Investment Themes - General

Search all article by their themes/tags in the search area
below for example “Energy” or “Technology”.

Search Results

Found 1000 results in General
November 30 2017

Commentary by Eoin Treacy

Inside Adidas' Robot-Powered, On-Demand Sneaker Factory

This article by for Wired.com may be of interest to subscribers. Here is as section: 

Some economists are bullish on ideas like Speedfactory and see it as the start of a much larger trend. “We are finally escaping from the manufacturing trap that we’ve been in for the last 20 years,” says Michael Mandel, chief economic strategist at the Progressive Policy Institute in Washington, DC, referring to the mass offshoring of production to Asia.

Improvements in automation can now finally substitute for cheap foreign labor, which will naturally push factories closer to where the consumers are. As manufacturing shifts from offshore mass production to customized, local fabrication, new jobs will open up for human workers, some of which have yet to reveal themselves. “We used to have distribution built around manufacturing,” Mandel says, referencing the centrality of offshore factories, “and now I think that manufacturing is going to be built around distribution.”

Eoin Treacy's view -

The growing role of automation in the garment and shoe sector has been a topic I’ve written about extensively over the last few years. Textiles remain one of the most labour intensive of all industries and has also played a pivotal role as a first step on the road to development for many developing countries. 



This section continues in the Subscriber's Area. Back to top
November 30 2017

Commentary by Eoin Treacy

New nanomaterial, quantum encryption system could be ultimate defenses against hackers

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

A new low-cost nanomaterial developed by New York University Tandon School of Engineering researchers can be tuned to act as a secure authentication key to encrypt computer hardware and data. The layered molybdenum disulfide (MoS2) nanomaterial cannot be physically cloned (duplicated) — replacing programming, which can be hacked.

In a paper published in the journal ACS Nano, the researchers explain that the new nanomaterial has the highest possible level of structural randomness, making it physically unclonable. It achieves this with randomly occurring regions that alternately emit or do not emit light. When exposed to light, this pattern can be used to create a one-of-a-kind binary cryptographic authentication key that could secure hardware components at minimal cost.

The research team envisions a future in which similar nanomaterials can be inexpensively produced at scale and applied to a chip or other hardware component. “No metal contacts are required, and production could take place independently of the chip fabrication process,” Shahrjerdi said. “It’s maximum security with minimal investment.”

Eoin Treacy's view -

Cybersecurity is a major evolving problem both from the perspective of consumers and corporations but also nations because the barrier to entry by competing regimes is falling all the time. 



This section continues in the Subscriber's Area. Back to top
November 29 2017

Commentary by Eoin Treacy

November 29 2017

Commentary by Eoin Treacy

Bitcoin Surges Past $11,000 as Bubble Warnings Can't Cool Market

This article by Julie Verhage  and Eric Lam for Bloomberg may be of interest to subscribers. Here is a section:

Bitcoin is on a tear in 2017, a 10-fold surge that took off even more after CME Chief Executive Officer Terrence Duffy announced in October that the company would offer futures trading by the end of the year. The move is considered key to Wall Street’s broader embrace of the crypotcurrency, likely enabling increased speculation and -- perhaps some day -- products such as exchange-traded funds.

Still, bitcoin’s jump has been met with caution in some circles, and outright dismissal in others. Vanguard Group Inc. founder John Bogle advised investors on Tuesday to avoid the virtual currency “like the plague,” while JPMorgan Chase & Co. CEO Jamie Dimon has called it an asset bubble and a fraud.

Under U.S. law, exchanges like CME, which profit from increased trading volumes, can approve new futures contracts themselves. The process, which is used in most cases, is known as self-certification and involves sending a written confirmation to the CFTC that the contract complies with relevant rules. Often, agency officials will engage in a back-and-forth with a company.

Eoin Treacy's view -

Bitcoin has doubled since November 12th and the pace of the advance has definitely picked up since the introduction of futures and options became more likely in August.  



This section continues in the Subscriber's Area. Back to top
November 29 2017

Commentary by Eoin Treacy

The Tax Bill Is Hurting Tech Stocks

This article by Sarah Ponczek and  Elena Popina for Bloomberg may be of interest to subscribers. Here is a section: 

“It’s the tax bill hurting tech,” said Frank Ingarra, head trader at Greenwich, Connecticut-based NorthCoast Asset Management LLC, which oversees $1.8 billion. “When you have something that’s got so extended and done so well, and people start thinking about these things, of course you’re going to have profit taking.”

Equities were caught in another violent rotation Wednesday, with financial stocks poised for the best two-day rally in more than a year and tech shares their worst rout since last August’s meltdown. Companies from Nvidia Corp. and Facebook Inc., up more than 50 percent in 2017, are nursing losses of 3 percent or more Wednesday. Their effective tax rates are 6.5 percent and 10.1 percent, respectively, data compiled by Bloomberg show.

Eoin Treacy's view -

The technology sector has delivered some of the most impressive performance of any sector this year with the result that a considerable number of wide overextensions relative to the trend mean are now evident. Mean reversion is therefore an increasingly likely possibility. 



This section continues in the Subscriber's Area. Back to top
November 29 2017

Commentary by Eoin Treacy

Email of the day on gold and the demise of retail

Really enjoying the service and the big picture videos.

The scenario of US physical retail imploding over the next couple of years is a plausible potential scenario. In this instance, where consumer sentiment could decrease, how would this affect gold do you think? I note that gold is approaching the $1,300 mark which could be an interesting buy should it break through.

Eoin Treacy's view -

Thank you for this question of general interest and I’m delighted you are enjoying the service.

 



This section continues in the Subscriber's Area. Back to top
November 29 2017

Commentary by Eoin Treacy

China racing for AI military edge over U.S.: report

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

The competition was one of many examples cited in a report by a U.S.-based think tank about how China’s military might leverage its country’s rapid advances in artificial intelligence to modernize its armed forces and, potentially, seek advantages against the United States.

“China is no longer in a position of technological inferiority relative to the United States but rather has become a true peer (competitor) that may have the capability to overtake the United States in AI,” said the report, written by Elsa Kania at the Center for a New American Security (CNAS) and due to be released on Tuesday.

Future U.S.-China competition in AI, Kania wrote, “could alter future economic and military balances of power.”

Alphabet Inc’s Executive Chairman Eric Schmidt, who heads a Pentagon advisory board, delivered a similar warning about China’s potential at a recent gathering in Washington.

Schmidt noted that China’s national plan for the future of artificial intelligence, announced in July, calls for catching up to the United States in the coming years and eventually becoming the world’s primary AI innovation center.

Eoin Treacy's view -

Developing hardware is technically difficult and requires highly specialized machinery which a relatively small number of countries control the manufacture of. That has precluded China from developing a domestic semiconductor business despite the fact it is a major assembler of computing products. Software is not subject to those kinds of limitations.



This section continues in the Subscriber's Area. Back to top
November 28 2017

Commentary by Eoin Treacy

Video commentary for November 28th 2017

November 28 2017

Commentary by Eoin Treacy

UK bows to EU demands with breakthrough offer on Brexit bill

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

Negotiators are working on how to present the settlement as a net estimate, with the UK side pressing for an implied figure of between €40-45bn once UK receipts and other deductions are taken into account. “They have promised to cover it all, we don’t care what they say their estimate is,” said one senior EU diplomat. “We’re happy to help them present it.”

Eoin Treacy's view -

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

It has been my view for some time that the resolution to the Brexit negotiations would be that there will be a deal. As the above quote highlights the UK government remains concerned about how to frame the concession to a hostile UK public. However, the harsh reality is that UK business wants a deal, the City, which represents a significant proportion of the UK’s economy, needs a deal and therefore a deal will be struck. 



This section continues in the Subscriber's Area. Back to top
November 28 2017

Commentary by Eoin Treacy

Powell Is Willing to Search for More Heat in U.S. Labor Market

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

Jerome Powell, appearing before the Senate panel weighing his nomination to be Federal Reserve chairman, aligned himself with a more dovish wing of the U.S. central bank that believes the labor market can get even stronger without creating inflation worries.

President Donald Trump’s nominee said the current jobless rate of 4.1 percent is at or below many estimates of full employment, and then pointed to other measures that suggest remaining slack like historically low participation rates.

“There’s no sense of an overheating economy or a particularly tight labor market,” Powell said in response to a question from Senator Jack Reed, a Rhode Island Democrat. “There may be more slack, more people that can come back to work. I think we are looking at an economy that is going to go under 4 percent unemployment.”

His comments suggest he shares current Fed Chair Janet Yellen’s view that there are still pools of potential workers who can be drawn into the labor force, giving the Fed scope to continue its go-slow approach to raising interest rates.

Eoin Treacy's view -

I believe it is safe to assume President Trump wants a strong economy and is more than happy to use procyclical policies to achieve it. Having a dove at the Fed is a big part of achieving his ambitions and Powell is very close to Yellen in his views. That suggests the Fed is less likely to compete with fiscal stimulus by raising rates aggressively under a Powell governorship. 



This section continues in the Subscriber's Area. Back to top
November 28 2017

Commentary by Eoin Treacy

November 28 2017

Commentary by Eoin Treacy

Smooth 2H likely, but for the noise about "profiteering"

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

MSCI India consumer staples P/E shows downside potential … The MSCI India consumer staples’ P/E with respect to the MSCI India P/E chart shows that the sector-relative P/E is still high at +1 STDEV. This would seem to indicate potential for de-rating. Over the past 12 months, the Consumer index has delivered 36% absolute return (outperformed the Sensex by 6ppt).

… and we recommend investors use DBCMI Consumer sector valuations are still expensive as per DB Consumer Momentum Indicator (“DBCMI”, key to our sector top-down view – Figure 4). We believe the DBCMI is a good reflection of relative valuations (22-year backtested lead indicator), as it considers relative earnings momentum. According to DBCMI, the sector could relatively correct 12% to be in line with relative earnings, in our view (or relative earnings need ~13% upgrade).

Eoin Treacy's view -

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

The India consumer is benefitting both from improving standards of governance and the introduction of 4G late last year. Economic growth coming in above inflation coupled with a stable currency have all contributed to a steady environment for both consumers and investors with the stock market continue to march higher in a reasonably consistent manner.

 



This section continues in the Subscriber's Area. Back to top
November 27 2017

Commentary by Eoin Treacy

Video commentary for November 27th 2017

November 27 2017

Commentary by Eoin Treacy

Bitcoin Guns for $10,000 as Cryptocurrency Mania Defies Skeptics

This article by Julie Verhage, Eric Lam and Todd White for Bloomberg may be of interest to subscribers. Here is a section:

Bitcoin blew past $9,700 just a week after topping $8,000 and approached its closest ever to five figures, gaining mainstream market attention as it defies bubble warnings.

The biggest price jump since August consolidated during Japanese trading hours and vaulted the largest cryptocurrency’s value in circulation above the market caps of all but about 30 of the S&P 500 index members. The increase also buoyed its 10-day volatility to more than 15 times the level of the euro-dollar, the most traded currency pair.

Eoin Treacy's view -

What I find interesting about the bitcoin market is how fervent the bulls are and how skeptical the bears are. It represents a perfect example of the sharp discrimination evident in a crowd as the polarization in performance between the winners and losers grows progressively wider. 



This section continues in the Subscriber's Area. Back to top
November 27 2017

Commentary by Eoin Treacy

Email of the day on the digital economy:

Another dynamite audio last weekend - much appreciated, and thank you.

I came across this report from Huawei and Oxford Economics the other day. I'm still reading but it really ups the argument about the effect of digital technology using what it calls the spill-over effect within and across industries.

Some of the report’s key findings are:

The true size of the 2016 digital economy is US $11.5 trillion globally, or 15.5% of global GDP. This is roughly 3 times larger than traditional measurements. The base digital assets comprise 1/3 or $3.8 trillion, while digital spillover effects account for the remaining 2/3 or $7.5 trillion

The digital economy is 18.4% of GDP in advanced economies, ranging in size from 35% to 10%. The US has the largest digital economy at 35% of GDP.

The global digital economy has almost doubled between 2000 and 2016, growing 2.5 times faster than global GDP over this period. China’s share has tripled from 4% of GDP in 2000 to 13% in 2016.

Over the past three decades, every dollar invested in digital technologies added $20 to GDP on average, 6.7 times higher than non-digital investments which added $3 for every dollar invested.

Assuming current growth rates of digital investments over the next 10 years, the report estimates that by 2025 the digital economy will be US $23 trillion globally, or 24.3% of global GDP, up from 15.5% in 2016.

 If you download, I found the graph on 9.17, Fig 3 particularly interesting and unexpected.

Eoin Treacy's view -

Thank you for your kind words and I’m delighted you are enjoying the big picture long-term videos. If the viewer numbers on Vimeo are anything to go by they are the most popular feature on the site apart from the Chart Library.

This is a very welcome contribution to the debate on how much the digital economy contributes to productivity growth. Some are still arguing that the productivity gains from the internet peaked more than a decade ago and use that to explain why growth has been less than impressive since. However, as the complementary evolution of artificial intelligence, automation, cloud computing, social media, 4G connectivity and Internet of Things advance they all contribute to productivity gains when viewed from a wider digitisation theme. 



