Investment Themes - India

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

Search Results

Found 1000 results in Technology
April 27 2017

Commentary by David Fuller

With Education and Technology, Brexit Britain Can Engineer Its Way to Greater Prosperity.

The world is gripped by a Technology race and those countries or companies that fail to recognise this will very quickly fall behind. My constant refrain to all politicians is: “Put your faith in engineers and in revolutionary Technology – invest in them and give them a supportive environment that encourages risk-taking and new ideas.”

Britain is now in a uniquely advantageous position to become a world leader in Technology, exploiting the new-found trading freedom that comes from leaving the European Union. We can operate in a business-friendly regulatory environment, negotiate directly with other markets (in particular, Asia) and sell our high-Technology goods, boosting the balance of payments in the process.

Singapore is not a bad model to look to. They are focused on developing and exporting high-Technology products harnessing their highly skilled workforce.

But Britain’s success in this regard is contingent on quickly deepening the skills in our economy. Education is where it all begins: it is young people who will create the technologies that we export in future. Yet Britain will be one million engineers short by 2022. It is time for a new approach and recognition that engineers are among the best wealth-generators an economy could hope for.

It was refreshing, after continued pleas to successive government ministers, that Jo Johnson, minister of state for universities, science, research and innovation, challenged me to open a new kind of university on Dyson’s Malmesbury campus. He is pushing through the Higher Education and Research Bill to encourage the creation of a new generation of universities. We intend to be the first to take advantage of it, and I hope others will follow.

Johnson has spotted that it is companies which are experimenting, investing and developing to create the future, and has concluded that they are well placed to educate and equip the next generation. Dyson files more patents per year than any UK university Technology transfer office. This inventiveness could be put to good use, inspiring and educating future prolific patent filers.

The legislation will allow us to attain university status and achieve degree-awarding powers of our own. Until then, we will partner with Warwick University. Regardless of the legislative outcome, the Dyson Institute of Engineering and Technology will welcome its first undergraduate students in September. They will work on “live” projects from the off, and will be mentored by practising scientists and engineers – world experts in their field – who will teach alongside academics from Warwick University, an institution renowned for engineering.

Rather than hypothesising about what it is like to be an engineer from the lecture hall, they will find themselves in the risk-filled world of inventing new, real-world Technology.

David Fuller's view -

This is a terrific idea from Jo Johnson and James Dyson.  For decades we have seen Dyson’s frustration over the lack of qualified engineers in the UK.  The potential is certainly there and now he will be able to train more of his own staff.  This is an excellent opportunity for smart, ambitious students.  



This section continues in the Subscriber's Area. Back to top
April 25 2017

Commentary by Eoin Treacy

Inside China's Plans for World Robot Domination

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

Under a sweeping proposal called “Made in China 2025,” as well as a five-year robot plan launched last April, Beijing plans to focus on automating key sectors of the economy including car manufacturing, electronics, home appliances, logistics, and food production. At the same time, the government wants to increase the share of indigenous-branded robots in China to more than 50 percent of total sales volume by 2020 from 31 percent last year.

Robot makers and the companies that automate will be eligible for subsidies, low-interest loans, tax waivers, and rent-free land. “Fair or unfair, you can expect Chinese companies will get a lot of preferential treatment and funding,” said Rose with Boston Consulting. “They actually have a comprehensive plan to get there. And their track record isn’t terrible either.”

Industrial automation is crucial for China, home to an aging population and shrinking labor force. Manufacturing wages have more than doubled in the last decade. Also, younger Chinese workers, “don’t want to do repetitive work,” said James Li, President of ABB Robotics China, the local unit of Switzerland’s ABB Ltd. and one of the first robot companies to set up in China. It supplies machines that spray paint cars and man electronics assembly lines. “Robotics is hot,” said Li, who notes that local governments are investing heavily in industrial parks to develop the Technology.

 

Eoin Treacy's view -

The big question for robot manufacturers is will China do for their sector what it did for the solar sector? My sense of the challenges involved is that Chinese dominance of the robotics sector is a medium-term rather than short-term possibility. The companies involved have a lot of progress than needs to be made in developing software, optics and interfaces to truly challenge incumbents. However we can be reasonably assured they will be get better every year.  



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

Commentary by David Fuller

Exxon, Shell Join Ivanka Trump to Defend Paris Climate Pact

Here is a brief section of this interesting article from Bloomberg:

As President Donald Trump contemplates whether to make good on his campaign promise to yank the United States out of the Paris climate accord, an unlikely lobbying force is hoping to talk him out of it: oil and coal producers. 

A pro-Paris bloc within the administration has recruited energy companies to lend their support to the global pact to cut greenhouse gas emissions, according to two people familiar with the effort who asked not to be identified.

Cheniere Energy Inc., which exports liquefied natural gas, became the latest company to weigh in for the pact to cut greenhouse gas emissions in a letter Monday to White House energy adviser G. David Banks. 

"Domestic energy companies are better positioned to compete globally if the United States remains a party to the Paris agreement," Cheniere wrote. The accord "is a useful instrument for fostering demand for America’s energy resources and supporting the continued growth of American industry."

Exxon Mobil Corp., previously led by Secretary of State Rex Tillerson, Royal Dutch Shell Plc and BP Plc also have endorsed the pact.

The industry campaign to stick with the Paris accord comes amid deep divisions in the Trump administration over the carbon-cutting agreement. Both the president’s daughter, Ivanka Trump, and her husband, Jared Kushner, a White House special adviser, have urged the president to stay in the deal, along with Tillerson. 

Climate Change Pact That Made History Now Faces Trump: QuickTake

On the other side are senior adviser Stephen Bannon and Environmental Protection Agency Administrator Scott Pruitt, who on Friday said "we need to exit" the pact.

Gas producers and exporters are highlighting the value of the agreement, which could help prod a worldwide move toward that fossil fuel.

Exxon Mobil argued in a letter last month that U.S. slashed its carbon emissions to 20-year lows because of greater use of natural gas, and "this success can be replicated globally” as part of the accord.

BP spokesman Geoff Morrell said the company continues to support the Paris deal, noting that "it’s possible to provide the energy the world needs while also addressing the climate challenge." And Shell spokesman Curtis Smith said the company remains "strongly in favor" of the agreement.

What Trump’s Climate Views Might Mean for World: QuickTake Q&A

Coal producers Cloud Peak Energy Inc. and Peabody Energy Corp. also are lobbying in favor of the accord, even though the miners could be disadvantaged by a global shift toward cleaner sources of electricity. Cloud Peak pitches the Paris agreement as a platform for the U.S. to advocate using carbon capture and other high-efficiency, low-emissions Technology to generate electricity from coal.

Trump is nearing a decision on whether he will fulfill repeated pledges to withdraw the U.S. from the accord he previously derided as "bad for U.S. business." The White House postponed a planned Tuesday meeting of senior administration officials, including Pruitt, Tillerson, Kushner and Bannon, to go over the pros and cons of staying in the agreement, according to an aide citing a scheduling conflict.

David Fuller's view -

There is not a single good reason that I have heard for leaving the Paris Climate Pact.  Stay in and at least you know what everyone is saying, and you can agree or disagree, and offer any other suggestions. Leave the Pact and you will be regarded as a petulant pariah state.  The USA should be at the table of any important international Pact, if only in the interests of good will. 



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

Commentary by David Fuller

Gigantic Wind Turbines Signal Era of Subsidy-Free Green Power

Here is the opening of this encouraging article from Bloomberg:

Offshore wind turbines are about to become higher than the Eiffel Tower, allowing the industry to supply subsidy-free clean power to the grid on a massive scale for the first time.

Manufacturers led by Siemens AG are working to almost double the capacity of the current range of turbines, which already have wing spans that surpass those of the largest jumbo jets. The expectation those machines will be on the market by 2025 was at the heart of contracts won by German and Danish developers last week to supply electricity from offshore wind farms at market prices by 2025.

Just three years ago, offshore wind was a fringe Technology more expensive than nuclear reactors and sometimes twice the cost of turbines planted on land. The fact that developers such as Energie Baden-Wuerttemberg AG and Dong Energy A/S are offering to plant giant turbines in stormy seas without government support show the economics of the energy business are shifting quicker than anyone thought possible -- and adding competitive pressure on the dominant power generation fuels coal and natural gas.

“Dong and EnBW are banking on turbines that are three to four times bigger than those today,” said Keegan Kruger, analyst at Bloomberg New Energy Finance. “They will be crucial to bringing down the cost of energy.”

About 50 miles (80 kilometers) off the coastline in the German North Sea, where the local fish and seagulls don’t complain about the view of turbines in their back yards, offshore wind Technology is limited only to how big the turbines can grow. Dong has said it expects machines able to produce 13 to 15 megawatts each for its projects when they’re due to be completed in the middle of the next decade -- much bigger than the 8-megawatt machines on the market now.

Just one giant 15-megawatt turbine would produce power more cheaply than five 3-megawatt machines, or even two with an 8-megawatt capacity. That’s because bigger turbines can produce the same power from a fewer number of foundations and less complex grid connections. The wind farm’s layout can be made more efficient, and fewer machines means less maintenance.

“Right now, we are developing a bigger turbine,” said Bent Christensen, head of cost of energy at Siemens Wind Power A/S, in a phone interview. “But how big it will be we don’t know yet.”

David Fuller's view -

I did not predict this 3 to 4 years ago but I am delighted that wind power is now becoming much more competitive and self-sufficient.  I still have concerns about maintenance costs relative to solar power but we will see.  One should not underestimate technological innovation in this era. 



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

Commentary by David Fuller

Why the Market for Fossil Fuels Is All Burnt Out

If Helm is to be believed the oil market downturn is only getting started. The latest collapse is the harbinger of a global energy revolution which could spell the end-game for fossil fuels. These theories were laughable less than a decade ago when oil prices grazed highs of more than $140 a barrel. But the burn out of the oil industry is approaching quicker than was first thought, and the most senior leaders within the industry are beginning to take note.

In the past, the International Energy Agency (IEA) has faced down criticism that its global energy market forecasts have overestimated the role of oil and underplayed the boom in renewable energy sources. But last month the tone changed. The agency warned oil and gas companies that failing to adapt to the climate policy shift away from fossil fuels and towards cleaner energy would leave a total of $1 trillion in oil assets and $300bn in natural gas assets stranded.

For oil companies who heed Helm’s advice, the route ahead is a ruthless harvest-and-exit strategy. This would mean an aggressive slashing of capital expenditure, pumping of remaining oil reserves while keeping costs to the floor and paying out very high dividends.

“They’d never do it because no company board would contemplate running a smaller company tomorrow than today. It’s not in the zeitgeist of the corporate world we’re in, but that’s what they should do,” Helm says.

BP and Royal Dutch Shell are slowly shifting from oil to gas and making even more tentative steps in the direction of low-carbon energy. But Helm is not entirely convinced that oil companies have grasped the speed with which the industry is undergoing irrevocable change.

“As the oil price fell, at each point, oil executives said that the price would go back up again,” says Helm. “What the oil companies did was borrow to pay their dividends on the assumption that this is a temporary problem. It’s my view that it is permanent,” he adds.

For a start, there is scant precedent for the price highs of recent decades. Between 1900 to the late Sixties oil prices fluctuated in a range between $15 a barrel to just above $30 a barrel – even through two world wars, population growth and a revolution in transport and industry.

It was geopolitical events which caused oil prices to surge by more than $100 a barrel following the Middle East oil embargoes of the late sixties and early seventies. They collapsed back to $20 by the Eighties.

So, what drove oil prices to the heady levels of $140 a barrel just less than 10 years ago?

“China,” says Helm, barely missing a beat. “If you look at both the rapid growth in emissions and the rapid growth of oil, fossil fuel and all commodity prices, it was while China was doubling its economy every seven years. This is a phenomenal rate.

David Fuller's view -

Oil prices spiked above $140 a barrel in 2008 because of supply reductions from OPEC countries, not least due to regional wars.  This has never been fully recognised as a huge factor in what is generally remembered as the credit crisis recession which followed.  

In 2009 OPEC lowered production once again, leading to a move back above $120 a barrel two years later.  By 2014 subsidised renewables were gradually eroding the market for crude oil. However, the really big change was the US development of fracking Technology, leading to a surge in the production of crude oil and natural gas. 

We should always remember these two adages, particularly with commodities: 1) the cure for high prices is high prices.  These lower demand somewhat but the bigger overall influence is an increase in supply.  Conversely, the cure for low prices is low prices.  Demand increases somewhat when prices are lower but more importantly, supply is eventually reduced. 

How have these adages influenced commodity prices in recent years and what can we expect over the lengthy medium term?

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



This section continues in the Subscriber's Area. Back to top
April 11 2017

Commentary by David Fuller

North Korea State Media Warns of Nuclear Strike if Provoked as U.S. Warships Approach

North Korean state media on Tuesday warned of a nuclear attack on the United States at any sign of U.S. aggression as a U.S. Navy strike group steamed towards the western Pacific.

U.S. President Donald Trump, who has urged China to do more to rein in its impoverished neighbour, said in a Tweet North Korea was "looking for trouble" and the United States would "solve the problem" with or without China's help.

Tension has escalated sharply on the Korean peninsula with talk of military action by the United States gaining traction following its strikes last week against Syria and amid concerns the reclusive North may soon conduct a sixth nuclear test.

North Korea's official Rodong Sinmun newspaper said the country was prepared to respond to any aggression by the United States.

"Our revolutionary strong army is keenly watching every move by enemy elements with our nuclear sight focused on the U.S. invasionary bases not only in South Korea and the Pacific operation theatre but also in the U.S. mainland," it said.

South Korean acting President Hwang Kyo-ahn warned of "greater provocations" by North Korea and ordered the military to intensify monitoring and to ensure close communication with the United States.

"It is possible the North may wage greater provocations such as a nuclear test timed with various anniversaries including the Supreme People's Assembly," said Hwang, acting leader since former president Park Geun-hye was removed amid a graft scandal.

Trump said in a Tweet a trade deal between China and the United States would be "far better for them if they solved the North Korea problem".

"If China decides to help, that would be great," he said. "If not, we will solve the problem without them!"

Trump and his Chinese counterpart, Xi Jinping, met in Florida last week and Trump pressed Xi to do more to rein in North Korea.

The North convened a Supreme People's Assembly session on Tuesday, one of its twice-yearly sessions in which major appointments are announced and national policy goals are formally approved. It did not immediately release details.

But South Korean officials took pains to quell talk in social media of an impending security crisis or outbreak of war.

"We'd like to ask precaution so as not to get blinded by exaggerated assessment about the security situation on the Korean peninsula," Defence Ministry spokesman Moon Sang-kyun said.

Saturday is the 105th anniversary of the birth of Kim Il Sung, the country's founding father and grandfather of current ruler, Kim Jong Un.

A military parade is expected in the North's capital, Pyongyang, to mark the day. North Korea often also marks important anniversaries with tests of its nuclear or missile capabilities in breach of U.N. Security Council resolutions.

David Fuller's view -

Is the world a marginally more dangerous place since the end of the 20th Century?

I think so for five reasons: 1) The global economy has been weaker in the 21st Century to date; 2) The aging and unhealthy President Boris Yeltsin resigned as President of Russia on 31st December 1999, and handed over presidential powers to Prime Minister Vladimir Putin; 3) Communist China has become a global superpower; 4) There was a dearth of Western geopolitical leadership over the last eight years which has emboldened rogue regimes; 5) The advance of Technology and globalisation enable more countries to become nuclear powers. 

This item continues in the Subscriber’s Area.



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

Commentary by David Fuller

Nuclear Fusion Energy News: Infinite Power by 2030 with Nuclear Fusion Reactor?

Nuclear fusion energy has often been sarcastically said to be always 30 years away. This scientific inside joke is meant to suggest we will never have the Technology to make a working commercial nuclear fusion reactor. But despite the disappointments and failed promises over the last 50 years, the latest news suggests we might have reached a turning point in fusion energy research.

Many people confuse nuclear fusion reactors with nuclear fission reactors. But fission operates on the principle of placing enough fissionable radioactive material – uranium or plutonium – together that a chain reaction will take place in which particles given off by the fuel smash into other atoms in the material to produce excess energy.

This reaction has to be carefully managed through various means – including non-fissionable control rods – to avoid a disastrous runaway reaction.

But all of the concerns that people have about fission reactors – and these concerns are definitely justified following the incidents at Chernobyl and Fukushima – don’t apply to a fusion reactor. Nuclear fusion reactors cannot melt down, explode, or otherwise fail catastrophically in a way that threatens the environment.

If a nuclear fusion reactor did have a problem, it would simply stop working. In addition, the nuclear fusion energy production process produces very little radioactive waste – and what waste is produced has a much shorter half-life than the long-lasting, highly dangerous radioactive byproducts created by fission.

Another advantage that a commercial fusion reactor would have over fission reactors is that fissionable materials are extremely difficult to find and process for use, making them very expensive and essentially a limited resource. A nuclear fusion reactor would likely use deuterium, which can be extracted from ordinary seawater in virtually unlimited quantities.

Energy production via a nuclear fusion reactor has been on the wish list of many governments around the world, which is why an international project known as ITER was established to construct a massive experimental tokamak fusion reactor. As reported by the Manufacturer, the purpose is to confirm the feasibility of large-scale production of fusion energy.

