With that kind of volatility being the norm in the current Bitcoin environment, we repeat what we wrote in January (and have tweeted very often) that it is important “to remember about Bitcoin is that the daily price is not really important, what is important is gaining ownership of the network as it develops. Think of it like an iPhone; when there was only one, the network had no value; two phones, still no value; a million phones, meaningful value; ten billion phones, huge value. The same applies to the network value of Bitcoin.” Most importantly, as millions of global users continue to buy into the Bitcoin network over time (remember U.S. is only 10% of the activity), the network value will continue to grow toward the logarithmic non-linear regression model target. New technological advances like the Lightning Network could speed adoption rates and raise the slope of the curve, but the Parabolic Growth Model points to network values of “$22k by the end of 2018, $41k by the end of 2019, $75k by the end of 2020 and $100k by the middle of 2021.” Last year we said that we could see Bitcoin reach “Gold Equivalence” (market cap of $8.4 trillion) within a decade and that would take the BTC price to $400k. Reviewing the network value model, we have since revised the forecast a bit and can see $250k by the middle of 2022 and $500k by the end of 2024. We tweeted this timetable in April and there was a little commotion about the shift, but we recently spoke with a crypto writer for the Street.com and they did an article on the entire model and thesis for the price movements that has gone a little viral and was even translated into many languages around the world (my favorite has been seeing it in Polish and knowing that would have made my Grandma Dombroski proud).

One thing to be very clear on here is that we are not making any absolute predictions about Bitcoin and we are definitely not making any promises to do something rash like Mr. McAfee has done (saying he will eat a sensitive body part live on the internet if BTC doesn’t hit $1 million by a certain date), but rather pointing out some very sound mathematics for how a network grows and how the value of that network could rise as user adoption increases.

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

There are three things you can see on a chart. What you want to see, what you think you are going to see and what is there. If we ignore price, then we are setting ourselves up for a fall into ideology or self-delusion, both of which can be deleterious to one’s wealth. The price contains all the information that is important to people right now.

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

Wage growth in the USA has been volatile to say the least over the last couple of years but broke out to new highs in August. At almost 3% that is likely to contribute to inflationary pressures sooner or later and will form part of the Fed’s decision to continue raising rates.

Much of this is a matter of intense debate, but one big problem is that if the world is to invest in a policy of deep decarbonatization by the year 2050, there is a real chance it can only be done at either massive expense or the price of much less electricity being available at higher costs, lower standards of living in both the developed and developing world, and even a shrinking global economy.

To prevent this from happening, the MIT study says that nuclear power with its zero-carbon emissions must play a much larger role in electricity generation on a global scale. Today, the total share of global nuclear power as a primary energy source is a mere five percent, with very little growth in the West and some countries actually abandoning the technology.

If we wish to cut down on carbon emissions then renewables are certainly a way to do it but they do not get around the questions of sustaining base load when the wind does not blow or the sun does not shine. That means we need to have a lot more industrial sized batteries to store energy for the proverbial “rainy day” or we need additional back up conventional generators. Nuclear is carbon neutral but is also prone to massive cost overruns and accidents, however rare, tend to influence public opinion for decades.

Today, over a fifth of Sweden’s 10 million people have foreign roots and the migrant community is often poorly integrated.

Unemployment is around 4% among native Swedes but exceeds 16% among the foreign born, and 23% for non-European immigrants, despite generous subsidies for companies that hire migrants, said Tino Sanandaji, an economist who wrote an acclaimed book on immigration policy.

Concerns about immigration have boosted support for the Sweden Democrats and pushed parties that have supported immigration to harden their rhetoric. Ulf Kristersson, leader of the center-right opposition, said its past immigration policy has been “very unsuccessful.”

The revolt against the status quo has been variously described as populist, xenophobic, anti-immigrant and racist. However, the harsh reality is multiculturalism is too often a veil for racist tendencies that contribute to ghettos forming where immigrants have little hope of finding training or employment. That represents an existential challenge for the centrism that has prevailed in most liberal democracies over the last 40 years and it is not going to be corrected any time soon.

New York Fed - The Pre-FOMC Announcement Drift

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

Some of the topics discussed include: FANGs losing commonality, China remains under pressure, Argentine Peso and Turkish Lira pause near lows, Europe remains weak with Germany testing an important area of potential support, gold steady, oil eases, Lumber limit down, 

The trouble is that Di Maio and Salvini’s comments run against pretty much anything they’ve promised voters. In May, they signed a coalition agreement that earmarked nearly 125 billion euros ($145bn) in tax cuts and new spending commitments, according to an independent estimate. True, they’ve always said this would be done over time. But it’s hard to see how this government will make good on anything but symbolic promises if it really means to stick to restraint.

Of course, the devil’s in the detail. Neither leader has clarified what budget deficit the government will target for 2019. Italy is expected to run a deficit of 0.8 percent next year, but this seems out of the question. Giovanni Tria, the technocratic finance minister, is said to favor staying below 2 percent, while some in Five Star and the League probably have something closer to 3 percent in mind. Expect months of wrangling – within government, and with the European Commission – to decide where exactly the line will be drawn.

Yet the political U-turn is clear. The League promised a “flat tax” throughout its electoral campaign to boost the economy. The coalition deal with Five Star had already watered this down into a tax system with two brackets. Now the budget is expected to deliver only minor tax cuts, most likely for the self-employed.

As for Five Star, it had championed a “citizens’ income” to help the unemployed and poorly paid. This will now probably be an extension of the existing income-support scheme passed by Paolo Gentiloni’s former center-left government. On pensions too, the two parties will have to cut back on earlier proposals to slash the retirement age.

The only possible way to hold onto the animus of a revolutionary movement is to sustain momentum. Whatever about one’s attitude towards Donald Trump he probably understands that basic premise more than any populist leader and is delivering, after a fashion, on his election promises. Combining left-wing and right-wing radicals in Italy appears to have resulted in them cancelling one another out and if they fail to deliver on their promises both parties are likely to be eviscerated at the next election.

There are also signs that political backlash is contributing to shifting consumer sentiment about at least some of the U.S. internet powers. Pew Research Center in June said the vast majority of survey respondents who identify as Republicans or right-leaning independents believe social networks censor political speech that the companies find objectionable. (A majority of Democrats and left-leaning independents believed this, too.) The dominant belief that the internet powers are politically motivated censors is a dangerous phenomenon for tech companies.

In another worrisome sign, Pew this week released a survey of U.S. Facebook users that found 42 percent had taken a break from the social network for several weeks or more during the last year. Pew said that Republicans and Democrats were equally likely to have restricted their Facebook activity in some fashion. It’s one thing on which a divided nation can agree: Americans want to pull back from Facebook. 

Facebook, Alphabet, Twitter and Apple have volunteered to police their forums not least because they understandably wish to blunt accusations they influenced the result of the US Presidential election or the UK’s Brexit vote. However, the way in which this has been conducted has led to clear signs the companies are looking to curry political favour by silencing who they consider to be rabble rousing polemics.   

Bank deposits, shunned for years by the nation’s return-hungry masses, are suddenly looking attractive again as higher-yielding investments prove riskier than many had anticipated. China’s household deposits rose in July at the fastest annual rate in a year -- an influx that analysts say may accelerate after the nation’s stock market sank at the quickest pace worldwide, hundreds of peer-to-peer lending platforms shuttered and companies defaulted on their debt at an unprecedented rate.

“People around me are all asking the same question: Where is the safe place to put our hard-earned savings?’’ said Anna Teng, a 30-year-old marketing manager in Shanghai who’s been shifting her assets into deposits after losing about 20 percent on her equity investments since May and falling victim to a fraudulent P2P lending platform.

Chinese banks, particularly the mid-size and regional segment, need deposits so retail investors pulling out of high yield or high leverage instruments is good news on that front. However, the banks will also miss out on the fees they were collecting from those products and will therefore need to figure how to boost revenues somewhere else. Just how they are going to be able to do that when risk appetite is waning is rather a challenge.

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

Some of the topics discussed include: Wall Street eases back but some overbought conditions look ripe for reversions to the mean, emerging markets remain under pressure. China remains a weak link and Europe is at risk of contagion selling, Dollar eases, commodities steady.

Apple had completed $200 billion in share buy-backs since 2012. Apple’s cash hoard is so monstrous that six out of the 10 biggest share buy-backs in U.S. history were done by Apple. The $200 billion they’ve bought since 2012 is enough cash to buy all of Verizon, Coca-Cola, or Boeing. Chew on that for a minute.

Now, contemplate this: U.S. companies announced $201.3 billion in stock buybacks and cash takeovers in May 2018 alone. That’s a record monthly amount. Apple represents nearly half of that! Apple recently said it would buy back $100 billion more of its own stock. They didn’t specify when or how long that would take, but that’s about 10% of the market cap, currently at $1 trillion, the first trillion-dollar stock.

The buy-back announcements keep coming:
Broadcom (AVGO) pledged a $12 billion buy-back.
Micron (MU) pledged a $10 billion buy-back.
Facebook (FB) pledged a $9 billion buy-back.
T-Mobile (TMUS) pledged a $7.5 billion buy-back.
Qualcomm (QCOM) just upped the ante on their previous announcement to buy back $8.8 billion. On July 25th, 2018 QCOM said they would buy back $30 billion, more than 30% of the float!

Social media companies led an early pullback on the Nasdaq today as Facebook, Twitter and Alphabet were grilled in Washington. The questions being asked of these companies with regard to how they police their forums and the nature of the advertising being served to consumers/voters is understandably weighing on their performance. It is also leading to headlines along the lines of “technology stocks collapse” which if we look at the Nasdaq is clearly a case of hyperbole.

Some investors have seen the selloff as an opportunity to buy on the basis of stronger fundamentals, such as easing inflation, trade surpluses and widening growth differentials between emerging and developed markets.

"One of the interesting things contagion sets up is a selloff in the weak and the strong," said Arjun Jayaraman, who helps oversee $4.8 billion at Causeway Capital Management LLC in Los Angeles. "That’s when you have to step up and buy the strong currencies, the exporting, current-account surplus countries."

Stocks from India, South Korea and Taiwan look attractive in this environment, according to Jayaraman. Amoroso said investors will eventually want to step into local debt, while Goldberg said he would prefer hard-currency sovereign debt if trade concerns ease.

