Happy new year! The BoJ has surprised us! At yesterday's tender, it offered to buy Y190bn of bonds in the 10 - 25 year maturity range, a reduction of Y10bn. It similarly reduced bonds purchased in the 25+year maturity category. Well, this was unexpected and the 10-year yield has risen to around 8bps (!!). The BOJ's target, as we know, is zero. The yen has rallied sharply over the last couple of days. It's worth recalling that at this time last year, the BOJ was purchasing Y190bn of JGBs with 10 to 25 years of maturity left and Y110bn of 25 to 40-year JGBs. Thus, while the BOJ remains extremely accommodative, any change at the margin, however small, will cause a ripple or two. BOJ's action coincided with the stock market looking quite overbought in the short term and USD/Yen finding resistance around 114. All said and done, I can't believe that the BOJ will let bond yields rise too far away from their target.

Thank you for this informative email. Japan is one of the only countries in the world right now running both accommodative monetary and fiscal stimulus. However, let’s not also forget that creating inflation is the primary goal of these operations, hopefully from outsized domestic growth, but any inflation will do to help erode Japan’s massive quantity of debt. 

Russia’s Finance Ministry will buy about $4.5 billion in foreign currency over the next three weeks, increasing purchases after changes aimed at further limiting the economy’s dependence on oil.

The amount of additional budget revenue earned in January from oil and gas is expected at 257.1 billion rubles ($4.5 billion) as a result of higher crude prices, the Finance Ministry said on Wednesday. Under a so-called budget rule, the entire windfall will be spent on buying foreign currency in the domestic market, with daily purchases at 15.1 billion rubles from Jan. 15 to Feb. 1, it said in a statement.

The operations will help insulate the economy from the ups and downs in crude and shield the ruble’s exchange rate from volatility. The government is absorbing all revenue earned when Russia’s Urals export blend is above $40 a barrel, channeling the excess income into its sovereign wealth fund.

The Ruble accelerated to an important low in early 2015 which prompted the central bank to intervene and to push interest rates up to 17%. The collapse in oil prices into the 2016 low saw the currency hit a nadir but the interest rate and oil’s recovery resulted in a major short covering rally. 

In the video today, you emphasized the significance of recent moves by China regarding its currency and inflation.  These issues were discussed in length in a Mises Institute report which will be of interest to many readers.

Thank you for this interesting article which is representative of monetary conservativism that is a central theme in decrying the loss of purchasing power in fiat currencies since the abandonment of gold as a monetary base. 

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

Some of the topics discussed include: Discussion of China's motivation in upsetting the Treasury market, yen firm, gold steady, oil rallies, stocks steady, industrial resources continue to outperform. Bund and Treasury yields testing the upper side of their respective ranges. 

At the same time, though, China is so heavily invested in U.S. public debt that it has an interest in keeping the market healthy, said Nathan Sheets, chief economist for PGIM Fixed Income, who served as Treasury undersecretary for international affairs in the administration of former President Barack Obama.

“If China were to do something that created uncertainties in the government securities markets, China is a major foreign holder of U.S. Treasuries, so it’s deeply invested in that market” and wouldn’t want to make any moves that could hurt its own position, Sheets said.

Sheets said the U.S. has withstood similar tests before over the past 15 years. China and Japan are the two largest holders of U.S. Treasuries and each have ramped up purchases due to currency interventions, only to slow down and cause market jitters. China most recently spurred concern in 2015 when it slowed investments. “That leads me to be pretty relaxed about this,” Sheets said. “There’s lots of demand for Treasuries from the U.S. and abroad.”

Nonetheless, China’s position as a major purchaser of Treasuries gives it some leverage to try to shape U.S. responses -- including the Trump administration’s tough talk on trade policy.

Why does China buy so many Treasuries? The simple answer is they need to sanitise the constant inflow of funds from the nation’s myriad exporting businesses lest the Renminbi soar. So, if the Chinese were to stop buying Treasuries, are they about to invest in Bunds at close to zero yields? That seems unlikely so this statement sounds like politicking rather than substantive action. 

The new system is codenamed Tangle Lake, a reference to an Alaskan lake chain and the tangled state of the electrons themselves. Quantum computers are extremely different from standard (classical) computers, and can tackle problems modern classical machines can’t handle. The reason increasing the number of qubits in the system is important is because it also allows for a significant amount of additional work to be done and for more complex problems to be considered. And according to Intel, the gap between where we are today and where the company thinks we need to be for commercialization of quantum computing is enormous.

“In the quest to deliver a commercially viable quantum computing system, it’s anyone’s game,” said Mike Mayberry, corporate vice president and managing director of Intel Labs. “We expect it will be five to seven years before the industry gets to tackling engineering-scale problems, and it will likely require 1 million or more qubits to achieve commercial relevance.”

Intel is also investigating another type of qubit, spin qubits, to see if they can be implemented in silicon. Spin qubits are much smaller and can potentially be implemented in CMOS and Intel has invented a spin qubit fabrication flow on “300mm process technology.” This is oddly phrased, but seems to indicate Intel is building these chips on its 300mm wafers as opposed to some new process node.

The fallout from the exposure of vulnerabilities in the vast majority of chips currently in computers all over the world is going to necessitate a rethink of how to deliver the best possible processing speeds at an attractive price. For too long the semiconductor business has paid scant attention to the threat of hacking but with the increasing digitization of the global economy it is an issue that can no longer be simply ignored. 

A section from the full report is posted in the Subscriber's Area. 

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

The mining sector went through a painful process of rationalization between 2011 and 2015 which resulted in exploration being cancelled and development of new mines being shelved. A substantial and sustained price rally is generally required to encourage new supply into the market following such an event. After two years of rallies the first signs of interest in developing new supply are now being seen but it will take time for it to come on line. 

“The investment in Nickel West makes sense regardless,” said James Eginton, an analyst at Sydney-based Tribeca Investments Partners Pty, a BHP shareholder that’s urged the producer to extend its suite of commodities to tap rising battery demand. Efforts to refocus the business will either boost the value of a sale, or lift the unit’s cashflow if the assets are retained, he said.

BHP began building a nickel sulphate plant at Nickel West in recent weeks and is considering a slate of further expansions to make it the largest source of the material and a hub for other battery ingredients. It’s aiming to sell 90 percent of output into the battery supply chain by about 2021, from less than a third at the end of last year. Global nickel demand could more than double by 2050, fueled in part by rising electric vehicle sales, Bloomberg Intelligence said in a June report.

The world’s biggest mining companies are ratcheting up their response to the booming demand for battery raw materials.

Rio Tinto Group is developing a lithium project in Serbia, while Glencore Plc plans to double production of cobalt and is effectively “a one-stop-shop” for investors seeking exposure to EV gains, Sanford C. Bernstein Ltd. said in a note this month.

A measure of just how technology focused the automotive sector has become is how many CEOs have turned up at the Consumer Electronics Symposium (CES) this year. When I attended two years ago Faraday Futures stole the show but this year Ford and other manufacturers were keen to lay out their electric car ambitions. 

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

Thanks for your insights as always into the markets.

I didn't fully understand what you meant by 'social media inflation' and wondered whether you could expand on this?

All the best

Thanks for this question which may be of interest to subscribers. I’m pretty sure I said socially driven inflation but in an hour long broadcast I could certainly have been subject to a Freudian slip. The essence of the question is if technology is inherently deflationary and commodity use represents a fraction of its former influence on the economy, what will be responsible for driving a fresh inflationary cycle? 

Is it possible for you to publish a table of the Autonomies according to their dividend yield? This would be of interest to subscribers who need dividend income.

Thank you for this request and here is an up to date version of the spreadsheet I use to reweight the Autonomies fund on a quarterly basis. 

A section from the report is posted in the Subscriber's Area. 

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

Saudi Arabia is not exactly the most politically secure place in the world right now which is going to have an influence on the valuation of Saudi Aramco. Exxon Mobil is the company that tends to get the most accommodative treatment from investors because of its long history of dividend increases and good governance. The big question for Saudi Arabia, regardless of reserves, is what kind of discount the market will demand for accepting the governance risk attached to the company. That is especially true with the UK having had to alter disclosure rules in its efforts to secure the IPO. 

A very happy new year to you and David. I just watched this TED Talk from October and found it important enough to share. I've passed it on to friends and family because I believe the message is even more important today. As most equity markets seem to be accelerating to the upside, don't you think the downside risks become more pronounced? Would like your thoughts on the talk -  All the best!

Happy New Year and thank you for this question which is an important consideration as the cycle matures. 

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

A section from the full report is posted in the Subscriber's Area. 

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

China’s property market represents a potent source of potential trouble at some point in the future. However, it has not stopped going up, and until it does the layers of leverage that constitute every bull market will not be exposed. 

The company is also looking at a joint venture with OCI Company Ltd. to build a separation plant in South Korea.

According to Arafura the Nolans Bore rare earths-phosphate deposit is "one of the largest and most intensively explored deposits of its kind in the world." The deposit contains a JORC-compliant mineral resource of 56 million tonnes at an average grade of 2.6% TREO that extends to 215 metres below the surface. Two-thirds of the contained rare earths are in the measured and indicated category.

Arafura estimates the project would create an investment of about $900 million in Central Australia, as well as 250 to 300 permanent jobs.

An environmental approval from the Australian government and a final approval from the state government still need to be obtained.

The mine could supply up to 10% of world demand for neodymium and praseodymium, used in the manufacture of magnets for wind turbines, and electric vehicles.

