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February 13 2017

Commentary by David Fuller

The Markets Now

The next Markets Now will be held in the Morrison Room at The Caledonian Club, on Monday 27th March

David Fuller's view -

I am delighted to say that our guest speaker at this event will be Charles Elliott, founder of Inflection Point Investments.  The first half of his talk will be on ‘Mega-Cap Tech’, including big and well-known names such as Apple, Microsoft, Google/Alphabet & Amazon.  This will be followed by ‘Emerging Tech’ in which he specialises. 

The new brochure will be available shortly.  



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February 13 2017

Commentary by Eoin Treacy

February 13 2017

Commentary by Eoin Treacy

Email of the day on accelerating trends in the currency markets

Just finished to watch the video

Interesting take on India and the Rupee

Last week I entered a short Non Deliverable Forward NFD on USDINR for myself for the same reasons you mentioned in the video . Now I feel mentally confirmed …confirmation bias through an expert opinion J

I did the same in December with MXN . I will start to place stops here - in case we have some kind of “Trump induced” relapse

On TRY I still don’t dare..(though the Turkish  ISE index equity market is the best market YTD if you have noticed , even in USD and EUR terms) . but TRY has just started to barely move below the 4 level on the €

Thank you for the lots of insight in the commentaries . The next challenge will really be the bond market 

 

Eoin Treacy's view -

Thank you for sharing your views and congratulations on seizing opportunities in what have all been counter trend moves against accelerating moves. 

At The Chart Seminar we describe acceleration as a trending ending. In an uptrend the trading activity which creates the acceleration expends the available demand very quickly so that the point when there are no more buyers available is quickly reached. At that point all that are left are overextended leveraged holders sensitive to even small moves against their positions. When the reversal comes it can be violent as stops are hit. The pullback is often contrary to the received wisdom propagated by the media which is exactly what we have seen recently in the currency markets. . 



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February 13 2017

Commentary by Eoin Treacy

Silicon will blow lithium batteries out of water, says Adelaide firm

Thanks for a subscriber for this article by Benn Potter for the Australian Financial Review. Here is a section:

Chairman Kevin Moriarty says 1414 Degrees' process can store 500 kilowatt hours of energy in a 70-centimetre cube of molten silicon – about 36 times as much energy as Tesla's 14KWh Powerwall 2 lithium ion home storage battery in about the same space.

Put another way, he says the company can build a 10MWh storage device for about $700,000. The 714 Tesla Powerwall 2s that would be needed to store the same amount of energy would cost $7 million before volume discounts.

 

Eoin Treacy's view -

A race is underway to develop new types of batteries and, for the foreseeable future, there is room for a number of competing technologies. The reason for this is the pace of innovation is slower than in other sectors but also because energy storage is required for widely differing sectors. Batteries need to be small and light for handheld devices, big and have almost infinite recharging capabilities for utilities and need highly efficient power to weight ratios for transportation. That suggests there is ample potential for a number of different technologies to play roles in all of these sectors. 
 

 



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February 13 2017

Commentary by Eoin Treacy

Africa's Cities: Opening Doors to the World

This heavyweight 166-page report from the World Bank may be of interest to subscribers. Here is a section:

How can Africa’s leaders and policymakers spring cities from this trap? Crucially, they must first realize that the problem does not begin with low capital investment and the lack of physical structures, or even with undersized infrastructure. To be sure, low investment in structures limits urban economic density; it exacerbates spatial fragmentation, and it precludes agglomeration economies. But the lack of investment results from low investor expectations, which result when cities are spatially dispersed and disconnected.

When potential investors and trading partners look at African cities, they see spatial fragmentation and a lack of connections. They know that such fragmentation constrains public service provision, inhibits labor market pooling and matching, and prevents firms from reaping scale and agglomeration benefits. So the key to freeing Africa’s cities from their low development trap is to set them on a path toward physical and economic density, connecting them for higher efficiency and boosting expectations for the future. The first priority is to reform land markets and land use planning — to promote the most efficient uses of urban land, and to develop land at scale.
Informal land markets are not good enough for African cities. Urban land is a vital economic asset, and asset transactions are viable only where purchasers can rely on enduring extra-legal documentation of ownership. A formal market both offers purchasers the protection of the state and — because transactions are readily, observable and recorded — generates the public good of accurate valuation.

Clear rights to urban land are a precondition for formal land markets. African cities struggle with overlapping and sometimes contradictory property rights systems — formal, customary, and informal (box 3). When these systems pose barriers to urban land access, they impede the consolidation of plots and the evolution of land use. Firms cannot readily buy downtown land to convert it from low-density residential use into higher-density apartments, or to build clusters of new commercial structures. Land transactions are long, costly, and complicated (World Bank 2015c). Such market constraints reduce the collateral value of structures, giving developers little incentive to invest in residential height — while tempting all parties to enter informal arrangements (Collier 2016).

 

Eoin Treacy's view -

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

Africa is going to account for a billion new consumers within the next couple of decades so improving standards of governance are going to be essential if that demographic dividend is not going to be squandered. 
 



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February 10 2017

Commentary by Eoin Treacy

February 10 2017

Commentary by Eoin Treacy

A must read: ballast water convention

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

The convention will reinforce multi-year shipping upcycle
The Ballast Water Management Convention, which is scheduled to come into force in September 2017, requires all ships sailing in international waters to install a Ballast Water Management System (BWMS). In light of the high cost and uncertainties associated with BWMS, we expect shipowners to scrap most of their vessels of above 15 years in the coming 2-3 years. We estimate global dry bulk fleets will shrink 1.5% in 2018 and 3.9% in 2019 while VLCC utilization will pick up starting 2018. Buy Pacific Basin and CSD.

An introduction of this convention 
Initiated by the IMO in 2004, the Ballast Water Management Convention was designed to prevent transfers of invasive aquatic species via ships’ ballast water. After the accession of Finland, the convention was ratified in Sept. 2016, and will enter into force in Sept. 2017. Thereafter, new vessels will have to install the BWMS on delivery date. For existing vessels, they are required to carry out retro-fit until their next International Oil Pollution Protection (IOPP) renewal survey (conduct every five years). While some vessels could get a grace period of up to five years (assuming the IOPP is renewed just before September this year), there are high levels of uncertainty over this exemption as the IMO is scheduled to further debate this exemption in July.

Potential impacts on shipping market
The BWMS is expensive (USD2.5m for a VLCC and USD1.5m for a Capesize). This extra cost, along with higher maintenance expense, would substantially lift the breakeven level for 15+ years old vessels. Alongside the freight rate discount (to new ships) and rising demolition prices, our analysis shows that scrapping is the best option for shipowners. Currently, 14% of dry bulkers and 19% of VLCCs are above 15 years old and we expect this proportion of capacity to largely exit in the coming 2-3 years. Coupled with falling newbuild deliveries, we expect dry bulk supply growth to drop to 0.9% in 2017, and decline 1.5% in 2018 and 3.9% in 2019 (vs. 2.3% in 2016). Similarly, we expect VLCC utilization rates to pick up to 85.1% in 2018, in part due to the 2015-16 peak cycle.

 

Eoin Treacy's view -

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

The Baltic Dry Index has been ranging in a volatile manner for eight years because a lot of the new ships ordered in the commodity bull market were delivered at just the time that global economic activity collapsed. The result has been a surplus of ships, where the lives of old vessels were prolonged because it was more economic to keep them in service than to scrap or sell them. The introduction of the Ballast Water Management Convention has the potential to represent a significant bullish catalyst for the sector. 



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February 10 2017

Commentary by Eoin Treacy

Reckitt Has a $16.6 Billion Way of Fending Off Boredom

This article by Chris Hughes and Andrea Felsted for Bloomberg may be of interest to subscribers. Here is a section:

Infant nutrition is a new area for Reckitt. The company’s traditional strengths were once in household products. Think stuff you put on the floor rather than stuff you pop in the mouth. Through a series of takeovers, consumer healthcare has become an important part of Reckitt’s business -- its brands include Strepsils and Nurofen. Baby formula is another new departure and will put Reckitt in head-on competition with formidable rivals like Nestle SA and Danone SA.

Believing this is a good move means believing the growth rate for infant nutrition will be much faster than Reckitt’s existing markets. Perhaps it will. While growth has stuttered in recent years, it is poised to rebound, according to estimates from Euromonitor International, a research firm.

The lack of overlap with Reckitt's businesses means cost savings are relatively low given the size of the deal – just 200 million pounds ($250 million) annually after three years. As a result, it will take as long as five years for the returns to cover the threshold 7 percent to 8 percent cost of capital.
That’s a long time to wait.

Some investors have been concerned about the amount of debt being taken on to fund this all-cash transaction: net debt will initially be about four times the companies' combined Ebitda in 2017. That concern is valid, but it shouldn't be overdone: credit ratings companies have barely blinked and leverage should fall quickly from that level.

Reckitt has done deals well in the past and probably needs one to regain momentum. Fourth-quarter sales were disappointing, with like-for-like sales growing a measly 1 percent. Guidance for growth this year is lower than analysts hoped.

 

Eoin Treacy's view -

This is not the first time one Autonomy has consumed another and is a further example of how capitalism trends towards concentration. In the other words the large consume the weak. 



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February 10 2017

Commentary by Eoin Treacy

Copper Jumps Most Since 2013 as Strike Combines With China Boost

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

“We continue to see concerns about the deficit in the copper market,” Bart Melek, head of global commodity strategy at TD Securities in Toronto, said in a telephone interview. “We could have a significant deficit if this strike continues for a while.”

Copper for delivery in three months climbed 4.6 percent to settle at $6,090 a metric ton at 5:50 p.m. on the London Metal Exchange. That’s the biggest gain since May 2013. Aluminum, lead, nickel, tin and zinc also advanced on the LME.

An index of 18 base-metal producers climbed as much as 3.4 percent, with shares of Freeport-McMoRan Inc. and Rio Tinto Plc among the biggest increases.

 

Eoin Treacy's view -

Strike action at the world’s largest copper mine is the catalyst which has spurred interest in copper prices over the last couple of days. However the bigger picture is that global economic growth is picking up following a lengthy period of disappointment and commodity producers are cautious about investing in new supply following the trauma of a significant bear market. 



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February 10 2017

Commentary by Eoin Treacy

Backing into World War III

This article by Robert Kagan for the Brookings Institute is well worth taking the time to ponder. Here is a section:

Coming as it does at a time of growing great-power competition, this narrowing definition of American interests will likely hasten a return to the instability and clashes of previous eras. The weakness at the core of the democratic world and the shedding by the United States of global responsibilities have already encouraged a more aggressive revisionism by the dissatisfied powers. That, in turn, has further sapped the democratic world’s confidence and willingness to resist. History suggests that this is a downward spiral from which it will be difficult to recover, absent a rather dramatic shift of course by the United States.

That shift may come too late. It was in the 1920s, not the 1930s, that the democratic powers made the most important and ultimately fatal decisions. Americans’ disillusionment after World War I led them to reject playing a strategic role in preserving the peace in Europe and Asia, even though America was the only nation powerful enough to play that role. The withdrawal of the United States helped undermine the will of Britain and France and encouraged Germany in Europe and Japan in Asia to take increasingly aggressive actions to achieve regional dominance. Most Americans were convinced that nothing that happened in Europe or Asia could affect their security. It took World War II to convince them that was a mistake. The “return to normalcy” of the 1920 election seemed safe and innocent at the time, but the essentially selfish policies pursued by the world’s strongest power in the following decade helped set the stage for the calamities of the 1930s. By the time the crises began to erupt, it was already too late to avoid paying the high price of global conflict.

In such times, it has always been tempting to believe that geopolitical competition can be solved through efforts at cooperation and accommodation. The idea, recently proposed by Niall Ferguson, that the world can be ruled jointly by the United States, Russia, and China is not a new one. Such condominiums have been proposed and attempted in every era when the dominant power or powers in the international system sought to fend off challenges from the dissatisfied revisionist powers. It has rarely worked. Revisionist great powers are not easy to satisfy short of complete capitulation. Their sphere of influence is never quite large enough to satisfy their pride or their expanding need for security. In fact, their very expansion creates insecurity, by frightening neighbors and leading them to band together against the rising power. The satiated power that Otto von Bismarck spoke of is rare. The German leaders who succeeded him were not satisfied even with being the strongest power in Europe. In their efforts to grow still stronger, they produced coalitions against them, making their fear of “encirclement” a self-fulfilling prophecy.

 

Eoin Treacy's view -

US isolationism in one form under Obama and taking another form under Trump represents a change to the global geopolitical balance. It leaves an opening for increasing “assertiveness” from Russia, China and their proxies. That represents a medium-term risk premium for markets but is unlikely to represent a problem in the short term. 



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February 09 2017

Commentary by Eoin Treacy

February 09 2017

Commentary by Eoin Treacy

Musings from the Oil Patch February 7th 2017

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

Prior to OPEC’s Vienna Agreement last November, putting oil in storage because of its higher future value was a strong motivation for growing storage volumes. Now the curve is much flatter, and for oil priced three years in the future, that price is lower than the current one, providing a strong disincentive for putting oil in storage. Backwardation plays a significant role in oil producers’ decisions to hedge their production since they risk the potential of the price moving higher if the more traditional contango environment returns. As Rob Thummel, a managing director and portfolio manager at Tortoise Capital Advisors LLC put it, "What happens to the curve does depend on how the OPEC cuts will be carried out. The oil futures curve is indicating that the current OPEC cuts are here to stay for a while." U.S. oil producers will be very happy if that proves to be the case. While history would suggest otherwise, the pending (early 2018) initial public offering for Saudi Arabia’s state oil company, Saudi Aramco, an important component of its domestic economic restructuring effort, might force the country to hold its output down much longer than it has indicated. The reality may be that hundreds of small U.S. oil producers may screw up Saudi Arabia’s grand plan while hurting speculating oil traders with their record bullish oil price bet. A lower future oil price after a record bullish oil futures bet would be consistent with our recent history.

Eoin Treacy's view -

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

BP and Exxon Mobil spend a great deal of time and effort producing annual reports on energy use and issue predictions on how it will evolve over the time. That helps keep investors informed on how the companies plan to mobilise capital to take best advantage of how they see events unfolding. Saudi Arabia, as the world’s largest low cost producer, does not issue public annual reports. However its plans to IPO the company tell us more than any report ever could about the conclusions the Saudi Arabian administration has reached about the future of the oil market.



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February 09 2017

Commentary by Eoin Treacy

Markets on the cusp ...?

Thanks to a subscriber for this report by James W. Paulsen for Wells Fargo may be of interest to subscribers. Here is a section

Trends matter, for among other reasons, because they impact the impressions, expectations and actions of policy officials, investors, consumers and businesses. For this reason, we think investors should be aware of just how many financial market trends are on the cusp this year threatening to breach significant milestones.

Undoubtedly, not all of the trends we highlighted will actually break new ground this year and perhaps none will reach levels that draw much investor focus. However, in 2017, the following list of financial market trends are worth monitoring because they are “on the cusp”…

1. Evidence of inflation is broadening and inflation expectations embedded in the 10-year Treasury TIP bond is only about 0.5% below the highest level in at least 20 years.

2. Three major themes are on the cusp in the U.S. stock market. First, is the recent breach of a two-year old trading range in the S&P 500 Index to a new recovery high possibly suggesting a third leg in this bull market? Second, the relative total return performance of conservative investments is nearing its lowest level of the entire recovery. And finally, the relative performance of small cap stocks is within 10% of rising to a new all-time record high relative to large cap stocks.

