In an effort to drastically ramp up production, Tesla employees are now tinkering with the core designs of the Model 3 car and the production process, detailed by a New York Times report (paywall), something that experts say is unprecedented. Executives at Tesla decided that the car didn’t need so many spot welds holding the underbody together, so engineers found 300 “unnecessary” welds and reprogrammed the welding robots cut them from the production process.

Tesla made its 5000 cars a week target but if the company is cutting corners in manufacturing what are the safety implications of that decision going to be for the thousands of people waiting in line for the Model3?

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

Merkel and other European Union leaders defied expectations to forge an accord early on Friday, putting the onus on Bavaria’s ruling CSU party that sought the clash. Its leaders must now decide at a meeting Sunday whether to risk a historic breakup of the party bloc that’s governed Germany for most of the time since World War II or beat a face-saving retreat.

With migration hard-liners Italy and Austria backing a coordinated European approach at the summit, the CSU appeared increasingly isolated before deciding whether to defy Merkel and start sending back asylum seekers at the German border who already registered in another EU country. Polls suggested public support for the Bavarians’ stance is waning.

“At this point, the CSU can’t afford to dig in against a compromise,” Juergen Falter, a political scientist at Johannes Gutenberg University in Mainz, said by phone. “They’d come across as troublemakers.”

As investors welcomed the summit result, the CSU said the deal addressed concerns about migration it has raised for a long time. Merkel’s Christian Democratic Union, the biggest party in her governing coalition, rallied behind the chancellor.

“Now these measures actually need to be implemented,” Alexander Dobrindt, the CSU caucus leader in the German parliament, said in a statement. The Bavarian party will review the summit deal “very thoroughly,” he said.

There is no more useful political manoeuvre than the “bait and switch”. It seems any politician who wants to stick around needs to master it and Italy’s populists are obviously quick studies.  By focusing on immigration rather than tax cuts and spending, the new Italian administration threw focus onto Angela Merkel’s less than comfortable position on the topic of migrants and diverted attention from the looming wall of debt Italy needs to refinance.

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

Wall Street’s relative performance this year has been driven by the parts of the technology sector which have been largely excluded from competing in China. They might be exhibiting short-term overbought conditions right now but they are largely immune to trade war fears.  

It is deeply significant that at the 2018 Work Conference, Xi Jinping states boldly that a core component of his new ideology of a “diplomacy of socialism with Chinese characteristics” would be for China to: “lead the reform of the global governance system with the concepts of fairness and justice.” This is by far the most direct, unqualified and expansive statement on China’s intentions on this important question we have seen.

China, like the rest of the international community, is acutely conscious of the dysfunctionality of much of the current multilateral system. It also sees the US walking away from much of the system as well: from the JCPOA which was agreed to by the UN Security Council; from the UN’s Paris Agreement on Climate Change; its withdrawal from the UN Human Rights Commission; its open defiance of the Refugees Convention; and its challenging of the underlying fabric of the WTO.

Nature, as we know, abhors a vacuum. International relations even more so. And we all saw Xi Jinping’s riposte to President Trump on climate change and trade at Davos 18 months ago just after President Trump’s election. If China is indeed serious about leading the reform of global governance, its attitude to various of these multilateral institutions will be radically different to the historical posture of the US. Take for example the Human Rights Council in Geneva, which China would like to see emasculated. Mind you, so too now, apparently, does the current US administration!

I think it is fair to say that the rise of populism and the inability of the status quo to come up with anything other than a policy of appeasement is a reflection of an identity crisis evident in many Western economies. China’s Communist Party does not suffer from that kind of identity crisis. In fact, it is on the front foot and is responding to internal challenges by attempting to expand abroad not least to boost the profile the Party at home.

Thank you for your superb service. Can you please advise your views on how vulnerable do you think the pharmacy shares are in the US after Amazon's entry to the field? Thank you in advance.

There are obvious fears that the introduction of Amazon’s business model to the pharmacy sector will have the same effect it had on the big retailers. However, I suspect the most profound effect will be felt among the smaller independent pharmacies that command about half the total US market. Here is a section from an article by bizjournals.com that may be of interest:

There are currently about 22,500 independent pharmacies in the United States, and these pharmacies dispense nearly half of the nation's retail prescription medicines, Norton says.

All told, independent pharmacies are an $81.4 billion marketplace annually. They fill 1.38 billion prescriptions a year — about 201 a day, per pharmacy — and employ 314,000 people on a full- or part-time basis.

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

Some of the topics discussed include: China continues to underperform and is dragging the wider Asian region lower, Yen, Aussie and Kiwi currency weakness is supporting the nominal prices of their respective indices, oil steady, precious metals remain under pressure, Wall Street steadies from region of MA. 

In the first stage of the test, leverage ratios at Goldman Sachs Group Inc. and Morgan Stanley were projected to drop close to the minimum allowed in a stressed scenario, sounding alarm bells about their ability to increase payouts to shareholders.

That test examined hypothetical losses with dividends continuing as before. The second phase looks at requests for future stock buybacks and higher dividends. Both firms quickly issued statements after last week’s result to warn against reading too much into it, arguing their capacity to distribute capital may be greater than what the numbers suggested.

Still, analysts have grown more skeptical the firms can increase their payouts -- or in Goldman’s case, that it can even maintain last year’s level.

“We don’t get to see all the details of how the Fed gets to its numbers, but it’s still hard to fathom how they can meet pre-test expectations,” said Brian Kleinhanzl at Keefe, Bruyette & Woods. “The math just doesn’t work.”

The pair may have to lower their proposed payouts to pass, Kleinhanzl said. Goldman already took that so-called mulligan twice since 2013, when the option was introduced. Morgan Stanley has used it once. Others saw the statements as lobbying the Fed for leniency, which could work in the bank-friendly regulatory environment under President Donald Trump.

“In the past that basically fell on deaf ears,” said Gerard Cassidy, analyst at RBC Capital Markets. “The new guys might look at it a little differently.”

The results of the Fed’s stress tests are pivotal to the ability of banks to increase their dividends. The narrative behind why banks were turning to outperformance last year was that interest rates were rising which would improve margins and the tax cuts would lead to greater loan growth which was good for business and that combined this would lead to bigger dividends.

The U.K.’s medical cannabis industry is getting another boost, with cigarette maker Imperial Brands Plc investing in a British startup that’s developing treatments derived from the marijuana plant.

Imperial Brands Ventures Ltd. and rapper Snoop Dogg’s Casa Verde Capital have invested in Oxford Cannabinoid Technologies, or OCT, which focuses on researching, developing and licensing compounds and therapies based on the plant. The total investment is approaching $10 million, with pain, inflammation, cancer and gastrointestinal diseases among areas of focus, Casa Verde Capital managing partner Karan Wadhera said in a Bloomberg TV interview.

“Cannabinoid products have significant potential and our investment enables Imperial to support OCT’s important research while building a deeper understanding of the medical cannabis market,” Bristol, England-based Imperial Brands said on its website Thursday.

Belief in the potential of medical cannabis is gaining steam with the U.S. Food and Drug Administration’s approval this week of Cambridge, England-based GW Pharmaceuticals Plc’s Epidiolex epilepsy treatment. The liquid is made from a compound in the marijuana plant called cannabidiol, a different chemical from tetrahydrocannabinol, or THC, which gets users high.

The investment in OCT comes as tobacco companies look for new business lines amid slowing sales and tightening regulations for cigarettes. Imperial Brands’ stake in OCT is “the most significant move among the global tobacco players in the cannabis industry to date,” Cowen analyst Vivien Azer wrote in a note Thursday. “We continue to expect to see more activity in cannabis from both global tobacco and global alcohol.”

Simon Langelier, who had a 30-year career with Philip Morris International Inc., joined the board of Imperial Brands as non-executive director in June 2017. He is chairman of PharmaCielo Ltd., a supplier of medicinal-grade cannabis oil extracts.

Here is a link to a CNBC interview of Karan Wadhera of Casa Verde Capital discussing the medium-term outlook for cannabis. Even when I worked in Amsterdam I never had any interest in smoking cannabis so I cannot speak from personal experience about the sector. However, it is hard to argue with people who suffer from chronic pain conditions who attest to the easing of symptoms they experience when consuming cannabis products over the highly addictive and often unsatisfactory results they get from consuming opioid painkillers.

Chinese search giant Baidu Inc. has approved a plan to buy back as much as $1 billion of its own shares over the next 12 months, a move that may help prop up its stock as global market volatility grows.

Its board has green-lit a program to use existing cash to buy shares in the open market at prevailing prices, the Beijing- based company said in a statement Wednesday. It will review that program periodically and may adjust its terms and size.

Baidu’s shares are up more than 7 percent this year, just underperforming the Nasdaq Composite’s gain but outstripping larger rival Tencent Holdings Ltd., which is down 7 percent in 2018.

Baidu has a market cap of almost $84 billion with free cash flow last year of $28 billion. A $1 billion buy back program might be a new departure for the company but it is unlikely to be large enough to influence investor interest beyond the sensational headline.

The South Korean Won spent most of the year ranging in an inert manner but the Dollar has now broken out and a clear downward dynamic would be required to question medium-term dominance.

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

Some of the topics covered include: Global banks rolling over, emerging markets continue to underperform with particular focus on currencies, oil firm, bonds steady, resources potentially due a tailwind for high oil prices, 

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

An industry can progress from a developmental stage to global domination if it is held hostage by commodity prices. That is the fallacy which proponents of the bull market in cobalt have been lured into accepting. The simple fact of the matter is that if cobalt is rare and the global industry needs lots of it, then either the global industrial expansion stalls or it finds a way to progress without cobalt.

Fresnillo’s (London) share price has been falling, among other things due to weakness in the Mexican Peso. Historically, JSE gold shares have surged on ZAR weakness with a rising USD gold price. In the event of a recovery in the USD silver price, could it be argued that FRES would do better?

Thank you for this question is something I believe a number of subscribers will be interested in. The underperformance of the UK listed precious metals sector has been something of a quandary and is now fully explained by the relative weakness of emerging market currencies. For example, the bounce in the Mexican Peso over the last couple of weeks has done nothing to arrest the decline in Fresnillo’s shares.

To appreciate how the energy world is changing, two charts presented by Mr. Dale set the stage.  Global energy growth last year was 2.2%, up from 1.2% in 2016, and above the 10-year average of 1.7%.  That robust growth came as a result of strong global economic growth, but also due to a decline in energy productivity.  While the International Monetary Fund is warning of potential dark clouds on the horizon for global economic growth, its forecast remains robust, meaning energy growth is likely to remain high.  

Also important is the difference in where energy growth originated.  The driver for the above-average growth was the strength of the developed economies of the OECD, but also some deterioration in energy productivity.  However, nearly 80% of the total energy growth came from the non-OECD or developing economies of the world.  That is not surprising as they benefit from the global economic recovery, especially China.  China saw energy demand grow by 3%, nearly three times its growth rate of the past several years.  That higher growth was driven by recoveries in numerous high-energy sectors such as iron, crude steel and non-ferrous minerals.  Still, the high growth rate was well below China’s 10-year average rate, even though it was helped by a decline in energy intensity that was more than twice that of the global economy.  

