Investors expecting the American economy to jolt equities out of their 2016 funk saw those hopes dashed this week as fresh signs of sluggishness sparked a selloff in Technology and consumer shares with the highest valuations.

The Nasdaq 100 Index plunged 6 percent in the week, with declines on Friday sparked by a mixed labor report that sent 90 percent of the gauge’s members lower for the five days. Disappointing results from LinkedIn Corp. to Tableau SoftwareInc. fed fears that momentum shares are hitting a wall at the same time economic data showed growth slowing in the services and manufacturing industries.

The selloff in U.S. stocks pushed the S&P 500 down by 8 percent in 2016, as investors fled riskier assets amid renewed concern that China’s weakness and a rout in oil are slowing the world’s largest economy. Damage was heaviest in the Nasdaq Composite Index, where losses now stand at 13 percent this year after the gauge outperformed the Standard & Poor’s 500 Index in every year since 2011.

“We are seeing some softening in the economy and until that reverses or there is more central bank accommodation, I think the market is going to continue to be vulnerable,” Russ Koesterich, global chief investment strategist at BlackRock Inc., said by phone. “It’s going to be hard for the market to go back to the old highs in the near future.”

I think this is a cyclical or technical bear market – a stronger version of 2011 – rather than a far more serious secular bear such as 2008, in response to what we eventually learned was the worst credit crisis recession since the 1930s. 

However, the current bear trend is worse than 2011 because valuations on Wall Street are higher; leverage is greater, and most importantly, sovereign wealth funds in commodity exporting countries from Norway to Saudi Arabia are forced sellers.  Previously, when commodity prices were considerably higher, leading exporters of resources had positive cash flow and were channelling more money into their sovereign wealth funds.

These factors, and also the one sector which is performing, are discussed in greater detail in the most recent Audio.      

Banks are watching wealthy clients flirt with robo-advisers, and that’s one reason the lenders are racing to release their own versions of the automated investing Technology this year, according to a consultant.

Millennials and small investors aren’t the only ones using robo-advisers, a group that includes pioneers Wealthfront Inc. and Betterment LLC and services provided by mutual-fund giants, said Kendra Thompson, an Accenture Plc managing director. At Charles Schwab Corp., about 15 percent of those in automated portfolios have at least $1 million at the company.

“It’s real money moving,” Thompson said in an interview. “You’re seeing experimentation from people with much larger portfolios, where they’re taking a portion of their money and putting them in these offerings to try them out.”

Traditional brokerages including Morgan Stanley, Bank of America Corp. and Wells Fargo & Co. are under pressure to justify the fees they charge as the low-cost services gain acceptance. The banks, which collectively employ about 46,000 human advisers, will respond by developing tools based on artificial intelligence for their employees, as well as self-service channels for customers, Thompson said.

“Now that they’re starting to see the money move, it’s not taking very long for them to connect the dots and say, ‘Whatever I offer for a fee better be better than what they’re offering for almost nothing,”’ Thompson said. Technology will “make advisers look smarter, better, stronger and more on top of the ball.”

 

Robo-Advisers are an inevitable development and they are not just a fad that will pass with time.  Consider this – a smart computer programme can monitor every listed share on the planet, if that is the field which you or any other investor would like to survey.

This item continues in the Subscriber’s Area.

Drone swarms that can print emergency shelters for survivors of natural disasters are just around the corner, says Mirko Kovac in an interview.

Colin Smith visited Imperial College London’s flight arena, buried deep in the bowels of the Department of Aeronautics, to speak to Dr Kovac. In between carrying out tests on a prototype aerial robot for repairing oil pipelines, Dr Kovac spoke about his research and the future benefits aerial robotics could bring in construction.

Dr Kovac and his team have received more than £3.4 million in funding from the Engineering and Physical Sciences Research Council and industrial partners. His project will push forward the development of aerial construction-bots, equipped with 3D printing Technology, which excrete materials that can be used to repair or build structures.

One potential application is in disaster relief, says Dr Kovac. These types of emergencies can throw up all types of physical obstacles such as landslides and floods, which prevents teams from reaching those in need in a timely way. Dr Kovac says the aerial drones he is developing could fly to a disaster zone, scan and model the landscape using Building Information Management (BIM) systems, design temporary shelters, and print them on the spot. This could give those in need a place to live until emergency services personnel can reach them.

This process, called Additive Building Manufacturing (ABM), is already being trialled in many parts of the world by the construction industry. It involves the use of large robots on a building site that extrude building materials to construct buildings, similar to a 3D printer. This process has the advantage of reducing construction times, material and transport costs and easing traffic and environmental impacts. 

This is by far the most exciting era of technological innovation, and the rate of achievement is accelerating.  

Exchanges began embracing electronic trading about three decades ago. Electronic trading enabled some companies to use market-moving information milliseconds before their competitors, sparking a technological arms race.

Over the past 15 years, meanwhile, the global financial market has fragmented: Where there were once three main U.S. exchanges, there are now more than 40 exchanges and alternative trading systems.

And high-frequency trading companies have largely replaced traditional broker-dealers, using algorithms instead of human traders to make decisions in milliseconds, mostly in response to orders made by other algorithms.

Technology has made trading faster and more efficient. But the system is also more opaque, and some wonder whether high-frequency trading companies are profiting at the expense of institutional and retail investors.

“There are probably about 5,000 people who know how the trading system works but none of them will speak about the way these high-frequency firms make money,” said a financial industry insider, who spoke on the condition they not be named because their employer had not authorized them to discuss the matter publicly.

On May 6, 2010, the Dow Jones Industrial Average plummeted nearly 1,000 points, then its biggest intraday point drop ever. A government investigation blamed a big order that triggered a selloff for the “Flash Crash,” but couldn’t identify the structural problem that led to markets plunging 10% in 20 minutes before rising again.

Hunsader’s research, published that June, suggested that high-frequency trading companies responded to the first big order by flooding the market with orders that were withdrawn before they were filled, overwhelming the central feed of pricing information other investors needed to complete trades.

The practice, Hunsader says, created illusory liquidity that led to the “Flash Crash” and other dramatic market events that followed. (He coined the term “quote stuffing” to describe it.) “It was a bit like a denial-of-service attack on a website,” said Hunsader. “The system can’t handle it and crashes.”

Hunsader, sure he’d identified a core structural issue, later published more than 2,000 more reports — some a few sentences, others more detailed explanations of how he says markets are manipulated.

“I peeked behind the curtains and did not like what I saw,” said Hunsader.

In the reports, and on social media, he criticizes high-frequency traders, which he says use Technology to break Securities and Exchange Commission trading rules; exchanges, which he says benefit from immunity from prosecution and turn a blind eye to wrongdoing; and regulators, who he says don’t do enough to protect investors.

For a number of years high-frequency trading firms have been operating computer driven, predatory, front-running systems which should be illegal but too often are not.  This tells us that many of our market officials and regulators are amoral at best. 

Bad, yes. But getting worse? Recent movements in stock markets have been dominated by precipitous falls in China. China bears predict that the current issues will deepen, turning into troubles similar to those that caused the financial crisis of 2008-09. I do not think this will be the case.

In the past 20-odd years there have been three periods of bubble-like conditions globally: the Technology boom of the late 1990s, the credit binge in the mid-2000s and a bubble in commodities in the last decade. The first boom led to overbuilding of cable infrastructure and permanent loss of capital in the Technology sector.

The second boom led to over-borrowing and the default of several banks. The commodity bubble bursting is likely to lead to the default of commodity-producing businesses – and perhaps of some Chinese banks too – and to a glut of excess productive capacity.

If the primary result is cheap commodities, then many consumers and developing nations (such as India) will benefit.

Secondly, while the fragility of the financial system was exposed in 2008-09, I do not expect a rerun: especially in Britain and America, banks are much stronger and have learnt many lessons.

Crises rarely repeat themselves exactly, but investors naturally recall the last crisis and re-predict it, even if they almost certainly didn’t see it coming last time. There are too many vocal bears out there now compared with 2008. For example, RBS recently urged investors to “sell everything”. I cannot recall any such warning in 2007 or 2008.

• Time to 'sell everything'? No, this is when 'hold everything' works

My greater concern is that while looking for troubles in the East, investors are neglecting unsolved problems in the west. In the context of poor growth, the high levels of sovereign debt in many developed nations are unsustainable. This has been masked temporarily by the actions of central bankers, who have suppressed interest rates to historical lows and in turn made borrowing costs appear manageable.

This is a sensible article, in my opinion, and I think it will interest subscribers. 

Veteran investors will remember the first boom in bioTechnology shares in the late Nineties. Prices crashed and brave backers vowed never to go there again.

But biotech is hard to ignore given the incredible gains of the past decade, driven by an ageing population and demands for better health care. Leading the charge has been the Biotech Growth investment trust. It has been run by Geoffrey Hsu of OrbiMed Capital since 2005. He also runs theWorldwide Healthcare Trust.

At its peak in July, Biotech Growth’s returns equated to more than 20pc a year over a decade. Even after falling hard since then, the five-year return still stands at 282pc, turning £1,000 into £3,820.

Have biotech shares become overvalued?

There are some pockets of overpriced stocks in emerging biotech but big biotech still has compelling valuations.

The sell-off we have seen since the start of the year really can’t be justified. It’s to do with the slowdown in China and the falling oil price. Biotech has no exposure to any of that.

Our chart (see below) shows that previously when the big biotechs have been cheaper, on price-to-earnings ratios, than the S&P 500 index it has turned out to be a good time to buy, which is the case now.

We believe the possibility of mergers provides a “valuation floor” for biotech. Single-product companies valued at $5bn to $10bn are in the sweet spot. We saw in 2015 that companies were still being bought at huge premiums of up to 140pc.

The bubble for the Nasdaq Biotech Index has certainly burst, so what happens next?

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

The gains add to optimism that Chief Executive Officer Nadella can revitalize growth by focusing on Web-based services and productivity applications. More than 70 percent of Fortune 500 companies are now using at least two different Microsoft cloud services, Nadella said on Thursday. His plan to focus on apps for rival platforms is also attracting users, with 340 million downloads of Office apps on Apple Inc.’s iOS and Google’s Android.

While Nadella pushes expansion, Chief Financial Officer Amy Hood is reining in costs.

“They have two things going for them -- one, the belief that Nadella is driving innovation towards the cloud, and No. 2, Amy Hood has had a blowtorch out on expenses," said Brent Thill, an analyst at UBS AG, referring to Microsoft’s chief financial officer. “It’s a totally different vibe coming out of that place that it was three years ago."

 

Governance is everything has been a refrain veteran subscribers will be familiar with. Microsoft offers a powerful example of how a newly energised board can have a transformative effect on earnings and perhaps more importantly perceptions of further potential. 

As mentioned in the Health Care section on page 23, while 2000-2001 was the peak distress period for biotech and life science companies, there has been a steady drumbeat since, with over 100 biotech and life science catastrophic loss events since 2002 (see bar chart). We referenced earlier research showing that even when a drug finally gets to Phase 3 trials, the probability of failure can still be as high as 50%. One possible emerging challenge for the biotech industry: patent trolls. For funding and other reasons, some universities are under pressure to monetize their patents by transferring rights to “assertion entities”. As per a 2014 paper from the University of California Hastings College of Law, as these patent sales take place, the risk to biotech and pharmaceutical companies with existing products on the market increases dramatically. Such patents can cover active ingredients of drugs, methods of treatment, screening methods to identify new drugs, manufacturing methods and dosage forms.

In the table, we show some of the more recent catastrophic losses (companies reaching the 70% decline threshold in 2012 or 2013). Biotech companies can experience periods of depressed stock prices as trials fail or have to be rerun, with some surging when/if success eventually occurs, or when they are bought by larger companies. As a result, the table below captures catastrophic loss at a point in time (Spring 2014), and does not represent a final assessment of each firm’s future prospects.

 

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

This is a useful report laying out the argument for a diversified approach to long-term investing while also highlighting just how much leaders outperform. A central part of the thesis we developed following the credit crisis was to rely on leadership and to favour pre-eminent companies within their respective sectors. Part of the reason for this is because capitalism trends towards concentration. This favours large companies that have the wherewithal to acquire emerging Technology and the best assets of troubled competitors. As the report details, the majority of shares perform unremarkably while the leaders lead by a considerable margin. That is why we created the Autonomies theme. 

As chairman of investments at Guggenheim Partners, Scott Minerd thought he had a realistic view on how big an economic challenge climate change poses.

Then, at a Hoover Institution conference almost three years ago, he met former U.S. Secretary of State George Shultz. Minerd recalled him saying: “Scott, imagine that you woke up tomorrow morning, and the headline on the newspapers was, 'The World Has Discovered a New Ocean.’” The opening of the Arctic, Shultz told him, may be one of the most important events since the end of the ice age, some 12,000 years ago.

And while Shultz’s spokesman couldn’t confirm the conversation, there’s no doubting the melting of the Arctic ice cap, and the unveiling of resources below, presents mind-boggling opportunities for energy, shipping, fishing, science, and military exploitation. Russia even planted its flag on the sea floor at the North Pole in 2007.

Energy and shipping have been first up. Norway made its national fortune drilling in northern waters, and Arctic fossil fuel exploration has become a more prominent part of U.S. energy policy. Melting ice means that in summer months, cargo can travel approximately 5,000 km from Korea to New York, rather than the 12,000 km it takes to pass through the Panama Canal. Warming waters also open up access to commercial fish stocks, making the Arctic a growing source of food.

The headline and text of Eric Roston’s article clearly view the opening of the Arctic for commercial ventures as a huge opportunity.  Well, trade routes through the Arctic will be convenient for some but technological advances already ensure that we have more than enough oil, gas and minerals.  This is confirmed by today’s low prices for these resources.  That may change some day but I think the continued and even accelerating advance of Technology will provide the industrial resources, or even better substitutes, that the world will require. 

The melting of Artic ice is also further confirmation of climate change in the form of global warming.  This will have some very negative consequences, most likely starting with an increase in the rate of rising sea levels.  The article mentions fishing but not any of the negative consequences.  The last thing our dwindling fish stocks require is the plundering of their last refuge as factory ships sweep up critical supplies.       

This article recently published by Bloomberg caught my eye.   Do you have any insight into the Technology and its potential? 

I’ve been watching the Small Modular Reactors (SMR) sector for a number of years because it has the potential to drastically change the way the nuclear sector is perceived. With smaller designs and generation IV Technology many of the issues associated with nuclear can be avoided. In additional the plan to build them in a factory in a process that can be repeated should help to control costs. 

Brynjolfsson says companies are in the early stages of figuring out how to retool their processes to take advantage of digital tools such as big data and machine learning. He also says our current method of measuring gross domestic output, and by extension productivity, does a poor job of capturing the value of free goods. “If you’re giving an app away for free that does something you used to pay for, then it’s going to initially make GDP smaller,” Brynjolfsson says.

Hal Sirkin, a senior partner at Boston Consulting Group, points out that robots currently perform only about 10 percent of manufacturing tasks. “We project that over the next 10 years, that might increase up to 20 or 25 percent. So there is a long way to go on that productivity curve.” Sirkin and his colleagues at BCG forecast that by 2025, wide-scale adoption of advanced robots will increase productivity as much as 30 percent in some industries, including machinery and appliance manufacturing, and lower total labor costs 18 percent.

Whatever you believe about Technology’s role in productivity, there’s broad consensus that the outlook for unskilled workers isn’t good. In a speech this November, Bank of England Chief Economist Andy Haldane said he and his staff had modeled the effects of automation on the U.S. and U.K. labor markets and concluded that 80 million jobs in the U.S. and 15 million in the U.K. were at risk.

A BCG report from September 2015 that examined the impact advanced Technology could have on Germany’s manufacturing sector concluded that if 50 percent of companies adopted new tools such as autonomous robots and 3D printing by 2025, industrywide revenue could rise 1 percent, leading to an additional 350,000 jobs. If revenue were to rise only 0.5 percent, however, the result would be a net loss of 40,000 jobs. “It’s a real possibility that if we do nothing, that inequality can get worse and more people end up getting left behind,” Brynjolfsson says. “But it’s not inevitable, and it comes down to a set of policy decisions we make. If through Technology we can create more and more wealth for less and less work, then shame on us if that’s a bad thing.”

New technologies are disruptors, at least initially, especially in the way they reduce costs.  There are endless examples which we can recall, and that sentence from Erik Brynjolfsson above provides a useful example:

“If you’re giving an app away for free that does something you used to pay for, then it’s going to initially make GDP smaller.”

This item continues in the Subscriber’s Area.

Some encouraging news from the advanced nuclear sector. I am pleased to see that Terrestrial Energy (disclosure: I own shares) has successfully raised the equivalent of USD 7m in equity. Albeit modest, it is an important step forward. The company is making steady progress in its task to finalize its Molten Salt Reactor design, while the next step is to work with Canadian authorities with the aim to license the Technology. Commercialization in the first part of the 2020’ies is still some years ahead, but this Technology should, as I hope and believe, prove to be an important tool to reduce carbon emissions in the future.

Thank you for this update and the MIT review articles which gives additional insights on the development of new nuclear. Perhaps the greatest challenge facing the nuclear industry is that despite the fact Technology continues to improve quickly, regulatory change is moving at a glacial pace. With sufficient government backing there is credible scope for new nuclear to flourish but it is dependent on political will to make it happen.

Monday was a possibly record-setting day for biotech IPO announcements. Tuesday looks to have been the same for secondary offerings in the industry.

Eight different biotechs announced equity financing efforts that day, and another three announced on Wednesday. We only have pricing for some of the offerings, but Bloomberg puts the total amount firms hope to raise so far at more than $1.2 billion. 

The market was less than enthused: Every single one of the companies that filed on Tuesday traded lower on Wednesday, several of them down as much as 20 percent. No one quibbles with the idea that biotechs need to raise money to develop drugs or operate. But the timing seems off: These secondaries come in the middle of a nasty selloff in the broader market -- not exactly the most favorable environment. It is a far cry from the early part of 2015, when biotechs often saw big price gains after a secondary. 

It is at least slightly better timing than last autumn, when pharma and biotech were getting hammered. And the filings come just ahead of JPMorgan's health care conference next week, a good time to talk up a company trying to raise money.

This week’s slide by the Nasdaq BioTechnology Index provides further evidence that last year’s runaway stock market success story has an extended top formation, which will bring valuations for its more expensive shares closer to Earth.  

This item continues in the Subscriber’s Area.

As a keen amateur historian I was very interested in the piece by Allister Heath on Thomas Malthus. I would like to play the role of Devil’s advocate here and suggest that things might not be quite so rosy regarding our future comfort on the planet. Malthus was plainly wrong in not considering the incredible capacity of humans to innovate and develop technologies regarding supplies of essential commodities. In one respect however he may still be correct in his basic proposition, namely population growth of our species outpacing our resources at some point. In 1800 there were about 1 billion people on the planet. Today 7.3 billion rising to 11 billion in 2050. While it is true rabbits cannot control their birth rates and we can. The fact is we don't. The control that women have over their bodies is reserved for a privileged few in well-educated western style economies. For vast areas of the globe women are, for cultural or religious reasons totally subservient to men, having no control whatsoever over their bodies. I have just been reading the latest statistic concerning teenage pregnancy here in South Africa. Whereas there were 60 thousand teenage pregnancies in 2011, last year this figure was more than double. Many of these girls are under 15. The whole matter of population of course, impacts directly on climate change and our use of fossil fuels. The development of China over the last 30 years has changed everything. All our talk of green energy is all very well but China still relies on fossil fuels for 85% of its energy needs. On official statistics it burns 3.5 billion tonnes of coal as compared to the US one billion tonnes Last year extreme weather events made headlines again, the main one being a record breaking El Nino currently wreaking havoc in the UK and here in South Africa causing a year long drought and record high temperatures. I think we have at least to consider the possibility of global warming entering an acceleration phase.