3. Bond investors face several important trends on the cusp including the potential end of a 30-year bond bull, a flatter Treasury yield curve and investment grade yield spreads about to reach new narrows for the recovery.

4. The U.S. dollar is in a two-year old trading range which, with a break, will settle whether this is just a pause in an ongoing dollar bull market or the start of a fresh dollar bear market.

5. In the commodity markets, crude oil is on the cusp of breaking out of a two-year old trading range above $60 and industrial commodity prices are within 10% of rising to a new six-year high.

So far, this year has been dominated by political news and what it means for future economic and regulatory policies. Perhaps, however, in a year with so much on the cusp, investor mindsets will eventually become more impacted by financial market trends breaking outside old recovery trading ranges? 

 

Eoin Treacy's view -

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

I find the choice of words “on the cusp” to be very interesting because it represents a point of view which is outside. It suggests an investor is out of the market and potentially on the cusp of investing again. 

Perhaps that’s not overly surprising. The main stock market indices spent almost two years ranging and endured some scary pullbacks during that time. Bonds have sold off aggressively in the last few months which would have prompted at least some investors to raise cash. Commodities prices are rallying of off very depressed levels but with since they are already a year into an advance there are logical questions being asked by those on the side lines centring on whether they are already too late.

 



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February 09 2017

Commentary by Eoin Treacy

Machines Can Replace Millions of Bureaucrats

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

In some countries, some of the people in these jobs -- such as postal employees -- are public sector workers. But government clerks who do predictable, rule-based, often mechanical work also are in danger of displacement by machines. In a recent collaboration with Deloitte U.K., Profs. Osborne and Frey estimated that about a quarter of public sector workers are employed in administrative and operative roles which have a high probability of automation. In the U.K., they estimated some 861,000 such jobs could be eliminated by 2030, creating 17 billion pounds ($21.4 billion) in savings for the taxpayer.

These would include people like underground train operators -- but mainly local government paper pushers.

This week, Reform, the London-based think tank dedicated to improving public service efficiency, published a paper on automating the public sector. It applied methodology developed by Osborne and Frey to the U.K.'s central government departments and calculated that almost 132,000 workers could be replaced by machines in the next 10 to 15 years, using currently known automation methods. Only 20 percent of government employees do strategic, cognitive work that requires human thinking -- at least for now, while artificial intelligence is as imperfect as it is. Most of the rest are what the Reform report calls the "frozen middle" -- levels of hierarchy where bureaucrats won't budge without approval from above.

Almost all British government departments have 10 employee grades or more. The department for environment, food and rural affairs has 13. Most of the middle-level tasks are routine and rigidly regulated and motivation is low: Only 38 percent of middle-level bureaucrats say they feel good about what they do.

In the U.K., the average civil servant takes 8 sick days a year, while a private sector worker takes 5. In the last two decades public sector spending rose by an average 3.1 percent a year, about 16 times faster than productivity.

 

Eoin Treacy's view -

The majority of commentary is focusing on the how, what and when of Brexit but there also needs to be some thought for how the UK is going to enhance its competitive position in a post EU world. Tax structures, trade deals and deregulation all need to be high on the agenda but so does limiting needless spending in government. 



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February 08 2017

Commentary by Eoin Treacy

February 08 2017

Commentary by Eoin Treacy

The Dow/Gold Ratio

Eoin Treacy's view -

The Dow/Gold Ratio is one of the most storied ratios in finance not least because it is made up of two of the instruments with the longest back histories. We can spend a great deal of time thinking and writing about secular bull and bear markets but the Dow/Gold ratio gives us evidence of how major bull markets transition into decade long periods of underperformance of stocks versus gold before transitioning again into decades long bull markets of relative outperformance by stocks.
 
There are three major peaks and two confirmed major lows on the above chart. 

 



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February 08 2017

Commentary by Eoin Treacy

On Target Japan

Thank to Martin Spring for this edition of his ever interesting newsletter. Here is a section on Japan: 

Dividends are “being raised relentlessly,” says Price Value Partners? Tim Price. Incredibly, some international analysts say Japan is now an equity income play, after decades when its companies were notorious for neglecting their shareholders.

Whereas “the balance sheets of US companies are groaning with years of accumulated debt, Japanese balance sheets are now the strongest in the world,”

Tim says. Stock buybacks are now accelerating, and unlike the US, where buybacks are “debt-fuelled,” those in Japan are funded out of cash. John Seagrim of CLSA says: “The deep value opportunities in Japan are almost endless,” with 1.480 listed companies trading below their tangible book values.

For the first time in years, the Japanese stock market now has strong domestic support. Jeffrey Gundlach says the government is encouraging it via three sources of “pretty much automatic buying” at an annual rate in excess of 5 per cent of total market capitalization. The central bank is buying ¥6 trillion (about $53 billion) worth of equities every year, corporate Japan is investing about the same amount, the state pension fund ¥5 trillion, private investors about ¥4 trillion.

 

Eoin Treacy's view -

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

Japan posted its largest current account surplus in a decade in the 2016 suggesting the country is benefitting low oil prices, the weakness of the Yen, improving global GDP growth and tourists from neighbouring countries flocking to its shores.



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February 08 2017

Commentary by Eoin Treacy

Email of the day on uranium charts

There seems to be an error with the chart of uranium which you referenced last month, would it be possible to please update it (see the enclosed chart)?

Eoin Treacy's view -

Thank you for this email which may be of interest to subscribers. Uranium is not a freely traded commodity so there is only one daily price. Therefore it is best to view it as a line chart. I am not sure why we receive open, high, low, close data but I have now switched the chart to default to line in the Chart Library.



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February 07 2017

Commentary by Eoin Treacy

February 07 2017

Commentary by Eoin Treacy

February 07 2017

Commentary by Eoin Treacy

BOE's Forbes Says U.K. Economy May Soon Need a Rate Increase

This article by Jill Ward for Bloomberg may be of interest to subscribers. Here it is in full:

“If the real economy remains solid and the pickup in the nominal data continues, this could soon suggest an increase in bank rate,” BOE policy maker Kristin Forbes says in text of speech released on Tuesday.

MPC should be willing to move policy in either direction as needed “even if it means reversing recent adjustments”

NOTE: BOE cut rate 25bps to 0.25% in Aug.

Forbes says wage growth and inflation could pick up faster than expected, though uncertainty over Brexit may make firms reluctant to increase pay

Risks to forecast depend on how pound drop impacts inflation, how wages evolve and consumers respond

“It will become increasingly difficult for me to justify tolerating such a large and likely overshoot of inflation -- especially when compared to such a small and uncertain softening in growth and unemployment:” Forbes

Disagrees with MPC on equilibrium unemployment rate; says it is likely below 5%, but not as low as 4.5% published by BOE last week

 

Eoin Treacy's view -

I think it is safe to say the Bank of England will not raise rates until it absolutely has to. In the period following the credit crisis the bank was willing to run inflation a little hot to erode the outstanding debt and there is no reason to suspect that it will not do the same considering the uncertainty Brexit represents to its forecasts. 



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February 07 2017

Commentary by Eoin Treacy

Australia's Stock Market Is Decoupling From the World

This article by Adam Haigh  and Garfield Clinton Reynolds for Bloomberg may be of interest to subscribers. Here is a section:

``The banks are in a different dynamic,'' said James Audiss, a senior wealth manager at Shaw and Partners in Sydney, where he helps oversee about A$10 billion. ``U.S. banks make good money from trading and as rates go higher they have more spread to work with. Aussie banks don't really have that and if anything there is going to be a compression of the spread between central bank rates here and there.''

Trump's rise to the presidency has buoyed U.S. bank shares since early November, with the financial sector among the biggest winners under the new administration. While American lenders made little headway in January as the rally stalled, a gauge of Australia's biggest banks posted the worst month since August.  

It's unusual to see this decoupling. Moves on Australia's benchmark stock index are more closely tied to those on both the S&P 500 and the MSCI World index than any other major gauge in the region over the past five years, as this chart shows. Financial shares often tip the balance as they comprise more than one third of the Australian index.

 

Eoin Treacy's view -

Ahead of the financial crisis the market cap of BHP Billiton and Rio Tinto was roughly equivalent to the combined valuation of Australia’s four largest banks. That all changed with the collapse in commodity prices. The miners went through a painful bear market, while low interest rates raised the allure of banks’ competitive yields. The S&P/ASX 200 Financials Index now represents 37.6% of the broader S&P/ASX 200 Index. 



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February 07 2017

Commentary by Eoin Treacy

France and Le Pen

Eoin Treacy's view -

It’s hard to put one’s faith in polls when the question elicits embarrassment or fear of rebuke for the person answering it. That was a good part of the reason pollsters got Brexit and Trump so wrong. There is the additional question of how successful companies taking polls are at reaching the right kinds of people. For example my 10 year old loves taking online polls because she wants to feel her opinion matters but I can think of nothing more boring. What then for France and the National Front?



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February 06 2017

Commentary by Eoin Treacy

February 06 2017

Commentary by Eoin Treacy

February 06 2017

Commentary by Eoin Treacy

Why Hollywood As We Know It Is Already Over

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

When Netflix started creating its own content, in 2013, it shook the industry. The scariest part for entertainment executives wasn’t simply that Netflix was shooting and bankrolling TV and film projects, essentially rendering irrelevant the line between the two. (Indeed, what’s a movie without a theater? Or a show that comes available in a set of a dozen episodes?) The real threat was that Netflix was doing it all with the power of computing. Soon after House of Cards’ remarkable debut, the late David Carr presciently noted in the Times, “The spooky part . . . ? Executives at the company knew it would be a hit before anyone shouted ‘action.’ Big bets are now being informed by Big Data.”

Carr’s point underscores a larger, more significant trend. Netflix is competing not so much with the established Hollywood infrastructure as with its real nemeses: Facebook, Apple, Google (the parent company of YouTube), and others. There was a time not long ago when technology companies appeared to stay in their lanes, so to speak: Apple made computers; Google engineered search; Microsoft focused on office software. It was all genial enough that the C.E.O. of one tech giant could sit on the board of another, as Google’s Eric Schmidt did at Apple.

These days, however, all the major tech companies are competing viciously for the same thing: your attention. Four years after the debut of House of Cards, Netflix, which earned an astounding 54 Emmy nominations in 2016, is spending $6 billion a year on original content. Amazon isn’t far behind. Apple, Facebook, Twitter, and Snapchat are all experimenting with original content of their own. Microsoft owns one of the most profitable products in your living room, the Xbox, a gaming platform that is also a hub for TV, film, and social media. As The Hollywood Reporter noted this year, traditional TV executives are petrified that Netflix and its ilk will continue to pour money into original shows and films and continue to lap up the small puddle of creative talent in the industry. In July, at a meeting of the Television Critics Association in Beverly Hills, FX Networks’ president, John Landgraf, said, “I think it would be bad for storytellers in general if one company was able to seize a 40, 50, 60 percent share in storytelling.”

 

Eoin Treacy's view -

The march of technology enabled content creation is undeniable and irreversible. The simple reason from a business perspective is that relying on human beings to be individually creative is fraught with uncertainty, ambiguity and time management issues. Computers on the other hand excel at getting the job done on time and within budget. The challenge has always been to try and teach computers how to be creative. 



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February 06 2017

Commentary by Eoin Treacy

Email of the day - on nickel's underperformance

Do you know why Nickel is not joining in the commodity boom and whether eventually it might? Wonderful service

Eoin Treacy's view -

Thank you for your kind words and this question which may be of interest to other subscribers. Indonesia has historically been the primary supplier of nickel but from 2014 it toyed with banning exports of ore in an effort to stimulate domestic production of refined metal This article from Stratfor, dated October 12th carries some additional detail. Here is a section:  

The decision to delay the ban once again, announced by the acting chief of the Energy and Metals Resources Ministry on Oct. 4, comes as little surprise. Though foreign investors have committed some $12 billion to build 27 smelters nationwide in the past four years, anecdotal reports and trade data indicate that much of that money has yet to generate higher exports of refined metal products. In one example, the value of Indonesian exports of raw nickel ore — of which the country was once the world's largest producer — has collapsed. In 2013, the year before the first ban took effect, it stood at $1.65 billion, but by 2014 that figure had dropped to $85 million; by 2015, it had fallen to zero. Though exports of refined nickel products rose in 2014 from 2013, they, too, plunged in 2015 and continued to decline in value through the first four months of 2016. Nickel is not unique in this respect, either: The value of metal ore exports as a whole has collapsed, and that of most refined metal products has stagnated or declined.

The 2014 ban came on the heels of a slowdown in China's economy and a dip in metals prices, caused in part by the increasing ore supplies of key competitors such as the Philippines. Low prices then undercut investor interest in building smelting facilities, as did uncertainty surrounding the status of Indonesia's regulations. Meanwhile, the lack of even minimal support infrastructure for construction operations meant that the companies that agreed to build smelters often found themselves responsible for building and funding roads, power generators and other basic utilities to support them. Nevertheless, despite these headwinds, many smelting projects are still underway or in the planning stages.

 



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February 03 2017

Commentary by Eoin Treacy

February 03 2017

Commentary by Eoin Treacy

Australia's record-breaking mining exports hint of new sector boom

This article by Cecilia Jamasmie for Mining.com may be of interest to subscribers. Here is a section:

The encouraging data sharply contrasts with the record deficit of $4.3 billion the country recorded only 12 months ago.

HSBC chief economist Paul Bloxham told AAP the export boom should considerably boost company profits, dividend payments, share prices and wages in the mining sector.

His comments will be tested beginning next week, as some of Australia's top mining companies including Rio Tinto (ASX, LON:RIO), BHP Billiton (ASX:BHP), Newcrest Mining (ASX:NCM) and South32 (ASX:S32) are set to start reporting their 2016 results.

This is only the second monthly trade surplus Australia has recorded in nearly three years, which evidences once again the country’s continued reliance on and vulnerability to changes in commodities markets.

The news comes on the back of a report from the Department of Industry, Innovation and Science, which predicted that Australia’s mining and energy export earnings would jump by 30% between 2016 and 2017, hitting a small yet encouraging record of $204 billion.

 

Eoin Treacy's view -

Australia exported more than a billion tons of iron ore last year for the first time. At the same time prices broke out of a more than yearlong base so higher volumes were greeted with higher prices which has certainly helped to improve the country’s trade balance. The surge in coking coal prices due to temporary shortages will also have acted as a short-term boost. However with coking coal now well off its peak it is less likely to represent the same positive influence on trade this year. 



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February 03 2017

Commentary by Eoin Treacy

New Nafta Could Settle Canada-U.S. Lumber War, Resolute CEO Says

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

A renegotiation of Nafta could be used to settle a lumber dispute that’s been simmering between Canada and the U.S. for decades and threatens to make housing unaffordable for thousands of Americans, according to the world’s largest newsprint maker.

The Canadian government will probably want lumber included in a new North American Free Trade Agreement, Richard Garneau, chief executive officer of Montreal-based Resolute Forest Products Inc., said by phone. “I think that makes sense,” he said.

The U.S. has initiated an investigation into softwood lumber imports amid allegations Canadian timber is heavily subsidized and shipments are harming U.S. mills and workers. President Donald Trump has also signaled that the U.S. may seek more favorable terms in trade pacts such as Nafta.

A previous softwood lumber agreement expired in October 2015. That was followed by a 12-month moratorium, during which Canada was able to continue shipping lumber tariff-free.

 

Eoin Treacy's view -

Lumber is a highly political commodity since the US has a domestic industry but also needs to import from its northern neighbour to supply is burgeoning housing market. Home starts hit their highest level since 2007 in December which is a testament both to high home prices and the health of the US economic expansion. 



