Perhaps the most interesting part of the discussion focuses on the rate at which the cost of producing batteries is accelerating to almost 20% per annum.
 
That holds out the prospect of batteries becoming commoditised in the same way as solar cells when production comes on lines. For the shares of battery producers that is likely to represent a challenge but not quite yet considering the supply inelasticity argument that still prevails within the market.

Nasdaq Biotechnology Index encounters resistance in the region of the trend mean and will need to bounce from the above the October low near 3200 to confirm support building is underway.

Volvo Cars is shaking up production plans for much of its lineup in an effort to dodge tariffs the U.S. and China have slapped on auto imports.

The Swedish automaker owned by China’s Zhejiang Geely Holding Group Co.has canceled plans to export S60 sedans from its first U.S. plant to China, just months after starting production. Volvo also will stop importing XC60 sport utility vehicles and dramatically reduce shipments of S90 sedans from China to the U.S.

Volvo will pivot to mostly exporting S60s from its factory near Charleston, South Carolina, to focus mostly on supplying the American market, according to Anders Gustafsson, the president of the carmaker’s U.S. unit.

“We’ll go at this change not with a smile, but we know what we need to do,” Gustafsson said. “We have a global manufacturing structure that helps us maneuver in these tough waters.”

Volvo is a Chinese company so the next step will be to deprioritise investment in US based production and to make big decisions about which models to sell where. The automotive industry has long depended on the ease of access to a global supply chain and the ability to manufacture cars in one country and sell them somewhere else. The prospect of the trade war persisting is likely to shape corporate decisions well into the medium term.

On a call with reporters, Hermès executive chairman Axel Dumas dismissed fears about a slowdown in China, which analysts and investors are concerned may come from a trade war with the US. “We are still strong all across the board in China,” said Mr Dumas. “We don’t see any change of pace at this stage.” Comparing the slightly slower third-quarter performance of Asia-Pacific to the overall figures for the region in the first nine months of the year, he said that “the differences for me are not material.”

Earlier this month luxury rival LVMH said that Chinese border authorities are stepping up searches on travellers, looking for luxury items brought back from cities like London and Paris. Mr Dumas said he believes that fluctuations in the euro have a greater impact on Chinese tourists shopping in Europe than fears about tighter border controls.

This month Hermès followed in the footsteps of Louis Vuitton and Gucci by launching its own ecommerce website in China, as the group seeks to increase its exposure to the world’s largest and fastest-growing market for luxury sales.

It is interesting that the company has reported it is seeing now lack of demand for its products in China but the price fell anyway. That is a clear example of the market being a discounting mechanism since what investors probably wanted to hear was that demand was growing strongly.

Mrs H was a fully self-funded retiree, owning a modest home in the outer northern suburbs of a capital city, living off the income from a portfolio of direct shares and some bank deposits. Her assets, other than the home, totalled $650,000, with $50,000 in non-income bearing assets. Of her investments, $500,000 are invested in fully franked dividend paying Australian companies and $100,000 invested in term deposits and cash. Mrs H is ineligible for a part aged pension, since her assets exceed the maximum assets test level (currently $564,000 for a single homeowner).

Mrs H currently has a taxable income of $30,571. The $100,000 in deposits only earns $2,000 in interest, while the share portfolio yielded an average 4% cash dividend providing $20,000. Importantly the dividends were all fully franked, receiving $8,571 in franking credits (these are included in taxable income). With no tax payable due to the Seniors tax offset, Mrs H received a full refund of her franking credits, considerably boosting her cash income from $22,000 to $30,571.

Since Mrs H is not eligible for any pension entitlements, she would no longer receive those franking credits under the ALP proposal. The loss of $8,751 would reduce Mrs H’s income by 28%, reducing her weekly income by $165, from $588 per week to just $423 per week.

This means her income would actually fall below the full aged pension for a single homeowner ($23,889 p.a. or $916.30 per fortnight /$458.15 per week).

Full franking on dividends is the number one topic of conversation that comes up when I have conducted The Chart Seminar in London. It has been one of the primary factors in Australian investors tending to favour their domestic market’s dividend paying stocks. Significant changes to the tax structure for dividends and pension could have a significant knock-on effect for the banks in particular because so many investors own them for income.

Yesterday’s article in The Wall Street Journal raises an interesting issue that may be interesting for discussion (see attached and the link - https://www.wsj.com/articles/octobers-market-rout-leaves-investors-with-no-place-to-hide-1540978259 ).

“Adding to the stock market’s anxieties has been a rare simultaneous drop in bond prices that has pushed yields near their highest levels in years. The dual breakdown in stock and bond prices has upended investors’ traditional safety tool kit of buying Treasurys during periods of volatility, leaving many with losses.”

Traditional investment portfolios of 60% equities and 40% bonds lost more than 3% in October and are down 1.2% this year, on pace for a rare annual loss that was last seen in 2008, as well as during volatile periods in 1990, 2001 and 2002, said Luca Paolini, chief strategist at Pictet Asset Management, which manages $191 billion. Even investors who are heavier on fixed income would still be in the red, with allocations of 75% bonds and 25% equities falling more than 2% this month to drag their performance down 1.1% for the year… Declines in bond prices, meanwhile, have exacerbated investors’ pain. Annualized losses among U.S. Treasurys and investment-grade bonds are at 9.7% and 4%, respectively, the third-steepest declines since 1970, according to a recent Bank of America Merrill Lynch report.”

Portfolio with 60% equities and 40% bonds allocation has been the most traditional advice for individual investors for decades. But I just thought, those were decades of the secular, almost 40-year bull trend in the bond market. If, as you and David often say, we are now witnessing the beginning of the secular bear market in bonds, then this 60-40 allocation represents troubles ahead. Bonds will probably stop being the same safe haven they were in the past. Yes, they will continue to provide some stability to a portfolio in a sense that they won’t fall 10% as equities but instead of rising in times of turmoil, they will also slump.

If this is the case, how allocation can be changed and where investors will look for safe heavens?

As always, it would be interesting to know your view.

In a period of disinflation or deflation fixing the interest rate you receive works wonderfully because its value increases over time. That has been one of the primary tailwinds for fixed income portfolios for decades. If on the other hand you are looking at a time of rising interest rates and rising yields then floating rate instruments become more attractive.

Cross-border e-commerce1 has developed into a large, quickly growing ecosystem – and has become a great success story for many e-tailers, meaning retailers and manufacturers selling their products over the Internet directly to end consumers.

This success can be shown in real numbers: in 2015, the cross-border e-commerce market accounted for USD 300 billion GMV2, about 15% of e-commerce overall. This rapid growth, however, has just begun and will continue: the cross-border market is expected to grow by about 25% annually until 2020 – nearly twice the rate of domestic e-commerce and a growth rate that most traditional retail markets would dream of achieving. In 2020, it is expected to account for about USD 900 billion GMV, translating into a roughly 22% share of the global e-commerce market. This growth momentum yields unrivaled opportunity for retailers and manufacturers. As this report will show, crossborder e-commerce is not an e-commerce giant story – all types of manufacturers and retailers will be able to successfully go global.

Even beyond 2020, all evidence shows that demand for products from abroad is not going to recede. That said, considering the patterns according to which e-commerce companies expand their regional footprint today, one could assume that every e-commerce purchase will eventually become a local purchase. This is mainly due to the higher cost efficiencies that localized fulfilment and the quicker shipments that shorter distances naturally promise at first glance. However, even e-commerce giants such as Amazon, Alibaba, and Zalando, which already operate local distribution centers in several countries, ship a significant part of their sales cross-border. This is driven by, for instance, the enormous number of stock-keeping units (SKUs) offered by some of these players. But having slow-turning SKUs sitting in inventory everywhere – a prerequisite for pure local fulfilment – is much more costly than shipping a certain share of orders cross-border. And in order to fulfill consumers’ wishes for faster delivery, many e-tailers offer premium international shipping options to their customers, e.g., for a surcharge. This is testimony that cross-border is not a passing phase or trend, but rather a significant staple in the e-commerce market that requires premium shipping.

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

The global postage and shipping industry represents a number of competing trends right now. On the one hand you have companies like Amazon which is prevailing on its largest sellers to expand internationally by making their products available in countries like Canada, Mexico, UK, Germany, France and Spain. That requires bulk shipping of inventory to its international fulfilment centres and often requires an increased compliance cost to manage multiple sales tax regimes.

More long nights lie ahead. Brazil’s nascent recovery from the worst recession in history hinges on his success, and the nation’s benchmark index has climbed 13 percent since mid-September -- close to its all-time high -- on optimism Bolsonaro would win, giving Guedes a chance to implement business-friendly policies. They include dozens of privatizations, a massive reform of the pension system and a revamp for the nation’s byzantine tax code.

Bolsonaro, who’s admitted he has only a “superficial understanding” of economics, has said he’s placing full control over the nation’s finances in the hands of Guedes, who was trained at the University of Chicago and founded both a private equity firm and a think tank for liberal economic theories. Yet for all that success, he’s had zero experience in implementing public policy.

“One thing’s for certain: Guedes is the guarantor of Bolsonaro’s alleged conversion to liberalism, and if for any reason he leaves the government, there will be an earthquake in markets,” said Ricardo Lacerda, chief executive officer of Sao Paulo-based boutique investment bank BR Partners.

How big an earthquake? One top market analyst said Brazil’s benchmark stock index could tank as much as 40 percent, reaching levels not seen since the 2016 impeachment of Brazil’s former president, Dilma Rousseff. While that’s probably overstating things, it’s the kind of hyperbole that’s characterized Brazil’s election rhetoric ever since polls made it clear in recent months that Bolsonaro was heading to victory.

 

It’s a truism but the market likes market friendly administrations. The potential for Bolsonaro to tackle engrained corruption, grant the central bank independence and streamline regulations have resulted in the Real rallying to test the region of the trend mean. Investors are probably now likely to wait and see what the new administration’s program for government will be before getting more bullish.

BASS: You know, the Chinese are in the worst financial situation they’ve been in, in the last 17 years because they operated domestic economy where they control the printing press, they control the press narrative, they control the price level and they control their people as we’ve seen them detain over a million of them in Jingjang for their religious preference. So they can change a lot of things domestically, but their -- the arbiter of the Chinese plan is their cross rate or their exchange rate with the rest of the world. China Inc.’s working capital account is now going South because they’re running what we believe to be a structural and more permanent deficit on the current account. And so, i.e., their working capital, their dollar balance whether it’s dollars, euros, yen or pounds, it’s mostly dollars. And their dollar balances is headed south. And so, the U.S. is in a very particularly interesting negotiating position today. We are in the strongest negotiating position we’ve ever had against China. They’ve kind of leveled the playing field a little bit more with their, let’s say, subversion of WTO rules, their intellectual property theft and basically everything they’ve done to take advantage of the U.S. over the past 15, 17 years.

China has the domestic economy on lock down and has an epic local government debt issue. It also has some of the largest deposits of any banking sector as well as large sovereign reserves. The only clear way to match liabilities with assets while also depreciating the currency, to support the export sector, is to avoid capital flight.

The global environment remains positive, although growth is moderating due to the poorer performance of emerging economies. The impact of protectionism is so far limited

In Argentina, a new round of capital flight and currency depreciation in August led to a further fiscal adjustment, the revision of the agreement with the IMF and the abandonment of the inflation target regime, which means an end to the economic program of President Macri’s first two years

The new monetary-exchange rate scheme seeks to control FX volatility by absorbing all surplus liquidity in pesos and targets holding the nominal monetary base constant until June 2019 setting up broad bands within which the FX can float, with limited intervention by the Central Bank outside this band

In 2019 the government will attain primary fiscal equilibrium with spending cuts and a new tax on exports, and the programme with the IMF ensures that the financial programme can be met with limited roll-over

The currency crisis and the new monetary and fiscal tightening lead us to revise our forecast for GDP growth in 2018 and 2019 downwards and our estimates of inflation upwards. The sharp real depreciation of the peso and the recession will result in rapid correction of the current account deficit

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

When is the best time to buy into an emerging market? That is a question I think a lot of people will be contemplating at the moment because emerging markets are trading at a substantial discount to developed markets and particularly Wall Street.