Many thanks for your interesting and thoughtful email, covering many points.  

Regarding the forecast of 11 billion people in 2050, which I have also heard, I am wary of such extrapolations that far into the future.  It could be right, for all I know, but if we consider the possibility of global warming entering an acceleration phase, as you suggest, subject to severity that could easily reduce populations.  More likely, I hope, education and greater prosperity, leading to a larger middleclass in the world’s poorer regions would also reduce or at least slow population growth.

Regarding air pollution, I have long maintained that we need a little luck, mainly in terms of time, to successfully curb this problem before it is seriously out of control.  Thereafter, Technology is the key and fortunately the world is increasingly focussed on this challenge. Great strides have been made and China’s government is now engaged in the effort to reduce CO2 emissions. So I am hopeful, but far from complacent.   

While it is hard to gauge the extent to which these three factors have slowed this recovery we believe that they have had some impact. The long-term benefits of information Technology will likely more than offset such short-term disruptions to fixed asset investments. Similarly, we think the drag from offshoring to China has run its course as China has become a less competitive exporter.

With respect to the excess capacity from China and the drag on global growth, we believe that China’s ongoing investments in new industries such as airplanes and arms will affect the profitability of other multinational companies, reduce their prospective growth trajectories and indirectly lower growth in fixed asset investments.

Finally, we conclude with some data from the seminal work on financial crises by Carmen Reinhart and Kenneth Rogoff, This Time is Different: Eight Centuries of Financial Folly, which shows that the recoveries from financial crises are systematically more muted.44 What is most relevant in the context of our cautiously optimistic outlook for growth and financial markets is the fact that in the 10-year windows following severe banking crises that Reinhart and Rogoff examined, growth picked up substantially in the second five year period relative to the first. In the post-WWII era, on average, developed economies grew 2.1 percentage points faster in the second five-year period relative to the first five years after the onset of the crisis. Similarly, emerging market economies grew an average 3.2 percentage points faster.

 

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

The news headlines are afire with tales of terrorism, war, environment disaster and human misery and yet the stock market has been rallying for more than six years. There is no doubt geopolitical tensions have increased and the Fed is raising rates, from incredibly low levels, for the first time in almost a decade.so there is some justification for anxiety. However that does not mean all stocks are performing in a similar manner. 

Editas Medicine Inc., the drugmaker whose backers include Bill Gates and Google Ventures, filed to become the first publicly traded company to specialize in a new Technology to edit flaws in genes.

The company, which uses a gene-editing technique called Crispr, filed Monday for the IPO with an initial size of $100 million. That’s a placeholder amount used to calculate fees and will probably change.

Gene-editing startups have drawn more than $1 billion in private venture-capital investments since 2013, according to Boston Consulting Group, with investors hopeful that new, more precise DNA-editing capabilities will yield treatments for conditions as diverse as blood diseases, cancers, auto-immune disorders and inherited eye disorders. 

Cambridge, Massachusetts-based Editas has raised $163.3 million from selling preferred stock, its filing said. Venture capital firms Flagship Ventures and Polaris Partners each hold more than 15 percent of the company before the offering. Google Ventures -- the unit of Alphabet Inc. that goes by GV for short -- has also bought private shares, along with Gates and Khosla Ventures.

Rodger Novak, chief executive officer of Basel, Switzerland-based Crispr Therapeutics Ltd., has said he would consider an IPO this year. Both companies have said their first in-human trials won’t start until 2017. Other closely-held gene editing firms include Intellia Therapeutics Inc. and Poseida Therapeutics Inc. Bayer AG and Crispr Therapeutics also started a joint venture in December with a $335 million investment from Bayer.

 

There is still an ongoing emotive debate about the virtues of genetically modified food with North America championing the sector while Europe has taken a much more cautious and often aggressive opposing view. Despite fear of the unknown, which would appear to inspire much of the emotive commentary on genetics, the potential for truly life changing innovation is undiminished. 

It is one of life’s mysteries that being wrong about everything has never been much of a barrier to success. Take Thomas Malthus, the British theologian: his big idea was that the number of human beings would necessarily grow faster than the supply of food, leading to calamity. There was little difference, in his mind, between people and rabbits: both were doomed to over-breed, over-consume and starve.

Yet this theory, expounded in 1798 in An Essay on the Principle of Population, one of the most influential books ever written, and now also routinely applied to oil and other resources, is bogus. Unlike rabbits, who are powerless to control their environment, the more we need, the more we eventually find a way of producing: the availability of food and oil are determined by Technology and economics, not by some law of nature. Modern techniques (such as fertilisers, genetic selection or fracking) mean that agriculture and the extraction of commodities have become hugely more efficient.

The average British field yielded just over three tons of cereal per hectare per year in 1961; today, it is twice that. Thanks to the spread of free markets and knowledge, the world has never produced so much food, and the number of hungry people worldwide has dropped by 216m since the early Nineties, according to the United Nations.

Ditto oil production: in 2000, the Energy Information Administrationestimated that the world contained just over one trillion barrels of untapped oil; since then, proved reserves have shot up by 60pc, increasing every single year despite booming consumption from energy-thirsty emerging markets.

Malthus wasn’t just far too pessimistic about supply: he was also wrong about demand. Rabbits can’t control their birth rates; we can. As more countries embrace markets and globalisation, thus ensuring that their economies develop, global birth rates keep on falling. As to energy consumption, it is just a matter of time before improved battery Technology and ever-cheaper solar power finally lessen our dependence on the internal combustion engine and oil. We will eventually be able to feed and fuel the world’s population using significantly less land and fewer hydrocarbons than we do today.

Jesse H Ausubel, an academic at the Rockefeller University in New York, has calculated that an area the size of the Amazonian forest could be returned to wildlife when the average farmer around the world becomes as productive as their US counterparts. Ausubel calls this the Great Reversal: nature’s chance to restore land and sea to their original use. It is an intriguing and exhilarating prospect, made possible by the wonders of capitalism, innovation and human ingenuity.

The abject failure of Malthusianism was, in fact, one of the defining trends of 2015, especially in the oil market; it will continue to be one of the central forces of 2016, impacting everything from how quickly the Bank of England puts up interest rates, to the stability of the Middle East. The price of Brent crude oil, which briefly reached $147 a barrel in 2008, is now down to around $37. Some analysts even believe it could fall briefly to $20, especially if more Iranian supplies than expected hit the global markets.

People are susceptible to Malthusianism because running out of what we need and want – food, companions, shelter, money – is a primal instinct. Fortunately, it motivates most people on a needs must basis.  However, it can also overwhelm some with feelings of anxiety and loss. 

As investors with a sense of history, we know that most markets have not only survived but also thrived after much more worrying events than we are witnessing today.  We also know that the world improves more often than not, in terms of GDP growth, technological innovation and life expectancy.  This is reflected by stock markets over time, to the benefit of sensible, worldly investors who buy low and sell high.   

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

On December 28, General Electric (NYSE:GE) agreed to purchase Metem , a privately held company manufacturing based in New Jersey that specializes in making turbines last longer and operate more efficiently. The acquisition comes on the heels of GE's acquisition of Alstom in November.

The Alstom deal is expected to the crowning achievement of CEO, Jeff Immelt's management team, adding $0.05/share in 2016 and $0.15/share by 2018. Alstom will help GE achieve its re-industrialization strategy, eventually being 90% industrial and 10% capital.

The acquisition of privately held Metem, while small, is significant. It symbolizes a pro-active GE, willing to do what is necessary to 1) improve the efficiency of operations and 2) maximize profitability.

Metem is an example of the type of company that used to be widely prevalent across the United States, a manufacturing-oriented firm with strong, highly specific Technology. In Metem's case, the company, which was founded in 1962, has an expertise in turbine cooling.

"Metem Corporation has facilities globally that innovate, drill, and machine precise cooling holes and other advanced features into hard super-alloy turbine components using sophisticated machining processes. The processes range from EDM to STEM drilling and other ECM applications with a suite of supporting capabilities that includes CNC Milling and part assemblies. Through these fully-integrated diverse capabilities, Metem offers the flexibility to machine engine-ready components globally in high volumes. "

Metem, has developed (for a small company) a very nice Intellectual property ("IP") portfolio, and has been forward looking with respect to IP and manufacturing, establishing a production and R&D facility in Hungary in 2005 and acquiring 50% of ECM Technologies, an advanced precision electrochemical R&D machining company in The Netherlands in 2012. Overall, Metem has 280 employees.

I bought General Electric for my medium to longer-term trading account back in April, because after a long period of underperformance it was in the process of selling off its GE Capital unit.  The next few months were inauspicious for GE and Wall Street, not least with the August meltdown, resulting in the S&P 500’s first correction of over 10% in over four years. 

However, GE began to perform when Nelson Peltz’s Trian made a big bet on the company.

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

Dr Alsweilem, now at Harvard University's Belfer Centre, said the Saudi authorities have taken a big gamble by flooding the world with oil to gain market share and drive out rivals. “The thinking that lower oil prices will bring down the US oil industry is just nonsense and will not work.”

The policy is contentious even within the Saudi royal family. Optimists hope that this episode will be a repeat of the mid-1980s when the kingdom pursued the same strategy and succeeded in curbing non-OPEC investment, and preparing the ground for recovery in prices. But the current situation is sui generis.

The shale revolution has turned the US into a mid-cost swing producer, able to keep drilling at $50bn a barrel, according to the latest OPEC report. US shale frackers can switch output on and off relatively quickly, acting as a future headwind against price rises.

The energy intensity of global GDP is falling rapidly. Renewable Technology and energy efficiency have both made huge strides. The latest climate accords in Paris imply some form of carbon tax that will ratchet upwards over time, slowly changing the cost calculus for oil use.

“There is an overwhelming feeling among many in Saudi Arabia that this crisis is just cyclical and that it will reverse soon, so everything will be OK. But the danger is that what is happening is structural, and that means a country like Saudi Arabia can’t just sit still,” said Dr Alsweilem.

The Saudi government may have unveiled an austerity package of spending cuts and increased taxes, and be looking to slash electricity and water subsidies for the wealthy. But Riyadh has to tread with care. The country’s cradle-to-grave welfare system is what keeps a lid on dissent and binds the country’s fissiparous tribal polity.

Prince Mohammed bin Salman, the 30-year old deputy crown prince now running the country, is trying to push through radical reforms, firing princelings from sinecure positions and bringing in an elite team of technocrats to transform Saudi Arabia’s archaic oil-based economy.

He is drawing on a McKinsey study – ‘Beyond Oil’ - that sketches how the country can break its unhealthy dependence on crude, and double GDP by 2030 with a $4 trillion investment blitz across eight industries, from petrochemicals to metals, steel, aluminium smelting, cars, electrical manufacturing, tourism, and healthcare.

I do not know if Dr Khalid Alsweilem, the former head of asset management at the Saudi central bank, has much influence with King Salman.  However, 30-year old and highly influential Prince Mohammed bin Salman may understand, given the concluding paragraph above. 

However, Saudi governments remain compromised by their Faustian pact with the contemporary Wahhabis who have spread their intolerant faith far beyond the Middle East, in an effort financed by Saudi billions as the price of crude oil mostly rose from the 1970s until mid-2014.  With that stream of funding now inevitably reduced, one might hope that intolerant Wahhabism was now in decline, although the outcome may be less reassuring.  

This item continues in the Subscriber’s Area, where more charts and another article are posted, in addition to a PDF of AE-P’s article.

California’s proposed rule that a driverless vehicle must contain a steering wheel and a brake pedal for emergencies, goes against the grain of the Technology industry that has been leading the development of these vehicles and cannot imagine a situation where the specified equipment would be necessary. It is akin to the continued existence of the emergency brake, a seldom used feature on a car, or directional signals, which many people seem to consider as unnecessary. The mandated equipment will certainly alter a passenger’s experience from that of a 21st Century, space-age vehicle to merely being a passenger riding in a modern automobile.

And   

Stretching out the transition time to a totally driverless vehicle fleet will also delay some of the anticipated economic and energy benefits envisioned. The world of a complete fleet of autonomous vehicles would allow them to be smaller and lighter, reducing the energy needed to produce them and power them. The absence of accidents would reduce the economic impact of injuries, physical damage and deaths, along with limiting or even ending the need for personal automobile insurance and the costs of accident litigation. If driverless vehicles could operate without human drivers, many families might also eliminate the need for second or third cars by being able to overlap their use of one vehicle, even though it would mean that vehicle would drive considerably more miles per year than the typical family’s current vehicles do. Net-net there should be an energy savings. Lastly, fewer vehicles would mean less need for expanded highways and parking spaces, freeing up urban land for alternative uses. California’s stance on driverless vehicles would seem to be slowing down the shift to our transportation nirvana and actually extending the petroleum age.

 

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

California’s laws on what need to be inside an autonomous vehicle, including a driver for example, are likely to represent a brake on the sector’s progress. However as anyone who actually drives a car knows there is a difference between what the law says and what the experience of driving is. 

The Reuters' report is encouraging but you say "Bitcoin may succeed or fail". I have heard that it is just another Ponzi scheme that will leave investors holding an empty bag. How likely is a failure? Does anybody know?

Thank you for this question as it helps to separate the ideas of how closely Bitcoin resembles a currency from the Technology that underlies it, which is called the blockchain. This is important from the perspective of an investor because while the value of bitcoin varies with supply and demand, the blockchain can be developed independently of the value of bitcoins. This is what major financial institutions are now doing and Nasdaq is already testing how to record ownership of some shares via blockchain protocols. . 

According to the report, while Hon Hai — known as Foxconn Technology Group (???) outside Taiwan — has proposed acquiring Sharp at a high premium, it also wants Sharp’s current management team, including president and chief executive officer Kozo Takahashi, to step down.
Hon Hai would send a team to Sharp to manage the firm, the report said.

Hon Hai also plans to take over the debt shouldered by Sharp to help the firm address its financial problems, the report said.

However, the report also said that Hon Hai has yet to talk with Sharp’s bank creditors.

The report said that Sharp was shouldering about ?760 billion in debt as of the end of September.
Hon Hai is not the only potential suitor seeking to buy Sharp, the report said, adding that the Innovation Network Corp of Japan (INCJ), which is sponsored by the Japanese government, is studying a buyout of Sharp.

The report said that the INCJ still needs some time to map out a concrete acquisition deal, and the proposal is unlikely to come out until next year, so Hon Hai is taking advantage of the vacuum created to make a deal.

 

Hon Hai Precision is best known for assembling Apple’s iPhone as well as being one of the world’s largest employers. As a fabless manufacturer it generally does not promote its own brands so the potential acquisition of a manufacturer with global brand recognition such as Sharp is an interesting development. 

The reason 2016 looks set to be different is that bitcoin's price is likely to be driven in large part by similar factors to a traditional fiat currency, following the age-old principles of supply and demand.
Instead of being controlled by a central bank, bitcoin relies on so-called "mining" computers that validate blocks of transactions by competing to solve mathematical puzzles every 10 minutes. In return, the first to solve the puzzle and thereby clear the transactions is currently rewarded with 25 new bitcoins, worth around $11,000 BTC=BTSP.

But when it was invented in 2008 by the mysterious "Satoshi Nakamoto", who has yet to be identified, the bitcoin program was designed so that the reward would be halved roughly every four years, in order to keep a lid on inflation. The next time that is due to happen is July 2016.
Bitcoin was also designed to emulate a commodity by having a finite supply of 21 million bitcoins, which will be reached in around 125 years, up from around 15 million today. Hence, also, the use of the term "mining".

Daniel Masters, co-founder of Jersey-based Global Advisors' multi-million dollar bitcoin hedge fund, started his career as an oil trader at Shell in the mid-1980s and spent 30 years trading commodities before crossing over to bitcoin.

Now he reckons the price of bitcoin could test its 2013 highs of above $1,100 next year and then pick up speed to rise to $4,400 by the end of 2017.

That would be due to a number of factors, Masters said, including an increased acceptance of payments in bitcoin by big companies and authorities, rapidly growing interest and investment in the "blockchain" Technology that underpins bitcoin transactions, and also more demand from China as its currency weakens and the economy slows.

But taken in isolation, the halving of the mining reward will increase the price of bitcoin by around 50 percent from where it is now, Masters reckons. That is despite the fact that the halving of the reward has always been inevitable - a factor that would already have been accounted for in pretty much every other market.

With the revaluation of Bitcoin set for July 2016 we can anticipate hearing much more about the cryptocurrency in the next six months. 

Perhaps more important is that large banks are attempting to register patents so that they can use the blockchain as an incorruptible filing system for recording ownership of assets such as stocks and bonds as well as transactions. Bitcoin may succeed or fail but the blockchain Technology it rests on is almost certainly going to be commercialised because it represents such an enormous potential cost saving apparatus for the financial sector. 

OPEC said demand for its crude will slide to 2020, though less steeply than previously expected, as rival supplies continue to grow.

The organization will need to pump 30.7 million barrels a day by the end of the decade, OPEC said Wednesday in its annual World Oil Outlook. That’s 1.7 million barrels more than projected a year ago, and 1 million less than the group pumped in November.

The forecast underlines the struggle faced by the Organization of Petroleum Exporting Countries as it seeks to defend market share against a surge in output from rivals such as the U.S. and Russia. While OPEC is slowly taming the expansion of competitors, the collapse in oil prices means the financial costs of its strategy are immense. Brent crude futures touched an 11-year low of $36.04 a barrel on Dec. 21.

“Although lower oil prices continue to foster some demand growth, their impact seems to be limited by other factors,” the group said. “The removal of subsidies and price controls on petroleum products in some countries and ongoing efficiency improvements will all likely continue restricting oil demand growth.”

No disrespect to OPEC but I am not sure that long-term forecasts for oil prices are worth the paper (or the PDF) they are printed on.  Remember ‘Peak Oil’?  This myth is over 200 years old.  It also fooled everyone for a while, during the height of OPEC’s temporary control, before being swept away by Technology.    

There are two market adages which we should never forget.

This item continues in the Subscriber’s Area. 

The Organization of Petroleum Exporting Countries is in disarray. The price of Brent crude fell to less than $38 a barrel on Friday, the lowest since 2008. If the cartel had been working, it would be cutting output to force prices back up. Its members chose to keep pumping.

Why? Because just as demand from emerging markets is slowing, Technology has changed the economics of oil. That's bad news for OPEC, but good news for everybody else -- especially if the U.S. government and others have the wit to kick OPEC while it's down.

The U.S. shale-oil revolution has greatly increased non-OPEC supply. At the same time, efforts to curb oil consumption as part of the fight against climate change are further limiting the cartel's power to set prices. Oil prices are notoriously hard to predict, but these forces aren't going away, and they mean that OPEC's troubles may not be temporary.

Shed no tears. If the cartel collapsed altogether, there'd be no need to reinvent it. Meanwhile, OPEC's weakness presents an opportunity -- and smart policy can make the most of it.