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February 03 2017

Commentary by Eoin Treacy

February 02 2017

Commentary by Eoin Treacy

February 02 2017

Commentary by Eoin Treacy

Philippines to shut half of mines, mostly nickel, in environmental clampdown

This article from Reuters appeared in Singapore’s The Edge newsletter and may be of interest to subscribers. Here is a section:

The Philippines ordered the closure on Thursday of 21 mines, mainly nickel producers that account for about half of output in the world's top nickel ore supplier, in a government campaign to fight environmental degradation by the industry.

Manila also suspended operations at another six mines, including the country's top gold mine operated by Australia's Oceanagold Corp, as Environment and Natural Resources Secretary Regina Lopez vowed to put the public's welfare above mining revenues.

"My issue here is not about mining, my issue here is social justice," Lopez, a staunch environmentalist, said at a briefing that showed footage of damage from mining to an audience including priests and residents of mining communities.

 

Eoin Treacy's view -

To the best of my knowledge, Nickel was the worst performing LME traded industrial metals over the last couple of years. Indonesia’s decision to relax export restrictions was a major influence on that outcome but the result has been that many mining operations are not economic at today’s prices. 



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February 02 2017

Commentary by Eoin Treacy

Rupee Advances to 8-Week High After Modi Budget

This article by Subhadip Sircar for Bloomberg may be of interest to subscribers. Here it is in full:

Rupee rose to strongest in 8 weeks as PM Modi stuck to fiscal prudence in budget presented Wednesday, Fed signaled it wasn’t in a hurry to raise U.S. rates.

USD/INR falls 0.2% to 67.3725, lowest since Dec. 8; seventh day of losses is longest losing streak since Dec. 8

Positive stock sentiment in response to budget may keep INR bears at bay for now, Citibank says in note. Medium-term trend remains dependent on broader USD trend, global risk sentiment, oil prices

Tailwinds from declining oil prices, widening real rates now dissipating, issues of competitiveness may soon arise. Stays tactically neutral INR, no longer bullish for medium term

Buy rupee as India budget shows fiscal prudence, Scotiabank says

Contained budget gap to give RBI room to cut rates, S&P Global Ratings says Govt endeavor is to improve on FY18 fiscal gap est., 

Economic Affairs Secretary Das says Expect bond yields to remain range bound over the next 5-6 weeks on positive investment demand from banks, CPI expected to stay sub-4% in Jan./Feb. and supply lull in February and March, says Morgan Stanley in note dated Monday
Expectations for RBI rate cut at the Feb. 8 monetary policy meeting Yield on govt bond due Sept. 2026 drops 3bp to 6.40%

 

Eoin Treacy's view -

The Rupee had been reflecting widespread angst that the Indian budget would be inflationary in nature and that fear had been weighing on sentiment not least in the aftermath of demonetisation. With a more fiscally responsible tone being set, the Dollar has pulled back to test its progression of higher reaction lows. A sustained move below it would signal Rupee dominance beyond the short-term. 



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February 02 2017

Commentary by Eoin Treacy

The latest "nightmare inducing" Boston Dynamics robots

This YouTube video highlights a presentation from Boston Dynamics at a recent Singularity University event. The newest robot is previewed 3:53 minutes into the video. 

Eoin Treacy's view -

Boston Dynamics was an aspiring defence contractor when it was acquired by Google. Since Google’s long held mantra is to do no evil that pretty much precluded the company from selling robots that might one day be designed to kill people. The problem is that it’s hard to design robots to displace manual labour outside of strictly controlled environments. The company is making rapid strides in that field but the primary growth avenue is in places where humans would be in danger, not least from other humans. That is at least part of the reason Alphabet is looking for a buyer for the company.   



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January 31 2017

Commentary by David Fuller

The City Finally Sees the Light On Brexit

Wow. As U-turns go, this one takes some beating. TheCityUK, the main lobbying arm for the financial and associated business services sectors, appears to have suddenly embraced Brexit. In common with all the other big City groups and all the big banks, it was strongly in favour of remaining in the EU, seemingly at almost any cost. It argued loudly that the status quo, and especially the rules governing access to EU markets, was worth the cost in terms of counter-productive regulations, such as banking bonus caps or inappropriate, absurd Solvency II insurance rules.

No longer: its latest missive appears to have been penned with the zeal of the convert. The press release is entitled “TheCityUK hails opportunity for trade and investment policy reset”. While it obviously remains worried about the threat of protectionism from the EU, its new report emphasises the upsides of developing new markets.

Around 33pc of the UK’s exports of financial services go to the EU, which also accounts for roughly 40pc of Britain’s trade surplus in financial services. There is no doubt, therefore, that Europe is a crucial market for UK financial services firms. But it’s not that simple. The EU actually matters more to other sectors of the economy (44pc of all our exports of goods and services now go to the EU, a fast-declining share). Even more importantly, as TheCityUK points out in its new report, “over the next 10-15 years, 90pc of global economic growth is expected to be generated outside Europe and these markets – developed and emerging – must be a priority focus for the country post-Brexit”. In other words, we need to fight to retain as much access as possible to the EU, but our long-run future lies in trading a lot more with other economies, including emerging and already developed countries.

A recent Financial Services Briefing by Shanker A Singham and Victoria Hewson, published by the Legatum Institute, put this very well. It points out that international and wholesale banking business related to the EU is between 20pc-25pc of the total. That’s a big number, helped by the availability of passporting, but still means that a huge amount of business is conducted by the City without any passporting mechanism. We shouldn’t obsess about the minority of activity that goes to the EU while neglecting the majority that doesn’t.

David Fuller's view -

Allister Heath describes himself an optimist.  He certainly is but a very sensible rather than greedy optimist.  If you can keep that emotional balance and are interested in the markets, and also look at charts for evidence of relative strength plus the eventual crossover to weakness, you will do well in the markets. 

A PDF of Allister Heath’s article is in the Subscriber’s Area, along with a second article.



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January 31 2017

Commentary by David Fuller

French Race Blown Wide Open as Le Pen, Macron Wait in Wings

Here is the opening of this informative article from Bloomberg:

Francois Fillon’s French presidential campaign plunged deeper into trouble on Tuesday after further revelations about his use of public funds to employ members of his family.

The Republican candidate’s daughter and son allegedly earned 84,000 euros ($91,000) from 2005 to 2007 while working for him when he was a Senator, Le Canard Enchaine said. His wife, Penelope Fillon, earned more than 900,000 euros during over a decade as a parliamentary assistant and a contributor to a magazine, according to Le Canard.

The newspaper’s initial report on Penelope’s job last week triggered a prosecutor to open a preliminary probe into the family’s affairs. The candidate says he’s innocent.

“I am confident, I am calm and I’m waiting for the end of the investigation,” Fillon said in Paris. “Never has a situation like this one occurred. Never, three months before an election, was such an big and professional operation set up to eliminate a candidate other than through a democratic vote. Everyone will reap the consequences.”

The scandal has gripped France over the last week and offers the prospect of another twist in a race that has the nationalist Marine Le Pen leading the polls and has already seen household names like President Francois Hollande and his predecessor, Nicolas Sarkozy, fall by the wayside. That said, polls show that Le Pen is still a long shot for victory in the second round of voting, with Emmanuel Macron also poised to benefit -- at least in the short term -- from Fillon’s woes.

“His image has been seriously damaged, and what’s worrying for him is that even among his supporters many are not convinced,” said Yves-Marie Cann, director of political studies at pollster Elabe in Paris. “The fire is not contained.”

David Fuller's view -

We have known for a long time that 2017 was going to be an important year in terms or EU elections.  Well, we are only one month into the year but it would be premature to describe it as a non-event.  This would be a scandal in the UK but my impression is that the French may only shrug their shoulders. 

Interestingly, Marine Le Pen continues to lead the polls while everyone who claims to be knowledgeable about French elections says she has no chance.  After all, the French have never been shy about doing what they want in the EU, where they are the junior partner to Germany. 

That may sound like groupthink but why take the risk of voting for someone who actually wants to leave the EU?  Well, the French economy has experienced a depressingly large amount of terrorism over the last year or so.  The crippling strikes continue; it is so much harder to run a business in France with all the French/EU regulation, and the brain drain continues. 

London is described as the fourth or fifth largest ‘French City’, and millions of classy, well-educated and commercially successful French families are thriving over here.  They spend their holidays in France, understandably, but I see no evidence that they are thinking of leaving because of the Brexit vote.    



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January 31 2017

Commentary by David Fuller

Trump Is Right: Germany Is Running An Illegal Currency Racket

As a matter of strict objective fact, Donald Trump’s trade guru is correct. Germany is the planet’s ultimate currency manipulator.

The implicit Deutsche Mark is indeed “grossly undervalued” The warped mechanism of monetary union allows Germany to lock in a permanent ‘beggar-thy-neighbour’ trade advantage over Southern Europe, inflicting mass unemployment on the victim countries and blighting their futures.

Whatever you think of Peter Navarro’s trade philosophy, he is right that Germany’s chronic, huge, and illegal current account surplus - 8.8pc of GDP - saps global demand and seriously distorts the world economy.

Let us concede that this super-surplus is an accident of history, rather than the result of a strategic conspiracy by Chancellor Helmut Kohl in the early 1990s. The German people never wanted the euro in any active sense.

The Bundesbank went to some lengths to head off the creation a ‘greater euro’ with too many ill-suited countries, constructed on the unworkable foundations that we can all see so clearly today.

That said, monetary union was never entirely innocent. The German Chambers of Commerce and Industry (DIHK) railed against the periodic devaluations by Italy and France in the various fixed exchange experiments of the pre-euro era. They were fully aware of the mercantilist advantage of fixing the D-Mark rate in perpetuity, and their influence played its part in the German acceptance of the Maastricht Treaty.

Once the euro was underway, GermaAs a matter of strict objective fact, Donald Trump’s trade guru is correct. Germany is the planet’s ultimate currency manipulator.

The implicit Deutsche Mark is indeed “grossly undervalued” The warped mechanism of monetary union allows Germany to lock in a permanent ‘beggar-thy-neighbour’ trade advantage over Southern Europe, inflicting mass unemployment on the victim countries and blighting their futures.

Whatever you think of Peter Navarro’s trade philosophy, he is right that Germany’s chronic, huge, and illegal current account surplus - 8.8pc of GDP - saps global demand and seriously distorts the world economy.

Let us concede that this super-surplus is an accident of history, rather than the result of a strategic conspiracy by Chancellor Helmut Kohl in the early 1990s. The German people never wanted the euro in any active sense.

The Bundesbank went to some lengths to head off the creation a ‘greater euro’ with too many ill-suited countries, constructed on the unworkable foundations that we can all see so clearly today.

That said, monetary union was never entirely innocent. The German Chambers of Commerce and Industry (DIHK) railed against the periodic devaluations by Italy and France in the various fixed exchange experiments of the pre-euro era. They were fully aware of the mercantilist advantage of fixing the D-Mark rate in perpetuity, and their influence played its part in the German acceptance of the Maastricht Treaty.

Once the euro was underway, Germany then pushed through policies in labour law and tax policies that amounted to an ‘internal devaluation’ - cutting unit labour costs in manufacturing in the single year of 2005 by 4.4pc, for example - and continued to screw down its intra-EMU exchange rate long after there was any justification for doing so. The effect was to further entrench commercial supremacy.

Large current account surpluses are invariably the result of tax policies, regulations, hidden barriers, and an overall governing structure that punishes consumption and fosters exports. Germany - for example - forces households to cross-subsidize the power costs of export industries.

This would not matter much if Germany had a floating exchange rate: the currency would correct for the distortions over time. But such practices within the euro system are an entirely different matter. Nothing self-corrects.

David Fuller's view -

It is easy to lose sight of what is going on here, with all the insults, protests and inflammatory tweets appearing every day.  Trump certainly has an obnoxious side and he is not afraid to use it.  This is in some respects a very effective verbal military campaign. 

Inevitably there will be costs with this approach, particularly when Trump backs a questionable cause, as will certainly happen.  However, he has picked an awesomely strong business team – the best that I have ever seen. 

In confronting China and Germany, forget Marquess of Queensberry Rules – Trump is a street fighter.  Pick the right targets, Donald. 

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



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January 31 2017

Commentary by David Fuller

The Markets Now

The next Markets Now will be held in the Morrison Room at The Caledonian Club, on Monday 27th March

David Fuller's view -

I am delighted to say that our guest speaker at this event will be the interesting Charles Elliott, founder of Inflection Point Investments.  The first half of his talk will be on ‘Mega-Cap Tech’, including big and well-known names such as Apple, Microsoft, Google/Alphabet & Amazon.  This will be followed by ‘Emerging Tech’ in which he specialises. 

The new brochure will be available shortly.  



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January 30 2017

Commentary by David Fuller

Sometimes Dow Peaks Are Followed by More Peaks

Last week, much attention was rightly focused on the Dow Jones Industrial Average as it breached the 20,000 mark for the first time.

In past cycles, such peaks have led to bouts of euphoria as investors had a fear of missing out on further gains. Although a similar feeling could be motivating some investors today, many seem to still be scarred by the two crashes of the past 16 years or so in which the market was cut in half each time.

The thinking is that any time stocks reach a new high it must mean that we are close to a peak that will surely bring the market crashing down. That is always a possibility, of course, but investors in stocks have to remind themselves that they will see many highs in a lifetime of investing. Generally speaking, stocks go up most of the time. A few of those highs will be temporary peaks but most will simply lead to even more highs down the road.

For example, looking at over 100 years of data on the Dow going back to 1915 shows that stocks have had 1,252 highs. That works out to an average of about 12 new highs every year. Assuming the average investor is in the markets for 40 years, that would be almost 500 highs in a lifetime of investing in stocks.

This table shows the number of highs by decade going back to 1915: (see article)

There was an enormous dry spell following the Great Depression, but beyond the aftermath of that cataclysmic period, new highs in stocks are perfectly ordinary. Almost five percent of all trading days over this time span have seen new highs.

To take this a step further, it can also be useful to look at how well stocks have performed in the ensuing years after reaching highs. This table shows how the Dow has performed one, three and five years after reaching a new high:

The average total returns for one, three and five years are right around the long-term average in the stock market  of about 9-10 percent annually over this period. And stock market returns have been positive for most of the time following these events over all three time horizons.

There are some caveats. If five percent of all trading days have led to highs, That means stocks are trading below a high 95 percent of the time. So the majority of the time stocks are in a state of drawdown, which can affect the psyche of any investor who doesn’t understand this fact. Most of your time as a stock market investor is spent in a state of regret.

David Fuller's view -

Investors will need to click on the article above to access these important tables but few of you will be surprised.  The last two sentences posted above, which I have set in bold, are hugely significant and should never be forgotten.  Moreover, they should be shown to any novice investor. 

If you have a pessimistic disposition, you will struggle to make money in stock markets over the longer term.  



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January 30 2017

Commentary by David Fuller

Buffett Go-To Billionaire Dealmaker Has Wall Street on Edge

Here is the opening and also a latter section of this interesting article from Bloomberg:

It’s time for Jorge Paulo Lemann to get back in the hunt.

That, anyway, is the word inside the food industry, where the Brazilian billionaire has been doing blockbuster deals roughly every two years. In 2013, he persuaded Warren Buffett to team up on H.J. Heinz. Then, in 2015, the duo orchestrated the $55 billion merger of Heinz and Kraft Foods.

“It’s logical that this would be the year,” said David Palmer, a food industry analyst at RBC Capital.

