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October 25 2016

Commentary by Eoin Treacy

'Siri, catch market cheats': Wall Street watchdogs turn to A.I.

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

A.I. may even sniff out new types of chicanery, said Tom Gira, executive vice president for market regulation at the Financial Industry Regulatory Authority (FINRA).

"The biggest concern we have is that there is some manipulative scheme that we are not even aware of," he told Reuters. "It seems like these tools have the potential to give us a better window into the market for those types of scenarios."

FINRA plans to test artificial intelligence software being developed in-house for surveillance next year, while Nasdaq Inc (NDAQ.O) and the London Stock Exchange Group (LSE.L) expect to use it by year-end.

The exchange operators also plan to sell the Technology to banks and fund managers, so that they can monitor their traders.

Artificial intelligence is the notion that computers can imitate nuanced human behavior, like understanding language, solving puzzles or even diagnosing diseases. It has been in development since the 1950s and is now used in some mainstream ways, like Siri, an application on Apple Inc's (AAPL.O) iPhone that can engage in conversation and perform tasks. 


Eoin Treacy's view -

Artificial Intelligence (AI) is a great example of the exponential growth curve described by Ray Kurzweil. It has been in development since the 1950s but had an inconsequential impact on the wider economy. When the digital economy really took off it provided the feedstock for AI to be truly useful and advances in computing, to make sense of the flood of data, were equally important. 

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October 21 2016

Commentary by David Fuller

The Only Thing on Autopilot at Tesla Is the Hype Machine

Just over a year ago, Tesla sent out a software update to its cars that made its "Autopilot" features available to customers, in what the company called a "public beta test." In the intervening 12 months, several of those customers have died while their Teslas were in autopilot mode. Cars have crashed, regulators have cracked down, and the headlines proclaiming that "Self-Driving Cars Are Here" were replaced with Tesla's assurances that autopilot was nothing but a particularly advanced driver-assist system.

Given all this, one might assume that a chastened Tesla would take things more cautiously with its next iteration of autonomous Technology. But in a launch event this week, Tesla introduced its Autopilot 2.0 hardware with the promise that all the cars it builds from now on will have hardware capable of "the highest levels of autonomy."

Tesla's proof that its new hardware is capable of driving in the "complex urban environment" was a brief, edited video of the system navigating the area around its headquarters near Stanford University in California. Though exciting for enthusiasts who can't wait to own a self-driving car, the video is hardly proof that Tesla's system is ready to handle all the complexities that are holding back other companies that have been working on autonomous Technology for longer than Tesla. As impressive as Tesla's system is -- and make no mistake, it is deeply impressive -- navigating the Stanford campus is a hurdle that even graduate school projects are able to clear.

Tesla's new sensor suite upgrades what was a single forward-facing camera to eight cameras giving a 360-degree view around the car. It also updates the 12 ultrasonic sensors, while keeping a single forward-facing radar. Yet independent experts and representatives from competitor firms tell me this system is still insufficient for full level 5 autonomy -- the National Highway Traffic Safety Administration's highest rating -- which requires more (and better) radar, multiple cameras with different apertures at each position and 360-degree laser-sensing capabilities.

What Tesla's upgraded hardware does do is vastly improve the company's ability to pull high-quality data from its vehicles already on the road, giving it an unrivaled ability to comply with new regulatory guidelines requiring granular data about autonomous-drive functions in a variety of conditions. Whereas its competitors' autonomous-drive programs harvest data from small test fleets and extrapolate from there, Tesla has made every car it sells into an independent experiment of conditions that can only be found on the open road. All this real-world data gives Tesla a unique opportunity to validate its autopilot Technology. If the company had announced Autopilot 2.0 as another step toward an eventual fully autonomous system, this would be an unambiguously good (if not earth-shattering) development.

Unfortunately, that's not what Tesla did. Instead, in Wednesday's launch events, it called its new hardware suite "full self-driving hardware." It said the Technology would demonstrate the system's ability to drive cross-country without any human intervention. Tesla even hinted that a feature will allow its cars to be rented out as autonomous taxis when not in use by their owners.

Though Tesla's website noted that many of these features will need validation and regulatory approval, this caveat was lost in the hype. As with Autopilot 1.0, Tesla is again inviting a mismatch between owner/operator expectations and its systems' true capabilities without any apparent recognition that this gap -- not technical failures of the system itself-- is the key point of concern for regulators and critics.

David Fuller's view -

Tesla’s achievements have been amazing, not least for a start-up company in the incredibly competitive automobile industry.  However, that position puts tremendous pressure on Tesla, or indeed any other new and ambitious tech-driven firm trying to not only survive but also establish itself for a profitable long-term future. 

Many companies achieve this in our exciting and increasingly high-tech world.  However, many more fail, as either shooting stars which shine brightly but briefly before falling from sight, as we saw with Nokia.  Others attract interest with a new niche product, and often develop a wide following, but struggle to develop a successful business model as we are seeing with Twitter. 

This item continues in the Subscriber’s Area, where another article on Tesla is also posted.

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October 21 2016

Commentary by David Fuller

Why Corporate America Debt Is a Major Risk

Here is the opening of this topical article from Bloomberg, and don’t miss their graphs:

Are investors in denial about how dim the outlook is for American businesses?

That’s the question Société Générale’s Andrew Lapthorne, global head of quantitative strategy, posed to his bank’s clients.

“Asset valuations are extreme; returns are poor, the probability of losses is high and the ability to recover any losses quickly is low,” he writes.

In particular, the strategist sounded an alarm over the state of corporate America’s balance sheet. Company spending exceeds cash flow by a near-record amount—a fundamentally unsustainable situation—as net debt continues to increase at a rapid pace.

In many cases, companies have used debt to repurchase their own stock, flattering their bottom-line financial performance. Whilenot all buybacks are financed by debt, Lapthorne did note a correlation between net repurchases and the change in corporate indebtedness.

“U.S. corporate balance sheets are a major risk going forward,” he says. “U.S. corporates are massively overspending.”

To be fair, servicing this debt load isn’t as onerous as it might appear, because of low interest rates. And despite the recent steepening of corporations’ yield curve, companies have continued to extend duration, which offers them more certainty about what their interest payments will be over the long term.

“For corporate credit, there’s very little concern about short-term coverage from the market,” write analysts at Bespoke Investment Group. “We note that maturities continue to creep up slowly; despite higher spread costs, corporates are generally borrowing further out the curve and ‘locking’ low rates.”

But over the long haul, the performance of stock markets will be primarily driven by earnings increases—and the level of corporate indebtedness implies that any latitude to boost earnings per share by shrinking the denominator is limited.

David Fuller's view -

Actually, corporate debt is not a serious concern for me, assuming companies have sensibly used record low debt costs in this era to retire more expensive debt acquired earlier.  Low-cost debt will only be a problem if deflation becomes the long-term norm, which I very much doubt, although it is a widespread extrapolation forecast today. 

Fiscal spending and a gradual normalisation of interest rates should improve GDP growth over the next several years.  Lower energy costs will help consumers and businesses.  Most corporations are already benefiting from efficiency-enhancing Technology and low-cost borrowings will help them to expand their businesses as global economy strengthens.      


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October 21 2016

Commentary by Eoin Treacy

MIT EmTech Conference

Eoin Treacy's view -

I spent the last couple of days in Boston at the MIT Technology Review’s EmTech conference and some of my immediate takeaways are:

Artificial Intelligence might be a catchall phrase for machine learning, linguistic programing, advances in one shot learning and automated interpretation of optical data among others but all these strands are experiencing enhanced growth. The field of artificial intelligence has been gestating for decades but the evolution of large data sets gives many of the theoretical applications that have been confined to universities room to grow and reach commercial utility. 


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October 18 2016

Commentary by David Fuller

Central Banks Have Lost the Plot, QE is Sending the World Over a Cliff

In 2008 the central banks reacted to a massive crisis they had completely failed to foresee by cutting rates to record lows and embarking on “quantitative easing” – pumping trillions of dollars into their economies by buying up the assets of commercial banks. The trouble is that eight years later they are, to varying degrees, still doing it. Like doctors keeping their patients on a drip many years after an operation, they are losing credibility and producing very dangerous side effects.  

There are at least 10 serious drawbacks to this – all of which can be accepted for a short period but become either politically explosive or economically unwise if continued indefinitely. 

  1. Savers find it impossible to earn a worthwhile return, which drives them into riskier assets thus causing the price of houses and shares to be inflated ever higher. 
  2. Higher asset prices make people who own them much richer, while leaving out many others, seriously exacerbating social and political divides and fuelling the anger behind “populist” campaigns. 
  3. Pension funds have poor returns and therefore suffer huge deficits, causing businesses to have to put more money into them rather than use it for expansion. 
  4. Banks find it harder to run a viable business, contributing to the banking crisis now visibly widespread in Italy and Germany in particular. 
  5. Those people who are able to save more do so, because they need a bigger pot of savings to get an equivalent return, so low interest rates cause those people to spend less, not more. 
  6. Companies have an incentive to use borrowed money to buy back shares – which they are doing on a big scale – rather than spend the money on new and productive investments. 
  7. Central banks are starting to buy up corporate bonds, not just government bonds, to keep the system inflated – so they are acquiring risky assets themselves and giving preference to some companies over others. 
  8. “Zombie companies”, which can only stay in business because they can borrow so cheaply, are kept going even though they would not normally be successful – dragging down long-term productivity. 
  9. Pumping up the prices of stock markets and houses without an underlying improvement in economic performance becomes ever more difficult to unwind and ultimately threatens an almighty crash whenever it does come to an end – wiping out business and home buyers who got used to ultra-low rates for too long. 
  10. People are not stupid; when they see emergency measures going on for nearly a decade it undermines their confidence in authorities, who they think have lost the plot. 

I am not an economist but I have come to the conclusion that central banks collectively have now indeed lost the plot. The whole point of their independence was that they could be brave enough to make people confront reality. Yet in reality they are blowing up a bubble of make-believe money to avoid immediate pain, except for penalising the poor and the prudent. 

Earlier this year I put this view to the top staff at the central bank of a major Far East economy, thinking they might set my mind at rest and explain why everything made sense. But, far more alarmingly, they said they agreed with me: their problem was that no single authority can opt out of these policies because they might cause a recession for their own country unless there was a global, co-ordinated move gently to raise interest rates. 

David Fuller's view -

I think most economically savvy people would now concur with William Hague’s article.  I also think a coordinated global response led by the USA and other developed economies would be the least disruptive.  The problem is that the US economy, while somewhat firmer than others due mainly to its Technology lead, significant energy production and healthier banking sector, is clearly leading the economic recovery cycle among major nations.

Consequently, a unilateral rate hike, even if only 25-basis points, could push the US Dollar Index up out of its current trading range.  If so, this would be a headwind for not only the US economy, in proportion to additional USD strength, but also for emerging markets which borrowed in the highly liquid currency at lower levels.  In other words, a too strong Dollar could further delay the next global economic recovery which is sorely needed.

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

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October 17 2016

Commentary by David Fuller

What OPEC Oil U-Turn Missed: Peak Demand Keeps Getting Closer

Here is the opening of this interesting article from Bloomberg:

OPEC’s decision last month to reverse its policy of unfettered production and cut oil output to boost prices may be at odds with the industry’s most important long-term trend: demand for what they produce could start falling within 15 years.

If rapid improvements continue in renewable energy, electric vehicles and other disruptive technologies, petroleum consumption will peak in 2030 and decline thereafter, according to a Report from the World Energy Council. As the globe’s largest producers gather in London this week for the Oil and Money conference, they might want to check their assumption that the market will grow for decades to come.

The plunging cost of renewable energy -- with solar-module costs falling 50 percent since 2009 -- is already upending the business model of utilities. Disruption could spread to the oil industry as electric vehicles become more economic than gasoline or diesel cars, potentially displacing millions of barrels of daily fuel use by the late 2020s. Projections for decades of demand growth that underpin investments in oil projects could be misplaced.

“The longer-term outlook, beyond 10 years, is certainly less rosy,” said Alex Blein, London-based energy-portfolio manager at Amundi, which holds more than $1 trillion of assets. “Given the advances in battery Technology, by 2030 carbon-powered vehicles will be the exception rather than the norm. This will inevitably impact on oil demand.”

David Fuller's view -

Whether OPEC actually reduces production, other than by accident, war or strikes, remains to be seen.  However, OPEC is guaranteed to face more competition from countries which follow the USA lead by developing their fracking potential.  Additionally, renewable technologies are likely to develop even more rapidly than forecast.  Energy independence will be the ambition of every successful nation, and many will achieve it within the next fifteen to twenty years.    

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October 14 2016

Commentary by Eoin Treacy

Google and 3D Printing Buildings

This article by Katie Armstrong from 3D Printing Industry dated May 3rd may be of interest to subscribers. Here it is in full:

3D printed buildings are the way of the future! At least that’s what Eric Schmidt, executive chairman of Google’s parent company, Alphabet, says.

Imagine you could walk onto an empty block of land one day, and have a house built on it a few days later. Sounds like science fiction, doesn’t it? What if I told you it was already happening?
A recent conference in Los Angeles saw Schmidt predict the technologies that would be game changers. The Milken Institute’s Global Conference, which brings together leaders from diverse sectors and industries around the world, explores solutions to today’s most pressing challenges in financial markets, industry sectors, health, government and education. Schmidt talked about synthetic meat made from plants, VR, self-driving cars, and 3D printing for buildings.

Schmidt points out that constructing buildings, both residential and commercial, is time consuming, energy intensive, and costly. He said that construction represented 5% of the economy, but that homes and buildings built in an industrial environment could be cheaper, more efficient and built on 100% recyclable material.

This isn’t the first time Schmidt has sung the praises of 3D printing Technology and its potential applications. Back in 2013 he predicted the rise in the use of 3D printing, and he wasn’t wrong.
The implications of 3D printed houses and infrastructure are incredible. Instead of a home taking months to build, it could take just days. A company in China claimed to have built 10 houses in under 24 hours in 2014, with all their materials coming from recycled waste materials.

With the UN estimating that three billion people will need housing by 2030, large scale 3D printers are being suggested as a solution to this. They could be the solution to cheap, reliable housing which would replace slums in developing countries.


Eoin Treacy's view -

It occurs to me that homebuilding is a sector ripe for disruption. It is totally reliant on individuals who specialise in one set of skills. Carpenters, roofers, block layers, masons, plumbers, and electricians are all needed on a building site and because of designated duties one cannot start until the other has finished. In addition each of these trades tends to have a negotiated pay rate which is rather generous and has no bearing on what work is being done. 

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October 13 2016

Commentary by Eoin Treacy

Email of the day on medical innovation

Here's an intriguing finding - silkworms  can produce silk with graphene embedded, which gives material with electrical conductivity! With further development, materials with these properties moves us closer to the day when we may be wearing 'ordinary' clothing which gathers and transmits information in real time about our health. So all of us can then have a longitudinal personal health record assessed constantly by AI systems which feedback instantly any concerns being noted. No need to visit a doctor for diagnosis, AI will be much faster and much more accurate. Comparison of our personal health longitudinal record with the collected human database will give much more accurate diagnosis and prediction than is possible today. 

This vision is one of the reasons I noted in an email a few days ago that healthcare will generate the biggest of big data, and why we need blockchain Technology to secure it. 


Eoin Treacy's view -

Thank you for this interesting article highlighting the success of a Chinese team in improving the conductivity of silk. Wearable Technology is advancing in leaps and bounds so within the decade it is entirely possible that we have 24/7 monitoring of our vital signs available from a host of different products.

In addition the number of metrics examined will also increase as our collective understanding of body chemistry and interactions improves. In fact as the quantity of data and the number of metrics that need to be assessed, both in isolation and in unison, increases it will be impossible for any human to keep track of it all, so artificial intelligence will be a necessity rather than a luxury.


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October 12 2016

Commentary by Eoin Treacy

Baidu is bringing AI chatbots to healthcare

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

The Chinese search engine launched "Melody" on Tuesday, a chatbot that uses artificial intelligence to help doctors care for patients over text.

Baidu (BIDU, Tech30) aims to make medical consults more accessible and help patients determine whether or not they should see a doctor in person.

For instance, if you tell Melody your child is sick, it might ask whether she has a fever or is jaundiced and follow up with additional questions.

Melody integrates with the Baidu Doctor app, which already lets patients ask doctors questions, make appointments and search for health information. Melody asks the patient preliminary questions and pulls data from digitized textbooks, research papers, online forums and other healthcare sources.

The app produces a hypothesis regarding treatment options that a human doctor edits and sends to the patient. The self-learning bot will continue to sponge up information and improve conversation as time goes on.


Eoin Treacy's view -

Ray Kurzweil made clear in his talk at the ExMed conference earlier this week that “life begins at a billion impressions” when it comes to artificial intelligence (AI). In other words if you want to teach a computer how to recognise an image you need to feed it a billion examples before it can make the leap to recognition. 

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October 11 2016

Commentary by Eoin Treacy

Illumina Dives as Quarterly Revenue Falls Short of Forecast

This article by Doni Bloomfield Bloomberg may be of interest to subscribers. Here is a section:

llumina Inc. plunged as much as 28 percent, the most in five years, after saying third-quarter sales were lower than it previously anticipated because of declining demand for its high-speed genetic sequencers.

Sales were about $607 million last quarter, the company said Monday in a statement after the markets closed. That’s below Illumina’s July forecast of $625 million to $630 million, and the $628 million average of analysts’ estimates compiled by Bloomberg.

“We are clearly disappointed by the preliminary revenue result,” Chief Executive Officer Francis DeSouza said Monday in a short call with investors. Revenue from sequencing instruments declined 26 percent year-over-year, a bigger drop than anticipated at the start of the quarter, he said.


Eoin Treacy's view -

From what I learned by talking to people at the ExMed conference over the last four days has been that there is enormous disruption emerging in the sequencing of DNA. The method used over the last 50 years is being superseded by new Technology and that represents a challenge for Illumina because it is the leader in providing the machines used today to sequence DNA. 

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October 10 2016

Commentary by Eoin Treacy

Email of the day on blockchain and healthcare

Thanks for sharing this article and I look forward to reading your comments after attending the healthcare-focused conference in San Diego. 

Regarding blockchain, I was surprised by this statement in the article quoted:
...' an elegant but costly Technology in search of real world relevance beyond the initial application of digital cash exchange.'

I am deeply involved in the hi-tech healthcare sector in the UK. Blockchain is beginning to impact the sector. By chance, the CEO of a startup in Cambridge UK sent this information to me today:
"At ***** we are developing a platform for storing and sharing genomic data based on Blockchain Technology. Our platform exploits the power of a distributed ledger enabling the secure storing of genomic data and also, thanks to a series of smart contracts, enables sharing of specific parts of a genome with doctors, family members and researchers around the world without compromising the entire genomic information and therefore respecting the privacy of the owner."

I gave a presentation last October at a Big Data in Healthcare conference in Luxembourg at which I made the case that the scale of data requirements in healthcare will exceed all other sectors. Security of that data will be essential and I believe blockchain may be an essential piece of the puzzle.


I posted a comment under your article about blockchain. In it I mentioned a presentation I gave in October 2015 at a conference on Big Data in Healthcare. It was about the best conference I ever attended. I have attached the slides I presented. If you want to share these with subscribers please feel free to do so. They make the case for the scale of healthcare data on-line being absolutely massive.  With the inevitable security implications, blockchain may become very important in the healthcare sector and startups here in the UK are beginning to focus on the opportunity as I mentioned in my comment.

Eoin Treacy's view -

Thank you for the  comment added to the article I posted on Friday as well as the above email and PowerPoint presentation you attached to the above email.

In order for blockchain to represent the kind of financial innovation required to truly represent a transformative effect on the financial sector I believe its link to bitcoin has to be completely unwound. 

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October 07 2016

Commentary by David Fuller

A Wave of Tech Consolidation Will Drive the Next Leg of the Bull Market

Even if you can’t quite squeeze the prospectus into a 140 characters, it is now clear that Twitter is up for sale, with Disney and Google touted as possible buyers. There are rumours swirling of a possible take-over of Netflix. A mega-deal between Amazon and e-Bay has been reported as under discussion, and at least one of the fast-growing music streaming services, led by Spotify, could well be the next company on the block.

The booming tech sector is gearing up for a wave of consolidation, as some companies discover they don’t really have a business model, others find that they don’t have the cash to compete in a ferociously competitive market, and some of the emerging Chinese giants wade into the market.

That matters – and not just because it will consolidate the hold of the big companies that already dominate the internet. It will drive the next stage of what it already turning into an epic bull market. Indeed, if frenzy of M&A deals breaks out, it could easily mark its top.

The screaming hoards of Corbynistas, Cyber-Nats, and swivel-eyed Ukippers that make up daily life on that relaxed and tolerant forum for genteel discussion known as Twitter may soon find they are hammering out messages for a different corporate overlord. After a terrible year on the stock-market, and with is founder Jack Dorsey seemingly unable to turn it around, it is now up for sale.

Alphabet, the new name for Google, is said to have turned it down but may yet change its mind. Disney, slightly implausibly, is said to be in the running, even if Walt will be turning in his grave at some of the language used on the site. is said to be interested as well, along with Microsoft. We will probably find out who the buyer is in the next month.

But that is far from the only mega-deal on the rumour mill. On Wall Street, shares in Netflix have been rising on talk that the company might be a target, with Apple touted as a suitor, as well as, again, Disney (although someone will have to delicately explain to Walt’s ghost what ‘Netflix’n’Chill’ actually means).

If it not looking at Netflix for a way to spend some of its massive $230 billion cashpile, Apple is also said to be eyeing up the music streaming service Tidal, although more realistically it might prefer to buy the far more successful Deezer or best of all Spotify. Given that Amazon never likes to be left out of anything, it has been lined up as a potential buyer of e-Bay, even if any deal might run into monopoly issues given that both dominate online marketplaces.

In truth, that is just a taster of the likely wave of bids and deals up ahead. The booming tech industry is seeing a spate of takeovers – and will power the next leg of what is turning into a major bull market. Why? There are three reasons.

David Fuller's view -

The Fuller Treacy Money site has long maintained that tech and bio tech are the sectors most likely to lead the USA and other tech-savvy stock markets higher over the longer term.  Moreover, 2016 is not replaying the late-1990s devastating tech bubble.  Back then, the better tech companies could envisage their long-term potential, but they knew far less about how to monetise those opportunities in terms of corporate profits.  A massive shakeout and lengthy convalescence followed.

Matthew Lynn’s article above is excellent and I commend it to you.  However, my question is: where are we in the tech cycle today?

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

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October 07 2016

Commentary by Eoin Treacy

Follow Your Nose

Thanks to a subscriber for this interesting report from Deutsche Bank. Here is a section:

Key Themes to Drive Industry Shift
Minimally Invasive Treatment is Large and Underpenetrated: Balloon sinus dilation (BSD) is a minimally invasive alternative to functional endoscopic sinus surgery (FESS). The procedure was introduced in 2005, but remains underpenetrated (we estimate 20% today). We view penetration increasing to 26% in 2021 lead primarily by continued economic and clinical data.

From the Operating Room to the Physician’s Office: We believe an increasing number of chronic sinusitis procedures will shift from the operating room to the physician’s office setting moving forward. This shift provides benefits to all: patients, physicians, and payors.

DB Survey Supports View of Market Growth and Penetration
We conducted a survey of 30 US based, board certified otolaryngologists. We asked our survey respondents to comment on volume expectations, procedure settings, and market share trends. Our results indicate increased volume across procedure types, a move toward office based procedures, and further penetration of minimally invasive treatment options.

Opportunities for Technologies that Lower Costs and Improve Outcomes
New technologies that further enable minimally invasive procedures and the shift to physician’s office based care are also garnering more attention. Medical supplies and devices companies have taken note with recent launches of more compact navigation systems, steroid eluting stents, and more compact surgical tools and technologies.


Eoin Treacy's view -

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

Technology is evolving at a pace that is difficult for many people to keep up. That is the challenge of living in a time where exponential growth in understanding innovation, Technology and science are competing and complimenting one another. I’m heading to San Diego this afternoon for Singularity University’s ExMed conference where the primary topic of conversation will be what the future holds for the healthcare sector. I look forward to sharing any insights I gain with you when I get back. 