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

The problem for pro-Brexit camp in May’s Cabinet is that what is agreed as a fix for the Irish border could morph into a long-term status quo for the whole U.K. Businesses have long called for the U.K. to remain in the customs union to ease trade with the bloc, an option EU chief negotiator Michel Barnier has repeatedly offered as a way out of the stalemate. In parliament, the main opposition Labour party is also pushing for a customs union.

The thorny question of how to avoid a hard border between the U.K. and the Irish Republic has held up progress in Brexit talks since March. Time is running out for the EU and the U.K. negotiating teams to settle the terms of the divorce and sketch out the future trading arrangements before Britain leaves the bloc on March 29.

A summit of EU leaders in Brussels this week had been billed as the moment when the exit agreement would be struck but instead broke up with major issues still unresolved. The key question remains how to come up with a backstop for the Irish border.

UK business needs have to have some confidence in what its trading relationship with the EU is going to be post Brexit. The EU needs to blunt the threat the UK will set itself up as a freewheeling capitalist enclave that would compete and win inward investment. Therefore, both parties have a clear interest to reach a deal but the result of the negotiations are not going to be what many people thought they were voting for when the approved Brexit.

The withdrawal is part of a concerted push by Mr. Trump to counter China’s dominance and punish it for what the administration says is a pattern of unfair trade practices. The move is expected to be announced on Wednesday, according to senior administration officials.

The Universal Postal Union treaty, first drafted in 1874, sets fees that national postal services charge to deliver mail and small parcels to countries around the world. Since 1969, poor and developing countries — including China — have been assessed lower rates than wealthier countries in Europe and North America.

While the lower rates were intended to foster development in Asia and Africa, Chinese companies now make up about 60 percent of packages shipped into the country, taking advantage of the lower rates to ship clothing, household gadgets and consumer electronics. Many websites now offer free shipping from China, in part because of the cheap postal rates, administration officials say.

Privately-owned Chinese companies are among the largest third-party sellers on major internet venues like eBay and to a lesser extent Amazon. A US based seller pays a minimum of $2.66 for a small package with tracking from the US Postal Service. Sellers from China pay domestic local rates on international shipping. It might take longer to arrive but there is no way to beat Chinese sellers on price and particularly for small-sized goods.

“The eyes of the world are on Canada and Canadians should feel very proud, because people have been fighting for decades to make this moment a reality,” said Brendan Kennedy, chief executive officer of Tilray Inc., the largest cannabis company by market value.

After running up dramatic gains in the lead-up to legalization, cannabis shares failed to join the party Wednesday. Aurora Cannabis Inc. had slumped as much as 15 percent by 10:17 a.m. in Toronto for the worst drop since February, before paring losses. Canopy Growth Corp. was down 3.4 percent at 1:15 p.m. and Tilray Inc., the world’s largest pot company by market value, fell 6 percent.

Medical marijuana has been legal in Canada since 2001 but it’s only been about four years since the first cannabis companies began to list on Canadian exchanges. In that short time, about 140 pot companies have gone public in Canada, with a combined market value of more than C$60 billion ($48 billion).

I’m reminded of Mark Twain’s quip that reports of his death are greatly exaggerated. There was certainly some evidence of buy the rumour, sell the news today as some people took the day of legalisation as an opportunity to realise profits but the declines seen need to be put in the context of the advances seen over the last couple of months and the broad consistency of the medium-term trends.

A link to the full note and section from it is posted in the Subscriber's Area.

There is no one factor that investors can point to that offers a clear reason for why the market pulled back so sharply on Wednesday. Instead a confluence of events triggered stops which has resulted in a significant number of US large cap shares closing what were somewhat overbought conditions relative to their respective trend means.

Lula, Dilma and the labor party known as Partido Trabalhista PT, ruined Brazil. They robbed state companies and pension funds blind and ruined them. They instituted massive corruption as a means to collect funds in order to stay in power. They used the Development Bank BNDES to finance tin pot dictators in Africa and Latin America so as to be able to siphon off money for the party. PT caused Brazil’s worst recession in history, the highest rate of unemployment ever and a large reduction in GDP per capita. Wide spread corruption in all three branches of government and large scale hiring of public servants for electoral purposes were made a state policy. Public schools and universities were used for ideological purposes. Their quality dropped to astonishing levels, such that students are science ignorant and can neither interpret a text nor think clearly. They are unemployable. Laws were put up for sale. Of 1000 Medidas Provisorias (express approval laws) proposed by PT, 900 correspond to the sale of privileges (exemptions, subsidies, etc) The media was put under control through the tap of state publicity so that PT and sympathizers control TV, newspapers all NGOs and opinion pollsters. PT allied itself with Organized Crime which now controls Rio, is a major threat all over the country and recently tried to murder Bolsonaro. All this has caused a massive revolt, so that the Bolsonaro vote is far more an expression of anti-PT disgust than for the candidate himself. He was the only one to voice matters clearly. By far the least bad choice.

Thank you for this on ground perspective from Sao Paolo. A bull market paves over a lot of cracks in people’s willingness to tolerate declining standards of governance. No one was worried about all of the issues you detail above when commodity prices were surging and there was money for everything. It was only when commodity prices collapsed and funding evaporated that the extent of corruption was revealed. This is about as close to Warren Buffett’s adage “you don’t know who has been swimming naked until the tide goes out”.

The more recent manipulation is different from the one described in the Bloomberg Businessweek report last week, but it shares key characteristics: They’re both designed to give attackers invisible access to data on a computer network in which the server is installed; and the alterations were found to have been made at the factory as the motherboard was being produced by a Supermicro subcontractor in China. 

Based on his inspection of the device, Appleboum determined that the telecom company's server was modified at the factory where it was manufactured. He said that he was told by Western intelligence contacts that the device was made at a Supermicro subcontractor factory in Guangzhou, a port city in southeastern China. Guangzhou is 90 miles upstream from Shenzhen, dubbed the `Silicon Valley of Hardware,’ and home to giants such as Tencent Holdings Ltd. and Huawei Technologies Co. Ltd.

The tampered hardware was found in a facility that had large numbers of Supermicro servers, and the telecommunication company's technicians couldn’t answer what kind of data was pulsing through the infected one, said Appleboum, who accompanied them for a visual inspection of the machine. It's not clear if the telecommunications company contacted the FBI about the discovery. An FBI spokeswoman declined to comment on whether it was aware of the finding.

There is an air of “shutting the barn door after the horse has bolted” to this reporting since the revelations date from earlier this year and whatever data was available has likely already been stolen. It is reasonable to assume that China has as much data about everyone in the West as it could want and that cyberwarfare is certainly going to be a part of any future conflagration.

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Let me first set up the background; I believe we are in a secular bull market that will not peak for at least another decade and potentially twice that. However, it also worth considering that secular bull markets are occasionally punctuated by recessions and medium-term corrections which generally represent buying opportunities. 

For others, Italy’s euroskeptic government is just the embodiment of the populist sentiment taking root across Europe, which could threaten the bloc’s future and weigh on the euro for the months or even years to come.

Borghi, head of Italy’s lower house budget committee and a well-known euroskeptic, said in an interview on Radio Anch’io that “Italy, with its own currency, would be able to resolve its problems.”

“The comments about Italy having its own currency have touched a sore point,” said Jane Foley, head of foreign-exchange strategy at Rabobank International. “While the return of the lira would be almost impossible and hugely inflationary even if it could happen, the fact that the remarks can be read as anti-EMU sentiment are worrisome.”

The response of the market to the Italian government’s decision to splurge on its budget has been predictable and yields broke out to new recovery highs today. Populist rhetoric has been very vocal in saying they are not afraid of the spread but they have not yet had a taste of what higher borrowing costs will mean for the economy.

Australia’s property slump has reached the one-year mark as the nation’s two major cities have become the biggest drag.

National dwelling values dropped 0.5 percent last month, weighed by declines in Sydney and Melbourne, according to CoreLogic Inc. data released Monday. Prices in the two east coast cities, which make up more than half of the national value of housing, have fallen 6.1 percent and 3.4 percent respectively from a year earlier.

“Sydney and Melbourne are now the primary drag on the national housing market performance,” taking over from regions that were impacted by the mining downturn, CoreLogic’s head of research Tim Lawless said. Values have fallen greatest among the most expensive properties as lenders curb their appetite for high debt to income ratio lending, he said.

The RBA has been reticent to raise interest rates because the Australian mortgage market is dominated by floating rate loans. With prices already elevated and private sector debt as a percentage of GDP among the highest of any developed market the fate of the property market is a major arbiter in how well Australia’s economy can be expected to perform.

Mr Di Maio hailed the agreement as a “historic day”. “We made it!,” he said as he emerged from a balcony at Rome’s Palazzo Chigi, where the meeting took place.

“Today we have changed Italy! . . . For the first time the state is on the side of the citizens,” he said as ministers and members of parliament from his party hugged each other on the square outside.

Matteo Salvini, leader of the hard right League, part of the coalition and deputy prime minister alongside Mr Di Maio, also welcomed the agreement on spending, saying he was “fully satisfied with the objectives achieved”, which would include his party’s pledges for tax cuts and a reversal of unpopular pension reforms dating back to 2011.

Mr Tria, who is not affiliated with either party and was installed only after Italian president Sergio Mattarella rejected the coalition’s first choice for finance minister, had been pressing for a deficit number as low as 1.6 per cent of GDP going into the meeting.

A 2019 deficit of 2.4 per cent of GDP would represent a significant fiscal expansion from the 1.6 per cent target for this year agreed by the last centre-left government, and would be three times the 0.8 per cent number previously planned for next year.

Italy’s debt is BBB, which is still investment grade, but the yield trades like it is rated BB which is not investment grade. The populist administration has stated they are not afraid of the spread but one wonders if they have any conception what a downgrade to junk would do to demand for Italian debt. Large pension funds which have been gobbling up Italian debt to capture the higher yield would be forced to sell in the event of a downgrade. Meanwhile the ECB is winding down its purchase program so there will be a hole in demand for the bonds.

H&M’s inventories have been a persistent problem, rising steadily as the Stockholm-based fast-fashion chain failed to keep up with consumers’ tastes and was struck by logistics woes.

The company says it’s working through the excess stocks and will be able to scale back discounting as a result, even as it irons out its supply problems. “We are in a better position now than we were last year,” CEO Karl-Johan Persson said on a conference call Thursday. “We’re buying less and being smarter about our purchases.”

The shares soared as much as 13 percent in Stockholm trading. Analysts at RBC Capital Markets pointed to H&M’s forecast that fourth-quarter markdowns will be about flat with last year’s, as well as a third-quarter gross margin that beat estimates.

Fast fashion has relied on footfall at its stores but faces the twin challenges of discounters like TJMaxx and Ross Stores as well as the evolution of online sales like Amazon’s own brand goods and Stitch Fix. The challenge for the sector is not simply to ensure they are on trend but to contain prices in order to remain competitive. That has represented a painful challenge for companies like H&M and Inditex.

China is said to be planning to cut the average tariff rate it charges on imports from the majority of its trading partners as soon as next month. On Wednesday, Premier Li Keqiang his government wouldn’t devalue the currency in order to boost its exports amid the trade war.

“When we get days where there isn’t trade and tariffs escalation, which is in the news with us every day, market participants can focus more on fundamentals, and fundamental drivers continue to paint a pretty equity picture,” Leo Grohowski, chief investment officer at BNY Mellon Wealth Management, said by phone. “We’re striking a nice balance between good economic news and not becoming concerned yet about inflation.”