The talk has traders on edge. Last month, a story in a little-known Swiss magazine, resurfacing well-worn speculation about Lemann’s plan to buy Mondelez with Buffett, spurred an immediate pop in the U.S. snack giant’s shares. (They soared 28 percent in just a few minutes.) So far, no deal has been announced. Regardless, the question of what Lemann might go after in 2017 has just about everyone grasping for leads. Besides Mondelez, some other names include General Mills, Kellogg and Campbell Soup.

And:

Buffett’s Berkshire Hathaway is Coke’s biggest shareholder (with a 9 percent stake) and Lemann once called the company his dream acquisition.

To swallow the $179 billion soft-drink maker, an offer would probably need to come from Anheuser-Busch InBev, which Lemann controls along with other Brazilian billionaires and wealthy Belgian families. AB InBev and Coke both declined to comment.

As recently as 2015, Buffett said a deal was “very unlikely” because Coke wasn’t looking for one. But last month, his son Howard announced he wouldn’t stand for re-election to the company’s board. CEO Muhtar Kent also said he will step down next year and hand the reins to his lieutenant, James Quincey. That’s fueled speculation a deal is more likely now.

“This seems like a situation tailor-made for a 3G transformation,” said Steve Wallman, a fund manager and longtime Berkshire shareholder.

David Fuller's view -

Warren Buffett’s cash and cash equivalents currently sits at $85 billion, according to Bloomberg.  That is Berkshire Hathaway’s biggest cash holding since at least 1900 and most likely an all-time record.  Moreover, it is presumably still growing.  

We can interpret that in two ways.  1) Buffett is concerned about valuations and is building-up his cash reserves so that he can buy following at least a sharp correction. This has proved to be his preferred strategy over the decades.   2) Buffett may feel that with global GDP improving, plus Trump’s domestic economic policies, Wall Street may be right in propelling US share indices to new all-time highs.  In that event, he may help Jorge Paulo Lemann to arrange a buyout of Coca-Cola.

This item continues in the Subscriber’s Area. 

 

 



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January 30 2017

Commentary by David Fuller

Email of the day

On Theresa May’s power dressing at the White House:

January 30 2017

Commentary by David Fuller

Mexico Unites In Anger Over President Trump Plan for Sanctions

President Donald Trump’s escalating threats against Mexico have led to calls for a guerrilla struggle of national resistance from across the political spectrum, uniting the Mexican people as almost never before in modern times.

A string of elder statesmen warn that the country faces grievous injury and is now in a state of de facto hostilities with Washington, forcing Mexicans to fight back on every front and whatever the cost.

“An eye for an eye, and a tooth for a tooth,” said former president Vicente Fox. “Trade is important, jobs are important, but they are not as important as dignity. We must not be cowed or it will paralyse us,” he said.

Felipe Calderon, who led the country a decade ago, said Mexico must retaliate immediately and where it hurts most, targeting counter-sanctions against the districts of US congressmen who have been the most vocal supporters of Mr Trump’s plans for a border wall and his talk of trade tariffs.  

“We are seeing the behaviour of a bully. He who declares war against us will have to respond. There are going to be costs. Mexico will suffer. But we’ll show the size of our country and what our people are made of,” he said.

“We must have a retaliation strategy in every area where the bilateral relationship with Mexico has value. We must put everything in the balance,” he told a forum on Mexico City’s Televisa.

Mr Calderon said Mexico should fight tactically in the US courts and global bodies to tie the US administration in knots, targeting the lines of cleavage in Mr Trump’s own political base. It is a strategy used before in a cross-border trucking dispute, but this time it would be on a much greater scale.

“We must revise the whole relationship point by point, including the presence of US agents in our country,” he said. Anti-terror co-operation on Isis should be frozen.

“They have to understand that they cannot take Mexican support for granted. Trump has no idea what this means in terms of security and fighting organised crime and narco-traffic,” he said.

David Fuller's view -

Could we have already seen the best of Trump in less than ten days as President?  I certainly hope not as that would be the ultimate nightmare, and not just for the USA.  

I am assuming that he is more sensible than that.  However, what we know is that he has a huge ego and shoots from the hip, not least on a range of topics which neither he nor any other individual could fully understand on their own.

I credit Trump with appointing a strong, independently minded cabinet.  While they are all very likely to be appointed, Democrats are in no hurry to end the hearings, which will not be completed before sometime in February.  Rex Tillerson, Secretary of State, is the most important and very capable but he will not hold office before this Wednesday, at the earliest.  

I do not think any of them would hesitate to confront Trump on a serious issue, but we will soon find out.  Trump respects them so he is likely to listen.  Meanwhile, Trump has already started some potentially destructive fires, with countries, some of his own powerful CEOs and the US population which did not support him. 

Wake up Trump and smell the coffee.

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



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January 30 2017

Commentary by David Fuller

The Markets Now

The next Markets Now will be held in the Morrison Room at The Caledonian Club, on Monday 27th March

David Fuller's view -

I am delighted to say that our guest speaker at this event will be the interesting Charles Elliott, founder of Inflection Point Investments.  The first half of his talk will be on ‘Mega-Cap Tech’, including big and well-known names such as Apple, Microsoft, Google/Alphabet & Amazon.  This will be followed by ‘Emerging Tech’ in which he specialises. 

The new brochure will be available shortly.  



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January 30 2017

Commentary by Eoin Treacy

January 30 2017

Commentary by Eoin Treacy

The retreat of the global company

Thanks to a subscriber for this article from the Economist which may be of interest to subscribers. Here is a section:

It looks as if, in the future, the global business scene will have three elements. A smaller top tier of multinational firms will burrow deeper into the economies of their hosts, helping to assuage nationalistic concerns. General Electric is localising its production, supply chains and management. Emerson, a conglomerate that has over 100 factories outside America, sources about 80% of its production in the region where it is sold. Some foreign firms will invest more deeply in American-based production in order to avoid tariffs, if Mr Trump imposes them, much as Japanese car firms did in the 1980s. This is doable if you are large. Siemens, a German industrial giant, employs 50,000 in America and has 60 factories there. But midsized industrial firms will struggle to muster the resources to invest more deeply in all their markets.

Politicians will increasingly insist that companies buying foreign firms promise to preserve their national character, including jobs, R&D activity and tax payments. SoftBank, a Japanese firm that bought ARM, a British chip company, in 2016, agreed to such commitments. So has Sinochem, a Chinese chemicals firm that is buying Syngenta, a Swiss rival. The boom in foreign takeovers by Chinese firms, meanwhile, may fizzle out or explode. Many such deals, reliant on subsidised loans from state banks, probably make little financial sense.

The second element will be a brittle layer of global digital and intellectual-property multinationals: technology firms, such as Google and Netflix; drugs companies; and companies that use franchising deals with local firms as a cheap way to maintain a global footprint and the market advantage that brings. The hotel industry, with its large branding firms such as Hilton and Intercontinental, is a prime example of the tactic. McDonald’s is shifting to a franchising model in Asia. These intangible multinationals will grow fast. But because they create few direct jobs, often involve oligopolies and do not benefit from the protection of global trade rules, which for the most part only look after physical goods, they will be vulnerable to nationalist backlashes.

Eoin Treacy's view -

Since I wrote a book championing the big global companies, which dominate their respective niches, we refer to as Autonomies and co-manage a fund devoted to investing in them I think it is safe to say I have a bias in commenting on this story. Nevertheless, it raises some important questions.

Big global companies do well when the global economy is expanding so a transition from synchronized global monetary stimulus to synchronized global fiscal stimulus is a positive potential development which is already being reflected in stock prices. In addition, the potential for lower US corporate taxes is an important consideration since it is still the world’s largest economy by a long shot.  



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January 30 2017

Commentary by Eoin Treacy

Email of the day on leverage and the repercussions of quantitative easing

Thank you for this extensive overview of the rates and currencies situation, which deservedly so need our full attention.

I will add to the “puzzle of what to make of all this" 4 further concerning facts

1 The evidence of constant decline in the global trade, referenced by a flow chart from the Dutch Central bank, I sent to David sometimes ago.

2 The concern of extensive froth in the supposedly growth of earnings supported by ever extended buybacks and ever extended gap (pun intended) between GAAP vs non GAAP while revenues are still stalling. This may be a strong argument for repatriation of $ to support balance sheets, but as any action begets a reaction, please see No 4

3 The leverage everywhere at levels that may not be healthy in this volatile environment.

4 And what could concern mostly everyone is the growing scarcity and consequently cost of US$ :

 

Eoin Treacy's view -

The world needs a growth spurt to help mitigate the issues with leverage and unimpressive lopsided expansions that have resulted from quantitative easing which you highlight above. Without growth in GDP and earnings, the inevitable conclusion to a period of expanding multiples is either a bubble or at least a period of heightened volatility. 



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January 30 2017

Commentary by Eoin Treacy

Tesla's Battery Revolution Just Reached Critical Mass

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

Three massive battery storage plants—built by Tesla, AES Corp., and Altagas Ltd.—are all officially going live in southern California at about the same time. Any one of these projects would have been the largest battery storage facility ever built. Combined, they amount to 15 percent of the battery storage installed planet-wide last year.

Ribbons will be cut and executives will take their bows. But this is a revolution that’s just getting started, Tesla Chief Technology Officer J.B. Straubel said in an interview on Friday. “It’s sort of hard to comprehend sometimes the speed all this is going at,” he said. “Our storage is growing as fast as we can humanly scale it.”

A Fossil-Fuel Disaster
The new battery projects were commissioned in response to a fossil-fuel disaster—the natural gas leak at Aliso Canyon, near the Los Angeles neighborhood of Porter Ranch. It released thousands of tons of methane into the air before it was sealed last February.

In its wake, Southern California Electric (SCE) rushed to deploy energy storage deals to alleviate the risk of winter blackouts. There wasn’t any time to waste: All of the projects rolling out this week were completed within 6 months, an unprecedented feat. Tesla moved particularly nimbly, completing in just three months a project that in the past would have taken years. 

Eoin Treacy's view -

The Porter Ranch gas leak made headlines in Los Angeles all last summer but it was a blessing for Tesla because it gave the company an opportunity to demonstrate how it can deploy its batteries at scale in a tight timeframe. 

Batteries are an essential piece of the renewable energy, electric vehicle puzzle. Every innovation that brings down battery costs has an outsized effect on a host of other sectors. Tesla, with its now completed giga-factory, is well placed to benefit from these emerging themes. 

 



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January 27 2017

Commentary by David Fuller

US Shale Surge Stalls Weekly Oil Price Gains

The steady rise of US shale production has stalled a strong week of oil price gains, as market fears grow that the extra oil flows could scupper Opec plans to drain the oversupplied market knocked a dollar from the price.

Oil prices have been buoyed this week by optimism that the deal between producers in the Organization of Petroleum Exporting Countries and major producers outside of the cartel is beginning to relieve the global glut.

The market climbed from around $54 a barrel late last week to $56.42, almost 5.5pc higher than the price before Opec agreed the historic supply deal in November.

By midday the oil price had retreated to $55.60 after new data showing the extent of the US shale industry recovery reignited market jitters.

US oil and gas flows were decimated by the two year oil rout due to higher costs for rig operators in shale-rich pockets of the States than in major producers in the Middle East and Russia.

As oil prices have doubled over the last year from lows of less than $28 a barrel to over $50 many shale producers have been able to restart flows, threatening the price rises which have allowed their revival in the first place.

Analysts at brokerage Cenkos said that the latest data shows that US output has risen by more than 6.3pc over the last six months, with some concerned that further rises will offset moves by Opec to curb output.

“Traders will look closely at the weekly rig count data, set to be released this afternoon,” Cenkos added.

David Fuller's view -

Crude oil may still be the world’s most important commodity in terms of production and consumption but its price volatility this year will probably be less than what we see for most other resources.

OPEC has abandoned its ruinous death spiral policy with which it was trying to wipe out the US shale oil industry.  Less productive shale resources have been abandoned and debt-leveraged shale companies have closed, but the US is still a major producer.  Moreover, the technology of shale production is now more efficient than ever. 

Therefore we are very unlikely to see further attempts by OPEC to flood the market with oil.  And while it was inevitable that US shale production would increase as the price rose above $50, the US oil industry has no interest in driving crude oil prices back below $30. 

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



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January 27 2017

Commentary by David Fuller

Trump Greets Prime Minister May as World Leaders Look For Cues

Here is the opening of this topical article from Bloomberg:

Theresa May will provide the first test for how world leaders can deal with Donald Trump when she arrives in the U.S. to welcome the new president to the global stage and lay the groundwork for a U.S.-U.K. trade deal.

“As we rediscover our confidence together –- as you renew your nation just as we renew ours –- we have the opportunity, indeed the responsibility, to renew the special relationship for this new age,” the U.K. prime minister will tell Republican lawmakers gathered in Philadelphia on Thursday, according to excerpts from her prepared remarks. “We have the opportunity to lead, together, again.”

The good news for May, who’s due to meet Trump at the White House on Friday, is that he’s eager to cement relations and nail down a U.K. trade deal too -- for his own reasons. He’d like to further drive a wedge into a fractured Europe and strengthen at least one trade relationship as he exits the Trans-Pacific Partnership and prepares to renegotiate Nafta.

A close relationship between the U.S. and U.K. would prove that neither nation is turning inward -- Trump after an election victory fueled by his “America First” campaign, and May as she takes Britain out of the European Union after last year’s Brexit referendum.

So May is opting to brush aside the worldwide protests that followed Trump’s inauguration and worked hard to secure Trump’s first meeting in office with a foreign leader.

David Fuller's view -

People are overreacting to Trump’s brashness and underestimating May.  These two leaders have already strengthened the Special Relationship well beyond what we saw during the Obama years.  This will be good for both countries.   



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January 27 2017

Commentary by David Fuller

The Weekly View: Focussing on Policy, Not Headlines: Investing in the Era of the Tweet News Cycle

My thanks to Rod Smyth for his excellent timing letter, published by RiverFront Investment Group.  Here is the opening:

2017 presents markets with significant potential policy changes on taxation, regulation, healthcare, infrastructure and trade.  After years of gridlock, where the main focus of policy has been on central banks, now the focus is squarely on the new administration and Congress.  On balance, we expect global stocks and interest rates to rise.

Since November, the prevailing mood of investors has been one of optimism about faster economic earnings growth from lower taxes and less regulation, and we agree.  For now, the more alarming rhetoric on trade seems to have been viewed as part of a negotiation.  At RiverFront, we recognize that policy negotiation through tweeting is just a part of the new world.  Our challenge is to avoid the emotional cycle generated by the headlines and seek to assess policy changes that we believe will actually occur.  For now, we will seek to make changes when we believe assets become mispriced.  The baton pass from the dry language of central banks to the colourful one of politicians is our new reality.  

David Fuller's view -

There is much of interest in this short letter, and I commend it to subscribers.  

The Weekly View is posted in the Subscriber’s Area.



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January 27 2017

Commentary by David Fuller

The Markets Now

The next Markets Now will be held in the Morrison Room at The Caledonian Club, on Monday 27th March

David Fuller's view -

 

I am delighted to say that our guest speaker at this event will be the interesting Charles Elliott, founder of Inflection Point Investments.  The first half of his talk will be on ‘Mega-Cap Tech’, including big and well-known names such as Apple, Microsoft, Google/Alphabet & Amazon.  This will be followed by ‘Emerging Tech’ in which he specialises. 

I can’t wait.