That may not be on the horizon yet. Pressure on emerging markets will probably persist for now, with Turkey, Argentina, South Africa, Pakistan, Brazil and India among the weakest links, Wolfe Research strategists including Chris Senyek wrote in a note to clients. The New York-based firm said default probabilities in Asia, interbank lending markets in Europe and credit-default swap spreads from individual banks show some similarities with the 1997 emerging-market crisis, suggesting broader fragility in the asset class.

"Our EM ‘blow-up’ monitor suggests that weakness is spreading across the most vulnerable EM countries," Senyek said.

One of the reasons emerging markets are popular among global investors is because they hold out the potential to benefit from simultaneous capital and currency market appreciation as well as scope for higher yields to boost total return. However, when emerging market currencies decline they erode profit potential for these markets and foreign investors sell.

While ASF is not a direct threat to human health it is a highly contagious viral disease that can devastate pig populations in regions where it has never before spread, including Asia. 

China has seen six outbreaks of the disease stretching from the first discovered in the country’s northeast at the beginning of August down to the province of Zhejiang, just south of Shanghai. The FAO said officials in China, which produces half the world’s pigs annually, had culled as many as 40,000 pigs so far in an attempt to control the disease.

“It’s critical that this region be ready for the very real possibility that ASF could jump the border into other countries,” said Wantanee Kalpravidh, regional manager in Asia for the FAO Emergency Centre for Transboundary Animal Diseases. “That’s why this emergency meeting has been convened – to assess where we are now – and to determine how we can work together in a coordinated, regional response”.

In an industry the size of China’s 40,000 pigs is not a large number but the virulence of the disease and the geographic spread of cases suggest that this is a situation that has the potential to represent a significant challenge for animal health authorities, particularly if it continues to spread.

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

Some of the topics discussed include: emerging market currency sell off continues with some evidence of contagion, precious metals fall in sympathy, crude oil hit a peak of near-term significance, Wall Street relative strength remains intact. bonds ease back.

We listened to Catherine Wood, founder and CEO of ARK Investment Management, LLC, expound to CNBC anchors why her firm was adamantly opposed to Elon Musk’s proposal to take Tesla, Inc. (TSLA-Nasdaq) private.  Her argument was that ARK’s research showed that by 2023 annual electric vehicle (EV) sales would be 17 million units per year worldwide.  Tesla, because of its focus on software, its ability to collect the driving mileage of its vehicle purchasers, and its vision about Mobility-as-a-Service (MaaS), coupled with its ability to create a fleet of four million EV taxis, would be worth nearly $1 trillion, in less than five years, earning shareholders a 17-fold return from the current share price.  

The day following this interview, Mr. Musk announced he was dropping the idea of taking Tesla private.  He stated that he changed his mind because his shareholders told him that they didn’t want him to make such a move.  Was Ms. Wood one of those shareholders Mr. Musk decided to listen to?  He had spent an incredible amount of time and energy since his tweet about privatizing Tesla in preparing for the move, as well as defending himself from a Securities and Exchange Commission (SEC) investigation about possible investment fraud.  That inquiry will not go away as easily as merely changing his mind, and we have yet to hear from the plaintiffs’ attorneys.  

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

The emissions cheating scandal and the increasing utility of electric vehicles means established auto manufacturers have to spend very large sums to retool and get electric vehicles to market. Audi announced yesterday it has started production of its electric SUV and Daimler said today that it is going to spend more than €10 billion to develop its electric vehicle fleet.

But a British company that launched in April is already marketing itself as an alternative to human models. Irmaz Models calls itself an “Imagined Reality Modeling Agency.” The company’s website says its designers can “make faces to fit” any marketing campaign. Another advantage: Digital models “never argue, need to eat, throw tantrums or get tired,” the company notes.

“Brands can specify the look they’re exactly after, down to the race, gender and hairstyle,” Philip Jay, a former Playboy photographer who founded Irmaz Models with Irma Zucker, told CNN.

Kelvin Boon, the owner of Boon Models, an agency with branches in New York and the District, said he sifts through a daily stream of modeling portfolios in search of “quality models.” Aspiring models don’t always resemble their photos, he said, and those that do often require training before they’re ready for professional work.

If credible-looking digital models emerge, he said, “it’s going to affect the industry a lot.” Why, he asked, would a brand spend thousand of dollars to hire models and photographers for a single photo shoot when you can hire an artist to create images for far less?

This is a very emotive topic and the headline above is what my daughters refer to as clickbait. People love their heroes so brands will always be on the lookout for someone they think can epitomise their image. However, there is a lot of work that is oriented towards the online market where photos are routinely doctored anyway that is ripe for digitisation. 

“I am following your comments every day with great pleasure, your summaries give me an excellent picture what is going on, thanks. Question: I missed completely all the new technology shares - google, apple etc. frustrating. you highlighted “momentum shares” - would it be too aggressive to start to invest in these tech shares NOW? please advise without responsibility on your side, off course, or what are you doing now with liquidity - I sold real estate here in Switzerland and enjoy liquidity on the account. all the best”

Thank you for your kind words and congratulations on your successful property transaction. The question of whether to chase momentum at this stage in the cycle is the same as subscribing to the greater fool theory. The other side of that argument is in the latter stages of a bull market there are plenty of fools.

Does the chart library provide a yield curve item? If not, can you please recommend an alternative source? Many thanks

Thank you for this question which comes up from time to time. The most expedient way of creating the yield curve spread in the Chart Library is to save the spread as a Preset template. That way any time you wish to view the spread all you need do is look at the Chart of the US 10yr Treasury yield and click on your yield curve spread template from the Chart: drop down menu. Here is a video explaining how to create the chart.

The US Dollar is breaking out against the South African Rand and a sustained move below ZAR14 would be required to question potential for additional upside.

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

Total emerging-market borrowing increased from $21 trillion (or 145 percent of GDP) in 2007 to $63 trillion (210 percent of GDP) in 2017. Borrowings by non-financial corporations and households have jumped. Since 2007, the foreign-currency debt – in dollars, euros and yen – of these countries doubled to around $9 trillion. China, India, Indonesia, Malaysia, South Africa, Mexico, Chile, Brazil and some Eastern European countries have foreign-currency debt between 20 percent and 50 percent of GDP.

In all, EM borrowers need to repay or refinance around $1.5 trillion in debt in 2019 and again in 2020. Many are not earning enough to meet these commitments.

Turkey and Argentina have twin deficits (combined budget and current-account gaps as a percentage of GDP) of 8.7 percent and 10.4 percent, respectively, that require financing. Pakistan has a twin deficit well above 10 percent. Brazil, India, Indonesia, South Africa and Ukraine are at or above 5 percent on that basis. In India, if state governments are included the number approaches double figures. Those gauges are rising in China, Malaysia, Mexico, Colombia, Chile and Poland.

Then look at reserve coverage – foreign-exchange holdings divided by 12-month funding needs for the current account, short-term debt maturities and amortization of long-term debt – which measures the capacity to meet immediate foreign-currency obligations. Turkey and Argentina score 0.4 and 0.6 respectively, meaning they can’t cover their needs without new borrowings. Pakistan, Ecuador, Poland, Indonesia, Malaysia and South Africa have reserve coverage of less than 1. Chile, Hungary, Colombia, Mexico and India have coverage of less than 2. Brazil and China come in at 2.5 and 3.1 times, respectively.

Even where reserve coverage appears adequate, caution is warranted. Long-term debt becomes short term with the passage of time or an acceleration event. Forex holdings may not be readily accessible. Much of China’s $3 trillion of reserves is committed to the Belt and Road infrastructure initiative. The ability to turn U.S. Treasury bonds and other foreign assets into cash is limited by liquidity, price and currency effects. Reserve positions are notoriously opaque: In 1997, the Bank of Thailand was found to have grossly overstated available currency holdings.

Capital is both global and mobile. Quantitative easing programs did not just help to inflate asset prices in the regions the funds originated, but globally. When yields drop in region yield hungry investors are forced to look further afield for returns and emerging markets were a logical choice. That looked like a genius move until the Federal Reserve embarked on quantitative tightening which has reduced the supply of Dollars used to repay that debt.  

The coalition government’s fiscal plans have been an investor focus all summer, with bond yields pushed higher in response to the coalition government’s expensive election promises. On Friday, Fitch Ratings cited budget concerns as it changed its outlook on Italy to negative from stable -- the overall grade remains two notches above junk.

Salvini said Monday afternoon that the budget would lower taxes and respect “all the rules,” toning down his earlier rhetoric challenging the European Union’s restrictions. The Italian 10-year bond immediately rose, sending yields down about 5 basis points to 3.18 percent. That compares with 2.7 percent on June 1 when the government was sworn in.

Finance Minister Giovanni Tria is fighting to contain public spending and he said in an interview with La Repubblica that bonds will rise further when investors see the details of the 2019 budget.

“Budget stability will be respected,” he said. Tria, an economics professor drafted at a late stage of the coalition negotiations, is trying to rein in the ambitions of Salvini and Luigi Di Maio of the anti-establishment Five Star Movement, though he lacks the political muscle of the two populist party leaders. The government is due to set new public- finance and economic-growth targets by Sept. 27 and submit a draft budget to the European Commission by Oct. 15.

I can’t help but think of the exchanges going on in Italy between the leaders of the two populist parties and their finance minister as the equivalent of a British Christmas pantomime. “Oh yes, we will” to which the only riposte is “oh no you won’t.”

About three-fourths of 50 Nifty members reported results that either beat or met earnings estimates in the June quarter, the highest proportion in at least three quarters, according to calculations by Bloomberg Quint. The “upcycle could be quite significant, a contrast to most parts of the world” as the share of corporate profits in India’s GDP is close to all-time lows, according to Morgan Stanley. For now, the rally has outpaced the outlook for profit growth, with UBS saying consensus earnings for Nifty are likely to be cut 7-8 percent.

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While Indian equities have traditionally traded at a premium to Asian peers because of the nation’s potential for faster economic growth, the valuation gap between MSCI India Index and MSCI Emerging Markets Index has widened to the highest in a decade, Citigroup Inc. said in an Aug. 20 note. Global uncertainties and rich valuations before a general election next year are “enough reasons to be cautious in equities,” the bank said.

