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November 24 2016

Commentary by David Fuller

OPEC Last Push for Oil-Cuts Deal Shifts Focus to Iran, Russia

Here is the opening of Bloomberg’s latest report on the attempt at this forced marriage:

OPEC’s final push to implement the Algiers supply accord and boost oil prices shifted focus to Iran and non-members such as Russia as Iraq appeared to reverse its opposition to output cuts.

The extension of shuttle diplomacy -- including a visit to Tehran from an architect of the September agreement and an unusual Vienna breakfast with non-OPEC ministers -- comes after an OPEC committee failed this week to hammer out details of how producers will share the burden of cuts. With less than a week until the crucial Vienna ministerial meeting, the refusal of just one major producer to participate could scuttle the whole deal.

Algeria’s Energy Minister Noureddine Boutarfa will travel to Tehran on Saturday in an effort to bring a deal closer, said a person familiar with the matter, who asked not to be identified because the information isn’t public. Algeria is the ninth-largest producer in OPEC and has limited international clout, but in September played a central role in clinching the preliminary agreement on output cuts that had eluded its more formidable counterparts throughout the two-year oil slump.

Boutarfa will also meet his Iraqi counterpart in Vienna on Nov. 28 or 29, although that country is now less of a problem after positive statements from Baghdad, the person said.

Oil prices rose Wednesday as Iraqi Prime Minister Haider Al-Abadi said his country would shoulder part of the burden of output cuts. That assertion still leaves unresolved the significant issue of exactly how much the country would reduce, and from what level, said a Gulf OPEC delegate. Iraq has been disputing the OPEC supply estimates that would form the basis of cuts, saying they underestimate its production.

David Fuller's view -

What a humiliating experience these negotiations must be for OPEC’s main participants, not that they will receive much sympathy.  Nevertheless, frackers in the USA will regard any success by OPEC plus Russia in cutting oil supplies as an early Christmas present, and with good reason.  Any price rise above $50 will increase their profits and also production.  Additionally, it will enable them to lock in higher prices for the future by hedge shorting more distant contracts in this contango market.  Jan ’17 Brent crude currently sells at $49, with prices rising gradually over the next 12 months.  The most liquid distant contract is Dec ’17, which closed today at $53.71.     



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November 24 2016

Commentary by David Fuller

Uranium: the Unloved Metal Whose Price Is Poised to go Radioactive

The belief is that utilities are becoming “uncovered”; with spot prices so low, they have resisted locking themselves into long-term contracts. This could leave them scrabbling for supply at the end of the decade, giving producers the upper hand on prices.

It’s a view shared by analysts at Cantor Fitzgerald, who predicted this year that a “violent increase” in uranium prices was on the way.

Cantor predicts that up to 80pc of the uranium market could be uncovered by 2025. Moreover, it believes demand will outstrip supply, saying: “The low-price environment has choked off exploration activity for uranium and we are at the point where there are not enough uranium projects in the pipeline that can adequately meet the coming demand.”

Peter Reeve, executive chairman of Aura Energy, describes the spot price as an “irrelevance”.

“I don’t believe the supply side is what’s hitting the spot price. It’s more just speculators playing that part of the market,” he says. 

Aura, which like Berkeley is listed in Australia, joined Aim in September, with a view to progressing uranium projects in Mauritania and Sweden.

Reeve also believes a “demand avalanche” is coming. Uranium is a relatively common metal, found in rocks and even seawater. Locating it in the right concentrations can be difficult, however. 

As Reeve says: “It’s not found near London or Paris. It’s all in very curious locations. That doesn’t make it easy to get at or develop.”

David Fuller's view -

What goes around, comes around. The world needs nuclear power but serious accidents are understandably terrifying, as we know from: 1) Three Mile Island March 28 1979, 2) Chernobyl April 26 1986, and 3) Fukushima Daiichi March 11 2011.  These incidents have left deadly, very long-term contamination in their nearby surrounding regions. 

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



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November 24 2016

Commentary by David Fuller

The Strategic View: Positioning Portfolios for a Trump Presidency

My thanks to Michael Jones for his excellent letter.  Here is the opening:

We expected the initial panic over Trump’s surprise election to create an attractive buying opportunity in global equity markets.  Instead, Trump’s acceptance speech arrested an equity market freefall, and by the time US markets opened the morning after his election, equity prices had fully recovered.  We believe the quick recovery and subsequent moves higher by global equity markets were driven by Trump initially emphasizing policies favourable to investors (e.g. tax reform, deregulation and stimulus) and deemphasizing policies that could impair corporate earnings (e.g. renegotiating NAFTA).

Although our portfolios were denied an opportunity to “buy low”, we nonetheless executed our “Trump Sweep” strategy (see Strategic View dated 11/8/2016 for more on our “Trump Sweep” scenario) of more aggressively positioning portfolios for rising equity markets.  This more aggressive positioning is consistent with our belief that the likely policies of a Trump administration will prove, on balance, favourable for equity markets. However, the Trump presidency could significantly change which asset classes and market sectors lead the market higher.  

David Fuller's view -

A PDF of The Strategic View is posted in the Subscriber’s Area.



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November 24 2016

Commentary by David Fuller

The Markets Now

Here is the brochure for the next event on Monday evening 28th November, at London’s Caledonian Club.  

David Fuller's view -

The shock US Presidential result is known but what can we expect from Trump’s regime, and how might it affect the markets? 

Here is another important, far reaching development worth discussing at Markets Now – the US Dollar Index.  A number of government bond yields bottomed in July, including US 10-Yr Treasuries.  I don’t expect to see those lows again… ever.

Groupthink pundits are saying nothing much will change but that is a contrary indicator. 

This is a great time to have an exciting new speaker in Clive Burstow.  Come along and participate in the discussion of market opportunities – the last session for 2016. 

I look forward to another lively session at The Markets Now seminar, attended by highly experienced international investors, led by our long-term subscribers.  Iain Little has more interesting material, including his popular “Trusts In Focus” programme.  Iain also introduced Clive Burstow of Barings, a specialist in the analysis and management of mining stocks – a hot topic this year.  

I can’t wait and it is always fun to chat with delegates at the cash bar following the three presentations.

 



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November 23 2016

Commentary by David Fuller

Hammond Fiscal Caution Risks A Hard-Landing

Here is an opening assessment of the Chancellor’s Autumn Statement, by Ambrose Evans-Pritchard for The Telegraph:

Philip Hammond has succumbed to the fatal caution of the Treasury.  A rare chance has been wasted.

Britain must now face the full storm of the Brexit downturn next year and the year after without any precautionary buffer worth the name. A hard landing is all but guaranteed.

If the Chancellor had wished to launch a barrage of investment on the country’s rickety infrastructure and do something to lift productivity from the bottom ranks of the OECD league, there could scarcely have been a better global climate. All the stars are aligned.

The whole world is shifting on its economic axis. The era of fiscal austerity is over. The US, Japan, and even the eurozone, are all are switching to net stimulus, painfully aware that zero rates and quantitative easing have run their useful course.

Donald Trump wants an infrastructure blitz of $550bn over five years, buttressed by even bigger tax cuts than Ronald Reagan’s ‘supply-side revolution’ of the early 1980s.

Fiscal largesse has become the new global orthodoxy. The International Monetary Fund has converted. The bond vigilantes have been tamed. Vast sums of excess capital are sitting on the sidelines, searching for homes in infrastructure projects that pay for themselves. Yet the Chancellor has opted for caution.

There is nothing wrong with his list of targeted spending: £220m on ‘pinch points’ for congested roads, £450m for digital signalling on the railways,  £750m on 5G mobile networks. They are admirable. But they do not make a dent on Britain’s infrastructure deficit or come close to offsetting the slump in private investment that is all too likely once the traumatic process of EU extrication gets underway.

Mr Hammond describes Britain’s productivity failings as “shocking”. “We lag the US and Germany by some 30 percentage points. But we also lag France by over 20 and Italy by eight. Which means that in the real world, it takes a German worker four days to make what we make in five,” he said.

Quite so, but his National Productivity Investment Fund of £4.8bn a year is thin gruel in a £2 trillion economy and still leaves public investment trailing average OECD levels by roughly 1pc of GDP. For all the rhetoric, it will actually fall in real terms.

The Treasury itself says in its ‘National Infrastructure Delivery Plan 2016-2021’ that the country needs to spend half a trillion pounds to plug the gap over the next five years, identifying 600 projects ranging from smart power, to fast broadband, flood defences, roads, sewers, and such exotica as beamless light and semi-conductor catapults.

David Fuller's view -

I agree with AEP.  This Autumn Statement is much too cautious given a barely recovering global economy, the low cost of government borrowing and as a cushion against Brexit uncertainty while the UK is in the process of leaving the EU. 

This item continues in the Subscriber’s Area where a number of comments from UK industry are posted, as is a PDF of AEP’s column.



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November 23 2016

Commentary by David Fuller

Cautious Fed Sees Labor Market Strong Enough for December Hike

Here is the opening of this topical article from Bloomberg:

The data-dependent Federal Reserve isn’t likely to contest the evidence: The economy looks strong enough to withstand another interest-rate increase.

It will take a couple of months for U.S. central bankers to figure out the economic policies of President-elect Donald Trump. What they know now is that stock markets are hitting record highs, market-expectations of inflation are moving up and consumer sentiment has improved since the election -- all of it signaling the time is right to raise the benchmark lending rate.

“They have talked it to death,” said Gennadiy Goldberg, interest-rate strategist at TD Securities USA LLC in New York. “December is on.”

Fed officials earlier this month saw a strengthening case to raise rates as the labor market tightened, with some saying a hike should happen in December, according to minutes of their Nov. 1-2 gathering released Wednesday in Washington. They made no direct reference to the national election a week later that would unexpectedly propel Trump to the White House.

“Some participants noted that recent committee communications were consistent with an increase in the target range for the federal funds rate in the near term or argued that to preserve credibility, such an increase should occur at the next meeting,” the record of the Federal Open Market Committee meeting showed. Many officials said a rate rise could be appropriate “relatively soon,” data permitting, it said.

‘Getting Stronger’

Fed officials will hold their final meeting of the year on Dec. 13-14. While it is still difficult to tell what policies Trump will put in place, market indicators are defaulting to a forecast of faster growth and higher inflation. That’s boosted expectations of a rate increase next month. Investors see a 100 percent probability of a move, according to pricing in federal funds futures contracts.

“The Fed meeting minutes say that the case for a rate hike keeps on getting stronger and stronger,” Christopher Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said in an e-mail. “Reading through their deliberations one cannot help but feel a rate hike in December is a done deal.”

David Fuller's view -

Fed governors would have had reservations about Trump but they will feel reassured by the stock market rally following his election.  They certainly will not be postponing the December rate hike over what might happen at a later date once Trump is president. 

The Fed’s main concern right now, although it will not be enough to prevent the imminent rate increase, is the strength of the Dollar Index.

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November 23 2016

Commentary by David Fuller

Oil Supply Crunch to Hit in 2019 as Investment in New Projects Dries Up

An oil supply crunch could hit as soon as 2019 as investment in new projects dries up following the price crash, leading analysts have warned.

Delays and cancellations of projects by cash-strapped energy giants mean the volumes of new crude production coming onstream will not be enough to make up for the decline from existing fields and meet growing demand, Barclays analysts said in a research note.

They forecast that 2019 would see the "the lowest year for new capacity" on their records, which stretch back to the Nineties, with just 1.2m barrels per day (bpd) of new supply.

By contrast, decline from existing fields and growing demand would together equal 4m bpd, resulting in a gap of almost 3m bpd.

"2019 marks a juncture where supply becomes a concern. With current volatility and oil price uncertainty, project sanction approval continues to be difficult," they wrote.

The analysis comes after the International Energy Agency last week warned that the world was headed for another boom and bust cycle in the oil market, with supply shortages likely to cause rapid price increases by the early 2020s.

The IEA said that if project approvals remained at current lows through 2017, it was "increasingly unlikely that supply will be able to meet the rising demand without rapid price increases".

The Barclays analysis is even starker, suggesting that a supply crunch in 2019 may already be unavoidable.

Given long lead times for many projects that it is monitoring "no decision now makes 2019-20 start-up an impossibility", the analysts warned.

"Inventories could help fill the gap, as will the phased ramp-up of onshore developments and shorter development brownfield, but by then we feel it is not a question of the US shale ramping back up, but how much it can produce to fill the gap and how high an oil price is needed," they said.

Oil prices have rallied to near to $50 a barrel for Brent crude in recent days on rising optimism that Opec will agree new production curbs at a meeting in Vienna next week, helping to rebalance the market from the current supply glut. 

But the Barclays analysis suggests that regardless of whether Opec decides to cut next week the fundamentals are tightening and that an increase in production by the cartel may actually be needed within the next couple of years to fill a looming gap.

Ole Hansen, head of commodity strategy at Saxo Bank, said: "Crude oil has rallied strongly, despite headwinds from a rising dollar, in response to increased speculation that Opec will finally succeed in reaching a deal to cut production on November 30. The latest move once again highlights the cartel's role as a major driver of oil market volatility. 

"On the assumption a deal to cut production by a minimum of 800,000 barrels can be struck we could see Brent crude oil once again challenge the ceiling around $54 per barrel."

However, he warned: "The initial move would be driven by short-covering and once that is done the market may pause and retrace in the realisation that Opec's ability to comply with its own production targets have been very poor in recent years."

David Fuller's view -

I do not agree with this forecast.  No disrespect to the International Energy Agency but I cannot think of any commodity agency which does not predict higher prices in most of their forecasts.  If prices are low, they use that as a determinant of higher prices at a future date.  This has sometimes worked given previous inflation and global GDP growth.  What the agency is not factoring in, is the increasing wish to reduce consumption of crude oil because of CO2 emissions. 

Even more importantly, oil has gone from supply tightness to abundance, thanks to technology.  Today, oil is much easier to find and most importantly, onshore oil can be produced far more cheaply thanks to the vast quantities available in shale formations.

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November 23 2016

Commentary by David Fuller

The Markets Now

Here is the brochure for the next event on Monday evening 28th November, at London’s Caledonian Club.  

David Fuller's view -

The shock US Presidential result is known but what can we expect from Trump’s regime, and how might it affect the markets? 

Here is another important, far reaching development worth discussing at Markets Now – the US Dollar Index.  A number of government bond yields bottomed in July, including US 10-Yr Treasuries.  I don’t expect to see those lows again… ever.

Groupthink pundits are saying nothing much will change but that is a contrary indicator. 

This is a great time to have an exciting new speaker in Clive Burstow.  Come along and participate in the discussion of market opportunities – the last session for 2016. 

I look forward to another lively session at The Markets Now seminar, attended by highly experienced international investors, led by our long-term subscribers.  Iain Little has more interesting material, including his popular “Trusts In Focus” programme.  Iain also introduced Clive Burstow of Barings, a specialist in the analysis and management of mining stocks – a hot topic this year.  

I can’t wait and it is always fun to chat with delegates at the cash bar following the three presentations.



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November 22 2016

Commentary by David Fuller

$100 Billion Chinese-Made City Near Singapore Scares the Hell Out of Everybody

Here is the opening of this informative article from Bloomberg, which I commend to subscribers:

The landscaped lawns and flowering shrubs of Country Garden Holdings Co.’s huge property showroom in southern Malaysia end abruptly at a small wire fence. Beyond, a desert of dirt stretches into the distance, filled with cranes and piling towers that the Chinese developer is using to build a $100 billion city in the sea.

While Chinese home buyers have sent prices soaring from Vancouver to Sydney, in this corner of Southeast Asia it’s China’s developers that are swamping the market, pushing prices lower with a glut of hundreds of thousands of new homes. They’re betting that the city of Johor Bahru, bordering Singapore, will eventually become the next Shenzhen.

“These Chinese players build by the thousands at one go, and they scare the hell out of everybody,” said Siva Shanker, head of investments at Axis-REIT Managers Bhd. and a former president of the Malaysian Institute of Estate Agents. “God only knows who is going to buy all these units, and when it’s completed, the bigger question is, who is going to stay in them?”

The Chinese companies have come to Malaysia as growth in many of their home cities is slowing, forcing some of the world’s biggest builders to look abroad to keep erecting the giant residential complexes that sprouted across China during the boom years. They found a prime spot in this special economic zone, three times the size of Singapore, on the southern tip of the Asian mainland.

The scale of the projects is dizzying. Country Garden’s Forest City, on four artificial islands, will house 700,000 people on an area four times the size of New York’s Central Park. It will have office towers, parks, hotels, shopping malls and an international school, all draped with greenery. Construction began in February and about 8,000 apartments have been sold, the company said.

It’s the biggest of about 60 projects in the Iskandar Malaysia zone around Johor Bahru, known as JB, that could add more than half-a-million homes. The influx has contributed to a drop of almost one-third in the value of residential sales in the state last year, with some developers offering discounts of 20 percent or more. Average resale prices per square foot for high-rise flats in JB fell 10 percent last year, according to property consultant CH Williams Talhar & Wong.

Country Garden, which has partnered with the investment arm of Johor state, launched another waterfront project down the coast in 2013 called Danga Bay, where it has sold all 9,539 apartments. China state-owned Greenland Group is building office towers, apartments and shops on 128 acres in Tebrau, about 20 minutes from the city center. Guangzhou R&F Properties Co. has begun construction on the first phase of Princess Cove, with about 3,000 homes.

Country Garden said in an e-mail it was “optimistic on the outlook of Forest City” because of the region’s growing economy and location next to Singapore. R&F didn’t respond to questions about the effects of so many new units and Greenland declined to comment.

David Fuller's view -

Xi Jinping, China’s strongest ruler since Mao Zedong, must be worried about soft GDP growth during the transition from a metal bashing and export-led developing economy to a fully developed consumer-led society.  The consequence is another massive reflationary effort led by the building of more cities.  This will boost Asia Pacific economies and also the global economy.  

What are the implications?

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November 22 2016

Commentary by David Fuller

As the Autumn Statement Looms, Spreadsheet Phil Can Have it Both Ways, If He Is Careful

Here is the opening of Roger Bootle’s Bloomberg column in anticipation of Wednesday’s Autumn Statement:

The Autumn Statement used to be a pretty humdrum affair, simply giving an update on the official  forecasts for the economy and public finances. In recent years, though, it has taken on the  character of a mini-Budget. It needs to revert to its earlier status. 

But this Wednesday may not be the right time to downgrade it. Mr Hammond has been in the job for only a few months and needs to make an impact. Meanwhile, the economy is at a critical juncture. 

Mind you, having just had Guy Fawkes night, there is no need for fireworks this week. A number of  commentators have accused “Spreadsheet Phil” of being dull. But seeing a former shadow chancellor disporting himself on the dancefloor is surely enough entertainment from the ranks of chancellors, actual and nearly. Dull but competent is fine by me.  

Mr Hammond’s task is made more demanding by greater than usual forecasting difficulties. Under George Osborne, the Treasury sub-contracted forecasting to the Office for Budget Responsibility (OBR). We all know that the record of most economic forecasters is pretty poor. Sadly, the OBR’s own is no exception.

The big forecasting issue at the moment is the impact of the Brexit vote. The forecasting establishment is mostly gloomy. It believes the impact on aggregate demand will be negative as the squeeze on consumers’ real incomes resulting from the lower pound – and the reduction in corporate investment caused by uncertainty – will outweigh any boost to exports. 

More importantly, it also believes Brexit will harm the UK’s medium-term productive potential because of reduced trade and investment. Yet this group of forecasters recently has been even more than usually inaccurate. The much-heralded Brexit recession still hasn’t appeared. Indeed, last week’s retail sales figures showed, yet again, how resilient the economy has proved to be.

David Fuller's view -

We should learn a lot more about Chancellor Philip Hammond tomorrow.  I am optimistic, if that is the right word, that he will be bolder than Roger Bootle suggests.  That would involve risks (what doesn’t?) but the post-Brexit Autumn Statement needs to be bold, outlining unambiguous steps – from taxation to infrastructure – sending a message that the UK is a great place to do business.   