This section continues in the Subscriber's Area. Back to top
November 27 2017

Commentary by Eoin Treacy

China Shares Resume Decline as Year's Top Performers Take a Hit

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

The CSI 300 Index of large-cap stocks closed down 1.3 percent, with ZTE Corp. and BYD Co. both falling the 10 percent limit in Shenzhen, while BOE Technology Group Co. slid 9.7 percent. Shanghai-listed liquor giant Kweichow Moutai Co. couldn’t maintain its brief foray into positive territory and closed down 1.4 percent, its seventh straight loss since state media warned it was climbing too fast. The stock has slumped 14 percent since Nov. 16.

“Institutional investors are choosing to cash in toward year-end as valuations are near historic highs and market sentiment deteriorated after official media targeted Moutai,” said Shen Zhengyang, Shanghai-based analyst at Northeast Securities Co. He said the market “lacks steam” for further gains.

Eoin Treacy's view -

The pace of the CSI300’s advance has picked up over the last six months and has outperformed the bank-heavy Shanghai A-Share Index. The institutional memory of the bubbly activity which contributed to the surge and collapse of the market in 2015 is still relatively fresh and the government does not want to see a repeat. That suggests some pressure may be coming to bear on the highest-flying shares, to instil some discipline among investors. 



This section continues in the Subscriber's Area. Back to top
November 24 2017

Commentary by Eoin Treacy

November 24 2017

Commentary by Eoin Treacy

After Sudden Rout, China Stock Traders Question Beijing Put

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

For Sun Jianbo, president of China Vision Capital Management Co. in Beijing, valuations among large-cap shares are too expensive for state-backed funds to intervene.

The CSI 300 traded at its highest level relative to the broader Shanghai Composite Index in at least 12 years at the start of this week as investors flocked to large caps such as Moutai and Ping An Insurance (Group) Co.

"There’s no need to prop up the market yet," Sun said. "A lot of big caps are still expensive and it would do more harm than good to state-backed funds if they buy now."

The divergence between large-cap shares and the rest of the market may be one reason why the government took aim at Moutai. Before Xinhua warned last week that gains in the liquor maker were excessive, the stock had more than doubled this year.

Eoin Treacy's view -

Following the botched introduction of options trading in 2015 the Chinese administration introduced new rules on disclosures and selling by company principles. It also banned short selling for a time. Through steady purchases by various state-owned vehicles, they manufactured the slow and steady pace of the stock market’s advance since the low in early 2016. 



This section continues in the Subscriber's Area. Back to top
November 24 2017

Commentary by Eoin Treacy

U.S. online sales surge, shoppers throng stores on Thanksgiving evening

This article by Richa Naidu, Nandita Bose for Reuters may be of interest to subscribers. Here is a section:

Crowds at stores in many locations around the country were reported to be strong, according to analysts and retail consultants monitoring shopper traffic across the U.S.

“The turnout is clearly better than the last couple of years,” said Craig Johnson, president of Customer Growth Partners. “The parking lots are full and the outlet malls are busy.”

The retail consultancy has 20 members studying customer traffic in different parts of the country.

Moody’s retail analyst Charlie O’ Shea, who was in Bucks County, Pennsylvania, reported healthy traffic at local stores including consumer electronics chain Best Buy, clothing store Old Navy and retailer Kohl’s Corp.

Eoin Treacy's view -

I definitely get the sense that deals on Black Friday are somewhat more aggressively priced this year. $50 back from Apple on a $400 iPad mini with free engraving, fully loaded Dell XPS laptops for $500 off on Costco, which is considerably cheaper than the Dell website, and a slew of additional deals all point to a retail sector eager to overcome the slump of the last few years. 



This section continues in the Subscriber's Area. Back to top
November 24 2017

Commentary by Eoin Treacy

Platinum industry expects supply deficit in 2018

This article by Valentina Ruiz Leotaud for mining.com may be of interest to subscribers. Here is a section: 

In its latest Platinum Quarterly report, the World Platinum Investment Council predicts a deficit of 275 koz of the precious metal for 2018 caused by an increase in jewellery and industrial demand.

Overall supply is probably going to drop by 1% next year “due in part to a 2% reduction in South African mine supply compounded by closures in the second half of 2017,” the report states.

In the third quarter of 2017, production from Zimbabwe declined to 95 koz owing to furnace maintenance work, while Russian supply fell to 185 koz, which is lower than the 205 koz produced in Q2’17. “Overall, global refined production for Q3’17 is estimated at 1,495 koz, which is a 4% reduction from Q2’17 and an 8% fall year-on-year.”

When it comes to next year’s overall demand, the WPIC says it is going to grow by 2% when compared to 2017. In particular, platinum jewellery demand will rise by 3%, which would represent its first spike since 2014. Behind this recovery is the double-digit growth in the rapidly expanding Indian market.

Eoin Treacy's view -

Platinum is trading at a significant discount to both gold and palladium which is a rather odd circumstance for a metal which is the used in all of the most expensive jewelry. However, the revolt against diesel engines, prompted by the Volkswagen cheating scandal, has cast a pall over the sector which has confined prices to a reasonably tight range over the last year. 



This section continues in the Subscriber's Area. Back to top
November 23 2017

Commentary by Eoin Treacy

November 23 2017

Commentary by Eoin Treacy

If you invested $1,000 in stocks like Amazon and Netflix 10 years ago, here's what you'd have now

Thanks to a subscriber for this article from CNBC. Here is a section:

But there are cautionary tales to be seen in the chart, too, since any individual stock can either over- or under-perform. That's why so many experts suggest that, to get started in the stock market, you consider index funds, which hold every stock in an index such as the S&P 500, including big-name companies such as Apple, Microsoft and Google, and offer low turnover rates, so the attendant fees and tax bills tend to be low as well. Warren Buffett, Mark Cuban and Tony Robbins all agree index funds are a safe bet, especially for new investors, since they fluctuate with the market, stay pretty constant and eliminate the risk of picking individual stocks.

Eoin Treacy's view -

The subtext of this statement, quoting some of the most venerable investors in the business, is that owning Index trackers is risk free. I’m sure that is not what the likes of Warren Buffett and Mark Cuban mean but both are on the record as saying that ordinary investors have no hope of achieved the same results they have. The article implies you need to own the Index because you have no hope of picking the big winners. 



This section continues in the Subscriber's Area. Back to top
November 23 2017

Commentary by Eoin Treacy

Mine Shutdown Heats Up Uranium Prices

Thanks to a subscriber for this article from Barron’s which may be of interest. Here is a section:

Cameco (ticker: CCJ), which provides roughly 17% of the world’s uranium production, announced on Nov. 8 that it will temporarily suspend production at its McArthur River mining and Key Lake milling operations in Canada by the end of January. It blamed weakness in uranium prices, which it said had fallen by more than 70% since the Fukushima accident in March 2011. McArthur River is the world’s largest high-grade uranium mine.

The news sent weekly spot prices for uranium up by nearly $3, to $23 a pound, on Nov. 13, according to nuclear-fuel consultancy Ux Consulting. Weekly prices stood at $20.25 a pound on Nov. 6, ahead of the announcement, holding in the tight range of $19.25 and $20.75 they had traded at from late May. January uranium futures traded on Globex settled at $24.40 on Thursday. “This is the last gasp of the uranium bear market,” says Christopher Ecclestone, a mining strategist at investment bank and research firm Hallgarten & Co., adding that the market is likely to “perk up” from here

Eoin Treacy's view -

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

Uranium prices have stabilized near $20 following news of a supply disruption. The fact that closure was voluntary helps to highlight just how much stress the sector is under. The Fukushima disaster has set back the cause of uranium by at least a decade despite the reliability and abundance of the power it provides and the inherent safety of generation IV reactors.



This section continues in the Subscriber's Area. Back to top
November 23 2017

Commentary by Eoin Treacy

Tech Rally Goes Global, Powering Major Stock Indexes to Fresh Records

This article by Riva Gold for FoxBusiness is an example of common theme in the media to highlight tech’s outperformance. Here is a section: 

Just eight companies -- Facebook Inc., Apple, Amazon.com Inc., Netflix Inc., Alphabet Inc., Baidu Inc., Alibaba Group Holding and Tencent -- have increased by $1.4 trillion in market cap in 2017, a sum roughly equivalent to the combined annual GDP of Spain and Portugal.

Tech giants' powerful user networks, large cash piles and access to consumer data have led many investors to expect the big will only get bigger.

"You need critical mass to support continuing innovation," said Christopher Dyer, director of global equity at Eaton Vance. While there are exceptions, "China and the U.S. would be natural destinations for incremental dollar investment within tech," he said.

Eoin Treacy's view -

The return to outperformance of emerging markets has been a major topic of conversation for investors this year but it is worth highlighting that Tencent Holdings, Alibaba, Samsung and Taiwan Semiconductor represent 17% of the MSCI Emerging Markets Index.



This section continues in the Subscriber's Area. Back to top
November 22 2017

Commentary by Eoin Treacy

November 22 2017

Commentary by Eoin Treacy

Budget 2017: Hammond pledges to fix UK's housing market

This article by Chris Giles, Gavin Jackson and George Parker for the Financial Times may be of interest to subscribers. Here is a section:

He presented the Budget as a set of measures to tackle the long-term problems in the British economy, including a dysfunctional housing market, low productivity growth and geographic inequality. Mr Hammond said “money, planning reform and intervention” would be needed to solve the housing crisis. Apart from the stamp duty cut for first time buyers, the government will give local authorities the power to charge double the amount of council tax on empty properties.

And

The government will introduce a £1.5bn package to smooth the implementation of universal credit by removing waiting times for families to receive their payment. The so-called national living wage, a higher minimum wage for those aged over 25, will increase from £7.50 to £7.83 in April. The tax-free personal allowance for income tax will rise to £11,850 and the higher rate threshold for income tax to £46,350. Both increases are in line with inflation at 3 per cent. Spending on the NHS will increase by £1.6bn next year and £350m this winter.

Eoin Treacy's view -

The UK faces unusual challenges in negotiating its exit from the EU and with a tenuous grip on power the Chancellor had little choice than but to pitch his budget at where some of the greatest threats to the administration lie. 



This section continues in the Subscriber's Area. Back to top
November 22 2017

Commentary by Eoin Treacy

Here's what we learned from ordering 213 curries at Wetherspoons

This article by Bryce Elder for the Financial Times may be of interest to subscribers. Here is a section:

The UK on-trade looks not dissimilar to the UK grocery sector, which too has a few dominant operators that take share from a weak underbelly of independents and supplier-tied franchises. The big grocers resemble the big pub chains inasmuch as they are all about buying power, efficient logistics, wage capping, centralised cost savings and economies of scale. It might also be noted that Wetherspoon’s 4m square feet of productive floor space is about equal to the whole Tesco Express estate. And while Wetherspoon’s revenue of £450 per square foot or thereabouts is half the level expected from a big-four grocer, its 7.7 per cent operating margin compares pretty well to Tesco’s 1.8 per cent at group level last year.

It’s a comparison endorsed by Tim Martin, Wetherspoon’s founder and chairman, who is often found astride his hobby horse that supermarkets and pubs should be taxed equally. Mr Martin has been less vocal on whether pubs and supermarkets should be regulated equally.

Because here’s the thing with supermarkets: they can’t engage in local price wars. Every single UK branch of Tesco Express has to charge the same. That’s because since 2002, the supermarkets have been bound by a code of practice drawn up in response to a Competition Commission review a couple of years before. 

Eoin Treacy's view -

If the performance of Wetherspoons compared to Tesco is any guide the difference in competitive pricing laws has a considerable effect on performance. Meanwhile there is also a clear difference between what are the higher overall margins on discretionary spending and staple spending at supermarkets where competition is increasingly aggressive.  



This section continues in the Subscriber's Area. Back to top
November 22 2017

Commentary by Eoin Treacy

One in three Chinese children faces an education apocalypse. An ambitious experiment hopes to save them

This article by Dennis Normile for Sciencemag.com may be of interest to subscribers. Here is a section:

One in three Chinese children faces an education apocalypse. An ambitious experiment hopes to save them – This article by Dennis Normile for Sciencemag.com may be of interest to subscribers. Here is a section:

The result is a widening gap between urban and rural educational achievement in China, Rozelle says. Many urbanites fit the stereotype of "tiger" parents, pushing kids to excel in school. After hours, their schedules are packed with music and English lessons and sessions at cram schools, which prepare them for notoriously competitive university entrance exams. More than 90% of urban students finish high school.

But only one-quarter of China's children grow up in the relatively prosperous cities. Rural moms have high hopes for their children; Rozelle's surveys have found that 75% say they want their newborns to go to college, and 17% hope their child gets a Ph.D. The statistics belie those hopes: Just 24% of China's working population completes high school.