The ultimate goal of the project is for ITER to be the first fusion reactor to achieve the production of more energy than it requires to operate. Reaching this breakeven point has been the Holy Grail of fusion research. Thirty-eight nations have joined this effort to construct the experimental ITER reactor in southern France – with the cost being astronomical.

However, the scientists, engineers and bureaucrats running this program admit that it will be many decades – perhaps as far away as 2050 – before an actual commercial reactor based on ITER will be in operation.

It has become virtually a mantra for nuclear fusion energy researchers that bigger is, in fact, better when it comes to building a nuclear fusion reactor. This is why governments are pouring tens of billions of dollars into the construction of the colossal experimental ITER reactor – that itself will not produce energy for consumption.

Fortunately, a number of other private organizations and companies around the world are trying to make fusion power a reality much quicker, perhaps even as soon as 2030. In addition, several individual governments have their own private nuclear fusion energy programs apart from ITER.

David Fuller's view -

Nuclear fusion has long been the holy grail of global energy, with no Parsifal equivalent in sight.  That may be changing, although it would not make a great opera.  However, more wealthy people, governments and university science departments are investing increasingly large sums of money to achieve nuclear fusion.   

When they succeed, which I would define as generating far more energy than they use in the process of creating nuclear fusion, it will be the greatest invention of all time. 



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

Commentary by David Fuller

Vanguard has a Growing Dominance but Customer Service Takes a Hit as it receives Epic Inflows of Cash

Here is a section of this topical article from philly.com:

Vanguard's legacy was set by founder John Bogle, now retired, whose revolutionary idea was a low-cost index fund that kept fees low and returns higher -- as much as 0.50 percent higher annually over time.

That consumer-friendly concept has drawn in more than 20 million investors since its founding in 1975, and it's an edge that Vanguard is keen to maintain. 

When Fidelity Investments recently ran full-page ads in the Wall Street Journal and the New York Times touting its "lower-than-Vanguard" expense ratios on several funds and ETFs, Vanguard hit back and lowered those of several funds,  said Dan Wiener, editor of the Independent Adviser for Vanguard Investors. “What we’re talking about here is bragging rights.”

Indeed, Vanguard says its fee cuts this year alone have created $143 million in savings across 124 funds.  

So much money has poured into Vanguard’s largest funds – the $465 billion Total Stock Market Index and S&P 500 – that the team that runs those along with 200 more index funds has grown to 80 people today, led by Portfolio Manager Gerry O’Reilly and co-heads of trading Mike Buek and Ryan Ludt, from just a small team two decades ago.

Online, Vanguard fans are giving the firm the benefit of the doubt — for now.

After all, Vanguard’s assets have tripled in a decade, rising by $1 trillion to $4.2 trillion in just the last five years. Costs have fallen from 0.68 percent to 0.13 percent on average since 1975, McIsaac added.

“Until recently the quality of customer and operational service, and Technology was always superb.  Virtually error free,” wrote a client named Larry Mariasis on the Wall Street Journal’s comment pages. “But the pace of recent growth has impacted negatively the quality of service. ... Vanguard needs to seriously consider slowing down its growth ... to catch up with staff hiring and training.  Otherwise Vanguard risks tarnishing an amazing reputation.”

David L. Zalles, a Blue Bell accountant, says his peers complain about mistakes in record-keeping at Vanguard. He said he personally had been "disappointed" about the tax cost basis record-keeping. "No one at Vanguard apparently understands the actual reporting requirements."

Vanguard spokeswoman Arianna Stefanoni Sherlock said that the company had seen "an uptick in service-related complaints in sporadic months of last year," but that the stress "has all but abated," due in part to hiring here and for its Arizona and North Carolina locations.  

David Fuller's view -

I saw a somewhat different version of this article on Bloomberg Intelligence last night but it cannot be taken off the terminal.  So I asked Eoin, who joined FTM from Bloomberg over a decade ago, and he forwarded this related article above.

Vanguard’s biggest fan is Warren Buffett, who has long been a critic of fund management fees, because they mostly underperform stock market indices. I think it was about two years ago that Buffett announced that most of the money for his wife would be placed in Vanguard’s S&P 500 tracker.

The hero of Vanguard’s low fees is founder Jack Bogle, now retired.  His success has inevitably attracted competition, so Vanguard has continued to lower fees, to currently 0.13% for the S&P tracker.  It can do this because of all the money it holds.

What about the current problems with customer service delays?

 This item continues in the Subscriber’s Area.



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

Commentary by Eoin Treacy

Speaking engagements

Eoin Treacy's view -

It was a pleasure to be interviewed by Jonathan Davis for his Money Makers podcast series on Monday and I will post a link to it as soon as I have one. 

I have also agreed to participate in the 2017 Tech Investor’s Symposium hosted by Southbank Research in London on May 15th where I will be talking about evolving Technology trends. 

 



This section continues in the Subscriber's Area. Back to top
April 05 2017

Commentary by David Fuller

Robots Could Replace Humans Within the Next Few Hundred Years, Astronomer Royal Predicts

Robots could wipe out humans within the next few hundred years, according to Astronomer Royal Lord Rees.

The astrophysicist predicted that "within a few centuries machines will have taken over", with the potential of billions of years of history ahead of them - longer than humanity has had. 

It would make human dominance on Earth just a small transitional phase in the planet's history. 

Speaking to website The Conversation, Lord Rees, Emeritus Professor of Cosmology and Astrophysics at the University of Cambridge, said within the next 10 or 20 years we could expect to have Technology that will allow us to search for alien life. 

However he said even if there is life out there, it may not necessarily be "intelligent life". 

"My guess is that if we do detect an alien intelligence, it will be nothing like us. It will be some sort of electronic entity," he said. "If we look at our history on Earth, it has taken about 4 billion years to get from the first protozoa to our current, technological civilisation. 

"But if we look into the future, then it’s quite likely that within a few centuries, machines will have taken over – and they will then have billions of years ahead of them.

"In other words, the period of time occupied by organic intelligence is just a thin sliver between early life and the long era of the machines.

"Because such civilisations would develop at different rates, it’s extremely unlikely that we will find intelligent life at the same stage of development as us. More likely, that life will still be either far simpler, or an already fully electronic intelligence."

David Fuller's view -

Do you think the super-intelligent robots will also say that they are created in God’s image?

Mrs Fuller and I have enjoyed hearing Lord Rees speak on a number of occasions, including at the Hay-on-Wye Festival.  He regards the ascendency of robots as a natural, inevitable progression.  Lord Rees is certainly not alone in this view.  A number of top intellects in science and tech industries agree.

Oh well, at least it should end global pollution. 



This section continues in the Subscriber's Area. Back to top
April 04 2017

Commentary by David Fuller

The Equity View: Global Investment Themes

My thanks to Riverfront Investment Group for this topical publication.  Here is a brief sample:

Global Technology: We currently prefer non-mega-cap Technology globally.  US Technology stocks trade at close to a market multiple, despite the fact that they are forecasted to grow earnings at a faster rate.  In our view, the key positioning strategy in Technology is to avoid the mega-caps.  Mega-caps tend to have the least growth and can often carry the greatest expectations.  We prefer an equal-weighted basket of tech stocks.

David Fuller's view -

Charles Elliott also favoured smaller-cap Technology companies for their better valuations and often faster growth, in his excellent presentation at The Markets Now recently. 

I will add that fashionable mega-cap Technology firms are often pushed higher by Exchange Traded Funds and market momentum programmes.  That can be impressive but it is risky for people to chase the strong rallies, which shed gains quickly in the next correction.  



This section continues in the Subscriber's Area. Back to top
April 04 2017

Commentary by Eoin Treacy

Email of the day on desalination

Dear Eoin, concerning today's posting on the water situation, I recently visited one of Israel's 5 water desalination plants. Over the last 10 years Israel has totally overcome its historic water shortage problem by desalinating sea water. It has done so in collaboration with Veolia. In addition this new Technology is being exported worldwide. Once again we have an example of how human genius is applied to important problems and how new Technology is overcoming them. Great to be able to be positive when pessimism reigns around the world.

Eoin Treacy's view -

Thank you for this first-hand account and I agree that solving Israel’s water challenges is a significant victory for a country where water security is highly politicised. This article from MIT Technology Review carries more information. Here is a section: 

The Sorek plant incorporates a number of engineering improvements that make it more efficient than previous RO facilities. It is the first large desalination plant to use pressure tubes that are 16 inches in diameter rather than eight inches. The payoff is that it needs only a fourth as much piping and other hardware, slashing costs. The plant also has highly efficient pumps and energy recovery devices. “This is indeed the cheapest water from seawater desalination produced in the world,” says Raphael Semiat, a chemical engineer and desalination expert at the Israel Institute of Technology, or Technion, in Haifa. “We don’t have to fight over water, like we did in the past.” Australia, Singapore, and several countries in the Persian Gulf are already heavy users of seawater desalination, and California is also starting to embrace the Technology (see “Desalination Out of Desperation”). Smaller-scale RO technologies that are energy-efficient and relatively cheap could also be deployed widely in regions with particularly acute water problems—even far from the sea, where brackish underground water could be tapped.

Earlier in development are advanced membranes made of atom-thick sheets of carbon, which hold the promise of further cutting the energy needs of desalination plants.

 



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

Commentary by David Fuller

Graphene-Based Sieve Turns Seawater Into Drinking Water.

My thanks to a subscriber for this interesting article from BBC News, Science & Environment.  Here is the opening:

The promising graphene oxide sieve could be highly efficient at filtering salts, and will now be tested against existing desalination membranes.

It has previously been difficult to manufacture graphene-based barriers on an industrial scale.

Reporting their results in the journal Nature NanoTechnology, scientists from the University of Manchester, led by Dr Rahul Nair, shows how they solved some of the challenges by using a chemical derivative called graphene oxide.

Isolated and characterised by a University of Manchester-led team in 2004, graphene comprises a single layer of carbon atoms arranged in a hexagonal lattice. Its unusual properties, such as extraordinary tensile strength and electrical conductivity, have earmarked it as one of the most promising materials for future applications.

But it has been difficult to produce large quantities of single-layer graphene using existing methods, such as chemical vapour deposition (CVD). Current production routes are also quite costly.

On the other hand, said Dr Nair, "graphene oxide can be produced by simple oxidation in the lab".

He told BBC News: "As an ink or solution, we can compose it on a substrate or porous material. Then we can use it as a membrane.

"In terms of scalability and the cost of the material, graphene oxide has a potential advantage over single-layered graphene."

Of the single-layer graphene he added: "To make it permeable, you need to drill small holes in the membrane. But if the hole size is larger than one nanometre, the salts go through that hole. You have to make a membrane with a very uniform less-than-one-nanometre hole size to make it useful for desalination. It is a really challenging job."

Graphene oxide membranes have already proven their worth in sieving out small nanoparticles, organic molecules and even large salts. But until now, they couldn't be used to filter out common salts, which require even smaller sieves.

Previous work had shown that graphene oxide membranes became slightly swollen when immersed in water, allowing smaller salts to flow through the pores along with water molecules.

Now, Dr Nair and colleagues demonstrated that placing walls made of epoxy resin (a substance used in coatings and glues) on either side of the graphene oxide membrane was sufficient to stop the expansion.

Restricting the swelling in this way also allowed the scientists to tune the properties of the membrane, letting through less or more common salt for example.

David Fuller's view -

Graphene is one of the most useful products ever invented but apparently difficult to use on a commercial scale, at least so far.  Mrs Fuller drew my attention to graphene years ago and wanted to know how to invest in it?  I remain convinced that it will eventually have many applications which remain almost unimaginable today.

This item continues in the Subscriber’s Area.



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

Commentary by Eoin Treacy

Europe's Diesel Decay Set to Accelerate in VW Cheating Fallout

This article by Elisabeth Behrmann and Tom Lavell for Bloomberg may be of interest to subscribers. Here is a section:

Diesel cars’ popularity in Europe has been waning as Volkswagen’s emissions-test manipulation scandal, which emerged in late 2015, compounded concerns that pollutants from the fuel are outweighing the benefits of its lower CO2 emissions. Mercedes outlined plans last week to accelerate a rollout of battery-powered cars by 2022, saying combustion engines would continue to be refined only for a transitional period.

“Diesel’s share in Europe has been declining for years because of stricter emissions regulation making the Technology more expensive,” and potential restrictions on the models in cities such as Munich will probably damp sales further, Thomas Schlick, an automotive consultant at Roland Berger, said by phone. “The longer-term implications for a drop in combustion- engine demand are significant for the industry as by our calculations about one-third of jobs in the auto industry are related to drive-train Technology.”

Eoin Treacy's view -

The German automotive industry received a robust defence from Angela Merkel when the diesel cheating scandal broke. That means the sector has been given ample time to transfer away from what is a serious polluting influence on major cities not least in relation to nitrogen oxide emissions. If they are to now meet the strict emissions controls which we can expect will be enforced then more efficient internal combustion engines, hybrids and electric vehicles are inevitable.



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

Commentary by David Fuller

The Markets Now

We filled the Morrison Room on Monday with several people from overseas and far more delegates from across the UK than London.  We are fortunate to have experienced delegates and we all learn more thanks to their contributions.

March 29 2017

Commentary by Eoin Treacy

Email of the day on hydrogen versus electric vehicles

I hope you are well. I was wondering what you thought of this article (Japan gambles on Toyota’s hydrogen powered car) about Toyota’s lack of faith in electric vehicles because 'a battery breakthrough is not in prospect'

Eoin Treacy's view -

Thank you for this email raising an important issue regarding energy density. Here is a section from the article:

Fuel cell vehicles, by contrast, need all the manufacturing skills of a car company. “From the industrial strategy point of view, fuel cell Technology is extremely difficult, it’s in the world of chemistry not machinery,” says Hiroshi Katayama at the advanced energy systems and structure division of the ministry of economy, trade and industry (METI). If auto Technology goes down the hydrogen path, Japan will be well placed. But if it doesn’t, Tokyo will have made a major miscalculation.

Toyota’s faith in hydrogen is best understood by looking at a car it never made: a pure electric vehicle. For the 20 years since it invented the Prius hybrid, Toyota has been the carmaker best-placed to launch a fully electric vehicle. It had the batteries, the motors and the power electronics but chose not to deploy them because of concerns about range limits, refuelling time and the risk of batteries degrading as they age.

It has announced plans for its own electric vehicle to exploit the demand from the premium segment opened up by Tesla and to meet emissions standards in the US and China. Yet Toyota’s fundamental doubts about battery-powered vehicles have not gone away.

The long dreamt-of Sakichi battery would store energy at the same density as the chemical bonds in petrol: roughly 10,000 watt-hours per litre — enough to power a family car for hundreds of kilometres on a single tank. The low energy density of the best batteries, about one-twentieth that of petrol, is why today’s electric cars have limited range.



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

Commentary by David Fuller

The Markets Now

Monday’s seminar in The Caledonian Club’s excellent Morrison Room on the ground floor is now fully booked.

David Fuller's view -

We have another interesting list of experienced delegates and certainly not just from London. In fact, they are attending from far and wide. 

I am looking forward to another lively and enjoyable evening, which will now include a short presentation from a fourth speaker well known to Iain Little.

Among markets, Technology has never been more interesting in our lifetime so Charles Elliott’s latest comments will be most welcome. 

 

Please note: I will be away on Monday with The Markets Now preparations and also on Tuesday for a minor corrective medical procedure. 



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

Commentary by David Fuller

American Strategic Decline Is a Myth Donald Trump Continues to Peddle

Contrary to widespread belief, the US is not facing economic and strategic decline in any foreseeable future.

It had already reclaimed its superpower lead before Donald Trump swept into office vowing to make America great again. With hindsight we can see ever more clearly that the Lehman crisis was a false alarm.

Loss of dominance has long been a staple of US discourse. John Kennedy decried the ballistic "missile gap" with the Soviet Union before the 1960 election, when Russia had just four missiles and the US had thousands with explosive power equal to 1.3 million Hiroshima-sized bombs.

Ever since I began covering the US as a journalist in the early Reagan years, there have been bouts of soul-searching.  Paul Kennedy's theory of imperial over-stretch in Rise and Fall of the Great Powers was all the rage in the late 1980s, when the Washington clerisy thought Japan destined for economic leadership.

Edward Luttwack upped the ante in 1994 with Endangered American Dream, warning that the US was turning into a third world nation. This was just as the US was about establish its undisputed hegemony over the digital age.

US decline was a myth then, and remains a myth today. Putative rivals have all run into trouble or face structural limits that will be obvious within a decade. India's time has not yet come.

And:

A decade ago the US was preparing to import liquefied natural gas (LNG) on a large scale. The terminals have since switched into export hubs. American shale gas is being shipped to Europe.

The effect is to force down the market price of gas in EU, depriving Russia's Gazprom of its lockhold on prices. Lithuania's "Independence" terminal can now import LNG, eliminating dependence on the Kremlin. Poland is following suit. That strategic implications are profound.

As Goldman Sachs said this week, US shale oil can go from zero to peak output within six to nine months. It can do so on a big enough scale to hold down global crude prices, and for long enough to bleed OPEC and the Kremlin almost white.

The Permian Basin in West Texas alone could match Saudi Arabia's Ghawar field within five years, topping 5m barrels a day. Fracking Technology has cut break-even costs so fast that old "super-basins" are poised for stunning revivals. It is no longer a question of whether the US will become a net oil exporter, but how soon.