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January 27 2017

Commentary by David Fuller

January 27 2017

Commentary by Eoin Treacy

January 27 2017

Commentary by Eoin Treacy

France's Neighbors Sound Alarm Over Election 'Catastrophe' Risk

This article by Esteban Duarte  and Patrick Donahue for Bloomberg contains a useful calendar of political events for 2017 and may be of interest to subscribers. Here is a section:

Polls suggest that National Front leader Marine Le Pen will make it to France’s run-off vote on May 7, giving her a shot at claiming the presidency on anti-euro, EU-skeptic ticket. She shared a stage last weekend with Frauke Petry of Alternative for Germany and Geert Wilders, whose anti-Islam platform has helped propel his Freedom Party to within reach of winning the March 15 Dutch election.

Europe’s anti-establishment forces are drawing inspiration from Donald Trump’s surprise elevation to the U.S. presidency and unexpected victory of Brexit supporters in last year’s referendum. Another common strand is an anti-immigration stance that has flourished during the worst refugee crisis since World War II, with more than one million people fleeing war and oppression in Syria, Afghanistan and elsewhere having sought asylum in Germany alone.

Gabriel, who is poised to become German foreign minister in a cabinet reshuffle allied to the Sept. 24 election, pointed to France’s two-round ballot as the key moment that will shape Europe’s destiny. While no recent poll has shown Le Pen coming close to winning the second round, Brexit and Trump’s victory have made political analysts and investors reluctant to rule anything out.

“If Europe’s enemies, after Brexit last year, manage once again in France or in the Netherlands to be successful, then the threat to us is the collapse of the greatest civilization project of the 20th century, the European Union,” Gabriel said in a speech to lower-house lawmakers in Berlin on Thursday.

 

Eoin Treacy's view -

No one has much faith in polls anymore because people lie about their intentions and those that respond to polls are often not representative of the swing voters that shape results. Lurches to the right in the UK and USA represent dissatisfaction with the status quo. France’s generous social programs have helped nullify populist uprisings until now, but an unemployment rate stuck at 10.2% and youth unemployment of 24% are intransigent problems that the current political apparatus does not appear to have a solution for.



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January 27 2017

Commentary by Eoin Treacy

Latin America Abandons Fuel Subsidies in Shift to Austerity

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

"These countries are under enormous fiscal pressure and are reacting to it," said Samar Maziad, a sovereign analyst at Moody’s.

President Mauricio Macri has made Argentina’s economy more competitive since he took over in 2015, and an 8 percent gasoline price increase this month has contributed to Buenos Aires-based YPF’s recent rally to the highest in more than a year. Argentina is moving to completely liberalize prices by 2018. YPF declined to comment on its stock price.

Mexico has lifted prices about 20 percent this month as it opens state-owned Petroleos Mexicanos’s monopoly to foreign competition. It has pledged to completely phase out fuel subsidies over the course of the year. The so-called “gasolinazo,” or fuel-price slam, sparked protests across the country that curtailed fuel distribution and has left President Enrique Pena Nieto’s approval rating at an all-time low of 12 percent. Mexico is planning another fuel price increase on Feb.

The main outlier is Venezuela, the region’s biggest exporter with the cheapest gasoline in the world at about 15 U.S. cents to fill a tank, even after the first price increase in almost two decades last year. Colombia got a head start when it began tracking international prices in 2008, a year when fuel subsidies contributed to an economic contraction.

In Brazil, where subsidies drained an estimated $40 billion from Petrobras between 2011 and 2014, Chief Executive Officer Pedro Parente has shown greater independence from the government to set fuel rates. Under Parente, the company formally known as Petroleo Brasileiro SA set a new price methodology in October and has implemented five adjustments since then.

 

Eoin Treacy's view -

Fuel subsidies are politically popular but ruinous for oil companies. Subsidies represent a drag on finances which are at partially offset when oil prices are high but represent an existential threat when prices are low. The collapse of regional currencies, massive deficits and challenges to growth have resulted in populist socialist governments being replaced with more fiscally minded right wing parties across the continent. As commodity prices recover that is translating into their stock markets beginning to do better. 



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January 27 2017

Commentary by Eoin Treacy

Gold Goes Cold Turkey as Chinese Stop Buying for Year of Rooster

This article by Eddie van der Walt and Susanne Barton for Bloomberg may be of interest to subscribers. Here is a section:

"The Chinese holiday can exaggerate some of the moves," Bob Haberkorn, a senior market strategist at RJO Futures in Chicago, said in a telephone interview. "We’re going to get lighter volume coming in. A lot of the focus is moving into risk assets."

Gold futures for April delivery fell 0.1 percent to $1,191.40 at 11:08 a.m. on the Comex in New York. Futures earlier fell as much as 0.8 percent, touching the lowest since Jan. 11. The four-day losing streak would be the longest since Nov. 14.

After touching a two-month high earlier this week, gold’s rally has withered as surging stock markets fueled investor appetite for risk. The Dow Jones Industrial Average climbed above 20,000 for the first time this week and the MSCI All- Country World Index is near a record.
The metal pared earlier losses Friday after a report showed U.S. economic growth slowed more than forecast last quarter on the biggest drag from trade in six years and more moderate consumer spending. Business investment picked up, which may be a harbinger for faster expansion in 2017.

“We expect full year Chinese demand to still fall short of levels seen in 2015,” Nell Agate, a Citigroup Inc. metals analyst, said by e-mail from London. “It’s possible that Chinese jewelry sales are likely to slow as the Chinese break for new year festivities.”

 

Eoin Treacy's view -

Gold is at a pivotal juncture right now. Having unwound the majority of its overextension relative to the trend mean the questions now are how much of the short-term rally can be sustained, whether gold can successfully post a higher reaction low and subsequently hold a move above $1200 to confirm a return to demand dominance. 



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January 26 2017

Commentary by David Fuller

Trump Border Tax Threatens Global Dollar Chaos

The spread of 2-year US Treasury yields over German and Japanese yields - the classic driver of currency moves - has doubled to over 120 basis points since June. This is drawing powerful flows of money into US debt markets. It is a formula for a super-dollar, and it has further to run.

Everything has a late-cycle feel to it. The Cape-Shiller price-to-earnings ratio for the S&P 500 stocks is already above 24, higher than any time over the last 130 years with the exception of the 1929 and the dotcom peak in 2000.

Can Wall Street go higher? Certainly. The creator of the measure, Nobel laureate Robert Shiller, told me in Davos that there may be a final blow-off surge. Mood matters - he argues - and the animal spirits unleashed by Trump's pledge to cut taxes and slash regulations by 75pc could push the Cape-Shiller ratio towards the dotcom record of 45.

This would be followed by a cathartic crash and a day of moral judgment. The Shiller view is that Trump's own supporters will turn against him - and against his wealthy swagger - just as culture turned in the 1930s and people rejected the Coolidge ethos of the Roaring Twenties.

There is no sign yet that Mr Trump is willing to back down on any of his core policies. So my suspicion is that he will try to break out of this dollar trap by leaning on the Fed to delay rate rises and ultimately by ordering intervention to hold down the US exchange rate.

There are precedents for such currency action. The Swiss National Bank vowed in 2011 to spend unlimited sums to stop the franc rising above €1.20 as it battled deflation. The Japanese did it on a nuclear scale in 2003. The Chinese pursued a mercantilist strategy during its growth-spurt, keeping the yuan weak to gain export share.

Recourse to such methods by the holder of the paramount reserve currency would be a different kettle of fish. It would amount to a global free-for-all, a Hobbesian monetary disorder.

Currency intervention is by law a US Treasury prerogative. The New York Fed must in effect do what it is told, if ever ordered to buy foreign bonds. This is the means by which Mr Trump can bend the Fed to his will. Does anybody really think he will resist such a temptation?

David Fuller's view -

The Donald Trump bull market in US stocks has morphed into a Trump global uptrend, which has been very powerful in a number of countries since his election on 4th November.  Following that date it has been one-way traffic in the US stock market which always exerts a strong influence on equities in many other countries.

Why have the US and a number of other stock markets been so strong?  1) People were underinvested before the election result was known; 2) There were a number of short positions in the market; 3) Investors like Trump’s programmes for tax cuts and fiscal spending; 4) Animal spirits have been reawakened and not just in the US; 5) Interest rates remain low although they have started to rise in the US and many other countries will eventually follow this lead; 6) Investment liquidity has increased as fixed-interest investors sense that the bond market bubble is beginning to burst, causing them to sell and transfer some those funds to stock markets. 

How long will this bull market last?

This item continues in the Subscriber’s Area.  



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January 26 2017

Commentary by David Fuller

May Says Opposites Attract, Before Trump Meeting Tomorrow

Here is the opening of this article on a very important initial meeting Donald Trump and Theresa May:

It’s not what every woman would do as she prepares to meet Donald Trump, but on her flight to the U.S., Theresa May was sounding distinctly flirty.

Asked how a pastor’s daughter with a reputation for caution would deal with a president regarded as brash and impulsive, May smiled. “Haven’t you ever noticed?” she said. “Sometimes opposites attract?”

While some countries seek distance from the billionaire Trump, May is going all-out for the closest possible relationship. As she prepares to meet him, the premier is hoping to capitalize on that bond as Britain negotiates its withdrawal from the European Union.

“We’re both very clear that we want a trade deal,” May told reporters aboard her Royal Air Force plane. “It will be in the interests of the U.K. from my point of view, that’s what I’m going to be taking in, into the trade discussions that take place in due course.”

On Friday, May will become the first foreign leader to meet Trump at the White House since he took office and ripped up the rule book, from trade policy to his use of Twitter. However, she flew into a diplomatic storm after Mexican President Enrique Pena Nieto canceled plans to see Trump because of a growing dispute over the wall he wants built along the border.

Reagan-Thatcher

May’s own playful overture will be welcome in the White House -- where Trump has talked of recreating the touchy-feely relationship between Ronald Reagan and Margaret Thatcher -- but they risk causing unease in Britain.

Tens of thousands of Britons joined the worldwide protests the day after Trump’s inauguration, attacking his statements about women. May faces domestic calls to hold Trump to account over comments he’s made on torture and over his climate policy.

David Fuller's view -

A strong, free-trade relationship between the USA and UK can only be in their mutual interests.  Moreover, Trump’s support will strengthen Britain’s hand in dealing with a disorganised and angry EU.  It is a wakeup call for EU leaders, showing them what they have to lose with self-destructive talk of “punishing” Britain wanting to regain its sovereignty.     

 



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January 26 2017

Commentary by David Fuller

UK Remains Fastest Growing Economy in Western World After Expanding 0.6pc In Final Quarter of 2016

Supermarket price wars will limit the strain on household budgets this year, the Chancellor said on Thursday, as official figures cemented the UK's position as the fastest growing major advanced economy in 2016.

Philip Hammond said the "incredible market share war" between supermarkets over the past few years would help to curb shop price rises and support consumer confidence, as he signalled that growth in 2017 could outpace official forecasts.

It came as data published by the Office for National Statistics showed the UK economy grew by 0.6pc in the final three months of 2016, matching the expansion in the previous quarter.

This is faster than the 0.5pc growth predicted by economists and compares with the Treasury's dire predictions ahead of the EU referendum that a vote to leave the bloc would trigger a year-long recession.

Thursday's figures mean the economy expanded by 2pc over the year.

While Britain is the first G7 nation to report fourth-quarter growth figures, International Monetary Fund estimates suggest that growth in Germany and the US, which are expected to have expanded by 1.7pc and 1.6pc respectively last year, will not outpace the UK.

Mr Hammond said he believed that the current subdued levels of business investment would "come back and mak[e] a significant contribution" to growth as the country's future trading relationship with the EU became clearer.

David Fuller's view -

This is significantly better than Project Fear groupthink led us to believe, and Sterling’s devaluation has helped the economy to grow.  Nevertheless, we are still in the EU, albeit on the way out.  The Trump / May Special Relationship free-trade deal will be a big boost for the UK economy, cushioning any temporary downside after Brexit becomes a reality.  

(See also: Trump Greets U.K.’s May as World Leaders Look For Cues, from Bloomberg) 



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January 26 2017

Commentary by David Fuller

Thanks to Gina Miller, Parliament is Again Supreme. But Now MPs Must Fear Voter Wrath

Well done Gina Miller. Not only has she won a famous legal victory but she has clarified what the June 23 referendum was all about. For many who voted to leave the European Union it was about restoring control and sovereignty to our nation.

So perhaps it was not what Mrs Miller intended, but the case before the Supreme Court has made a reality of Brexit. It can now proceed with the full wind of the law and Parliament in its sails. The very people who for decades were utterly indifferent to the fact that our Parliament had been emasculated by its self-imposed subservience to supra-national institutions have given it a new lease of life.

By challenging Brexit in order to stop it she has supercharged it. Remainers have become the great defenders of the sovereignty they previously wanted to see pooled.

Mind you, for a legal hearing of such constitutional magnitude it ended with something of a whimper. The Supreme Court reasserted what most people had always thought to be the case – that the Government cannot change the law by executive fiat. Indeed, even the Government never argued that it could. 

What was at issue was whether triggering Article 50 amounted to a change in the law. But so much of our legislation is tied up with EU membership that once the Attorney General, Jeremy Wright, had accepted that the departure procedure was irrevocable he was going to lose. His only point was that this was a treaty matter and therefore fell within the scope of an executive prerogative, but the judges did not agree (or rather, eight of them didn’t; the fact that three justices found for the Government shows this was not as clear cut as many had assumed).

What is less easy to explain is why the Remain side also accepted that triggering Article 50 was an irrevocable act. Arguably, Lord Pannick QC had to make this point to win his legal case, but politically it means that any Remainer hope of thwarting Brexit has been scuppered. The main parties too have declined to stand in its way, accepting that, to all intents and purposes, the June 23 referendum was the moment when we decided to leave. This is an important constitutional point that the court has not really addressed.

David Fuller's view -

This was an interesting, if somewhat complicated legal decision, which Mrs May’s government was well prepared for.  MPs who oppose the Government will have their say, although they have already had their chance to vote in the Referendum.  Additionally, public support in favour of Brexit is much stronger today than it was at the Referendum on 23rd June.  The Project Fear campaign was clearly wrong, and the EU has hardly distinguished itself with its post-Referendum threats.

If the Government cannot get Brexit past Parliament and the House of Lords – unlikely but possible – the Government will call a General Election and win with an increased majority.     



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January 26 2017

Commentary by David Fuller

The Markets Now

The next Markets Now will be held in the Morrison Room at The Caledonian Club, on Monday 27th March

David Fuller's view -

I am delighted to say that our guest speaker at this event will be the interesting Charles Elliott, founder of Inflection Point Investments.  The first half of his talk will be on ‘Mega-Cap Tech’, including big and well-known names such as Apple, Microsoft, Google/Alphabet & Amazon.  This will be followed by ‘Emerging Tech’ in which he specialises. 

I can’t wait.



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January 26 2017

Commentary by Eoin Treacy

January 26 2017

Commentary by Eoin Treacy

Italexit Risk Low, Debt Re-Profiling Better Option: Mediobanca

This note by By Francesca Cinelli summarises a report issued by Mediobanca earlier this week discussing the economic implications of Italy exiting the Euro. I’ve read the original report but we are precluded from posting it on the site.

Time costs money for Italy, due to collective action clauses (CACs) and thus, purely on financial grounds, it reduces Italexit risk and makes any voluntary debt re-profiling a better option to eventually sustain its borrowings, Mediobanca says in note.