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October 07 2016

Commentary by Eoin Treacy

Wal-Mart's next move against Amazon: More warehouses, faster shipping

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

The world's largest retailer is now on track to double the number of giant warehouses dedicated to online sales to 10 by the end of 2016, according to Justen Traweek, vice-president of e-commerce supply chain and fulfillment.

That pace is faster than the 8 large warehouses that industry consultants expected Wal-Mart to build by the end of 2017.

At the same time, Wal-Mart in the last year has installed new Technology such as automated product sorting and improved item tracking that for the first time puts them on par with Amazon's robot-staffed facilities, according to supply-chain consultants.

"We have doubled our capacity in the last twelve months and that allows us to ship to a majority of the U.S. population in one day," Traweek said.

Wal-Mart is holding its annual investor day on Thursday when, among other topics, it is expected to update on the progress it has made in its e-commerce business.

Wal-Mart, which has about 4,600 stores in the United States and over 6,000 worldwide, has been investing in e-commerce for 15 years, but it still lags far behind Amazon.

"These additions definitely give Wal-Mart the opportunity to compete better than other companies going head-to-head with Amazon," said Steve Osburn, director of supply chain with consultancy Kurt Salmon, referring to the likes of Target (TGT.N) and others. "Having said that, choosing to race with Amazon is different than catching up with them."


Eoin Treacy's view -

As the number 1 online venue for shoppers Amazon is the obvious target for aspirational brick and mortar retailers who wish to leverage their own customer bases. Amazon is no longer concentrating on being the cheapest venue, having succeeded in developing a large loyal following of consumers by offering outstanding   quibble free customer service. Wal-Mart on the other hand will have to deal with its caché of appealing to the lower income consumer if it wants to compete with Amazon Prime.

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October 07 2016

Commentary by Eoin Treacy

Blockchain: In Search of a business Case

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

A number of financial institutions and private investors have devoted significant time and financial resources to looking at ways to monetize the blockchain Technology, but to date only the bitcoin payments system has achieved even modest adoption.

While a number of financial institutions believe that blockchain will evolve into a more efficient medium for transferring value or ownership of assets, in fact the elegance and simplicity of blockchain as illustrated by bitcoin may also be the most daunting obstacle to broader adoption.

Despite an enormous amount of hype and investment going back nearly a decade, blockchain remains an elegant but costly Technology in search of real world relevance beyond the initial application of digital cash exchange.


Eoin Treacy's view -

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

Anyone with even a modicum of libertarian spirit will appreciate blockchain for dispensing with third parties by allowing peer to peer transactions on a global basis that occur outside the ability of governments to tax, or banks to charge commissions on. However the challenge faced by the Technology is in delivering scale and utility to the wider financial system. It is looking increasingly likely that the original blockchain decentralised architecture may be swept away in favour of a system created exclusively to cater the needs of the global financial system. 

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September 30 2016

Commentary by Eoin Treacy

Ultra-Easy Money: Digging the Hole Deeper?

Thanks to a subscriber for this excellent summary of the rationale, effects and repercussions of loose monetary policy. Here is a section:

These are not just theoretical considerations. The BIS Annual Report of 2014 sounded the alarm when it noted that the level of debt in the AMEs (sum of corporate, household and governments) was then significantly higher than it had been in 2007. Moreover, it has since risen further, to over 260 percent of GDP. This increase has prompted the question “Deleveraging? What deleveraging?”18 This suggests that, by following polices that have actively discouraged deleveraging, we may instead have set ourselves up for an even more serious crisis in the future.

As for the history of economic thought, Keynes himself said in Chapter 13 of the General Theory (1936) that monetary stimulus was likely to be ineffective; “If, however, we are tempted to assert that money is the drink that stimulates the system to activity, we must remind ourselves that there may be several slips between the cup and the lip”. This conclusion marked a sharp change from the policy changes he had recommended in the Treatise on Money (1930). Hayek (1930, p21) went even further in suggesting that monetary easing would actually hold recovery back. “To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about”.


The BIS Annual Report for 2016 also highlights a number of persistent market anomalies27. Not only do they indicate price distortions and potential misallocations but could also indicate underlying structural developments whose full implications for market liquidity are not yet obvious. Recall the plight of European banks in 2008 who had borrowed dollars from money market mutual funds in the US. When this source of funding dried up, the Federal Reserve was forced to reopen US dollar swap lines that it had closed only a few years earlier. All that can be said with certainty, is that we are in uncharted territory when it comes to market functioning.

And for the record, it should be noted that central bank policies might have had other downsides as well. First, with income distribution already a source of great concern (due mainly to changing Technology and globalization) the recent stance of monetary policy has likely made it worse. The rich own most of the risky financial assets whose prices have increased the most. Conversely, the middle classes mainly hold the less risky interest-bearing assets whose yields are at record lows. While central banks seem increasingly aware of these effects29, what can be done about them is another issue


Eoin Treacy's view -

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

I think we can all agree that the introduction of extraordinary monetary policy helped to avoid a much deeper economic contraction but has also led to distortions in how markets function and contributed to asset price inflation. There are substantial questions about what the eventual normalisation of policy might look like but equally important are considerations of what a further intensification of extraordinary policy might look like. 

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September 29 2016

Commentary by David Fuller

In U-Turn, Saudis Choose Higher Prices Over Free Oil Markets

Here is a section of this topical article from Bloomberg:

Saudi Arabia has ended its flirtation with free oil markets.

It took the kingdom’s new oil minister, Khalid Al-Falih, just six months to blink, ending the country’s two-year policy of pump-at-will. 

The decision at this week’s meeting of the Organization of Petroleum Exporting Countries in Algiers to cut production was necessitated by Saudi Arabia’s tattered finances. The kingdom has the highest budget deficit among the world’s 20 biggest economies, may delay its first international bond issue and now faces fresh legal uncertainty after the U.S. Congress voted Wednesday to allow Americans to sue the country for its involvement in 9/11.

The decision at this week’s meeting of the Organization of Petroleum Exporting Countries in Algiers to cut production was necessitated by Saudi Arabia’s tattered finances. The kingdom has the highest budget deficit among the world’s 20 biggest economies, may delay its first international bond issue and now faces fresh legal uncertainty after the U.S. Congress voted Wednesday to allow Americans to sue the country for its involvement in 9/11.


For all the justifications, the last two years haven’t panned out as Riyadh thought they would. At home, the kingdom has burned through more than $150 billion of foreign-exchange reserves, government contractors have gone unpaid, and this week the king announced unprecedented pay cuts for civil servants.

Saudi Arabia will suffer a fiscal deficit equal to 13.5 percent of gross domestic product this year, the International Monetary Fund estimates. When it comes to economic growth, Saudi Arabia is slowing sharply to about 1 percent this year while Iran, its nearby rival, is accelerating toward 4 percent.

David Fuller's view -

Saudi Arabia was never likely to achieve more than a Pyrrhic victory in its attempt to bankrupt the USA’s shale oil industry.  In fact, the Saudis have been the biggest losers, burning through more of their once enviable financial reserves than any other oil producer. 

How could this happen?  The Saudi’s were looking for a replay of the 1970s, when they did damage US domestic oil production with the same tactic of competitive oversupply. 

What the Saudis did not fully understand two years ago, was the extent to which Technology was changing the global energy industry.  Hydraulic fracturing, known colloquially as fracking, can now tap vast quantities of oil and gas reserves found in shale formations, and not just in the USA. 

Moreover, the combination of previously high oil prices and concerns over global warming have led to the development of renewable forms of energy, which are becoming increasingly competitive. 

(See also yesterday’s lead item: OPEC Agrees to First Oil Output Cut in Eight Years)

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September 29 2016

Commentary by David Fuller

The Era of Robots: Thousands of Builders to Lose Jobs as Machines Take Over, Says Construction Boss.

Skyscrapers in the City of London could soon be built by robots rather than by people, according to the boss of one of the UK’s biggest construction firms.

The result would be huge productivity gains as more work could be done by fewer people – but also mass layoffs as traditionally labour-intensive construction projects hire fewer and fewer staff.

“We’re moving into the era of the robots,” said Alison Carnwath, the chairman of Land Securities, the £8.2bn FTSE 100 construction company.

Speaking at the Institute of Directors’ annual convention, the veteran businesswoman said the pace of technological change has taken her by surprise.

“Five years ago I’d have smiled wryly if somebody had said to me that robots would be able to put up buildings in the City of London – I tell you we’re not that far off, and that has huge implications,” she said.

The adoption of robotics and other new technologies could give parts of the economy a radical boost, as economists and politicians have sought ways to boost productivity, which is key to increasing wages and prosperity.

Those improvements in living standards may not be distributed evenly, however, as redundant building workers may struggle to find work elsewhere.

“Businesses are focusing on [productivity], they want to reengineer how their people can work, they recognise that Technology is upon us and is going to destroy thousands of jobs,” said Ms Carnwath, who has been on Land Securities’ board since 2004 and has been chairman since 2008.

David Fuller's view -

This era of accelerating technological innovation, which Fuller Treacy Money has so often talked about for a number of years, is very exciting and productive, leading to remarkable breakthroughs and achievements.  However, it is also highly disruptive, to a degree never previously seen.  One of the biggest problems, which I have mentioned previously, is that jobs are being replaced by Technology at a faster rate than new employment opportunities can be found.    

A PDF of Tim Wallace's article is in the Subscriber's Area.

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September 29 2016

Commentary by Eoin Treacy

D-Wave Systems previews 2000-qubit quantum processor

This press release from D-Wave Systems may be of interest to subscribers. Here is a section:

“As the only company to have developed and commercialized a scalable quantum computer, we’re continuing our record of rapid increases in the power of our systems, now up to 2000 qubits.  Our growing user base provides real world experience that helps us design features and capabilities that provide quantifiable benefits,” said Jeremy Hilton, senior vice president, Systems at D-Wave. “A good example of this is giving users the ability to tune the quantum algorithm to improve application performance."

“Our focus is on delivering quantum Technology for customers in the real world,” said Vern Brownell, D-Wave’s CEO. “As we scale our processors, we’re adding features and capabilities that give users new ways to solve problems. These new features can enable machine learning applications that we believe are not available on classical systems. We are also developing software tools and training the first generation of quantum programmers, which will push forward the development of practical commercial applications for quantum systems.

Eoin Treacy's view -

D-Wave Systems has received investment from companies like Google and Lockheed Martin as well as NASA but its press releases have tended to trend towards exaggeration. There is considerable debate about the efficacy of the solutions they propose and if one is keeping up with the news there is obviously a chasm between the size of the computers D-Wave claims to be producing and those created by other more conservative companies. 

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September 27 2016

Commentary by Eoin Treacy

Iger's Legacy at Stake in Possible Disney Deal for Twitter

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

The 65-year-old chairman and chief executive officer of Walt Disney Co. is scheduled to retire in June 2018. He’s already achieved a number of milestones, including Disney’s revival of the “Star Wars” film series and the opening in June of the company’s $5.5 billion Shanghai resort. But one issue bedevils him and most other media executives: how to transition to a world where mobile devices, not TV screens, dominate news and entertainment.

The question underscores Disney’s interest in Twitter Inc. The Burbank, California-based company has hired an investment bank to advise on a possible Twitter merger, Bloomberg News reported Monday. A deal would unite the world’s largest entertainment company, the home of ABC, ESPN and Mickey Mouse, with the Technology pioneer that created the 140-character tweet. It could let Iger leave knowing he’s given Disney a big presence in digital media and advertising.

“That would be his final stamp on Disney,” said Tim Galpin, a professor of management at Colorado State University and co- author of “The Complete Guide to Mergers and Acquisitions.” “If he could get that behind him, he could walk off with a final major success story.”

Twitter, whose co-founder and CEO Jack Dorsey sits on the Disney board, has already been dipping his toes in live sports, airing National Football League’s night games. That’s a business that Disney, the parent of the leading sports TV network ESPN, knows well and that clearly intrigues Iger

Eoin Treacy's view -

The acquisition and successful reboot of Star Wars coupled with the opening of the Shanghai resort were major successes for Disney. However that does not obscure the fact that the company’s broadcasting and cable divisions represent almost half of revenues and face challenges from interlopers like Netflix, Hulu and YouTube. These challenges have yet to be addressed. 

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September 26 2016

Commentary by Eoin Treacy

Musings from the Oil Patch September 20th 2016

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

So looking forward in a world of slow economic activity as experienced for the past decade, we can see VMT growth slowing and potentially a shift toward more fuel-efficient vehicle purchases – both not positive for gasoline demand. We then have the question of the impact of greater millennials in the population and the impact of the disruptive factors we enumerated earlier. 

A Ford Motor Company (F-NYSE) senior executive told an analyst meeting recently that the company expected autonomous vehicles to represent 5% of the auto fleet sales in 2025, or potentially a million cars per year. Self-driving vehicle Technology seems to be moving toward the mainstream faster than many anticipated. The City of Pittsburgh, Pennsylvania is now allowing Uber to test an autonomous vehicle taxi service. The cars are equipped with 20 cameras and seven sensors to help them navigate the city’s streets. The taxis will be required to have a human driver behind the wheel in case control of the vehicle needs to shift, along with an engineer in the front seat. Right now the service is free, and it has attracted many reporters who will publicize it. Will it attract many customers? Unless a taxi causes significant traffic disruptions or a life-threatening accident, we suspect the test will be declared a success. The industry, however, is still awaiting the federal government’s issuance of guidelines about how self-driving vehicle regulations should be constructed. Traffic laws are primarily under local control, but basic national standards are important for the regulatory process and the vehicle manufacturing process, including vehicle safety and emissions standards. Steering wheels and pedals, or not? 

Self-driving Technology’s primary benefit is to reduce and/or eliminate accidents and especially deaths. In 2014, according to data from the U.S. Department of Transportation, which is responsible for the Fatality Analysis Reporting System, there were 29,989 fatal motor vehicle crashes in which 32,675 deaths occurred. This represented 10.2 deaths per 100,000 people and 1.08 deaths per 100 million vehicle miles traveled. Some 38% of the deaths involved car accidents, while 25% related to pickup and SUV vehicle accidents. Only 2% of the deaths involved large trucks while the balance was accounted by motorcyclists, pedestrians and bicyclists. All deaths from large truck crashes were 12% of total vehicle deaths. 

There remain a number of legal issues about self-driving cars that need to be resolved. Who is given a ticket for a self-driving car failing to heed traffic rules or becoming involved in an accident: the passenger, a driver in the vehicle, the owner of the vehicle, or the engineer who wrote the software? These issues will be overcome with time, but the impact on energy markets will likely come in dramatic fashion. Once auto companies feel comfortable that their self-driving cars will not be involved in accidents, they can begin designing vehicles for greater passenger comfort and entertainment, while using lighter materials since the heavy steel cages required now to protect passengers in accidents will no longer be needed. Reducing vehicle weight will make vehicles much more fuel-efficient and thus reduce future fuel consumption.

Eoin Treacy's view -

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

Three themes of autonomous vehicles, electric vehicles and new ownership models tend to be conflated when speculation about the future of transportation is discussed. These could all have an effect on the number of miles travelled but could also break the link between that measure and gasoline consumption. 

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September 21 2016

Commentary by Eoin Treacy

Self-driving vehicles in China, Europe, Japan, Korea, and the United States

This report by Darrell M. West for the Brookings Institute may be of interest to subscribers. Here is a section:

Vehicles equipped with sensors and cameras navigate the streets of Mountain View, California; Austin, Texas; Kirkland, Washington; Dearborn, Michigan; Pittsburgh, Pennsylvania; Beijing, China; Wuhu, China; Gothenburg, Sweden; Rotterdam, Netherlands; Suzu, Japan; Fujisawa, Japan; and Seoul, South Korea, among other places. Sophisticated on-board software integrates data from dozens of sources, analyzes this information in real-time, and automatically guides the car using high definition maps around possible dangers. 

People are used to thinking about vehicles from a transportation standpoint, but increasingly they have become large mobile devices with tremendous processing power.2 Experts estimate that “more than 100,000 data points” are generated by Technology in a contemporary automobile.3 Advances in artificial intelligence (software that applies advanced computing to problem-solving) and deep learning (software analytics that learn from past experience) allow on-board computers connected to cloud processing platforms to integrate data instantly and proceed to desired destinations. With the emergence of 5G networks and the Internet of Things, these trends will harbor a new era of vehicle development.

Between now and 2021, driverless cars will move into the marketplace and usher in a novel period.4 The World Economic Forum estimates that the digital transformation of the automotive industry will generate $67 billion in value for that sector and $3.1 trillion in societal benefits.5 That includes improvements from autonomous vehicles, connected travelers, and the transportation enterprise ecosystem as a whole.


Eoin Treacy's view -

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

There are two very big questions when it comes to the viability of self- driving cars. The first is whether it is technologically feasible to let a fleet of autonomous vehicles loose on the roads where the actions of unpredictable pedestrians, animals and weather will test an artificial intelligence to the limit. The second is the extent to which governments will successfully regulate for these vehicles so that insurance considerations can be ameliorated. 

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September 20 2016

Commentary by David Fuller

How Women Won a Leading Role in China Venture Capital Industry

My thanks to a subscriber for this fascinating article by Shai Oster and Selina Wang for Bloomberg.  Here is the opening:

The largest venture capital fund ever raised by a woman isn’t in Silicon Valley or even the U.S. It's in Beijing and is run by a former librarian who keeps such a low profile that she’s a mystery in her native China. Chen Xiaohong rarely attends industry conferences or events. She hadn’t given a media interview in more than a decade until agreeing to break her silence this summer. “I don’t like being part of a club,” said Chen during a four-hour discussion at her firm's headquarters. “I believe in staying independent, making your own decisions.”

Chen, 46, is part of an unusual group of female investors who have risen to the top of the venture business in China and helped fuel the country’s Technology boom. They’ve backed some of China's most successful startups and their influence is growing as they raise more money, recruit other women and seed the next generation of Technology companies.

Chen and her peers have become part of the mainstream in China in a way that's proven elusive in the U.S. American venture firms have faced accusations of sexism and discrimination for years, including in an unsuccessful lawsuit filed by a female partner against storied Kleiner Perkins Caufield & Byers. Despite the criticism, the firms have made little progress in promoting women. Among the top U.S. venture firms, women make up about 10 percent of the investing partners and only half of the firms have any women of that rank. China is already more balanced: About 17 percent of investing partners are female and 80 percent have at least one woman.

An increasing number, like Chen, lead their firms. Kathy Xu is founder of Shanghai's Capital Today Group, which has $1.2 billion under management and was an early backer of the e-commerce company Inc. Anna Fang is CEO of ZhenFund, one of the most influential angel investors in China. Ruby Lu, Chen’s partner at her firm H Capital until this month, previously co-founded the China business for DCM Ventures. 

Their success is bringing more women into China's Technology industry. The Chinese government estimates females found 55 percent of new Internet companies and more than a quarter of all entrepreneurs are women. In the U.S., only 22 percent of startups have one or more women on their founding teams, according to research by Vivek Wadhwa and Farai Chideya for their book ‘Innovating Women: The Changing Face of Technology.’ 

Chen and her colleagues are building on a tradition of opportunity for women in China that dates back to before the days when Mao Zedong declared they held up “half the sky.” Women worked out of necessity in fields and factories when the country was poor, and fought alongside men during the country's civil war. By comparison, collaborating in an office is simple. Lu’s mother, who served in the People’s Liberation Army, laughed when she heard about her daughter’s diversity training at Goldman Sachs Group Inc. “She said ‘That’s ridiculous. What’s your job got to do with women or men?’ ”

The country is hardly free from discrimination. Men still hold most positions of power in politics and business, and there's plenty of crude sexism in Technology. But China has quietly become one of the best places in the world for women venture capitalists and entrepreneurs. Chen raised a new $500 million fund, the biggest ever by a woman, according to Preqin, and increased her assets under management to about $1 billion. The largest women-led fund in the U.S. was about half that size, according to Preqin’s data.

“China is fundamentally different,” said Gary Rieschel, an American who founded the China-based Qiming Venture Partners, where four of the nine investing partners are female. “The venture capital industry in the U.S. has been a private men’s club. It has been much more of a meritocracy for women in China.” 

David Fuller's view -

This speaks well for China and its long-term economic potential – an important point given its current problems in the transition from a predominantly manufacturing based developing economy, to the developed economic model led by consumer industries. 

Veteran subscribers may recall my comments over the years that one could predict the long-term potential of economies by the emancipation of their women.  After all, they hold up “half the sky”, which is surely one of Chairman Mao’s more sensible quotes. 

Countries which subjugate their women, no matter how it is rationalised, are invariably hampering their economic and social development.  It should be an obvious point as women are half the population and educated women have the additional advantage of emotional intelligence. 

How will China resolve its current economic problems?

This item continues in the Subscriber’s Area.   

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September 20 2016

Commentary by David Fuller

Theresa May has Called a Wall Street Summit to Reassure US Banking Giants in the Aftermath of Brexit

Prime Minister Theresa May is to go on a charm offensive with US banks, holding a summit with some of the biggest institutions in a bid to reassure them over potential repercussions of Britain's vote to leave the EU.

Wall Street heavyweights invited to attend the special summit later today include JP Morgan Chase investment banking chief executive Daniel Pinto, Blackrock chief executive Larry Fink, Goldman Sachs chief financial officer Harvey Schwartz and Morgan Stanley president Colm Kelleher.

It is understood that the American executives want assurances that the rights of their employees based in Britain will be protected once the UK leaves the EU.

The prime minister, who is attending the United Nations General Assembly in New York, has sought to meet them amid concerns that they could be preparing to move their European headquarters out of the UK in the wake of the Brexit vote.

She has also invited the likes of Technology behemoths Amazon and IBM, as well as bosses from engineering firms Aecom and United Technologies, and Sony Pictures. Several of these firms are currently engaged in large inward investment into the UK.

The meeting will represent the government's first major interaction with US investors since May came to office earlier this summer.

As well as seeking to reassure the Wall Street giants, May is holding a trade and investment event where she is hoping to encourage around 60 “current and expanding” firms to boost their investment in the UK.

Foreign secretary Boris Johnson is also expected to hold a meeting with business representatives on Wednesday.

Tonight, May also addressed the United Nations General Assembly, where she sought to build a global consensus on measures to tackle human trafficking, as well as entering talks on migration where she defended the right to limit the movement of people.

"We need to be clear that all countries have the right to control their borders and protect their citizens and be equally clear that countries have a duty to manage their borders to reduce onward flows of illegal and uncontrolled migration," May said.

David Fuller's view -

This is very positive, essential work by the PM, not least as only she can really speak for Britain today.  I am sure she will be effective. 

Theresa May also has the intelligence and strength of character to negotiate effectively with the EU.  Unlike her predecessor, the message will not be a version of: I want to stay in the EU but please give me some concessions so that I can gain support at home.    

Instead, I think she will make it very clear that Britain will accept nothing less than favourable terms for Brexit, which will also be in the EU’s interests.  This will only be considered if Angela Merkel understands that the UK is prepared to walk away from the European single market, without further negotiations or delay.  

Behind Europe’s angry bluster, the reality is that the EU needs the UK more than the UK needs the EU.  Mrs Merkel will lose further political support if German businesses find that they have to renegotiate trade terms with a UK that has already withdrawn from the EU.  Nevertheless, she may decide to accept this risk, if only for the sake of consistency, knowing that she is near the end of her career.

The biggest risk for the UK, including the Conservative Party, would be the unproductive masochism of a tortuous and expensive multi-year negotiation, with a destructive organisation determined to deter others from abandoning its sinking ship.  

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September 19 2016

Commentary by David Fuller

Earnings Miracle Needed to Get S&P 500 Values Out of Clouds

The Federal Reserve is looking for any excuse to raise interest rates, global growth is slowing, and yet stock analysts are predicting the fastest earnings expansion since the bull market began. They better be right.

Hitting forecasts for next year would require S&P 500 Index companies to increase profits by 13 percent, something that hasn’t happened since 2011. Failing to do so would risk inflating equity valuations that at 20 times annual income are already the highest since the financial crisis.

While the confidence of analysts helps explain the stock market’s resilience, such profit growth is lately the one thing investors have been conditioned not to expect. They’ve just endured a five-quarter stretch where every prediction for higher earnings fell apart just as reporting season arrived.