While the US "manufacturing renaissance" has been patchy, cheap gas has restored the fortunes of the plastics, chemical, and glass industries. The American Chemistry Council is tracking $130bn of new investment along the Gulf Coast, expected to create 460,000 jobs by 2022. The US unemployment rate is 4.7pc, near a  half-century low

This is the recovery that Donald Trump managed to turn into a landscape of “rusted-out factories scattered like tombstones” in his dystopian inaugural address.

It is of course standard fare for opposition candidates to decry the decline of America during campaigns. What is different about President Trump is that he continues to push this line after taking office, presumably because he believes his own wild claims.

We all have to reach our own conclusions about Donald Trump. My view is that he matters less than we now think. His presidency may prove no more than a four-year embarrassment, leaving few traces.

His plans to slash science and Technology funding by 20pc would indeed risk the sort of decline he rails against. But his budget is dead on arrival in Congress.

His contempt for allies and the multilateral bodies that vastly lever America's strategic power is folly but the US Senate is likely to take charge and run foreign policy on traditional lines. Grown-ups at the helm of the State, Defence, and Treasury departments will navigate the reefs. America's institutions and courts will contain Mr Trump.

David Fuller's view -

Donald Trump won the US Presidential election for two very different reasons.

1) He recognised that vast stretches of America between the East and West Coasts contained plenty of angry voters, who Hillary Clinton once described unwisely as “the deplorables”. Job losses due to accelerating technological innovation were a big problem, especially for less skilled workers.  For instance, people were working at Walmart for $9 an hour, while a little over a generation earlier their ancestors earned $30 an hour in steel mills.  That was before globalisation and competition from developing Asian economies led to many of the US’s rust belts.   

2) Most of the financial community and a considerable number of Republican business people were fed up with onerous financial regulations, high taxation and limited economic growth. The Lehman crisis was no “false alarm”, as stated above, because it could have triggered a depression without a massive monetary stimulus from the Federal Reserve and also central banks in other countries.  Unfortunately, Barack Obama was far more interested in regulation than economic stimulus.

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



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

Commentary by David Fuller

The Markets Now

This seminar on Monday 27th March in The Caledonian Club’s excellent Morrison Room on the ground floor is now fully booked.

David Fuller's view -

We have another interesting list of experienced delegates and certainly not just from London. In fact, they are attending from far and wide. 

I am looking forward to another lively and enjoyable evening, which will now include a short presentation from a fourth speaker well known to Iain Little.

Among markets, Technology has never been more interesting in our lifetime so Charles Elliott’s latest comments will be most welcome. 



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

Commentary by Eoin Treacy

Energy Stat: Are Electric and Autonomous Vehicles Heading Down the Road to Peak Oil Demand?

Thanks to a subscriber for this fascinating report by Pavel Mulchanov for Raymond James which may be of interest. Here is a section:

There is no law of nature that dictates that global oil demand must eventually reach a peak and then begin an irreversible decline. The well-known “law” of Hubbert’s Peak applies to supply, not demand, and the advent of modern Technology (fracking, horizontal drilling, enhanced recovery, etc.) has led to a fundamental rethink of whether oil supply will peak after all. In this context, we see comments such as the one from Shell, suggesting that peak demand will come first, rendering peak supply a moot point.

There is no direct historical precedent for worldwide demand for a major energy commodity to peak on a sustained basis. (Sorry, whale oil doesn’t count.) Despite all of the regulatory and other headwinds, for example, global consumption of coal is still growing. But it is true that there is precedent for national and even regional demand to peak. Coal demand in Europe peaked in the 1960s, and has since fallen to substantially lower levels. Oil demand in Japan peaked in the 1990s. Oil demand in Europe peaked more recently, in 2006, one year after the U.S. By definition, a peak is something that can only be known in retrospect, but with a decade having passed, it seems abundantly clear that European oil demand will never get back to its pre-2006 levels. With regard to the U.S., the situation is less clear-cut because of the demand recovery in recent years, but 2005 may well be the all-time peak. The theory of peak global oil demand holds that when enough parts of the world reach a peak, a global peak will result, because the few places still growing will not be enough to offset the decliners. In this sense, the theory is conceptually valid. Thus, we would not argue with the notion that peak oil demand is a matter of time. The real question is: how much time?

 

Eoin Treacy's view -

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

I had not previously seen the statistics about peak demand for Europe and Japan so I found this report enlightening and commend it to subscribers. Peak demand is an important theme and explains why Saudi Arabia guards its Asian markets so jealously; offering discounts again as recently as two weeks ago. Asia and Africa represent the two big growth markets for international oil products just as they represent the major growth areas for coal consumption. 



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

Commentary by Eoin Treacy

Dow's Merck Swipes Immuno-Oncology Share From Heavyweight Rivals

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

Four immuno-oncology drugs from Merck, Bristol-Myers and Roche brought in $464 million in February, declining 4% from $483 million in January, Leerink analyst Seamus Fernandez said, citing data from tracker Symphony Health.

But February was a shorter month, which could be partly responsible for the decrease, Fernandez said in a research report. Despite the slowdown, Merck's Keytruda sales grew 2% in February vs. the prior month.

Meanwhile, Bristol-Myers' drugs Opdivo and Yervoy held on to a collective 69% market share, falling 1% vs. January. Merck's Keytruda now has 24% of the market, up from 23% the prior month. Roche's Tecentriq was flat at 7% share.

Immuno-oncology drugs fight cancer by teaching the body's immune system to identify cancer cells hiding behind specific proteins. Those proteins are called checkpoints.

 

Eoin Treacy's view -

CRISPR-Cas9 gene editing is quickly revolutionising the genetics sector by reducing the cost and increasing the speed of innovation. That is particularly good news for cancer treatments because there are so many different mutations and each needs a tailored approach. In fact the end point of research and another area receiving a great deal of interest is the synthetic biology sector where custom viruses can be written to attack a patient’s personal cancer. 



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

Commentary by David Fuller

Big Oil Plan to Buy Into the Shale Boom

American shale with gusto, planning to spend a combined $10 billion this year, up from next to nothing only a few years ago.

The giants are gaining a foothold in West Texas with such projects as Bongo 76-43, a well which is being drilled 10,000 feet beneath the table-flat, sage-scented desert, and which then extends horizontally for a mile, blasting through rock to capture light crude from the sprawling Permian Basin.

While the first chapter of the U.S. shale revolution belonged to wildcatters such as Harold Hamm and the late Aubrey McClendon, who parlayed borrowed money into billions, Bongo 76-43 is financed by Shell.

If the big boys are successful, they’ll scramble the U.S. energy business, boost American oil production, keep prices low, and steal influence from big producers, such as Saudi Arabia. And even with their enviable balance sheets, the majors have been as relentless in transforming shale drilling into a more economical operation as the pioneering wildcatters before them.

“We’ve turned shale drilling from art into science,” Cindy Taff, Shell’s vice president of unconventional wells, said on a recent visit to Bongo 76-43, about 100 miles (160 kilometers) west of Midland, Texas, capital of the Permian.

Bongo 76-43, named after an African antelope, is an example of a leaner, faster industry nicknamed “Shale 2.0” after the 2014 oil-price crash. Traditionally, oil companies drilled one well per pad—the flat area they clear to put in the rig. At Bongo 76-43, Shell is drilling five wells in a single pad for the first time, each about 20 feet apart. That saves money otherwise spent moving rigs from site to site. Shell said it’s now able to drill 16 wells with a single rig every year, up from six in 2013.

With multiple wells on the same pad, a single fracking crew can work several weeks consecutively without having to travel from one pad to other. At Bongo 76-43, Shell is using three times more sand and fluids to break up the shale, a process called fracking, than it did four years ago. The company said it spends about $5.5 million per well today in the Permian, down nearly 60 percent from 2013.

“We’re literally down to measuring efficiency in minutes, rather than hours or days,” said Bryan Boyles, Bongo 76-43’s manager.

Exxon, Shell, and Chevron will be able to spend more than independents can for service contracts and prime drilling acreage. But if the majors pursue acquisition deals, as they’ve done before, the wildcatters stand to reap the benefits.

Exxon invested big in shale in 2010 when it bought XTO Energy Inc. in a deal valued at $41 billion. For years, however, the major companies spent little on shale, instead focusing on their traditional turf: multibillion-dollar engineering marvels in the middle of nowhere that took years to build. The wells that Big Oil drilled were mostly in deep water, where a single hole could cost $100 million, rather than shale wells that can be set up for as little as $5 million each.

And:

Chevron said it estimates its shale output will increase as much as 30 percent per year for the next decade, with production expanding to 500,000 barrels a day by 2020, from about 100,000 now. “We can see production above 700,000 barrels a day within a decade,” Chevron Chief Executive Officer John Watson told investors this month.

Exxon said it plans to spend one-third of its drilling budget this year on shale, with a goal to lift output to nearly 800,000 barrels a day by 2025, up from less than 200,000 barrels now. The company doubled its Permian footprint with a $6.6 billion acquisition of properties from the billionaire Bass family. Darren Woods, Exxon’s new CEO, said shale isn’t “on a discovery mode, it’s in an extraction mode.”

David Fuller's view -

The US is now the swing producer of crude oil, increasing output in the Permian Basin and other sites when prices are attractive relative to production costs, while cutting back domestic supplies and buying in oil when they are much lower. 

Prices of WTI Crude oil have fallen back from $55 this month, mainly because US production has increased sharply and some OPEC producers are quietly abandoning their previously announced ‘cutbacks’.  Russia promised OPEC that it would lower production but that was mainly due to the freezing weather in Siberia during January and February, and they have been increasing production subsequently. 

This item continues in the Subscriber’s Area.

This item continues in the Subscriber’s Area.



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

Commentary by David Fuller

The Markets Now

Here is the current brochure.  I am pleased to say that as in January, we will once again be in the excellent Morrison Room, which is spacious and conveniently on the ground floor.

David Fuller's view -

We have another interesting list of experienced delegates, currently up to 25 and certainly not just from London. In fact, they are attending from far and wide. 

I am looking forward to another lively and enjoyable evening, which will now include a short presentation from a fourth speaker well known to Iain Little.

Among markets, Technology has never been more interesting in our lifetime so Charles Elliott’s latest comments will be most welcome. 

Whatever your investments, we will need to keep an eye on these two charts as the year progresses – Dollar Index and US 10-Yr T-Bond Yields.



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

Commentary by David Fuller

The Markets Now

Here is the current brochure.  I am pleased to say that as in January, we will once again be in the excellent Morrison Room, which is spacious and conveniently on the ground floor.

David Fuller's view -

We have another interesting list of experienced delegates, currently up to 25 and certainly not just from London. In fact, they are attending from far and wide. 

I am looking forward to another lively and enjoyable evening, which will now include a short presentation from a fourth speaker well known to Iain Little.

Among markets, Technology has never been more interesting in our lifetime so Charles Elliott’s latest comments will be most welcome. 

Whatever your investments, we will need to keep an eye on these two charts as the year progresses – Dollar Index and US 10-Yr T-Bond Yields.



This section continues in the Subscriber's Area. Back to top
March 17 2017

Commentary by David Fuller

The Markets Now

Here is the current brochure.  I am pleased to say that as in January, we will once again be in the excellent Morrison Room, which is spacious and conveniently on the ground floor.

David Fuller's view -

We have another interesting list of experienced delegates and certainly not just from London. In fact, they are attending from far and wide. 

There are a few seats left, so come along and join us if you can, for another very lively and enjoyable evening, which will now include an introduction from a fourth speaker well known to Iain Little.

Meanwhile, Trump has generated plenty of political and economic controversy. Among markets, Technology has never been more interesting in our lifetime so Charles Elliott’s latest comments will be most welcome. 

Whatever your investments, we will need to keep an eye on these two charts as the year progresses – Dollar Index and US 10-Yr T-Bond Yields.



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

Commentary by David Fuller

The Real Problem Is We Are All Over-Taxed

Here is the latter part of an excellent, common sense column by Allister Heath for The Telegraph.

The great economist Ronald Coase taught us that corporations are only the best vehicle for economic activity when the transaction costs of working in a hierarchical, closely managed organisation is lower than the costs involved in getting freelancers or independent agents to cooperate. But tech means that the economics have tilted at least a little away from the corporation, and more towards smaller firms, contractors and freelancers advertising their wares via platforms, and this is panicking our social-democratic establishment, who fear losing the last levers they still retain over our society and economy.

So they have enrolled the Government – including Philip Hammond, the Chancellor – in their quest to slow down change. Their strategy has been to point out the inconsistencies in current rules. Take the jobs market: some people are obviously employees, and others are pure self-employed freelancers.

But what of workers who rely primarily for their income on a platform like Uber? The drivers own their own cars, pay for their own operating expenses and choose their own hours; almost all of them are happy. But are they really, fully self-employed, or are they part of some third way which isn’t (yet) recognised in law and in the tax code?

It is obviously true that the present classification makes little sense. But sometimes it’s best not to change a broken system, for fear of making it even worse, and that is exactly what Hammond should have realised before he decided to raid the self-employed. The problem isn’t that the self-employed are “under-taxed” to the tune of £5.1bn a year, as many establishment economists have been saying. The problem is that employees are over-taxed to the tune of many more billions – overtaxed in the sense that a much lower overall tax rate, accompanied by a much smaller state, is, in my view, the only way Britain will prosper and thrive as an independent, free trading economy in the 21st century.

But until the day that the Government can drastically slash taxes at the same time as it radically simplifies the system – the model recommended by the 2020 Tax Commission, which I chaired – it would be better for it to do nothing. It should certainly not seek to undermine or campaign against self-employment, on the spurious grounds that it’s an “inferior” form of employment.

It should not seek to extend the welfare state’s net ever wider, showering the self-employed with more benefits. And the last thing it should do is plot to whack the likes of Uber with a 13.8pc payroll tax, which would be the logical (but job destroying and price raising) outcome of any system that sought to tax “platform workers” like the employed. This is a Tory government, and it is high time it began behaving like one.

David Fuller's view -

This is one of the most sensible comments on our fast moving, Technology driven economies (not just the UK) that I have seen.

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



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

Commentary by David Fuller

The Markets Now

Here is the current brochure.  I am pleased to say that as in January, we will once again be in the excellent Morrison Room, which is spacious and conveniently on the ground floor.

David Fuller's view -

We have another interesting list of experienced delegates and certainly not just from London. In fact, they are attending from far and wide. 

There are a few seats left, so come along and join us if you can, for another very lively and enjoyable evening, which will now include an introduction from a fourth speaker well known to Iain Little.

Meanwhile, Trump has generated plenty of political and economic controversy. Among markets, Technology has never been more interesting in our lifetime so Charles Elliott’s latest comments will be most welcome. 

Whatever your investments, we will need to keep an eye on these two charts as the year progresses – Dollar Index and US 10-Yr T-Bond Yields.



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

Commentary by David Fuller

The Markets Now

Here is the current brochure.  I am pleased to say that as in January, we will once again be in the excellent Morrison Room, which is spacious and conveniently on the ground floor.

David Fuller's view -

We have another interesting list of experienced delegates and certainly not just from London. In fact, they are attending from far and wide. 

There are a few seats left, so come along and join us if you can, for another very lively and enjoyable evening, which will now include an introduction from a fourth speaker well known to Iain Little.

Meanwhile, Trump has generated plenty of political and economic controversy. Among markets, Technology has never been more interesting in our lifetime so Charles Elliott’s latest comments will be most welcome. 

Whatever your investments, we will need to keep an eye on these two charts as the year progresses – Dollar Index and US 10-Yr T-Bond Yields.



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

Commentary by David Fuller

The Markets Now

Here is the current brochure.  I am pleased to say that as in January, we will once again be in the excellent Morrison Room, which is spacious and conveniently on the ground floor.

David Fuller's view -

We have another interesting list of experienced delegates and certainly not just from London. In fact, they are attending from far and wide. 

There are a few seats left, so come along and join us if you can, for another very lively and enjoyable evening, which will now include an introduction from a fourth speaker well known to Iain Little.

Meanwhile, Trump has generated plenty of political and economic controversy. Among markets, Technology has never been more interesting in our lifetime so Charles Elliott’s latest comments will be most welcome. 

Whatever your investments, we will need to keep an eye on these two charts as the year progresses – Dollar Index and US 10-Yr T-Bond Yields.



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

Commentary by Eoin Treacy

Intel to Acquire Mobileye

This press release may be of interest to subscribers. Here is a section:

“As cars progress from assisted driving to fully autonomous, they are increasingly becoming data centers on wheels. Intel expects that by 2020, autonomous vehicles will generate 4,000 GB of data per day, which plays to Intel’s strengths in high-performance computing and network connectivity. The complexity and computing power of highly and fully autonomous cars creates large-scale opportunities for high-end Intel® Xeon® processors and high-performance EyeQ®4 and EyeQ®5 SoCs, high-performance FPGAs, memory, high-bandwidth connectivity, and computer vision Technology.

Eoin Treacy's view -

Intel missed a trick when mobile phones took off. It had simply ignored the market for years, preferring instead to concentrate on desktops where it has a strong lead in what is a declining market. When mobile phone demand exploded in popularity companies like ARM Holdings and Qualcomm took the initiative and the bulk of the profits. Since the market for desktop computers is shrinking Intel can’t afford to miss out on the evolution of autonomous vehicles since it is likely to become a major destination for both chips and sensors over the next decades. 



