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

Taiwan dollar advances 0.3% after closing at the strongest level in more than two years Monday

TWSE climbs 0.6%; inflows into stocks exceed $3.8 billion for 2017, the third-biggest in Asia, according to data as of Monday

Stocks including Wistron gain on Apple-related optimism, with Fubon Securities raising rating on the stock

Ten-year bond yield rises 2bps to 1.14%

 

The Taiwan Dollar has appreciated by more than 10% against the US dollar over the last 12 months and extended that advance today. It is overbought in the short-term but its recent strength has broken the Dollar’s five-year progression of higher reaction lows suggesting a medium-term change to the relationship between supply and demand. 

“Liberals frequently care more about feelings than facts, and your smug Tesla-owning frenemy will never admit it, but in day to day usage, the big BMW is actually 18% more efficient, and 18% kinder to the planet. (Don’t get too cocky, Mr. 7 Series: at a US average 12 cents per KwH, the electricity cost to the Tesla owner for 1000 miles works out in total to about $81, as opposed to $98 for the gasoline. The reason the Tesla is less efficient, but still cheaper to run, is that the power company pays a lot less for fuel than the automobile driver does. But when the issue is green impact, not greenbacks, the BMW wins handily.)

And

“Of course, no self-respecting Green Weenie would settle for powering his car by the sun, but his house by Con Edison. And with the average efficient house using 1 KwH per hour, i.e., 24 KwH per day, the house needs 4.8 KwH capacity, and considering efficiency losses and reserve requirements, that means 6.9 KwH for the house. So to power both the Tesla and the house, Green Man needs at least 1,443 square feet of power production, at a cost of $115,000. But even using a Tesla-only setup, $60k would buy 25,641 gallons of gasoline (at the current US average price of $2.34 per gallon). The Big BMW could travel, on that much fuel, 24,000 x 24 MPG = 615,384 miles. Game, set and match – Munich and Detroit. Sad!” 

While we didn’t do the analysis, all of Mr. Karo’s numbers were sourced, which was not a surprise, given that he is a Philadelphia lawyer, and the math works. Although Mr. Karo expresses disdain for braggadocios Tesla owners, presumably because of his experiences with some owners he has encountered, the economics in this analysis suggest that gasoline-powered vehicles will have a longer future than EV-proponents suggest, or would like to see happen. Tesla owners will not be swayed by Mr. Karo’s analysis. Instead, they will declare that with falling battery and solar panel costs coupled with their improving efficiencies, the cost advantage will soon swing in favor of EVs. However, the inability of EVs to be swapped for gasoline-powered vehicles in a one-to-one exchange for all applications means there is an extensive convincing period ahead before the public fully embraces them. Just how long that convincing period will be is anyone’s guess. 

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

There are four major themes in transportation at the present time. These are electric vehicles, automation, connectivity and sharing. Let’s for a moment take the environmental question out of the argument for electric vehicles. Many people buy them because they are cheaper to run and have fewer moving parts so they tend to be reasonably reliable. 

Marine Le Pen and Emmanuel Macron have pulled further in front in opinion polls for next month’s French presidential election ahead of the first televised debate Monday. Macron, a centrist independent, and Le Pen, the far-right leader of the National Front, have extended their advantage over Republican François Fillon, whose campaign has been dogged by an investigation into alleged fraud.

Macron and Le Pen were tied with 26 percent of the vote, with Fillon falling back to 17 percent, in a poll conducted by Kantar Sofres released Sunday. There was a setback, too, for the candidate for the governing Socialist party, Benoît Hamon, who fell back to 12 percent, level with left-wing former Socialist party member Jean-Luc Mélenchon.

Current President François  Hollande announced in December that he will not seek a second term.

French voters will go to the polls for the first round of the election on April 23, with the top two candidates then going onto a second round run-off on May 7.

It would take a major swing in the final month of the campaign for the run-off not to be between Macron and Le Pen. And it would take a similar momentum switch for Macron not to ultimately emerge victorious. Polls have consistently shown Macron beating Le Pen in the second round with around two-thirds of the vote.

However, Monday’s first debate is significant. The latest poll indicated that 30 percent of voters remained undecided. And the poll showed that those indicating that they would vote for Le Pen are far more steadfast in their commitment compared with those voicing a preference for Macron. While 75 percent of Le Pen supporters said they would not change their minds, only 51 percent of potential voters for Macron said the same.

Although Fillon has seen himself go from election favorite to longshot following an investigation into charges that he paid family members for jobs they didn’t perform, Le Pen appears to have emerged unscathed from a similar “fake jobs” scandal.

Today, there is little evidence of any popular, dominant presidential candidate in France.  However, candidates with a chance of winning have moved towards the right, as we also saw in The Netherlands after a similarly acrimonious campaign.

For Emmanuel Macron, this amounts to a move from the left to a centrist independent position, at least so far.  I assume he will certainly move further to the right if he and Marine Le Pen move through to the second round.  She really is the protest vote candidate but cannot escape the shadow of her father, despite considerable efforts to do so over a number of years.  

Dear David In a few days my longstanding subscription to your service will expire. May I say how much I have appreciated the excellent opinions and advice you have provided over the years. Furthermore, having completed a night-class in technical analysis in Sydney during the frenzied mining boom of the 1960's, I have really enjoyed your superb chart library, which must be without peer. Your personal touch was also always appreciated. As a fellow music and cricket/sport lover, I always enjoyed your music reviews and sporting comments. With 80 rapidly approaching I have been forced to re-focus my investment priorities on reliable income generation and capital preservation. I believe this is best achieved by concentrating on the local market which offers both an above-average return and remarkable tax credits for seniors. My best wishes for the future.

I am fortunate to have had many long-term subscribers who shared the same enthusiasm for markets and also price charts, which allow us to see and sometimes understand so much in terms of what is going on.  Your appreciation of my sporting comments and earlier attempts at music reviews certainly brought a smile to my face.  They were a sign of my fervour rather than knowledge and subscribers were generous in their tolerance. 

May you continue to live long, enjoying and learning from your many interests.

Eight months ago, the First Minister stood at the same podium in Bute House with the same flags, the same urns and the same mantelpiece as Monday’s announcement. It was the morning after the Brexit vote and a bleary-eyed nation was coming to terms with the momentous result. In that context – without hesitation or reflection – Ms Sturgeon announced that she’d already instructed civil servants to draw up the necessary legislation for another independence referendum.

She put Scotland on high alert. She indicated then what her end-game would be. No Brexit discussion would truly be conducted in good faith, as Brexit itself was only a lever to the primary goal of her political career: the break-up of Britain.

She tried to co-opt the Remain votes of thousands of Scots like myself as ciphers for support for independence when they were nothing of the sort. She turned a deaf ear to the million Scots who voted Leave, nearly 400,000 of whom were her own SNP supporters. And, by signalling her intent so far in advance, she allowed discussions and decisions to be made on how to present the response when she finally, inevitably, pulled the trigger.

The majority of the people of Scotland don’t want independence. They don’t want the decision they already made to be overturned. They don’t want to be told that their original answer was wrong and it’s time to do it all again. They don’t want to be dragged back to the uncertainty and division that binary referenda entail. Ms Sturgeon may also find that they don’t want a First Minister who acts only for her own narrow party interests and not those of the nation as a whole.  

No wonder the former Labour minister Brian Wilson was moved to write: “Nicola Sturgeon’s unlikely success in allowing a Tory Prime Minister to speak for the great Scottish majority...is unlikely to be looked back on as her finest hour.”

Does Nicola Sturgeon remind you of any other politician? 

How about Donald Trump, although more articulate but with less charm.

I will leave FTM’s last word today on this emotive subject to this Letter to the Editor, sparked by Ruth Davidson’s article above:

“Impressed with Ruth Davidson. Seems like she is the only one in Scotland with the nerve and political nouse to take on Sturgeon. It's about time she was given the same air play, particularly by the BBC who seem to positively wet themselves whenever Sturgeon speaks.

It's about time somebody really pressed home the killer questions to Sturgeon.

1) Currency, 2) Budget Deficit, 3) UK Trade outside the Union, 4) Defence spending in Scotland, 5) Trident 6). The majority don't want another bloody referendum anyway.

She shouldn't be allowed to keep back heeling the questions to some imaginary SNP experts who are supposedly looking into this.

Keep up the good work Ruth!”

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

I would be grateful if you would pass on a question to David Fuller about wheat.

While breakfasting in my local cafe this morning, the owner mentioned that he was finding it increasingly difficult to buy flour - just could not get what he needed.

Having time to look into the excellent Comment of the Day archive while breakfasting I leaned something completely new to me - the influence of Saudi Arabia and its declining wheat production (previously enough to meet its own and several neighbouring country's needs) and now, due to dwindling water supplies, a massive importer of wheat.

I note that London Wheat prices are up significantly since last year. 

A few years ago David cut back on his wheat futures. So, is it time to load up again? I see from the chart that there has been a recent pull back.

I can fill my car fuel tank less expensively than I did a while back, but am I now going to have one less slice of toast! 

I look forward to another excellent presentation at the next Markets Now Seminar on 27th March. That really is 'value for money'', especially the presenters sharing their topical and timely insight as to what is driving the markets. 
Best wishes

Thanks for your toast report which reminds me that one never knows where the next seed or kernel of interesting information will come from. 

Saudi Arabia’s wheat was heavily subsidised, so I think the problem was not just about insufficient water.  It was an amazing achievement, as these pictures show, but not sustainable when cutbacks are required with oil trading around $50 a barrel. 

This item continues in the Subscriber’s Area.

We have another interesting list of experienced delegates, currently up to 25 and certainly not just from London. In fact, they are attending from far and wide. 

I am looking forward to another lively and enjoyable evening, which will now include a short presentation from a fourth speaker well known to Iain Little.

Among markets, technology has never been more interesting in our lifetime so Charles Elliott’s latest comments will be most welcome. 

Whatever your investments, we will need to keep an eye on these two charts as the year progresses – Dollar Index and US 10-Yr T-Bond Yields.

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

My presentation focused on my belief that we might be in the latter stages of a medium-term expansion but are very likely to be in the early stages of a secular expansion. That informs my additional belief that we are not about to have a crash and that the Wall Street leash effect is an important characteristic which is gaining credence once more, following what has been a long hiatus. 

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

The best way to send the right economic signals that reflect constraints is through locational marginal pricing – having different power prices in different parts of the grid.

This is a politically unpopular mechanism, as it would see prices go up in zones of large demand – potentially industrial areas.

The alternative is grid investment. But the costs are huge, as is the case for the bottleneck between Scottish wind farms and English demand centers. The 2.2 gigawatt HVDC cable currently being built there has an estimated cost of 1 billion pounds. Yet National Grid estimates as much as 8GW of additional transmission capacity could be required by 2030, on that particular border alone.

Less human involvement might be part of the solution. Google’s DeepMind recently announced they are exploring opportunities to collaborate with National Grid. It has been successful elsewhere -- DeepMind demonstrated its immense potential by reducing cooling costs in an already human- optimized datacenter by 40 percent.

Setting it loose on the extremely complex and quite probably over-engineered National Grid, with its many overlapping services and mechanisms, its rules of thumb and its safety margins, could provide novel ways to ensure system reliability cheaply and efficiently. DeepMind’s CEO conservatively hinted that it might be able to save up to 10 percent of the U.K.’s energy usage without any new infrastructure. Step aside, humans.

 

Artificial Intelligence (AI) is rapidly finding its way into systems which had previously always been managed by humans. You might have heard of the Google Deep Mind team’s victory against the Go world champion. It represented a landmark not so much because it overcame a human; we’ve seen that in chess before. It was the manner in which the victory was achieved that is so important. 

In short, every time Porsche sells a 911 sports car or one of its Cayenne SUVs, it could take the profit alone and go buy a brand new Chevy Cruze.

Its Teutonic peers don’t have nearly as much profit punch. Daimler AG pocketed about $5,000 a vehicle last year, roughly the same margin Bayerische Motoren Werke AG (BMW) has been managing. Part of the money magic is simply price. Porsche doesn’t make cheap cars. Even luxury players like Mercedes occasionally offer more pedestrian versions at narrower margins to get aspiring buyers into the family. And make no mistake, Porsche customers are paying a premium for the brand’s reputation.

Ferrari knows this game well. Its operating profit equates to almost $90,000 a vehicle. But about 30 percent of Ferrari’s business comes from engines, key chains, amusement parks, and other things that don’t have wheels. What’s more, the company makes only about 8,000 cars a year, scrimping on supply to keep prices high.

 

Porsche might be making significant profits on every car it sells but the company is also among the largest shareholders in Volkswagen. It was far from immune to the fallout from the diesel scandal which saw the stock plummet from €95 to €35 and it has been heavily influenced by its parent’s performance since. 

On three separate occasions since 2013 the US Federal Reserve sent shock waves through the global financial system when it tried to tighten monetary policy, and each time it was forced into partial retreat to halt the mayhem.

The Fed has since come to terms with its unwelcome role as the world's central bank, a monetary superpower that cannot set liquidity conditions for the US alone. The international blow-back into the US economy from any mistake is instant and brutal.

Over recent months the Federal Open Market Committee has been careful to take the global pulse before acting. It now hopes the coast is clear. Today's quarter point rise in the federal funds rate to 1pc has been so loudly signalled in advance that investors have already adjusted.

Emerging markets seem better prepared, so far able to shrug it off. China has restored confidence in its exchange rate regime. Capital flight appears to be under control. Europe's shift towards bond tapering reduces the risk of a rocketing dollar. "We're not overly worried about downside shocks," said Janet Yellen, the Fed chairman.

Yet nobody really knows whether the world can handle a total of six rate rises over the course of 2017 and 2018 as sketched in the Fed's 'dot plots' scenario.

"Our highly levered financial system is like a truckload of nitroglycerin on a bumpy road. Don't be allured by the Trump mirage of 3pc to 4pc growth and the magical benefits of tax cuts and deregulation," says bond guru Bill Gross from Janus. This is a year to hold onto your money, he tells clients, not to seek a return on money.

On the face of it, a 1pc rate is risibly low a full eight years into the economic expansion. It is deeply negative in real terms. Savings are being whittled away.

But we are not dealing with normal circumstances. The Atlanta Fed's Wu-Xia 'shadow rate'  suggests that the combined tightening so far this cycle is equivalent to thirteen rate rises, once you include the withdrawal of stimulus from quantitative easing and dovish forward guidance. If so, we may be near the end-game.

The Wu-Xia model and others like it show a relentless fall in the natural rate of interest over the decades. Each peak and each trough is lower. It is the deflationary consequence of a deformed world of over-capacity (China), under-consumption (Europe), excess savings (inequality), and lack of demand.  

Former US treasury secretary Larry Summers thinks the natural rate has dropped to minus 3pc in his grim vision of secular stagnation. Is he wrong? Have we put this episode behind us at last? We don't know.  

Do I believe these forecasts?  No, at least not in the near term. Nevertheless, AEP is a formidable financial journalist with great contacts and he can be prescient.  Therefore, why don’t I agree?  Because I don’t see bearish forecasts in the price charts, at least not yet.  Meanwhile, and I don’t mean this arrogantly, bearish forecasts from high-profile financial experts have been one of the most reliable indicators over the last eight years and counting. 

If stock markets are climbing a ‘wall of worry’, you know everyone is not long.  In fact, they may be trying to talk the markets down.  There are a lot of wobbly bears out there, only this time it is not due to global warming. Will the bears eventually be right?  Of course, but we all know that timing is crucially important.  

So, which charts am I talking about and what am I looking for?

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

There are your traditional U-turns, and then there are vicious, extraordinary punishment beatings of the sort Philip Hammond has just had to submit himself to. The Government ought to be congratulated for abandoning its absurd, manifesto-defying tax hike on the self-employed. But the way in which good sense has prevailed has been shocking, and casts grave doubt on the Chancellor’s political future.

His fall from grace has been astonishingly swift. No Budget in living memory has disintegrated so fast; no Prime Minister has resorted to forcing a Chancellor to confess in writing to having got it so utterly wrong. His tax plan had already been kicked into the long grass, and the spotlight had moved on to Scotland; and yet No 10 still felt the need to distance itself further from Mr Hammond’s omNICshambolic Budget, even at the cost of exposing a terminal breakdown in the relationships at the heart of government.