Cheap oil will directly boost growth in most of the world, but with side effects that need to be managed. The fall in oil prices will encourage oil consumption, both in the short term (people will use their cars more) and long term (they'll buy cars that are less fuel-efficient). This works against reducing carbon emissions, and over time could help to restore OPEC's market power. Later, if prices bounce back, the economic hit would be disruptive.

The answer is for governments to smooth prices by adjusting the tax on fuel. When prices are low, like now, a higher gas tax would barely be noticed. Almost painlessly, it would raise revenues to pay for tax cuts elsewhere -- while maintaining the incentive for energy efficiency and keeping OPEC on its heels. If and when prices go back up, governments can soften the blow to their economies by lowering the tax.

Those are reasonable points but the big variable with crude oil or any other commodity is always supply.  Saudi Arabia is predictably calling the shots and it is hard to see any better outcome for them, or any other oil exporters, than Pyrrhic victories.

This item continues in the Subscriber’s Area. 

Hi David,

As with the issue of the location of the border between Namibia and South Africa, it seems the same wrangling applies to the naming of the river; it is also referred to as the Gariep.

What is interesting about the location of the border is that it is legally located on the northern bank of the river, not in the middle. As a marine diamond miner operating out of Alexander Bay under contract to Alexkor on the southern side of the mouth I am keenly aware of the ramifications of this matter as it determines the boundary between the De Beers (Namibia) portion and Alexkor (South Africa) portion of what is the world’s most valuable diamond placer. This issue has not attracted much attention before because the Technology to mine through the mud belt of the delta was not available. Now it is, in the form of mass flow mining, a method based upon the same underwater excavation Technology utilised extensively in the oil and gas industry by companies such as James Fisher and Sons Plc.

Furthermore, the ideal mineral processing Technology for recovering very large diamonds has also now emerged in the form of XRT sorting (X-ray transmission), a spectacular demonstration of which took place recently with the large diamonds recovered at Lucara. The largest diamonds in the sea are lying closest to the mouth of the Orange River under the mud belt of the delta and XRT sorting Technology will play a big role in developing this world class diamond play.

Two weeks ago I attended the International Hydrographic Society’s conference at the Cape Town International Convention Centre at which the key-note address was delivered by Mr Robert van der Poll, International Manager Law of the Sea at Fugro NV (Netherlands). To my surprise he spoke in some detail about this particular border issue and afterwards I had a fascinating chat with him on the topic, upon which billions of dollars are at stake.

I will keep the collective updated.

Many thanks for this fascinating email which is very likely to be of interest to the Collective of Subscribers.

It is another example of technological innovation enhancing all forms of mining.

Good luck with your efforts which I hope are not too risky.  The occasional update on this venture would be appreciated.   

Greetings from offshore of the Orange River mouth on this fine Thursday evening. I believe this may be of interest to David; it is a link to an article on MSR (molten salt reactor) Technology.

Many thanks for your email and the short article above from Machine Design on MSR Technology.  On this subject, I am just an interested observer, who has posted a few articles on molten salt reactors (MSRs) over the last several years.  It sounds very promising, in terms of relative safety and small compact units which would enable power to be both generated and transmitted more efficiently.  However, safety issues will always be a concern with nuclear power and the problem of highly toxic nuclear waste remains.

Alas, the holy grail of nuclear fission still remains beyond our grasp.   

(See also: Molten Salt Reactors from the World Nuclear Association, and Don’t believe the spin on thorium being a greener nuclear option) 

The threats discussed in this report represent only a small sample of the cybersecurity challenges that organizations, their security teams, and individual users face. So far, 2015 is proving to be a year of unprecedented speed in the innovation, resiliency, and evasiveness of cyberattacks. Adversaries are intent on overcoming all barriers to their success. As fast as the security industry can develop technologies to block and detect threats, miscreants pivot or change their tactics altogether.

The innovation race between adversaries and security vendors is only accelerating, and organizations are at risk of becoming more vulnerable to attack if they sit back and watch. They need to be proactive about identifying and addressing cybersecurity risks that can affect their business and aligning the right people, processes, and Technology to help them meet those challenges.

“Security needs to be part of the way organizations think—holistically—about their business,” says David Goeckeler, senior vice president and general manager for the Security business group at Cisco. “There is a great deal at stake: their brand, their reputation, their intellectual property, and their customers’ data. All of these things are at risk. Organizations need to take a systemic approach to minimizing that risk through an appropriate security posture.”

Trustworthy products are an essential component of an effective security posture, says John N. Stewart, chief security and trust officer for Cisco. “Organizations no longer want to accept that compromise is inevitable,” he says. “They are looking to the security industry to provide them with products that are reliable and resilient, and capable of deflecting even the most sophisticated threats.

 

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

Cybersecurity is a cause celebre for those of us who have had our credit card details stolen or had to endure letters from corporations telling us our most personal data “may” have been included in that which was stolen during a multi-month breach they previously knew nothing about. The investment crowd has priced in a substantial amount of good news already and valuations have increased particularly for those spearheading the sector’s advance. 

iShares BioTechnology ETF pulled back sharply from the region of the 200-day MA today and will need to hold the 300 area during this reaction if support building is to continue to be given the benefit of the doubt. 

A far-reaching deal on climate change in Paris over coming days promises to unleash a $30 trillion blitz of investment on new Technology and renewable energy by 2040, creating vast riches for those in the vanguard and potentially lifting the global economy out of its slow-growth trap.

Economists at Barclays estimate that greenhouse gas pledges made by the US, the EU, China, India, and others for the COP-21 climate summit amount to an epic change in the allocation of capital and resources, with financial winners and losers to match.

They said the fossil fuel industry of coal, gas, and oil could forfeit $34 trillion in revenues over the next quarter century – a quarter of their income – if the Paris accord is followed by a series of tougher reviews every five years to force down the trajectory of CO2 emissions, as proposed by the United Nations and French officials hosting the talks.

By then crude consumption would fall to 72m barrels a day - half OPEC projections - and demand would be in precipitous decline. Most fossil companies would face run-off unless they could reinvent themselves as 21st Century post-carbon leaders, as Shell, Total, and Statoil are already doing.

The agreed UN goal is to cap the rise in global temperatures to 2 degrees centigrade above pre-industrial levels by 2100, deemed the safe limit if we are to pass on a world that is more or less recognisable.

Climate negotiators say there will have to be drastic "decarbonisation" to bring this in sight, with negative net emissions by 2070 or soon after. This means that CO2 will have to be plucked from the air and buried, or absorbed by reforestation.

Such a scenario would imply the near extinction of the coal industry unless there is a big push for carbon capture and storage. It also implies a near total switch to electric cars, rendering the internal combustion engine obsolete.

One of life’s lessons in this era is never underestimate the influence of developing technologies and their ability to change the world.  Another is that most technological breakthroughs are achieved within capitalist economic systems.

Moreover, once new technologies become economically competitive, there is no stopping their development, including an ongoing series of previously unimaginable enhancements.  A good example in our era of accelerating technological innovation is the progress of solar power, discussed by Mark Lewis, the chief author of Barclays’ report on Renewables in a latter portion of the article above:

"The average cost of global solar was $400 a megawatt/hour worldwide in 2010. It fell to $130 in 2014, and now it has fallen below $60 in the best locations. Almost nobody could have imagined this six years ago," he said.  

This is immensely encouraging when considering the risks of manmade climate change.  However, we also need luck because no one knows how various climate change risks will play out over time, even if we could theoretically end our carbon emissions overnight. 

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

Silicon Valley has something to offer the world in the drive toward a clean energy economy. And it’s not Technology.

It’s a financing formula. In a region that spawned tech giants Apple Inc. and Google and is famous for innovators and entrepreneurs like Steve Jobs, a handful of startups began offering to install solar panels on the homes of middle-class families in return for no-money down and monthly payments cheaper than a utility bill. This third-party leasing method -- which made expensive clean energy gear affordable -- ignited a rooftop solar revolution with annual U.S. home installations increasing 16-fold since 2008, according to the Solar Energy Industries Association and GTM Research.

The world is taking notice. Businesses in China, the biggest greenhouse-gas polluter, are so keen on replicating California’s success that Trina Solar Ltd.’s Head of Global Marketing Jing Tian said she had to come up with a rough Chinese translation for “third-party leasing.” Similar models are spreading to countries like Mexico and Japan and are being employed to sell other emerging clean energy technologies such as batteries and onsite waste-water treatment gear.

SolarCity took the leasing model that SunEdison Inc. first developed for the solar industry by a graduate student named Jigar Shah. He founded the company and sold its first power purchase agreement with Whole Foods Market Inc. in 2003, according to his book, Creating Climate Wealth.
SolarCity adapted that model for residential consumers in 2008 and many more offered similar arrangements including Sunrun Inc., which developed the first one in September 2007, and Vivint Solar Inc. In August, SolarCity bought a developer in Mexico that was offering the first leases to businesses in that country and plans to expand it to homes there.

And now the idea is spreading to other industries trying to sell expensive capital equipment that reduce pollution and fossil fuel consumption. Cambrian Innovation, a startup out of Massachusetts Institute of Technology, has developed onsite wastewater treatment plants. While the high cost make them difficult to sell, when they combine all the benefits to a consumer like a brewery -- lower disposal fees, water use, energy use and carbon emissions -- they can finance leases and offer savings at no cost to the consumer.

“SunEdison developed the solar power-as-a-service that helped the industry take off,” Matthew Silver, chief executive officer of Boston-based Cambrian, said in an interview. “Now we’re offering clean water as a service that municipal utilities can or won’t do.”

 

With the COP21 conference beginning in Paris today, there are a large number of articles circulating on the advances already seen in the development of renewable sources of energy. Lease back agreements that have increased access to these solutions is certainly important, but I am curious how these will be structured when interest rates rise and the cost of funding such largesse rises. 

Renewable intermittency means industrial scale storage solutions need to get substantially cheaper and battery Technology needs to improve. Progress has been made on both fronts but we are still a long way from replacing fossil fuels. 

Hi David, There has been some notable movement to the downside in the Solar industry in the last 2 weeks, particularly US based companies. Some of the movement screams capitulation. This is a sector you both regularly comment on, and David Brown, also supports investment in the sector. Do you see this as a buy opportunity?

The main reason that Eoin and I comment on solar power, or David Brown to my knowledge, is because we are convinced that it will be the most successful of the renewable technologies.  However, I suspect that companies in the solar industry will remain highly speculative for many years to come.  The reason - it is all but impossible to know which will be the most successful and enduring companies in this comparatively new and rapidly evolving Technology.  Moreover, there will be many candidates but most will ultimately fail. 

The same can be said for companies which pioneer any other new technologies, and this has always been the case.  The best example concerns the US automobile sector.  Here is Wikipedia’s List of defunct automobile manufacturers of the United States.  There are hundreds of them, most of which I had never heard of.  Only a handful survived, including Ford, GM and Chrysler.   

This item continues in the Subscriber’s Area.

After years of efforts, China achieved breakthroughs in nuclear export this year with two mega-size contracts signed with Britain and Argentina, respectively. In October 2015, China General Nuclear Corporation (CGN) reached an agreement with state-owned EDF Energy to co-invest in a Hinkley Point C nuclear project in England with respective 33.5% and 66.5% stakes in a deal worth GBP18bn. It is also worth mentioning that China will be able to bring its own Generation III nuclear Technology of Hualong One to a subsequent project Bradwell B.

In November 2015, China National Nuclear Corporation (CNNC) sealed a USD6bn deal with Argentina to build the country’s fourth nuclear plant. According to media reports, CNNC also reached a framework agreement with Argentina on a fifth plant, which will use Hualong One Technology if the deal is finalized. 

China’s first nuclear project based on Hualong One, Fuqing 5, achieved FCD in May. Its construction and operation, together with the recognition of developed countries with advanced nuclear tech and experience such as Britain, will help open doors to more markets for Hualong One. However, all these projects will take at least seven to eight years to complete, which suggests limited near-term upside potential for nuclear equipment exports. 

 

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

The current low price of oil is a benefit to China. However the fact it has to import such large quantities of energy means building domestic capacity that does not depend on fossil fuel will remain a priority for the foreseeable future regardless of slowing infrastructure investment in other sectors. 

Such concerted investment in nuclear Technology has also enhanced China’s ability to compete internationally in what is among the most complex Technology fields. This is even more important for the future because so few countries are willing to commit the capital necessary to fund development of new nuclear. 

This is the big one: you need to seriously consider what aspects of your fitness and activity you want this wearable to measure and track. It might be that you just want to keep an eye on how many steps you take per day, the distance you cover or the calories you are burning. Other trackers also offer built-in heart-rate tracking which can be a great indicator of how hard you're working, and let you work-out in different zones for fat-burning, endurance, or speed.

Another feature offered by some trackers is the ability to log location via GPS. This is good for users who want more precise measurements of the distances they have run or cycled. While some trackers have GPS built-in, others can use the information from your phone (if you have it with you while you work-out).

In terms of activity tracking, not all devices can monitor all activities. While most cover things like walking, running and cycling, you can't always select exercises like yoga, gym-equipment based activity or sleep quality, and you will need to check a tracker's compatibility with your fitness schedule.

Many of us who have been involved in athletic activities over the last thirty years will have tried out heart rate monitors. My own experience was that I found the chest strap uncomfortable while sculling and chaffing while running so I never really adopted heart rate monitoring into my workout despite the potential advantages.

Apple’s Watch incorporates the same Technology as the Pulse Oximeter hospitals clip to your finger to measure oxygen in your blood. This has greatly increased interest in heart rate monitoring and while there are trade-offs with the chest strap variety, Technology is improving all the time. The number of products offering this functionality is proliferating rapidly and apps incorporating the data are improving at an even faster pace. 

Earlier this month, Bank of America Merrill Lynch warned that 45pc of all manufacturing tasks would be automated within a decade, up from 10pc today.

 

The International Federation of Robotics says the number of robots in factories across the world rose by 225,000 last year, and will rise even further in the coming years – and it is not just in manufacturing.

 

The Henn-na hotel, which opened in Nagasaki, Japan, this summer, is the world’s first to be staffed by humanoid robots.

 

Even the great and good are paying attention. “Mastering the Fourth Industrial Revolution” will be the theme of the World Economic Forum in Davos, Switzerland, next year.

 

Of course, there were fears about the consequences of the previous three industrial revolutions. Lord Byron argued that “nothing but absolute want” would have driven the Luddites to smash the new machines in the factories of the 1800s.

 

John Maynard Keynes predicted that leaps in Technology would bring abundance and leisure, but also the threat of a “new disease” of what he called “technological unemployment”.

 

But it is not just mindless, repetitive jobs that are under threat from robots. Computers are demonstrating their ability to perform complex tasks.

 

IBM’s Watson supercomputer has beaten the brightest minds at the quiz show game Jeopardy!, and has now teamed up with oncologists to develop a system that could diagnose cancer.

This is more of a popular than serious article on robots but interesting nonetheless. 

For instance, we already know that robots are fantastic at tasks which require endless identical replication from a stationary position, ranging from placing small cakes in packaging to handling many assembly line tasks for automobile manufacturing.  However, they are considerably more challenged by tasks which require mobility, and they currently lack the discretion for picking soft fruit.  

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

"Back to the point of how things are made is changing, here's a small group of people who were able to use the most advanced manufacturing to do things," Bass says. "And I think that's really upsetting the apple cart, in terms of small companies and small groups of people, who are empowered in ways to do things that used to require huge amounts of capital."

The thought that these Darwinian machines can crunch through countless possibilities, mutating designs until they produces something resembling the perfect solution, is a fascinating idea. Bass does acknowledge that the Technology won't provide a one-size fits all approach, however, that there will be problems where generative design is an appropriate solution and problems that are better solved by human minds.

And as for the fabrication of future designs, both our own and those conjured up by computers? While 3D printing Technology is advancing all the time, Bass is of the view that it will only ever complement existing techniques like subtractive manufacturing, rather than completely snuff them out.

"Does 3D printing replace all manufacturing? It's another tool in the toolbox," he says. "There will be times when 3D printing is awesome, there will be times when manufacturing is awesome. What I think the future of making things is, is this combination of having powerful design tools in order to make them, and the powerful fabrication techniques to realize those designs."

 

3D printing or additive manufacturing is a revolutionary development but perhaps more important is the fact that the above article highlights how innovative solutions can be combined to accelerate the pace of development. Tools now being developed will enable infrastructure development at a lower cost, lower energy intensity and lower resource requirement which has the potential to greatly enhance the quality of life for many more people. As costs decline demand will rise to create a long-term growth trajectory.  

The rumblings of revolt against Saudi Arabia and the Opec Gulf states are growing louder as half a trillion dollars goes up in smoke, and each month that goes by fails to bring about the long-awaited killer blow against the US shale industry.

"Saudi Arabia is acting directly against the interests of half the cartel and is running Opec over a cliff"

Helima Croft, RBC Capital Markets

Algeria's former energy minister, Nordine Aït-Laoussine, says the time has come to consider suspending his country's Opec membership if the cartel is unwilling to defend oil prices and merely serves as the tool of a Saudi regime pursuing its own self-interest. "Why remain in an organisation that no longer serves any purpose?" he asked.

Saudi Arabia can, of course, do whatever it wants at the Opec summit in Vienna on December 4. As the cartel hegemon, it can continue to flood the global market with crude oil and hold prices below $50.

It can ignore desperate pleas from Venezuela, Ecuador and Algeria, among others, for concerted cuts in output in order to soak the world glut of 2m barrels a day, and lift prices to around $75. But to do so is to violate the Opec charter safeguarding the welfare of all member states.

"Saudi Arabia is acting directly against the interests of half the cartel and is running Opec over a cliff. There could be a total blow-out in Vienna," said Helima Croft, a former oil analyst at the US Central Intelligence Agency and now at RBC Capital Markets.

The Saudis need Opec. It is the instrument through which they leverage their global power and influence, much as Germany attains world rank through the amplification effect of the EU.

The 29-year-old deputy crown prince now running Saudi Arabia, Mohammad bin Salman, has to tread with care. He may have inherited the steel will and vaulting ambitions of his grandfather, the terrifying Ibn Saud, but he has ruffled many feathers and cannot lightly detonate a crisis within Opec just months after entangling his country in a calamitous war in Yemen. "It would fuel discontent in the Kingdom and play to the sense that they don't know what they are doing," she said.

For decades commencing in the 1070s we have lived through an era where OPEC controlled global energy prices, due to their enormous reserves of easily accessible crude oil.  In this dominant role, OPEC rulers in the Middle East and North Africa grew very rich, presiding over superficially stable countries, controlled by subjective interpretations of Islamic law, enforced by their authoritarian national regimes, and enormous government handouts to their citizens in an effort to buy loyalty.   

For over two thousand years there have been many similar regimes, albeit with different state religions.  Some of these ruled for centuries before mostly decaying from within.  Others became complacent and could not react to change with the pace of their rivals. 

OPEC countries of the Middle East and North Africa were more often religious rivals rather than allies, but maintained associations of mutual convenience due to their dominant role as the leading suppliers of crude oil.  However, in the last several years the long-held myth of dwindling oil supplies trading at ever-rising prices has been shattered by the march of Technology, undermining OPEC’s grip on the oil market from both ends of the spectrum.  

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

The MSCI’s inclusion of Chinese American Depository Receipts (ADRs) into its indexes, which is expected to be announced tonight, is a “massive change” for the indexes, say experts.