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

Commentary by David Fuller

Race to Bottom on Costs May Cause Oil to Choke on Supplies

Here is the opening of this topical article by Bloomberg:

Houston hosted two events this week: the nation’s largest energy conference and the town’s famous rodeo. They have more in common than you’d think.

In both cases, the key for top performers is how efficiently they perform. For cowboys, it means tightly controlling every muscle to stick on a bucking bronco. For energy executives, it means controlling every cost to lower the break-even price and survive what’s been a wild ride on the oil market.

When companies can lower the price at which they break-even, it means they can approve more projects and produce more oil, keeping dividends safe and investors happy. The risk: By drilling up their share price, they can also end up drilling down the price of oil. Welcome to 2017, the year after a two-year market rout made companies more efficient. At the CERAWeek by IHS Markit conference this week, fears of too much supply were palpable.

"Everyone is driving break-even prices down," Deborah Byers, head of U.S. oil and gas at consultants Ernst & Young LLP in Houston, said in an interview at the meeting, the largest annual gathering of industry executives in the world. "It isn’t just shale companies; it’s everyone, from deep-water to conventional."

As the conference was ongoing, those fears took physical form as West Texas Intermediate, the U.S. crude benchmark, plunged 9.1 percent this week, closing below the key $50-a-barrel level for the first time this year. It settled at $48.49 on Friday.

The slump came as Scott Sheffield, chairman of Pioneer Natural Resources Co., said prices could fall to $40 if OPEC doesn’t extend its existing agreement to cut production. Shale billionaire Harold Hamm, the CEO of Continental Resources Inc., warned undisciplined growth could "kill" the oil market.

The buzzword was efficiency. In panel discussions and keynote speeches, executive after executive tried to outdo rivals in announcing their low break-even prices. Eldar Saetre, head of the Norwegian oil giant Statoil ASA, told delegates that break even for his company’s next generation of projects had fallen from $70-plus to "well below" $30 a barrel.

David Fuller's view -

Analysis of the international oil market today is simple, albeit very different from what the industry has experienced in earlier decades.  Thanks to Technology, oil companies around the world can now produce more crude at $50 a barrel than the global economy can consume.  Furthermore, the average cost of production is still declining and is likely to be considerably lower ten to twenty years from now. 

The world will never run out of oil, even when the global economy is booming with the help of cheaper energy prices.  This is not because the supply of oil in the ground is infinite, which it is not.  Instead, the world is approaching peak oil demand within the next decade, because other forms of energy continue to become more competitive, thanks to Technology, and they cause less pollution.

The only way oil prices can move considerably higher than today’s levels for both Brent and WTI crude, is if production is sharply curtailed, for one reason or another.  While theoretically possible, this is unlikely beyond the short term, if at all.  

(See also this week's earlier comments.)



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

Commentary by David Fuller

The Markets Now

Here is the current brochure.  I am pleased to say that as in January, we will once again be in the excellent Morrison Room, which is spacious and conveniently on the ground floor.

David Fuller's view -

We already have another interesting list of experienced delegates and certainly not just from London. In fact, they are attending from far and wide. 

There are a few seats left, so come along and join us if you can, for another very lively and enjoyable evening, which will now include an introduction from a fourth speaker well known to Iain Little.

Meanwhile, Trump has generated plenty of political and economic controversy.  Among markets, Technology has never been more interesting in our lifetime so Charles Elliott’s latest comments will be most welcome. 

Whatever your investments, we will need to keep an eye on these two charts as the year progresses – Dollar Index and US 10-Yr T-Bond Yields.



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

Commentary by Eoin Treacy

New Infrastructure Themes and Top Ideas

Thanks to a subscriber for this report from Deutsche Bank highlighting the growth potential in new Technology infrastructure. Here is a section:

A core insight in our theme report is the meaningful shift in spending priorities that our primary research notes at Hyperscale Clouds, Enterprises, and Service Providers. In particular, we highlight +50% Y/Y capex intensity at major Clouds for Terabit Scale Optical Interconnects; required for running Web Scale Applications such as Google Maps, Azure Cloud, AWS, GCP, etc.

A corollary insight is the accelerating IT demand for Software and SaaS based tools for Network and Application Analytics, AI and Machine Learning, and Automation tools – for “structurally lowering” the costs of running complex IT infrastructures at Hyperscale Clouds, Large Enterprises, and Carriers.

A case in point is CSCO “doubling down” on Security, Analytics, AI/ML, and Automation Software capabilities (Meraki, AppDynamics, Jasper, Tetration, etc) to drive incremental Top Line and EPS growth through a “recurring revenue” model – laddering upon CSCO’s +250B networking installed base.

 

Eoin Treacy's view -

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

There is a lot of tech-speak in this report but the three main themes it is promulgating are the growth and increasing sophistication of cloud computing, the growth of fibre optics where Terabit speeds are potentially possible and the rollout of 5G mobile networks. 

Most of what has made headlines in the Technology sector over the last decade has been software related. In fact the pinnacle of this reliance on other company’s infrastructure might be Snap’s IPO. The company runs none of its own infrastructure, at least so far, and has instead chosen to outsource everything from managing the backend to client acquisition to third parties like Google and Amazon. However software relies on hardware and infrastructure to grow and if the aspirations of companies that depend on it like Netflix and Facebook are going to be realised then major connectivity investment needs to take place. 

 



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

Commentary by Eoin Treacy

Park's Ouster Raises Prospect of Reset With China, Kim Jong Un

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

The impeachment of Park Geun-hye opens the door for a reset in ties with North Korea and China.

The leading candidates to replace Park, who was ousted as president by South Korea’s constitutional court on Friday, favor a softer touch with North Korean dictator Kim Jong Un. They’re also open to rethinking the deployment of the Thaad missile shield, which has spurred Chinese retaliation against South Korean companies.

“The liberals believe that if you engage with North Korea, then they could get some kind of missile-test moratorium,” said John Delury, an associate professor of Chinese studies at Yonsei University in Seoul. “The Chinese strategy will be to push just hard enough so the South Korean public sees the cost of having Thaad, but not too hard that you unleash outrage.”

The election campaign -- a vote must be held within 60 days -- will spur fresh debate on how to stop Kim from acquiring more powerful nuclear weapons and missiles. Secretary of State Rex Tillerson plans to seek a new approach to dealing with North Korea in a trip to the region next week, though China’s calls for talks have been rebuffed by the U.S., Japan and South Korea.

Earlier this week, the U.S. military unloaded two mobile missile launchers in South Korea to start deployment of Thaad. It came as North Korea launched four ballistic missiles that landed in waters near Japan.    

 

Eoin Treacy's view -

The potential for a reset with North Korea is a double-edged sword. After all this is a regime whose main export has been nuclear Technology to any country willing to pay for it, but most particularly those which are at odds with Western interests. In that regard it is reasonable to conclude North Korea’s actions are those of a Chinese puppet state. Too often the liberal attitude to negotiations has been to give the recalcitrant threatening aggressor whatever they want just to make them go away. Unfortunately, that only emboldens them to ask make even more ambitious demands. 



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

Commentary by David Fuller

The Markets Now

Here is the current brochure.  I am pleased to say that as in January, we will once again be in the excellent Morrison Room, which is spacious and conveniently on the ground floor.

March 08 2017

Commentary by David Fuller

The Markets Now

Here is the new brochure.  I am pleased to say that as in January, we will once again be in the excellent Morrison Room, which is spacious and conveniently on the ground floor.

March 06 2017

Commentary by David Fuller

Permain Shale Boom in Texas Is Devastating for OPEC

The Opec oil cartel is waking up to an unpleasant surprise. Shale output from the Permian Basin in Texas is expanding faster than the world thought humanly possible.

The scale threatens to neutralise output cuts agreed by Saudi Arabia and a Russian-led bloc last November, and ultimately threatens to break their strategic lockhold on the global crude market for a generation.

"People just don't seem to realise how big the Permian is. It will eventually pass the Ghawar field in Saudi Arabia, and that is the biggest in the world," said Scott Sheffield, founder of Pioneer Natural Resources and acclaimed 'King of the Permian'.

"We think it could produce 8-10m barrels a day (b/d) within ten years. We're telling our investors that Pioneer could reach one million," he said. Roughly 70pc of this would be crude oil, and the rest in gas and liquids.

And:

The beauty of the Permian rock is that it has up to twelve layers "stacked" on top of each other down to a depth of 12,000 ft, offering multiple seams and perfectly suited to horizontal drilling.

The reservoirs are not cursed by saltwater zones. They hold 75pc oil, compared to 40-50pc in other fracking regions. A nexus of pipelines is already in place. Pioneer can send crude to the Gulf coast for $2.50 a barrel in transport costs.

And:

There is no longer any question that US shale has profoundly disrupted the global oil markets. Saudi Arabia's campaign to break the fracking industry has been a costly war of attrition, depleting a quarter trillion dollars of the Kingdom's foreign exchange reserves without halting the juggernaut.

OPEC members face a Permian headwind that may cap crude prices far below levels needed to balance their budgets. In the end, the 40pc collapse in worldwide oil and gas investment over the last two years will lead to a supply crunch. But oil bulls betting on a return to $80 may have to be patient.

Mr Sheffield said the strategic blunder made by the Saudis was to let prices rise so high for so long in the great China boom. It gave US shale the window to reach critical mass and critical Technology.

 "It was the $100 oil environment for four years that allowed us to do what we did. It they had kept oil down at $70 to $75, it would have been a helluva a lot slower," he said.

David Fuller's view -

The concluding sentence above is another example of the commodity adage: The cure for high prices is high prices.  They lead to a decline in consumption, substitution, and increased production.  Conversely: The cure for low prices is low prices.  They eventually lead to a decline in production, stockpiling, and increased consumption. 

I actually think AE-P is too optimistic in his excellent column above.  When he says that Permian Basin output “ultimately threatens to break their [OPEC’s] strategic lockhold on the global crude market for a generation”, that already happened in the second half of 2014. 

Almost a decade from now, output from Permian Basin and other leading shale fields is likely to be higher, provided oil prices have not fallen sharply from current levels.  Moreover, any developed country which wants to produce its own shale oil will be doing so if it has been able to overcome political objections.  The production of solar power will have increased enormously.  Electric vehicles will have made huge inroads into the market for petrol driven cars and trucks. 

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



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

Commentary by David Fuller

The Markets Now

Here is the new brochure.  I am pleased to say that as in January, we will once again be in the excellent Morrison Room, which is spacious and conveniently on the ground floor.

March 06 2017

Commentary by Eoin Treacy

Hammond to Offer $674 Million to Boost Innovation in Budget

This article by Svenja O'Donnell for Bloomberg may be of interest to subscribers. Here is a section:

U.K. Chancellor of the Exchequer Philip Hammond will use Wednesday’s budget to allocate more than 550 million pounds ($674 million) to boost innovation and Technology, as he focuses on targeted measures while keeping back the Treasury’s firepower to offset any turbulence from Brexit. 

The money, from the National Productivity Fund, will support work in areas including electric vehicles, robotics and artificial intelligence, the Treasury said in a briefing note. Hammond will also set out details on work to boost 5G mobile phone coverage in Britain.

The plan comes as Hammond pledged on Sunday to set aside money to cushion the economy as Britain prepares to start negotiations to exit the European Union. He warned the budget would not include any spending commitments funded by borrowing as he seeks to balance the books in the next parliamentary term.

 

Eoin Treacy's view -

The UK needs a competitive advantage in how it navigates its post Brexit reality. The City, defence and the domestic oil business have all played a role in sustaining the UK’s independence in the past but some of the biggest questions posed by Brexit are whether these will be enough to sustain the economy in future. Streamlined common sense regulation and attractive tax policies are going to have to form part of the solution in order to delineate the UK from its neighbours. However intellectual property and the ability to leverage technological knowhow on a global scale are the hallmarks of successful enterprises and countries and will also be essential to plotting a success independent strategy of the UK. 



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

Commentary by Eoin Treacy

IBM thinks it's ready to turn quantum computing into an actual business

This article by Mike Murphy for Quartz may be of interest to subscribers. Here is a section: 

As it stands, IBM’s largest quantum computer has five qubits. By contrast the average laptop has hundreds of millions of bits in its processors, although the two types of computers are not directly comparable. IBM hopes, however, to continue its research with the aim of building quantum computers with roughly 50 qubits. For comparison, an IBM spokesperson told Quartz, you can simulate the computational power of a 25-qubit quantum computer on a regular laptop. At about 45 qubits, you’d need the world’s fastest supercomputers, and above 50, “you couldn’t build large enough classical computing systems to simulate that size of a quantum system.”

In IBM’s vision of the future, quantum computers could be used for discovering new drugs, securing the internet, modeling the economy, or potentially even building far more powerful artificial intelligence systems—all sorts of exceedingly complicated tasks. One area the company is looking at right now is in chemistry, attempting to simulate what’s going on in a molecule. “Even for simple molecules like caffeine, the number of quantum states in the molecule can be astoundingly large,” the spokesperson said, “so large that all the conventional computing memory and processing power scientists could ever build could not handle the problem.”

When Quartz visited IBM’s quantum computing lab in Yorktown Heights in 2015, the work being done was viewed as fundamental—research for the sake of research—rather than anything tied to specific business goals. But then again, so was the research that has since led to the creation of Watson. Originally conceived of to take on the question-as-answers gameshow of Jeopardy!, which researchers saw as a “unique and compelling AI question,” Watson has become a set of machine-learning and AI services that IBM sells, and intends to invest $1 billion into.

 

Eoin Treacy's view -

IBM is still in the throes of a major transition from physical hardware manufacturing to an almost total focus on knowledge based services. Artificial intelligence (Watson), and the tools to leverage that Technology (massive & fast processing power) represent the key areas of focus in what is a new era for the company. 



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

Commentary by David Fuller

The Markets Now

Here is the new brochure.  I am pleased to say that as in January, we will once again be in the excellent Morrison Room, which is spacious and conveniently on the ground floor.

March 02 2017

Commentary by David Fuller

Dyson Expands in U.K. With New Technology Campus

Here is the opening of this informative article from Bloomberg:

Dyson Ltd., the U.K. maker of high-end vacuum cleaners and hand dryers, said it's creating a new 517-acre campus in the English countryside to expand its research and development of robotics, batteries, vision systems and artificial intelligence.  

James Dyson, the company's founder, announced the expansion today at the new site in the Cotswolds, about 100 miles west of London on a former military barracks and flying school. Work will start with the restoration of a former World War II airplane hangar in May with the goal of it opening by the end of the year.  

U.K. Prime Minister Theresa May said in a statement that the company's expansion is a vote of confidence for the British economy following the country's decision to leave the European Union. "Dyson’s exporting strength and commitment to creating jobs in Britain is a real success story that demonstrates the opportunity that our plan to create a truly global Britain can present," May said. 

Still, Dyson said the U.K. lacks enough skilled workers. An additional 640,000 engineers are needed in the U.K. by 2020, according to the company. To fill the gap, the firm pledged 15 million pounds ($18.6 million) over the next five years to create an alternative to going to university. Talented engineers will be able to work and study at the company for four years to gain hands-on experience.

“The U.K.’s skills shortage is holding Dyson back as we look to increase the amount of Technology we develop and export from the U.K.," Dyson said in a statement. "We are taking matters into our own hands." 

Dyson employs 3,500 people in the U.K. Its global headquarters is in nearby Malmesbury, a campus that in addition to research and engineering labs has a helicopter in the parking lot and a jet plane hanging from the cafeteria ceiling. The company also recently opened a Technology center in Singapore where it employs 1,100 people. 

While best known for its vacuum cleaners, Dyson is expanding into new areas. A $400 hair dryer introduced in 2016 took four years and $70 million to develop. The company said it has committed 2.5 billion pounds to future technologies. In 2015, the company bought the battery startup Sakti3 for $90 million, and has pledged to spend 1 billion pounds on battery development. The work has contributed to speculation the company is working on an electric car.  

David Fuller's view -

James Dyson is a tireless genius who continues to expand his product range.  The Fuller household has numerous Dyson products which have the quality achieved by a true perfectionist. 

Dyson voted for Brexit because he was tired of Brussels’ red tape and the EU was a shrinking market. 



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

Commentary by David Fuller

The Markets Now

Here is the new brochure.  I am pleased to say that as in January, we will once again be in the excellent Morrison Room, which is spacious and conveniently on the ground floor.

March 01 2017

Commentary by David Fuller

Economists May Be Underestimating How Fast the Robots Are Coming

Here is the opening of this informative article from Bloomberg:

Economists may be underestimating the impact on labor markets of increasing automation and the rise of artificial intelligence, according to a post published on the Bank of England’s staff blog on Wednesday.

“The potential for simultaneous and rapid disruption, coupled with the breadth of human functions that AI might replicate, may have profound implications for labor markets,” BOE regional agents Mauricio Armellini and Tim Pike wrote in the Bank Underground post. “Economists should seriously consider the possibility that millions of people may be at risk of unemployment, should these technologies be widely adopted.”

Robots and intelligent machines threaten to replace workers in industries from finance to retail to haulage, with BOE Chief Economist Andrew Haldane estimating in 2015 that 15 million British jobs and 80 million in the U.S. could be lost to automation. Past periods of technological upheaval, such as the industrial revolution, may not be a useful guide as the pace of change was slower, giving society longer to mitigate the potential consequences of increasing job displacement and inequality, according to Armellini and Pike.