Listening to the Chancellor humiliate himself on Monday, one could almost begin to feel sorry for him: he sounded like a dissident who, after several rounds of torture in a sordid cell, realised that he would be forced to repudiate his core beliefs to avoid a full auto-da-fé.

Yet still he remained stubbornly defiant, clinging to the delusion that he would in time be able to reinstate his beloved tax increase, and even claiming, laughably, that nobody in officialdom or government had noticed that the policy was in breach of the manifesto.

His performance bore the tell-tale signs of a lame-duck Chancellor who has been assured that his job is safe but who in fact is now already on his way out, a mere eight months after being appointed.

Never mind that Theresa May had signed off on Hammond’s plans, and that it was she who hired Matthew Taylor, the Blairite, to shake up self-employment rules and taxes; the Chancellor has been ruthlessly sacrificed. The brutality of the put-down suggests that tensions over other aspects of policy were coming to a head, and that patience had been running ever thinner on both sides.

His relationship with the Prime Minister may thus never recover, an insurmountable problem in any administration but an especially dangerous and untenable one in a Government that is preparing to embark on the most complex project since the Second World War.

And:

Mr Hammond may bounce back, but the fundamental problem is that his economic policy is disastrously misaligned with the Government’s central mission of extricating the country from the EU. The Chancellor’s immediate, lethal mistake was to wage war on the Tory base; but his more profound error was to produce a Budget fit for a very different, pre-Brexit era.

Full Treasury buy-in is required for Brexit to work, yet the Chancellor’s support has continued to be half-hearted, and his Budget was a head-in-the-sand exercise, pretending that nothing was about to change. It wasn’t worth the paper it was printed on even before yesterday’s U-turn.

The first problem has been fixed but not the second. If he is to survive, he will need to change course radically. He will need to respond swiftly to events during the negotiations, reassuring and placating the financial markets and deploying a mix of carrots and sticks.

If banks threaten to leave, he should dangle massive tax and regulatory cuts; if car firms say they will up sticks because of the possibility of tariffs, he will need to promise to compensate them in other ways, while reminding them that protectionism cuts both ways. It will require toughness, skill, a permanent campaign and even a permanent Budget process: the full powers of fiscal and tax policy will have to be put behind the Brexit negotiating team.

The UK needs a Chancellor who is fully committed to Brexit, as I said earlier this week.  Mrs May has done a commendable job in winning over some former Labour supporters.  Mrs Thatcher did the same, while remaining our most effective Tory Prime Minister.  Mrs May will have a more successful Brexit if she shows from the outset that she a strong Conservative Prime Minister. 

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

“I can see the glimmer of a New India” proclaimed a triumphant Indian Prime Minister Narendra Modi a day after last week’s election victory in the country’s most politically significant state; at 200 million people, Uttar Pradesh has as many people as United Kingdom, France and Germany combined. If it were a country, it would be the world’s fifth most populous.

Modi is right. Not since the 1970s and (former prime minister) Indira Gandhi — of whom it was said “India is Indira and Indira is India” — has an individual defined and dominated politics in this manner, defying all conventional assumptions, disrupting politics-as-usual and permanently smashing the elitism of India’s erstwhile liberal consensus. Above all, and bypassing the mainstream media for the most part, he has emerged as a supreme communicator.

Even his most contentious and audacious decisions — like the move to ban 86 percent of India’s cash overnight last November have come at no political cost; instead, the big gains in India’s heartland prove that his decision to ‘demonetize’ high-value currency notes ultimately played out as a distinct advantage. In the cinematic plot of the Uttar Pradesh elections, Modi was cast as the vigilante action-hero, a sort of Robin Hood figure whose uncompromising toughness forced the rich and powerful to queue up at banks and suffer discomfort just like the poor. Unfazed by criticism — from opposition parties, eminent economists and large sections of the global and national media (I am on record as a skeptic of the move’s economic wisdom) — the prime minister positioned the currency ban as a patriotic purge of toxins from the body politic.

As elsewhere in the world, from the Washington, D.C., Beltway to Brexit, the spectacular consolidation of Modi’s hold over India — as well as how Indians think — underlines the equally spectacular failure of liberal politics, its echo chambers and its elitism trap.

His enormous victory in Uttar Pradesh has been touted as his Indira moment; not just for the complete command he enjoys three years into his term, but for his commonality with the former prime minister as an absolutist strongman. But if Indira was the daughter who inherited power from India’s first prime minister, Jawaharlal Nehru, Narendra Modi is the son of a tea vendor who rose from abject poverty and hardship to earn his influence. His success in pushing back against India’s old liberal elites catches the global anti-liberal undercurrent. That he is entirely self-made — unlike Indira Gandhi and the dynastic lineage her family spawned — empowers him to mock the pedigree of liberal elites, public intellectuals and the institutions they represent. During the recent election campaign Modi could not resist taking a swipe at Harvard, which he said mattered a whole lot less than hard work. At the same time, Modi referenced himself as a “poor mother’s son” in a speech widely believed to be a dig at the lofty criticism of his demonetization policy by Nobel Laureate Amartya Sen, among others.

Yet, Narendra Modi exemplifies how the old labels of ‘Left’ and ‘Right’ do not apply. There is no doubt that among the many different elements that won Uttar Pradesh for Modi were state subsidies such as those for cooking gas (hugely popular among woman voters) and microfinance loans — all of which helped the prime minister cement his pro-poor credentials. In many ways he is not a free-market reformist — as fiscal conservatives may have imagined — but rather a new-age welfare-capitalist for the country’s poor, who believes that the government is the vehicle for change.

Governance is Everything and Narendra Modi remains one of the most capable and tireless politicians on the planet.  His victory in Uttar Pradesh is hugely significant and he is also popular with millions of ex-pat Indians living and working all over the world.  They don’t vote in their native country but they can be a useful asset as India’s economy continues to develop. 

We have another interesting list of experienced delegates and certainly not just from London. In fact, they are attending from far and wide. 

There are a few seats left, so come along and join us if you can, for another very lively and enjoyable evening, which will now include an introduction from a fourth speaker well known to Iain Little.

Meanwhile, Trump has generated plenty of political and economic controversy. Among markets, technology has never been more interesting in our lifetime so Charles Elliott’s latest comments will be most welcome. 

Whatever your investments, we will need to keep an eye on these two charts as the year progresses – Dollar Index and US 10-Yr T-Bond Yields.

Our access to Europe’s markets will come to an end. Our powerful finance industry will lose the passport that enables it to sell its services across the Continent. Immigration will comes to a sudden stop, leaving fruit rotting on the trees, and, even more seriously, double mocha lattes unwhipped at Prêt, as companies struggle to find the staff to do the jobs that need doing.

With the Prime Minister, Theresa May, preparing to finally trigger Article 50, and start the process of leaving the European Union, we can expect to hear a lot of warnings about a cliff-edge Brexit, with the looming threat that no deal will lead to a car crash for the British economy.

Understandably, companies are going to feel nervous about that. Sterling is going to wobble on the currency markets – it is already down this week. The FTSE 100 is going to get hit if a deal seems to be falling apart. At many points over the next two years, the British negotiators are going to threaten to walk away with nothing, and every time, there will be a collapse in confidence.

In fact, however, much of that will be nonsense. Paradoxically, the less we ask for from the EU, and the closer we get to walking away from the table empty-handed, the more we are likely to get a good deal in the end. Why? Because sometimes asking for nothing is the best negotiating position. The markets are going to be jittery, but investors and traders should keep in mind that the final outcome is likely to be a lot better than it looks right now.

Don’t ask economists for any insights, however. The views of just about anyone (dentists, say, or actuaries, or, come to think of it, children’s party entertainers) would be more useful that a group of so-called professionals who disgraced themselves with absurdly over-the-top scaremongering in the run-up to the referendum, and even more hysterical predictions of imminent collapse in its immediate aftermath.

And:

Then imagine a different scenario. Our negotiators sit down and say, actually there is nothing we want from the EU. We are happy to operate under World Trade Organisation rules, we will make sure our market is completely open to European companies, and we have no plans to impose any tariffs of any sort. And, er, that’s it. The Brits then start looking at their watches, and asking if the team on the other side of the table knows anywhere good for lunch.

At that point, the EU side will have to start thinking about all the things they want from Britain.

The importance of these should not be dismissed. The UK makes a total contribution to the EU budget of £13bn. It gets £4.5bn back, so the net contribution is around £8.5bn. The UK, with Germany, is one of only two major net contributors, although countries such as France now also chip in a little as well. The expenditure of the EU is £123bn, so that £13bn is about 10pc of the total, and the net figure is about 7pc of the total. Once we have left, that money will have to come from somewhere. Several countries will have to become net contributors for the first time; plenty more will have to step up from trivial contributions to major ones. That will be neither easy, nor popular.

We also have a massive trade deficit with the EU. Britain is the largest market for German cars, which also happens to be that country’s largest industry. It is a huge export market for the Netherlands, Belgium, and most of all Ireland (36pc of Irish exports by volume go the UK). Tariffs hurt everyone. But they hurt the surplus country more than the deficit country. The EU is going to want access to our market. If it loses that, or if we impose tariffs, then it will hit jobs and investment across the Continent.

Matthew Lynn has emotional intelligence and I hope the UK’s Brexit negotiators read his column very carefully.  The big initial danger, I suspect, is that the UK finds itself negotiating with unelected EU commissioners and their appointees, who will be focussed on political rather than economic issues.  The next danger will occur if the UK has to negotiate with the 27 remaining EU countries.  Special interests and unproductive groupthink would dominate that awkward environment. 

UK negotiators do not need to be experts on every aspect of an EU obstacle course designed to deter countries from even contemplating leaving. Keep discussions to a minimum and remember these words from Margaret Thatcher: “If you set out to be liked, you would be prepared to compromise on anything at any time, and you would achieve nothing.”  

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

The great economist Ronald Coase taught us that corporations are only the best vehicle for economic activity when the transaction costs of working in a hierarchical, closely managed organisation is lower than the costs involved in getting freelancers or independent agents to cooperate. But tech means that the economics have tilted at least a little away from the corporation, and more towards smaller firms, contractors and freelancers advertising their wares via platforms, and this is panicking our social-democratic establishment, who fear losing the last levers they still retain over our society and economy.

So they have enrolled the Government – including Philip Hammond, the Chancellor – in their quest to slow down change. Their strategy has been to point out the inconsistencies in current rules. Take the jobs market: some people are obviously employees, and others are pure self-employed freelancers.

But what of workers who rely primarily for their income on a platform like Uber? The drivers own their own cars, pay for their own operating expenses and choose their own hours; almost all of them are happy. But are they really, fully self-employed, or are they part of some third way which isn’t (yet) recognised in law and in the tax code?

It is obviously true that the present classification makes little sense. But sometimes it’s best not to change a broken system, for fear of making it even worse, and that is exactly what Hammond should have realised before he decided to raid the self-employed. The problem isn’t that the self-employed are “under-taxed” to the tune of £5.1bn a year, as many establishment economists have been saying. The problem is that employees are over-taxed to the tune of many more billions – overtaxed in the sense that a much lower overall tax rate, accompanied by a much smaller state, is, in my view, the only way Britain will prosper and thrive as an independent, free trading economy in the 21st century.

But until the day that the Government can drastically slash taxes at the same time as it radically simplifies the system – the model recommended by the 2020 Tax Commission, which I chaired – it would be better for it to do nothing. It should certainly not seek to undermine or campaign against self-employment, on the spurious grounds that it’s an “inferior” form of employment.

It should not seek to extend the welfare state’s net ever wider, showering the self-employed with more benefits. And the last thing it should do is plot to whack the likes of Uber with a 13.8pc payroll tax, which would be the logical (but job destroying and price raising) outcome of any system that sought to tax “platform workers” like the employed. This is a Tory government, and it is high time it began behaving like one.

This is one of the most sensible comments on our fast moving, technology driven economies (not just the UK) that I have seen.

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

Dear David,

Allister Heath has recently written another article in the Telegraph entitled – Why Scotland’s dire economy is falling further behind the UK. It is well worth a read. For Sturgeon to get a motion through the Scottish Parliament to hold a Referendum, she will probably have to invoke the support of the Greens, as was done recently in order for the SNP to get their dire budget through. The point is that if the Green’s manifesto was to be enacted Scotland would be back in the 19^th century in short order. I find it difficult to believe that even Sturgeon would stoop so low to get a vote as important as the right to hold a Referendum to drag the country away from its successful resting place of 300 years. I would have thought that was political suicide.

Thanks for your latest update from Scotland, and I agree with your conclusion.  Here is Allister Heath’s article which you mention above: Why Scotland’s dire economy is falling further behind the UK.

Aggressive, narcissistic and destructive politicians such as Sturgeon have always been a political hazard.  Fortunately, in democracies we have opportunities to vote them out over time.  Sturgeon was sufficiently shrewd to survive longer than most and she had little opposition. Consequently, it may take a little longer before she resigns or you can vote her out.  However, I maintain that her popularity peaked early last year and will never recover. 

The SNP’s utopian socialism is now seen to have undermined Scotland’s economy. Ancient claims of England’s “yoke” are no longer credible and Scotland has been increasingly subsidised by the UK. Sturgeon’s credibility is now accelerating lower following her opportunist intervention in the Brexit process.

The answer to Scotland’s problems, in my opinion, is to get rid of Nicola Sturgeon and the SNP’s sole vision which is to break up the United Kingdom.  The people to do that are impressive Ruth Davidson, leader of the Scottish Conservative and Unionist Party.  They won 31 seats last year and are the second largest party in Scotland, and closing on the Scottish National Party which has seen its once overwhelming lead shrink to 63 seats in the Scottish Parliament.   

 (See also: ‘Get back to the day job!’ Sturgeon’s independence threat ripped apart during heated FMQs)

We have another interesting list of experienced delegates and certainly not just from London. In fact, they are attending from far and wide. 

There are a few seats left, so come along and join us if you can, for another very lively and enjoyable evening, which will now include an introduction from a fourth speaker well known to Iain Little.

Meanwhile, Trump has generated plenty of political and economic controversy. Among markets, technology has never been more interesting in our lifetime so Charles Elliott’s latest comments will be most welcome. 

Whatever your investments, we will need to keep an eye on these two charts as the year progresses – Dollar Index and US 10-Yr T-Bond Yields.

“The U.S. Fed action was in line with market expectations and allayed concerns that the outlook comments might turn hawkish,” Hemant Kanawala, head of equities at Mumbai-based Kotak Mahindra Old Mutual Life Insurance Ltd., said on phone.

“This is positive for emerging-market flows and overseas inflows to Indian stocks will resume,” he said.

Resumption of foreign inflows and seven straight months of net purchases by local funds have boosted the valuations of Indian stocks to their highest level in more than six years. The Sensex traded at 17.3 times estimated 12-month earnings, the highest since November 2010.

Foreign funds have purchased $3.5 billion of local shares so far this year after a record $4.6 billion outflow in the three months through December. Domestic funds have been buyers for seven straight months through February, including a record 138 billion rupees ($2.1 billion) in November.

“In an environment where earnings haven’t been so exciting the valuations from the price-to-earnings perspective will always look expensive,” Kanawala said. “Price-to-book ratio is a better parameter in such cases.”

 

India has been making headlines for all the right reasons of late. The country has just moved from 2G to 4G mobile speeds which has the potential to unleash economies of scale in online business that were not previously possible. Efforts to boost manufacturing are paying dividends with Apple opening a factory in the country. Meanwhile Modi’s emphatic victory in, Congress Party dominated, Uttar Pradesh signals widespread public support for his administration’s reform and anti-corruption mandates. 

Hong Kong equities are back at heights unseen since China devalued its currency in August 2015.
A dovish Federal Reserve, China growth optimism and steady mainland inflows combined to fuel a 2.1 percent rally in the Hang Seng Index on Thursday, the biggest advance in almost 10 months. The gain also pushed the gauge firmly above the 24,000 level -- an effective ceiling for the past seven years. China Unicom Hong Kong Ltd. and Link REIT were among the day’s best performers, while Cathay Pacific Airways Ltd. was one of only two decliners after posting a loss on Wednesday.

Hong Kong-listed equities are particularly vulnerable to shifts in sentiment toward U.S. monetary policy thanks to a currency peg with the greenback, while the increasing dominance of Chinese companies on the city’s benchmarks means national economic indicators have a powerful pull. With investors relieved the Fed didn’t increase the projected pace of rate hikes and fears of a Chinese hard landing receding, the serially under-performing Hang Seng Index may have room to rally further.