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



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November 22 2016

Commentary by David Fuller

OPEC Oil Cut Nears as Battered Saudis Bow to Indomitable US Shale

Twisting the knife deeper, the US is still drilling extra wells. The latest Baker Hughes rig count rose by two to 452 last week. Frackers have sold forward their production with hedge contracts, guaranteeing future supply whatever now happens.

"They took advantage of the window for a few weeks when oil was higher and locked in hedges of around $52 for 2017, and $55 for 2018," said Mr Hansen.

Esther George, the head of the Kansas Federal Reserve, told an oil forum on Friday that the average price needed by shale drillers to make a profit has fallen from $79 to $53 over the last two years as technology matures. Many are making money at prices well below that.

She had a warning for those who expect a return to business as usual in world oil, predicting that a "large amount" of production would come on stream as soon as prices push through the mid-50s. "I do not see much room for price appreciation," she said.  

Markets have grown cynical about Opec rhetoric on cuts. Yet it is increasingly clear that Saudi Arabia has genuinely reversed course under the new energy minister, Khaled al-Falih, and this has changed the character of the Vienna meeting entirely.

The Kingdom can no longer afford to fight a grueling war of attrition to force rivals out of the market. While it has succeeded in killing off $200bn of investment in deep-water projects, Canadian tar sands, and other high-cost ventures, this has come at a very high price.

The Saudis have been burning through foreign exchange reserves at a rate of $10bn a month, and contrary to general belief their usable reserve buffer is relatively thin. They face an internal banking and liquidity squeeze, a construction crash, and have had to tap the global bond markets on a large scale to pay their bills.

"The Saudis are the ones that have suffered the biggest hit in revenue and face the most financial pain, and it has gone on a lot longer than they ever anticipated," said Mr Fyfe.

Austerity policies are biting in earnest, threatening the social contract of cradle-to-grave welfare that underpins the Wahhabi regime. Cuts in salaries, perks, and allowances have reduced take-home pay for lower level state employees by as much as 60pc in some cases.

Intelligence analysts say the Saudi-led war in Yemen is proving far more expensive than admitted, suggesting that the budget deficit is significantly higher than the official figure of 13pc of GDP. It recently emerged from Pentagon papers that the Saudis have lost 20 of their state-of-the-art Abrams tanks.

Helima Croft from RBC says the Saudis are now throwing their full diplomatic weight behind the search for a deal, though markets have not yet grasped the significance of this. If the Saudis want a deal, a deal is what will almost certainly happen.

Crucially, they need a much firmer oil price to have any chance of floating a 5pc share of state oil company Saudi Aramco for a very ambitious $100bn. The country is about to release secret details about the true extent of Saudi reserves, frozen at a constant 260bn barrels since the inception of the modern oil age - a patently absurd estimate.

David Fuller's view -

Saudi Arabia’s Tadawul All Share Index has had a good bounce since retesting the January low last month.  If it were to push above 7000 and hold those gains beyond the very short term, it would suggest to me that someone or more likely some group of investors was anticipating higher prices for Brent Crude Oil than current supply/demand figures suggest. 

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November 22 2016

Commentary by David Fuller

The Markets Now

Here is the brochure for the next event on Monday evening 28th November, at London’s Caledonian Club.  

 

David Fuller's view -

The shock US Presidential result is known but what can we expect from Trump’s regime, and how might it affect the markets? 

Here is another important, far reaching development worth discussing at Markets Now – the US Dollar Index.  A number of government bond yields bottomed in July, including US 10-Yr Treasuries.  I don’t expect to see those lows again… ever.

Groupthink pundits are saying nothing much will change but that is a contrary indicator. 

This is a great time to have an exciting new speaker in Clive Burstow.  Come along and participate in the discussion of market opportunities – the last session for 2016. 

I look forward to another lively session at The Markets Now seminar, attended by highly experienced international investors, led by our long-term subscribers.  Iain Little has more interesting material, including his popular “Trusts In Focus” programme.  Iain also introduced Clive Burstow of Barings, a specialist in the analysis and management of mining stocks – a hot topic this year.  

I can’t wait and it is always fun to chat with delegates at the cash bar following the three presentations.



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November 22 2016

Commentary by David Fuller

Inside a Moneymaking Machine Like No Other

Initially he bought and sold commodities, making his bets based on fundamentals such as supply and demand. He found the experience gut wrenching, so he turned to his network of cryptographers and mathematicians for help looking at patterns: Elwyn Berlekamp and Leonard Baum, former colleagues from IDA, and Stony Brook professors Henry Laufer and James Ax. “Maybe there were some ways to predict prices statistically,” Simons said in a 2015 interview with Numberphile. “Gradually we built models.”

At their core, such models usually fall into one of two camps, trend-following or mean-reversion. Renaissance’s system had a foot in both. Its results were mixed at first: up 8.8 percent in 1988, its first year, and down 4.1 percent in 1989. But in 1990, after focusing exclusively on shorter-term trading, Medallion chalked up a 56 percent return, net of fees. “I was confident that the models would work better,” says Berlekamp, who returned to academia in 1991 and is now a professor emeritus at the University of California at Berkeley. “I didn’t think they would be as good as they were.”

Eventually the scientists went so far as to develop an in-house programming language for their models rather than settle for a numbercentric option such as ASCII, which was popular at the time. Today, Medallion uses dozens of “strategies” that run together as one system. The code powering the fund includes several million lines, according to people familiar with the company. Various teams are responsible for specific areas of research, but in practice everybody can work on everything. There’s a meeting every Tuesday to hash out ideas.

David Fuller's view -

 

The biggest crowds, in terms of wealth, move the markets with their money.  For this reason, the best black box or mathematical models, whatever you want to call them, will be technically rather than fundamentally driven.

Note the sentence which I emboldened above.



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November 22 2016

Commentary by David Fuller

North Pole Temperature Rise Gets Scientists In A Sweat

Here is the opening of this worrying article from the Financial Times (Subscription required to access full article via this link):

Scientists are struggling to understand why a burst of “scary” warming at the North Pole has pushed Arctic temperatures nearly 20C higher than normal for this time of year.

Experts in the US and Europe say they have been shocked by the soaring temperatures recorded in November, when much of the region is plunged into freezing winter darkness.

Temperatures this month have been as high as almost minus 5C when they are normally closer to minus 25C.

“We’ve been processing this data since 1958 and we haven’t really seen anything like this at this time of year,” said Rasmus Tonboe, a sea ice expert at the Danish Meteorological Institute. “We are watching the situation and trying to analyse what is going on but it’s very surprising.”

The unusual warmth has come as officials at the UN’s World Meteorological Organization said they were 95 per cent sure that 2016 would be the hottest year since records began in the 19th century. It would mean that 16 of the 17 warmest years on record have been this century.

The 17th year was in 1998 when there was a powerful El Niño weather event, as there was in 2015 and 2016.

But some scientists said climate change seemed to be more responsible for the unusual warming at the North Pole this month than the impact of the latest El Niño effect.

“I don’t think that’s a huge factor,” said Jennifer Francis, a Rutgers University climate scientist, explaining that a near-record fall in the extent of sea ice in the Arctic this summer had led to a warmer autumn.

This had reduced the temperature difference between the Arctic and more southerly regions, causing a “wavier” jet stream — a great river of fast-moving air about 10km above the earth that acts as a barrier separating the North Pole from warmer latitudes.

The changes in the jet stream had allowed more warm air to penetrate further north, which explained a lot of the “ridiculously” high Arctic temperatures, Ms Francis said.

“That is scary because it is showing us how rapidly the climate system is changing … We expected for a long time to see the ice disappear and the Arctic warm up and perhaps the jet stream doing bizarre things, but it’s happening much faster than I think anyone expected.

David Fuller's view -

Global warming at today’s temperatures is a mixed blessing.  However, should temperatures continue to rise, it increasingly becomes a very serious problem. We need luck and better technologies to limit that problem.    



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November 21 2016

Commentary by David Fuller

May Acknowledges Business Warning Over Brexit Cliff Edge

Here is the opening of this interesting article from Bloomberg:

Prime Minister Theresa May acknowledged calls from British business leaders to avoid a “cliff edge” in which the U.K. leaves the European Union before sealing a fresh trade deal, signaling she may be open to seeking a transitional agreement to bridge any gap.

"We want to get the arrangement that is going to work best for the U.K. and that will work best for business in the U.K.," May told the Confederation of British Industry’s annual conference in London on Monday. "I understand that people don’t want a cliff edge."

The CBI urged the government to clarify what happens on the day after Brexit amid concern companies could be hit by uncertainty, new regulations and tariffs if a new relationship hasn’t been arranged with the EU by then.

“Businesses are inevitably considering the cliff-edge scenario -- a sudden and overnight transformation in trading conditions,” Paul Drechsler, the president of the group, said before May spoke. “If this happens, firms could find themselves stranded in a regulatory no man’s land.”

May has said she wants to invoke Article 50 of the EU’s Lisbon Treaty by the end of March 2017, setting in motion two years of formal talks on the U.K.’s departure from the bloc. In that time, the government will have to draw up new rules for a range of economic activities currently governed by EU regulations as well as strike new trade deals. If no agreements are reached, trade between the U.K. and the EU would be governed by World Trade Organization rules.

The CBI conference precedes Chancellor of the Exchequer Philip Hammond’s Autumn Statement on the economy on Wednesday, when he will outline the government’s priorities for tax and spending.

Many business leaders favored staying in the EU. Since the June 23 vote went the other way, the CBI has led calls for the U.K. to maintain tariff-free ties to the bloc, while ensuring that British companies can continue to tap workers from the EU. May has pledged to curb immigration, a principal demand of the “Leave” campaign, but one that EU leaders have said is incompatible with continued single-market access.

David Fuller's view -

Prime Minster Theresa May is not talking about a quick, hard-Brexit, although I maintain it would probably enable her to then negotiate the best free-trade post-Brexit deal for both Britain and the EU. 

However, May clearly wants to keep the UK’s corporate sector on side, including important overseas investors from US banks to Japan’s automobile companies, in addition to Remainers from the Referendum, preferably without shocks.  She is also hoping to avoid a legal struggle over Article 50.  Her strategy may seem less risky but it could also be more of a feared ‘leap in the dark’ than a hard-Brexit, given political upheavals underway in the EU.

That is my conjecture since the forthcoming European election results are currently unknown, not least in terms of the winning candidates’ views towards Brexit once they are in office.  What is not in doubt is the additional cost of remaining in the EU any longer than is absolutely necessary.  Moreover, a long drawn-out Brexit will create longer-lasting uncertainty for corporations, while also being politically divisive within the UK. Let’s get out of the stalled and increasingly unpopular EU, and then build new, mutually beneficial trading relationships with not only EU countries but the rest of the world as well.  



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November 21 2016

Commentary by David Fuller

French Thatcherite Upends 2017 Race Pledging to Shrink the State

Here is the opening of this informative article from Bloomberg:

Former Prime Minister Francois Fillon, the new front-runner in France’s 2017 presidential election, is offering voters an economic-policy revolution inspired by Margaret Thatcher.

Fillon, 62, vaulted from third position in most polls to win the first round of the Republican primary by 15 percentage points from the veteran Alain Juppe on Sunday with the most free-market platform among the seven candidates. They’ll face each other again in next Sunday’s runoff and the winner will be favorite to become president in May 2017.

Lifelong politician Fillon is pledging to lengthen the work week to 39 hours from 35, to increase the retirement age to 65 and add immigration quotas. He’s vowed to eliminate half a million public-sector jobs and cut spending by 100 billion euros ($106 billion) over his five years in office. And he proposes a 40 billion-euro tax-cut for companies and a constitutional ban on planned budget deficits.

“Who is Fillon? The classic conservative, right-wing candidate,” Bruno Cautres, a political scientist at the Sciences Po Institute in Paris, said in an interview. “He wants a deep reform of the French model: shrinking the role of the state and cutting the welfare system.”

Compared with the brash style of former boss, Nicolas Sarkozy, Fillon has a more low-key approach but he makes a virtue of telling it straight. When he took office as premier in 2007, he shocked even Sarkozy by announcing that France was a bankrupt state. Today he’s promising to reverse that, just like his role model when she became U.K. prime minister in 1979.

“Thatcher was elected after a long and worrying period of decline” in the U.K., Fillon said in a book setting out his candidacy. “When she left office, the U.K. was no longer the sick man of Europe.”

Like Thatcher, Fillon may also find an affinity with the new Republican occupant of the White House. Fillon says he’s ready to work with Donald Trump and the two men share an admiration for Russian President Vladimir Putin.

Fillon has said repeatedly that he wants France to have a closer relationship with Russia, and with Putin himself, who was prime minister during the period when Fillon ran the French government. While other European leaders have called for Putin to stop bombing Syria, Fillon described the attacks as “cold but efficient pragmatism.”

Polls, albeit six months before the vote, suggest that whoever the Republicans nominate is likely to face National Front leader Marine Le Pen and her anti-European platform in the two-way presidential run-off in May, since Socialist incumbent Francois Hollande is posting the worst approval ratings in French history.

David Fuller's view -

With Holland and Sarkozy now presumably out of the running, politics in France have become more interesting. I prefer Francois Fillon but can anyone in France rightfully claim the mantle of Margaret Thatcher?  I think that would be good for France if they could but I doubt it because a majority of French workers appear to love their Luddite, closed-shop unions.    



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November 21 2016

Commentary by David Fuller

Elon Musk: Tesla Solar Roof Will Likely Cost Less Than a Normal Roof

Tesla CEO Elon Musk said the solar roof that will be sold under a combined Tesla-SolarCity will likely cost less than a normal roof to install.

Tesla and SolarCity shareholders voted in favor of the merger, a deal worth $2 billion, Thursday. In late October, Musk unveiled a new solar roof product to show his vision for a combined company with SolarCity, but did not provide specifics on how much it would cost.

On Thursday after the shareholder vote, Musk said its solar roof will likely cost less than a normal roof:

“It’s looking quite promising that a solar roof will actually cost less than a normal roof before you even take the value of electricity into account. So the basic proposition would be, ‘Would you like a roof that looks better than a normal roof, lasts twice as long, costs less and by the way generates electricity?’ It’s like, why would you get anything else?”

Musk added the price he is speaking to factors in the cost of labor.

During a Nov. 1 conference call, SolarCity CEO Lyndon Rive said that the companies are aiming for 40 cents a Watt, which would put it in line with the competition.

Musk unveiled four solar shingle options for a solar roof at the Oct. 28 event. The solar roof will incorporate glass developed by Tesla’s new glass division.

Tesla will produce the solar cells for the roof with Panasonic at a manufacturing facility in Buffalo, New York.

David Fuller's view -

Yes, solar power does not produce electricity after sunset or when you are beneath heavy clouds, but it is the most flexible and increasingly power.  Mrs Fuller and I have solar panels on our house in Devon and if the roof ever needs to be replaced, I would probably not hesitate to do so with solar roof shingles. 

This item continues in the Subscriber’s Area, where two further reports are posted.



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November 21 2016

Commentary by David Fuller

India: The Great Rupee Failure

Here is the opening of this interesting article from Bloomberg:

One week after India’s sudden declaration that 500- and 1,000-rupee notes were no longer legal tender, the economy is in chaos. And that’s perhaps because the policy was designed as much to shock and awe observers with the government’s command of the Indian economy as to control India’s “black money” problem. What seemed at first to be a masterstroke by Prime Minister Narendra Modi now looks like a grave miscalculation.

Modi is beginning to sound like he may agree. His recent speeches on the subject have been frankly bizarre. In one, he seemed to laugh at those inconvenienced by the ban; in another, he broke down while speaking of the “sacrifices” he'd made for India, and warned that he might be assassinated by “forces” desperate to protect their “loot."

What’s changed in a week? Well, for one, it’s become clear that the government was simply too cavalier in its planning. Now that 86 percent of India’s currency is no longer valid, the central bank has struggled to print replacement denominations -- and the new notes are the wrong size for existing ATMs. Modi’s asked people to be patient for 50 days, but the process could take as long as four months.

You have to wonder if Modi truly sought expert advice, or relied once again on a small and trusted set of politicians to determine policy. India’s simply too big and complex for shock and awe. Large parts of the rural economy use cash for 80 percent of transactions and have been hard-hit. In seafood-mad West Bengal, for example, the fishing industry is in a state of near-collapse; in the wheat-growing states of the northwest, farmers halfway through the sowing season have run out of cash to buy seeds.

Few villagers have access to an ATM. Most have to trek to a bank branch to change their cash, which means losing out on crucial days of labor. Many Indians, particularly women, still don’t have an active bank account. Finance Minister Arun Jaitley wondered aloud how many poor people would even have 1,000-rupee notes -- probably a rhetorical question, but surely it shouldn’t have been. Someone should've sought the answer before shutting down India’s financial system.

Among India’s middle class, Modi’s “surgical strike on black money” still appears to be popular. It’s the old “vegan fallacy” -- if something tastes terrible, it must be good for you. Enough Indians are suffering that they believe it must be in a greater cause. It’s a moral project, not an economic one. Stand in line, we’re told, and you honor our brave soldiers at the border.

But will that support last? The government’s plan is likely to be ineffective in the long term. Economists agree it will have no effect on the generation of black money through corruption.

David Fuller's view -

This incident has undermined confidence in both Modi and India’s economy for the medium-term.   India’s Mumbai Sensex Index is prone to volatility and the bank note debacle has occurred as resistance was beginning to be encountered near the early-2015 peak.  Medium-term uptrend consistency was interrupted with that first weekly downward dynamic in late September. 

Global investors are looking at charts of what had been their favourite emerging market and seeing a double top, with a break in the 200-day (40-week) MA which has now turned downwards.  While a short-term oversold condition has now occurred following the recent persistent decline, a sharp rally back above the MA is required to check downward momentum beyond the short term.  That may be a challenge in this environment.  While I have liked India for the long term since 2002, here is what I said in the conclusion to my comment in the lead article on 24th October:

I do have some concerns over the short to medium term.  This year’s upward trend by the Mumbai Index shown above has lost consistency in the region of its 2015 peak.  This may lead to a further ranging consolidation phase, or a more significant medium-term setback if the rising 200-day (40-week) moving average turns downwards.  Nevertheless, I would regard any significant setback as a buying opportunity.    

This item continues in the Subscriber’s Area.



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November 21 2016

Commentary by David Fuller

The Markets Now

Here is the brochure for the next event on Monday evening 28th November, at London’s Caledonian Club.  

David Fuller's view -

The shock US Presidential result is known but what can we expect from Trump’s regime, and how might it affect the markets? 

Here is another important, far reaching development worth discussing at Markets Now – the US Dollar Index.  A number of government bond yields bottomed in July, including US 10-Yr Treasuries.  I don’t expect to see those lows again… ever.

Groupthink pundits are saying nothing much will change but that is a contrary indicator. 

This is a great time to have an exciting new speaker in Clive Burstow.  Come along and participate in the discussion of market opportunities – the last session for 2016. 

I look forward to another lively session at The Markets Now seminar, attended by highly experienced international investors, led by our long-term subscribers.  Iain Little has more interesting material, including his popular “Trusts In Focus” programme.  Iain also introduced Clive Burstow of Barings, a specialist in the analysis and management of mining stocks – a hot topic this year.  

I can’t wait and it is always fun to chat with delegates at the cash bar following the three presentations.



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November 18 2016

Commentary by David Fuller

Yellen Steams Ahead On Fed Rate Rise But Concerns Mount On Dollar Shock

Here is the opening and also a latter section of this informative article by Ambrose Evans-Pritchard for The Telegraph:

A defiant Janet Yellen has vowed to complete her full term as chairman of the US Federal Reserve and defend the institution's independence, swatting aside vitriolic attacks on her policies by Donald Trump during the campaign.

“I was confirmed by the Senate for a four-year term, which ends in January 2018, and it's fully my intention to serve out that term,” she told Congress.

Mr Trump lambasted the Fed before his election for supposedly debauching the money supply, and accused Mrs Yellen personally of holding down interest rates to help the Democrats.

His attacks broke a long-standing taboo over Fed sanctity and raised fears that Mr Trump might try to turn the central bank into a White House political instrument, as it came close to becoming under the Nixon administration.