The Dow Jones Industrials Average hit a new high and the Dow Jones Transportations Average is trading within striking distance of another new high. While Dow Theory does not tend to get a lot of coverage these days it would be hard to argue that we are presented with anything other than at least a short-term bullish environment.

The market views a 25 basis point Fed rate hike next week as a near certainty, based on fed fund futures. Contracts on Thursday showed more than 45 basis points of total tightening by the end of 2018. Focus is increasingly shifting to the outlook for next year, with investors moving closer to the central bank’s projected path of three rate hikes for 2019.

That won’t be enough to prop up the greenback, according to Noelle Corum, an Atlanta-based portfolio manager in Invesco Ltd.’s fixed-income group. As global growth improves and market participants start to speculate about policy changes from the European Central Bank and Bank of Japan, the dollar’s support from Fed hikes and trade tensions will wear off, she said.

“Going into year-end, we would expect fundamentals will begin to drive markets again, and this will drive the dollar weaker,’’ said Corum, whose group manages $235 billion. She forecasts the greenback will depreciate to $1.20 per euro and weaken to 104 yen per dollar by year-end.

US Treasury yields popping above 3%, not least because of the dearth of demand following the front loading of pension contributions that ended on September 15th, has been a catalyst for both bond and Dollar weakness this week.

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

A link to the full report and section from it are posted in the Subscriber's Area.

Governance is Everything and this is doubly true in emerging markets. The Mahathir administration has made a point of trying to recoup some of the losses due to graft, not least 1MDB, and is taking a more forthright stand against the debt trap infrastructure projects the last government signed with China. These are positive outcomes and suggest standards of governance are improving.

Food manufacturers have been early adopters of new technologies from canning to bread slicers, and vision automation has been used for many years for tasks such as reading bar codes and sorting packaged products. Leaders now are finding the technology valuable because robot eyes outpace the human eye at certain tasks.

For years, Tyson Foods Inc. used sensors to map chicken fillets so they could be cut to the precise specifications required by restaurant customers that need them to cook uniformly. But exposure to the high pressure, high temperature water there kept causing equipment failures.

Now technical improvements, tougher materials and declining prices mean the company can integrate vision technology in facilities including the new $300 million chicken-processing plant in Humboldt, Tenn., said Doug Foreman, who works in technology development at the Springdale, Ark.-based food company. The technology could help optimize the use of each part of the bird, he added.

Robotics, artificial intelligence and computer vision all need to work seamlessly together in order for computers to fulfil the same tasks as humans. Creating systems that work together in such a manner is a time-consuming process but progress has been underway for decades and the breadth of what is now possible has improved considerably.

There is an increasing number of commentators in Italy that have drawn to the conclusion that the current government (still supported by a vast majority of Italians, ~60% according to latest polls) is determined to leave the Euro area and the EU. I am now convinced about this too.

Since there is no legally viable way of achieving this, the path to be followed will be that of an "accident" on the financial markets: the delivery of the promises of universal income and lower taxation, will push the fiscal deficit to "breaking point", while the ECB (unelected enemy of the people #1) will start withdrawing the bond buying program. 

With the spread uncontrollably high and seized credit (banks are also notorious enemies of the people), the only solution left (so the people will be told) will be the reintroduction of the Lira, overnight. The country will default and withdraw from international markets. Most activities nationalised. 

The motivation for doing this for those currently in power is clear: seizing unrestrained power (forget ideology, or patriotic instincts... those are facades). A country with universal income (assuming that functions) ceases to be a democracy anyway. The sponsor for all this comes from the East.

Interesting (Venezuelan) times ahead. 

The conclusion: don't touch Italian domestic names, not even with a barge pole from far away. 

Thank you for your interpretation of a potential outcome to the introduction of a populist coalition in Italy which I think we can both agree is a doomsday prediction for Italy, the ECB and the nations responsible for funding the central bank. Let’s take the argument back to first principles.

Tony Lee’s Sintai Furniture Co. makes outdoor furniture and other products sold at Costco , Home Depot and other U.S. stores that would be subject to tariffs in the expected $200 billion round. He is moving one-fifth of production to Vietnam for his U.S. exports, and keeping production for European and other markets at his factory in Dongguan.

Mr. Lee said the company will incur higher costs in worker training and material shipment in the short term, but he expects the move will save money in the long run. “The supply chain and capability in Vietnam takes time to build,” he said. “Once it is built up, Vietnam will be cheaper than China.”

China is moving up the value chain in terms of manufacturing and the increasing automation of production lines is a trend which has been underway for a decade. Simultaneously, rising wages have had an impact on apparel and footwear exporters which have migrated to places like Vietnam, Cambodia, India, Ethiopia and Kenya.

The new networks are expected to enable the steering of driverless cars and doctors to perform complex surgeries remotely. They could power connected appliances in the so-called Internet of Things, and virtual and augmented reality. Towers would beam high-speed internet to devices, reducing reliance on cables and Wi-Fi.

At the Shenzhen headquarters of Huawei Technologies Co., executives and researchers gathered in July to celebrate one of its technologies being named a critical part of 5G. The man who invented it, Turkish scientist Erdal Arikan, was greeted with thunderous applause. The win meant a stream of future royalties and leverage for the company—and it marked a milestone in China’s quest to dominate the technology.

At a Verizon Communications Inc. lab in Bedminster, N.J., recently, computer screens showed engineers how glare-resistant window coatings can interfere with delivering 5G’s superfast internet into homes. A model of a head known as Mrs. Head tested the audio quality of new wireless devices. Verizon began experimenting with 5G in 11 markets last year.

Nearby, in Murray Hill, N.J., Nokia Corp. engineers are testing a 5G-compatible sleeve that factory workers could wear like an arm brace during their shifts to steer drones or monitor their vital signs. The company began its 5G-related research in 2007.

You might remember a great deal of enthusiasm about the internet of things or the internet of everything a few years ago. Everything has gone quiet on that front of late not least because in order to reach commercial utility the billions of connected devices planned to enter service are going to need to be able to connect to the internet on a constant basis and current networks are incapable of handling the load. That means a whole new architecture is required to enable the next iteration of connected devices and 5G is the answer. 

“We see that light at the end of the tunnel, but we’re still kind of in the darkness ourselves,” Citi’s Peng said. Investors need more concrete catalysts before they step in to buy stocks. “So that’s the challenge for money managers.”

“We are looking to be more constructive on Asian equities in the next quarter, if the current correction continues. Valuations will be more attractive and worth a look then,” said Jason Low, senior investment strategist at DBS Bank Holdings Ltd.

“The good news is that valuations are looking more attractive now and technicals are oversold, which suggest that Asian stocks could be poised for a rebound in the next few months,” Jasslyn Yeo global market strategist as JPMorgan Asset Management.

Among the top 18 holdings in the iShares MSCI Emerging Markets ETF, 9 are from China. The addition, first of overseas Chinese companies and Hong Kong listed companies followed by mainland listed shares has represented a significant reweighting of the basket over the last decade. Since so many commodity producers rely on Chinese demand growth for exports the country’s influence is even greater than might initially be apparent.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

This was another highly enjoyable and educative trip to China for the Treacy family. One of the reasons we love visiting Guangzhou is because it is close to the factories Mrs. Treacy deals with but is also the gastronomic capital of China. The city is replete with wonderful dining options and the quality of food on offer is of a high standard. I’ll write a separate review of restaurants on another occasion.

This poster is in just about every public space from railway stations to the tube, to the barriers around building sites in Guangzhou. The first question I asked myself is why it needs to be in English as well as Chinese. Internet searches using English language terms do not return results even if one is using Baidu or other Chinese search engines and the vast majority of the domestic population does not read English. Therefore, the message is meant for a wider audience or the use of English is intended as a form of legitimisation of the ideals expressed.

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

We expect GDP growth in the euro zone to stabilize in the second half in range of around +0.4% to +0.5% q/q. The recent weakness in the euro should support export growth, even though the trade dispute is certain to weigh on foreign trade. A sustained steady uptrend in credit growth in the household and corporate sectors should support growth in domestic demand and investment spending in H2. We are forecasting GDP growth of +2.3% for the euro zone in 2018. 

We expect consumer price inflation in rise moderately in 2018 to an average of +1.6%. Considerable uncertainty remains regarding the extent to which the ongoing recovery will be reflected in higher core inflation rates. The trend in core inflation was at times below expectations, inter alia due to the regional fragmentation of the labor market.

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

It is arguable whether the European Union is ready for the end of quantitative easing but the ECB is ending its quantitative easing program anyway. It has legitimate concerns about the distorting influence of negative yields on both the economy and the bond market. However, it is quite likely that the end of purchases will have deleterious effect on the economy and most particularly for the peripheral economies.

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

I realise this summary at 4600 words is getting rather lengthy which is why I decided to right another book to more fully explore the issues represented by the rise of populism and what that means for markets and the global economic order. I’ve agreed an August/September deadline so hopefully it will be available this year.

"Our way of competing successfully is to look at all the players, see what they have that we think is great, and if we can incorporate that into our model, we will, but mostly play our game," Galperin said while speaking from Allen & Co.’s Sun Valley conference, and musing about this year’s global soccer championship. "As you know, we’re looking at the World Cup -- we try to play our game and use our advantages and our strengths. We have a great network of sellers, a great brand, we’re investing very heavily, we already have scale."

Shares of MercadoLibre gained as much as 2.2 percent in New York, the most intraday in almost a week.

It’s also betting on brick and mortar investments to improve service. Earlier this year, MercadoLibre announced a partnership for a 38,000-square meter distribution center in the greater Buenos Aires area. In addition, the company, which is providing loans to merchants and payment processing platforms, is working on a digital wallet that offers returns on whatever money is left, Galperin said. Infrastructure -- notoriously poor in Latin America -- is also a priority.

Many commentators have made the point that social media companies require broadband by either mobile or fixed line access to generate income from a market and therefore have an interest in promoting internet access. However, that is equally true of online retail. Wherever ubiquitous internet access is available online retail flourishes, along with its disruptive influence on the conventional retail sector. These maps of the internet’s pervasiveness may be of interest. 

Netflix’s accolades follow a rapid ascent in the television world. After its start two decades ago as a DVD-by-mail operation, the company has become a Hollywood powerhouse, signing popular producers, comedians and actors for original content. The company spends about $8 billion a year on new shows and films, far exceeding HBO and other competitors.

“Netflix has proven to be a welcoming home to A-list talent,” said Bloomberg Intelligence analyst Paul Sweeney. “And they have the checkbook to back it up.”

Other streaming services are getting more Emmy recognition, includingAmazon.com Inc. and Hulu. “The Handmaid’s Tale” contributed to 27 nominations for Hulu, while “The Marvelous Mrs. Maisel” helped Amazon collect 22.

Netflix is another company that has gone for scale ahead of profitability in the hope that it will be able to garner critical mass and market share before its competitors in the legacy sector of cable and theatres sector have time to catch up. So far, the strategy has worked and many people, myself included, have traded their cable/satellite TV for the convenience of Netflix.

Relax, says Goldman Sachs -- enough has changed that a replay is unlikely. Bulls should take heart, says David Kostin, the firm’s chief U.S. equity strategist, because whatever euphoria infected markets in the first part of the year has long ago dissipated. Hedge fund clients who were aggressively positioned heading into April are more conservative now, with exposures sitting near the bottom of their 12-month range.

“Going into Q1 earnings season, it was peak optimism,” Jeff Schulze, an investment strategist at ClearBridge Investments in New York, said by phone. “Now you have exactly the opposite situation where that optimism has been converted to pessimism.

As long as companies can hit those estimates, I think the market will reward those, rather than punishing them.”

Fundamentally, the second quarter will look a lot like the first as far as results go. S&P 500 companies are forecast to report 20 percent growth from a year ago and sales are likely to rise 8 percent, mirroring the previous period, which was the best since 2011.

The media’s number one story today has been the tariffs and the prospect of an all-out trade war between China and the USA. At the same time the USA is entering into this situation while engaged in fiscal stimulus while China is tightening to close out speculation in the shadow banking system. That has contributed to very different performance in their respective stock markets.