 

With a pegged currency the Hong Kong market is heavily influenced by Fed policy but that effect is exacerbated by the Renminbi’s relative weakness versus the Dollar which makes Hong Kong a more attractive destination for mainland flows.

I’ve accepted an invitation from the American Association of Professional Technical Analysts’ to speak at their annual conference in Kansas City, Missouri on March 17th. the topic of my talk will be “A trip through global markets”

Please note I will be away from the office on the 17th. 

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

Treasuries surged after the Federal Open Market Committee raised interest rates as expected and maintained forecasts for additional increases for the next two years, dashing expectations it might signal a quicker pace of hikes.

Yields were lower by five to 10 basis points at 2:45 p.m. in New York, with the five-year lower by 10 basis points at about 2.03 percent. Yields had risen to their highest levels in at least a year in the past week as market-implied expectations for a quarter-point increase in the fed funds rate approached certainty. Market focus was on any new language in FOMC statement, changes to member forecasts for the funds rate, or both. Most economists and strategists saw more risk of an increase to the 2018 median than to the 2017 median.

Median forecast for 2019 rose to 3% from 2.875%, while 2017 and 2018 medians remained at 1.375% and 2.125%; 5Y yields reacted most sharply, falling as much as 11bp, and the 5s30s curve rebounded from 102bp to 109bp within minutes

 

Today’s rally across assets class against a background where the Dollar gave up some of its recent strength represents a clear example of the buy the rumour sell the news.

Investors had priced in a rate hike and two more this year. They were looking for an even more hawkish tone from the Fed to justify higher yields and a stronger Dollar. They didn’t get it so positions were reversed. 

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

Although there is understandable scepticism given the government’s track record, our confidence on the implementation of free pricing for petroleum products stems from the following measures that the government has already taken: 

The extinguishing of the diesel subsidy in October 2014 and the revision of prices in line with changes in international prices without any government intervention; 

The increase in LPG and kerosene prices each month since June 2016; 

Increases in the auto fuel price even during elections and in times of sharp price increases for crude; 

The aggressive implementation of Direct Benefit Transfer (DBT) to LPG and kerosene to contain subsidies. 

FCF yield improves by up to 280 bps over FY17-20 
Operating cash flow for OMCs will likely be driven by improvement in marketing margins, rising refining margins and higher volumes. Over FY17-20, the FCF yield of state-owned OMCs should improve dramatically, by more than 280bps for IOC and BPCL. HPCL, with capex starting from FY18, will likely see its FCF yield decline by 130 bps. We expect the OMCs to generate robust free cash flows of about USD10bn over FY18-22E. We also estimate net debt/equity of OMCs to decrease further over FY16-22E – HPCL from 1.6x in FY16 to 0.6x in FY22, IOC from 0.6x in FY16 to 0.2x in FY22, and BPCL from 0.7x in FY16 to 0.1x in FY22.

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

India is a quickly growing economy that needs to take the greatest possible advantage of its democratic dividend before that massive young population ages. Smoothening out what has often been a distinctly anti-business regulatory regime with a reputation for fickle decisions has been one of Modi’s ambitions in taking on the bureaucracy. Therefore there is reason for some optimism that policy continuity can be achieved in more sectors. 

The state settlements already had prompted the credit-reporting firms to remove several negative data sets from reports. These included non-loan related items that were sent to collections firms, such as gym memberships, library fines and traffic tickets. The firms also will have to remove medical-debt collections that have been paid by a patient’s insurance company from credit reports by 2018.

Such changes might help borrowers and could spur additional lending, possibly boosting economic activity. But it could potentially increase risks for lenders who might not be able to accurately assess borrowers’ default risk.

Consumers with liens or judgments are twice as likely to default on loan payments, according to LexisNexis Risk Solutions, a unit of RELX Group that supplies public-record information to the big three credit bureaus and lenders.

“It’s going to make someone who has poor credit look better than they should,” said John Ulzheimer, a credit specialist and former manager at Experian and credit-score creator FICO. “Just because the lien or judgment information has been removed and someone’s score has improved doesn’t mean they’ll magically become a better credit risk.”

 

Credit affects just about every large purchase. This is especially true for the USA, where possession of a credit card is practically a necessity for daily life and not least because of the substantial points programs they offer. 

Inditex put greater emphasis on online expansion last year, cutting its target for new brick-and-mortar stores. The retailer is also making changes to some of its brands to gain market share, with the most recent example being February’s foray into men’s clothing by the Stradivarius brand, which has focused on women.

After starting online sales in Singapore and Malaysia this month, the company plans to add such services in Thailand and Vietnam in the next few weeks and also in India this year.

“India is a very attractive market for us,” Isla said on a conference call with analysts. This year Zara will open a 5,000 square-meter flagship store in Mumbai, which will be its largest store in the country. Inditex has 21 stores in that market.

 

Fast fashion is a major business but is also highly competitive and gaining access to consumers is the key to unlocking growth potential. Moving into high population countries with expanding middle classes is one solution to that challenge and expanding online is another. Creating multiple product lines in a short period of time and getting them to market instantaneously is what has allowed companies like Inditex, H&M and more recently Primark to expand globally but it’s a ruthless sector with clear winners and losers.  

It’s not exactly great timing: on the very same day that Nicola Sturgeon called for another Scottish referendum, the price of oil tumbled again, falling to a fresh three month low.

Given that Scottish nationalism is still predicated on the idea of using petrodollars to fund a big welfare state, this is bad news for the movement to break up the UK. Politics isn’t just about economics, of course, but the SNP’s case for an independent, socialist Scotland is even weaker today than it was when it was last defeated in 2014.

There is little hope of the price of oil recovering in a game-changing way any time soon. Brent crude futures were trading at under $51 a barrel at one point yesterday: the rush for shale in the US and other global forces have devastated Opec’s ability to keep prices high. The cartel, together with the likes of Russia, has been trying to cut back on output, but it’s all been for nothing. Prices are down by 8pc in a week, with more to come, and the US industry has been adding rigs for the past eight weeks in a row.

This is good news for inflation and for consumers – Asda was one retailer that announced a 2p cut in the price of petrol and diesel yesterday, for example – but not for the SNP. Scotland’s budget deficit was already a crippling 9.5pc of GDP in 2015-16, roughly as bad as the UK’s was at the height of the financial crisis. Thanks to the rest of the country’s generosity, the devolved government is able to get away with spending far more than the economy could possibly afford – yet Sturgeon is committed to more of the same, forever. Public spending per capita in Scotland was £12,800 in 2015-16, compared with £11,500 for the UK.

The sums don’t add up - and if Scotland were to retain either the pound or adopt the euro, it wouldn’t even be able to print money to pay the bills. Sturgeon, like Jeremy Corbyn and the political left across the UK, still believes in the myth of the magic money tree. She still thinks that, post-independence, she would simply be able to click her fingers to conjure up the vast subsidies her government currently receives from England. It’s preposterous, dangerous nonsense, as is the view that Scotland would be able to tap the EU for massive transfers instead. Scotland is relatively wealthy by global standards and Brussels will find itself facing a fiscal crisis after the UK, a key net contributor, leaves.

Nicola Sturgeon has plenty of chutzpah, which some admire but I have always felt that she was a divisive influence within the UK and a disaster for Scotland.  

However, for a critical analysis, which is also entertaining, I tip my hat to Allison Pearson of The Telegraph for this article: Nicola Sturgeon is a liar and a traitor – off with her head!

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

The risk that Scotland would leave the UK was one of the main reasons I voted Remain last June, despite my lack of enthusiasm for many aspects of the European Union. Entirely predictably, in both Scotland and Northern Ireland, an attempt to pull the UK apart as we negotiate our exit from the EU has now begun.

There can be no going back on the decision nevertheless taken by the British people as a whole to leave. But the Government will now have to fight a war on two fronts, with each making an impact on the other. Every time EU negotiators warn there might be no deal or complain of British intransigence, they will be adding grist to the mill of the Scottish nationalists. And with each demand for special treatment for Scotland, those nationalists will weaken the ability of UK ministers to maintain tough positions that will lead to the best deal for the whole of the United Kingdom.

Nicola Sturgeon’s speech on Monday morning showed that she has identified the seizing of this moment of extreme pressure on the Westminster government as the one best hope of destroying the UK. It also demonstrated that she will use any argument to achieve her ends – even complaining that Scotland faces ‘‘the prospect of a centralisation of power at Westminster’’ when the Scottish parliament has in fact acquired major additional powers, some of which it has not even used.

Perhaps I am an incurable optimist but I think (hope) William Hague is too pessimistic in this column.  Yes, the UK Government faces some very tough negotiations and the Jean-Claude Juncker school of thought may be more interested in “punishing” Britain if only to deter similar exit moves from other EU countries.  That would be a desperate, intellectually bankrupt strategy. 

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

We have another interesting list of experienced delegates and certainly not just from London. In fact, they are attending from far and wide. 

There are a few seats left, so come along and join us if you can, for another very lively and enjoyable evening, which will now include an introduction from a fourth speaker well known to Iain Little.

Meanwhile, Trump has generated plenty of political and economic controversy. Among markets, technology has never been more interesting in our lifetime so Charles Elliott’s latest comments will be most welcome. 

Whatever your investments, we will need to keep an eye on these two charts as the year progresses – Dollar Index and US 10-Yr T-Bond Yields.

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

China’s industrial output and fixed-asset investment beat estimates for the first two months of the year, adding to recent data suggesting that the nation’s economic recovery is holding up. Depreciation pressures on the yuan have prompted Shanghai investors to buy Hong Kong stocks as well, with net southbound purchases in the past eight sessions rising to 9.8 billion yuan ($1.4 billion). The odds of a Federal Reserve interest-rate increase this week have climbed to 100 percent.

“The market is extending a rebound after some consolidation in the past two weeks and as mainland funds continue to pile in to hedge against the risk of yuan depreciation after a possible Fed rate hike," said Linus Yip, a strategist at First Shanghai Securities in Hong Kong.

 

The Hong Kong listed China Enterprises Index has some of the lowest valuations for a major index in the world, at an historic P/E of 8.5 and a yield of 3.5%. Investors are nonetheless fearful it is a value trap because there are so many concerns about the quality of earnings, how long stimulus will be sustained; the trajectory of the Yuan and the outcome of the Party Congress which is taking place this week. 

Yes, I know that prices can remain stretched a lot longer than you can imagine and we need to watch price action but.....
 

 

Thank you for these illuminating charts. This article focusing on some of the points raised by Robert Shiller may be also be of interest. Both these articles highlight what might be considered the inflationary effects extraordinary monetary policy have had on asset prices.  

Hope you are keeping well.

We are getting loads of orders for Vape labels at the moment and talking to other guys in our industry they are all getting the same - we are talking millions of labels. The industry is seriously expanding, at this time it appears to be multi small to medium players but there must be some serious money to be made somewhere!

The label, bottle, liquid etc. can't come to more than £1.50 so potential profit is there.
I know you've probably already had a look but thought I'd mention it!

 

Thank you for this insightful email. The market for e-cigarettes has been somewhat overshadowed by the hoopla surrounding the evolution of the cannabis industry in the USA. Part of the reason for this is because there has been considerable controversy about the safety of the chemicals used in the vapourising process and the fact that some of the flavours such as bubble gum appear to be directly aimed at children. That resulted in related shares initially surging but subsequently collapsing because the cost of getting new products approved by regulatory authorities surged. 

Let’s stop pretending that the storm over Philip Hammond’s Budget and the self-employed is all about white van men. Not that I have anything against white van men. We have a clutch of faithful local tradesmen who have come out to rescue our household from disasters so often that they are now cherished family friends. Indeed, our actual extended family includes a cohort of white van men.

But the issue at hand is about a huge range of vocations and occupations which do not involve spanners. As well as all the self-employed creative types I listed on this page last week — writers, artists, actors and musicians — there are the IT consultants, the web designers and the digital start-ups leading the technological revolution.

And then there are the artisan bakers, the small farms reviving traditional British cheeses, and the mothers who create kitchen table businesses so they can work from home instead of being economically idle: all those innovative ventures which have introduced such vitality into the work culture. These are the people the Chancellor has chosen to clobber.

The Chancellor has attacked enterprise

Let’s not pretend either that this is only about putting up National Insurance contributions. That is only one front in what is clearly an organised campaign against the self-employed and small business owners who are among the most productive, self-reliant and progressive in the true sense of the word (meaning “encouraging progress”) participants in the workforce.

There is a pattern here which it is now impossible to miss. The two measures I wrote about last week — the introduction of quarterly tax returns and the effective abolition of the flat-rate Vat system — are going to be devastating. The first of these is deranging and apparently pointless: in future, all self-employed individuals and small businesses will be required to file four income tax returns per year instead of one. These will have to be done digitally using specially designated software. This will, of course, quadruple their accountancy charges at a stroke and require access to online facilities.

Even more damagingly, this change will oblige them to pay income tax at the end of each quarter rather than, as now, in one or two yearly instalments.

So if your business is seasonally affected: if you have a healthy quarter (say, in the run-up to Christmas if you produce gifts, or the summer if you are a gardener), you will not be able to spread the cash flow from that good period to cover the fallow one that follows. It will not be possible any longer to even out your good and bad times over the course of the year.

Of course, your next quarterly return will reflect the loss of business and your tax payment will be adjusted but that will take three months or more to come through. By that time, as almost anyone who runs on a tight margin will know, you could either have gone broke or found it necessary to borrow more to remain afloat.

Although I watched Philip Hammond’s budget delivery on Wednesday the 8^th, while multi-tasking in the home gym, I confess to not fully understanding the tax hikes at the time.  Apparently, Ben Wright, Group Business Editor at The Telegraph was in a similar position, as I posted his article: With little room to manoeuvre, Philip Hammond delivers a stead-as-she-goes Budget, a few hours later. However, Janet Daley’s Sunday column above is much more detailed and captures the outrage expressed by many Conservative Party voters.   

I am now trusting that this reaction will represent a warning shot across the bows for both Chancellor Hammond and Prime Minister May, as they declare Article 50 and commence Brexit negotiations in earnest next month. 

The Conservative Government does not need to move further to the Left. Instead, it needs to both encourage and incentivise taxpayers in the UK, while also attracting businesses from Europe, the USA and other prosperous regions of the globe, because (hopefully) the UK will be providing both stability and opportunities in a competitive environment.

It would be a mistake, I believe, for the Government to assume that it has to pay back Gordon Brown’s reckless spending deficit, before it can once again act like a Conservative administration.  Instead, it needs to encourage strong economic growth, which it will be in a position to do now that the global economy is improving and the UK is leaving the EU.  A strong economy will reduce the deficit while also improving the UK’s standard of living over the longer term. 

A PDF of Janet Daley’s column is posted in the Subscriber’s Area.

It has been widely remarked that our Chancellor of the Exchequer doesn’t appear to have a vision for the tax system. Does this matter? It assuredly does.

I have often asked why it is that many small countries are so economically successful. The answer, I think, is that their vulnerability makes it essential to get public policy right.

They simply have no leeway to indulge in grossly incompetent government. That applies, amongst other things, to the three key fiscal questions: how large the government should be; what it should spend money on; and how it should raise the money to pay for whatever it decides to do.

My favourite example is Singapore, which could have become a 
basket case. Instead, its economic performance has been marvellous, to the point where it now has a higher per capita GDP than its former colonial master, namely us. This is largely thanks to superbly effective government.

Getting the economic contribution of government right first demands that the governing party is clear about what the state does best and, relatedly, what it is that only the state can do. Making the tax system work effectively clearly falls into the latter category. That is what makes Mr Hammond’s lack of vision so damaging.

What should he be aiming to do? You could argue that the tax system should be sufficiently simple that anyone and everyone can readily comprehend it and accordingly be aware of the influence of tax on their after-tax returns from different activities.

Actually, in my view, in an ideal world, the tax system would be so simple and the tax rate so low that people might as well be ignorant of these details. Other than where the public interest is deemed to lie in restricting the production or consumption of “bads”, such as pollution, or the production of public goods or things that have externalities, the best result is achieved when no economic decisions are determined by the influence of tax. Effectively people can just ignore it.

Admittedly, in practice, British chancellors are seldom in a position to follow such an agenda. They are usually left scrabbling around to find money from any old source, while simultaneously feeling obliged by political forces to dish out much of it to supposedly deserving causes. The result is plain for all to see – a hotch-potch of a tax system with gross distortions to incentives.