The irony is that Mr Trump may now face the rate rises that he demanded, and perhaps more than he bargained for.

Mrs Yellen gave the clearest signal yet that the Fed will raise rates a quarter point to 0.75pc in December, warning that waiting too long could store up serious problems and leave the bank scrambling to catch up later. “It could end up having to tighten policy relatively abruptly,” she said.

The Fed boss showed little concern about the surging US dollar, insisting that the latest rebound in economic growth and rising inflationary pressures implied rate rises “relatively soon”.

Her choice of words is as close as the Fed ever comes to a pre-announcement. “The coast is clear for multiple rate hikes in 2017,” said Michael Darda from MKM Partners.

The hawkish comments instantly tightened financial conditions, pushing up yields on 10-year US Treasury bonds to 2.28pc and lifting three-month dollar Libor rates to the highest level since since mid-2009.

These are the two key benchmark rates for the international system, setting the price for trillions of dollars of financial contracts.

The tightening was transmitted through the interlocking global nexus, with the usual amplification in southern Europe and across emerging markets. The US dollar index (DXY) surged to a 14-year high of almost 101 and this is compounding the effects.

And:

The Fed has more or less been forced to raise rates since the markets are already driving up long-term borrowing costs sharply. To resist this pressure is almost futile, and would fuel criticism that the central bank is falling behind the curve.

Yet there are risks to tightening at a time when nominal GDP growth is not far above recessionary stall speed, and when the strong dollar is causing ructions worldwide. Mrs Yellen said “global growth should firm” but this is questionable, and may prove a hostage to fortune.

The Fed has misjudged the global landscape time and again over recent years. It was stunned by the "taper tantrum" in May 2013, compelled to beat a hasty retreat when yields spiked and emerging markets crashed. Officials have since adjusted their model to take account of global effects and the "blow-back" into the US economy.

Yet doubts persist over whether the Fed has fully adapted to an international system with open capital flows that is more dollarised than at any time in history, with $10 trillion of dollar debt lying outside US control.

The Bank for International Settlements says there are already signs of a global "dollar shortage" and warns that the more the currency rises the more it forces automatic deleveraging for banks in Europe and Asia, and the more it sets off financial stress through complex swap contracts.

Paul Mylchreest from ADM says Chinese companies and entities probably hold $2 trillion of "short dollar" positions once contracts through Hong Kong, Singapore and Japan are included. This could lead to trouble as the dollar rises and funding costs jump.

“In our opinion, the risks facing China’s financial system – and therefore its economy – are far higher than is currently realised due to dollar illiquidity,” he said.

David Fuller's view -

The Fed was hoping that the Dollar Index would spend more time in its consolidation range below 100, before resuming its secular recovery.  That might have given other large countries more time to strengthen their economies, theoretically allowing monetary policies to be coordinated in programmes of overlapping increases.  After all, that is what frequently happened during other recoveries over the last 70 years.

It was always wishful thinking.  The USA, despite an economically disinterested White House and dysfunctional House of Congress, has advantages that no other large country can match in this era: 1) self-sufficiency in the production of crude oil and natural gas; 2) a widening lead in the hugely important and accelerating rate of technological innovation; 3) far more world-leading multinational corporate Autonomies. 

Had the global economy remained locked in the post-2008 financial crash ‘new normal’ environment of minimal GDP growth and disinflationary pressures, as analytical group-think projected, the US Dollar might have remained rangebound for a longer period. 

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



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November 18 2016

Commentary by David Fuller

The Markets Now

Here is the new brochure for the next event on Monday evening 28th November, at London’s Caledonian Club.  

David Fuller's view -

OK, the US Presidential Election is over but what can we expect from Trump’s regime, and how might it affect the markets? 

Here is an important, far reaching development worth discussing at Markets Now – the US Dollar Index.  A number of government bond yields bottomed in July, including US 10-Yr Treasuries.  I don’t expect to see those lows again… ever.

Groupthink pundits are saying nothing will change but that is a contrary indicator.  This is a great time to have an exciting new speaker in Clive Burstow.  Come along and participate in the discussion of market opportunities – the last session for 2016. 

I look forward to another lively session at The Markets Now seminar, attended by highly experienced international investors, led by our long-term subscribers.  Iain Little has more interesting material, including his popular “Trusts In Focus” programme.  Iain also introduced Clive Burstow of Barings, a specialist in the analysis and management of mining stocks – a hot topic this year.  

I can’t wait and it is always fun to chat with delegates at the cash bar following the three presentations.

Stop Press: If you are planning to attend Markets Now, you can still benefit from the ‘Early Bird’ rate if you enrol before November 21st.



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November 18 2016

Commentary by David Fuller

The Chancellor Must Return to His Roots With a Swashbuckling Autumn Statement

It will be hard for some to believe but Philip Hammond was once a colourful, buccaneering entrepreneur, the opposite of the grey-suited bean-counter he now purports to be. As a schoolboy in Essex, the man who today serves as our Chancellor of the Exchequer made good money renting out church halls for discos, before graduating to trading cars made at the local Ford factory.

He had a knack for spotting a profit opportunity and struck his first real deal aged just 24, when he bought out his employers’ medical products division for just £1. Over the years, Hammond had his fair share of successes as well as failures, like all entrepreneurs, but ended up making millions from a range of property and construction, manufacturing and energy businesses.

People don’t really change, which is why I’m hopeful that Hammond may rediscover his risk-taking instincts and ditch the ultra-cautious, lugubrious and bizarrely pessimistic persona he has acquired since entering politics. The world has shifted dramatically in the past five months, and Britain desperately needs a dose of the old, glass half-full Hammond. 

Governments must deal with reality as it is, not as they hoped it would be, and this applies even more to Trump’s triumph – which Downing Street neither predicted nor wanted – than it does to Brexit. Nobody knows, at this stage, whether Trump’s presidency will implode in an orgy of demagoguery, protectionism and corruption, or whether it will confound its critics by governing in a neo-Reaganite manner. 

Realpolitik must thus be the order of the day. Given the inflammatory elements of Trump’s campaign, the Government needs to remain vigilant; but it should also seek to make the most of the new world order and the imminent pro-Brexit and pro-growth shift in Washington. This is where Hammond comes in. Brexit alone would have required a radical response from the Chancellor; Brexit, Trump and the growing likelihood that strains in the eurozone will eventually reach breaking point make this an urgent necessity. 

His first Autumn Statement next week is the first real opportunity for the May Government to regain the initiative and to show that it has an exciting, optimistic plan for our post-Brexit prosperity. Hammond cannot afford to be hemmed in by the pessimistic consensus – the same duff predictions that claimed that the Brexit vote would trigger an immediate collapse in growth and jobs. He needs to break free from the constraints of the Treasury’s models.

The Chancellor should start off by pointing out – diplomatically, of course – that the rise in the deficit is largely the doing of his predecessor: the previous predictions never had any hope of coming true, Brexit or no Brexit. He must then retain an iron grip on almost all areas of current spending, while announcing his own, deliberate but carefully controlled loosening in fiscal policy. 

The first big change is that the Chancellor needs to be much more radical on tax, and unveil at least one flagship measure to improve incentives to work and invest. He should commission a major review of the tax system, with the aim of drastically simplifying and flattening it.

David Fuller's view -

I agree with Allister Heath’s advice.  Brexit is no time for timidity at the Treasury.  Chancellor Hammond should be doing all that he can to help Britain become an even more entrepreneurial, low-tax, free-trading economy.  This would inspire talent across the United Kingdom, while also attracting foreign expertise and investment in our pro-business economy.  



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November 18 2016

Commentary by David Fuller

Wall Street Looks Like a Winner Under Donald Trump

Here is the conclusion of this excellent column by Gillian Tett for the Financial Times (subscription required to access full article via this link):

The US economy is likely to grow, partly as a result of Mr Trump’s reflation plans, which could in itself provide a fourth supportive factor. After all, rising business confidence and activity typically boosts demand for financial services. In Europe, by contrast, economic gloom and intractable political splits have undermined confidence.

“Anything which can move to the US in the coming years will move — the US is ultimately going to be a huge beneficiary,” Gary Cohn, Goldman Sachs president, said this week. “As far as [financial and business] investment in Europe is concerned, that is going to be on hold.”

Of course, some European observers will dismiss this as a self-interested sales pitch. If Trumpian policies spark US social unrest or geopolitical uncertainty, or if Mr Trump unleashes a debt binge that goes bust, that will not create stability.

But, while those risks are real, the crucial point now is this: whatever Europeans think of Mr Trump, they need to recognise that animal spirits are rising in New York, and this is likely to boost finance and the standing of Wall Street. If London wants to fight back, the British authorities need to find a way to unleash some animal spirits of their own. Bickering about Brexit is not a good place to start.

David Fuller's view -

New York is the obvious choice for any financial firm which chooses to reduce its business in London due to Brexit uncertainty.  However, the UK has a government capable of taking full advantage of the potential following Britain’s decision to leave the EU, including the provision of a very competitive economy.

There is a good chance that London will become an even stronger and more influential financial sector following the UK’s departure from the EU.  I wish New York well but it faces as many uncertainties as London.  Smart multinational businesses will do best by taking a glass half-full view of both London and New York.  



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November 18 2016

Commentary by Eoin Treacy

Only 6 days until The Chart Seminar in London

Eoin Treacy's view -

The Chart Seminar will be in London on November 24th and 25th at Radisson Blu Edwardian Vanderbilt on Cromwell Road will be the venue for the seminar.  We never run out of things to talk about but this year I suspect we will have more to discuss than usual. It’s going to be a lively group judging from the list of people who are signed up to attend and I look forward to some vibrant discussions of market prospects. 

If you are interested in securing your place we still have a small number of spaces so please contact Sarah Barnes at [email protected]

The full rate for The Chart Seminar is £1799 + VAT. (Please note US, Australian and Asian delegates, as non EU residents are not liable for VAT). Subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.

You can download the brochure here.

 



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November 18 2016

Commentary by Eoin Treacy

November 18 2016

Commentary by Eoin Treacy

ArcelorMittal announces steel price increases

This article from Mineweb may be of interest to subscribers. Here is a section: 

The continued downturn in the global economy and the sustainability of the steel industry are among the factors which led the company to increase prices following its monthly price review. Last year was challenging for steelmakers worldwide, with companies registering record losses.

Significant increases have been experienced since June 2016 in the international prices of raw materials. The prices of iron ore and coking coal have increased by 54% and 243% respectively, which has led to an international raw material basket increase of 98%, exerting upward pressure on international steel prices. Chinese Hot Rolled Coil (HRC) has increased by 38% over the same period and Rebar by 35%. The spread between the raw material basket and that of the steel price (the gap available for conversion costs and margin), has come down to unsustainable levels from $158/t to $102/t internationally in the case of HRC. This reflects a continuation of dumping of steel by China as these are below EBITDA costs and therefore the need for safeguards.

Eoin Treacy's view -

With input prices rising steel companies have no choice but to raise prices. Continues low price Chinese exports also mean this is a high risk strategy since customers have alternatives. It has been these twin threats that have contained steel producers’ shares until quite recently.

The prospect of fiscal stimulus in the USA and continued quantitative easing in Europe and Japan suggests the potential for infrastructure led global growth to pick up has improved. That could act as a salve for the fortunes of steel producers. 



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November 18 2016

Commentary by Eoin Treacy

Collision Course

Thanks to subscriber for this report from RBC which may be of interest. Here is a section: 

While energy market watchers have highlighted President-Elect Trump’s nod towards drilling and fracking, we believe that a Trump administration will have a larger impact on the US demand side of the ledger. The two key regulations which, if repealed, could drive US gasoline demand materially higher are the Corporate Average Fuel Efficiency Standards (CAFE) and the Renewable Fuel Standard (RFS). The potential impact of a Trump presidency on US gasoline demand is not one that should be underestimated. After all, US gasoline demand comprises of nearly 10% of total global oil demand and has been the sole bright spot in the OECD region, which has otherwise been trending lower on a structural basis since the recession. The potential repeal of aforementioned regulations is unlikely to make a difference in his first 90 days in office, but it is a rather bullish potential catalyst in the quarters and years to come.

Eoin Treacy's view -

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

An additional bullish potential outcome for gasoline prices is that the millennial generation is increasingly turning towards car ownership after a delayed start which should at least put a partial floor under demand. 



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November 18 2016

Commentary by Eoin Treacy

Musings from the Oil Patch November 15th 2016

Thanks to a subscriber for this edition of Allen Brooks’ ever interesting report for PPHB. Here is a section:

Another issue that has yet to be addressed is a proposed ban on oil tankers operating off British Columbia’s coastline that would effectively shut down the development of an oil export terminal at Kitimat and thus kill the proposed Enbridge (ENB-NYSE) Northern Gateway oil export pipeline. If the tanker ban is put in place, it will force the development of the Trans Mountain pipeline as the primary West Coast oil export pipeline. That would leave the Trudeau government to deal with TransCanada Corp.’s (TRP-NYSE) Energy East oil pipeline project to move Western Canadian oil to the East Coast where it could be exported to the U.S. East Coast or Europe. Despite being the “environmental” prime minister, Mr. Trudeau is recognizing that without more oil and gas export opportunities, his nation’s economy, which depends on a healthy energy economy, will suffer with many social and financial repercussions.

The Canadian federal government’s decision about Trans Mountain on December 19th will be an important milestone for the nation’s energy business. There are still numerous other policy decisions that must be addressed before Canada develops a full-scale oil and gas export expansion regime, but the first steps appear to have been taken last week.

Eoin Treacy's view -

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

Anyone who has ever been to Vancouver will understand how important pristine maritime conditions are when they sit down to taste some of the city’s delectable seafood. Whether it is salmon, sushi or Cantonese style seafood all are on par with what is on offer anywhere else in the world. However despite a deep interest in preserving the province’s wonderful maritime resources there are bigger questions that need to be addressed. 



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November 18 2016

Commentary by Eoin Treacy

Email of the day on Hong Kong listed Chinese shares

Most mainland China Indices are very strong; however, H-Shares continue to lag. Doesn't add up in my book; H-Shares should be going gangbusters. Any thoughts? 

Eoin Treacy's view -

Hong Kong listed Chinese shares, represented by the China Enterprises Index (H-Shares) outperformed the mainland market until about September and has been engaged in a process of mean reversion since. The Hang Seng Index did even better but has also pulled back more recently.



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November 17 2016

Commentary by David Fuller

Populist Tide Puts Angela Merkel on the Defensive

MAGDEBURG, Germany—The night after Donald Trump won the presidency, hundreds of backers of an anti-immigrant party whose success has shaken German politics gathered in the biting cold in this eastern German city and celebrated a new reality.

“Bravo, Mr. Trump, you get it!” state party leader André Poggenburg shouted from the stage last Wednesday, framed by the dark hulk of a 500-year-old Gothic cathedral. “Today, I must say, it is truer than ever: Merkel must go!”

Merkel muss weg! Merkel muss weg! Merkel muss weg!“ the crowd chanted in response. “Merkel must go!”

Mr. Trump’s election is the second upset populist victory in the West this year, after last June’s antiestablishment Brexit vote in the U.K. With it, German Chancellor Angela Merkel, Europe’s most influential defender of postwar internationalism, finds herself further under siege.

The Continent’s populist tide has reached Austria, where an anti-immigrant candidate is polling strongly ahead of next month’s presidential election, and Italy, whose center-left premier could lose a constitutional referendum on which he has staked his career. Aides to Ms. Merkel think in France, nationalist, anti-immigration leaderMarine Le Pen could win next year’s presidential election. At home, lingering discontent with Ms. Merkel’s handling of the refugee crisis could spoil her Christian Democratic Union’s re-election bid next fall.

On Thursday, Ms. Merkel met in Berlin with U.S. President Barack Obama. In a subsequent news conference, they vowed to address concerns about globalization that have given rise to populist movements across Europe and the U.S. and helped propel Mr. Trump to victory.

“What unites us is the common conviction that globalization needs to be defined humanely and politically,” Ms. Merkel said. “There is no turning back from it.” She said Germany “will continue to cooperate with the new administration.”

Of all Europe’s mainstream politicians fighting populist insurgencies, Ms. Merkel is in the strongest position. She has relatively high approval ratings and a healthy economy. Allies and opponents agree, though, that she must persuade skeptical voters she can meet a growing pile of political, economic and security challenges at home and beyond.

Ms. Merkel, 62 years old, declined through a spokesman to comment for this article. Aides and allies said in interviews her playbook for pushing back the populist tide includes a reaffirmation of values such as the right to asylum, an admission of past mistakes and the pursuit of pragmatic steps to fix them.

Ms. Merkel is widely expected to announce in the coming weeks she will seek a fourth term in next fall’s election. Current polls show she would be favored to win, although she faces some of the same forces that carried Mr. Trump to victory.

David Fuller's view -

Angela Merkel was arguably a good Chancellor for Germany during her first two terms.  However, despite her intelligence and humanitarian instincts, I would not say that she was a good leader for the EU.  She appeared not to fully understand or respect the cultural differences between European nations.  Additionally, she seemed blind to the widely discussed risks of a single currency, without the federal state which had little support among the populations of EU countries. 

History does not suggest that political leaders improve with multiple terms.  There are exceptions, of course, but too often leaders seeking multiple terms lose their political judgement, become out of touch with their electorate and even become autocratic. 

Most political careers end in failure and Angela Merkel appears to be on that course near the end of her third term as Chancellor.  Her open borders policy was naïve and soon deeply unpopular with the German population.  It was also an open invitation for criminals in human trafficking, leading to the financial exploitation of countless refugees, including children. Many of these people lost their lives after being cramped into frequently unseaworthy boats or rafts. 

Survivors have included genuine political refugees and the EU deserves credit for accepting these unfortunate people.  However, they have too often been indistinguishable from many thousands of illegal economic immigrants from North Africa and the Middle East.  In other words, people from very different cultures which are not easily absorbed in numbers.    

Against this background Mrs Merkel is now talking about seeking a fourth term.  I think this is unwise and she is very unlikely to be as popular and successful as she once was.

How should the UK approach Brexit negotiations in light of the important EU elections for France, Germany and Italy?

This item continues in the Subscriber’s Area.   



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November 17 2016

Commentary by David Fuller

Bruised Markets Brace for Third Popular Revolt of 2016 as Italy Rattles Eurozone

Here is an informative middle section of this article by Ambrose Evans-Pritchard for The Telegraph:

He [Italian prime minister Matteo Renzi] is playing the anti-EU card for everything it is worth, threatening to veto the EU budget and accusing Brussels of wasting Italy's money in a table-thumping showdown hardly seen since Margaret Thatcher. 

“We’re tired of ambiguities and contradictions. We’re tired of a Europe that promises but doesn’t deliver,” said his Europe minister in what is clearly an orchestrated campaign.

“We’re very tired of a Europe that is petty in what matters and overbearing in what is petty, and we’re convinced that if Europe doesn’t change, we’re looking at the onset of European disintegration,” he said.

Such bluster must be taken with a pinch of salt. Yet the bitterness is real. The EU did a dirty deal with Turkey, paying the autocratic Erdogan regime to shut off the Balkan route for migrants. A razor-wire wall now defends the ancient Hapsburg frontier. The migrant route has switched to Italy, and Italy has been left to fend for itself.

"The feeling is that other countries betrayed us. Renzi knows that bashing Europe is a way to promote himself and win votes, and that itself is revealing," said Mr Codogno.

Eurobarometer and Pew surveys come up with all kinds of answers on Italian attitudes, depending on the question.

But what comes through consistently is a bloc of 35pc that has rejected the euro entirely. It is held at bay precariously by another bloc that fell out of love with the project long ago but fears it would be too dangerous to try to restore the lira. Genuine defenders of EMU are scarce. The structure is held together only by fear.

David Fuller's view -

There is a possibility that the EU will lose not only its 2nd most important economy next year but also its 4th largest if Italy’s Five Star Movement wins a referendum on 4th December, scheduled by PM Renzi.

A feature worth noting in the Ambrose Evans-Pritchard’s article above, is a graph showing the results of a PEW Research Center survey earlier this year, which asked people in the ten largest EU economies the following question: Do you Approve or Disapprove of the way the European Union is dealing with European economic issues?