India is a high growth market with a well-established domestic consumer market and is in the middle of a digital revolution following the rollout of 4G mobile internet. However, that does not mean it is immune from the occasional bout of volatility.

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

That wave of money, the directional change of fund flows hasn’t really kicked into gear yet,” said Saperstein, who helps manage about $10 billion, most of which is invested in corporate debt maturing in less than three years. “If the flow of money accelerates further and there isn’t enough absorption, spreads will widen.”

The cash-rich tech giants parked an increasing amount of their wealth into corporate debt in recent years as yields on safer investments like Treasuries shriveled -- a byproduct of central banks’ unprecedented efforts to keep rates low after the global financial crisis. Apple alone held more than $150 billion in corporates, exceeding some of the world’s biggest debt funds.

That started changing earlier this year after a Republican- led tax overhaul in the U.S. offered companies a break on the taxes they’d need to pay to repatriate their overseas profits.

Within the first three months, companies had already brought back a record $306 billion of dividends received from abroad, according to the Bureau of Economic Analysis. The total could reach $700 billion by year-end, according to Strategas Securities.

Removing a major source of demand from the market for anything is likely to have a knock-on effect for prices. The short-term corporate bond market is no exception and the repatriation of overseas profits is a significant issue for issuers who had been relying on big tech companies to buy their paper.

Blockchains and connected cryptocurrencies are probably the inventions with the most disruptive potential for the finance sector and the public since the invention of the internet.

Blockchains could revolutionize industries from the bottom-up and create new business models around a peer-to-peer community.

Bitcoin, Ethereum et al are only the first pioneer projects, whose success or failure depends on several factors like technical security, regulations and also their political impact.

As a new asset class, and one which is getting a lot of attention nowadays, Crypto Assets could be an interesting alternative to diversify portfolios. But there is an appreciable risk of major losses. Crypto Assets are in our opinion a highly speculative investment.

Economists have long been interested in the origins and uses of money, from Adam Smith, through Ludwig von Mises and on to the present day: they will now need to explore new aspects of it.

If blockchain can win trust in professional services, then it could sharply reduce the need for lawyers, accountants and so on in these traditional public or private sector functions: in other words, artificial intelligence is not the only threat to white-collar jobs.

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

I was chatting with a successful patent lawyer last week who had worked on some of the suits Samsung brought against Apple for using the finger pinch technology it developed to zoom in on photos without permission. He also related how he had spent a great deal of time working with computer game companies comparing lengthy lines of code to decipher whether a new game was patentable.

The law profession is full of this kind of grunt work that commands very high fees and which could be completed by a computer in no time at all. Additionally, when we think about the scope of what could be outsourced to the blockchain in terms of contracts and agreements then the only logical conclusion is the law profession is ripe for further disruption.

Now the government wants to break up the party. The Ministry of Education is leading a plan to curtail the number of online games in the country and limit the amount of time children play games. Parents are supposed to stop their kids from spending more than an hour a day on their electronics for non-educational purposes.

But how? That’s the question for parents everywhere there are game-addicted children. The Education Ministry doesn’t offer specific ideas about techniques for stopping kids from hopping onto a computer or smartphone. Chinese parents seem likely to be just as incapable of regulating game use as parents in other countries.

“Gamers always find a way to spend more time or money than allowed,” says Serkan Toto, founder of Tokyo-based game consultancy Kantan Games Inc.

The ministry offered the game guidelines as part of a broad plan to address the growing incidence of myopia among children.

The push, personally championed by Xi, is aimed primarily at reducing nearsightedness in children and teenagers by at least 0.5 percentage point a year till 2023, according to a statement posted on the ministry’s website.

Still, the move seemed as much an admission of widespread game addiction as an assertion of policy goals. The ministry encouraged parents to send their children outside to play -- without electronics.

Some people will always worry about how much time we spend in front of devices. Whether it is watching TV or listening to music via headphones. Netflix will now ask you after a few hours if you are still watching or have fallen into a catatonic state from binge watching.

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

Some of the topics discussed include: Wall Street steady, China weak, BRATS currencies remain under pressure, precious metals weak, oil steady.

Your mention in today’s commentary re the third psychological perception stage of the market jogged my memory about an anecdotal comment you made some time ago, probably going back at least 2-3 years. Given the time the has passed since, the exact details are a bit vague, however I recall you mentioning that you had been talking some trustees of, I think, University endowment funds, or some similar funds, and that they were at the time sitting on large amounts of cash, and were not heavily invested in the market. The implication was that despite a number of years of good returns in the stock market since the bottom in 2009, people were still nervous about returning. I wonder if you have any indication as to the current state of affairs and whether such funds have become more invested in the market or whether there is still a sizable amount of cash on the side lines. Thanks

Thank you for this question which may also be of interest to other subscribers. That meeting was approximately 1 year ago and due to the pace of bureaucratic change that particular endowment is only now getting around to progressing with changing its investment mix from 100% cash to a more balanced portfolio. 

This topic of an unloved bull market also popped in Jeffrey Saut’s missive this morning. Here is a section:

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

China’s toxic air and rapidly aging population mean it has a higher incidence of cancer than most other countries. At the same time the country has an underdeveloped medical infrastructure, particularly beyond the tier-1 cities. There is every reason to believe China will approach the challenges of its healthcare system by co-opting the success it has had with its digitalisation so telemedicine and artificial intelligence will form part of the diagnostic process. Meanwhile the streamlining of the clinical trial system will ensure a lot more drugs make it to market. The big question for innovative teams will be how they can protect their intellectual property.

“Health problems associated with food and nutrition have become a big issue,” said Kozo Takaoka, head of the company’s business in Japan, in an interview in Tokyo. “Nestle must address that on a global basis and make it our mission for the 21st century.” He said the wellness segment could eventually account for half of Nestle’s sales in Japan.

The investments come with the burgeoning interest in so- called nutraceuticals -- food-derived ingredients that are processed and packaged as medicine or wellness aids -- among consumers that are increasingly skeptical about mass products.

Nestle employs more than a hundred scientists in areas including cell biology, gastrointestinal medicine and genomics at the Nestle Institute of Health Sciences and has been developing tools to analyze and measure people’s nutrient levels.

“Decades in the future, all companies will probably have to be doing it,” said Jon Cox, an analyst at Kepler Cheuvreux. “The industry has probably had a setback as consumers also want natural and less processed products while adding supplements is seen as artificial or creating Frankenstein food.”

Some nutritionists are skeptical that tailored diet plans based around supplements are useful and that they may have more of a psychological effect than a medical one.

“Nestle’s program is designed to personalize diets in ways unlikely to be necessary,” said Marion Nestle, a nutrition professor at New York University who isn’t linked to the KitKat maker. “If we think something will make us healthier, we are likely to feel healthier.”

I had my 23andMe results analysed by DNAFit and their conclusion was that I process carbohydrates rather efficiently so I should eat less of them. They also pointed out something I have noticed myself which is that when I commit to a training regime I progress quickly, but when I stop I go backwards faster than most people.

I also tend to accumulate cholesterol, so I have to be very careful with what kinds of fats I consume if I want to maintain healthy levels i.e. more nuts and avocados with fewer shrimps and chicken thighs.

I have been particularly interested in the range of new products offering genetic profiling of our individual microbiomes but my conclusion is these are still very developmental in the range of insights they can offer. With that as a background I expect I am exactly who Nestle will be targeting their products at when they expand beyond Japan.

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

Some of the topics discussed include: Wall Street Third Psychological Perception Stage increasingly evident but corporate profits also breaking out, oil firm, other commodities ease, bonds ease back, Pound firms

Morgan Stanley just became the biggest Amazon.com Inc. and Alphabet Inc. bull on Wall Street.

The bank upped its price targets for the tech giants’ stocks by 35 percent and 14 percent respectively on Wednesday, to levels higher than any other of the analysts surveyed by Bloomberg.

Amazon’s high-margin revenue from advertising, cloud and subscription services like Prime are growing at such a rapid pace that the Seattle-based firm’s profits should increase even further, analyst Brian Nowak wrote in a note to clients.

Meanwhile, Google parent Alphabet is still only in the early stages of monetizing the seven platforms it owns that have more than a billion users, according to New York-based Nowak.

The launch of a ride-hailing service by Alphabet’s self-driving technology unit Waymo could also spur further share gains, he said.

Both companies had already garnered a slew of price target increases after surpassing expectations for second-quarter earnings last month, and not a single analyst tracked by Bloomberg recommends selling either stock.

Amazon’s stock price has doubled over the past 12 months, trailing only Netflix Inc. and Align Technology Inc., the maker of Invisalign orthodontics equipment, in terms of percentage gains for a Nasdaq 100 index member. Alphabet has rallied about 34 percent, a bit ahead of the benchmark

One of the hallmarks of the third psychological perception stage of a bull market is analysts competing to be the biggest bull. The way to make a name for yourself when prices are rising is to come out with a forecast that is well above the consensus and send it to as many journalists as possible, arrange interviews on financial TV channels and have the entire sales force talk about it with clients.

In the first quarter of this year, after-tax U.S. corporate profits as measured by the Bureau of Economic Analysis went up a lot (at an 8.2 percent annualized rate over the previous quarter), but pretax profits only went up a little (1.2 percent). That raised questions of whether all those great first-quarter earnings reports were mainly just the result of a one-time boost from the big corporate tax cut Congress passed in December. A lot of solid second-quarter earnings reports seemed to indicate that there was more to it than just tax cuts, and today we have the official if far from final answer from the BEA: Corporate profits are on a genuine roll.

The corporate tax bill even went up a bit in the second quarter, with pretax profits rising at a 3.3 percent annualized pace and after-tax profits at 2.4 percent. This is good news for the economic outlook — downturns and slowdowns are often preceded by dips in corporate profits — and also a sign that the corporate part of the Tax Cuts and Jobs Act may to at least a modest extent be delivering as advertised. A lot has been written about the corporate tax cuts’ failure to boost wages, which is fair given that the White House Council of Economic Advisers did promise a $4,000-per-household pay hike, but a bit premature. The tax cuts do, however, already seem to be delivering or at least coinciding with an increase in corporate profits and investment.