The MSCI is expected to announce the inclusion of Chinese ADRs after US market close tonight.
The inclusion will occur in two stages: one at the end of November and another in May 2016.

The move is big for China, says Eng Teck Tan, senior portfolio manager at Nikko Asset Management, and will see the representation of Technology firms in the China index increase, while China’s share of the emerging market and global indexes will rise.

ADRs are predominantly invested in internet and Technology firms, such as Alibaba, Baidu and Netease. The inclusion of ADRs will take the Technology representation of the MSCI China index up from 13.5 per cent to 24 per cent by the end of May, says Mike Kerley, Asia fund manager at Henderson Global Investors.

 

This is an important development for Chinese companies because it unleashes a potent source of additional demand for their shares. Speculation MSCI would admit A-Shares to its global emerging markets portfolio contributed to the run-up in prices earlier this year and the expected announcement has contributed to speculative interest in Chinese ADRs on this occasion. Subscribers can review a comprehensive list of US listed Chinese companies in this section of the Chart Library. 

Dear David Sadly I was unable to attend your 9th November jamboree, are you going to share with us non attendees what the delegates revealed. I am especially interested in closed-ended funds. Here is hoping Kind regards

My own presentation was posted on Tuesday. 

I hope to receive guest speaker Bruce Albrecht’s excellent presentation on the Middle East, with permission to post it.

Iain Little’s presentation on Investment Trusts is posted in the Subscriber's Area.  

We hope to see you on Monday 28^th January, when Iain and I will be speaking once again.  I am also pleased to say that Dr David Brown will be our guest speaker, talking about Technology and his investing methodology.   

Self-driving vehicles may be the answer. Researchers at the University of Texas have conducted a realistic simulation of vehicle use in cities that took into account traffic congestion and rush-hour use. They found that if our vehicle fleet was fully autonomous, every shared autonomous vehicle could replace 11 conventional vehicles. As their study showed, the world would only need 800 million vehicles to supply transportation services for nine billion people, or 200 million fewer cars than what already exists in the global vehicle fleet. That doesn’t sound like a bright future for either the automobile or petroleum industries.

The UT simulations showed that riders would wait for an average of 18 seconds for an autonomous vehicle to show up. Each vehicle would serve 31-41 travelers a day. Importantly, less than 0.5% of travelers waited for more than five minutes for an autonomous vehicle to arrive. Equally important, shared autonomous vehicles reduce the average cost of an individual’s travel by as much as 75% versus a conventional driver-owned vehicle.

A global vehicle fleet of autonomous vehicles could easily be electrified since they would be able to go off to be recharged and cleaned during periods of low demand without sacrificing service quality for travelers. We know that one of the key objectives of autonomous vehicles is for them to be able to travel faster, in tighter spacing and in smaller-sized units. This means that we will need less material for constructing these vehicles with a favorable impact on overall energy and material needs besides less fuel. Here is another example of savings from fewer vehicles due to an autonomous vehicle fleet. We would also have fewer vehicles needing to be parked, which means that upwards of 20% of urban land currently devoted to parking could be transformed into close-in housing and businesses. Increased urban density could further reduce overall energy demand by boosting the use of mass transit.

While Dr. Smil is concerned about the increasing cost of extracting energy and materials due to their capital intensity, which could doom our economy by subjecting it to increasingly more expensive fossil fuels for decades into the future, what would happen if our energy future follows a deployment path similar to that of information technologies? Several decades ago, prognosticators did not foresee how the world would skip over the building of landline telephone infrastructure and go directly to cellular phones. In 2014, there were only 1.1 billion fixed telephone landlines worldwide compared to more than seven billion cellular phones. Equally as impressive is how much the cost to make these phones has declined during the transition.  

 

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

Let’s consider how supply and demand impact the market for a new Technology. I can own any number of cars I wish but I can only drive one at a time. Autonomous vehicles remove that limitation so I could send the car out to collect dinner while I go to the bank personally. Of course if Uber remains a viable business in a decade then I could simply have a roaming vehicle pick up my dry cleaning, have another pick up my lunch and another pick up my groceries. The car I choose to drive will be for comfort, style and cache while other vehicles will be the proverbial work horses. 

I have compared Shanghai in 2015 to Boston in 1970 with the genesis of the investment industry led by Fidelity and other major fund management houses. Apart from the US$3.5 trillion of China’s official reserves, there is another US$9 trillion in Chinese household bank deposits. In November, I expect that the IMF will certify the renminbi as one of the 5 global reserve currencies in the SDR (Special Drawing Rights). China must respond, by liberalizing its capital account over the next 12 months, and allowing its citizens to invest more overseas. Even if (a conservative estimate) 20% of the total savings in China were to be invested overseas, it will have the effect of a major wave of capital coming into global financial markets led by Hong Kong (which we see as the prime beneficiary), but followed by London, New York, and other major financial centers.

This time Chinese capital will not only target property, it will be invested in companies, in Technology, in western consumer brands, and in good quality dividend paying shares in the US, Canada, UK, Australia, and elsewhere. The example of Li Ka-shing is not irrelevant. He has been criticized by commentators for taking money out of China and investing it in these Anglo-Saxon jurisdictions, in telecom, water, and power utilities. In my view, he is a very smart, canny, and far-sighted investor. (This month, our research team visited Mr Li’s flagship company, CK Hutchison and were encouraged that their Watson’s pharmacy chain is opening 365 new shops each year in China.)

I believe that the liberalization of the Chinese financial sector is the biggest thing happening in the global capital markets in the next decade. Comparisons may be drawn with Japanese capital in the 1980s, but this Chinese wave is 10 times bigger and will last a lot longer. As yields on RMB deposits are steadily reduced (and the same in Indian rupee deposits), so the thirst for yield will bring Chinese investors, as it once did Japanese investors (the famous Mrs Watanabe) into western equities.

 

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

The announcement last month that the wide difference between the Chinese lending and deposit rates would be liberalised is a major step for financial sector but if the below spread is any guide there has been little progress so far.  

At a spread of 275 basis points the banking sector does very well from this situation but depositors are de-incentivised from holding cash. This has contributed to the casino nature of the stock market and also to the growth of the shadow banking system. Allowing banks to compete for deposits by raising interest rates would be a positive development for the economy and would help dispel some of the opacity that plagues the sector. 

We also visited a contractor using the system for jobs such as GPS mapped precision drilling of new orchard plantings and composting as well as for spraying and mowing. His feedback was that with an Operator in the cab you have a limited amount of time at 100% accuracy and optimum ability, it then starts to decrease. With the ProbotIQ system the precision does not alter. He also said that problems with shortages of and unreliable labour were solved with this system. He has a second system on order.

We spent time operating tractors and using the 'Teach and Playback' Technology, programming routes and manoeuvres and such things as turning the sprayer on and off, PTO on and off and selecting engine speeds. It then replayed exactly what we had recorded of its own accord without anyone in the cab. We tested it in various ways such as putting an obstacle in the way which it detected once it was ten metres away and then stopped at 1.5 metres away. The system would have checked again at three minutes and restarted if the obstacle had gone, but as we were there we were able to set it going again remotely.

 

Autonomous vehicles have been in place at mining operations for quite some time and Technology has improved enough that they can now be used in the agriculture sector. As demand increases costs should fall which would make the Technology even more accessible. 

Toyota Motor Corp. is spending $1 billion to form a research institute focused on the artificial intelligence and robotics Technology it needs to make cars that can overcome driver errors and reduce traffic fatalities.

Toyota Research Institute Inc. will pitch in on the safety systems the automaker is developing to curtail car accidents that kill 1.25 million people per year worldwide. The company will also work toward making it easier for elderly drivers to hang onto their keys in aging countries including Japan and the U.S., Toyota’s biggest markets.

Getting an edge in this research would set Toyota apart from its Japanese peers, which have been pursuing fully autonomous cars under more conservative time frames than Google Inc. or Tesla Motors Inc. With Toyota President and racing enthusiast Akio Toyoda by his side, the newly-formed R&D unit’s chief executive said competing to put autonomous cars on the road will be an endurance contest, rather than a sprint.

After the VW scam it is nice to focus on positive developments in the automobile sector.

I assume that every automobile manufacturer of any consequence is busily developing new safety features, including autonomous driving.  This is mostly due to Technology, of course.  Beyond any doubt we are now in the most exciting era ever for automobiles.

For more than a generation, solar power was a environmentalist fantasy, an expensive and impractical artifact from the Jimmy Carter era. That was true right up until the moment it wasn't. Solar silicon prices dropped 94 percent from early 2008 to the end of 2011. Crystalline silicon has since fallen an additional 47 percent, to $15.20 a kilogram. 

Many were caught off guard by the emergence of solar as a competitive power source. The scientist who led Exxon's research arm back in the 1980s wasn't one of them. 

Peter Eisenberger, now an environmental science professor at Columbia's Earth Institute, co-authored an internal report for Exxon projecting that solar wouldn't become viable until 2012 or 2013. The report, written before he left the company in 1989, suggested that Exxon would do best to sell its solar assets; not surprisingly, the company did just that. What is surprising is that Exxon's 25-year-old solar projections nailed the timing for the arrival of affordable solar power. 

And:

Eisenberger left for academia and in 2010 co-founded a alternative-energy company, Global Thermostat, at which he now serves as chief Technology officer. The company works to reduce the cost of capturing atmospheric carbon dioxide and rendering it useful for synthetic fuels and materials. "Almost all the people that are involved in founding this company—and in helping me get going—were from Exxon," Eisenberger said. "Every one of them. They're the only people who didn't think I was nuts."

Exxon and the other large international oil companies are also working on the commercial capturing of atmospheric carbon dioxide, and understandably so.  Unless it can be effectively and cheaply removed and used profitably for something else, oil and other fossil fuels will increasingly be regarded as pariahs. 

For decades, only a few features punctuated the vastness of the Saudi desert: oil wells, oases -- and wheat fields.

Despite torrid weather and virtually no rain, the world’s largest oil producer once grew so much of the grain that its exports could feed Kuwait, United Arab Emirates, Qatar, Bahrain, Oman and Yemen. The circular wheat farms, half a mile across with a central sprinkler system, spread across the desert in the 1980s and 1990s, visible in spring to anyone overflying the Arabian peninsula as green spots amid a dun sea of sand.

The shift toward imports, which started eight years ago, is reverberating beyond the kingdom, providing business opportunities for grain traders such as Cargill Inc and Glencore Plc as well as for farmers in countries such as Germany and Canada. 

"The Saudis are the largest new wheat buyer to emerge," said Swithun Still, director of grain trader Solaris Commodities SA in Morges, Switzerland.

Ahmed bin Abdulaziz Al-Fares, managing director of the Grain Silos and Flour Mills Organization, the state agency in charge of cereal imports, told an industry conference in Riyadh last month that Saudi Arabia will import 3.5 million metric tons in 2016. That’s a 10-fold increase from about 300,000 tons in 2008, the first year local crops were curtailed.  An agency presentation says the kingdom will rely on imports for "100 percent" of its wheat in 2016 for the first time.

By 2025, demand is forecast to rise to 4.5 million tons as population growth drives demand for flour, positioning Saudi Arabia as one of the 10 biggest wheat buyers worldwide.

The shift is propitious as the wheat market weathers the largestglut in nearly 30 years, with bumper harvests filling up silos from Russia to Argentina. Prices for high-quality wheat, which reached an all-time high in Kansas City of more than $13 per bushel in 2008, have fallen to less than $5 this year.

Too low aquifers for irrigation of desert wheat; too low oil prices to balance the Saudi budget.  For many Saudi citizens used to the comfortable but rigidly controlled life this must feel like a plague. 

The Saudis were behind the slump in oil prices, by increasing production to lower prices deliberately in a desperate attempt to knock out the US shale industry.  However, in fairness to the Saudis, they were defeated by the advance of Technology.  Moreover, they inadvertently encouraged not only oil discovery and drilling technologies, from shale to deep water projects, but also the renewable energy industries by keeping oil prices high for as long as they could.

This item continues in the Subscriber’s Area.

The fossil fuel industry has taken a very cavalier bet that China, India and the developing world will continue to block any serious effort to curb greenhouse emissions, and that there is, in any case, no viable alternative to oil, gas or coal for decades to come.

Both assumptions were still credible six years ago when the Copenhagen climate summit ended in acrimony, poisoned by a North-South split over CO2 legacy guilt and the allegedly prohibitive costs of green virtue.

At that point the International Energy Agency (IEA) was still predicting that solar power would struggle to reach 20 gigawatts by now. Few could have foretold that it would in fact explode to 180 gigawatts - over three times Britain’s total power output - as costs plummeted, and that almost half of all new electricity installed in the US in 2013 and 2014 would come from solar.

Any suggestion that a quantum leap in the Technology of energy storage might soon conquer the curse of wind and solar intermittency was dismissed as wishful thinking, if not fantasy.

Six years later there can be no such excuses. As The Telegraph reported yesterday, 155 countries have submitted plans so far for the COP21 climate summit to be held by the United Nations in Paris this December. These already cover 88pc of global CO2 emissions and include the submissions of China and India.

Taken together, they commit the world to a reduction in fossil fuel demand by 30pc to 40pc over the next 20 years, and this is just the start of a revolutionary shift to net zero emissions by 2080 or thereabouts. “It is unstoppable. No amount of lobbying at this point is going to change the direction,” said Christiana Figueres, the UN’s top climate official.

Yet the energy industry is still banking on ever-rising demand for its products as if nothing has changed. BP is projecting a 43pc increase in fossil fuel use by 2035, Exxon expects 35pc by 2040, Shell 43pc and Opec is clinging valiantly to 55pc. These are pure fiction.

The Intergovernmental Panel on Climate Change (IPCC) may or may not be correct in arguing that we cannot safely burn more than 800bn tonnes of carbon (two-thirds has been used already) if we are to stop global temperatures rising two degrees above pre-industrial levels by 2100. I take no view on the science.

This article is controversial, although I certainly feel that it merits our attention. 

Solar energy is developing even faster than most people envisaged, thanks to ‘needs must’ and the accelerating rate of technological innovation which this service frequently mentions.  China has embraced solar energy because of its chronic pollution problems.  Less developed India has moved more slowly in this respect but has the same problem.  Additionally, even a small rise in global temperatures presents a huge risk for tropical India. 

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

Russia and Turkey are at loggerheads as Moscow escalates military engagement in Syria. Turkey’s President Erdogan has threatened to find another gas supplier after Russian jets breached its air space, and Ankara has initiated legal action against Gazprom over the price charged for piped gas…..For the last 3 years, I have argued that Vladimir Putin’s strategic goal was to see the Sunni monarchies of the ME toppled, thereby crude oil prices at USD200 a barrel and a controlled market for Russia’s only real source of income.

Did he really say crude oil at $200?  Yes, it is not a typo.  

Only a few years ago people feared that this was all but inevitable, in the mistaken belief that we were running out of crude oil.  Today, thanks to Technology it sounds more like Mr Putin’s pipe dream.  Nevertheless, the Middle East is the least stable region of the global.  Given all its wealth and oil, shock waves from this deeply troubled region can be far reaching.

Fund Manager's Diary is posted in the Subscriber's Area. 

A very interesting article appeared in our local on-line newspaper here in Cambridge. It describes a breakthrough method for printing with graphene, at much lower cost and higher speed than current materials and methods. 

This is the kind of breakthrough that will lead to the advances in real-time connected health monitoring that I will be discussing as part of my presentation at Markets Now on January 18.

 

Thank you for this illuminating article and here is an important section: 

Developed by researchers at the Cambridge University in collaboration with city Technology company Novalia, the method allows graphene and other electrically conducting materials to be added to conventional water-based inks and printed using typical commercial equipment. It is the first time that wonder material graphene has been used for printing on a large-scale commercial printing press at high speed.

In the weeks before the GLBL initial public offering, SUNE was at its highs and we contemplated trimming the position. Since we expected the UOI would trigger a further advance in the shares, we decided against it. Around the same time, oil and gas prices renewed their declines, causing the values of energy master limited partnerships to justifiably fall. We believed that TERP and GLBL would not be impacted, as neither is subject to commodity risk. We were wrong. Because the SUNE yield vehicles were relatively new to investors, the market did not distinguish them from other energy dividend flow through structures. In mi-July, TERP began falling along with the rest of the sector taking SUNE with it. GLBL IPO’d at a big discount a week later and traded poorly in the aftermarket. 

As GLBL and TERP continued to fall they effectively lost access to the capital markets, and SUNE collapsed as the market because worried that SUNE would be able to sell its projects and could even run out of money. Ironically, the market judged SUNE’s rapidly growing and massive backlog of attractive projects to be a liability. 

SUNE’s hard-to-decipher financial statements fed the stock collapse. SUNE consolidates both TERP and GLBL on its GAAP statements. The complicating result is two-fold. First when SUNE sells a project to TERP or GLBL it bears the operating costs but doesn’t get to book the revenue from the sale. The result is the appearance of an operating loss. Second TERP and GLBL use non-recourse project finance debt to fund the purchases and the debt appears on SUNE’s balance sheet. The result is that SUNE appears to be heavily levered and losing money. From a GAAP perspective that’s true, but from an economic perspective it is not. Nonetheless, this hasn’t stopped some wise guys from dubbing it “SunEnron”. 

SUNE responded to the deteriorating environment by raising additional equity, finding third parties to buy its products, and slowing it development pipeline. All of these actions have marginally lowered the company’s value, but have stabilized the situation. Taking into account the more conservative business plan, when we look through the complicated financials we believe that SUNE’s development business is poised to have economic earnings in 2016 of about $1.34 per share, assuming that TERP and GLBL do not regain access to the capital markets. 

 

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

In the movable feast of renewable energy breakeven estimates it’s hard to argue that lower oil and particularly natural gas prices skew the calculation. Solar Technology is advancing at a prodigious rate but not so fast that companies can compete with energy prices which more than halved in a year. This has weighed on the sector in the short term but it is hard to argue with government mandates that utilities have to buy energy from renewable sources. 

Researchers from the University of Alexandria have developed a cheaper, simpler and potentially cleaner way to turn seawater into drinking water than conventional methods.

This could have a huge impact on rural areas of the Middle East and North Africa, where access to clean water is a pressing issue if social stability and economic development is to improve.

Right now, desalinating seawater is the only viable way to provide water to growing populations, and large desalination plants are now a fact of life in Egypt and other Middle Eastern countries.

Most of these plants rely on a multi-step process based on reverse osmosis, which requires expensive infrastructure and large amounts of electricity. These plants release large quantities of highly concentrated salt water and other pollutants back into the seas and oceans as part of the desalination process, creating problems for marine environments.

That’s why the race is on to find a cheaper, cleaner and more energy-efficient way of desalinating sea water.

In a paper published last month in the journal, Water Science & Technology, researchers Mona Naim, Mahmoud Elewa, Ahmed El-Shafei and Abeer Moneer announced that they have developed a new way to purify sea water using materials that can be manufactured easily and cheaply in most countries, and a method that does not rely on electricity.

The Technology uses a method of separating liquids and solids called pervaporation. Pervaporation is a simple, two-step process – the first step involves filtering the liquid through a ceramic or polymeric membrane, while the second step requires vaporizing and collecting the condensed water. Pervaporation is faster, cleaner and more energy efficient than conventional methods, not least because the heat required for the vaporization stage does not necessarily have to be electrically generated.