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



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November 17 2016

Commentary by David Fuller

The Markets Now

Here is the new brochure for the next event on Monday evening 28th November, at London’s Caledonian Club.  

David Fuller's view -

OK, the US Presidential Election is over but what can we expect from Trump’s regime, and how might it affect the markets? 

Here is an important, far reaching development worth discussing at Markets Now – the US Dollar Index.  A number of government bond yields bottomed in July, including US 10-Yr Treasuries.  I don’t expect to see those lows again… ever.

Groupthink pundits are saying nothing will change but that is a contrary indicator.  This is a great time to have an exciting new speaker in Clive Burstow.  Come along and participate in the discussion of market opportunities – the last session for 2016. 

I look forward to another lively session at The Markets Now seminar, attended by highly experienced international investors, led by our long-term subscribers.  Iain Little has more interesting material, including his popular “Trusts In Focus” programme.  Iain also introduced Clive Burstow of Barings, a specialist in the analysis and management of mining stocks – a hot topic this year.  

I can’t wait and it is always fun to chat with delegates at the cash bar following the three presentations.

Stop Press: If you are planning to attend Markets Now, you can still benefit from the ‘Early Bird’ rate if you enrol before November 21st.



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November 17 2016

Commentary by Eoin Treacy

November 17 2016

Commentary by Eoin Treacy

Emails of the day on India's new currency notes

Rupees: for the sake of clarity following your comments of the 9th and today, please note that the R1000 is being replaced by the new R2000. The net effect, therefore, is to increase the circulation of high-value notes. So far as gold is concerned, now that so many people have learnt that fiat money can be made valueless at a stroke, the attraction of keeping some money in precious metals has increased. (I am visiting India and have found it salutary to have a practical lesson in what I had always understood theoretically.) My guess is that the recent decline in gold follows expectations of rising interest rates.

And

Any follow-up to your article discussing the demonetisation of India's 500 and 1,000 rupee notes? The Bombay Bank Index initially shot up but has retraced all of the move. Chaos seems to have ensued, but would like to hear from the community

 

Eoin Treacy's view -

Thank you for this clarifying that the removal of the old R1000 and R500 notes is in fact about removing old notes from circulation and forcing consumers and business people to move onto the new notes. The primary aim would appear to be to get more people to declare their income but as you point out the introduction of a new R2000 note is also a potential source for new black market activities. 



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November 17 2016

Commentary by Eoin Treacy

Reflections on the Trump Presidency, One Week after the Election

Thanks to a subscriber for this article by Ray Dalio which appeared on LinkedIn. Here is a section:

Donald Trump is moving forcefully to policies that put the stimulation of traditional domestic manufacturing above all else, that are far more pro-business, that are much more protectionist, etc.  We won’t go down the litany of particulars about the directions, as they’re well known, discussed in my last Observations, and well conveyed in the recent big market moves. As a result, whereas the previous period was characterized by 1) increasing globalization, free trade, and global connectedness, 2) relatively innocuous fiscal policies, and 3) sluggish domestic growth, low inflation, and falling bond yields, the new period is more likely to be characterized by 1) decreasing globalization, free trade, and global connectedness, 2) aggressively stimulative fiscal policies, and 3) increased US growth, higher inflation, and rising bond yields. Of course, there will be other big shifts as well, such as pertaining to business profitability, environmental protection, foreign policies/alliances, etc. Once again, we won’t go into the whole litany of them, as they’re well known. However, the main point we’re trying to convey is that there is a good chance that we are at one of those major reversals that last a decade (like the 1970-71 shift from the 1960s period of non-inflationary growth to the 1970s decade of stagflation, or the 1980s shift to disinflationary strong growth). To be clear, we are not saying that the future will be like any of these mentioned prior periods; we are just saying that there’s a good chance that the economy/market will shift from what we have gotten used to and what we will experience over the next many years will be very different from that.

Eoin Treacy's view -

The conclusion everyone has come to as a result of last week’s US Presidential Election is that a lot has changed and that portfolios needs to be structured somewhat differently. Janet Yellen today said that rates hikes are appropriate “relatively soon” is a reflection first and foremost of the central bank’s desire to put some distance between policy and the zero bound if for no other reason than to have fuel to cut the next time there is a crisis. 



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November 17 2016

Commentary by Eoin Treacy

Is the EV finally coming of age?

This article by Scott Collie for Gizmag may be of interest to subscribers. Here is a section:

One important breakthrough will be increasing the energy density of the battery through being able to cram more cells into the same volume of battery packs. The battery density doubled between 2009 and 2016, and this is definitely not the end. Just like with the technological development of the personal computer, there is something similar to a 'Moore's Law' in the battery development: currently, we recognize an annual improvement rate of 14 percent, which is quite immense."

Although 14 percent is significant, it's only just a start when it comes to battery technology. At the moment, electric cars make use of lithium-ion batteries, the type pioneered by the Tesla Roadster back in the mid-2000s. Schenk says there's plenty of improvement to come in lithium-ion tech, but greater leaps forward are in the pipe.

"New technologies, and especially those aimed at material-related improvements, plus ever-increasing production volumes leading to further price decreases, will determine the development stages of the next few years," Schenk says. "Within the next decade a major technological leap is expected with lithium-sulphur systems, and these are set to revolutionize costs and operating range as extraordinarily relevant buying criteria for electric vehicles."

Already, improvements to battery chemistry are starting to pay off, and people are starting to buy electric vehicles in greater numbers. Renault, one of the largest players in the European electric game, sold 23,087 electric cars in 2015 - a 49 percent increase on its 2014 numbers.

 

Eoin Treacy's view -

Advances in battery technology have been slower to manifest than in microprocessors because of limitations in chemistry but perhaps more importantly because there has just not been enough incentive for companies to spend money on innovation. 



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November 17 2016

Commentary by Eoin Treacy

Email of the day on the video commentaries

The new video commentary is superb. It has required a change of habit, no point listening while walking, but very worthwhile sitting, watching and paying full attention. Thanks.

Eoin Treacy's view -

I’m delighted you are enjoying the additional new video format. Just so you are aware I record the video and audio concurrently so you can still listen to the audio independently while out for your walk if that suits. The last thing I would want is to interfere with anyone’s exercise routine.  



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November 16 2016

Commentary by David Fuller

Global Dollar Shock Threatens Fresh Financial Storm, Warns Watchdog

The soaring US dollar is causing mounting strains for the global financial system and ultimately threatens to set off a full-blown banking crisis in emerging markets, the world’s top’s economic watchdog has warned.

“We have all the symptoms of a dollar shortage,” said Hyun Song Shin, chief economist at the Bank for International Settlements.

The warning came as the closely-watched dollar index (DXY) appeared close to breaking through key resistance levels to a 14-year high, a move likely to trigger a stampede into the US currency as hedge funds and momentum traders join the chase.

The danger is that the powerful and immediate effects of financial tightening will “swamp” any trade benefits for the rest of the world from Donald Trump’s stimulus plans and a stronger dollar, even for countries that export heavily to the US. “It may not be very good news for anyone,” Mr Shin told a specialist forum at the London School of Economics.

The BIS estimates that dollar debt outside US jurisdiction - and therefore lacking a direct lender of last resort - has risen five-fold to $10 trillion over the past 15 years.

It has spiked to $3.3 trillion in emerging markets. This is chiefly due to the leakage of cheap dollar funding from the US while quantitative easing was in full flow. The debts will have to be rolled over in a stronger currency and at a much higher rates.  

What is less understood is that the surging dollar automatically squeezes the balance sheet of banks in Europe and Japan through the complex structure of swap contracts. “The dollar is everywhere,” said Mr Shin.

David Fuller's view -

This service pointed out in 2H 2014 that the Dollar Index (DXY) (monthly historic & weekly) was breaking up out of its base formation and commencing a secular bull market recovery, fuelled by the USA’s energy independence, increasing technology lead, and its dominant, multinational corporate autonomies. 

We also pointed out that DXY had completed its initial upward leg near the 100 level in 2Q 2015, and that the subsequently loss of upside momentum confirmed the commencement of what was likely to be a lengthy medium-term consolidation before the bull market resumed. 

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



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November 16 2016

Commentary by David Fuller

A $900 Billion Oil Treasure Lies Beneath West Texas Desert

In a troubled oil world, the Permian Basin is the gift that keeps on giving.

One portion of the giant field, known as the Wolfcamp formation, was found to hold 20 billion barrels of oil trapped in four layers of shale beneath the desert in West Texas, the U.S. Geological Survey said in a report on Tuesday. That’s almost three times larger than North Dakota’s Bakken play and the single largest U.S. unconventional crude accumulation ever assessed. At current prices, that oil is worth almost $900 billion.

The estimate lends credence to Pioneer Natural Resources Co. Chief Executive Officer Scott Sheffield’s assertion that the Permian’s shale endowment could hold as much as 75 billion barrels, making it second only to Saudi Arabia’s Ghawar field. Pioneer has been increasing its production targets all year as drilling in the Wolfcamp produced bigger gushers than the Irving, Texas-based company’s engineers and geologists forecast.

“The fact that this is the largest assessment of continuous oil we have ever done just goes to show that, even in areas that have produced billions of barrels of oil, there is still the potential to find billions more,” Walter Guidroz, coordinator for the geological survey’s energy resources program, said in the statement.

David Fuller's view -

US energy independence will persist well beyond its need for oil as a fuel.  That is a remarkable advantage because the USA will have the lowest energy costs of any developed economy, and not just because of its oil and gas, which are now transition fuels until they are no longer required and have been replaced by renewables.

What about other countries? 

This item continues in the Subscriber’s Area.



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November 16 2016

Commentary by David Fuller

Email of the day

On Markets Now and the markets (from Australia):

Dear Sarah and David

I would love to attend, however it is not practical for me to do so. I would like to know what the experts think about key markets at this juncture. The suspense is killing me.

Is it possible to get a copy of the audio or a summary after the event? 

David Fuller's view -

Thanks for your interest in Markets Now and if you ever visit London, it would be a treat to see you. 

There is certainly plenty of uncertainty and suspense, regarding both political and economic shifts and I suspect that will remain with us for quite a while. 

I will share a few thoughts with you and of course Eoin and I comment on themes most days.  I will also post PowerPoint presentations from Markets Now shortly after the event.

This item continues in the Subscriber’s Area. 



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November 16 2016

Commentary by David Fuller

The Markets Now

Here is the new brochure for the next event on Monday evening 28th November, at London’s Caledonian Club.  

David Fuller's view -

OK, the US Presidential Election is over but what can we expect from Trump’s regime? 

Interestingly, infrastructure spending is back on a number of political agendas.  That should help GDP growth.  Commodities are generally firm, with ‘Dr Copper’ joining other metals in breaking to the upside, before commencing the current consolidation.  A number of government bond yields bottomed in July, including US 10-Yr Treasuries.  I don’t expect to see those lows again… ever.

Groupthink pundits are saying nothing will change but that is a contrary indicator.  This is a great time to have an exciting new speaker in Clive Burstow.  Come along and participate in the discussion of market opportunities – the last session for 2016. 

I look forward to another lively session at The Markets Now seminar, attended by highly experienced international investors, led by our long-term subscribers.  Iain Little has more interesting material, including his popular “Trusts In Focus” programme.  Iain also introduced Clive Burstow of Barings, a specialist in the analysis and management of mining stocks – a hot topic this year.  

I can’t wait and it is always fun to chat with delegates at the cash bar following the three presentations.

Stop Press: If you are planning to attend Markets Now, you can still benefit from the ‘Early Bird’ rate if you enrol before November 21st.



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November 16 2016

Commentary by Eoin Treacy

November 16 2016

Commentary by Eoin Treacy

The dollar, bank leverage and the deviation from covered interest parity

This article by Stefan Avdjiev, Wenxin Du, Catherine Koch for The bank of International Settlements may be of interest to subscribers. Here is a section:

Our focus, therefore, is on the banking sector, and the ability of banks to take on
leverage. The key message of our paper is that the value of the dollar plays the role of a barometer of risk-taking capacity in capital markets. In particular, it is the spot exchange rate of the dollar which plays a crucial role. Deviations from CIP turn on the strength of the dollar; when the dollar strengthens, the deviation from CIP becomes larger. To the extent that CIP deviations turn on the constraints on bank leverage, our results suggest that the strength of the dollar is a key determinant of bank leverage.

The cross-currency basis is the difference between the dollar interest rate in the cash market and the implied dollar interest rate from the swap market when swapping foreign currency into dollars. The cross-currency basis measures deviations from the CIP condition. Figure 1 plots the broad dollar index (in red), which is the trade-weighted US dollar exchange rate against its major trading partners. When the red line goes up, the dollar strengthens. The blue line tracks the average cross-currency basis for the ten most liquid currencies vis-à-vis the dollar. We see that the cross-currency basis is the mirror image of dollar strength. When the dollar strengthens, the CIP deviations widen. This is especially so in the last 24 months, reflecting the stronger dollar.

Eoin Treacy's view -

One of the biggest sources of speculation following Donald Trump’s election has been corporate taxes. The USA has one of the most punitive rates in the world and that acts as a headwind domestically and an obstacle to highly successful corporations repatriating overseas profits. If the Republican-led government does indeed succeed in reforming corporate taxes and gives an incentive to large companies to bring their profits home it could have an outsized effect on the Dollar which is why the issues discussed in the above report are important. 



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November 16 2016

Commentary by Eoin Treacy

China's Yuan Tumbles to Eight-Year Low as Banks Weaken Forecasts

This article from Bloomberg News may be of interest to subscribers. Here is a section:

“The pressure for the yuan to decline could be stronger next year as Trump’s policies could lead to a dollar rally and amid concerns about China-U.S. trade relations," said Harrison Hu, chief greater China economist at Royal Bank of Scotland Group Plc in Singapore. "The People’s Bank of China can curb high volatility with stronger fixings and intervention, but it won’t do so unless outflows surge, as such measures could add great pressures to the foreign reserves."

A record $44.7 billion left China in September in yuan payments, while the nation’s foreign-exchange stockpile shrank the most since January last month. Chinese officials have taken a series of steps to plug capital control loopholes, such as a potential plan to curb transactions that use the bitcoin digital currency to take funds out of the country. UnionPay Co. late last month limited mainlanders from using its cards to buy insurance in Hong Kong.

HSBC Holdings Plc, UBS Group AG and Australia & New Zealand Banking Group Ltd. lowered their yuan forecasts on Tuesday, predicting that the currency will end this year at 6.9 per dollar, compared with earlier estimates of 6.8 for the first two lenders and 6.75 for the third. BMI Research, a unit of Fitch Group, downgraded its year-end forecast to 6.85 from 6.8, while Norddeutsche Landesbank said it has revised its view to 7 from 6.8.

Eoin Treacy's view -

The Dollar has been trending higher against the Renminbi since early 2014 but the pace of the advance has picked up following the US election. The rate paused at CNY6.4, 6.6, 6.7 but has surged through 6.8 this week. The Renminbi’s depreciation is part of Chinese government policy since it is needs a weaker currency to soften the blow from the rationalisation of heavy industry particularly in the steel, cement and coal sectors. However it will want to avoid an unruly decline and therefore the quicker the Dollar rises the greater the risk of some form of intervention. 



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November 16 2016

Commentary by Eoin Treacy

Go Figure

Thanks to a subscriber for Howard Marks’ latest memo to Oaktree clients focusing on the outcome of the US election. Here is a section: 

That brings us to the outlook for bonds. Just as the U.S. stock market has celebrated Trump’s election, the bond markets have been discouraged. Interest rates rose very rapidly last week following Trump’s election, bringing big losses to bond holders. The FT wrote the following, citing Henry Kaufman, the Solomon Brothers chief economist who correctly called the bond bear market in the 1970s:

“It’s a tectonic shift”…the end of a three-decade bond bull market, because of the likelihood of unfunded tax cuts, infrastructure spending and a radically reshaped Federal Reserve. “I would say the secular trend is going to be upwards now” he told the FT “Secular swings are hard to forecast, but the secular sweep downwards in interest rates is over, and we are about to have a gentle swing upwards”

I always feel it takes a degree of innate optimism to be a devotee of stocks (with their reliance on conjectural returns awarded by the market) as opposed to bonds (which bring contractual returns guaranteed by their issuers). Thus U.S. equity investors have exhibited an optimism regarding the Trump administration that virtually no one foresaw a week ago. 

Equity investors like inflation because it pumps up profits. Bond investors dislike it because it raises interest rates, reducing the value of the bonds they hold. But the two can’t go in opposite directions forever. At some distant point, higher interest rates can cause bonds to offer stiffer competition against highly appreciated stocks. 

Eoin Treacy's view -

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

Generally speaking the stock and property markets are reasonably good hedges against inflation because both dividends and rents can increase over time and compensate the asset holder. Fixed rates bonds on the other hand do not have this advantage and are therefore one of the most interest rate sensitive sectors. 



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November 15 2016

Commentary by David Fuller

CNBC Transcript: GE Chairman & CEO Jeff Immelt Speaks with Carl Quintanilla on Squawk Alley

IMMELT: HERE'S HOW I LOOK AT INFRASTRUCTIURE IT BOTH CREATES JOBS IN AND OF ITSELF BUT IT ALSO MAKES US MORE PRODUCTIVE WHICH IS A GOOD THING. I LOOK AT TAX REFORM, CARL, AND SAY BASICALLY WHAT'S BEEN SITTING OUT THE PAST DECADE IS CAPITAL INVESTMENT BACK IN THE U.S. IT'S A GOOD CHANCE THAT TAX REFORM IS KIND OF THE MISSING INGREDIENT THAT CAN HELP DRIVE SOME OF THAT CAPITAL INVESTMENT BACK. THAT'S THE DIFFERENCE BETWEEN A 3% GDP GROWTH U.S. AND 2% GDP GROWTH. WE HAVE HAD 0% INTEREST RATES FOR A DECADE NOW. IF YOU'RE A CONSUMER AND HAVE A JOB, YOU FEEL RICH. BUT THAT'S NOT ENOUGH TO CREATE THE KIND OF ECONOMIC GROWTH THAT I THINK THE PRESIDENT WANTS TO CREATE AND MOST PEOPLE WANT TO SEE. I THINK TAX REFORM IS ACTUALLY QUITE IMPORTANT WITH TERRITORIAL SYSTEM, REPATRIATION IS PART OF THAT.

QUINTANILLA: YOU SOUND OPTIMISTIC.

IMMELT: I'VE BEEN THROUGH EVERY CYCLE KNOWN TO MANKIND OVER THE LAST 15 YEARS. I THINK THE SENSE IS THAT THE U.S. HAD BEEN IN A SLOW GROWTH MODE. THERE'S ENOUGH GROWTH AROUND THE WORLD TO BE ABLE TO KEEP US GOING FORWARD. AND I THINK IF YOU COULD JUST SOLVE A FEW THINGS IN THE U.S. -- IT DOESN'T MATTER WHO DOES THEM, BUT IF YOU COULD JUST GET A FEW THINGS GOING, THERE'S LOTS OF PENT-UP DEMAND AND OPPORTUNITIES FOR GROWTH.

QUINTANILLA: TRADE HAS BEEN A BIG PART OF THIS STORY. AND THIS CARRIER PLANT IS TURNING INTO SOME SORT OF CAUSE CELEB RIGHT? A TEST OF WHETHER OR NOT A TRUMP PRESIDENCY CAN ACTUALLY KEEP PRODUCTION FROM GOING OVERSEAS OR BEING REVERSED, COMING BACK IN. HOW LIKELY IS THAT? VOTERS WHO VOTED ON THAT, IS THAT A FOOL'S BET OR NOT?