Rare earth metals represent vital parts of the evolving technology sector and not least for renewable energy, batteries, defence and computing. Since China dominates the sector and has already demonstrated it is willing to use its position as both a geopolitical and economic tool, there are solid arguments for developing more varied sources of supply. 

Shares of Tesla jumped Tuesday after Morgan Stanley's Adam Jonas, a widely-followed analyst on Wall Street, raised his 12-month price forecast on the electric vehicle maker.

General Motors recently announced plans to roll out a line of 20 all-electric vehicles over the next six years. Ambitious plans like these from traditional automakers have raised fears about more competition ahead for Elon Musk's company, but Jonas said Tesla's existing infrastructure "footprint" will be a "key differentiator" over the coming years, further boosting the stock.

"Infrastructure (of lack thereof) is the 'elephant in the room' of the EV revolution," wrote Jonas in a note late Monday. "Compared to other OEMs (Original Equipment Manufacturer), Tesla has made the biggest proprietary investment in superchargers and destination chargers globally. In most communities, we believe this infrastructure is larger than it needs to be in preparation for the expansion of the serviceable and charge-thirsty fleet. Other OEMs will closely watch how consumers react to this infrastructure."

Hardware is hard. GoPro is in search of a savior and Fitbit is languishing. Both rely on OEM manufacturers to produce their products while Tesla has broken the mold for new hardware companies by building manufacturing capacity from scratch. It helps that the company is building big ticket items like cars instead of trinkets but still manufacturing is fraught with complexity. 

Following a breakthrough in Brexit negotiations late last year, May starts 2018 in a stronger position than she has enjoyed any time since her disastrous general election performance, which saw the Tories lose their Parliamentary majority.

Even so, as Brexit continues to dominate British politics, May must strike a delicate balance by maintaining equal numbers of euroskeptics alongside those advocating for close ties to the European Union.

Brandon campaigned against the U.K. leaving the EU, subsequently accepting the result of the 2016 referendum.

Meanwhile, we analyzed what the unexpected departure of the experienced James Brokenshire as Northern Ireland secretary could mean for Brexit given that the border issue is one of the trickiest in negotiations. Read about it here.

The nature of coalitions is they offer outsized influence to small parties who subsequently fail to achieve the majority of their aims despite the lift power gives to their profile. The Liberal Democrats in the UK and the Labour Party in Ireland are both good examples of the dangers of power for small parties. 

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

Brevan Howard Asset Management’s flagship macro hedge fund lost 5.4 percent last year, recording its worst annual performance since starting in 2003, according to an investor letter.

The Brevan Howard Master Fund, which managed $5.5 billion at the end of November, was flat last month, the letter showed. The full-year loss reverses the money pool’s 3 percent gain in 2016. A spokesman for the Jersey-based investment firm run by billionaire Alan Howard declined to comment.

Some of the largest hedge funds betting on economic trends in developed markets continued their poor performance in 2017 as a lack of volatility and central-bank interventions made it difficult for them to make money. Macro hedge funds returned an average of 3.8 percent on an asset-weighted basis during the first 11 months of last year, making them the worst-performing strategy of the year, according to Hedge Fund Research Inc.

This additional article highlights how Crispin Odey’s fund lost 20% last year. The lack of volatility means that long/short strategies under perform. Hedging strategies deter for performance when they expire worthless. In fact, anything other than a leveraged momentum strategy would have been unlikely to outperform the primary indices last year. An alternative would have been to be highly concentrated on the FAANG stocks but that is not what hedged fund clients pay such high fees for.

“Because there is only one lithium ion per one cobalt, that limits of how much charge can be stored. What’s worse is that current batteries in your cell phone or laptop typically only use half of the lithium in the cathode.”

The [Northwestern] fully rechargeable battery starts with four lithium ions, instead of one. The current reaction can reversibly exploit one of these lithium ions, significantly increasing the capacity beyond today’s batteries. But the potential to cycle all four back and forth by using both iron and oxygen to drive the reaction is tantalizing.

“Four lithium ions for each metal — that would change everything,” Wolverton said. “That means that your phone could last eight times longer or your car could drive eight times farther. If battery-powered cars can compete with or exceed gasoline-powered cars in terms of range and cost, that will change the world.”

Cobalt is both expensive and rare so it is not the best candidate for use in mass market applications; particularly where there is significant room to scale such as in electric vehicles. Therefore, a race is underway to get an alternative chemistry up and running which can replace cobalt. Lithium iron oxide is one of a number of candidates vying for attention so are solid state batteries and zinc oxide batteries.

Colombia’s currency is the world’s top performer in the early days of 2018, and Renaissance Capital is forecasting more gains ahead for what it sees as one of the best bets in emerging markets.

The peso has rallied 3 percent this month following a lackluster 2017 that left it almost unchanged and toward the bottom of the pack for developing-nation currencies. It closed at 2,887 per dollar Thursday, its strongest level since May, amid gains in oil, the country’s biggest export. The peso slipped 0.4 percent Friday to 2,899 per dollar as of 9:28 a.m. in New York.

Even so it’s almost 40 percent undervalued in a real effective exchange rate model, according to Charles Robertson, the global chief economist at RenCap in London, who said the dramatic difference had him double-checking his worksheets.

The Colombian Peso almost halved in value between the middle of 2014 and early 2016 as the value of the legitimate commodities it exports collapsed in value. The continued strength in oil prices coupled with synchronized global economic expansion suggests the outlook for Latin America’s commodity producers is improving. 

Re Japan, you discussed previously how one might get exposure to the Japanese financial sector. One obvious candidate would be the NYSE quoted ADRs in Nomura. In the past the Topix Securities Index has moved in line with the Japanese Banks Index. My question is do you think that times have changed so much that a stock like Nomura is no longer a good geared play on the Nikkei?

Thank you for this question which may be of interest to other subscribers. Japanese banks have been laboring under the low interest rate regime for what must feel like forever but the introduction of simultaneous monetary and fiscal stimulus during a period of synchronized global economic expansion has the potential to kick start inflation not least because of labour shortages. 

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

Some of the topics covered include: evolution of the third psychological perception stage of the bull market. gold potentially picking up some interest following bitcoin's peak, stock market leadership and potential for catch up. 

A section from this report is posted in the Subscriber's Area.

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

We do not yet have evidence of bubbly activity in the majority of assets, with bitcoin and the other cryptocurrencies representing the most obvious exception. 

News of the weakness, found last year and reported Tuesday by The Register technology blog, weighed on shares of Intel, the biggest semiconductor maker, while boosting rivals including Advanced Micro Devices Inc. Intel’s silence for most of Wednesday added to investors’ unease.

Late in the day, Intel, Microsoft, Google and other tech bellwethers issued statements aimed at reassuring customers and shareholders. Intel said its chips weren’t the only ones affected and predicted no material effect on its business, while Microsoft, the largest software maker, said it released a security update to protect users of devices running Intel and other chips. Google, which said the issue affects Intel, AMD and ARM Holdings Plc chips, noted that it updated most of its systems and products with protections from attack. Amazon.com Inc., whose AWS is No. 1 in cloud computing, said most of its affected servers have already been secured.

Every other month we have news of just how porous the devices we rely on for just about everything are to exposing our personal information. This is a significant challenge for the IT sector in all its forms. The argument for increasing reliance on the internet, cloud and Internet of Everything is completely dependent on security, lest the devices we employ be used against us. This represents a cost which both in terms of speed and convenience but potentially also money for consumers and represents a challenge for corporations to keep under control.

Boeing Co.’s XS-1 (Experimental Spaceplane), which the company dubs “Phantom Express,” got a green light this week by the Defense Advanced Research Projects Agency, or Darpa. The XS-1 is designed to quickly lift satellites as heavy as 3,000 pounds into orbit for $5 million or less, launching from the ground, deploying a small upper-stage module, and then landing like a traditional airplane—the key to reuse and lower operating expense. Darpa also has a separate program aimed at launching 100-pound satellites for less than $1 million per launch, using conventional aircraft.

“The XS-1 would be neither a traditional airplane nor a conventional launch vehicle but rather a combination of the two, with the goal of lowering launch costs by a factor of ten and replacing today’s frustratingly long wait time with launch on demand,” Jess Spoonable, a Darpa program manager, said in a May 24 statement.

It has long occurred to me that the stealth bomber had its maiden flight in the late 1980s, but only entered service years later. Then I think about how different the original iPhone is from what I carry around. 

The Trump administration on Thursday will free federal prosecutors to more aggressively enforce marijuana laws, effectively threatening to undermine the legalization movement that has spread to six states, most recently California.

The Justice Department is expected to rescind an Obama-era policy of discouraging federal prosecutors from bringing charges of marijuana-related crimes in states that had legalized sales of the drug.

It was not immediately clear whether the administration intends to carry out a federal crackdown on marijuana dispensaries, or is merely rattling its saber.

The Associated Press first reported the announcement, and a government official familiar with the matter confirmed that the change would be announced later on Thursday.

This announcement acted as a catalyst for profit taking on cannabis related shares today as it introduces an additional risk to the market. Nevertheless, it also highlights the potential for a confrontation between the states and the Federal government about what is and is not permissible and who has sway over what can be consumed. Until the situation is resolved the potential for volatility is non-trivial. 

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

Today's video focused on a review of commodities, related stock markets and individual companies.

New Year greetings to you and David and all FT members. About a year ago on the site there was a presentation on the new technological revolution, given by Mr. David Brown. It covered AI, robotics, cyber security, biotechnology, healthcare and the like. It was all wonderful stuff, but how do I deal in the shares and ETF's mentioned? I'm with Barclays - an ISA and spread betting account - and they have little coverage of these areas.