The picture of primary energy fuel mix highlighted the title of Mr. Dale’s remarks – Two Steps Forward and One Step Back.  He pointed to the dramatic growth in natural gas and renewables as the two steps forward.  Combined, those two fuels accounted for 60% of the total growth in energy fuels.  

The backward step was the growth in coal usage.  In 2017, global coal use rose by 1.0%, or 25 million tons of oil-equivalent, marking the first annual increase since 2012.  The increase was driven by India, although China’s consumption also rose after declines in the three prior years.  

Batteries might eventually remove the need for quite so much back up conventional power generating capacity as renewable penetration of the energy market continues, but that is still some ways off. At present natural gas represents the happy medium between reliance on coal and the fact that renewables are not yet ready to stand on their own.

The Euro broke out against the Hungarian Forint today and while somewhat overbought in the short term a clear downward dynamic would be required to check momentum beyond a pause.

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

Some of the items discussed include: Wall Street steady, Chinese and European banks and high yield spreads widening, Dollar firm, gold soft, oil firm, bond yields steady, emerging markets soft. 

Article in yesterday’s NYT. Is this the predictor of a recession that will follow trade wars?

Thank you for this article which may be of interest to subscribers. Here is a section:

There is an argument to be made against reading too much into the yield curve’s moves — and it hangs on the idea that, rather than the free market, central banks have had a big influence on both the long-term and short-term rates.

Since the last recession, central banks bought trillions of dollars of government bonds as they tried to push long-term interest rates lower in order to lend a helping hand to the economy.

Even though they’re reversing course now, central banks still own massive amounts of those bonds, and that may be keeping long-term interest rates lower than they would otherwise be.

Also, the Federal Reserve has been raising short-term interest rates since December 2015 and has indicated it will keep doing so this year.

So, if long-term rates were pushed lower by central bank bond buying, and now short-term rates are being pushed higher as the Fed tightens its monetary policy, the yield curve has nowhere to go but flatter.

“In the current environment, I think it’s a less reliable indicator than it has been in the past,” said Matthew Luzzetti, a senior economist at Deutsche Bank.

Airbus’ impact is not limited to its cutting-edge manufacturing: it also makes a substantial and important contribution to the UK’s economy. This impact stems not only from the Company’s activities at its UK facilities, but also the presence of UK firms in its global supply chains and the spending of its UK-based workforce in the wider consumer economy.

Oxford Economics’ bespoke Global Economic Impact Model has been used to map Airbus’ complex, interwoven, global supply chains. This enabled us to explore how the Company’s purchases from its operations in France, for example, then trigger activity in the UK, further up the supply chain. Consequently, this unique model makes it possible to develop a comprehensive picture of the Company’s impact on the UK economy.

In 2015, Airbus’ global operations supported a £7.8 billion contribution to the UK economy. Much of this impact was generated in Airbus’ UK supply chain, which includes companies such as Rolls-Royce, GKN and BAE Systems. To put this footprint into context, in 2015, the contribution to GDP supported by Airbus was larger than Newcastle’s economy and nearly a third bigger than the economy of Oxford.

The activity supported by Airbus sustained 117,400 jobs throughout the UK in 2015. This means that more than 100,000 people who did not work for Airbus had jobs linked to the Company in some way. For some 64,000 people, their jobs were located in Airbus’ UK-based supply chain. The total number of jobs supported by Airbus’ operations in 2015 was equivalent to all of the jobs in Swansea.

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orporations have been very clear in their messaging that they will not tolerate a no-deal outcome to the Brexit negotiations. While media attention has been focused on efforts by the House of Lords to force the government to allow parliament a say in the final agreement the decisions of major corporations in deciding how to deal with Brexit are much more important for the economy.

This weekend’s vote was, in short, a surprise. Contrary to predictions, Erdoğan won decisively, and his new presidential system has received a seal of approval from the electorate. However, the AKP’s failure to secure an absolute majority in parliament is an important message for Erdoğan. It remains to be seen whether Erdoğan will take this as an opportunity to address the long list of challenges facing Turkey and reconstruct its democracy and economy, and regain the respect that he once enjoyed internationally. The March 2019 municipal elections will be the next test of his performance.

The strength of a nation’s public institutions is what separates failed states from those that can evolve and weather a period of economic peril. Erdogan is an aspiring despot who wants to rule for life. The fact that Turks approved of his presidency but did not give his party an absolute majority suggests they favour limitations on presidential power which is in keeping with any democratic country’s constitution.

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

Some of the topics discussed include: China continues to underperform, Turkish Lira under pressure, Europe underperforming, US Dollar eases, oil steady, copper testing important area of support, Nasdaq at risk of unwinding overbought condition, banks underperforming

Later this week, the U.S. Treasury Department is expected to release fresh rules on Chinese investment in technology companies, Bloomberg reported on Monday, putting additional pressure on China -- which hit back against the plans. Chinese investment has provided jobs and tax income for the U.S., and it should view commercial activities “objectively,” Foreign Ministry spokesman Geng Shuang told reporters in Beijing on Monday.

The U.S. is due to impose tariffs on $34 billion of Chinese imports from July 6, and Trump has threatened to impose levies on another $200 billion of Chinese goods. If that threat is realized, it could cut as much as half a percentage point off China’s economic growth, and also hit the American economy, economists have said.

Anxiety over the economic fallout is cutting deep in financial markets, with China’s yuan sliding to a six-month low Monday. The S&P 500 Index fell to the lowest since May and the Dow Jones Industrial Average sank for the ninth time in 10 sessions.

As if to reinforce concerns about the economic outlook, the Dutch Bureau for Economic Policy Analysis on Monday published its latest trade monitor, showing world trade momentum dropped in April to the lowest since 2015. The measure has fallen sharply since hitting a seven-year high at the start of 2018.

The EU’s export-oriented economies along with China have been some of the greatest beneficiaries of globalisation and therefore are also likely to be the primary defenders of the “multilateral trading” regime. Nevertheless, the rise of populism which I describe as a revolt against the status quo represents a challenge to that system which is currently being led by the Trump administration but represents a significant theme in an increasingly large number of countries.

Thanks for a wonderful service Eoin. I'm probably splitting hairs here but one thing has been bothering me lately: to me you seem a bit early in declaring the central banks' total balance sheets as contracting. The US is on a modest reducing mode while the rest are steady/still increasing. The total balance chart is USD denominated, which explains the decline that shows on the chart when dxy has rallied over the last few months. On a bigger picture scale, CB balances tend to increase as the underlying economies grow. Or am I missing something here? All the best.

Thank you for this question which highlights some important points. There is little doubt that the US Dollar has been resurgent over the last few months and that will certainly have played a role in the contraction of the total assets on central bank balance sheets.

“Many states will pick up on those details and incorporate them into their own regulatory regimes,” said Eric Citron, an attorney who represented South Dakota. He said he expected nearly every state with a sales tax to move legislation or regulations to enforce collections. “Complete compliance will become the norm within the next year or two,” he said.

Amazon originally set up its business model to avoid state sales taxes, limiting its physical presence to a handful of warehouses. But it changed strategy to build more warehouses closer to consumers as it has relied more on its Prime two-day shipping offer—and started charging sales tax on items it sells directly.

Amazon hasn’t collected the taxes for most independent merchants who sell on its platform. About $200 billion in sales originated with independent merchants selling on Amazon world-wide last year, according to Factset analyst estimates, compared with about $116 billion in direct sales by Amazon. The company declined to comment on the ruling.

The cost of compliance is rising in just about every sector. Since the credit crisis the burden of regulatory compliance has been a significant headwind for the banking sector and it has changed the nature of how they do business. The UK’s Retail Distribution Initiative resulted in the cost of doing business rising for financial advisors. The EU’s drive to introduce GDPR has seen some company email lists drop from hundreds of thousands to the tens of thousands. Asking online retailers to monitor how much and how often they sell into each state will increase compliance costs regardless of whether tax is then due.

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

Bitcoin approached its lowest price for the year after Japanese regulators hit six of the country’s biggest cryptocurrency trading venues with business-improvement orders.

The crackdown surprised investors, ending what was about to be the first winning week since early June for the largest digital coin and for the 10 most-liquid tokens. The MVIS CryptoCompare Digital Assets 10 Index tumbled as much as 11 percent on Friday. The gauge already fell in five of the past six weeks.

Some of the targets of Japan’s regulator were quick to react. Bitflyer Inc. said it would stop accepting new customers and also review identity verification for some existing users after it received an order from Japan’s Financial Services Agency. The FSA called for improved measures at all the exchanges against money laundering. The companies must submit their plans by July 23.

Peer-to-peer money has come under fresh pressure in recent weeks after two South Korean exchanges said they were hacked.

That raised fresh concerns about the security of investor holdings. New pressure in Japan, one of the most crypto-friendly jurisdictions, demonstrated the market’s fragility to regulatory moves in the absence of much positive news.

“The market is still trading on low volumes and has yet to break out of its current downtrend, leaving itself susceptible to sell-offs,” said Ryan Rabaglia, head trader with cryptocurrency dealing firm Octagon Strategy Ltd. in Hong Kong, in an email. “Although the market reacted negatively, I view this as a positive for the industry as a whole.”

Bitcoin has been trending lower since early this year and has steadied above the $6000 area over the last couple of months. However, the continued ambivalence of regulators towards the market and the liquidation of Mt.Gox’s holdings represent headwinds which the market continues to explore the full ramifications of.

The final communique made no mention of whether the kingdom, or any other member, could compensate for losses elsewhere. Yet it said the group as a whole should strive for “overall conformity” of 100 percent, which in practice will only be achievable if those nations with spare production capacity step in to fill the gap left by others.

"The lack of specificity is bullish for prices,” said Joe McMonigle, senior energy analyst at Hedgeye Risk Management LLC. “It’s a mystery oil production increase because we don’t really know the final numbers."

OPEC is going to raise production by maybe 1 million barrels a day which is less than it could have. That probably represents the difficulty that exists in getting Saudi Arabia and Iran to agree on anything and suggests the market will be tighter than might otherwise have been the case.

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

Some of the topics discussed include: Europe and China leading on the downside, Dollar eases, precious metals weak, oil steady, Bonds firm but central bank balance sheets are contracting. 

Moore’s Law basically ended in 2016 and we can already see that the speeds of computer chips have remained stagnant for the last few years. Enhancements have been delivered through longer battery life, more memory and separate drives for booting and storage but the speed of the chips has not moved much.

Moore’s Law basically ended in 2016 and we can already see that the speeds of computer chips have remained stagnant for the last few years. Enhancements have been delivered through longer battery life, more memory and separate drives for booting and storage but the speed of the chips has not moved much.

