

In some instances, the sharing economy appeared to inflame the very problems it purported to solve. The supposed activation of underutilized resources actually led to more, if slightly different, patterns of resource consumption. A number of studies have shown that the ease and subsidized low cost of Uber and Lyft rides are increasing traffic in cities and apparently pulls passengers away from an actual form of sharing: public transportation. Students at UCLA are reportedly taking roughly 11,000 rides each week that never even leave campus. In putting more cars on the road, ride-hail companies have encouraged would-be drivers to consume more by buying cars with subprime loans or renting directly from the platforms themselves.

Alongside making it easy to rent out spare rooms, vacation rental platforms encouraged speculative real estate investment. Whole homes and apartment buildings are taken off the rental market to act as hotels, further squeezing housing markets in already unaffordable cities.

Early sharing champions were ultimately correct about technology enabling a shift away from an ownership society, but what came next wasn’t sharing. The rise of streaming services, subscription systems, and short-term rentals eclipsed the promise of nonmonetary resource sharing. The power and control wasn’t decentralized; it was even more concentrated in the hands of large and valuable platforms.

Why go through the trouble of swapping your own DVDs for a copy of Friends With Benefits, after all, when you can stream it through Amazon Prime Video for $2.99? The idea of paying for temporary access to albums rather than outright owning them may have been galling at first, but we’re increasingly comfortable with renting all our music, along with our software, and our books. Downloading and sharing the materials that live on these streamed resources is impossible, illegal, or both.

The evolution of the subscription business model has helped to streamline balance sheets and has essentially turned the lumpy cashflows of technology companies into the equivalent of consumer staples. That is one of the primary reasons they have continued to be able to command such high valuations.

The United States leads global supply growth The United States continues to dominate supply growth in the medium term. Following the unprecedented expansion seen in 2018, when total liquids production increased by a record 2.2 million barrels per day (mb/d), the United States will account for 70% of the increase in global production capacity until 2024, adding a total of 4 mb/d.

 

Important contributions will also come from other non-OPEC countries, including Brazil, Canada, a resurgent Norway, and newcomer Guyana, which together add another 2.6 mb/d in the next five years. In total, non-OPEC production is set to increase by 6.1 mb/d through to 2024.

 

Among OPEC countries, only Iraq and the United Arab Emirates have significant plans to increase capacity. These gains have to offset steep losses from Iran and Venezuela, which are subject to sanctions and political or economic turmoil. As a result, OPEC’s effective production capacity falls by 0.4 mb/d by 2024.

The United States is also turning into a major player in the global oil trade
As a result of its strong oil production growth, the United States will become a net oil exporter in 2021, as its crude and products exports exceed its imports. Towards the end of forecast, US gross exports will reach 9 mb/d, overtaking Russia and catching up on Saudi Arabia. The transformation of the United States into a major exporter is another consequence of its shale revolution.

Greater US exports to global markets strengthen oil security around the world. Buyers of crude oil, particularly in Asia, where demand is growing fastest, have a wider choice of suppliers. This gives them more operational and trading flexibility, reducing their reliance on traditional, long term supply contracts.

Global trade is not simply a story for the United States. The second-largest increase in crude exports comes from Brazil, which ships an extra 0.8 mb/d of oil by 2024. Following Brazil, Norway is enjoying a renaissance and will overtake Kazakhstan and Kuwait in the next five years a remarkable achievement.

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

“Unconventional oil and gas are gamechangers for the energy sector” has been a refrain at this service for more than a decade and the full extent of that change is now becoming clear. When we first talked about the USA becoming energy independent it sounded to many like a fanciful view but the country is already an exporter and will reverse decades of imports in the coming couple of years.

May wheat futures up as much as 4.4% to $4.47 1/2 a bushel in Chicago.
Intraday advance is biggest since Aug. 2
Prices are rebounding from May contract record low reached Monday
NOTE: Winter-wheat conditions in Texas drop, USDA data showed Monday
Texas good/excellent rating lowered to 28% from 36%
Futures also climb amid short covering, Terry Reilly, senior commodity analyst for grain and oilseeds for Futures International in Chicago, says by telephone

There was also news today that Ukraine’s wheat crop is coming in ahead of expectations so there is no global shortage of the commodity. Nevertheless, there is clear evidence of a short-term oversold condition and today’s upward dynamic is the first positive news for wheat in months. Potential for some additional short covering has certainly improved.

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

Some of the topics discussed include: Technology share lead rebound, India firms as Modi strengthens in polls. Indonesia unwinding overbought condition, South African rand at potenital support, Brazil continues to extend rebound, Pound rallies, oil firm, gold eases, silver holds gain, bonds steady

Apple Inc. was upgraded to buy from neutral at BofAML, which wrote that it saw “ten reasons to be bullish” on the iPhone maker. It also raised its price target to $210 from $180.

Shares rose 2.1 percent, taking the stock to its highest level since December.

The firm’s 10 reasons touched on a number of factors, including valuation, an “overshoot in negative estimate revisions,” a reacceleration in the company’s services division and a growing base of users. The company has a “highly loyal user base,” with “low churn where demographic changes are in Apple’s favor,” analyst Wamsi Mohan wrote.

The firm was also positive on the company’s critical iPhone line, which has been the subject of investor anxiety given demand issues, particularly in China. BofAML now forecasts “stability of supply chain order cuts,” as well as a “large reversal of inventory overhang in iPhones.”

The lower inventory is “a net positive, which after [the first quarter of 2019] could start to drive some stability in supply chain orders with new builds picking up after the next few months.”

Shares of Apple have gained more than 20 percent from a January low, though they remain more than 25 percent below a record hit in October, a pullback that BofAML wrote “presents opportunity.”

According to Bloomberg data, BofAML’s call marks the first Apple upgrade since New Street Research raised its view on the stock in early January.

Few companies are as exposed to China’s economy as Apple. It both depends on China for manufacturing and as a major demand growth market for its products. Therefore, it was only a matter of time before the share declined in line with pessimism about a trade accord. As perceptions have improved the outlook for the status quo persisting has lifted the share.

Another vulnerability for Jokowi is the nation’s economic performance during his first term. Indonesia’s exceptional track record of sound macroeconomic policies since the transition in 1998 has been maintained. However, as The Jakarta Post noted in a 2016 article, he has been unable to lift the growth rate from the lackluster pace under his predecessors. His promised surge in infrastructure investment has not materialized, the state enterprise sector is largely unreformed, and a host of environmental challenges are not being addressed adequately.

The possibility that disenchanted voters will abstain from the election and that enthusiasm among potential voters backing Subianto will produce a surge of votes in his favor has led independent observers (including one of us—Alexander) to conclude that electoral support for both candidates is actually in a statistical dead heat.

The one point of consensus among most analysts is that neither of these two candidates is a committed democrat, implying that Indonesia is likely to continue drifting away from democratic rule in the near term.

A Jokowi-led government will clearly be more aligned with American values than a Subianto-led government because it will be more respectful of human rights and the rule of law. By contrast, a Subianto-led government might be more favored by the Trump administration due to its tough-guy, authoritarian approach to domestic governance and its hardline foreign policies.

The best outcome for long-term U.S.-Indonesia relations would arguably be a landslide victory for Jokowi that makes it easier for him to fix some of the weaknesses of Indonesia’s democratic political system, especially the role of the parliament. His policy leverage during a second five-year term may be enhanced significantly. According to a January 23 piece in Republika, Jokowi’s party, the Indonesian Democratic Party Struggle (PDIP), and its coalition allies are expected to control approximately 56 percent of seats in the new parliament that will also be elected on April 17.

A third of the world population is voting this year and with populist rhetoric already on par with what was witnessed in the 1930s there is ample scope for continued populist uprising. After all, we are now talking about a global phenomenon whereas the pre-War era was really just Europe.

A record 65.3 percent of India’s 260 million women voters cast a ballot in the 2014 polls that swept Modi to the biggest parliamentary majority in three decades. In most states, female turnout has surpassed males in recent ballots. And that is now starting to produce real change: Modi’s government has raised expenditure on sanitation and education for girls, provided safer cooking fuels and instituted the death penalty for rapists.

“In 2019, Modi sees women as an important demographic that can help power the party’s reelection,” said Milan Vaishnav, South Asia director at the Carnegie Endowment for International Peace. “The BJP believes that women will reward the party for their welfare delivery schemes.”

The loan program is called Aajeevika (it translates to livelihood), and it was started in the 1990s as a local poverty alleviation program for women’s groups in the southern state of Andhra Pradesh. It was adopted country-wide in 2011 under the Congress-led government that Modi ousted three years later.

Once in power, Modi expanded Aajeevika to 622 of India’s 640 districts and increased annual outlays by about three times. The federal government makes funds available and local governments oversee implementation—a task made relatively easier with Modi’s Bharatiya Janata Party and allies ruling 16 of India’s 28 states.

Narendra Modi was the first of the world’s populist upstarts to gain power. His appeal to Hindu nationalism in the election campaign is a testament to his continued support for populist causes but also to the electoral math that helped him get elected in the first place. The one thing we can say with certainty is Modi has an understanding that access to credit forms the bedrock of economic development, most particularly in emerging markets. Together with his support for markets and economic development, that makes him the darling of investors.

Short Positions
Investors in the futures market are becoming more pessimistic, with non-commercial short-rand contracts outweighing longs, CFTC data show. That’s a turnaround from February, when traders were net long-rand for a brief period.

Selling Out
Foreign investors are getting out of South African bonds and stocks. Non-residents have been net sellers of government bonds at an average rate of 115 million rand ($8 million) a day over the past month -- not a huge number, but a turnaround from mid-February, when inflows averaged 434 million rand a day. And offshore investors have been net sellers of South African equities for the past 14 days, the longest streak since October 2017.