Happy New Year to you and to everyone in the Collective of subscribers Thanks for this question which is sure to be of interest to other subscribers. This article from the Telegraph dated 2014 explains how to invest in overseas shares through your ISA. Here is a section:

A crucial question: can you put your overseas stocks in your Isa or pension? HM Revenue & Customs' rules forbid foreign currency in an Isa, so you have to use the costlier, sterling conversion approach to buy foreign shares in your Isa, converting back to pounds when you sell. The Isa accounts operated by Hargreaves and TD allow foreign stocks to be held in this way.

Disappointingly, Barclays' systems do not allow any overseas stocks to be held within an Isa.

With self-invested pensions, or Sipps, you can hold and trade in foreign currencies. So you can have part of your Sipp denominated in dollars if your broker (such as TD) offers the facility. Hargreaves Lansdown doesn't offer the service and Barclays, again poor in this respect, doesn't allow any overseas stocks within its pension accounts.

Thanks to a subscriber for this interview of Charlie Munger at the University of Michigan which is worth taking the time to watch not least for his unique iconoclastic perspective, comments on cryptocurrencies and management styles.  

We can see immediately that more production means a larger GDP and that more production requires more workers, ceteris paribus (that is setting aside other considerations that can affect employment such as automation, productivity etc.). Most of the workers in any country would be its nationals. So usually a country’s desire to raise its GDP has a lot to do with the wish to create more employment for its people. But I would argue that Japan’s situation is quite different.

Japan’s labour force is shrinking. It has been shrinking at the rate of 0.4% in the past decade and by all accounts the rate of decline will rise in the coming years. So unsurprisingly Japan’s unemployment rate is very low. Unemployment rate has fallen below 3% recently, which makes Japan’s unemployment rate among the lowest in the world. True, Japan still has a large source of untapped labour; women’s participation in the job market is very low. And that is a pressing issue but it is not really relevant to this discussion. Perhaps I might write about women’s participation in the job market one day but for now, regarding whether moving some manufacturing to the US isn’t such a bad idea, suffice to say that Japanese manufacturers are facing difficulties filling job vacancies in Japan because of Japan’s shrinking labour force and ultra low unemployment rate.

Japan’s challenge today is not about reducing unemployment. Japan’s challenges today are about coping with the social costs of and economic headwind from an aging population and a shrinking labour force. 

So we see that the raison d’être for GDP is no longer that compelling for Japan. Japan should aim to maximise its gross national income (GNI) instead.

Japan is a case study for how other countries with substantial national assets, globally oriented manufacturing centres, aging populations and threatening deflation can cope and prosper.
 

Prices for the heating fuel rose to the highest in a month as the U.S. burned the most natural gas ever on Monday, breaking a record set during the so-called polar vortex that blanketed the nation’s eastern half with arctic air in 2014, Bloomberg News reports. America consumed 143 billion cubic feet of gas as temperatures dipped to all-time lows on New Year’s Day, topping the previous high of 142 billion from four years ago, data from PointLogic Energy show. Ice in the Hudson River delayed fuel-barge deliveries, as the government warned of a home heating-fuel shortage from the East Coast to Texas. Natural gas prices have jumped 19 percent from a 10-month low on Dec. 21. U.S. retail diesel prices averaged $2.87 a gallon on New Year’s Day, the most since June 2015, according to AAA.
 

I drove up to Big Bear Lake Tuesday afternoon and there is no sign of the cold wracking other parts of the USA. Talk around town is much more about global warming and the shortening season because of the lack of snow. We took ski lessons this morning which is responsible for the late posting of Comment of the Day and the Subscriber’s audio for which I apologise.  

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

The currency jumped, sapping stocks, and bonds slid as a slew of data signaled a potential uptick in inflation in the euro area, after manufacturing growth accelerated to a record in December. The numbers followed comments at the weekend from European Central Bank policy maker Benoit Coeure, who said that unless inflation disappointed there’s a “reasonable chance” the central bank’s extension of QE in October could be the final one.

While Coeure didn’t mention the exchange rate, his comments were a boon for euro bulls and coincided with a period of ongoing dollar weakness. The common currency’s strength is translating into a painful start to the year for Europe’s export-heavy stock markets, while bonds have picked up where 2017 left off, with benchmark German bund yields rising to the highest since October.

“The ECB suggestion that bond buying will not be extended is likely behind the recent push higher in the euro,” said Neil Jones, head of currency sales at Mizuho Bank Ltd. in London. “My sense is the euro will extend beyond its three-year high in the next two weeks.”

If I had to pick one market to watch on a daily basis in 2018 it is German Bunds. Germany has benefitted enormously from the ECB’s bond buying program and has enjoyed borrowing costs that were previously unimaginable. With negative yields on bonds out to seven-year maturities there is significant scope for re-rating when the ECB eventually exits its program. 

Happy and prosperous New Year to you and David and all the staff at “Fuller Tracey Money”.

I compliment you on the outstanding “Year-end Big Picture” video.  Your assessment of the interaction between the social, political and financial considerations is particularly insightful and gives me, and all your readers, a firm base on which to plan our investing for 2018.  Towards the end of the video you discussed the inter-relationship between AI and big data.  You said health care and biotech sectors would be major beneficiaries of these developments. 

Only today I read a comprehensive “Seeking Alpha” biotech sector report which may be of interest to readers.

Thank you for your kind words and I’m delighted you enjoyed the yearend video. At The Chart Seminar, I spend a good deal of time on the first day talking about the dangers of myopia when looking at markets. This is even more important when we have open positions that we monitor on a daily basis. It is too easy to focus only on what we own and to fall into the temptation of thinking we understand everything about them because we are looking at them every day. That is why when analysing any market, we recommend starting with as much data as you can get your hands on. A long-term chart tells us instantly whether we are in a secular bull or bear market. My resolution in 2018 is spend more time focusing on long-term charts.

But PwC said in a report earlier this year that some industry stakeholders felt the federal government’s “tight timeframe” for recreational legalization would lead to a lack of consultation and the potential to miss the opportunity to right the medical regime.

“Because decision-makers will have so little time for regulatory development, the focus will be exclusively on recreational cannabis, to the detriment of changes that may be required for medical cannabis,” PwC warned, adding that changes to the medical regime could be as far away as three years as a result.

One outstanding problem is that doctors may still be hesitant to prescribe cannabis to their patients, creating a bottleneck in the system for both patients and producers.

2018 will see Canada become the first G7 nation to adopt recreational cannabis laws. That will subsequently represent significant challenges for the medical cannabis sector which will is dependent on prescription reimbursements from the national health system. 

A link to this year-end Big Picture Long Term Video is posted in the Subscriber's Area.

Losers

RESEARCH ANALYSTS. Those that aren’t ranked in the top three or four in their sector could be axed from trading floors.

McKinsey & Co. expects banks to cut about $1.2 billion of spending in the area. INVESTOR RETURNS? Fewer analysts means less research, which means some fund managers may have to shrink the universe of companies they invest in. Missed opportunities could potentially limit returns, while less oversight could impact decision-making. 

BOUTIQUE INVESTMENT BANKS. Independent research firms will see new competition once banks roll out their new offerings. MiFID II may also trigger a price war in execution, which could see bulge-bracket investment banks drive boutiques out of equities trading.

STOCK EXCHANGES. Bourses such as Euronext NV and Deutsche Boerse AG could also lose out. Even if regulators close the pricing loophole that currently give SIs an advantage, bank-run platforms may still be more attractive as banks roll out increasingly competitive stock-trading options, such as low execution prices and larger “risk trades” to lure business.   

SMALL-TO-MEDIUM-SIZED ENTERPRISES. Smaller companies are expected to see less coverage from research analysts, potentially reducing their shareholder base. That could make it hard for investors to price the shares and make stocks more illiquid. London-based Toscafund Asset Management, which invests in U.K. small caps, wrote a letter to 30 such companies urging them to pay for research on their own stocks.

MIFID II comes into effect in the New Year and will represent a considerable challenge for large numbers of people in the financial sector but most especially those in the small to mid-sized sector that benefitted from soft dollar arrangements with their clients. The effect of the rule changes is akin to taxing benefits in kind and will result in fewer analysts covering companies and a narrowing in the breadth of opinion available to institutional investors. This article from the Financial Times dated September 15th includes a number of helpful graphics on who is likely to be most affected. 

The old tax regime allowed companies to defer U.S. taxes until they brought back earnings held abroad. Under the new law, U.S. companies’ overseas income held as cash would be subject to a 15.5 percent rate, while non-cash holdings would face an 8 percent rate. Companies can make the payments in eight annual installments.

Goldman Sachs, which gets more than 40 percent of its revenue outside the U.S., had $31.2 billion in earnings reinvested abroad as of the end of 2016, according to a regulatory filing.

Companies have to account for the tax changes in the period in which they were enacted. That’s left corporate accounting departments scrambling after President Donald Trump signed the bill into law last week.

The end of the US tax year has individuals in high tax states scrambling to get a head start on next year’s taxes in an effort to lock in the more attractive deductions they have right now. At the same time the corporate sector is weighing how much of an effect the change to overseas income tax treatment represents. 