A longer-term view of corporate profits tells another interesting story: As a share of national income — which, unlike gross domestic product, includes income from overseas just as the corporate profits data does — pretax corporate profits are high but not as high as they were at times in the 1950s and 1960s.

After-tax profits' share of national income, meanwhile, is at a level never seen before 2010 (the BEA has annual data going back to 1929) and seemingly headed toward a new record. Leaving aside questions of who actually pays corporate taxes in the end, this shrinking of the corporate tax burden does seem at least superficially to have been a tremendous gift to shareholders over the past few decades. Wonder how long it can keep giving.

News today that corporate profits hit a new high in the 2nd quarter is further confirmation that companies continue to benefit from both the corporate tax cuts as well as the fiscal stimulus which is boosting spending.

As well as its day-to-day predictability, the programme invited running assessments of how much the BoJ might spend month to month. Since its target for the year was clearly stated, it was possible to calculate how far ahead or behind the implied pace it was. In early July, for example, analysts noted that over the first 124 trading days of the 245-day trading year, the BoJ had bought ETFs that annualised at a pace of ¥7tn — or ¥1tn ahead of target.

Because of that, Travis Lundy, an analyst who publishes research on Smartkarma, said that given the extent to which the BoJ had adjusted its buying patterns over the past seven years, it was premature to arrive at the conclusion about stealth tapering after the results of just a few August sessions.

“While there is a little bit of stretch in what has often been deemed a trigger, for the moment the BoJ is still buying at a ¥5.7tn-yen-a-year pace, which is the stated policy aim,” he said.

The size of the Bank of Japan’s balance sheet continues to expand but the pace of the expansion has moderated over the last year. It is that slowing in the pace of balance sheet expansion which has given rise to the contention the central bank is engaged in a stealth taper.

Following Barnier’s comments, markets also moved to bet on a slightly faster pace of tightening from the Bank of England, fully pricing in an interest-rate rise in November 2019. BOE Governor Mark Carney has previously said that the central bank’s future path will be dependent on the outcome of Brexit.

With talks at a virtual impasse for weeks, the two sides are rushing to try to reach a deal on the terms of the U.K.’s withdrawal by October, although Brexit Secretary Dominic Raab said Tuesday there was some flexibility on that deadline. Raab is due to head back to Brussels for negotiations on Friday.

“Traders have become very concerned about negotiations in recent months, particularly the increased talk of no deal Brexit and these comments will at least start to alleviate those concerns,” said OANDA Europe Ltd. analyst Craig Erlam. “It does suggest that more constructive conversations can happen to find a workable solution that suits both sides, should one exist.”

The tone of commentary focusing on Brexit has been to highlight the brinksmanship the UK administration has been engaged in and that may have paid off with the EU starting to edge towards compromise.

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

Some of the topics discussed include: ASEAN continues to rebound, Wall Street steady, Europe mixed, Latin America weak, precious metals ease at first area of potential resistance, bonds ease.

While trying to figure out if silver and gold have finished their current decline I decided to assess the size of the drawdown relative to 200-day SMA. Silver has a consistent pattern, in the last three years the difference between the price at the trough during the largest drawdowns and the reading of MA the same day was about $2. The current one even has a bit larger difference of $2.1 with the low of $14.33 and MA of $16.43.

Gold's pattern is less consistent, from $105 (in late 2015) to $153 (in late 2016) in the last four years, with the latest drawdown of $133: the price of $1140 at the trough with 200-day MA at about $1293 the same day.

In your opinion, do these calculations have any relevance? I just thought they can show the "size" of patience (or impatience) of investors before they begin to leave the market (sellers), enter it (buyers) or reverse their short positions into longs.

Your thoughts will be very much appreciated.

I received this email from a subscriber on the 17th which was very prescient but it turned up in my junk folder so I’m afraid I missed it. However, I believe it is well worth publishing now nonetheless.

Finland’s HEX Index remains in a consistent medium-term uptrend and bounced impressively from the region of the trend mean two weeks ago to test its May peak today. While somewhat overbought in the short-term a sustained move below the trend mean would be required to question medium-term uptrend consistency.

Surendrasingh Sucharia always has a few thousand rupees in his pocket, but can’t recall the last time he used cash. The 29-year-old product manager in Bangalore uses a string of smartphone apps including ones from Google and India’s Paytm to pay for everything from $40 bags of groceries to street food that costs pennies.

A bewildering array of digital payment businesses from global names like Facebook Inc.’s WhatsApp to Google are in a slugfest to win Indian users. Warren Buffett’s Berkshire Hathaway Inc. is acquiring a stake in the company behind payments leader Paytm.

Meanwhile, a string of other big-name players are also expanding in the country’s digital payments market including its banks, its postal service, and its richest man, Mukesh Ambani.

India saw a brief spurt in digital payments two years ago when Prime Minister Narendra Modi’s government banned most of the nation’s existing bank notes, although the spike petered out as new bills were printed. But over the past year, a string of new apps have made payments increasingly easy, and the discounts and cash bonuses they offer are proving irresistible to young, urban users like Sucharia.

Credit Suisse Group AG now estimates that the Indian digital payments market will touch $1 trillion by 2023 from about $200 billion currently. Cash still accounts for 70 percent of all Indian transactions by value, according to Credit Suisse, and neighboring China is far more advanced with a mobile payments market worth more than $5 trillion.

But local players have a stranglehold on China’s digital payments space. Modi’s administration, meanwhile, has welcomed foreign firms in order to expand financial services across India.

“This kind of a promising market exists nowhere else,” said Vivek Belgavi, a Mumbai-based partner at consultancy PwC India with an expertise in financial technology.

4G is the gateway to online payments, video streaming, mobile gaming, local ads, delivery services and it is a comparatively new development for India. While it would be rash to conclude India is completely open to foreign control of its nascent online payments network, it is also more willing to accept competition than China.

Structured deposits offer higher returns than regular savings accounts and are tied to bets on assets from currencies to gold. They have been around for years, but the sums outstanding have soared recently. In July they stood at a record 9.71 trillion yuan ($1.42 trillion), up 52% in a year, according to data provider Wind.

Banks aren’t competing only with one another for funds, which they need to extend more loans; savers also are switching to more attractive options, such as high-yielding wealth-management products, and to money-market funds, of which the largest is Ant’s Yu’E Bao. Growth in regular deposits fell to an annual pace of 8.5% in July from double-digit rates in previous years.

While lenders still sell their own wealth-management products, they are no longer allowed to guarantee buyers’ principal or interest payments. But they can promise to protect a customer’s outlay on a structured deposit.

Chinese banks are no longer able to issue US Dollar debt and they have seen their access to credit markets cut off at every turn. This is not so much of an issue for the large systemically important banks but it is a significant issue for smaller regional lenders. Their solution has been to encourage deposits by selling structured products which carry all the same risks as those sold in places like the USA and Italy ahead of the credit crisis.

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

Some of the topics discussed include: Wall Street extends breakout, China rebounds, Thailand firm, Mexican stocks firm, Dollar eases, commodities steady, Bonds ease

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

The classic yield curve referred to in the above segment is the difference between the 30-year and the 3-month yields. The more popular measure is the 10year – 2-year spread. If we compare the two measures the former tends to be less volatile and the exact timing of when they invert also tends to be somewhat different with the longer-term spread being later. However, they are both reliable lead indicators of future recessions.

There’s one substantial difference between Battle for Azeroth and the trajectory previous expansions have followed, however. In the past, getting into World of Warcraft meant buying the base game and paying a monthly fee. The monthly fee is still in place — WoW hasn’t gone F2P — but the only expansion you need to pay for is the latest one. If you want to play through the base game, up to and through the Legion expansion, it’s just $15 per month.

One possible reason for the change is that Blizzard might be trying to woo players into coming back and trying content they missed without requiring them to pony up a lot of cash up front. Two players recently returned to my guild for this reason — once Battle for Azeroth went live and Legion became free, they signed up to play through the expansions they’d missed and experience the content. Granted, it’s not exactly the same content as it used to be — repeated “stat squishes” to keep player HP and damage under control, combined with repeated tweaks to accelerate the leveling experience, give areas a different feel than they had the first time around, even when you’re ostensibly playing through the same content. In some ways, it’s a much better game — World of Warcraft today is far more respectful of your time than it was 10 years ago — but now that I’m leveling an alt for the first time in many years, there are moments when I miss the older game and its slower but more dangerous pacing. The lack of difficulty spikes makes for fewer teeth-clenching rage spasms, but it also makes the game easier to predict.

The 3.4M sales that Blizzard is claiming set a launch record for BfA were impressive, but not much larger than previous cycles. Both Legion and Warlords of Draenor reportedly sold 3.3 million copies in their first 24 hours. This suggests initial launch sales don’t have much prediction power when it comes to how much of the player base will stick around and for how long — Legion, which was easily WoW’s strongest expansion in years, seemed to do a good job retaining players based on how many old friends I saw show back up and stick around for years, if not the entire expansion. We’ll see if the Battle for Azeroth holds players’ interest the same way.

The free to play model for computer games is challenging legacy subscription model games like World of Warcraft where you paid a steady monthly rate for hours of running around with friends completing various tasks.

As can be seen from the table above, the trend of energy efficiency improvements or declines in energy intensity is not uniform across time periods for various country groups or for individual countries. For developed or high-income countries, the trend is most secular with improving efficiency in every time period as we move forward in time. However, for middle and low-income countries, periods of high growth may be associated with high energy intensity, which could slow down the overall improvement rate. This is most apparent for China in the 2000-2010 timeframe, where very high GDP growth rates coincided with lower focus on energy efficiency. Energy efficiency has now picked up again in the current decade, where Chinese GDP growth has moderated and a focus on environment friendly energy practices has evolved. Move over to low-income countries like India, and it seems that improvements in energy efficiency are lower in the current decade owing to higher economic growth. Thus, the Chinese pattern could repeat for emerging countries like India, which will likely moderate the pace of energy efficiency improvements to an extent as we move toward 2030.

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

It is easy to conclude high income countries are more efficient because they are more technologically sophisticated than developing economies. The secular trend toward greater energy efficiency in high income countries and the corresponding evolution of technology is supportive of that conclusion.