What I find particularly interesting about this article is it provides a very good example of a reporter providing details of what people have already done with their money.

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

Would you care to comment on the different behaviour of the China A-50 future and the A-Share indices themselves?  It has been ironic, and frustrating, that while you and all the media talk of surging A-Share prices, the A-50 future, which is the one one can actually trade, has come down very sharply in the last few days.

Thank you for this email which highlights an interesting development. The FTSE-50 is much more concentrated that the Shanghai A-Shares Index which has 1453 members. In fact, its largest constituent, Ping An Insurance, occupies 12.31% of the Index. That is the largest weighting for an insurer in any of the China focused indices and ensures the Index does not track the performance of the mainland market as closely as one might like.

Yardeni says the companies in the S&P 500 have spent roughly $4.5 trillion on buybacks over the past 10 years, yet by his calculation, which include some adjustments, the shares outstanding of those companies has dropped by just 2 percent during that time. What accounts for the difference? Employee stock compensation.

Buybacks haven’t returned cash to shareholders, or boosted share prices, Yardeni says. All they have done is bought back the shares that have been issued to employees, essentially enabling higher executive compensation by picking up the tab of stock options. Based on data from S&P Dow Jones Indices, the current members of the S&P 500 had 284 billion shares outstanding in early 2009, and have bought back bought 81.5 billion shares through the end of 2018. That means shares outstanding should have dropped by nearly 29 percent, instead of falling 2 percent, by Yardeni’s calculations – or rising
slightly, as data from S&P show.

Even after accounting for equity issuance and share-count changes due to acquisitions, I calculate that roughly two-thirds of what companies spent on buybacks appears to have gone toward offsetting executive compensation. And there’s more to the story.

The tale usually told about buybacks is that companies have this pot of profits and they are choosing to use it to prop up their stock with buybacks. But back in 2005, the Financial Standards Accounting Board began forcing companies to expense the cost of option grants, even though they aren’t a cash
outlay. That means buybacks aren’t really funding stock grants. Corporate bottom lines already include the cost of stock options. By the time you get to the bottom line, that money has effectively already been “spent.”

Repurchases are just a way of squaring that accounting. Without buybacks, shareholders would effectively be paying for stock compensation twice – once when they are expensed and a second time from the dilution of additional shares. Executives get the options either way. And indeed, the growth of buybacks in the past decade-and-a-half correlates pretty closely with the 2005 accounting change for options. There is even some research to suggest causation.

We are about 18 months out from the next US Presidential Election and positions are being staked out. So far, we have seen some quarters on the progressive left support modern monetary theory and many from the financial community decrying the suite of policies as sacrilegious. We have heard calls for free healthcare for all and simple questions about how it is going to be paid for. We have seen calls for big companies like Amazon and Facebook to be broken up. Where there has been clear evidence of cross-party support has been to either tax or reduce buybacks. That suggests it is going to be an election issue which has potential to be enacted.

“China will keep buying on a regular basis, but we would not be surprised if there were months when they don’t,” said Ross Strachan at Capital Economics Ltd. “Overall, we would expect them to be the second-largest purchaser this year. The motivation will be to diversify their foreign-exchange reserves, and increase gold from its current very low percentage of these reserves.”

While China’s gold holdings are the sixth-largest by country, they account for only 2.4 percent of its reserves, compared with more than 70 percent in Germany and the U.S., WGC data show.

Central bank purchases are likely to be sustained in 2019 at the same level as last year amid elevated geopolitical tensions and less pressure on emerging-market currencies, Goldman Sachs Group Inc. said in a March 4 report. Kazakhstan added about 50 tons last year, and was joined by other countries including Poland, India and Hungary, which picked up smaller amounts.

The reason China has such a low proportion of its total reserves in gold is because it has been holding Treasuries in an effort to recycle Dollars and keep the value of the Renminbi down. Unless China is going to allow the Renminbi to float freely, which appears unlikely in the near-term, there is little chance of the country’s gold holdings approximating those of the USA or Germany.  

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

Some of the topics discussed include: Euro breaks lower on disappointing ECB liquidity provision news, Bund yields at new near-term rally highs, Italian yield compress, Eurozone banks weak, China remains steady, Australian Dollar under pressure at 70c. S&P500 pulls back and suscetible to additional consolidation of recent gains, Russell 2000 and SOX leading lower, gold steady.

The ECB recalibrated its rates guidance today, indicating no rate hike will come this year. With financial markets already pricing in no hike until mid-2020, this does not create additional stimulus. And at the margin, it could even reduce it if investors come to interpret the guidance as meaning the first rate hike will come in 1Q.

What the rates guidance does insure against is an earlier tightening of financial conditions if the economy beats forecasts this year.

The ECB also announced a third round of targeted longer-term refinancing operations (TLTRO). However, the terms are less favorable than the TLTRO II loans. The new maturity will only be two years. Previously, the funds were available for four years. In addition, the cost of borrowing will be indexed to the main refinancing rate. That now stands at 0%. Previously, it could have been as low as the deposit rate, which is currently -0.4%.

In addition, it seems the new loans won’t completely replace the funding provided by the old ones. The next lending operation won’t be launched until September. However, in order to meet regulatory requirements for their net stable funding ratios, banks need to have funding with a maturity of at least one year. That means fresh funds from the ECB won’t be available in June to replace the loans expiring in June of next year.

Even though a big dose of stimulus is absent, we think GDP growth will begin to pick up in any case and that the labor market will continue to tighten.

The ECB made a mistake in caving to political pressure and ending its quantitative easing program. Confidence is a fragile thing and the big mismatch in Target2 balances, with capital accruing in Germany while there is a paucity of capital on the periphery is a clear signal that the market has no faith in the ability of the bloc’s economic expansion to self-sustain without the support of stimulus.

Reserve Bank Governor Philip Lowe noted the withdrawal of foreign buyers in a speech Wednesday as he sought to explain the drivers of Australia’s property slump. The central bank is closely watching the decline, especially as it’s starting to impact household spending and slow the economy.

“Another demand-side factor that has influenced prices is the rise and then decline in demand by non-residents,” said Lowe. “The timing of these shifts in foreign demand has broadly coincided with –- and reinforced –- the shifts in domestic demand.”

While Chinese buyers helped inflate the property bubble, they’re unlikely to return in sufficient numbers to stabilize the market. For one thing, shifting money abroad from China is tougher these days as authorities there are strictly enforcing rules aimed at curbing capital outflows.

There are other domestic factors suggesting prices could keep declining too. Australian banks have turned gun-shy on lending following an inquiry that exposed widespread misconduct in the industry and more homes are coming to the market.

While in Melbourne last April, all anyone wanted to talk about was the impact of the Royal Commission’s inquiry and the price of property. Prices are high relative to incomes and Australia’s private sector debt to GDP is among the highest in the world. With short fixes on mortgage rates and floating rates dominating, the Australian consumer is very interest rate sensitive and has a lot of net worth locked up in property.

It bears mentioning that computational biology is objectively important. We’re talking about life itself: human DNA; the food we eat; infectious diseases; the evolution of species, and so on. "Biology is the only technology that can directly address fundamental problems facing the world like planetary and human health," says Arvind Gupta, Managing director & Founder of IndieBio and partner at SOSV. "These are world scale problems looking for technological solutions that will be developed in the next 20 years and those that do stand to create trillions of dollars of value". Rather than manufacturing tools for us to use, like cars or software, we’re now beginning to manufacture life itself.

Jennifer Doudna, co-inventor of CRISPR and co-Founder of Mammoth Biosciences(an NFX portfolio company) told us, "Scientists have spent centuries carefully studying how living things work. We have now entered into a new era of biology where it is possible to move beyond observation and towards rewriting the underlying code of living things, creating countless opportunities to improve the world we live in, from diagnosing and treating human disease to restoring the environment around us."

Further, something that has become clearer to us at NFX in the last three years: computational biology touches every industry. There are at least 90 companies worth over $20BN that are eyeing the CompBio space: agriculture; industrial; pharma; energy companies; plus all the big tech companies, like AWS, Google, and Microsoft. (Microsoft, for example, DNA that it hopes can replace cumbersome tape drives).

All of these industries are looking deeper at computational biology, trying to see how it is going to impact them.

Healthcare represents virgin territory for big data because it throws off so much data. The human brain has yet to be mapped, and one of the primary reasons is because the quantity of data required to be processed is in the order of petaflops. Colloquially, that is the computing capacity of all of Google’s programming power.

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

Some of the topics covered include: Wall Street likely to at least consolidate, ECB moving towards additional quantitative easing, Euro steady,China's rally continues to rebound, Australian Dollar testing the 70 cent area, gold and oll steady, lumber limit up, coffee retests $1.

Armed with the forecasts, policy makers will debate on Wednesday the design of fresh funding operations based on their existing targeted lending program, with a focus on how long they should last and at what interest rate, the people said. The discussions will feature the sort of staff presentations that preceded previous major announcements, though that doesn’t necessarily mean all details of a decision will be available this week, they said.

The ECB’s forecasts aren’t official until President Mario Draghi unveils them after policy makers’ decision on Thursday. He and his colleagues have framed discussions on any extension of the so-called TLTRO program around having a monetary-policy case, rather than simply pandering to the needs of individual lenders.

The ECB is just the latest central bank to respond to a slowdown that’s gripped the global economy since last year. The Federal Reserve has already put its rate-hike cycle on pause, the Bank of England has cut its economic outlook, and China lowered its growth target this week.