“You’d have to have a lot of things working in unison to achieve that number, a lot of things would have to go correctly,” Peter Andersen, chief investment officer at Fiduciary Trust Co. in Boston, said by phone. His firm manages more than $11 billion. “You’ll have areas where growth will be quite strong, like certain Technology areas, but other industries like financials will never have that kind of growth through 2017.”

While the U.S. equity market has sidestepped threats in the past ranging from Europe’s sovereign-debt crisis to the prospect of a government shutdown, it’s had much less success thriving in the absence of expanding earnings. Through 2014, both the price of the S&P 500 and the annual income of its members posted six consecutive years without a decline -- but that ended in 2015, when the index slipped 0.7 percent and profits dropped 3.1 percent.

The trend has worsened in 2016, with annual income earned by companies in the S&P 500 falling to $106 a share last quarter from a high of $113 in September 2014. Quarterly profits in the S&P 500 are headed for a sixth straight decline in the third quarter, matching the longest earnings recession on record, according to data compiled by Bloomberg.

Wall Street analysts have continued to push back the turning point. A survey of estimates as recently as July pointed to S&P 500 companies returning to profit growth in the third quarter of this year. Those same analysts now see a decline of 1.4 percent.

Hope springs eternal for the fourth quarter and analysts still predict annual income will increase 10 percent from now to $117 per share by the end of 2016. The projected expansion for the next 12 months is even loftier: to get to $124 a share at this point next year, profits would have to expand another 16 percent, a rate of growth that is twice the historical average.

David Fuller's view -

Well, they would say that wouldn’t they, to paraphrase Mandy Rice-Davies, if they and their clients are enjoying the benefits of a rising stock market. 

This item continues in the Subscriber’s Area and includes an informative video.

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September 15 2016

Commentary by Eoin Treacy

September 14 2016

Commentary by David Fuller

Sir James Dyson Exclusive: I Would Trigger Brexit Now, and Negotiate Trade Deals Over Time

Here is the opening of this fascinating interview with one of the contemporary world’s most successful inventors, conducted by Alan Tovey for The Telegraph:

Sir James Dyson leans back in his chair, places his hands behind his head and looks out through the glass wall of his office, out across the huge open-plan interior of his company’s Wiltshire headquarters.

He’s considering the referendum result, having campaigned for Britain to leave the European Union.

“I thought it would be very close,” he says, his voice languid. “But I had absolutely no idea. In a way, I thought I was supporting the losing side, but I thought our arguments were better – and ultimately I was proved right.”

It’s the first time he has spoken since the Brexit vote and, although not gloating over his side’s victory, he is confident about the UK’s future.

“Absolutely I’m delighted to be out and don’t think we have to negotiate anything,” he says, when asked what happens next on the road to Brexit. “I know exactly what I would do if I was running the country. I would leave and then, over a period of time, I would negotiate things.”

He’s all for a quick exit and blow the consequences, having previously said that, despite the free movement of labour, EU nations aren’t supplying the highly skilled engineers his company needs. Instead, the company has to negotiate laborious red tape to source the brainpower it needs from the rest of world.

And commercially, Sir James – who is best known for his range of vacuum cleaners – doesn’t expect Brexit to deliver much of an impact.

“They are going to want to have a free trade deal with us more than the other way round,” he says of European soon-to-be-ex-partners.

“The imbalance of trade is £100bn so, even if we have to pay an import duty, it’s not much and it’s far less than currency swings.”

He pours scorn on the idea that the EU is single market anyway. “It is not. There are different languages, boxes, plugs, marketing and so on, different psychology, different laws. There’s a lot of cost involved.”

He also reveals that, in the confused days following the referendum, he was approached by David Cameron’s office to take a role in helping shape Britain’s exit from the EU, which he turned down.

“I sort of think I’ve done my bit,” says Sir James. “I was on a Prime Minister’s advisory group for five years. I’ve got a business to run and a lot of other things to do. I’m a practising engineer, not just a company owner. I am with my engineers all the time. My time is enormously taken up doing that.”

But he’s no Little Englander. Sir James employs 7,000 staff, about half of them in the UK, mainly at the company’s Technology centre in Malmesbury, Wiltshire. The bulk of the remainder are in the Far East where Dyson does its manufacturing, but also some R&D work.

The latest phase of the Malmesbury centre officially opens on Wednesday and Sir James is keen to talk about that, but there’s one more thing to discover about his support for Brexit. Why would the owner of a £3bn global business want to weaken, rather than strengthen, international links?

“Sovereignty is the most important reason,” he says. “And I would say that, wouldn’t I? I started my own business. I wanted to be independent as a business. I don’t want to be part of a conglomerate.

“I see huge strength in independence, making your own decisions and choosing the people who run your own enterprise. Being subservient to Europe, having to do what Europe says, is entirely not in this country’s interest.”

David Fuller's view -

Sir James Dyson’s reasons for not only favouring Brexit but also leaving quickly, in his own words: “I know exactly what I would do if I was running the country.  I would leave and then, over a period of time, I would negotiate things.”

That is fine for Dyson and no doubt many other UK businesses.  However, the UK is much more international than the EU.  The City has more overseas banks than any other financial centre in the world.  They like conducting business in London, which they also use as a gateway to Europe.  Many of these firms are not taking a longer-term view.  They want the convenience, immediate certainty and professionalism of London, with unrestricted access to the EU. 

Some other overseas firms, mostly non-financial, will feel similarly.  Notably, this includes Japanese automobile manufacturers as this service reported recently.  There is a good chance that the UK will be able to protect their access to EU markets, not least as German automobile manufacturers will not want any restrictions on their exports to the UK.  Moreover, as James Dyson also points out, the EU exports approximately £100bn more to the UK than we export to the EU. 

However, while there are many possibilities and even probabilities, there are few certainties today regarding future negotiations with the EU.  This is a challenge for Mrs May’s government.  It may also be an even bigger challenge for the EU. 

A PDF of this interview is posted in the Subscriber's Area.  


Please note: Due to a lengthy appointment today, my review of leading stock markets will commence on Thursday.  

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September 12 2016

Commentary by David Fuller

Parliament Calls for Carbon Capture to Revive British Industry and Slash Climate Costs

A high-level Parliamentary inquiry has called for a massive national investment in carbon capture to revive depressed regions of the North and exploit Britain's perfectly-placed network of offshore pipelines and depleted wells.

Lord Oxburgh's cross-party report to the Government has concluded that the cheapest way to lower CO2 emissions from heavy industries and heating is to extract the carbon with filters and store it in the North Sea oil.

The advisory group said the Technology for carbon capture and storage (CCS) is ready to go immediately and should cut costs below £85 per megawatt hour by the late 2020s if launched with sufficient conviction and on a large scale, below the strike price for the Hinkley Point nuclear project. 

It could be fitted on to existing gas plants or be purpose-built in new projects, and could ultimately save up £5bn a year compared to other strategies. Unlike other renewables CCS does not alter with the weather or suffer from intermittency. It can be “dispatched” at any time, helping to balance peaks and troughs in power demand. 

“I have been surprised myself at the absolutely central role that CCS has to play across the UK economy,” said Lord Oxburgh, a former chairman of Shell Transport and Trading.

“We can dramatically reduce our CO2 emissions, create tens of thousands of jobs, and give our domestic industry a great stimulus by making use of technologies which are now well understood and fully proved,” he said.

No other country is likely to take the plunge first since few have the magic mix of industrial hubs, teams of offshore service specialists, and cheap, well-mapped, sea storage sites all so close together. “CCS Technology and its supply chain are fit for purpose. There is no justification for delay,” says the report, to be released today.

Lord Oxburgh said the state must take the lead and establish the basic infrastructure in the early years.

The report called for a government delivery company modelled on Crossrail, or the Olympics Authority, taking advantage of rock-bottom borrowing costs. It could be privatised later once the CCS has come of age.

The captured CO2 is potentially valuable. Some could be used for market gardening in greenhouses, to produce biofuels, or for industrial needs.

Most CCS in North America is commercially exploited to extract crude through enhanced oil recovery by pumping CO2 into old wells, a Technology that could give a new lease of life to Britain’s depleted offshore fields. “We could keep North Sea production going for another hundred years,” said Prof Jon Gibbins from Sheffield University.

David Fuller's view -

In this exciting new, varied and fast changing era of energy, tech-savvy nations should way outperform over the longer term.  What energy systems will they have?

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

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September 09 2016

Commentary by Eoin Treacy

Global Economics and Strategy Day

Thanks to a subscriber for this report from Morgan Stanley covering a number of macro topics. Here is an important slide highlighting how economists compute productivity figures:

Eoin Treacy's view -

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

I’m sure I’m not the only one to puzzle over how our opinion of future productivity growth and that of many economists can differ so widely and thought the above chart was highly instructive.

To my mind technological innovation is sharply deflationary but it also contributes to productivity gains by ensuring that every worker can produce more. However the decline in Multifactor Productivity questions that hypothesis. Therefore we have to ask the question whether the deflationary impact of Technology on the velocity money, which is a symptom of the wider disintermediation of the internet, is reducing the multifactor contribution to how productivity in measured. 


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September 07 2016

Commentary by David Fuller

Apple Introduces iPhone 7: Water Resistant, Faster, New Camera

Apple Inc. unveiled new iPhone models Wednesday, featuring a water-resistant design, upgraded camera system and faster processor, betting that after six annual iterations it can still make improvements enticing enough to lure buyers to their next upgrade.

First Look at the New iPhone 7 and iPhone 7 Plus

The iPhone’s main improvement revolves around the new camera. Past models have had only one lens on the back, but the new version features a dual-lens system on the larger iPhone 7 Plus. The Technology allows for sharper, brighter photos with better ability to zoom without degrading quality. Apple released a few details about the new phone on its Twitter account while Chief Executive Officer Tim Cook was giving a presentation at an event at San Francisco’s Bill Graham Civic Auditorium. 

Even as iPhone demand has waned in recent quarters, partly due to the lull between product launches, the device continues to be the biggest source of Apple’s revenue. The iPhone is at the center of an ecosystem of products from Apple TV to the Apple Watch that are designed to function in connection with it. The new models will be critical to the holiday quarter, and the world’s most valuable company is counting on them to prop up sales ahead of an expected overhaul of the line in 2017, the iPhone’s 10th anniversary.

David Fuller's view -

There are clearly a number of improvements but will it be enough to top Samsung? Many of us will be interested in the reviews, not least from Which Magazine as far as I am concerned.  It definitely preferred Samsung’s phone a few months ago but Apple clearly has some significant improvements. 

This item continues in the Subscriber’s Area and includes a discussion of Apple’s stock market prospects relative to Samsung.

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September 06 2016

Commentary by David Fuller

Quantum Computers Are Coming. The World Might Not Be Ready.

Quantum mechanics, Carl Sagan once observed, is so strange that "common sense is almost useless in approaching it." Scientists still don't understand exactly why matter behaves as it does at the quantum level. Yet they're getting better at exploiting its peculiar dynamics -- in ways that may soon upend the Technology business.

One of the most interesting applications is in computing. In theory, quantum computers could take advantage of odd subatomic interactions to solve certain problems far faster than a conventional machine could. Although a full-scale quantum computer is still years off, scientists have lately made a lot of progress on the materialsdesigns and methods needed to make one.

And that could have some striking benefits. Quantum computers could simulate how atoms and molecules behave, to the great advantage of chemists and drug designers. They could solve optimization problems -- say, how to efficiently route airplane traffic -- far faster than current Technology can. They could speed advances in artificial intelligence, improve sensors, and lead to the design of stronger and lighter industrial materials.

Unsurprisingly, then, investment in the field is surging. IBM,Microsoft and Google are all building quantum research labs. Startups are gearing up. Banks are very interested indeed. Governments see applications for space explorationmedical research and intelligence-gathering. America's National Security Agency, in fact, has been quietly trying to build a quantum computer for years, in the hope that it would make an unstoppable code-breaker.

And that suggests a looming problem. To simplify a bit, the cryptographic tools commonly used to protect information online rely on very hard math problems, such as factoring large integers, that normal computers can't solve in a reasonable time frame. Quantum computers, though, could probably make quick work of such equations.

As a result, they could undermine the security of everything from mobile phones to e-commerce to cloud computing. Within two decades, by some estimates, quantum computers may be able to break all public-key encryption now in use. "The impact on the world economy," says the nonprofit Cloud Security Alliance, "could be devastating."

David Fuller's view -

For computer security specialists, this is the equivalent of: ‘… and just when you thought it was safe to go back into the water.’

For instance, quantum computers should have no problem in outsmarting the latest, albeit not fully developed, blockchain security system.  And how will quantum computers hold up against self-programming artificial intelligence?

We live in increasingly interesting times. 

This item continues in the Subscriber’s Area and includes charts.

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September 05 2016

Commentary by David Fuller

As the EU Undermines Ireland Over Apple and Tax, Britain is in the Right Place to Benefit

Here is part the opening and also the conclusion of this powerful column by Janet Daley for The Telegraph:

We are getting out in the nick of time. The keepers of the European Union’s dying project have gone beyond the denial phase of mourning and are now utterly deranged. A historic bridge was crossed last week when the European Commission, in the person of its competition commissioner Margrethe Vestager, announced that Apple’s tax arrangements with Ireland were illegal and, as a consequence, the company would have to pay £11 billion pounds in back taxes to the Irish government – which it does not want. Indeed, so adamant is the Irish coalition government on this point that it is now appealing against the EU ruling.


Ironically, the great explosion of technological enterprise from which Ireland has hitherto been in a position to benefit will now be quite likely to shop for a new home – and the UK will be a perfect candidate with the same advantages of transatlantic connections and English language that Ireland had. But the kind of bilateral trade deals with us which Ireland, as a small independent economy, might once have enjoyed will not be possible so long as it remains an EU member.

There will be limitless opportunities for an industrious, entrepreneurial country no longer bound by the parochialism of the EU with its obtusely outdated post-war view of economics. An infinitely adaptable tax structure and a frankly competitive approach to encouraging investment – perhaps with a serious cut in corporation tax and a further lowering of National Insurance contributions for start-up businesses – could allow partnerships to be formed with eager, equally adaptable, emerging powers as well as the possibility of instantaneous response to new technologies and markets. If ever there was a moment to throw off hidebound assumptions and ideological restrictions, this is it.

Talk of adopting the Norway (or the Swiss) model is absurdly self-limiting. Our circumstances as a large, variegated and flourishing economy are unique. Without the encumbrance of Brussels protectionism and perverse anti-competitiveness, our new arrangements can be bespoke and endlessly flexible – surely the keys to survival in a globalised economy.

The dream of a European union was seen from the outset as a way of undermining the nation state with its dangerous tendency to evoke febrile nationalism. The war crimes of the 20th century were to be repudiated forever by deconstructing that demonic vision. Almost entirely forgotten has been the lesson of an earlier century: that the concept of self-governing nationhood, with a government accountable to its own people and free to set its own economic goals, was one of the most progressive ideas in human history. 

It may be time for the British to offer a new version of that model which was once their gift to the world.

David Fuller's view -

This column, which I commend to subscribers, shows Janet Daley at her best.  Exceptionally perceptive regarding the EU, she is also well aware of the excitement felt by the 17.5 million who voted for Brexit.  Their ranks are growing by the day as many marginal Remain voters are encouraged by the prospect of a fully independent United Kingdom, leaving the EU much sooner than previously feared, pursuing global interests with a free-market economy, while also maintaining strong but separate alliances with our friends and allies in Europe.

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September 01 2016

Commentary by David Fuller

A New Low Tax Economy Can Both Liberate US and be Socially Just

We should all be grateful to Brussels for showing us, yet again, why we are right to be leaving the European Union, an entity now irrevocably set on a course of long-term decline.

There have always been two tendencies at work in the EU: one pro-competition, pro-market and pro-individual freedom; the other collectivist, centralising and madly interventionist. The latter faction won, spectacularly so.

The EU’s proposed trade deal with America is dead, demolishing the argument that remaining in the EU would have been the best way for Britain to deliver global free trade; and now the European Commission is waging war on tax competition. Forget about the technicalities of the Commission’s allegations against Apple and Ireland: the intent is to preserve the high-tax, high-spending social democratic model, and that means crushing those smaller, weaker nations with the temerity to seek to make themselves more attractive to potential job-creators.

As the EU shrinks after Brexit and globalisation proceeds apace, this is the economic equivalent of a new Maginot line, a doomed attempt at bucking international competition.

But its ineffectiveness at propping up a discredited model ought to be the least of Europe’s worries. By retroactively changing the rules, it has introduced immense uncertainty into corporate decision-making, and not just for American firms. Many other investors are realising they could be next, they too could suddenly be landed with an entirely unpredictable, postdated tax bill. Contracts between companies and nations are being reopened; promises torn up, not by those who made them but by an unelected, unstoppable bureaucracy.

Inevitably, Brexit implies temporary uncertainty, rattling the nerves of many big firms (consumers, by contrast, are pretty upbeat). The good news for UK Plc is that what little fleeting advantage the EU had gained as a result has now vanished. If Britain gets its act together, our kind of uncertainty – rebooting our society, politics and economics – will soon be seen as the good sort, while Europe’s will be understood as purely negative. How many City firms would, under such circumstances, still mull relocating anything more than a trivial number of their staff to Ireland or Luxembourg? At some point, the penny will also drop that France, Italy and Spain all exhibit high and rising geopolitical risk.

David Fuller's view -

Remember David Cameron?  He held the Brexit referendum at an early date – June 23rd, because he feared the EU’s refugee crisis would worsen over the summer.  That was not a difficult forecast and he was right.  Moreover, I cannot think of anything that has happened in the EU since June 23rd which would not have hurt the Remain cause.  Most significantly, the EU’s retroactive tax on Apple this week will hurt Ireland far more than the successful company currently run by Tim Cook.  If the referendum had been scheduled for tomorrow or anytime thereafter, I think the Leave majority would have been significantly larger.  

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

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August 31 2016

Commentary by David Fuller

This Is Your Company on Blockchain

You don’t have to be an expert on digital currencies like bitcoin to be intrigued by the potential of the Technology underlying them.Blockchain, as it’s called, is something new in computing. It mashes up cryptography and peer-to-peer networking to create what amounts to a shared database of transactions and other information—which can be open to all, controlled by no one. It’s not just for securely recording payments in crypto-coinage; a blockchain can handle complex transactions, even entire contracts. True believers say blockchain could reduce the need for businesses to organize as companies, which get work done via command and control. Using blockchain, they say, collaborators will be able to work together as free agents instead of under a hierarchy of bosses.

“Imagine for a moment if people could coordinate themselves in a much more organic and distributed manner, just like ants. But without giving up on the complexity and the free will that is characteristic of human societies. We can do that,” blockchain researcher Primavera De Filippi said in a TEDxCambridge talk last year.

The poetic vision of a blockchain society is a flock of starlings at dusk: decentralized yet perfectly coordinated. Blockchainers like to show video clips of murmurations—those enormous clouds of birds that pivot and wheel, climb and dive, split and merge with amazing grace. Blockchain, in this vision, could replace gobs of bankers, accountants, and lawyers, as well as escrow accounts, insurance, and everything else that society invented pre-21st century to verify payments and the performance of contracts.

David Fuller's view -

That last sentence hooked me.  While still a work in progress, Blockchain has the potential to be far more efficient and reliable than any system previously invented.   

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August 31 2016

Commentary by Eoin Treacy

SWIFT discloses more cyber thefts, pressures banks on security

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

A SWIFT spokeswoman declined to elaborate on the recently uncovered incidents or the security issues detailed in the letter, saying the firm does not discuss affairs of specific customers.
All the victims shared one thing in common: Weaknesses in local security that attackers exploited to compromise local networks and send fraudulent messages requesting money transfers, according to the letter.

Accounts of the attack on Bangladesh Bank suggest that weak security procedures there made it easier to hack into computers used to send SWIFT messages requesting large money transfers. The bank lacked a firewall and used second-hand, $10 electronic switches to network those computers, according to the Bangladesh police.

SWIFT has repeatedly pushed banks to implement new security measures rolled out after the Bangladesh heist, including stronger systems for authenticating users and updates to its software for sending and receiving messages. But it has been difficult for SWIFT to force banks to comply because the nonprofit cooperative lacks regulatory authority over its members.

SWIFT told banks Tuesday that it might report them to regulators and banking partners if they failed to meet a November 19 deadline for installing the latest version of its software, which includes new security features designed to thwart the type of attacks described in its letter.

The security features include Technology for verifying credentials of people accessing a bank's SWIFT system; stronger rules for password management; and better tools for identifying attempts to hack the software. 


Eoin Treacy's view -

The vulnerability of central banks and financial institutions to cybercrime is truly worrying and the fact the Bangladesh central bank didn’t have so much as a firewall exemplifies just how big the problem is. Swift is a global network with huge vulnerabilities. The problem is the penalty for laxity is so low that governments have been slow to act. It is questionable whether anyone will even lose their job because of the Bangladesh scandal. 

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August 30 2016

Commentary by David Fuller

The City Will Win Again In Brexit Bang

Here is the latter section of this fascinating article by Iain Martin, author of the about to be released book: Crash Bang Wallop: The Inside Story of London’s Big Bang and a Financial Revolution that Changed the World, writing in The Sunday Times:

Of course, just because the pessimists were wrong about the euro’s impact on London does not mean all will go well this time. Indeed, there is a warning from history about potential decline that is worth taking seriously. The City’s worst experience in the modern period came with the outbreak of the First World War, which shut the gloriously open cross-border markets of the Victorian and Edwardian era, when money flowed across continents, largely unimpeded by government intervention. Capital controls, which were introduced in the Second World War and continued after it, restricted businesses and individuals who wanted to move money around the world. It meant the healthy and normal flow of investment in and out of the country was curtailed.

It was a mad approach ended by three uncoordinated innovations. In 1963 the German-Jewish refugee Siegmund Warburg and his team in London invented the Eurobond (nothing to do with the later euro), which created a new way for companies in Europe to borrow and tap into the vast pool of dollars outside America. It became a multitrillion-dollar market and attracted American and Japanese financiers to London.

Then, in 1979, the Conservative chancellor, Geoffrey Howe, scrapped exchange controls. Money could move around freely, a seemingly shocking innovation at the time that transformed the working of the economy. The Big Bang in 1986 completed what amounted to a lifting of the shutters, a reopening after a long shutdown from 1914 to 1963.

What all those innovations had in common was an openness to outside influences. The UK must not cut itself off. But then that is not what is being proposed by Theresa May’s ministers or by most sensible Brexiteers, who seek free trade for the City. If sensible voices prevail it should be possible to arrive at a compromise with the EU in which co-operation and trade continue in return for some common standards.

The City’s biggest advantage, however, is unrelated to the EU. It is simply this: London is brilliantly placed to benefit from the change that is already beginning to sweep through finance. Few areas of economic activity are more ripe for disruption than banking and finance in the West, with its long-established and over-large institutions, powerful central banks and closed networks of licensed operators, gaming regulation and political links.

Thirty years on from the Big Bang, finance is about to be blown apart again, this time by a digital revolution. Many big banks may be stuffed. It will be full-on creative destruction.

Digital disruption — in finance it is called fintech — is ready to destroy elements of the old system, and the City is a leader in that regard already. Three floors of the main tower at Canary Wharf are full of young coders and entrepreneurs launching start-ups, attempting to reinvent finance and London all over again. Elsewhere, in the clusters of tech developments in the East End, the fintech crowd is also a strong presence developing products for investment and retail banking.

Rival centres such as Silicon Valley on the US West Coast and tech-savvy Israel are in the race too, but only London and New York combine fintech with those traditional advantages of being hubs full of people who know about making money from money.

Some of the more obvious changes coming will be noticeable to us as consumers, in the form of new online banks that will make switching accounts so easy that it takes a matter of seconds to complete. New ways to pay (facial recognition instead of even a contactless card) are promised for customers who are already used to getting what they want from online streaming and delivery services.

The UK is particularly well placed partly because it has taken so enthusiastically to the internet and online shopping. Our internet economy has almost doubled in size since 2010. This year it is expected to provide 12.4% of the UK’s GDP. In South Korea it is 8%, in China 6.9%, in the US 5.4% and in Germany 4%.

The British are making the transition to the future fast, creating an opportunity for the City to offer new products to retail customers. By combining new Technology and apps with fresh thinking on how to sell shares to individual investors, we may even be able to revive the Thatcherite notion of a share-owning democracy. When interest rates are so ridiculously low and savings return nothing, it might appeal to millions of Britons.