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

That means sometime next year, they will raise rates above their estimates of the so-called neutral interest rate which neither boosts nor restricts economic growth -- most Fed officials believe it’s somewhere between 2.5 and 3 percent. That makes sense because, according to their models, unemployment is below their estimate of the so-called natural rate of unemployment which would keep inflation stable. In June, they believed that rate was 4.5 percent.

But the problem facing Fed officials is that even though unemployment is at the lowest levels in nearly 20 years, inflation isn’t showing many signs of a pickup.

One of the most common explanations is that policy makers’ views of the natural rate of unemployment may be too high. The error bands around those estimates are “two percentage points on either side,” Chicago Fed President Charles Evans said Aug. 9.

The big question for central bankers is not so much about headline inflation being a concern right now, but just how much of a distorting influence has quantitative easing had on asset prices, valuation models, risk metrics and the reliability of lead indicators.

China’s fixing adjustment in tandem with Powell’s dovish tone on price pressures fueled a decline of as much as 0.7 percent for the greenback Friday. The PBOC move to inject stability into the dollar-yuan rate will reverberate across the emerging-market currency landscape, slowing further greenback gains, according to Brad Bechtel, a managing director at Jefferies Group LLC.

“Any dollar-yuan rallies will be a lot less punchy and a lot more gradual, so it will have a dampening effect,” Bechtel said. “It provides stability to the entire Asian-EM complex. It does help cap the rally in the dollar, or at least stall it.”

The yuan has slid more than 6 percent against the greenback since mid-June as the two countries square off in a protracted trade war, helping fuel broad dollar gains and stoking the ire of U.S. President Donald Trump. The PBOC last introduced a counter-cyclical factor to the yuan’s fixing in May 2017, helping spark a 3.5 percent decline in the dollar over the remainder of the year.

Beijing had suspended use of the factor in January, a move interpreted to mean that policy makers had grown more comfortable with the yuan’s trajectory after several months of gains against the dollar.

China’s renminbi has been among the weakest currencies in the world this year and as it approached the region of the lows posted in 2016, the question many Chinese people have been asking is do they need to move money abroad?

Even in Australia, which escaped the ravages of the global financial crisis, the political center is proving to be fragile ground.

A decade of easy money since the collapse of Lehman Brothers Holdings Inc. fueled a borrowing binge that’s left Australian households among the world’s most indebted. Combined with flat wages, surging home prices and swelling immigration that’s clogged roads in major cities, many voters feel worse off even though the economy just completed its 27th recession-free year.

Those forces have spurred voter discontent with Australia’s major parties and prompted a leakage of support to fringes of the political spectrum. That helps explain how an insurgency, driven by a small group of conservative former ministers, was this week able to bring down political centrist and former Goldman Sachs banker Malcolm Turnbull as prime minister.

Their goal was to install Peter Dutton, a tough-talking ex- policeman who advocated a right-wing populism in the same vein as Brexit and the rise of U.S. President Donald Trump. He pledged to slash immigration and wind back tax reforms in order to cut electricity bills.

Morrison Wins
In the end, they failed by the narrowest of margins. Turnbull, realizing his own support had crumbled, played for time and demanded Dutton show him a signed petition from a majority of his party’s members before he would call a vote.

That gave time for one of his allies, Treasurer Scott Morrison, to work the phones and eventually win the ballot 45 votes to 40.

“Australia is yet another case of anti-establishment sentiments bubbling up politically around the world over the past few years,” said Sean Kenji Starrs, an associate professor in the Department of Asian and International Studies at City University of Hong Kong. “While Australia’s economy has fared better than many others in the OECD, like elsewhere this growth has not lifted all boats.”

When in Melbourne last April, apart from the highly enjoyable repartee with subscribers at The Chart Seminar, two encounters stuck with me. The first was with some of my cousins who run a successful property maintenance company. The eldest son has returned from spending some time overseas with his new wife and they are not yet on the property ladder. Even for people who are well to do by any standards the challenge of affording property in anything that approaches a desirable neighbourhood is a source of angst. When it is difficult for local people to afford housing that is unquestionably going to feed into discontent and populism.

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

Some of the topics covered include: an extensive review of commodities and commodity related markets, Europe's underperformance and US relative strength. 

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

The one certainty we have is that there are a large number of people who are not going to be happy with the result of the Brexit negotiations. The big challenge for the UK and a point which I have not seen discussed at length is that the role of manufacturing remains in a secular downtrend and the primary employment growth in the economy has been from the service sector. However, the service sector is an amorphous term which includes everything from lawyers to hairdressers and hotel cleaners.

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

The US Dollar Index trended lower for most of 2017 and over the course of the last few months has unwound about half that decline. However, the Dollar’s relative strength against some of the most liquid emerging market currencies such as the Turkish Lira, Argentinean Peso, Venezuelan Bolivar, Brazilian Real, Chinese Renminbi is what is animating investors right now. That story is more about the weakness of their respective economies and their exposure to US Dollar denominated debt that the particular strength of the US Dollar.

Alibaba’s been busy expanding its Hema supermarket chain and now operates 35 of those stores -- a mix of sit-down dining and groceries plus delivery hub. Much cash also is flowing into China’s $1.3 trillion food retail and services industry, where it’s trying to hold its own against delivery giant and super-app Meituan. Alibaba said Thursday it’s teaming with SoftBank to put more than $3 billion into Ele.me. Alibaba now intends to merge Ele.me with Koubei, another unit focused on connecting restaurants to the internet.

Ma is also spearheading an expensive foray into the $4 trillion retail sector. Alibaba acquired a department store chain with 29 stores and 17 shopping malls last year and also bought a slice of China’s largest hypermarket chain. It’s been shelling out on content for its Youku video-streaming service to stay abreast of Tencent and Baidu Inc. And heavy investment in datacenters for its cloud computing arm helped almost double revenue in that division to 4.7 billion yuan.

However, those burgeoning businesses may be helping mask a slowdown in Alibaba’s bread-and-butter business, said Steven Zhu, an analyst with Pacific Epoch.

Customer management revenue -- the lucrative fees it charges for helping merchants with marketing -- grew just 26 percent in the quarter, from 35 percent in the previous three months. That reflects how rivals such as JD.com Inc. and Pinduoduo Inc. are siphoning off Alibaba’s merchants and may affect the bottom line in coming quarters, Zhu said.

“This is probably the slowest growth ever,” he said. “They are swapping high-quality revenue with low-quality revenue.”

Amazon bought a supermarket chain so Alibaba bought a supermarket chain. The USA has Grubhub so Alibaba bought ele.me and is also getting into the broader retail sector through the purchase of a department store chain. There is no denying that these are more conventional businesses than the high growth online expansion that fuelled Alibaba’s initial growth spurt. The fact the company is also talking about primarily focusing on the Chinese domestic market raises questions about its commitment to overseas expansion.

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

Some of the topics discussed include: Treasury prices steady on Fed Minutes, Wall Street flat, China still weak, Dollar quiet while precous metals at first are of potential resistance. oil firm from trend mean, China drifting

This is quite the chart - it shows the consensus estimates of the longer-term earnings growth outlook for the S&P500, and it's the highest since the later stages of the dot com bubble.  But back then it was all about "the new economy" as dot com companies were disrupting industries left right and center and promising a tech revolution.  Now it's tax cut euphoria, and the hope of a shaking of the old "secular stagnation" fear that took hold in 2015/16.  Indeed, it's interesting to reflect on the history of this chart, it seems to speak more about sentiment than fundamentals (or maybe some mix of the two).  With the US economy still going strong, one may be tempted to channel Irving Fisher's "permanently high plateau" quote...

Expectations for further earnings growth are an important rationale for supporting stock prices at new all-time highs. The surge in the bullish expectations following the shift from monetary to fiscal stimulus in the USA certainly stands out on this chart and helps to highlight just how enthusiastic investors are about growth potential.

LG Chem, a major South Korean lithium-ion battery manufacturer, is increasing its cell manufacturing capacity to such an extent that it may surpass the entire LIB market in both output and raw material consumption from just three years ago.

Roskill, industry analysts that ran the numbers on LG Chem's planned output, says that South Korean manufacturer plans to increase capacity to 90GWh in 2020 from a previous forecast of 70GWh.

"Assuming 100% of output was to be NMC532, 90GWh would require around 100kt of cathode, containing 40kt nickel, 22kt cobalt, 16kt manganese and 50kt lithium (carbonate equivalent), and 90kt of anode materials which could be 100% graphite," writes Roskill.

"If producing at capacity, LG Chem’s LIB output and raw material consumption would be greater than the entire LIB market in 2015."

LG Chem, South Korea's largest chemical company, is one of the top five LIB manufacturers. It makes batteries for the Ford Focus, Chevrolet Volt and Renault ZOE.

LG Chem has been making deals to ensure it has raw material. This past spring Zhejiang Huayou Cobalt and LG Chem announced they are planning a cathode material facilities with capacity of 40,000tpy and 100,000tpy capacity planned for future. It also signed deals other raw material deals with Nemaska Lithium and Ganfeng Lithium.

While cobalt and lithium prices are currently falling, Roskills says cell manufacturers are locking in supply and ". . . that activity in the sector continues at a rapid pace."

The auto-manufacturers sector remains under stress because of continued issues with revelations about emissions cheating; most recently in Japan. The cost of meeting current emissions standards not to mention the tightening of regulations slated for the next few years represents a significant cost for just about all conventional car manufacturers. The fact the majority of manufacturers are planning on releasing electric vehicles is as much about responding to Tesla’s success as it is about the challenge of meeting regulations that are now going to be enforced.

Those who thought that day would be sometime in the far distant future would be wise to think again. To be sure, DeepMind has made inroads on this goal before, specifically with their work on Psychlab and Differentiable Neural Computers. However, Impala is their largest and most successful effort to date, showcasing a single algorithm that can learn 30 different challenging tasks requiring various aspects of learning, memory, and navigation.

But enough preamble; let’s look under the hood and see what makes Impala tick. First, Impala’s based on reinforcement learning, an AI technique that has its origins in behaviorism. It parallels the way humans build up an intuition-based skill, such as learning to walk or riding a bicycle. Reinforcement learning has already been used for some amazing achievements, such as endowing an AI with emotions (see video below) and learning complex games like Go and Poker.