The way to tackle this issue is to think through in advance what you want to achieve with the tax system and to lay out a plan. When the Chancellor has some available fiscal resources to dispose of, he should then use these to make progress towards the desired goals.

This is critically important because moving to a rational system of tax always creates losers as well as winners and it is important to be able somehow to buy out or compensate the losers. Last week’s shambles over raising national insurance contributions for the self-employed was a clear example of fiscal policy-making without vision.

National insurance is a tax by another name. It needs to be integrated with income tax. But getting this right, and avoiding the imposition of heavy losses on groups such as the self-employed and pensioners (who don’t pay national insurance), is a mammoth task.

I believe that the Chancellor should have as his objective the abolition of national insurance. He should make a start by gradually lowering the standard rate, thereby reducing the gap between the effective overall tax rate paid by the employed and self-employed.

Admittedly, for the next few years the Chancellor is bound to be absorbed with getting the deficit down and it seems unthinkable that there could at some stage be a different agenda.

Yet, in the 1980s the public finances moved from huge deficit to significant surplus – before the recession of 1990-92 brought the deficit back with a vengeance. Nigel (now Lord) Lawson, the Chancellor during the key part of the 1980s, knew what to do with the room for manoeuvre that the improving public finances afforded him. He believed in lower taxes and a simpler tax system. That is what he delivered.

One could be forgiven for thinking that chancellors and other tax providers are wonkish complicators rather than simplifiers. I hope this does not apply to Philip Hammond in future and that in addition to significantly lowering corporate and particularly personal taxes in his next budget, he simplifies an unnecessarily complex system.  After all, that is what practically everyone wants. Even more importantly, it would be good for GDP growth.

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

NEW DELHI — 

Indian Prime Minister Narendra Modi's Bharatiya Janata Party won a landslide victory in the politically crucial northern state of Uttar Pradesh, giving the Indian leader a huge boost half way through his term.

The country’s most populous state, where the BJP swept away the ruling regional Samajwadi Party, was the biggest electoral prize of the five states which went to the polls in recent weeks.

"I give my heartfelt thanks to the people of Uttar Pradesh. This is a historic victory for the BJP; a victory for development and good governance," Modi said.

Modi personally led his party’s campaign in Uttar Pradesh, promising growth and defending his controversial ban on high value currency notes, which many had feared would alienate poor voters in an impoverished state.

But in a ringing endorsement of the Indian leader, the BJP won the biggest victory secured by any party in recent decades in the battleground state. According to the Election Commission, it was ahead in more than 320 seats in the 403-member state assembly.

BJP’s chief strategist in the polls, Amit Shah, attributed the huge win to Modi’s pro-poor policies and the “politics of performance.” Calling it a historic mandate, he said that “The country’s poor people have put their faith in a big way in Mr. Modi.”

Party workers held raucous celebrations outside the party office in New Delhi and Uttar Pradesh’s capital, Lucknow, setting off fire crackers and dancing.

Political analysts said the resounding victory in Uttar Pradesh puts the BJP in a commanding position ahead of the 2019 general elections and enhances Modi’s reputation as a strong leader who can make politically risky decisions.

I have long maintained that Narendra Modi was easily one of the world’s most astute and successful political leaders.  He needs to be because he also has the most difficult job within any democracy, in leading India’s huge, promising but also chaotic and diverse culture.

India has been a GDP growth leader since Modi’s landslide election victory two and a half years ago.  Were he to comfortably win a second five-year term in 2019, possible but probably a best-case scenario, India’s rapid economic development would continue.

This item continues in the Subscriber’s Area. 

Dutch Prime Minister Mark Rutte and populist Freedom Party leader Geert Wilders questioned each other’s credibility and integrity as they faced off on live national television for the first time in the country’s election campaign, just 36 hours before the polls open.

The Liberal premier said he will not trust Wilders again after the Freedom Party walked away from supporting Rutte’s first minority cabinet in 2012 amid an economic crisis. “I’m not going to work with such a party again,” Rutte said at the end of the debate in Rotterdam Monday. “Not in a cabinet, and not even relying on you for support outside the government. No, never ever.”

Wilders accused Rutte of breaking promises he made before the elections in 2012. “Who still believes Rutte? I still see him standing there,” the Freedom Party leader said. “We would get tax cuts, a tougher policy on immigration, we would get 1,000 euros. And what came out of these promises? We had record after record immigration. And taxes only increased.”’

Three opinion polls Monday showed little change in the overall situation in the final stretch before the election. Two showed Rutte’s Liberals ahead of the anti-Islam, anti-European Union Freedom Party by a margin of three to four seats, with the other showing the two parties in a tie. Rutte has overtaken Wilders in most surveys as polling day approaches.

No party is set to win more than a fifth of the seats in the 150-member lower house, so a multiparty coalition will be needed. All the other major parties have ruled out working with Wilders.

Even if Wilders were to come first in this multi-party election, it would be very difficult for him to form a government.  Currently running second in the popular vote, should Wilders manage to do better it is still very unlikely that he could gain more than 30 seats, which is the top end of his performance in the polls. However, he would need to form a coalition of 76 seats to have a simple majority in the 150-member house.  Currently, other parties say they would not work with Wilders.  This would probably change if he were to handily beat Prime Minister Rutte.  Nevertheless, gathering sufficient seats to form a majority government would still be very difficult. 

Overall, governance will remain difficult within many EU countries, not least because of disillusioned, angry and divided voters.

We have another interesting list of experienced delegates and certainly not just from London. In fact, they are attending from far and wide. 

There are a few seats left, so come along and join us if you can, for another very lively and enjoyable evening, which will now include an introduction from a fourth speaker well known to Iain Little.

Meanwhile, Trump has generated plenty of political and economic controversy. Among markets, technology has never been more interesting in our lifetime so Charles Elliott’s latest comments will be most welcome. 

Whatever your investments, we will need to keep an eye on these two charts as the year progresses – Dollar Index and US 10-Yr T-Bond Yields.

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

India’s stock futures and currency forwards jumped after Prime Minister Narendra Modi’s bigger-than-expected win in state elections increased expectations for a continuation of his reform agenda.

Modi’s Bharatiya Janata Party won 312 seats in the 403- member assembly of Uttar Pradesh, according to the Election Commission of India, up from 47 in 2012. The results of the race in India’s largest state were seen as a litmus test of Modi’s popularity and reforms, including opening up the country to more foreign investment and seeking to introduce a goods and services tax, ahead of general elections in 2019.

“Though markets expected the BJP to do well in polls, the ultimate result surpassed even the most optimistic assumptions,” said Vivek Rajpal, a rates strategist at Nomura Holdings Inc. in Singapore. “These election results increase the expectation toward further reforms” and will be treated “very positively,” by markets, he said.

 

The surprise demonetisation announced by Modi on the same day as the US Presidential election introduced a calculated bet that the inconvenience it introduced for many regular people would be outweighed by the perception that large holders of cash would feel even more pain. It was a risky bet which has paid off considering how wide the BJP’s lead was in the Uttar Pradesh election. Modi should now be emboldened to step up his push for reform which to date has been relatively modest. 

“As cars progress from assisted driving to fully autonomous, they are increasingly becoming data centers on wheels. Intel expects that by 2020, autonomous vehicles will generate 4,000 GB of data per day, which plays to Intel’s strengths in high-performance computing and network connectivity. The complexity and computing power of highly and fully autonomous cars creates large-scale opportunities for high-end Intel® Xeon® processors and high-performance EyeQ®4 and EyeQ®5 SoCs, high-performance FPGAs, memory, high-bandwidth connectivity, and computer vision technology.

Intel missed a trick when mobile phones took off. It had simply ignored the market for years, preferring instead to concentrate on desktops where it has a strong lead in what is a declining market. When mobile phone demand exploded in popularity companies like ARM Holdings and Qualcomm took the initiative and the bulk of the profits. Since the market for desktop computers is shrinking Intel can’t afford to miss out on the evolution of autonomous vehicles since it is likely to become a major destination for both chips and sensors over the next decades. 

As discussed further below, the Commission is disapproving this proposed rule change because it does not find the proposal to be consistent with Section 6(b)(5) of the Exchange Act, which requires, among other things, that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices and to protect investors and the public interest.

The Commission believes that, in order to meet this standard, an exchange that lists and trades shares of commodity-trust exchange-traded products (“ETPs”) must, in addition to other applicable requirements, satisfy two requirements that are dispositive in this matter. First, the exchange must have surveillance-sharing agreements with significant markets for trading the underlying commodity or derivatives on that commodity. And second, those markets must be regulated

 

Bitcoin was subject to quite acute volatility in the aftermath of the decision; falling from $1300 to below $1000 before recovering somewhat and rallying rather impressively today. 

Chinese President Xi Jinping seems interested in embracing the role of global steward -- champion of the liberal political and economic order the U.S. administration seems uninterested in promoting. Now is his moment to prove he’s serious.

China’s erstwhile client North Korea has become an urgent threat to stability -- Xi’s stated top priority -- from one end of Asia to the other. Japan’s military is now on its highest state of alert, after the North’s latest round of missile tests landed in Japanese waters. The first elements of a powerful U.S. missile defense system, known as Terminal High-Altitude Area Defense (THAAD), have landed in South Korea; the system, which China fiercely opposes, could be operational by next month. In Malaysia, meanwhile, North Korean agents allegedly used a banned nerve agent to assassinate dictator Kim Jong Un’s half-brother, who had reportedly been under Chinese protection. Kim’s regime is now holding Malaysians in North Korea hostage, while Malaysia is preventing North Korean diplomats from leaving the country.

After the assassination, China cut off any further coal imports from North Korea this year. But the impact of the move remains uncertain. And, as a recent United Nations report makes clear, North Korean agents are continuing to use Chinese middlemen to fund the regime’s illicit missile and nuclear programs.

Wednesday’s proposal from Chinese Foreign Minister Wang Yi for North Korea and the U.S. to back down simultaneously -- the former by halting nuclear and missile tests, the latter by suspending joint military exercises with South Korea-- is constructive. But it’s been raised before and has little chance now: The U.S. has already ruled out any actions that might reward Kim for bad behavior.

China may have legitimate reasons for not wanting to go further and risk destabilizing the Pyongyang regime. The mainland would bear the brunt of any refugee exodus from the North and faces the unsettling prospect of a unified Korea -- and U.S. troops -- along its border. Chinese leaders may also be right that the U.S. needs to find a way to sit down and negotiate with North Korea, even if talks don’t lead to the elimination of its nuclear arsenal. Left unchecked, the North could within a few years deploy a nuclear-tipped ballistic missile capable of reaching the U.S. mainland. If talks can halt its progress before then, they are worth pursuing.

While regional conflicts remain, a serious international war has been a declining risk since Fidel Castro invited Nikita Khrushchev to turn Cuba into a nuclear missile base in 1962.  I remember it well because I was in the 101^st Airborne Division at the time and we thought we might be parachuted into Cuba.  Fortunately, Khrushchev and President Kennedy backed down from that very tense situation.

I reckon that was the closest we have ever been to WW3.  Subsequently the risk of another World War declined, not least because it would have been an act of mutual self-destruction. 

Needless to say, that reality is far greater today.  If most of the nuclear weapons currently on the planet were detonated in conflict, it would most likely cause the end of human civilisation.  Hopefully, WW3 remains a tiny risk but it has increased somewhat.

The prospect of mutual self-destruction would presumably deter any leader other than a madman from launching a first nuclear strike from China, Russia or the United States.  However, that could more readily happen in a small rogue state, if it had the capability. 

There have always been a number of rogue states but few had either the capability or the protection to start a nuclear war.  North Korea does not quite have the capability but it certainly is a rogue state and it has long been protected by China.  Moreover, North Korean dictator Kim Jong Un is clearly obsessed with developing nuclear weapons and the long-distance missiles to launch them.      

China could solve the North Korean problem very quickly and effectively, in the interests of most North Koreans and everyone else.  Xi Jinping is China’s most powerful leader since Mao Zedong, but does he have the character to halt North Korea’s nuclear programme?

(See also: US Ambassador to UN: Kim Jong Un ‘Is not rational’, from CNN Politics)

Houston hosted two events this week: the nation’s largest energy conference and the town’s famous rodeo. They have more in common than you’d think.

In both cases, the key for top performers is how efficiently they perform. For cowboys, it means tightly controlling every muscle to stick on a bucking bronco. For energy executives, it means controlling every cost to lower the break-even price and survive what’s been a wild ride on the oil market.

When companies can lower the price at which they break-even, it means they can approve more projects and produce more oil, keeping dividends safe and investors happy. The risk: By drilling up their share price, they can also end up drilling down the price of oil. Welcome to 2017, the year after a two-year market rout made companies more efficient. At the CERAWeek by IHS Markit conference this week, fears of too much supply were palpable.

"Everyone is driving break-even prices down," Deborah Byers, head of U.S. oil and gas at consultants Ernst & Young LLP in Houston, said in an interview at the meeting, the largest annual gathering of industry executives in the world. "It isn’t just shale companies; it’s everyone, from deep-water to conventional."

As the conference was ongoing, those fears took physical form as West Texas Intermediate, the U.S. crude benchmark, plunged 9.1 percent this week, closing below the key $50-a-barrel level for the first time this year. It settled at $48.49 on Friday.

The slump came as Scott Sheffield, chairman of Pioneer Natural Resources Co., said prices could fall to $40 if OPEC doesn’t extend its existing agreement to cut production. Shale billionaire Harold Hamm, the CEO of Continental Resources Inc., warned undisciplined growth could "kill" the oil market.

The buzzword was efficiency. In panel discussions and keynote speeches, executive after executive tried to outdo rivals in announcing their low break-even prices. Eldar Saetre, head of the Norwegian oil giant Statoil ASA, told delegates that break even for his company’s next generation of projects had fallen from $70-plus to "well below" $30 a barrel.

Analysis of the international oil market today is simple, albeit very different from what the industry has experienced in earlier decades.  Thanks to technology, oil companies around the world can now produce more crude at $50 a barrel than the global economy can consume.  Furthermore, the average cost of production is still declining and is likely to be considerably lower ten to twenty years from now. 

The world will never run out of oil, even when the global economy is booming with the help of cheaper energy prices.  This is not because the supply of oil in the ground is infinite, which it is not.  Instead, the world is approaching peak oil demand within the next decade, because other forms of energy continue to become more competitive, thanks to technology, and they cause less pollution.

The only way oil prices can move considerably higher than today’s levels for both Brent and WTI crude, is if production is sharply curtailed, for one reason or another.  While theoretically possible, this is unlikely beyond the short term, if at all.  

(See also this week's earlier comments.)

WASHINGTON — The irrepressible Winklevoss twins, known for having sued Mark Zuckerberg over the idea for Facebook, have suffered a setback from federal regulators in their push to expand the use of bitcoin to a wider universe of investors.

The Securities and Exchange Commission rejected Friday a proposed Winklevoss exchange-traded fund that could have opened the digital currency to larger numbers of ordinary investors. The SEC said the proposal from Tyler and Cameron Winklevoss was inconsistent with rules for securities exchanges designed to prevent fraud and manipulation, and to protect investors.

Bitcoin allows people to buy goods and services and exchange money without involving banks, credit card issuers or other third parties. About 8 years old, it has yet to be broadly embraced and has been prone to wild price swings.

I have not been tempted by Bitcoin but like any big mover it charts well.  I assume that we have seen another peak for the potentially lengthy medium-term. 

We already have another interesting list of experienced delegates and certainly not just from London. In fact, they are attending from far and wide. 

There are a few seats left, so come along and join us if you can, for another very lively and enjoyable evening, which will now include an introduction from a fourth speaker well known to Iain Little.

Meanwhile, Trump has generated plenty of political and economic controversy.  Among markets, technology has never been more interesting in our lifetime so Charles Elliott’s latest comments will be most welcome. 

Whatever your investments, we will need to keep an eye on these two charts as the year progresses – Dollar Index and US 10-Yr T-Bond Yields.

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

A core insight in our theme report is the meaningful shift in spending priorities that our primary research notes at Hyperscale Clouds, Enterprises, and Service Providers. In particular, we highlight +50% Y/Y capex intensity at major Clouds for Terabit Scale Optical Interconnects; required for running Web Scale Applications such as Google Maps, Azure Cloud, AWS, GCP, etc.