But the biggest changes will be in the main, non-domestic business of the City, deep in the wiring of the international financial system and the giant debt and trading machine that props up our governments, which borrow from it.

The blockchain — digital Technology that greatly increases the security of financial transactions — is the most audacious and fashionable fintech innovation of all. It has been invested in heavily by some of the old banks.

The underground digital currency bitcoin (a new form of money) is based on blockchain Technology. All that underpins the virtual currency is code, a mathematical calculation that allows it to be produced and traded in a way both sides can see and have total trust in. No government or central bank controls it, and the transaction costs, unlike in traditional banking, are zero.

The best-known proponent of the blockchain is Blythe Masters, a British former JP Morgan financier now based in New York. The insight of the team that Masters runs was that it could be taken mainstream, so that main banks could use the underlying blockchain methodology to move dollars, pounds and euros and transact quickly at low or no cost.

Governments are worried about the potential loss of control involved, of not being able to see what is going on inside the financial system. That is one of the reasons the Bank of England has backed the work of a team of academics from University College London who have come up with RSCoin. It is claimed to be many times faster and more reliable than bitcoin, but the most important respect in which it differs is that it can be controlled directly by the Bank of England and the state, to manage the money supply and help the government ensure financial stability. Although this infuriates the original supporters of bitcoin, the libertarians who want a revolt and a new system entirely free from government interference, it is another example of London’s innovation.

Whatever the outcome of these battles between the old and the insurgent new, it seems that how we pay, save, invest and even think about money is in the process of being transformed. In such a fast-moving situation, the very idea of worrying too much about a large regulatory bloc — such as the EU or the eurozone — handing down orders may soon look out of date, if it does not already.

Having maximum freedom of manoeuvre may be a post-Brexit asset that attracts rather than repels investors to the UK. Brexit is not without its difficulties, of course, but the Square Mile can work its strange magic again. All that one can say for sure is that the City will survive, and prosper. It usually does.

Crash Bang Wallop: The Inside Story of London’s Big Bang and a Financial Revolution that Changed the World, by Iain Martin, is published by Sceptre on September 8 

David Fuller's view -

There is no question in my view that the City would be better off completely outside the EU, which has chipped away at some of its advantages and would love to reintroduce the dreaded Financial Transaction Tax.

Of course there are risks to Brexit, particularly initially.  However, the City remains well ahead of the EU’s considerably smaller financial sectors in terms of international innovation.  Consider blockchain mentioned above and also RSCoin, created by academics from University College London, which can be controlled directly by the Bank of England.

A PDF of Iain Martin’s article is posted in the Subscriber’s Area.

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August 30 2016

Commentary by Eoin Treacy

Ports, a Sign of Altered Supply Chains

This article from the Wall Street Journal may be of interest to subscribers. Here is a section:

“The running joke going around is that flat is the new growth,” said Jett McCandless, chief executive of transportation-Technology startup project44.

Freight volumes are stagnating despite strong consumer spending, which rose for a fourth-straight month in July. The problem for traditional retailers: More of those dollars are being spent online, or on entertainment and services such as health care.

Many retailers are stuck with large amounts of unsold goods as a result, reducing their need to import more merchandise. Even after a year of attempting to slim down inventories, retailers’ ratio of inventories to sales, a measure of excess stocks, touched 1.5 in June, close to a seven-year high, according to the Census Bureau. In their most recent earnings reports, Target and Lowe’s reported inventories up more than 4% over the same period last year.

J.C. Penney is placing “slightly smaller orders…or holding back quite a bit” to reduce inventories, Mike Robbins, J.C. Penney’s executive vice president for supply chain, told investors in June. The company has reduced the size of some orders at the beginning of major shopping seasons by as much as 70%.

The focus on reducing inventories is proving to be a drag on growth because it signals that businesses are spending less, and might be pessimistic about future demand. Inventory drawdowns cut second-quarter growth by 1.26 percentage points, to just 1.1%.

Shipping lines are struggling to plan their routes as order volumes become more difficult to predict, said Niels Erich, spokesman for a group of 15 major shipping lines known as the Transpacific Stabilization Agreement. In the past, carriers could count on the peak summer months to make up for slower winter trade.


Eoin Treacy's view -

There is no doubt that the disintermediation which characterises online retail has a deflationary impact on how economic growth is measured because it inhibits the velocity of money. I do not view it as a coincidence that the Velocity of M2 has been contracting since 1997 when the internet began to have an impact on the retail sector. 

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August 29 2016

Commentary by Eoin Treacy

Yuan Bears Emerge From Hibernation as Fed Threatens G-20 Calm

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

Derivative markets are pointing to renewed bets on yuan depreciation, with a three-month measure of expected price swings poised for the biggest monthly increase since January. Other indicators, such as the premium on options to sell the yuan over those to buy and the discount of forward contracts over the spot rate, have also climbed, indicating rising expectations for declines.

The increased pessimism comes after a period of calm that sent the measures to the lowest in at least nine months as the Federal Reserve held off on raising interest rates and investors bet that China would steady the yuan before it hosts a Group of 20 meeting in September. Traders are probing the People’s Bank of China’s willingness to allow the yuan to fall between the G-20 gathering and the currency’s entry into the International Monetary Fund’s Special Drawing Rights on Oct. 1, especially with the chances of Fed action increasing.

"After G-20 ends next Monday, the market may want to test how much yuan depreciation the PBOC can tolerate," said Gao Qi, a strategist at Scotiabank in Singapore. "China doesn’t want the yuan to move too much during G-20 and become a topic of discussion. SDR’s impact will be smaller than G-20." 


Eoin Treacy's view -

China is under the spot light as it prepares to host the G-20 summit next week and not least because it wants to use the event as an opportunity to showcase its newly found position as an economic superpower. However the fact the Chinese administration is engaged in a massive transition from an investment and export oriented business model to one more supported by internal consumption, services and high Technology cannot simply be ignored. 

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August 26 2016

Commentary by Eoin Treacy

Mylan CEO Blamed Obamacare for EpiPen Sticker Shock

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

Now Mylan appears to be learning the same hard lesson this week that Martin Shkreli and Valeant  VRX -0.51%  learned last year: Investors love when pharmaceutical companies raise drug prices—until everybody else gets really upset about it. Shares of Mylan  MYL 1.66%  have dropped more than 11% this week, down more than 5% on Wednesday alone.

And the EpiPen controversy is drawing comments from some high-profile figures, including Hillary Clinton and Martin Shkreli himself, who tweeted that he thought the EpiPen’s price should even be higher. On Wednesday, Clinton said there was no justification for the price hikes. Her comments came shortly after the Senate Committee on Aging asked Mylan to provide information on the reasoning behind what it called the “drastic” price increase of EpiPen, and the American Medical Association “urge[d]” Mylan to “rein in these exorbitant costs.”

The pricing scandal is happening at the worst possible time for Mylan. This is typically the company’s biggest season, driven by EpiPen sales, which peak during back-to-school shopping as parents and schools equip for the coming year.

Eoin Treacy's view -

BioTechnology companies justify the high price of new drugs with the argument that it is the only way to recoup the cost of developing them. Without high prices there would be no incentive to invest in the uncertainty of R&D and lengthy clinical trials. 

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August 24 2016

Commentary by Eoin Treacy

Delphi, Mobileye Join Forces to Develop Self-Drive System

This article by Mike Colias for the Wall Street Journal may be of interest to subscribers. Here is a section: 

We’re able to pool the investment as well as the Technology and execution risk in one place so it doesn’t have to be duplicated by multiple [auto makers] over and over again,” Mr. Clark said.
The pair will jointly invest “several hundred million dollars” in the effort, but a spokesman declined to provide other details.

In January, Delphi and Mobileye expect to demonstrate a system that can navigate tough road conditions, such as entering a roundabout, merging into highway traffic, or making left turns across multiple traffic lanes.

Both companies have deep relationships with car makers, but their system won’t be ready until 2019. Integrating their tech in future vehicles could take as much as two years, the companies concede, making it unlikely to hit the market until 2021 or 2022.

Mobileye Chairman and Chief Technology Officer Amnon Shashua said the pair hope to overcome any timing hurdles by offering “a new level of driving intelligence,” mimicking a driver’s decision making behind the wheel in complex situations. “If we don’t want to clog a city with robotic systems that get stuck in busy traffic, you must endow these systems with intelligence.”


Eoin Treacy's view -

Automotive manufacturers have an incentive to deliver on autonomous vehicles because they believe it would have the same effect on car ownership as the introduction of smart phones did for hand held mobile devices. Prior to the introduction of the iPhone most people already had a mobile phone yet they felt compelled to upgrade when the additional benefits of a smartphone were revealed, For companies trying to differentiate themselves in an increasingly competitive market autonomous vehicles represent a compelling vision for the future. 

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August 18 2016

Commentary by David Fuller

Britain Should Leap-Frog Hinkley and Lead 21st Century Nuclear Revolution

It is hard to imagine now, but Britain once led the nuclear revolution.

Ernest Rutherford first broke the nuclei of atoms at Manchester University in 1917. Our Queen opened the world's first nuclear power plant in 1956 at Calder Hall.

Such were the halcyon days of British atomic confidence, before defeatism took hold and free market ideology was pushed to pedantic extremes.

Most of Britain's ageing reactors will be phased out over the next decade, leaving a gaping hole in electricity supply. By historic irony the country has drifted into a position where it now depends on an ailing state-owned French company to build its two reactors at Hinkley Point, with help from the Chinese Communist Party.

The horrors Hinkley are by now well-known. The European Pressurized Reactor (EPR) is not yet working anywhere. The Olkiluoto plant in Finland is nine years late and three times over budget. EDF's Flamanville project is not faring much better.

What is clear is that the costs of 'old nuclear' have spun out of control everywhere in the developed world. It is too expensive to keep trying to refine an inherently dangerous Technology dating back sixty years in a Sisyphean attempt to make it less threatening after Chernobyl and Fukushima.

The capital cost of new nuclear plants in Europe and the US has risen from $1,000 per kilowatt in the 1970s to around $5,500 today in real terms. Hinkley will be nearer $8,000. Hence the lapidary term 'negative learning' coined by Yale scientist Arnulf Grubler.

The standard light water reactors were solid workhorses in their day - and averted huge releases of CO2 from fossil fuels - but they operate at 100 times atmospheric pressure. They need costly containment structures  to prevent an explosive release of deadly radioactive gases across hundreds of miles. 


This nuclear cost spiral has been happening just as solar and wind costs plummet, and the verdict is in. The nuclear share of global power has dropped to 10.7pc from 17.6pc in 1996. Ten new reactors were built last year, but eight were in China. In Europe they are shutting down.

There is an alternative. Research into a radical new wave of safer, cleaner, and cheaper reactors is suddenly reaching critical mass, some are entirely compatible with the intermittency of wind and solar.

This is what Theresa May should be looking at as she launches her industrialisation drive and fashions an energy policy fit for the 21st Century.

The Washington think tank Third Way has identified fifty advanced reactor projects in North America, including eight based on molten salt fuel, ten on liquid-metal, and some based on fusion designs.

David Fuller's view -

It is beyond comprehension that any intelligent person with a reasonable understanding of competing energy developments in 2016 could think that the Hinkley Point white elephant was a good idea.  This was a short-term pre-Brexit political decision which should never have been seriously considered.  It totally ignored economic risks, given EDF’s reworked and risky Heath Robinson Technology, plus the company’s catastrophic delays and soaring costs on Finland’s Olkiluoto Island and France’s own Flamanville project on the Cotentin Peninsula.  

 Prime Minister Theresa May wisely put Hinkley Point on hold, to the consternation of French and Chinese officials, before leaving for her walking holiday in Switzerland.  If her advisors are up-to-date on our worldwide energy revolution and the Hinkley Point debate, Mrs May will be able to resume her sensible overhaul of Britain’s energy policies on return.  These commenced with realistic financial incentives for people living in regions where fracking needs to occur.  However, the delicate diplomatic issue, for which she will not thank David Cameron or George Osborne, concerns Hinkley Point.  The plain truth is that it does not add up and would be a costly disadvantage for the UK over 35 years. 

This item continues in the Subscriber’s Area.


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August 18 2016

Commentary by David Fuller

Oil Prices Break Back Above $50 a Barrel

Oil prices broke above $50 a barrel for the first time in five weeks as hope that the world’s largest suppliers may act to cut the glut in global supply continues to drive prices higher for a sixth consecutive day.

Brent crude moved above $50 a barrel for the first time since early July on Thursday morning before dipping back to $49.70 later in the day. But by the afternoon the market surged well above the key earlier highs to around $50.80 a barrel.

The recent rally in prices, from lows under $42 a barrel just two weeks ago, began late last week after Saudi energy minister Khalid bin Abdulaziz Al-Falih said the Oraganization of Petroleum Exporting Countries would meet in Algeria next month to discuss measures to stabilise oil market prices with major producers outside of the cartel.

The rally found further support earlier this week after Russian energy minister Alexander Novak said that his country - the world's third largest supplier of oil - was involved in the early discussions

Shakhil Begg, an analyst with Thomson Reuters, said oil prices bounced back as continued short covering activity sustained a rally which has propelled prices by more than 20pc since the lows of early August.

David Fuller's view -

The Saudis’ 2H 2014 attempt to replay their successful 1970’s script - increasing oil supplies and driving the price down to knock out high cost producers - was always going to fail in the current era.  They were really targeting US shale oil production, without understanding the importance of this quantum technological leap which was beginning to tap billions of gallons of previously inaccessible oil, at increasingly commercial prices. 

In fairness to the Saudis, they were not alone.  In fact, most western oil analysts also failed to grasp the potential of this rapidly developing new Technology.  They talked about high drilling costs, rapid depletion rates within a few months, while polluting water tables and triggering earthquakes.

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August 18 2016

Commentary by David Fuller

Labour Force: We Are Moving Part-Time as the Jobs Market Hollows Out

Full-time employment has slid 64,500 since December while part-time employment has surged 136,600. The net result of 72,300 extra Australians in work reflects a hollowing out of employment rather than a boost in hours. There were scarcely any more hours worked in July than in December.

The international definition used by the Bureau of Statistics requires it to count someone as "employed" even if they work only one hour per week.

"With more than 86 per cent of total net jobs created over the last 12 months part-time, it is clear that Australia is becoming a nation of part-time employment growth with all the attendant negative consequences," said Bill Mitchell, director of the Centre of Full Employment and Equity at the University of Newcastle.

David Fuller's view -


This trend has been clear for a number of years – the downside of Technology in human terms is that many jobs across most industries and professions are being replaced more quickly than new jobs, other than part-time, can be found.  Additionally, Australia’s economy is adversely affected by China’s slowdown.

Click on The Sydney Morning Herald link above to see a painfully good cartoon on this subject.  

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August 17 2016

Commentary by David Fuller

August 16 2016

Commentary by David Fuller

Theresa May Tells China She Wants Stronger Trade Ties, Amid Hinkley Dispute

Theresa May has written to Chinese President Xi Jinping insisting she wants stronger trade and cooperation between the UK and China, amid a row over her decision to delay the Hinkley Point nuclear deal.

The UK "looks forward to strengthening cooperation with China on trade and business and on global issues", Mrs May said in the letter, according to a statement from the Chinese foreign ministry.

Tensions between the two countries have risen since Mrs May's surprise decision last month to delay approval of the £18bn nuclear plant amid security concerns over the involvement of Chinese state nuclear companies, which are due to fund one-third of the project.

China's ambassador Liu Xiaoming responded last week by warning that Sino-British relations were at a "crucial historical juncture", urging the UK to "keep its door open to China" and give the go-ahead to Hinkley as soon as possible. 

The new intervention by the Prime Minister, who has been tight-lipped over her decision to review Hinkley, was disclosed by Alok Sharma, the Asia minister, during a meeting with Chinese foreign minister Wang Yi in Beijing.

Ahead of the meeting, Mr Sharma also issued a statement insisting that Britain was "open for business and an attractive destination for international investors, including from China".

"The UK’s relationship with China relationship is strong, growing and delivering benefits for both our countries," he said. 

Chinese investment in Hinkley Point was warmly welcomed by former Prime Minister David Cameron and former Chancellor George Osborne, who hailed the start of a "golden era" of relations between the countries.

Beijing has made clear it sees Mrs May's reticence over Hinkley as calling this new era into question. 

David Fuller's view -

Theresa May was right to put the proposed Hinkley Point nuclear power project on indefinite hold, prior to a diplomatic cancellation. 

It never made economic sense because the estimated building cost from EDF (Électricité de France) starts at £18 billion for this untested reactor Technology, which is already significantly over-cost where it is being built in Finland and also France.

This item continues in the Subscriber’s Area where two other relevant articles are also posted, plus a PDF of The Telegraph article.  

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August 16 2016

Commentary by David Fuller

The Equity View: Growth Is Where the Value Is

My thanks to Doug Sandler for his informative letter published by RiverFront Investment Group. Here is a brief sample:

One great example of this extreme level of risk aversion can be seen when comparing the valuations of a historically “certain” sector like Utilities to a historically “uncertain” sector like Technology.  Today, investors are paying more for the future earnings of the average utility company (17.7x) than they are willing to pay for the future earnings of the average Technology company (17.6x) despite the fact that the average tech company has grown its earnings nearly four times faster (11%) than the average utility (3%) over the past ten years.  Furthermore, unlike their Technology peers, the future earnings growth for many utilities is limited by their geographic reach and the rates they are allowed to change, both of which are set by Federal and state regulators.  

David Fuller's view -

This is an extremely interesting point, although I am not sure what an average Technology company is.  Perhaps that was part of the problem, as cautious investors were uncertain as to how Technology companies should be valued.  Also, the big winners among tech companies were fashionable momentum plays with nosebleed valuations, while the laggards underperformed for lengthy periods.  I also think it can take up to a generation for once burned investors to forget the trauma of the 2000 collapse in tech shares.

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

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August 16 2016

Commentary by Eoin Treacy

Tackling the fungi that could wipe out the world's banana supply within a decade

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

The most common type of banana the western world eats is the Cavendish, which is produced through vegetative reproduction – instead of growing from seeds, cuttings of the plant's shoots are replanted and cultivated, making all Cavendish bananas essentially "clones" of one specific plant. Without genetic variety, as diseases gain a foothold over the fruit, they're equipped to potentially take out the entire worldwide crop.

"The Cavendish banana plants all originated from one plant and so as clones, they all have the same genotype – and that is a recipe for disaster," says Ioannis Stergiopoulos, plant pathologist at UC Davis.

Currently, close to 120 countries produce about 100 million tons of bananas each year, but 40 percent of the yield is spoiled by Sigatoka, a fungal disease complex comprised of three strains: yellow Sigatoka, black Sigatoka and eumusae leaf spot. To combat the ever-present threat, farmers need to apply fungicide to their crops 50 times a year, which isn't only costly, but can pose a threat to the environment and human health.

"Thirty to 35 percent of banana production cost is in fungicide applications," says Stergiopoulos. "Because many farmers can't afford the fungicide, they grow bananas of lesser quality, which bring them less income."


Eoin Treacy's view -

The susceptibility of bananas to bacterial attack, due to their lack of genetic diversity, puts me in mind of the Irish potato famine where reliance on a single breed of tuber left the population bereft of a major portion of their diet when blight destroyed the crop. Of course no one is as heavily reliant on bananas yet they do form a constituent part of many people’s diet globally. It should be possible, given today’s Technology, to protect the crop from infection and potentially even enhance yields which could flatter profitability for major producers.   

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August 15 2016

Commentary by David Fuller

Vast National Gamble on Wind Power by Britain May Yet Pay Off

Wind power has few friends on the political Right. No other industry elicits such protest from the conservative press, Tory backbenchers, and free market economists.

The vehemence is odd since wind generates home-made energy and could be considered a 'patriotic choice'. It dates back to the 1990s and early 2000s when the national wind venture seemed a bottomless pit for taxpayer subsidies.

Pre-modern turbines captured trivial amounts of energy. The electrical control systems and gearboxes broke down. Repair costs were prohibitive.

Yet as so often with infant industries, early mishaps tell us little. Costs are coming down faster than almost anybody thought possible. As the Technology comes of age - akin to gains in US shale fracking  - the calculus is starting to vindicate Britain's vast investment in wind power.

The UK is already world leader in offshore wind. The strategic choice now is whether to go for broke, tripling offshore capacity to 15 gigawatts (GW) by 2030.  The decision is doubly-hard because there is no point dabbling in offshore wind.  Scale is the crucial factor in slashing costs, so either we do it with conviction or we do not do it all. My own view is that the gamble is worth taking.

Shallow British waters to offer optimal sites of 40m depth. The oil and gas industry knows how to operate offshore. Atkins has switched its North Sea skills seamlessly to building substations for wind. JDR in Hartlepool sells submarine cables across the world. Wind power is a natural fit.

We live in a world that has just signed the COP21 climate deal in Paris. That implies a steadily rising penalty on carbon emissions. It also implies that those dragging their feet on renewables will ultimately be punished, as the Chinese have grasped.

David Fuller's view -

Many of us opposed wind farms well over a decade ago because they were expensive, nosy, inefficient eyesores and a devastating Cuisinart for birds.  Yes, costs are coming down rapidly due to size, mass production and especially accelerating technological innovation, unfolding before our very eyes.   

You would not want to live anywhere near these increasingly massive War of the Worlds machines, but they are now considerably more efficient.  Moreover, the evolution of batteries will largely resolve intermittency problems over the next five years.  Celebrate the increasingly important source of renewable energy from wind power but spare a thought for the birds lost and also the disturbance of sea mammals by offshore wind farms.   

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

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August 15 2016

Commentary by Eoin Treacy

China's Latest Leap Forward Isn't Just Great It's Quantum

This article by Josh Chin for the Wall Street Journal may be of interest to subscribers Here is a section:

“We’ve taken all the good Technology from labs around the world, absorbed it and brought it back,” Mr. Pan told Chinese state TV in an interview that aired on Monday.

With state support, Mr. Pan was able to leapfrog his former Ph.D. adviser, University of Vienna physicist Anton Zeilinger, who said he has tried since 2001 to convince the European Space Agency to launch a similar satellite.

“It’s a difficult process, which takes a lot of time,” said Mr. Zeilinger, who is now working on his former student’s satellite.

Neither Mr. Pan nor the Chinese Academy of Sciences, which is directing the project, responded to requests for comment. The European Space Agency and the U.S.’s National Science Foundation, which provides federal funding for basic American science research, also didn’t respond to requests for comment.

China’s investment in the field is likely being driven in part by fear of U.S. cyber capabilities, said John Costello, a fellow at Washington, D.C.-based New America specializing in China and cybersecurity, pointing to 2013 disclosures that the U.S. had penetrated deeply into Chinese networks. He also noted that U.S. institutions are researching how to build powerful quantum computers theoretically capable of shattering the math-based encryption now used world-wide for secure communication. “The Chinese government is aware that they are growing particularly susceptible to electronic espionage,” Mr. Costello said.

However, quantum communication is defensive in nature, he noted, and wouldn’t benefit from what the U.S. has identified as China’s state-sponsored hacking program.

Quantum encryption is secure against any kind of computing power because information encoded in a quantum particle is destroyed as soon as it is measured. Gregoir Ribordy, co-founder of Geneva-based quantum cryptography firm ID Quantique, likened it to sending a message written on a soap bubble. “If someone tries to intercept it when it’s being transmitted, by touching it, they make it burst,” he said

Eoin Treacy's view -

Protecting quantum data from corruption from outside influences such as radio waves, light and electromagnetic fields represents a significant challenge to creating working prototypes. The result is that a great deal of research is going into different ways of using light to transport information. The launch of a satellite using quantum data is an interesting proposition and if it does indeed work it would represent a proof of concept for additional research which does have cybersecurity uses. 

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August 12 2016

Commentary by Eoin Treacy

Macy's is closing another 100 stores

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

Macy's closures come amid a sixth-straight quarterly decline in sales. However, sales fell less than feared and the company said it's "encouraged" by recent sales trends. Wall Street applauded the dramatic store closures, sending the stock surging 17%, its best day since 2008.

Macy's said its new strategy is to concentrate its financial firepower and talent on its best-performing locations. The department store plans to invest in strong stores by highlighting new vendors, increasing the size and quality of its staff and investing in new Technology.