I compiled a list on Bloomberg of the companies that derive all of their income from the USA on the basis that they will be among the greatest beneficiaries of the changes to the tax code. Here is are some of the more interesting charts:

It’s not just that we endure large basis risks here in the Hollow Market, unmanageable for many. It’s not just that all of our old signposts and moorings for navigating markets aren’t working very well. It’s not just difficult to identify predictive/derivative patterns in today’s markets. There is a non-trivial chance that structural changes in our social worlds of politics and markets have made it impossible to identify predictive/derivative patterns. THIS is basis uncertainty, and it’s as problematic for humans facing markets that don’t make sense as it is for bees facing weather patterns that don’t make sense.

Well, that’s just crazy talk, Ben. What do you mean that it might be impossible to identify predictive/derivative patterns? What do you mean that basis might not exist at all? Of course there’s a pattern to markets and everything else. Of course spring follows winter.

Nope. This is the Three-Body Problem.

Or rather, the Three-Body Problem is a famous example of a system which has no derivative pattern with any predictive power, no applicable algorithm that a human (or a bee) could discover to adapt successfully and turn basis uncertainty into basis risk. In the lingo, there is no “general closed-form solution” to the Three-Body Problem. (It’s also the title of the best science fiction book I’ve read in the past 20 years, by Cixin Liu. Truly a masterpiece. Life and perspective-changing, in fact, both in its depiction of China and its depiction of the game theory of civilization

The Three-Body problem and basis uncertainty is a fresh explanation of the concept some commentators refer to as a paradigm shift. In other words, we are so conditioned by the prevailing market conditions that it is almost impossible to imagine what the world would be like without the disinflation which has prevailed since the early 1980s. At a talk in 2015 Jeff Gundlach referred to this problem in terms of summer insects which have no experience of, and therefore cannot imagine, winter. 

According to the latest official data, China’s final consumption accounted for 63.4 percent of gross domestic product (Chart 2). Household consumption experienced exponential growth and climbed to $4.5 trillion (Chart 3). Retails sales have been growing at healthy pace of about 10 percent. Spending on Singles’ Day this year (Nov. 11), is impressive, registering $25 billion, almost double U.S. Black Friday online sales of $14 billion (Chart 4).

I have mentioned on multiple occasions how much of a transformation has occurred in China over the last few years where customer service has evolved out of nowhere. Our trip to Guangzhou in July provided a number of examples of this. We used ele.me to order a fruit platter. When the person at the store saw that the delivery address was a hotel they called and asked if we would like the fruit chopped because we probably wouldn’t have a knife in our room and at no additional charge. When Mrs. Treacy was buying a phone, my girls were playing on grab machines a little way off. They were getting frustrated by their unrelenting failure to win a toy so one of the girls from the phone store came over to show them how to pick the right machine so they could win. 

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

Billionaire Mukesh Ambani’s Reliance Jio Infocomm Ltd. agreed to acquire spectrum, mobile-phone towers and fiber assets of his brother Anil Ambani’s Reliance Communications Ltd. helping the younger sibling cut debt at the embattled wireless carrier, the two companies said in separate exchange filings.

Reliance Jio emerged the highest bidder for assets and the sale is expected to be closed in a phased manner between January and March 2018, according to a statement from RCom on Thursday.

The companies didn’t disclose a value for the transaction. The deal will include a cash payment and transfer of deferred spectrum installment payable to India’s Department of Telecommunication.

Mumbai-based RCom is seeking to cut total borrowings by $6 billion by March. RCom posted its first annual loss last March after Jio stormed into the market by offering free calls and data. That escalated a price war that has forced consolidation in the sector. RCom this week said it expects to get about 250 billion rupees ($3.9 billion) from the sale of its spectrum across four frequencies, its optical fiber network, and its more than 40,000 telecom towers. Entire proceeds will be used for repayment of RCom’s debt.

Reliance Jio is only paying for good quality assets that will enhance its depth of network, especially in rural areas, and raise data usage capacity, Shobhit Khare, a co-founder at Inertia Wealth Creators LLP, said via phone.

Reliance Industries spent a great deal of time developing a 4G network (Jio) and is now reaping the benefits. Reliance Communications, by selling its mobile assets, is essentially exiting the mobile telecommunications business. This article from livemint.com details where management see the company focusing next:

RCom will essentially be transformed from a business-to-consumer (B2C) into a business-to-business (B2B) entity, which will provide submarine cable systems that will deliver the latest sub-sea cable technology to meet growing cloud infrastructure and data capacity demand from global enterprises and over-the-top, or OTT, service providers.

Ambani said the new RCom will be valued at Rs15,000 crore. The business, he said in a presentation, will be based on a capex-light model and will generate sustainable cash flows, with 50% of revenue and 60% of operating profit coming from outside of India.

The euro zone’s third-biggest economy, whose recovery is trailing most of its peers, risks a hung parliament after the ballot. Opinion polls show the anti-establishment Five Star Movement, which wants a consultative referendum on abandoning the euro if European Union treaties aren’t renegotiated, leading Gentiloni’s Democratic Party and groups in a possible center- right coalition that would include former Premier Silvio Berlusconi’s Forza Italia.

But neither Five Star, the Democrats headed by former Prime Minister Matteo Renzi, nor the center-right bloc would win a parliamentary majority, according to the surveys. A possible “grand coalition” of the Democrats and Forza Italia would not have a majority either.

“It’s virtually certain that we won’t have a clear majority,” said Sergio Fabbrini, director of the school of government at Luiss University in Rome. “The talks to verify whether a new majority can be formed could last until the summer. In Germany, the talks have dragged on for ages, and in Italy we may end up with about twice as many parties in parliament as in Germany.”

Political sclerosis is nothing new for Italy. With little chance of a clear winner from elections, the country will continue to be rule taker rather than a leader in the discussions about how the EU can be reformed, which Macron wants to get started. 

“The government had warned several times that virtual coins cannot play a role as actual currency and could result in high losses due to excessive volatility,” the government said in a statement.

It noted that trading prices of most virtual currencies were much higher on South Korean exchanges than they were on exchanges in other countries, although it did not provide specific examples.

The steps will include a ban on opening anonymous cryptocurrency accounts and new legislation to allow regulators to close virtual coin exchanges if needed, a measure recommended by the justice ministry, the statement said.

South Korea had previously announced its plan to tax capital gains from cryptocurrency trading to tackle what it sees as the risk of excessive speculation.

South Korea, Japan and China have been among the hottest markets for Bitcoin. For a bubble to continue to expand it relies on the ability of progressively more people to participate in the advance. Anything that inhibits the flow of capital to feed the bubble is a potentially damaging headwind. 

Dec. 22 video/audio was posted on YouTube. Surely this isn't right as anyone can access it without needing a subscription?

Thank you for your concern and this question which will be of interest to subscribers. In many respects Vimeo and YouTube are exactly the same. However, they differ in one important aspect; cost. YouTube allows me to post my videos as unlisted and maintaining the archive is free. This means they do not appear in the search engines and are anonymous to anyone who does not have the URL. I only post that URL in Comment of the Day so therefore it is only available to subscribers.

I was forced to explore additional options because Vimeo are insisting that I move to a higher rate plan even though I am nowhere near hitting the limits on my current one.

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

Some of the topics covered include: China pulls back, Indonesia extends breakout, Korean Won and Taiwan Dollars at new highs, Rand extends rally, Resources shares break out.

Copper’s latest leg up follows news that Jiangxi Copper Co., China’s largest producer, had been ordered to stop output for at least a week before a further assessment based on local pollution levels. Earlier in the month, the No. 2 smelter, Tongling Nonferrous Metals Group, was asked to make similar cuts.

Jiangxi Copper gained 3.4 percent in Hong Kong and Tongling Nonferrous added 0.7 percent in Shenzhen to the highest close since Nov. 9.

“Copper stocks are rising as investors are bullish on copper prices amid an improving demand outlook from the U.S. and Europe in particular,” Yang Kunhe, an analyst with Pacific Securities Ltd., said by phone from Beijing. “The production cuts are temporary. A one-week halt won’t cause too big a problem for Jiangxi Copper. Smelters can also adjust by moving forward their annual maintenance.”

This quarter, Codelco said the company’s projections showed a sustained increase in deficits and “we don’t have any reason -- that we know of -- for closing them in the future.” The International Copper Study Group said the global deficit was 181,000 tons in the first nine months of 2017.

We are almost two full years into a recovery in metal prices which is being fueled on the demand side by a return to synchronized global economic expansion and on the supply side by a reluctance to invest following what was a major bust between the 2011 and early 2016. That is contributing to the relative strength of the mining sector not least since it is still trading at a discount to the wider market on a valuations basis. 

Vale is entering a period in which it plans to pay out big dividends, Chief Executive Officer Fabio Schvartsman said on Friday at an event commemorating the Brazilian miner's inclusion in the Sao Paulo stock exchange's strictest listing market segment.

"Now is the era of the Vale dividends. Vale will become a big payer of dividends if everything goes well," Schvartsman said, reiterating that a new dividend plan would be released in March, without stating an amount.

In April Vale paid out 0.905 reais per share.

Vale shareholders, he said, supported the company in tough times when metal prices were low and now is "Vale's time to pay it back."

Nothing says a mining company is reluctant to invest in new supply like committing to paying out fat dividends. The company went through a painful rationalization between 2011 and early 2016 when the dividend was slashed from $1.75 to less than 5¢. The commitment to increase the payout is designed at attracting dividend investors and to try and create confidence in management’s commitment to creating value. 