The ECB is faced with a Eurozone economy that is impacted both by terrible domestic demographics, a high debt load, high unemployment and an export sector that is highly leveraged to the outlook for the global economy. On top of that the transition ongoing in the automotive sector represents a significant threat to one of the continent’s stalwart industries. Against the background it is hard to imagine how they can raise rates or stop trying to depress bond yields as they try to foster inflation.

“More centralized money laundering controls and systems probably makes sense in the euro zone,” said Howard Davies, the chairman of Royal Bank of Scotland Group Plc, which was pulled into the scandal this week. “I suspect in 3 to 4 years there will be a euro-zone anti-money-laundering regulator.”

With a financial system barely recovered from a decade of serial crises, policy makers in European capitals need to strike a balance between tightening the screws on their own lenders and keeping banks on the road to sustainable profitability.

Financial institutions from Stockholm to Amsterdam face uncomfortable questions about their handling of tainted funds, with investigations under way in the Baltic nations, the U.S., the U.K. and the Nordic countries. Almost daily revelations suggest there are more surprises to come on the misconduct.

“It’s a big paradox that you have one single market with free movement for capital and services and so on, but you have 28 different anti-money laundering systems," said Jeppe Kofod, a Danish lawmaker in the European Parliament who helped in a year-long effort to investigate tax evasion and financial crime. “The financial sector is so interconnected and so transnational, it doesn’t make sense to have this kind of fragmented system.”

When I worked at Bloomberg in the early 2000s my beat was Belgium and Luxembourg. Back then it was normal to have a money counting machine in every client meeting room. Every August in Luxembourg, there would be a line of camper vans queuing on the road in from Germany, with people stopping off at their respective private bank to pick up cash for their holiday by the Mediterranean.

The simple fact is that cash is highly prized in Europe because the national past time in many countries is tax evasion. There are obviously clear arguments about the value of cash as an asset in an era when investors are increasingly leery of governments acquisitive intentions with such high debt loads. However, that only enforces the conclusion, cash is most highly prized by those wishing to shade their wealth from the eyes of government.

One of the more interesting points about scrubbers was that based on several studies, scrubbers on ships using high-sulfur fuel oil remove more than 98% of the sulfur oxides from the exhaust gases, resulting in emissions lower in sulfur oxides than those of marine gasoil, which is considered the benchmark for the IMO 2020 low sulfur regulation.  As a result, scrubbers are an approved compliance option for shippers to meet the IMO 2020 regulation by the IMO, European Union and U.S. Environmental Protection Agency.  This emissions performance supports why shippers have equipped well over 2,000 vessels with scrubbers and plan to add more.  Those decisions are based on the ship’s owners estimates of the capital and installation costs of scrubbers, the payback time based on projections of the cost differential between high-sulfur fuel oil and low-sulfur alternative fuels, and the anticipated remaining life of the ship.  

Why is the EC rushing to get their proposal before the May IMO committee meeting?  No one seems to know for sure, but within two weeks of the draft proposal surfacing, the commission had taken the proposal to a one-day working party review and then submitted it to the IMO.  This speedy process became an end-run around the time that would normally be accorded to impacted parties to hold an open discussion and deliberation of the proposed rule’s impact.  The policy appears to represent a major departure from the existing rules.  Moreover, the policy seems to be based more on speculation than science.  All of this drama comes as the shipping and refining industries are in the final 11-month countdown before IMO 2020 becomes effective.  There remain many unknowns about how the shipping industry will deal with the fuel switch mandate, especially since they do not know exactly what fuel options will be available at each port worldwide.  Therefore, potentially foreclosing an option approved by regulators seems extreme, unless there is a clear health or environmental risk.  Whether it is possible for a uniform rule about wash-water disposal in ports, after some have declared that they will be banned, seems unlikely.  Therefore, the likely outcome appears to be a global ban on wash-water discharge in ports, further adding to the regulatory nightmare IMO 2020 is creating for the shipping industry, let alone the possibility of safety issues if ships are forced to switch fuels at sea.  

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Shipping is a greater emitter of pollutants than ground transportation in absolute terms. That is the primary drive behind improving emissions standards and is likely to have an impact on oil prices and refinery profitability when it goes into effect.

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Some of the topics covered include: China embarks on a large fiscal stimulus which is beneficial for every country that depends on its demand growth, Europe steady, Dollar steady, industrial resources firm, gold and oil pause, Treasuries steady, Wall Street pauses. 

In all, Li rolled out tax cuts worth almost 2 trillion yuan ($298 billion) and pledged further stimulus ahead. While that emphasis on stronger fiscal policy can be seen as a loosening from last year’s vow to curb financial risks and trim the budget, the overall goal is still to buffer the economy without letting debt accelerate once more. That’s a balancing act that will be severely tested should any new threats to growth appear.

“It’s a big fiscal push,” said Michael Spencer, global head of economics at Deutsche Bank AG in Hong Kong. “There’s a reluctance to just turn on the infrastructure tap if they don’t need to.”

Li warned that China faces a graver and more complicated environment this year. He’s trying to rekindle lending to the private sector, mindful that the total debt pile is approaching 300 percent of GDP. “China must be fully prepared for a tough struggle,” he said.

Fiscal stimulus is in fashion and why should China be any different? The global economy is transitioning from a period of synchronised global monetary expansion to fiscal expansion. That is also stimulative but is likely to have more of an effect on consumer demand that central bank balance sheets.

If the European Commission’s preference for a Eurozone suitor for Deutsche Bank rather than a domestic merger candidate is any guide, we can conclude that the Eurozone bureaucracy continues to favour a continued drive towards cohesion and banking union. In fact, if we simply look at the measures which have been taken rather than the bluster of the media, nothing has happened to change the direction of policy in the EU towards further cohesion.

Nickel climbed to a fresh six-month high in London as rallying steel markets, falling inventories and rising electric-vehicle sales bolster the outlook for the metal. Industrial commodities increased as markets were soothed by China’s announcement of a major tax cut and optimism that a resolution with the U.S. over trade is in reach. Prices advanced even as the world’s biggest consumer trimmed its growth target for the year. Steel futures are up this year and the outlook appears brighter as China plans to trim the value-added tax rate that covers the manufacturing sector and as the usage of electric-vehicle batteries gains momentum.

China policymakers seek to pull off a gradual deceleration while grappling with a debt legacy Nickel inventories in LME warehouses hit the lowest since 2013Copper inventories fall to 118,600 tons, the lowest since May 2008.

“We’ve seen that metals like nickel, zinc and tin, which feed into the ferrous sector, have all been on a bit of a tear recently,” Robin Bhar, an analyst at Societe Generale, says by phone from London “Nickel could still be the darling of the complex, given the uplift that you have from batteries”“ Chinese stimulus measures are aimed at goosing consumption and helping manufacturing, so the best-positioned metal is probably copper,” Tai Wong, head of base and precious metals derivatives trading at BMO Capital Markets, says by email “I think nickel is a spec play and if the rolling ball of money is back, it can definitely drive it a long way”

8:1:1 battery chemistries in the Tesla Model 3 are going to be deployed in just about all electric cars in the coming years. That represents a significant growth story for nickel but most particularly for nickel sulphide which is a purer form of the metal that falls outside of the delivery parameters set for futures trading at the LME. That suggests there is going to need to be substantial investment in higher grade production of the metal.

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

Some of topics discussed include: cloud computing pullback suggests some reticence to support prices at new all-time highs. Amazon remains firm, China failed to hold intraday gains, Europe flat, platinum pulls back in a dynamic manner, silver approaching the psychological $15 area. Treasury prices firm, Dollar steady, 

A link to the full report and a section from it are posted in the Subscriber's Area. 

The week got off to a rough start for cloud-software companies as some of the highest-profile stocks tumbled from records.

Salesforce.com Inc. fell as much as 5.5 percent on Monday after ending last week at a record $126 billion market valuation. The software maker reports fiscal fourth-quarter earnings this afternoon. Twilio Inc., Splunk Inc. and Zendesk Inc. tumbled more than 7 percent, while ServiceNow Inc. and Workday Inc. both fell more than 5 percent. Atlassian Corp., which also closed at a record Friday, slid as much as 10 percent.

Cloud-software stocks have been among the best performing groups in the post-Christmas rally as investors in search of revenue growth bet that businesses will continue to spend on software services. The S&P 500 software and services group has outperformed the broader index since Dec. 2

Cloud computing, and the savings companies get by outsourcing to remote servers rather than trying to keep their in-house kit up to speed, has been one of the primary drivers of the expansion in technology shares over the last few years. Software as a service is a complimentary theme and has allowed companies to offer all manner of intelligence and analytics on customer and employee action from the data collected from cloud servers.

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Interest in precious metals has perked up over the last six months as economic figures have deteriorated which increased the scope for monetary and fiscal intervention. The potential for the trade war to ease is weighing on gold because of a perception that a hedge is not as necessary. However, the trend towards fiscal laxity may be boosted by this development rather than restricted so there is a clear reason to think about precious metals as they dip.  

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

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

The long-run average of returns is indeed somewhere between 3.5% and 4%. However, despite the neat mathematics of the 119-year history we know from experience that manias occur and are inevitably followed by bear markets where valuations correct.

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Analysts say managers of funds that track MSCI’s emerging-markets index, such as the iShares MSCI Emerging Markets exchange-traded fund, are expected to make the necessary changes to bring their vehicles in line with the new weightings.

BlackRock Inc.’s global head of markets and investments for iShares and index investing, Manish Mehta, welcomed MSCI’s move, saying “the gradual addition of onshore Chinese securities deepens the investment opportunity for global investors, and we look forward to continued development in the market and regulatory environment to facilitate this increased access.”