Relational learning is a big step for artificial intelligence because unlike humanity, computers have no limit on the number of relationships they can form and how much experience can be relied on to draw conclusions.

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

Some of the topics discussed include: Meanwhile the banking index is continuing to hold its July lows which is at least a tentative sign of government support for the market.

While it's difficult to get an accurate read of the degree of FX-market capitulation without access to algo trading volumes, we can get a sense by looking at ancillary indicators. Thus far, for example, euro currency futures volume has yet to reach "Turkey Friday" levels, but is still above recent averages with an hour of regular session trading yet to go.

Meanwhile, FX ETFs tell their own story. The dollar bullish UUP vehicle is on track to register volume above both recent and longer-term averages. The bearish UDN, meanwhile, has seen above-average interest all day.

Again, while this is very much a tourist vehicle, it does suggest that today's dollar price action is drawing quite a bit of interest. Anecdotally, there's been decent covering of euro shorts, a process that could accelerate further should we breach the next little resistance level around 1.1630.

The minutes from the last Fed meeting will be released tomorrow and Jay Powell is speaking at Jackson Hole on Friday. These could both be catalytic events for the currency markets and the outlook for interest rate policy which is likely causing some unwinding of long positions. The rebound in risk assets with the S&P500 hitting a new all-time high is also sapping demand for safe havens.

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

Unconventional oil and gas remain gamechangers for the energy sector and that influence continues to unfold for the USA’s primary resource basins as well as opening up new ones like the Utica and Marcellus shales.

A question Do we need to see a clear change of trend in the chart for Total known ETF holdings of gold before we take any uptick in the gold price seriously?

Thank you for this question which may be of interest to other subscribers. ETF holdings of gold are an important source of demand for the sector and had been trending higher for almost 18 months before the recent drawdown. That was indicative of retail investors coming back into the market and the drawdown suggests at least some have left. 

Hello Eoin. I wonder if you have seen this article on China's vaccine scandal? Your take would be of interest to the Collective, I'm sure. 

Thank you for this article which may be of interest to subscribers. If you remember a couple of years ago there was the melamine in the infant formula scandal and there have also been numerous scandals about corruption of the food supply chain. I thought this was the most important section of the article:

Now if I were a billionaire businesswoman, ‘meeting fees’ would certainly be my euphemism of choice for ‘phone a government friend’. There are also rumours that the corruption goes higher than local authorities. Some papers are reporting that Gao had the support of the ‘Jilin Gang’, which runs to the very heart of government. Formed out of the friendship between People’s Dailyeditor and former party secretary of Jilin, Gao Di, and the then-president Jiang Zemin, the Jilin Gang has been the breeding ground for promising politicians since the 1990s. With Gao Di’s leadership and president Jiang’s blessing, members of the faction could be assured of high office.

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

Some of the topics covered include: yield curve spread hits new low, emerging sovereign spreads wider than US junk, stock markets steady, governance disparities mar performance of emerging stocks, oil steady, metals unwinding short-term oversold

Investors see a 90 percent probability of a rate hike at the Fed’s meeting next month and around a 60 percent chance of a fourth move when officials gather in December, according to prices in interest-rate futures markets. As the view that the Fed will keep raising rates has grown, the yield curve has flattened, with short-term yields rising more than long-term ones.

Bostic, together with several other regional Fed chiefs including St. Louis’s James Bullard, Robert Kaplan in Dallas and Minneapolis’s Neel Kashkari, have used this year’s flattening curve to argue that the central bank should tread warily in raising rates all that much further to avoid an inversion.

History is on their side: Over the past 50 years, the U.S. has always tumbled into recession within a year or two of the curve flipping.

“There are many, many signals in the economy and we have to pay attention to all of them,’’ Bostic said. “This yield curve will be one.’’

The big question facing central bankers as they retreat from extraordinary monetary stimulus is whether the next recession will be a recuperative measure which would help unwind excesses or whether it would represent the dawn of another credit crisis?

When emerging-market stocks trade this cheap relative to U.S. equities, a rebound is normally in order.

The MSCI Emerging Markets Index has traded at a discount to the Standard and Poor’s 500 Index since 2006, but for the past five years its relative valuation has held within a range, with its price-earnings ratio fluctuating between 25 percent below the U.S. gauge at the best of times and 33 percent during the worst.

The index, the benchmark gauge of developing-nation equities, typically bounces back in a matter of weeks once it reaches the floor. That was certainly the case on three previous occasions: at the height of the Russian currency crisis in 2014; in the wake of the Federal Reserve’s December 2015 decision to raise interest rates for the first time in almost a decade; and at the end of the technology sell-off last year.

The index closed at a valuation ratio of 66.37 percent on Friday, or a discount of 33.63 percent to U.S. stocks based on price-to-estimated earnings. On Monday, it rallied 1 percent, the best one-day gain in six weeks.

Still, past rebounds are no guarantee of future performance and the environment remains fragile for emerging markets.

Investors can’t know how ugly the U.S. trade war might get, how deeply Fed interest-rate increases will affect developing-nation currencies or where the next political shock will come from.

But for those convinced of the investment case for emerging markets and willing to wait for the right valuation to resume buying, this could be the moment. Stocks are as cheap now as at any time in the past five years.

Relative comparisons are always tempting to look at because of historic comparisons but ratios can self-correct in a number of different ways. To say emerging markets are at close to record lows against Wall Street today say as much about how high Wall Street is as it does about the rout in emerging markets.

Venezuela is doing something completely unprecedented. Some even say illegal.

As part of an attempt to stop skyrocketing inflation, the country is issuing a new fiat currency called the "sovereign bolivar," which will be backed by a cryptocurrency. But that cryptocurrency, called the "petro," does not trade, and Venezuela's own parliament says it's being illegally used to mortgage the nation's cash-strapped oil reserves.

"This is a smoke-and-mirrors operation typical of Venezuela — I'll believe it when I see it," said Steve Hanke, professor of applied economics at Johns Hopkins University and one of the world's leading experts on hyperinflation. "The problem with the petro is it's a scam, it doesn't even trade."

In February, President Nicolas Maduro unveiled the oil-backed "petro" digital currency as a means to raise cash amid an economic meltdown and economic sanctions. Maduro said each petro token, which is not in circulation yet, would be backed by a barrel of the state's national petroleum. He also said about 100 million petro tokens would be issued — estimated to be worth around $6 billion.

A country really does have to be in dire straits to try and pawn the nation’s fate on a cryptocurrency. However, crypto investors are under no illusion about what the move means for value in the so-called sovereign bolivar. The Petro dropped 47% today. https://coinmarketcap.com/currencies/petrodollar/ The problem for anyone ever remotely tempted to participate with the Maduro administration is contractual obligations are only as good as the counterparties signing them.

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“It took an eternity for the conservatives to admit that Germany is a land of immigration. People from Turkey, Spain, Italy, Greece and so on came to our country to help us rebuild it, but they had a difficult time integrating here,” said Sebastian Hartmann, a lawmaker with the Social Democrats and co-author of the bill.

The #MeTwo debate and the pending legislation are challenging complex, decades-old attitudes in Germany regarding nationality and ethnicity, and raising questions about Germans’ willingness and capacity to integrate foreigners and their descendants.

Germany needs to attract workers as the current population ages, according to economists who say the country must lure at least 400,000 skilled outsiders a year to maintain economic growth.

Already, nearly a quarter of Germany’s 82 million people have at least one immigrant parent who was born without German citizenship, according to 2017 figures. And the country takes in almost as many newcomers a year as the U.S., mostly European Union nationals who are free to work across the bloc and asylum seekers who can’t be turned back under international law.

Many countries in Europe have failed at integrating millions of migrants because their appeal to multiculturalism was in effect a way of segregating incoming populations and led to an under toe of racist sentiment which remains in place today. That means it is difficult to absorb even second-generation immigrants and that poses domestic challenges for every country. However, if countries cannot absorb migrants and cannot create a wholly independent identity of a welcoming generous society then what hope do they have of forming the long dreamed of European identity of bureaucratic Europhiles.

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The uranium market is in a unique position such that the world’s largest miner of the metal would rather buy on the spot market than mine itself. That says a lot about the marginal cost of production relative to current prices.

Combined bond maturities in onshore and offshore markets for the sector amount to $76.5 billion through the end of 2019, according to data compiled by Bloomberg. Builders are expected to tap both markets to meet the refinancing needs.

"We expect onshore issuance will remain strong after a pick-up in recent months," said Franco Leung, property analyst at Moody’s Investors Service. "Offshore issuance slowed recently, but we expect issuers will continue to tap the offshore bond market given the maturity walls in the coming 6 to 12 months.”

China came down hard of local currency debt issuance from 2015 when it looked like the pace of property market price appreciation was going to cause a bubble from already elevated levels. That action was the causal factor behind the growth of the shadow banking system and the massive growth in foreign debt sales.

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Some of the topics discussed include: the prospect of trade talks improves, Wall Street firm, China steady, commodities steady, Dollar firm, Italy weak,  

Donald Trump’s top economic adviser welcomed China saying it will send Vice Commerce Minister Wang Shouwen to the U.S. for low-level talks in late August, while also adding that the president’s determination on trade shouldn’t be underestimated.

“It’s a good thing that they’re sending a delegation here - we haven’t had that in quite some time,” National Economic Council Director Larry Kudlow told CNBC Thursday. “The Chinese government in its totality must not underestimate President Trump’s toughness and willingness to continue this battle to eliminate tariffs and non-tariff barriers and quotas to stop the theft of intellectual property and to stop the forced transfer of technology.”

He said the Chinese economy and currency “are slipping, as you all know, but let’s just see what happens.” Talks can produce better outcomes than expected, and talking is better than not talking, he added.

The Chinese delegation led by Wang will meet with an American group led by David Malpass, under secretary for international affairs at the Treasury Department, at the invitation of the U.S., China’s Ministry of Commerce said in a statement on its website on Thursday.

“This will be ‘talks about trade talks,’” said Gai Xinzhe, an analyst at the Bank of China’s Institute of International Finance in Beijing. “Lower-level officials will meet and haggle and see if there is a possibility for higher-level talks.”