"We operate in a fast-changing world, and our company is moving forward decisively to build further on Macy's heritage," Macy's CEO Terry Lundgren said in a statement.

Macy's said the store closures could result in the loss of about $1 billion in sales, even after accounting for shoppers who would go online and to other Macy's locations. The company plans to offset that loss in sales by cutting costs, even beyond shutting down these stores.

It's not clear how many jobs will be impacted by these moves. Macy's told CNNMoney it won't detail layoffs until it finalizes its store closure list.


Eoin Treacy's view -

Macys, and a number of other big box retailers, have two problems. They rely on physical locations which tend to have a boring feel and their products are too expensive. Nevertheless they command sizeable, albeit shrinking shares of the consumer market and have impressive real estate holdings which have appreciated considerably since the credit crisis. 

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August 11 2016

Commentary by David Fuller

Holy Grail of Energy Policy in Sight as Battery Technology Smashes the Older Order

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

The world's next energy revolution is probably no more than five or ten years away. Cutting-edge research into cheap and clean forms of electricity storage is moving so fast that we may never again need to build 20th Century power plants in this country, let alone a nuclear white elephant such as Hinkley Point.

The US Energy Department is funding 75 projects developing electricity storage, mobilizing teams of scientists at Harvard, MIT, Stanford, and the elite Lawrence Livermore and Oak Ridge labs in a bid for what it calls the 'Holy Grail' of energy policy.

You can track what they are doing at the Advanced Research Projects Agency-Energy (ARPA-E). There are plans for hydrogen bromide, or zinc-air batteries, or storage in molten glass, or next-generation flywheels, many claiming "drastic improvements" that can slash storage costs by 80pc to 90pc and reach the magical figure of $100 per kilowatt hour in relatively short order.

“Storage is a huge deal,” says Ernest Moniz, the US Energy Secretary and himself a nuclear physicist. He is now confident that the US grid and power system will be completely "decarbonised" by the middle of the century.

And more on Hinkley Point:

Perhaps the Hinkley project still made sense in 2013 before the collapse in global energy prices and before the latest leap forward in renewable Technology. It is madness today.

The latest report by the National Audit Office shows that the estimated subsidy for these two reactors has already jumped from £6bn to near £30bn. Hinkley Point locks Britain into a strike price of £92.50 per megawatt hour - adjusted for inflation, already £97 - and that is guaranteed for 35 years.

That is double the current market price of electricity. The NAO's figures show that solar will be nearer £60 per megawatt hour by 2025. Dong Energy has already agreed to an offshore wind contractin Holland at less than £75.

Michael Liebreich from Bloomberg New Energy Finance says the Hinkley Point saga will be taught for generations as a case study in how not to run a procurement process. "The obvious question is why this train-wreck of a project was not killed long ago," he said.

Theresa May has inherited a poisonous dossier, left with the invidious choice of either offending China or persisting with a venture that no longer makes any economic sense. She may have to offend China - as tactfully as possible, let us hope - for the scale of the folly has become crushingly obvious.

Every big decision on energy strategy by the British government or any other government must henceforth be based on the working premise that cheap energy storage will soon be a reality.

This country can achieve total self-sufficiency in power at viable cost from our own sun, wind, and waters within a generation. Once we shift to electric vehicles as well, we will no longer need to import much oil either. Rejoice.

David Fuller's view -

Modern energy industries are among the biggest beneficiaries of the accelerated rate of technological innovation.  The primary incentive is ‘needs must’.  For this reason the US Energy Department is currently, albeit belatedly, funding approximately 75 projects dedicated to improving electricity storage capacity.  Other countries with developed research capabilities are following a similar path.  Electricity storage costs are plummeting and forecast to reach $100 per kilowatt hour before long.  This will largely remove the ‘intermittency’ problem which is currently still the main downside for solar and wind power. 

Against this background, governments should reconsider proposals for 20th century energy programmes, of which the UK’s Hinkley Point project is a classic example.  It was hastily proposed on the basis that energy costs could only move higher - a dubious premise as we now know.  In fact, energy prices will plummet in the years ahead, for countries which develop modern and increasingly efficient energy policies including solar, modern nuclear and also natural gas which is readily available via fracking in many countries and the least polluting fossil fuel by far.  

The Hinkley Point project, far from providing a helpful source of energy, would saddle the UK with uncompetitive energy costs for at least 35 years, damaging economic prospects in the process.

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

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August 09 2016

Commentary by David Fuller

Britain Faces a Nasty Shock When the Global Energy Cycle Turns

Here is a middle section of this timely and informative article by Ambrose Evans-Pritchard for The Telegraph, which I managed to see while on holiday:

The BGS [British Geological Survey] thinks there are 1,300 trillion cubic feet (TCF) of gas resource in the Bowland, enough in theory to replace the North Sea and profoundly change British fortunes.

"Four or five years ago the recovery rate in the US was 10pc and now they are moving towards 20pc. I don't see why we can't do that in the Bowland," Stephen Bowler, the chief executive of IGas. Anything like that would be enough to meet Britain's entire annual consumption of 2.7 TCF through the 21st Century.

IGas is in partnership with Total, GDF Suez, and INEOS, expects initials flows in the Bowland in early 2017, building up to commercial output within two or three years.

Those on the cutting edge are exasperated by the static critiques of the hydraulic fracturing, typically five years out of date. The gains in Technology, seismic imaging, computer data, and smart drills are moving at lightning speed.

New methods allow for three, six, or even ten wells to be drilled from the same pad,  greatly reducing disruption. Walking rigs move on the next spot without the need for the vast fleets of vehicles that bedevilled the early years of shale. Fracking remains 'dirty', but less than a decade ago. The BGS says that most early stories of water contamination have been false alarms.

British geologists are better prepared. They have already pre-collected readings on methane levels that will enable them to detect any leakage from fracking wells. "They never had that data in the US so we will have a much better handle," said Mr Gatliff.

Burning gas emits CO2 of course - albeit half as much as coal - but fracking is still a net plus for global warming if it displaces imports of liquefied natural gas (LNG) from places like Qatar. LNG must first be frozen to minus 160 degrees Centigrade and then shipped across the world. A study by Cambridge Professor David Mackay concluded that LNG's carbon footprint is 20pc higher than shale gas.

David Fuller's view -

The title of the article above would be redundant if Britain moved swiftly and competently to develop its fracking potential.  BGS is cautious to a fault in its forecasts for the UK’s shale gas recovery capability, but we know there is plenty of this important resource underground.  It would be madness not to use it, given the rapid development in fracking Technology over the last ten years. 

See also: Britain Must Seize the Benefits of Fracking, an editorial from The Telegraph which I posted yesterday.    

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

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August 08 2016

Commentary by Eoin Treacy

Biotechnology update

Eoin Treacy's view -

I spent a few hours last night greatly increasing the number of shares in the bioTechnology section of the Chart Library so it would be easier for subscribers to examine the commonality evident within. 

Clicking through the constituents, the return to outperformance of immuno-oncology related shares was something that caught my attention. 


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August 05 2016

Commentary by Eoin Treacy

Bristol-Myers Plummets as Drug Misses Key Lung-Cancer Goal

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

“This is a major surprise -- possibly the biggest clinical surprise of my career,” Evercore ISI analyst Mark Schoenebaum, who recommends holding Bristol-Myers stock, wrote in a note. “Investors had high expectations for this trial.”

The results reflected a risky but potentially lucrative bet by Bristol-Myers, highlighting a difference in strategy with Merck. By designing its study to include patients with lower levels of a key biomarker thought to predict response to the drug, Bristol-Myers was aiming at a far larger market for Opdivo. Merck’s Keytruda trial, meanwhile, focused on a smaller subset with high levels of the biomarker, called PD-L1 -- fewer patients, but a better chance of success.

Opdivo didn’t meet its primary goal of lengthening progression-free survival in patients with previously untreated advanced non-small cell lung cancer, compared with chemotherapy, Bristol-Myers said in a statement. The New York-based company is working on completing an evaluation of the late-stage trial’s results.

Bristol-Myers Chief Executive Officer Giovanni Caforio said the company is now focused on combination therapies, which could potentially create a better outcome for the group of patients that don’t get results on drugs like Opdivo alone.

“We have a very broad development program in lung cancer and we are answering a number of very important questions,”

Caforio said in a phone interview Friday. “The role of monotherapy might be limited to a very small subset of patients in the first-line setting, which makes our program now ideally suited to address the next question, which is: ‘What is the role of combination therapy?”’ That will come from a study that analysts said would likely read out in 2018.


Eoin Treacy's view -

As a major BioTechnology company Bristol Myers Squibb benefitted enormously from being in a position to acquire promising research in the aftermath of the TMT bubble in the 1990s. That has led it to develop a broad spectrum product range that is cash flow positive and has allowed the share to hold a progression of higher reaction lows despite the turmoil that has affected the biotech sector from last year. 

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August 04 2016

Commentary by Eoin Treacy

This Time, 3D Printer Makers Think They Found a Sweet Spot

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

HP’s Technology may usher in a new era for the industry. Production applications for 3D printing could eventually grab at least 5 percent of the worldwide manufacturing economy, and translate into $640 billion in annual sales, according to Wohlers Associates, which has tracked the 3D printing market for 28 years.

Evolving Business
“It’s one of our anchor businesses we’ll divert money on,” HP Chief Technology Officer Shane Wall said in an interview. “It’s a very high strategic value for us.”

3D Systems Chief Executive Officer Vyomesh Joshi, who joined the Rock Hill, South Carolina-based company in April after more than three decades at HP, said on a conference call Wednesday that his business is evolving from prototyping to “light production.” The shares rallied 18 percent after the company posted second-quarter earnings that beat analysts’ estimates and said its profit margin increased from a year earlier partly as it shifted away from consumer products.

A few years ago, the industry had banked on putting a 3D printer in every home -- yet that market never materialized as consumers found the devices fragile, expensive and snail slow. That bet proved torturous to 3D Systems and Stratasys, both of whose shares plunged about 85 percent since the beginning of 2014. More recently, the stocks have been under pressure by a slowdown in sales for prototyping applications as customers delay purchases to evaluate new products from companies like HP, said Robert Burleson, an analyst at Canaccord Genuity.


Eoin Treacy's view -

3-D Systems and Stratasys went on a buying spree between 2012 and 2014 that saw them become the dominant players in the sector. It also left them with the problem of how to integrate all the competing pieces of Technology into a cohesive product offering. At same time rapid demand growth for their products from the retail segment has not evolved as quickly as anticipated and their shares collapsed. The entry of much larger companies like HP and Autodesk represent additional threats.  

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August 03 2016

Commentary by Eoin Treacy

Bitcoin worth $72 million stolen from Bitfinex exchange in Hong Kong

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

"The bitcoin was stolen from users' segregated wallets," he said.

The company said it had reported the theft to law enforcement and was cooperating with top blockchain analytic companies to track the stolen coins.

Last year, Bitfinex announced a tie-up with Palo Alto-based BitGo, which uses multiple-signature security to store user deposits online, allowing for faster withdrawals.

"Our investigation has found no evidence of a breach to any BitGo servers," BitGo said in a Tweet.
"With users' funds secured using multi-signature Technology in partnership with BitGo, a lot more is at stake for the backbone of the bitcoin industry, with its stalwarts and prided tech under fire," said Charles Hayter, chief executive and founder of digital currency website CryptoCompare.

The security breach comes two months after Bitfinex was ordered to pay a $75,000 fine by the U.S. Commodity and Futures Trading Commission in part for offering illegal off-exchange financed commodity transactions in bitcoin and other digital currencies. 


Eoin Treacy's view -

Even the biggest lock in the world can be opened if you have the key. What’s inside is not influenced by that simple fact and neither is the supply of whatever it is. At over $500 per bitcoin the cryptocurrency has value and the blockchain equation solving process which mints bitcoins has real world applications because it is so difficult to tamper with. However the warehouses people use to trade in bitcoins do not appear to have solved the problem of securing client accounts and access keys. With such rich pickings they are targets for criminals, which represent a problem for investors seeking to participate directly in the market. 

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July 28 2016

Commentary by Eoin Treacy


Eoin Treacy's view -

This sector was the darling of the investment community until about a year ago when Biogen had a disappointing quarter, Valeant’s business model blew  up shortly afterwards and despite the fact it is not a biotech company, the sector was hit by the same selling pressure. When politicians took aim at the high charges of drugs and new treatments, it contributed to additional selling pressure. 

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July 28 2016

Commentary by Eoin Treacy

3 Trends in Wastewater Treatment

Thanks to a subscriber for this article by Ralph Exton at GE. Here is a section:

It is critical that we seek to spur increased adoption of water reuse – a strategy that allows the world to take advantage of a water source constantly replenished every day regardless of drought or climate change. Treated municipal wastewater is a virtually untapped resource. In North America, 75 percent of wastewater is treated (16 trillion gallons of water every day), but less than 4 percent of that water is reused. It’s a gap that needs to be closed.

The vast majority of treated municipal effluent is discharged into a local receiving stream. Technology exists to take this wastewater and treat it to a quality suitable for other, non-potable purposes: agricultural needs, groundwater recharge, industrial applications. In fact, wastewater can be treated to a quality suitable for drinking (if we can get past the “ick” factor of the toilet-to-tap water recycling concept).

Historically, policy has focused on effluent quality, pushing for discharge limits to protect the environment. This is important – and necessary. However, policy and regulation need to catch up with the growing acceptance of water reuse and begin to structure guidance around its implementation. It’s starting to happen in several corners of the world. For example, Saudi Araba increased its water tariff to encourage water reuse. The United Arab Emirates is opting for stronger conservation and reuse rather than investing in desalination technologies, which are effective but expensive.

Eoin Treacy's view -

Fresh water is a precious commodity and, as with any naturally occurring resource, is unevenly dispersed globally. Nevertheless it is an expensive resource to develop infrastructure for and, because of its integral role in fostering life, the care that needs to go into making it potable means water represents a cost for the majority of households. 

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July 20 2016

Commentary by Eoin Treacy

Email of the day on acronyms

I am a pre-subscriber, but wish to raise a point which I am sure will resonate with at least some of your regular subscribers. I get very frustrated when a jargon acronym is used in an article, and I cannot fathom out what it stands for. I don't really wish to be subjected to an IQ test (it is too embarrassing!). I realise that this is a topic that applies to financial and commercial sites generally, but as a highly-enlightened example of the genre, Fuller Treacy Money might be prepared to make some adjustments in this direction?! A recent example was AR, in an article extract on the latest video-gaming Technology. It has me stumped. Perhaps a glossary might be provided? (I realise this would be (rightly) inaccessible to pre-subscribers). I remember in a "communications course" many years ago being told we should never ASSUME (prior knowledge in an audience or listener), as it makes an "ass" of "u" and "me"! (Please forgive the u/c, as it seems as if I am shouting - but I do not have the luxury of using italics for emphasis.) I have been reminded of that on so many occasions since. I am a private tutor, and it is very relevant in that area of work.

Eoin Treacy's view -

Thank you for this note and we take a great deal of care to avoid acronyms in our own copy for exactly the reasons you outline. I hope you will understand that we post snippets from a wide variety of both institutional and retail sources and have no control over how they impart their information. Composing a glossary of all acronyms is beyond our capability I’m afraid but in this case AR stands for augmented reality while VR is virtual reality. 


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July 18 2016

Commentary by David Fuller

ARM Sale Shows the Limits of British Patriotism

Anyone who cares about Europe's Technology scene will be sad to see ARM Holdings become a unit of Japanese conglomerate SoftBank.

As for the U.K., it seems odd (to put it mildly) that it appears content to cede control of arguably its lone tech champion, a week after new prime minister Theresa May professed her distaste for foreign takeovers of science-rich British companies. True, it's hard to characterize SoftBank as a wicked asset stripper in the vein of U.S. drugmaker Pfizer. The Japanese have promised to keep the headquarters in Cambridge and double the number of British jobs over five years.

But it's hard to swallow the spin about this showing a Britain that remains open to business after last month's cataclysmic Brexit vote. As Gadfly colleague Chris Hughes predicted before the vote, ARM has been put in reach of overseas purchasers precisely because the post-vote sterling slump makes expensive deals look slightly less forbidding. SoftBank may well end up a benign owner with no need for dreaded synergies, but future investment decisions will probably be made in Japan, not the U.K.

And if you ever wanted an example of the kind of brains-heavy British success story that May seemed to have in mind, ARM would be tough to match. Although tiny compared to U.S. or Asian tech rivals, it's a symbol of how Europe can compete against bigger, better funded players. Born in the early 1990s, it crafted a smart business model that relies on the intellectual brilliance of about 4,000 engineers to come up with chip designs that are licensed to makers of smartphones, tablets and other gadgets.

David Fuller's view -

As with marriage, one seldom knows in advance how a takeover or merger will work out over time.  However, I think this article is overly pessimistic and any thought of rejecting Masayoshi Sone of SoftBank’s offer would reflect a type of patriotism I do not favour.

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

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July 15 2016

Commentary by Eoin Treacy

Samsung in Talks With BYD to Buy Stake in Electric-Car Maker

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

BYD said Samsung has been actively pushing forward talks about buying its shares in a private placement. Talks are still underway, the Chinese company said, denying a report by the Korea Economic Daily that an agreement was reached to acquire a 4 percent stake.

Samsung is pursuing the investment after its affiliate was among foreign battery makers left off a list of suppliers approved by China, where sales of electric vehicles are surging and the government has sped up construction of charging points.

The talks with BYD also add to the global trend of Technology companies and automakers collaborating as car buyers increasingly demand more advanced powertrains and features that improve connectivity and safety.

“It puts Samsung into the electric-vehicle subsystem supply chain for a key Chinese electric vehicle and battery manufacturer,” said Bill Russo, a Shanghai-based managing director at Gao Feng Advisory Co. “BYD gets a Technology innovation pipeline partner with a reputable brand.”


Eoin Treacy's view -

China is the world’s largest car market. With a concerted government backed push into electric vehicles any company seeking to ride the wave to emerging automotive Technology cannot afford to lose access to the market. Therefore BYD represents an attractive avenue for foreign investors. While in the USA Tesla sets the pace for what other companies are expected to provide, China’s state mandated vision for zero emissions represents an even more important influence on the market. Car companies have to try and build products for a global audience in order to keep costs under control. Therefore any company seeking to compete globally needs to have a foothold in China. 

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July 12 2016

Commentary by Eoin Treacy

Game Makers Everywhere Salivate Over Pokemon Go Phenomenon

This article by Selina Wang and Jing Cao for Bloomberg may be of interest to subscribers. Here is a section: 

Game developers around the world watched in astonishment as Pokemon Go, a mobile version of the beloved 1990s game from Nintendo Co., became an instant hit -- rocketing to the most downloaded app on both Apple and Android phones.

It’s too soon to say if its success will reshape the $25 billion mobile gaming industry, but this much is certain: The surprise hit will inspire copycats.

“You’re going to see other developers potentially changing their pipeline to incorporate augmented reality or location-based Technology,” said Mike Olson, an analyst at Piper Jaffray Cos. “Those plans are probably being put in place right now.” He said he wouldn’t be surprised if Activision Blizzard Inc. added such functionality to Skylanders, its role-playing game featuring toys.

Pokemon Go has been released only in the U.S., Australia and New Zealand so far, and already nimble developers are making lookalike apps for places where the game isn’t available. A few cashing in on the craze have topped mobile-download rankings from Germany and Spain to Singapore and Sweden, according to market researcher App Annie. The game Citymon Go -- led by a character with a striking resemblance to Pokemon’s Pikachu -- became China’s most downloaded Apple iOS game in the past few days. Go Pikachu, a board-game populated with cartoon monsters, is now one of the 20 most-downloaded games on, an Android app store.


Eoin Treacy's view -

I took my daughters to Anime Expo last weekend. They were delighted to dress up as their favourite computer game characters and were amazed at the intricacy of other peoples’ costumes. The one major disappointment was our failure to get to the Pokemon event quick enough to queue up for a seat. The line for access to the 350 seat venue filled up immediately following the conference doors opening. What was perhaps most bemusing but in retrospect predictable were the people seeking to attend likely played the 1990s version of the Pokemon Go game when it originally came out. 

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July 11 2016

Commentary by Eoin Treacy

Google Plans to Train 2 Million Indian Developers on Android

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

Google launched a program to train 2 million developers in India for its Android platform as its fires up a race with Apple Inc. for the country’s developers to create innovative mobile apps.

The Android Skilling program will be introduced for free across hundreds of public and private universities and training schools through a specially designed, in-person program this year. The program would also be available through the government’s National Skills Development Corporation of India, the company said in a statement.

India is expected to have the largest developer population with 4 million people by 2018, overtaking the U.S., but only a quarter are building for mobile, said Caesar Sengupta, vice president of product management at Google.

“We believe India is uniquely placed to innovate and shape the internet experience of billions of users who are and will come online on the mobile platform,” he said in the statement.

Google plans to make the curriculum accessible to millions for free to help make India a global leader in mobile development.


Eoin Treacy's view -

Silicon Valley Technology companies have been vocal in their desire to see more people take up coding as a profession and most particularly with a focus on their own operating systems. Google’s decision to facilitate more people learning how to code apps in Android is a direct attempt to challenge Apple’s dominance of the App market. Considering how much each of us use apps on a daily basis, and the insights they offer into the various facets of our lives, growth among operating system developers like Google, Apple and Microsoft is likely predicated on continued dominance of their niche within the wider Technology sector and the high barrier to entry it offers.   

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July 08 2016

Commentary by David Fuller

UK Startups Can Shine In a Post-Brexit World

Matt Clifford is the co-founder and chief executive of Entrepreneur First, the five-year-old UK accelerator program, which has produced 75 startups since launch. One of their companies, Magic Pony was sold to Twitter for $150m just last month.

It is just the kind of company you might think would suffer in the immediate aftermath of last month's vote by the UK to leave the European Union. But apparently not. In fact, he had closed three seed investment deals since the result was announced. 

Two weeks on from the referendum results, tech startups are swamped by uncertainty. The overwhelming majority – roughly 87pc according to a recent survey – were opposed to Brexit.

But European investors like Index Ventures and Local Globe insist they are remain bullish on London as a tech hub and will continue to actively invest there because of tax benefits, strong technical universities such as Cambridge, Oxford and Imperial College, and the UK’s large English-speaking market – a combination that’s tough for other European cities to beat.

The persistent “We are open for business” refrain might seem hollow to some, particularly in light of the tech sector’s unequivocal Europhilia. But anecdotal evidence suggests that unexpected windows of opportunity are slowly opening up.

For instance, many agree that there could be unexpected opportunities for financial services disruption that fintech startups are best placed to grab. But first, let’s examine the major concerns being raised about the state of the UK tech sector.  

David Fuller's view -

In an ideal world, the UK economy would have moved smoothly into the post-Brexit era.  However, ideal worlds have usually been pipe dreams.  Therefore, it is better to have started in chaos and panic, to which people are now responding with some sensible, promising ideas, than the other way around.   

Governance is everything has long been a mantra of this service.  I would not underestimate the sense of energy and opportunity that can now be inspired by good leadership, from the top down, backed by appropriate incentives.  The UK will have a rough third quarter, for understandable reasons.  Thereafter, it should be improving, regardless of what happens to the EU.

A PDF of this article is posted in the Subscriber’s Area.

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July 06 2016

Commentary by David Fuller

French Plot to Topple City of London is Foolish Bluster

French leaders are openly plotting to peel off large chunks of the City’s financial industry as soon as Britain leaves the EU. This might prove much tougher than they imagine.

The plans conflict with far more important economic and strategic objectives of the EU, and some of the stated intentions violate existing EU law.

France is rolling out the red carpet for putative refugees from Canary Wharf, hoping to capture the lion’s share of the estimated €600bn to €1 trillion market for clearing in euro-denominated transactions. Some German officials are also eyeing the City, but more discreetly.

"There is a power play going on. It is very clear France and Germany will do everything they can to damage the City and get the business for themselves," said Professor Athanasios Orphanides, a former member of the European Central Bank's governing council.

"But I don't think anybody can kill the City that easily. The EU itself is so messed up right now and the eurozone is so fragile that any shock could tip them over the edge, and when it happens it is going to be non-linear," he said.