Rozelle believes such numbers bode ill for China's hopes of joining the ranks of high-income countries. Over the past 70 years, he explains, only 15 countries have managed to climb from middle- to high-income status, among them South Korea and Taiwan. In all those success stories, three-quarters or more of the working population had completed high school while the country was still in the middle-income bracket. These workforces "had the skills to support a high-income economy," Rozelle says. In contrast, in the 79 current middle-income countries, only a third or less of the workforce has finished high school. And China is at the bottom of the pack. School dropouts don't have the skills needed to thrive in a high-income economy, Rozelle says. And, worryingly, the factory jobs that now provide a decent living for those with minimal training are moving from China to lower-wage countries.

Rozelle thinks a lack of opportunity isn't the only factor holding back China's rural children. Physically and mentally, they are also at an increasing disadvantage, hampering their performance in school and their prospects in life.

Eoin Treacy's view -

You might remember last year the OECD’s Pisa rankings of schools was released and China featured particularly highly. That is because the data only looked at Beijing, Shanghai, Guangdong and Jiangsu where the best of the country’s education resources are concentrated. As the above article highlights the real story is of a country that still has a long way to go in equipping its population with the tools necessary to succeed in the 21st century. 



This section continues in the Subscriber's Area. Back to top
November 22 2017

Commentary by Eoin Treacy

Global Gold Outlook

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

A closer look at the assumptions of the theory
The obvious conclusion for gold investors would be to celebrate the coming era of skyrocketing gold prices, as supply dwindles, and the greatest gold rush of all time ensues in the markets. Such a scenario sounds very enticing. However, instead of taking the news at face value, it is worth examining the matter in more detail and understanding what the decline in production actually means for gold in the mid- and long-term. 

One of the main problems with most peak gold analyses and projections is that they are based on estimates of known mineable reserves of gold.  However, the number of known reserves increases over time as new discoveries are made thanks to technological and scientific advances. Even as the currently operational mines might be slowly exhausting their reserves, new projects and potential discoveries remain untapped.

In this context, “peak gold” can be seen as the gradual depletion of the current, relatively easily accessible deposits. Once these are completely mined, the industry would be forced to move on to new locations that are currently not preferred, because they either involve higher production costs or present other challenges. Nevertheless, higher gold prices would motivate miners to seek out and explore new discoveries and deposits, as well as invest in research and new technologies.

Furthermore, one must bear in mind that the gold market is extensive and quite complex. Currently, the precious metal is being mined in every continent except Antarctica. However, as gold traditionally holds its value and does not corrode, it also has a strong recycling industry, refining and re-smelting the metal, which accounts for 1/3 of the total supply on average.

Therefore, “peak gold” can be viewed as a temporary supply restriction, which would trigger gold price increases in the mid-term. But it also has a much more important aspect to it: over the long term, the depletion of mines currently in operation translates to a “gap-up” of the gold price, as the production costs for new discoveries are drastically lifted. In other words, “peak gold” might not mean the end of our gold supply, but it could introduce a whole new average price range and “price floor” for gold.

Eoin Treacy's view -

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

The price of any commodity tends to fluctuate mostly above the marginal cost of production. Oil experienced a step up in production costs over the last decade with the $40 area representing a new floor whereas it had previously been a ceiling. The big question for gold is where the marginal cost of production now rests 



This section continues in the Subscriber's Area. Back to top
November 22 2017

Commentary by Eoin Treacy

November 21 2017

Commentary by Eoin Treacy

November 21 2017

Commentary by Eoin Treacy

November 21 2017

Commentary by Eoin Treacy

Email of the day on the next crash

Dear Eoin, could you comment on Niall Ferguson's market prediction in the Sunday Times: 

Eoin Treacy's view -

Thank you for this article which may be of interest to subscribers. It is always a useful exercise to contemplate the end of the financial world but in the full knowledge it doesn’t happen all that often. Niall Ferguson does a good job of articulating the potential causes of future problems in this article which is sure to garner attention for his new book. 



This section continues in the Subscriber's Area. Back to top
November 21 2017

Commentary by Eoin Treacy

Musings From The Oil Patch November 21st 2017

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

Between 2010 and 2016, coal’s share of U.S. energy fell from 23% to 15.8%, while renewables’ share climbed from 1.7% to 3.7%.  In the EU, coal’s share fell from 16% to 14.5%, and renewables more than doubled its share, going from 3.9% to 8.3%.  This emissions and economic progress by the EU is in jeopardy following the election of President Trump who is determined to boost U.S. oil, natural gas and coal industries, and push back on green mandates and subsidies.  The EU’s response has been to isolate the United States for its climate position.  Their strategy for overcoming high energy costs and exposure to energy disruptions is to make people choose expensive renewable energy in the guise of it being the only logical choice when confronted with the alternative of a disastrous environmental outcome if we continue burning fossil fuels.  

As the EU’s strategy seems not to be working as well as planned, it has become more radical with governments seeking to ban internal combustion engine cars.  This, its leaders believe, will force American auto companies to compete in the marketplace of zero-emission vehicles.  Little is mentioned about the fact that the carbon emissions legacy associated with building electric cars requires years of driving them before it is neutralized.  Electric car promoters also never mention the environmental and social costs of mining the rare earth minerals required in rechargeable batteries.  If fairly presented, people might question whether there are other alternative solutions that are less-costly and do more to mitigate the environmental hazards of electric batteries and renewable energy sources.  

While the goal to level the economic playing field with respect to energy’s cost in manufacturing remains an EU objective, the path to achieving that goal has changed.  The choice presented is impending environmental disaster with continued use of fossil fuels versus feeling good about saving the planet with high cost renewables and zero-emission electric vehicles.  Expect more of rhetoric as we move forward.  Maybe President Trump understands that the climate change movement is really an economic war in the guise of climate change.

Eoin Treacy's view -

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

The simple fact is the EU imports a lot of its energy and the USA is close to being energy independent. Quite whether the EU is so cynical in its attempts to pioneer high cost power is questionable, but if everyone were to adopt the same cost base for energy production it would certainly create a more level playing field for a lot of important industries and help European competitiveness.  



This section continues in the Subscriber's Area. Back to top
November 21 2017

Commentary by Eoin Treacy

ASEAN: The infrastructure push

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

Infrastructure plays a crucial role in the region’s economic, social and environmental development, including boosting regional connectivity. Greater connectivity of the transport infrastructure enhances logistical efficiency and supports the growth of investment, trade and commerce while reducing business costs. While countries have invested in infrastructure to varying extents over the years, development has been gaining momentum, with more than US$275bn key pipeline projects across ASEAN, as we detail in this report.

Singapore: To fulfil Singapore’s 6.9mn population target (+25% from the current size) by 2030, the government is steering infrastructure development towards greater public network connectivity, usage of personal mobility devices, as well as usage of digitalisation to transform the city state into a Smart Nation. These infra developments, amounting to US$44bn will help Singapore cope with population increase and prevent traffic congestion.

Malaysia: In the 10th Malaysia Plan (2011-2015), the government highlighted its commitment to infrastructure development. One focus is on building railways (MRT 2, MRT 3, LRT 3) to alleviate traffic congestion. Another focus is on connecting rural areas to urban clusters to ensure equitable development through the Pan Borneo Highway. Infrastructure growth is driven by China, having committed US$34bn (RM144bn) to infrastructure projects such as the East Coast Rail Link, Kuantan Industrial Park and Melaka Gateway. 

Indonesia: In the post-Suharto era, infrastructure development stalled and has not been able to keep up with economic growth amid the commodities boom. The inefficient transport network has resulted in acute distribution bottlenecks, driving up logistics cost. When President Jokowi took office, he diverted a portion of the energy subsidies to infrastructure development. Through priority infrastructure projects totalling US$41bn, the government seeks to boost connectivity in the archipelago to increase business competitiveness.   

Eoin Treacy's view -

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

In a period of synchronised economic expansion it is natural for emerging markets to engage in infrastructure development since credit is generally still accommodative and the need remains compelling. That will also help to lay the foundation for future growth as the region evolves economically amid a trend of generally improving standards of governance. 



This section continues in the Subscriber's Area. Back to top
November 20 2017

Commentary by Eoin Treacy

Video commentary for November 20th 2017

November 20 2017

Commentary by Eoin Treacy

The Chart Seminar

Eoin Treacy's view -

It is always a pleasure to meet subscribers but doubly so when we get to spend two days together discussing the outlook for psychological makeup of the market, where we are in the big cycles and which sectors are leading and which are showing relative strength. I had three big takeaways from last week’s seminar in London.

As anyone who has attended the seminar will know, I do not have examples but offer delegates the opportunity to dictate the direction of the conversation. That ensures the subject matter is relevant to what they are interested in and also highlights the fact that subject matter is applicable to all markets where an imbalance between supply and demand exists. The second benefit of allowing delegates to pick the subject matter is that it is offers a window into what is popular in markets right now and what might be getting overlooked. 



This section continues in the Subscriber's Area. Back to top
November 20 2017

Commentary by Eoin Treacy

Merkel Says She Prefers New Elections Over Minority Government

This article by Birgit Jennen and Rainer Buergin for Bloomberg may be of interest to subscribers. Here it is in full:

German Chancellor Angela Merkel said she would prefer to go ahead with new federal elections rather than try to form a minority government, as Europe’s most powerful leader weighs her options after the collapse of four-party coalition talks late Sunday.

Seeking her fourth term, Merkel is “skeptical” about a minority government as it may not bring about necessary stability and is open to another so-called grand coalition with the Social Democratic party, she said in an interview with ARD television. In the absence of an agreement to secure a majority in Germany’s Bundestag, “I’m certain that new elections are the better way,” she said.

Disputes among parties over migration and other issues led the Free Democrats to walk out of the talks. German President Frank-Walter Steinmeier urged the country’s political parties to return to the negotiating table, saying “those who seek political responsibility in elections must not be allowed to shy away from it when they hold it in their hands.”

Eoin Treacy's view -

Small parties face difficult choices when they enter government. If they are to ever have a chance of achieving the change they seek, they have no choice but to enter a coalition. However, they seldom get everything they wanted and are often seen by their voters as sellouts when they fail to achieve lofty goals. Therefore, the fate of small parties is often to taste power but to have their support evaporate at the following election. That is as true of the Liberal Democrats in the UK as it is of many small parities in the Eurozone. 



This section continues in the Subscriber's Area. Back to top
November 20 2017

Commentary by Eoin Treacy

Goldman Sachs Sees Four 2018 Fed Rate Hikes as U.S. Growth Gains

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

The U.S. jobless rate, which was 4.1 percent in October, may reach 3.5 percent in late 2019, Goldman predicted. That would be the lowest level since the late-1960s.

“Our projections would imply an evolution over the current cycle from the weakest labor market in postwar U.S. history to one of the tightest,” the economists said in a summary of their report. “We expect that a tight labor market and a more normal inflation picture will lead the Fed to deliver four hikes next year.”

That’s one more rate increase than the median forecast of Fed officials, and more than financial markets are currently pricing in. One of the reasons why Goldman Sachs economists said they disagree with market expectations is “we see little evidence that soft inflation is structural in nature.”

Eoin Treacy's view -

The USA’s economic expansion might be modest by historical standards but it is still one of the longest in history. The prospect of adding a fiscal stimulus when growth is already mature and unemployment low is the epitome of procyclical policy and increases the likelihood that inflation will increase. 



This section continues in the Subscriber's Area. Back to top
November 16 2017

Commentary by Eoin Treacy

November 16 2017

Commentary by Eoin Treacy

Stronger enforcement, improving cashflow

Thanks to a subscriber for this report from Deutsche Bank focusing on the Chinese Environmental sector. Here is a section:

The sector’s valuation looks attractive at current levels compared with its own trading history and also with the index. The P/Es of most stocks are below/close to their average minus one standard deviation since 2015, in terms of both their own PE and also relative PE to MSCI China. We think that the sector’s current valuation offers decent safety margins to buy into most stocks.

China usually strengthens environmental enforcement during the last three years of Five-Year Plan periods as the country gets closer to assessment deadlines. We expect the same to take place from 2018, especially as the CPC's 19th National Congress recently mentioned that China plans to set up a "National Natural Resources and Ecology Administration" soon. We expect these factors to benefit this laggard sector, together with improving cashflow profile/earnings quality with selective companies over the next few years

 

Eoin Treacy's view -

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

By all accounts New Delhi’s pollution is quickly catching up with Beijing’s but China is further along on its development track that India. The thick soup of smog that clings to Northern China during the winter is a political liability as the middle class evolves and demands better conditions. The closing down of inefficient production facilities and fabricators is driven both by a desire to cut back on overcapacity and to tackle nonperforming loans. Improving the environment at the same time is a bonus.



This section continues in the Subscriber's Area. Back to top
November 16 2017

Commentary by Eoin Treacy

Russell Napier: Debt Deflation Worries Are Starting to Rise Again

Thanks to a subscriber for this article from Financial Sense which may be of interest to subscribers. Here is a section on the Velocity of Money: 

Though there is an overall tendency for velocity of money to fall over time, Napier noted, the accelerated decline we’ve seen in recent years is due to the nature of the money that is being created. This money primarily takes the form of bank reserves, which are not inherently fungible and are now stuck in the banking system.

Banks have chosen not to increase the size of their balance sheets and create deposits, which is the money that circulates in the actual economy, as opposed to the asset economy. This is why Napier thinks the velocity of money has fallen.
“There’s a form of money there that is stuck in the ‘asset ghetto,’ if you like, and not yet spreading out to normal GDP,” he said.