This time last year art was almost at the back of the Knight Frank Luxury Investment Index (KFLII), but 12 months later it has moved through the field to overtake wine and claim first place with growth of 21% to Q1 2018. Salvator Mundi, a work by the Old Master Leonardo da Vinci, turbo charged the headlines when it was sold for a staggering $450m last year, but paintings by less well-known artists have also been notching up multi-million dollar results, says Sebastian Duthy, of Art Market Research. “Prices for works by Impressionists and post-war artists have dominated auction sales for the past two decades. But this picture has been changing, with works by some contemporary artists appreciating rapidly in the last few years. “In March, artist Mark Bradford hit the headlines when his painting ‘Helter Skelter I’ was sold by ex-tennis star John McEnroe for a record $10.4m at Phillips in London. In May, rapper Sean Combs, aka P Diddy, paid $21.1m at Sotheby’s for a painting by artist Kerry James Marshall. The figure represents an 800-fold increase on the $25,000 paid for the same work in 1997.”

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

Asset price inflation has been the singular success story generated by quantitative easing. The upward trend in the price of collectibles is a function both of growing economies but also of the quantity of money chasing a limited number of items. Since inflation has not been a major factor over the course of the last decade then money supply growth and the rise of a new wealthy class, not least in China, has fueled this market. With central bank balance sheets now contracting, it is a big question whether this growth will consider next year.

The rise of a new entrant in the U.S. and last year’s 18 percent decline in the cigarette market in Japan, where heated-tobacco devices have become popular, have investors worried that an industry known for steady profit growth faces an increasingly uncertain future. Imperial’s shares have fallen 17 percent in the past year.

Cooper told investors this week that Japan was the only market where she expects rapid disruption for the tobacco industry and that the popularity of e-cigarettes in the U.K. and the U.S. means overall nicotine consumption is growing there.

Juul gives vapers a hit comparable to that of a cigarette because it contains benzoic acid, which makes it easier to deliver nicotine at a lower temperature without being harsh to the throat. After its success in the U.S., the startup vape brand is expanding internationally. To fund that effort, the company is said to be raising $1.2 billion in a financing round that would value it at $15 billion. Juul’s slim device, which looks like a flash memory drive, has captured the imagination of young consumers as word spreads via social media.

Defensive sectors tend to do well at the end of cyclical bull markets because the reliability of their dividends suddenly become attractive when growth stocks eventually lose their lustre. 

“I thought [the repair} was a pretty standard procedure,” Ash told CBC News. But after the repair was completed, when he went to drive the car, “It was actually pulling me into oncoming traffic. … it was a startling feeling to have the steering wheel actually pulling you into traffic.” Ash said he was able to control the car and get it back into lane.

According to Ash, a technician at the glass shop pointed at the camera, but Ash doesn’t recall hearing that person suggesting having the camera re-calibrated, which would most likely be at the dealership. Ash told CBC there was fine print in the invoice that talked about having the camera re-calibrated — fine print being the thing almost no one ever reads until there’s a problem. And the manual, which many people do read, says nothing about this.

It is to be hoped that assassinating the driver for using an independent vendor is a bug rather than a feature of self-driving cars. On a more serious note the obvious path to profitability for car companies is to make money on maintenance and repairs if they are constrained by the profitability of the vehicles. That is particularly relevant for electric cars where companies are losing money on every vehicle.

The most troubling and tragic threat to Mexico’s democracy is violence. Since campaigning began in September 2017, 132 politicians (jpg), including 48 official and aspiring candidates, have been killed, according to Ellekt, a consulting firm.

The most recent murder happened on June 25 in the southern state of Oaxaca. Emigdio López Avendaño, a candidate for local representative from AMLO’s party, MORENA, was gunned down along with four of his supporters.

The level of violence represents a huge spike from the run-up to last presidential election, in 2012, when less than a dozen politicians were killed, according to Ellekt. The firm’s director, Rubén Salazar, attributes the increase to state governors’ waning control over municipalities. Thanks to free elections, voters have been kicking out incumbents from governor’s offices around the country—a step forward for democracy. But at the municipal level, it’s had the perverse result of clearing the way for local strongmen to hijack the election process, sometimes at gunpoint.

“These changes have happened faster than the transformation of the political and democratic culture at the local level ,” he said in an interview in Artistegui Noticias (link in Spanish).

The three primary tenets of improving governance that we look for in an investment destination are that it have respect for minority shareholder interests, an independent judiciary and a free press. Those attributes increase the potential that economic growth will flow through to the stock market and that you will be able to get your money out when it comes time to sell.

Thank you for your superb service. Can you please advise your views on how vulnerable do you think the pharmacy shares are in the US after Amazon's entry to the field? Thank you in advance.

There are obvious fears that the introduction of Amazon’s business model to the pharmacy sector will have the same effect it had on the big retailers. However, I suspect the most profound effect will be felt among the smaller independent pharmacies that command about half the total US market. Here is a section from an article by bizjournals.com that may be of interest:

There are currently about 22,500 independent pharmacies in the United States, and these pharmacies dispense nearly half of the nation's retail prescription medicines, Norton says.

All told, independent pharmacies are an $81.4 billion marketplace annually. They fill 1.38 billion prescriptions a year — about 201 a day, per pharmacy — and employ 314,000 people on a full- or part-time basis.

This weekend’s vote was, in short, a surprise. Contrary to predictions, Erdoğan won decisively, and his new presidential system has received a seal of approval from the electorate. However, the AKP’s failure to secure an absolute majority in parliament is an important message for Erdoğan. It remains to be seen whether Erdoğan will take this as an opportunity to address the long list of challenges facing Turkey and reconstruct its democracy and economy, and regain the respect that he once enjoyed internationally. The March 2019 municipal elections will be the next test of his performance.

The strength of a nation’s public institutions is what separates failed states from those that can evolve and weather a period of economic peril. Erdogan is an aspiring despot who wants to rule for life. The fact that Turks approved of his presidency but did not give his party an absolute majority suggests they favour limitations on presidential power which is in keeping with any democratic country’s constitution.

Later this week, the U.S. Treasury Department is expected to release fresh rules on Chinese investment in technology companies, Bloomberg reported on Monday, putting additional pressure on China -- which hit back against the plans. Chinese investment has provided jobs and tax income for the U.S., and it should view commercial activities “objectively,” Foreign Ministry spokesman Geng Shuang told reporters in Beijing on Monday.

The U.S. is due to impose tariffs on $34 billion of Chinese imports from July 6, and Trump has threatened to impose levies on another $200 billion of Chinese goods. If that threat is realized, it could cut as much as half a percentage point off China’s economic growth, and also hit the American economy, economists have said.

Anxiety over the economic fallout is cutting deep in financial markets, with China’s yuan sliding to a six-month low Monday. The S&P 500 Index fell to the lowest since May and the Dow Jones Industrial Average sank for the ninth time in 10 sessions.

As if to reinforce concerns about the economic outlook, the Dutch Bureau for Economic Policy Analysis on Monday published its latest trade monitor, showing world trade momentum dropped in April to the lowest since 2015. The measure has fallen sharply since hitting a seven-year high at the start of 2018.

The EU’s export-oriented economies along with China have been some of the greatest beneficiaries of globalisation and therefore are also likely to be the primary defenders of the “multilateral trading” regime. Nevertheless, the rise of populism which I describe as a revolt against the status quo represents a challenge to that system which is currently being led by the Trump administration but represents a significant theme in an increasingly large number of countries.

“Many states will pick up on those details and incorporate them into their own regulatory regimes,” said Eric Citron, an attorney who represented South Dakota. He said he expected nearly every state with a sales tax to move legislation or regulations to enforce collections. “Complete compliance will become the norm within the next year or two,” he said.

Amazon originally set up its business model to avoid state sales taxes, limiting its physical presence to a handful of warehouses. But it changed strategy to build more warehouses closer to consumers as it has relied more on its Prime two-day shipping offer—and started charging sales tax on items it sells directly.

Amazon hasn’t collected the taxes for most independent merchants who sell on its platform. About $200 billion in sales originated with independent merchants selling on Amazon world-wide last year, according to Factset analyst estimates, compared with about $116 billion in direct sales by Amazon. The company declined to comment on the ruling.

The cost of compliance is rising in just about every sector. Since the credit crisis the burden of regulatory compliance has been a significant headwind for the banking sector and it has changed the nature of how they do business. The UK’s Retail Distribution Initiative resulted in the cost of doing business rising for financial advisors. The EU’s drive to introduce GDPR has seen some company email lists drop from hundreds of thousands to the tens of thousands. Asking online retailers to monitor how much and how often they sell into each state will increase compliance costs regardless of whether tax is then due.

Rude Health
“There’s been a few shots on the trade side, but nothing has fully broken out,” said Dermot Ryan, a fund co-manager at AMP Capital in Sydney. “Ultimately, the stock market looks at the valuation and health of the sectors. The resources sector is in rude health at the moment.”

Not as Sensitive
“Australia sometimes acts as an EM by proxy, but with one key difference: it’s not as sensitive to the potential negative impact from increasing tariffs on Chinese and U.S. goods,” said Kerry Craig, global market strategist at JPMorgan Asset Management in Melbourne. “We’re not as crucial in the supply chain as many north Asian economies. While there would be some impact on the materials sector if Chinese growth was expected to take a hit and metals demand fell, it’s more than likely that China would respond by increased infrastructure spend to keep the ship steady.”

Pretty Cheap
“The banks look pretty cheap,” for a longer-term investor, said Don Hamson, managing director at Plato Investment Management in Sydney. “It’s been a bad 18 months, but maybe we’re coming toward the end of it.”

The Australian financial sector has been under a cloud because of the Royal Commission's focus on overcharging in the small to medium sized enterprises sector. However, the hearings are about to refocus on relations between financial firms and people living in remote areas such as Aboriginal peoples. While that is likely to represent some political risk, it is less likely to have a large impact on the stock market.

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Here is a summary of my view at present:

That would mean scrapping the EU’s 10% tax on auto imports from the U.S. and other countries and the 2.5% duty on auto imports in the U.S. As a prerequisite, the Europeans want Mr. Trump’s threat of imposing a 25% border tax on European auto imports off the table.

Over the past few weeks, Mr. Grenell has held closed-door meetings with the chiefs of all major German automotive companies, including bilateral meetings with the CEOs of Daimler AG , BMW AG and Volkswagen AG , which operate plants in the U.S. Overall, Germany’s auto makers and suppliers provide 116,500 jobs in the U.S., according to the Association of German Automotive Manufacturers.

During these talks, which the ambassador initiated, the managers said they would back the scrapping of all import tariffs on trans-Atlantic trade in automotive products as the keystone of a broader deal covering industrial goods. The German government is on board and Mr. Grenell promised to support the idea, according to U.S. and German officials.

Trade tensions are ebbing and flowing on almost a daily basis. Efforts led by the German auto manufacturers to defray risks to their US business obviously highlight how seriously companies are taking the threat of trade friction and what it could mean for their businesses. That is particularly true in the aftermath of the diesel cheating scandal which continue to make headlines.

So I'm paying more attention to the weak comparable sales guidance the company offered for the third quarter, and the factors it says have been weighing on sales of late.

Executives said Tuesday that in the U.S. market, Starbucks struggled to draw customers in the afternoons. This has been an ongoing problem for Starbucks, and executives haven’t demonstrated they have a clear solution. They've recently put up some TV advertising emphasizing Starbucks as an afternoon destination, and perhaps we'll soon see payoff from that.

But it'd have an easier time luring people for more than just their morning caffeine fix if it could establish itself as more of a go-to for food, not just beverages. And speaking of its menu, the chain has work to do on its signature drink offerings, too. Look at what has happened to Frappuccino sales:

Perhaps this shouldn't come as a shock, given that Frappuccinos pack a lot of calories and customers are increasingly looking for healthy choices. But Starbucks needs some new hits to give people a reason to come back through its doors, especially with so many insurgent and boutique coffeehouses chasing the same customers.