Pervaporation is not new – it has been in use for many years. But the membrane used in step one has been expensive and complicated to manufacture.

The breakthrough in this research is the invention of a new salt-attracting membrane embedded with cellulose acetate powder for use in step one of the pervaporation process. Cellulose acetate powder is a fiber derived from wood pulp and is, according to the researchers, cheap and easy to make in any laboratory.

According to the paper, the membrane can quickly desalinate highly concentrated seawater and purify even badly contaminated seawater. It can also be used to capture pollutants and salt crystals to minimize pollution of the environment. The membrane can be used in very remote situations using fire to vaporize the water.

The researchers have yet to prove the commercial viability of the product, but if they can, it could be a promising alternative for developing countries where water and electricity is a scarce resource.

I find it encouraging that pervaporation was developed at the University of Alexandria.  Needs must remains a powerful motivation for development.  Many regions of the globe would benefit from this Technology, which sounds as if it has real commercial potential. 

It is at least a partial solution to California’s biggest problem of drought, having used up much of its groundwater.  In addition to the Middle East and North Africa mentioned in the article above, both China and India should be very interested in pervaporation.    

Mr. Cook, appearing later, disagreed on the latter point. “I don’t know a way to protect people without encrypting,” he said. “You can’t have a backdoor that’s only for the good guys.”

Apple and federal officials have been at odds for more than a year, since Apple issued a new version of its mobile-operating system that it said safeguards user information, even from law enforcement. But the White House signaled recently that it won’t seek new laws to force tech companies to make products that allow law enforcement to eavesdrop.

 

The USA is finally introducing chip and PIN Technology and not before time. My credit card details have been compromised at least four times in the last two years. I’ve now got identity protection from ULCA Health, Anthem, Target, Home Depot but the letter I received yesterday was the one I was most surprised about. Experian, the firm other companies use to check the credit of a customer has been hacked with the loss of untold quantities of client data. In many respects I hope its Chinese government backed hackers since they have little interest in me specifically but after so many incidents one simply has to assume that our most personal data is out there in the public domain. 

While this initial result is essentially a proof of concept rather than a practical system, it points the way toward an approach that could lead to inexpensive and efficient solar cells or light-driven catalysis, the team says. So far, the engineered viruses collect and transport energy from incoming light, but do not yet harness it to produce power (as in solar cells) or molecules (as in photosynthesis). But this could be done by adding a reaction center, where such processing takes place, to the end of the virus where the excitons end up.

“This is exciting and high-quality research,” says Alán Aspuru-Guzik, a professor of chemistry and chemical biology at Harvard University who was not involved in this work. The research, he says, “combines the work of a leader in theory (Lloyd) and a leader in experiment (Belcher) in a truly multidisciplinary and exciting combination that spans biology to physics to potentially, future Technology.”

“Access to controllable excitonic systems is a goal shared by many researchers in the field,” Aspuru-Guzik adds. “This work provides fundamental understanding that can allow for the development of devices with an increased control of exciton flow.”

The research was supported by the Italian energy company Eni through the MIT Energy Initiative. The team included researchers at the University of Florence, the University of Perugia, and Eni.

 

Proof of concept is a big step and this is an enormously exciting field not least because of the enormous potential for artificial photosynthesis. However it could be a decade before we see commercial applications of this Technology. 

Pratt & Whitney’s new PurePower Geared Turbofan aircraft engines are impressive beasts. Scheduled to enter commercial service before the end of the year, they burn 16 percent less fuel than today’s best jet engines, Pratt says. They pollute less. They have fewer parts, which increases reliability. And they create up to 75 percent less noise on the ground, enabling carriers to pay lower noise fees and travel over some residential areas that are no-fly zones for regular planes. Airbus, Bombardier, Embraer, Irkut, and Mitsubishi have certified the engines for use on their narrowbody craft. JetBlue, Lufthansa, Air New Zealand, Malaysia’s Flymojo, and Japan Airlines are among the engine’s 70 buyers in more than 30 countries.

To people outside the aircraft business, what may be most remarkable about the engines is that they took almost 30 years to develop. That’s about 15 times as long as the gestation period of an elephant and unimaginably longer than it takes to pop out a smartphone app. Could Pratt have gotten the hardware out faster? Probably. But industrial innovation on the scale of a commercial jet engine is inevitably and invariably a slog—one part inspiration to 99 parts perspiration.

In Pratt’s case, it required the cooperation of hundreds of engineers across the company, a $10 billion investment commitment from management, and, above all, the buy-in of aircraft makers and airlines, which had to be convinced that the engine would be both safe and durable. “It’s the antithesis of a Silicon Valley innovation,” says Alan Epstein, a retired MIT professor who is the company’s vice president for Technology and the environment. “The Silicon Valley guys seem to have the attention span of 3-year-olds.”

This is a fascinating story, which refutes the critical view that corporations are only focussed on short-term returns, or dependent on government financing and university research to achieve significant breakthroughs.  Those factors all help, of course, but corporations are also highly inventive on their own, from start-ups to Pratt & Whitney or Apple.  We remain a highly inventive species. 

This item continues in the Subscriber’s Area.  

Russian computer attacks have become more brazen and more destructive as the country grows increasingly at odds with the U.S. and European nations over military goals first in Ukraine and now Syria.

Along with reported computer breaches of a French TV network and the White House, a number of attacks now being attributed to Russian hackers and some not previously disclosed have riveted intelligence officials as relations with Russia have deteriorated. These targets include the Polish stock market, the U.S. House of Representatives, a German steel plant that suffered severe damage and The New York Times.

U.S. officials worry that any attempt by the Russian government to use vulnerabilities in critical infrastructure like global stock exchanges, power grids and airports as pressure points against the West could lead to a broader conflict, according to two people familiar with the debate inside government and who asked to not to be named when discussing intelligence matters. When NATO officials met last week, they voiced alarm about Russia’s rapid involvement in Syria, including the firing of cruise missiles, and vowed the biggest reinforcement of their collective defense since the end of the Cold War.

Cyber attacks are the rapidly escalating face of modern warfare.  They are low cost, difficult to trace, let alone prove, and increasingly damaging. 

(See also: Cyber-attack warning after millions stolen from UK bank accounts, from The Guardian) 

The global economy is achieving so much, not least in the social sciences and bioTechnology.  Billions of people have been lifted out of poverty in the last few decades.  Nevertheless, parts of our world remain primitive and often in turmoil, with little education, subjugation of women, and no enlightened rule of law.  Governance is everything. 

Mr Jeremy Corbyn, a Marxist time traveller from the 1970s trade union movement, has been elected head of the UK Labour Party. The UK, the world's 5th largest economy, now has as the head of its principal opposition party a man who has so far refused to kiss the Queen's hand in the time honoured tradition of members of Her Majesty's Privy Council. He has preferred instead to absent himself to Scotland, no doubt to kiss the less fragrant hands of his Comrades on Clydeside, where, in the 1860s, a third of the world's shipping was bolted together (sadly, no more). Mr Corbyn's influence on voting patterns should ensure that a Conservative led UK will prosper on a diet of European financial services primacy, Technology, pharmaceuticals and economic liberalism. This can only be good news for its stock market in the longer term.

Don’t miss the photo and reported conversation accompanying the paragraph above.  

“Cybercapability, especially offensive cybercapability, is a relatively inexpensive method that a country can exploit to ‘hit above its weight class,’ which North Korea is fully aware of and is attempting to leverage,” said Steve Sin, a former U.S. Army counterintelligence officer who now researches unconventional weapons and Technology.

Defense contractor Northrop Grumman Corp., meanwhile, has advertised for a “cyber operations planner” to “facilitate” offensive computer attacks with the South Korean and U.S. governments, according to a job posting it listed online.

 

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

Cybersecurity is a multi-faceted theme where the majority of consumers and corporations focus on defensive capabilities. Governments on the other hand are much more interested in offensive cyber characteristics. Considering this an M1A2 Abrams tank cost about $6 million in 1999 and a Reaper drone costs about $12 million in hardware alone. So for the cost of one piece of high end military apparatus one could purchase a serious technological suite of tools and pay the programmers required to bring a project online. Against this background the relatively low barrier to entry means this represents a substantial growth trajectory. 

The Futurecraft 3D midsole was developed in partnership with 3D printing specialist Materialise. It is designed to provide the cushioning needs of the wearer, matching contours and pressure points of each individual foot. Adidas describes it as a "flexible, fully breathable carbon-copy of the athlete’s own footprint."

Gizmag has requested some additional info from Adidas on the specific materials and processes used to create the Futurecraft 3D, but has yet to receive a response. The sportswear manufacturer does say in a press release, however, that its ultimate aim for the Technology is for customers to be able to walk into a store, spend a short time running on a treadmill, then leave the store with a 3D-printed running shoe. 

There is nothing quite like finding a pair of shoes that fits just right. Nike was talking about scanning people’s feet in store and mailing them their shoes a few years ago but nothing has happened on that front just yet. Adidas’s solution would appear more workable because the consumer would be able to walk out of the store holding or wearing the product. It’s still in the future but it does help to exemplify the trend of customisation that physical locations need in order to encourage shoppers to leave their homes. 

Dear David

My name was mentioned in the email of the day yesterday on bioTechnology so I thought it would be timely to add some thoughts.

On the question does one buy and hold bioTechnology shares or funds, some interesting data was published earlier this year by Steve Sjuggerud, who is a very experienced and successful investor living in Florida. He back-tests market data extensively. His back-testing showed that from 1983 until his publication in early 2015 you would have made 21.5% a year on average following buy and hold in a bioTechnology index. I think that beats Warren Buffett. But is a very tough ride as there are large booms and busts. So he then went on to say that a simple trend-following strategy can help avoid the large busts and can improve returns significantly. He suggested using monthly data and buying biotech stocks when they close above their 6-month moving average, and selling when they close below their 6-month moving average. His back-testing indicated this strategy would have delivered a compound annual gain of 30.8% since 1983. One has to stomach many whipsaws, as with any trend-following strategy.

Personally, I add another nuance. This is a rule I follow in my own investing, and it featured in my Markets Now presentation in London on 15 June 2015. The slides are available on Fuller Treacy Money website. Look at slide 6 for the rules, and slide 7 for the data on which they are based. This concerns the market overall, not bioTechnology specifically. If the yield curve remains positive (as it is today) there is a strong probability that the overall bull market remains intact. Nevertheless, this has worked only about 70% of the time historically over the past 100 years. The other 30% of times when markets fell substantially have generally been during the market ‘weak season’ May-October which David mentions regularly. As a safeguard I go 50% cash during this time. I went 55% cash during May-June this year and sold about 90% of my bioTechnology holdings.

In addition to the market weak season, another factor that made me lighten my bioTechnology positions is that they had become significantly over-extended relative to the 200 day moving average. Mean reversion is highly likely when price gets 30-40% above the 200 day moving average. David and Eoin refer to this very often.

My own investing in quoted bioTechnology is guided by the three factors described here. I gave a lot more detail on bioTechnology in another presentation titled ‘The Third Industrial Revolution’, at Markets Now on 23 February 2015. Again, the slides are available on the website.

I hope this is helpful.

Best wishes David, and I hope to see you sometime in December or January, after my travels are finished at end November (I will be helping at the orphanage I support in South Tibet).

David

My thanks to David Brown for this wonderfully educative email which he posted on the FTM site today.  I reproduce it here to ensure that subscribers see it. 

The advantage of an interactive website is that we can learn from each other, not least as the level of knowledge and experience within the Collective of Subscribers is enormous.  Thank you for sharing your thoughts.  

Hi David

How very prescient you were about biotechs!  On the 13th March [Email of the day 4] you wrote about looking out for an upside tail on the weekly chart, and said "You could ride out the next mean reversion as a long-term investor but do not be surprised if it comes back to 100."

And what happened? The very next week there was an upside tail. That top was subsequently taken out, but now we ARE below 100!  Which indeed is much lower than I expected at the time.

I took the first course, riding out the mean reversion (and more) and am now holding on. Trusting that your long-term assessment - "I do not doubt for a second that bioTechnology has a terrific long-term future" - is as correct as your short-term one was!  In my decision to do this I was definitely influenced by the knowledge that that is what you habitually do with your long-term positions, even in critical situations like 2008, and that it has paid off for you in the long term. And that in my own trading I have always - through decades - made money on shares and lost on the trading.  So now I have only long-term positions, finally having seen the light.

Once again thanks to you and Eoin for being such marvellous guides to this choppy universe. 

Thank you for your kind words and for raising, once again, such an interesting topic.  You are playing to your strengths, which makes sense for every investor.

Leveraged trading is exhilarating when successful but also traumatic when it goes wrong, as it inevitably does from time to time.  It is also much more difficult than unleveraged investing, because 10 to 1 gearing clearly involves short-term money control challenges.  Therefore sensible people either keep leveraged trades very small relative to their capital, or build-up positions on a Baby Steps basis, protected with in-the-money trailing stops.  However, this latter tactic needs the luck of significant and orderly trends to be profitable.  They are often the exception rather than the rule, so disciplined traders will often find that they are frequently stopped out with small profits or losses, even if they have anticipated the overall direction of the trend.

As for riding out your unleveraged FTB position, it is near $100 today but it briefly fell much lower on the August 24^th temporary meltdown, probably due to high-frequency trading, although I have no confirmation of this having been on holiday at the time.  I hope you were similarly distracted from the markets on that day, because it would have been traumatic for many people.  For this reason I am repeating the tactical paragraph from my reply to your email posted on 13^th March, for dealing with positions where the trend has accelerated in your favour:

This item continues in the Subscriber’s Area.

The new Imperial Oil Technology involves adding a solvent to improve the flow of oil to the surface as well as generators that burn less natural gas to supply the steam. What we understand about Imperial Oil’s new Technology is that currently proposed oil sands projects could produce 55,000 to 75,000 barrels a day in oil output compared to their presently planned output of 30,000-40,000 barrels a day according to Mr. Krüger. As he was quoted during the presentation,

“This is bigger on a per phase basis than we’ve talked about in the past.” From Mr. Krüger’s viewpoint, this Technology represents “a very large, long-term growth opportunity.” Even though the company seems satisfied with the new Technology, it is not ready to move forward with some of these planned oil sands projects while management assesses their cost, possible changes to Alberta’s regulatory policies and the outlook for global oil prices.

Citi Research has prepared a chart showing its assessment of the impact of technological and economic cost reductions of various oil outputs between 2014 and 2015, based on assumed 2020 output contribution, due to the industry downturn. Most of the decline since 2014 is about $5 per barrel, although Gulf of Mexico costs may have declined by $7 a barrel and the shale formations by $10 a barrel. If Mr. Krüger’s assessment of the impact on output from Imperial Oil’s new Technology is correct, then there would likely be a significant reduction in the cost of new oil sands output. According to the Citi Research chart, they estimate that oil sands currently cost between $80 and $100 a barrel. However, if the Imperial Oil claims are correct and can be implemented commercially, then a 30% output improvement might translate into $25-$30 per barrel cost reductions.

Obviously there are a number of assumptions that must be made in reaching this conclusion, including that the solvent-added SAGD process is not more costly than what is being done now and that additional output volumes require extensively larger facilities in order to handle them.
If you are Saudi Arabia and you have targeted new, large and long-term output sources such as oil sands and deep water oil in your price war, the prospect of their costs declining materially has to be unnerving. It has been our contention that Saudi Arabia’s target was these deposits, including Arctic output, and less about the domestic shale business. Why? The shale revolution is a “real-time” output, meaning that if producers are forced by economics to stop drilling, eventually oil prices will rise, drilling will resume, as will shale output, and the price cycle will start all over again.

 

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

Technological innovation continues apace and lower energy prices only increase the incentive to develop solutions in order to ensure survival. North America represents an exciting energy geography and the relatively low price of oil does not change that. On the other hand the continued development of new extraction methods may keep a lid on prices but will increase volumes. 

I really enjoyed Markets Now on Monday. I think that you were indicating that monetary policy will keep some semblance of equilibrium in markets but I will feel better if we see more evidence of markets settling. I don’t think I handle it all as well as I used to! I had to sit down at the American Bar.

The following chart did cheer me up though. I was reviewing a client portfolio ( smaller cos investment trusts as it happens) & was struck by just how much the long term chart below reminded me of what I read years ago by Edwards & Magee or Murphy or whatever – on the ‘formation’ of a ‘classical bull market’.

Turning to the next page in those books I think they would have then said that a retracement of 30-50 % is quite possible but thereafter at least 2 more bullish upswings. What do you think? Unfortunately because of the way regulation works (or doesn’t??), I cannot really indicate this to a UK ‘regulated’ client.

 On a completely separate matter, I hope you do not mind me asking this?

You may have seen that the business man John Caudwell & his family have been struck down by this terrible Lyme disease. I have a client (in fact I did bring him to Markets Now about a year ago) who has a grandson suffering very badly from this. I think that the family are desperate for any ‘cure’ & my client who is a scientist himself is trying to obtain as much information & ideas for treatment as possible. Lots of brickwalls, I gather.  

I was wondering if David Brown might have any suggestions or contacts on this – or any ideas as to what he might do? David might find this client interesting in any event as he is a leading patent attorney & with some fascinating stories on Technology.

To the next Markets Now

Very best

Thank you for your detailed email and your considerable interest in our Markets Now seminars.

Market setbacks are often volatile, which can certainly make them more stressful, even if one has seen them coming.  The pressures encountered are inevitably increased if you have clients who are seeking guidance from you and you care for them, as you obviously do.

This item continues in the Subscriber’s Area.

Workers of the world are about to get their revenge. Owners of capital will have to make do with a shrinking slice of the cake.

The powerful social forces that have flooded the global economy with abundant labour for the past four decades years are reversing suddenly, spelling the end of the deflationary super-cycle and the era of zero interest rates.

"We are at a sharp inflexion point," says Charles Goodhart, a professor at the London School of Economics and a former top official at the Bank of England.

As cheap labour dries up and savings fall, real interest rates will climb from sub-zero levels back to their historic norm of 2.75pc to 3pc, or even higher.

The implications are ominous for long-term US Treasuries, Gilts or Bunds. The whole structure of the global bond market is a based on false anthropology.

Any column by Ambrose Evans-Pritchard is a good read, in my opinion. 

Most subscribers know my views on this topic so will just briefly say that wages in developed countries were held down by three factors: the 2008 economic crisis and its impact which still lingers today, globalisation, and Technology.

I think the global economy will be recovering over the next three years.  Globalisation has levelled the wages playing field somewhat, and Technology has made middleclass workers more efficient, not least in developed countries.  However, I also think that Technology will continue to replace jobs in many industries, although we will also see the creation of new jobs. 

A PDF of Ambrose Evans-Pritchard's article is in the Subscriber's Area.  

The world's biggest companies cite many reasons for cutting their climate pollution: It's good PR, it's even the law in many places, and not doing so contributes to the risk of global catastrophe. Here's one you don't hear so much. By blowing their carbon dioxide skyward, power plants are venting raw material and, by extension, a ridiculous amount of money. Waste is being wasted. All that carbon and oxygen must be good for something.

That's the premise of the XPrize Foundation's new Carbon Prize, a $20 million competition over five years to identify "high-value products" that can be made from captured power-plant CO2 emissions. The competition formally opened Tuesday with a six-month period for teams to register their projects that might involve biofuels, fabrics, pharmaceuticals, and building materials. Within prescribed limits, it doesn't matter what's made, as long as the CO2 is captured and turned into something people or businesses want to buy.