Morgan Stanley analysts estimate that foreign inflows into mainland Chinese stocks could reach $100 billion to $220 billion a year over the next decade, with foreign ownership of the market rising to as much as 10%, from 2.6% now.

It will be impossible for the vast majority of foreign investors who invest in emerging markets to avoid China when these index changes go through. The MSCI Emerging Markets Index is already heavily weighted by Chinese companies and with the introduction of the State-Owned sector and smaller Chinese tech companies the influence of China on perceptions for the entire emerging world will only increase.

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Some of the topics discussed include: odds of a global reflation trade are improving. China in particular has scope to stimulate, gold easing, oil steady, bonds ease but Gilts steady on increasing odds of a Bank of England rate hike if a soft Brexit is agreed. Australian Dollar eases, industrial resources steady

Tesla Owner Takes Delivery, Heads for Autobahn Experience – This article by Bill Howard for Extreme Tech may be of interest to subscribers. Here is a section:

If this were a pickup truck video, one of the tags would be “hold-my-beer-and-watch-this,” and in the final frames, the video might appear to be upside down. Now that the European deliveries of the Tesla Model 3 have begun (Feb. 6), we’ll be seeing all manner of Model-3-in-Europe videos.

Here’s YouTuber “Dan’s Tesla,” who apparently took delivery of a Model 3 in mid-February in the Netherlands, then proceeded 80 km (50 miles) to Germany’s Autobahn for a satisfying high-speed Fahrt lasting 213 seconds. Dan does note he’s “not used to driving on the autobahn” and backed off after a bit. Survive to live another day and all.

And

Dan described his trip thusly:

I took my brand new Model 3 to the german highway, just 80KM away from the Tilburg delivery center. 209KM/h while wifey [“wifey”?] is holding her laptop [and phone], no problem. I was too afraid to keep pushing as I’m not used to driving on the autobahn and it was difficult to judge when to apply brakes.

The most rational people will contend that it is pointless having a fast car when there is nowhere to take it up to speeds that would allow you to experience its full potential. That’s particularly true when you are stuck in traffic on the morning commute. Nevertheless, it is nice to have a burst of speed when you want to overtake or change lanes. Even more relevant is no ever said the choice of what car to own is a rational decision. For many people it’s as much about prestige and one-up-man-ship as it is about utility.

Rio Tinto’s (ASX, LON:RIO) investors will be celebrating Christmas in February, as the miner is giving them a $4 billion special dividend, or $2.43 cent a share, after posting its highest annual underlying earnings since 2014.

The world’s second largest miner reported Wednesday a 2% increase in underlying profit, up to $8.8 billion, beating market forecasts of $8.5 billion on the back of rising revenue of $40.5 billion. The special dividend also came after a string of asset divestments, including Rio’s entire interest in Indonesia’s Grasberg mine for $3.9 billion.

Since Jean-Sébastien Jacques took the helm in July 2016, Rio has focused on cutting costs, generating cash and returning as much of it as possible to investors through dividends and share buybacks.

Last year, the company waved all its coal assets goodbye and is now the only major miner with a fossil-fuel-free portfolio. In total, Rio has sold $12 billion worth of unwanted assets since 2015.

The special dividend got shaved off the share’s price in the last couple of days as it tests the region of the June peak near 4500p. Nevertheless, a sustained move below the trend mean would be required to question medium-term scope for continued upside.

Enter the Foreign Raters! authorities have a record of pulling out the stops to aid some corporate debtors, including pressuring creditors into providing funding even after a company has defaulted. So it’s hard to imagine they’d be patient with downgrades by a foreign ratings company that could make it difficult for a troubled borrower to refinance.

Yet regulators in Beijing recognize that allowing credit to be priced based on the risk of the borrower could make investment across the economy more efficient. The People’s Bank of China says a certain amount of defaults can be healthy. And it sees foreign investors as a catalyst for reform. Given that those investors would prefer ratings akin to what they’re used to elsewhere, China in 2017 opened the door to the big three global ratings companies to operate wholly owned units.

S&P has hired at least 30 analysts for its Beijing office, preparing to open for business soon, says Simon Jin, chief executive officer of the company’s new China unit. The question on the minds of observers is just how S&P, along with Moody’s Investors Service and Fitch Ratings—if and when they follow—will manage to produce ratings that enjoy the confidence of international investors while also expanding business in a market that may not welcome hard truths about creditworthiness. Jin says “there is genuine demand for objective and reliable ratings in China” and that S&P plans “to provide Chinese market participants the same standards of transparency and independent analysis as we do anywhere else in the world.”

China’s growth since it began to open up over the last few decades has been supported by protectionism on the one hand but by outright support for domestic industry on the other. That manifested itself in free land for factories, generous open- ended credit availability through the banks, zero to low taxation, lax or no regulation, ignoring environmental standards and the creation of markets for the products produced. That resulted in rampant credit growth and, with clear government support, there were very low credit standards provided it served the national interest of industrialisation and full employment. 

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Some of the topics discussed include: Cohen and Powell testify in front of Congress, Wall Street little changed, bond prices fall, Pound extends rally and a soft Brexit increases the scope for the Bank of England to raise rates, oil steady, gold eases, palladium pauses following acceleration. India/Pakistan deteriorating relationship has little effect on assets as long as war is avoided.  

There was a brief moment after the Indian Air Force’s strike in Pakistani territory in the early hours of Tuesday when it appeared that a way to thread that needle had been discovered. Rather than restricting itself to attacking terrorist training camps just across the Line of Control that divides Kashmir, India for the first time in decades struck areas that were undisputedly part of Pakistan itself. Strategists in New Delhi seemed confident that they’d fundamentally shifted the red lines in Kashmir and expanded India’s arsenal of possible retaliatory measures against Pakistan-backed militant attacks.

For that to be true, however, both Indian and Pakistani politicians would need to retain control of their (mutually incompatible) domestic narratives. The Indian government -- facing a tough re-election campaign in just a few weeks – had to be able to tell its electorate that it had made Pakistan pay, claiming unofficially to have killed as many as 300 terrorist recruits. Pakistan had to be able to assert the opposite – that the Indians had hit nothing but a forested hilltop before being chased off by Pakistani fighter jets.

That’s why the Indian government was initially very careful to have its chief diplomat brief the press, rather than anyone connected with the military. India’s foreign secretary also stressed that this was a “non-military” action, meaning that it wasn’t directed at the Pakistani military, and that a central aim of the planning was to ensure there were no civilian casualties. Meanwhile, Pakistan’s ruling party was busy mocking the Indian media’s claims on Twitter, accusing journalists of watching too many Bollywood movies.

In general, as long as both sides focus on reassuring their domestic constituencies rather than contradicting each other’s version of events, the chances of conflict are paradoxically lower. The problem is that in this crisis like any other, facts inevitably intrude.

The escalation in tit for tat attacks is not great for sentiment but both Pakistan and India have been very clear not to call these examples of aggression acts of war. That suggests there is a clear aim to contain the situation and they despite the requirement to placate domestic firebrands, the respective administrations are interested in de-escalating the situation.

The emphasis you have given to liquidity as a principal driver of equity markets is being vindicated as prices continue to rise despite slowing money supply.  See attached article from Mises.

Thank you for this interesting article. Here is a section:

Money supply growth can often be a helpful measure of economic activity. During periods of economic boom, money supply tends to grow quickly as banks make more loans. Recessions, on the other hand, tend to be preceded by periods of falling money-supply growth.

Many factors contribute to these trends. In recent months, money supply growth — in both M2 and TMS — has likely been impacted by falling growth rates in real estate loans at commercial banks. In January, real estate loans grew 2.9 percent, year over year, which was a 49-month low. The demand for mortgage loans has softened as mortgage rates have risen. In January, the 30-year, fixed average mortgage rate reached 4.46 percent, which was down from November's recent high of 4.87. January 2018's average mortgage rate was much lower, however, coming in at 4.03 percent. 

The problem with relying on the expectation that bank loan growth is a reflection of economic activity is banks have been hindered in their ability to make loans because of the damage done to their balance sheets during the credit crisis. Instead of lending they have been lodging excess reserves at the Fed in return for a modest, but risk-free interest rate.

Canada’s Barrick Gold's (TSX:ABX)(NYSE:GOLD) hostile $17.8 billion bid for rival Newmont Mining (NYSE:NEM) could free up a group of assets the combined company would no longer consider key, such as their Kalgoorlie super pit 50/50 joint-venture in Western Australia.

After launching the offer on Monday, Barrick chief executive officer Mark Bristow said he had already been contacted by parties that have expressed interest in the company’s Australian assets.

The divestment goals announced by the Newmont-Goldcorp tie-up and the recent Barrick-Randgold merger provide “a significant opportunity” for ASX-listed names to acquire assets, according to UBS analysts.

“Australian gold producers have stronger balance sheets than their North American peers. We think Evolution and Northern Star are best placed to make accretive acquisitions given their strong track records in this area,” said UBS in a note last month.

Market rumours indicate that one of the potential buyers could be Melbourne-based Newcrest Mining (ASX:NCM), especially after Bristow said there was “a very good chance” of some Australian operators becoming involved.

The pace of M&A activity in the gold mining sector remains brisk. There is a good reason for that. Many miners have all-in sustaining costs in the order of $800-$900 and the price of gold is north of $1300. Considering the share prices of many gold miners are still reasonably close to multi-year lows it makes a lot more sense to buy and established company with production capacity already paid for than to engage in the expensive and risky business of exploration and development of greenfield sites.

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

Some of the topcis discussed include: Pound rallies on soft Brexit enthusiasm, FTSE-250 in the region of the MA, Treasuries pricing in no rate hikes in the next two years, Wall Street pauses in the region of previous peaks, gold steady but coffee and wheat break downwards. 