“Economists looking at previous industrial revolutions observe that none of these risks have transpired,” they wrote. “However, this possibly underestimates the very different nature of the technological advances currently in progress, in terms of their much broader industrial and occupational applications and their speed of diffusion.”

“It would be a mistake, therefore, to dismiss the risks associated with these new technologies too lightly,” they said.

David Fuller's view -

It is easy to overlook the speed of technological innovation which is occurring.  After all, we have not experienced it previously and we have also lived through eight difficult years of slow GDP growth due to the severe credit crisis recession commencing in 2008.

Nevertheless, just consider for a moment the dramatic technological changes that you have witnessed and often benefited from over the last decade.  Consider just three of many examples which may be personal to you: 1) changes in your mobile phone over the last decade; 2) improvements in your computer software; 3) the advanced Technology in your car if you purchased a new one in the last year or two.

Think how few of the technologies which you take for granted today were not available only twenty years ago.  Ten years from now the changes will be even more dramatic because we are living in an era of accelerating technological innovation, which will not end because we run out of new ideas. 

Yes, it will include many more robots.  However, very few of them will have visually human characteristics.  The big robots will be ever smarter industrial machines.  Many others will be miniature and all but invisible.  Most of these will be in the form of smart, fast chips or processors in computers and also larger machines.  There is no limit to their usefulness.  



This section continues in the Subscriber's Area. Back to top
March 01 2017

Commentary by David Fuller

February 28 2017

Commentary by David Fuller

February 27 2017

Commentary by David Fuller

February 27 2017

Commentary by Eoin Treacy

Wal-Mart launches new front in U.S. price war, targets Aldi in grocery aisle

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

The big box retailer also held meetings last week in Bentonville, Arkansas with food and consumer products vendors, including Procter & Gamble (PG.N), Unilever PLC (ULVR.L), Conagra Brands Inc (CAG.N), and demanded they reduce the cost they charge the retailer by 15 percent, sources said.

Wal-Mart also said it expects suppliers to help the company beat rivals on head-to-head pricing 80 percent of the time, these vendor sources said. The wide-ranging meeting with suppliers - where Wal-Mart discussed other topics - was also attended by Johnson & Johnson (JNJ.N) and Kraft Heinz Co (KHC.O), among others, sources told Reuters. The consumer goods companies did not respond to Reuters requests seeking comment.

These Wal-Mart moves signal a new front in the price war for U.S. shoppers, as the pioneer of everyday low pricing seeks to regain its competitive pricing advantage in traditional retailing.
For more than a year, Wal-Mart said it is investing in price while not sharing specifics. When asked by Reuters about the test and demands on grocery suppliers, Wal-Mart spokesman Lorenzo Lopez said the company is "not in a position to share our strategy for competitive reasons."

Germany-based discount grocer Aldi is one of the relatively new rivals quickly gaining market share in the hotly competitive grocery sector, which already boasts Kroger, Albertsons Cos Inc and Publix Super Markets as stiff competitors on price. A second Germany-based discount grocer, Lidl, is planning to enter the U.S. market this year, and together the German discounters pose a serious threat to Wal-Mart's U.S. grocery business.

 

Eoin Treacy's view -

Wal-Mart is investing heavily to take on Amazon in the online arena but faces attacks on its home turf of low cost retailing from interlopers like Aldi and Lidl which it has little choice but to outbid for custom. With progressively more competition in the consumer sector major producers of packaged goods are likely to come under increasing pressure to trim margins. That suggests they will invest even more heavily in Technology and branding to protect their market shares. 



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

Commentary by Eoin Treacy

Super-smart robots will outnumber humans by FOUR BILLION within three decades, Softbank CEO says

This article appeared on the Daily Mail’s site today and may be of interest. Here is a section:

Mr Son said the growing number of microchip 'brain cells' opens up a huge opportunity for smart and connected objects.

'This is why I spent $32 billion (£26 billion) to acquire ARM,' Mr Son said, explaining his 30-year-vision of a world where the artificial computer brain will have 10,000 intelligence quotient (IQ) capabilities compared with 100 for the average human.

Jennifer Belissent, an analyst at Forrester Research who attended Son's keynote speech, said the numbers he mentioned were very dramatic.

'The greater connectivity and new artificial IQ capabilities offer so much potential. It sets the scene for a Marvel movie,' she said.
'Now, the key question is how to make that new Technology available to everyone.

'It's not the number of new devices that is relevant but what you make out of it in terms of analytical capabilities.

Eoin Treacy's view -

Connectivity remains a secular theme. 4G has just been rolled out in India, enabling the economy to jump several stages of web development and Verizon is now introducing 5G in the USA. As the speed with which we can access the internet increases the range of potential applications for web-enabled functions multiplies.  The Internet of Things is a logical iteration of that evolution and suggests the number of connected devices is only going to increase as the relative cost of connectivity trends lower. 



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

Commentary by David Fuller

It Is Time for Luddites to Relax: Robots Will Not Take Over the World

Ever since the Industrial Revolution, the great fear has always been that automation would create mass, permanent unemployment. The most famous early scare came shortly after James Hargreaves, a brilliant innovator, came up with a multi-spindle spinning frame in 1764. Hargreaves, one of an army of free-thinkers who drove an explosion in economic growth, was born near Blackburn, a cotton producing part of Lancashire.

The local textiles industry couldn’t cope with demand, and Hargreaves’ innovation allowed a massive increase in productivity. But our inventor kept his device secret, using it only for his own production. He was right to be prudent: after his output helped depress prices – and hence deliver consumers a windfall – angry textile workers eventually broke into his property and vandalised his machines, forcing him to flee to Nottingham.

But progress wasn’t to be stopped, and automation has gone hand in hand over the past 250 years with an explosive increase in wages and employment. The reason? Machines increase output per person, and thus the demand for labour and wages. New jobs are created to replace old jobs, and then as these are automated even newer jobs emerge to replace the next lot of losses, and so on, ad infinitum. The main problem is one of mismatching skills: the process of creative destruction requires capital and labour to adapt constantly.

Yet there are many today who doubt that this overwhelmingly benign process will continue, especially with the advent of artificial intelligence, robotics, self-driving cars, drones and a new generation of learning machines. They are convinced that this is a new phase, and that millions of middle class jobs are about to be wiped out, with nothing to replace them.

David Fuller's view -

Allister Heath is one of the brightest, most upbeat and creative journalists out there.  I always read his prolific columns and often publish them. 

So, do I agree with this column above?  I think he will be right for the next few years, and possibly a decade or so.  However, the accelerating rate of technological innovation which I have written about for a number of years is clearly evident if you think about the changes you have witnessed over the last ten or twenty years.  Moreover, we are only in the foothills of this acceleration which has no natural ending.  In other words, it could continue indefinitely.   

Once intelligent machines have the capacity to develop and reproduce themselves, they will evolve much more quickly than our organic human brains.  The best projections suggest this will occur before the end of this century.

Don’t take my word for it – see what Bill Gates, Stephen Hawking, Elon Musk and many others are saying.  Here is a sample from Tech World

A PDF of Allister Heath's article is posted in the Subscriber's Area.



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

Commentary by David Fuller

The Markets Now

Here is the new brochure.  I am pleased to say that as in January, we will once again be in the excellent Morrison Room, which is spacious and conveniently on the ground floor.

February 24 2017

Commentary by Eoin Treacy

British Airways Poised to Join Long-Haul Narrow-Body Craze

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

Walsh spoke a day after Norwegian Air presented details of flights from five locations in Britain and Ireland to three low- fee airfields in New York state, Rhode Island and Connecticut, to be served by Boeing Co.’s 737 Max 8 model from June with one- way fares starting at 69 pounds or 69 euros ($86/$73).

While the Boeing jets will be operating close to the limits of their range, Norwegian Air has also ordered 30 A321neoLRs with which it could connect dozens of smaller cities either side of the Atlantic in the medium term.

Aer Lingus already operates long-haul flights with a fleet of Boeing 757s, the only narrow-body model to see regular use on non-stop Europe-U.S. services, but which ceased production in 2004. The seven A321s on order will serve as replacements while also adding new routes. The Irish unit began serving Hartford from Dublin last year and IAG has said that several other smaller U.S. airports are keen to attract flights with competitive fees.

Walsh said on a conference call with analysts that the introductory fares offered this week by Norwegian Air aren’t sustainable. “Norwegian has a very small margin of profitability and the fares that they’ve launched are clearly just designed to get some headline media coverage,” he said.

 

Eoin Treacy's view -

Michael O’Leary at Ryanair has been talking about initiating Trans-Atlantic flights for years but to no avail so far. That is a testament to how difficult it is to achieve sustainable economics for what is a long flight for a narrow body aircraft. Nevertheless, Technology has improved, aircraft are more fuel efficient and Europe has a much lower fares than the USA which raises the prospect of disruption when it could well cost less to fly to the UK than Florida over the summer. 



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

Commentary by Eoin Treacy

The second stage of disruption

This article by Alex Pollak for Loftus Peak appeared in Australia’s Livewire letter and may be of interest to subscribers. Here is a section:

But it’s what inside that counts. Autos and components are a significant part of consumer discretionary, as are media, retail and staples including food. A major component of Industrials is transport – road, rail, marine, airline, construction material and heavy trucks.

Virtually all the automakers have electric and self-driving models in the works. But, as we have noted before, the more successful they are with these, the more the potential for write-offs in their internal combustion engine business – which is basically the whole business.

Banking disruption has started but hasn’t hit the mainstream – yet.

But fund managers typically invest looking to the existing make-up of the global economy, through the GIC’s sectors, which are composed of the companies in those industries. So the fund manager will have investment in oil, automakers, energy and transport, at time when those sectors are heading for massive disruption. In essence, the fund manager is investing by looking backwards!
This is a poor long-term strategy, and one which has already begun to cause drag in portfolios which are underweight ‘Technology’ shares (because they form a small part of the index, at the expense of sectors like basic materials and utilities, which are large now but are de-weighting as disruption takes hold.)

We are at a particular point in the economic history where disruptive companies are moving into industries which were previously considered inviolable, companies which couldn’t be damaged because demand for the underlying physical good was thought to stretch out to the horizon. In fact, the demand may still be there, but the way it is delivered, because of technological change, is affecting virtually all industries.

It's why we invest in disruption, and the reason our returns have been solid.

 

Eoin Treacy's view -

Technological innovation is accelerating at an exponential rate and it is having a transformative effect on just about everything. That is why we concentrate so heavily on the sector. Technology is deflationary in many respects but it is perhaps better to think about that influence in terms of lower costs contributing to better margins. That gives a clear advantage to the originators of disruptive Technology as well as early adopters. 



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

Commentary by David Fuller

The Markets Now

Here is the new brochure.  I am pleased to say that as in January, we will once again be in the excellent Morrison Room, which is spacious and conveniently on the ground floor.

February 22 2017

Commentary by David Fuller

Trump Eyes Easing Obama Rules for Sprawling Pipeline Network

Here is the opening of this article from Bloomberg:

The hints of a pipeline spill are subtle: the hiss of rushing fluid, a streak of rainbow sheen. Tucked far below ground, a ruptured line can escape notice for days or even weeks, especially in the backcountry, where inspectors rarely venture. 

Regulators in the waning hours of the Obama era wrote rules aimed at changing that, and the industry is looking forward to the new administration rolling them back. The Pipeline and Hazardous Materials Safety Administration “has gone overboard,” said Brigham McCown, a former head of the PHMSA who served on President Donald Trump’s infrastructure transition team. “They built a Cadillac instead of the Chevrolet that Congress told them to build.”

The oversight agency, an arm of the U.S. Department of Transportation, is just one of many where Barack Obama’s policies are in the Trump team’s sights. The battle lines are predictable, with companies on one side and safety and environmental activists on the other. What’s particularly worrying the latter is timing, because the rules could be upended as new shipping routes go into service across the country.

The president, a fan of fossil fuels, has revived two controversial pipelines, TransCanada Corp.’s Keystone XL and Energy Transfer Partners LP’s Dakota Access. They would add 2,300 miles (3,700 kilometers) to the U.S. network with room to transport 1.1 million barrels a day. As it is, there are more than 200,000 miles of pipe cutting across the country carrying crude, gasoline and other hazardous liquids -- about 18 billion barrels worth annually. Many other projects are on the map; in Houston alone, planned lines are expected to increase capacity by 550,000 barrels a day in the next few years.

“I’m terrified about what is going to happen under Trump,” said Jane Kleeb, president of the Bold Alliance, a coalition of groups opposing Keystone XL. “My worry is that they will just budget-starve PHMSA.”

Read More: Why Keystone counts

While Obama was president, the PHMSA budget grew by 61 percent. Then, seven days before Trump’s inauguration, the agency finalized a ruletoughening up inspection and repair demands, mandating, for example, that companies have leak-detection systems in populated areas and requiring they examine lines within 72 hours of flooding or another so-called extreme weather event. The American Petroleum Institute, the oil and gas industry’s main trade group, characterized it all as overreaching and unnecessary.

David Fuller's view -

The extraction of industrial resources from the earth has always been a messy business.  Pollution risks remain although they are declining in the 21st Century, thanks to Technology, regulation and more sensible management. 

Effective energy independence is a key aspect of the USA’s long-term GDP growth potential.  It means that the USA can produce more energy domestically when prices are higher, perhaps even selling some excess capacity, or increase imports of energy when they are lower.  An effective pipeline system is necessary for energy efficiency in a large country such as the USA.    



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

Commentary by Eoin Treacy

The Mark Zuckerberg Manifesto Is a Blueprint for Destroying Journalism

This article by Adrienne Lafrance for The Atlantic may be of interest to subscribers. Here is a section:

In other words, Facebook is building a global newsroom run by robot editors and its own readers.

This strategy may be right for Facebook, which has a strong track record of predicting what its users want. You certainly don’t rake in nearly $9 billion a quarter by building something people aren’t interested in. But if journalism is an indispensable component of the global community Zuckerberg is trying to build, he must also realize that what he’s building is a grave threat to journalism.

“A strong news industry is also critical to building an informed community,” Zuckerberg wrote in his manifesto. “There is more we must do to support the news industry to make sure this vital social function is sustainable—from growing local news, to developing formats best suited to mobile devices, to improving the range of business models news organizations rely on.”

There is more Facebook must do. But what? Lip service to the crucial function of the Fourth Estate is not enough to sustain it. All of this is the news industry’s problem; not Zuckerberg’s. But it’s also a problem for anyone who believes in and relies on quality journalism to make sense of the world.

 

Eoin Treacy's view -

I’ve been ruminating over the last couple of weeks on the role of journalism in modern society. This bell curve of where news organisations fall on the political spectrum is a testament to the tendency of journalists to write for well-defined demographics in service to the maxim “Give the people what they want”, or at least some of the people. 



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

Commentary by David Fuller

Why Britain Should Consider Unilateral Free Trade

The debate about our trading relationships after we have left the EU is now hotting up.

Most economists would agree about the optimum end result, namely free trade between the UK and both the EU and the rest of the world. But there are disagreements about the best route from here to there.

The case for free trade is essentially the same as the case for free markets in general, that is to say, left to its own devices the market allocates available resources to their best possible use, given consumer preferences and the production possibilities afforded by existing Technology.

There is no point in trying to be self-sufficient for its own sake in any, let alone all, forms of economic production. If we so chose, the UK could be self-sufficient in bananas. But the cost of doing this would be prohibitively high. It makes much more sense for us to produce the things in which we have a comparative advantage relative to other countries and to exchange whatever we produce for bananas (and any and everything else) that we wish to buy from other countries.

Of course, just as there are arguments to restrain, correct or encourage market forces in a purely domestic setting, so there are some arguments for sometimes restricting trade across borders. But they are limited. The word “protection” is misleading. It suggests the warm embrace of cuddly caring. Who would not want that? It might be better if it were replaced by “trade interference”. Unfortunately, the apparent attractions of trade interference mean that it is resorted to far too frequently.

Naturally, each producer group would like its output to be protected against foreign competition. Those who suffer from such measures are everybody else in the economy who would buy its output, or the output of its foreign competitors. They will now have to pay higher prices. This group overwhelmingly consists of consumers. So there is a tension in debates about trade between producers and consumers.

Producers are much more concentrated than consumers. This gives them a substantial advantage in the battle for hearts and minds. Indeed, in such discussions the consumer interest hardly gets a look in. At international trade negotiations, the discussion is about the competing interests of producers in different countries.

David Fuller's view -

A country cannot suddenly become a successful unilateral free trade entity at the flip of a switch.  It needs to constantly hone its competitiveness from quality control to management and skilled personnel.  It needs research triangles from universities with strengths in the sciences and engineering, to corporations and government incentives including competitive taxation, to develop and also attract skilled entrepreneurs. 

The UK is already doing this but it can always do more.  In today’s competitive and increasingly high-tech world, the opportunities are greater than ever before but a country needs to keep moving forward to remain competitive.

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



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

Commentary by Eoin Treacy

Email of the day on the cost of gold mining

Thank you for another very well done Friday audio. Your comments on gold were very interesting for me. I wonder if you or the collective have an idea about the possibility of technological innovation that might make gold production cheaper, the way oil production has become cheaper.. Thanks in advance

Eoin Treacy's view -

Thank you for your kind words and I am delighted you are enjoying the new format of videos and audios. Anglogold Ashanti have been pioneering a number of new technologies not least reef boring and thermal spawning. Both are designed to economically extract gold from previously uneconomic regions such as very thin reefs or the supporting walls of old mines. As with any new Technology, development takes time but the company is hopeful about the prospects for future production. This informative section from Anglogold Ashanti’s site may also be of interest. 