This plays in part into the assumption most people make that the world is awash in money. While there is a lot of money in the asset markets, the reality is that M2 growth in the United States is 5 percent, which is one of the lowest levels recorded in the past 30 years, Napier noted. Apart from the 2008 to 2009 crisis, we’re back to very low levels of total money creation.
This is true of other countries, as well. China is close to a new record low in the growth of its money supply. India is also showing levels of growth in its money supply not seen since 1963.

 

Eoin Treacy's view -

The Velocity of M2 is at a record low based on the last update of September 30th. If Russell Napier’s contention the Index has plumbed new depths since 2010 because of stranded reserves at banks then the reduction of the Fed’s balance sheet could have a positive effect by pushing responsibility for credit creation onto the banking sector.  



This section continues in the Subscriber's Area. Back to top
November 16 2017

Commentary by Eoin Treacy

Surprising Airbnb Adoption Slowdown in US/EU, and What It Means for Hotels and OTAs

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

Two Reasons Adoption Is Slowing... First, the benefits of growing awareness among online consumers in the US/Europe are slowing/topping out, as Airbnb awareness among our survey respondents increased by only 800bps to 80% in '17 (vs. a 2,000bps increase in '16). We see awareness as a smaller driver going forward. Second privacy/safety are material and growing barriers to adoption, as the percent of non Airbnb users citing these factors to not use it increased by ~700bps/400bps, and the absolute number of people concerned about these issues increased by 10%/25% Y/Y. This, in our view, could speak to two potential truths: 1) How Airbnb/sharing lodging could be more niche than previously expected, and 2) How the lobbyists/opponents of Airbnb may be gaining traction.

...Causing Us to Lower Our Airbnb Forecast...This slowing adoption causes us to reduce our forward user/room night forecast for the US/Europe, now expecting ~12% '16-'20 room night growth, vs 29% previously. We now model Airbnb to grow to 6% of lodging demand across US/Europe by '20, vs. 9% previously.

...Making Us Incrementally More Bullish on the Lodging Space... While surveyed hotel cannibalization inched up slightly to 51% from 49% (and expected to be 54% in '18), a slowing user adoption curve suggests Airbnb is less of a threat to hotels. We estimate that Airbnb had a 50bps impact to '17 RevPAR growth across US/Europe, down from our prior estimate of 90bps. We now forecast it will have another 50bps impact on '18 RevPAR growth, down from our prior 80bps impact. As such, we expect US RevPAR to be relatively stable at +2.3% and +1.6% growth in '18 and '19, respectively.

 

Eoin Treacy's view -

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

The travel sector is likely to get a boost from the expansion in the number of airlines, signalled by impressive sales at the Dubai Air Show. That should be positive for hotels and particularly so if AirBnb’s penetration is peaking. Personally my experience with AirBnb has been mixed and I suspect many people have had similar experiences. 



This section continues in the Subscriber's Area. Back to top
November 16 2017

Commentary by Eoin Treacy

November 16 2017

Commentary by Eoin Treacy

House Passes Tax Bill in First Step Toward Historic Overhaul

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

The Senate plan also departs from the House bill by delaying the corporate tax-rate cut by one year. And it includes a proposal to repeal a key provision of the Obamacare law -- saving the government $318 billion over 10 years to help pay for the tax cuts, but leaving 13 million Americans uninsured by 2027, according to official estimates.

Many of the Senate provisions are designed to cut the bill’s cost and meet budget rules that will allow GOP leaders to pass a bill with only Republican votes. Differences between the House and Senate legislation will have to be worked out between the chambers -- and then both the House and Senate will have to approve the final result.

House Ways and Means Chairman Kevin Brady said he’s going to focus on preparing for a conference committee with the Senate. He added that lawmakers were working to improve provisions related to international taxation, address specific industries’ concerns and try to work with lawmakers from high- tax states.

“This is certainly not the last step in our tax reform journey,” Brady said after the vote. But he pledged lawmakers will “make this better every step of the way.”

 

Eoin Treacy's view -

Optimism about the prospect of tax cuts has been flagging over the last 10 days so today’s vote was greeted with enthusiasm by markets with the major Wall Street indices all finishing in positive territory and the VIX index pulling back from the 14 area. 



This section continues in the Subscriber's Area. Back to top
November 16 2017

Commentary by Eoin Treacy

November 16 2017

Commentary by Eoin Treacy

World's Biggest Wealth Fund Wants Out of Oil and Gas

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

 

Norway, which relies on oil and gas for about a fifth of economic output, would be less vulnerable to declining crude prices without its fund investing in the industry, the central bank said Thursday. The divestment would mark the second major step in scrubbing the world’s biggest wealth fund of climate risk, after it sold most of its coal stocks.

“Our perspective here is to spread the risks for the state’s wealth,” Egil Matsen, the deputy central bank governor overseeing the fund, said in an interview in Oslo. “We can do that better by not adding oil-price risk.”

The plan would entail the fund, which controls about 1.5 percent of global stocks, dumping as much as $40 billion of shares in international giants such as Exxon Mobil Corp. and Royal Dutch Shell Plc. The Finance Ministry said it will study the proposal and decide what to do in “fall of 2018” at the earliest.

Eoin Treacy's view -

Norway’s proposal to diversify its exposure to the oil sector makes sense but the timing of the decision, ahead of the proposed Saudi Aramco IPO and after the successful sale of Abu Dhabi’s Adnoc retail gasoline stations’ business says more about the trauma of the crash lower from above $100 than the state of the sector at present. 



This section continues in the Subscriber's Area. Back to top
November 16 2017

Commentary by Eoin Treacy

Russia used Twitter bots and trolls "to disrupt" Brexit vote

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

Most of the tweets seen by this newspaper encouraged people to vote for Brexit, an outcome which Russia would have regarded as destabilising for the European Union. A number were pro-Remain, however, suggesting that the Russian goal may have been simply to sow division. “This is the most significant evidence yet of interference by Russian-backed social media accounts around the Brexit referendum,” said Damian Collins, the Tory MP who chairs the digital, culture, media and sport select committee. “The content published and promoted by these accounts is clearly designed to increase tensions throughout the country and undermine our democratic process. I fear that this may well be just the tip of the iceberg.”

On Monday Theresa May accused Moscow of using fake news to “sow discord” and of meddling directly in elections. President Trump has said that he believes Mr Putin’s denial that Russia interfered in the American presidential race.

The Swansea and Berkeley paper says that a “massive number of Russian-related tweets was created a few days before the voting day, reached its peak during the voting and the result and then dropped immediately afterwards”. Tho Pham, one of the paper’s authors, said that “the main conclusion is that bots were used on purpose and had influence”.

 

Eoin Treacy's view -

Russia and China invest significant sums in attempting to influence Western public opinion whether it is to co-opt university professors, fund socialist/communist/reactionary/militant organisations, create so-called Confucius Institutes and more recently Twitter and Facebook posts. 



This section continues in the Subscriber's Area. Back to top
November 15 2017

Commentary by Eoin Treacy

Video commentary for November 15th 2017

Eoin Treacy's view -

A link to today's video is posted in the Subscriber's Area.
 
Some of the topics discussed include: Wall Street continues to exhibit relative strength but consolidation is underway in stock and commodity markets generally. The dollar firmed somewhat and gold was unable to hold its earlier rally. Bitcoin rebounds in emphatic fashion. 



This section continues in the Subscriber's Area. Back to top
November 15 2017

Commentary by Eoin Treacy

After The Long Rally: S&P 500 Outlook

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

The trajectory of the S&P 500 has been extremely closely tied to that of earnings during the course of this recovery and remains so. Following the ECB’s move to negative rates in mid-2014 and the subsequent dollar and oil shocks, earnings growth First slowed then turned negative and equities became range bound for a year and a half. In the context of the trend channel, the range bound S&P 500 moved from the top to the bottom of the trend channel, falling briefly below during the Q1 2016 growth scare and the trough in earnings. Following the Q1 2016 bottom in earnings, equity prices began to rise, briefly breaking their 1½ year range to reach a new peak in mid-2016; then paused as is typical in the run up to close Presidential elections before rebounding strongly after.

The trajectory of the S&P 500 year to date has continued to closely track that of earnings. Indeed the market rallied in the first half of the year only during earnings seasons which saw well above average beats and paused between reporting seasons. Trailing earnings were up 10% through Q3, held back in the quarter by the impact of the unusually severe hurricane season, while our estimate is for 12% growth through Q4.

The S&P 500 trailing multiple meanwhile fluctuated in a relatively narrow range of 3.5% until September before moving up by a modest 2%. The rise in the multiple in late September though is consistent with the market simply looking through the impact of the hurricanes on earnings, ex which they would have grown for a third quarter in the solid double digits.

 

Eoin Treacy's view -

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

In the normal run of a trend we expect the consistency to improve as it progresses. The simple reason for this is that as buy and hold investors are vindicated in their resolve available supply decreases, meanwhile continued headlines about stellar persistent performance encourages more people in off the side-lines. The gap between supply and demand expands and the trend therefore becomes more consistent. 



This section continues in the Subscriber's Area. Back to top
November 15 2017

Commentary by Eoin Treacy

On Target November 2017

Thanks to Martin Spring for this edition of his letter. Here is a section Japan:

“The MSCI Japan Index now trades on 15.1x 12-month forward earnings, or an 18 per cent discount to the MSCI USA Index’s 18.4x,” Wood reports. “It is also a major structural positive that earnings growth is increasingly coming from domestic-focused [rather than export-focused] corporates.” That means shares generally are less dependent on favourable moves in the yen-dollar exchange rate. 

The worsening labour shortage should lead sooner or later to accelerating wages, boosting consumption. 
“This dynamic has already been evident for some time in the case of temporary workers. But to the longstanding frustration of both the Abe government and the Bank of Japan, wage rises for permanent employees have remained minimal, primarily because the trade unions have been more concerned about keeping their employees “permanent”, since such permanent full-time staff, on average, still earn 1.8 [times] the hourly wage for part-time workers.”  

Companies have been keeping a tight grip on pay increases – one reason why listed firms are enjoying record profits and sitting on record amounts of cash, even allowing for the effect of increasing share buybacks. 

There is a long-term trend for Japanese companies to be more generous with their dividend payouts to shareholders. Back in 2004 the payout ratio (dividends as a proportion of earnings) for the Topix index was only 17 per cent. Now it’s up to 30 per cent.

 

Eoin Treacy's view -

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

Japan’s economy is recovering momentum and the uptick in performance by domestic companies has been readily observable in the performance of the Topix 2nd Section Index. This revolution has been enabled both by the Bank of Japan’s quantitative easing program and that government’s willingness to run simultaneous fiscal stimulus.



This section continues in the Subscriber's Area. Back to top
November 15 2017

Commentary by Eoin Treacy

Gold makes some recovery on fresh demand, global events

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

Globally, gold prices rose for a third day, helped by a weaker dollar and falling US bond yields ahead of inflation data later that could influence how quickly the Federal Reserve will raise interest rates.

Eoin Treacy's view -

Palladium continues to outperform in the precious metals sector because of its relationship to the gasoline market and continued ambivalence towards diesel engines. However, gold, silver and platinum have been much quieter as they waited for a catalyst to reignite interest. Some consolidation on stock markets may be signalling a flip to risk-off trading which should be positive for a safe haven like gold. 



This section continues in the Subscriber's Area. Back to top
November 15 2017

Commentary by Eoin Treacy

48th Year of The Chart Seminar

Eoin Treacy's view -

The Chart Seminar 2017 

Our remaining venue for the 48th year of the seminar is:

London November 16th and 17th at The Caledonian Club

If you are interested or would like to suggest a venue please contact Sarah at sarah@fullertreacymoney.com 

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



This section continues in the Subscriber's Area. Back to top
November 14 2017

Commentary by Eoin Treacy

November 14 2017

Commentary by Eoin Treacy

Free Money: The Surprising Effects of a Basic Income Supplied by Government

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

Hughes is no basic income purist. He believes, for instance, that for this economic moonshot to be politically palatable, it would have to be tied to work. “Not just because it seems more intuitive for people,” he says, “but because work is a key source of purpose in our lives.” But the changing nature of work, particularly among top tech employers, is still a critical problem for the American workforce. One illuminating New York Times article illustrated how the men and women who scrub toilets and do other low-skilled work for companies like Apple are hired from contracting companies which set the terms of their employment. Those workers are cut off from the benefits and upward mobility that the company’s engineers and marketers enjoy. Because the workers are contractors, the big tech companies feel no pressure to raise their wages, and aren’t responsible for offering health-care coverage. In 2015, Facebook’s bus drivers voted to unionize in order to secure themselves the kind of worker protections that the social networking giant refused to provide.

Looked at in this light, the tech-led efforts to push a basic income can appear hypocritical. In a new economy that mints billionaires overnight, giving millions of dollars away for experimentation is the easy part. It’s taxpayers, after all, not individual tech companies, who would have to pay for a basic income should one ever come to pass.