Berkshire will forever remain a financial fortress. In managing, I will make expensive mistakes of commission and will also miss many opportunities, some of which should have been obvious to me. At times, our stock will tumble as investors flee from equities. But I will never risk getting caught short of cash.

In the years ahead, we hope to move much of our excess liquidity into businesses that Berkshire will permanently own. The immediate prospects for that, however, are not good: Prices are sky-high for businesses possessing decent long-term prospects.

That disappointing reality means that 2019 will likely see us again expanding our holdings of marketable equities. We continue, nevertheless, to hope for an elephant-sized acquisition. Even at our ages of 88 and 95 – I’m the young one – that prospect is what causes my heart and Charlie’s to beat faster. (Just writing about the possibility of a huge purchase has caused my pulse rate to soar.)

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

Buffett suggests he is thinking about buying back shares because they do not see suitable opportunities for their cash in the public markets. That is a testament to the fact that valuations are high by many historical standards and liquidity is not as abundant as it was earlier in this bull market. It is also a reflection of the fact that he is aware of the risks to a number of Berkshire business from competition and obsolescence and that there is a risk perception of the conglomerate’s fortunes will sour.

The average prices of avocados, butter, olive oil and salmon have climbed as much as 60% since 2013, after stripping out seasonal price patterns and the effects of unusual weather events, according to various sources. Over the same period, prices of corn, soybeans, sugar and wheat either fell or didn’t change significantly.

These changes in fortune reflect the broad dietary shifts of recent years. Many people have switched to eating more foods that are high in natural fats from high-carbohydrate, low-fat diets. And government agencies and nutritionists are recommending that people avoid consuming industrial-made fats and margarines and instead eat more fish, nuts and healthier oils.

Stephan Hubertus Gay, a senior agricultural policy analyst at the Organization for Economic Cooperation and Development, said consumers are eating products that contain fat again. But he said “we were a bit surprised that it came so fast,” referring to the sharp increase in demand.

The write down of goodwill in Kraft Heinz is a clear signal sugar is out of fashion and the foundation of many snack food brands is based on the addictive qualities of the sweetener.

Kraft Heinz remains weak and a clear upward dynamic will be required to check momentum beyond a pause.

When it comes to trade, on the other hand, the losers are clear: In developed countries, they are the workers with a moderate education. When manufacturing supply chains were entirely contained within those nations, their jobs were safe; the indivisibility of the production process allowed them to bargain for higher pay, lower and more pre­dictable work hours, and more safeguards at work. As the production process has fragmented, though, with each segment undertaken in the most appropriate country, they have been exposed to the full force of competition from cheaper, more flexible, and equally competent labor elsewhere.

Well-paying unionized jobs in low-tech manufac­turing industries have been most adversely affected. Such jobs have typically been located near smaller towns and rural areas in the interior of countries, where the cost of living and thus of labor has been low. The incomes these jobs provided also helped
keep local hairdressers, laundries and shops in business.

Moderately educated workers whose firms close because of trade competi­tion typically have few palatable alternatives. With few new jobs near the small towns or semirural areas where they live, and most such jobs to be found in companies beset by the same competitive woes, workers have bleak prospects if they stay put. Yet, according to one U.S. study, that’s exactly what
they do.

Why? Retraining is hardly easy, espe­cially for manufacturing workers who went to work after high school many years ago and who really have not used computers at work or at home. Cities offer service jobs but also demand higher rents. For many, not moving and hoping old jobs return seems the best bet; after all, there are still friends and family nearby.
 

I consider this to be a very accurate characterisation of the root causes of populism. Rajan knows this better than most since he was forced out of his job at the RBI because he was unwilling to acquiesce to the demands of Narendra Modi’s populist administration.

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

Some of the topics covered include: Chinese shares surge higher, Wall Street posts muted response to improving trade news, MA& picking up in biotech, oil weak, Corbyn supports a second referrendum, gold consolidating,  

After days of buildup, Trump kicked off the week by delaying a threatened increase in U.S. tariffs on Chinese imports and dangling a summit with President Xi Jinping at Mar-a-Lago, his Florida retreat, if “both sides make additional progress.” Along the way, he slapped down Lighthizer on a semantic point. Earlier, the two sides were haggling over how to ensure Beijing lives up to its promise to not weaken the yuan. Trump then reported substantial progress, including on currency.

And

Look for Powell to offer signals on what’s next for the Fed during two days of congressional testimony. When they last met, policy makers broadly backed ending the runoff of the central bank’s balance sheet. Lighthizer, who testifies Wednesday, may give a sense of how likely the U.S. is to impose tariffs on auto imports. The European Union is threatening to hit back. U.S. fourth-quarter gross domestic product, due Thursday, is expected to show 2.5 percent expansion last year, short of the Trump administration’s ambitious goal.

The Shanghai A-Share Index rose 5.95% as investors raced to price in the conclusion the trade war is over. The Index has been trending downwards for more than a year but broke its sequence of lower rally highs two weeks ago and extended that advance today.

“One way or another, we will do everything in our power to prevent no-deal and oppose a damaging Tory Brexit based on Theresa May’s overwhelmingly rejected deal,” Corbyn was due to tell a meeting of Labour MPs on Monday evening, according to his office.

“That’s why, in line with our conference policy, we are committed to also putting forward or supporting an amendment in favor of a public vote to prevent a damaging Tory Brexit being forced on the country.”

This decision will cast the next election as an in or out referendum regardless of the other policies propagated during the campaign. Perhaps more importantly in the short-term it poses a very clear decision to Tory lawmakers. They either have to accept Theresa May’s deal or face the real possibility of both losing the next election and the chance to leave the EU at all. Even if the vote of the 12th does not support the agreement it increases the potential for a delay. 

The experimental treatment, which could be launched in the first half of 2019, would be an alternative to Biogen Inc.’s Spinraza, a treatment given in regular doses that patients must take for the rest of their lives. Spinraza costs $750,000 in the U.S. for the first year and $375,000 a year thereafter.

Switzerland-based Novartis is now wrestling with the question of how to price a potential cure. As a number of drugmakers advance into gene therapy in a bid to fix potentially lethal DNA flaws, governments, insurers and other payers are trying to figure out how to pay for the revolutionary treatments meant to be given to patients a single time.

Genetic sequencing, editing and synthetic biology represent some of the most profound innovations for the healthcare sector in generations because they hold out the increasingly likely possibility of delivering cures. That’s terrible news for the conventional pharmaceutical industry which has historically depended on treating the symptoms of chronic conditions.

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While Chinese negotiators offered to stop providing government subsidies that distort prices and put Western rivals at a disadvantage, they haven’t so far produced a list of subsidies they would be willing to eliminate, the people said.

Instead, the Chinese side so far has focused its offer on greater purchases of U.S. agricultural and energy products such as soybeans, crude oil and liquefied natural gas, they said.

Whatever deal is struck, the U.S. is also seeking guarantees it will be enforced and a means to resolve disputes.

“It’s one thing to write something on a piece of paper,” said Secretary of State Mike Pompeo on Fox Business Network on Thursday. “It’s another thing to have enforcement mechanisms. And I know our trade team is hard at work, making sure that the American people get that.”

How likely is it that the USA and China will reach a trade agreement? I think it comes down to two factors. What is it that the USA wants from a deal and what is China willing to give up?

Walmart has also made shipping to your home more affordable. In 2017, Walmart introduced an alternative to Amazon’s pricier Prime membership with free, two-day shipping on orders of $35 or more. This past year, it expanded free, two-day shipping to its marketplace items by working with hundreds of its top sellers and third-party fulfillment providers, like Deliverr.

The company last year also launched a new, more personalized website, which included a revamped Home section, as well as a cleaner, more modern design and sections that showcased items trending in the shoppers’ local area. The redesigned website made it easier to order groceries and reorder favorites, too.

In November, eMarketer noted Walmart had overtaken Apple to become the No. 3 online retailer in the U.S., with Walmart (including its Jet and Sam’s Club brands) poised to capture 4 percent of all online retail by year-end. Amazon, of course, remained No. 1, followed by eBay.

Walmart is making a big push into free 2-day shipping which is effectively the gold standard of online service provision. I sat in on a conference call last week with the company and the CEO of Deliverr, which is offering third party sellers the opportunity to circumvent Walmart’s own criteria for two-day shipping by sending inventory directly to Deliverr’s warehouses. That is an analogue for the Fulfilled by Amazon program which is the foundation of Prime delivery.

South Africa’s precious-metals mines are among the world’s deepest and most labor intensive and companies are under constant pressure to contain costs. Yet high unemployment and inequality mean labor relations are inevitably fraught.

AMCU’s plans for an industry-wide strike marks a return to escalated conflict between South African mining companies and workers. In 2014, the union held the longest-ever strike in the world’s largest platinum industry. Wage negotiations for producers of the metal are expected this year.

“It is unfathomable that AMCU would willingly call for secondary strikes in an industry that is already in jeopardy,” Minerals Council Chief Executive Officer Roger Baxter said in an emailed statement on Friday. “This would undermine employment and the livelihoods of millions of dependents.”

 

The primary reason there is an uptick in South African worker activism is probably more to do with the impending election in May rather than any other single factor. There is a war going on for the heart of the ANC and Ramaphosa has a clear challenge ahead of him in trying to improve the efficiency of the economy. The mining unions are a significant force politically, but also have a vested interest in securing as good a deal as they can from mining companies before the uncertainty of the election.