This section continues in the Subscriber's Area. Back to top
February 17 2017

Commentary by Eoin Treacy

Beyond The Supercycle How Technology is Reshaping Resources

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

First came the “fly-up,” the price spike on world markets for oil, gas, and a broad range of natural resources that began in 2003. Then came the abrupt bust, as prices tumbled and global spending on natural resources dropped by half in the course of 2015 alone. Now, even as resource companies and exporting countries pick up the pieces after this commodity “supercycle,” the sector is facing a new wave of disruption.1 Shifts taking place in the way resources are consumed as well as produced—less noticed than the rollercoaster commodity price ride but no less significant—will have major first- and second order effects on both the sector and the global economy. These shifts are the result of technological innovation, including the adoption of robotics, Internet of Things Technology, and data analytics, along with macroeconomic trends and changing consumer behavior.

We see three principal effects of this technological revolution:
Consumption of energy will become less intense as people use energy more efficiently thanks to smart thermostats and other energy-saving devices in homes and offices, and the use of analytics and automation to optimize factory usage. Transportation, the largest user of oil, will be especially affected, by more fuel-efficient engines and by the burgeoning use of autonomous and electric vehicles and ride sharing.

Technological advances will continue to bring down the cost of renewable energies such as solar and wind energy, as well as the cost of storing them. This will hand renewables a greater role in the global economy’s energy mix, with significant first- and second-order effects on producers and consumers of fossil fuels.

Resource producers will be able to deploy a range of technologies in their operations, putting mines and wells that were once inaccessible within reach, raising the efficiency of extraction techniques, shifting to predictive maintenance, and using sophisticated data analysis to identify, extract, and manage resources.

Scenarios we have modeled suggest that these developments have the potential to unlock $900 billion to $1.6 trillion in incremental cost savings throughout the global economy in 2035, an amount equivalent to the current GDP of Indonesia or, at the top end, Canada. As a result of lower energy intensity and technological advances that improve efficiency, energy productivity in the global economy could increase by 40 to 70 percent in 2035. We believe these changes will have profound implications not just for companies in the resource sector and for countries that export resources, but also for businesses and consumers everywhere.

 

Eoin Treacy's view -

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

The long-term cycles of supply and demand can be boiled down into the simply maxim that high prices encourage consumers to be efficient and suppliers to invest in expansion. Low prices encourage consumers to use more while suppliers are forced to be more efficient. Following a decade long super cycle producers are now much more efficient while consumers are really only beginning to increase demand as economic growth picks up. 



This section continues in the Subscriber's Area. Back to top
February 17 2017

Commentary by Eoin Treacy

Biotechnology rotation

Eoin Treacy's view -

The Nasdaq BioTechnology Index is going through a significant rotation. Some of the biggest companies that led on the breakout from the long-term base in 2012 are now trending lower. Gilead Sciences is representative. It was among the best performers on the breakout but peaked in 2015 and has continued to trend lower while many of the other major constituents have spent a year ranging. 

The focus thrown on drug pricing during the US Presidential Election has long lasting repercussions because it has highlighted the practice of raising prices for legacy drugs. That is the exact opposite of what we see in other sectors where competition forces prices lower over time. The Trump administration is now talking about bringing down drug prices and enhancing the ability of Medicare to negotiate bulk prices and allow consumers to buy drugs overseas. These issues represents a significant issue for legacy pharmaceutical companies and established biotech companies without the compensating factor of a promising drug pipeline. It also means demand for M&A is likely to continue to increase. 

 



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

Commentary by David Fuller

The Demise of Deadly Diesel

Here is the opening of this sobering article from Bloomberg:

Diesels make up about half of Europe's car sales. In 10 years time, I'd wager the percentage will be far closer to zero and that diesel's demise is going to cost the autos industry billions.

In Britain, the government is toying with the idea of a diesel scrappage plan to tackle the nitrogen oxide (NOx) emissions that kill about 75,000 Europeans prematurely each year.

EUROPEAN NOX-RELATED DEATHS EACH YEAR

75,000

It’s the latest in a succession of European measures which could see diesel cars barred from cities, their fuel incentives removed and parking made more expensive. Last month London issued a “black" alert because of high air pollution, prompting one school to restrict the time kids were able to play outside. Diesel is becoming stigmatized: sales have started to decline in the U.K. and Germany, albeit slowly.  

Diesel Downer

Diesel sales in Germany have fallen as a percentage of total vehicles sold

Last month, Fiat Chrysler Automobiles NV became the latest automaker to be accused by the U.S. of violating pollution laws over its diesel emissions. Meanwhile, France has referred Peugeot and Renault to prosecutors. Elzbieta Bienkowska, the EU industry commissioner overseeing the VW scandal told the Financial Times that her patience was wearing thin with national regulators over their lack of haste in examining carmakers other than VW.

VW's rivals all deny wrongdoing, and it's possible none has broken the law. "Existing models comply with the EU law against which they were approved," the European Automobile Manufacturers' Association (ACEA) says of the large discrepancies between laboratory and real-world emissions.  

But given the deaths from disease linked to air pollution, it seems a little arcane to be arguing about whether Technology that -- for example -- switches off NOx emission controls at low temperature fits the legal definition of a "defeat device". At the very least, carmakers have done a poor job of explaining that diesel cars are much dirtier than the public had reason to expect.

David Fuller's view -

The emissions discrepancies of automobile companies were outrageous, and a number of them have been fined.  Many others will suffer financially because they are holding billions of euros in diesel vehicles for which the market is rapidly vanishing.  However, the bigger scandal was the push by European governments and their advisors to favour diesel vehicles.  They did this in spite of evidence from the USA that NOx pollution from diesel was lethal. 



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

Commentary by Eoin Treacy

Why Hollywood As We Know It Is Already Over

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

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

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

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

 

Eoin Treacy's view -

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



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

Commentary by Eoin Treacy

The retreat of the global company

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

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

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

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

Eoin Treacy's view -

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

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



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

Commentary by Eoin Treacy

Tesla's Battery Revolution Just Reached Critical Mass

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

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

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

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

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

Eoin Treacy's view -

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

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

 



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

Commentary by David Fuller

US Shale Surge Stalls Weekly Oil Price Gains

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

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

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

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

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

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

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

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

David Fuller's view -

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

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

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

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



This section continues in the Subscriber's Area. Back to top
January 25 2017

Commentary by Eoin Treacy

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

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

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

Eoin Treacy's view -

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

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

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

 



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

Commentary by Eoin Treacy

Woman dies from antibiotic-resistant bacteria when no antibiotics worked

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

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

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

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

 

Eoin Treacy's view -

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

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

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


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

 



This section continues in the Subscriber's Area. Back to top
January 19 2017

Commentary by Eoin Treacy

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

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

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

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

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

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

 

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
January 18 2017

Commentary by David Fuller

Just Like In the 1980s, Theresa May Faces Chaos From Militant Unions. And Just Like Margaret Thatcher, She Must Not Flinch

Philip Hammond has rightly warned the EU that “we will do whatever we have to do”. So, in addition to pursuing trade agreements around the globe, what could we actually do, to convince the world that we have good enough plans for them to start buying pounds?

Here are five ideas:

  1. Establish Free Ports. My very talented successor as MP for Richmond, Yorkshire, Rishi Sunak, has pointed out how Free Ports could bring a major boost to the economy, manufacturing and the north. This would allow goods to be imported, manufactured and re-exported without any duties or taxes because they would not officially enter the UK. The jobs created could run into tens of thousands, and the merchandise handled into hundreds of billions of pounds.
  2. Give tax incentives to key global industries. Special tax relief for the film industry has been a huge success: major new studios have been built in Britain, over 200 films a year are being made here and we have 260,000 jobs thriving on the back of them. Every £1 of tax relief is meant to bring £12 back into the economy. We could give similar carefully targeted incentives to other creative, scientific and high-Technology businesses, helping aerospace, bioTechnology and others to see the UK as especially attractive.

This item continues in the Subscriber's Area.

David Fuller's view -

Philip Hammond’s comment that “we will do whatever we have to do” was the perfect response to the EU, and from a former Remainer who previously sounded very pessimistic.    

Here are my brief responses to William Hague’s five ideas:

“Establish Free Ports.”  I had not thought of this but it makes sense to me. 

“Give tax incentives to key global industries.”  I would favour across the board tax cuts which could be revenue neutral or even positive if the UK economy grew sufficiently as a consequence.  Special tax relief did create a booming film industry in the UK and helping the scientific and high-Technology businesses is certainly a very good idea since they represent the future.  However, less glamorous industries are also important for a diversified economy and why cherry pick?  We do not want to create unnecessary resentment and damage other contributing industries. 

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



This section continues in the Subscriber's Area. Back to top
January 17 2017

Commentary by Eoin Treacy

Alibaba jumps ahead of Amazon with Maersk tie-up

This article by Sam Chambers for splash247 may be of interest to subscribers. Here it is in full:

Alibaba’s move to partner with Maersk Line should be seen as a game of one-upmanship with US rival Amazon, a leading name in online logistics has said.

Chinese customers will now be able to book space on Maersk ships, a first for the industry and one that potentially removes many freight forwarders as middlemen.

Dr Zvi Schreiber, CEO and founder of logistics Technology Freightos, offered his perspective on the bigger picture and what this deal means for online shoppers and Alibaba’s rival, Amazon.

“Maersk is testing the waters of digital sales with one of the world’s largest ecommerce companies while threatening forwarder business. But for Alibaba, this is a direct challenge to global retailers like Amazon. Beyond drones and futuristic supermarkets, Amazon opted to get licensed as a forwarder. Alibaba one-upped them by going directly to the world’s largest ocean liner. Point, Alibaba.” 

 

Eoin Treacy's view -

There is a great deal of speculation going on at present relating to the implications of a Trump presidency on global trade. Certainly an America first manufacturing policy would have profound implications for low cost, high population countries’ ability to compete against what would in all likelihood be a highly automated US attempt to re-shore. Nevertheless even with the most ambitious timetable that kind of initiative could take years to unfold. 



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

Commentary by Eoin Treacy

Email of the day on the secular bull market in bonds

Enjoy watching the video presentations. Thought you may be interested in the following interview of Gary Shilling

Eoin Treacy's view -

Thank you for you kind words and this interesting interview which may be of interest to subscribers. 

Gary Shilling’s view that technological innovation is inherently deflationary is very much in tune with our view. The increasing commercial applications of bioTechnology, automation, artificial intelligence, the internet and mobile Technology are all likely to enhance productivity and could very well represent a deflationary influence. On the other hand, the increasing calls for free money (universal social payments) lower taxes, more spending and deregulation have the capacity to stoke inflation.

 



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

Commentary by Eoin Treacy

Email of the day on India's demonetisation

Thank you for another very well done video commentary. I think it was excellent. When you or any one from the collective have time, could you please share their/your views on the effect of India's move to change their currency bills. Thanks in advance

Eoin Treacy's view -

Thank you for your kind words and I am delighted you are enjoying the video commentaries, which have so far been very well received and are a further example of how Technology is advancing the ease with which we can communicate. 



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

Commentary by David Fuller

Element Six Diamond Sculptors Push the Envelope From Lasers to the Quantum Realm

The innovation centre dates from 2013, and was born out of a desire to group E6’s R&D teams in one place; it also rationalised its manufacturing facilities across the world. The lab occupies the front plot of Harwell Campus, a science park that is home to around 200 organisations. The European Space Agency is across the road, and it is a short walk to the UK’s Synchrotron, which fires electrons at near-light speeds around a ring.

E6 prides itself on a “start-up” ethos; like Google, it allows its staff to use 10pc of their time to work on pet projects. The 180-strong workforce at Harwell includes people from 54 countries and there are free language classes and sports teams. Hühn acknowledges that Brexit “doesn’t make life easier” when it comes to recruitment, but insists Harwell’s location near Oxford is attractive.

While cutting tools are the bread and butter of E6’s work, it is also forging ahead into more exotic areas. Synthetic diamonds are in the race to become the bedrock of quantum computing – a theoretical field that promises massive computational power that eschews the digital Technology of “classical” machines.

Quantum computing involves the entanglement of particles in the sub-atomic realm. When one particle becomes ‘entangled’ with another, it synchronises with its partner, even when they have no physical connection. Manipulating one can change the state of the other. Albert Einstein called it “spooky action at a distance”.

Scientists at E6 and Harvard achieved a breakthrough last year when they proved that one particle could alter another 1.3km away without any possible transfer of data between them. “It fundamentally proved this entanglement process is a physical reality - there’s no other explanation for it,” says scientist Matthew Markham.

Yet the properties of diamonds get even weirder. It transpires that diamonds with a ‘nitrogen vacancy defect’ - a gap in the lattice that makes up the crystal - are highly sensitive to magnetic waves at room temperature. The hope is that these diamonds, embedded in handheld scanners, could eventually replace MRI scanners; experiments have already shown that a red diamond can pick up the firing of an axon in the brain of a marine worm. “In 10 years’ time you could envisage having a helmet with diamond sensors that would be the equivalent of MRI sensors,” says Markham.

Scientists also believe that these diamonds could one day use magnetic distortions caused by the sun to triangulate their position on the earth. This would eliminate the need for GPS, which relies on satellite signals to tell a driver where they are; it could also make driverless cars a reality. Currently a diamond with an NV defect has been calibrated to detect the magnetic signature from a car at 300m.

Many of these experiments are decades away from practical applications. But, as Hühn remarks, sometimes they have to “evangelise” about diamonds to create a market for their products. “We need to demonstrate what can be done and then make it transparent to the market,” he says.

David Fuller's view -

And it all starts with carbon – amazing.

Look what lies ahead: “… quantum computers may theoretically be able to solve certain problems in a few days that would take millions of years on a classical computer. (Source: Nasa)”

This era of accelerating technological innovation has only just begun.  Moreover, it will only be limited by: 1) the availability of time on earth, which hopefully lasts for at least a few million more years; 2) human destructive instincts, hopefully kept in check; 3) more optimistically, the extent of human imagination and creativity; 4) the creativity of artificial intelligence aided by quantum computers.

Unfortunately, E6 is not a publicly listed company.



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

Commentary by David Fuller

Icelandic Volcanic Heat May Be the Perfect Solution to UK Energy Crunch

Iceland is the answer to our prayers. The country has a surfeit of cheap electricity from volcanoes and melting glaciers that is either sold for a pittance, or goes to waste.

The Icelanders would dearly love to sell this power to us at global prices to pay down the banking debts of 2008. Britain would dearly love to buy it from them as our coal plants and ageing nuclear reactors are shut down, with little to replace them beyond the variable winds of the North Sea.

Advances in high voltage Technology make it possible to transmit Iceland's low-carbon power to the industrial hubs of northern England by underwater cables with an energy leakage of just 5pc, and probably at lower costs per megawatt hour (MWh) than the nuclear power from Hinkley Point. And unlike nuclear, the electricity is 'dispatchable'.

“We can turn it on and off in fifteen minutes to half an hour. It is the only battery that is really available today for green energy,” said Hordur Arnarson, head of Iceland’s national utility Landsvirkjun.

It is hard to imagine a more elegant back-up for the UK's vast experiment in off-shore wind, the backbone of British electricity by the late 2020s.

Combined with interconnectors from Holland and France - and soon Norway - it could plug much of the intermittency gap through the dog days of a windless anticyclone. The power can flow both ways: surges in North Sea wind could be stored in Nordic reservoirs.

Roughly 70pc of Iceland's electricity comes from hydropower through glacial run-off. This is mostly sold to aluminium smelters for a derisory price. Water washes over the top of the dams for parts of the year because the island has no way of selling the excess energy.

Hydro could probably provide the UK with one gigawatt of stable baseload, but then there is the tantalising potential of geothermal power from the island's 350 volcanoes as well.

The advances in drilling are breath-taking. An Icelandic project backed by the US National Science Foundation is currently boring the deepest hole ever attempted into the fluids of the inner earth at Reykjanes on the Mid-Atlantic Ridge. As of late December it had reached a depth of 4.626 kilometres, approaching temperatures of 500C.

The team aims to stop just short of the magma, at 200 times atmospheric pressure, where hot rock mixed with sea water releases ‘supercritical steam’ with enormous energy. This is the Holy Grail of geothermal power, if it can be extracted safely in a thermal mining cycle.

David Fuller's view -

Drilling to just short of the magma – what could possibly go wrong?  Hollywood has a new topic (Ice-hot?) for next summer’s splat film. 

Seriously, it is another triumph for technological innovation that the capture and transmission of this energy is even considered feasible.  It may be so but costs in the region of the appallingly expensive and outdated Hinkley Point nuclear project are hardly encouraging.  If lower costs are worth considering, and they certainly should be, fracking for natural gas is a much better idea for the UK and many other countries over the next two decades.

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



This section continues in the Subscriber's Area. Back to top
January 05 2017

Commentary by David Fuller

Intel Boss on the Doubling of Computer Power Every Two Years

Intel founder Gordon Moore declared half a century ago that computer power would roughly double every two years as the silicon chips powering them developed.