Competitors must make it through three judging rounds. The two main prizes of $7.5 million each will go to the teams that make the most of CO2 from coal and gas plants. A U.S. coal plant and Canadian gas plant will be named as the XPrize's test sites soon. The prize is sponsored by NRG Energy and Canada's Oil Sands Industry Alliance.

The guidelines rule out technologies that miss the spirit of low-carbon innovation. Trees, for example, have proven adept at catching carbon, but their core Technology—photosynthesis—isn't new. "Enhanced oil recovery" is energy-industry jargon for pumping CO2 into a well to drive up more oil. That's a marketable use of the gas, but in the service of burning more carbon. 

The Carbon Prize may be the most physically challenging competition yet. Not because it necessarily requires great exertion, but because of the actual physical chemistry of CO2 itself. Carbon dioxide is a very low-energy molecule. It's spent fuel—the molecular equivalent of passing out from exhaustion after a long run. So to make CO2 into anything useful, you need to use lots of energy. But producing energy typically emits CO2, which the XPrize wants people to make into useful products, which requires energy, which produces CO2 ….

This competition is sponsored by the USA’s NRG Energy and Canada’s Oil Sands Industry Alliance.  They deserve any favourable publicity from this effort, and who knows, perhaps it will spark a sensible commercial idea which lowers CO2 emissions.  It is not a new idea – see Herbert Hoover’s sensible comments nearly a hundred years ago, quoted in the concluding paragraph of Bloomberg’s article.      

I'm writing you as a friend of the firm, and a worried one at that. I think it would be best not to publish this letter, but I will leave that completely up to you.

As you know, I have been a subscriber for some years, attended 3 full chart seminars plus 1 1-day seminar, and read Crowd Money 4 times along with providing some help on it. I've been doing TA since the mid-90's. I pay a LOT of attention to what you and Eoin write and say. Until now, I have always been pretty much in sync with your thinking, or was influenced by your thinking to get in sync.

Over the long term, I agree we will see a secular bull market propelled by Technology of all kinds.

But now, my read of the markets, using the methodology you and Eoin have so beautifully crafted, tells me that we have entered into a globally synchronized bear market. I look at over 100 charts every day. Very few cry out to be bought, very few show basing patterns, but most show tops that are already confirmed. And many are deep into declines that still show no sign of basing.

Your advice to buy during this time feels really really scary to me. I'm not scared for my portfolio - I'm net short by a lot. But I am scared for your firm and your reputation. If this is the beginning of a fairly serious cyclical bear market, it would seem to me that you face the risk of a major loss of subscribers if you encourage them to buy now. I am not speaking for myself, in this regard, as I plan to stay a subscriber forever. But others may not be so clear thinking. If buying now turns out to be a bad call, you will be perceived as having missed a critical top in the markets, and having not rigorously used the now famous Behavioral Technical Analysis to evaluate the price patterns.

I'm worried for you.

A serious friend of FullerTreacyMoney...

Thank you for this detailed and thoughtful email.  I genuinely appreciate your interest in this service and am touched by your concern.

The short answer on market analysis is that we all have more to learn.

In response to your main paragraph just above, I have always tried not to give advice.  Instead, I offer my views and tell people what I am doing with my own investments.  This is an important distinction.  Few of our experienced subscribers wish to be told what to do.  They want to hear clear, unhedged and objective views, which help them to clarify their own thoughts.  Similarly, I spend a considerable amount of time reading and listening to different perspectives to help me clarify my own thoughts.  Most of our less experienced clients also wish to develop that same independence of thought, which can help them to think clearly during the crowd manias. 

For this reason I have always wanted to be in charge of my own thinking process.  I know it will not always be right – nothing ever could be in attempting to anticipate the future.  However, if you can observe markets objectively, trying to understand the psychology of fear and greed, in addition to the main fundamental economic factors, you have a good chance of being right more often than wrong, especially on the big calls. 

Fortunately, ever since late 1969 when I left a big firm, I have had the freedom to develop independent analytical thought which is exceptionally important to me.  In other words, people may agree or disagree but no one sensors my research output.  Additionally, I am not worrying about my reputation before providing a market view; otherwise I would wind up hedging everything and subscribers would hear fewer clear thoughts and opinions.

This item continues in the Subscriber’s Area.

A selloff in bioTechnology shares halted a rally in U.S. equities, while the dollar rose and Treasuries fell after Federal Reserve Chair Janet Yellen reassured investors the turmoil in emerging markets won’t kill off U.S. economic growth.

The Nasdaq BioTechnology Index tumbled more than 5 percent, sending the gauge of drugmakers into a bear market. Nike Inc. surged to a record, bolstering the Dow Jones Industrial Average. An index of global equities rose for the first time since the Fed policy meeting last week. The dollar strengthened toward its best week in two months, Treasuries led bonds lower and gold slumped.

Yellen managed to calm markets that had been shaken up after the Fed left rates unchanged last week amid concern that economic and financial turmoil could slow growth. A tweet from Democratic presidential hopeful Hillary Clinton suggesting there may be “price gouging” in the market for prescription pills sparked the selloff in drugmaker shares this week.

“We saw a rally come in and now the rally is getting questioned,” said John Stoltzfus, the New York-based chief market strategist at Oppenheimer & Co. “ It’s going to be all about earnings. The biggest thing here is: people are impatient. They want their answers now.”

Data in the U.S. today showed the world’s largest economy expanded more than previously forecast in the second quarter, boosted by gains in consumer spending and construction. A report on consumer sentiment indicated some households are starting to look beyond the recent turmoil in financial markets.

Janet Yellen is right.  Turmoil in emerging markets, especially the commodity producers, will not kill off US economic growth.  In fact, US growth is benefitting from those depressed commodity prices represented here by the CRB Continuous Commodity Index (CCI) (weekly & daily) updated through Thursday. 

China’s slowdown gets most of the credit / blame for low commodity prices and that has been an important influence, particularly for industrial metals.  However, the even bigger story, by far, is increased production, helped by Technology.  This has boosted the production of all commodities and especially the industrial sector in recent years.  Consider unconventional production of crude oil via fracking and the almost fully automated mining projects run by some of the larger firms.  

This item continues in the Subscriber’s Area. 

My hunch - but I may be wrong - is that electric cars are relatively easy to build... there is not much Technology in an electric engine, no complexity; as for the batteries (which I understand are Panasonic's in the case of Tesla, which assembles them together in very large modules) I understand that the know how is not really in the hands of Tesla or any other producer (even Renault/Nissan stopped developing in house Technology) and therefore someone else did the clever job. 

As a first mover Tesla has very competently built a good product, taking risk only where strictly necessary: luxury brand (low risk) with traditional, long bonnet, probably off the shelf design (low risk), an old chassis for the roadster, well tested batteries. Also, the complexity of electric power train - compared even with a small 1ltr engine - is little: there are fewer (almost none in fact) moving parts, no gear box. No way a new producer could enter the industry with its own internal combustion engines, but the electric car gives this opportunity.  A good demonstration of this is that Tesla's provisions for warranties are in line with those of a mature manufacturer with a well-tested line up of cars... probably Tesla know that there is so little in an electric car that can actually go wrong.

Traditional producers have held off from making a proper move into the sector not to cannibalize their current products and make all R&D and Capex in a probably obsolete Technology completely worthless. After all they can catch up quickly: the difference between a Tesla, and a BMW or Nissan Leaf or 500e is purely the size of the battery, whose development risk is not theirs... On paper, a Leaf may have the range of a Tesla simply by doubling the size of the battery. In the meanwhile, no necessity of taking the risk of killing their current baroque business model, made of V12, V6, boxer, in line 4 or 3 or 2 cylinder hyper complex engines that you have to service all the time and last 300k when of exceptional quality.

Traditional car manufacturers will "tolerate" Tesla as far as it does not build a too strong brand (ludicrous speed is genius by the way: intrinsic of electric engine, easy to do, but presented as cool high tech stuff), then move in and with their economies of scale and less vertically integrated structure quickly catch up... it will be dear, but unavoidable as Tesla made clear it is possible to achieve a usable and fun product with no petrol engine.? VW making its move,? but I guess everyone if working on something. 

What I think could get ugly in this story - from the point of view of Tesla shareholders - is the excessive use of dodgy accounting (there are examples), the glorification of the CEO and its ideas (never good in a plc), just to get hold of capital for a venture that is extraordinarily risky and liable to competitive pressures from corporations much larger and much more sophisticated. How far will the individual Musk go to keep the business going? He is very successful, people love him, Tesla S has been voted best car ever. Difficult to give that up, right?

Did not look at the other businesses of his, with Space X he is against defence and/or state run companies... difficult.

Anyway, just a thought, I may be completely wrong...

 

Thank you for this detailed email and I agree that with valuations as they currently stand Tesla does not have a great deal of margin for error. The company has lost money in every quarter since 2013 but less than analysts estimated which has helped support the massive run-up in prices. 

Guo Feng, an investment adviser at Northeast Securities Co., said stocks also rallied on speculation the government is succeeding in reducing risks associated with non-brokerage margin lending. The China Securities Regulatory Commission cleared 3,255 non-brokerage margin funding accounts, or 61 percent of the total, spokesman Deng Ge said this week.

Margin traders cut holdings of shares purchased with borrowed money on Tuesday, with the outstanding balance of margin debt on the Shanghai Stock Exchange falling to a nine-month low of 587.1 billion yuan ($92.2 billion).

The Technology sub-index in the CSI 300, which has slumped 54 percent since its June peak, posted its biggest gain since September 2008. Yonyou Network Technology Co. rose by the 10 percent daily limit, rebounding from its lowest close since Jan. 5.Dr. Peng Telecom & Media Group Co. jumped 10 percent. Measures of health-care and industrial shares advanced at least 6.7 percent.

Well, China certainly has both a command economy and stock market, in case anyone was in doubt.  The trouble with this micromanagement is that it is an on-the-job learning process.  Moreover, China’s proclivity for a casino environment creates global shock waves. 

Yes, China’s economy has slowed, probably to a GDP growth rate closer to 4% than the reported 7%.  Nevertheless, China certainly has the world’s second largest economy, and by some measures, including imports, it is the largest economy. 

For the world’s investors, whether domestically oriented or internationalists, China is the big elephant in the room.  Moreover, it is still growing, seldom a passive presence and often unpredictable.  We may or may not want to invest in China, but we certainly need to keep an eye on it, starting with price charts for China’s indices.   

This item continues in the Subscriber’s Area. 

The fusion of the digital world with the real world of manufacturing, known as the fourth industrial revolution, has just begun. For decades, Kuka has been setting milestones in factory and production automation, but we think the real breakthrough is just ahead with smart factories, for which Kuka is providing key Technology that enables Industry 4.0. In our view, intelligent robotics, in particular human/robots collaboration is the heart of the digitised value creation chain as robots can be used as a versatile tool for unlimited production flexibility.

With its sensitive lightweight robots, mobile platforms, and smart platforms such as controllers and software, we think Kuka is well positioned to offer human/robot collaborative assistance systems, automation solutions, and production processes that mark the dawn of a new area for smart factories.

And 

Although industrial robots have been used for decades, their high cost only led to productivity improvements in industries that were using low skilled, but highly paid workers in the developed world, performing jobs that were dangerous, dirty and dull, like welding in auto production. In our view, we are now at a stage where robotics and the automation industry have started to “cross the chasm”, as early adopters such as the car industry have paved the way for a broader use of robots. Therefore, we think that other industries will catch up with the automotive industry to improve their efficiency and remain competitive, especially in regions of high wage inflation and an ageing workforce.

 

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

As the above report highlights the automotive sector is where the robotics sector took root. However the potential for robots to be employed in additional high margin sectors such as healthcare, pharmaceuticals and logistics is where the major growth thesis lies. Demands for high quality manufacturing, wage growth and an aging workforce all represent encouraging themes for the sector. 

The rise of the machines in the workplace has U.S. and European experts predicting  massive unemployment and tumbling wages.

Not in Japan, where robots are welcomed by Prime Minister Shinzo Abe’s government as an elegant way to handle the country’s aging populace, shrinking workforce and public aversion to immigration.

Japan is already a robotics powerhouse. Abe wants more and has called for a “robotics revolution.” His government launched a five-year push to deepen the use of intelligent machines in manufacturing, supply chains, construction and health care, while expanding the robotics markets from 660 billion yen ($5.5 billion) to 2.4 trillion yen by 2020.

“The labor shortage is such an acute issue that companies have no choice but to boost efficiency,” says Hajime Shoji, the head of the Asia-Pacific Technology practice at Boston Consulting Group Inc. “Growth potential is huge.” By 2025, robots could shave 25 percent off of factory labor costs in Japan, according to the consulting firm.

Worker Replacement

Automation also has huge potential for distribution. Toho Holdings Co.’s 10 billion yen distribution center, which became fully operational in January, employs about 130 workers, roughly half the number at another one of similar size. Productivity per worker is 77 percent higher with robots handling 65 percent of item-picking, the drug wholesaler says.

“We wanted to lower manpower requirements by using robots because we already found it hard to recruit people, including part-time workers,” says Mitsuo Morikubo, the company’s executive managing director.

Inside a three-story gray building in Saitama north of Tokyo, about 28,000 items such as vaccines, liquid food and suppositories are stored. On the spotless second floor, a handful of people open cardboard boxes and take out items for the machines to handle.

The dexterity of the 16 robots is in evidence when one of them lowers its arm, stopping just above a rectangular box. Eight suction pads stretch down, latch on and drop it on one of the three narrow conveyor belts. “Swish, swish, swish,” its sound blends in with the clacking belts.

Depending on the type, size and weight of an item, the machine alters which pads it uses, how fast it moves and where it puts the item. The robots can pick up to about 10,000 items per hour with almost perfect accuracy. By adjusting the timing of the conveyor belts, the whole system can mix different products and make orders for individual customers.

Japan was Asia’s first developed economy of the last century.  However, in the 1980s it created what was arguably the world’s biggest ever bubble, which burst in 1990 and undermined GDP growth for over a generation.

This item continues in the Subscriber’s Area.

Using the new Weilidai feature, WeChat users can receive money in just a few minutes after submitting their applications. They apply for loans by giving their traditional bank account information and other basic personal data, and Weilidai assesses their credit based on its own data as well as individual loan status information from the People’s Bank of China, according to people familiar with the matter. The credit assessment process could take less than a minute. While interest rates vary based on the user’s credit levels, on average, the daily rate is 0.05%. The terms for the loans are up to 20 months.

In late July, WeBank said its outstanding personal micro loans amounted to 800 million yuan, without disclosing the number of borrowers.

Still, how far Tencent and WeBank can expand will depend in part on Chinese authorities. WeBank uses facial recognition Technology to verify users’ identities before allowing them to bundle their traditional bank accounts with WeBank’s online accounts. Because regulators are still concerned about the Technology, there are limitations to what users can do with the online accounts, a person familiar with the matter said. For example, users cannot transfer money from their online WeBank accounts to other people’s bank accounts.

“Internet finance is still at its early stage, and the regulatory framework is still evolving,” Ms. Meng said.

Both Google and Facebook have been investigating entering the banking sector. For Apple the logical next step from ApplePay would be to offer credit products not least because it would be a useful employment of the company’s substantial cash reserve. Well-heeled Chinese companies are further along in developing their own products. 

One of those investments was the 2009 purchase of Cyber Power Group Ltd. for $77.6 million, a company that makes polysilicon, the main raw material in solar cells. Yingli’s founder and Chief Executive Officer Miao Liansheng invested another $270 million to upgrade the plant. The project made more sense then, when the material sold for $400 a kilogram; today, it can be bought for less than $20, said Angelo Zino, an S&P Capital IQ analyst in New York.

Yingli spent aggressively on marketing as well, including sponsoring the World Cup. Its logo was prominent during matches in Brazil last year. “They spent on capacity, they spent quite a bit on marketing,” Sanganeria said. “They took everything to the extreme.”

Suntech and Q-Cells faced similar issues, borrowing to expand capacity and then finding themselves constrained by debt, said Raymond James’ Molchanov. Both struggled to cut manufacturing costs fast enough to keep up with the market. The challenge was exacerbated starting in 2011 when slowing demand in Europe led to a global oversupply of panels and falling prices.

The problem for solar cell manufacturers is that the primary bullish case for solar is that Moore’s law can now be applied because it is a Technology rather than an extractive resource. This means companies relying on producing legacy products, when Technology is advancing rapidly are being left behind and often with high debt loads. 

What makes Brett’s brain tick is a combination of two technologies that have each become fundamental to the AI field: deep learning and reinforcement learning. Deep learning helps the robot perceive the world and its mechanical limbs using a Technology called a neural network. Reinforcement learning trains the robot to improve its approach to tasks through repeated attempts. Both techniques have been used for many years; the former powers Google and other companies’ image and speech recognition systems, and the latter is used in many factory robots. While combinations of the two have been tried in software before, the two areas have never been fused so tightly into a single robot, according to AI researchers familiar with the Berkeley project. “That’s been the holy grail of robotics,” says Carlos Guestrin, the chief executive officer at AI startup Dato and a professor of machine learning at the University of Washington.

After years of AI and robotics research, Berkeley aims to devise a system with the intelligence and flexibility of Rosie from The Jetsons. The project entered a new phase in the fall of 2014 when the team introduced a unique combination of two modern AI systems&and a roomful of toys—to a robot. Since then, the team has published a series of papers that outline a software approach to let any robot learn new tasks faster than traditional industrial machines while being able to develop the sorts of broad knowhow for solving problems that we associate with people. These kinds of breakthroughs mean we’re on the cusp of an explosion in robotics and artificial intelligence, as machines become able to do anything people can do, including thinking, according to Gill Pratt, program director for robotics research at the U.S. Defense Advanced Research Projects Agency.

And

Part of why the robotics industry is so interested in the type of AI in development at the Berkeley lab is because, unlike with most emerging Technology, it already works really well, says Abbeel. “Everybody who tries something seems to get things to work beyond what they expected,” he says. “Usually it’s the other way around.” The work has piqued the interest of executives at Dyson, Fujitsu, Siemens, Toyota, and several startups, who have visited the lab, Abbeel says.

Technological innovation is proceeding at such a rapid rate that people depending on low skilled work are being replaced. This is particularly true of factory settings that do not require movement over potentially rough terrain. Education, upskilling, individual creativity and product customisation are more important than ever if individuals are to thrive in an environment where industrial automation is proving to be a powerful competitor. 

She then plumbed why the ledger could transmit assets without an intermediary, which would change everything she knew about the way the markets completed trades. Buyers and sellers, of course, can’t automatically trust one another. In the fixed-income market, for example, we need middlemen to draw up contracts between buyers and sellers that cover interest payments, terms, and collateral, plus clearinghouses to guarantee the exchange of cash for securities.

Through her research, Masters understood how you could input all that information into a digital “smart contract” on a distributed ledger. Conceptually, it’s similar to the way you can embed video in an e-mail. But the difference is that when you send that smart contract along, it doesn’t just contain data, it transfers ownership of the security. The value belongs to whoever possesses it. So a trade could be settled in minutes instead of days or weeks, Hirani says.

Anyone with access to the ledger can read the contract with a click of a mouse. That means regulators, who depend primarily on self-regulatory organizations to police the markets, could easily verify that a securities transaction didn’t violate anti-money-laundering rules or other laws. The blockchain, in essence, automates trust, Hirani says.