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

Some of the topics discussed include: Large impending IPOs could cause stock market indigestion, likelihood of Chinese stimulus improves, Australian Dollar still trending down which is a nominal support for Australian resources, EV materials discussion, Bonds and stocks ease with risk of consolidation increasing, gold pulls back from upper side of its range.   

There is plenty of evidence of renewed interest in the commodity sector this year and most particularly because of the perception that China is on the cusp of renewing stimulative measures following at least two years of combating leverage in the shadow banking sector.

The significant dip in the Baltic Dry Index over the last few months is a testament to the slowdown in global economic activity and is further evidence of the need for stimulative measures lest China experience a recession.

Central banks seem to reckon that the yellow metal is a good investment. They’re buying it for their reserves at the highest rate for almost half a century. Last year their net purchases reached $27 billion – 74 per cent more than in 2017.

Russia, Turkey and Kazakhstan were the biggest purchasers as the deteriorating political climate spurred them to convert some of their foreign reserves out of dollars. Hungary increased its bullion holdings tenfold. Even Poland is buying tons of gold.

It’s clear that the down-trend in gold prices since 2011 came to an end last year. The metal’s price has been rising steadily since mid-August. Where is it heading this year?

“The macroeconomic and geopolitical climate is conducive to continued gains in both gold and silver, and the precious metals equities,” says American stockbroker Cantor Fitzgerald, given:

Gold’s recent and historical strong performance in a rising interest-rate environment.

Should inflation expectations rise, this typically is a very bullish leading indicator for gold and silver.

The inflection point where physical gold outflows from ETFs ceases and inflows resumed was reached in the final quarter of last year and inventory holdings have continued to climb.

Uncertainty and volatility in global equity, debt and currency markets draw investors to safe havens. There is considerable upside potential as “precious metals equities are still widely under-owned by sophisticated international investors.”

Gold is one of the most popular and yet misunderstood of all alternative assets. It is commonly perceived as a hedge against inflation but also does well during periods of deflation. It is perhaps better to think of it as a hedge against stealth inflation when negative real interest rates prevail.

There will be plenty more battlegrounds as many private technology companies plan for IPOs. That has prompted predictions that 2019 could be the busiest year ever for new issues, as measured by money raised. Other big names in the queue, besides Uber, are data-mining giant Palantir Technologies Inc. and Slack Technologies Inc.

Lyft is expected to pitch itself to potential investors as a comprehensive ride-hailing service offering access to cars, bikes and scooters, mostly in the U.S., and one that won’t be saddled with losses from competing globally.

Like many fast-growing technology companies, Lyft is planning to debut with supervoting shares that will give the company’s founders near-majority control, despite together owning a stake of less than 10%, The Wall Street Journal has reported.

Many of today’s unicorns have been able to stay private for much longer than would normally have been the case because of the flood of capital that has been available from private equity firms.

If we think about the successes and failures of extraordinary monetary policy the surge in private capital into speculative ventures is a success if at least some of these companies can transition to commercial successes. Ridesharing, reusable rockets, electric vehicles have all been made possible with abundant liquidity. On the other hand, there are certainly going to be some spectacular failures once access a lack of abundant liquidity truly tests business plans.

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Some of the topics covered include: China extends rebound, gold, oil, copper, nickel, Australia, Europe rally, Wall Street steady, small caps, banks and semiconductors are leading

The rally since January has added more than $893 billion to the value of the country’s equities, lifting Shenzhen’s risky startups and state-backed giants alike. The rebound has been so quick and widespread that it’s already triggered signs of overheating in four of China’s major benchmarks. The CSI 300 Index’s 15 percent rally is its best start to any year in a decade, and turnover across all exchanges is near the highest since March.

While valuations have been low for months, Chinese equities really took off only after another set of weak economic data made monetary policy easing almost a certainty. Gains intensified when the new securities watchdog eased restrictions on trading, encouraging an increase in leveraged bets. Ample liquidity and a streak of foreign buying have fueled volumes.

“It’s essentially a reflection of change in investor expectations,” said Wang Chen, a Shanghai-based partner with XuFunds Investment Management Co. “The rally’s been driven by a return in risk appetite and a valuation catch-up.”

Bull markets in China tend to be state sponsored. China’s stock market is dominated by the actions of huge numbers of retail investors who are accustomed to taking cues from the government on when to participate.

I hope we can continue this discussion if we see further money flows into the gold sector. Taking note of Fullerisms " Never pay up for resources", "the need to be invested in case mania/euphoria occurs" and with reference to speculative investments "buy when sold down & sell when towering high above their EMA." As other subscribers will know, gold bull markets have strong drawing power and many of us need a sign on the wall "what the wise man does in the beginning the fool does in the end" from Howard Marks "Mastering the Market Cycle."

Thank you for this summary of adages focusing on the commodities sector. Gold continues to march towards the upper side of its seven-year base formation just below $1400. Investors are understandably getting excited about the prospect of a bull market that persists for more than a few months. That is particularly true because of the hedge gold offers against the potential for governments to blow out the debt markets with deficit spending and the impact that will have on their currencies.

“Indonesia wants exports to be more properly managed, if there’s an excess supply it’s better to set them aside as state reserves,” Jabin Sufianto, secretary-general of the Association of Indonesian Tin Exporters, said in an interview in Jakarta on Monday. “We currently export 100 percent of production, which means that we accept spot prices even if prices are bad.”

Southeast Asia’s largest economy has tried repeatedly in recent years to shore up prices of the metal used in electronics and tins by curbing production and sales, as well as making it mandatory for exporters to trade the commodity on a local exchange before shipment. Exports must also be inspected by government-appointed surveyors to check the quality and origin of ore used.

The plan from the association for a stockpiling program comes at a time of rising prices and predictions for a run of global deficits. It’s also been made just ahead of a presidential election in which resource nationalism is expected to feature as an issue in the campaigns. The trade minister will review the proposal and “there’s still a lot of discussion,” according to Jabin.

 

Producers don’t generally campaign so hard for market controls and supports unless their profitability is in danger. 

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

Some of the topics discussed include: Wall Street approaching the next area of potential resistance, Bitcoin and gold at the upper side of their bases, palladium accelerating, copper breaking out, Treasuries steady.

"We don’t want to leave any stone unturned, particularly if no one else is turning them over," he said in an interview ahead of the release Monday of a research paper he authored on the history and future of computer hardware designed to handle artificial intelligence.

Intel Corp. and Facebook have previously said they are working together on a new class of chip designed specifically for artificial intelligence applications. In January, Intel said it planned to have the new chip ready by the second half of this year.

Facebook is part of an increasingly heated race to create semiconductors better suited to the most promising forms of machine learning. Alphabet Inc.’s Google, which has created a chip called a Tensor Processing Unit that helps power AI applications in its cloud-computing datacenters. In 2016, Intel bought San Diego-based startup Nervana Systems, which was working on an AI specific chip.

In April, Bloomberg reported that Facebook was hiring a hardware team to build its own chips for a variety of applications, including artificial intelligence as well as managing the complex workloads of the company’s vast datacenters.

There is a growing understanding that deep learning and artificial intelligence are developing to such an extent that the future of computing is not going to be based on programming and programming languages.

In a rare explicit coupling of policy and the yen, Governor Haruhiko Kuroda said the Bank of Japan would have to consider additional stimulus if the exchange rate affected Japan’s inflation and economy.

He was responding to a lawmaker’s question about the BOJ’s options if the yen rose further. The yen fell afterward, trading at 110.70 versus the dollar at 1:29 p.m. in Tokyo.

Former BOJ officials have warned in recent weeks of more yen strength, saying there would be little the BOJ could do about it.

Speaking to parliament on Tuesday, Kuroda said the BOJ’s options included lowering bond yields and increasing asset purchases. He told lawmakers that currency manipulation isn’t a goal of BOJ policy, but Japan’s trading partners might not be convinced if the BOJ does act to offset a stronger yen.

This is a very good example of the central bank talking the Yen down. It doesn’t have to initiate a large sale of Yen to weaken it but it does sent a clear message to the market that the flash rally posted at the beginning of the year is not something they are going to sit idly by and tolerate. 

This was the first holiday season for Walmart’s redesigned website, plus its expanded home delivery and curbside pickup options. E-commerce sales in the U.S. rose 43 percent, in line with the gains most analysts had been expecting, helped by a broader assortment of brands and increased online grocery sales.

But some of the gains in the quarter were more related to timing: The early release of government food-stamp payments that were supposed to have become available to American shoppers in February boosted U.S. same-store sales by 0.4 percentage points
in the quarter, the company said.

The company reiterated the full-year sales and profit guidance it gave in October, including same-store sales growth at U.S. Walmart stores of between 2.5 and 3 percent -- a slight slowdown from the fiscal year that just ended. Retailers are bracing for a pullback in consumer demand this year, especially if the U.S. follows through on its threat to more than double tariffs on many Chinese goods, forcing retailers to raise some prices in
response.

In the Treacy household we refer to the Mrs. Treacy’s sales of jewellery and jewellery packaging on Amazon, Walmart, eBay, Etsy and lilytreacy.com as our family indicator. If retails were truly in trouble then the real-time demand for consumer discretionary items we receive from these venues would turn down long before it became apparent in quarterly earnings reports.

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

Some of the topics covered include: China rallies on liquidity proision, copper testing the upper side of its range. oil steady, gold breaks out. Dollar pauses. Treasuries exhibit a wedging pattern. 

Central bank net purchases reached 651.5t in 2018, 74% higher y-o-y. This is the highest level of annual net purchases since the suspension of dollar convertibility into gold in 1971, and the second highest annual total on record.1 These institutions now hold nearly 34,000t of gold.