IMMELT: SO, I THINK PROTECTIONISM HAS BEEN GOING ON FOR A DECADE OR MORE. PRESIDENT TRUMP ISN'T THE FIRST ONE TO TALK ABOUT IT. IT'S BEEN GOING ON IN EUROPE, CHINA. THE WORLD I GREW UP IN WITH THESE FREE TRADE DEALS AND THINGS LIKE THAT, I THINK ANYBODY THAT WAS PLANNING ON THAT GOING INTO THE FUTURE IS -- THAT'S NOT THE WAY WE'VE THOUGHT ABOUT GE. I THINK IT REMAINS TO BE SEEN EXACTLY WHAT THE NEW TRADE RULES ARE GOING TO BE. AND I THINK WE HAVE TO WAIT AND SEE. FOR SOMEONE LIKE US THAT'S AN EXPORTER, REALLY, WE MAKE AND SELL THINGS AROUND THE WORLD. WE CAN NAVIGATE THE WORLD ON OUR OWN. BUT IF YOU WALK THROUGH WALMART, HOME DEPOT, DO ALL THOSE PRODUCTS HAVE TO COME BACK TO THE UNITED STATES? DO ALL THE HAIR DRYERS AND SNEAKERS AND REFRIGERATORS HAVE TO COME BACK -- IS THAT WHAT'S GOING TO, YOU KNOW, MAKE THE ECONOMY GROW AGAIN? I THINK PEOPLE HAVE TO SIT AND THINK THROUGH EXACTLY WHAT THE PUTS AND TAKES ARE. FOR US WE'RE A GLOBAL COMPANY. WE SELL IN 190 COUNTRIES AROUND THE WORLD. WE DO IT FROM A LOCAL STANDPOINT. WE'RE GOING TO KEEP GLOBALIZING. WE'RE AN EXPORTER. I THINK THE WORLD WE LIVE IN TODAY IS SO DIFFERENT THAN IT WAS 10, 15, 20 YEARS AGO. YOU KNOW, I BELIEVE IN TRADE DEALS. BUT WE DON'T NEED TRADE DEALS IN GE. I THINK WHAT THE PRESIDENT WILL LEARN, WHAT PRESIDENT TRUMP WILL LEARN IS THAT AS HE TRAVELS THE WORLD, TRADE DEALS GIVES HIM POWER. THE ABILITY TO USE TRADE AS AN ECONOMIC, LET'S SAY, NEGOTIATING TECHNIQUE, MAKES HIM MORE POWERFUL.

QUINTANILLA: BECAUSE HE'S SPEAKING THE LANGUAGE OF OTHER COUNTRIES. WHO ARE TRYING TO DO THE SAME THING?

IMMELT: EXACTLY. I'VE TRAVELED THE WORLD, CARL, FOR 35 YEARS. PEOPLE CARE ABOUT SAFETY. THEY CARE ABOUT GROWTH. IF THE PRESIDENT OF THE UNITED STATES TRAVELS AROUND THE WORLD AND HAS NOTHING TO OFFER FROM A STANDPOINT OF ECONOMIC CONNECTION, YOU LOSE HALF OF YOUR NEGOTIATING POWER. THIS GUY IS A NEGOTIATOR, A DEAL MAKER. SO I THINK LET'S JUST WAIT AND SEE WHAT HE DOES.

David Fuller's view -

Yes, President-elect Trump is a negotiator, but he has a very steep learning curve in terms of understanding how big multinational companies such as GE compete internationally.  Who wouldn’t?

I hope Trump and his advisors hold plenty of roundtable sessions with business leaders from a range of industries.   



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November 15 2016

Commentary by David Fuller

Donald Trump said Amazon and Jeff Bezos have a huge antitrust problem. Now they may.

Let’s state the obvious: Donald Trump and Amazon CEO, and Washington Post owner, Jeff Bezos do not see eye to eye. And that becomes a more concerning prospect for Bezos and Amazon now that Trump is president-elect.

In May, after learning of the large team of Washington Post reporters looking into his past, Trump told conservative TV commentator Sean Hannity that Bezos was using the paper to damage Trump’s chances because he feared what a President Trump would mean for Amazon.

"He thinks I'll go after him for antitrust," Trump said at the time. "Because he's got a huge antitrust problem because he's controlling so much, Amazon is controlling so much of what they are doing.

"He's using the Washington Post, which is peanuts, he's using that for political purposes to save Amazon in terms of taxes and in terms of antitrust."

Trump’s campaign later reiterated this narrative in a statement claiming that the Post was being used as political leverage so Amazon doesn’t “get sued for monopolistic tendencies that have led to the destruction of department stores and the retail industry.”

In response, Bezos has appeared undaunted in public. Bezos told an audience at Recode’s Code Conference in June that “a presidential candidate should embrace” the media coverage that the country’s democracy allows for rather than fight it. More recently, Bezos called out Trump for his threats of retribution against media organizations he feels have wronged him.

In the wake of Trump’s win, I asked an Amazon spokesman if Bezos planned to comment. I was told he doesn’t.

Investors seem to be unsure about what a Trump presidency means for the online retailer. Amazon’s stock was down 2.68 percent as of 11:25 am ET on Wednesday morning. Other tech stocks like Apple, Facebook and Alphabet were also down, but all less than 2 percent.

 

David Fuller's view -

This is very interesting and there is also a brief tape on the site with Jeff Bezos talking about democratic rights and the importance of press scrutiny, which he says any politician should welcome. 

I agree, but what happens to the supposedly independent press if large, multinational Autonomies such as Amazon own national newspapers?  Furthermore, is it in the public’s interest if they do so?

This item continues in the Subscriber’s Area.



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November 15 2016

Commentary by David Fuller

Scotland Problem Is It Does Not Have Enough Business

It might be the threat of leaving the European Union. It might be the years of austerity imposed by the cruel-hearted English. Heck, it might even be the legacy of the crushing of its industry by Mrs Thatcher three decades ago. There are lots of potential explanations – north of the border anyway – for why the Scottish economy might not be living up to its full potential within the UK.

But here’s the real reason. It simply doesn’t have enough businesses.

According to figures just published by the Scottish Government, the number of companies is now falling in Scotland, while it is rising rapidly across Britain as a whole. It is hard to see that as anything other than very worrying for the future of its economy – for the simple reason that without lots of businesses, and new small businesses in particular, it is very hard for growth to be sustained.

Unless a way can be found to turn that around, Scotland has little future as an independent economy – and if it stays, as seems more likely, it will turn into more and more of a drag on the rest of Britain.

There can be little debate that the Scottish economy is starting to persistently under-perform the rest of the UK. An analysis by the economist John McLaren published in the summer found that Scottish GDP fell last year, while growing for the UK. Overall, it has expanded by only 4pc since the recession of 2008/2009, compared with 23pc for the UK. In the second quarter of this year, the Scottish growth rate was a whole percentage point behind the UK rate. Relentlessly, the country is lagging behind the rest of Britain, opening up a widening gap in productivity and wealth. Year after year, the Scots are getting poorer relative to the UK.

The decline in North Sea oil has, of course, been one factor in that. But it is far from the whole story. In truth, Scotland has become an increasingly unattractive place to base a business – and that is starting to have an impact.

The Scottish Government has just published figures on the numbers of companies operating in Scotland. They show that there are about a quarter fewer businesses in Scotland, measured on a per capita basis, than for the whole of the UK. More precisely, it has 768 enterprises per 10,000 people compared with 1,040 for the UK as whole – a huge difference given that, on the surface, you would expect the numbers to be roughly equal. Even more significantly, it now has the lowest ‘business density’ rate of any region or country within the UK – it is performing even worse than Northern Ireland and Wales, the next two regions with the lowest results.

David Fuller's view -

For centuries Scotland has had a proud history of engineers and scientistsScottish inventions and discoveries have been equally distinguished.  

These achievements continue today, although increasingly the best talent from Scottish universities heads across the border to pursue careers in the rest of the UK or the USA.

Governance is Everything, as we never tire of saying at Fuller Treacy Money, and years of Scottish Labour Party rule no longer encouraged the entrepreneurial spirit in Scotland.  Instead, it relied on North Sea oil, in the belief that this underwater cornucopia would provide ever higher revenues to support a Socialist utopia. 

When this did not live up to expectations, the Scottish National Party (SNP) won electoral control and blamed England for the region’s problems.  It demanded that successive UK governments grant Scotland ever more independence and also subsidies as the price for staying in the UK. 

Scotland’s bluff is that it will leave the UK, which it co-founded in 1707, for that bigger Socialist utopia known as the European Union.  However, the SNP’s ‘once in a generation’ independence referendum on 18th September 2014, to answer the question: “Should Scotland be an independent country, yes or no”, was defeated by 55.3% to 44.7%.  This heavy defeat occurred even though anyone living in Scotland could vote whether or not they were a UK citizen, but all Scots living outside Scotland were not allowed to participate in the vote. 

This item continues in the Subscriber’s Area, where a PDF of Matthew Lynn’s article is also posted.



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November 15 2016

Commentary by David Fuller

The Markets Now

Here is the new brochure for the next event on Monday evening 28th November, at London’s Caledonian Club.  

David Fuller's view -

OK, the US Presidential Election is over but what can we expect from Trump’s regime? 

Interestingly, infrastructure spending is back on a number of political agendas.  That should help GDP growth.  Commodities are generally firm, with ‘Dr Copper’ joining other metals in breaking to the upside.  A number of government bond yields bottomed in July, including US 10-Yr Treasuries.  

Groupthink pundits are saying nothing will change but that is a contrary indicator.  This is a great time to have an exciting new speaker in Clive Burstow.  Come along and participate in the discussion of market opportunities – the last session for 2016. 

I look forward to another lively session at The Markets Now seminar, attended by highly experienced international investors, led by our long-term subscribers.  Iain Little has more interesting material, including his popular “Trusts In Focus” programme.  Iain also introduced Clive Burstow of Barings, a specialist in the analysis and management of mining stocks – a hot topic this year.  

I can’t wait and it is always fun to chat with delegates at the cash bar following the three presentations.



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November 15 2016

Commentary by Eoin Treacy

November 15 2016

Commentary by Eoin Treacy

Signs Are Flashing That Bond Rout Has Gone Too Far, Too Fast

This article by Yun Li for Bloomberg may be of interest to subscribers. Here is a section:

 

Expectations that Trump, along with a Republican-led Congress, would make good on pledges to spend $550 billion on infrastructure improvement to stoke economic growth sent inflation expectations to the highest since 2015. Yields on two-year notes, the coupon maturity most sensitive to monetary-policy expectations, rose to above 1 percent on Monday for the first time since January as traders added to bets the Federal Reserve will raise interest rates next month.

"The consensus has shifted for good reason," Matthew Hornbach, head of global interest-rate strategy at Morgan Stanley, said in an interview with Bloomberg Television. "There is some concern over the timing and the extent to which President-elect Trump will be able to follow through on some of his campaign promises specially with respect to infrastructure spending and the tax cuts."

 

Eoin Treacy's view -

This sell off in bonds has been both swift and aggressive with the net result that yields have surged to levels not seen in at least a year. For bond investors who have been conditioned by a 35-year bull market the natural response is to buy the dip. As with any bull market that has been a winning strategy for as long as anyone cares to remember and in order to conclusively signal this historic bull market is over it will have to stop being a profitable strategy. 



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November 15 2016

Commentary by Eoin Treacy

The post-election rally: five push-backs

Thanks to a subscriber for this report from Deutsche Bank focusing on European equities. Here is a section:

However, we remain cautious on the outlook for European equities, given that we see five stumbling blocks that could prevent this optimistic projection from translating into meaningful upside for the market. We maintain our cautious year-end target of 325 for the Stoxx 600 (around 4% below current levels).

1)The Italian referendum: our European economists now see a 60% probability of a “No” vote in the Italian referendum on December 4th. Peripheral bond spreads have already widened by 20bps over the past week, but European equities have yet to react. As a consequence, peripheral spreads now point to 5% downside for European equities.

2)Intensifying Chinese capital flight: our Asian FX analysts argue that Chinese capital flight is now as intense as in H2 2015, pointing to an increased risk of a disorderly Chinese FX devaluation, especially if the Fed hikes rates on December 14th.

3)The risk of lower oil prices: the oil price has fallen by 17% from its mid-October peak, as the broad USD trade-weighted index has risen back above its January peak. The historical relationship between the USD and oil (R2 = 95% over the past five years) point to a fair-value oil price of around $30/bbl (significantly below the current $44/bbl) – and our FX strategists expect a further 5% upside for the USD index. If the oil price drops back below $40/bbl, this is likely to lead to renewed financial stress via widening US high-yield spreads (especially given the reduced support from low bond yields).

4)The impact of higher rates on valuations: the fact that European P/Es are around 20% above their 10-year average is due to extraordinarily low real bond yields (i.e. the discount rate for equities), according to our models. The 40bps rise in European real bond yields since the end of October has already reduced the fair-value P/E by 5%. If bond yields keep rising, this will put further pressure on equity and credit valuations. It is also likely to lead to renewed EM capital outflows and, hence, tighter EM financial conditions at a time at which EM corporate leverage is still close to its mid-1990s peak levels.

5)Trump tail risks remain: the market has focused on the benign elements of Trump’s agenda so far, but tail risk remain that these will be watered down or delayed in the legislative process – or that the less economically helpful aspects of his agenda (such as import tariffs or branding China a currency manipulator) return to the fore. 

Eoin Treacy's view -

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

In the last decade there has been almost no risk of a Eurosceptic party gaining political sway in a Eurozone country. However following years of what must feel like punitive damages arising from what can only be described as utopian lending standards electorates are increasingly ill disposed to support the status quo. 

Referenda are often more a vote of confidence in the ruling administration than the issue being debated. For Italians the prospect of making the lives of politicians easier by approving the proposed reform of the Senate must seem like a big ask when the country is labouring under a Berlin/Brussels imposed fiscal straitjacket. 

 



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November 15 2016

Commentary by Eoin Treacy

OPEC, Russia Expand Diplomatic Push to Secure Oil-Cuts Deal

This article by Javier Blas, Angelina Rascouet and Grant Smith for Bloomberg may be of interest to subscribers. Here is a section:

OPEC embarked on a final diplomatic effort to secure an oil-cuts deal, with its top official heading on a tour of member states as Russia scheduled informal talks in Doha this week with nations including Saudi Arabia.

The behind-the-scenes diplomacy follows an unannounced meeting in London between OPEC Secretary-General Mohammed Barkindo and Saudi Minister of Energy and Industry Khalid Al-Falih, said one OPEC delegate. Just two weeks before the group’s Nov. 30 ministerial meeting in Vienna, Saudi Arabia, Iraq and Iran are still at odds over how to share output cuts, said another delegate. 

 

Eoin Treacy's view -

OPEC and Russia have succeeded in talking oil prices up on two separate occasions over the last few months and the announcement of this meeting would appear to be a fresh attempt to jawbone prices higher. The reality is that agreeing to cut production means each country that agrees to comply risks losing market share to those who don’t. In ordinary times securing broad agreement would be difficult but Saudi Arabia, Iran and Iraq do not have the finances to absorb such a risk right now and additionally are all prosecuting wars, which are not cheap. 



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November 14 2016

Commentary by David Fuller

Trump Fiscal Policy May Have Lessons for Britain

The real difference between the Keynesianism of the Left and Right is that the latter tends to favour fiscal expansions driven by tax cuts, whereas the former tends to favour increased government spending. And, of course, the Right thinks of tax cuts as stimulating the supply side of the economy as well as, or even instead of, the demand side.

At the moment, we don’t know the extent to which Mr Trump will want to offset increases in defence spending and infrastructure by reductions in other sorts of spending. But unless he does this, and/or lower tax rates do stimulate a large increase in economic activity and tax revenues, the US budget deficit will rise.

Does this matter? The budget deficit is currently running at about 3pc of GDP. Total federal government debt is currently running at about 74pc of GDP.

Even without any Trumpian expansion, it was on course to reach about 80pc in a few years’ time. It isnow plausible to see the debt ratio moving up towards 100pc of GDP.

I don’t think this spells danger for America. On the contrary, both domestic and foreign investors will continue to be keen to buy US government paper, which will still be regarded as a safe haven in an unstable world.

Mind you, there will probably be a price to be paid. Some commentators have speculated that uncertainty after the Trump victory will cause the US Federal Reserve to put off the interest rate rise that was due to happen on December 14. They could be right, although I reckon that the markets’ comparative calm argues otherwise.

But the more important question is what happens to interest rates in the next two years. If President Trump does embark on a significant expansion, then the implication is that interest rates should go up sooner and by more than they otherwise would have done. This would be in accordance with the changing intellectual climate that has already started to swing against monetary stimulus and towards fiscal stimulus. 

If a fiscal expansion were implemented, the result would be a faster move towards more normal levels of short-term interest rates and government bond yields. Clearly, this would hurt some groups of people, but it would also benefit others. And it would be warmly welcomed by all those people who have suffered from the long period of extremely low interest rates, and by those who would benefit from the stimulatory effects of the fiscal expansion. 

Such a programme would have lessons for all of us on the other side of the Atlantic. The new Chancellor, Philip Hammond, has made it clear that he intends to moderate George Osborne’s planned fiscal austerity and also to give some boost to infrastructure spending. 

So far, of course, we have yet to see the colour of his (that is to say, our) money. But such a programme from the new Chancellor would sit easily with what is probably going to be happening in America. Moreover, the bolder and more radical President Trump’s tax reforms are, the more pressure this will put upon the Chancellor to follow suit.

In the eurozone too, monetary policy should have reached the end of the road. There is room for a significant fiscal expansion in Germany. Yet this is not at all on the cards. The reason is partly that Germany is doing well without such stimulus, largely thanks to its huge export surplus, resulting from aggregate demand created elsewhere. It is a case of: “I’m all right, Giacomo.” This policy is also the result of a belief that Germany needs to embrace hairshirt policies in order to encourage the more weak-willed members of the eurozone to stick to austerity.

If this continues, then I suppose the ECB will probably feel obliged to persist with its policy of cutting interest rates and putting money into the system through quantitative easing. In that case we can surely expect the eurozone to continue to perform poorly.

We are in for an interesting experiment. The US and the UK are, I suspect, about to rebalance fiscal and monetary policy, while the eurozone will continue on its current suicide run towards supposed fiscal probity. I know which of these I would back to succeed.

David Fuller's view -

Trump is going to remain controversial for a long time.  The best way for him to mitigate this somewhat and gain cross-party support is by focusing mainly on the sensible programs of infrastructure spending, personal and corporate tax cuts and deregulation.  (See also last Friday’s comments)

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



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November 14 2016

Commentary by David Fuller

Brexit Vote Has Not Sparked a Tech Exodus

Matt Clifford, the chief executive of Entrepreneur First, an accelerator that invests in and nurtures promising young startups, says that if anything the falling pound has made it easier for Americans, who are responsible for a significant amount of investment in the British tech scene, to put money in. Brexit clauses in fundraising sheets, which forced startups to take less money or give away more of their companies, were rare, and most likely an attempt by opportunistic investors to capitalise on uncertainty.

As for our startups fleeing? According to officials in Berlin, a prospective post-Brexit European tech hub, a grand total of five startups have relocated from London since the referendum.

This comes despite a major push to entice them: in July, German officials hired a van to drive around London loudly painted with the slogan: “Dear startups, keep calm and move to Berlin.”

Frankly, it wouldn’t be surprising if five startups had moved from Berlin to London in that time: many young companies will relocate from time to time. And meaning no offence to those who have taken the plunge, none of them has had the effect that one of London’s biggest startups leaving would do.

The truth is that right now, the attractions of the UK, and in particular London, significantly outweigh any post-referendum uncertainty for technology startups. The talent from universities including Oxford, Cambridge and Imperial College London, proximity to the City of London, the English language, tax incentives and lack of red tape (in comparison to many rival destinations) outweigh them right now. For now, startup founders and venture capitalists seem to generally agree that this will continue to be the case after Brexit.

This isn’t to say that the UK’s tech community supported leaving: they didn’t, and would still say now that they would prefer it hadn’t happened.

There are still significant concerns about Brexit Britain, largely related to access to talent: many founders and a significant proportion of employees at tech startups are EU nationals; they will want assurances that they can both stay in the UK and that they will be able to hire high-skilled staff afterwards.

David Fuller's view -

Tech start-ups within the research triangle of Cambridge, Oxford and London were doing well under the UK’s previous government so it is hardly surprising that the generally unexpected Brexit vote alarmed the industry. 