A corollary insight is the accelerating IT demand for Software and SaaS based tools for Network and Application Analytics, AI and Machine Learning, and Automation tools – for “structurally lowering” the costs of running complex IT infrastructures at Hyperscale Clouds, Large Enterprises, and Carriers.

A case in point is CSCO “doubling down” on Security, Analytics, AI/ML, and Automation Software capabilities (Meraki, AppDynamics, Jasper, Tetration, etc) to drive incremental Top Line and EPS growth through a “recurring revenue” model – laddering upon CSCO’s +250B networking installed base.

 

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

There is a lot of tech-speak in this report but the three main themes it is promulgating are the growth and increasing sophistication of cloud computing, the growth of fibre optics where Terabit speeds are potentially possible and the rollout of 5G mobile networks. 

Most of what has made headlines in the technology sector over the last decade has been software related. In fact the pinnacle of this reliance on other company’s infrastructure might be Snap’s IPO. The company runs none of its own infrastructure, at least so far, and has instead chosen to outsource everything from managing the backend to client acquisition to third parties like Google and Amazon. However software relies on hardware and infrastructure to grow and if the aspirations of companies that depend on it like Netflix and Facebook are going to be realised then major connectivity investment needs to take place. 

The British Pound has been in a reasonably consistent downtrend against the US Dollar since 2014, defined by a staircase sequence of ranges mostly one below another. The present range has unwound the majority of the oversold condition relative to the trend mean and with the impending activation of Article 50, the question of whether the low near $1.20 is going to hold must be to the fore of many traders’ minds. 

The impeachment of Park Geun-hye opens the door for a reset in ties with North Korea and China.

The leading candidates to replace Park, who was ousted as president by South Korea’s constitutional court on Friday, favor a softer touch with North Korean dictator Kim Jong Un. They’re also open to rethinking the deployment of the Thaad missile shield, which has spurred Chinese retaliation against South Korean companies.

“The liberals believe that if you engage with North Korea, then they could get some kind of missile-test moratorium,” said John Delury, an associate professor of Chinese studies at Yonsei University in Seoul. “The Chinese strategy will be to push just hard enough so the South Korean public sees the cost of having Thaad, but not too hard that you unleash outrage.”

The election campaign -- a vote must be held within 60 days -- will spur fresh debate on how to stop Kim from acquiring more powerful nuclear weapons and missiles. Secretary of State Rex Tillerson plans to seek a new approach to dealing with North Korea in a trip to the region next week, though China’s calls for talks have been rebuffed by the U.S., Japan and South Korea.

Earlier this week, the U.S. military unloaded two mobile missile launchers in South Korea to start deployment of Thaad. It came as North Korea launched four ballistic missiles that landed in waters near Japan.    

 

The potential for a reset with North Korea is a double-edged sword. After all this is a regime whose main export has been nuclear technology to any country willing to pay for it, but most particularly those which are at odds with Western interests. In that regard it is reasonable to conclude North Korea’s actions are those of a Chinese puppet state. Too often the liberal attitude to negotiations has been to give the recalcitrant threatening aggressor whatever they want just to make them go away. Unfortunately, that only emboldens them to ask make even more ambitious demands. 

Oil prices have plunged to the lowest level this year as US shale producers boost output at an astonishing pace and crude inventories keep rising, triggering a wave of selling by hedge funds with record speculative positions.

The US surge threatens to neutralise cuts agreed by the OPEC cartel and a Russia-led group of producers last November, potentially delaying a full recovery of the market until 2018 or even later. 

Texas light crude fell $48.90 a barrel on Thursday after yet another surprise jump in US stocks. Prices have slid 8pc in three days and have broken through key levels of technical support, dousing enthusiasm for commodities across the board. 

America's shale frackers have slashed cost so far that they can now produce large volumes at a break-even price of $35 or lower in the prolific Permian Basin, the twelve-layered 'crown jewel' of West Texas, where land auctions have reached $60,000 an acre in core zones.

Continental's legendary wild-catter Harold Hamm said drilling is coming back so fast, and on such a large scale, that it threatens to overwhelm the global industry. "We are on something of an equal basis today with OPEC. We need to be careful not to overproduce. It has to be done in a measured way or else we’ll kill the market," he said at the CERAWeek energy forum of IHS Markit in Houston.

The US rig count has almost doubled to 756 since touching bottom last May. The productivity per rig has soared as longer lateral drills, "geological steering", and precision "clustering" triple extraction rates in some sweet spots.  The decline rate of the wells has dropped from 65pc to 35pc a year since 2013.

“The consequence has now become alarmingly visible. US crude oil production is growing. And it is growing strongly," said Bjarne Schieldrop from SEB.

Raghdaa Hasan from Statoil said US producers have restored almost all the losses of the slump in just four months, lifting production by over 500,000 b/d. "US shale has proved itself really resilient. They are able to pour significant output into the global system," she said at CERAWeek.

And:

The shale rebound has combined with events in the Middle East to seriously rattle the day-to-day oil markets. The Iraq's oil minister, Jabbar Ali Al-Luiebi, stunned traders with predictions at CERAWeek that his country would lift output by almost a million barrels a day (b/d) to 5m in the second half of this year. 

Such an expansion would further flood the global market before it has come close to rebalancing. It is matched by similar rhetoric from Libya, which has already doubled output to 700,000 over recent months and is ultimately eyeing 2.2m b/d.

And:

It had been assumed that the Saudis would do whatever it takes to push oil back up to a band of $60 to $70 in order to smooth the way for a $100bn part-privatisation of the state oil giant Aramco next year, the biggest public offering ever. This is no longer so certain.

Patrick Pouyanné, chairman of the French group Total, said OPEC is going to have to bite the bullet and accept much longer cuts. "The fact is, we still have build-ups in U.S. inventories. If OPEC wants to rebalance the market, then they'll have to extend the agreement. It will take a year to 18 months to really have an impact on inventories," he said in Houston.

OPEC’s fragile agreement to cut supplies has fallen apart well before its official review date in June.  Short covering and some speculative buying pushed the price of Crude Oil (weekly & daily) temporarily into a range either side of $55 for three months. 

However, Russia never delivered its agreed supply cuts.  Now everyone in OPEC will increase supplies while prices remain above $40.  US shale producers in the Permian Basin, which have never been part of OPEC, are in the strongest position.  They can ramp up production very quickly when prices are firm, as we have seen in recent months.  Even more importantly, they can reduce output very quickly, when prices are less attractive, while preparing additional wells for the next price rise.

Most oil producers were overly dependent on $100 plus prices which we may never see again.  Those with large populations face a rough time, burning through reserves and facing huge declines in their standard of living.   

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

Shell's chief executive Ben van Beurden has warned global energy leaders to brace for the shock of falling oil use as soon as the 2020s, warning that those who trivialise the threat of climate change will exhaust public tolerance for fossil fuel companies if they are not careful.

"We have to acknowledge that oil demand will peak, and it could already be in the next decade. It could happen. There are people who believe it will grow forever but I don't subscribe to that," he told the CERAWeek energy forum of IHS Markit.

Mr van Beurden said the industry is skating on thin political ice - notwithstanding the election of Donald Trump in the US - and needs to shore up its flank. "Social acceptance is just disappearing. I do think trust has been eroded to the point that it is becoming a serious issue for our long term future," he said.

"This is the biggest challenge of my career. We're under a lot scrutiny and pressure. It is not a rational discussion any more, it's emotional," he said. Regulators across the world are starting to demand that fossil fuel companies account for 'stranded assets' and financial risks from climate change, leading in turn to a shareholder pressure on the boards.

Claims of peak demand are anathema in the US oil capital of Houston. "Wishful thinking," said Chevron's chief John Watson. Saudi Arabia's energy minister Khalid al-Falih said talk of peak demand is ridiculous and ultimately dangerous, discouraging vitally-needed investment before alternatives are on offer. "They are compromising the world's energy security," he said.

Mr van Beurden advised the oil and gas industry to take an activist approach to show that it takes the threat of global warming seriously. Shell is already the biggest provider of renewable energy in the US through its wind farms. It is planning to invest $1bn a year in green technologies, and carbon capture and storage.

"You can be too early on this, as we discovered to our detriment. You have to get the timing right," he said. This time the stars are finally coming into alignment as renewable costs fall to parity with fossils.

Shell can afford the luxury of this 'moral' position because it has already made the switch to natural gas, the lone fossil fuel winner of the Paris Agreement on climate change. Gas emits roughly half the C02 of coal in power generation. It is also the perfect back-up for intermittent solar and wind.

“The largest contribution Shell can make to reducing emissions globally in the near term is to continue to grow the role of natural gas,” he said. The company has finished integrating BG following the $52bn takeover in 2016, creating a gas giant and $4bn of synergies this year. "We have taken a tremendous amount of cost out," he said.

The BG merger is one prong of the strategy. The recent sale of $8.5bn of oil sands acreage in Canada is another. Shell is today far less exposed to the political risk of climate change.

The group has not abandoned oil, although it has pulled out of Alaska where it wasted $9bn on a "dry well". Mr van Beurden said the regulatory overkill in Arctic waters, married with high costs, made it pointless to continue.

Ben van Beurden is a brave man, having entered the wounded lions’ den at the CERAWeek energy forum of HIS Markit in Houston, and delivered this message.  I trust he came away unscratched.

I think he is right.  In fact, I said so, more or less, in Monday’s Comment of the day.  I won’t repeat all those points but you can either scroll back to Monday, or use these two links to access Email of the day 2 on crude oil, and also AE-P’s earlier article: Permain Shale Boom in Texas Is Devastating for OPEC.

Oil is obviously an immensely important commodity.  However, its days as a fuel are now in decline, for all the reasons mentioned above.  That will not change.  However, oil is a very useful chemical, both today and in the foreseeable future.  That will be no consolation for oil producers because both the demand for oil and its price will be much lower a decade from now.

These changes are entirely due to our era of accelerating technological innovation.  To appreciate the significance of this, just consider the example of oil over the last decade.  In fact, only a few years ago experienced commentators were still telling us that the world was rapidly running out of crude oil.  Today, I suggest there is far more oil available than the world will ever require.

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

I expect another lively evening with experienced delegates and their friends.  Trump has generated plenty of political and economic controversy and technology has never been more interesting in our lifetime.  Whatever your investments, we will need to keep an eye on these two charts as the year progresses – Dollar Index and US 10-Yr T-Bond Yields.

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

A pioneer of the U.S. shale revolution wants to take fracking to America’s final frontier. Success could help revive Alaska’s flagging oil fortunes.

Paul Basinski, the geologist who helped discover the Eagle Ford basin in Texas, is part of a fledgling effort on Alaska’s North Slope to emulate the shale boom that reinvigorated production in the rest of the U.S. His venture, Project Icewine, has gained rights to 700,000 acres inside the Arctic Circle and says they could hold 3.6 billion barrels of oil, rivaling the legendary Eagle Ford.

While the potential is huge, the difficulty of shipping millions of gallons of water, sand and chemicals -- the ingredients used in fracking -- to one of the most remote areas on earth is nothing short of monumental. At stake is an Alaskan industry that’s seen output tumble from 2.1 million barrels a day in 1988 to 520,000 in 2016 as reserves dwindled and explorers sought cheaper supplies in shale fields to the south.

“The oil is there,” said Basinski, founder and chief executive officer at Houston-based Burgundy Xploration LLC, in an interview. “Now it’s a question of how quickly we can get it to flow and whether we can get the economics to work." One exploratory well has been drilled, he said, and a second is planned by mid year.

 

OPEC is riddled with problems. The first is that members with large populations like Saudi Arabia might have control over some of the world’s cheapest to exploit reserves but they have allowed domestic financial commitments to essentially turn them into high cost producers. They no longer have the flexibility to curtail supply like they did in the 1970s. 

The second is that they have a lot more competition. OPEC was founded in 1960 by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. Today it has 13 members and all are competing for market share. That is quite apart from the fact that Russia needs exports to fund its domestic economy and adventurism, the USA is now exporting after a 40-year hiatus and Canada is actively exploring export options. 

China's consumer-price index in February was up just 0.8% from a year earlier, Beijing reported Thursday, slowing from January's 2.5% pace, while the producer-price index--which measures production costs at the factory gate--was up 7.8%, its biggest jump since September 2008.

It is the CPI, which eased largely due to food prices, that most economists see as more indicative. The sharp rise in input costs for manufacturers reflects how low commodity prices were a year ago, and should moderate as that factor fades. Both consumer and producer prices will soften if the overnight plunge in global oil prices proves to be the beginning of a longer slide. Oil's biggest one-day drop in more than a year followed news of record U.S. stockpiles, though prices recovered a touch during Asian trading hours Thursday.

Still, going even further down the rabbit hole, it seems unlikely that China's surprisingly weak inflation reading will lead the central bank to relax. CPI inflation may be far short of the government's 3% target, but the People's Bank of China has a more urgent task than goosing prices: preventing financial risk, from ballooning debt to asset bubbles, from wrecking the economy.

"Despite lower-than-expected inflation, the PBOC will continue to raise money-market interest rates because the overarching theme for China this year is deleveraging," said Liu Dongliang, senior economist at China Merchants Bank.

 

China’s producer prices have been rising because of the weakness of the yuan, higher energy prices and the trend of higher wages without commensurate improvements in productivity. 

It’s looking increasingly likely that oil has rolled over so that will remove some pressure from both the CPI and PPI figures over the coming months in both absolute and year over year comparisons. However the renminbi is still trending lower and wages are still rising. Against that background the central bank’s attempts to control the shadow banking system while also encouraging the domestic economy highlights just how fine a line it is treading in terms of monetary and fiscal policy. 

The agency must decide if the BATS stock exchange can change its rules to offer a bitcoin ETF (exchange traded fund), which would let people buy bitcoin like a common stock. The ETF—called the Winklevoss Bitcoin Trust ETF—is the creation of the Winklevoss brothers, who once fought Mark Zuckerberg for control of Facebook, and now own a large stock of bitcoins.

WHY IS THIS ETF SUCH A BIG DEAL?
It's all about liquidity. While there are plenty of places to buy bitcoin, many investment funds can only hold assets that meet certain regulatory standards—such as approval from the SEC. If the agency approves the ETF application, money managers who want to include bitcoin in their portfolio are likely to jump in. Meanwhile, millions of ordinary people will have an easy new way to buy the digital currency. I can't really phrase it any better than this quote from BitMex, a bitcoin analysis site:

If the SEC approves the Bats rule change, all manner of American muppet retail investors can yolo into Bitcoin via a regulated ETF. The pool of eligible money that can easily obtain exposure to Bitcoin will dramatically rise. There are various predictions about the amount of money that could flow into Bitcoin. In short, it will be Yuge.

 

Bitcoin is a speculative vehicle with unique characteristics that make it especially attractive for people looking to skirt capital controls and other forms of official surveillance. To date Chinese traders have dominated volume but if the SEC allows ETFs to track the price then it will potentially open up additional sources of demand from investors seeking an alternative asset class. 

Good rainfall in Ivory Coast’s cocoa-growing areas has farmers upbeat on prospects for the season’s smaller crop that starts in April.

Soil is moist in producing regions including the fertile southwest, and the development of flowers that turn into pods is getting a boost from the wet weather, growers said this week.
Farmers in Ivory Coast, the world’s top cocoa producer, harvest a main crop from October to March and a smaller one, called the mid-crop, from April to September.

Recent rain “gives hope for the mid-crop,” Jacques Oulaye, a cocoa farmer based in Gbapleu, in the country’s western mountain region, said by phone March 6. “Young flowers in the trees have begun to blossom, meaning the new pods will go out soon.”

A large mid-crop would compound a surplus of cocoa piling up in Ivory Coast, after the main crop was bigger than expected and some local companies defaulted on contracts to export cocoa.

The International Cocoa Organization last week forecast the West African country’s harvest will increase 20 percent in the current season, contributing to a global surplus that’s projected to be the biggest in six years.

 

The Ebola epidemic which ravaged West Africa between 2014 and 2016 represented a bullish outcome for cocoa prices since it had a negative impact on yields. However with the easing of the outbreak, farmers returned to their holding and supply increased not least because of the outpouring of sympathy for the region from the international community and the assistance farmers have received from major consumers keen to ensure they have secure supplies. 

Talk about the breakup of the euro is fashionable again. With populists such as Marine Le Pen trying to storm the establishment and the popularity of the single currency in decline, executives and investors, including JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon, say nothing can be ruled out. At the same time, the euro has already survived a number of scares since its inception in 1999, with the political and economic elites proving willing to do whatever it takes to support the currency.