The surge of retiring baby boomers is reshaping the U.S. into a country with fewer workers to support the elderly—a shift that will add to strains on retirement programs such as Social Security and sharpen the national debate on the role of immigration in the workforce.

For most of the past few decades, the ratio of retiree-aged adults to those of working age barely budged. In 1980, there were 19 U.S. adults age 65 and over for every 100 Americans between 18 and 64, census figures show. That number—called the old-age dependency ratio—barely edged up over the next 30 years, rising to just 21 retiree-aged Americans for every 100 of working age in 2010.

But there has been a rapid shift since then. By 2017, there were 25 Americans 65 and older for every 100 people in their working years, according to new census figures released Thursday that detail age and race for every county. The ratio would climb to 35 retiree-age Americans for every 100 of working age by 2030, according to census projections released earlier this year, and 42 by 2060, though currently unforeseen factors could alter that.

The Labor Force Participation rate has been relatively static for much of the last couple of years and that is despite the pick-up in economic activity from the tax cuts and the tightness in the labour market. The retirement of baby boomers is a logical explanation for why the measure is not rising.

Rude Health
“There’s been a few shots on the trade side, but nothing has fully broken out,” said Dermot Ryan, a fund co-manager at AMP Capital in Sydney. “Ultimately, the stock market looks at the valuation and health of the sectors. The resources sector is in rude health at the moment.”

Not as Sensitive
“Australia sometimes acts as an EM by proxy, but with one key difference: it’s not as sensitive to the potential negative impact from increasing tariffs on Chinese and U.S. goods,” said Kerry Craig, global market strategist at JPMorgan Asset Management in Melbourne. “We’re not as crucial in the supply chain as many north Asian economies. While there would be some impact on the materials sector if Chinese growth was expected to take a hit and metals demand fell, it’s more than likely that China would respond by increased infrastructure spend to keep the ship steady.”

Pretty Cheap
“The banks look pretty cheap,” for a longer-term investor, said Don Hamson, managing director at Plato Investment Management in Sydney. “It’s been a bad 18 months, but maybe we’re coming toward the end of it.”

The Australian financial sector has been under a cloud because of the Royal Commission's focus on overcharging in the small to medium sized enterprises sector. However, the hearings are about to refocus on relations between financial firms and people living in remote areas such as Aboriginal peoples. While that is likely to represent some political risk, it is less likely to have a large impact on the stock market.

The Italian Senate picked euroskeptic economist Alberto Bagnai, author of two books advocating the dismantling of the European monetary union, as head of the finance committee.

Claudio Borghi, an adviser for the League party on the economy and on issues such as the mini-bots short-dated notes, was named the head of the budget committee in the lower house. The populist government program doesn’t include any reference to a possible option for a euro exit.

“There are a couple of high caliber League euroskeptics getting appointed to important parliamentary jobs in Italy this morning: Borghi and Bagnai,” said Antoine Bouvet, an interest- rate strategist at Mizuho International Plc. “The fact that they get roles that have to do with finance and budget has been understood by the market as a sign that the League intends on pushing its anti-euro ideas.”

There is one simple fact that overrides all of the political machinations going on in Italy right now. Italy has almost as much debt as the USA does which needs to be rolled over this year. As recently as May Italian debt out to almost 3-year maturities was trading at negative rates. Today those refinancing costs are a lot more expensive. That represents a major obstacle for Italy’s populist eurosceptics.

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Here is a summary of my view at present:

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

That would mean scrapping the EU’s 10% tax on auto imports from the U.S. and other countries and the 2.5% duty on auto imports in the U.S. As a prerequisite, the Europeans want Mr. Trump’s threat of imposing a 25% border tax on European auto imports off the table.

Over the past few weeks, Mr. Grenell has held closed-door meetings with the chiefs of all major German automotive companies, including bilateral meetings with the CEOs of Daimler AG , BMW AG and Volkswagen AG , which operate plants in the U.S. Overall, Germany’s auto makers and suppliers provide 116,500 jobs in the U.S., according to the Association of German Automotive Manufacturers.

During these talks, which the ambassador initiated, the managers said they would back the scrapping of all import tariffs on trans-Atlantic trade in automotive products as the keystone of a broader deal covering industrial goods. The German government is on board and Mr. Grenell promised to support the idea, according to U.S. and German officials.

Trade tensions are ebbing and flowing on almost a daily basis. Efforts led by the German auto manufacturers to defray risks to their US business obviously highlight how seriously companies are taking the threat of trade friction and what it could mean for their businesses. That is particularly true in the aftermath of the diesel cheating scandal which continue to make headlines.

So I'm paying more attention to the weak comparable sales guidance the company offered for the third quarter, and the factors it says have been weighing on sales of late.

Executives said Tuesday that in the U.S. market, Starbucks struggled to draw customers in the afternoons. This has been an ongoing problem for Starbucks, and executives haven’t demonstrated they have a clear solution. They've recently put up some TV advertising emphasizing Starbucks as an afternoon destination, and perhaps we'll soon see payoff from that.

But it'd have an easier time luring people for more than just their morning caffeine fix if it could establish itself as more of a go-to for food, not just beverages. And speaking of its menu, the chain has work to do on its signature drink offerings, too. Look at what has happened to Frappuccino sales:

Perhaps this shouldn't come as a shock, given that Frappuccinos pack a lot of calories and customers are increasingly looking for healthy choices. But Starbucks needs some new hits to give people a reason to come back through its doors, especially with so many insurgent and boutique coffeehouses chasing the same customers.

Starbucks generates approximately 70% of its revenue from North America while 15% comes from China. The company’s mix of coffee, sweet and/or fatty treats and free Wi-Fi was a winning strategy before the evolution of 4G and ubiquitous web access. It used to be that you would go to Starbucks to sit down, look cool and show off your new gadget while accessing the Wi-Fi. That’s just not enough to inspire users any more.

It seems obvious that s formula’s application and popularization eventually will bring an end to its effectiveness. Let’s say (in an incredibly simplified example) you study of the market show that a small-company stocks have beaten the market over a given period, so you overweight them.

Since “beating the market,” “out-appreciating” and “out-performing” often are just the flip of “becoming relatively expensive”, I doubt any group of stocks can outperform for long with becoming fully- or over-priced, and thus primed for underperformance.
And it seems equally clear that eventually others will detect the same “small-cap effect” and pile into it. In that case, small-cap investing will become widespread and – by definition – no longer a source of superiority.

To reiterate, George Soros’s Theory of Reflexivity says the behavior of market participants alters the market. Thus no formula will be a winner forever. For me, that means the achievement of superior returns through quantitative investing requires the ability to constantly and correctly update the formula. Since investing is dynamic, the rules relied on in quantitative investing have to be dynamic.  

According to Raj Mahajan of Goldman Sachs, my principal tutor on these matters. “The best models today will change exposures as the environment changes and as dynamics of the factors chance (e.g. as they become cheaper or more expensive). The rules have become increasingly complex, and they are able to “learn” (that is, they are “conditional” or “contextual”) in that they understand more of the environment.” Constant renewal – not “a formula along” – seems to be a minimum requirement for any quants’ long-term success.

No trend persists indefinitely and nothing lasts forever. The more data points we have to support a trend the closer it is to being full valued. To my mind that has always been similar to Heisenberg’s Uncertainty Principle. Perhaps it is too simply described as the “more you know about the position of the particle the less you know about its trajectory and vice versa”.

The remaining equity in the new company is being split between senior creditors and management. Under the latest deal, senior creditors stand to receive 70 percent of the trader, while management’s share will be 10 percent.

In a separate statement, Noble Group said Pinpoint Asset Management Ltd. and Value Partners Ltd., holders of its perpetual securities, withdrew a lawsuit filed against the company on June 13. Perpetuals have been offered $25 million of new bonds in exchange for securities with a face value of $400 million. On Wednesday, the perpetuals rose 0.6 cent, the most in a week, to 7.8 cents.

“Obstacles to the completion of the restructuring are probably getting removed,” said Neel Gopalakrishnan, senior credit strategist at DBS Group Holdings Ltd. “But the key question is still whether, post restructuring, the company will be able to turn around operations for creditors to recover value.”

Noble Group suffered from bad commodity bets in the agriculture sector but also from the demise of coal which took a lot of people in the commodity business by surprise in terms of its ferocity. The share trended lower along with commodity prices from the 2011 peak but failed to sustain the rally that began in 2016 and it collapsed in 2017.

The biggest challenge for any trader is to avoid catastrophic failure when dealing on a leveraged basis. That is a lesson for all us.

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

Some of the topics discussed include: central bank balance sheets are contracting, Wall Street continues to exhibit relative strength, yield curve continues to contract, China breaks downwards and Renminbi weakens, commodity currencies weak, Europe testing the trend mean. oil eases, gold steady, platinum at a new low.  

Pressuring companies through bureaucratic means “is a practice that the Chinese have used for a long time and our companies are on guard,” William Zarit, chairman of the American Chamber of Commerce in the People’s Republic of China, said on Bloomberg Television. “This is definitely a concern.”

South Korean and Japanese companies have all felt this effect, with their businesses in China hurt as part of a dispute between states.

In 2017, following the Seoul government’s decision to deploy an anti-missile system that China opposed, China forced South Korean retailer Lotte Shopping Co. to suspend operations at many of its hypermarkets in the country for alleged violations of fire-safety rules. The company eventually decided to pull out of China, but still can’t sell all its units and continues to rack up losses. In total due to the dispute, Lotte Group lost an estimated 2 trillion won ($1.8 billion) in the year from March 2017, according to Yonhap News Agency.

The backlash also led to boycotts, with consumers shunning cars from Hyundai Motor Co. and cosmetics from Amorepacific Group. Chinese tourists cancelled Korean vacations, forcing airlines to scrap flights and hotels to slash rates. The Bank of Korea estimated that 0.4 percentage point was cut from 2017’s gross domestic product.

China has such a wide trade surplus with the USA that it is going to be hard to meet the increased level of tariffs the USA is proposing, without greatly increasing the levels on the goods it does import. However, there are additional measures the country can take to express its dissatisfaction.

Wildcatters first pumped oil from the Austin Chalk nearly a century ago, but output reached its peak in the early 1990s even though the formation still contains about a billion barrels of crude, according to U.S. government's Geological Survey.

That is not unusual. Oil producers have historically extracted less than half the oil from any particular field because the rest has not been accessible at a profit.

That is changing in fields like the Austin Chalk.

Based on test wells and modeling techniques, Conoco believes long, horizontal wells with multiple fracks - a technique used often in shale fields - will deliver strong results from its acreage in the Austin Chalk.

"What we were seeing with some of the newer technologies work really well in the Austin Chalk," Conoco Chief Executive Ryan Lance told Reuters.

Some wells they have fracked in the Austin Chalk have produced more prolifically than shale wells. Wildhorse's newer Austin Chalk wells produced more than three times the initial output of wells at the Eagle Ford shale field, the company said this month.

EOG also said an Austin Chalk well it drilled this year in Texas produced nearly 3,000 bpd in its first month, more than twice the first month rate of a shale well it had completed in the Permian during the same period.