 

Eoin Treacy's view -

I think I need to do some self-reflection because of the sense of anger I feel bubbling up whenever I hear the idea of Universal Basic Income being lionized in the media. It’s not healthy to have such a visceral reaction to the idea of giving everyone a stipend, especially when it is being proposed with increasing frequency. I read the opening of this article and almost stopped but it proved to be quite measured in its conclusions and time well spent. Let’s attempt to unpack the idea and what it represents. 



This section continues in the Subscriber's Area. Back to top
November 14 2017

Commentary by Eoin Treacy

Breakfast with Dave November 13th 2017

Thanks to a subscriber for this report by David Rosenberg for Gluskin Sheff. Here is a section:

Indeed. And what we’re referring to is the High Yield bond market which tends to lead equities. Junk bond spreads have widened out to a two-month high of 380 basis points. That is over a 40 basis point widening in barely more than two weeks (and the selling have been taking place on rising volume too…to nearly a two-year high in junk bond ETFs. 

As the weekend WSJ aptly pointed out, the bubble hit its peak a couple of months ago when “money losing” Tesla offered up an eight year $1.8 billion with a puny 5.3% yield – which was so oversubscribed in an income starved world that the issue was boosted by $300 million. We are talking about a B3 rated company here. And now in a classic signpost of late cycle behavior, these bonds are trading at 94 cents on the dollar (from par in August). 

For the first time in years, planned bond sales are being pulled. And we also are seeing some big redemptions - $2.5billion have withdrawn in the past month. 

 

Eoin Treacy's view -

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

The rally from the 2009 lows was liquidity fueled as central banks flooded the market with new money and bought up bonds to depress yields. That allowed companies to refinance debt at highly accommodative rates and buy back shares with borrowed money. This trend suggests the equity market is uniquely sensitive to credit flows so high yields spreads are worth watching. 



This section continues in the Subscriber's Area. Back to top
November 14 2017

Commentary by Eoin Treacy

Nickel Plunges in Metals Selloff as Mood Turns Sour in Shanghai

This note by Mark Burton for Bloomberg may be of interest to subscribers. Here it is in full:

Nickel slumped by the most in almost two months as a late-night selloff in Chinese metals spilled over to the London Metal Exchange.

Prices dropped as much as 5.9 percent to $11,755 a metric ton, the biggest drop since September. A slump that big has happened only a handful of times in the past five years.

Nickel bore the brunt of selling in metals, with volumes traded electronically surpassing aluminum, usually the LME’s most liquid contract. The slump came after data showing weaker Chinese industrial production and fixed-asset investment.

 

Eoin Treacy's view -

Stock markets have at least paused and outside of Wall Street are increasingly engaged in mean reversion. That evolving risk-off environment took its toll on commodities today with oil copper and nickel pulling back. 



This section continues in the Subscriber's Area. Back to top
November 13 2017

Commentary by Eoin Treacy

November 13 2017

Commentary by Eoin Treacy

Ubisoft's Microtransaction Revenue Just Beat Digital Sales for the First Time

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

Microtransactions have been hotly debated since they began debuting in mobile games almost ten years ago. While they’d been used sporadically in various games for years, the rise of mobile games and their extremely low-to-free pricing made them a functional necessity for developers working in Android or iOS. The AAA PC gaming industry quickly took notice of this, and began offering games with microtransaction options. There’s been a great deal of pushback from the community at various points (Dead Space 3 got hosed for it, as did Bethesda and its horse armor), but microtransactions are clearly here to say. Ubisoft just reported that it took in more money in microtransaction sales than it did in game sales for the first time ever.

Over the past few years, Ubisoft has seen a notable shift in its earnings for various titles, SeekingAlpha reports. Game sales were buoyed this year by South Park: The Fractured But Whole and Assassin’s Creed: Origins, but microtransactions shot up even further, growing 1.83x in 12 months compared to 1.57x for game sales. Ubisoft also got a boost from the Switch, but even with Nintendo’s new platform, microtransactions brought home the bacon.

 

Eoin Treacy's view -

Once upon a time you bought a computer game and it included everything you would ever need to play that game. I started playing Diablo 2 as a teenager and the game is still available online with access to the Battlenet server, so players can join and play with or against others. It’s still free after more than 20 years. The updated version of the game, Diablo 3, has downloadable content (DLC as my daughters refer to it), and additional characters you can pay for. Overwatch, Activision Blizzard’s newest hit game releases animated shorts to build interest in characters, has built in loot boxes for extra gear and additional outfits for your favourite characters all of which represent additional revenue streams. 



This section continues in the Subscriber's Area. Back to top
November 13 2017

Commentary by Eoin Treacy

From Lost Decade to Golden Years: Euro-Area Economy Picks Up

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

In a report on Monday, the International Monetary Fund said growth across the European region -- which includes the euro area as well as developing economies in central and eastern Europe -- is having a positive spillover effect on the rest of the world. It also said those brighter prospects accounted for the bulk of the upward revision to its global outlook in October.

For the euro area, economists surveyed by Bloomberg have raised their growth forecasts eight times this year. Data due Tuesday is predicted to show the region gained more momentum in the third quarter by expanding 0.6 percent, faster than the long-term trend, according to Bloomberg Economics.

“More than four years into the current expansion, most indicators signal the euro-zone economy is still somewhere around mid-cycle,” Talavera said. “Absent an unexpected shock, we should see several more years of economic growth.”

 

Eoin Treacy's view -

The ECB has bought €2.373 trillion of government and corporate bonds since late 2014 and is only now beginning to talk about tapering. Government bond yields are at rock bottom levels and German yields are still negative out to 7-year maturities. The Euro collapsed as the introduction of QE was priced-in and even after an impressive breakout this year, it is still only a fraction of where it traded before 2014. 



This section continues in the Subscriber's Area. Back to top
November 13 2017

Commentary by Eoin Treacy

Theresa May's Tories Are Engaged in Open Warfare

This article by Flavia Krause-Jackson for Bloomberg may be of interest to subscribers. Here is a section:

“In every negotiation, each side tries to control the timetable,” Brexit Secretary David Davis said on Sunday. “The real deadline on this, of course, is December.” That’s when EU leaders will meet to decide whether the U.K. has made sufficient progress to move on to the next stage of talks. The EU wants May to improve her offer on the divorce bill by the end of the month.

The twists and turns of the Brexit legislation only serve to magnify May’s difficulties and provide an opportunity for her political enemies to make trouble for her -- not just those in her own party.

The main opposition is seeking a route to power with polls showing Labour ahead. Exploiting Tory divisions on Brexit and testing May’s slim working majority is one way for Labour leader Jeremy Corbyn to score political points.

 

Eoin Treacy's view -

The UK knows it has one big card to play which is its contribution to the EU’s coffers. The EU knows the UK needs a trade deal so it has every intention of squeezing as many concessions as possible from the UK. There was never a prospect that these negotiations would not come down to the wire because it is in neither party’s interests to concede early.



This section continues in the Subscriber's Area. Back to top
November 13 2017

Commentary by Eoin Treacy

Saudi Arabia Is Putinizing, Not Modernizing

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

There's a strong temptation for Western commentators, especially U.S. ones, to portray MbS as a reformist trying to bring the House of Saud into the modern world and Putin as a retrograde dictator taking Russia into the past. But the only reason this temptation to differentiate exists is that Saudi Arabia is a traditional U.S. ally, and the enemy of an old enemy -- Iran. In reality, there are far more similarities than differences between the world's two most important oil dictatorships. Their interests align on their most important market. Together, they've talked up oil prices to a level that allows them to maintain spending on defense and mega-projects. Their geopolitical interests don't align today, but that won't stand in the way of their natural mutual attraction.

Eoin Treacy's view -

Absolutism, dictatorship and monarchy do indeed share many similar characteristics. The natural recourse for someone seeking to solidify a potentially tenuous grip on power is to pump up historic grievances, towards a domestic or foreign enemy, and to pursue a bread and circuses domestic policy which boosts morale if not necessarily living standards. In that context Russia and Saudi Arabia are quite similar. 



This section continues in the Subscriber's Area. Back to top
November 10 2017

Commentary by Eoin Treacy

November 10 2017

Commentary by Eoin Treacy

Therapeutic Categories Outlook: Comprehensive Study

Thanks to a subscriber for this encyclopedic 2534-page (95.7mb) report focusing on evolving trends in the biotech sector. This is a very detailed report which I recommend downloading and saving because I anticipate it being a reference guide for me over the next year and possibly longer. Here is a section on pain medication: 

There are so many lawsuits against opioid manufacturers that it is hard to keep track of all of them. These suits stem from all levels of government (cities, counties, states), as well as private parties and organizations (e.g. NFL). Opioid manufacturers today are viewed similarly in public opinion to cigarette manufacturers in the 1990s. 

In October 2015 for the first time a doctor was convicted of murder for patient opioid overdose and was sentenced to 30 years. Other similar suits are in progress.

Insys’s Subsys (sublingual fentanyl spray) began to decline after experiencing strong sales growth over the first few years since launch. In December 2016 several senior executives were indicted over fraudulent sales practice.

The FDA has already approved one immediate release and nine extended-release opioids with abuse deterrent claims; with more likely on the horizon. As such, the field is becoming very competitive.

Market leader OxyContin has been in decline for the last two years, from ~450k scripts/month to ~260k scripts/month currently.

Newly launched abuse deterrent opioids are priced at 2-4x that of OxyContin before adjusting for discounting.
In a July 2017 report, ICER found abuse deterrent opioids to not be cost effective.

 

Eoin Treacy's view -

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

The USA’s opium epidemic has received a lot headlines, not least because on a per capita basis the USA consumes three time more opiates than Europe and six times more than Asia. This is not an issue specific to opiates but to prescription drugs in general. I remember arguing with pharmacists in Ireland about needing to buy 12 ibuprofen tablets instead of 6, whereas in the USA they are truly an over the counter drug and packages of 1000 are the norm. 



This section continues in the Subscriber's Area. Back to top
November 10 2017

Commentary by Eoin Treacy

Foreign Banks Invited to End of the Credit Party

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

In the 2000s, China invited foreign banks into the domestic market, as it tried to manage down a legacy of bad loans. HSBC bought a share of Bank of Communications, Royal Bank of Scotland took a minority stake in Bank of China and Bank of America purchased a piece of China Construction Bank – helping them on their way to listing. Fast forward to 2017 and the bang is bigger. Based on an announcement Friday, limits on foreign ownership of Chinese banks and asset managers will be removed, and foreign firms will be able to take a 51% stake in securities and life insurance firms. But the aim is the same – helping clean up a financial mess, and prevent it from happening again.

Bloomberg Economics had flagged financial market opening as one of the possible deliverables from this week’s U.S. - China summit. Recognizing that the devil will be in the as-yet-unknown details, here’s our take on the implications:

There’s potential for a grand bargain here. China’s financial system will receive an influx of foreign capital and expertise.

That will help deal with the aftermath of a credit binge that has seen debt swell to 259% of GDP, and engineer efficiency gains that may help prevent a repeat occurrence. After paying the price of entry, foreign firms will get a piece of the Chinese market – the second largest and fastest growing in the world.

 

Eoin Treacy's view -

China has taken on a great deal of debt over the last couple of decades as the pace of infrastructure development has beaten all records. Quite what to do with it is a big question and there are three answers. However, perhaps the biggest takeaway is that the administration is taking substantive measures to tackle the problem.  



This section continues in the Subscriber's Area. Back to top
November 10 2017

Commentary by Eoin Treacy

Bitcoin Falls as Cancellation of Upgrade Prompts Misgivings

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

While bitcoin soared to a record $7,882 within minutes of news that it would avoid another split on Wednesday, the gains have evaporated. Bitcoin is now trading more than $1,000 below where it was after a faction of the community scrapped plans for a so-called hard fork. Bitcoin was down 8 percent to $6,575 at 2:19 p.m. in New York.

Some speculators are disappointed they won’t get the additional coins that would have been created by a hard fork. While bitcoin splits are potentially disruptive, they’ve so far amounted to free money for holders of the cryptocurrency. Bitcoin Cash, the result of a hard fork in August, has climbed to about $900 from as low as $565 on the day the split was canceled, while bitcoin has slipped almost 10 percent after touching a record right after the news.

 

Eoin Treacy's view -

Bitcoin is still a largely unleveraged market so when exchanges eventually begin to offer futures and options that is likely to be a powerful catalyst for speculative interest. Right now, the cancelation of the latest fork means present holders will not receive an equal number of new coins so there is less urgency to buy. 



This section continues in the Subscriber's Area. Back to top
November 10 2017

Commentary by Eoin Treacy

America's "Retail Apocalypse" Is Really Just Beginning

This article by Matt Townsend, Jenny Surane, Emma Orr and Christopher Cannon for Bloomberg may be of interest to subscribers. Here is a section: 

Until this year, struggling retailers have largely been able to avoid bankruptcy by refinancing to buy more time. But the market has shifted, with the negative view on retail pushing investors to reconsider lending to them. Toys “R” Us Inc. served as an early sign of what might lie ahead. It surprised investors in September by filing for bankruptcy—the third-largest retail bankruptcy in U.S. history—after struggling to refinance just $400 million of its $5 billion in debt. And its results were mostly stable, with profitability increasing amid a small drop in sales.