Starbucks generates approximately 70% of its revenue from North America while 15% comes from China. The company’s mix of coffee, sweet and/or fatty treats and free Wi-Fi was a winning strategy before the evolution of 4G and ubiquitous web access. It used to be that you would go to Starbucks to sit down, look cool and show off your new gadget while accessing the Wi-Fi. That’s just not enough to inspire users any more.

Pressuring companies through bureaucratic means “is a practice that the Chinese have used for a long time and our companies are on guard,” William Zarit, chairman of the American Chamber of Commerce in the People’s Republic of China, said on Bloomberg Television. “This is definitely a concern.”

South Korean and Japanese companies have all felt this effect, with their businesses in China hurt as part of a dispute between states.

In 2017, following the Seoul government’s decision to deploy an anti-missile system that China opposed, China forced South Korean retailer Lotte Shopping Co. to suspend operations at many of its hypermarkets in the country for alleged violations of fire-safety rules. The company eventually decided to pull out of China, but still can’t sell all its units and continues to rack up losses. In total due to the dispute, Lotte Group lost an estimated 2 trillion won ($1.8 billion) in the year from March 2017, according to Yonhap News Agency.

The backlash also led to boycotts, with consumers shunning cars from Hyundai Motor Co. and cosmetics from Amorepacific Group. Chinese tourists cancelled Korean vacations, forcing airlines to scrap flights and hotels to slash rates. The Bank of Korea estimated that 0.4 percentage point was cut from 2017’s gross domestic product.

China has such a wide trade surplus with the USA that it is going to be hard to meet the increased level of tariffs the USA is proposing, without greatly increasing the levels on the goods it does import. However, there are additional measures the country can take to express its dissatisfaction.

“It’s not a great set-up for emerging markets,” James Sullivan, head of Asia ex-Japan equities research at JPMorgan Chase & Co., told Bloomberg TV from Singapore.

“We’ve still only priced in about two thirds of the U.S. rate increases we expect to see over the next 12 months. So, the Fed is continuing to get more hawkish, but the market still hasn’t caught up.”

While many emerging-market investors and analysts have praised Asian economic fundamentals, pointing to world-leading growth rates and political stability, some are starting to raise red flags as global liquidity starts to shrink. The Bloomberg JPMorgan Asia Dollar Index sank to a 2018 low on Monday, extending two weeks of declines after the Fed and European Central Bank both took steps toward policy normalization.

Yet some still remain optimistic. Bank of America Merrill Lynch expects some of the regional currencies including the baht and the Philippine peso to appreciate slightly by the end of the year, a research note sent Monday showed. Six of 10 best- performing emerging currencies so far this year are in Asia, led by the ringgit’s 1.2 percent advance and the Chinese yuan’s 1.1 percent gain.

By tightening monetary policy after leading the world in easing, the USA is effectively exporting its monetary policy to the rest of the world. More than few of the more troubled emerging markets have had to move aggressively to support their currencies but continued selling pressure suggests they probably have more work to do to shore up investor confidence.

While trucker protests in China have occurred in the past amid complaints of road tolls, fuel prices and excessive fees, Geoff Crothall, spokesman for the labor monitoring group, said he couldn’t recall trucker protests of a similar scale. He estimated thousands of truckers participated.

As they have the world over, gas prices have risen in China this year, by 8.6%, according to data from the Ministry of Commerce. Taxes and other fees generally make gas more expensive in China than the U.S., and on top of that the government sets the prices, lagging changes in international oil markets by 10 days or more.

China’s National Development and Reform Commission, which sets those prices, announced Friday that it would cut the retail price of gasoline and diesel by 130 yuan ($20.29) per ton for gasoline and 125 yuan per ton for diesel. The new prices, effective this past Saturday, reflect a recent retreat in global oil prices. In the central province of Anhui, a transportation hub where protests occurred, gasoline now costs $3.99 a gallon, and diesel $4.04 a gallon.

Rising fuel costs have elsewhere prompted worker frustrations to spill over, most notably in Brazil, where protesters blocked highways and halted shipments of food, fuel and medicine before the government called in the military to help end the strike. Other trucker protests have also recently broken out in Iran.

Trucking has been all over the news recently with strikes in China and Brazil over high fuel prices and low pay while the USA is in dire need of 50,000 drivers.  These trends point to the fact the USA is close to full employment so attracting workers is becoming an issue while all three countries share upward pressure on wages. Higher shipping rates are inflationary because it will put pressure on companies to cover the increasing costs by raising prices for the end customer.

Turkey and Brazil intensified efforts to protect their currencies from speculative attacks by investors as emerging markets face their biggest test since the 2013 taper tantrum.

Turkey surprised analysts by tightening monetary policy Thursday for the third time in less than two months, while Brazil’s central bank sold extra foreign-exchange swap contracts for the second time this week, boosting investors’ protection again further declines in the currency. The lira surged and the real briefly pared losses after the actions.

Thursday’s actions are the latest in a series of efforts to shore up defenses in developing nations as policy makers from Argentina to India try to cope with higher U.S. interest rates, growing budget deficits, accelerating inflation and political instability. Emerging markets haven’t been in this precarious a position since five years ago, when concern the developed world was pulling back on monetary stimulus sparked a rout in stocks and currencies.

"The failure to act preemptively to address macro imbalances has forced those central banks to take desperate measures to stem the pressure on their currencies," said Delphine Arrighi, a money manager at Old Mutual in London. "The risk is a tightening of financial conditions in EM that could ultimately impact growth negatively."

Turkey raised its one-week repo rate by 1.25 percentage point to 17.75 percent, a bigger increase than any analyst surveyed by Bloomberg had predicted. The move signaled policy makers trying to clamp down on double-digit inflation are willing to stand up against political pressure to keep borrowing costs low.

“Is this the start of a new era of Turkish central bank policy -- actually moving ahead of the market? Let’s hope so,”

Generally speaking when a central bank intervenes to support its currency it has to persist in that policy until it achieves success, lest it be accused of wasting money. So far, Turkey’s efforts to stave off an additional near-term Lira decline have been successful and the currency has stabilized below TRY5 to the US Dollar.

Apartment construction to fall sharply
We have significant evidence to show that new apartment projects are struggling to get finance approved, and therefore total residential construction is expected to slow in H2 2018. Dwellings approved but not yet commenced have already increased to the highest level on record, driven by apartment project approvals

Apartment default rising
Liaison with industry contracts indicates that settlement defaults for some of the major developers have increased, particularly in relation to offshore buyers. The resale market is considered healthy enough at this juncture for most developers not to be materially impacted, however there is a strong likelihood that residential construction activity will now fall

Employment growth to fall
Construction now directly employs just under 1.2 million persons in Australia, recently capturing a record high in absolute terms and, at 9.6 per cent of employment, the construction sector is at its most bloated in approximately a century4.

About ¾ of construction jobs are accounted for by the residential sector5. There is significant potential for employment growth to slow sharply over the next 12 months

The Royal Commission has been a major source of uncertainty for the banking sector in Australia over the last year as rampant overcharging across a broad swathe of their businesses has ben brought to light.

The S&P/ASX 300 Banks Index hit all-time peak in 2015 and following a rebound has been trending lower since last year. It is now approaching the 2016 lows and while oversold in the short term a break in the progression of lower rally highs will be required to question supply dominance.

The Original Sin index ranges from zero (“sinless”) to one (“sin-full” or fully dependent on foreign currency debt). We focus on sovereign and corporate bond issuance in ASEAN and India, and track how the index behaved during the Quantitative Easing periods and after the taper tantrums. 

We detect increases in “original sin” in Indonesia and the Philippines in recent years, but find no visible increase in Thailand, Malaysia or India (see Figures 4 to 9). 

Indonesia’s original sin index has been steadily rising, with a peak of 0.41 as of May 2018 (see Fig 5). This suggests that Indonesia corporations and the sovereign are borrowing more in foreign currencies in recent years, as the Fed normalizes policy rates. For Philippines, the original sin index rebounded in 2018 to 2009 levels after declining for the past two years (see Fig 7). This suggests that the financial stress is a more recent phenomenon, as investors are more worried about the peso risks (on higher inflation and widening current account deficit). 

On the other hand, Malaysia and India have seen a decline in their original sin index, suggesting a gradual reduction in their foreign currency exposure in recent years (see Figures 6 & 9). Thailand’s index has been very low since the early 2000s, barely reaching 0.1, reflecting its low interest rates and abundant domestic liquidity, given the massive current account surplus (see Fig 8).

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

The ASEAN sector has been under pressure of late but not nearly to the same extent as Turkey, Argentina and Brazil. The rising US Dollar has pressured many emerging markets because as interest rates appreciate and Wall Street remains in a reasonably stable bull market environment, the relative attraction of US assets improves. That has resulted in repatriation of carry trades.

The reaction was swift and severe. Petrobras Chief Executive Officer Pedro Parente woke up this morning to a wave of downgrades from the same Wall Street analysts who had been praising him since he took the helm of the state-controlled oil producer two years ago.

Bank of America Merrill Lynch, Morgan Stanley and Credit Suisse Group AG all cut their recommendations after Parente announced a 10 percent cut in wholesale diesel prices late Wednesday to help the government negotiate an end to a nationwide truckers strike that has wrought havoc on Latin America’s largest economy.

“The just announced diesel price reduction in response to truckers’ protest is likely to materially damage Petrobras’ perceived independence in a way that may be difficult to recover,” Frank McGann, an analyst at Merrill Lynch, wrote in a report where he cut his recommendation on the company’s American depositary receipts to neutral and his price objective to $17.

“We think that the investment case for Petrobras has been seriously damaged, and the risk profile has risen.”

While Parente said Petrobras isn’t bowing to pressure and that the temporary measure doesn’t mean a change in its pricing policy, shares extended losses in after hours trading to as low as $13.40 in late New York trading.

Petrobras is a major constituent in global high yield benchmarks so its decision to cut price against a rising oil price environment is not especially good news. Along with Turkey and Argentina, the risk in the high yield sector has increased this year.

Turkey’s central bank raised interest rates to halt a slide in the lira that’s seen the currency post a series of record lows.

The central bank raised its late liquidity window rate by 300 basis points to 16.5 percent, after an extraordinary meeting of its monetary policy committee on Wednesday to “discuss recent developments.” It kept other rates unchanged, describing the move as a “powerful monetary tightening” and saying it’s ready to continue using all instruments.

The lira reversed Wednesday’s losses after the bank’s move. It was trading 0.7 percent stronger at 4.6367 per dollar as of 7:32 p.m. in Istanbul. The currency earlier fell as much as 5.5 percent.

The central bank acted after three weeks of turmoil on Turkey’s currency markets. Turkish President Recep Tayyip Erdogan, who’s seeking re-election next month, has publicly opposed any moves to raise interest rates, while investors and economists argued that was the only way to halt the rout.

Erdogan told Bloomberg in an interview this month that he’ll seek more control over monetary policy if he wins the vote.

The central bank’s rate-setting committee hadn’t been scheduled to meet until June 7. After news broke of its emergency session on Wednesday, Finance Minister Mehmet Simsek said on Twitter that it’s time to restore the credibility of Turkey’s monetary policy.

The Lira has been accelerating lower and dropped to test TRY5 to the US Dollar this morning, before the central bank finally intervened by raising the interest rate. 16.5% represents a substantial premium over anything available in Europe and is aimed squarely at stemming foreign capital flight.

The shares jumped as much as 17 percent to $119.60 in New York trading, an all-time intraday high and the biggest one-day leap in almost a decade.

The overhaul started by Chief Executive Officer Alessandro Bogliolo consolidated a rebound under way when he took over last year, with revenue growth last quarter at the highest since 2012. The former Diesel executive aims to woo a younger clientele with refreshed jewelry lines and generate hype for the 181-year-old brand. The revitalization attempt includes redesigned stores and back-end improvements in procurement and technology operations.