However, those talent pools are not easy to replicate and the UK is in the process of making its business environment even more competitive, from tax incentives to recruiting talent not just from the EU but all over the world.  Inevitably, uncertainties will remain until the UK has actually left the EU.  A Supreme Court decision allowing the Government to invoke Article 50 in accordance with the Referendum result would obviously help.

A PDF version of James Titcomb’s article is posted in the Subscriber’s Area.  



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November 14 2016

Commentary by David Fuller

November 14 2016

Commentary by David Fuller

The Markets Now

Here is the new brochure for the next event on Monday evening 28th November, at London’s Caledonian Club.  

David Fuller's view -

OK, the US Presidential Election is over but what can we expect from Trump’s regime? 

Interestingly, infrastructure spending is back on a number of political agendas.  That should help GDP growth.  Commodities are generally firm, with ‘Dr Copper’ joining other metals in breaking to the upside.  A number of government bond yields bottomed in July, including US 10-Yr Treasuries.  

Groupthink pundits are saying nothing will change but that is a contrary indicator.  This is a great time to have an exciting new speaker in Clive Burstow.  Come along and participate in the discussion of market opportunities – the last session for 2016. 

I look forward to another lively session at The Markets Now seminar, attended by highly experienced international investors, led by our long-term subscribers.  Iain Little has more interesting material, including his popular “Trusts In Focus” programme.  Iain also introduced Clive Burstow of Barings, a specialist in the analysis and management of mining stocks – a hot topic this year.  

I can’t wait and it is always fun to chat with delegates at the cash bar following the three presentations.



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November 14 2016

Commentary by Eoin Treacy

November 14 2016

Commentary by Eoin Treacy

Trump May Save Banks Billions by Disrupting Global Rules

This article by Silla Brush for Bloomberg may be of interest to subscribers. Here is a section:

The election of Donald Trump may allow banks to dodge the full impact of global regulators’ post-2008 crisis crackdown.

The Basel Committee on Banking Supervision is racing to complete a revamp of international capital standards by year- end. The U.S. has pushed for strict rules to protect against future market meltdowns, whereas Europe and Japan want to rein in proposals that could hit banks with billions in costs. Basel Committee members including the U.S. Federal Reserve and the European Central Bank are under enormous industry pressure to soften the rules.

Trump’s ascendancy and his vow to dismantle financial regulations could throw another wrench in the works. If he stalls U.S. implementation of the revised Basel Committee standards on how banks measure asset risk, or ignores them altogether, Europe could follow suit. And if the U.S. and Europe go their own ways, the last piece of the global response to the financial crisis could be undermined.

“I think that before Trump, Basel was going to be softened down significantly,” Sam Theodore, managing director for financial institutions at Scope Ratings AG, said in an interview. “And now with Trump, I think the whole thing is going to become more of a symbolic exercise.”

The memory of the crisis is fading, and “you have all the ingredients for the anti-regulation backlash to continue,” he said.

Eoin Treacy's view -

The international response to the twin threats of the US subprime credit crisis and the EU’s sovereign debt / banking crisis can best be described as reactionary. The first principles of regulation should be to create an equal playing field where risk takers are rewarded for their successes and punished for their failures. However rather than simplify the regulatory environment policy makers succeeded in creating an even more opaque system where the cost of compliance rocketed higher and where whole segments of a bank’s business became untenable.



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November 14 2016

Commentary by Eoin Treacy

Siemens boosts software business with $4.5 billion deal

This article by Maria Sheahan for Reuters may be of interest to subscribers. Here is a section: 

Mentor sells software and hardware used to design electronics for the semiconductor, automotive and transportation industries. The company reported a loss of $10 million in the six months ended July 31, compared with profit of $21 million in the same period last year, according to an Aug. 18 regulatory filing. The company forecast revenue of $1.22 billion for the 12 months through January.

Under Kaeser, Siemens has pushed deeper into software applications that are crucial to run its industrial equipment.

At the same time, Siemens is simplifying its sprawling portfolio, and the company announced last week that it wants to list its health-care subsidiary, among the biggest makers in the world of diagnostics and imaging equipment.

Eoin Treacy's view -

In the industrial automation sector there has been a wide gap in performance between the purveyors of hardware and software. A robot is really only a hunk of junk unless it is powered by intelligent software. Perhaps more importantly software and particularly optics companies have been innovating much faster than hardware companies not least because the relative of cost of development is so much smaller. By purchasing Mentor Graphics Siemens is aiming to provide a more holistic solution and therefore harness more of the revenue potential from industrial automation. 



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November 14 2016

Commentary by Eoin Treacy

Email of the day on gold

Gold is soft.  It's had some savage moves in the last few days.  Is it possible this due to new currency notes in India?  India is a large market for the jewellery trade.

Thank you for all your good work.

Eoin Treacy's view -

Thank you for this question which may be of interest to other subscribers. When the cash business in gold was clamped down on it marked an important turning point for the jewellery retail sector Los Angeles’ once vibrant jewellery district. The removal of large denomination bank notes in India will probably have an effect on how gold is purchased but is unlikely to have an influence on the cultural important of the metal particularly around wedding season. 



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November 14 2016

Commentary by Eoin Treacy

Abe Faces Challenges to Follow Trump With Fiscal Spending Burst

This article by Connor Cislo and Maiko Takahashi for Bloomberg may be of interest to subscribers. Here is a section:

A third supplementary budget is on the drawing board to reconcile current-year spending and revenue figures, according to government officials familiar with the talks who asked not to be named per ministry policy. As to whether it goes beyond being a clerical package and takes on stimulus measures, that’s a function of what happens with politics, they said.

A policy shift at the Bank of Japan and doubts about how much more Abe will accomplish in structural reforms is likely to increase pressure for a fiscal fillip.

"We can’t put any more pressure on monetary policy, so the government will have to do more with fiscal spending," according to Koya Miyamae, an economist at SMBC Nikko Securities Inc.

Yet tax revenue for the 12 months ending March 31 is likely to be lower than originally expected, as economic growth has been weaker than initially forecast, and government debt is already about 2.5 times the size of the economy.

Japan’s budget deficit was 5.8 percent of gross domestic product in 2014, compared with 3.9 percent in the U.S.

Asked about the need for another stimulus package this fiscal year, LDP Secretary General Toshihiro Nikai said last month it was "one option," according to Kyodo News.

Trump has indicated he’ll spend $550 billion on infrastructure, with his plans forecast to add more than $5 trillion in debt.

Satoshi Fujii, an adviser to Japan’s Cabinet Office, advocates looking at more fiscal stimulus as part of efforts to escape deflation. He said in a telephone interview on Nov. 11 that a third extra budget this year and a large initial budget next fiscal year may help Japan "fit very well with Trump’s policies."

Eoin Treacy's view -

By marrying itself to a target for JGB yields the Bank of Japan has made its monetary contingent on the market. Therefore the government is now under more pressure to stimulate through both spending and reform in order to revitalise growth. A weaker currency could certainty play a part of that strategy. 



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November 11 2016

Commentary by David Fuller

It Is All Bullish in the End as Stocks Post Best Week Since 2014

Here is the opening of this report from Bloomberg:

A stretch that goes down as the best week for U.S. stocks in two years has been anything but easy money for the traders who had to navigate it.

Three distinct narratives have driven trading, combining to lift the S&P 500 Index more than any time since 2014 and give the Dow Jones Industrial Average its best week in five years. Stocks rallied on Monday and Tuesday on speculation Hillary Clinton would win the presidency, then posted almost equally big gains Wednesday and Thursday as investors warmed to Donald Trump’s fiscal stimulus policies.

The week ended on a down note for the S&P 500, as gains in banks and drug stocks were pared. In the middle was an hour-long election night plunge that would’ve lopped $1 trillion from the S&P 500 had it come during regular trading hours.

“The last two to three days have had everything to do with re-pricing in a complete regime change,” said Kevin Caron, a Florham Park, New Jersey-based market strategist and portfolio manager who helps oversee $180 billion at Stifel Nicolaus & Co. “You have markets that now have to contend with the idea of a much larger fiscal push then they were expecting just a few days ago. You’re seeing a big rally in economically sensitive assets.”

The S&P 500 rose 3.8 percent in the five days, while the Dow rallied 959.38 points for its best week since 2011. Small caps in the Russell 2000 Index surged 10 percent. The Nasdaq 100 Index added 1.5 percent.

Along the way, the Dow also closed at record for the first time in three months as investors snapped up what they calculated would be beneficiaries of a Trump presidency. The surge in stocks following a presidential election echoed 1996 and 1972, when the blue-chip index made fresh highs after victories by Bill Clinton and Richard Nixon.

Exchange-traded funds tracking U.S. equities took in $16.3 billion of fresh cash on Wednesday and Thursday, data compiled by Bloomberg show. It included $8 billion of inflows into a security tracking the S&P 500 that was the biggest in 14 months. It was the first week in history that had two days with more than 12 billion shares traded.

David Fuller's view -

The S&P 500 Index had peaked in August and then drifted sideways to lower during the countdown to the Presidential Election on Tuesday.  We can assume that there had been some profit taking and also hedge shorting in anticipation of volatility.  Similarly, the sharp rally following the result will have included the reinvestment of cash and short covering.  Consequently, we are likely to see some consolidation of gains commencing next week. 

Looking further ahead, President Donald Trump and the Republican controlled houses of Congress have a rare and unexpected opportunity to realign the US economy for an increase in GDP growth. 

This item continues in the Subscriber’s Area.



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November 11 2016

Commentary by David Fuller

Trump Victory Bodes Well for Investors, for Now

With benefit of hindsight, what’s extraordinary is how few professional investors saw it coming. Mr. Trump was derided as the candidate of “uncertainty,” which markets typically abhor, and many of his stated policies are vague, incoherent or inconsistent. But there was nothing uncertain about his overall pro-growth, pro-business and America-first tendencies, now backed by the firepower of a Republican House and Senate.

He is, after all, a real estate developer.

“We see tremendous opportunity for economic growth,” said John Engler, a former governor of Michigan who is now president of the Business Roundtable, an influential group of chief executives that was often at odds with Mr. Trump during the campaign, especially over trade and immigration. Now that the results are in, though, Mr. Engler sees a silver lining. “The Republicans understand,” he said, “that they’re on the spot to produce results.”

Simon Lack, founder of SL Advisors, an investment advisory firm and operator of a mutual fund that focuses on energy, carried the theme further. “Trump’s win is unambiguously positive” for many sectors of the economy, “especially energy infrastructure,” he said.

The doomsayers also ignored a century of market reactions to presidential elections. “We’ve done extensive research that suggests presidential elections don’t affect markets,” said James Stack, president of InvesTech Research. “The reality is that the market is influenced to the greatest extent by economic factors and monetary policy.”

“In almost all technical and macro aspects, this is still a bull market,” Mr. Stack said, and Mr. Trump’s election does not change that.

Markets generally rally the day after a presidential election, said Jeffrey Hirsch, editor of the Stock Traders Almanac, because elections, whatever their outcome, eliminate a measure of uncertainty. “It doesn’t matter if it’s a Republican or Democrat,” he said. Returns tend to be higher when an incumbent president is replaced or the party in power changes, as happened this week. And previous instances of the election of both a Republican president and Republican Congress have been followed, on average, by a first-year performance of 14 percent.

There are more specific reasons as well that investors applauded Mr. Trump’s victory:

David Fuller's view -

Trump’s immediate projects are likely to be sensible infrastructure spending, personal and corporate tax cuts, and deregulation.  These could transform sentiment and show positive results much more quickly than some commentators have suggested.  They should also be of considerable long-term benefit to the US economy.  



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November 11 2016

Commentary by David Fuller

Email of the day

On gold and mining shares:

Dear David, hello and hope everything is fine up there at beautiful London. Has the time arrived to exit gold and miners? Are we witnessing a new paradigm with higher rates, lower taxes and fiscal stimulus? Does it make sense to hold gold with this new scenario? Your thoughts will be very appreciated. Thank you very much!

David Fuller's view -

Thank you for this email of general interest.

This item continues in the Subscriber’s Area.



This section continues in the Subscriber's Area. Back to top
November 11 2016

Commentary by David Fuller

The Markets Now

Here is the new brochure for the next event on Monday evening 28th November, at London’s Caledonian Club.  

David Fuller's view -

OK, the US Presidential Election is over but what can we expect from Trump’s regime? 

Interestingly, infrastructure spending is back on a number of political agendas.  That should help GDP growth.  Commodities are generally firm, with ‘Dr Copper’ joining other metals in breaking to the upside.  A number of government bond yields bottomed in July, including US 10-Yr Treasuries.  

Groupthink pundits are saying nothing will change but that is a contrary indicator.  This is a great time to have an exciting new speaker in Clive Burstow.  Come along and participate in the discussion of market opportunities – the last session for 2016. 

I look forward to another lively session at The Markets Now seminar, attended by highly experienced international investors, led by our long-term subscribers.  Iain Little has more interesting material, including his popular “Trusts In Focus” programme.  Iain also introduced Clive Burstow of Barings, a specialist in the analysis and management of mining stocks – a hot topic this year.  

I can’t wait and it is always fun to chat with delegates at the cash bar following the three presentations.



This section continues in the Subscriber's Area. Back to top
November 11 2016

Commentary by Eoin Treacy

November 11 2016

Commentary by Eoin Treacy

November 11 2016

Commentary by Eoin Treacy

Trump Team Promises To 'Dismantle' Dodd-Frank Bank Regulations

This article by Marilyn Geewax from NPR may be of interest to subscribers. Here is a section:

During his presidential campaign, Republican Donald Trump said he would "get rid of" Dodd-Frank — the sweeping legislation passed in 2010 to address problems underlying the 2008-2009 financial crisis.

Many Republicans hate the 2,300-page law, saying it is layered with far too many regulations. But Democrats say it provides valuable oversight of an industry that they believe took too many risks on Wall Street and too much advantage of customers on Main Street.

Now President-elect Trump's transition team is promising to "dismantle" the complex Dodd–Frank Wall Street Reform and Consumer Protection Act.

"Bureaucratic red tape and Washington mandates are not the answer" to improving the financial system, the team said Thursday on its website.

 

Eoin Treacy's view -

No one would argue with the contention that banks need to be regulated and their risk taking closely scrutinised. However, Dodd Frank micromanages their operations, with the result that they are sharply inhibited in what they can do. Its primary benefit has been for lawyers and compliance officers since armies of them are required to navigate the Act’s complicated format. 



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November 11 2016

Commentary by Eoin Treacy

Dollar's Trump-Inspired Surge Sets Off Intervention Across Asia

This article by Narayanan Somasundaram and Lananh Nguyen for Bloomberg may be of interest to subscribers. Here is a section:

“We are seeing carnage in Asian FX markets,” said Robert Rennie, head of financial markets strategy at Westpac Banking Corp. in Sydney. “It’s providing a very strong reminder that the S&P 500 is not the correct barometer of Trump-driven risk aversion -- it’s Asian currencies.”

And 

Investors are betting Trump will cut taxes, ramp up infrastructure spending to spur economic growth and inflation, triggering Fed rate increases. Traders see an 84 percent probability of a quarter-point hike at the central bank’s December meeting, according to pricing in federal funds futures.

After Trump’s election, benchmark 10-year Treasury yields climbed above 2 percent for the first time since January on speculation the likely spending to spur growth will quicken inflation. Trump’s proposals include pledges to cut taxes and spend as much as $500 billion on infrastructure.

“The market’s tone remains negative on bonds, emerging markets, positive on U.S. stocks and the dollar,” said Nizam Idris, head of foreign-exchange and fixed-income strategy at Macquarie Bank Ltd. in Singapore.

 

Eoin Treacy's view -

Lower taxes, higher rates and outsized US growth are a powerful siren for US funds to be repatriated. That means the case for investing in emerging markets will have to be even more attractive than normal in order to compete on a risk-adjusted basis. Currency trends are a big part of that. US Dollar investors are less inclined to invest abroad when the currency market is not in their favour. 



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November 11 2016

Commentary by Eoin Treacy

Mosquito War: Voters Approve the Release of Genetically Modified Organisms

This article from futurism.com may be of interest to subscribers. Here is a section:

As Tuesday’s presidential votes were cast, Monroe County, part of the Florida Keys Mosquito Control District also voted to use genetically modified mosquitoes to fight their Zika-carrying cousins. The engineered mosquitoes were courtesy of British biotech company Oxitec, and received approval for trials from the US Food and Drug Administration (FDA) last August.

Monroe County would be the first in the US to carry out these trials. Oxitec CEO Hadyn Parry is optimistic, saying that the “ultimate goal of the trial is to prove what we say we can do, which is reduce the population significantly.” Previous reports indicate that these factory-made mosquitoes can effectively reduce Zika-carrying mosquito population by 90%.

 

Eoin Treacy's view -

By some measures malaria has killed more people than any other disease in humanity’s history. It is one of the primary contributing factors to the enormous challenge of sustaining economic development in the tropics and humanity has struggled to overcome the challenge represented by malaria for millennia. It has taken a separate virus threatening the unborn children of first world parents to galvanise support for a campaign to deliberately target the offending parasite; certain genus’ of which have evolved specifically to target humans.



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November 10 2016

Commentary by David Fuller

Trump Promises a Fiscal Boom and a Surging Dollar, if He Can Control Himself

The judgment call we have to make is whether he actually means the outlandish things he said - mostly flippantly, and in vague terms - and whether White House duties will compel him to retreat even if he did.

Washington's permanent government and the 'K' street lobbyists of corporate America have a way of co-opting US leaders. It is my tentative working premise that Mr Trump is not a new Mussolini and that he will ultimately trim his excesses. Call it a 'soft Trump' if you like, though this too entails its own political risks.

If so, an entirely different economic picture takes shape. His manifesto amounts to a massive fiscal stimulus, with tax cuts across the board, a $1 trillion blitz on infrastructure, and an imperial navy of 350 combat ships.

It is a replay of Reaganomics in the early 1980s, a form of turbo-charged Keynesian reflation, and damn the deficit. It promises a pro-cyclical economic boom, so long as Mr Trump quietly drops his threat of 35pc tariffs against Mexico and 45pc against China.

Mr Trump enjoys the huge advantage of Republican control over the House and Senate. This averts the paralysing gridlock and obstructionism that surely awaited Hillary Clinton had she won. He can overcome the ideology of austerity in a way that she could never hope to do.

There will be friction but House Republicans will hardly resist his plan to cut corporation tax from 35pc to 15pc, or to cut income tax from 39.6pc to 33pc for the rich, to 25pc for middle earners, to 12pc for those below $54,000, and to zero for those under $29,000.

Nor are they likely to block his call for national reconstruction on bridges, tunnels, telecommunications, cyber security, water systems, pipelines and the electric grid, all built with "American steel" and supposedly modeled on Eisenhower's highway expansion in the 1950s.

You might equally say it looks more like Roosevelt's New Deal, even if funded partially by private money and run on a fee-earning basis. Infrastructure spending of this kind is what Left-leaning economists such Larry Summers and Paul Krugman have been calling for all along.

It starts to plug the $3.6 trillion backlog of projects identified by the American Society of Civil Engineers. It address one cause of sliding US productivity growth. It soaks up the corporate cash hoard, helping to bring investment back into alignment with savings.

The budget deficit would probably balloon by at least $450bn - or 2.4pc of GDP - even after offsetting a hiring freeze for public employees. That is potent money.

Mr Trump's tax cuts for the rich are not to everybody's taste. Yet in broad macro-economic terms, this fiscal rebalancing is what Keynesian and monetarist doctors ordered. It becomes easier for the US to escape the 'Wicksellian' trap of a negative natural rate of interest, and therefore to escape clammy embrace of quantitative easing.

Fiscal expansion allows the Federal Reserve to raise interest rates faster, ceteris paribus. Vice-chairman Stanley Fischer has even put a figure on it, suggesting that every one percentage point of GDP in fiscal loosening implies rate rises of 50 basis points.

Trumpanomics shifts the structure of US and global credit, and exchange rates. It was the same regime of "loose fiscal/tight money" that catapulted the dollar sky high in the early 1980s, with dramatic global consequences. 