Making matters more difficult is the explosive amount of risky debt owed by retail coming due over the next five years. Several companies are like teen-jewelry chain Claire’s Stores Inc., a 2007 leveraged buyout owned by private-equity firm Apollo Global Management LLC, which has $2 billion in borrowings starting to mature in 2019 and still has 1,600 stores in North America.

Just $100 million of high-yield retail borrowings were set to mature this year, but that will increase to $1.9 billion in 2018, according to Fitch Ratings Inc. And from 2019 to 2025, it will balloon to an annual average of almost $5 billion. The amount of retail debt considered risky is also rising. Over the past year, high-yield bonds outstanding gained 20 percent, to $35 billion, and the industry’s leveraged loans are up 15 percent, to $152 billion, according to Bloomberg data.

Even worse, this will hit as a record $1 trillion in high-yield debt for all industries comes due over the next five years, according to Moody’s. The surge in demand for refinancing is also likely to come just as credit markets tighten and become much less accommodating to distressed borrowers.

 

Eoin Treacy's view -

One of Warren Buffett’s most colourful adages is “you don’t know who has been swimming naked till the tide goes out” A great many companies have survived with high debt loads because liquidity was abundant, interest rates were at rock bottom levels and access to credit was easy. Until recently, refinancing has been easy which allowed companies to pile on additional debt. An obvious point is that highly leveraged companies are heavily exposed to refinancing issues as interest rates rise. 



This section continues in the Subscriber's Area. Back to top
November 09 2017

Commentary by Eoin Treacy

Video commentary for November 9th 2017

Eoin Treacy's view -

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

Some of the topics discussed include: Volatility does not hold its intraday peak in Japan or Wall Street, continued evidence of quantitative and risk parity strategies. bond volatility pauses in its decline, oil continues to hold the move above $60.



This section continues in the Subscriber's Area. Back to top
November 09 2017

Commentary by Eoin Treacy

Volatility Spikes as VIX Tops 2017 Average Amid Tax Uncertainty

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

Volatility roared back into the U.S. equity market as fresh concern about the prospects for tax reform sent the Cboe VIX Index to its biggest surge since August.

“In terms of how we see the world and the impact to our strategy, to the extent this reform causes some uncertainty, that could lead to a pickup in volatility,” said David Jilek, chief investment strategist for Gateway Investment Advisers. “But we don’t have any keen insights as to how the politics is going to play out.”

In a year that’s been characterized by record calm, Thursday’s two-point intraday jump in the VIX was enough to push it above the average level for 2017. The gauge, which uses options-trading data to measure implied volatility of S&P 500 stocks, still sits below the bull-market average of 18.3.

Major U.S. equity benchmarks slid from record levels, with losses widening after the Senate revealed that its tax plan would delay lowering the corporate rate until 2019.

Eoin Treacy's view -

Wall Street has been rallying on speculation the Trump tax cuts would benefit corporations and boost consumer sentiment. News yesterday that the Senate proposal would defer tax cuts until 2019 was not greeted with optimism and introduced doubt about exactly what, if anything, will eventually get passed. 

 



This section continues in the Subscriber's Area. Back to top
November 09 2017

Commentary by Eoin Treacy

Rio Tinto joins race for stake in world's largest lithium miner

Rio Tinto joins race for stake in world’s largest lithium miner – This article by Cecilia Jamasmie for Mining.com may be of interest to subscribers. Here is a section: 

 

El Mostrador suggested Tinto Rio had already made a bid, potentially trumping Chinese companies Sinochem, Tianqi and GSR Capital, all of which had also expressed interest in SQM.

The news came on the heels of PotashCorp and Agrium announcing Tuesday that China’s ministry of commerce had approved the merger, but required the sale of PotashCorp’s minority holdings in Arab Potash Company and SQM within 18 months of closing, and Israel Chemicals Ltd. within nine months.

SQM, which has a market value at just over $15 billion, produced roughly 44 million tonnes of lithium carbonate last year and is developing new projects in Chile and Australia.

Rio's current incursion in the lithium market is mostly limited to its 100%-owned lithium and borates mineral project in Jadar, Serbia, which is still in the early stages of development.

Eoin Treacy's view -

Rio Tinto generates 68% of its revenue from iron-ore and aluminium. Diamonds and minerals, copper and energy make up the balance of its operations in that order. Despite enthusiasm about lithium SQM generate about 26.5% of its revenue from the metal, with plant nutrition (32.2%) and potassium (20.8%) also representing major businesses for the company. 



This section continues in the Subscriber's Area. Back to top
November 09 2017

Commentary by Eoin Treacy

Email of the day on feudalism in the modern era

I was thinking back to our dinner at the club in LA, and remembering that you stated that the Princes of the Sauds owed allegiance to their King, comparing them to the Barons of Europe in the middle ages. You said that sooner or later, the finances of the Kingdom would have to be enhanced, and that the Princes would be called upon to do so, just as the Barons of long ago were required to collect taxes and give treasure to the Crown. The parallels between today in the Kingdom of Saudi Arabia and those days so long ago are amazing!

We have now seen the first round of the tax collection begin, and those who were arrested were quite likely opposing the new "taxes", if not plotting actual rebellion (in which case they will almost certainly be executed). There is a clear message here for the rest of the Princes...

Now this is the stuff that historians truly love. 

 

Eoin Treacy's view -

Saudi Arabia has been held together by a series of transfers and concessions to families and tribes that agreed to set aside their enmity in return for a share in the nation’s oil wealth. That worked well as long as the population was small and oil revenues trended higher amid a century of oil’s dominance of the global economy. 



This section continues in the Subscriber's Area. Back to top
November 09 2017

Commentary by Eoin Treacy

Britain risks a nuclear dead end by spurning global technology leap

Thanks to a David for this article from Ambrose Evans-Pritchard in the Telegraph. Here is a section: 

A few million will be put aside for ‘blue sky’ research but the real money will go to a consortium led by Rolls-Royce to develop a series of 440 megawatt SMRs for £2.5bn each, drawing on Rolls’ experience building PWR3 reactors for nuclear submarines. The company bills it as part of a “national endeavour’ that will create 40,000 skilled jobs. It requires matching start-up funds of £500m from the state. 

I find myself torn since these ambitions are commendable. They revive a homegrown British sector, akin to the success in aerospace. It is exactly what Theresa May’s industrial strategy should be. Rolls-Royce is a superb company with layers of depth and a global brand. It could genuinely hope to capture an export bonanza.  

Yet the venture looks all too like a scaled-down version of Sizewell, plagued by the same defects as the old reactors, less flexible than advertised, and likely to spew yet more plutonium waste.  

Rolls Royce insists that the design is novel and can slash costs by relying on components small enough to be manufactured in factories. “Everything can be cut down to size and put on a lorry,” said a spokesman.  

Rolls-Royce has said the design can slash costs by relying on components small enough to be manufactured in factories It aims for £65 MWh by the fifth plant, dropping to £60 once the scale is ramped up to seven gigawatts (GW), with exports targeting a putative £400bn global market.  

 

Eoin Treacy's view -

A decade ago the UK went from being an oil and gas exporter to an importer, as the North Sea oil fields hit peak production, and the cost of production began to rise. That represents a considerable headwind to growth from a sector which had been a tailwind for decades previously. When people bemoan declining living standards and the rising cost of living, one of the first places to look has to be the energy sector and absence of a clear strategy to promote energy independence. 



This section continues in the Subscriber's Area. Back to top
November 08 2017

Commentary by Eoin Treacy

Video commentary for November 8th 2017

November 08 2017

Commentary by Eoin Treacy

Iron Ore Imports Collapse as China's Great Cleanup Kicks In

This article by Jasmine Ng and David Stringer for Bloomberg may be of interest to subscribers. Here is a section:

Purchases dropped to 79.49 million tons in October, according to customs data on Wednesday. That’s down from September’s 102.8 million tons, and is the lowest amount since February 2016. Over the first 10 months, imports by the world’s top buyer still expanded 6.3 percent to 896 million tons.

Iron ore users and investors have been tracking China’s bid to rein in pollution this winter by imposing restrictions on mills’ production, in addition to curbs on other industrial activity. The drive has buttressed prices of higher-quality ores that are more efficient, while spurring speculation about a demand roller-coaster, with weaker consumption seen near term before a possible snapback in spring. At the same time, miners in Brazil and Australia have added supply.

The decline in China’s iron imports was the standout item amid a broader weakening of purchases, Daniel Hynes, a senior commodity strategist at Australia & New Zealand Banking Group Ltd., said in a note. “The closures of steel mills due to environmental concerns were behind the fall,” he said. Demand for raw materials imports is likely to rebound, according to the bank.

 

Eoin Treacy's view -

China’s pollution problem is a political liability. That fact highlights the evolution of a middle class, but it also reflects the transition underway as the consumer takes over as the engine for growth. China is gradually moving away from highly polluting industries while at the same time focusing on continued urbanisation and more value-added products. 



This section continues in the Subscriber's Area. Back to top
November 08 2017

Commentary by Eoin Treacy

Venezuela Will Seek to Restructure Debt, Blaming Sanctions

This article by Katia Porzecanski, Patricia Laya, Ben Bartenstein, and Christine Jenkins for Bloomberg may be of interest to subscribers. Here is a section: 

Prices on PDVSA’s $3 billion of bonds maturing in 2027 were quoted at 20 cents on the dollar at 9:23 a.m. in London, according to pricing source CBBT. Venezuelan government bonds maturing in 2018 slid 16 cents on the dollar to 63 cents, while longer-maturity debt was little changed.

Even after the oil producer known as PDVSA made an $842 million principal payment Oct. 27, the nation is behind on about $800 million of interest payments. All told, there’s $143 billion in foreign debt owed by the government and state entities, with about $52 billion in bonds, according to Torino Capital.

Sanctions imposed in August by the U.S. have made it difficult to raise money from international investors, and effectively prohibit refinancing or restructuring existing debt, because they block U.S.-regulated institutions from buying new bonds. It’s an unprecedented situation for bondholders, who have limited recourse as long as sanctions are in effect.

“I decree a refinancing and restructuring of external debt and all Venezuelan payments,” Maduro said. “We’re going to a complete reformatting. To find an equilibrium, and to cover the necessities of the country, the investments of the country.”

 

Eoin Treacy's view -

$60 is a big level for many higher cost private sector oil producers. It’s a number many companies have quoted as they struggled with cutting costs while prices traded below economic levels. Their fortunes are improving now that prices are at two-year highs. Venezuela’s breakeven is well above current levels so the recent rally is less of a salve, while bond payments are a constant drain on revenues. 



This section continues in the Subscriber's Area. Back to top
November 08 2017

Commentary by Eoin Treacy

Ride is not over after Uber catalyst

Thanks to a subscriber for this report from Deutsche Bank focusing on ride sharing investments. It’s dated July 14th, but the points made are equally relevant today. Here is a section:

Specific financial disclosures around the new JV are limited, but management did note that NewCo will 1) be able to enter new markets outside of the current six country region, 2) the new entity has a current gross bookings run rate of $1.578B and a 5-6% penetration rate of the taxi market across the six markets and 3) that UberEATS and other logistical opportunities will be a part of this new operation. Assuming no unforeseen regulatory hang-ups, management anticipates they will have regulatory approval for the deal in 4Q17 and commence operations as planned shortly thereafter.

Eoin Treacy's view -

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

Ride sharing is one of the largest emerging new sectors but has so far been difficult for regular investors to participate in. Low interest rates, abundant liquidity and a dearth of yield have resulted in private companies managing to stay private much longer than anyone would have expected a decade ago. The result is that when they do eventually seek a listing what is being sold to investors is a much more mature company with less potential upside from growth. 



This section continues in the Subscriber's Area. Back to top
November 08 2017

Commentary by Eoin Treacy

Interesting charts November 8th 2017

Eoin Treacy's view -

Palladium rallied successfully through $1000 today for the first time since 2001. The last time it traded at this level was following a massive rally spurred by a supply shortage. On this occasion the move might be somewhat overbought relative to the trend mean but is looks better supported. A break in the progression of higher reaction lows, currently near $950, would be required to question medium-term scope for additional upside. 



This section continues in the Subscriber's Area. Back to top
November 08 2017

Commentary by Eoin Treacy

November 08 2017

Commentary by Eoin Treacy

Good Morning November 8th 2017

Thanks to a subscriber for this edition of Anthony Peters missive which today discussed Isaiah Berlin’s “Two Concepts of Liberty”. Here is a section:

Looking at the world around us this morning and the events from Catalonia to Riyadh, from Brexit to quantitative easing, from blockchain to the Paradise Papers many of the issues which are at the centre of the respective debates and actions can and should be held up, looked at and then filtered through the Berlin’s weighing up of positive and negative liberty. In his paper Berlin distilled the essence of socio-political dialectic around the thesis and antithesis of freedom to and freedom from. 