One of the oldest adages in the energy business is “you find oil where your found oil” The benefit of employing new technology in proven grounds is that there is no risk the oil is not in fact there. That reduces the cost of drilling substantially if the technology can get to less accessible reservoirs.

I think it very doubtful that Italy will either choose to leave the Eurozone or be forced out. Britain’s tortuous Brexit negotiations have made everyone in Europe aware of the horrendous complexities of such disengagements. And the Brussels elite will go to great lengths to avoid another country exiting European membership.

They may need to do so. The new government in Rome is determined to introduce cash handouts for less-wealthy citizens, big tax cuts, and state aid for troubled banks. If investors take fright at the prospect of a spending spree in Rome, which would be a serious breach of the European Union’s fiscal rules and produce major conflict with it and the European Central Bank, that could trigger a flight out of Italian assets by both foreigners and Italians.

There would be significant risk of that ballooning into financial disaster. Italy has the biggest debt-crisis potential in Europe, with public debt of €2.3 trillion. The available lending capacity of the EU crisis rescue fund for the whole of Europe is less than €380 billion -- a panic would overwhelm the euro currency system.

Clashes over money won’t be the only source of Rome’s warfare with Brussels, Berlin and Frankfurt. Stir in a big row over forced repatriation of illegal immigrants. And possibly trouble over the union’s anti-Russian policies (which the populists oppose). It all adds up to what seems certain to be an avalanche of conflict, with the European Union seriously distracted from addressing its other major issues.

Many of those stem from the lamentable failure of European leaders to convert people to the idea of sacrificing national sovereignty to bring about strong central institutions. That’s why Europe, despite being in aggregate the world’s largest economy, has no closely co-ordinated economic policies, depends on one superpower for its defence, and depends on the other for most of its energy imports.

The European Union now appears likely to reform the immigration policy that has allowed millions of economic migrants into the region over the course of the last few years. It has taken the rise of populism in Italy and the accession of the far right leaning Alternative Fur Deutschland to the Bundestag to send a wake-up call to the status quo that the citizenry are unhappy with the course of policy.

On the same matter of MA average, I would like you to refresh my memory to a question I asked long time ago but unfortunately forgot the answer ( an early Alzheimer' sign ?).
In what instance do you use SMA and EMA ? Are they actually related to whatever price scale is used ? (ie. SMA for linear scale & EMA for log scale ) ...And finally, which one of the two is the most reliable ? 

I never never got bored to read your Comments of the Day and listened to your excellent audio videos as I keep learning every day.

Thank you and best regards,

Thank you for this question and I am delighted you are enjoying the service. The question of whether to use a simple or exponential moving average is a matter of taste. Personally, I think an exponential moving average makes more sense because I believe the most recent data should have a slightly greater weighting but other than that there is not much difference.

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

Some of the topics discussed include: US Dollar resurgent against just about all currencies but Asian and commodity currencies are breaking downwards, MSCI emerging markets breaks downwards, Euro/US Dollar carry trade is helping increase the difference in performance between the two markets, agricultural commodities volatile, industrial resources steady and oil is firm,

“It’s not a great set-up for emerging markets,” James Sullivan, head of Asia ex-Japan equities research at JPMorgan Chase & Co., told Bloomberg TV from Singapore.

“We’ve still only priced in about two thirds of the U.S. rate increases we expect to see over the next 12 months. So, the Fed is continuing to get more hawkish, but the market still hasn’t caught up.”

While many emerging-market investors and analysts have praised Asian economic fundamentals, pointing to world-leading growth rates and political stability, some are starting to raise red flags as global liquidity starts to shrink. The Bloomberg JPMorgan Asia Dollar Index sank to a 2018 low on Monday, extending two weeks of declines after the Fed and European Central Bank both took steps toward policy normalization.

Yet some still remain optimistic. Bank of America Merrill Lynch expects some of the regional currencies including the baht and the Philippine peso to appreciate slightly by the end of the year, a research note sent Monday showed. Six of 10 best- performing emerging currencies so far this year are in Asia, led by the ringgit’s 1.2 percent advance and the Chinese yuan’s 1.1 percent gain.

By tightening monetary policy after leading the world in easing, the USA is effectively exporting its monetary policy to the rest of the world. More than few of the more troubled emerging markets have had to move aggressively to support their currencies but continued selling pressure suggests they probably have more work to do to shore up investor confidence.

For the first time in a very long while, the Fed’s decision was slightly more hawkish than I had been expecting. The anticipated 25 basis-points hike in the most-watched policy rate and the openness to another hike as soon as September were accompanied by a change in projections (albeit involving just one of the key “dots”) that raised the Fed’s baseline signal for 2018 to four rate hikes from three.

The next day, the ECB took over from the Fed in exerting systemic market influence. It incorporated in its announcement an unanticipated addendum related to the path of interest rates in 2019. Mario Draghi, the president of the ECB, provided an unexpectedly dovish addition to the bank's plan to reduce its monthly purchases under its quantitative easing program after September and, if the data support it, stop buying bonds entirely at the end of December. At a news conference, Draghi said the soonest the next rate hike could occur would be after the middle of next year.

Taken together, these developments added up to a greater widening of the policy differential between the Fed and ECB than had been expected by markets. This was amplified by data suggesting that U.S. economic growth continues to pick up, while Europe is hitting a soft patch, if not decelerating to a lower path.

The growth and policy differentials could widen further in the months to come, putting fully in play two notions that markets had excessively embraced last year: a synchronized pick up in global growth and more correlated central bank policies in the new era of quantitative tightening.

Economic developments in the next few months are likely to highlight more and more that U.S. growth is a major outlier in the advanced world. The U.S. is benefiting from policy actions that fuel three simultaneous and interrelated engines: higher consumption, underpinned by a strong labor market; greater business investment, supported by relatively strong balance sheets; and increased government spending, including on account of tax cuts.

The relative outperformance of Wall Street versus Europe is a clear indication of where investors see value and that has been evident since at least 2013. Economists might only be catching up to that conclusion now but it has been clear to anyone looking at charts which markets were likely to offer the best returns for years.

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

There is a realistic possibility that the USA could become energy independent and is in fact already an exporter of oil and natural gas. The widening of the Panama Canal and receding ice around the North Pole have created new shipping lanes that did not exist a decade ago. Meanwhile if the USA is an exporter it has a reduced need to secure supply channels from the Middle East and we are already seeing greater ambivalence towards active engagement in that region.

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

The stronger dollar and speculation that a trade war will hamper demand fueled a drop in raw materials, with the Bloomberg Commodity Index declining for a second straight day. Federal Reserve Chairman Jerome Powell said this week that trade is a “risk” to the outlook, and that concerns about changes in trade policy are rising even if the impacts aren’t yet seen in economic numbers.

The tariffs mean China “won’t be importing as much of the base metals,” said Peter Thomas, a senior vice president at Chicago-based metals broker Zaner Group. “As these tariffs take affect, we’ll see less consumption from each side until it gets settled. It started with base metals and it’s pulling on gold.” China is the biggest consumer of industrial metals.

Gold futures for August delivery fell 1.6 percent to $1,292.20 an ounce at 10:14 a.m. on the Comex in New York, on course for the biggest decline since May 15.

Donald Trump is not a conventional politician, he is in fact following through on his campaign promises even though no one seems to have believed he was serious before he was elected. As Angela Merkel pointed earlier this week, the USA enjoys a net surplus with Germany when service providers like Google and Facebook are included. However, that kind of finessing of the data is not something the base Trump is appealing to is interested in.

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

Long-term trends change the fundamentals of a market and Japan is one of the most relevant examples of that in the world today. The deflationary environment has prevailed for so long that that I am reminded of the quip from the commodity markets “those who know it best, love it least because they have been disappointed the most”.

A Sydney-based fund manager that profited from the selloff in Turkey’s bonds and currency last month now expects a slump closer to home, as a stronger greenback weighs on the Australian dollar.

The Aussie may fall more than 10 percent to the “mid-60s” U.S. cents in 12 months, said Vimal Gor, head of income and fixed interest at Pendal Group, at a conference Thursday. A hawkish Federal Reserve will continue raising rates “until something breaks,” while its Australian counterpart stands pat, he said.

“The U.S. is the only country that’s genuinely hiking rates, so the interest-rate differential story is giving a huge tailwind to the dollar,” Tim Hext, a Sydney-based portfolio manager in Gor’s team, said separately by telephone.

Pendal’s view follows the Reserve Bank of Australia’s decision to keep interest rates at a record low 1.5 percent last week after a key unemployment metric edged higher. RBA governor Philip Lowe once again highlighted concern over the outlook for household consumption amid sluggish wages growth and high debt.

China is Australia’s largest trading partner so anything that has an impact on commodity demand is not good news for the economy and therefore the currency.

Good afternoon, I am a long-time subscriber to your wonderful website and just have a question regarding the chart library. 

I was looking at the moving averages on daily, weekly and monthly charts in your library, and noticed that when comparing to other chart terminals like Bloomberg or sites such as StockCharts, the MA values for weekly and monthly charts don't appear to match despite the same values being inputted. As an example, I attach the weekly charts for S&P500 with the MA values of 34, 89 and 200. Interestingly, the daily charts do have MAs matching.

I was wondering what would be the cause of this discrepancy, perhaps a different formula or method for calculating the MA? I like the way that your chart library appears to calculate the MAs, so if this is indeed the case, is there a way to use the same method for calculating the MA on, say, a Bloomberg terminal? 

Thank you in advance and I look forward to hearing from you.

Thank you for this question which comes up from time to time. The discrepancy is easy to explain. We calculate moving averages on a daily basis because we include all the data at our disposal. Other chart systems calculate the moving average based on the data displayed.

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

Some of the topics discussed include: Euro pulls back sharply, Europe stocks firm from MA, Wall steady, Nasdaq breaks out led my tech and small caps, silver closes above $17, China continues to underperform along with emerging markets on US Dollar strength,  

Mario Draghi said the euro-area economy is strong enough to overcome increased risk, justifying the European Central Bank’s decision to halt bond purchases and end an extraordinary chapter in the decade-long struggle with financial crises and recession.

Policy makers agreed to phase out the stimulus tool with 15 billion euros ($17.7 billion) of purchases in each of the final three months of the year, the ECB president said after his Governing Council met on Thursday in Latvia. The central bank also pledged to keep interest rates unchanged at current record lows at least through the summer of 2019.

In doing so, officials bet that the euro-area economy is robust enough to ride out an apparent slowdown amid risks including U.S. trade tariffs and nervousness that Italy’s populist government will spark another financial crisis. Almost half of economists in a Bloomberg survey had predicted the announcement would be put off until July.

“We’ve taken these decisions knowing that the economy is in a better situation, with an increase in uncertainty,” Draghi said at a briefing in Riga, where the Frankfurt-based ECB held its annual out-of-town meeting. “We may well have this soft patch being somewhat longer than in the staff projections in some countries.”