We took a look at three scenarios that could lead to the euro splintering—and three that could see the currency coming through the populist wave in even stronger shape. And we poll expert opinion on the chances they could happen.

Natural scientists are now talking about the real possibility of cloning a woolly mammoth and possibly various varieties of dinosaurs, so it is not beyond the bounds of imagination to assume that the euro could be kept alive for a few more years before it becomes extinct.

The problem, however, is that Europeans would much rather have the woolly mammoth than the euro.  Not everyone agrees, of course.  John Major, Tony Blair and Barrack Obama still think the euro is a wonderful idea, presumably because they have never had to live with it as their own currency.

This item continues in the Subscriber’s Area.

Having declared the Spring Budget redundant it would have defied logic, not to mention his own temperament, for Philip Hammond to use the last one to launch a display of fiscal pyrotechnics. True to form and extensive pre-event leaks, the Chancellor of the Exchequer did little more than wave a couple of rather lacklustre sparklers.

The Budget document was only 68 pages long - roughly half the length of last year’s. Were the (admittedly rather good) jokes a sign that the Chancellor was at ease with himself, or an attempt to pad out his material? 

That said, the choice to do nothing - or, at least, very little - can itself be a decisive act. Most companies will be glad of it. Some politicians and commentators would like to use the UK’s departure from the European Union, the barely mentioned elephant in the Commons chamber today, as an excuse to be radical, to deregulate the economy and fully embrace free trade. All this can come later.

As the man with his hand on the tiller as the UK begins to navigate Brexit, Hammond appears to be developing into an Oakeshottian Chancellor, adhering to the 20th century philosopher’s observation that all political activity can be likened to sailing on “a boundless and bottomless sea”.

“The enterprise,” as Michael Oakeshott wrote, “is to keep afloat on an even keel.” 

As a former transport secretary, Hammond is probably minded to invest in the nation’s infrastructure, like roads, railway lines, airports and superfast broadband. But the stubborn budget deficit of around £60bn a year and debt of £1.7 trillion keeps a lid on the largesse.

Opening the fiscal floodgates, as Donald Trump has promised to do in the US, could well lead to an increase in inflation. Over there, this would be mitigated by the strong dollar; over here it would be exacerbated by the weak pound. As it is, the Office for Budgetary Responsibility today predicted that inflation will hit 2.4pc this year. 

I watched Philip Hammond deliver his budget this morning.  It was predictably conservative, and Theresa May’s inclusions on education were sensible.  The Government is going to be fiscally prudent ahead of the Brexit negotiations for the obvious reason that it cannot know for certain how the EU will respond at this stage. 

Interestingly, it was a very polished and upbeat presentation by Hammond.  His jokes, at the expense of Labour, were surprisingly funny and had Jeremy Corbyn in a high state of dudgeon.  The Prime Minister and Chancellor of the Exchequer need to maintain their current levels of confidence throughout Brexit negotiations with the EU.   

A PDF of Ben Wright's article is posted in the Subscriber’s Area.

Saudi Oil Minister Khalid al-Falih has lashed at Western leaders for promoting the 'myth' of peak oil demand and scare-mongering over vast stranded resources in the fossil fuel industry, accusing of them committing a grave disservice to mankind.

The defiant minister said the campaign of attacks on the high-carbon sector will deter trillions of dollars of vitally-needed investment, leading to a disastrous energy crunch once the current glut is cleared.

"They are doing nothing less than compromising the world's energy security. It will lead to damaging oil price spikes, and more acute poverty for developing countries," he said, speaking at the IHS CERAWeek summit in Houston.

Mr al-Falih said Saudi Arabia welcomes wind, solar, and other renewables but warned that they cannot quench Asia's "insatiable demand" for more oil or meet supply as global energy demand doubles by 2050.

For now the problem is the opposite one. The oil market is over-supplied and inventories remain near record levels, despite an accord last November by OPEC and a Russia-led group of states to cut output by 1.2m barrels a day (b/d).

Mr al-Falih admitted that the global crude market has not yet tightened enough and complained that some countries are cheating on cuts. "It has been slower quite frankly than I had thought in the first two months of this year," he said.  

"Saudi Arabia will not allow itself to be used by others. The agreement is for the benefit of all, and needs to be addressed by all. We cannot accept free riders," he said.

The minister said his country would back cuts only for "a restricted period of time" and warned speculators with big long positions on crude oil derivatives that they should not expect the Kingdom to back-up their bets by choking supply.

"I would caution not to tempt investors into irrational exuberance, or into wishful thinking that OPEC or the Kingdom will underwrite the investments of others at our expense and long-term interests."

It is a strong hint that the Saudis may not agree to extend the deal when it expires in June. OPEC officials have been meeting oil traders at the CERAWeek forum to probe what is happening in the parallel futures market. They have been told that the funds may close their positions en masse and trigger a fresh price crash if OPEC returns to pumping at will.

Traders say Russia has cut barely half the 300,000 b/d pledged, similar to the late 1990s when Moscow never followed through on promises. The country's oil minister Alexander Novak told the forum that Russia would deliver by end of April, but also said dismissively that there are "more important issues to talk about" than the OPEC deal. He digressed instead into the issue of currency wars.  

So the Russians have only honoured half of their agreed oil production cut – what a surprise.

Meanwhile, OPEC producers may quietly increase their production following today’s downward dynamic Brent Crude (weekly & daily).  It also helps to have the Permian Basin, easily one of the world’s largest deposits of shale oil, in Texas.   

Saudis remain in a state of shock, due to the USA-led accelerated rate of technological innovation which has made US shale so competitive.  I think their forecasts for “damaging oil price spikes” are wishful thinking.  The Saudi riyal remains pegged to the US$ but for how long?  The risk of a massive devaluation before the end of this decade is increasing. 

(See also: Email of the day 2 “On crude oil” posted on Monday, 6^th March, and also AE-P’s excellent article: Permain Shale Boom in Texas Is Devastating for OPEC)  

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

PHILADELPHIA (AP) -- Many American women stayed home from work, joined rallies or wore red Wednesday to demonstrate how vital they are to the U.S. economy, as International Women's Day was observed with a multitude of events around the world.

The Day Without a Woman protest in the U.S. was put together by organizers of the vast women's marches that drew more than 1 million Americans the day after President Donald Trump's inauguration.

The turnout on the streets this time was much smaller in many places, with crowds often numbering in the hundreds. There were no immediate estimates of how many women heeded the call to skip work.

"Trump is terrifying. His entire administration, they have no respect for women or our rights," said 49-year-old Adina Ferber, who took a vacation day from her job at an art gallery to attend a demonstration in New York City. "They need to deal with us as an economic force."

The U.S. event - inspired in part by the Day Without an Immigrant protest held last month - was part of the U.N.-designated International Women's Day.

In Warsaw, thousands of women showed Poland's conservative government red cards and made noise with kitchenware to demand full birth control rights, respect and higher pay.

In Rome, hundreds of women marched from the Colosseum to demand equal rights. Thousands marched in Istanbul, despite restrictions on demonstrations imposed since last year's failed coup. Turkish police did not interfere.

And:

Trump took to Twitter to salute "the critical role of women" in the U.S. and around the world. He tweeted that he has "tremendous respect for women and the many roles they serve that are vital to the fabric of our society and our economy."

First lady Melania Trump marked the day by hosting a luncheon at the White House for about 50 women.

The White House said none of its female staff members skipped work in support of International Women's Day.

Lovely Monkey Tattoo, a female-owned tattoo parlor in Whitmore Lake, Michigan, offered tattoos with messages like "Nevertheless, She Persisted" - a reference to the recent silencing of Sen. Elizabeth Warren on the Senate floor - with proceeds going to Planned Parenthood.

Women make up more than 47 percent of the U.S. workforce and are dominant among registered nurses, dental assistants, cashiers, accountants and pharmacists, according to the census.

They make up at least a third of physicians and surgeons, and the same with lawyers and judges. Women also account for 55 percent of all college students.

At the same time, American women earn 80 cents for every dollar a man makes. The median income for women was $40,742 in 2015, compared with $51,212 for men, according to census data.

In what should be an obvious point which I have made for decades, is that countries are the most successful where women have the highest degree of equality.  By equality, I mean free from legal, political, or social restrictions, and with equal rights and opportunities protected by law. 

My own conclusion, based on observation when I travelled extensively around the world for several decades, continuing into the early 2000s, was that Singapore topped the list.  I doubt that has changed. 

I expect another lively evening with experienced delegates and their friends.  Trump has generated plenty of political and economic controversy and technology has never been more interesting in our lifetime.  Whatever your investments, we will need to keep an eye on these two charts as the year progresses – Dollar Index and US 10-Yr T-Bond Yields.

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

Oil has fluctuated above $50 a barrel since the Organization of Petroleum Exporting Countries and other nations started trimming supply on Jan. 1 to reduce a glut. Saudi Arabia and Russia, the architects of the deal, presented a united front on complying with the cuts at the CERAWeek conference Tuesday in Houston. Alongside officials from Iraq and Mexico, they insisted the curbs are working. Managed money boosted wagers that U.S. oil futures would rise to a record last month.

"There’s a huge amount of speculative length in the market and they’re starting to bail," Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York, said by telephone. "OPEC didn’t do a good job at CERA convincing the market that it would roll over the cuts into the second half of the year."

 

Any arbitrage in the futures curve has been squeezed out by hedging activity over the last couple of months as unconventional producers locked in what are economic prices for their activities. That has effectively kept a lid on prices despite OPEC’s quite disciplined cut to supply. The fact the USA is now both a major new source of supply and exporting is a challenge for the cartel. 

A more recent analysis by the Lawrence Berkeley National Laboratory covering 1998 to 2015 shows a different measure of PV cost. (See Exhibit 15 on next page.) The pattern of that decline is interesting. It took 11 years for the price per watt to drop from $12 to $8. Notice how the cost per watt dropped between 1998 and 2000, but then remained flat until 2002, after which it declined for the next three years. Starting in 2005, the cost slowly increased for two years before beginning a slow decline that lasted for two years. In 2009, the pace of decline accelerated until it reached about $4 per watt, or half the 2009 value. The recent decline coincides with China’s entrance into the solar panel manufacturing business and its prompt dumping of surplus output into the U.S. market, driving down panel prices and driving U.S. manufacturers out of business.

It is difficult to separate how much of the historical price decline came from technological improvements versus that from a misguided investment strategy by China. More importantly, will these price reduction trends continue as in the past and how dependent on technological breakthroughs in material science are lower prices in the future?

 

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

The cost of producing solar cells collapsed as China introduced economics of scale to the market. That has been perhaps the greatest influence on the price of cells and has contributed to the collapse of the investable sector because so many companies are now running at a loss. There have already been a significant number of bankruptcies and remaining companies are still in a highly competitive environment. 

“What is particularly significant about this study, which combines experiment and theory, is that in addition to identifying several new compounds for solar fuel applications, we were also able to learn something new about the underlying electronic structure of the materials themselves,” Neaton said in a Caltech press release.

To discover these new photoanodes, the team combined computational and experimental approaches. A Materials Project database was mined for potentially useful compounds. Hundreds of theoretical calculations were performed using computational resources at the National Energy Research Scientific Computing Center (NERSC), together with software and expertise from the Molecular Foundry. Once the best candidates for photoanode activity were identified, it was time to test those materials in the laboratory.

The materials were simultaneously tested for anode activity under different conditions using high-throughput experimentation. This was the first time these kinds of experiments had been run this way, according to Gregoire.

“The key advance made by the team was to combine the best capabilities enabled by theory and supercomputers with novel high throughput experiments to generate scientific knowledge at an unprecedented rate,” Gregoire said in the press release.

 

There has been great deal of commentary in the media about the advances in artificial intelligence and how it is represents a threat to employment across a number of fields. A broader perspective to the easy application of massive computing power is the scale that can be brought to experiments through computer simulation and data analysis. Artificial intelligence represents a major facilitator for technological innovation. Coupled with rapid prototyping and CRISPR the potential for unprecedented change in a range of sectors, stretching from materials to healthcare, is looking increasingly like the base case.  

Treasuries slumped, pushing 10-year yields to the highest level since December, after a measure of U.S. private-sector job growth for February exceeded the most optimistic expectations two days before the Labor Department’s monthly employment report.

Yields were higher by 4-6 basis points at about 9:10 a.m. in New York as the market priced in a faster pace of Fed rate increases following the one already expected next week. The 10- year climbed as much as 6.4 basis points to 2.582 percent, the highest level since Dec. 20.

Treasury plans to sell $20 billion of the 10-year note in an auction at 1 p.m. The new notes yielded 2.575% in when-issued trading, above 10-year auction stops since July 2014.

ADP Employment increased 298k in February vs 187k median est. in Bloomberg survey, in which highest est. was 255k; February employment report is forecast to show 190k increase in nonfarm payrolls based on median est., which may rise if economists revise higher based on ADP

Yields across the curve touched the highest levels this year, led by the 5Y, which climbed 6.2bp to 2.111%

5s30s yield curve flattened, touching 104.5bp, within 5bp of lowest levels of recent years
USD OIS pricing upgrades odds of 25bp March hike to 87% (versus 83% Tuesday), while odds of a second 25bp hike in September, based on 5th Fed dated OIS, climbed to 97% from 87%

IG credit issuance slate also in focus after nearly $40b priced over previous two sessions, weighing on Treasuries; United Health Group joins Wednesday’s slate with $benchmark 10Y and 30Y offering

 

The US economy has been on a recovery footing since 2010 and while the pace of the expansion has been modest it has delivered on job growth. The declining participation rate has flattered unemployment statistics but with more people being employed and upward pressure in the pipeline from higher minimum wages there is the potential for people to be attracted back into the workforce which could keep a temporary lid on inflation but would be unlikely to represent a long-term solution.

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

Currently, when companies borrow money, a large portion of the interest they pay on those loans is tax-deductible. The House plan would eliminate that deduction. Like the border adjustment, this change was proposed by Berkeley economist Alan Auerbach in a famous 2010 paper, “A Modern Corporate Tax.”

How would companies finance themselves if interest payments weren’t tax deductible? They would take on less debt and issue more stock. That would require some big adjustments, but in the long term it would probably be a good thing for the stability of the economy.

 

Deducting interest on one’s mortgage is one of the primary tax incentives, along with long-term capital gain of home ownership in the USA. Eliminating the interest deductible on mortgages is a political non-starter as a result, however if such a measure is incorporated into any reform of the corporate tax code it would result in some considerable nuancing of the overall bullish outlook for the banking sector. 

For former Finance Minister Yanis Varoufakis, the lesson for May is “beware of what I call the euro zone run around.” He predicts British officials will receive conflicting messages from Berlin to Brussels, and that a lot of time will be spent discussing how to structure the negotiations rather than issues such as a free trade deal.

Varoufakis proposes the U.K. should file Article 50 and then immediately ask to join the European Economic Area, which allows access to the single market in return for free movement of people and some budget contributions. That would give Britain stability and time to assess how to properly engage with the EU, which is “really not interested in a mutually advantageous deal,” he said.

George Papaconstantinou, who ran Greece’s finance ministry from 2009 to 2011, is more optimistic.
While he anticipates the EU will adopt a “very hard bargaining” position and seek to safeguard the bloc by refusing to grant too many concessions, he sees Merkel as a political realist.

“She does look at the end of the day for decisions which are win-win,” he says. “There is an element of realism which the U.K. can hope for.”

 

The EU has become quite adept at controlling the narrative of negotiations by insisting on a very specific set of conditions that have to be met for negotiation. If the UK submits to the framework for negotiation and legalistic lexicon of discussion insisted upon by the EU then it will be going into the process starting at a disadvantage. 

The telecom arm of Reliance IndustriesBSE -0.01 %, which debuted in September last year, has already set a benchmark by hitting a subscriber base of 100 million in record 170 days. And with aggressive plans in place, it looks set to raise the bar, giving sleepless nights to the incumbents. 

The company is heavily banking on building significant data capacity and triggering price elasticity for data demand. 

At Jio’s first analyst meet last week, the company management indicated that currently about 1b GB/month data is getting consumed on Jio and it will have the capacity to offer about 4b GB data per month by the end of FY17. According to the management, it should be able to cater to 60 per cent of estimated data demand at 6b GB per month by FY21. 