“This year we can make a very clear case that the Fed has been raising rates and the ECB has been adding to quantitative easing and the interest rate differentials favor the U.S.,” said Alessio de Longis, a New York-based money manager at OppenheimerFunds Inc., which oversees more than $246 billion in assets under management globally. “Nonetheless the euro has appreciated. The relationship between currencies and interest rate differentials has been very weak.”

Still, investors toiling to meet return targets in an era where the pool of bonds with sub-zero yields is $8.5 trillion, according to Bloomberg Barclays Global Indexes, may eventually decide the extra 250 basis points they can get from Treasuries is enough of an enticement to buy dollar assets.

For now, fundamentals are exerting a bigger pull. After a decade being stuck in low gear trying to keep deflation at bay, the euro zone is poised for its strongest annual expansion in a decade.

“The euro has been following a re-rating of sentiment around the European continent, positive sentiment around the European political and growth environment,” de Longis said.

Markets are discounting mechanisms so it doesn’t make a great deal of sense to look at current interest rate differentials to give us a clue to how currencies might perform against one another. Instead it is better to look at the difference between 2-year yields in different jurisdictions to offer some perspective on rate expectations. 

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

After three years of asset purchases, negative interest rates and cheap loans, the European Central Bank is finally confident that it has beaten the risk of deflation in the euro area. Now it’s time to start thinking about how to unwind those extraordinary measures.

It won’t be simple. The ECB’s mandate is to keep inflation just below 2 percent, but to judge its progress it looks at a range of key economic and market indicators.

In the first step toward the exit, policy makers decided to reduce monthly asset purchases by half starting in January and extend it for at least another nine months.

The Federal Reserve is now shrinking its balance sheet, albeit slowly. The Bank of Canada has raised rates, the Bank of England reversed an interest rate cut while the ECB is tapering, China is holding at neutral policy on aggregate while Japan is the only major economy still engaged in monetary and fiscal stimulus. It is reasonable to say that synchronized global economic expansions is one the way to replacing synchronized global monetary expansion. 

I have had to attend several business meetings with senior executives in Sydney over the last few months.   The meetings cover senior executive remuneration.  

The City is almost uniformly buoyant and confident.   The Bankers are understandably more cautious and almost certainly earning less.   I was surprised by the benefits the innovation and start-up guys can earn - big numbers.    Despite all this the ASX is climbing that wall of worry.   This does feel more late cycle behaviour.   However, what I think confuses the economic outlook is that the Australian economy is definitely going through profound change. 

Thank you for all your good work. 

Thank you for this illuminating insight and composing this service is greatly enabled by the contribution of so many highly informed subscribers. Your email highlights the transition of interest away from the financial sector and towards information technology over the past decade. After every crash the epicentre of risk takes a long time to recovery while capital and investor interest migrate to the “new thing”. 

Just read your piece on Japanese financials

What is the issue with Tokyo listed stocks? There are no restrictions for non-Japanese investors to buy local stocks, at least from the perspective of a European investor.

Why do you mention only ADR and GDR? (btw. German listed GDR have often very poor liquidity)

Btw: Wisdom Tree used to have a hedged ETF on Financials: WisdomTree Japan Hedged Financials Fund (DXJF) but I don’t know if it is still actively traded

Finally: Do Japanese REITs also belong to this category of possible beneficiaries from rising J-yields like banks in your opinion?  The iShares Japan REIT ETF trades under ticker 1476 JP

Thank you for this email which others may find of interest. I’ve been writing about Japanese banks since the summer but certainly with more frequency over the last month and I posted a more detailed review of Japanese Banks and REITs on December 8th. 

Bitcoin dropped to as low as $10,776. It last traded below $10, 000 on Dec. 1, when the U.S. Commodity Futures Trading Commission agreed to allow trading in bitcoin futures. For the week, the decline is as much as 39 percent. That follows gains of 13 percent, 44 percent and 32 percent in the prior three weeks.

The losses represent a major test for the cryptocurrency industry and the blockchain technology that underpins it, which have rapidly entered the mainstream in recent weeks. Bears cast doubt on the value of the virtual assets, with UBS Group AG this week calling bitcoin the “biggest speculative bubble in history.” Bulls argue the technology is a game changer for the world of investment and finance. Both will be closely watching the outcome of the current selloff.

If the history of bubbles tells us anything it is that the pace of innovation occurs largely independently of the price action. Crowds tend to overshoot in both directions and the merits or otherwise of blockchain technology, as a way of streamlining transactions and verifying contracts, are separate from the vicissitudes of token price action.

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

Some of the topics discussed include: Japanese Banks continue to hold move above 200, oil at upper side of range, FTSE-100 breaks out, Resources shares continue to perform, bonds have top formation characteristics so does Bitcoin.

“Switzerland fulfills the conditions for recognition of stock market equivalence every bit as much as the other third countries that have been granted indefinite recognition,”

Leuthard said at a press conference in Bern on Thursday. “The government has the impression that this decision by the European Union is intended to weaken Switzerland’s financial sector.”

The European Commission, the EU’s executive arm, on Thursday formally adopted the decision finding Switzerland’s regulations sufficient to allow EU market participants to continue trading on Swiss exchanges for a year, after markets trading directive MiFID II comes into force on Jan. 3. The Commission said that given the amount of cross border stock trading with Switzerland, the ramifications of the decision were greater than in the case of the U.S., Hong Kong and Australia.

Switzerland’s financial sector contributed 9.1 percent to economic output last year, a higher share than in the U.K. or Germany. The city of Zurich -- home of UBS Group AG and Credit Suisse Group AG -- is the highest ranked financial center in continental Europe, according to the Global Financial Centers Index.

The Swiss government said it doubts the EU’s decision is legal and that it was beginning work immediately to shore up the stock exchange and financial industry. The Finance Ministry has until the end of January to come up with detailed proposals, including abolishing stamp duty on securities transactions, Leuthard said.

The EU is a major global economic grouping that does not have a significant financial centre. After Brexit, London will join Zurich outside the currency union. That represents quite a challenge for the Eurozone because it will be left without a major financial hub. 

“This data is strong across the board and will support the aggressive pricing for BOC tightening,” said Alvise Marino, a foreign-exchange strategist at Credit Suisse Securities in New York. “We remain fundamentally bullish on the loonie, as per our three-month forecast of C$1.25 against the U.S. dollar, but I must confess I am a little surprised at how fast we are approaching that level, given the highly asymmetric nature of the potential outcomes” from next month’s Nafta negotiation round, he said.

The loonie strengthened as much as 1.1 percent to C$1.2700 per dollar and was at C$1.2711 as of 1:05 p.m. in Toronto, having blasted past its 50-day moving average of C$1.2748. The currency extended its year-to-date gain to 5.7 percent, on track for its best annual performance since 2009. The yield on the country’s two-year note advanced five basis points to 1.68 percent on Thursday.

The greenback-loonie pair could easily slip back to slightly above C$1.26 in the next week or so and could make one last push higher after the January BOC meeting because talk of a hike then looks premature, said Shaun Osborne, chief foreign- exchange strategist at Bank of Nova Scotia. But in his view a BOC hike in March or April looks “quite possible,” the U.S.

The Canadian Dollar accelerated to its early 2016 low before bouncing along with the commodity sector. It gave up about half the advance over the balance of 2016 and into 2017, before rallying powerfully again to break back above the trend mean and post a new recovery high. It is now firming from the region of the trend mean and a sustained move below 78¢ would be required to question medium-term scope for additional upside. 

As correlations among stocks and other assets classes break down, there will be a significant divergence in the performance of “quality” assets versus “junk” assets.  A prudent money manager should be prepared for this market shift by focusing on shorter duration assets, which goes for both credit and equities.  I expect longer duration equities, such as growth stocks with lower near-term earnings to underperform more value oriented stocks such as consumer staples, telecom, and energy sectors, on which I have focused.  Today’s market appears to be the inverse image to the early 1980s.  Back then, investors were misled into hiding out in cash as stocks were perceived as too expensive in a high interest rate environment.  Today, very few hold cash as stocks appear cheap relative to low bond yields.  This is a backward looking strategy derived from a relative value argument that is no longer operable.  I suggest more than a little risk aversion, as I have maintained, would be prudent in times like this.  As I have often said -- preserving capital is paramount, not winning friends. 

Money has been pouring into ETFs over the last couple of years which is a testament to the success of the low fee argument, against a background where the success of momentum strategies has reduced the allure of stock picking. The success of the ETF business has contributed to the consistency of the trends evident on the primary Wall Street indices and the low volatility condition that has prevailed over the last six months in particular. 

Governor Haruhiko Kuroda said at a press briefing that the central bank didn’t need to reconsider its current policy framework. 

His comments last month on the "reversal rate” theory stoked speculation about an earlier policy exit. The theory posits that monetary stimulus could end up hurting commercial banks’ profitability, making them less likely to lend. 

Kuroda said Thursday that financial intermediation hasn’t been impaired in Japan and that talk about the theory doesn’t indicate any need for policy change. The yen weakened following the comments and traded at 113.57 per dollar at 5:12 p.m. in Tokyo.

"Just because I brought up this academic analysis, reversal rate, doesn’t mean at all that we need to review or change the yield curve control we’ve adopted since September last year,”

Japan is one of the only major economies running both easy fiscal and monetary policy right now and that is contributing to asset price inflation if not the kind of inflation the central bank measures. In fact, we have learned from QE programs elsewhere that asset price inflation is what to expect from monetary accommodation on the scale employed by central banks at present. 