The ECB is exiting its quantitative easing program because they believe Germany and a handful of other countries no longer need the stimulus. At the other extreme, Italy has to refinance almost as much debt as the USA this year. The lack of a central bank bond buying program is likely to represent a challenge for the government. That suggests the current contraction in yields on a waning of existential angst may not last.

China’s economy fell short of expectations and its central bank chose not to follow the Federal Reserve in raising borrowing costs, adding fresh caution on the outlook for global growth as trade tensions with the U.S. escalate.

With President Donald Trump renewing threats to impose tariffs on the world’s second-largest economy, May data for industrial output, retail sales and investment all came in beneath economist forecasts on Thursday. The People’s Bank of China kept the cost of reverse-repurchase agreements steady, defying predictions it would track the Fed’s hike of Wednesday.

Investors now face greater uncertainty over what had been the strongest global upswing since 2011. That doubt is set to fester after Trump said on Wednesday that he’ll confront China "very strongly" over commerce in coming weeks. His administration is scheduled to announce a new list of duties on Friday.

"A slowing China will add to the challenges for the global economy," said Louis Kuijs, chief Asia economist at Oxford Economics in Hong Kong and a former International Monetary Fund researcher. "Until recently, the resilience of growth in China was an important buffer for the global economy in the face of headwinds from trade friction, slower growth in Europe, higher oil prices and issues in various emerging markets."

Both industrial output and retail sales rose less than expected in May compared to a year ago. Fixed-asset investment growth in the first five months was the slowest since the data began in 1999, as was the investment in the services sector. The decade-long decline in investment has intensified this year, as policy-makers act to reduce leverage at state-owned companies and local governments. While that’s a deliberate policy, officials risk a worse-than-desired deceleration in growth.

China might not have raised interest rates but it is definitely leaning on the shadow banking sector which is the effectively withdrawing capital from regional banks. At the same time, it is allowing defaults to occur. There have been as many defaults so far in 2018 as in all of 2016, which was the previous peak level of 21.

Fresnillo and Hochschild, both on LSE, have had a waterfall downdraft of about 10 pc this month, whereas many gold/silver miners on the HUI or in Sydney are going sideways or upwards, and even Randgold seems to be bottoming. Would you care to comment on why this is happening? Yours anon

Thank you for this email and as it happens it is a subject I was looking into last night. There is certainly an anomaly evident where UK listed precious metal miners are underperforming while those listed elsewhere appear to be doing better on aggregate.

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

Some of the topics discussed include:Fed raises rates, stock markets steady, silver closes above $17, oil firms, Dollar does not hold its rally against the Euro, China weak, India steadies, European banks remain under pressure. 

Federal Reserve officials raised interest rates for the second time this year and upgraded their forecast to four total increases in 2018, as unemployment falls and inflation overshoots their target faster than previously projected.
The so-called “dot plot” released Wednesday showed eight Fed policy makers expected four or more quarter-point rate increases for the full year, compared with seven officials during the previous forecast round in March. The number viewing three or fewer hikes as appropriate fell to seven from eight.

The median estimate implied three increases in 2019 to put the rate above the level where officials see policy neither stimulating nor restraining the economy.

The Federal Open Market Committee indicated that even though it’s stepping up the pace of interest-rate hikes, economic growth should continue apace. “The committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the committee’s symmetric 2 percent objective over the medium term,” according to its statement following a meeting in Washington.

The statement omitted previous language saying that the main rate would remain “for some time” below longer-run levels.

Other changes included referring to “further gradual increases” instead of “adjustments.” Officials also said that “indicators of longer-term inflation expectations are little changed.”

Previously, the statement made separate references to survey- based and market-based measures of such expectations.

Unemployment is at its lowest level in years, inflation is moderate but supply constraints are appearing in the economy. The St. Louis Fed is predicting growth well in excess of the consensus and Fed is obviously worried that will eventually spill over into an inflationary environment.

On Total Known ETF holdings of Gold. The charts are telling us that after a long period of ranging Gold and the precious metals are poised to break to the upside. I was rather alarmed therefore on the one- day plunge by about 7% of the above chart. Should I be, or is this some explainable aberration?

Thank you for this question which may be of interest to other subscribers. The Total Known ETF holdings of Gold is reported with a one-day lag but it is also prone to spikes since the data is accumulated from so many sources. I checked this out with Bloomberg this morning and adjusted the chart to the up to date value. Unfortunately, while imperfect this index is about as accurate reflection as I can find of the interest investors express in holding gold-backed ETFs.

Want to better understand what may happen in the United States economy as President Trump pursues his combative trade policies?

Look no further than the lumber that goes into many houses in the United States.

Long before the sharp clash with Canada at the Group of 7 meeting this weekend, the Trump administration imposed tariffs on lumber imports from Canada, which American home builders use in large quantities. The United States Commerce Department contended that Canadian companies were selling lumber into the United States at unfair, subsidized prices.

Those tariffs, which took effect last year, combined with other factors to drive up the price of lumber in the United States. As a result, the anti-dumping and countervailing duties, as the tariffs are officially known, have added to the cost of housing in the United States at a time when homes are becoming less affordable. The Trump administration’s tariffs on steel and aluminum, and any others that follow, could also contribute to rising costs for businesses and consumers.

This article is representative of the narrative which has gripped the lumber market for most of the last 12 months but is also behind the CME’s decision to widen limits on a rolling basis to try and contain speculative fervour.

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Some of the topics discussed include: p&f figure chart reading for cobalt, oil and google, China steadies, Nasdaq testing its highs, industrial metals steady, trucking companies breaking out, food prices firming, while oil pauses below $80, all pointing to rising industrion pressures.

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

There is no doubt that battery efficiency is improving and new solar innovation is being revealed on almost a weekly basis. There are laudable reasons for seeking to reduce carbon and nitrogen oxide emissions in our cities all of us can support. However, the question many people are worried about is whether this is merely transferring a problem from cities to less populated areas.

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

Generally speaking streaming companies provide funding for struggling mines when prices are low. By historical standards cobalt prices are not low. Of course, if accepts the near mania of bullish prognostications, then cobalt is cheap.

Looking at the details, the composition of lending continued to shift toward on-balance-sheet lending from off-balance sheet:

New bank loans denominated in yuan totaled 1.14 trillion, up slightly from 1.1 trillion in April. The 41.3 billion yuan rise was slightly below the average increase of 98.1 billion yuan recorded in the same month over the past five years.

The stock of shadow bank lending -- entrusted loans, trust loans, and back acceptances -- dropped across the board. The total fell 421.5 billion yuan, the steepest monthly drop in data available back to 2016.

Net financing of corporate bonds contracted by 43.4 billion yuan, after an increase of 377.6 billion yuan in April. Rising defaults have hit sentiment in the bond market. Equity financing was more stable, falling moderately to 43.8 billion yuan from 53.3 billion yuan.

Recent policy moves have been tilted toward support for bank lending. In April, the PBOC cut the reserve requirement ratio for banks. In June, it broadened the types of collateral that could be used against central bank loans.

The Fed is raising interest rates and reducing the size of its balance sheet, the ECB is approaching the end of QE while the Bank of Japan is now yet ready for that step. Against that background the PBoC is engaged in an attempt to bring the shadow banking system out of the shadows.

While trucker protests in China have occurred in the past amid complaints of road tolls, fuel prices and excessive fees, Geoff Crothall, spokesman for the labor monitoring group, said he couldn’t recall trucker protests of a similar scale. He estimated thousands of truckers participated.

As they have the world over, gas prices have risen in China this year, by 8.6%, according to data from the Ministry of Commerce. Taxes and other fees generally make gas more expensive in China than the U.S., and on top of that the government sets the prices, lagging changes in international oil markets by 10 days or more.

China’s National Development and Reform Commission, which sets those prices, announced Friday that it would cut the retail price of gasoline and diesel by 130 yuan ($20.29) per ton for gasoline and 125 yuan per ton for diesel. The new prices, effective this past Saturday, reflect a recent retreat in global oil prices. In the central province of Anhui, a transportation hub where protests occurred, gasoline now costs $3.99 a gallon, and diesel $4.04 a gallon.

Rising fuel costs have elsewhere prompted worker frustrations to spill over, most notably in Brazil, where protesters blocked highways and halted shipments of food, fuel and medicine before the government called in the military to help end the strike. Other trucker protests have also recently broken out in Iran.

Trucking has been all over the news recently with strikes in China and Brazil over high fuel prices and low pay while the USA is in dire need of 50,000 drivers.  These trends point to the fact the USA is close to full employment so attracting workers is becoming an issue while all three countries share upward pressure on wages. Higher shipping rates are inflationary because it will put pressure on companies to cover the increasing costs by raising prices for the end customer.

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

Some of the topics discussed include: News heavy week ahead so how are markets looking? Silver firm, gold steady, Tesla extends rebound, Yen weak, Nikkei first step above the base, Pound pulls back, Treasury yields consolidating below 3%. 

Trump and North Korea leader Kim Jong Un convene in Singapore for their on-off summit, the first such meeting ever.

Trump last week predicted “great success” and said it’s possible he could sign an agreement with Kim to formally end the Korean War. Back in Washington, the government releases a monthly report on inflation that will be a key gauge of how hot -- or not -- the U.S. economy is getting.

Trump, Kim Said to Be Planning One-on-One Talk at Summit Start

These Are the Dealmakers Behind Trump and Kim

What a Trump-Kim Deal May Look Like

The Trump – Kim conference is going to be short with both planning to leave Singapore tomorrow afternoon Singapore time. That means an outcome, whether positive/negative will be available by the open on European markets Tuesday. It is in both their interests to appear strong but they both need to come away with a win so the most likely scenario is to agree to meet again.

In the future, Fitbit hopes to leverage Google’s machine learning capabilities to draw even deeper insights from the combined data sets. For instance, machine learning algorithms might be able to see indications in the data that a user is at high risk for a certain disease, then proactively treat them for it.

The Google machine learning is just one of the deliverables in Fitbit’s recently-announced partnership with Google Cloud. The combined Fitbit and Twine Health services and data will be served up to healthcare providers via Google’s cloud and healthcare API. Google could also give Fitbit the scale it needs to integrate with large hospitals and insurers. It’ll also give Fitbit a HIPAA-compliant data repository that can connect with the electronic medical records (EMR) systems used by health providers.

Fitbit did not only fail to pick up on the evolution of smart watches but compromised on the quality of its products when it sought to reduce prices. That is why I personally dumped our family’s Fitbits and decamped for Garmin and Apple.

Bitcoin extended losses for a third day, tumbling 12 percent Sunday as South Korean cryptocurrency exchange Coinrail said there was a "cyber intrusion" in its system.

The largest cryptocurrency declined to $6,749 as of 2 p.m. in New York, the biggest drop since March 14, according to data compiled by Bloomberg from Bitstamp pricing. That widens Bitcoin’s losses for the year to 53 percent. Peer cryptocurrencies Ethereum and Ripple fell 11 percent and 12 percent, respectively.