Before an earlier deal collapsed in May, China agreed to "significantly" increase purchases of U.S. goods and services, and that may provide a guide for the next round of discussions.

As Harold McMillian quoted Winston Churchill said “Jaw, jaw is better than war, war”. News that trade China and the USA are preparing to sit down again to talk about trade was widely greeted by markets today with Wall Street rallying emphatically and most of Europe following with the exception of Italy.

Meanwhile, Indian-managed companies like Ambani’s Reliance Retail Ltd. will be free to control and improve their supply chains while building a fearsome online presence in partnership with his mobile operator, Reliance Jio Infocomm Ltd.

That’s not the only onerous aspect of the policy. The draft speaks of a two-year period after which data generated in India – on social media (Facebook Inc.), via search engines (Alphabet Inc.’s Google), or e-commerce (Amazon) – will have to be stored on local servers. As the Wall Street Journal noted this week, the move is bound to push up costs for Western firms.

This new restriction will probably make it to the final law. The Indian central bank is already directing all payment firms like Visa Inc., Mastercard Inc. and PayPal Holdings Inc. to keep their Indian data exclusively in the country by October, so there’s little reason to expect that rules for e-commerce data will be much less stringent.

Besides, similar laws already exist in China. Amazon sold its Chinese servers and some other cloud assets to a local partner to comply with Beijing’s local storage rules. Alphabet, which has no data centers in China, is also looking for a local partner to bring its Google Drive and Google Docs to that country, Bloomberg News reported recently.

Other aspects of the policy may die without Bezos needing to move a muscle. Indian privacy activists will balk at the idea of a “social credit database,” to be set up — in a very Chinese fashion — by mixing state and non-state citizen data. While the goal of the database is to promote digital lending, there’s no guarantee it won’t be used to stifle dissent. 

A more problematic suggestion in the draft is that the Indian government would have access to the data stored in India, “subject to rules related to privacy, consent etc.” A proposed Indian data-privacy law is yet to be passed by parliament, and whatever makes it onto the books will in turn be shaped by the Indian apex court’s verdict in a case challenging the constitutional validity of a biometric identification system that the government has rolled out to 1.2 billion Indians.

India is on the cusp of digital revolution following the roll out of 4G at the beginning of 2016. It has been transformative for Reliance Industries’ shares but the broader impact of taking shopping, banking, music, books and just about everything else we take for granted online is likely to be a major catalyst for growth in the Indian economy. The clearest comparison is that India’s digital market is where China’s was approximately 5 years ago.

To help pay for its recently completed $8 billion buyout of the margarine and spreads business of Unilever — since renamed Flora Food Group — KKR, the private equity firm, offered investors 1.1 billion euros (about $1.3 billion) of senior notes with a minimal covenant package. Moody’s rated it 4.99 on a scale of 1 to 5, with 5 being the weakest. Nevertheless, investors gobbled them up.

Or consider the mighty AT&T — now stuffed to the gills with an estimated $180 billion in debt following its $85 billion acquisition of TimeWarner. It is, according to Moody’s, the “most indebted, nongovernment controlled, nonfinancial rated corporate issuer” and one now “beholden to the health of the capital markets.” In other words, the company is so indebted that chances are high it will need continuing access to the credit markets to refinance and pay back its mountain of debt as it becomes due.

So-called junk bonds — issued by companies with poor credit ratings — historically have yielded around 10 percent or more, to compensate investors for taking the risk of buying the debt of such companies. These days, junk bonds yield around 6.25 percent, meaning that investors — still desperate for yield — have overpaid for these bonds sufficiently to drive down their effective yields to levels that fail to compensate them for the risks they are taking.

When junk bond yields return to more normal levels, as interest rates rise and investors’ yield-fever breaks, the price of the bonds bought during the feeding frenzy will fall and billions of dollars stand to be lost — by endowments, pension funds and high-yield funds, among others — as bonds across the board are repriced by the market.

A quip from my time at Trinity College was “you go to university to drink from the fountain of knowledge, and you drink and you drink and you drink” When I think about the influence quantitative easing has had on corporate treasury activities that is what I am reminded of.  

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Some of the topics discussed include: Wall Street rebounds from its intraday lows, Turkish Lira rebounds, gold, silver, platinum break down, Chinese renminbi hit new low, European banks break down, Dollar firm, Treasuries steady

One of the requests subscribers have asked for most over the last few years has been to have an easy way to find what positions I have open at any given time. Therefore, I repost this section on a daily basis and the title will always include the date of my most recent trade.

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Some of the topics discussed include: Emerging currencies pause, Euro remains weak, China barely steady, Wall Street firms, Treasuries ease, gold remains weak, oil eases, copper weak.

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The SHIBOR interbank rate is perhaps the clearest indicator that the process of deleveraging has either ended or is at least taking a breather. One of the clearest takeaways from my family’s recent visit to China was the abiding sense of unease many people were exhibiting and that was no doubt a reflection both of the tightening of credit and the increasingly overbearing position adopted by the administration.

One wonders why investors expect President Erdogan, a man who has referred to them as like the loan sharks who enslaved the Ottoman Empire, to choose to repay the foreigner and accept the crushing socio-political cost on the local population of doing so? Even if Turkish institutions have the ability to pay, something your analyst has long doubted, the President will forbid them from doing so. This is a large default and it will prove to be almost a total default.

It matters and, of course, it may be politically expedient for others to follow the advice of Paul Krugman and the IMF and choose not to repay their debt obligations to foreigners. This is the new normal. In a world where ten years of extreme monetary policy has failed to inflate away debts, it will become increasingly common to repudiate those debts. Those under the most pressure will be those with the highest levels of foreign currency debt where inflation can play no role in reducing increasingly crushing debt burdens - almost exclusively emerging markets.

For the past few years professional investors have fretted about the implications of something widely referred to as ‘populism’. This, it seems, is a developed world phenomenon. While others see populism, all your analyst sees are sovereign peoples trying to bring power back to their elected representatives. This is a movement to strip power from multi-national organisations (the EU, WTO), multi-national corporations, independent central banks and any other body that has stripped sovereignty from elected representatives over the past three decades. That is an exercise in democracy that may well be bad for returns on, and of, capital but it is a constitutional swing within the rule of law.

It is difficult to define this shift back towards a more representative democracy as populism, whatever you many think of the repercussions for your portfolio. I realise that many readers will disagree, but in the developed world the barbarians are really not at the gate. Things are entirely different in emerging markets.

Veteran subscribers will be aware that I share Russell Napier’s view that the rise of populism is not a mistake but the beginning of a trend where those who have been left behind by march of globalisation and those who have not seen their living standards improve as expected are rebelling.

Indeed, it would be a mistake to see this as a uniquely Bitcoin play. The most interesting part of a Bitmain pitch might be its shift into non-crypto terrain. The company has been using its chip-design expertise to expand into artificial intelligence, and company documents estimate this will make up 40 percent of its revenue in the next five years, according to CoinDesk. Wu told Fortune magazine in June that this business would be similar to Google’s AI-focused tensor processing units.

Quite what the nationalists in the Donald Trump administration might think of a Chinese-owned crypto-powerhouse raising money to spend on advanced AI hardware and compete with Silicon Valley is anyone’s guess. Even if Bitmain is creating tech jobs in the U.S., and backed by U.S. venture capital funds, it would probably be listed in Hong Kong.

All of this is obviously very much still in the rumor and speculation category, including the listing itself. But what appears like a straightforward play on digital currencies, might in fact end up as an attempt by a leading Chinese entrepreneur to cash out of the Bitcoin craze and fund some leading-edge tech instead — ironic when you consider that China has been far stricter on crypto-trading than most western nations.

For investors still nursing losses from Bitcoin’s wild ride, the prospect of another tech moon-shot may seem a bit too soon. But maybe this could end up the first useful real-world thing to emerge from the Bitcoin bubble. 

The barrier to entry into the chip foundry business is very high since it now costs billions to build the architecture to manufacture at the nana scales required to create competitive products. Bitmain could be China’s first domestic chip foundry which is a national priority of the Communist Party.

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.

One of the requests subscribers have asked for most over the last few years has been to have an easy way to find what positions I have open at any given time. Therefore, I repost this section on a daily basis and the title will always include the date of my most recent trade.

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

Some of the topics covered include: Turkish Lira remains weak, Indian Rupee, Australian Dollar, New Zealand Dollar break lower, gold and silver break downwards, Wall Street eases, oil steady

No. 7. Growing chatter about capital and convertibility controls
It’s not a great surprise that there is now more talk domestically about the possibility of Turkey implementing capital controls to limit outflows and counter the dollarization of the economy. This increases the incentive for the private sector (both local and foreign) to accelerate its dis-engagement from the local currency. With that comes even greater financial and economic pressure.

The bottom line for Turkey is not a pleasant one. Due to the coincidence of domestic and external pressures, the authorities have limited room for maneuver when it comes to policy formulation and financing, especially if they decide to continue to go it alone. It is becoming less and less likely that the government will be able to avoid some combination of higher interest rates, budgetary austerity, recourse to IMF financing and some forms of capital controls. Indeed, the longer it waits to tighten policies domestically and engage with the IMF, the greater the risk that all of this will come about.

Investors should brace for more volatility for the Turkish lira and bond spreads, as well as more technical contagion for other emerging markets. The spillover for the advanced world -- particularly Europe -- would only become consequential if the sources of contagion were to spread.

Erdogan has some big decisions to make, the most important of which is when to apply for foreign assistance. If that happens sooner then international confidence will be preserved. If the crisis deepens and defaults mount then the discount demanded by investors for assistance will be much higher.

Turkish 1-week repo rates are 17.75% ahead of an inevitable hike this week.  Argentina’s are 45% and the Peso is still declining. If Turkey persists in going it along then we already know where the trajectory of rates is headed. That knowledge increases the potential corrective measures will be put in place.

Indian stocks fell as turmoil in Turkey sparked worries of potential market contagion and damped investors’ appetite for Asia’s best performing equity market.

The S&P BSE Sensex fell 0.6 percent to 37,644.90 in Mumbai after rallying to new highs in 10 of the past 15 sessions. Risk assets fell globally as Turkey’s lira extended its slide to record lows Monday after the nation’s president showed no signs of backing down in a standoff with the U.S.