Highlights no growth undermines debt sustainability; Sentix Index, which estimates the one-year probability of Italy leaving the monetary union based on the assessment of investors, signals stress

Says redenomination in any Eurozone country is a function of the freedom allowed on bonds issued under domestic law and the constraints of the recently introduced EU discipline on
CACs 

Quantifies cost of re-denomination, says four variables suggest EU280b loss, partly offset by EU191b gain from the Lex Monetae on bonds under domestic law

Compares CACs and non CACs pairs of Italian govies displaying similar features in order to test Mediobanca’s “time costs money” finding; that means as time goes by the
financial incentive for redenomination declines

Data suggest 30bps yield premium on 3.5yr non CACs bonds actually drops to 10bps on 12yrs

Says “Quanto” spread captures the “convertibility risk” implied in the premium between USD- and EUR-denominated CDSs

Data suggest that at end 2016 for the first time Italy’s “Quanto” exceeded Spain’s, confirming Italy crucial role for eurozone future given a 90% correlation the brokerage notes between Italexit probability and a euro break-up probability

Eoin Treacy's view -

I think most people would agree that if Italy quits the Euro the currency will be unable to function as a cohesive unit. Italy would use the opportunity of devaluation to flood the Eurozone with cheap goods which would encourage other countries to follow its lead. That’s not news and the EU is fully aware of the implications of a large country like Italy leaving the currency union. 



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January 26 2017

Commentary by Eoin Treacy

China's Consumers Greet Year of the Rooster with Bling Splurge

This article by Bruce Einhorn and Daniela Wei for Bloomberg may be of interest to subscribers. Here is a section:

Retail sales rose 10.9 percent in December from a year earlier, the best monthly result in 12 months. Chinese imports of Swiss watches are up after falling for seven consecutive months through July, rising 7.9 percent in November from a year earlier. Led by its best-selling Macan SUV, Porsche had a 12 percent sales increase in 2016. Tiffany on Jan. 17 reported “strong growth” in China. On Jan. 19, Luca Marotta, chief financial officer of Rémy Cointreau, said the outlook for the Chinese New Year was “very, very positive.” Xi hasn’t ended his anticorruption drive, but its chilling effect on spending is easing. “A rebound across all luxury categories is now in progress,” Bloomberg Intelligence analyst Deborah Aitken wrote on Jan. 9.

During the Lunar New Year holiday, millions of Chinese will travel and shop at home and overseas. Bookings for international air travel made in December for Chinese New Year rose 9.8 percent from the previous year, according to ForwardKeys, an analyst of tourism data. Mainland tourist arrivals in the gambling hub of Macau jumped 7.8 percent in December, the largest increase since February 2015. Chinese consumers “are still very confident,” says Amrita Banta, managing director of Agility Research & Strategy, a consulting firm focusing on the affluent.

In Macau, tourist arrivals from mainland China for the first three days of the holiday period increased 9.1 percent to 234,000 compared to Chinese New Year in 2016, the Macau Government Tourism Office reported on its website Thursday.

Yet they may not be prepared to spend as much. Rather than purchase expensive items as gifts, Chinese are buying more for personal use, says Bruno Lannes, a Bain partner in Shanghai.

Eoin Treacy's view -

The strong weakness of the Yuan might currently be offering a tailwind for luxury goods companies since consumers have an incentive to buy now rather than pay more later. Additionally the potential for stronger economic growth and the knock-on effect that would have on consumer spending may be an additional factor in the outperformance of luxury goods’ stocks. 



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January 26 2017

Commentary by Eoin Treacy

Blackstone's Fourth-Quarter Profit Rises 86% as Hilton, Holdings Gain

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

Shares of Blackstone rose 1.7 percent to $31.14 at 9:58 a.m. in New York, extending gains this year to 16 percent.

Blackstone, led by Chief Executive Officer Steve Schwarzman, sold $3.8 billion of private equity holdings during the quarter, including part of its stakes in food-service distributor Performance Food Group Co. and cement maker Summit Materials Inc. Its real estate business, which oversees $102 billion, disposed of $3.5 billion in assets, including the DoubleTree hotel in London, the Burlington hotel in Dublin and the Hyatt Regency Pier 66 hotel in Fort Lauderdale, Florida.

Hilton, Blackstone’s biggest public holding, jumped 19 percent during the quarter. The firm has been paring its Hilton stake through share sales and through an agreement to sell about $6.5 billion of the stock to China’s HNA Group.

Those private equity and real estate sales helped fuel $691.8 million of distributable earnings, which reflect cash profits on asset disposals and fund management fees, compared with $878 million a year earlier. Blackstone said it will pay stockholders a dividend of 47 cents a share on Feb. 13. 

 

Eoin Treacy's view -

Private equity firms were among the greatest beneficiaries of low interest rates and abundant liquidity, which allowed them to raise cash for acquisitions at very low levels. However the collapse in oil prices coupled with Fed tapering contributed to weak performance in many publicly traded funds. The potential for an uptick in economic activity resulting from the expectation that the new US administration will be more business friendly has contributed to a better performance recently. 



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January 25 2017

Commentary by David Fuller

Dow Jones Breaks 20,000 For First Time Ever and Global Stocks Hit 19-Month High as Markets Reignite Trump Rally

The Dow Jones smashed the landmark 20,000 barrier for the first time ever this afternoon as optimism about Trump’s pro-growth policies boosted financial markets.

Resuming a rally that began in the wake of Donald Trump’s shock US presidential election win, the index rose by as much as 0.73pc to 20,057.89.

The rally was reignited by Trump’s signing of numerous executive orders since his inauguration on Friday. Last night, he also tweeted about his intention to build a wall on the Mexican border.

The Dow Jones has surged by more than 10pc since November and it came within a whisker of touching the historic 20,000 mark on January 6. It fell in the run up to Trump’s inauguration as traders grew cautious of his protectionist policies and sought clarity on the administration’s new policies.

It has taken the index just two short months, or 42 sessions, to climb from the first close above 19,000 to 20,000. It’s worth noting the rise between 18,000 and 19,000 took some 483 trading sessions.

The biggest winners of the Trump rally include investment banks Goldman Sachs and JP Morgan, rising by 34pc and 26pc, respectively, amid hopes Trump’s fiscal stimulus package will trigger inflation and stoke a rise in interest rates.

Neil Wilson, of ETX Capital, said: "It’s psychologically huge and, after a bit of pullback ahead of the inauguration, really confirms that the ‘great rotation' from bonds to stocks is definitely upon us. Fears about protectionism are running second to optimism about inflation and growth – for now at least." 

David Fuller's view -

DJIA 20,000 is a nice round number milestone and several other important US indices have also been in very good form recently.  For instance, the tech-heavy Nasdaq Composite and also the Nasdaq 100 have also pushed steadily higher since Donald Trump’s presidential election victory.  The breadth of this advance is also confirmed by the Russell 2000 Index of mid-cap shares.  DJ Transports recorded a potentially important Dow Theory buy signal with their new all-time high nearly two months ago.

Some market commentators are stunned by this strong performance.  They find it hard to believe, noting that Donald Trump is an impulsive, narcissistic, wild card.  Well, he is also a successful businessman and investors like his promise of stimulative policies, from tax cuts to deregulation and infrastructure spending. If the US economy has finally commenced a period of stronger GDP growth, and all evidence was pointing to this before the election, Trump’s policies should only boost medium-term prospects for the US economy.  That should provide a significant boost to corporate earnings on average. 

So what could go wrong?

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



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January 25 2017

Commentary by David Fuller

The End of Terrible Wi-Fi ls Near

Everybody hates Wi-Fi. The boxes are ugly, and it never seems to work when you need it. But just when you thought wireless internet was unfixable, the most boring and hated appliance in your house may be on the verge of actually, um, working.

Many of today’s devices are overcoming the design and technological flaws that marred the industry throughout its existence. The latest gadgets boast more effective antennas and do a better job cutting through radio interference. Some just look nicer than the hideous routers of yesteryear, with their thicket of wires, blinking lights and plastic parts akimbo.

A review of four newly released devices that employ the latest home-wireless technologies showed impressive results. In Bloomberg’s tests, the wireless routers were dramatically more reliable than their predecessors and attractive enough to earn a place on the mantle.

Looks matter more than you might think. Most people tuck routers under a desk or behind a cabinet to hide their unsightly fixtures. This would be OK, if not for the laws of physics. Every wall, desk or dresser that stands between the router and whatever gadget is trying to connect to it degrades the signal. Ideal placement is in the middle of a room, with no obstructions to allow wireless signals to move freely.

David Fuller's view -

I can’t wait. 

For as long as I have had desktop computers and televisions, they have been surrounded by Sargasso Seas of ugly wires, cables, transformers and multiple relay plugin systems.  It looks like a slum.  And when something goes wrong, as it too frequently does, a tedious and lengthy process turning switches off and back on, while unplugging and plugging in again has to occur.  And if out of desperation I have to call in the local techy assistant to sort it out, I then ask what went wrong?  The usual answer is: ‘that’s just computers’.  Alternatively, something was loose because someone tripped over a wire or cats were running around behind the desk. 

Give me a break.  The end of terrible Wi-Fi will not come soon enough.    



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January 25 2017

Commentary by David Fuller

The Markets Now

The next Markets Now will be held in the Morrison Room at The Caledonian Club, on Monday 27th March

David Fuller's view -

I am delighted to say that our guest speaker at this event will be the interesting Charles Elliott, founder of Inflection Point Investments.  The first half of his talk will be on ‘Mega-Cap Tech’, including big and well-known names such as Apple, Microsoft, Google/Alphabet & Amazon.  This will be followed by ‘Emerging Tech’ in which he specialises. 

I can’t wait.



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January 25 2017

Commentary by Eoin Treacy

January 25 2017

Commentary by Eoin Treacy

Canada Faces Era of Pipeline Abundance After Keystone Move

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

More pipelines from Canada would also “generate greater competition for crudes of comparable quality such as those imported from Mexico or Venezuela,” Harry Tchilinguirian, head of commodity-markets strategy at BNP Paribas SA in London, said in an instant message.

The administration moved to expedite approval and construction of the Keystone XL pipeline as well as the Dakota Access line through North Dakota. Trump said he wanted to renegotiate terms to get a better deal for the U.S., including more U.S.-made materials in the lines.

The 830,000-barrel-a-day Keystone XL has been blocked since it was first proposed in 2008. TransCanada said in a statement it will reapply for the project.

 

Eoin Treacy's view -

Canada represents a problem for OPEC. It has vast reserves which are largely economic at today’s prices and it borders the world’s largest consumer. Despite that proximity its tar sands have been stranded, inhibited by lack of access to key global markets, which has made Canada something of a bit player in the global market. With the development of pipelines West, East and South that could all change in the coming decade. 



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January 25 2017

Commentary by Eoin Treacy

January 25 2017

Commentary by Eoin Treacy

Chan Zuckerberg Initiative's AI Acquisition Will Make Science Free for All

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

But the importance of Meta in the context of making science accessible to everyone is anchored in its AI-driven technology. Thousands of scientific papers are published every day, and the sheer volume of available data means it’s hard to whittle it down to what’s most important to individual studies. Ultimately, access is just one part of the challenge. For access to information to truly empower the scientific community, one has to be able to systematically analyze and review all the available data available. That’s where Meta comes in. It can easily find the most relevant material that will further the research in a fraction of the time it would take a human.

Eoin Treacy's view -

Isaac Newton is reputed to have said “If I have seen further than others, it is by standing upon the shoulders of giants.” He successfully built on the work of those who had come before him. One of the greatest challenges in human history has not only been to come up with ingenious solutions to difficult problems, but to also ensure we don’t forget or lose them. 

The printing press allowed us to duplicate manuscripts which reduced the risk of losing knowledge. The internet has been a similarly disruptive innovation for a whole range of reasons but perhaps most important is that by distributing availability of knowledge it further reduces the risk it will be lost. With so much research now being conducted, the evolution of artificial intelligence to greatly enhance the ability of researchers to find the shoulders of giants on which to stand is a further iteration of this trend. 

The commercial viability of artificial intelligence is coming hot on the heels of the internet from an historical perspective and represents a powerful tailwind for the continued acceleration of technological innovation. 

 



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January 25 2017

Commentary by Eoin Treacy

Fed Debate Over $4.5 Trillion Balance Sheet Looms in 2017

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

The dollar is a particular source of worry for U.S. policy makers, having appreciated 23 percent since mid-2014. The Fed expects to keep tightening while central banks in Japan and Europe hold steady or consider more accommodation. That could further strengthen the greenback and introduce a headwind for U.S. growth.

“Slowing down the economy a little bit at the long end of the market has some benefits if you think primarily that exchange rates are driven by short-term interest rates,” Rosengren said. “You might want some of the removal of accommodation to come at the long end, which would be done by the balance sheet.”

The Boston Fed released research on Jan. 19 that backs up this view of exchange rates and the yield curve. Former Fed economist Roberto Perli was more skeptical, pointing to global demand for longer-term U.S. Treasuries.

“If long U.S. rates were to increase significantly as a result of balance sheet shrinking, there would still be large inflows into U.S. assets, which would support the dollar,” said Perli, a partner at Washington consulting firm Cornerstone Macro LLC.

 

Eoin Treacy's view -

The Fed’s balance sheet at $4.46 trillion represents a potent source of supply for a bond market that shows increasing signs of topping out. As long as the balance sheet was increasing it was hard to argue with the rationale for pursuing the bullish momentum trade in Treasuries. However with interest rates now rising and the Fed no longer adding to its inventory of bonds a major source of fresh demand has been removed from the market.



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January 25 2017

Commentary by Eoin Treacy

Email of the day on steel errata

Also, at http://www.fullertreacymoney.com/general/email-of-the-day-on-cannabis-and-steel/, it states that Chinese steel production is in the order of 66,000 tons per annum and one Nimitz class aircraft carrier requires around 47,000 tons.

Please see attached the correct figure for Chinese steel production.

Still loving the service after decades of knowing David.

 

Eoin Treacy's view -

Thank you for this graphic from the World Steel Association which quotes completely different figures than those found in tradingeconomics.com. The figures you provided make more sense so I have amended the article. This additional article from CNBC quotes the world Steel Association figures. Here is a section: 



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January 24 2017

Commentary by David Fuller

Europe Learns To Like Hard Brexit and a Good British Ally

The Brexit drama has taken an unexpected twist. Britain's strategy of full withdrawal from the single market and from the EU institutions has been remarkably well-received.

Contrary to fears in some quarters in Britain, the pursuit of a 'clean and hard' Brexit has if anything helped to clear the air, greeted with a degree of relief by political and business leaders in Europe.

What has changed the mood - apart from the passage of time - is the parallel pledge by Britain's leaders to stand beside Europe as a close strategic and military ally, playing its full part in upholding a rules-based global architecture. 

There were signs at the World Economic Forum in Davos that the anger of recent months is slowly draining away, replaced by an acknowledgement of Britain's distinctive history and character. The imperative now is to limit the damage for all sides and find a way to make the new arrangement work. Not all divorces end in hostility.

Emma Marcegaglia, head of the pan-EU federation BusinessEurope, said the no-nonsense nature of Britain's decision may prove to be the best outcome even if it is hard to accept on an emotional level.  

"When I first saw Theresa May's speech my reaction was very bad, and I thought this is going to cause serious problems for British companies and for the rest of us," she said.

"But after thinking about it I now feel that her position is very straight and clear. In a certain sense it clarifies the situation. There could now be a good free trade agreement, like the Canadian arrangement with access for both sides and social protection," she told the Telegraph. 

"It is all so sad. We're going to miss the role of the UK in defending free trade and competition. The British commissioner was always a crucial ally for us in Brussels. But it is done now, and we just have to accept it," she said. 