Coinrail said in a statement on its website that it’s reviewing its system due to hacking attempts. The exchange says it has managed to freeze all exposed NPXS, NPER and ATX coins, and that other cryptocurrencies are now being kept in a cold wallet. The statement is the only content available on the exchange’s homepage, and contact information could not immediately be located.

The exchange trades more than 50 different cryptocurrencies and was the 98th largest, with a 24-hour volume of about $2.65 million, according to data from Coinmarketcap.com.

Cryptocurrency exchanges are hacked with uncomfortable regularity with relatively large percentages of investors having had their portfolios stolen via hacking operations at exchanges or from plain old ransomware. Here is a section from an article on CNBC from last Friday:

Roughly $1.1 billion worth of cryptocurrency was stolen in the first half of 2018, and unfortunately for owners, it's pretty easy to do, according to cybersecurity company Carbon Black.

Criminals use what's known as the dark web to facilitate large-scale cryptocurrency theft. There are now an estimated 12,000 marketplaces and 34,000 offerings related to cryptotheft for hackers to choose from, the company said in a study released Thursday.

"It's surprising just how easy it is without any tech skill to commit cybercrimes like ransomware," Carbon Black Security strategist Rick McElroy told CNBC. "It's not always these large nefarious groups, it's in anybody's hands."

The necessary malware, which McElroy said even occasionally comes with customer service, costs an average of $224 and can be priced as low as $1.04. That marketplace has emerged as a $6.7 million economy, according to the study.

Shares of the world’s biggest maker of electric-vehicle batteries jumped on their trading debut as investors bet on rising demand for new-energy cars worldwide.

Contemporary Amperex Technology Ltd. rose by the maximum 44 percent to 36.20 yuan at 10:17 a.m. in Shenzhen, China, valuing the company at about $12.3 billion. The manufacturer sold a 10 percent stake at 25.14 yuan a share in its initial public offering on May 30.

Investors are confident that CATL, as the company is known, can fend off rivals including Panasonic Corp. and continue to win orders as automakers move toward electric vehicles. CATL, whose customers include Volkswagen AG, had reduced the size of its IPO by more than half compared with its original ambitions because of declining margins and a cap imposed by Chinese authorities on price-earnings ratios in IPOs.

 

CATL produces more batteries than Tesla and is likely to continue to do so well into the future considering the pace of factory building it has planned. China has every intention of dominating the battery sector both because it is the largest auto market but also because it has a clear aim to become globally competitive in auto exporting. Additionally, as an energy importer it has a clear reason to reduce imports of oil if at all possible. That suggests China will be investing heavily in batteries for the foreseeable future.

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

It’s Deutsche Bank’s Cap-PPP currency valuation model, a visual indicator on what currencies it deems to be cheap or expensive right now based on capital and trade flows.

By combining its capital-based valuation and trade-based PPP (purchasing power parity) models together, Deutsche says it provides a more complete picture of valuations, using weights that reflect the relative importance of capital and trade flows for each currency.

It believes the model has “significant predictive power for FX, both in terms of directional accuracy and the magnitude of moves, especially over longer-term horizons”.

The strength of the Dollar and its effect on emerging markets, particularly those that have historically depended on Dollar funding, highlights how much of an influence the actions of the Federal Reserve have on other central banks. The USA was the first major economy to embark on tightening and is still the only one to be both raising rates and reducing the size of its balance concurrently. That is the primary reason for both the run-up in the Dollar and rising yields despite increasing supply of the latter.

 "It seems that a lot of activity has been suppressed," said Marshall Swatt, founder & president of Swatt Exchange, emphasizing that digital token sales are having the same experience. 

Leveraged trading appears to have declined lately, emphasized Mati Greenspan, senior market analyst for social trading platform eToro.

Marius Rupsys, a digital currency trader and investor, offered a slightly different take on the situation.

"Some traders and investors are waiting for clarity from regulators," he asserted.

However, Rupsys described both the statement made by U.S. Securities Exchange Commission (SEC) Chairman Jay Clayton that bitcoin is not a security and the government agency's decision to appoint a crypto czar as "very positive" developments.

The last week has seen volatility in the cryptocurrency markets disappear. The last time the bitcoin market, for example, has been this inert was back in June and July of last year when the price was a third of what it is today; even after the crash from the December peak.

Inmarsat Plc rebuffed a takeover proposal from EchoStar Corp., saying the bid undervalued the British satellite company and its outlook as an independent business.

The “highly preliminary” offer was turned down by the board after discussions with its advisers, Inmarsat said in a statement on Friday. “It very significantly undervalued Inmarsat and its stand-alone prospects. The board remains highly confident in the independent strategy and prospects of Inmarsat.”

EchoStar, founded by billionaire Charlie Ergen, has long been seen as a potential bidder for Inmarsat, along with SoftBank Group Corp.’s OneWeb. A stock slump at the London-based company has put it at the top of analysts’ lists of potential targets for consolidation in the satellite industry, which is becoming increasingly crowded with a rising number of rigs going up to support new services such as in-flight Wi-Fi and transmission of digital photos.

A representative for EchoStar didn’t immediately respond to a request for comment. The statement from Inmarsat followed a 13 percent surge in its shares on Friday, the most in a decade. The stock is still down by more than half over the past two years and has declined 3.4 percent so far in 2018.

The legacy satellite sector has collapsed over the last 18 months. There are two primary reasons for the decline. The first is the success of SpaceX and Blue Origin in deploying resuable rockets to increase the number of satellite launches. The second is the advent of nanosatellites which cost a fraction of what conventional satellites do and fly at much lower orbits.

The pursuit of nuclear fusion is inspired by the collision of atomic nuclei in stars, which fuse together to form helium atoms and release huge amounts of energy in the process. If we can recreate this process we could have an inexhaustible supply of energy on our hands that brings no harmful by-products, such as carbon dioxide emissions or the radioactive waste generated at nuclear fission-based power plants like Fukushima and Chernobyl.

But to do that we need to create Sun-like conditions here on Earth, which calls to mind one requirement first and foremost – incredible amounts of heat. Tokamak Energy hopes to achieve this through what's known as merging compression, where running high currents through two symmetrical magnet coils generates two rings of plasma, or electrically charged gas, around them.

The ITER tokomak being constructed in the south of France is based on technology from the 1970s. It is coming at the problem of containing plasma by building a big containment unit which is costing upwards of $30 billion. Today, much stronger magnetic fields can be attained through the use of superconductors. That means experiments can be much smaller and cost a fraction of the ITER model.

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

Some of the topics discussed include: stock markets take a breather, oil firm, bonds steady, China bounces, select emerging markets still under pressure but increasing evidence of central bank support, 

Turkey and Brazil intensified efforts to protect their currencies from speculative attacks by investors as emerging markets face their biggest test since the 2013 taper tantrum.

Turkey surprised analysts by tightening monetary policy Thursday for the third time in less than two months, while Brazil’s central bank sold extra foreign-exchange swap contracts for the second time this week, boosting investors’ protection again further declines in the currency. The lira surged and the real briefly pared losses after the actions.

Thursday’s actions are the latest in a series of efforts to shore up defenses in developing nations as policy makers from Argentina to India try to cope with higher U.S. interest rates, growing budget deficits, accelerating inflation and political instability. Emerging markets haven’t been in this precarious a position since five years ago, when concern the developed world was pulling back on monetary stimulus sparked a rout in stocks and currencies.

"The failure to act preemptively to address macro imbalances has forced those central banks to take desperate measures to stem the pressure on their currencies," said Delphine Arrighi, a money manager at Old Mutual in London. "The risk is a tightening of financial conditions in EM that could ultimately impact growth negatively."

Turkey raised its one-week repo rate by 1.25 percentage point to 17.75 percent, a bigger increase than any analyst surveyed by Bloomberg had predicted. The move signaled policy makers trying to clamp down on double-digit inflation are willing to stand up against political pressure to keep borrowing costs low.

“Is this the start of a new era of Turkish central bank policy -- actually moving ahead of the market? Let’s hope so,”

Generally speaking when a central bank intervenes to support its currency it has to persist in that policy until it achieves success, lest it be accused of wasting money. So far, Turkey’s efforts to stave off an additional near-term Lira decline have been successful and the currency has stabilized below TRY5 to the US Dollar.

Hi Eoin Like most of your subscribers I avidly follow your video commentaries. In yesterday’s broadcast while discussing India I was a little surprised that you did not mention the effects of the Monsoon on the economy which is starting now. Latest predictions are for an above average monsoon which is of course highly significant for food prices and thus for inflation.

Thank you for this informative email which may also be of interest to the Collective. The RBI raised rates today for the first time since early 2015 signalling what appears to be the beginning of a new tightening cycle. It is to be hoped that the monsoon will in fact come in above par which would moderate inflation, but I believe the more pressing issue right now is the relative stability of the currency which as recently as mid-May was testing its all-time lows.

Apple market capitalization now is $950 billion and it seems, this time it may be able to hit $1 trillion in the foreseeable future. The stock seems to have broken up out of a six-month range and it has to rise just about 5% to reach $203.45 which will give it $1 trillion capitalization. (Though, Financial Times notes that "pinpointing the moment when Apple will officially become the first trillion-dollar public company is trickier than it may seem, largely because of the company’s mammoth stock buyback programme." $203.45 is based on Apple's latest official share count given in its quarterly filing on April 20.)

What do you think of this? I also attach recent FT article about Apple business, just in case you find it interesting.

And thank you once again for your valuable service.

Thank you for this question which may also be of interest to subscribers. Before I got a Global Entry card, when I went through passport control on the way back into the US, the border control agent would ask why I was awarded an EB-1 visa and I would tell them because I am a global strategist. Coming back from Ireland in April, the agent said “Oh really, which company do you think is going to get to a market cap of $1 billion first; Apple or Amazon?”

Apartment construction to fall sharply
We have significant evidence to show that new apartment projects are struggling to get finance approved, and therefore total residential construction is expected to slow in H2 2018. Dwellings approved but not yet commenced have already increased to the highest level on record, driven by apartment project approvals

Apartment default rising
Liaison with industry contracts indicates that settlement defaults for some of the major developers have increased, particularly in relation to offshore buyers. The resale market is considered healthy enough at this juncture for most developers not to be materially impacted, however there is a strong likelihood that residential construction activity will now fall

Employment growth to fall
Construction now directly employs just under 1.2 million persons in Australia, recently capturing a record high in absolute terms and, at 9.6 per cent of employment, the construction sector is at its most bloated in approximately a century4.

About ¾ of construction jobs are accounted for by the residential sector5. There is significant potential for employment growth to slow sharply over the next 12 months

The Royal Commission has been a major source of uncertainty for the banking sector in Australia over the last year as rampant overcharging across a broad swathe of their businesses has ben brought to light.

The S&P/ASX 300 Banks Index hit all-time peak in 2015 and following a rebound has been trending lower since last year. It is now approaching the 2016 lows and while oversold in the short term a break in the progression of lower rally highs will be required to question supply dominance.