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

Intriguingly, FedEx also gave a third guidance range that reflects the effect of the tax cut Republicans are trying to pass. It's one of the few companies I've seen try to parse the legislation's earnings impact, and the benefits are major: the tax bill would add an estimated $4.40 to $5.50 to FedEx's fiscal 2018 adjusted EPS. To put that in context, that's an extra $1.3 billion in earnings at the midpoint of the range, based on the company's shares outstanding as calculated by Bloomberg.  

That FedEx of all companies would start running the numbers before the tax bill has even become law isn't surprising. CEO Fred Smith is a major fundraiser for Republicans and earlier this year was pitching his own version of tax reform. The biggest reason for the 2018 boost is the revaluation of net deferred tax liabilities, according to the company. FedEx, which gets the vast majority of its revenue from the U.S. even after the TNT deal, paid an effective tax rate of 34.6 percent in 2017 and had been expecting a levy of between 32 percent and 35 percent for 2018, per its annual filing. The latest version of the tax bill targets a corporate rate of just 21 percent.

The stock market has been pricing in the impact of tax cuts for much of the last year amid optimism about the influence the cut in corporate taxes would have, primarily for domestically oriented businesses. FedEx generates two thirds of its revenue from the USA and therefore will see a significant benefit from the cut to corporate tax rates. 

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The excesses in the global steel sector, primary driven by overcapacity in China, are well documented. Right now, the risk represented by that headwind are being outweighed by synchronized global growth. Meanwhile significant investment is flowing into capacity growth for the resources required to supply battery manufacturing. 

And BlackBerry may be just getting started. In an interview with CNNMoney on Wednesday morning, Chen said he wants the company to partner with even more auto companies, particularly the suppliers.

The goal? "We want to make BlackBerry ubiquitous in the auto sector," Chen said. To that end, Chen is even going to the North American International Auto Show in Detroit in January for the first time and will deliver a keynote address there.

Chen said the company will also keep focusing on cybersecurity products for big businesses and governments too. The stock enjoyed a pop earlier this year after the WannaCry ransomware attack as investors realized BlackBerry's security biz could benefit.

Regardless of what one’s view is on the potential growth of autonomous vehicles or electric vehicles the easy conclusion is that our cars are going to have more of a tech focus. Everything from navigation to entertainments systems to sensors require an onboard computer, operating system and, increasingly, a router. 

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Back in 2005 a subscriber from Malta attended The Chart Seminar and asked to look at his domestic market which was in the throes of an historic bull run. The acceleration was obvious and the group readily identified it as a Type-1 trend ending. 

David seems to be totally off the radar. I am curious to know how he is travelling with his health

I wish you and family a very merry Xmas and a healthy and bountiful year ahead.

Thank you and to other subscribers for your inquiries. David has been off the radar for the last few weeks because he has been moving home, with a view to spending more time at his bucolic pasture-surrounded home in Devon. The last time I spoke with him he was in good spirits, much improved from his condition in the summer and was walking a couple of miles a day. He was concentrating on getting just the right mix of medications to manage his heart condition

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

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Autonomous vehicles represent as much of a gamechanger for the energy sector as unconventional oil and gas did a decade ago. No one knows whether it will be 2030 or 2040 when they become ubiquitous but the important point about artificial intelligence is that it only needs to learn a lesson once. It might take millions of lines of code and an equal number of pictures to teach a computer a lesson but the work only needs to be done once. By contrast, every human needs to learn to drive on an individual basis and the Pareto Principle dictates that most of us are not particularly good at it. 

European Central Bank policy maker Jens Weidmann reiterated his call for a definite end-date for the institution’s bond-buying program, a refrain that looks likely to gain traction among his colleagues next year.

Saying that domestic price pressures should strengthen as wage growth improves, he said they are “therefore on track toward our definition of price stability.”

While policy makers meeting last week reaffirmed their commitment to buy debt until September “or beyond,” officials including at least half the six-member Executive Board have signaled they’re willing to rein in expectations for another extension. The euro area is currently undergoing the broadest economic expansion in its history, and the ECB this month upgraded its growth forecasts for the bloc.

“A faster conclusion of net asset purchases and a clearly communicated end date would have been reasonable,” Weidmann, who also heads Germany’s Bundesbank, told reporters in Frankfurt late Monday.

Despite the upturn, the ECB remains well short of its inflation goal of just under 2 percent -- and Germany is a prime example of the conundrum. There, record-low unemployment and economic growth above its long-term potential has still failed to generate much in the way of wage growth. Weidmann said he’s confident that will soon change.

“We don’t get involved in wage bargaining and respect the independence of bargaining partners. But we expect that the increased capacity utilization and regionally appearing bottlenecks in some labor markets will lead to somewhat higher wage pressure,” he said. “That’s a projection, not a recommendation.’’

It’s considered toeing the party line for a German central banker to talk about curtailing quantitative easing and raising interest rates. However, there is no denying that the European economy is benefitting both from the ECB’s purchase program and the return to synchronized global growth. A partial counter to that argument is Europe has some of the oldest average populations in the world which represents a challenge for stoking inflationary pressures. 

According to Informa's Agribusiness Intelligence, an industry research and analysis firm, the biggest driver behind the record output this year will be the European Union, India and Thailand.

Despite this, sugar cane diversion to ethanol production in Brazil means global prices will remain high as the country will produce less sugar in 2018-19.

Agribusiness Intelligence said that in October, for the first time in more than a year, there was a year-on-year increase in local sales of ethanol of 11% in Brazil. This accelerated to a plus of 16% in the first half of November.

"The most important reasons for the attractiveness of ethanol versus sugar are: the relatively high price of gasoline at the pump, an advantageous tax structure, recovering fuel demand as the Brazilian economy is moving out of recession and the low sugar price."

Meanwhile, within the EU, the market is still responding to the scrapping of production quotas for sugar refined from sugar beet, which is creating a huge jump in production. In the EU, 20 million tonnes of sugar will be produced by the end of 2017-18 which is an increase of 3 million tonnes compared to the previous year.

"This growing trend has not been supported by domestic consumption which has been declining in the EU steadily over the last few years. This will have a direct impact on the trade balance of EU countries, with imports declining and exports could double to as much as 4 million tonnes by the end of 2017-18," the analysis firm added.

Synchronised global growth helps to boost demand for all commodities but energy is particularly affected since OPEC is attempting to curtail supply. That is helping Brent Crude prices hold above the $60 area. Meanwhile it improves the allure of producing ethanol for Brazil because of the arbitrage consumers benefit from as long as sugar prices are low. 

The announcement made by uranium giant Cameco in November that it’s suspending operations at its flagship McArthur River mine in northern Saskatchewan and surprisingly deep three-year cuts by Kazakhstan’s state-owned Kazatomprom provide a "step change" for uranium prices says a new report on the sector from Cantor Fitzgerald equity research.

On Monday, the world largest producer of uranium, surprised the beleaguered market with a larger than expected cut to production of its own.

Two weeks ago, Kazakhstan’s state-owned Kazatomprom announced intentions to reduce its output of U3O8 by 20% or 11,000 tonnes (around 28.5m pounds) over the next three years beginning in January 2018. According to the company roughly 4,000 tonnes will be cut in 2018 alone "representing approximately 7.5% of global uranium production for 2018 as forecast by UxC."

Cameco's shuttering of McArthur River for ten months is expected to reduce production by 13.7m pounds in 2018 translating to a combined 42.3m pounds of expected production that has been removed from the market. In 2018 alone, the reduction will be about 24.1m pounds of U3O8 or about 15% of Cantor Fitzgerald's prior forecast of 158.4m pounds of output.

The price of commodities is set by the marginal cost of production and when two of the largest producers’ shutter facilities, it means prices have fallen to uneconomic levels. Uranium isn’t exactly fashionable but it is still required to fuel reactors all over the world. If supply is being curtailed prices will have to rise to attract producers back into the market. 

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

Some of the topics discussed include: Parallels with Plato's Republic, stock markets generally firm, South African Rand rallies, Dow Jones Industrials accelerating towards 25,000, platinum rebounds, discussion of bitcoin's consistency characteristics

Improve the education system|
The plan would get the government to work with teacher unions to improve the quality of schooling, especially in townships and rural areas. Teachers will be given additional training and support. It may be made compulsory for students to study mathematics and science until they complete school. The state would also take steps to provide free tertiary education to the poor.

Improve the management of state companies|
State companies must be properly governed, managed and operated for the benefit of the public, and suitable boards and executives with the appropriate skills and experience should be appointed immediately. The firms should consider co-investing with private companies or forming strategic partnerships with them to improve their balance sheets and ability to deliver services. The government will consider forming a company to manage all its investments in state-owned enterprises.

Clamp down on graft
A judicial commission of inquiry will be established to investigate allegations that public institutions have been looted and that private companies and individuals have gained undue influence over the state. Law-enforcement agencies will be strengthened and critical state institutions will be rebuilt.

Officials who have facilitated or been involved in graft will be immediately be removed from their posts and face prosecution. Stolen funds will be recovered and deposited in a special fund that will be used for youth training and employment.

The fact the ANC has voted against allowing Zuma’s ex-wife to lead the party after 2019 is a positive and Ramaphosa will have more than a year to figure out how he can curb corruption before the market will have a chance to judge whether his efforts are successful. Nevertheless, his victory has been greeted enthusiastically by markets.

So, if you owned Bitcoin would you sell them and if so would you put the proceeds in a traditional bank in your local currency, buy gold or buy equites at this point in time?

Thank you for this question which may be of interest to other subscribers.

The answer is going to depend on three important characteristics. The first is whether one is leveraged or unleveraged. The second is how easy is it to sell. The third is whether there is evidence of top formative completion. 