French President François Hollande has been notably combative, telling Les Echos that Britain will lose its vital right to commercial passporting “completely” the moment it steps out of the club.  This clashes head on with France's parallel policy of intimate defence ties with Britain.

He has also stated categorically that Europe will stop the City carrying out clearing operations in euros, adding for good measure that the Referendum result is irreversible. It is almost as if he welcomes the result for his own internal motives within the French political system.

Prof Orphanides, now at the Massachusetts Institute of Technology,  said neither Paris nor Frankfurt have the skills or outlook to run an international financial centre of global scale.

"Whatever they try to do, they'll end up shooting themselves in the foot and driving the businesses out Europe. The EU regulations are so costly that I think the City could actually see long-term benefits from leaving," he said.

The City is ranked number one in the Global Financial Centres Index, ahead of New York, Singapore, Hong Kong, Tokyo, and Zurich.  None of the EU's other hubs come close. Luxembourg is 14, Frankfurt is 18, and Paris lags far behind at 32,  behind Calgary or Dalian in China.

The great unknown is whether London's incumbency advantage is 'sticky' in the fluid world of global finance. Chris Cummings from the industry lobby TheCityUK says it is hard to replicate a deep and established market.

David Fuller's view -

Most of the City’s financial institutions voted for Remain in line with their short-term profits.  However, their longer-term potential should be greater under British regulation and the lower corporate taxes mention last week by current Chancellor George Osborne.

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

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July 06 2016

Commentary by Eoin Treacy

First Solar Quits TetraSun in Shift to All Thin-Film Panels

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

When First Solar acquired TetraSun, it was producing cadmium-telluride panels with maximum efficiency rates of 13.3 percent, the amount of energy in sunlight that’s converted to electricity. TetraSun had 21 percent efficiency at the time and the potential for improvement.

The company’s latest cadmium-telluride cell reached a record 22.1 percent efficiency in a laboratory. That’s higher than the best multicrystalline polysilicon cell at 21.3 percent, according to data from the National Renewable Energy Laboratory.

SunPower Corp., which uses a purer form of silicon, has the most efficient panels, with 24.1 percent.

“First Solar has achieved surprisingly good results for its thin-film Technology,” Jenny Chase, an analyst at Bloomberg New Energy Finance, said in an e-mail. “First Solar may have felt there was little point in competing in an area where they have no unique advantage over other silicon manufacturers.”


Eoin Treacy's view -

The above story highlights how solar panel companies can become the victims of their own success. By purchasing Tetrasun, First Solar was hedging its development of a new product but it is arguable whether that would have worked since there are other cost effective manufacturers of those panels, not least in China. In such a highly competitive market, where the risk of new technologies evolving outside a company’s internal ecosystem is nontrivial, companies might be better off having conviction in their own products than competing on legacy Technology

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July 05 2016

Commentary by Eoin Treacy

What Really Drives White Metals Prices

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

Silver supply drivers
While overall silver stocks are high globally, over the last few years silver has experienced what is known as a “supply deficit,” as annual production has been less than the demand for the metal, gradually eating away at current stocks. What many investors may not realize is that only 25% of silver production is derived from silver mines; the rest—roughly 75%—is a byproduct of mining for other metals, most notably lead, zinc, copper, and gold. As of year-end 2015, as mining capital expenditures for these other metals has been scaled back in response to relatively low prices, silver production has correspondingly fallen.

Silver demand drivers
Although it may not be the first thing that comes to investors’ minds when they think of silver, industrial applications are a significant demand driver, accounting for more than half of the precious metal’s usage worldwide. Silver’s unique characteristics include its outstanding thermal and electrical conductivity, along with its ductility, malleability, optical reflectivity, and antibacterial properties. These features make the precious metal invaluable as an input in myriad industrial applications including electrical components, batteries, photovoltaics (solar panels), auto parts, pollution abatement Technology, ethylene oxide (an important chemical precursor), as well as brazing alloys and solders. 

Of the white metals, silver also tracks gold most closely, boasting a correlation of 0.8 over the past five years. Since gold is seen as a defensive asset in times of expanded bank balance sheets or quantitative easing programs by central banks, monetary policy tends to have a “shadow impact” on silver—far less so than gold, but still noticeable. Lastly, albeit accounting for just 20% of silver use worldwide, it’s worth noting that jewelry demand has held more or less stable over the past decade. 

Looking forward 
Deep capital expenditures cuts in the industrial metals space is likely to have a significant effect on silver supplies, as the majority of silver is mined as a byproduct of zinc and copper. In the context of weakening global demand, especially from China, low commodity prices have reduced production incentives. Looking forward, as the global growth outlook improves, demand for commodities, including silver, is likely to rise.


Eoin Treacy's view -

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

If “the cure for high prices is high prices” is one of the oldest adages in the commodity markets then it also works in reverse. Industrial metal prices trended lower for four years and the LME Metals Index more than halved in the process. That forced miners to cut back on spending, cancel expansion plans, hold off on acquisitions, fire workers, especially administrative staff, and become much more conservative with their expectations for growth. 

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June 23 2016

Commentary by David Fuller

Solar Power to Grow Sixfold as Sun Becoming Cheapest Resource

Here is the opening of this topical article from Bloomberg:

The amount of electricity generated using solar panels stands to expand as much as sixfold by 2030 as the cost of production falls below competing natural gas and coal-fired plants, according to the International Renewable Energy Agency.

Solar plants using photovoltaic Technology could account for 8 percent to 13 percent of global electricity produced in 2030, compared with 1.2 percent at the end of last year, the Abu Dhabi-based industry group said in a report Wednesday. The average cost of electricity from a photovoltaic system is forecast to plunge as much as 59 percent by 2025, making solar the cheapest form of power generation “in an increasing number of cases,” it said.

Renewables are replacing nuclear energy and curbing electricity production from gas and coal in developed areas such as Europe and the U.S., according to Bloomberg New Energy Finance. California’s PG&E Corp. is proposing to close two nuclear reactors as wind and solar costs decline. Even as supply gluts depress coal and gas prices, solar and wind technologies will be the cheapest ways to produce electricity in most parts of the world in the 2030s, New Energy Finance said in a report this month.

“The renewable energy transition is well underway, with solar playing a key role,” Irena Director General Adnan Amin said in a statement. “Cost reductions, in combination with other enabling factors, can create a dramatic expansion of solar power globally.”

David Fuller's view -

My guess is that even these optimistic forecasts will be significantly exceeded by 2030, as the solar power industry becomes progressively more efficient.  Moreover, the accelerated rate of technological innovation will lead to new forms of solar power which are all but unimaginable today.

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June 22 2016

Commentary by Eoin Treacy

California's Last Nuclear Plant Is Closing, Edged Out by Renewables

This article by Jim Polson and Jonathan Crawford for Bloomberg may be of interest to subscribers. Here is a section: 

Economics have achieved what environmentalists have sought for years: the shutdown of California’s nuclear power plants.

PG&E Corp. is proposing to close two reactors at Diablo Canyon in a decade that would end up costing more to keep alive as California expands its use of renewable energy, Chief Executive Officer Tony Earley said Tuesday. They won’t be needed after 2025 as wind and solar costs decline and electricity from the reactors becomes increasingly expensive, he said.

Diablo Canyon became California’s only operating nuclear power plant after Edison International three years ago shut its San Onofre plant north of San Diego after a leak. Tuesday’s announcement follows decisions this month to retire three other U.S. nuclear plants struggling to make money amid historically low power prices and cheap natural gas.

“It’s going to cost less overall as a total package than if you just continued to operate Diablo Canyon,” Earley said. “It’s going to operate less because of the energy policies that are in place.”


Eoin Treacy's view -

Nuclear in North America and Europe suffers from a boy who cried wolf problem. By over promising on cost and production and under delivering, particularly on safety, public ambivalence has grown substantially. That’s an unfortunate development because new nuclear technologies really do hold the potential to fulfil earlier promises, but they are unlikely to be built in either North America or Europe. China is now the primary bastion of support for developing nuclear Technology and is already exporting its designs to other countries. 

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June 22 2016

Commentary by Eoin Treacy

Musk's Solar Lifestyle Idea Has One Big Flaw

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

The commercial success of Musk's vertical integration idea hinges -- in terms of turning a profit rather than generating a high market capitalization -- on battery Technology that would have mass rather than niche appeal. The assumption upon which Musks' concept -- and Tesla's $32.3 billion market capitalization -- is built is that Tesla is betting on the right battery Technology and no one will come up with a much better one. That is the big hole in the donut: The assumption is far from safe.

Cheap and reliable energy storage is central to the idea of an off-the-grid, solar-powered household. Such a home needs energy at night, when the sun isn't shining: It has fridges, air conditioners and other appliances running, and a Tesla charging in the garage. So it needs a good battery, and Tesla's Powerwall doesn't necessarily fit the bill -- if only because the cost of the energy it supplies, including amortization, is higher than grid prices. Because of this, and given the high price of Tesla cars, the lifestyle on offer is an expensive statement. In terms of cost and convenience, it's not competitive with the traditional grid-and-fossil fuel model.


Eoin Treacy's view -

Let’s call Tesla Motor’s acquisition of SolarCity what it is; a bailout. The tide of highly attractive subsidies for solar has turned. NV Energy, Warren Buffett’s Nevada utility, successfully argued that it should not have to bear the full cost of the electrical grid when solar producers get to use it for free and get preferential rates on the electricity they supply. That represented a major upset for SolarCity in particular but also highlighted a deeper challenge for the solar leasing business model which has contributed to increased scepticism among investors about the prospects for related companies. The big question is whether other states, particularly in the sun-belt will announce similar charging structures. 

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June 15 2016

Commentary by David Fuller

Watch These Synthetic Leaves Suck CO2 Out of the Sky

Here is the opening of this interesting article from Bloomberg on reducing a problem which is contributing to climate change:

We’ve added more than half a billion tons of carbon to the air since the industrial revolution. This device could help clean it up.

What about all the carbon we've already poured into the atmosphere? If only there were a device that could take some of it back out.

Researchers at Arizona State University’s Center for Negative Carbon Emissions are working on one. They discovered a commercially available resin that can grab carbon dioxide at low concentrations when the material is dry and release it when the material is moist. The CO2 it collects could be stored underground, used in greenhouses, or fed to algae for biofuel production.

"Right now, we are taking carbon out of the ground. We then convert the energy into something useful. Then there’s a third step that we ignore—namely, to clean up after ourselves," said Klaus Lackner, the center’s director.

Technology can solve all manmade atmospheric problems and it is obviously in our interests to do so.  The process described in the article above will be unobtrusive in the process.  Scientific developments which help the planet are a no brainer and will most likely eventually make a profit in the process. 

David Fuller's view -

The accompanying video is more informative than the article.   

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June 15 2016

Commentary by Eoin Treacy

A Circular Reference: Ushering In A New Era For Natural Gas

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

Previously a commodity with volatile price swings due to a domestic market that was short supply, the outlook for natural gas through 2020 shows a well supplied market capable of delivering to growing demand sources. There will be s-t dislocations (weather / infrastructure constraints) and the introduction of LNG exports will re-couple the U.S. to the global economy, but we see an emerging theme of natural gas entering a range bound period of $3-3.50/mmbtu. The 5 year build up in demand (2013-18) now looks to be meeting up with the 10 year buildup in supply (2005-15), creating a period of price equilibrium with upward and downward pressures on both sides.

Demand – Focus On The Known Drivers
After a 15 year period of stagnant consumption (1995-2009), demand for natural gas has enjoyed consistent growth over the past 5 years (2-3Bcfpd annually), a trend we expect to pick up through 2020. The drivers of growth are visible – power generation, industrial use, and Mexico exports – and will provide a base level of consumption growth. The reemergence of natural gas on the global scene via LNG exports has also long been a theme and will be additive to demand, though the quantifiable impact is tough to point to as capacity utilization will vary based on global prices and supply. We estimate ~6Bcfpd of export demand in 2020 in our base case, which is needed to balance the S/D outlook. In total, we see demand growth approaching ~98Bcfpd by 2020 (ex pipeline imports) up from ~78Bcfpd in 2015.

Supply – Filling Demand Needs…Just Need More Pipeline Capacity
U.S. supply has increased ~50% over the last 10 years to ~75Bcfpd, a rate of growth not witnessed since the 1960-1970s and following a brief pause in 2016/17, we anticipate growth to resume in 2018. We see four key trends from our supply forecast: 1) Supply is ~2Bcfpd below demand (weather normalized) in 2016/17 but ~3Bcfpd oversupplied in 2018, 2) Northeast supply growth increases by ~9Bcfpd in 2018, driven by the pipeline build out, 3) The bull case for supply by 2H18 is based on demand as the Northeast has excess pipeline capacity, and 4) The Northeast isn’t the only source of growth as we anticipate the Haynesville and Associated Gas Basins to return to growth by 2018, and implementing new Technology could support growth elsewhere. Our forecast grows to meet demand and fills storage with enough deliverability in 2018, creating a more range bound environment with equal s/d pressures.


Eoin Treacy's view -

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

The natural gas market was the original recipient of the innovations that led to the boom in unconventional supply. Since then it has offered an object lesson in the ramifications of how that is likely to play out for other commodities where supply is surging not least oil. The greatest beneficiaries have been consumers who have seen prices for essential energy commodities decline to levels not preciously imaginable. That has also resulted in demand increasing not least from substitution which has also benefitted consumers in other sectors. 

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June 14 2016

Commentary by David Fuller

Sir James Dyson: So if we leave the EU no one will trade with us? Cobblers

Dyson exports far more to the rest of he world (81 per cent) than Europe (19 per cent). “We’re very pleased with the European market – we’re number one in Germany and France – but it’s small and the real growing and exciting markets are outside Europe.”

He says the much-trumpeted single market isn’t really a single market at all. “They have different languages which, for an exporter, means that everything from the box to the instruction manual has to be in a different language. The plugs are different. The laws are different. It’s not a single market. The only communality is that there’s no tariff, but the pound going up against the euro is far more damaging than any tariff. If the pound rises, £100 milion is quickly wiped off.”

The problem with the EU’s free movement of people is that it doesn’t bring Dyson the brilliant boffins he needs. “We’re not allowed to employ them, unless they’re from the EU. At the moment, if we want to hire a foreign engineer, it takes four and a half months to go through the Home Office procedure. It’s crazy.”

He produces another staggering fact. “Sixty per cent of engineering undergraduates at British universities are from outside the EU, and 90 per cent of people doing research in science and engineering at British universities are from outside the EU. And we chuck them out!” He gives a trodden-puppy yelp.

So hiring a low-paid barista from Bratislava is no problem, but a prized physicist from Taiwan is a logistical nightmare. The Government claims that, if a non-EU citizen gets a job within two months of finishing their research, then they can stay here for two years. “The point is that it’s completely mad not to welcome them,” he says, “why on earth would you chuck out researchers with that valuable Technology which they then take back to China or Singapore and use it against us?

Softly spoken, Dyson’s Home Service Received Pronunciation tones become incensed when he talks about what he sees as our disloyalty to Commonwealth countries. “They fought for us in two world wars. So that particularly upsets me. We’re missing out on all those people who have helped us and with whom we have a great affinity, often a common language.

"Culturally, it’s all wrong. We’re not only excluding them from our country, we’re charging them import duty because we’re forced to by the EU. And the food’s cheaper, too.”

His views on Brussels have been shaped by bitter experience. Dyson sits on several European committees. “And we’ve never once during 25 years ever got any clause or measure that we wanted into a European directive. Never once have we been able to block the slightest thing.”

David Fuller's view -

Sir James Dyson is one of the most successful inventors and entrepreneurs on the planet.  I regard his views on the EU as more important than most of what we have heard during the Referendum debate.    

A PDF of his interview is posted in the Subscriber's Area.

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June 13 2016

Commentary by Eoin Treacy

Bitcoin Surges to Two-Year High as Supply Seen Shrinking in July

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

Profits from mining bitcoins will be reduced in July, a process that’s written into the code to limit supply, according to Chinese exchanges OKCoin and Huobi. Increased attention from venture capitalists and banks on blockchain, the Technology of digital ledgers, has boosted bitcoin’s legitimacy, Jack C. Liu, chief strategy officer at OKCoin, said in Hong Kong.

"The halving of the supply of Bitcoin is attracting many retail investors," Liu said. "More broadly, we continue to see follow-through from the blockchain hype cycle translating to interest in bitcoin the asset."

The price of bitcoin has mostly recovered following a steep decline to less than $200 in January of last year from more than $1,000 in December 2013.

Bitcoin’s rebound is coinciding with weakness in the yuan, which fell the most in two months on Monday in Shanghai. Losses have accelerated in recent weeks as the dollar strengthened and China’s economic outlook deteriorated. Data Monday showed industrial output rose 6 percent in May from a year earlier, while fixed-asset investment increased 9.6 percent in the first five months of 2016, missing all 38 economist forecasts.

"What we’ve seen over the weekend is more of the same: Chinese fear of a slowing economy and the yuan potentially looking to make another move lower," said Ryan Rabaglia, head of wholesale product management at ANX International in Hong Kong.

"Each time we see yuan weakening we tend to see a triggering of capital outflows out of China, and bitcoin has been on the winning end of that."


Eoin Treacy's view -

China represents approximately 80% of bitcoin trading activity. This graphic of live bitcoin trades helps to illustrate just how much on an influence Chinese buying has on demand. With the halving of the reward for minting new bitcoins expected to occur sometime between now and July interest in the cryptocurrency is increasing. 

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June 13 2016

Commentary by Eoin Treacy

Batteries Storing Power Seen as Big as Rooftop Solar in 12 Years

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

The spread of electric cars is driving up demand for lithium-ion batteries, the main Technology for storage devices that are attached to utility grids and rooftop solar units.

That’s allowing manufactures to scale up production and slash costs. BNEF expects the Technology to cost $120 a kilowatt-hour by 2030 compared with more than $300 now and $1,000 in 2010.
That would help grid managers solve the intermittency problem that comes with renewables -- wind and solar plants don’t work in calm weather or at night, creating a need for baseload supplies to fill the gaps. Today, that’s done by natural gas and coal plants, but the role could eventually be passed
to power-storage units.

The researcher estimates 35 percent of all light vehicles sold will be electric in 2040, equivalent to 41 million cars.

That’s about 90 times the figure in 2015. Investment in renewables is expected to rise to $7.8 trillion by then, compared with $2.1 trillion going into fossil-fuel generation.

“The battery industry today is driven by consumer products like computers and mobile phones,” said Claire Curry, an analyst at Bloomberg New Energy Finance in New York. “Electric vehicles will be the driver of battery Technology change, and that will drive down costs significantly.”

The industry still has a long way to go. About 95 percent of the world’s grid-connected energy storage today is still pumped hydro, according to the U.S. Energy Department. That’s when surplus energy is used to shift large amounts of water uphill to a reservoir so it can be used to produce electricity later at a hydropower plant. The Technology only works in areas with specific topographies.

There are several larger-scale battery projects in the works, according to S&P Global. They include a 90-megawatt system in Germany being built by Essen-based STEAG Energy Services GmbH and Edison International’s 100-megawatt facility in Long Beach, California.

“Utility-scale storage is the new emerging market for batteries, kind of where electric vehicles were five years ago,” said Simon Moores, managing director at Benchmark Mineral Intelligence, a battery researcher based in London. “EVs are now coming of age.”


Eoin Treacy's view -

Innovation in the chemistry that supports batteries has been a lot more difficult to achieve than the Moore’s law related enhancements that have been commonplace in chip manufacturing and increasingly in solar technologies. Nevertheless as the requirement for storage grows increasingly urgent, the capital expended on R&D is expanding and innovations are being achieved. In the meantime economies of scale through larger manufacturing plants are helping to drive efficiencies. 

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June 10 2016

Commentary by Eoin Treacy

Energy in 2015: A year of plenty

Thanks to a subscriber for this edition of BP’s annual report by Spencer Dale which may be of interest. Here is a section:

The increasing importance of renewable energy continued to be led by wind power (17.4%, 125 TWh). But solar power is catching up fast, expanding by almost a third in 2015 (32.6%, 62 TWh), with China overtaking Germany and the US as the largest generator of solar power.

The older stalwarts of non-fossil fuels – hydro and nuclear energy – grew more modestly. Global hydro power increased by just 1.0% (38 TWh), held back by drought conditions in parts of the Americas and Central Europe. Nuclear energy increased by 1.3% (34 TWh), as rapid expansion in China offset secular declines within mainland Europe. This gradual shift of nuclear energy away from the traditional centres of North America and Europe towards Asia, particularly China, looks set to continue over the next 10-20 years.


The key lesson from history is that it takes considerable time for new types of energy to penetrate the global market. Starting the clock at the point at which new fuels reached 1% share of primary energy, it took more than 40 years for oil to expand to 10% of primary energy; and even after 50 years, natural gas had reached a share of only 8%.

Some of that slow rate of penetration reflects the time it takes for resources and funding to be devoted in scale to new energy sources. But equally important, the highly capital intensive nature of the energy eco-system, with many long-lived assets, provides a natural brake on the pace at which new energies can gain ground.

The growth rates achieved by renewable energy over the past 8 or 9 years have been broadly comparable to those recorded by other energies at the same early stage of development. Indeed, thus far, renewable energy has followed a similar path to nuclear energy.

The penetration of nuclear energy plateaued relatively quickly, however, as the pace of learning slowed and unit costs stopped falling. In contrast, in BP’s Energy Outlook, we assume that the costs of both wind and solar power will continue to fall as they move down their learning curve, underpinning continued robust growth in renewable energy.

Indeed, the path of renewable energy in the base case of the Energy Outlook implies a quicker pace of penetration than any other fuel source in modern history. But even in that case, renewable power within primary energy barely reaches 8% in 20 years’ time.

The simple message from history is that it takes a long time – numbering several decades – for new energies to gain a substantial foothold within global energy.


Eoin Treacy's view -

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

The evolution of renewable energy Technology represents a major paradigm shift for the energy sector not least because the cost of production continues to decrease independently of the oil price and environmental concerns result in a compelling case for adoption. In tandem with wind and solar, the rollout of electric vehicles is a related but separate development which is likely to represent a continued headwind for demand growth.

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June 09 2016

Commentary by Eoin Treacy

Are the Robots Taking Over? The Emergence of Automated Digital Wealth Management Solutions

The heavyweight report from Financial Technology partners may be of interest to subscribers. Here is a section: 

With the advent of Automated Digital Wealth Management solutions (aka robo advisors), the traditional wealth management industry is facing perhaps its most disruptive threat since low-cost online stock trading emerged in the mid 1990’s

The combination of highly credible digital wealth management solutions, the Millennial generation’s predisposition to “do-it-yourself-through-an-app” and the pending transfer of trillions of dollars of wealth to and eventually from Baby Boomers is forcing participants across the wealth management industry to reevaluate their product and distribution strategies

Already suffering from the relative shift in appetite towards ETFs and other passive investment vehicles, the mutual fund industry in particular appears further threatened by digital wealth management solutions since most of the solution providers utilize ETFs as their underlying investment vehicles; this movement may force firms that have traditionally only focused on providing financial services products to focus on providing scalable advice as well – the new Department of Labor rules around fiduciary duty for retirement service provides will likely exacerbate this trend

At a minimum, all wealth managers should be highly focused on “digitizing” their businesses as consumers of all ages and demographics will increasingly expect an “Amazon and Uber-like” experience from all of their financial service providers

Similar to the online trading playbook, new consumer brands are emerging in the digital wealth management industry (such as Betterment, Wealthfront and Personal Capital) while traditional firms are striking back by either offering their own in-house solutions (such as Charles Schwab and Vanguard) or partnering or acquiring to speed time to market

Recent M&A includes BlackRock’s acquisition of FutureAdvisor, Invesco’s acquisition of Jemstep and Northwestern Mutual’s acquisition of LearnVest

A handful of different business models have materialized in the digital wealth management space including 1) new direct-to-consumer brands with limited advisor assistance, 2) new direct-to-consumer brands with heavier advisor assistance, 3) traditional firms with in-house digital wealth management solutions, 4) business-to-business and white label providers enabling others to offer their own digital wealth management solutions and 5) retirement specific providers including both direct-to-consumer and business-to business providers

Similar to other recent FinTech innovations, digital wealth solution providers are quickly emerging around the globe – in fact, we have identified more international direct-to-consumer players than in the U.S.