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

Some of the topics discussed include: India raises rates, ECB on the cusp of announcing the end of QE, Tesla rallied back above $300. Gold steady, Industrial metals firm, agriculturals weak, oil steady, miners breaking out.

The giant SPDR Gold Trust (NYSE Arca: GLD) shrank 4% across May, erasing the previous two months of share issuance growth with the heaviest 1-month outflow since August last year.

The US Mint meantime reports selling 24,000 ounces of American Eagle gold coins, up sharply from April's 10-year low as dealers re-stocked inventory but still barely half the last 5 years' average for May.

Here at BullionVault, last month saw the lowest number of new precious-metal investors since May 2014. Down 27.7% from the previous 12-month average, the number of people using our online gold, silver and platinum market for the first time totalled just 57.2% of the last 5 years' average monthly count of new customers.

Overall, the number of people starting or increasing their gold holdings rose 12.1% from April's 27-month low, but the number of gold sellers on BullionVault rose 22.8% to a 4-month high.

Some people buy gold because it is the “anti-Dollar”. Some people buy gold because it is a monetary metal. Some people buy gold because it is store of value. Some people buy gold because it is in relatively short supply. Some people buy gold because it is lasts forever and cannot be printed into existence.

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

The footprint of ecommerce is only likely to expand if for no other reason than it is easy to shop and browse online. That doesn’t mean people will stop going to malls. We are after all a social species but the nature of shopping with definitely change.

The new Westfield mall that opened up the street from me a couple of months ago is focusing on food offerings with Eataly, Ding Tai Fung and Meizhou DongPo as well as upper middle class/luxury brands. That might be a function of its location sandwiched between the affluent neighbourhoods of Beverly Hills and Holmby Hills but equally speaks to the spending habits of Chinese shoppers.  

Based on your very correct predictions, I am enjoying the run on the Nasdaq by owning futures on the Nasdaq 100.   It is time to roll and I notice there is a contango of about 23 on these contracts, giving an annual contango cost of 1.3%.  Small but annoying.

A very basic question to which I have never been able to find an answer - is there any way to optimize this, for instance by timing the rollover?  I can't find a chart of contangos anywhere.

Thank you for this question which may be of interest to other subscribers and congratulations on your trading success. Generally speaking the contango reflects the interest rate. Since there is no prospect of a shortage of supply for synthetic contracts like index or interest rates futures I never looked at the contango chart before today. In fact, at only 1.3% one might think that the contango at present is a relative bargain considering the Fed Funds Rate is 1.75%.

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

Some of the topics discussed include: even mild Dollar weakness is a boon for industrial resources, Italian yields rise and stock market under pressure. technology continues to lead higher, cobalt puts in a p&f top, China firms, oil and precious metals steady. 

In summary, world trade friction is growing.  More countries are beholden to the kindness of others for those commodities in high concentrations from nations that can employ them as weapons of response to adversarial tariffs.  What is that worth per pound of cobalt?  Nothing.  Until it is.  What is it worth that the DRC is a political quagmire and the country is about to be 75% of world production?  Nothing.  Until it is. What is it worth that China dominates cobalt chemical refining for batteries and western auto companies are still generally open on supply?  Nothing.  Until it is.  It is likely that spot prices are about to soften a bit after an ungodly strong, unabated run. We believe that weakness is merely prelude to new highs when the Fall “mating season” begins.  How do we play it?  Besides our relatively small physical positon, we own Cobalt 27 (KBLT CN) because they hold 3,000 metric tons of cobalt metal safely housed in western warehouses, and we believe they will further execute their business plan by acquiring a stream or streams before the end of the year and share that cash flow with shareholders in the form of a dividend.  We think cobalt prices can trade past the old high of $50 in 2008, a period during which battery demand from electric vehicles did not exist.

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

I’ll never forget the bull market in uranium that took place between 2003 and 2007. It was the easiest market in the world to monitor. The price only went up. It highlighted just how useful point and figure charts are in monitoring a runaway bull market. When the consistency of the advance changed the easy conclusion was that a peak of at least medium-term significance had been reached.

The central bank purchased a net €3.6bn of Italian government debt under its long-running programme in May, new figures show. Although this is higher than the amount it bought in some recent months, such as March and January, it was smaller as an overall proportion of its net purchases.

The ECB insisted that the reduced Italian share had nothing to do with political events, and was purely linked to practical issues such as the need for the bank to reinvest in German bonds after a chunk of its holdings matured.

But the numbers were nonetheless seized on by members of Italy’s new governing parties, who have been arguing for weeks that the eurozone’s central bankers have been putting pressure on them to adopt more conventional economic policies.

Italy is understandably sensitive to the actions of the ECB. Not only has the ECB’s bond buying program contributed to Italy benefitting from negative yields on the short end of the curve but it has reduced borrowing costs right across the curve.

Despite this extraordinary case study it is still very early days for the treatment, with the current clinical trial due to run until at least 2023. After that, a Phase 3 trial will need to broaden the volume of patients treated to verify any positive results,. So, realistically a broad clinical application could be up to a decade away ... And that's assuming everything goes right.

An early form of adoptive immunotherapy, called CAR-T therapy, exhibited severe side effects across many of its clinical trials, including some deaths. The therapy also displayed some impressively positive response rates, promising at the very least an extra possibility for patients where pre-existing treatments have failed.

Last year, the first immunotherapy of this kind was approved for use by the FDA. The treatment's approval was undeniably a milestone for this new kind of therapy, but alongside the approval came a striking price tag. Kymriah, for young patients with a type of blood and bone marrow cancer, was initially costed at nearly half a million US dollars per treatment.

The progress of immuno-oncology research has resulted in a rapid pace of M&A activity within the biotechnology sector over the last 18 months and nothing has yet happened to change that trajectory.

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

Some of the topics discussed include: tech breaking out, hardware catching up with software, immigration and Japan, Europe steady, Dollar eases, Treasury yields continue to rebound, oil eases, gold steady, 

I believe this does rather endorse your view. Also, my father in law a farmer in Shikoku has told me about many Chinese farmers on their Island!

Different subject, but I heard recently pearl exports this year are up in the region of 100%, your wife has obviously started a major new trend!

Thank you for this informative email and interesting article. My wife’s pearl business, my children’s love of anime and mange and my optimism about the recovering economy created a trifecta of reasons for our original trip and return visit in April.

The biggest takeaway for me is the number of foreign workers we have encountered. In one of the world’s few remaining mono cultural societies that was a true surprise. Here is a section from the Nikkei Asian review article: 

The demand for construction workers is intensifying before the 2020 Olympics, and Hoang is one of the 274,000 foreign workers in Japan on a government-backed trainee program that has become a back door for foreign unskilled workers who would otherwise not be allowed in. Started in 1993, the program has boomed in recent years -- and is one reason that the number of foreign workers in Japan has nearly quadrupled over the last decade.

Led by an influx of workers from China, Vietnam and the Philippines, Japan is in the midst of a quiet revolution when it comes to immigrant workers. Though the total number of foreign workers in Japan is small compared to the more than 3 million in the U.K. and Germany, it is catching up rapidly -- a remarkable shift for a nation famous for resistance to immigration.

Without fanfare, Prime Minister Shinzo Abe has steadily loosened Japan's once tightly controlled visa policy, resulting in an almost doubling of the number of foreign workers in Japan to 1.28 million over the last five years. In its latest move, Abe's government is expected to create a new class of five-year work permits for unskilled workers in hopes of attracting more than 500,000 new overseas workers by 2025. The new guidelines, to be finalized in June, will ease language requirements for foreign workers in construction, agriculture, elderly care and other sectors that are suffering the most serious labor shortages. It will also be possible for trainees to extend their stay for up to 10 years.

Supply risks for cobalt are centred on the Democratic Republic of the Congo which is responsible for two-thirds of world output. And the country’s share will only increase over the next five years as Chinese investment in new mines come on stream.

The central African nation's output of cobalt – as a byproduct of copper production – is already soaring as top producer Glencore's operations in the country ramps up again after a refurbishment period.

The DRC produced 296,717 tonnes of copper in the first quarter of 2018, up 8.2% over the same period last year, the central bank said in a report on Thursday. Cobalt production in the first quarter of 2018 rose 34.4% to 23,921 tonnes. Global production last year was around 117,000 tonnes.

The oldest adage from the commodity markets is the cure for high prices is high prices. Cobalt is up 400% already so on the supply side there is real pressure to increase supply. On the demand side consumers are investing heavily in coming up with new chemistries to reduce cobalt intensity.

Until recently, Facebook had dominated the social media landscape among America’s youth – but it is no longer the most popular online platform among teens, according to a new Pew Research Center survey. Today, roughly half (51%) of U.S. teens ages 13 to 17 say they use Facebook, notably lower than the shares who use YouTube, Instagram or Snapchat.

This shift in teens’ social media use is just one example of how the technology landscape for young people has evolved since the Center’s last survey of teens and technology use in 2014-2015. Most notably, smartphone ownership has become a nearly ubiquitous element of teen life: 95% of teens now report they have a smartphone or access to one. These mobile connections are in turn fueling more-persistent online activities: 45% of teens now say they are online on a near-constant basis.

Capturing the attention of teens is a never-ending challenge which is why Facebook’s acquisition of Instagram was such a coup. However, many kids are now using Kik and Telegram which is a sign that the metrics for measuring user engagement is a constantly moving feast.

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

Anticipating and reacting to the latest cyber threat is a ceaseless endeavor that requires ever more resources and manpower. This approach to cybersecurity is not efficient, effective, nor sustainable in light of escalating cyber threat capabilities. We must recognize today’s realities: resources are limited, and cyber threats continue to outpace our best defenses. To gain the upper hand, we need to pursue disruptive changes in cyber risk management practices.

DOE’s cyber strategy is two-fold: strengthen today’s energy delivery systems by working with our partners to address growing threats and promote continuous improvement, and develop game-changing solutions that will create inherently secure, resilient, and self-defending energy systems for tomorrow. 

Meaningful public-private partnership is foundational to DOE’s strategy. Facing an ever-evolving threat landscape requires a coordinated approach to improving risk management capabilities, information sharing, and incident response. The federal government has also historically funded innovative research, development, and demonstration (RD&D) that cannot be economically justified in private-sector markets. Today, this includes game-changing RD&D that will build cyber resilience into energy systems for tomorrow.

The increasingly connected nature of the global economy, together with the modernisation of IT structures in key pieces of industrial and utility infrastructure has introduced risk premia that never existed before. A decade ago no one would have given credence to the view that a hospital could be shut down remotely or that police departments could be held hostage, yet that is exactly what has happened in the last 18 months. Securing energy infrastructure is even more important now that the US is an exporter of oil and gas and because of rising geopolitical tensions.

The Original Sin index ranges from zero (“sinless”) to one (“sin-full” or fully dependent on foreign currency debt). We focus on sovereign and corporate bond issuance in ASEAN and India, and track how the index behaved during the Quantitative Easing periods and after the taper tantrums. 