The maxim, which became known as Moore’s law, directed Technology companies for five decades before reaching a crunch point last year. Physicists and Technology giants alike said transistors had reached a point where it was no longer economically viable to make them smaller, bringing about the end of the law.

But Intel’s chief executive Brian Krzanich has put an end to such fears with news the company will release a 10 nanometre chip in 2017. The tiny chip will be cheaper than its predecessor, Intel said, keeping Moore’s law alive.

"I've heard the death of Moore's law more times than anything else in my 34-year career and I'm here today to really show you and tell you that Moore's law is alive and well and flourishing," Krzanich said.

The news came as Intel opened the doors on its virtual reality project, which includes applications for the Technology, content production and a headset. For Krzanich, VR is one of the most exciting uses of the faster processor coming this year.

“Imagine in your living room being able to walk around the next hotel you’re going to visit, or visiting the event you’re going to,” said Krzanich in a demonstration of the VR uses Intel is working on at the Consumer Electronics Show in Las Vegas.

Some of the applications Intel is developing include live sports games in VR and monitoring remote areas, such as solar panel farms, through a live 360 video stream from a drone and a VR headset.

The chipmaker has teamed up with La Liga to fit three stadiums with 360-degree cameras that will stream to 38 channels this year.

“From the comfort of your home you could be transported to your favourite seat,” said Krzanich. “This is the future of how you’ll view sports. You’ll have the opportunity to go to games you’ve never been to before.”

David Fuller's view -

I do not assume that silicon chips will always be used for the more complex challenges, because the Technology for transistors is still in its infancy, relative to future developments.  We live in an exciting era of accelerating technological innovation, which will not end of its own accord.

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



This section continues in the Subscriber's Area. Back to top
January 05 2017

Commentary by David Fuller

President Mark Zuckerberg? It May Not Be as Crazy as It Sounds

When 13 tech bosses – among them some of the world’s richest entrepreneurs – were summoned for a meeting with Donald Trump, one face was conspicuous in its absence.

Facebook’s role in the US election had been much scrutinised: it was accused of being a petri dish for fake news that allowed anti-Clinton stories to spread like wildfire; and the social network was employed to great effect by the Trump campaign, which built up profiles of voters to target and bombarded them with ads.

And yet, Mark Zuckerberg was nowhere to be seen at Trump Tower. Instead, he sent his trusted deputy and chief operating officer, Sheryl Sandberg, making Facebook the only company at the meeting without its CEO in attendance.

Zuckerberg has not explained his absence, but two likely – and related – reasons may well become clear. Firstly, the man who started Facebook 13 years ago now has priorities outside of its daily running: as with many tech founders, he would prefer the nitty gritty of advertising relationships and regulatory tangles to be dealt with by someone else, as Zuckerberg focuses on his missions – the $45bn fund he has set up with his wife Priscilla Chan, or the internet.org project to bring connectivity to the world’s poor.

But more fundamentally, Zuckerberg may see a photo-op with the president-elect as harming his own political ambitions, especially if he plans to act on them sooner rather than later.

If your main impression of Facebook’s founder came through seeing The Social Network in 2010, you might find the film's portrayal of Zuckerberg as an awkward Machiavellian schemer a little difficult to square with the idea of a role in public office.

But in recent years he has been spring cleaning his image. Connecting directly to the world via his own Facebook page, Mark Zuckerberg is now the family man, the internationalist and the statesman (his profile is full of images documenting meetings with Narendra Modi, officials in Beijing, and Pope Francis).

While like much of his Silicon Valley brethren, he is a natural liberal, lobbying on immigration and science research, but Zuckerberg has been careful to appeal to a wider base. In response to allegations that Facebook suppressed conservative news, he fired the team responsible and replaced them with supposedly bias-free algorithms. He has declined to take the immediate action that many liberals demanded on Facebook’s fake news problem.

He has come out as religious after years of claiming atheism, a move that a cynic could point to as practically mandatory for high office. And most recently, he announced his ambition to visit every state in the US in order to understand the effect of globalisation. “We need to find a way to change the game so it works for everyone,” he said on Tuesday.

David Fuller's view -

It may seem a bit early to be discussing this possibility shortly before President-elect Trump is sworn in on 20th January… but perhaps not.  After all, Trump has certainly opened the door for unconventional candidates who have never held political office. 

Might the possibility of a bad Trump presidency close that door?  Theoretically, yes although I think it would be premature to assume that Trump will be judged as having more failures than success over the next four years.  In any event, Trump and Zuckerberg have very different profiles.   

I think it would be a great idea if Zuckerberg ran for President in 2020, or 2024.  Governance is everything and countries with the most capable leaders generally outperform.  If nominated by his Party, I suspect Zuckerberg would win.

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



This section continues in the Subscriber's Area. Back to top
January 05 2017

Commentary by Eoin Treacy

America's Roster of Public Companies Is Shrinking Before Our Eyes

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

The number of U.S.-listed companies has declined by more than 3,000 since peaking at 9,113 in 1997, according to the University of Chicago’s Center for Research in Security Prices. As of June, there were 5,734 such public companies, little more than in 1982, when the economy was less than half its current size. Meanwhile, the average public company’s valuation has ballooned.

In the Technology industry, the private fundraising market now dwarfs its public counterpart. There were just 26 U.S.-listed Technology IPOs last year, raising $4.3 billion, according to Dealogic. Meanwhile, private U.S. tech companies tapped the late-stage funding market 809 times last year, raising $19 billion, Dow Jones VentureSource’s data show.

Private funding markets have taken on attributes of public equity, such as an ability to hand employees shares they can trade. Airbnb Inc.’s recent $850 million funding round, which valued the home-rental company at $30 billion, enabled employees to sell $200 million of stock. Investors, particularly in late-stage funding rounds, now often have a better view of a private company’s financials than they used to, including through quarterly conference calls.

“There’s no great advantage of being public,” says Jerry Davis, a professor at the University of Michigan’s Ross School of Business and author of “The Vanishing American Corporation.” “The dangers of being a public company are really evident.”

 

Eoin Treacy's view -

There have been two important themes that have shaped the view going public is not the most worthwhile exercise for new companies. The overbearing nature of regulatory requirements has increased substantially over the last decade, not least in response to the financial crisis, and this represents a significant cost for public companies which private companies avoid. It is quite simply a hassle for small companies to go through the motions of preparing earnings reports on a quarterly basis and formulating them in such a way as to be amenable to analysts. 



This section continues in the Subscriber's Area. Back to top
January 04 2017

Commentary by Eoin Treacy

The Ugly Unethical Underside of Silicon Valley

This article by Erin Griffith for Fortune may be of interest to subscribers. Here is a section:

No industry is immune to fraud, and the hotter the business, the more hucksters flock to it. But Silicon Valley has always seen itself as the virtuous outlier, a place where altruistic nerds tolerate capitalism in order to make the world a better place. Suddenly the Valley looks as crooked and greedy as the rest of the business world. And the growing roster of scandal-tainted startups share a theme. Faking it, from marketing exaggerations to outright fraud, feels more prevalent than ever—so much so that it’s time to ask whether startup culture itself is becoming a problem.

Fraud is not new in tech, of course. Longtime investors remember when MiniScribe shipped actual bricks inside its hard-disk boxes in an inventory accounting scam in the 1980s. The ’90s and early aughts brought WorldCom, Enron, and the dot-bombs. But today more money is sloshing around ($73 billion in venture capital invested in U.S. startups in 2016, compared with $45 billion at the peak of the dotcom boom, according to PitchBook), there’s less transparency as companies stay private longer (174 private companies are each worth $1 billion or more), and there’s an endless supply of legal gray areas to exploit as Technology invades every sector, from fintech and med-tech to auto-tech and ed-tech.

The drama has some investors predicting more disasters. “What if Theranos is the canary in the coal mine?” says Roger McNamee, a 40-year VC veteran and managing director at Elevation Partners. “Everyone is looking at Theranos as an outlier. We may discover it’s not an outlier at all.” That would be bad news, because without trust, the tech industry’s intertwined ecosystem of money, products, and people can’t function. Investors may find the full version of the old proverb is more accurate: “One bad apple spoils the whole barrel.”

 

Eoin Treacy's view -

Fraud isn’t generally identified immediately because it takes time for such contrivances to be discovered. The impetus for investigation doesn’t generally arise until someone goes looking for the money that was invested, when the expected return does not materialise. It took the credit crisis to reveal problems with Madoff’s Ponzi scheme, yet it had functioned unperturbed by regulators for years before that event. The above article does an excellent job of identifying the frauds which have occurred in Silicon Valley as well as the culture that promotes exaggeration.



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

Commentary by Eoin Treacy

Email of the day on Friday's big picture long-term video and audio

Thank you for Friday’s weekly summary, especially the long excursus on Technology

It is good from time to time to digress on the long term trends that are likely to influence markets in the future

The short term price action is important but your reflections on the Technology developments are very much appreciated

Good work in the New Year!
And

Thank you so much for another nice long term audio last Friday. But you did not comment on precious metals, and gold mining companies. Could you kindly comment on these as well as the oil companies i.e. shell/Exxon etc. at your convenience. Tks again. And best wishes for the New Year to you and David.

 

Eoin Treacy's view -

Thank you both for your well wishes and I look forward to covering both the outlook for Technology and precious metals in depth this year. Last Friday I intentionally decided to expound upon the case for technological innovation representing a powerfully bullish factor for both the global economy and the stock market over the coming decades. 



This section continues in the Subscriber's Area. Back to top
December 23 2016

Commentary by David Fuller

Email of the day 2

On notes from the Milken Institute meeting on The Evolution of Asset Management:

Dear David

I have attached more notes from last weeks' meeting organised in London by the Milken Institute. I found this session particularly interesting. The topic was 'The Evolution of Asset Management.' We all sense that change is coming so it was interesting to attend this panel comprising 3 constituencies: current asset managers, openly disillusioned customers, and new Technology companies aiming to disrupt the status quo. It was all very polite but some strong messages came across which I have summarised in the pdf.

Asset managers are trying new markets, such as direct lending in place of banks, and investments in private equity including hi-tech startups (I wonder how many really understand what they're doing). And they are experimenting with big data and automated trading though there was disagreement about how successful this actual is. No evidence was given.

Other key messages that I took away were:

1. Customers are not particularly happy with performance or fees, saying there's much waste in unnecessary infrastructure.

2. The public availability of so much information that was previously available only to professionals is a game changer, as it reduces the 'added value' of asset managers.

3. The result is a growing trend for DIY investing. It started with HNWs setting up their own wealth funds and it is spreading to other private investors as they/we become more empowered by Technology.

Also, corporations are starting to retake control of their defined benefit pension schemes by managing them in-house. To quote one panelist: "Corporations whose db plans failed to deliver will ask 'why would I delegate investment to those who are clearly the dumbest investors in the world.' Public and private pension funds need returns of 7-8% but they have been receiving much less than that from the AMs to whom they out-sourced. The pension asset managers always get their fees yet it's the corporate that has the liabilities on its book when there is under-performance. One panelist stated that several corporations in the US have already taken in-house control of their db plans and he expects this to become more widespread.

Of course, my impression of the discussion inevitably reflects my view of the topic.

Others may interpret it differently, so here is a link to a recording of the panel in case readers wish to check it out themselves.

Best wishes

David

David Fuller's view -

Thanks, David, for sharing your thoughts on The Evolution of Asset Management, as discussed at the Milken Institute conference.  If you mention this during your presentation at the Markets Now seminar on 16th January, I am sure it will generate further discussion. 

David’s additional notes on this topic are posted in the Subscriber’s Area. 



This section continues in the Subscriber's Area. Back to top
December 22 2016

Commentary by Eoin Treacy

Apple's Search for Better iPhone Screens Leads to Japan's Rice Fields

This article by Pavel Alpeyev  and Takashi Amano for Bloomberg may be of interest to subscribers. Here is a section:

That push has also put a spotlight on suppliers of previously obscure technologies, testing their capacity to satisfy demand that drives sales of more than 200 million iPhones each year. A couple of years ago, Apple sought to use strong sapphire glass for iPhones, only to abandon the effort when a manufacturer couldn't deliver enough of acceptable quality and went bankrupt. The scratch-resistant material is now featured on the Apple Watch.

Now OLED is the big goal. The Technology has been included on top-end smartphones for years, including almost all of Samsung Electronics Co.'s high-end phones. While LCDs rely on a backlight panel, OLED pixels can glow on their own, resulting in thinner displays, better battery life and improved contrast. OLED screens can also be made on flexible plastic, allowing for a wider variety of shapes and applications.

"OLEDs aren't just for flat areas, but can be used on edges, so smartphone makers will challenge themselves by building displays with new shapes," Tsugami said. "These qualities in OLED will give it an advantage."

 

Eoin Treacy's view -

Delivering advances in Technology to the masses has a long lead time considering how long it takes to build new factories and indeed the machines to fill them. The story of how long it takes to build a single OLED production line is a testament both to impressive innovation and precision engineering as well as the ability of companies to survive until their products hit the big time. 



This section continues in the Subscriber's Area. Back to top
December 15 2016

Commentary by David Fuller

World Energy Hits a Turning Point: Solar That Is Cheaper Than Wind

Here is the opening of this interesting article from Bloomberg:

A transformation is happening in global energy markets that’s worth noting as 2016 comes to an end: Solar power, for the first time, is becoming the cheapest form of new electricity. 

This has happened in isolated projects in the past: an especially competitive auction in the Middle East, for example, resulting in record-cheap solar costs. But now unsubsidized solar is beginning to outcompete coal and natural gas on a larger scale, and notably, new solar projects in emerging markets are costing less to build than wind projects, according to fresh data from Bloomberg New Energy Finance

The chart below shows the average cost of new wind and solar from 58 emerging-market economies, including China, India, and Brazil. While solar was bound to fall below wind eventually, given its steeper price declines, few predicted it would happen this soon.

“Solar investment has gone from nothing—literally nothing—like five years ago to quite a lot,” said Ethan Zindler, head of U.S. policy analysis at BNEF. “A huge part of this story is China, which has been rapidly deploying solar” and helping other countries finance their own projects.

This year has seen a remarkable run for solar power. Auctions, where private companies compete for massive contracts to provide electricity, established record after record for cheap solar power. It started with a contract in January to produce electricity for $64 per megawatt-hour in India; then a deal in August pegging $29.10 per megawatt hour in Chile. That’s record-cheap electricity—roughly half the price of competing coal power. 

“Renewables are robustly entering the era of undercutting” fossil fuel prices, BNEF chairman Michael Liebreich said in a note to clients this week.

David Fuller's view -

It is entirely logical that Technology will continue to lower the cost of solar power, until it is the cheapest source of energy by far.  After all, it neither has to be discovered and then extracted, nor does it need refining.  It is free energy, arriving every day from the largest nuclear reactor within our solar system - by far.  The means of capturing solar energy are multiplying at a rapid rate, particularly within urban areas where it is most needed.  Storage of solar energy is limited but this too will change, now that it is a priority.   

This item continues in the Subscriber’s Area and contains an additional article.



This section continues in the Subscriber's Area. Back to top
December 14 2016

Commentary by Eoin Treacy

Musings from the Oil Patch December 13th 2016

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

From GM’s viewpoint, it needs to generate sufficient ZEV credits to avoid sharp fines or being shut out of the California market entirely. One analysis went as follows: In 2015, GM sold 219,962 vehicles in California. To avoid fines, it needs state-awarded ZEV credits equal to 14% of the units sold, or 30,794. That can be achieved by selling 7,698 Bolts that earn GM four credits each, or 10,082 Chevy Volt plug-in hybrids, or a combination of the two. What GM understands is that ZEVs are compliance vehicles, so pricing the Bolt to both achieve its ZEV credit needs and take market share from other auto manufacturers can be a smart strategy, even if they are losing so much money per unit. If GM can earn more ZEV credits than it needs, those can be sold to other manufacturers who are falling behind their ZEV credit goals. This is all part of the clean air gambit in which companies that are “doing more than they need to” in meeting certain thresholds find that they hold pieces of paper that increase in value over time and can be successfully monetized. Selling $139 million of excess ZEV credits was what enabled Tesla Motors (TSLA-Nasdaq) to achieve third quarter profits on a GAAP basis. 

But what are the economics of electric vehicles for buyers? The Associated Press’ automobile writer recently test drove the GM Bolt and interviewed the executive in charge of marketing it. Virtually everyone acknowledges that the car lacks outstanding design, but the word the GM exec uses to describe the Bolt is “practical.” For tech-savvy Millennials that sounds more like their grandma’s car. However, the Bolt is the first electric vehicle to get over 200 miles per charge (238 miles, exactly). It does have lots of interior space, a near-silent ride and emits no tailpipe emissions. Moreover, the Bolt can go from zero to 60 miles per hour in 6.5 seconds, out-muscling some muscle cars. Even more important, the Bolt is now at showrooms in California and Oregon, while its prime competitor – the Tesla Model 3 – will not be available until the end of 2017.

The problem for the Bolt is its cost. The list price is $37,495 including shipping. After the federal tax credit of $7,500, the purchase price drops to $29,995, to which you need to add roughly $1,200 for a 240-volt home charging station, bringing your out of pocket expense to own a Bolt to $31,195. For comparison, a comparably equipped, gasoline-powered Chevy Cruze compact hatchback with automatic transmission costs $23,670 with shipping, a difference of $7,525. 