 

Reliance Industries has a footing in just about all of India’s biggest industries. It went through a significant capital expenditure program to build the nation’s most comprehensive 4G network and is now reaping the rewards. Considering that the vast majority of India now has the opportunity to move from 2G to 4G the potential for growth in ancillary services is considerable.  

A number of measures have already been announced to come into effect this year, including a 2 percentage-point increase in the insurance premium tax and a cut in corporation tax. The Chancellor may well modify some of these measures.

He will surely concede some form of compensation for firms severely hit by the resetting of business rates. But, above all, he must keep current government spending under a very tight rein to allow the Government room for manoeuvre later.

Mind you, all this is going to seem pretty thin gruel. Could we please have some more? In particular, as I said last year, it would be good to have, if not a vision (and “Spreadsheet Phil” apparently doesn’t do “the vision thing”) then at least a glimpse of how the tax system is going to develop.

In fact, very few Chancellors find themselves able to embrace radical reform of the tax system. Usually, they are too busy grappling with the Government’s deficit to have either the resources or the time.

This is true now, and whatever energy is left is fully absorbed in preparing Britain for Brexit. Yet reform is badly needed. In so many ways, our current tax system is both irrational and inimical to economic growth.

Perhaps we can forgive Mr Hammond his first, and last, boring March Budget. But there should not be any more like it. Tax reform and making the most of Brexit are not alternatives. Indeed, as Britain faces its future outside the EU in a turbulent and risky world, one of the best things that a Chancellor can do is to ensure that the tax system does the most to attract and retain businesses in Britain, and encourages new business formation, innovation, investment and work.

Mr Hammond will not make progress towards these objectives by doing next to nothing, whichever month is graced with his inactivity.

Given what we have seen of Theresa May’s government so far, and the uncertainty regarding Brexit and what she will be seeing from the EU during the next year or two, I think she and Philip Hammond will be very prudent with the Budget and economic policy generally, until the UK has effectively left the EU.  That will mark the start of bolder Budgets.

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

“Time is the most valuable coin in your life.  You and you alone will determine how that coin will be spent.  Be careful that you do not let other people spend it for you.”

Carl Sandburg

Many thanks for this wonderful quote which I had not previously seen. 

It was forwarded by an experienced investor and subscriber of my own generation and I think it will appeal to many other subscribers.

Here is a link to Carl Sandburg quotes.

 

Dear David,

I can’t see why in terms of fundamental oil itself, but the chart looks really like it’s going to shoot up, don’t you think?

Its got that look about it. And from what I’ve seen with oil over the years, sometimes, fundamentals are irrelevant.

Cheers

Yes, that can happen, and to quote Benjamin Graham:

 “In the short run, the market is a voting machine but in the long run, it is a weighing machine.”

However, in response to your opening question, I think crude oil is unlikely to shoot up without some major production disturbance, although it could grind a little higher, which is what I have been saying for some time. 

This item continues in the Subscriber’s Area.

The Opec oil cartel is waking up to an unpleasant surprise. Shale output from the Permian Basin in Texas is expanding faster than the world thought humanly possible.

The scale threatens to neutralise output cuts agreed by Saudi Arabia and a Russian-led bloc last November, and ultimately threatens to break their strategic lockhold on the global crude market for a generation.

"People just don't seem to realise how big the Permian is. It will eventually pass the Ghawar field in Saudi Arabia, and that is the biggest in the world," said Scott Sheffield, founder of Pioneer Natural Resources and acclaimed 'King of the Permian'.

"We think it could produce 8-10m barrels a day (b/d) within ten years. We're telling our investors that Pioneer could reach one million," he said. Roughly 70pc of this would be crude oil, and the rest in gas and liquids.

And:

The beauty of the Permian rock is that it has up to twelve layers "stacked" on top of each other down to a depth of 12,000 ft, offering multiple seams and perfectly suited to horizontal drilling.

The reservoirs are not cursed by saltwater zones. They hold 75pc oil, compared to 40-50pc in other fracking regions. A nexus of pipelines is already in place. Pioneer can send crude to the Gulf coast for $2.50 a barrel in transport costs.

And:

There is no longer any question that US shale has profoundly disrupted the global oil markets. Saudi Arabia's campaign to break the fracking industry has been a costly war of attrition, depleting a quarter trillion dollars of the Kingdom's foreign exchange reserves without halting the juggernaut.

OPEC members face a Permian headwind that may cap crude prices far below levels needed to balance their budgets. In the end, the 40pc collapse in worldwide oil and gas investment over the last two years will lead to a supply crunch. But oil bulls betting on a return to $80 may have to be patient.

Mr Sheffield said the strategic blunder made by the Saudis was to let prices rise so high for so long in the great China boom. It gave US shale the window to reach critical mass and critical technology.

 "It was the $100 oil environment for four years that allowed us to do what we did. It they had kept oil down at $70 to $75, it would have been a helluva a lot slower," he said.

The concluding sentence above is another example of the commodity adage: The cure for high prices is high prices.  They lead to a decline in consumption, substitution, and increased production.  Conversely: The cure for low prices is low prices.  They eventually lead to a decline in production, stockpiling, and increased consumption. 

I actually think AE-P is too optimistic in his excellent column above.  When he says that Permian Basin output “ultimately threatens to break their [OPEC’s] strategic lockhold on the global crude market for a generation”, that already happened in the second half of 2014. 

Almost a decade from now, output from Permian Basin and other leading shale fields is likely to be higher, provided oil prices have not fallen sharply from current levels.  Moreover, any developed country which wants to produce its own shale oil will be doing so if it has been able to overcome political objections.  The production of solar power will have increased enormously.  Electric vehicles will have made huge inroads into the market for petrol driven cars and trucks. 

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

I expect another lively evening with experienced delegates and their friends.  Trump has generated plenty of political and economic controversy and technology has never been more interesting in our lifetime.  Whatever your investments, we will need to keep an eye on these two charts as the year progresses – Dollar Index and US 10-Yr T-Bond Yields.

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

U.K. Chancellor of the Exchequer Philip Hammond will use Wednesday’s budget to allocate more than 550 million pounds ($674 million) to boost innovation and technology, as he focuses on targeted measures while keeping back the Treasury’s firepower to offset any turbulence from Brexit. 

The money, from the National Productivity Fund, will support work in areas including electric vehicles, robotics and artificial intelligence, the Treasury said in a briefing note. Hammond will also set out details on work to boost 5G mobile phone coverage in Britain.

The plan comes as Hammond pledged on Sunday to set aside money to cushion the economy as Britain prepares to start negotiations to exit the European Union. He warned the budget would not include any spending commitments funded by borrowing as he seeks to balance the books in the next parliamentary term.

 

The UK needs a competitive advantage in how it navigates its post Brexit reality. The City, defence and the domestic oil business have all played a role in sustaining the UK’s independence in the past but some of the biggest questions posed by Brexit are whether these will be enough to sustain the economy in future. Streamlined common sense regulation and attractive tax policies are going to have to form part of the solution in order to delineate the UK from its neighbours. However intellectual property and the ability to leverage technological knowhow on a global scale are the hallmarks of successful enterprises and countries and will also be essential to plotting a success independent strategy of the UK. 

When the previous record was set, the picture for investors was markedly different: the Turkish currency was 50 percent stronger against the dollar, the country was celebrating earning its second investment-grade credit rating and economic growth was stronger. The only piece of the puzzle that’s more attractive now are valuations that are still at a discount of about 30 percent to Turkey’s emerging-market peers.

Reasons to potentially avoid Turkish stocks were numerous: rising geopolitical risks, terror attacks, a coup attempt, and the prospect of higher U.S. interest rates. The spread between the valuation of Turkish stocks and its emerging market peers widened to more than a seven-year high in July and remained near those levels for almost six months.

This year’s rally developed from “a reaction to Turkey’s long-term under performance to peers and highly attractive valuations,” according to Haydar Acun, a fund manager at Istanbul-based Marmara Capital. “What usually happens in these kind of rallies is the market becomes overconfident after a while and starts forgetting what set the rally in the first place.”

Economic growth is expected to have slowed to 2.2 percent in 2016, according to data compiled by Bloomberg. That compares with 6.1 percent in 2015 and 8.5 percent in 2013 when stocks set their record, according to figures from Turkey’s statistical agency. Turkey lost its last-remaining investment-grade credit rating in late January this year.

 

Turkey doesn’t score particularly week on the governance scale not least because Erdogan has become increasingly volatile following last year’s failed coup attempt.  The Dollar hit an accelerated peak below TRY4 in January and pulled back to test the TRY3.5 region; unwinding about half its overextension relative to the trend mean in the process. Last week’s Dollar bounce takes the Lira back to being the world’s worst performing currency this year and a sustained move below the trend mean would be required to question medium-term Dollar dominance.  

As it stands, IBM’s largest quantum computer has five qubits. By contrast the average laptop has hundreds of millions of bits in its processors, although the two types of computers are not directly comparable. IBM hopes, however, to continue its research with the aim of building quantum computers with roughly 50 qubits. For comparison, an IBM spokesperson told Quartz, you can simulate the computational power of a 25-qubit quantum computer on a regular laptop. At about 45 qubits, you’d need the world’s fastest supercomputers, and above 50, “you couldn’t build large enough classical computing systems to simulate that size of a quantum system.”

In IBM’s vision of the future, quantum computers could be used for discovering new drugs, securing the internet, modeling the economy, or potentially even building far more powerful artificial intelligence systems—all sorts of exceedingly complicated tasks. One area the company is looking at right now is in chemistry, attempting to simulate what’s going on in a molecule. “Even for simple molecules like caffeine, the number of quantum states in the molecule can be astoundingly large,” the spokesperson said, “so large that all the conventional computing memory and processing power scientists could ever build could not handle the problem.”

When Quartz visited IBM’s quantum computing lab in Yorktown Heights in 2015, the work being done was viewed as fundamental—research for the sake of research—rather than anything tied to specific business goals. But then again, so was the research that has since led to the creation of Watson. Originally conceived of to take on the question-as-answers gameshow of Jeopardy!, which researchers saw as a “unique and compelling AI question,” Watson has become a set of machine-learning and AI services that IBM sells, and intends to invest $1 billion into.

 

IBM is still in the throes of a major transition from physical hardware manufacturing to an almost total focus on knowledge based services. Artificial intelligence (Watson), and the tools to leverage that technology (massive & fast processing power) represent the key areas of focus in what is a new era for the company. 

Can you please elaborate on the part of the sentence marked in red below taken from your advert in Fuller Treacy  Comment of the Day? Is this only for those who are members of the CFA or does it apply to delegates in general?

“The CFA Institute has once more agreed to co-host the Singapore event and I will also provide certificates for continuous professional development to anyone who wants one.” 

 

Thank you for this question which may be of interest to other subscribers. Financial regulators, particularly in the UK but just about everywhere these days require financial intermediaries to engage in continuous professional development. A number of subscribers over the years have told me they would have an easier time justifying the two days away from the office if they could get CPD credit for The Chart Seminar. 

With that in mind I approached the CFA in Singapore who are prepared to issue a CPD certificate to anyone attending the seminar. Since it is from the CFA it should be acceptable outside of Singapore. We can also issue a certificate from FullerTreacyMoney to confirm attendance at the seminar containing a summary of what was covered if you need it. 

I am also in discussions with a London based partner to get full CISI accreditation for the seminar in the UK which would allow delegates to fulfil almost 50% of their annual requirement in one sitting. 

Historian Yuval Noah Harari makes a bracing prediction: just as mass industrialization created the working class, the AI revolution will create a new unworking class.

The most important question in 21st-century economics may well be: What should we do with all the superfluous people, once we have highly intelligent non-conscious algorithms that can do almost everything better than humans?

This is not an entirely new question. People have long feared that mechanization might cause mass unemployment. This never happened, because as old professions became obsolete, new professions evolved, and there was always something humans could do better than machines. Yet this is not a law of nature, and nothing guarantees it will continue to be like that in the future. The idea that humans will always have a unique ability beyond the reach of non-conscious algorithms is just wishful thinking. The current scientific answer to this pipe dream can be summarized in three simple principles:

1. Organisms are algorithms. Every animal — including Homo sapiens — is an assemblage of organic algorithms shaped by natural selection over millions of years of evolution.

2. Algorithmic calculations are not affected by the materials from which the calculator is built. Whether an abacus is made of wood, iron or plastic, two beads plus two beads equals four beads.

3. Hence, there is no reason to think that organic algorithms can do things that non-organic algorithms will never be able to replicate or surpass. As long as the calculations remain valid, what does it matter whether the algorithms are manifested in carbon or silicon?

True, at present there are numerous things that organic algorithms do better than non-organic ones, and experts have repeatedly declared that some things will “for ever” remain beyond the reach of non-organic algorithms. But it turns out that “for ever” often means no more than a decade or two. Until a short time ago, facial recognition was a favorite example of something that babies accomplish easily but which escaped even the most powerful computers. Today, facial-recognition programs are able to identify people far more efficiently and quickly than humans can. In 2004, professor Frank Levy from MIT and professor Richard Murnane from Harvard published research on the job market, listing those professions most likely to undergo automation. Truck driving was given as an example of a job that could not possibly be automated in the foreseeable future. A mere 10 years later, Google and Tesla can not only imagine this, but are actually making it happen.

In fact, as time goes by, it becomes easier and easier to replace humans with computer algorithms, not merely because the algorithms are getting smarter, but also because humans are professionalizing. Ancient hunter-gatherers mastered a very wide variety of skills in order to survive, which is why it would be immensely difficult to design a robotic hunter-gatherer. Such a robot would have to know how to prepare spear points from flint stones, find edible mushrooms in a forest, track down a mammoth, coordinate a charge with a dozen other hunters and use medicinal herbs to bandage any wounds. However, a taxi driver or a cardiologist specializes in a much narrower niche than a hunter-gatherer, which makes it easier to replace them with AI. AI is nowhere near human-like existence, but 99 percent of human qualities and abilities are simply redundant for the performance of most modern jobs. For AI to squeeze humans out of the job market it need only outperform us in the specific abilities a particular profession demands.

I have mentioned Yuval Noah Harari and Homo Deus before, as have several subscribers, and the excerpt above from ideas.ted.com was provided by Mrs Fuller.  I have yet to finish reading Homo Deus, given all of life’s distractions, but it is the most interesting book that I have ever read. 

One does not have to agree with everything that Yuval Noah Harari says, and I imagine that some people may even be offended by Homo Deus.  Nevertheless it is very intelligently written and it challenges perceptions while making us think.  That is an invaluable gift.

Federal Reserve chair Janet Yellen gave investors a pretty clear sign on Friday that the U.S. central bank is likely to raise its benchmark interest rate later this month — and more hikes to follow later this year.

In a speech on the central bank's economic outlook at the Executives' Club of Chicago on Friday, the Fed chair told the gathered audience that a slight increase to the federal funds rate would be "appropriate" when the bank next meets for a two-day policy meeting on March 14 and 15.

"At our meeting later this month, the committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate," Yellen said.

In Fed terms, that's as close as it gets to a bright green light.

• ANALYSIS: What were investors thinking? Of course interest rates have to rise

And more interest rate increases could follow, she said: "We currently judge that it will be appropriate to gradually increase the federal funds rate if the economic data continue to come in about as we expect."

Yellen noted that the U.S. economy is chugging along, cranking out an average of about 180,000 jobs a month at the moment. That's well above the range of between 75,000 and 125,000 that shold be expected just from growth in the labour force — and another sign the world's largest economy is heating up and finally ready to stand on its own two feet.

Yellen is the most recent Fed official to muse opening about rate hikes in recent days.

Commentators have been asking: how could polls for a March 2017 rate hike have risen from the low 20% region last week to nearly 90% today?  I only watch a little TV in the home gym but none of the answers I heard from Bloomberg made any sense, at least not to me. 

I actually think the Fed was waiting for Trump’s speech before Congress on Tuesday, half expecting that it might be a meltdown.  Instead, “Trump hit a home run”, as US commentators said immediately following the speech.  A relieved Fed can now do its job before it falls further behind the curve.

To be Chancellor of the Exchequer is, normally, to be the second most important politician Britain. The Blair-Brown years can be seen as a double act, followed by a catastrophic solo act. The Thatcher-Lawson years were an age of Tory radicalism, setting the conditions for the prosperity that followed. But no one speaks about a May/Hammond axis - in fact, not many speak about Philip Hammond at all. Our Chancellor has a gift for invisibility, honed throughout his political career. Unkind souls dismiss him a nodding dog, appointed for loyalty rather than ability.