We detect increases in “original sin” in Indonesia and the Philippines in recent years, but find no visible increase in Thailand, Malaysia or India (see Figures 4 to 9). 

Indonesia’s original sin index has been steadily rising, with a peak of 0.41 as of May 2018 (see Fig 5). This suggests that Indonesia corporations and the sovereign are borrowing more in foreign currencies in recent years, as the Fed normalizes policy rates. For Philippines, the original sin index rebounded in 2018 to 2009 levels after declining for the past two years (see Fig 7). This suggests that the financial stress is a more recent phenomenon, as investors are more worried about the peso risks (on higher inflation and widening current account deficit). 

On the other hand, Malaysia and India have seen a decline in their original sin index, suggesting a gradual reduction in their foreign currency exposure in recent years (see Figures 6 & 9). Thailand’s index has been very low since the early 2000s, barely reaching 0.1, reflecting its low interest rates and abundant domestic liquidity, given the massive current account surplus (see Fig 8).

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

The ASEAN sector has been under pressure of late but not nearly to the same extent as Turkey, Argentina and Brazil. The rising US Dollar has pressured many emerging markets because as interest rates appreciate and Wall Street remains in a reasonably stable bull market environment, the relative attraction of US assets improves. That has resulted in repatriation of carry trades.

While hedge funds invested in U.S. oil are betting pipeline bottlenecks will make Texas crude even cheaper, trading giants are seeing an opportunity to export millions of barrels as shale output continues to surge. For now, American price moves have favored the financial players. Meanwhile, Brent climbed last month following President Donald Trump’s decision to reimpose sanctions on Iran, and as Venezuelan output plunged amid an economic crisis.

Also at the forefront of investors’ minds is OPEC and the allies’ next step on output cuts. Saudi Arabia and Russia said last week that they are considering boosting production to ease potential supply disruptions in Iran and Venezuela after a global surplus was eliminated. Most producers weren’t consulted about the proposal, and officials from several producers said they disapproved of raising output.

 

The spread between West Texas Intermediate and Brent Crude is currently at $8.50 which is beginning to make headlines but the gap between the two benchmarks has been rising steadily for the last couple of years and broke out this week. The difference has been as high as $12 and even $16 as recently at 2014 so the argument for boosting exports is likely to be a hot topic of conversation in the USA.

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

Some of the topics discussed include: Italian yields compress somewhat, Euro fails to hold intraday high, GDPR favours large advertisers, differernce between crude oil pricing, gold steady, China and India begin to steady, Indonesia supporting the Rupiah.

A

Also most relevant for the price of gold is the turning of the tide in terms of monetary policy. We find it quite remarkable that the gold price (in USD terms) bottomed out exactly at the beginning of the current rate hike cycle. When it became clear in 2015 that administered US interest rates would soon be raised, many market participants and observers sotto voce predicted a precipitous slump in the gold price. In the same year, we pointed out to our readers that rising interest rates could actually prove to be positive for the gold price. Market developments in recent years are testifying to the fact that this assessment was correct.

In addition to hiking interest rates since late 2015, the Fed began reducing the size of its balance sheet starting in Q4 2017, a process that has been dubbed “quantitative tightening” (QT). From our perspective, most market participants are currently massively underestimating the likely consequences of the QT process. The “everything bubble” which we discussed at length in last year’s In Gold we Trust report6 is at grave risk of bursting as more and more liquidity is withdrawn. The monthly contraction in Fed assets is gradually ratcheted up and will reach USD 50bn per month from October 2018 onward. In total, the balance sheet is to be reduced by USD 420bn in 2018 and by USD 600bn in 2019. However, we believe this monetary normalization plan is unlikely to survive a significant decline in even one, let alone several asset classes (equities, bonds, real estate). 

lso most relevant for the price of gold is the turning of the tide in terms of monetary policy. We find it quite remarkable that the gold price (in USD terms) bottomed out exactly at the beginning of the current rate hike cycle. When it became clear in 2015 that administered US interest rates would soon be raised, many market participants and observers sotto voce predicted a precipitous slump in the gold price. In the same year, we pointed out to our readers that rising interest rates could actually prove to be positive for the gold price. Market developments in recent years are testifying to the fact that this assessment was correct.

In addition to hiking interest rates since late 2015, the Fed began reducing the size of its balance sheet starting in Q4 2017, a process that has been dubbed “quantitative tightening” (QT). From our perspective, most market participants are currently massively underestimating the likely consequences of the QT process. The “everything bubble” which we discussed at length in last year’s In Gold we Trust report6 is at grave risk of bursting as more and more liquidity is withdrawn. The monthly contraction in Fed assets is gradually ratcheted up and will reach USD 50bn per month from October 2018 onward. In total, the balance sheet is to be reduced by USD 420bn in 2018 and by USD 600bn in 2019. However, we believe this monetary normalization plan is unlikely to survive a significant decline in even one, let alone several asset classes (equities, bonds, real estate). Also most relevant for the price of gold is the turning of the tide in terms of monetary policy. We find it quite remarkable that the gold price (in USD terms) bottomed out exactly at the beginning of the current rate hike cycle. When it became clear in 2015 that administered US interest rates would soon be raised, many market participants and observers sotto voce predicted a precipitous slump in the gold price. In the same year, we pointed out to our readers that rising interest rates could actually prove to be positive for the gold price. Market developments in recent years are testifying to the fact that this assessment was correct.

In addition to hiking interest rates since late 2015, the Fed began reducing the size of its balance sheet starting in Q4 2017, a process that has been dubbed “quantitative tightening” (QT). From our perspective, most market participants are currently massively underestimating the likely consequences of the QT process. The “everything bubble” which we discussed at length in last year’s In Gold we Trust report6 is at grave risk of bursting as more and more liquidity is withdrawn. The monthly contraction in Fed assets is gradually ratcheted up and will reach USD 50bn per month from October 2018 onward. In total, the balance sheet is to be reduced by USD 420bn in 2018 and by USD 600bn in 2019. However, we believe this monetary normalization plan is unlikely to survive a significant decline in even one, let alone several asset classes (equities, bonds, real estate). 

Also most relevant for the price of gold is the turning of the tide in terms of monetary policy. We find it quite remarkable that the gold price (in USD terms) bottomed out exactly at the beginning of the current rate hike cycle. When it became clear in 2015 that administered US interest rates would soon be raised, many market participants and observers sotto voce predicted a precipitous slump in the gold price. In the same year, we pointed out to our readers that rising interest rates could actually prove to be positive for the gold price. Market developments in recent years are testifying to the fact that this assessment was correct.

 

In addition to hiking interest rates since late 2015, the Fed began reducing the size of its balance sheet starting in Q4 2017, a process that has been dubbed “quantitative tightening” (QT). From our perspective, most market participants are currently massively underestimating the likely consequences of the QT process. The “everything bubble” which we discussed at length in last year’s In Gold we Trust report6 is at grave risk of bursting as more and more liquidity is withdrawn. The monthly contraction in Fed assets is gradually ratcheted up and will reach USD 50bn per month from October 2018 onward. In total, the balance sheet is to be reduced by USD 420bn in 2018 and by USD 600bn in 2019. However, we believe this monetary normalization plan is unlikely to survive a significant decline in even one, let alone several asset classes (equities, bonds, real estate). 

 

My view – Rather than think so much about a risk to the dollar’s position as the reserve currency, perhaps the bigger point is that China has a well-telegraphed decision intention to internationalise the renminbi. That holds out the long-term prospect of a true bi-polar world where competing economic bloc compete against one another.

 

If one were to think about a truly bullish case for gold that kind of scenario is definitely high in the realm of possibilities to drive investor demand. The gold price is currently holding in the region of $1300 but the medium-term pattern is one of a saucering pattern similar to the base put in during the early 2000s. However, a sustained move above $1400 will be required to confirm a return to medium-term demand dominance.

 

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

Rather than think so much about a risk to the dollar’s position as the reserve currency, perhaps the bigger point is that China has a well-telegraphed intention to internationalise the renminbi. That holds out the long-term prospect of a true bi-polar world where competing economic bloc compete against one another.

I have read with interest many comments regarding the difficult situation that has developed in Italy, and I feel I have to make a couple of points which I hope will help clarifying some aspects of it:

1/ of the 2 so called populist parties (Lega and M5S) only the former had an explicit anti-EU bias during the election campaign, while the latter had moved to a pro-EU stance; the alliance formed past the elections included a marked anti-EU stance (specifically through the appointment of an anti-Euro candidate to the Ministry of Finance); This is of course unacceptable (the coalition has no anti-EU mandate), hence the decision to appoint someone else with a short mandate to take the country to new elections where Italy's position in the EU is openly and explicitly debated. Was an anti-EU coalition to be elected of course they would be in power, there is no shadow of doubt about that. So, no democratic deficit here, in fact there is an extremely robust democratic process in place.

2/ There is no doubt the current events are an existential threat to the Euro area; it will be difficult to navigate, as a "quitaly" would have an extremely dramatic impact on the lives of many people in the country. I hope qualified majorities will be required to take the most important decisions, but given the pressure from financial market I doubt it will be possible; on the other hand, was a government to unilaterally pull the plug on the Euro and re-introduce the Lira, I think it would be nothing short of a coup.

With no further EU reforms, I think the spreads we have seen opening between BTPs and Bunds are deemed to stay. The ECB won't add additional risk to that already present into its balance sheet. However, I do not see how any reform could take place given the current anti EU climate. I am very pessimistic.

Finally, 2 interesting articles I wanted to share with you, one from the FT suggesting there is convenience for leaving the Euro (I share this view 100%, completely absurd), and another suggesting some reforms the EU could do. I hope they can be of interest.

Thanks for this educative email. I found the analysis of the competing desires of the League and Five Star Movement to be highly instructive. I agree there is an internal conflict between an openly Euro-sceptic party and one which wishes to remain inside the EU, but the Italian president is taking a serious risk in shooting down the proposed candidate for finance minister.

Euro-area inflation hit the fastest pace in more than year, some good news for European Central Bank officials debating the future policy path just as turmoil in Italy revives memories of the debt crisis.

The 1.9 percent rate, effectively in line with the ECB’s goal, was up from just 1.2 percent in April and above the 1.6 percent reading forecast by economists. The core measure rose to 1.1 percent, also better than anticipated.

Stronger-than-anticipated figures in Germany and Spain on Wednesday hinted at an upside surprise, with the rate in the former reaching a 15-month high. The euro stayed higher after the euro-zone data, and was up 0.1 percent to $1.1681 as of 12:24 p.m. Frankfurt time.

While higher oil prices played a part, the inflation pickup is welcome news for the ECB, which holds its next policy meeting in exactly two weeks’ time.

The ECB is very unlikely to raise rates before it has ended its QE program. The uptick for inflation, particularly in Germany, is going to influence the decision whether to in fact cease purchases in September while the uncertainty in Italy is also going to be a competing factor.