David Fuller's view -

Last week, Prime Minister Theresa May seized the initiative in Brexit negotiations with the EU.  She said matter of factly that the UK was leaving the EU, and that no deal was better than a bad deal. She could not have been clearer.  She was also constructive in pointing out that Britain was leaving the EU, not Europe.  There was no anger or animosity in her words or voice, and she wished the EU well.

Emma Marcegaglia’s summary above describes the transformation of EU opinions occurring at Davos.  An independent Britain can be a useful ally for the EU.  That is in Europe’s interests.

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



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January 24 2017

Commentary by David Fuller

Email of the day

On Theresa May’s recent statement at Davos:

Theresa May's recent statement, presumably timed for the Davos gathering, appears to have had the desired effect.
Today's FT includes an article (attached) with some very positive statements from German Finance Minister Wolfgang Schauble.
The heading is: Schäuble says post-Brexit trade deal with UK can be done quickly.

Of course, there are elections ahead in Germany and his role afterwards isn't guaranteed, but let's hope he is still influential, when required. 

David Fuller's view -

Thanks for your email and the FT article

Theresa May succeeded in being gracious and responsible, while also taking a strong position on leaving the EU.  That was the correct thing to do, and it has also changed the psychology, not surprisingly.  Schäuble is not interested in a mutually destructive policy towards Theresa May and the UK.  He accepts that the UK is leaving the EU but now wants to maintain a mutually successful alliance with Britain, including a trade agreement.   



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January 24 2017

Commentary by David Fuller

The Special Relationship Is Our Only Indispensable Alliance. Theresa May and Donald Trump Must Renew It

In foreign affairs, symbolism matters. Theresa May’s arrival at the White House on Friday as the first foreign leader to visit President Trump sends a clear message to the world about the intimacy of the ties between London and Washington DC. It also shows that our sometimes derided diplomats have done their job well, and puts to bed the idea that Nigel Farage or anyone else was needed as a go-between.

When the Prime Minister arrives, she will be fresh from addressing congressional Republicans – another privilege that would be accorded to few other foreigners – and I predict she will get on well with Trump, even though their personal traits are as different as is possible among members of the same species.

Try to imagine our PM sending out angry tweets at three in the morning, or savaging our own intelligence agencies. Picture Donald Trump reading files quietly for hours, then asking for more information and refusing to give any commentary on his thoughts. Both defy the imagination. It is the greatest contrast in styles between the holders of these offices, at least since Ulysses S Grant overlapped with Gladstone – and they didn’t have to meet.

Yet Trump evidently is predisposed to find his “Maggie” and he will probably warm to her clarity and firmness. For her part, Theresa May is highly skilled at creating a warm relationship with colleagues when she really wants to, and never in her life will she have been more determined to do so than on Friday.

She knows, as does anyone who has seen government in Britain from the inside at the top, that leaving the EU is a risk, but estrangement from the United States would be a certain disaster. Our nuclear deterrent may be the subject of controversy this week, but we only have missiles that work at all because America is happy to sell them to us – something it does for no one else. Our ability to detect potential terrorist attacks is as strong as it is because British security and intelligence-gathering is tightly integrated with the US.

Every day, all over the world, whatever our ambassadors and soldiers are doing, they are usually doing it in concert with our transatlantic cousins. And our business with America is greater than that with any other single country, even before attempting a special trade deal. The alliance with the USA is the one relationship the UK has that is truly indispensable.

David Fuller's view -

This will be a very relaxed meeting compared to the rigors of Brexit negotiations and the US election battle.  It will also be a successful meeting between two very different but complementary leaders. 

Donald Trump has been gracious in offering Theresa May the first visit for a head of state at the White House.  She will appreciate the honour and be a wise, tactful confidant on international subjects.  He will be on his best behaviour.

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



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January 24 2017

Commentary by David Fuller

CBI Boss Says Theresa May Speech Sent Shockwaves Through EU Businesses

Businesses in Britain and across the EU are reeling from the "shockwaves" sent by Theresa May when she announced the UK will leave the single market, the CBI's director general has warned.

Carolyn Fairbairn told an audience of French businesses in London that they should unite with British companies to stand up for continued links with the EU post-Brexit.

She said that continued access to skilled workers and to European markets are crucial to future prosperity.

"By leaving the single market, the Prime Minister has reduced the available options," the director general said in a speech to the French Chamber of Great Britain, at the French ambassador's residence in London.

She was present in the audience when Theresa May made the announcement last week: "I know the shockwaves it sent around the room and the continent."

She wants to see a comprehensive, wide-ranging free trade agreement negotiated to give the UK and EU sustained access to each others' markets.

"Nobody is saying it will be easy... we know it could end up without a deal, falling back on the World Trade Organisation rules, and we should be under no illusion about what that would mean," Ms Fairbairn.

Those WTO rules would result in tariffs on imports and "almost inevitable" border delays, she said, giving the example of car manufacturers which import parts from across the EU.

"It is time for firms from all over Europe to work together for a deal that works for everyone," she said, calling on companies to "defend openness".

"Let's not take this openness for granted. Let's stand up and say why access to people matters, why access to markets matters. It is not the time to close the door."

Ms Fairbairn also called on the Prime Minister to unilaterally guarantee EU workers currently in Britain the right to remain after Brexit takes place.

"There has been progress and the Prime Minister made encouraging noises last week in Davos," she said.

"But a unilateral commitment is the right thing to do."

David Fuller's view -

Shockwaves?  Absolutely, and EU Businesses affected by a potential hard Brexit will turn on their politicians for damaging their trade with Britain.



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January 24 2017

Commentary by David Fuller

The Markets Now

The next Markets Now will be held in the Morrison Room at The Caledonian Club, on Monday 27th March

David Fuller's view -

I am delighted to say that our guest speaker at this event will be the interesting Charles Elliott, founder of Inflection Point Investments.  The first half of his talk will be on ‘Mega-Cap Tech’, including big and well-known names such as Apple, Microsoft, Google/Alphabet & Amazon.  This will be followed by ‘Emerging Tech’ in which he specialises. 

I can’t wait.



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January 24 2017

Commentary by Eoin Treacy

January 24 2017

Commentary by Eoin Treacy

Goldman Hails Global Rebound as Currie Sees Commodity Demand

This article by Stephen Engle , Ben Sharples , and Ranjeetha Pakiam for Bloomberg may be of interest to subscribers. Here is a section:

“We’re seeing a cyclical uptick in global economic activity and that’s driving demand, not only for oil but all commodities,” Jeffrey Currie, head of commodities research, said in Hong Kong on Tuesday. “That’s the core reason why we upgraded our outlook on commodities to overweight,” he said, referring to the bank’s November decision.

Commodities made a comeback in 2016 with the first annual gain in six years as stimulus in China stabilized growth, and oil producers led by OPEC reversed course to limit supplies. Currie -- who spoke both on Bloomberg TV and to a reporter -- said the impact of China’s stimulus will probably last well into the first half of 2017. He added that policies from new U.S. President Donald Trump may reinforce inflationary pressures, aiding raw materials.

“U.S. and China are focal points where we’re seeing the uptick, but even the outlook for Europe is much more positive than what people would have thought six months to a year ago,” he said.  “It’s not what’s happening on the supply side but rather what’s happening on the demand side.”

 

Eoin Treacy's view -

The Continuous Commodity Index (Old CRB) is unweighted and therefore gives a more accurate picture of activity in the commodity markets than the CRB Index which is heavily skewed by oil prices. The Index hit a medium-term peak in 2011 below 700 and trended lower for five years until the beginning of 2016. 



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January 24 2017

Commentary by Eoin Treacy

Sibanye $2.2bn acquisition of Stillwater passes antitrust conditions

This article by Cecilia Jamasmie for Mining.com may be of interest to subscribers. Here it is in full:

Sibanye Gold (JSE:SGL) (NYSE:SBGL), South Africa’s largest miner producer of the precious metal, has been given the green light to proceed with the $2.2 billion acquisition of Stillwater Mining (NYSE:SWC), the only US platinum producer.

The deal, announced in December, was subject to antitrust conditions that fall under the US’s Hart-Scott-Rodino premerger legislation.

“Satisfying the HSR Act antitrust condition in a timely manner is an important first step towards concluding the acquisition of Stillwater,” chief executive Neal Froneman said in the statement.
The Johannesburg-listed company, which was spun out of South Africa’s Gold Fields in 2013, spent most of last year shopping for new mines, particularly in the platinum sector.

The company first expanded into the grey precious metal used in jewellery and diesel car engines in Sep. 2015, by buying Aquarius Platinum and three Anglo American Platinum mines.

Together with reducing Sibanye’s dependence on its aging South African mines, the deal will make the company the world's third largest palladium producer and fourth biggest platinum group metals miner, Froneman noted last month when announcing the planned acquisition.

If it goes through, the takeover will be the second-biggest South African outbound M&A transaction since 2015.

 

Eoin Treacy's view -

Sibanye Gold has an Estimated P/E of 8.61 and yields 5.56%. The sharp decline in precious metals prices as well as the expense of the company’s expansion plans contributed to a steep decline in prices over the last few months; falling from a peak near $21 to a low below $7. A mean reversion rally is now underway and clear downward dynamic would be required to check momentum beyond a brief pause. 



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January 24 2017

Commentary by Eoin Treacy

Email of the day on Chinese cotton demand

“Thank you very much for the very interesting comments on China's steel imports in the last two daily comments. If China is indeed trying to prepare herself for war, wouldn't they be buying other commodities too? Are you or anybody in the collective aware of them buying other commodities? As far as I know they have been trying to reduce their strategic stocks of cotton since about 15 months. They might have changed that policy, but at least I am not aware of it. As always I enjoy your comments & audio-video very much. Thanks again. best rgds"

Eoin Treacy's view -

Thank you for this educative email and for your kind words. It is my supposition that China at the very minimum seeks to bolster is military capability to at least boost its conventional deterrent capabilities. 



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January 24 2017

Commentary by Eoin Treacy

Brazil Optimism Pushes Foreign Investment to Six-Year High

This article by Mario Sergio Lima for Bloomberg may be of interest to subscribers. Here is a section:

Foreign direct investment in Brazil soared to a six-year high in December as investors abroad kept an optimistic view of the country’s long-term prospects, the central bank said.

Brazil attracted $15.4 billion in foreign investment last month, more than twice the amount expected by economists in a Bloomberg survey, and the strongest monthly performance since December 2010. In the whole of 2016, foreigners poured $78.9 billion in Brazil, more than enough to finance the country’s current account deficit of $23.5 billion.

“December’s foreign direct investment was really something,” Fernando Rocha, deputy head of the central bank’s economic research department, told reporters in Brasilia. “It shows foreigners hold a positive long-term view of the country.”

Investors remain generally optimistic that Latin America’s largest economy will emerge from its worst recession on record this year, even as economists surveyed by the central bank have recently cut their 2017 growth forecasts and the International Monetary Fund warned of near-stagnation this year.

December’s investment performance was boosted, in particular, by operations in the auto industry, as well as in the retail and power sectors, Rocha said. Yet overall investment has been “quite widespread” across a number of sectors, he added.

 

Eoin Treacy's view -

The ouster of Dilma Rousseff was a catalyst for international investors to take a second look at Brazil. The Real had been rallying from January 2016 in anticipation of the event and encountered resistance following Michel Temer’s inauguration as investors waited to see what kind of reforms could in fact be delivered. 



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January 23 2017

Commentary by Eoin Treacy

January 23 2017

Commentary by Eoin Treacy

2017 Roundtable, Part 2: Manual for a Mixed-Up Market

Thanks to a subscriber for Part 2 of this transcript from Barron’s which may be of interest. Here is a section on German Bunds:

Next, like Felix, I would short German Bunds. They are yielding 0.27%, and Germany’s inflation rate is 1.7%. Historically, it is very rare to have a Bund yield below the inflation rate. The current gap is a record. The Bund yield is unsustainably low.

Schafer: What is the best way for an individual to short German Bunds?

Gundlach: Short the futures. I agree with Felix that the Italian bond market is deeply troubled. Shorting Italian bonds could potentially produce a massive home run; they are yielding 47 basis points less than 10-year U.S. Treasuries, which represents a full buy-in on the idea that the euro zone will last forever. If the euro zone breaks up, a possibility we have discussed, and Italy has to go it alone, sovereign bonds could yield 1.9%. The current yield is insanely low. But shorting German Bunds appeals more. They are more vulnerable at this point than U.S. bonds.

One argument for U.S. bonds when yields hit a low last July was that they yielded more than German Bunds, which had negative yields. In other words, U.S. bonds were better than something really terrible, but that didn’t make them good. Underlying the argument was the notion that German yields would stay negative forever. Well, forever lasted about a month. Since then, Treasury yields have risen more than German rates, but Bunds could underperform in the next leg of the bond bear market.

Zulauf: In 2012, there were widespread fears about the euro zone breaking apart. Back then, money flowed from the southern countries to the northern countries, and into Bunds. The next time the euro zone looks endangered, money will flow out of the euro completely and into another currency, primarily the U.S. dollar.

 

Eoin Treacy's view -

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

Germany has benefitted enormously from the ECB’s quantitative easing program. As the largest economy in the bloc it garners the most purchases which are weighted by GDP. As the region’s largest creditor it holds sway over the direction policy takes. The creation of the Euro alleviated currency risk for Germany and country’s approximating its economic model such as the Netherlands and Austria. However for countries that did not have economies similar to Germany’s it crystallised currency risk. 



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January 23 2017

Commentary by Eoin Treacy

Email of the day on cannabis and steel

For information. Canopy has made an offer to buy Mettrum for Canopy stocks. This will triple my Canopy position and will help you to understand the reason for the similar chart pattern since early December. 

On your presentation yesterday (that I watched today), I was intrigued by the iron ore comment. Canadian iron ore companies (have a look at: Alderon, Labrador iron ore...) are on fire and I sold way too early exactly because I saw China slowing down and their financial situation reminded me of USA 2007-2008. 

So stock piling for war?.... hmm.. It is true that the US never really got out of the depression woes until their implication in the WW2 conflict, which they used also to help breaking European French and English ''Empires'' among others. This is certainly something to watch, and Trump ''shoot first'' attitude probably add to the concern for sure.

 

Eoin Treacy's view -

Thank you for this additional intelligence on the Canadian cannabis sector. Iron-ore is an interesting market because steel is such a political sector. China is expected to account for 71% of global steel production this year according to this article from CNBC. That’s a lot of supply and not all of it is designed to cater to the domestic market. 



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January 23 2017

Commentary by Eoin Treacy

Woman dies from antibiotic-resistant bacteria when no antibiotics worked

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

The death of a hospitalized patient in Reno Nevada for whom no available antibiotics worked highlights what World Health Organization and other public-health experts have been warning: antibiotic resistance is a serious threat and has gone global.

The patient — a female in her 70s — was admitted in for an infection and died in September 2016 from septic shock the CDC announced on Jan. 13. The patient had been treated for multiple infections in India before traveling to the United States. The infection that led to her hospitalization in Reno was caused by a strain of carbapenem-resistant Enterobacteriaceae (CRE)* bacteria known as Klebsiella pneumoniae. Although not all strains of Klebsiella pneumonia are CRE, the strain that infected this patient was resistant to all available antibiotics, according to the CDC. (Carbapeneum is a “drug of last resort.”)

In a paper in The Lancet in October, researchers reported that more than a third of blood infections in newborn babies involving Klebsiella pneumoniae and similar bacteria were resistant to multiple drugs to the point they were virtually untreatable and “threaten the return of a pre-antibiotic era in Indian neonatal intensive care units,” the study’s authors warned.