It might be ironical that I am chewing over Berlin’s seminal paper on the somewhat forgotten, especially in Moscow, 100th anniversary of the October Revolution. I was born less than 40 years after the Bolshevik take-over of Russia and the creation of the Soviet Union and I grew up very much in the shadow of the daily threat of nuclear conflict between NATO and the Warsaw Pact, themselves some form of incarnation of freedom to and freedom from. I mentioned in a recent column a comment which had come out of Poland which, with the UK leaving the EU, becomes the next truculent child. The line had been that Warsaw had not fought to free itself from the diktat of Moscow only to find itself subject to equally stringent controls out of Brussels.

On September 11th 1990 – eleven years to the day before the attack on the Twin Towers, now known simply as 9/11 – President George Bush Sr gave a speech titled “Towards the new World Order” in which he embraced the polices of Mikhail Gorbachev and the dismantling of the Soviet empire. The dreams of democracy and self-determination for which NATO had stood and which were being pursued by way of the opening of borders across Europe though the structures of the EEC were in the ascendant. Twenty seven years later with the EEC having been replaced by the EU, with membership of 12 having been expanded to 28 and with the first ever member in the process of leaving again, the union looks ossified and in many respects now looks and behaves more like Soviet Moscow than it does like the old EEC. 

 

Eoin Treacy's view -

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

When I talk to people I meet in London and around the UK they seem to have a clear vision for what they want for the country. Self-determination, respect for property rights, acceptance that the nation was built on global trade and a desire for a more equitable society all feature highly. So, does the concern that the financial sector accounts for a substantial proportion of the economy and needs to be protected. 



This section continues in the Subscriber's Area. Back to top
November 07 2017

Commentary by Eoin Treacy

Video commentary for November 7th 2017

November 07 2017

Commentary by Eoin Treacy

Musings From The Oil Patch November 7th 2017

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

The euphoria that greeted the production cut agreement announcement lifted oil prices above $50 a barrel, a critical threshold for market confidence.  As global oil inventories failed to drop as the market expected, investors turned on the commodity as well as energy stocks, sending their prices lower.  Since the oil price drop in early 2007, prices have largely traded between the low $40s a barrel to now above $54, with a brief excursion as low as $26.  The narrow price range reflected global oil inventories remaining relatively flat, until recently.  As oil inventories started falling a few weeks ago, we are now in a period favorable for higher prices.  

Today, we are firmly planted in an oil market reflecting positive price momentum.  Better projected oil demand growth seemed to be the initial factor that helped lift the oil market.  The International Energy Agency (IEA) upped its demand growth estimates for the second half of 2017.  About the same time, U.S. shale producers began shedding oil drilling rigs in response to weakening oil prices and as they sensed a need to rebuild investor confidence in their financial health.  Producers had to dispel the image of exploration and production (E&P) companies as destroyers of capital, a label the industry’s record seemed to warrant.  Disciplined capital spending, meaning living within a company’s cash flow in order to not have to borrow money or sell more equity to fund the overspending, appears to be the new mantra for E&P companies.  The latest survey of E&P company spending plans versus cash flow demonstrates that overspending remains high.  This may signal that it will take time for companies to generate positive cash flow.  

In recent weeks, as Brent oil prices have risen at a faster rate than WTI oil, the forward oil price curve moved into backwardation, meaning that barrels of oil able to be delivered immediately are worth more than if they are stored and delivered in the future.  This price disparity is further impacted by the cost of storing the oil.  Backwardation encourages holders of oil in storage to begin selling those barrels, which has accelerated the shrinking of global oil inventories.   

Eoin Treacy's view -

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



Comparing these two futures curves for Brent Crude oil and West Texas Intermediate we see that the backwardation is most acute in Brent while West Texas Intermediate is in contango over the first four contracts. That highlights the continued incentive domestic US suppliers have, to pump and export into the global market; picking up a more than $5 spread in the process. 



This section continues in the Subscriber's Area. Back to top
November 07 2017

Commentary by Eoin Treacy

Switzer Report

Thanks to a subscriber for this report concentrating on the Australian market. Here is a section on retail:

Longer term, the fortress shopping malls are fabulous assets. A prime shopping centre, such as Chadstone in Melbourne, or Westfield Bondi Junction, is impossible to replicate at the location. As they attract more service outlets, such as fancier restaurants, consumers are visiting the mall as much for entertainment as to buy basic products.

In time, newer fortress shopping centres will offer upmarket housing accommodation and hotels, as integrated property developments. Westfield is embracing this trend offshore.

The changing retail mix at fortress malls will lead to a higher average spend per customer, per visit, in the next five years. More people will eat breakfast at the mall when they shop early; or dinner when they go to a movie there. We’ll buy more goods and services at fortress malls and fewer at strip shopping malls and sub-regional (or second-tier) malls.
It’s no surprise that Westfield is rationalising its US, UK and European portfolio away from second-tier assets to fortress centres. The shopping-centre giant wants to own the world’s premium shopping-centre portfolio and is investing billions to get there.

Westfield is a story of short-term pain for long-term gain. Its shopping-centre redevelopment will drag on earnings as rents are foregone during construction. But the medium-term effect should be faster growth in Westfield’s net tangible assets and a rising share price.

 

Eoin Treacy's view -

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

Westfield is not the best reflection of the Australian market because so much of its revenue is concentrated in the US and UK, where it has successfully developed experiential shopping focusing on restaurants and gyms etc. With Amazon now opening in Australia, albeit with only a single warehouse right now, Australia’s relatively high cost retail market will likely face increasing competition which is good for consumers. 



This section continues in the Subscriber's Area. Back to top
November 07 2017

Commentary by Eoin Treacy

Don't let the EU dictate Brexit if you want a speedy US trade deal, Trump adviser warns UK

Thanks to David for this article by Ambrose Evans Pritchard for the Daily Telegraph. Here is a section: 

Speaking at the Confederation of British Industry (CBI) conference, Mr Ross said his trip to the UK allowed him to “address with the UK some concerns we have that they may be tempted to include (provisions) in their agreement with the European Commission (EC) that could be problems for a subsequent FTA (Free Trade Agreement) with the US".

While he struck a friendly tone, he also issued a veiled warning that talks with Washington could go off the rails if Theresa May, the Prime Minister, aligned too closely with Brussels in designing the post-Brexit settlement.

It is a reminder that Britain risks having to pick sides between two trade superpowers with starkly different demands.
Mr Ross accused Brussels of imposing higher tariffs than the US across the “vast majority” of traded goods – including a 10 per cent charge on cars, compared to America’s 2.5 per cent – and trying to enforce its regulatory codes on third countries rather than allowing an open global system.

“While the EU talks a lot of free-trade rhetoric, it is really quite protectionist,” he said.

He vowed to avoid “tit-for-tat” bargaining when it came to negotiating a trade deal with Britain but left no doubt that there would be trouble if the UK signed up to core elements of EU ideology deemed most aggravating in Washington, not least the EU curbs on chlorinated chickens and – far more important – genetically modified foods.

 

Eoin Treacy's view -

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

The UK is busy employing thousands of bureaucrats to beef up the nation’s ability to handle its own enforcement of regulations and negotiations for trade, defence, fisheries, agriculture, finance, services etc. Considering the ambitions of the administration for new trade deals following the UK’s exit from the EU they are going to have a busy time. It has been our view at this service for over a year that negotiating trade deals does not need to take a decade as suggested by naysayers. However, a shortened timeline does require an energetic attitude on both sides of the table to reach agreement. 



This section continues in the Subscriber's Area. Back to top
November 07 2017

Commentary by Eoin Treacy

Melbourne Cup: Quant Style Going Max Active

Thanks to a subscriber for this report which arrived a day too late for me to post before the “race that stops a country”. Here’s to next year. This section may be of interest:

As the Melbourne Cup rolls around again for 2017, we turn our attention back to that most worthy and intellectually satisfying of pursuits: Figuring out how to take a good punt at the races. Despite the lacklustre performance of the Macquarie Quant Halpha Model at the 2016 Melbourne Cup, we believe that fundamental approach behind the model – to pick undervalued horses rather than those with the greatest absolute probability of winning – remains the rational objective for the fiscally minded punter. Our model does this by identifying factors that other punters systematically overvalue. 

For example, punters tend to over-value the form of a horse. Hence, while horses with good form are indeed more likely to win, the odds offered on these are typically too short to justify them as a systematically profitable bet. As with our standard Macquarie Quant Alpha Model, the Halpha model is designed to statistically capture inherent biases in the preferences of other market participants. These biases skew both betting odds and stock prices away from fair valuation. Quantitative models such as the Quant Halpha Model (and our regular Alpha Model) then takes advantage of these inefficiencies by betting (or trading) against the direction of the skew.

In order to improve the confidence and robustness of the Halpha model, this year, we have a (not-so-secret) secret weapon: More data. Thanks to Luke Byrne and Jared Pohl, the fine folks behind Kaggle’s Horses for Courses dataset, we have been provided access to data for an additional 3,700 horse races from 2017 to complement the existing dataset of 3,400 races from 2016. The expanded data sample both allows a larger training set to construct the Halpha model, and enables us to partition out-of-sample validation and test sets.

While inventing strategies for horse-racing betting markets is mostly just for a bit of fun, the quantitative processes we apply here (i.e. identifying the forecast parameters and detecting pricing inefficiencies) largely reflect those used to address more sophisticated cash equity markets. In comparison to the latter, betting markets provide a cleaner prediction environment based on behavioural biases with less interference from macroeconomic cycles and idiosyncratic news-flow. As such, the Halpha model provides a useful didactic tool for exploring underlying concepts behind quantitative equities models.

 

Eoin Treacy's view -

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

I have fond memories of the Melbourne Cup from my time living downunder in 1999/2000 and thought this report would offer a retrospective look at might have worked and how to plan for next year’s speculation. Max Dynamite placing in today’s race will have proved at least a particular comfort for the Macquarie team’s buy low strategy. 



This section continues in the Subscriber's Area. Back to top
November 06 2017

Commentary by Eoin Treacy

Video commentary for November 6th 2017

November 06 2017

Commentary by Eoin Treacy

A resignation, detentions and missiles: 24 hours that shook the Middle East

This article by Tamara Qiblawi for CNN may be of interest to subscribers. Here is a section:

Saudi Arabia was still putting out the fires caused by the missile attack when state TV announced the onset of an anti-corruption crackdown led by the crown prince. Over 17 princes and top officials were arrested on graft charges, according to a list obtained by CNN and cited by a senior royal court official.

The list includes billionaire business magnate Prince Alwaleed bin Talal, who owns 95% of Kingdom Holding, which holds stakes in global companies such as Citigroup, Twitter, Apple and News Corp.

The list also includes formal head of the royal court Khaled Al-Tuwaijri, Saudi media mogul Waleed Al-Ibrahim and Prince Turki Bin Nasser.

"Some of the wealthiest figures in the Arab world are in apprehension today," said military analyst Riad Kahwaji.
"This is unprecedented. We're seeing it for the first time and it's definitely causing shockwaves across the region."

 

Eoin Treacy's view -

On October 19th 2015 I wrote this: 

To think of Saudi Arabia as having to go to the market for money is a misrepresentation of just how much capital the kingdom has. Let’s think of the country more as a feudal kingdom than the democracies we are accustomed to. It is not beyond the realm of possibility that the various princes who have accumulated impressive wealth based on the largesse of the crown could be called upon to supply the state with arms, capital or soldiers in just the same way that dukes and earls would have done in feudal Europe.

 



This section continues in the Subscriber's Area. Back to top
November 06 2017

Commentary by Eoin Treacy

How To Diversify Your Portfolio and Transfer Wealth Across Generations Without Financial Advisory

Thanks to Bernard Tan for this note which offers an interesting perspective on why truly global companies, that dominate their respective niches, with long track records, tend to outperform over time. Here is a section:

I’m going to use 3M to illustrate the following points. 

1. Equities as an asset class is often perceived as riskier than others but there is one sector within equities that I will argue is safer than everything else including fixed income and real estate. 

2. If you invest in a world class, global scale company that is from this sector, you are already fully diversified, hedged and all the macro economic issues and challenges taken care of. 

3. This sector is resilient in the face of even a global financial crisis because frequently, these companies do not have high financial leverage. (Caveat: In recent years, it has become less true in the US and Europe) 

What is 3M really? It is a deep physics, chemistry and material science company. Everything they do is about manipulating the atoms and molecules of nature to create functional materials that we can use in our daily lives.  

With each passing year, 3M piles on more patents, a bigger library of chemicals and processes, more knowhow. All this knowledge is cumulative. The company is now 115 years old. All that accumulated intellectual property is practically unassailable. There will never be another company like 3M anywhere else in the world. Certain segments of their business can be separately attacked but there will never be another company that can challenge 3M on most fronts simultaneously.  

This is the nature of science and intellectual property. The strength is cumulative over time. In contrast, for real estate companies and banks, big or small has no bearing on vulnerability to debt crisis storms, as we all learnt in 2008. The underlying strength is not cumulative over time, not the way it is for a science and intellectual property company.

 

Eoin Treacy's view -

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

When I click through the constituents of the Autonomies section of the Chart Library 3M always comes out first because they are listed in alphabetical order. However, the reason the company is included in the list of Autonomies is because it fulfils every qualification for membership. It is a truly global company with operations everywhere and generates 60% of revenue from outside its home market. 