Heightened geopolitical and economic uncertainty throughout the year increasingly drove central banks to diversify their reserves and re-focus their attention on the principal objective of investing in safe and liquid assets. 

Many investors now pay a great deal of attention to ETF holdings of gold but governments remain significant accumulators of the metal. That is particularly true of Russia and China which are acquiring gold to insulate themselves from the US Dollar as geopolitical tensions bubble up.

A rally in Chinese equities steepened Monday as bumper credit figures for January added to signs of increased stimulus.

The Shanghai Composite Index jumped 2.7 percent by the close, taking its rebound since a Jan. 3 low to 12 percent, as turnover on mainland exchanges reached a 10-month high. The small cap ChiNext index in Shenzhen, typically the most speculative part of the market, soared more than 4 percent. The surge weighed on government bonds, with the 10-year yield climbing the most in two months.

The nation’s equities, which were the world’s worst performing in 2018, are starting to take off as the new securities regulator eases curbs on trading and an economic slowdown spurs monetary easing. In a sign of how broad the rally has been, the relative strength of four major indexes have all climbed above 70 -- a level that signals to some traders an asset may be overheating. The last time that happened was May 2015, when the equity market was in a bubble.

I posted this chart of the impact tightening measures have had on the Chinese shadow banking sector a month ago. It is a clear signal both of the reasons for the slowdown in economic activity and the rationale the authorities now have to declaring the policy a success. It is increasingly likely that the Chinese authorities are now willing to start stimulating the economy again.

Germany’s financial regulator took the unprecedented step of temporarily banning short sales of Wirecard AG shares following reports of suspicious accounting practices, while prosecutors in Munich expanded their investigation to include a Financial Times journalist.

Investors globally are immediately prohibited from taking new short positions or increasing existing ones through April 18, according to watchdog BaFin. That’s the first time it has banned short-selling on a single stock and harks back to the financial crisis, when the regulator prohibited naked short sales on 11 financial firms.

The short-selling ban was coordinated with Munich prosecutors, who have already launched a probe over potential market manipulation in Wirecard shares. In a statement Monday, the prosecutor said it was investigating a complaint by an investor against an FT journalist.

Wirecard was the best performing company on the DAX last year and is one of Europe’s only technology success stories. Its fall from grace has been particularly swift but the move to ban shorting on an individual share is disingenuous. Rather than protect the perception of the German economy it is going to raise questions among foreign investors about their ability to express a view through investing in the region generally. 

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

Is the trade war the primary reason behind lower expectations for earnings in 2019? That’s a big question for the wider market because if the USA and China can come to an accord that will improve confidence which will allow companies to begin to make plans on a sounder footing than they have today. However, there are other important factors that are worth considering.

Thank you for your efforts in providing this valuable information and analysis of the markets to the collective. With the expectation of increasing M&A activities in the gold miners, what would you look for as candidates for take overs can you provide some suggestions.

Thank you for your kind words and this email which raises a question I have also been pondering. When we think about where the tide of M&A activity is heading in the gold mining sector, we can look at potential acquirers and their motivations for why they are buying. We can then look at what they might be interested in buying and whether there is likely to be competition for that asset.

The European Central Bank took a step closer to injecting fresh stimulus into the weakening euro-area economy as one of its top policy makers said discussions are under way on offering banks new long-term loans.

The comments by Benoit Coeure, the ECB Executive Board member in charge of markets, provided the strongest signal yet that euro-area policy makers are considering another round of funding. He also echoed ECB President Mario Draghi that there must be a monetary policy case for such action.

Central banks around the world are following the Federal Reserve in reining in plans to tighten monetary policy. The ECB itself has already changed its language to warn of downside risks to the outlook, while India’s central bank unexpectedly cut interest rates last week and easing inflation bolstered bets that more reductions could be on the cards.

With the euro-area outlook deteriorating, the ECB is expected to cut its economic growth forecasts at its next meeting in March. That gathering is also at the center of speculation about new loans, known as TLTROS.

With Mario Draghi exiting his position as head of the ECB later this year, a policy hawk is very unlikely to replace him. There is no way the ECB can return to anything approximating normal monetary policy against a background where the banking sector is hobbled by a legacy of Japan-style bad loans which will take years to come to terms with.

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Some of the topics discussed include: Coca Cola pulls back, Bond rally, oil breaks out of its short-term range, gold steadies, emerging market currencies encounter resistance in the region fo the trend mean. Europe steady in the region of the trend mean. India's oversold banks rebound, China steady, Mexico at risk of further deterioration. 

Newcrest Mining Ltd. could jump aboard the multi-billion dollar, deal-making rush that’s reshaping the top ranks of the gold sector -- but only if it has to.

The No. 3 gold producer by market value has set a deadline for the end of 2020 to increase its exposure to five so-called tier-one assets, meaning that it’s hunting for a project or mine to add to a roster of four mainstay operations and investments in Australia, Papua New Guinea and Ecuador.

Mergers and acquisitions are ranked as a “final pathway” to growth behind exploration work and partnerships with smaller companies on early-stage projects, Chief Executive Officer Sandeep Biswas said Thursday on an earnings call with analysts.

“We don’t need to do M&A, we are in the enviable position of owning two of the world’s premier long-life gold assets.”

New long-life, high grade gold assets are like unicorns. You just don’t see them very often. That is why the major gold miners have been so active in M&A recently. On top of that mines are wasting assets so miners have a proclivity for shopping for replacements. It seems inevitable Newcrest will deal at some stage but if they continue to wait, they will likely end up paying more for attractive assets later.

Yes Bank Ltd. rose the most in fourteen years after an audit by India’s banking regulator found no undisclosed bad debt for the last financial year.

The lender’s shares surged as much as 30 percent, the most since July 2005, before trading 20 percent higher at 203.65 rupees as of 9:43 a.m. in Mumbai. The gains pared the past year’s losses to 36 percent.

The green-light on its asset quality assessment for the 12 months that ended March 2018 comes as a relief for Yes Bank as it emerges from a leadership crisis that had helped halve its share price. India’s central bank twice rejected the lender’s request to extend founder and former CEO Rana Kapoor’s tenure after saying the bank repeatedly under-reported bad loans. Kapoor’s successor Ravneet Singh Gill, who has been heading Deutsche Bank’s India franchise, will take over from March 1.

Yes Bank collapsed in September because the RBI intervened to oust Kapoor following concerns about weak governance and issues with asset qualification. I’ve also heard that one of the reasons Kapoor has been singled out is because of the way in which his personal holding in the company was structured through trusts against which he had been borrowing money. That represented an additional governance risk to the bank.

Mexico has promised a capital injection of $1.25 billion to Pemex, while Lopez Obrador has floated a plan for $3.5 billion in tax breaks over the next six years. Not only did the measures fail to assuage market fears, they stoked concern that the government hasn’t grasped the extent of Pemex’s problems. Others worried that further capital injections could erode Mexico’s fiscal position.

“There’s risk of contamination as there’s basically one pocket of money,” said Shamaila Khan, the director of emerging-market debt at AllianceBernstein in New York. “To the extent Pemex support comes at the expense of fiscal performance, that is going to impact sovereign ratings.”

The biggest challenge for Mexico is it now has a left leaning populist administration. One of AMLO’s first acts as President was to cancel reforms at Pemex that would have allowed foreign investors access to the nation’s oil. That sent the wrong kind of message to the market because it eroded confidence in the administration’s commitment to meeting its debt obligations let along balancing the budget.

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Some of the topics discussed include: Wall Street testing potential resistance, Euro pulls back and Europe is reliant on how China plays out. Shanghai A-Shares bounced with H-Shares leading, South African Rand weak, gold weak, oil firm, coffee breaking down. Treasuries continue to ease.

As was widely expected, RBNZ remained on hold at +1.75%, yet may have sounded less dovish than expected. Despite the bank being cautious, its forecasts include the official cash rate remaining at +1.75% for 2019 and implied a rate hike in 2020. The bank also expects the core inflation rate to gradually rise to 2% yoy mid-point which necessitates a continued supportive monetary policy. Analysts pointed out that the bank seems to have time at its side, albeit they expect that as the year progresses growth could undershoot the bank’s projections causing for a more dovish stance. Governor Orr in his press conference stated that the chances of a future rate cut have not increased.

Island nations generally tend to have higher interest rates because of the cost of imports, exports and isolation push up inflation. At 1.75% New Zealand’s rates are unusually low from a long-term perspective reflecting the need for a stimulus following the Christchurch earthquakes and the competitive forces of devaluation where just about every other developed economy in the world is running low interest rates.

South Korea’s jobless rate hit the highest level in nine years, adding to evidence that President Moon Jae-in’s minimum wage hikes are doing more to harm employment growth than they are to raise incomes.

The seasonally-adjusted unemployment rate reached 4.4 percent in January, the worst figure since January 2010, when it was 4.7 percent. The median forecast of economists was for 3.8 percent. Meanwhile, jobs growth slowed to 19,000, down from 34,000 jobs in December.

Moon’s administration hiked the minimum wage by 11 percent this year, following a 16 percent increase last year.

South Korea is the world’s 11th largest economy so it does not tend to be factored in when analysts talk about synchronised global economic expansion. However, it is often a lead indicator for the global economy because of the nation’s focus on exports like cars and consumer electronics and its proximity to China. South Korea’s slowdown in late 2017 presaged the global slowdown concerns that animated markets for much of 2018.

The delinquency figure represents a new high in the auto-loan market — more than 1 million more people are behind on auto-loan payments now than at the end of 2010. More people have auto loans now than in 2010, so while the overall rate of delinquency is down, the total number of people who have fallen at least 90 days behind their payments is higher.