Eoin Treacy's view -

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

For a car GM is losing $9000 on, the price of $37,500 is still steep even if someone is dedicated to the ideal of an emission free future. That cost is going to have to come down if predictions of widespread uptake are to prove credible. The pace at which the energy density of batteries is doubling (around 5 years) is too slow to suggest the cost is going to come down quickly through Technology alone. That is part of the reason Tesla is investing so heavily in economies of scale when building its battery manufacturing capacity. 



This section continues in the Subscriber's Area. Back to top
December 09 2016

Commentary by Eoin Treacy

Ford leads automakers in patents for 2016

This article by Greg Gardner for Detroit Free Press may be of interest to subscribers. Here is a section:

We are living the innovation mind-set in all parts of our business across the globe,” Nair said in a news release. “Our employees are delivering exciting new technologies for our customers at record levels.

The Dearborn automaker was granted 1,700 more patents in other countries, bringing the total to more than 3,100 patents granted worldwide this year.

One of those patents was granted to engineers Tony Lockwood and Joe Stanek for an invention that equips autonomous vehicles with drones.

The system deploys a drone from an autonomous vehicle to map the surrounding area beyond what vehicle sensors can see. Passengers can control the drone using the car’s infotainment or navigation system.

 

Eoin Treacy's view -

Just about all car companies are exploring the autonomous vehicle market while at the same time they are investing in electric vehicles. After all, software is a lot cheaper to develop than hardware. 
This week Apple also had to lay out for regulators some of what it has planned for the transportation market. Here is a section from a story from USA Today

"The company is investing heavily in the study of machine learning and automation, and is excited about the potential of automated systems in many areas, including transportation," Kenner wrote in the letter of Apple's ambitions.

Kenner said Apple supports a proposal that companies share "de-identified" data from crashes or near-misses to help improve self-driving Technology, but warns the policy must take consumers' privacy into account.

"Data sharing should not come at the cost of privacy," said Kenner. "Apple believes that companies should invest the resources necessary to protect individuals’ fundamental right to privacy."

 



This section continues in the Subscriber's Area. Back to top
December 08 2016

Commentary by Eoin Treacy

Browning Newsletter

The authors of the Browning Newsletter which, veteran subscribers will be familiar with, are embarking on a new project directed at the Australian market. Their aim is to product a quarterly letter and the attached white paper is the first one, aimed at testing the waters so to speak. Here is a section:The authors of the Browning Newsletter which, veteran subscribers will be familiar with, are embarking on a new project directed at the Australian market. Their aim is to product a quarterly letter and the attached white paper is the first one, aimed at testing the waters so to speak. Here is a section:

With good water availability and good precipitation, the Australian grazing regions in South Australia, the Northern Territory and Queensland will be plentiful, the grazing regions along Western Australia will grow from IOD-created rainfall in the northern part of the province but will be poor in the southern part. Flood risks will lower mining yields along the northern part of Western Australia as well as create a higher property risk and insurance claims along the eastern shores. Finally the eco-friendly infrastructure in South Australia and Victoria have taken damage from recent flash floods. Look for the country to pursue investment opportunities into updating the infrastructure Technology to handle more severe weather after repairs have been made.

Eoin Treacy's view -

One of the reasons the value investors get interested in stocks following a big decline is because it is relatively easy for a share to double from a very depressed level. The next doubling is usually when awareness has increased and new investors come in with a view to pushing prices higher overall.

The mining sector went through a deep correction where companies were forced to cut exploration and development budgets in order to manage their exposure to a falling price environment. The result is that they are going to be shy about spending a lot of money for the next few years and therefore cashflow should improve. That is part of the reason share prices have been rallying so strongly this year. As economic growth picks up that could well continue into next year before additional new supply comes on line.

Weather events like floods have the capacity to affect iron-ore production in particular, since so much global supply emanates from Pilbara. Nevertheless substantial damage would need to be inflicted to do more than temporary damage to infrastructure. 



This section continues in the Subscriber's Area. Back to top
December 05 2016

Commentary by Eoin Treacy

New efficiency record for large perovskite solar cell

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

"Perovskites came out of nowhere in 2009, with an efficiency rating of 3.8 percent, and have since grown in leaps and bounds," said Anita Ho-Baillie, a Senior Research Fellow at the UNSW's Australian Centre for Advanced Photovoltaics. "I think we can get to 24 percent within a year or so."

The solar cells are made from crystals grown into a particular structure called perovskite. Smooth layers of perovskite with large crystal grain sizes allow the cells to absorb more light. The Technology has been advancing fast and attracting plenty of attention thanks to its ease of production and low cost compared to silicon cells.

"The diversity of chemical compositions also allows cells be transparent, or made of different colors," said Ho-Baillie. "Imagine being able to cover every surface of buildings, devices and cars with solar cells."

Perovskite cells do have downsides like much less durability, something Ho-Baillie and her team say they're confident they can improve, while also shooting for higher levels of efficiency.

Eoin Treacy's view -

Perovskite is a development stage Technology that is likely to play an important role in the future of solar cells but it could be a decade before it reaches commercial utility. The primary argument supporting perovskite is the relative cost of producing the crystals versus the panels used today. That enhances the Technology’s competitiveness so that cells do not need to be as efficient because they are so much cheaper. However what do need to be overcome are the issues described above regarding durability which are non-trivial.



This section continues in the Subscriber's Area. Back to top
December 02 2016

Commentary by Eoin Treacy

As Schultz Steps Down, Next Starbucks CEO Brings Tech Savvy

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

Starbucks’ digital and Technology prowess has put it ahead of its peers, allowing it to serve more customers faster. Same- store sales rose 5 percent in the Americas region in the most recent quarter. Mobile payments accounted for about 25 percent of U.S. transactions in that period.
     
Starbucks built on its tech leadership with an order-ahead feature, which lets customers select and pay for drinks in advance. They then can pick up the beverages at a shop without waiting in line.

Since Johnson became operating chief, Starbucks has rolled out mobile ordering across the U.S. and even tested delivery.

The Seattle-based company also is boosting spending on digital ventures, including taking its app and rewards platform to countries such as China.

Though shares of Starbucks tumbled immediately after the announcement, they recovered some of that ground during extended trading. As of 9:53 a.m. in New York on Friday, the stock was down 2.4 percent to $57.11

Eoin Treacy's view -

Starbucks sells coffee and snacks, Technology might ensure the lines are shorter but unless it has ambitions on selling that Technology to a wider market the business is unlikely to change much. Losing Schulz as a figurehead is a blow and investors are likely to want to see improving sales if the new CEO is to be given the benefit of the doubt. 



This section continues in the Subscriber's Area. Back to top
December 01 2016

Commentary by Eoin Treacy

Email of the day on technology shares underperforming

Any idea why NASDAQ 100 dropped 50+ points yesterday?

Eoin Treacy's view -

This has been a spectacular year for some Technology shares, with companies like Nvidia performing beyond the expectations of even the most ardent bulls. However the prospect of rising interest rates is potentially an issue for companies that are reliant of cheap financing to fund growth. 



This section continues in the Subscriber's Area. Back to top
November 30 2016

Commentary by David Fuller

Email of the day

On Monday’s Markets Now

Iain, David

Thank you for an all-encompassing evening on Monday - I really enjoyed all your presentations and was particularly captivated by Clive's input which I found "doubly" interesting as I found myself on the same page as him across the very extensive subject matter that he so diligently covered. (I now also consider myself enlightened as to the possibilities with lithium, which I had so far interpreted as being a potentially dangerous sector to be involved in - having been rather let down by none-too-dissimilar "possibilities" with graphite a couple of years back).

 Clive does seem to take a somewhat innovative approach to the way he looks at the commodity sector and I found myself deeply absorbed in his content. In this respect it was well worth my London "overnighter" from Cumbria in order to attend!

 This was my first time at the CC for a MN and, as David was highlighting, what a thoroughly "civilized" place it is (it makes the EI Club look a bit "pokey" by comparison!). Having a late dinner upstairs was an unexpected privilege and I can't conceive that I will ever spend a better £25 for such rewarding culinary input!

 Well done to you all and I wish you well on your extensive travels, Iain.

 Please find below some commentary on lithium, "The Race for White Oil Is Heating Up" (Agora), together with some stock suggestions. 

David Fuller's view -

Many thanks for your comments on the Markets Now and also The Caledonian Club. I thought Clive Burstow, introduced by Iain Little, was a great addition to our list of speakers. I particularly enjoy the chats after presentations.  The dinner was unplanned but a relaxing, spontaneously arranged event and a nice conclusion to the evening.  Thanks also for the commentary on lithium.  I would like to have a look at those shares and aim to post it later this week.  

First notice: our next Markets Now will be held on Monday evening 16th January, also at the Caledonian Club.  Dr David Brown will be our guest speaker, discussing Technology.  The brochure for this event will be available before the end of next week.  



This section continues in the Subscriber's Area. Back to top
November 29 2016

Commentary by David Fuller

Solar-Panel Roads to Be Built on Four Continents Next Year

My thanks to a subscriber for this fascinating article from Bloomberg.  Here is the opening:

Electric avenues that can transmit the sun’s energy onto power grids may be coming to a city near you.

A subsidiary of Bouygues SA has designed rugged solar panels, capable of withstand the weight of an 18-wheeler truck, that they’re now building into road surfaces. After nearly five years of research and laboratory tests, they’re constructing 100 outdoor test sites and plan to commercialize the Technology in early 2018.

“We wanted to find a second life for a road,” said Philippe Harelle, the chief Technology officer at Colas SA’s Wattway unit, owned by the French engineering group Bouygues. “Solar farms use land that could otherwise be for agriculture, while the roads are free.”

As solar costs plummet, panels are being increasingly integrated into everyday Materials. Last month Tesla Motors Inc. surprised investors by unveiling roof shingles that double as solar panels. Other companies are integrating photovoltaics into building facades. Wattway joins groups including Sweden’s Scania and Solar Roadways in the U.S. seeking to integrate panels onto pavement.

To resist the weight of traffic, Wattway layers several types of plastics to create a clear and durable casing. The solar panel underneath is an ordinary model, similar to panels on rooftops. The electrical wiring is embedded in the road and the contraption is topped by an anti-slip surface made from crushed glass.

A kilometer-sized testing site began construction last month in the French village of Tourouvre in Normandy. The 2,800 square meters of solar panels are expected to generate 280 kilowatts at peak, with the installation generating enough to power all the public lighting in a town of 5,000 for a year, according to the company.

For now, the cost of the Materials makes only demonstration projects sensible. A square meter of the solar road currently costs 2,000 ($2,126) and 2,500 euros. That includes monitoring, data collection and installation costs. Wattway says it can make the price competitive with traditional solar farms by 2020.

David Fuller's view -

Theoretically, this is an interesting idea and an ambitious challenge.  I hope it can be perfected although the overall cost, safety and susceptibility to damage may be too great for existing technologies.  Nevertheless, it shows the incredible adaptability of solar Technology, in terms of projects both great and small.   

The sun is the greatest source of energy with which we have any personal experience.  The number of manmade products exposed to sunlight, which can be captured and turn into energy, is practically unlimited.  



This section continues in the Subscriber's Area. Back to top
November 29 2016

Commentary by Eoin Treacy

Musings From the Oil Patch November 29th 2016

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

You read it here first – tomorrow the members of the Organization of Petroleum Exporting Countries (OPEC) will announce an agreement to limit its output. You will have to wait for the details, and more importantly you will have to wait to see whether OPEC members actually do what they say they will do. For those of us who have seen this show before (often with even greater drama/showmanship), the issues with every OPEC agreement are the details and then its execution. Often the details and the execution are not what the public is led to expect at the time of the announcement. 

OPEC has little choice at this point but to attempt to salvage some degree of respectability, especially following the debacle of the Doha meeting last spring at which a preconceived agreement blew up at the last minute. We are not going to debate the viability of OPEC as a cartel – to us it has always been an excuse to travel to Vienna and Europe for shopping and partying. On the other hand, OPEC does play an important role in helping to corral a number of important crude oil producers into supposedly one voice, although the power of that voice has been diminished by the evolution of energy markets over the last 25 years, and especially in the last few years. 

The key factor for the oil market that OPEC understands is that it is in a recovery mode. That is not due to a miracle, or can be attributed to the efforts of anyone in particular. Rather, it is the result of economic discipline being restored to the oil market. Fewer uneconomic prospects are being drilled. Assets are moving from weak hands into stronger hands – hands that don’t necessarily have to drill in order to generate revenue to attempt to keep the doors of the companies open. 

Additionally, companies are figuring out how to operate more efficiently – fewer employees, more efficient operations and employing greater Technology. Producers at the moment have benefited from destroying the pricing structure of the oilfield service industry, enabling the producers to lower operating costs. The producers have driven oilfield service company prices down to levels that are not sustainable for the long-term. Short-term gains for producers will have to yield to higher oilfield service prices if the producers wish to have the equipment, Technology and employees that deliver the field services that they need. The question becomes how quickly oilfield service prices rise and how much of those increases can be offset by further efficiency gains. 

Eoin Treacy's view -

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

This is a logical argument. If OPEC cannot act in unison to fulfil its role as a swing producer then what purpose does the group have as anything more than a talking shop? If they fail to announce a deal it will signal the group’s increasing irrelevance so they have little choice but to announce something. Quite whether they can succeed in implementing anything is another subject entirely. 



This section continues in the Subscriber's Area. Back to top
November 28 2016

Commentary by Eoin Treacy

Fearing tighter U.S. visa regime, Indian IT firms rush to hire, acquire

This article by Sankalp Phartiyal and Euan Rocha for Reuters may be of interest to subscribers. Here is a section: 

Indian companies including Tata Consultancy Services (TCS), Infosys and Wipro have long used H1-B skilled worker visas to fly computer engineers to the U.S., their largest overseas market, temporarily to service clients.

Staff from those three companies accounted for around 86,000 new H1-B workers in 2005-14. The U.S. currently issues close to that number of H1-B visas each year.

President-elect Trump's campaign rhetoric, and his pick for Attorney General of Senator Jeff Sessions, a long-time critic of the visa program, have many expecting a tighter regime.

"The world over, there's a lot of protectionism coming in and push back on immigration. Unfortunately, people are confusing immigration with a high-skilled temporary workforce, because we are really a temporary workforce," said Pravin Rao, chief operating officer at Infosys, India's second-largest information Technology firm.

 

Eoin Treacy's view -

India has benefitted enormously from the offshoring of jobs in the customer service, programming, IT and pharmaceuticals sectors. However a number of these large Indian companies are dependent on ready access to their US based customers so they can offer the best possible service which is why India has tended to dominate H1B visa applications. When headlines such as this one highlight how India got 84% of such visas in 2014 there are very real risks that a more protectionist administration could pose a threat to India’s heretofore comfortable access to Silicon Valley. 



This section continues in the Subscriber's Area. Back to top
November 23 2016

Commentary by David Fuller

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

David Fuller's view -

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

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

This item continues in the Subscriber’s Area.



This section continues in the Subscriber's Area. Back to top
November 22 2016

Commentary by David Fuller

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

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

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

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

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

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

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

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

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

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

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

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

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

David Fuller's view -

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

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



This section continues in the Subscriber's Area. Back to top
November 17 2016

Commentary by Eoin Treacy

Is the EV finally coming of age?

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

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

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

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

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

 

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
November 16 2016

Commentary by David Fuller

Global Dollar Shock Threatens Fresh Financial Storm, Warns Watchdog

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

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

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

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

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

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

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

David Fuller's view -

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

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

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



This section continues in the Subscriber's Area. Back to top
November 14 2016

Commentary by David Fuller

Brexit Vote Has Not Sparked a Tech Exodus

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

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

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

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

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

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

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

David Fuller's view -

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

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

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



This section continues in the Subscriber's Area. Back to top
November 10 2016

Commentary by Eoin Treacy

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

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

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

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

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

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

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

 

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
November 08 2016

Commentary by Eoin Treacy

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

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

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

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

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

 

Eoin Treacy's view -

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



This section continues in the Subscriber's Area. Back to top
November 03 2016

Commentary by Eoin Treacy

The U.S. dollar is a crowded consensus

Thanks to a subscriber for this note by James Paulsen for Wells Fargo Asset Management. Here is a section:

Most anticipate a modest and relatively slow tightening by the Federal Reserve primarily because a consensus believes tightening efforts will lead to a much stronger U.S. dollar. However, we suspect a surprising decline in the U.S. dollar will exacerbate inflation anxieties and accelerate the pace of Fed tightening from what is currently anticipated.

Looking into 2017, we recommend investors position portfolios as a dollar contrarian. Crowded consensus trades are not often fruitful and frequently prove risky. If the consensus is surprised by a falling dollar, many portfolios will need to be adjusted. Surprising dollar weakness will benefit commodity prices and penalize high-quality bond investors. It would also favour international stocks, particularly emerging market equities.

Moreover, it would likely extend the leadership of small and mid-cap stocks evident so far this year. Finally, a weaker dollar would probably focus investors on the materials, industrials, Technology and financials sectors within the U.S. stock market.

Eoin Treacy's view -

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

The Dollar Index has been largely rangebound since early 2015 and pulled back this week from the region of the upper side of the congestion area. With such a clear downward dynamic it is now for the bulls to prove their case by posting at least an equally impressive upward dynamic to retake the initiative as the short-term overbought condition is quickly unwound. 

 



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