As capital continues to flow into the digital wealth management space and traditional investment management firms evaluate their strategies, we expect to see a notable increase in partnership and M&A activity in the space
over the next 12-18 months

A number of newer firms are likely to be acquired by larger organizations that are looking to add or deepen their digital wealth management capabilities while only a relatively small number of new consumer brands are likely to achieve the level of scale (and funding) they need to survive on their own over the long-ter

Eoin Treacy's view -

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

The risk of litigation for financial advisors means the majority of investors are presented with what might be described as a plain vanilla 60/40 bonds to equities blend for their portfolios. Depending on whether the investor is categorised as conservative or risk tolerant that basic formula might be altered somewhat but the long-term nature of the strategy means the majority of clients will be invested in the model portfolio. 

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June 09 2016

Commentary by Eoin Treacy

Email of the day on viruses representing a greater risk than bacteria

I remain interested in your commentary on health issues, in part because that is the area in which I work. I do not share your fear that antibiotic resistance will be a black swan event, capable of disrupting markets. Bacterial pathogens are nowhere near as transmissible as respiratory viruses; transformation of viral pathogenicity is a far greater concern than bacterial multi drug resistance as a game changer, mainly because of the rate of spread of viral infection such as influenza, Ebola etc. Witness the influenza pandemic of 1919 which killed more people than WW1. We have had multidrug resistant TB in countries such as Indonesia for many years, yet no markets have collapsed. There is less risk of catching the latter for one. MDR bacteria are more a risk to patients in hospital; yet when there are outbreaks, they are usually contained by better contact precautions. From a QI perspective we should not be complacent about bacterial antibiotic resistance, yet in contrast with AB therapy for many bacterial infections, we have very few effective antiviral agents, a situation that has changed little for ages. One bright light though is nanoTechnology (seems to be a catchier name than molecular biology). Nanoviricides is one company in that space. Their product line is preclinical trial but getting close. Are you aware of any others with similar potential?

Eoin Treacy's view -

Thank you for this informative email and I agree that a new virus would have an instant effect relative to the slowly developing problem of antibiotic resistance. The threat from the latter is not that we have a pandemic like influenza in 1919 but rather that bacteria become a future threat that saps growth potential because people stay sicker for longer or die because the drugs to treat them do not exist. In that scenario it could be a slow burn crisis that would drag on economic potential and is a particular risk to high population emerging markets. 

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June 08 2016

Commentary by Eoin Treacy

Unconventional future: man vs. machine

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

Mining costs: labour, electricity drive continuing inflation at conventional mines
You may have opened this expecting a sci-fi/marvel-esque drama, instead, it is about cost history of PGM producers we cover. Cost inflation has run at around 9% p.a over the past five or so years. We estimate conventional mines unit costs are 20-25% above mechanised, & may continue to increase at around 10% p.a. without stringent cost control. Around 70% of their costs are labour & electricity. Mechanised mines have a balanced cost composition & could limit increases at mid-to-high single digit percentages. We adjust our cost inflation expectations & valuations for longer-term cost inflation rates. With a shift to lower costs, AMS is our top pick: Buy. Lonmin is our least preferred: Sell.

Unit costs and inflation by mining method: conventional disadvantage to widen 
Each mine faces different circumstances and each company has different cost disclosure. However, we are able to draw some broad industry conclusions. Conventional mines have c.25% higher unit costs relative to mechanised operations. Conventional mines’ inflation rates have been c.10% p.a. or higher over the last 5 to 6 years, driven by electricity and wages (making up c.70% of costs) and we think this cost-pressure is likely to continue. Mechanised mines’ costs have a greater proportion of contractors and stores/materials than conventional mines and are relatively light on labour costs. While mechanised mines have also faced strong cost inflation, some operations have managed to keep inflation to mid single digit CAGR percentages.
Composition of costs by mining method and cost inflation of categories

Labour costs (c.60% of conventional costs) as a category have increased c.9 to 12%p.a. over the past 5-6 years. Utilities, c.8-10% of conventional on-mine cash costs, have increased at between 11 to 20%p.a. Stores/materials have increased at c.5.5% to 6.5% p.a. and are approximately 25 to 30% of costs. 


Eoin Treacy's view -

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

Platinum’s scarcity, the high cost of extraction and an increasingly uncertain situation in South Africa are long running considerations the market is familiar with. The growth of the electric vehicle market is a new development that needs to be considered because with no catalytic converters they don’t need platinum. That is one of the primary reasons platinum producers are so keen to promote fuel cell Technology because they use the metal and electric car batteries don’t. That represents a hurdle for platinum entering a sustained bull market but it is rallying in sympathy with the other precious metals at present. 

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June 08 2016

Commentary by Eoin Treacy

Email of the day on antibiotic resistance

I agree totally Eoin. Which is why (apart from my investing activities) trying to solve the problem takes much of my time. Two years ago we founded a charity (non-profit) named Antibiotic Research UK. ( to bring together national experts to find solutions. Just as we have the well-known charity Cancer Research UK, we now have Antibiotic Research UK. Why? Well, the predictions from the UK Government's AMR Review indicate that bacteria will soon be killing more people than cancer. The AMR review papers are worth reading at Lord Jim O'Neill was of course ex Chair of Goldman Sachs Asset Management, and he was able to call on all global experts when compiling his review conclusions. If his review is even half correct, the horrible truth is that a good percentage of readers of these words are likely to die eventually from bacterial infection.

I am a founding Trustee of Antibiotic Research UK and also chair of the Science and Technology Advisory Committee. You can see the other members on the website. It is a highly expert group. Some of my ideas on how to beat the resistance problem were published last year by the leading science publisher Nature (Antibiotic resistance breakers: can repurposed drugs fill the antibiotic discovery void? URL On request, I can send a pdf to any reader interested). We have raised a bit of money from donations from the public, and are now just beginning the experimental work to test the ideas. Initial results should be available by end 2016. 

Fingers crossed, as we need to save our antibiotics. This was brought home to me the hard way in March this year when my father died from antibiotic-resistant MRSA infection. 5 antibiotics failed to save him. Frankly, even with my expertise, if I had caught MRSA from him I could not be sure which antibiotics to choose to treat myself. The situation is getting serious very quickly. 

I am speaking at Markets Now on July 11, and I will use my hour for investment discussions, but if anyone wants to discuss antibiotic resistance in the bar afterwards I will be there. And if anyone has any good ideas, I will gladly buy them a drink!


Eoin Treacy's view -

Thank you for sharing your expertise and please accept both my and the Collective’s condolences on the death of your father. Your presentations are always well received at the Markets Now events and I suspect more than a few will take you up on your offer to chat in the bar afterwards. 

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June 02 2016

Commentary by Eoin Treacy

Email of the day on autonomous rail

What puzzles me is if autonomous vehicles are such a "no-brainer", then why haven't all phases of rail movement not been fully automated? Compared to rail traffic the open road seems like a free-for-all!

Eoin Treacy's view -

Thank you for a relevant question and this is something I have also been pondering. This article from tackles the issue and their answer comes down to line of sight, unions and lack of desire to upset the status quo rather than any particular deficiency in the Technology. . 

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June 01 2016

Commentary by Eoin Treacy

Musings from the Oil Patch June 1st 2016

Thanks to a subscriber for this edition of Allen Brooks' energy report for PPHB. Here is a particularly interesting section on autonomous trucking: 

The new topic being opened by efforts such as Otto and the platooning demonstration in Europe is the impact on fuel and labor costs within the trucking industry. In the United States, trucks drive 5.6% of all vehicle miles and are responsible for 9.5% of highway fatalities, according to Department of Transportation data. Because heavy-duty trucks have a significantly lower fuel-efficiency performance, they account for a larger share of diesel fuel consumption than diesel cars or other types of equipment. Because diesel fuel is included in distillates, we cannot determine the exact weekly volumes. However, we know that for the week ending May 20, distillate volumes of slightly over 4 million barrels a day represented 20% of total fuel supplied in the U.S. By examining the latest inventory data, distillates are broken down by the amount of sulfur in the fuel. Diesel fuel for vehicle use needs to be low sulfur – 15 parts per million or less. That fuel category accounted for 88% of all the distillate in storage, therefore we would think this is a reasonably close approximation of the highway quality diesel fuel being supplied to the U.S. market. If 62% is used by over-the-highway trucks, then the daily consumption is approximately 2.2 million barrels. Improved fuel savings from autonomous Technology could eventually account for upwards of 200,000 barrels a day in savings. 

Autonomous vehicle Technology is being hailed as a way to reduce the number of accidents. The largest impact of the Technology, however, may be on the employment of truck drivers. There are more than three million truck drivers in this country. According to the American Trucking Associations, the truck industry accounts for one of every 15 jobs in the United States. By eliminating the need for second drivers on many trucks due to the ability of the primary driver to fulfill his rest obligations while the truck drives itself, there will be a negative employment impact from autonomous Technology

Although perceived as a negative, autonomous Technology might actually become a positive as the trucking industry deals with an aging workforce and a less-than-attractive employment career as long-haul driving can be tedious and keeps drivers away from home for extended time periods. While younger drivers enjoy the first and last miles of truck driving, they wish to avoid the boring portion, which autonomous Technology would eliminate. In the U.S., according to consultant Oliver Wyman, by 2023 it is projected that there will be shortfall of 240,000 drivers, or approximately 8% of the estimated current number of truck drivers. 

Canada has a similar employment outlook for its highway trucking industry. According to the Canadian Trucking Alliance there are about 300,000 long-haul truck drivers. Similarly, the Canadian Trucking Alliance estimates that the Canadian industry will have a shortfall of 48,000 drivers by 2024 — about 15 per cent of the total driving force – due to an aging workforce and a less-attractive employment career. 

Another impact of autonomous Technology for trucks is that vehicles can be kept on the highway for more hours per day. That could not only reduce the need for additional drivers, but it could also reduce the cost for transporting goods, further contributing to deflationary forces in the economy. 

All of these considerations influenced our previous article’s conclusion that autonomous trucks were more likely to be on the roads before autonomous cars. That may be why Mr. Levandowski left Google. He said that his decision to leave was motivated by being eager to commercialize a self-driving vehicle as quickly as possible. At Google, he was responsible for drafting legislation to permit self-driving vehicles, which ultimately became law in Nevada. While certain states such as California have motor vehicle regulations that would prohibit the idea of trucks traveling on the freeway with only a sleeping driver in the cab, other states currently do allow it. “Right now, if you want to drive across Texas with nobody at the wheel, you’re 100 percent legal,” said Mr. Levandowski. Stay tuned for self-driving trucks on a freeway near you. 

Eoin Treacy's view -

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

The Technology behind autonomous vehicles is progressing towards greater utility and it makes sense that haulage vehicles represent the primary source of demand considering the high cost of fuel, personnel and regulations. It represents an additional example of the deflationary role Technology has and the benefits that accrue to consumers as a result. 

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May 26 2016

Commentary by Eoin Treacy

Miner Sees Silver Price Surging Ninefold as Global Gadgets Boom

This article by Natalie Obiko Pearson for Bloomberg may be of interest to subscribers. Here is a section:

While long coveted for use in jewelry, coins and utensils, silver is increasingly in demand for its industrial applications. Last year, about half of global silver consumption came from such use, including mobile phones, flat-panel TVs, solar panels and alloys and solders, according to data compiled by GFMS for the Washington-based Silver Institute.

“Silver is not a precious metal, it’s a strategic metal,” Neumeyer said in an interview in Vancouver, where the company is based. “Silver is the most electrically conductive material on the planet other than gold, and gold is too expensive to use in circuit boards, solar panels, electric cars. As we electrify the planet, we require more and more silver. There’s no substitute for it.”

Industrial demand is set to increase, driven by rising incomes and growing penetration of Technology in populous, developing nations, as well as thanks to new uses being found for silver’s anti-bacterial and reflective properties in everything from hospital paints to Band-Aids to windows.
“Over the next 10 or 20 years, more and more people are going to be using these devices, and silver is a very limited commodity,” Neumeyer said. “There’s just not a lot of it around.”

Use of silver, including investment demand, coin sales and what goes into inventories to settle trades, has outstripped annual supply of the metal in every year since 2000, according to data from GFMS, a research unit of Thomson Reuters Corp.

Still, not everyone agrees that the world is headed for a shortage of the metal.

“I would tend to disagree that silver is rarer than thought,” David Lennox, a resource analyst at Fat Prophets in Sydney. “Silver cannot be easily substituted but there’s been no need as it’s in abundance. I’d expect the search for silver would intensify and the search for substitutions would happen long before silver got to” $140 an ounce.


Eoin Treacy's view -

The uses for silver in the high Technology sector are likely to increase over time but the quantity of silver used in each item is likely to decrease. Production efficiencies and the evolving nanoTechnology sector where silver will have a great deal of utility help to explain that view. Therefore to postulate prices are going to $140 any time soon would appear wildly ambitious. 

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May 24 2016

Commentary by David Fuller

Saudi Arabian New Oil Plan Makes OPEC Redundant

Here is the opening of this informative article from Bloomberg:

Saudi Arabia, one of the founders of OPEC, is sounding the group’s death knell.

The world’s biggest crude exporter has already undermined OPEC’s traditional role of managing supply, instead choosing to boost output to snatch market share from higher-cost producers, particularly U.S. shale drillers, and crashing prices in the process.

Now, under the economic plan known as Vision 2030 promoted by the king’s powerful son, Deputy Crown Prince Mohammed bin Salman, the government is signaling it wants to wean the kingdom’s economy off oil revenue, lessening the need to manage prices. Moreover, the planned privatization of Saudi Arabian Oil Co. will make the nation the only member of the Organization of Petroleum Exporting Countries without full ownership of its national oil company.

“The main take-away from Saudi Vision 2030 is that there’s just no role for OPEC,” Seth Kleinman, head of European energy research at Citigroup Inc. in London, said by phone on May 16. “Or, you can have an OPEC without Saudi Arabia, which just isn’t much of an OPEC.”

The first change of oil ministers in more than 20 years may also recast the country’s relationship with OPEC. The group’s 13 members, which contribute about 40 percent of the world’s supply, gather in Vienna on June 2.

King Salman on May 7 replaced Ali al-Naimi, the most influential voice in OPEC and the architect of current Saudi oil policy. While there’s likely to be considerable continuity, his replacement, Khalid Al-Falih, is an ally of Prince Mohammed, who scuppered a plan al-Naimi had supported for capping production. When producers considered freezing output to curb a global glut in April, the young royal’s view that no deal was possible without Iran prevailed, and talks collapsed.

“We don’t care about oil prices,” Prince Mohammed said in an April 25 interview in Riyadh. “$30 or $70, they are all the same to us. We have our own programs that don’t need high oil prices.” Benchmark Brent crude was trading at $48.11 a barrel on Tuesday at 11:23 a.m. in London.

David Fuller's view -

OPEC will not be missed.  Cartels are power arrangements for maximising profits at everyone else’s expense. 

Oil prices will remain volatile but the current surplus of supply will prevent the strong recovery that some commentators have forecast.  Even as the global economy eventually recovers and the record amounts of crude in storage are gradually reduced by consumption, the advance of Technology has enabled more conventional oil to be produced than was imaginable less than a decade ago.  Supplies may be finite but there are also vast quantities of shale oil, largely untouched.   

Meanwhile, Technology will continue to hasten declines in costs for renewable forms of energy, led by solar.  Most countries now have the capacity to lower their energy costs.  However, energy prices paid by business and consumers will vary considerably among nations, subject to their willingness to utilise all forms of available energy, plus their individual taxation policies on these vital resources.    

(See also: OPEC Brings Oil Price War Home in Pursuit of Asia Cash - Oct 20, 2015)

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May 23 2016

Commentary by David Fuller

Why China Is Having So Many Problems Ramping Up Wind Power

China holds the record as the world’s top wind installer, accounting for about a third of the total global installed wind capacity. The United States trails in second place, accounting for just more than 17 percent. But despite its higher total capacity, China still isn’t putting out as much wind-generated electricity as the United States. In other words, it has built the Technology, but it just is not able to use it to the max.

New research, published Monday in the journal Nature Energy by researchers from Tsinghua University in Beijing, Harvard University and other U.S. and Chinese universities, examines a handful of factors thought to be responsible for the discrepancy, using a mathematical approach to evaluate the relative importance of each.

Wind turbines can produce only as much energy as the wind provides — so the researchers were interested in whether differences in wind flow could account for some of China’s problems. But they found that these differences played a relatively small role. Although the United States tends to get superior winds nationwide, the researchers point out that China has approached this issue by promoting more development in the regions with the best wind resources, mostly to its north and northeast.

Instead, the findings suggest that the primary challenges to wind power in China involve lower turbine quality, delayed connections to the grid and grid operators failing to transmit wind power to users in favor of other energy sources, such as coal — all of which play about equally important roles.

These issues are capable of putting a substantial dent in China’s wind electricity output, it turns out. The researchers noted that in 2012, China’s wind-generated electricity was 39.3 terawatt-hours less than that of the United States.

“This is a large number — larger than the total amount of wind power generated in the United Kingdom in 2015, which can power around 8 million UK homes,” wrote Joanna Lewis, an associate professor and expert on China’s energy landscape at Georgetown University, in a comment on the new study, also published Monday in Nature Energy.  

To evaluate the quality of turbines in China — which, the authors note, has not been done in previous studies — the researchers used the output from a specific type of wind installation (the GE 2.5 megawatt turbine) as a standard for comparison, concluding that overall turbine quality in the United States is higher than in China. They chalked up the quality issues to a need for “Technology catch-up” in domestically produced turbines, which account for most of the installations in the country. The fix in this case is relatively simple: The authors recommend a short-term switch to more international suppliers, while focusing on domestic research and development efforts and Technology transfer agreements with other nations in the long term.

David Fuller's view -

Credit to China for being the world’s fastest developing economy, even as it struggles with monumental transformational challenges, which it is also attempting to resolve in record time. 

This item continues in the Subscriber’s Area.

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May 23 2016

Commentary by Eoin Treacy

China and the world: New Frontiers, Fresh Connections

Thanks to a subscriber for this report from HSBC highlighting the increasingly important role played by the Chinese economy in spurring global growth. Here is a section:

The story now is that China has been increasingly moving up the value chain. In 1995, labour-intensive products such as toys and shoes (grey line in chart 13) accounted for 36% of China's overall exports. By 2015, this share was down to 26%. Meanwhile, the share of machinery and transport equipment (blue line) increased from 21% to 46% over the same period. Soon this transition was starting to have a global impact. Chart 13 shows China's world share by product. Although China's world market share had increased quite steadily for most categories of products, it is the improvement in machinery and transport equipment that is the most striking. In two decades, China's global market share rose from a mere 4% to 17%. Incidentally, this is how China has increasingly earned more in terms of trade surplus vis-à-vis the rest of the world (Chart 14).

In more recent years, a decrease in China’s commodity exports has become another noticeable trend. Chart 15 shows China's declining dominance in the exports of primary commodities and metal products and an improving market share in manufactured goods such as lighting, telecoms, etc.

So, where might China's trade go from here? On most metrics, China's export industry still has much room for improvement. China has recognised that it needs innovation to move up the value chain. It needs to differentiate its products through advances in Technology, design or other attributes. The recent five-year plans have included elements related to innovation, R&D and even intellectual property rights. The transition from a low-cost producer to one that increasingly makes more value-add is a longer-term trend that has just begun and it is by no means an easy one. Greater openness to foreign investment, as well as domestic reforms, will help make this process a smoother one.

And for other emerging markets, China moving up the value chain creates opportunities. Countries in parts of Africa and Asia with lower costs of production will likely benefit from a production shift away from China and towards even lower cost bases. China's rise up the ladder may pull a few countries with it. 

Eoin Treacy's view -

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

China has come a long way and for much of its hinterland the performance of its economy exerts a leash effect in much the same way Wall Street does for the USA’s largest trading partners. It is for that reason we tend to pay such close attention to what is happening In China’s stock and currency markets as well as the political machinations of what is still a highly orchestrated market. 

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May 23 2016

Commentary by Eoin Treacy

Monsanto Trading Below Bayer Bid Shows Regulatory Risk Concerns

This article by Lydia Mulvany and Simon Casey for Bloomberg may be of interest to subscribers. Here is a section: 

While the combination of Bayer and Monsanto makes sense operationally, it’s not clear yet how regulators will view this or other deals in the industry, said James Govan, a fund manager at Baring Investment Services Ltd. in London, who manages about 60 million pounds ($87 million) of agricultural and food-related stocks, including Monsanto shares. If they focus on the size of overall market share, as opposed to individual product categories, it may be harder for the deals to go through, he said in an interview Monday.

St. Louis-based Monsanto has yet to respond to Bayer’s offer. It’s not unprecedented for a target company to trade at less than an offer before the deal is later completed successfully. The current premium of Bayer’s offer to Monsanto’s share price is the 21st-biggest among 143 live deals tracked by Bloomberg.

Bayer’s offer is probably less than Monsanto’s valuation of itself, as the U.S. company expects significant growth between 2020 and 2025, said Jonas Oxgaard, an analyst with Sanford C.Bernstein & Co. in New York. Oxgaard said he expects an offer of $135 to be more palatable. Even then, he said, Monsanto would be reluctant to agree on a deal.

“Monsanto doesn’t want to be bought,” Oxgaard said by phone. “They have a history of being a standalone company, very focused long term, and they consider themselves the best company in the industry. It rankles a bit to be the best and then be acquired.”


Eoin Treacy's view -

Bayer and Monsanto represent two of the world’s largest seed producers and due to regulatory headwinds offer two very different ways of achieving more productive and bug or drought resistant plant strains. Monsanto is the world leader in genetically modified products while Bayer relies on bombarding seeds with radiation to induce mutation. A tie-up between the European and US leaders in seed Technology represents a powerful proposition but it is unlikely to come cheap and regulators will undoubtedly have caveats. 

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May 19 2016

Commentary by David Fuller

China Communist Party Goes Way of Qing Dynasty as Debt Hits Limit

Here is the opening of this powerful, incisive column by Ambrose Evans-Pritchard for The Telegraph:

Nobody rings a bell at the top of the credit supercycle, to misuse an old adage. Except that this time somebody very powerful in China has done exactly that. 

China watchers are still struggling to identify the author of an electrifying article in the People's Daily that declares war on debt and the "fantasy" of perpetual stimulus. 

Written in a imperial tone, it commands China to break its addiction to credit and take its punishment before matters spiral out of control. If that means bankruptcies must run their course, so be it. 

Fifteen years ago such a mystery article would have been an arcane matter, of interest only to Sinologists. Today it is neuralgic for the entire global - and over-globalized - financial system. 

China's debt is approaching $30 trillion. The fresh credit alone created since 2007 is greater than the outstanding liabilities of the US, Japanese, German, and Indian commercial banking systems combined. 

Moody's warned this month that China's state-owned entities (SOEs) have alone racked up debts of 115pc of GDP, and a fifth may require restructuring. The defaults are already spreading up the ladder from local SOE's to the bigger state behemoths, once thought - wrongly - to have a sovereign guarantee.

To put matters in context, leverage rose by roughly 50 percentage points of GDP in Japan before the Nikkei bubble burst in 1990, or in Korea before the East Asia crisis in 1998, or in the US before the subprime debacle. This gauge is an almost mechanical indicator of a future credit crisis. 

As we all know, China is in a class of its own. Debt has risen by 120 to 140 percentage points. The scale of excess industrial capacity - and China's power and life and death over commodity markets - mean that any serious policy pivot by the Communist Party would set off an international earthquake. 

Hence the fevered speculation about this strange article published on May 9 in the house journal of the Politburo. It was no ordinary screed.

The 11,000 character text - citing an "authoritative person" - was given star-billing on the front page. It described leverage as the "original sin" from which all other risks emanate, with debt “growing like a tree in the air”.

It warned of a "systemic financial crisis" and demanded a halt to the "old methods" of reflexive stimulus every time growth falters. "It is neither possible nor necessary to force economic growing by levering up," it said.

It called for root-and-branch reform of the SOE's - the redoubts of vested interests and the patronage machines of party bosses - with an assault on "zombie companies".  Local governments were ordered to abandon their illusions and accept the inevitable slide in tax revenues, and the equally inevitable rise in unemployment.

If China does not bite the bullet now, the costs will be "much higher" in the future. "China’s economic performance will not be U-shaped and definitely not V-shaped. It will be L-shaped," said the text.  We have been warned.