Being underestimated in this way suits Mr Hammond rather well because over the last few months, he has been perhaps the most consequential member of the Cabinet, vetoing some of Theresa May’s stranger ideas. She has suggested making it harder for foreigners to buy British companies, for example, and capping the pay of chief executives. She raises such ideas in a sub-committee of her Cabinet members where Mr Hammond kills them off. I’m told that he is a sight to be behold in such meetings, speaking more bluntly than anyone else would dare. Outside No10 he’s seen as the dull-but-dutiful “spreadsheet Phil”. Inside, he has been Hammond the Hammer.

So it’s unfair to judge him by his first, rather underwhelming mini-Budget. His achievement so far lies in what he has saved us from: a 1970s-style industrial strategy, or a set of diktats forcing companies to put random workers on their boards. Barely a word of his resistance has leaked to the press, so the Prime Minister still trusts him and is guided by him. To her immense credit she’s serious about the Cabinet committee process, as is he. For mistakes not made, the record (so far) is excellent. But the record in radicalism? This is another matter entirely.

With the Labour Party a danger only to itself, there might never be a better time for Tory boldness. Instead, Mr Hammond seems fearful. He started his Chancellorship in the foetal position, waiting for the Brexit crash that he and other Cabinet Remainers warned about: the 500,000 job losses, the instant recession, the house price crash. Instead, economic growth accelerated and tax revenues have surpassed forecasts made even before the referendum. This hasn’t cheered him one bit. In the Cabinet Brexit committee, he rolls his eyes when Andrea Leadsom tries to suggest that everyone should lighten up because things will be fine. Even now, the Chancellor genuinely believes that they won’t.

To be sure, Britain faces plenty of uncertainty as we untie the knot with the European Union. It’s either thrilling or terrifying, depending on your point of view – calling for either daring or caution. And Mr Hammond is choosing caution: radicalism, he thinks, can wait.

This fits a depressingly familiar theme. Under David Cameron, the Conservatives were haunted by fear of the Labour Party and signed up to its ruinous levels of tax-and-spend. In government, Cameron was hamstrung by coalition with the Liberal Democrats. Even after winning a majority, Osborne somehow felt the need to implement Labour policies such as the minimum wage – almost as an apology for victory. It has been so long since we saw a confident Tory budget that even the Tories seem to have forgotten what one looks like.

The basics are pretty simple. Conservatism is a belief the countries and communities are stronger and fairer if more money and power are left in the hands of the people, rather than by government. That individuals take wiser decisions for themselves than any politician can take on their behalf. This isn’t an ideology, as such, just an observation that lower taxes, regulatory restraint and sound money is a formula that has worked everywhere that it’s been tried.

I am grateful to Philip Hammond for his outspoken comments in cabinet meetings which have squashed some of the daft left-wing suggestions mentioned above. This government does not have to adopt senseless Labour Party policies to attract more Labour voters.  However, it does need to reawaken the aspirational interests of traditional Labour voters, which it can start doing by helping the economy in the manner of Margaret Thatcher.  Today’s equivalent would include more houses, lower taxes and sensible, competitive energy policies.

A PDF of Fraser Nelson's column is posted in the Subscriber's Area.

I expect another lively evening with experienced delegates and their friends.  Trump has generated plenty of political and economic controversy and technology has never been more interesting in our lifetime.  Whatever your investments, we will need to keep an eye on these two charts as the year progresses – Dollar Index and US 10-Yr T-Bond Yields.

David:

The reporting and your comments about Dyson were interesting, but my wife said that her experience in the years when we lived in England was that the Dyson appliances were obviously brilliant in engineering terms and would last forever, but they were VERY user-unfriendly -- heavy and clumsy.

As South Africans, we thought that Brits (unlike us and Americans), often made the mistake of paying too highly for socially-highly-rated products (AGA is a good example), that were not worth it. I remember our disappointment at the poor range of "upper middle class" products (usually Japanese and German brands) that we were used to in Johannesburg. Our perception of what was on offer was an avalanche of cheap products (especially the cheapest and nastiest), topped off with very upper-class, overpriced status brands. Of course, that was a long time ago... ten years or more that we've lived in Chiangmai.

Trust you and family are now well... including Ishmael and Willow. Liz and I are now enslaved by an Asian lady we call Tong.

M

Thanks for your thoughts. 

Liz was right.  With a big house we needed an effective vacuum cleaner so we bought the heavier of the initial Dysons.  It was effective but in the hands of cleaners was used like a wrecking ball on some of our furniture.  These days I would rather do it myself and Mrs Fuller is a big fan of the much improved Rombas. 

Dyson’s other products are certainly not cheap but they are very good and also have an aesthetic appeal which I am happy to pay for.  My favourite is the air purifier which is essential for London with all the horrific NOx (diesel) pollution.  However the air purifier obviously only works in the house, where I leave it on most of the time, on a low and virtually silent setting. 

The Burmese are fantastic companions although we nearly lost Ishmael a short while ago due to a sudden and unexplainably serious ear infection.  When we got them eight years ago the children were worried that we were more interested in the cats than our grandchildren of approximately the same ages, although that was not quite true.  I am glad you and Liz have Tong and can understand the feeling of enslavement.   

A link to this week's big picture long-term video is posted in the Subscribber's Area. 

1. The fact that the Fed wants to raise rates three times this year tells us that they are worried about the economy moving towards overheating
2. The economy is already at full employment, confirmed by anecdotes of higher minimum wages and labor shortages across industries
3. Average hourly earnings have trended higher since 2014
4. US may be reversing on the “strong dollar” policy to boost US exports
5. Import prices are trending higher
6. Producer prices are trending higher
7. Breakeven inflation expectations are trending higher
8. Lower corporate taxes will boost growth and hence also inflation
9. Increased infrastructure spending will lift growth and hence also inflation
10. Lower household taxes will raise growth and hence also inflation

All variables in the Fed’s model of inflation point to higher inflation in 2017:
Inflation = F(Inflation expectations, unemployment rate, oil prices, import prices

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

The USA’s legislative agenda for the next couple of years represents both an enormous opportunity for reform and unlocking growth but also an uncertainty since market expectations are now geared towards optimism and disappointments will likely be greeted with selling pressure. 

Comcast Corp.’s NBCUniversal invested $500 million in Snap’s initial public offering, expanding its reach into digital media by acquiring a stake in the $28 billion disappearing-photo service popular with millennials.

NBC Chief Executive Officer Steve Burke, in a memo to staff Friday, called the move a “significant milestone” in the media company’s partnership with Snap. The Comcast unit will be subject to a 12-month lockup period as part of its investment, meaning it can’t sell Snap’s shares for a year, according to a person familiar with the matter.

Snap surged 44 percent Thursday on their first day of trading, and gained another 12 percent Friday.

With the latest investment, NBC has now committed over $1.5 billion to digital businesses in the last 18 months, including two separate $200 million investments in BuzzFeed, and a $200 million investment in Vox Media, the online publisher of the Verge, Eater and Recode.

Last summer, NBC produced a Snapchat channel featuring Olympic content run by BuzzFeed, which generated over two billion views, Burke said in the memo. With the Snap investment, NBC will expand its partnership with the social-media network and BuzzFeed for the 2018 Winter Games in South Korea, and launch more shows with additional NBC brands in the coming weeks, he said.

 

Snap Inc. is another major venue for social media and particularly for the mid-teen to mid-20s demographic. One of the slides from the above report from Torsten Slok highlights the fact that the 26-year old demographic is the single largest in the USA so it is important both from a size and spending perspective which is why there is such interest in Snapchat from companies like NBC.  

U.S. Commerce Secretary Wilbur Ross triggered a rally in the peso when he said the currency could recover “quite a lot” if his country can reach a sensible agreement with Mexico on the North American Free Trade Agreement.

“The peso has fallen a lot, mainly because of the fear of what will happen with Nafta,” Ross, 79, said in an interview on CNBC on Friday. “I believe that if we and the Mexicans make a very sensible trade agreement, the Mexican peso will recover quite a lot.”

The peso surged 1.9 percent on Friday morning New York time in the wake of Ross’s comments, paring its depreciation over the past year. The 8.7 percent decline in the currency’s value since March 2016 has boosted the cost of imports into Mexico, while making its exports more competitive.

 

The Peso has been about the most unloved currency in the world but the speed of the decline spurred the central bank into action and short-term interest rates have been hiked on successive occasions over the last 18 months and a number of other measures to support the currency have also been implemented.

Dyson Ltd., the U.K. maker of high-end vacuum cleaners and hand dryers, said it's creating a new 517-acre campus in the English countryside to expand its research and development of robotics, batteries, vision systems and artificial intelligence.  

James Dyson, the company's founder, announced the expansion today at the new site in the Cotswolds, about 100 miles west of London on a former military barracks and flying school. Work will start with the restoration of a former World War II airplane hangar in May with the goal of it opening by the end of the year.  

U.K. Prime Minister Theresa May said in a statement that the company's expansion is a vote of confidence for the British economy following the country's decision to leave the European Union. "Dyson’s exporting strength and commitment to creating jobs in Britain is a real success story that demonstrates the opportunity that our plan to create a truly global Britain can present," May said. 

Still, Dyson said the U.K. lacks enough skilled workers. An additional 640,000 engineers are needed in the U.K. by 2020, according to the company. To fill the gap, the firm pledged 15 million pounds ($18.6 million) over the next five years to create an alternative to going to university. Talented engineers will be able to work and study at the company for four years to gain hands-on experience.

“The U.K.’s skills shortage is holding Dyson back as we look to increase the amount of technology we develop and export from the U.K.," Dyson said in a statement. "We are taking matters into our own hands." 

Dyson employs 3,500 people in the U.K. Its global headquarters is in nearby Malmesbury, a campus that in addition to research and engineering labs has a helicopter in the parking lot and a jet plane hanging from the cafeteria ceiling. The company also recently opened a technology center in Singapore where it employs 1,100 people. 

While best known for its vacuum cleaners, Dyson is expanding into new areas. A $400 hair dryer introduced in 2016 took four years and $70 million to develop. The company said it has committed 2.5 billion pounds to future technologies. In 2015, the company bought the battery startup Sakti3 for $90 million, and has pledged to spend 1 billion pounds on battery development. The work has contributed to speculation the company is working on an electric car.  

James Dyson is a tireless genius who continues to expand his product range.  The Fuller household has numerous Dyson products which have the quality achieved by a true perfectionist. 

Dyson voted for Brexit because he was tired of Brussels’ red tape and the EU was a shrinking market. 

The possibility of intelligent, automated cyber attacks is the one that most worries John Launchbury, who directs one of the offices at the U.S.'s Defense Advanced Research Projects Agency, and Kathleen Fisher, chairwoman of the computer science department at Tufts University, who led that session. What happens if someone constructs a cyber weapon designed to hide itself and evade all attempts to dismantle it? Now imagine it spreads beyond its intended target to the broader internet. Think Stuxnet, the computer virus created to attack the Iranian nuclear program that got out in the wild, but stealthier and more autonomous.

"We're talking about malware on steroids that is AI-enabled," said Fisher, who is an expert in programming languages. Fisher presented her scenario under a slide bearing the words "What could possibly go wrong?" which could have also served as a tagline for the whole event.

How did the defending blue team fare on that one? Not well, said Launchbury. They argued that advanced AI needed for an attack would require a lot of computing power and communication, so it would be easier to detect. But the red team felt that it would be easy to hide behind innocuous activities, Fisher said. For example, attackers could get innocent users to play an addictive video game to cover up their work.

To prevent a stock-market manipulation scenario dreamed up by University of Michigan computer science professor Michael Wellman, blue team members suggested treating attackers like malware by trying to recognize them via a database on known types of hacks. Wellman, who has been in AI for more than 30 years and calls himself an old-timer on the subject, said that approach could be useful in finance.

Having read the article I am more certain than ever that scientists will be unable to control AI when it is capable of programming itself.  We have not yet reached that stage to any significant degree but we have had predatory software in action for the better part of a decade, particularly in more liquid financial markets.  I have written about it many times although not much recently.

Consider what I described as a version of sonar fishing, where high-speed computers could introduce and then pull orders in nanoseconds, enabling them to identify both large holdings in a narrow price range, or also vacuums of supply or demand. Once identified they were able to pressure large positions or front-run orders in a trending market. 

Smart, young Brad Fukuyama from the Royal Bank of Canada discovered what was going on and eventually created systems for slowing down High Frequency Trading (HFT).  He became a hero in the financial community and the star of Michael Lewis’ best seller, Flash Boys.

This item continues in the Subscriber’s Area.

The relentless attempt to portray Theresa May's Brexit plan as extreme and provocatively hostile to Europe is degenerating into a systemic lie.

Even if you agree with Sir John Major that Brexit is a "historic mistake", it is hard to imagine steadier and more cautious leaders than the Prime Minister and her Chancellor.  Both are Remainers trying to play a very difficult hand as best they can.

This campaign – for that is what it has become – inflames a false debate about Brexit. It is fanning a constitutional crisis over Scotland and Northern Ireland that might otherwise be defused.

The sloganeering is picked up and echoed by the global media, perpetuating a dark legend of nativist tribalism on these islands, and depicting Brexit as hostile to free trade and a "rules-based" global system. It is poisonous and does great damage.

Sir John Major is right that some Brexiteers would advance their cause better with "a little more charm, and a lot less cheap rhetoric". Triumphalism is never attractive – though was it not he who claimed "game, set, and match" at Maastricht in December 1991?

Yet one must rebut his insinuation that the British people are being lured into a trap of complacency by dishonest promises. For months the Cameron government used the machinery of the state to warn them of a Gothic fate if they voted "Leave" – but vote "Leave" is what they did.

The campaign against Mrs May rests on the false dichotomy of soft and hard Brexits, an issue on which I have shifted my view. As readers may know, I wanted the Norwegian option temporarily, to preserve access to the single market while we forged new trade deals. But it is not worth dying in a ditch for the European Economic Area (EEA).

Even those most hurt are not categorical about this. The British Bankers' Association (BBA) is wary of an EEA deal since it would leave the City at the mercy of a regulatory system controlled by others, and the totemic right to "passporting" is overstated. The concept is not a legal term. It is City argot.

Nor does the BBA want "equivalence", another term bandied around. "It would never do for us. It is insecure and one side can withdraw on a political whim at any time," said the BBA's chief, Anthony Browne.

What the City wants – given that Brexit itself cannot be reversed – is a bilateral deal with a dispute tribunal outside the clutches of the European Court. Broadly speaking, that is what the Government is pushing for. There is nothing reckless about it.

This is one of AE-P’s best columns and very insightful.

I certainly agree with him about Mrs May and I hope he is right about EU attitudes towards Brexit becoming more constructive for both Europe and the UK.  Obviously Europe’s elections this year will be important factors.  Generally, I think new blood is more practical than old blood in politics and I hope the roles of unelected EU bureaucrats are downsized.

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

I expect another lively evening with experienced delegates and their friends.  Trump has generated plenty of political and economic controversy and technology has never been more interesting in our lifetime.  Whatever your investments, we will need to keep an eye on these two charts as the year progresses – Dollar Index and US 10-Yr T-Bond Yields.

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

More data meant a better guess, of course. Seventy “likes” were enough to make the AI’s prediction of a person’s OCEAN score better than their friends could do, 150 made it more accurate than what their parents got, and 300 “likes” could do better predicting a person’s OCEAN score than the best human judge of a person: their spouse. More “likes” could even surpass what a person thought they knew about themselves, by predicting their OCEAN score closer than the person’s own best estimate of what their score would be.

It goes the other way, too. To a database, a person’s name and entries from their profile are just nodes in an n-dimensional space, and the connections between nodes aren’t necessarily directional.  You can class individuals by similarities in the data, or you can search the data for individuals who fit into a class. It’s as simple as doing an alphabetical sort in an Excel sheet.

 

Was granularity in marketing the deciding factor in the US presidential election? It is often said that presidential elections are won by those who master new media whether that was JFK’s use of television or Obama’s use of social media. Trump certainly appears to have employed highly targeted messages aimed at very specific demographics to sway voter intentions in pivotal states. This also helps to answer the question which baffled onlookers during the campaign, how was he getting such traction by underspending his rival?