“We are particularly encouraged by the breadth of sales growth across most regions and all product categories,” Bogliolo said in a statement.

Global same-store sales climbed 7 percent, in the quarter ended April 30 when holding currency constant, compared with the 2.6 percent growth projected by analysts, according to Consensus Metrix.

On that basis, sales rose 9 percent in North America, Asia- Pacific and Japan, all beating analysts’ predictions. Asia was particularly strong in China and Korea. The weak spot was Europe, which saw a 9 percent decline due to reduced spending by overseas tourists, the New York-based company said.

There has been a high degree of commonality in the luxury goods sector this year as the Trump tax cuts unleashed some pent-up consumer demand. Front loading purchases of goods likely to rise in value in anticipation of inflation has also been a factor in the outperformance of the sector. Additionally, luxury goods manufacturers have been at pains to try and appeal to a younger demographic.

Moody’s Investors Service said it may cut Campbell Soup Co.’s credit rating after the company posted a steep drop in profitability and its chief executive officer suddenly stepped down.

All of the company’s ratings are under review, including its Baa2 senior unsecured rating, Moody’s said in a report Monday. That’s only two steps above speculative-grade. Moody’s did not say how many levels the downgrade could amount to.

Campbell Soup has short- and long-term debt of $9.84 billion and its leverage as measured by debt-to-Ebitda -- earnings before interest, tax, depreciation and amortization -- was about five times at the March closing of the Snyder’s-Lance Inc. acquisition. Moody’s says it’s now doubting that the company can meet its expectations to reduce that metric to below four times within two years via cash flow and cost savings.

“The sharp and unexpected decline in profitability in the third quarter casts serious doubt that Campbell will be able to meet its deleveraging plans following the Snyder’s-Lance acquisition,” Moody’s analyst Brian Weddington said in the report. “Additionally, the departure of the CEO adds further uncertainty about whether the company will respond successfully to its operating challenges in the near term.”

Campbell Foods is not a dividend aristocrat because there have been occasions in the last 30 years when it cut the dividend. On each of those occasions it stopped raising the payout before the decision to cut. That is at least part of the reason that the share has been falling over the last year but does not explain the fall from the peak in 2016.

Italian President Sergio Mattarella takes center-stage as he weighs whether to give law professor Giuseppe Conte a chance to lead a populist government following a last- minute wobble over the candidate’s suitability for the post.

Mattarella is due to announce his decision as early as Wednesday after Conte, 53, was put forward by Luigi Di Maio of the anti-establishment Five Star Movement and Matteo Salvini of the anti-immigrant League. A flurry of reports in Italian media cast doubt on Conte’s premiership before it even began, prompting Five Star and the League to reaffirm Conte’s candidacy on Tuesday evening.

The marriage of two populist parties which are essentially from the two opposing extremes of the populist field i.e. cut taxes versus boost benefits, is proving more fraught with difficulty than might initially have been apparent. They are still likely to try and install a compromise candidate but there is no doubting that strong personalities are to the fore.

Thanks for your comments which are very interesting, especially your focus on technology and its potential to alter radically the investment landscape.

I have 2 points of my own to make. Using gold as the standard of value for stocks is interesting but I would think valuation metrics are more useful. As you know the Shiller PE, derived by comparing the S&P to the 10-year moving average of real corporate earnings- GAAP (not adjusted)- is at the highest level since the TMT bubble popped in 2000. The ratio of market value (the Wilshire 5000+) to GDP was at all-time highs in January. We have lived through a decade of extraordinary monetary policy (almost zero interest rates and QE), which is now being reversed. I think S&P market value to S&P sales may also be at all-time highs, but I may be wrong about that.

So the starting point is pretty rich. The PE is at 25 times 4 quarter GAAP earnings, implying a 4% earnings yield. The Moody's Baa 20-year bond yield is around 4.6% so the equity premium has been negative the last 5-6 years for the first time since 1961 when the Bloomberg series started. On average equity holders over this period have earned a premium of 1.62% to reward them for investing in the riskier part of the capital structure, but now they must pay for the privilege.

However, this does not address your major point about the enormous earning potential of companies involved in future technology. Now a standard criticism of your point is that competition between businesses will reduce the excess profits to "normal profits". What economists call "consumer surplus" consists of the extra value that is transferred from businesses to consumers for free due to the operation of the competitive market which eliminates excess profits.

This flows from the ideal world of independent competitive enterprises. Anti-trust laws in the USA have been around since 1890 (Sherman Anti-Trust Act) and were designed to cause real world behaviour to better approximate the theoretical. 

What I have found interesting is that Anti-Trust is no longer as big a deal as it was when I was a student. In fact, when Mark Zuckerberg testified he named 5 or 6 tech companies that are competitors of Facebook's. In this list he mentioned WhatsApp and another company (Telegram?) that he has already bought and perhaps one or two others. He also mentioned Skype, which Microsoft has bought. The big tech companies have the where with all to buy smaller rapidly growing companies and maintain tight oligopolies and thus earn outsize profits. I doubt whether many of these purchases would have passed muster from the Department of Justice's Anti-Trust division one or two generations ago.

So the key may be to watch politics and see whether the populists at some point turn their attention to Anti-Trust.

Thank you for this detailed email which has given me much food for thought. As you point out there is a tendency among the producers of widgets to encounter competition which reduces the price to often unprofitable levels. At that point some of the weaker producers go out of business and a process of consolidation unfolds. The competitive Amazon marketplaces is a good example of this where producers of widgets compete on price to gain market share only for many to disappear after a relatively short time to be replaced by lower cost producers.

The combination of higher debt levels and share of debt denominated in foreign currency means many emerging markets are now more exposed to dollar appreciation than in 2009, amid signs the robust growth in developing economies may be slowing, the Institute of International Finance said in a May 17 note.

While the U.S. Treasury will sell some of its largest offerings since 2010 this week, a slew of Fed speakers may reiterate plans for gradual rate increases.

The selloff in developing nation currencies is hurting other assets.

Emerging-market local-currency government bonds declined for a sixth week, the worst run since 2016. Developing-nation stocks retreated 2.3 percent last week.

The last time there was angst expressed at the impact a resurgent Dollar would have on emerging markets was in 2015. The same arguments are being made today and it appears that the figures for US Dollar denominated debt are even higher.

The rude crude rally has not gone unnoticed by the gasoline market where there is the potential for gasoline prices to spike this summer with prices at a four-year high amid record demand (prices).  So far such price increases have not bled into the inflation figures, but the truckers are seeing the pinch.  To wit (as reprised by David Lutz): Trucking companies increased leverage is applying added pressure to cargo costs as accelerating economic growth bolsters transportation demand and exacerbates driver scarcity.  With first-quarter trucking spot rates up 27 percent from a year earlier, according to Bloomberg Intelligence, freight expenses are crimping profits at companies.

To us, the creeping inflation, and marginally higher interest rates, suggests the economy is going to strengthen in the back half of 2018.  Certainly that is what the stock market is telegraphing as earnings continue to ramp-up.  As we write, the D-J Industrial Average has made it eight consecutive winning sessions, leaving the equity market very overbought in the short term.  Also worth consideration is that the Industrials rarely make it more than nine straight sessions in any one direction.  Consequently, there could be a pause in the upward onslaught or even an attempt to pull stocks back.  However, we think the S&P 500 (SPX/2730.13) should be well supported at the 2670-2685 level and that should contain any decline barring unexpected news.  Also waxing bullishly is the TD Ameritrade Investors Movement Index, which is back down to its 2015-2016 levels.  That means investors are not very optimistic currently and, therefore, not buying stocks.  Further, there was over $8 billion of money flows into prime money market funds last week.  These are not the kind of metrics one sees at stock market tops.  However, it’s May option expiration week, which has been bearish for the last nine years, and with stocks stretched for the aforementioned reason, look for some kind of pause/pullback that does not get very far.

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

As I spoke about in last night’s video/audio there is a risk of some consolidation following the impressive rally over the last couple of weeks.

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

If the USA’s increasingly powerful position as a swing producer of oil and gas is reducing the need for it to play the part of the global police force then what can we conclude from China launching its first domestically produced aircraft carrier this week?

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Here is a summary of my view at present:

The U.S. Supreme Court struck down the federal law that bars gambling on individual sporting events in most of the country, in a ruling likely to unleash a race among the states to attract billions of dollars in legal wagers.

Ruling in a New Jersey case, the court said the 1992 law unconstitutionally forced states to maintain laws that outlaw gambling. Nevada is the only state where single-game wagering is now legal.

Sports gambling could begin in a matter of weeks in casinos and racetracks in New Jersey, which instigated the legal fight by repealing its gambling prohibition. Mississippi, Pennsylvania, New York, Delaware and West Virginia could follow soon, and the number of states might reach double digits by the end of the year.

The vote was 6-3 to strike down the entirety of the federal prohibition. Americans place $150 billion a year in illegal sports bets, according to the casino-backed American Gaming Association. The research firm Eilers & Krejcik Gaming puts the number at $50 billion to $60 billion, not counting bets among friends.

The ruling starts a new era for the largest sports leagues, which fought New Jersey in court even while moving toward embracing legalized sports wagering. In January, a National Basketball Association executive told New York lawmakers the leagues should get 1 percent of all bets. The NBA says it would prefer a new federal law to set nationwide standards.

However one feels about investing in vice, there is no doubt that people like to gamble and the removal of the Federal prohibition will be a major benefit to casino. Since there was never a prohibition on online gambling this news is unlikely to be of particular interest to that segment while the biggest losers are likely to be Indian casinos which have been able to skirt the law for the last few decades.

The big question surrounding automation has long been whether robots would compete with workers or help them. Initially, workers feared robots would destroy jobs across the economy. Scholarly research and real-life experience has eased that concern, although some types of workers and industries are ending up on the losing side.

Today, the question is more precise: In which industries does automation help both employer and employee?

The companies that may have cracked the code are those that can assign repetitive, precise tasks to robots, freeing human workers to undertake creative, problem-solving duties that machines aren’t very good at. That’s particularly relevant for manufacturing, the food sector and service sectors such as billing, where timetable spreadsheets can be automated, freeing up workers to do higher-value tasks.

With demand for Bosch-built steering controls high, the company has used automation to increase its output, leading it to hire more people to perform the type of checks Mr. Rösch conducts.

“We looked for 20,000 new hires last year,” a mix of new positions and replacement staff, said Stefan Assmann, one of the company’s chief engineers, to join Bosch’s total 400,000 employees. Bosch factories world-wide now make use of 140 robotic arms, up from zero in 2011. “We can’t see robots having a negative impact on our workforce,” Mr. Assmann said.

If robotics and automation are helping to improve productivity and leading to expanded employment then there must be another reason why factories have been closing and people losing their jobs. The answer is pretty simple when we hear of workers having to train their replacements from overseas before they are fired.

What comes next is unclear. Mahathir helms an unwieldy four-party coalition that includes Malaysia’s largest ethnic Chinese party, and he plans to step aside once de facto opposition leader Anwar Ibrahim gets out of jail on a sodomy charge. Mahathir said he would seek a pardon for Anwar.

“I have to manage four presidents of four different parties,” Mahathir said. “It’s going to be a headache.”

Mahathir has pledged to set term limits for prime minister and reduce its power, while promising to scrap the GST within 100 days in power.

It’s uncertain whether the outcome will fundamentally reshape race relations in Malaysia. Najib’s party had long staked its legitimacy on providing preferential treatment for the bumiputera, or “sons of the soil,” which include ethnic Malays and indigenous groups.

Mak Hon Hoe, a 46-year-old ethnic Chinese voter, on Wednesday deplored the fact that Malaysians were separated in different racial categories.

“I want to see a fairer system,” he said while casting his ballot. “Race is still an issue. We want a Malaysian identity.”