The clincher for Masters was how the Technology can affect risk. Every hour that a trade hangs suspended between sale and purchase, the chances mount that it won’t be fulfilled, she says. Institutions have to set aside capital to protect themselves from such failures. Since the 2008 crash, regulators in the U.S. and the European Union have directed banks to allocate ever-larger sums to cover their exposures. If the blockchain could shorten the settlement time for, say, syndicated loans, from 20 days to 10 minutes, this risk would be reduced and capital would be freed up.

Blockchain Technology is still immature but is advancing rapidly and what it could mean for back office efficiency is truly mind blowing. When I worked at Bloomberg I would often visit back office operations in Luxembourg where people were tasked with pricing some pretty obscure fixed income instruments. In an illiquid market it’s difficult to keep track of pricing and often one has to use a best guess solution. The whole issue of different covenants on loans, deals and bond issues is an equally obscure sector. These all represent market inefficiencies that could be done away with using the blockchain. 

This addresses concerns you have voiced about technological change (our ongoing Third Industrial Revolution) leading to the potential disappearance of jobs. The same concern was voiced during previous periods of rapid change in Technology. A quote from the article :

"Technological change increased the demand for other types of labour that were complementary to the new technologies. So, for example, large numbers of supervisors and managers were needed for the vast new factories and companies. Product innovation created completely new markets which demanded completely new types of job."
 
The article goes on to say that economists at the time could not conceive of the jobs that would appear and my sense is the same is true today. 

The real issue for us all is adaptability. Didn't Darwin say something about this? 

Thank you for this email and the associated article. The question is not whether some people will lose their jobs due to their skills becoming obsolete because that is already happening. Rather we need to monitor how many new jobs are being created in new sectors as they emerge. Generalisation, adaptability, non-linear thinking, problem solving and creativity represent the buzzwords for the labour force of the next decades because relatively unskilled jobs, heavily regulated by unions are going to less common. People have always followed a “needs must” approach to work and the pace of automation is unlikely to change that. 

First, let's address the issue of overstating the GDP. Critics point to the country's weak industrial production, export and investment figures as proof that the country is fudging its number. Lardy, a senior fellow at the Peterson Institute of International Economics, points to a salient fact that many people choose to ignore: the biggest contributor to the country's GDP is now the services industry.

"the skeptics have taken insufficient notice of China's progress in transitioning to its new model of economic growth, one less dependent on expanding industrial output, investment, and exports and more dependent on expanding private consumption expenditure¡±, he says.

Between 2011 and 2014, the size of the service sector as a share of GDP rose by about 4 percentage points to 48 per cent and, at the same time, the share of the industrial sector dropped to 43 per cent of GDP. This is a marked change from a decade ago, when the industrial sector accounted for 47 per cent of the GDP while the service sector only accounted for 41 per cent of the economy.

Considering the size of China's economy -- it's a $US10 trillion behemoth -- the transition is even more impressive. Many services are booming in China, the e-commerce sector grew by 31.4 per cent in 2014. The entertainment sector has been growing at an average of 17 per cent a year between 2010 and 2015. In health care, McKinsey predicts the growth in spending will grow from $US357 billion in 2011 to about $US1 trillion in 2020.

 

Unfortunately the services sector now accounts for more than 50% of GDP because the industrial and construction sectors have declined so much. The services, consumer discretionary, information Technology and healthcare sectors are most likely to lead the Chinese economy in a recovery not least because they are receiving a great deal of government support. However this was priced in by the impressive outperformance of the Chinext Index and Shenzhen B shares earlier this year. 

BEIJING: A Chinese firm specialising in precision Technology has set up the first unmanned factory at Dongguan city where all the processes are operated by robots, regarded as futuristic solution to tide over China's looming demographic crisis and dependence on manual workers. 

In the plant, all the processes are operated by computer- controlled robots, computer numerical control machining equipment, unmanned transport trucks and automated warehouse equipment. 

The technical staff just sits at the computer and monitors through a central control system. 

At the workshop of Changying Precision Technology Company in Dongguan, known as the "world factory", which manufactures cell phone modules, 60 robot arms at 10 production lines polish the modules day and night, state-run People's Daily reported. 

Each line has an automatic belt with just three workers who are just responsible for checking lines and monitoring. A few months ago, it required 650 workers to finish this process. 

Yes, China’s economy is in transition, which is an essential and inevitable stage of its development.  However, it is adapting very rapidly.

A ban on genetically modified crops, despite its importance to Scotland’s large food and drink industry; the introduction of costly, politically correct gimmicks such as a business pledge that includes scrapping zero hours contracts and a more diverse workforce; state-directed research that even Jeremy Corbyn might regard as a bit old-fashioned; and, of course, the political instability that comes from the constant threat of a fresh independence vote.

Perhaps not very surprisingly, the Scottish Nationalist government in Edinburgh is increasingly imposing anti-business and anti-Technology policies on the country.

That is of course up to them. It is, however, also an opportunity for English regions, and of course Wales and Northern Ireland as well, and one they should not be squeamish about taking.

As Scotland makes itself less and less economically competitive, then London, Newcastle and Cardiff should be aiming to persuade the businesses based there to move south. It is too good an opportunity pass up.

Only this week, the Scottish government demonstrated that it cares more about making right-on political gestures than it does about nurturing a successful economy. It imposed a formal ban on genetically modified crops, despite the fact that the country has a major food and drink industry worth some £14bn a year.

The Scottish wing of the National Farmers Union protested that it was disappointed, pointing out that many of the crops that would now be prohibited had been passed as perfectly safe by the EU.

So did some of the life sciences companies based in Scotland. But never mind. The SNP administration decided that GM food smacked of wicked agri-business and decided to ban it anyway.

In May, the SNP launched a Scottish Business Pledge, a pious document full of the kind of promises Hillary Clinton might come up with on a bad day.

Scottish companies are meant to pledge themselves to scrapping zero contracts, despite the evidence that, despite occasional abuses, plenty of part-time workers actually quite like them, and to promoting vague and woolly goals such as having a more diverse workforce.

I would be interested to know what subscribers think of this article.  

Personally, I think any breakup of the United Kingdom would be sad and unfortunate.  I also think an independent Scotland ruled by the SNP would be worse off.  This is not because Scots cannot compete but because the leftwing SNP is no better for Scotland’s economy than Jeremy Corbyn would be for England’s.  

The UK is becoming more federalist.  Fair enough, but I think our one nation Conservative government will encourage more growth and higher standards of living throughout the country than leftwing spinoffs.  The latter would definitely send more ambitious people to London, as we have also seen with the migration of French people from Socialist France.  

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

The new reactor is designed for basic research on fusion and also as a potential prototype power plant that could produce 270MW of electrical power. The basic reactor concept and its associated elements are based on well-tested and proven principles developed over decades of research at MIT and around the world, the team says. An experimental tokamak was built at Princeton Plasma Physics Laboratory circa 1980.

The hard part has been confining the superhot plasma — an electrically charged gas — while heating it to temperatures hotter than the cores of stars. This is where the magnetic fields are so important — they effectively trap the heat and particles in the hot center of the device.

While most characteristics of a system tend to vary in proportion to changes in dimensions, the effect of changes in the magnetic field on fusion reactions is much more extreme: The achievable fusion power increases according to the fourth power of the increase in the magnetic field.
Tenfold boost in power

The new superconductors are strong enough to increase fusion power by about a factor of 10 compared to standard superconducting Technology, Sorbom says. This dramatic improvement leads to a cascade of potential improvements in reactor design. 

 

This is a difficult time in markets and some caution is warranted however short-term volatility has no effect on the rate of technological innovation that remains perhaps the most bullish medium-term consideration for investors. Economic development is predicated on access to abundant, reasonably priced energy and fusion Technology represents a powerful potential enabler which is why it is so exciting. We will always need more energy and the challenge is how to generate it as cleanly as possible. 

Okay, but why?      Page and Sergey Brin, who co-founded Google two decades ago, have massively diversified Google from its origins as an internet search engine.

As well as products that help its core business, which is essentially gathering information and delivering internet adverts that are as relevant as possible, such as Android, Gmail and Maps, it has invested in driverless cars, high-speed internet and home gadgets to name just a few.

However, this diversification has created several issues. Investors have raised questions about these heavy investments and whether they are really going to pay off, while the broad collection of operations makes it more difficult for analysts to figure out how the core business is really doing.
Page and Brin, meanwhile, are becoming more focused on the research projects, which may change the world and be highly lucrative, but could take decades to bear fruit. This has led to questions over their commitments to the core business.

Developments such as Google Glass, a first attempt at which was retired last year, have been classed as failures.

So the new structure is seen as a win-win: Google's founders are able to step back from the day-to-day running of Google and focus on the big picture, while investors get a clearer picture of the company they own and are able to understand it better.

"Sergey and I are seriously in the business of starting new things," Page wrote last night.

 

Last year’s creation of Google’s C-Class of shares resulted in the primary shareholders gaining even greater control of the company. This was not welcomed by investors who saw the move as a sign of deteriorating governance and lack of transparency. This is now beginning to change with the appointment of a new CFO and by delineating accountability within the organisation. 

Countless column inches have been dedicated to the meteoric rise of Technology services such as Uber, Spotify, Netflix and Airbnb that are springing up, seemingly out of nowhere, and making life difficult for the established titans of their respective industries.

But there’s one super-power lurking behind all these start-ups, fuelling the astronomical growth of the app economy: Facebook.

Through the Facebook Platform, which provides developers with the creative and analytic tools to build, grow and monetise their companies, the social network claims to be one of the major forces shaking up classic business models.

And at its epicentre is Julien Codorniou, a soft-spoken, floppy-haired optimist who hails from Gruissan, a fishing village on the south coast of France that had roughly 1,300 inhabitants when he was born.

Now, Codorniou is Facebook's director of global platform partnerships, managing relationships with countless companies using Facebook's platform to reach the social network's almost 1.5bn users.

Facebook Platform launched in 2007 with the purpose of allowing developers to create external content such as games and news to be played and consumed on Facebook.com. Within a year, around 30,000 apps existed on Facebook, and later the Menlo Park-based company unlocked the platform so that anyone could build an app designed to exist outside of the website.

Today, any app that connects with Facebook's worldwide community of 1.49bn monthly active users – around a fifth of the global population – is considered to be part of the Facebook platform, and a tool as simple as "Login with Facebook" has allowed millions of apps to piggyback on the social network's ready-made audience of half the world's internet users.

The social network, which just reached $4bn in quarterly revenues for the first time, has grown its monthly users by 13pc over the last year and its daily users by 17pc. One out of every five minutes spent on a smartphone in the US is now spent on a Facebook app.

“When people think of the Facebook platform they think of a gaming platform on the web,” such as Farmville or Candy Crush, Codorniou told the Telegraph. “Nobody connects the dots when they see Airbnb, Uber and Spotify that Facebook is behind each of these companies. But that’s the ambition – we want to fuel their growth, even if it is invisible to the user.”

I showed my age in describing Facebook as a frivolous company after it was floated.  However, in the last two years I have also said that starting with Mark Zuckerberg, Facebook has brilliant management. 

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

If the oil futures market is correct, Saudi Arabia will start running into trouble within two years. It will be in existential crisis by the end of the decade.

The contract price of US crude oil for delivery in December 2020 is currently $62.05, implying a drastic change in the economic landscape for the Middle East and the petro-rentier states.

The Saudis took a huge gamble last November when they stopped supporting prices and opted instead to flood the market and drive out rivals, boosting their own output to 10.6m barrels a day (b/d) into the teeth of the downturn.

Bank of America says OPEC is now "effectively dissolved". The cartel might as well shut down its offices in Vienna to save money.

If the aim was to choke the US shale industry, the Saudis have misjudged badly, just as they misjudged the growing shale threat at every stage for eight years. "It is becoming apparent that non-OPEC producers are not as responsive to low oil prices as had been thought, at least in the short-run," said the Saudi central bank in its latest stability report.

"The main impact has been to cut back on developmental drilling of new oil wells, rather than slowing the flow of oil from existing wells. This requires more patience," it said.

One Saudi expert was blunter. "The policy hasn't worked and it will never work," he said.

By causing the oil price to crash, the Saudis and their Gulf allies have certainly killed off prospects for a raft of high-cost ventures in the Russian Arctic, the Gulf of Mexico, the deep waters of the mid-Atlantic, and the Canadian tar sands.

Consultants Wood Mackenzie say the major oil and gas companies have shelved 46 large projects, deferring $200bn of investments.

The problem for the Saudis is that US shale frackers are not high-cost. They are mostly mid-cost, and as I reported from the CERAWeek energy forum in Houston, experts at IHS think shale companies may be able to shave those costs by 45pc this year - and not only by switching tactically to high-yielding wells.

Advanced pad drilling techniques allow frackers to launch five or ten wells in different directions from the same site. Smart drill-bits with computer chips can seek out cracks in the rock. New dissolvable plugs promise to save $300,000 a well. "We've driven down drilling costs by 50pc, and we can see another 30pc ahead," said John Hess, head of the Hess Corporation.

It was the same story from Scott Sheffield, head of Pioneer Natural Resources. "We have just drilled an 18,000 ft well in 16 days in the Permian Basin. Last year it took 30 days," he said.

The North American rig-count has dropped to 664 from 1,608 in October but output still rose to a 43-year high of 9.6m b/d June. It has only just begun to roll over. "The freight train of North American tight oil has kept on coming," said Rex Tillerson, head of Exxon Mobil.

The Saudi’s have or had larger reserves from the sale of conventionally produced oil and gas than other energy exporters but they are all in trouble. 

The first remarkable fact about US shale oil and gas production that we are hearing about more frequently is the speed and efficiency with which this Technology has developed, significantly lowering costs in the process. 

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

Brynjolfsson points out that the rate of technological change is of a different order in the information age to the industrial revolution.

"I think it's going to require a similar level of overall change but it's probably going to have to happen faster. The steam engine was a remarkable breakthrough and really set off the industrial revolution, but as we say in the book it doubled in power and efficiency approximately once every 70 years and quadrupled after 140 years," he said.

"The computer processor doubles in power every 18 months, 10 times greater every five years, it's a very different scale of advancement and it's affecting a broader set of the economy than the steam engine did, in terms of all the cognitive tasks. It's happening a lot faster and more pervasively than before."

But is it correct to link the rate of societal change, and of advances in artificial intelligence, to the breakneck pace at which processors are becoming more powerful? Not everyone agrees.

Nick Jennings, professor of Computer Science at Southampton University has years of experience working with agent-based computing and intelligent systems. He doesn't foresee runaway advances in the field of AI that will reverberate throughout the rest of society.

"[I don't see] major shifts, no," said Jennings. "I see a gradual increase in automation and a gradual increase in the software tools that people have to support them in their day-to-day work. I don't see any non-linearities, I see processing getting better, speeds getting better, more data becoming available and us running more complicated algorithms on that data. I don't see anything that is going to cause a phase change or a disjunction in one go.

Even with computing technologies improving at that "steady, inexorable" rate, jobs may be being destroyed faster than they are created.

For most of the second half of the twentieth century the economic value generated in the US - the country's productivity - grew hand-in-hand with the number of workers. But in 2000 the two measures began to diverge. From the turn of the century a gap opened up between productivity and total employment. By 2011, that delta had widened significantly, reflecting continued economic growth but no associated increase in job creation.

Veteran subscribers will know all about this problem of jobs creation during an accelerating rate of technological innovation, particularly in terms of software.  This service has been commenting on it for a number of years. 

We know that new jobs are being created, even some as a consequence of software developments, but they are not keeping up with job replacements.  Also, they are often lower paid jobs.

This report, posted in the Subscriber's Area, has some graphics which should interest you, not least a comparison of Labor Productivity and Private Employment.  

Who benefits most from the loss of jobs?  Inevitably, corporations and to a lesser extent governments. 

Here is an early, prescient quote from the article on this subject:

“The role of humans as the most important factor of production is bound to diminish in the same way that the role of horses in agricultural production was first diminished and then eliminated by the introduction of tractors.”

Nobel Prize-winning economist, Wassily Leontief, in 1983 

Imagine a version of Google Maps that doesn’t end at the front door of buildings, or an Instagram consisting of immersive experiences rather than snapshots.

“Immersive 3-D content is the obvious next thing after video,” Facebook CEO Mark Zuckerberg said during a recent earnings call.

All of this is possible because, like the PC and the smartphone, virtual reality isn’t so much a single Technology as the happy coincidence of a bunch of related ones. Motion tracking, 3-D capture, ultra-high-resolution displays, fast graphics chips and a deep library of 3-D software developed for games and other applications are coming together at just the right time. Google, Facebook, Sony, HTC, Microsoft and countless smaller competitors have already made public their plans for VR, and given its hiring and patents in the area, it’s likely Apple is working on it too.

VR is a Technology that is truly in its infancy, despite decades of work in academia, industry and the military. Rapid progress in frame rates, displays, interfaces and more realistic rendering are already in everyone’s development pipeline.

“Keep in mind, this is just the Atari 2600 of VR,” says Cymatic Bruce, head of developer relations at Altspace VR, as he helps me take off a bulky headset I wore to experiment inside the company’s VR play space.

 

Microsoft’s release of Windows 10 appears to represent a change of focus for the software company since the product is now free but comes with a suite of features aimed at encouraging spending. The purchase of Minecraft last year and bundling an Xbox controller with every Oculus Rift when they are eventually shipped represent additional insights suggesting Microsoft sees its future as a media enabling platform rather than simply a spreadsheet builder and user interface. 

This has been an extremely difficult period for mining companies, not least as the major iron-ore and diversified mega-cap companies have ramped up supply into a falling market in order recapture market share. From an investor’s perspective, one is left with a dilemma. Many are asking whether it is better to hold on in the hope prices will recover. Others have been disappointed in their attempts to buy only to see prices fall even further. Against a background where Technology shares such as Apple, Google, Amazon and Facebook have accounted for the majority of stock market returns this year, underperforming sectors such as commodities have fallen into relative obscurity. 

The key is the locations of the pads: Thync believes it's found the right target areas to tweak your brain's natural stress responses in one direction or the other. One strip is designed to produce a calming effect ("calm vibe") while the other strip makes you feel more alert ("energy vibe"). And each "vibe" also has three sub-categories within it, varying in intensity and length of time.

It's like choosing a workout program, only instead of doing squats or lunges, the Technology does the work for you. You just sit there and enjoy the results.

If this all sounds pretty far-out, like something a burned-out space junkie would be using in an 80's-era sci-fi novel, we completely understand. But for me, it works exactly as advertised, either relaxing or energizing me (or both) – not only while I'm using it, but for several hours afterwards.

Skeptics will also be quick to question whether Thync is just an expensive placebo effect. And while this is only one person's experience and opinion – take it as you will – I don't see how there's any way that's the case with me. If this is a placebo, then all the pot, caffeine and meditation I've ever tried must be as well.

This product would appear to claim many of the same benefits as electroshock treatment but with more nuanced application and without the amnesia associated with the more violent treatment. Thync is still a privately held company but if the product does as it says and represents a non-chemical treatment for stress and lack of motivation then an IPO will be a potentially attractive proposition. 

In a dock opening onto the Hooghly River near central Kolkata, one of India’s most lethal new weapons is going through a final outfit.