David Fuller's view -

We should recognise that Trump the campaigner is not the same as Trump the President-elect.  The transition was evident from his first, gracious speech a few hours after winning the election.  It continued with his comments following an initial meeting with President Obama today: “Mr. President, it was a great honor being with you, and I look forward to being with you many more times.”

From the moment Trump entered the Republican Primaries he was outspoken, brash and often vulgar.  He knew how to get media attention and it worked.  His often outrageous or bizarre statements dominated news coverage.  Established Republican candidates in the ring became invisible, causing them to lose support and eventually drop out.  Trump used a similar approach against Clinton and remained the focal point of press attention. 

Few pundits took him seriously but Trump was smart enough to do the seemingly impossible, surprising us all.  He galvanised white, mostly working class voters who formed his base.  He also attracted just enough support from diverse groups including Hispanic, Afro-American, and Asian minorities.  Additionally, sufficient business personnel and Wall Street executives were drawn to Trump by promises of fiscal stimulus, less regulation and lower taxes.  These were beyond the reach of that other rich but more traditional Republican, Mitt Romney, although he was also up against tougher opposition.

This item continues in the Subscriber’s Area, where further articles are also posted.



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November 10 2016

Commentary by David Fuller

The man who will likely lead the Navy under Trump means business in the South China Sea

When President-elect Donald Trump spoke about expanding the Navy to 350 ships in his September national security speech, he's most likely taking his cues from Randy Forbes, the Republican Congressman from Virginia poised to take over as Secretary of the Navy in a Trump administration.

“The 350-ship navy, cruiser modernization – those naval planks [in Donald Trump’s policies] are lifted from Randy Forbes,” a source familiar with the matter told USNI News.

The president appoints a Secretary of the Navy to "conduct, all affairs of the Department of the Navy," which includes the Marine Corps. Trump, during his speech, said he wants to greatly increase the size of both the Navy and the Marines, and to generally "rebuild our military."

Additionally, Trump mentioned buying newer destroyers to bulk up the Navy's fleet of 272 ships, most likely with Zumwalt class destroyers, but the Navy has struggled so far to field those.

Forbes, a military adviser to Trump during his campaign, serves as a senior member of the House Armed Services Committee, and makes it plain on his website that he is "one of the nation’s most forceful advocates for a strong national defense."

In September, Forbes asserted before Congress that "more than rhetoric is required to counterbalance China’s growing military power and assertiveness," referring to China's artificial island building and militarization in the South China Sea, as well as China ignoring an international court ruling that said its claims in the region were illegal.

China has declared "no fly" and "no sail" zones in international waters in the Pacific that have gone unchallenged by the US in the last few years. Increasingly Beijing bullies ships from its neighbors, some of whom are US allies.

David Fuller's view -

Unfortunately, I think the USA has to do this.  We live in a dangerous world and Obama’s reluctance to spend on military expansion has emboldened both Russia and China.  



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November 10 2016

Commentary by David Fuller

The Markets Now

Here is the new brochure for the next event on Monday evening 28th November, at London’s Caledonian Club.  

David Fuller's view -

OK, the US Presidential Election is over but what can we expect from Trump’s regime? 

Interestingly, infrastructure spending is back on a number of political agendas.  That should help GDP growth.  Commodities are generally firm, with ‘Dr Copper’ joining other metals in breaking to the upside.  A number of government bond yields bottomed in July, including US 10-Yr Treasuries.  

Groupthink pundits are saying nothing will change but that is a contrary indicator.  This is a great time to have an exciting new speaker in Clive Burstow.  Come along and participate in the discussion of market opportunities – the last session for 2016. 

I look forward to another lively session at The Markets Now seminar, attended by highly experienced international investors, led by our long-term subscribers.  Iain Little has more interesting material, including his popular “Trusts In Focus” programme.  Iain also introduced Clive Burstow of Barings, a specialist in the analysis and management of mining stocks – a hot topic this year.  

I can’t wait and it is always fun to chat with delegates at the cash bar following the three presentations.



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November 10 2016

Commentary by Eoin Treacy

Tech Defanged as Stocks From Amazon to Netflix Left Out of Rally

This article by Lu Wang and Rebecca Spalding for Bloomberg may be of interest to subscribers. Here is a section:

Losses among computer and software makers mushroomed Thursday and were pronounced in the FANG block of Facebook Inc., Amazon.com Inc., Netflix Inc. and Google parent Alphabet Inc., each of which fell at least 3.6 percent. The Nasdaq 100 Index slumped 2.3 percent as of 10:58 a.m. in New York, the biggest retreat since Sept. 9.

While opinions vary about what’s going on, one possibility was concern about the impact of Trump’s policies on trade overseas, where U.S. technology companies thrive. Others saw a rational retreat for a group that through Election Day had surged 11 percent in 2016, or even the potential for retaliation by the president-elect against an industry that didn’t exactly cozy up to him during the campaign.

“Amazon is not worth $42 less than it was yesterday. It’s just that there’s been these violent moves as investors try to sort out what the election means,” said Terry Morris, manager director of equities at BB&T Institutional Investment Advisors in Wyomissing, Pennsylvania. “These exaggerated moves are just that, and I think we’re going to come back to more reasonable valuations.”

Facebook slid as much as 6.4 percent to $115.27. Amazon was down 4.7 percent to $735.66 after falling as much as 7 percent earlier. Netflix declined 5.4 percent to $115.57 in its biggest slide since July. Alphabet lost 3.8 percent to $774.77.

Trump’s presidency leaves the U.S. tech industry in an uncomfortably uncertain position. Total contributions to Hillary Clinton’s campaign from the internet industry came in at 114 times the level they did for Trump, according to statistics compiled by the Center for Responsive Politics. Facebook CEO Mark Zuckerberg gave a strongly worded rebuke to Trump’s views on immigration at the company’s developers conference in April, although he never called him out by name.

 

Eoin Treacy's view -

Quite apart from the election highflying mega-cap technology shares were due a reversion towards the mean and pre-election jitters provided the catalyst for some profit taking, but the result has what has so far been a subpar rebound. 



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November 10 2016

Commentary by Eoin Treacy

Merkel's conservatives warn of Trump effect in Germany

This article from Reuters may be of interest to subscribers. Here is a section:

"Things are getting simplified, black or white, good or bad, right or wrong. You can asked simple questions, but one should not give simple answers," Oettinger told Deutschlandfunk radio.

He said politicians and media should better explain complicated things with facts, but they should also embrace social media to reach younger voters in the new digital world.

The AfD, polling at around 13 percent, on Wednesday welcomed Trump's victory as the disempowerment of political elites.

INSA chief Hermann Binkert told Bild politicians had not taken on board the warning signs and a growing number of people had rejected the established parties and turned to the AfD.

However, polls show a majority of Germans still reject rabble rousing slogans. A Politbarometer poll for broadcaster ZDF showed some 82 percent of Germans think it is bad or very bad that Trump became president.

Experts also argue that Germany's political system, established after World War Two to avoid the rise of another dictator after Hitler, makes the rise of individual politicians like Trump or even a single party difficult.

 

Eoin Treacy's view -

When considering where the hydra of populism is most likely to sprout next Germany is not the most likely candidate. Its federal political system, high barrier to entry into the Bundestag and the simple fact that, despite discontent among the so called Wutbürger class of disaffected citizens, Germany was perhaps the least affected of any European country by the credit / sovereign debt crises. 



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November 10 2016

Commentary by Eoin Treacy

Robots and industrialization in developing countries

This report from the UN Conference on Trade and Development may be of interest to subscribers. Here is a section:

A country wishing to benefit from such effects must deploy more robots than others. According to data from the International Federation of Robotics, recent deployments of industrial robots in developing countries have been concentrated in China, and the country is expected to maintain its front-runner status (figure 1). In response to a shrinking working-age population and rising labour costs, which have eroded the country’s cheap-labour advantage, China has embarked on a government-backed robot-driven industrial strategy entitled “Made in China 2025”. Each year since 2013, China has bought more industrial robots than any other country and, by the end of 2016, is likely to overtake Japan as the world’s biggest operator of industrial robots. While its robot density - robots per industrial workers – continues to fall short of that of Germany, Japan and the Republic of Korea, the rapid pace of robot deployment is likely to significantly reduce the erosion of China’s comparative advantage in labour-intensive manufacturing.

The data also show, however, that industrial robots have primarily been deployed in the automotive, electrical and electronics industries (figure 2). This means that in developing countries – such as Mexico and many countries in Asia – those engaged in export activities in these two sectors are the most exposed to reshoring. By contrast, in many labourintensive industries, such as garment-making, widespread automation is not yet suitable. While robots have become cheaper, some developing countries continue to have a large pool of cheap labour. Thus, for those countries whose major challenge is to create jobs for a large number of low-skilled entrants to the labour force – such as in many parts of Africa – deploying robots under current cost structures may drive production costs up, rather than down.

 

Eoin Treacy's view -

Manufacturing is not a one size fits all solution. The primary reason humans still predominate in low cost manufacturing is because they do not require retooling or programming but can adapt quickly to emerging situations. However the challenge is that robotics, machine learning and artificial intelligence are getting better all the time and the ability of the low skilled human workforce to innovate is not as swift as technological innovation. 



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November 10 2016

Commentary by Eoin Treacy

The Chart Seminar 2016

The Chart Seminar is coming to London on November 24th and 25th

Eoin Treacy's view -

The Chart Seminar will be in London on November 24th and 25th. We will be working with a partner to co-promote the event and expect a full house (we cap the event at 50). The Radisson Blu Edwardian Vanderbilt on Cromwell Road will be the venue for the seminar.  

If you are interested in securing your place please contact Sarah Barnes at [email protected]

The full rate for The Chart Seminar is £1799 + VAT. (Please note US, Australian and Asian delegates, as non EU residents are not liable for VAT). Subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.

You can download the brochure here.

 



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November 09 2016

Commentary by David Fuller

Wall Street Rises, Bets on Donald Trump Inflation

Here is the opening of this topical article by John Kehoe of Financial Review:

American investors are surprisingly upbeat about Donald Trump's shock ascension to the US presidency, saying the big spending real estate mogul could trigger overdue inflation via his debt-funded plan to unleash a wave of infrastructure investment and to slash taxes.

Shares on Wall Street lifted about 1 per cent on bets the Republican clean sweep of the White House and Congress is poised to end six years of legislative gridlock and deliver a pro-business agenda on tax and regulation.

US markets failed to follow the 4-plus per cent dive in the S&P 500 futures index or earlier global stock rout in response to Mr Trump's upset victory.

Investors pointed to Mr Trump's magnanimous victory speech pledging to unite a divided country and his vow to invest in underfunded infrastructure, which would take pressure off the US Federal Reserve to keep interest rates near zero.

Fund managers expressed hope that conservatives in Congress would constrain his trade protectionist populism and try to keep the budget deficit under control.

The potential for a fiscal stimulus and Trump inflation wave caused the yield on the ten-year US Treasury bond to surge above 2 per cent, from 1.71 per cent, even as economists trimmed bets on the Fed raising rates next month due to political uncertainty from the billionaire's shock election.

"Inflation is the big issue," Bernstein Advisors chief investment officer Richard Bernstein said.

Mr Trump has vowed to go on a spending spree on infrastructure and defence, which could lift subdued inflation and allow the Fed to raise rates more in the longer term.

The president-elect wants to slash the US corporate tax rate to 15 per cent, from 35 per cent, and reform the system to encourage multinationals such as Apple and Google to repatriate $US2.5 trillion stashed offshore.

The real estate tycoon has also threatened to impose tariffs on foreign goods and to cut the amount of foreign workers, both of which would push up prices on imports and wages.

David Fuller's view -

Most of us were surprised by this election result, not least Donald Trump and Hillary Clinton, judging from their campaign teams as the counting of votes commenced.  Before any results were in, Trump’s team was described by one network as “having the atmosphere of a morgue”.  In contrast, Clinton’s was moderately upbeat. 

This gradually changed as the evening progressed, with the optimism of Clinton’s team giving way to concern, anxiety and eventually despair several hours later.  Trump’s campaign leaders looked initially surprised by the first results, followed by increasing hope and eventually the first hugs of joy as Florida became a probable win.  At that point I knew I was in for a long evening. 

Trump had been described as “the least nervous person in his family suite” by one commentator.  Later, he was reassuringly calm, if slightly nervous, and appropriately inclusive in his victory speech.  I suspect Clinton may not have had a concession speech until today.     

Initial financial gyrations as Trump’s victory was being realised reflected thin market conditions and the dominance of machine trading.

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



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November 09 2016

Commentary by David Fuller

Trumped America and Brexit Britain are Both Calling the Bluff of the Established Order

The Brexit view is a good deal more coherent than the Trump one. Brexit’s leaders, for example, want to open up world markets rather than put up new tariff walls. But both share a desire to bring power home to the nation’s own citizens. Both recognise that everything is different now.

Part of the great bluff of the Washington elites and their Europhile cousins is that there is only one sensible way of doing things and they, being the experts, can tell the rest of us what it is. But since 2001 in relation to security, and 2008 in relation to money, their way doesn’t look so sensible.

Does Mr Obama’s deal to let Iran off the hook about nuclear weapons feel outstandingly rational? Does Angela Merkel look wise to have let in 1 million Middle-Eastern immigrants? Does reinforcing the euro seem like the way of the future after its imposition has impoverished the younger generation right across southern Europe? A growing constituency calls the bluff of the established order.  

Once you start on this road, establishment disapproval only makes you feel stronger. Why vote for an elderly groper with strange hair and no political experience? Why incur the anger of the 27 other EU member states by Brexiting?

Partly because of seeing the pursed lips of the powerful when you do so. The only person who piped up to say the emperor had no clothes was a child: being electoral naughty boys proves to be fun.

It is not within the power of electors to run their country. It is within their power to point out to the self-righteous mighty when they are wrong. That is what has happened, first in Britain, now in America. By that logic, Mrs Clinton had to lose to Mr Trump.

I can think of at least one difference between Brexit and Mr Trump’s administration. The former will be led by a woman who didn’t even vote for it, the latter by the man himself.

The British situation may be the better, because it is less likely to inspire false hopes. It wouldn’t take all that many errors for Mr Trump’s vision to turn into Brexit minus minus minus.

David Fuller's view -

I am feeling an eerie calm for the second time in five months, during a period of considerable emotion in the markets, the press, on TV and apparently within public gatherings.  The calm is not due to numbness in response to events, or disinterest.  Perhaps a little fatigue is a factor having stayed up to watch an extraordinary election result. Mainly, however, I think these emotional reactions to shock events which have not actually harmed us are seldom warranted.

Consider sudden market surges in response to elections.  It is often a case of garbage in and garbage out, as trading systems are programmed to buy or sell following a specific result.  The sudden moves are alarming, but seldom based on wisdom, and are soon reversed. 

Extreme reactions to the UK’s Brexit vote in June or Trump’s “Brexit plus plus plus” prediction before he had won are another example.  Will he be as objectionable with the gravity of office as he was during the campaign which he probably did not expect to win?  It is possible, but I doubt it in terms of most issues, especially if he surrounds himself with a knowledgeable team of specialists to deal with the complexities of high office.    

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



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November 09 2016

Commentary by David Fuller

November 09 2016

Commentary by David Fuller

The Markets Now

Here is the new brochure for the next event on Monday evening 28th November, at London’s Caledonian Club.  

David Fuller's view -

OK, the US Presidential Election is over but what can we expect from Trump’s regime? 

Interestingly, infrastructure spending is back on a number of political agendas.  That should help GDP growth.  Commodities are generally firm, with ‘Dr Copper’ joining other metals in breaking to the upside.  A number of government bond yields bottomed in July, including US 10-Yr Treasuries.  

Groupthink pundits are saying nothing will change but that is a contrary indicator.  This is a great time to have an exciting new speaker in Clive Burstow.  Come along and participate in the discussion of market opportunities – the last session for 2016. 

I look forward to another lively session at The Markets Now seminar, attended by highly experienced international investors, led by our long-term subscribers.  Iain Little has more interesting material, including his popular “Trusts In Focus” programme.  Iain also introduced Clive Burstow of Barings, a specialist in the analysis and management of mining stocks – a hot topic this year.  

I can’t wait and it is always fun to chat with delegates at the cash bar following the three presentations.



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November 09 2016

Commentary by Eoin Treacy

Investment ramifications of a Trump Presidency

Eoin Treacy's view -

It was a bruising campaign but with control of all three branches of government the Republican Party now has a relatively unfettered path to introducing a broad range of policy options. The one obstacle of course is that the entrenched bureaucracy in Washington and the various unions are totally opposed to just about any change to the status quo. 

Corporate taxation and the tax code more generally could be up for debate. Securing a budget large enough to make a dent in the deferred maintenance of the USA’s infrastructure is perhaps the clearest ambition of a Trump Presidency. Protectionism is also high on the agenda and the responses of NATO and EU spokespeople to the news was a picture of unease at this new source of uncertainty. Immigration is also likely to be a major topic of conversation for this administration. 

 



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November 09 2016

Commentary by Eoin Treacy

November 09 2016

Commentary by Eoin Treacy

The world has just become a more dangerous place

This article by Lara Marlowe for the Irish Times may be of interest to subscribers. Here is a section:

White Americans are traumatised to know they will become a minority within 50 years. The French extreme right believe there’s a conspiracy to replace the European population with Africans and north African Arabs. Like Trump supporters, they hark back to the “good old days” and want France to be “great again”.

Virtually all western democracies appear to be infected with the anger and disillusion that brought Trump to power. An opinion poll published by Le Monde on November 8th showed that close to three-quarters of the French electorate believe their elected officials are corrupt. They believe elections serve no purpose, and that political parties, trade unions and media block the country. Trump’s promise to “drain the swamp” has certain resonance.

During the campaign, Le Pen told the right-wing magazine Valeurs Actuelles: “What Americans like is that he’s a free man. If I were American, I’d choose Donald Trump.”

On Wednesday morning, she tweeted congratulations before final results were in.

 

Eoin Treacy's view -

This has been a year in which the “perceived wisdom” has been proved not to hold true. The UK voted to leave the EU, the Chicago Cubs won the World Series for the first time in more than a century, the Irish rugby team beat the All Blacks for the first time,(although it was only a friendly) and now a rank outsider has won the US Presidential Election. The question now is whether this trend of surprises and disruptions to the status quo will continue and most particularly in Europe?



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November 09 2016

Commentary by Eoin Treacy

India scraps 500 and 1,000 rupee bank notes overnight

Thanks to a subscriber for this article from BBC news which may be of interest. Here is a section:

The surprise move, announced on Tuesday evening, is part of a crackdown on corruption and illegal cash holdings.

Banks will be closed on Wednesday and ATM machines will not be working.

India is overwhelmingly a cash economy. New 500 and 2,000 rupee denomination notes will be issued to replace those removed from circulation.

"Black money and corruption are the biggest obstacles in eradicating poverty," Mr Modi said.
People will be able to exchange their old notes for new ones at banks over the next 50 days but they will no longer be legal tender.

The announcement prompted people across the country to rush to ATMs that offer 100 rupee notes in an attempt not to be left without cash over the next few days.

 

Eoin Treacy's view -

Bribes are most often paid in cash so removing high value notes makes it somewhat more difficult to stuff money into an envelope. For a country like India where the government needs tax income to fund social and infrastructure projects, the war on cash is an understandable project. Even the ECB has committed to stop printing €500 notes by the end of 2018 because of the role these high value denominations have in allowing money to be moved around often for nefarious activities. 



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November 08 2016

Commentary by Eoin Treacy

November 08 2016

Commentary by David Fuller

Hillary Clinton has enough electoral Votes to Win the White House in final Fix map

The presidential election ends — we hope! — Tuesday.

Below we offer our last ratings of the race, our look at the truly competitive states on the eve of this most unpredictable of elections. While we are moving two states in Donald Trump’s direction on this second-to-last day of the campaign, the overall map still clearly favors Hillary Clinton: She has 275 electoral votes solidly or leaning her way — five more than she needs to win the White House on Tuesday night. In fact, even if Trump holds all of the states either solidly or leaning his way and wins all three states currently rated as “toss-ups,” he is still seven electoral votes short of 270.