The 1MDB scandal has finally brought down Nijab Razak’s government but it is unlikely that the figurehead of 92-year old Mahathir is going to be enough to hold together a disparate coalition of four smaller parties. The new administration is going to have to move swiftly and definitively to stamp its intent to improve governance if it is to have any hope of seeing out its term.

Coffee and your long-term video. my start on Saturday morning...really enjoying and appreciating it. I am confused. There is a chart which is making me feel slightly nervous. It is the Citigroup Eurozone Economic Surprise Index. When comparing the Economic Surprise Index with the Dax on the 20-year overlay chart I see lower lows and a 20 year low on the Surprise Index and a nicely higher trending Dax. The European PMI indices show economic growth. It looks like Europe is slowly recovering. What causes the Economic Surprise Index to be so low? should we sound the alarm? Kind regards.

Thank you for this interesting question and I am delighted the Long-Term video is a valuable part of your weekend routine. To the best of my knowledge economic surprise indices are calculated on a cumulative basis so if economic figures surprise on the downside on a persistent basis then you get a downtrend. Eurozone GDP has been increasing but not at the pace expected by economists and that is probably why the index is so weak.

5. Who would likely win?
Opinion polls show the League -- the rebranded, formerly secession Northern League, once known for deriding residents of the country’s south as beggars, thieves and good-for-nothing rednecks -- has gained the most from two months of bargaining. Its support rose to 24.4 percent from 17.4 percent in the March vote, according to an SWG opinion poll carried out May 3-6. Five Star is still the biggest single party, slipping half a percentage point to 32.2 percent. (A center-right alliance including the League and the Forza Italia party of Silvio Berlusconi, the four-time former prime minister, rose to 38.5 percent from 37.1 percent.) If Salvini’s League strengthens in the next election, he could decide to break with Berlusconi and finally form a coalition with Di Maio. This time around, Di Maio’s insistence on excluding Berlusconi was a primary obstacle to a populist coalition government.

6. Why does this matter?
Italy is facing political decisions and economic problems that affect other nations too. At more than 130 percent of gross domestic product, Italy’s debt is second-highest in the euro area, after Greece. The European Commission called the debt “a major source of vulnerability” for Italy and has been overseeing the country’s efforts to reduce spending. Underlying problems remain in Italy’s banks, including cronyism with many lenders too entwined with politicians, unions and foundations of all shapes. Mattarella has warned that the timing of the next elections could jeopardize the 2019 budget, which has to be approved by the end of the year, and unsettle financial markets. And nobody’s fully forgotten Five Star’s past talk of a referendum on leaving the euro.

Small political parties seem to have learned that the only way they will ever succeed in ousting the status quo is to refuse to be co-opted. If we look at the history of coalitions, the insurgent party does well until they give up on their ideals for a chance to hold power. They then get lumped in with the status quo for any egregious activity that occurs during government and subsequently get annihilated at the next election because their support base feels betrayed. The Five Star Movement’s refusal to enter government with Silvio Berlusconi is an example that they have learned this lesson.
 

The Arab world’s biggest stock market will probably face difficulty in retaining foreign money unless companies become more transparent, according to some investors. Executives aren’t used to the level of scrutiny demanded by global funds as retail buyers, who typically focus on charts rather than financial analysis, account for about 75 percent of daily trading, according to Gary Dugan, chief investment officer at Dubai-based family office Namara Wealth Advisors Ltd.

Gary Greenberg, an investing veteran, isn’t joining the Saudi party. The London-based head of global emerging markets at Hermes Investment Management Ltd. wants more evidence of economic and political change as well as confidence in the rule of law as Crown Prince Mohammed bin Salman seeks to modernize the kingdom and wean it off its reliance on oil. Other investors including J O Hambro Capital Management are wary of adding to their emerging-market holdings as concern over the pace of U.S. policy tightening sent equities retreating from a multi-year high.

Admittance to the MSCI Emerging Markets basket is a big event for any market because it opens up one of the world’s largest cohorts of index tracking funds as potential investors.

Kim and Moon embraced after signing the deal during a historic meeting on their militarized border, the first time a North Korean leader set foot on the southern side. They announced plans to replace the 1953 armistice that ended hostilities with a peace treaty by year’s end.

Their statement on a “common goal of realizing, through complete denuclearization, a nuclear-free Korean Peninsula,” stopped short of the “complete, verifiable and irreversible denuclearnization” long sought by the U.S. and its allies. The statement didn’t elaborate on what the term meant and Kim didn’t personally utter the word during remarks Friday.

The International community is understandably skeptical regarding North Korea’s overtures with skepticism considering how duplicitous the country has been over it’s post war history. Some appear willing to think sanctions have played a role, others that China is more active in pressuring the regime but there is another reason why North Korea is suddenly willing to sit down to talk.

The central bank’s quest to restore sustainable inflation of just under 2 percent has been complicated by data suggesting that the euro area’s strongest growth in a decade may be faltering. As well as waning industrial output and deteriorating business confidence, the threat of a global trade war is hanging over Europe’s export-oriented economy.

“Incoming information since our meeting in early March points towards some moderation, while remaining consistent with a solid and broad-based expansion of the euro-area economy,” Draghi said. “The underlying strength of the euro area economy continues to support our confidence that inflation will converge towards our inflation aim of below, but close to, 2 percent over the medium term.”

Mario Draghi’s statement “An ample degree of stimulus remains necessary.” Is what the market was expecting. The ECB and Bank of Japan remain the primary providers of liquidity to the global economy so when they eventually begin a process of quantitative tightening is likely to be an important catalyst for liquidity fueled uptrends.

Following the dissolution of parliament last week, 9 May has been set as the date for the 14th General Election (GE14). Malaysians will vote for the 222-member Dewan Rakyat (lower house) on the federal level along with 12 assemblies on the state level. The main challenge to incumbent Prime Minister Najib Razak and his Barisan Nasional (BN) coalition will come from the Pakatan Harapan (PH) coalition led by Malaysia's former and longest-serving Prime Minister Mahathir Mohamad, who has defected to the opposition.

Pakatan Harapan is similar to the Pakatan Rakyat (PR) coalition that won the popular vote in GE13, but without the Islamic party PAS, which split from PR in 2015. Thanks to a split opposition contesting many of the same seats, surveys, admittedly somewhat dated given Malaysia's fluid politics, suggest BN should retain control (The Malaysian Insight, 7 January). However, given the unreliable nature of surveys and the unprecedented nature of this election (Mahathir may have an impact on states such as Kedah, his home, plus UMNO may face competition in Malay constituencies where it faces candidates from both PH and PAS), we consider what an unlikely opposition victory might mean for the economy.

We analyse the coalition manifestos, in particular proposals relating to economic and fiscal policy. As always, the focus will be on whether or not the status quo is maintained. We note that key opposition proposals such as the abolition of GST and the reintroduction of some fuel subsidies suggest higher budget deficits in the absence of off-setting revenues. PH also pledges to review key mega-projects (mostly Chinese-financed).

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

It’s a big question whether the Malaysian electorate will demand their pound of flesh from the ruling party in retribution for the embarrassing spectacle of Najib Razak and the 1MDB scandal which has been dragged through the international press for years already. That represents a challenge for the Ringgit considering the populist tone of the emerging opposition. 

My daughters love visiting Japan. They adore anime and manga, and no they are nor the same thing, I’ve been reminded more than once. They love the cutsie culture coupled with the storytelling and fact that a lot of the topics covered are more mature in nature than they would be conventionally exposed to at home.

In my 10-year old’s class there are two things that every child, regardless of background, intelligence or wit loves; slime and squishes. Slime has turned every girl in the nation into a chemist and our house is full of the products my daughter has concocted from mixing varying quantities of Elmer’s glue and borax and lotion. I’m really hoping that one is a phase, the stuff is gross to my eyes. The other thing they love are Squishies. These are what many of us might think of as stress balls. The most popular are Japanese because they are of higher quality and return to their shape slowly. If you can bare it simply plug Squishies into YouTube.

Squishies, anime and manga, robotics and a range of other genres highlight the fact that Japan is still capable of capturing the imagination of popular culture. Against that insight more than a few people told me that the country is managed for old people. It is a common sight to see nonagenarians being wheeled around by their sexagenarian offspring. Massage and pain treatment for backs, necks and knees are some of the most common store fronts. Something politicians and the general public are only beginning to get grips with in Europe and North America is that older people are reliable voters and are jealous of their pensions and senior perks.

Africa is increasingly becoming a generator of knowledge, innovation, creativity and technology, rather than being solely an adapter of trends produced elsewhere in the world - like it was mostly the case in the past. There is no doubt that this trend must not only be encouraged by African Governments, but it must also be accelerated with the implementation of specific proposed public policies. Why? Because the knowledge and creativity-based development model renders obsolete all other models of development as it has a unique feature that none of the other models does: its entire bedrock rests on bringing self-sufficiency, independence and self-generating mechanisms of well-being gains enshrined in each domestic economy, and that is for the entire African continent. The knowledge-based development model can charter new territory for Africa – a territory where it has never succeeded in going before - a territory where an extremely knowledgeable, creative, skilled and educated young and dynamic African population combined with the implementation of science/evidence-based public policies by African leaders, finally brings societal well-being, that is well-being to every single citizen, on the continent. The knowledge-based development model can do so in two specific ways: 1) it can ensure the continent’s self-sufficiency, independence and self-generating mechanisms of well-being gains for all segments of its population rather than depending on outside help, and 2) it can, once and for all, lift all African countries out of the natural resources curse2 or the Dutch disease or the paradox of the plenty by ushering them into an era where endowment in two new kinds of natural resources – namely knowledge and creativity -- is more closely correlated with societal well-being compared to endowment in oil and other natural resources.

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Africa is often considered as a whole but is a continent replete with different languages, cultures and traditions that are as valuable and varied as anywhere else. There are obviously countries that are more successful than others and the record of improving standards of governance is patchy at best. I look forward to a time when any mention of the Africa does not require a preamble.

Barbosa, a 63 year-old black man raised in poverty, became a household name in Brazil during the Supreme Court’s handling of the so-called "mensalao" corruption scandal in the government of President Luiz Inacio Lula da Silva. Of all the potential candidates for October’s presidential elections, Barbosa has one of the lowest rejection ratings, at just 14 percent, according to Datafolha polling company. That compares with 60 percent for President Michel Temer and 40 percent for Lula.

The former judge is a presidential candidate "with potentially the best profile in the field," according to a note published by Eurasia Group on March 29, adding that he has a good mix of experience, anti-corruption credentials, and credibility on social issues.

"It’s a huge movement on the electoral chess board," said Richard Back, a political analyst at XP Investimentos.

The Brazilian iBovespa Index has been the best performing major market globally over the first quarter. It has been assisted by improving perceptions that the crusade against institutional and political corruption is gaining traction and the relative stability of the Real over the same period.

But at the same time, there’s been a spike in sales to China of precision metal working machines and equipment for making chips from firms like Japan’s Yaskawa Electric Corp. With a Chinese state-backed fund gearing up to pour as much as $31.5 billion into homegrown semiconductor manufacturing, there’s potential for trade flows to start to shift.

China’s ambitions, set out in its sweeping Made in China 2025 plan, go much further than semiconductors and would see its technical prowess advance in a host of areas, ranging from bio- medicine and artificial intelligence to new-energy vehicles and aircraft. The challenge to Japan, Korea and Taiwan also applies to European exporters like Germany, and comes on top of the risks to global trade from the Trump administration’s embrace of tariffs.

"The bits of the global supply chain that are currently the preserve of Korea, Japan, Taiwan, the U.S., and Germany, are the bits of the supply chain that China has a decade-long industrial strategy to move into," said Tom Orlik, Bloomberg’s chief Asia economist. He said it’s only a matter of time before many components for electronic products are made domestically and the country is on track to become a car exporter. Eventually, it will be selling airplanes, said Orlik.