David Fuller's view -

Xi Jinping himself or his right-hand man Liu He.  I do not think Xi Jinping could or even would have written it, although it may have his tacit approval.  It is certainly an informed, candid article and also a serious warning for China’s local governments. 

China is a remarkable country, having developed more rapidly than any other nation in history.  However, it faces an exceptionally difficult transition from a developing, metal bashing and export-led economy to a developed, consumer oriented and Technology-led nation.  This transition is well underway but the obvious economic speedbumps include rampant corruption in a rigid communistic political system, now compromised by spiralling debts, not least among China’s state-owned entities (SOEs).

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

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May 19 2016

Commentary by David Fuller

Leaving Europe Is a Risk the U.K. Should Not Take

The British electorate does not need Americans to tell them how to vote in the June 23 referendum, and I wouldn’t dare try. I have always had great admiration for the British people -- and great respect for the country’s democratic traditions. But from across the Atlantic, we Yanks are watching the campaign closely -- and many of us who have deep personal and business ties to the U.K. can’t help but take a close interest.

The special relationship between the U.K. and U.S. holds a special place in my heart, and not just because I had the great privilege of being named an honorary Knight of the British Empire by the Queen in 2014. I consider London my second home, my daughters hold British passports (thanks to their British mother), the company I founded employs nearly 4,000 people here, and we have long supported some of London’s world-class cultural institutions.

David Cameron and Boris Johnson, while on opposite sides of the debate, are both good friends and have assured me that no matter what the outcome of the vote, thanks to the Freedom of the City of London I was awarded in 2008, I will still have the right to herd sheep and cattle over London Bridge, and to carry a sword around Piccadilly Circus or anywhere else. Thank goodness for that!

Of course, there is so much more at stake in next month’s referendum, economically and politically -- first and foremost for the British people, but also for Americans and the world. I recognize that, as in most political campaigns, some of the rhetoric on both sides has been wildly exaggerated. But there is no disputing one fact: Given the uncertainty of Brexit’s potential impact, a vote to leave is a risk. The question is: Is the risk worth taking?

I should note: I’ve never been averse to taking risks. In 1981, I started a company to create a product that had no demand, with Technology that didn’t exist. Twenty years later, I ran for mayor of New York when no one thought I had even the slightest chance of winning. Against the odds, both decisions turned out better than I could have ever dreamed of. But over the course of my career, there are certain risks that I have refused to take (including running for U.S. president this year) after weighing the evidence and concluding that they were likely to produce more harm than good. Some risks are just not worth it.

As the founder of a business that specializes in financial data, news and analysis, I have carefully evaluated the question of Brexit and concluded that the risks involved are troubling. No one can say for certain if an “Out” vote would shrink the financial services industry, which accounts for about 12 percent of the U.K.’s economic output and the bulk of our customer base. But in my conversations with chief executives of banks and other industry leaders, with rare exceptions, they see Brexit as a serious complication that could lead some jobs to shift to the continent over time. Some in Frankfurt and Paris are rooting for Brexit for this reason.

David Fuller's view -

This is one of the best articles that I have read and also posted on the subject of Brexit. 

Personally, I am less worried about the UK’s long-term prospects outside of the EU but I think this decision is too important internationally for it to be taken entirely on the basis of what fellow UK citizens think is best for our country.  While no one can be certain of what the future holds, I do think Brexit would be extremely divisive.

As for Michael Bloomberg, I regard him as one of the most successful entrepreneurs of my generation, and also the best Mayor of New York that I have seen.  He is probably also one of the best presidents that the USA will never have.     

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May 17 2016

Commentary by Eoin Treacy

Global Lenders on Edge as Cyber Attacks Embroil More Banks

This article by Michael Riley, Jordan Robertson and Alan Katz for Bloomberg may be of interest to subscribers. Here is a section: 

While Swift has for decades made sure its own financial messaging network was secured, less attention was paid to the security surrounding how member banks -- each with their own codes and varying levels of Technology -- were connecting. Even today, when it discusses the cyber attacks, Swift emphasizes that its own network wasn’t breached and says its members are responsible for their own system interfaces.

Some U.S. banks are pushing to open discussions with Swift about whether it should have responded more quickly to the breaches and should now help member banks better secure their systems, according to one of the people familiar with the thinking within a large U.S. bank. BITS, the section of the Financial Services Roundtable aimed at combating cyberfraud and other technological issues, could be tapped to broker those discussions, the person said.

More broadly, some U.S. banks expect Swift to come up with a technological solution that could apply to all connected institutions and would help reduce these risks, another person said.


Eoin Treacy's view -

As more banking is conducted online the need for all counterparties to beef up security, and on a global basis, is no longer about choice but necessity. Cyber criminals both private and government-backed have ample resources to probe the global financial infrastructure for weaknesses they can exploit. Therefore it is necessary to insist on greater security across the network to ensure the thefts seen in Bangladesh and now Vietnam do not become common place. 

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May 09 2016

Commentary by Eoin Treacy

Lithium 101

Thanks to a subscriber for this comprehensive heavyweight 170-page report on lithium. If you have questions on the lithium sector the chances are they will be answered by this report. Here is a section: 

Global lithium S&D analysis highlights opportunity for high-quality assets
The emergence of the Electric Vehicle and Energy Storage markets is being driven by a global desire to reduce carbon emissions and break away from traditional infrastructure networks. This shift in energy use is supported by the improving economics of lithium-ion batteries. Global battery consumption is set to increase 5x over the next 10 years, placing pressure on the battery supply chain & lithium market. We expect global lithium demand will increase from 181kt Lithium Carbonate Equivalent (LCE) in 2015 to 535kt LCE by 2025. In this Lithium 101 report, we analyse key demand drivers and identify the lithium players best-positioned to capitalise on the emerging battery thematic. 

Global lithium demand to triple over the next 10 years
The dramatic fall in lithium-ion costs over the last five years from US$900/kWh to US$225/kWh has improved the economics of Electric Vehicles and Energy Storage products as well as opening up new demand markets. Global battery consumption has increased 80% in two years to 70GWh in 2015, of which EV accounted for 35%. We expect global battery demand will reach 210GWh in 2018 across Electric Vehicles, Energy Storage & traditional markets. By 2025, global battery consumption should exceed 535GWh. This has major impacts on lithium. Global demand increased to 184kt LCE in 2015 (+18%), leading to a market deficit and rapid price increases. We expect lithium demand will reach 280kt LCE by 2018 (+18% 3-year CAGR) and 535kt LCE by 2025 (+11% CAGR). 

Supply late to respond but wave of projects coming; prices are coming down 
Global lithium production was 171kt LCE in 2015, with 83% of supply from four producers: Albemarle, SQM, FMC and Sichuan Tianqi. Supply has not responded fast enough to demand, and recent price hikes have incentivized new assets to enter the market. Orocobre (17.5ktpa), Mt. Marion (27ktpa), Mt. Cattlin (13ktpa), La Negra (20ktpa), Chinese restarts (17ktpa) and production creep should take supply to 280kt LCE by 2018, in line with demand. While the market will be in deficit in 2016, it should rebalance by mid-2017, which should see pricing normalize. Our lithium price forecasts are on page 9.


Eoin Treacy's view -

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

The cost of lithium ion batteries falling rapidly and the fact this is occurring at the same time solar cells costs have been trending lower is a major incentive for installations of both technologies; increasingly in parallel. With costs coming down and Technology improving growth in demand is a major consideration as factories achieve scale and miners invest in additional supply. 

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May 09 2016

Commentary by Eoin Treacy

The Cold, Hard Facts Raining on China's Commodity Parade

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

The rally last month was accompanied by a surge in trading volumes, with as much as 1.7 trillion yuan ($261 billion) in commodity futures changing hands in a single day. That drew comparisons with 2015’s credit-driven stock market rally that preceded a $5 trillion rout, and prompted exchanges to raised transaction fees and margins amid orders from regulators to limit speculation.

Waning Enthusiasm
As the exchanges stepped in, trading volumes shrank. About 20 million contracts of everything from eggs to steel changed hands on the Dalian Commodity Exchange, Zhengzhou Commodity Exchange and Shanghai Futures Exchange on Friday, down from a peak of 80.6 million contracts on April 22.

“Bullish enthusiasm in Chinese commodities futures has been rapidly declining, especially after the exchanges pushed out massive measures to curb speculative trading,” Yu said.
Iron ore futures in Dalian sank to 388 yuan a metric ton on Monday, while rebar, used to strengthen concrete, slumped by the Shanghai Futures Exchange limit to 2,175 yuan a ton. Coking coal, used in steel making, dropped as much as 6.3 percent to 650.50 yuan a ton and copper slid to 35,840 yuan a ton. Cotton, of which enough was traded in a single day last month to make a pair of jeans for all of humanity, lost as much as 3.9 percent to 11,865 yuan a ton.

Iron ore inventories held at ports across China increased 1.4 percent last week to the highest since March 2015, according to data from Shanghai Steelhome Information Technology Co., while rebar stockpiles rose for the first time in nine weeks.

Imports of unwrought copper and products slumped to 450,000 tons last month from 570,000 tons in March, Chinese customs data showed on Sunday, as swelling stockpiles discouraged shipments.


Eoin Treacy's view -

The casino culture that has been increasingly evident in Chinese financial markets does nothing to encourage confidence among investors that the market is functioning correctly as a price discovery mechanism. In fact one can but draw the conclusion it is the subject of wild swings by leveraged traders out for quick profits at the expense of consumers without the inhibition of the kind of regulatory oversight we are accustomed to in more developed markets. 

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May 06 2016

Commentary by David Fuller

Investment Surge Gives US the Early Lead In Rise of the Robots

The US and China are poised to take the lead from Japan and Germany in the race to become the global robotics leader

Surging investment in artificial intelligence is giving the US an early advantage in the race to dominate a new era of robotics, according to investors and experts in an industry that is set to become one of the most strategically important.

Recent advances in AI, particularly in a technique known as deep learning, have shifted robotics from its core industrial market into areas such as self-driving cars, fuelling debate over the benefits and threats posed by the rise of the robots.

As the Technology extends its reach beyond factory production lines, the US and China are poised to take the lead from Japan and Germany, which dominate traditional industrial robotics.

Investment in the sector in the US more than doubled to $587m last year, according to CB Insights, a venture capital research firm. That is helping drive global growth of 17 per cent a year, according to research group IDC, which projects the robot market will almost double from $71bn to $135bn by 2019.

“The most interesting things are in Silicon Valley or the US,” said Dmitry Grishin, a Russian internet entrepreneur and investor who has raised a $100m fund to invest in robot and other hardware start-ups. As low-cost robots move into more consumer and business uses, such as drones, China’s hardware manufacturing expertise will also make it a more significant player, he added.

David Fuller's view -

Although large industrial robotics for vehicle assemblies were developed decades ago and continue to be refined, we are now witnessing an explosion in other forms of robots, which are limited only by human imagination. 

It is hard to think of a more fascinating sector but profitability is another matter.  For instance, Boston Dynamics was sold by Google, primarily because it spent too much time and money creating humanoid robotics of limited use, at least so far.  

Among the key areas for profitability are products with helpful software and practical uses for middleclass consumers. 

(See also: Google Puts Boston Dynamics Up for Sale in Robotics Retreat and Robotics maker Fanuc likely to prosper)

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May 06 2016

Commentary by Eoin Treacy

IBM brings quantum computing to the masses

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

Though not a full-blown quantum computer (the IBM processor comprises just five superconducting qubits) it does represent the latest advances in IBM's quantum architecture that the company claims may one day scale up to create very much larger, more complex quantum processors and eventually lead to the development of a universal quantum computer, which could solve some of the problems that simply can't be solved using classical computers.

"Quantum computers are very different from today's computers, not only in what they look like and are made of, but more importantly in what they can do," says Arvind Krishna, senior vice president and director, IBM Research. "Quantum computing is becoming a reality and it will extend computation far beyond what is imaginable with today's computers. This moment represents the birth of quantum cloud computing. By giving hands-on access to IBM's experimental quantum systems, the IBM Quantum Experience will make it easier for researchers and the scientific community to accelerate innovations in the quantum field, and help discover new applications for this Technology."

Housed in the IBM T.J. Watson Research Center in New York, the processor uses five qubits formed by superconducting metals embedded on a silicon chip. As Gizmag reported last year, IBM researchers showed that breakthroughs in detecting quantum errors were possible by bringing superconducting qubits together in a lattice arrangement, and it is this quantum circuit design that is brought to bear in IBM's cloud-connected processor with advanced parity measurement error correction protocols.

Although universal quantum computers do not yet exist, IBM believes that medium-sized quantum processors of 50-100 qubits will be a reality within the next decade. A quantum computer created with just 50 qubits would already be more powerful than any of the world's top 500 supercomputers.


Eoin Treacy's view -

As silicon transistors get progressively smaller and draw closer to the absolute limit of one atom thick the race has been on to develop alternatives. So far there is no clear winner but there are a number of potential technologies that could hold the answer. Among these are quantum computing, DNA computing, optical or light based computing and graphene based chips.  

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May 04 2016

Commentary by Eoin Treacy

China Rolls Up Welcome Mat

This article by Andrew Browne for the Wall Street Journal may be of interest to subscribers. Here is a section:

No, China isn’t closing for business. Compared with many other developing countries, it remains wide open. It is the world’s largest manufacturer, biggest trader and a magnet for foreign investment. About three-quarters of China’s high-tech exports come from foreign-invested companies.

China’s antiforeign turn is driven by several related trends. First, President Xi Jinping has a much lower tolerance than Deng for the unwelcome intrusion of foreign ideas about democracy, press freedom and individual rights that come along with trade and investment—what Deng called “flies and mosquitoes.”

The other day, Mr. Xi was railing against “Western capitalist values” invading the Communist Party’s own training schools.

Second, Mr. Xi is pushing ideology harder than any leader in decades. Increasingly, China sees itself in ideological confrontation with the West. In addition to stressing Marxism, Mr. Xi’s administration is seeking to revive traditional Chinese culture to counter Western ideas—thus, the hostility to crosses.

And Mr. Xi is promoting a strident form of nationalism. One aspect of this is much greater Chinese assertiveness in territorial disputes with neighbors, including Japan, Vietnam and the Philippines. Another is an explicit set of government policies aimed at helping Chinese firms replace their foreign rivals in the domestic market.

All of this adds uncertainty to the outlook for foreigners who have landed on China’s shores. The 2010 census put their number at almost 600,000, not including residents from Hong Kong, Macau and Taiwan.


Eoin Treacy's view -

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

“Governance is Everything” has been a mantra at this Service for decades. China made massive steps in opening up to foreign investment and became the world’s factory floor in a very short period of time; creating massive wealth along the way. Co-operation with the wider world always came on China’s terms such as requiring domestic partners and Technology sharing but there was the quid pro quo in terms of access to the growing Chinese consumer base. 

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May 03 2016

Commentary by David Fuller

Why Robots Are Coming For US Service Jobs

When Andy Puzder, chief executive of restaurant chains Carl’s Jr and Hardee’s, said in March that rising employment costs could drive the spread of automation in the fast-food sector, he tapped into a growing anxiety in the US.

From touchscreen ordering systems to burger-flipping robots and self-driving trucks, automation is stalking an increasing number of professions in the country’s service sector, which employs the vast majority of the workforce.

Two-fifths of US employees are in occupations where at least half their time is spent doing activities that could be automated by adapting Technology already available, according to research from the McKinsey Global Institute. These include the three biggest occupations in the country: retail salespeople, store cashiers and workers preparing and serving food, collectively totalling well over 10m people.

Yet evidence of human obsolescence is conspicuous by its absence in the US’s economic statistics. The country is in the midst of its longest private-sector hiring spree on record, adding 14.4m jobs over 73 straight months, and productivity grew only 1.4 per cent a year from 2007 to 2014, compared with 2.2 per cent from 1953 to 2007. Those three big occupations all grew 1-3 per cent from 2014 to 2015.

David Fuller's view -

Service industries will understandably avail themselves of whatever helps them to cut costs, while also improving the speed and accuracy of the services which they provide.  In restaurants, I imagine most of the robots will be out of sight, helping in the back office and the kitchen.  In anything other than chain restaurants, the appeal of knowledgeable service will outweigh other considerations for some time.    

Nevertheless, the ability of intelligent robots to rival humans in providing useful services is limited only by the technical ability of their developers.  

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May 03 2016

Commentary by Eoin Treacy

Musings from the Oil Patch May 3rd 2016

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

This time around, the discussion seems to be heading in a slightly different direction. Mr. Kibsgaard believes that the downturn will result in a “medium for longer” pricing scenario in which the national oil companies of OPEC can still generate significant returns for their owners due to the low cost base of their conventional resources. With this cost advantage and a desire to play for market share in a world of minimal demand growth, cost issues for producers will become very important. In his view, the procurement-driven contracting model is the main obstacle to creating the performance improvement desired by the customers. The problem comes from producer procurement professionals who believe the service companies don’t bring much to the engineering aspect of projects thus the only way the companies can be compared is by price, which means comparing them on the basis of their more commodity-oriented products. 

In Mr. Kibsgaard’s view, the procurement-driven model leads to suboptimal technical solutions and correspondingly poor project performance from both a design and executional standpoint. That also means financial returns will be negatively impacted. In light of this outlook, Schlumberger has been undertaking a revamping of how it competes based on collaboration and commercial alignment between the operators and the largest service companies. This preparation can be seen through their acquisition strategy during the past few years as Schlumberger has filled holes in its Technology suite and extended its ability to do more of what was often contracted to others, which has become more important for retaining complete control of projects. 

Schlumberger is close to putting five prototype drilling rigs into the field to test its new drilling system that will capitalize on its downhole instruments to help guide and evaluate the formations being drilled and render information to the drilling equipment and the people at the surface. By automating the drilling process based on the downhole intelligence, wells can be drilled faster, cheaper, safer and with a greater productivity outcome. It is possible fewer workers will be needed on the rigs further reducing the cost of drilling wells and potentially helping both the operator and service company improve returns.

Competitors will be watching Schlumberger closely. Initial successes will pressure competitor management teams to consider broadening their product and service offerings followed by how to make them more integrated and profitable. Producers will be watching the experiment as they wrestle with how to increase their profit margins if oil prices remain in the $40-$55 per barrel range for a number of years. If producers cannot grow production because of low industry growth, they will need to strive to become more profitable in order to be rewarded by investors.

Eoin Treacy's view -

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

Big declines in oil prices put enormous pressure on drillers to innovate. As exploration budgets are slashed customers demand more for less and new Technology is the only way that can be achieved. Companies like Schlumberger have to constantly push the barrier of what is possible so they can gain market share and ensure a place for themselves when the oil majors come under cost pressure. 

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April 28 2016

Commentary by David Fuller

The Biggest Windmills Now Make Jumbo Jets Look Tiny

Here is the opening of this informative article from Bloomberg:

 Often derided as a blot on rural landscapes, wind turbines got bigger and stronger than ever anyway. The next generation are even larger and designed to withstand an Arctic battering. 

The granddaddy of them all is a machine with rotors that cut a 164 meter (538 foot) swath made by a Vestas Wind Systems venture with Mitsubishi Heavy Industries. A single blade is 80 meters, about the entire wingspan of an Airbus A380 jumbo jet. In the intensely competitive wind turbine business, it’s rare for executives to allow a close-up look of what they’re developing, lest they tip off rivals. Vestas allowed Bloomberg News to visit and photograph the prototype units this month.

As they got bigger, the units became more efficient, boosting global installations 23 percent last year to a record 63.5 gigawatts, which at full tilt would be about as much as what flows from 63 nuclear reactors. Wind is now the most installed form of low-carbon energy. While few people outside the industry noticed, the trend lifted shares and profit of manufacturers from their crash during the financial crisis. Vestas is due to report its fifth consecutive increase in quarterly profit on Friday, overcoming a slump that forced it to cut 3,000 jobs since 2011.

Even the plunge in crude prices since  2014 has failed to derail industry growth.

“The doubling of turbine size this decade will allow wind farms in 2020 to use half the number of turbines compared to 2010,” said Tom Harries, an industry analyst at Bloomberg New Energy Finance. “This means fewer foundations, less cabling and simpler installation -- all key in slashing costs for the industry.”

The average turbine installed in Europe was 4.1 megawatts last year, 28 percent larger than in 2010, according to the London-based researcher, which expects 6.8 megawatts to be the norm by 2020. Harries said Siemens has hinted it’s working on a 10 megawatt turbine.

Standing in northern Denmark, where fjords cut through flat farmland, MHI Vestas Offshore Wind has erected the world's most powerful turbine. The turbine produces 8 megawatts of power, enough for about 4,000 homes. It could challenge the lead in offshore wind accrued by Siemens, which has almost two-thirds of installed capacity, according to BNEF. MHI Vestas is in second place, with 19 percent.

A Siemens spokesman said a 7-megawatt turbine the company is working on has a “track record of reliability” that will reduce costs for customers. It won its biggest contract for the machine on Wednesday from the Spanish utility Iberdrola, which will buy 102 turbines valued at as much as 825 million pounds ($1.2 billion).

The 80-meter blades of the MHI Vestas V164 make the machine almost as high as the Times Square Tower in New York, and are so large that they were “a nightmare” to transport on narrow country roads, Jens Tommerup, chief executive officer of the venture, said in an interview. This prototype is built for use offshore and has been tested on land since January 2014 at the wind turbine field in Osterlid, managed by the Technical University of Denmark. The goal is to spot faults before they enter service.

David Fuller's view -

As with all technologies, windmills are becoming more efficient, which is obviously very good in terms of the energy produced.  Aesthetically, I do not like them.  They remind me of the invasion machines from H.G. Wells memorable science fiction novel: The War of The Worlds, first serialised in 1897.  If you live within earshot of a windmill the effects can be very disturbing.  Nevertheless, we will see more of them around the globe because their Technology is improving and they are helping us to inch closer to a world in which our energy is mainly of the renewable variety.   

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April 27 2016

Commentary by David Fuller

Email of the day

On Markets Now presentations:

Good morning David, Gillian and I thank you once more for an interesting evening. The presentations and the dialogues were enlightening. I have downloaded a copy of your power point presentation but could not find those from Iain and Charles. I would appreciate if you would forward them to me or direct me towards the place where I can find them. Best regards also from Gillian, Erich

David Fuller's view -

You are very welcome, and thank you for travelling all the way from Switzerland.  Your comments in discussions were also greatly appreciated. 

To avoid overwhelming email systems and winding up in a ‘Spam’ folder, I release the PowerPoints over three days, in the sequence in which they were delivered.  Here is Charles Elliott’s excellent presentation: Investing in Technology.

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April 26 2016

Commentary by Eoin Treacy

Genetic Superheroes?

This article from 23andMe may be of interest to subscribers. Here is a section: 

A Few Examples Of How Resilient Individuals Have Already Helped Researchers
Human Knockout Project — Daniel MacArthur started this project out of his lab at Massachusetts General Hospital and the Broad Institute. He’s looking for healthy individuals with so-called loss function variants, genes that do not code for a protein. Researchers routinely “knock-out” the function of a gene in mice when studying what a gene does.

PCSK9 — The gene regulates the level of LDL cholesterol, but researchers found that certain individuals with loss function variants in the gene were protected against high lipid levels. Since the discovery several pharmaceutical companies have used this discovery to develop new therapies for combating high cholesterol.

Alzheimer’s Escapers  — “Escapers” are individuals who have the genetic variants that put them at very high risk for disease, but for whatever reason never develop it. The Washington University School of Medicine is looking at families that are genetically predisposed to
Alzheimer’s Disease looking for individuals who have “escaped” getting the disease for insights into new treatments. 23andMe has also found escapers.

HIV — By identifying rare mutations in the gene CCR5 that provide resistance to HIV infection, researchers hope to find a vaccine against AIDS.

Diabetes — A few years ago researchers discovered that a variant in the gene ZNT8 protects even obese people from diabetes. Since then researchers have been using this as a possible drug target to protect against diabetes.


Eoin Treacy's view -

The movement to study healthy people as a way to identify how to treat illness is quickly gaining ground in the Technology community. After all when you go to hospital it is full of sick people but the wider world is full of people who are healthy.  Doesn’t it make sense to find out why some people get sick and others don’t? 

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