State Bank of India Ltd. slumped more than 3 percent after a third straight quarterly loss while HDFC Bank Ltd. fell 1.1 percent after its deputy managing director resigned. The Sensex’s 14-day relative strength index closed above the oversold demarcation of 70 in nine out of last 12 sessions. It ended at 69.83 on Friday.

“Turkish lira-led influence seems dangerous as risk-off will impact Indian equities as well,” Deven Choksey, managing director at KR Choksey Shares & Securities Pvt., said by phone from Mumbai. “One should be cautious in putting in new money for the near term as sentiment weakens.”

So far, of the 47 NSE Nifty 50 companies that have announced results, 27 have either met or exceeded average analyst estimates, as per data compiled by Bloomberg. Tata Steel Ltd. will announce results later in the day. The Sensex has advanced over 10 percent this year, holding its place as the best performing market in the Asia-Pacific region.

The Indian Rupee broke downwards today to a new all-time low held the decline throughout the trading session. That weakness is in contract to the high degree of volatility seen in the South African Rand and suggests the selling pressure is more committed.

With investors turning against Turkey, the government in Rome is trying to avoid Italy being next in line. Italy has had contacts with the ECB to discuss the risk of a speculative attack on its debt, a person familiar with the situation said earlier on Monday.

Deputy Prime Minister Luigi Di Maio sought to tamp down concerns of a selloff. “I don’t see a real risk that this government will be attacked, it’s more a wish of the opposition,” Di Maio said in an interview with newspaper Corriere della Sera.

“All know the fence that protects the prey will soon be lifted and the financial speculation easily sees the periphery’s debt as an easy target and is positioning itself ahead of the next developments,” lawmaker Borghi said. "It is significant that an external event like Turkey that has nothing to do with Italy unleashes such an effect.”

Italian bond yields are an outlier within the Eurozone not least because the populist government has been signalling it wants to break the ECB’s fiscal deficit rules and its bonds have been punished accordingly. 

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Policy makers left Turkey's key interest rate unchanged at 17.75 percent when they met last month, compared with economists' forecasts for an increase to 18.75 percent.

With inflation running at 15.85 percent, that leaves the real interest rate below 2 percent -- an inadequate response to consumer prices accelerating at three times the central bank's target rate.

The stakes are high. Turkey's domestic institutions have more than $40 billion of dollar- and euro-denominated bonds and loans maturing by 2020, according to data compiled by Bloomberg Intelligence. Every lurch lower in the lira makes servicing those debts more expensive.

Meantime, foreign banks have exposure to Turkey worth about $224 billion, according to data from the Bank for International Settlements. If the U.S. imposes economic sanctions in retaliation for Turkey's refusal to free American pastor Andrew Brunson, arrested almost two years ago and accused of supporting terrorism, they may be forced to cut those exposures.

Turkey had, at least until recently a GDP of $850 billion, but its total of external debts has been trending higher for years and now sits at $467 billion. That’s an external debt to GDP ratio of 55% which is before domestic debts are considered.

There are key differences between the dot-com era and now. Anastasia, for example, generates profits, and investors’ fear is more that its sky-high profit margins will start to narrow as it tries to grow. And companies like Netflix Inc. can probably generate positive cash flow from their operations by investing less in expansion. A representative for Netflix didn’t return an email seeking comment.

“You can get comfortable with cash burn if it’s contributing to increases in earnings or building an asset base that that significantly covers the company’s debt," said John Yovanovic, global head of high-yield at Pinebridge Investments, which manages $87 billion.

Historically, companies struggled to borrow in the bond or institutional loan markets if their Ebitda wasn’t positive. That’s changing, as leveraged finance investors become open to less mature companies. Tesla, for example, sold $1.8 billion of junk bonds last year even though its Ebitda had been positive for only four of the last 11 quarters, according to data compiled by Bloomberg. The company has since posted another four quarters of losses by that measure, and Chief Executive Elon Musk is talking about taking the company private.

US Dollar high yield spreads briefly popped on the upside in July before falling back into the range. As long as the spread is trading below 360 basis points then it would be hard to argue there is stress in the high yield segment. That’s an important consideration when we speculate about the start of the next recession.

After Chinese President Xi Jinping consolidated his leadership position with the removal of a two-term limit on the presidency and Putin won re-election in March, “the basic building blocks for future cooperation on security issues are somewhat more solid”, said Elina Sinkkonen, a senior research fellow at the Finnish Institute of International Affairs.

“Such language, together with the US sanctions on Russia and trade issues with China certainly influence top level calculations in Moscow and Beijing,” she said.

Alex Gabuev, a senior fellow at the Carnegie Moscow Centre, said the two neighbours had also seen their interests becoming increasingly overlapped in areas ranging from security in Central Asia to the future of Afghanistan, Africa and North Korea.

“Both countries want to keep each other in the loop, explain their intentions and cooperate when possible”, he said.

The enemy of my enemy is my friend is about as old an adage in geopolitics as I can think of.

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The removal of U.S. crude from goods targeted by Chinese tariffs is a sign that America has become too big to ignore in the oil market.

Less than two months after threatening to impose levies on imports of U.S. crude, the world’s biggest oil buyer has now spared the commodity. Only fuels such as diesel, gasoline, propane will be hit with duties on Aug. 23, according to China’s commerce ministry. That’s after the nation’s buyers, including top refiner Sinopec, began shunning American supplies to avoid the risk of tariffs.

China’s original plan to target U.S. crude came at an inopportune time for the country’s buyers. Sinopec’s trading unit, Unipec, was embroiled in a dispute with Saudi Arabia, saying the producer’s prices were costly and cutting purchases just as it was boosting American imports. Two months on, refiners were faced with the risk of supply disruptions from Iran to Venezuela and paying more to take advantage of booming U.S. output.

“The U.S. has been and will remain the main source of incremental crude production globally,” said Den Syahril, an analyst at industry consultant FGE. “With several new refineries starting up over the next couple of years, China would thus be wary of taking a decision that could end up severely hurting its domestic refining industry.”

We’ve been saying for more than a decade that shale oil and gas were going to be gamechangers for the energy sector. The reality today is that the USA has gone from being the biggest importer of oil to being the marginal source of additional supply in less than a decade. That has deep repercussions for the US economy, after all that is hundreds of billions that will no longer be flowing overseas.

Mazda Motor Corp, Suzuki Motor Corp and Yamaha Motor Co improperly tested vehicles for fuel economy and emissions, the Japanese government said on Thursday, revealing fresh cases of compliance failures by manufacturers.

The results came to light after the government had ordered the automakers to check their operations after revelations of improper testing at Subaru Corp and Nissan Motor Co last year.

The conduct of automakers globally has come under intense scrutiny after Germany’s Volkswagen AG (VOWG_p.DE) admitted in 2015 to installing secret software in hundreds of thousands of U.S. diesel cars to cheat exhaust emissions tests, and that as many as 11 million vehicles could have similar software installed worldwide.

There was news last week that Japan’s capital expenditure had hit a new forty year high. It was led by auto manufacturers boosting investments in battery manufacturing infrastructure. There is now a possibility Japan’s emissions cheating scandal could be larger than Germany’s although Toyota is, so far, a notable exception from the above list.

The average large-cap mutual fund holds 1.3% of its portfolio in Facebook, 0.2 percentage points less than its benchmark; 2% in Amazon, compared with the benchmark’s 2.4%; and 0.3% in Netflix, versus the benchmark’s 0.5%. The funds are overweight only in Alphabet, by 0.19 percentage points.

Those slim allocations helped shield the funds from the recent losses suffered by Facebook and Netflix that bled over into the broader tech sector and S&P 500. Large-cap growth funds have outperformed the broad stock market index over the past month and year to date, rising 3.9% and 11% over those periods, according to Morningstar. That’s versus gains of 3.3% and 6.6%, respectively, for the S&P 500.

I get the sensation that there is a lot of schadenfreude in the actively managed segment of the market because they sidestepped the recent setbacks in Facebook and Netflix. No mention is being made of how much they underperformed over the last three years because they were so underweight the so-called FANGs.

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Some of topics covered include: play along to get along is disappearing, Wall Street steady, China eases, oil pulls back to test the recent lows, precious metals quiet, Europe steady but UK stocks getting a nominal tailwind from Pound weakness

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Value strategies work best in distressed situations when solid cash generative assets are sold off because of contagion from a market dislocation. That affords patient investors the opportunity to pick up assets at very attractive levels with a view to holding them for the lengthy medium-term. Outside of those periods of market stress it can be slim pickings for value investors.

The RBA has kept rates low in expectation the stance will gradually tighten the labor market and spur wage gains sufficiently to drive faster inflation. But outside strong economic growth and increased demand for construction workers amid an infrastructure boom, there are few signs of this emerging.

“The bank’s central forecast for the Australian economy remains unchanged,” Lowe said. “GDP growth is expected to average a bit above 3 percent in 2018 and 2019. This should see some further reduction in spare capacity.”

The RBA maintains its next move is more likely to be up than down; Lowe, since taking the helm in September 2016, has consistently said that an increase will only come once the economy is near full employment and inflation closer to the central bank’s 2-3 percent target midpoint. Markets aren’t pricing in a rate increase for at least another year, according to bets by swaps traders.

Australia’s population hit 25 million this year which highlights how quickly the numbers of migrants reaching the country have risen. That inward flow of migrants coupled with robust demand from China for the country’s primary exports has helped to keep Australia’s growth trajectory on an expansionary path for decades.

The SEC postponed its decision on whether to approve the Bitcoin ETF, dealing a blow to bulls who had bet a green light from the regulator would help sustain last month’s tenuous rally. Optimists are counting on the wider adoption of cryptocurrencies to support prices, but regulators and many institutional investors have remained wary amid concerns over security and market manipulation.

The pump and dump schemes which prevailed during the most aggressively bullish portion of the cryptocurrency bubble helped to attractive speculative flows but also act as a headwind to longer-term investors who might otherwise have had an interest.

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Some of the topics discussed include: Japanese wage growth breaksout, dollar steady, gold still weak, is the end near?, Tesla going private? Europe steady, oil has almost completed a reversion to the mean.