China is moving up the value chain in just about all industries. It’s policies in achieving that goal are openly mercantilist. It has unabashedly supported domestic industry by whatever means necessary, closed off the mainland market to global competitors, engaged in industrial espionage on a grand scale and none of these actions are without precedent.

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This is a very measured report which I think is underplaying the short-term volatility tariffs are likely to provoke. Bilateral trade between the USA and China is substantial and US companies have invested considerable resources in developing customer bases in China. They are far from immune from Chinese retaliatory measures which over the course of the medium-term will likely be ironed out but probably not before there is some pain felt on both sides.

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Here is a brief summary of my view at present.

Risk assets are vulnerable to a correction as valuations approach fair value, Thakur and John Dwyer, vice president and credit research analyst, wrote in a report.

“This risk becomes more important as we transition to a period of gradual tightening of monetary policy by global central banks,” according to the report. Asset prices offer little buffer to the risk of possible shocks resulting from negative growth surprises or higher-than-expected inflation, they said.

Australian government yields share a high degree of commonality with those of other developed market nations. The 10-year has been ranging below 3% since 2015 and over the course of the last month has pulled back to test the region of the trend mean. With inflationary pressures being more of a fear than a reality at present there is scope for some further steadying in the market.

In an evidence session held by the housing committee on Monday, the Labour MP Helen Hayes asked Raab if he was comfortable with the “positive effect” that help to buy had had on housebuilders’ profits and executive bonuses. “It’s almost unfathomable,” said Raab. “No I’m not comfortable with it.

“That’s why the government has introduced measures on corporate governance and is encouraging shareholders to take a greater grip on it. We want to see shareholders take a stronger grip on it and we’re starting to see more shareholder activism.”

Hayes asked if the government was monitoring the effect that help to buy was having on corporate profits. “I’m not sure how we would measure a hydraulic relationship between those three points,” Raab said. He added that “other parts of government” were looking at corporate pay.

Help to buy is designed to spur the construction of new homes by giving aspiring homeowners an interest-free government loan worth up to 20% of a property’s value – if the buyer opts for new build. According to several reports, housebuilders have simply increased the price of homes in response, driving up prices and boosting their own profits.

UK homebuilders initially collapsed following the Brexit vote but were among the first to rally as the full ramifications of the collapse of the Pound filtered through into nominal asset prices. Help-to-buy programs also represented significant tailwinds for the sector, however increases to stamp duty have had negative effects and not least in London where prices are now falling against a background where the Pound has strengthened considerably from its 2016 lows.

President Donald Trump’s decision to accept a meeting with North Korean leader Kim Jong Un caught the world off guard.

In agreeing to sit down with North Korea’s third-generation leader, Mr. Trump has boosted the stature of Mr. Kim—a man he has ridiculed as “Little Rocket Man” and threatened with “fire and fury”—with a surprise diplomatic opening that left some allies wrong-footed.

For Mr. Kim, who is half the age of Mr. Trump, just getting a summit meeting with the U.S. president is a big win. Neither his father nor his grandfather succeeded in getting a face-to-face meeting with a sitting U.S. president.

Mr. Trump’s move represents a victory for South Korea’s president, Moon Jae-in, who has pleaded with the U.S. to tone down its rhetoric and worked assiduously to get negotiations off the ground, and others who have pushed for engagement and diplomacy.

Other U.S. allies and some veteran negotiators, however, expressed concern that while a summit meeting could lead to a breakthrough in what has been a protracted standoff, it is a risky move that could lead to ill-considered concessions to Pyongyang.

Agreeing to a meeting with Kim is a big risk because of the polarity of the potential outcomes. These kinds of win/lose scenarios are not attractive from the perspective of any diplomatic corp but are not at all unusual in business where the first lesson is you have to be willing to walk away with nothing if you do not get the price you want.

You mention lead indicators, could you explain those you prefer?

At FullerTreacyMoney we look at two different types of lead indicator. The first is what one might think of as individual to the animating theme behind a trend, the others are broad market indicators.

Brazil is now seen as more corrupt than Argentina for the first time in over two decades after suffering last year one of the biggest plunges among the nations tracked by a global transparency ranking.

Latin America’s largest economy fell 17 positions in the2017 index released by graft watchdog Transparency International on Thursday. It now ranks 96th among 180 nations, tied in the region with Colombia and Peru. Only two other countries in the whole index -- Bahrain and Liberia -- slid more than Brazil last year. Argentina meantime rose 10 spots, to 85th place and now ranks better than Brazil for the first time since 1996.

A series of corruption scandals have rocked Brazil over the past few years as the so-called Carwash probe uncovered a massive kickback scheme involving the country’s political and business elite. Former President Luiz Inacio Lula da Silva was convicted for graft last year while allegations against President Michel Temer are still being investigated. In Argentina, meanwhile, President Mauricio Macri has worked to make public tenders more transparent and successfully pushed for a law allowing plea bargain testimonies to resolve corruption cases.

Among key Latin American countries, the least transparent are still Venezuela (169th position) and Mexico (135th spot).

Transparency International’s ranking is based on surveys and assessments from 12 institutions and has become a benchmark gauge of corruption perception used by analysts and investors.

There is no Brazilian politician that has not been embroiled in the carwash probe. That’s bad news. However, the fact the scandal has broken, is being addressed by the judiciary and is making headlines both domestically and internationally speaks to the fact that Brazil does have institutions that can tackle corruption if the will to do is present. 

Your recent assessments of the markets appear to be that a period of ranging is likely to be followed by markets going up again. Of course, whilst no one knows what the future will be, I wonder why you don't see the greater likelihood of markets turning down after some consolidation. With the amount of US debt increasing, interest rates increasing, and stock market levels already high by historical standards, are you not more concerned that markets, being forwards looking, might be more likely to head down than up? Esp. since markets struggle when interest rates go above 3%? I appreciate your talk of share rotation, but a rising tide lifts all boats and surely the opposite is true when markets tank?

Thank you for these questions which I think everyone asks from time to time. For someone in our position of attempting to forecast the outlook for markets the most important thing we have to remember is that markets rise for longer than they fall but when they fall they often do so quite quickly. However, they do not fall without first exhibiting topping characteristics. 

And that is the likely fate of conventional retail. Like the railroad, there’s an extraordinarily surfeit of retail space built with little consideration of what the market will actually sustain; recent declines in the retail revenue per square foot in brick-and-mortar stores suggests that things are getting worse, fast. And like the railroad, there’s a new way of doing business on the block, except that instead of changing how we move people and goods, online retailing promises a new way of delivering them to the end consumer. 

If the per capita retail footprint declined as much as the railroads did, it would fall all the way down to 2.82 square feet per capita. That’s a lot of empty malls and defunct big box stores, but retail won’t disappear any more than the railroads have gone extinct.

In fact, in 2014, the inflation-adjusted revenue that railroads earn per mile of track is 2.7 times what it was a century ago. More startling still, the so-called “ton miles” of freight carried on the nation’s railroads (a ton mile is one ton of freight carried one mile) has tripled since 1960, even as the total size of the operational railroad system has declined dramatically.

That points to the likely future of conventional retail: a drastic reduction in the per capita footprint, with the remaining stores capable of earning far more money per square foot. It’s not the brightest of futures. But it’s also not the end of the world.

Near where I live in Los Angeles, a large mall is close to shutting since it’s primary tenants, Macys and Nordstrom, have decamped to the newly refurbished Westfield mall in Century City near Beverly Hills. The two malls are about a mile apart but until a couple of years ago Macys seems to have been comfortable with the idea of having two large stores within close proximity of one another. In between the two malls the only businesses that have survived are universally service oriented. So, what is going to be done with all the empty commercial space sitting on valuable pieces of real estate?

In an effort to sharpen Reckitt Benckiser’s focus on brands such as Strepsils and Mucinex cold remedies, Kapoor has moved to separate the company’s home-care and health businesses. Reckitt also became a leader in infant nutrition with the acquisition of Mead Johnson Nutrition Co. last year.

On Monday, it increased its forecast for synergies from the deal to about $300 million from $250 million. This year’s savings will only “slightly exceed” additional infrastructure expenses associated with the new health and home-and-hygiene business units, the company said.

Morgan Stanley analysts led by Richard Taylor described the company’s outlook as conservative.

A question someone asked of Charlie Munger at last week’s Daily Journal AGM stuck with me over the weekend. It was how he thought the established brands would fare with increased competition from the likes of Costco and Amazon who are pioneering their own products often in direct competition. His answer was that white- labelling and own-brand selling would have an effect, but if one were to take a long-term view the established brands would still have value. 

Investigations by the nation’s graft ombudsman and Auditor- General found that graft is endemic in the state, with tens of billions of rand stolen or squandered each year. Zuma appointees head almost all the law-enforcement agencies, which have been slow or loathe to act against some of his closest allies who’ve been implicated in the free-for-all. The new president will need to replace several key officials, reassert confidence in the independence and integrity of the criminal prosecution system and show that the government is intent on ensuring all those found guilty of corruption are held accountable.

2. State-owned companies in chaos
The looting spree largely targeted state companies, especially power utility Eskom Holdings SOC Ltd., which is at risk of running out of cash. While Ramaphosa has already overseen the appointment of a new board at Eskom, it still needs to appoint a permanent chief executive officer, fill several other top management posts and urgently raise new funding. South African Airways and oil and gas company PetroSA Ltd. are among the other entities that have been hobbled by a lack of leadership and oversight.

 

Governance is Everything has been a mantra at this service for decades. Zuma did everything he could while in power to line the pockets of everyone loyal to him and that system of rent seeking and bribery is going to take a long time to unwind. It could well be that the water crisis in Capetown and the near bankruptcy of Eskom were the final catalysts for Zuma’s ouster. Right now, the market is willing to give the benefit of the doubt to Ramaphosa that some of these issues can be addressed. Capetown’s situation is urgent so Ramaphosa is unlikely to have much of a honeymoon period.

South Korea’s surprisingly weak economic performance in the last three months of 2017 isn’t cause for concern but does support the case for a cautious stance on central bank policy, according to economists and bank officials.

The economy ended its streak of outperforming expectations in the last quarter by recording its first quarter-on-quarter contraction since the global financial crisis.

That resulted in growth for the year—at 3.1%—coming in just below the government’s 3.2% target, but above 2016’s expansion of 2.8%. Markets on Thursday brushed aside the result, with the Kospi jumping 1% to reach record highs.

Still, the result will temper recent optimism about the economic outlook, while likely dispelling any idea at the Bank of Korea about raising rates until much later in the year. In November, the central bank raised rates for the first time in more than six years.

South Korea is the world’s 11th largest economy and it did not grow in the last quarter of 2017. This was explained by the surge in investment in the early part of year that eased back in the latter part of year but the failure to growth was an anomaly amid strong numbers for the rest of the global economy. Domestic consumption is expected to pick up this year and the Olympics may add some tourist revenue so a recession may be avoided but it bears monitoring nonetheless 

S&P500 Consumer Staples has lost momentum over the last couple of years with larger pull backs that dip into the underlying range and somewhat less impressive rallies subsequently. Last week’s downside weekly key reversal with follow through this week represents another in a series of failed upside breaks. It is back testing the region of the 200-day MA and will need to continue to hold the 550 area if top formation completion is to be avoided. 

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Veteran subscribers will be familiar with my refrain from the Big Picture Long-Term videos, since at least September, that we are in the 3rd Psychological Perception Stage of this impressive almost decade-long cyclical bull market. 

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The USA led the world into recession in 2008 and out of it onto an historically lengthy expansion in 2009. The Federal Reserve started out on the road to normalizing policy last year and fiscal stimulus will be picking up some of the slack in monetary accommodation this year. The above statistics suggests at least some Asian countries are now following a similar trajectory. 

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Vietnam benefits from its close proximity to China, low labour costs, large young population, trade friendly administration and a desire to progress from being a frontier market to a more conventional investment destination.