 

Eoin Treacy's view -

Antibiotic resistance is a vital topic of conversation because it affects all of us and represents perhaps the single biggest risk to general health we can fathom. The pace of technological innovation is perhaps the greatest hope we have of finding a solution that does not rely on fighting a losing war against an enemy capable of changing tactics to overcome conventional responses. This article from NewAtlas highlights one such solution. Here is a section: 

The study combined the new PPMO with meropenem, a type of carbapenem antibiotic that's effective against a broad range of bugs, and pitted it against three different types of bacteria that make use of NDM-1. In all cases, the PPMO restored meropenem's ability to kill the bacteria in vitro, and also managed to kill off an NDM-1-expressing strain of E. coli in tests in mice.

"We're targeting a resistance mechanism that's shared by a whole bunch of pathogens," says Geller. "It's the same gene in different types of bacteria, so you only have to have one PPMO that's effective for all of them, which is different than other PPMOs that are genus specific." Geller says the new drug should be ready for human testing in about three years.


There is every reason for optimism that this problem can be overcome but it requires constant vigilance and technology represents our best chance to overcome it. It is not a problem that will just go away.  

 



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January 20 2017

Commentary by Eoin Treacy

January 20 2017

Commentary by Eoin Treacy

Donald Trump's Presidency: A Look at His Proposed Policy Shifts

This compendium from the Wall Street Journal of some of the primary issues facing the incoming US administration may be of interest to subscribers. Here is a section on energy:

At the top of Mr. Trump’s energy and environmental agenda will be unraveling Obama administration policies that touch on everything from carbon emissions to water.

Much of the action out of the gate will focus on rolling back regulations. Mr. Trump has said he would withdraw Mr. Obama’s signature policy to address climate change, a rule that cuts power-plant carbon emissions. The rule already has faced legal challenges and has been temporarily blocked by the Supreme Court.

The Trump administration, with the help of the Republican-controlled Congress, also will work toward repealing an Environmental Protection Agency rule bringing more bodies of water under federal jurisdiction. Also targeted for repeal: Interior Department rules that require tougher standards for coal mining near streams and that set new standards for emissions of methane, a potent greenhouse gas, from oil and natural-gas wells on federal lands.

While the Trump administration can’t unilaterally repeal most rules right away, it has several options. The EPA and other agencies can immediately start the process to withdraw regulations, and they can relax compliance requirements over time. Meanwhile, Congress can pass measures nullifying rules that have been completed most recently.

Immediately confronting Mr. Trump is a decision regarding the Dakota Access oil pipeline, which extends from North Dakota to Illinois and is nearly built except for a crossing of a Missouri River reservoir.

Mr. Trump may also have a decision to make on the Keystone XL oil pipeline if its developer, TransCanada Corp., reapplies for a State Department cross-border permit the Obama Administration denied in 2015.

On the campaign trail, Mr. Trump said he would withdraw the U.S. from the global climate agreement signed in Paris in late 2015. He couldn’t immediately pull out of the agreement, but he could begin the process of withdrawing.

 

Eoin Treacy's view -

I watched the end of the inauguration speech at my club following my Friday morning HIIT class and the facial expressions of the desk staff were a picture of just how much work needs to be done to reunite the country. High energy costs, high healthcare costs, high education costs and no wage growth combined to create the conditions that got Trump elected. He is going to need to deliver on solutions to some of those problems if he is going to receive the second term he wishes. 



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January 20 2017

Commentary by Eoin Treacy

These Are the World's Most Innovative Economies

This article by Michelle Jamrisko and Wei Lu for Bloomberg may be of interest to subscribers. Here is a section:

South Korea remained the big winner, topping the international charts in R&D intensity, value-added manufacturing and patent activity and with top-five rankings in high-tech density, higher education and researcher concentration. Scant progress in improving its productivity score — now No. 32 in the world — helps explain why South Korea’s lead narrowed in the past year.

Silver medal winner Sweden owes most of its rise to improvement in the manufacturing value-added metric, while Nordic neighbor Finland jumped two spots in large part because of the rise of high-tech firms in the country. Norway held its No. 14 spot from last year.

Fresh ideas tend to pay off big in Sweden, even as the current government is less business-friendly and has imposed labor taxes that could crimp business investment, said Magnus Henrekson, director of the Research Institute of Industrial Economics, a private foundation in Stockholm. The Swedes themselves promote an atmosphere of great personal ambition — unlike some European neighbors that emphasize the collective — and that’s a boon to innovation, he said.

“In the culture, people are super individualistic — this means that people have ideas and are very interested in pursuing them in this way in order to become wealthy,” said Henrekson. “The incentives are there and the tax system favors them.”

 

Eoin Treacy's view -

If the results of the above report are anything to go by then having a relatively small population and an export focus is a common theme for the most innovative countries in the world. Of course being from a small country means companies have to innovate if they are to compete globally. Small countries also can’t afford to slide on education because the pool of available workers is limited and needs to be nimble enough to supply the economy with the skills it requires. Success is therefore multiplied. 



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January 20 2017

Commentary by Eoin Treacy

The Tech Bubble Year 5+

This very well-illustrated presentation by Anand Sanwal from CBInsights for the benefit of attendees at the CanTech Conference in Toronto may be of interest to subscribers. 

Eoin Treacy's view -

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

The pace of technological innovation is graphically illustrated in this report. What becomes very clear is how start-ups view the all-in-one businesses of companies like Starwood, Proctor & Gamble and the car manufacturers and pharmaceutical companies as ripe for disruption. They could be right and there is certainly a great deal of venture capital money willing to make that bet. However we should not expect established companies to go down without a fight.



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January 19 2017

Commentary by David Fuller

European Ideological Civil War Laid Bare In Davos

Europe's leaders lashed out at each other in Davos in an inflamed dispute over how to stop the EU collapsing, laying bare the festering divisions that will plague the European project long after British withdrawal.

"The whole idea of an ever-closer Europe has gone, it's buried," said Dutch premier Mark Rutte, dismissing calls for full political union as a dangerous romantic fantasy.

"The fastest way to dismantle the EU is to continue talking about a step-by-step move towards some sort of superstate," he said at the World Economic Forum.

His comments went to the heart of a fierce battle under way for control over the EU project, and provoked an impassioned counter-attack from Martin Schulz, the European Parliament's president.

Mr Schulz called it profoundly misguided to give up the dream of political union and retreat to the nation state. "If it's Angela Merkel, or Mark Rutte, or whoever else, they must have the courage to say that we need ever-closer union more than ever in the 21st century, and without it the EU has no future," he said.

Mr Schulz accused Europe's ministers of subverting the EU in a "double game", agreeing to measures behind closed doors in the EU's council of ministers and then denying any responsibility once they return home. "This is destroying the European spirit."

He accused prime ministers of arriving for meetings at the Justus Lipsius Building in Brussels and proclaiming before they even enter the door that they are there only to protect their own narrow interest.

"We have some members sitting inside the European Parliament trying to destroy the EU from within. They are drawing EU salaries, and one of them is running for the presidency of France," he said.

Frans Timmermans, the European Commission's vice-president, said there was a "fundamental ideological confrontation going on in our EU". He called on Europe's leaders to stop hiding behind subterfuge and pick their side, rather than blaming Brussels for everything. "You need to show your cards, show where you stand," he said.

David Fuller's view -

The masks of EU solidarity have clearly fallen away at Davos.  This will have shocked delegations from a number of other countries, particularly American readers of The New York Times and The Washington Post, and also anyone influenced by President Obama’s view of the EU and Angela Merkel.

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



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January 19 2017

Commentary by David Fuller

Bankers in Davos See Trump Making Wall Street Great Again

Here is the opening of this topical article from Bloomberg:

Wall Street’s high-flyers in Davos, basking in their firms’ strong fourth-quarter earnings, said they’re confident Donald Trump’s incoming administration will loosen regulatory constraints on financiers -- even if it leaves Barack Obama’s signature Dodd-Frank Act largely intact.

Bank executives, speaking on condition of anonymity at events around the Swiss ski resort, said they’re not counting on Trump to overturn Dodd-Frank. Instead, they expect the federal agencies that enforce the rules to ease up on them and support bankers’ efforts to limit how much capital and liquidity their companies need to pay bills or absorb losses in a crisis.

The bankers said they recognize that changing or overturning the 2010 Dodd-Frank Act would require support in the U.S. Senate that Republicans may lack. Instead they’re counting on Trump’s team to dial back how supervisory agencies enforce and interpret rules. Led by Federal Reserve Governor Daniel Tarullo, U.S. regulators have adopted an extra-strict version of the global standards on capital and liquidity set by the Basel Committee on Banking Supervision in the aftermath of the 2008 financial crisis.

“Legislation, obviously that’s harder to do than just changing regulations,” JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said in a Bloomberg Television interview with John Micklethwait on Wednesday. “Regulators can change a lot of things easily about compliance, about costs, certain rules about lending, how you use your liquidity, how you use your capital. I would like to see some of those looked at and maybe modified a bit, and I think it would be good for the economy.”

At a panel discussion on the global banking outlook in Davos Thursday morning, JPMorgan asset-management CEO Mary Callahan Erdoes echoed that view.

“It’s going to be a great several years,” Erdoes said. “It’s going to be very positive for businesses in the U.S., which should cascade to businesses around the world.”

David Fuller's view -

There has always been a cycle to bank regulation.  When excessive speculation by banks ends in a crash, as we last saw in 2008, and many of them have to be rescued, there is always a call for new, much tougher regulations.  These are designed to significantly boost cash reserves, limit leverage and also punish the offending banking industry. 

As a consequence, it is more difficult for the economy to recover because banks are unable to provide the liquidity required by their customers, as we have seen since the 2008 credit crisis recession. Eventually, anger towards banks subsides and governments commence easing tight regulations, as we are about to see with the incoming Trump administration. This will help the banking industry and also the US economy.

Some people worry that this will soon lead to another banking crisis.  Those concerns are premature because banks are not about to repeat the same mistakes at the first opportunity.  On average, it usually takes at least a generation before banks lose their discipline and contribute to another financial crisis.     



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January 19 2017

Commentary by David Fuller

The Evolution of Theresa May Sets Brexit Britain On Course for a Bright Global Future

Here is the opening and also the last paragraph of this topical article by Fraser Nelson for The Telegraph:

By her standards, Theresa May was relatively restrained at the Davos summit.  She loves enemies, and not in the Christian way. In front of her stood a congregation of the very people she holds up to ridicule: the plutocratic masters of the global economy, or, as she calls them, “citizens of nowhere”. On another day, she might have delivered one of the machine-gunnings that she reserves for the Police Federation or Boris Johnson. But this time she had another mission: to position Britain as the new global leader in free trade and reintroduce her country to the world.

The result was nothing short of a manifesto for a new British foreign policy and one of the best speeches given by a Prime Minister in recent years. It was a landmark not only in the evolution of her approach to Brexit, but in the development of her own political identity. It shows how far she has travelled in just a few months.

The traditional Davos speech involves clichés about the world’s ills and abstract nonsense like the “fourth industrial revolution”. The Prime Minister preferred to talk plainly. Rather than join them in lamenting populism, she sought to explain it: if people’s legitimate grievances aren’t addressed by established political parties, voters turn to insurgents. She could have added that Britain, virtually alone in Europe, has no problem with populism: the BNP dead, Ukip in crisis. And why? Because we had Brexit. It was not a Trump-style disruption; Brexit was how Britain avoids Trump-style disruption.

This is the point that European leaders find hard to understand. From Sweden to Sardinia, they are facing Eurosceptic insurgents whom they portray as barbaric and xenophobic. So they tell themselves (and their voters) that Britain has succumbed to a similar malady and is now sinking into a pit of hate crime, nativism and isolationism. This is not an anti-British agenda, necessarily, just the panic of politicians who can’t think of other ways to fend off new challengers. Mrs May came to offer some gentle advice: if you respond to people’s concerns, populism tends to go away. As Britain’s recent mini-revolution has just demonstrated.

Still, the Prime Minister has arrived rather late to all this. One of the great risks of Brexit was that the vote would be portrayed as a once-great country in meltdown, retreating from the world. Such concerns needed to be answered clearly, calmly and repeatedly. Had Boris Johnson become Tory leader he would have done this from day one. But Mrs May arrived in office implementing what seemed to be a far meaner version of Brexit than the one compellingly articulated by the Vote Leave campaign. We heard about EU nationals as bargaining chips, companies drawing up lists of foreigners, and new rules making it harder for foreigners to buy British companies.

And:

In her speech, she quoted Edmund Burke, to the effect that if a state cannot change, it cannot survive. That good governments do not become wedded to mistakes, but scour the horizon for opportunities and adapt with the times. As she has worked out, the same is true of prime ministers.

David Fuller's view -

I am relieved.  OK, the Prime Minister and her Cabinet were thrown in at the deep end but they were not providing the kind of Brexit that I voted for.  Fortunately this has changed dramatically in little over a week. 

How did that happen?  Was it a tactical decision to appear to have turned inwards, to lull the Brexit opposition and EU into a false sense of security before striding boldly and positively forward?  I hope not and I don’t think so.

Was it a simultaneous eureka moment By Theresa May and Chancellor of the Exchequer Philip Hammond, or did they receive some very helpful advice?  I suspect it is the latter although we may never know.  However, I do recall mentioning shortly after Theresa May became Prime Minister that she could always get some sound advice from The Telegraph’s editorial team.  While very much on her side, they had become a little more critical in the last several weeks, but no more as we see with the article above. 

Whatever, Theresa May and Philip Hammond have reassured their supporters.  They have also seized the initiative on Brexit and are determined to set their own agenda with a divided EU which is in disarray.  Good luck to them.

Here is a PDF of Fraser Nelson’s article.    

(See also: Instead of wasting time trying to replay Project Fear, banks must help us get the best deal from Brexit, by Allister Heath for The Telegraph)



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January 19 2017

Commentary by David Fuller

January 19 2017

Commentary by Eoin Treacy

January 19 2017

Commentary by Eoin Treacy

FANG was so 2015

Eoin Treacy's view -

Remember 2015 when the F.A.N.G, stocks were all the rage and media pundits were falling over themselves to tell us how you had to own them if you were to have any chance of outperforming the major indices. 2016 was predictably a tamer year for those shares with some spending much of their time consolidating 2015’s powerful gain. However with Netflix making headlines today on successfully boosting subscribers, following an international expansion, I thought it might be worthwhile to revisit this acronym. 



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January 19 2017

Commentary by Eoin Treacy

Bond Guru Who Called Last Bear Market 40 Years Ago Says Go Long

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

Money velocity isn’t a bullet-proof economic indicator. Financial innovation, and the rise of shadow banking, have made it hard to measure exactly how much money is floating around in the financial system. And some would say that "money" itself is going through an identity crisis these days.

Hunt isn’t the only one seeing the record-low pace as an ominous sign. The fact that money velocity declined rapidly during years of near-zero interest rates may signal aggressive monetary easing actually led to deflation instead of inflation, economists at the St. Louis Fed wrote back in 2014.

"In this regard, the unconventional monetary policy has reinforced the recession by stimulating the private sector’s money demand through pursuing an excessively low interest rate policy," economists Yi Wen and Maria A. Arias wrote.

"I know I’m the minority here,” Hunt said. “I’m just trying to see the world as I think it should be seen.”

 

Eoin Treacy's view -

I have long argued that the disintermediation associated with the internet and technological innovation is a major contributor in the decline in the velocity of money. The downtrend in the data from 1997 offers a graphic representation of the deflationary influence of technology. It also helps to explain why the surge in the quantity of money associated with quantitative easing has not resulted in high inflation. 



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