As embattled U.S. retailers shed jobs over the past year, women have borne the brunt of the losses. Men, on the other hand, have made steady gains in the retail workforce.

Women lost 129,000 retail positions in the last year, according to Bureau of Labor Statistics data analyzed by the Institute for Women’s Policy Research. Men gained 106,000 positions.

The report found that general-merchandise stores -- mainly department stores -- accounted for the largest share of both jobs lost and jobs gained. Women at those retailers lost 161,000 positions while men gained 87,800 from October 2016 to October 2017.

At other types of retailers, including auto dealers, garden supply stores and furniture stores, women and men both gained a comparatively small number of jobs.

Retail employment for both men and women had been growing since 2007, IWPR said. But about a year ago, the trend for women reversed. It’s not clear exactly why, said Heidi Hartmann, president of the IWPR. Women could be moving to higher-paying jobs, or men could be doing better because they tend to sell big-ticket durable goods such as cars and appliances, where sales are strengthening.

The uneven distribution of job losses could have repercussions for the U.S. economy as a whole, because the vast majority of American families rely on women’s earnings, Hartmann said.

The first wave of automation and offshoring primarily affected men working in factories, steel mills and coal mines. The second wave of automation led by robotics and the disintermediation of the internet means women are likely to be inordinately affected. This is unlikely to be an issue confined to the first world as the process of automating the manufacturing of garments becomes progressively more sophisticated. 

“Car sales are one of the strongest indicators of consumption of raw materials,” said Peter Thomas, a senior vice president at Zaner Group in Chicago, citing the one to two ounces of platinum or palladium that goes into each vehicle.

“You’ve also got a lot of window dressing going on,” with traders selling palladium to book their gains for the year, and buying platinum, he said.

Palladium, used mostly in pollution-control devices for gasoline engines, has led gains in precious metals this year by climbing 48 percent. It surpassed the price of platinum in September for the first time since 2001. Gold has gained 9.9 percent in 2017, while silver increased 1.4 percent.

Supply of platinum will trail consumption by 275,000 ounces in 2018, after being largely balanced this year, the World Platinum Investment Council forecast in November. Mine closures in the second half of this year will have a larger impact on production next year, it said.

Platinum has been priced as if diesel cars are going to be discontinued tomorrow. The reality is somewhat different since European consumers pay some of the highest prices for gasoline in the world and diesel cars are both more efficient and last longer. Despite projections for increased electric vehicle use from the 2020s, and more stringent emissions testing, diesel cars are still likely to be in demand for at least the next few years. 

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The most ambitious forecasts for technological innovation which tend to focus on the internet of things, autonomous vehicles, drone deliveries, smart speakers that act more like butlers/lifestyle managers than search engines, smart clothing, smart glasses, smart metering, not to mention artificial intelligence, big data as a service and even intelligent prosthetics all depend heavily on broadband access. 

Despite disbelief in Europe, May and her team still publicly insist they can complete all the trade negotiations before Brexit day and have a new trading relationship ready to sign into law the moment the country leaves the bloc. Brexit Secretary David Davis has admitted that he’ll be in a weak position trying to negotiate a trade deal when the U.K. is already outside the bloc.

In order to meet the March 2019 deadline, the framework of the future relationship needs to be done ideally by October, to allow the European Parliament and the increasingly assertive U.K. lawmakers to have time to ratify the agreement. That leaves seven months to finalize the outline of an ambitious pact.

A senior EU official, speaking on Friday on condition of anonymity, said the full trade agreement will take years. The U.K. government underestimates the complexity of the trade discussions, the official said. He said that alongside the withdrawal agreement the two sides will issue a joint declaration outlining the principles of the future relationship to be worked on when the U.K. is no longer a member state.

One major obstacle is that neither side yet knows what it wants the future relationship to look like. May has not even discussed the matter in any depth with her own cabinet ministers. She’ll call them to a meeting next Tuesday to hear their views on the end state, according to her office. It’s unlikely to be the last time they talk about it.

The EU was easily able to come up with three things it wanted right away following the UK’s decision to quit the group. It needed money, citizen rights and to settle the Irish border issue. The question of where each individual Eurozone country sees its best advantage from Brexit is going to be a much more difficult issue to overcome on a cohesive basis. When EU officials state that negotiations are going to be much more complex than the UK thinks, they are probably referring to the issues they have internally to come with a united front. 

I think it's easy to lose sight that Bitcoin was never intended as an investment vehicle but rather a digital currency. Hard money advocates should appreciate the cap on the total number. Certainly, until there is a much wider acceptance as a currency and more people own it, there will continue to be extremely high volatility. However, since there is a limit on the total number of bitcoin and more people will want to own some, isn't it natural for it to rise in price? The pace has been astonishing but maybe we are really only in the early stages. By nature, it must go higher IF it is to be an alternative currency whose supply can't be increased (like fiat currencies are)

Thank you for this email which I suspect will be of interest to many subscribers. Once upon a time a unicorn was a fabled animal with quasi-magical properties, today it is a fast-growing company with valuation of $1 billion. Friends used to be people you shared time and experience with, today they are people you show photos of yourself to. A snowflake used to be something that fell from the sky, now it is a pejorative term for sensitive people. A trigger used to be associated with guns, now it is an excuse for histrionics. Miners used to be hardy souls who engaged in back breaking work to extract ore from the earth, today they dust-off and fix computers solving puzzles. There was a time a currency was something you could rely on as a medium of exchange and my how that definition has been stretched. 

The London-based research company modelled metal requirements across the supply chain – from generation and grid infrastructure through to storage, charging and vehicles – based on relatively modest penetration of EVs in the total global vehicle market out to 2030.

According to the study as early as 2020, when EVs would still make up only 2% of new vehicle sales, related metal demand already becomes significant, requiring an additional 390,000 tonnes of copper, 85,000 tonnes of nickel and 24,000 tonnes of cobalt.

Based on an EV market share of less than 32% in 2030, forecast metal requirements are roughly 4.1m tonnes of additional copper (18% of 2016 supply). The move away from gasoline and diesel-powered vehicles would need 56% more nickel production or 1.1m tonnes compared to 2016 and 314,000 tonnes of cobalt, a fourfold increase from 2016 supply.

Miners went through a decade of investing in supply and then prices collapsed. They were forced to cancel exploration and to focus on free cash flow. Appetite for investing in additional new supply is low but there are obvious demand drivers coming from the electric car market. 

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Some of the topics discussed include: Central bank balance sheets, Brazilian Real weakness, outperformance by ASEAN, Wall Street pauses, banks continue to outperform, commodities stable, bitcoin continues to pause but susceptible to profit taking.

Rather than hitting a single number, it is more important that inflation converges to the target in a self-sustained and durable manner, he said. Improving conditions in the labor market should increase pressure on nominal wages, which are a key driver of underlying price pressures.

The ECB chief’s caution comes amid a spate of central-bank decisions in the past 24 hours that signaled tighter global monetary policies ahead. The U.S. Federal Reserve announced its third interest-rate increase of the year, China unexpectedly edged borrowing costs higher, and Norway’s central bank signaled that it may start raising interest rates earlier than previously.

The Swiss National Bank predicted inflation will exceed its mandate in late 2020, though said it won’t rush to raise rates. The Bank of England, which increased rates last month for the first time in a decade, kept policy on hold in London.

Bolstered by ECB stimulus and a global economic recovery, the euro area has recorded 18 straight quarters of expansion since coming out of a double-dip recession, and sentiment surveys point to accelerating momentum. Upside growth surprises are possible, while downside risks are mostly related global factors, Draghi said.

The Fed has telegraphed three interest rate hikes next year and the ECB is about to start tapering but will lag in raising rates. The Bank of England unwound a panicky cut following Brexit but will probably be the first major central bank to embark on tightening after the Fed. The Bank of Japan is still engaged in quantitative easing. Meanwhile the People’s Bank of China is pursuing a two-pronged approach by tightening credit conditions for banks but is not raising rates and is also still running easy money programs for some sectors. 

For high growth countries in Asia where there is a burgeoning domestic market, the return to performance of major export markets is a tailwind that is being welcomed with a return both to demand dominance in nominal terms. The relative stability of regional currencies is a tailwind to absolute performance which is particularly important for international investors.  

The paper, published in the journal Joule, details how scientists added a compound made up of phosphorus and sulfur elements to the electrolyte liquid, which carries charge within batteries. The team claims that this compound reacts with the lithium metal electrode in a battery to “spontaneously coat it with an extremely thin protective layer.” This protection, supposedly, allows for the use of lithium metal electrodes within batteries, which adds greater storage capacity, without risks or degradation. This improvement could triple the range of these nascent vehicles.

The prize of achieving greater efficiency for batteries can’t be overstated so there is a flood of capital pouring into R&D. At the same time, large factories are being built to achieve economies of scale with current technology. This two-pronged approach is likely to deliver both quantity and quality to the electric car sector over the coming decade. The additional factor of more stringent environment standards for emissions is a third important consideration for major automotive companies. 

President Michel Temer’s efforts to overhaul Brazil’s unsustainable pension system has dominated political debate in Latin America’s largest economy throughout the year. With pressure mounting to pass the unpopular measure before lawmakers start concentrating on 2018 elections, negotiations between the presidential palace and congress reached fever pitch in recent days. The government’s plans started falling apart this week as several policy makers contradicted themselves on the potential vote date while Temer was hospitalized for a surgery.