This section continues in the Subscriber's Area. Back to top
November 06 2017

Commentary by Eoin Treacy

Offshore Trove Exposes Trump-Russia Links And Piggy Banks Of The Wealthiest 1 Percent

This article from the International Consortium of Investigative Journalists may be of interest to subscribers. Here is a section:

In addition to top-flight international banks such as Barclays, Goldman Sachs and BNP Paribas, other elite Appleby clients have included the founder of one of the Middle East’s largest construction conglomerates, the Saad Group, and the Japanese company operating the crippled nuclear power plant in Fukushima.

The files reveal that America’s most profitable company, Apple Inc., shopped around Europe and the Caribbean for a new island tax shelter after a U.S. Senate inquiry found that the tech giant had avoided tens of billions of dollars in taxes by shifting profits into Irish subsidiaries.

In one email exchange, Apple’s lawyers asked Appleby to confirm that a possible move to one of six offshore tax havens would allow an Irish subsidiary to “conduct management activities . . . without being subject to taxation in these jurisdictions.” Apple declined to comment on details of the corporate reorganization but told ICIJ that it explained the new arrangements to government authorities and that the changes did not reduce its tax payments.

The files also reveal how big corporations cut their taxes by creating offshore shell companies to hold intangible assets such as the design of Nike’s “Swoosh” logo and the creative rights to silicone breast implants.

One of Appleby’s top corporate clients was Glencore PLC, the world’s largest commodity trader. The files contain decades of deals, emails and multimillion-dollar loans to bankroll ventures in Russia, Latin America, Africa and Australia.

 

Eoin Treacy's view -

The Panama Papers were conspicuously short on details of US citizens and corporations. The New Paradise Papers are loaded with details of the dealings, all legal, of major US corporations, politicians as well as the Queen of England. 



This section continues in the Subscriber's Area. Back to top
November 06 2017

Commentary by Eoin Treacy

Email of the day on suggested allocations to stocks by Wall Street analysts

The US Stock Market Allocations Stocks Index (STALSTOX INDEX) Has stopped updating. Is it possible to correct that?

Eoin Treacy's view -

I’m afraid Bloomberg stopped updating this Index at the end of last year. I guess after it because popular the low suggested weighting to equities, which was probably a hangover from the aftermath of the credit crisis, was becoming an embarrassment for the firms contributing their views. 



This section continues in the Subscriber's Area. Back to top
November 03 2017

Commentary by Eoin Treacy

November 03 2017

Commentary by Eoin Treacy

Fossil-Fuel Friendly Tax Plan Spares Oil, Not Solar or Tesla

This article by Alex Nussbaum, Brian Eckhouse and Emma Ockerman for Bloomberg may be of interest to subscribers. Here is a section:

The House proposal protects three provisions that save explorers billions of dollars annually, while chopping a few others.

The legislation preserves the use of last-in-first-out accounting rules, also known as LIFO. The rules let companies value crude stockpiles at the price they’re selling for, rather than the original purchase cost. The bill also allows continued deductions of so-called intangible drilling costs and preserves a measure that lets explorers reduce taxable income to reflect the depreciation of reserves.

All three were thought to be in jeopardy as Republicans searched for offsets to pay for lowering taxes elsewhere.
Eliminating the drilling and depletion provisions alone would force energy companies to pay about $25 billion in additional taxes between 2016 and 2026, Congress’s Joint Committee on Taxation estimated last year.

The House bill would also end two smaller breaks for “marginal" oil wells and enhanced oil recovery projects, which involve older oil and gas fields. That would cost drillers about $371 million over ten years, the committee estimated.
The plan spares “the Holy Grail of E&P tax breaks" by maintaining the intangible drilling costs provision, analysts at Houston investment bank Tudor Pickering Holt & Co. said in a research note Friday. Between that and a plan to cut the corporate rate from 35 percent to 20 percent, the legislation would be “a net positive for oil and gas," they wrote.

 

Eoin Treacy's view -

The US oil and gas business represents a major opportunity for the economy to reduce its trade deficit with oil producers or even to become a net energy exporter. Renewables represent an equally important part of that goal since every barrel of oil not consumed at home is available for export. It therefore makes sense from a strategic perspective to support both from a regulatory and tax perspective. However, energy is about the most politically charged of all sectors, not to mention being competitive between source and others. Therefore one tends to be favoured over the other depending on the tone of the administration in power. 



This section continues in the Subscriber's Area. Back to top
November 03 2017

Commentary by Eoin Treacy

The World Stands in Line as the iPhone X Goes on Sale

This photo montage captures the enthusiasm for Apple’s iPhone X. Here is a section: 

The $1,000 price tag on Apple Inc.’s new iPhone X didn’t deter throngs of enthusiasts around the world who waited—sometimes overnight—in long lines with no guarantee they would walk out of the store with one of the coveted devices.

Apple briefly became the U.S.’s first $900 billion company on the day the new smartphone went on sale.

 

Eoin Treacy's view -

Consumers have understandably been delaying purchases until the X was launched. After all why fork over $700 for a second-rate version when the feature laden anniversary edition is only six weeks away. Glass on front and back and rumours that the augmented reality has been toned down to speed up production are unlikely to deter initial enthusiasm for the device not least as the new emoticons are designed to appeal to the young hip crowd. 



This section continues in the Subscriber's Area. Back to top
November 03 2017

Commentary by Eoin Treacy

Breakfast with Dave November 3rd 2017

Thanks to a subscriber for this report by David Rosenberg at Gluskin Sheff which may be of interest. Here is a section:

I would have to say that if there is a market that has broken out of a 25-year secular downtrend, and where the economic and political tailwinds are significant, it is in Japan. I get told all the time that Japan’s population is declining, but we are buying companies, not bodies, and the bottom line is that even with this declining population, earnings momentum is on the rise and profit margins in Japan are on an impressive expansion phase, and not nearly priced in, In fact, Japan is one of the few markets globally that is not trading at premium multiples relative to its history and is an under-owned market both globally and locally. 

Eoin Treacy's view -

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

Japan is one of the few major economies running both easy monetary and fiscal policy. That is contributing to asset price inflation which has resulted in the market breaking out of 25-year+ base formations. 



This section continues in the Subscriber's Area. Back to top
November 03 2017

Commentary by Eoin Treacy

Email of the day on market cap to GDP

Warren Buffett uses the ratio of the market capitalisation of all listed US equities to US GNP (or is US GDP?), as a measure of the under or overvaluation of listed US equities in an overall sense. Where would such a ratio, and its long-term historical chart, be easily available in the internet? How about showing the chart in the Chart Library? Thanks in advance.

Eoin Treacy's view -

Thank you for this suggestion which is already in the Chart Library. One consideration however is that while market cap data for the US market is updated regularly it is only available from 2003 on Bloomberg so that limits the historical perspective we can access. Additionally, GDP is updated quarterly in arrears so it is going to be a lagging indicator at best. 



This section continues in the Subscriber's Area. Back to top
November 03 2017

Commentary by Eoin Treacy

The story of Ethiopia's incredible economic rise

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

In 2000, Ethiopia, the second-most populous country in Africa, was the third-poorest country in the world. Its annual GDP per capita was only about $650. More than 50% of the population lived below the global poverty line, the highest poverty rate in the world.

What has happened since is miraculous. According to IMF estimates, from 2000 to 2016, Ethiopia was the third-fastest growing country of 10 million or more people in the world, as measured by GDP per capita. The country’s poverty rate fell to 31% by 2011 (the latest year Ethiopia’s poverty level was assessed by the World Bank).

The outlook for the next five years is bright. In its latest global forecast, the IMF projected that Ethiopian GDP per capita would expand at an annual pace of of 6.2% through 2022—among countries with 10 million or more people, only India and Myanmar are expected to grow faster.

Any country making such progress would be cause for celebration, but because of its size, swelling population, and the depths of its poverty, Ethiopia’s gains are particularly heartening. By 2050, the UN expects the country to grow to 190 million people, from around 100 million today, making it among the fastest-growing large countries in terms of population, too.

 

Eoin Treacy's view -

It has been an adage at this service for decades that in emerging markets governance is everything. In the last decade we truncated it to simply governance is everything because that is as true of highly developed markets as of anywhere else. For a country with a population that is expected to just about double in the next 30 years an trend of improving standards of governance is essential if famine and civil unrest is to be avoided. 



This section continues in the Subscriber's Area. Back to top
November 02 2017

Commentary by Eoin Treacy

Video commentary for November 2nd 2017

Eoin Treacy's view -

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

Some of the topics discussed include: reaction to the Bank of England's interest rate hike, Pound weak, FTSE firm, Bitcoin surges to new high, VIX back below 10 while Wall Street at new highs, Nikkei-225 continues to surge higher, Yen testing its range lows, Brent crude holds $60.  



This section continues in the Subscriber's Area. Back to top
November 02 2017

Commentary by Eoin Treacy

Today's Interesting charts November 2nd 2017

Eoin Treacy's view -

The Pound pulled back sharply against the Euro from the region of the trend mean to confirm the integrity of the medium-term progression of lower rally highs. Mark Carney reiterated the market’s view that the Bank of England will pursue a gradual interest rate hiking policy suggesting it could be some time before the next move is made. 



This section continues in the Subscriber's Area. Back to top
November 02 2017

Commentary by Eoin Treacy

Constructive on structural and cyclical growth outlook

Thanks to a subscriber for this report for Deutsche Bank highlighting some of the achievements India has made in improving governance. Here is a section:

 

While the long term structural macro outlook remains unambiguously positive, we think India is also poised for a cyclical upturn in growth, and that the worst of the growth-slowdown, caused by temporary disruption and technical factors related to external trade, is behind us. The economy has already started to stabilize post GST and high frequency indicators are showing a rebound, which should eventually reflect a recovery in July-Sep’17 GDP growth (DB estimate 6.4%). While we expect growth to average around 6.6% during FY18, we are more optimistic about the outlook for FY19 and beyond.

We also note that growth momentum generally improves in the year prior to the elections (India’s next general elections are to be held in May 2019 or earlier), which is likely to play out in this cycle as well. We think given the various reforms that are operational at this stage and that have been implemented by this government so far, it is reasonable to expect growth to return close to 8.0% by FY20, absent any external shock that could jeopardize this baseline outlook.

Eoin Treacy's view -

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

At a talk I gave for the CFA in San Francisco in 2013 I made the point that rather than comparing India to China it was probably more appropriate to compare India’s development to the UK’s and China’s to the USA. The reason for this was because the USA built its infrastructure and cities on a grid system with clear delineation between public and private responsibilities which to one extent or another China has followed. 

 



This section continues in the Subscriber's Area. Back to top
November 02 2017

Commentary by Eoin Treacy

Bitcoin Surges Past $7,000 to Extend Record Rally

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

“It is simply remarkable how resilient bitcoin has been in the face of significant negativity,” said Lukman Otunuga, a research analyst at ForexTime, in a Nov. 1 note to clients. “The price action suggests that bulls have a very firm grip.”

In a blog post this week, Themis warned CME is “caving in” to pressure from clients and placing a seal of approval around a “very risky, unregulated instrument that has a history of fraud and manipulation.” The products planned by CME “remind us of the collateralized debt obligations which were peddled during the financial crisis,” the post said.

Asked whether he’s concerned about a potential bubble, CME Chief Executive Officer Terry Duffy said on Bloomberg TV on Nov. 1 that the firm’s job is to “manage risk, not decide what the price of a product is.”

Eoin Treacy's view -

Bitcoin is considered by advocates to be a global phenomenon and it might get there eventually with progressively more countries legislating for its inclusion as an investment vehicle within their domestic markets. 



This section continues in the Subscriber's Area. Back to top
November 02 2017

Commentary by Eoin Treacy

Alibaba Caps $250 Billion Rally With Accelerating Sales Growth

This article by Lulu Yilun Chen for Bloomberg may be of interest to subscribers. Here is a section:

Alibaba Caps $250 Billion Rally With Accelerating Sales Growth – Alibaba’s “new retail” plan carries a simple premise -- to combine its online merchants with a vast swathe of physical stores now divorced from the internet, stripping out layers of profit-sipping middlemen and boosting Alibaba’s e-commerce in the process. Those outlets double as storage and delivery centers.

But the execution involves a battery of expensive and time-consuming investments: buying into department stores such as Intime, setting up “smart” grocery stores like Hema, investing $15 billion into expanding its delivery network into remote regions, and enlisting some half-a-million mom-and-pop stores that now serve the countryside.

Alibaba is trying to transform the way retailers large and small manage their inventory based on real-time demand. And drawing more physical customers into its network boosts its own online orders and provides abundant data to target future consumers.

Eoin Treacy's view -

Guangzhou’s old town is a picture of the commercial reality represented by the marriage of social media and physical stores. There are coupons available for almost every purchase on WeChat, JD.com or Alibaba that can only be redeemed in store. This has delivered almost overnight a realization that customer service is what drives customer flow. Coupled with on demand manufacturing China is rapidly advancing a modern shopping experience that retailers in the rest of world need to pay attention to. 



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