The Fed has been tracking the auto-loan industry for more than five years, the economists said in the blog post, and it's not the first time the group has sounded the alarm. In 2017, a quarterly report from the Fed highlighted the near doubling of the rate of delinquencies in subprime auto loans originated by auto-finance companies since 2011, Business Insider's Matt Turner reported.

Turner also reported at the time that Wall Street was expressing concern over the subprime-auto-loan market as well. Meanwhile, Business Insider's Lauren Lyons Cole reported that Americans borrowed more money to buy cars than to attend college between 2016 and 2017.

There are a couple of points that immediately come to mind on reading this article. The first is that the delinquency rate for auto loans is definitely climbing and number of auto loans outstanding has increased substantially.

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Some of the topics discussed include: fears continue to abate on the trade and government shutdown fronts, Wall street firm, Amazon rebounds, Euro rebounds, Europe and China steady, H-Shares firming, oil tests the upper side of its range,  

President Donald Trump said he is open to letting a March 1 deadline to raise tariffs on Chinese products pass without penalty if the two sides are near an agreement, sending a conciliatory signal as talks to resolve a trade war between countries continue.

“If we’re close to a deal where we think we can make a real deal and it’s going to get done, I could see myself letting that slide for a little while,” Trump said to reporters during a cabinet meeting on Tuesday. “But generally speaking I’m not inclined” to delay raising tariffs, he added.

Negotiators from the world’s two largest economies began their latest round of talks this week ahead of the March 1 deadline for additional U.S. tariffs on Chinese goods. Trump has threatened to more than double the rate of tariffs on $200 billion in Chinese imports.

It would really be bad form to introduce new tariffs while productive discussions are still ongoing so it is quite likely the March 1st deadline will be exceeded. That does not guarantee a deal will be struck but it is in the interests of both parties to make some form of agreement. What is almost certain is there will be an agreement to hold further talks.

The U.K.’s chief Brexit negotiator Olly Robbins was overheard by an ITV news reporter in a Brussels bar talking about strategy. According to the broadcaster, he said the plan is to delay the vote on the divorce deal until the final week of March, and then give Parliament a choice between a revised version of May’s deal and a very long extension of Article 50 talks.

The goal would be to scare Brexit supporters into line. A government spokesman said: “We don’t propose to comment on alleged remarks from a private conversation. The government’s focus is on securing the improvements Parliament needs to pass a deal so we leave the EU on March 29.”

Regardless of how we might personally feel about the Brexit saga, the reality is a comparatively small number of politicians are willing to support a clean break from the EU. Moreover, they are outweighed by those who will accept any deal if it avoids that particular outcome. As the manoeuvring between the Conservatives and Labour persists that imbalance is likely to be the deciding factor in the UK seeking to delay Article 50. It also increases the potential any eventual deal with the EU will be membership in all but name.

Faltering demand in Germany has preceded weak industrial data, which raised fears of a continued slowdown in Europe’s largest economy. Industrial production dropped for the fourth straight month in December, and Germany’s economy contracted in the third quarter of 2018 for the first time since 2015.

Standard Chartered analysts warn that the weakness could spread to other parts of Europe, further undermining demand for oil.

German demand makes up a minor fraction of the world’s oil consumption; the country was the 10th largest oil consumer in 2016, accounting for 2% of the global total, according to the U.S. Energy Information Administration. Since China made up 13% of oil consumption as of 2016, a drop in Chinese demand growth would likely have a comparatively larger impact.

Additionally, signs of slowing demand in other parts of Europe haven’t materialized, Mr. Horsnell noted.

Saudi Arabia continues to cut back on supply which buoyed the market today. However, the reasons for this move are not only to support prices but also in response to the slowdown in the global economy which is being led by Europe and China.

Melinda: When economists describe the conditions under which countries prosper, one of the factors they stress is “human capital,” which is another way of saying that the future depends on young people’s access to high-quality health and education services. Health and education are the twin engines of economic growth.

If sub-Saharan Africa commits to investing in its young people, the region could double its share of the global labor force by 2050, unlocking a better life for hundreds of millions of people.

Girls’ education, especially, is among the most powerful forces on the planet. Educated girls are healthier. They are wealthier. (If all girls received 12 years of high-quality education, women’s lifetime earnings would increase by as much as $30 trillion, which is bigger than the entire U.S. economy.) And their families benefit, too. The more education a woman has, the better equipped she is to raise healthy children. In fact, UNESCO estimates that if all women in low- and middle-income countries finished secondary school, child mortality in those countries would fall by about half.

The central themes to this letter and the foundation generally are innovation can solve most of our problems and educating girls educates future families. That is a return on investment anyone can understand.

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Some of the topics discussed include: Dollar firm, bonds ease, stock markets steady, gold pauses, discussion of Chinese easing, the outlook for inflation and the need for a higher reaction low before concluding the corrective phase has ended.  

The Swiss franc swooned almost 1 percent at the start of Asian trade Monday as thin liquidity caused by a Japan holiday led to a mini recurrence of the “flash crash” that roiled FX markets early last month.

The Swissie slid from 1.0004 per dollar around 7 a.m. in Tokyo to as weak as 1.0096, the lowest since November, within a matter of minutes before almost as suddenly reversing the move to trade 0.2% stronger on the day. The round trip created a trading range for Monday of almost 110 pips, about double this year’s daily average of 56.

The move was a smaller cousin of the whiplash that saw the yen jump almost 8 percent against the Australian dollar early on Jan. 3, when Japanese markets were nearing the end of a week-long New Year holiday break. A spokesman at the Swiss National Bank declined to comment on the franc’s drop on Monday.

“Lack of liquidity is a common factor in these events,” said Rodrigo Catril, a senior foreign-exchange strategist at National Australia Bank Ltd. in Sydney. “Traders and strategists now have Japan holiday calendars printed in a big font at their desk!"

Currency markets are generally very liquid so when we witness two major moves in the space of a month, both tied to illiquidity around Asian trading that tells us there is a lot of money chasing a very specific type of trade. Generally speaking it is only through the use of algorithms that these inefficiencies can be spotted and by now everyone knows to watch Yen crosses during Japanese holidays.

“Water keeps the boat afloat but can also sink it” is a Chinese proverb that neatly summarizes the nation’s current economic predicament. The debt that has hydrated the Chinese financial system for the past 10 years is now drowning it.

During the darkest days of the financial crisis in 2008, China launched a 4 trillion renminbi ($593 billion in today’s dollars) infrastructure plan that was accurately described as pulling the global economy out of recession. This infrastructure stimulus plan never ceased, and by 2017 the 4 trillion of spending ballooned to 14 trillion, according to China’s National Bureau of Statistics.
 
At first, China benefited from the economic reforms of the 1990s, its ascension into the World Trade Organization and the resultant inflow of foreign investment by Western companies. By 2009, the previous decade of strong growth meant wages and price levels had risen such that China was no longer a low-cost manufacturer. This made it implausible that exports could drive economic growth. Therefore, China’s central bank printed money to fund a gargantuan stimulus program. 

History tells us that growth that is funded by excessively rapid credit and money creation can lead to a variety of asset bubbles and to financial, credit and currency crises. A broad measure based on data from the People’s Bank of China and other agencies that includes both bank assets and shadow banking assets such as wealth management products, trust beneficiary rights and trust loans, places China’s total credit at $48 trillion, about 3.7 times its gross domestic product. That compares with $24 trillion for the U.S. despite China having an economy that is 37 percent smaller. China’s decade of rapid credit creation and investment spending has led to soaring property values, despite high vacancy, and low wage levels. These led to tepid export growth and a stagnating economy as the export industry lost competitiveness.

China has a mountain of debt that is concentrated in the regional banking sector and municipal governments. In attempting to wean the economy off of reliance on stimulus they have closed off successive avenues of credit ranging from interbank loans, P2P lending/shadow banking, US Dollar denominated debt. That withdrawal of credit has been one of the primary contributing factors in the underperformance of Chinese assets over the last 18 months.

“Most people don’t know how much they pay in taxes,” said Bob Kerr, who leads the National Association of Enrolled Agents, a trade group for tax preparers. “But the refund is the wrong
metric to measure it.”

Right or wrong, the drop in expected refunds is creating fear and anger in accountants’ waiting rooms. “Every single person” who walks in is dreading how much they’re going to owe the IRS, said CPA Gail Rosen, who heads the Martinsville, New Jersey, office of WilkinGuttenplan. “They come in and they worry.”

But telling people they paid fewer taxes throughout the year doesn’t help the sticker shock felt by filers who’ve become accustomed to getting a check, not writing one. Only about 5 percent of taxpayers -- about 7.8 million people -- are expected to pay more under the new law. But about 5 million, according to the Government Accountability Office, will find their typical tax refund replaced by a tax liability. “A lot of people are going to be surprised,” Rosen said.

Every politician knows that when it comes to policy, perception is often much more important than substance. If people had been asked whether they would prefer more money every month in lieu of receiving a chunky refund cheque they might not be nursing a surprise now. The reality is many people are likely coming out better off. However, if they had been using the refund as a saving mechanism, instead of saving monthly from their paycheques, this situation is going to feel like a tax hike.

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

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

Some of the topics discussed include: High yield spreads have unwound their overextension relative to the trend mean. Treasuries traders are more interested in pricing in a recesssion than the looming wall of new supply, S&P500 pauses, Germany weak, oil and commodity weak but gold steady, Australia surges following strong financials results. 

Some of the topics discussed include: High yield spreads have unwound their overextension relative to the trend mean. Treasuries traders are more interested in pricing in a recesssion than the looming wall of new supply, S&P500 pauses, Germany weak, oil and commodity weak but gold steady, Australia surges following strong financials results.