Our big change on the eve of the election is to move North Carolina from “lean Democratic” back to “toss-up.” From mid-September to mid-October, Clinton led in 19 of the 20 polls conducted in the state. But, of the nine most recent polls, four show Clinton ahead, three show Trump in the lead and two project a tie. Trump has a 1.4 percent edge in the RealClearPolitics polling average.

David Fuller's view -

I imagine our American subscribers are looking forward to the end of this election campaign which seems interminably long.  I assume the view that if Trump cannot win Florida, which should declare shortly after 10:00pm EST, Clinton has won this election.  The Washington Post is calling Florida a “toss-up” in the article above.  Wall Street has bet on a Clinton victory this week following the FBI’s comment that there were no new findings in its review of her emails.   

Let’s hope for a clear result and a dignified conclusion to this election.  



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November 08 2016

Commentary by David Fuller

The Upside of Russian Interference

Figures on both the left, such as journalist Glenn Greenwald, and the pro-Trump right, such as the Republican nominee's friend Roger Stone, have spoken of a "new McCarthyism."

I'm not ready to subscribe to that notion yet, if only because, as a Russian citizen, I am not merely able to work for a mainstream U.S. news organization: I've been welcomed by the many Americans I have interviewed while covering this campaign. These span a political spectrum from fiery progressive Liz Garst in Iowa -- a person that, to me, embodies the best of Russia's old-time influence on the U.S. -- to far-right militia members in northern Florida, who are perhaps the most susceptible to the current brand of Russian propaganda.

Americans are generally nice to visitors -- and uncommonly helpful to journalists -- but they used to be far more suspicious of Russians while the Soviet Union was still around. Despite the best efforts of supposedly progressive Hillary Clinton, that suspicion has not yet returned. It may do so if the Russia-bashing continues after the election; I suspect it will die down somewhat as the electoral battle recedes into history.

In any case, it's worth considering how the U.S. will internalize the real and perceived Russian meddling this year. Americans are hard-headed and used to doing things their own way; they turned the previous Russian influence campaigns, often waged with the worst of intentions, to their advantage. Can Putin's propaganda and perhaps cyber-espionage campaign also serve a useful purpose?

I believe it can. Putin is providing a useful service to the U.S. by holding his malicious mirror to its political establishment. It's a troll's mirror, but it does reflect a nasty reality: A complacent, clannish elite that has written convenient rules for itself but not for the society it governs. Much of this society, both on the right and on the left, doesn't like what it sees.

As with previous Russian attempts to change the U.S., this one should lead to a realization that it's time to clean up U.S. democracy and make it more representative and inclusive, perhaps by stripping away some obsolete voting rules, perhaps by breaking the destructive stranglehold of the ossified two-party system.

The country I have seen this year -- the big cities and small towns I've explored, the progressives and Second Amendment zealots I've met, this whole vast, great land -- deserves far better than what I watched it live through. I'd like to help in my small way, and I think my country will end up helping, too, even though it may be trying to inflict damage.

David Fuller's view -

The two-party system mentioned in the penultimate paragraph above is often criticised on the basis that it is not sufficiently representative and inclusive.  That is a valid point in both the USA and UK.  However, I have always preferred the two-party system because it does produce stronger governments. 

I have seldom been impressed by the multi-party governments that we usually see in continental Europe and some other democratic regimes.  They are weaker and consequently less decisive and effective.  They are also beholden to special interest pressure groups.  The consequences are weaker governments and more frequent elections. 

What I would advocate is term limits.  If the two-term presidential system is good enough for the USA, and I believe it is, I would prefer the same for Prime Ministers. I also think representatives in the Senate, Congress and UK Parliament should have time limits of perhaps three terms.  Yes, it would remove some successful, effective politicians but it would also reduce the number of cliques while introducing new talent and energy.  Career politicians remain in office well beyond their sell-by date.   



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November 08 2016

Commentary by David Fuller

November 08 2016

Commentary by David Fuller

Referendums Are Now Part of Our Democracy. If Judges Reverse Them, We Are In a Dangerous Place.

'Remember, remember the Fifth of November” some of us chant on this day. The rhyme goes on about how Guy Fawkes wanted to blow up the King and Parliament: “Threescore barrels of powder below/ Poor old England to overthrow.” We do things differently nowadays. For “barrels of powder” read “QCs arguing”.

The legal confusion about how to trigger Article 50 has left both sides in the Brexit story striking some odd attitudes. The Leavers – of whom your columnist is one – look as if they are saying that Parliament should not have the power of decision over Article 50. Yet it was they who spoke so often about recovering parliamentary sovereignty.

The Remainers, many of whom have devoted more than 40 years to undermining our national independence, have suddenly decided to uphold the rights of our sovereign Parliament. Human rights lawyers who have argued for entire careers that Britain’s home-grown tradition of rights is grossly inadequate for the modern world have gone all gooey about the Bill of Rights of 1689 and the limits it sets upon the royal prerogative.

Personally, I have particularly enjoyed watching Lord Kerr of Kinlochard stepping forward to speak for England. John Kerr, former UK Permanent Representative to the European Union, former head of the Foreign Office, billed by the BBC as the “author” of Article 50, is known by former colleagues as “Machiavelli” (with emphasis on the “Mac”, Lord Kerr being Scottish). He is a man of great charm and brilliance. I have always profited from my conversations with him about the life of Lady Thatcher. But I must admit that I had never before seen him as the defender of this nation’s ancient liberties.

Now The People’s Kerr explains that Article 50 is not irrevocable, and every possible opportunity must be given to Parliament and electors to vote again. Come to think of it, I don’t know why I am surprised: it would be entirely in character for the inventor of the device for leaving the EU to have so drafted it that it forces us to stay.

David Fuller's view -

In December the UK’s Supreme Court will commence its review of the recent High Court’s decision that only Parliament can trigger Article 50.  If it reverses that decision because Parliament backed the June 23rd Referendum by no less than a 6 to 1 majority, then Mrs May will be free to commence negotiations to leave the EU. 

However, if the Supreme Court upholds the High Court decision, then it is very likely that the Prime Minister will trigger a General Election in 2017.  I maintain that Mrs May would win that election with an increased majority.  

A PDF of Charles Moore’s column is posted in the Subscriber’s Area along with an Editorial.  



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November 08 2016

Commentary by David Fuller

The Markets Now

Here is the new brochure for the next event on Monday evening 28th November, at London’s Caledonian Club.  

David Fuller's view -

OK, the US Presidential Election is over… we hope.  Interestingly, infrastructure spending is back on a number of political agendas.  That should help GDP growth.  Commodities are generally firm, with ‘Dr Copper’ joining other metals in breaking to the upside.  A number of government bond yields bottomed in July, including US 10-Yr Treasuries.  

Groupthink pundits are saying nothing will change but that is a contrary indicator.  This is a great time to have an exciting new speaker in Clive Burstow.  Come along and participate in the discussion of market opportunities – the last session for 2016. 

I look forward to another lively session at The Markets Now seminar, attended by highly experienced international investors, led by our long-term subscribers.  Iain Little has more interesting material, including his popular “Trusts In Focus” programme.  Iain also introduced Clive Burstow of Barings, a specialist in the analysis and management of mining stocks – a hot topic this year.  

I can’t wait and it is always fun to chat with delegates at the cash bar following the three presentations.



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November 08 2016

Commentary by Eoin Treacy

Not With A Bang But A Whimper (and other stuff)

Thanks to a subscriber for this report by Ben Inker and Jeremy Grantham for GMO which may be of interest. Here is a section:

At GMO we have put particular weight for identifying investment bubbles on the statistical measure of a 2-sigma upside move above the long-term trend line, a measure of deviation that uses only long-term prices and volatility around the trend. (A 2-sigma deviation occurs every 44 years in a normally distributed world and every 35 years in our actual fat-tailed stock market world.) Today’s (November 7) price is only 8% away from the 2-sigma level that we calculate for the S&P 500 of 2300.

13. Upside moves of 2-sigma have historically done an excellent job of differentiating between mere bull markets and the real McCoy investment bubbles that are likely to decline a lot – all the way back to trend – often around 50% in equities. And to do so in a hurry, in one to three years.

14. So we have an apparent paradox. None of the usual economic or psychological conditions for an investment bubble are being met, yet the current price is almost on the statistical boundary of a bubble. Can this be reconciled? I believe so.

15. There is a new pressure that has been brought to bear on all asset prices over the last 35 years and especially the last 20 that has observably driven the general discount rate for assets down by 2 to 2.5 percentage points. Tables 1 and 2 compare the approximate yields today of major asset classes with the average returns they had from 1945 to 1995. You can see that available returns to investors are way down. (Let me add here that many of these numbers are provisional. We will try to steadily improve them over the next several months. Any helpful inputs are welcome.) But I do believe that readers will agree with the general proposition that potential investment returns have been lowered on a wide investment front over the last 20 years and that stocks are generally in line with all other assets.

Eoin Treacy's view -

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

I agree that the topic of bubbles is central of what our job as analysts is. If we can succeed in identifying the latter stages of a bubble, we can avoid the worst effects of the subsequent bear market, so that we are in the privileged position of having ample liquid capital with which to participate when a new bull market evolves. The big question now is to what extent the major stock market indices exhibit bubble characteristics. 



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November 08 2016

Commentary by Eoin Treacy

Voters could legalize marijuana for quarter of all Americans

This article from Reuters highlights one of the more important decisions to be taken by US voters today. Here is a section:

In California, where medical marijuana has been legal since 1996, a recent poll by the Public Policy Institute of California showed 55 percent of likely voters supported a ballot initiative that would authorize the state to tax and regulate retail cannabis sales much like it does alcoholic beverages.

That was similar to the numbers favoring legalization from opinion polls in Massachusetts and Maine. Slimmer majorities or pluralities also point to legalization in Arizona and Nevada.

Approval by California alone, America's most populous state with 39 million people, would put nearly a fifth of all Americans living in states where recreational marijuana is legal, according to U.S. Census figures. That number grows to more than 23 percent if all five state measures pass.

Backers of legalized marijuana sales have tried for decades to win support at the ballot box, with little success until the past few years, starting with victories in Colorado and Washington state in 2012.

Experts say the latest initiatives include more sophisticated regulatory mechanisms aimed at keeping cannabis away from children and banning the involvement of criminal gangs and drug cartels. Public opinion has rapidly swung toward favoring legalization.

"It's changed in the minds of these voters from being like cocaine to being like beer," said University of Southern California political scientist John Matsusaka.

 

Eoin Treacy's view -

Time and again prohibition has been demonstrated as a failed strategy. There are of course very real side effects that result from smoking cannabis and most particularly for young people. The problem for those campaigning against legalisation is proving cannabis has no health supporting effects. Millions of people have personal experience to the contrary and that has helped drive wider acceptable of the plant’s curative properties. This is especially true for ailments modern medicine is not a good fit for such as chronic pain, migraines and posttraumatic stress.



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November 08 2016

Commentary by Eoin Treacy

Adobe gets experimental: Photoshopping voices, drawing hacks and VR editing

This article by Emily Ferron for Newatlas may be of interest to subscribers. Here is a section:

According to Jin, the software needs about 20 minutes of voice recording to learn the speech patterns and wave forms of the original speaker's voice. Then, the user can simply type in the edited version of the text and hear the desired changes played back practically instantly. In the demo, Jin playfully altered a sentence, "I kissed my dogs and my wife" to "I kissed Jordan three times." New words that were not in the original recording were re-created in the speaker's tone and timbre.

While this technology has obvious applications in the entertainment and voiceover industries, it could have long-reaching societal repercussions as well. Just as Photoshopping allegations come into play when the veracity of an image is suspect, VoCo could open voice recordings to the same kind of scrutiny. To counter security concerns, Jin said that features like watermarking and anti-forgery measures are on the way.

Other notable Adobe "sneaks" include Project Stylit and CloverVR. The former is a tool for creating digital art with traditional fine art looks. The latter tackles a more-cutting edge issue, introducing new methods for editing 360-degree videos for virtual reality applications.

 

Eoin Treacy's view -

Online retail is in many respects the business of selling pictures since the customer has no other way of inspecting the product. By successfully implementing a subscription pricing model Adobe succeeded in making its Photoshop suite of products the industry standard. Its Maya animation and graphics package is now also on a subscription model and is one of the most widely used tools in the gaming and advertising sectors. 



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November 08 2016

Commentary by Eoin Treacy

Copper Enters Bull Market as Declining Stocks Ease Glut Concerns

This article by Joe Deaux for Bloomberg may be of interest to subscribers. Here is a section:

“We’re getting the idea that these markets are a lot tighter than many people think, particularly as China continues to do pretty well,” Bart Melek, the head of commodity strategy at TD Securities in Toronto, said in a telephone interview. “The PBOC is saying interest rates are in line with fundamentals, meaning they won’t be doing anything new and they see stability there.”

Copper for delivery in three months rose 2.7 percent to settle at $5,235.50 a metric ton in London. That marked a more- than 20 percent gain from a low in January, meeting the common definition of a bull market. The metal touched $5,250.50, the highest since October 2015.

 

Eoin Treacy's view -

Copper held a progression of lower rally highs for five years but had developed type-2 bottom characteristics since January’s mean reversion rally and is now breaking out. 



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November 07 2016

Commentary by David Fuller

Clinton 3 Points Ahead of Trump in Final Bloomberg National Poll

Hillary Clinton leads Donald Trump by three percentage points among likely voters nationally, the latest sign that her campaign's painstaking focus on women, Latinos and blacks could help propel her to the White House.

The final Bloomberg Politics national poll before Tuesday’s election has Clinton ahead of Trump, 44 percent to 41 percent, when third-party candidates are included. In a two-way contest, she's also up by three points.

Interviews were conducted Friday evening through Sunday afternoon, before FBI Director James Comey announced his decision that Clinton shouldn’t face criminal charges related to use of a personal e-mail server as secretary of state.

Comey’s initial letter informing Congress—11 days before the election—that the FBI was conducting a review of newly discovered e-mails breathed new life into Trump’s candidacy at a time most polls showed Clinton with a bigger lead. The FBI's decision Sunday brings a positive burst of news for Clinton in the campaign’s critical home stretch.

The tightness of the race highlights the importance of turnout for both sides, as the final wave of campaign events, door-knocking, e-mailing, and phone-calling comes to a close.

More than a third of likely voters, 37 percent, say they’ve already voted and Clinton is leading Trump with that group, 46 percent to 38 percent.

The results offer a national snapshot of the race, but they fail to reflect the reality of the state-by-state pursuit of the 270 electoral votes needed to win the White House. Trump has strong support in the South, the survey shows, while Clinton has the advantage in the Northeast, Midwest and West.

“The poll reflects a tight race, for sure, but what is so striking is the sour mood of the electorate,” said pollster J. Ann Selzer, who oversaw the survey. “Looking forward, they see scandals aplenty and sizable segments of each side vow to keep fighting even after all the votes are counted.”

David Fuller's view -

I think serious people everywhere will be relieved to see the end of what is certainly the most sordid US Presidential Election in living memory. I am assuming that Clinton will win, not because she is popular, but because Trump is a wild card, to put it politely.  Additionally, Clinton appeals to a much wider demographic base, including women who have the most votes in this election.  Wall Street’s rally today undoubtedly includes a considerable amount of short covering in anticipation of a Clinton victory.

The one important quality which Clinton has in spades is experience.  The far greater quality which I hopes she will demonstrate is wisdom.  She will need it given this divisive election and the challenges which lie ahead, in terms of reuniting the country and leading democratic nations.    



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November 07 2016

Commentary by David Fuller

The High Court Article 50 Ruling Highlights the Gulf Between the Country and the Elete

Here is the opening of this excellent article by Daniel Hannan for The Telegraph; the original printed edition title was Hypocrisy and Breathtaking Brazenness

During the referendum campaign, the Government controversially spent £9.3 million on distributing a brochure to every British household making its case for remaining in the EU. That official publication contained a clear statement: “This is your decision. The Government will implement what you decide”.

Remainers defended the leaflet on grounds that it was not simply a campaigning tool, but a formal statement of Government policy.

Not a single Stronger In campaigner, as far as I’m aware, took issue with the sentence I have just quoted. Confident that they would win, they were happy to treat the referendum as final and binding.

Which is what makes all this pomposity about constitutional propriety so preposterous. Pro-EU campaigners, having won the first round of their legal battle to prevent the Government disengaging without another parliamentary vote, are now claiming that all they want is due process. It’s not their hypocrisy that shocks; it’s their sheer brazenness.

Does anyone imagine that the corporations which funded the court case were interested purely in the constitutional niceties? Does anyone believe that the remnants of Stronger In who have been cheering the challenge would be taking the same line had there been a 52-48 vote to stay?

After all, the people now huffing and puffing about the sovereignty of parliament have, in many cases, spent the past 43 years undermining it.

Now, in the most sudden somersault since Western Communists backed the Molotov-Ribbentrop Pact, they have gone from deriding parliamentary supremacy as a Victorian hang-up to posing as its defenders.

The case wasn’t really about parliamentary sovereignty. Everyone agrees that Parliament has the ultimate power to leave the EU.

But this particular Parliament voted – by six to one in the Commons – to put the question of EU membership to the voters. It didn’t tack on a reservation saying that it might think again if the voters surprised it. 

David Fuller's view -

One should not blame everything on the EU but I will say that it has not helped attitudes towards democracy within the UK over the last 40 years, across all political parties.  I believe Theresa May understands this and is trying to address it.  However, if the UK Supreme Court does not reverse last week’s High Court’s ruling that the Government does not have the power to trigger Article 50 without parliamentary approval requiring a vote from MPs, the Prime Minister may have to call a snap General Election in 2017.  

Presently, Mrs May does not have enough cross-party support within Parliament where some MPs regard the EU political gravy train as a cushy personal option, should they be defeated in a UK general election.  Inevitably, there is an element of uncertainty in any election but if the Prime Minister was asking the country to give her the support to regain full UK sovereignty via Brexit, I think she would win with a landslide.  

A PDF of Daniel Hannan's article is posted in the Subscriber's Area.



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November 07 2016

Commentary by David Fuller

The Markets Now

Here is the new brochure for the next event on Monday evening 28th November, at London’s Caledonian Club.  

David Fuller's view -

I look forward to another lively session at The Markets Now seminar, attended by highly experienced international investors, led by our long-term subscribers.  Iain Little has more interesting material, including his popular “Trusts In Focus” programme.  Iain also introduced Clive Burstow of Barings, a specialist in the analysis and management of mining stocks – a hot topic this year.  

I can’t wait and it is always fun to chat with delegates at the cash bar following the three presentations.



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November 07 2016

Commentary by Eoin Treacy

Tesco Bank Halts Web Trades as Money Taken From 20,000 Accounts

This article by Paul Jarvis for Bloomberg may be of interest to subscribers. Here is a section:

About 40,000 of the bank’s 136,000 checking account holders experienced suspicious transactions over the weekend, Tesco Bank Chief Executive Officer Benny Higgins told BBC Radio 4’s Today program. About half of those had money taken from their account, he said. The problem has only affected checking accounts, a representative for the bank said.

Some of the world’s biggest financial institutions, including JPMorgan Chase & Co., HSBC Holdings Plc and the Federal Reserve Bank of New York, have all been cyberjacked in some way in the past couple of years. In the second quarter of this year, there was a 50 percent jump in activity by cybercriminals injecting malware programs into financial companies worldwide from the same period in 2015, according to Kaspersky Lab, a global cybersecurity company.

“Banking fraud is unfortunately very prevalent, and has been for a while,” said Tom Kirchmaier, researcher at the financial markets group at the London School of Economics. “The industry is not very forthcoming with sharing data with the police, and so we only hear about the worst cases, and Tesco’s can be considered one such instance.”

 

Eoin Treacy's view -

Inventory shrinkage (shoplifting) costs the retail sector about 1.5% of revenue per annum. When businesses move online they have to account for other kinds of theft such as when a buyer claims the item did not arrive and demands a refund. Online retailers often fear negative reviews so they put up with this petty theft as a matter of course and rarely talk about it.  



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