"We don’t have all the votes now and we’ll have to keep on working," Maia told reporters after a meeting with government allies in Brasilia. "I’m sure we’ll have the votes in February."

Maia added that he’s confident the government will obtain 320-330 votes in favor of the bill, which is more than the 308 needed to secure its approval in the lower house. The legislation would also require Senate backing.

Many observers are skeptical it will pass in 2018. "It’s very hard, if they weren’t able to do it this year, the chances fall significantly," said Juliano Griebeler, a political analyst at Barral M. Jorge consultancy. "Leaving it until next year creates a bad situation for the government as it will have to push back other important issues, like tax reform."

Governance is Everything. Brazil has been laboring under the constant flood of corruption allegations against just about all politicians and that represents a headwind to getting meaningful legislation passed. It is almost too much to hope that a new reform minded administration which also takes a tough stance on graft is going to be elected so Brazil has challenges. 

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Some of the topics discussed include: stock markets steady, Fed hikes, corporate profits improving, Pound steady following mutiny in UK parliament, Dollar weakens, precious metals rebound from short-term oversold conditions. discussion of mania in cryptocurrencies. Japanese Banks breakout

I believe I read somewhere that some of the big holders and speculators in Bitcoin are in China, as they want to get cash out of the country to avoid the controls in place. Have you heard the same? If so, the next big win could be to figure where they will invest once they sell bitcoin. Any ideas? 

Also, I am watching CME Group closely, and may buy. Since they trade futures, and make profits based on volume of transactions, they will do well both as Bitcoin gains and crashes as trading volume will be high. I guess they will get into other cryptocurrencies too.

Interesting opportunities are opening up as one studies this space. For the more cautious investor like me, just like the California gold-rush, the winning strategy may be to invest in the picks and shovels (Nvidia and other semi-conductor manufacturers for chips, CME Group for futures etc).

Best wishes

Thank you for this email which may be of interest to subscribers. Yes, Chinese retail investors are a major buyer of cryptocurrencies but the practise of using bitcoin to funnel money overseas has been clamped down on over the last six months, not least when bitcoin exchanges were raided back in September. In the meantime, Japan and South Korea have become significant sources of demand. For example, South Koreans are currently paying a 23% premium to buy bitcoin. 

But two things look clear: The WMP market's years of torrid growth have ended; and in an environment of higher risk, investors will prefer products sold by large state-owned lenders that are seen to be safer and of better quality. 

That will put pressure on smaller banks, which have limited scope to increase lending. Minsheng, China CITIC Bank Corp., Ping An Bank Co. and China Everbright Bank Co. all had loan-to- deposit ratios exceeding 90 percent as of the third quarter, according to Francis Chan of Bloomberg Intelligence -- much higher than their bigger rivals. Shares of Minsheng and CITIC Bank have fallen in Hong Kong this year, while ICBC has jumped 27 percent.  

A reckoning is approaching. As with all measures to rein in China's debt, the WMP clampdown is likely to be a stop-go process. But smaller banks will need to start looking for another source of growth, and fast.

Many of the smaller banks which have been most profligate in the use of wealth management products (WMP) are not listed. That represents a challenge in monitoring any issues they encounter using conventional stock market analysis of relative strength and leadership. 

When it comes to conventional wisdom about macroeconomic profit margins, investors beware.

First of all, do not expect margins to “revert to the mean”. A profit margin is not a random variable. Its behavior is complex and sometimes hard to predict, but that does not make it random. Throughout history, when the aggregate profit margin has been unusually far from its historical mean, it would have been unwise to expect it to revert. One would often have ended up waiting for many years, and sometimes for decades.

Second, looking to the future, each step of the way profit margins will depend on profits, which will depend on the profit sources. Global structural financial issues, public policy, business trends, technology, demographics, sociology, and other influences on the profit sources – and not a simple probability distribution – will determine what happens to profits and profit margins.

Third, interpreting profit margins depends a great deal on context. For example, recent years’ wide margins have accompanied by a low ratio of profits-to-equity, which is what ultimately matters to shareholders.

Fourth remember that the influences on aggregate profits margins are different from influences on the margins of individual firms. Competition can certainly compress margins within a firm or industry, but aggregate profit margins are not “competed away” in the business sector as a whole. Rather, changes in the profit sources are what increase or decrease aggregate profit margins. 

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There has been considerable debate about the elevated level of US Corporate Profits over the last few years with some analysts predicting what would be a cataclysmic mean reversion while others have been more sanguine. This is the first report I’ve seen attempting to look through the figures to identify the factors behind corporate profits that are contributing to this condition and I commend it to subscribers. 

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Some of the topics discussed include: banks respond favourably to the prospect of higher interest rates, bonds still reticient to price in more than immediate potential for interest rate hikes, stock markets steady, oil does not hold move above $65 while natural gas breaks down. bitcoin steady but has definitely accelerated. 

The latest data mean Carney has to write to Chancellor of the Exchequer Philip Hammond explaining why inflation is more than 1 percentage point away from the official 2 percent target.

The letter will be published alongside the BOE’s policy decision in February, rather than this week, as the Monetary Policy Committee has already started its meetings for its Dec. 14 announcement.

Markets expect no further rate increases until late 2018, a view echoed in a survey of economists published Tuesday.

Bloomberg Economics sees the benchmark, currently at 0.5 percent, staying on hold for all of next year.

What Our Economists Say: “Inflation bounced higher in November, but only because of the extremely volatile price of flights. The Bank of England won’t lose much sleep over it. The governor was expecting to write a letter of explanation to the chancellor at some point and the story is simple. Inflation is peaking, it’s set to fall back toward the 2 percent target next year and action has been taken to help it stay there.”

While some BOE officials say they are seeing early signs of a pickup in wage growth, a report on Tuesday offered a gloomier assessment, predicting that pay increases will fall short of inflation again. Recruitment firm Korn Ferry said Britons’ real wages will drop 0.5 percent next year, lagging behind a global average of a 1.5 percent gain.

The Bank of England has not been opposed to running inflation a little hotter than headline for the last few years, not least because it helps to erode the quantity of outstanding debt. Carney has been quite vocal in stating that living standards would be impacted by the Brexit decision and the slow pace of wage growth against a background of quickening inflation is a testament to that. 

Thank you for all your good work, could I ask what you mean when you say trend ending characteristics?

Thank you for this question which is a major topic of conversation at The Chart Seminar. The easy way to think about it is that a consistent trend is a trend in motion and that reflects an imbalance between supply and demand. The rhythm of a trend should be easy to identify as long as it is consistent. When the consistency changes, that tells us the imbalance between supply and demand has changed. It is then we ask whether the conditions have changed enough to represent top formation characteristics. 

What follows is a cursory description but to gain a more in-depth understanding I would recommend reading my book Crowd Money and attending The Chart Seminar. Considering where we are in the market cycle I’ll focus on top formations. 

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There are at least four factories under construction in Asia that are on par with Tesla’s giga-factory with even more smaller factories also under construction. That represents a considerable quantity of potential raw materials demand lining up as battery manufacturing picks up. Since it takes time to build new mining/brine and refining capacity, a supply inelasticity meets rising demand environment is increasingly evident. 

Why should companies want to buy back 'relatively expensive equity' selling cheaper debt? I don't doubt they will continue doing this since companies buy high and sell low (or at least don't buy a lot when prices are low- cf. 2008 and 2009.

Thank you for this question which has three possible answers. The first for US companies focuses on tax since buybacks are not considered distributions while dividends are taxed. 

Can I ask if you have a position in bitcoin currently as you are a client of Coinbase? I appreciate you may not wish to answer this but I’m wondering how you decide which of your positions to disclose  on this website. I would like to add that I’ve always appreciated the transparency that you and David have displayed in your personal dealings. 
Many thanks,

Thank you for this question which others may have an interest in. It has been our longstanding commitment to share our investment decisions, warts and all, with our subscribers and that will continue indefinitely. 

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Some of topics covered include: Japan breaks out, China bounces, S&P500 posts new closing high, Brent crude hits new recovery high, commodities steady but precious metals weak.

Japanese shares rose with the Nikkei 225 Stock Average advancing to its highest since 1992 on a weaker yen, as upbeat jobs data from world’s largest economy reignited optimism over global growth.

Japan’s currency slid to a one-month low against the dollar after Labor Department figures Friday showed the U.S. added more jobs than expected in November and the unemployment rate held at an almost 17-year low. Both the Nikkei 225 and the broader Topix index advanced for a third day, with banks and machinery makers providing the biggest boost. Local equities are bouncing back to their highest levels in a quarter century following a pullback in late November on profit-taking.

“The global economic expansion isn’t over yet,” said Tatsushi Maeno, a senior strategist with Okasan Asset Management in Tokyo . As the yen heads lower “investors will anticipate upward revisions to corporate profits ahead of the earnings season in March.”

Both main stock gauges retreated briefly on Monday as technology companies slid in the wake of the sector’s recent global selloff. A measure of electronics makers finished 0.1 percent higher after slipping by as much as 0.6 percent.
“Performance for semiconductor stocks like Tokyo Electron is sluggish with investors torn over whether it’s alright to take an optimal view on the sector again,” said Hideyuki Suzuki, a general manager at SBI Securities Co.

 

The Nikkei-225 has been ranging above 22,000 since early November and closed at an incremental new high today. Upside follow through tomorrow and a sustained move above 23,000 would reassert medium-term demand dominance. The broad Topix Index has now also moved to a new 25-year closing high and importantly these indices are doing so on a much lower valuation than Wall Street.