The Kadmatt is a submarine killer, bristling with Technology to sniff out and destroy underwater predators. It’s the second of four warships in India’s first dedicated anti-submarine force -- a key part of plans to spend at least $61 billion on expanding the navy’s size by about half in 12 years.

The build-up is mostly aimed at deterring China from establishing a foothold in the Indian Ocean. It also serves another goal: Transforming India’s warship-building industry into an exporting force that can supply the region, including U.S. partners in Asia wary of China’s increased assertiveness.

“India’s naval build-up is certainly occurring in the context of India moving towards a greater alignment with U.S. and its allies to balance China,” said David Brewster, a specialist in Indo-Pacific security at the Australian National University in Canberra. “India wants to be able to demonstrate that Beijing’s activities in South Asia do not come without a cost, and Delhi is also able to play in China’s neighborhood.”

China showed its growing naval prowess when it deployed a nuclear-powered submarine to patrol the Indian Ocean for the first time last year, while a diesel-powered one docked twice in Sri Lanka. India says another Chinese submarine docked in May and July in Pakistan, which is reportedly looking to buy eight submarines in what would be China’s biggest arms export deal.

The U.S.’s Seventh Fleet has patrolled Asia’s waters since World War II and is backing India’s naval expansion. On a January visit to New Delhi, President Barack Obama pledged to explore ways of sharing aircraft carrier Technology. The two countries also flagged the need to safeguard maritime security in the South China Sea, where neither has territorial claims.

There has been considerable concern over Communist China’s rapid military expansion during the last decade, not least concerning its maritime and island claims within the South China Sea.  These claims are clearly not based on international maritime agreements, including the United Nations Convention on the Law of the Sea.  Consequently, in the South China Sea alone, China is in dispute with Brunei, Taiwan, Malaysia the Philippines and Vietnam, and proceeding on a might is right basis.  

These countries would like to see the United States remain a presence in the region.  The US, in turn, has a strong alliance with Japan, and now increasing also with India, which it sees as potentially the fastest growing regional power.  India, which also has a longstanding boarder dispute with China, will almost certainly receive at least technological assistance from the US in developing its navy.  This will help India’s economy to grow, as it aims to export naval equipment to allies within the Asia Pacific region and beyond. 

Clearly, as the Asia Pacific region develops there will be a considerable increase in military strength, led by India and Japan, mainly in response to China.  This is not without some risk, and thus it always was.  However, a balance of power, which, incidentally Europe does not really have with NATO, is also a restraint on territorial ambitions.  

The numbers suggest that a large percentage of minimum wage jobs are the teen-age children of middle class and upper-income families. Many of the rest are starter jobs – the kind we all remember when first we went to work. Estimates are that an increase in the minimum wage to $15 per hour will cost 500,000 jobs. I suspect it may be more.

Technology has already replaced many service-sector jobs. In some restaurants, one can order on I-Pads. Technology has replaced many secretarial jobs. The internet has made it easier to form a corporation and it has reduced the time for research. Travel agents have become an endangered species. The President has suggested that the servicing of smaller 401K and IRA accounts should be automated. Three weeks ago, when my wife was recovering from a fall, robots delivered medicines to her hospital floor. Technology will continue to replace jobs. It is one reason why STEM jobs have been the best paying for recent college graduates. David Brooks wrote recently in the New York Times: “If you raise the price on a worker, employers will hire fewer and you’ll end up hurting the people you meant to help.”

When New York Governor Andrew Cuomo signaled his support for the higher minimum wage, he disingenuously said: “You cannot live and support a family of four on $18,000 a year in the state of New York.” (The State of New York’s minimum wage is $8.75 per hour.) His statement was purely political, as were similar endorsements from Hillary Clinton, Bernie Sanders and Martin O’Malley. There are few families of four dependent on a sole provider making the minimum wage. Those jobs, as I wrote, are mostly held by the young – teenagers or young people starting a career. It is jobs, not raising the minimum wage that will help the poor. Raising the minimum wage will not narrow the income gap. It will cost jobs and force some businesses to close. It is not the panacea it is claimed and it detracts from the real task – job creation.

 

I went to visit a sewing factory in the San Fernando Valley a few weeks ago. They have 15 workers and specialise in sewing which is still almost all done by hand. This is true of the industry globally. The garment industry is people intensive and wages are about $10 an hour which is above the minimum wage but less than the $15 that will need to be paid in Los Angeles County from 2018. The company survives by doing small runs for singers and YouTube stars who need the work done fast and have high margins. Los Angeles has a large garment district and there are a lot of factories. 

There’s bullish talk about a coming pick-up in global economic growth, but for the moment, the signals are negative. Trends in the global economy look increasingly ominous.

Global trade is sluggish. In the first four months of the year, it rose only 2 per cent in volume terms, fell 12 per cent in dollar terms, year-on-year. Exports of Asian countries that are particularly sensitive indicators are looking awful.

Investment in expanding productive capacity is weak. The gap between new orders and stocks held by manufacturers is the poorest in three years.

Inflation is trending downwards in the US, Europe, China and Japan, with the rise in consumer prices in purchasing-power terms down over the past two years from 3 per cent to 1.2 per cent.

The OECD – the think-tank of mature economies – has cut its forecast for growth this year from 3.7 per cent to 3.1. The US is only expected to grow 1.1 per cent according to the Atlanta Fed’s latest GDP Now model. Europe and Japan are forecast to deliver minimal growth, while the most dynamic constituent of the world economy, China, is losing momentum.

Of course, there are some positive factors to counter the gloom. The fall in oil prices, by improving users‟ spending power, is adding 0.25 percentage points to economic growth. Central banks show no sign of retreating from their extreme money and credit creation policies to stimulate growth. In the US unemployment continues to fall, wage gains have started to gain traction, the housing market is looking better.

This is an interesting section and Martin Spring gives plenty of reasons why he still thinks global GDP growth will remain weak for many more years.  He could be right and obviously no one knows for sure.  I have repeatedly said in recent months that if may take two or three more years before we see a clear improvement in global growth.  Fortunately, the more enlightened governments and central bankers understand the challenge.  They are also addressing it, from the USA to India and obviously many more countries. 

They are also doing so in an environment of globalisation and accelerating technological innovation.  These changes are not without significant challenges, but the long-term benefits are likely to be far greater.  We already see this in so many areas, from the development of increasingly influential corporate Autonomies, to lower energy costs, and previously unimaginable developments in bioTechnology.  This is not just a limited or theoretical net gain for mankind.  Look at the increasing growth in the world’s middle classes over the last decade and counting.         

Martin Spring's On Target is posted in the Subscriber's Area.

This company wants to solve global warming using giant fans.

Canadian company Carbon Engineering is building machines that suck carbon dioxide out of the air by pulling it through a fluid, where it can either be discarded or recycled to be used as fuel.

Trees do the same thing, but the fan machines would ideally be built in areas where you couldn't plant trees, such as deserts, Popular Science reported.

Technologies have already been developed for capturing carbon dioxide from smokestacks before it reaches and pollutes the atmosphere, for example. But Carbon Engineering plans to do it by capturing CO2 that's already in the air, like emissions from cars, trucks, and planes.

I am glad that people are addressing the challenge but this project sounds noisy, cumbersome and with too many moving parts to be efficient.  

Many a book has been written on the back of the stats that show that buying low P/E, low P/B companies is far, far more rewarding in the long run than buying the expensive stocks regardless of the potential for growth. As you say it is a judgement call and of course momentum can go on for longer than you can remain bearish to serially misquote Keynes! But Jeremy Grantham is fond of saying value managers are never wrong just early! I'd rather wait for those opportunities which are hard to find right now unless you go looking in unusual places like Vietnam and Burma!

Thank you for sharing your experience and for this email of general interest. Thanks also for the related article. Here is a section:

As you can see, every time the market fell to a P/E ratio of between zero and 7x, you would have made, on average and after inflation, 11% a year, every year for a decade The small print, of course, is every time the market was at those levels, there was something so scary, so apocalyptic, so death-of-equities going on, you would have had to force yourself to buy in but, if you did, you saw a fantastic real return.

Whenever you paid a higher price, however, you would have seen a correspondingly worse return and here is the killer – whatever helped you to justify paying a higher price was irrelevant. Better business? Stronger economic environment? Higher growth? World-changing new Technology? It did not matter. What is more, it did not matter even if it turned out you were 100% right about the outcome.

Is it better to enter following a market crash rather than when you are six years into an uptrend? Yes. Is it the only time you should buy? No. The whole point of looking at trends and consistency is so that you can get the rhythm of the market, identify when the best time to participate is, manage the position and identify topping activity which is not something cyclically adjusted P/Es offer. Above all else we have to cultivate the ability to deal with the market as it is rather than how we would like it to be. 

Like most of the tools that enable modern life science research, the recent genome-editing revolution has its biological roots in the world of bacteria and archaea. Clustered, regularly interspaced, short palindromic repeats (CRISPR) loci are found in the genomes of many bacteria and most archaea, and underlie an adaptive immune system that protects the host cell against invasive nucleic acids such as viral genomes. In recent years, engineered versions of these systems have enabled efficient DNA targeting in living cells from dozens of species (including humans and other eukaryotes), and the exploitation of the resulting endogenous DNA repair pathways has provided a route to fast, easy, and affordable genome editing. In only three years after RNA-guided DNA cleavage was first harnessed, the ability to edit genomes via simple, userdefined RNA sequences has already revolutionized nearly all areas of biological science. CRISPR-based technologies are now poised to similarly revolutionize many facets of clinical medicine, and even promise to advance the long-term goal of directly editing genomic sequences of patients with inherited disease. In this review, we describe the biological and mechanistic basis for these remarkable immune systems, and how their engineered derivatives are revolutionizing basic and clinical research.

BioTechnology represents a truly exiting story and has real potential to greatly enhance quality of life for millions if not billions of people over the coming decades. However related stocks are somewhat overbought at the present time and potential for mean reversion is looking more likely than not.  

Robots are deployed at the front desk to help guests check-in and out. According to the Henn-na Hotel, it's possible to hold a conversation with the "warm" and "friendly" robots while they get on with their work. Alternatively, self-service check-in and check-out eliminates the need to go to the front desk or to wait in line.

There are porter robots employed to carry luggage to and from rooms, and cleaning robots employed to keep the hotel spotless of their own accord. There is also a robot employed in the cloak room. Objects up to the size of small bags can be handed over and the robot will put them away in secure lockers. When the belongings are needed, the robot will locate them in the correct locker and hand them back to the guest.

 

This Huffington Post article from more than a year ago highlights how Technology that already exists can be combined to displace waiting staff at restaurants. Today’s news that New York has voted to increase fast food wages to $15 following Los Angeles’ decision to raise its minimum wage to $15 earlier this year will only accelerate the incentive for technological integration 

The two hackers, Charlie Miller, a Twitter employee based in St. Louis, and Chris Valasek, a director at the security firm IOActive, demonstrated in an article and video published in Technology magazine Wired their ability to wirelessly access a vehicle’s systems. The researchers, who have been probing vulnerabilities in connected automobiles for years, previously could only take over a car by hacking from a laptop connected by cable to a moving vehicle.

Mr. Miller defended releasing the information, arguing he is improving auto safety by drawing attention to the issue. “We both want the same thing, to keep drivers safe from a cyberattack,” said Mr. Miller, who used to work on hacking tools for the NSA. “All I can do is point out flaws in their vehicles, get other researchers working on this issue and make suggestions.”

 

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

The lesson here is that not only is every internet connected device susceptible to outside interference but that interested parties have the capability to achieve their goals with relative ease. Cybersecurity remains a growth industry not least as our homes become progressively more connected and as the online economy grows and potentially overtakes the physical economy in the coming decades. 

Lost in the collective freak-out over Apple's quarterly results this morning is the fact that the tech giant's cash stash is now above $US200 billion ($270 billion). And some of that is thought to be invested in Australian assets. How much? We don't know for sure.

Wall Street wasn't particularly thrilled with Apple's quarterly results on Wednesday morning. Shares dived by nearly 9 per cent - losing around $US62 billion dollars from its market value in a matter of minutes - after sales of iPhones underwhelmed and the impact of the much-heralded new Apple Watchfailed to move the needle. Apple is still growing (revenue was up 45 per cent, year on year) at rates most companies would die for, but investors are incredibly fickle beasts when it comes to results from the world's biggest company. 

The tech colossus added another US$9 billion to its vast position in cash and short-term investments, bringing it to $203 billion - more than the foreign reserves of countries like Germany, the UK, France, Canada and yes, Australia. 

Since Australia has one of the highest iPhone penetration rates in the world, it's reasonable to assume it generated some of that money in the last quarter (and all those quarters before) by selling devices on these shores. 

Yet, as reporting by the likes of The Australian Financial Review's Neil Chenowethhas shown, Apple doesn't pay much tax on its sales here, using notoriously complex schemes to shifts its profits to lower taxing jurisdictions. Apple doesn't repatriate profits generated outside the US into its home country due to steep taxes, but its cash is managed by a secretive offshoot in the Nevada desert called Braeburn Capital. It's not unreasonable to think Braeburn has invested some of that cash into Australian government debt (which carries a triple A rating and offers higher interest rates than other countries do). The company didn't immediately respond to our enquiries on this issue. 

Apple also quite possibly owns debt issued by Australian banks. A recent report by Bloomberg said representatives from all of Australia's big four banks, heavily reliant on overseas funding to write loans domestically, had sent representatives to visit Braeburn. 

If so, this would mean Australians aren't just buying iPhones and other devices, they're also effectively paying Apple interest. In return we get...great products. It's pretty clear who's getting the best out of this relationship, and it's not Australia.

Not that this is going to change anything when it comes to Apple's products, of course.  They're so incredibly good, it's practically a given that Australians will continue to feverishly buy them. 

 

This five-year weekly chart of Apple shows trading during Wall Street’s official market open hours, as the results were reported after Tuesday’s close.  However, I can tell you that iconic Apple is trading over $10 lower, uncomfortably close to retesting prior support near $120.

This item continues in the Subscriber’s Area. 

India has made an exceptional commitment to solar energy by raising its 2022 target five-fold to 100GW and its Renewable Energy target to 175GW. The government has announced an unprecedented policy push and states are providing the necessary infrastructure. Annual investments in solar could surpass investment in coal by 2019-20, with USD 35bn committed by global players. For local IPPs, solar has to be an inherent part of their expansion strategy, as RE obligations become strictly enforceable and cost of coal power increases. NTPC, Adani and RPWR are ahead in this development cycle which  adds 10-15% to our current valuations. NTPC is our top pick.

We raise our solar power forecast by 240%
Global majors have committed USD 35bn+ to the Indian solar sector. By 2020, annual solar power capacity additions and investments could surpass those in coal power projects. We are raising our solar power forecasts by 240% to 34GW by 2020. This is on the back of strong commissioning (4.5GW), even stronger pipeline - under construction (~5.1GW), and new projects (~15GW). By then, renewables could account for a significant 20% of power capacities in India, per our forecast. Private sector interest is decisively moving towards solar from coal power, and we foresee numerous opportunities of fund-raising, yield co-structuring and M&A activity.

RE can reach 20% of capacity but we see challenges to higher penetration
(1) Transmission constraints and integration of diurnal power into the grid are risks, without peak-load management capability. Solar absorption in Rajasthan could see challenges like wind in Tamil Nadu, given policy target of 25GW solar vs. peak-demand of 11GW. (2) A further risk is the enforcement of RE purchase obligations (RPOs) given weak finances of state distribution cos, and hence large-scale absorption of solar could be a concern (INR 170bn additional burden by 2020E). (3) Other issues include financing, land acquisition, limited domestic manufacturing, and returns/reliability of baseline data. 

Impact on the thermal power producers 
Solar could have a significant impact on day power rates, given that generation peaks between 9am and 6pm. In turn, this could reduce the coal requirement by ~8% or 70mnt by 2020E, largely impacting the highest cost of power, i.e., imported coal – leading to large savings (~USD 17bn/pa).

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

India has highly favourably demographics but if that dividend is to be realised the country needs to embark on a long-term policy of industrialisation. Narendra Modi’s government understands what has to be done and is gradually making the changes needed to unlock India’s considerable development potential. 

On its path to industrialisation China built huge numbers of coal fired power stations which facilitated growth but poisoned the air. It is now faced with an environment challenge that is proving expensive to correct. India has the potential to  partially circumvent at least these challenges by taking advantage of improvements in Technology that were not available to China when it began to industrialise. 

“I’m always reluctant to point a finger at failure in measurement because it feels like you’re making excuses, ” says Marco Annunziata, chief economist for General Electric Co. One explanation for the paradox of low productivity in a time of technical advances may be the uneven way innovation spreads, he says. Some firms gobble up new Technology while others don’t, so productivity growth could be lagging because many U.S. companies are laggards.

American business since the recession has, in fact, been stingy about investing in new equipment.
It may also be harder for companies to charge higher prices for innovated product lines, Preston McAfee, Microsoft Corp.’s chief economist says. For instance, when UPS started using new GPS Technology to speed package deliveries, it couldn’t charge more for the improvement in service because FedEx and other carriers could easily match them.

“Maybe our mysterious productivity gain is in the form of less inflation than we deserve,” Mr. McAfee says.

Back at Google, Mr. Varian admits that slow and uneven adoption of new Technology puzzles him. “If you go to Europe,” he says of restaurants there, “all the servers have hand-held devices for ordering, payment.” But the Technology has yet to spread across the U.S., even though it would make a slice of the economy more productive.

 

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

Productivity is the kind of subject that gets economists animated with some saying they see none over the last decade and that in fact there is no prospect of it getting better while others believe we are on the cusp of meaningful improvement. At this service we fall squarely into the latter camp. 

Mexico waited 77 years to invite foreign oil producers back into its borders. That was one year too many.

The move to lure tens of billions of dollars from the likes of Exxon Mobil Corp. will be put to the test for the first time at an oilfield auction on Wednesday. With oil prices down by about half since last year, five of 38 potential bidders including Glencore Plc, Noble Energy Inc. and even Mexico’s state-owned oil producer have pulled out.

President Enrique Pena Nieto moved to end the state monopoly after poor drilling infrastructure and Technology failed to reverse a decade-long production decline that reduced government revenue. To lure investments now, Mexico will probably get a much smaller share of profits than it would have a year ago.

“They shaped expectations at a $100-per-barrel market and we are way off that now,” Wilbur Matthews, chief executive officer of San Antonio-based Vaquero Global Investment, which oversees more than $100 million of assets including oil-producer bonds, said by phone July 10.

 

Favourable geology doesn’t just stop at the border between Texas and Mexico. Officials must have been looking on with envy as the shale boom took off in the US south west. Mexico’s state owned oil company dealt with declining output. Today’s news of Iran reaching an agreement to end sanctions and increase oil exports is another reason for Mexico to ramp production. The country will not get the same price they were hoping for from producing unconventional supplies and boosting offshore but it has little choice but to develop these reserves if the hole in its budget is to be repaired. 

I'm looking for your view again on the Canadian energy sector.  I obviously am aware of the effect Technology has had on the shale boom etc...I do disagree with most assertions that there is a flood of supply in oil at these price levels.  Anyway, aside from that- how do we go into this massive global GDP growth phase and not require an abundance of resources of all kinds?  Technology has brought on supply but they require much higher prices to break even.  Help me reconcile how we have this huge growth backdrop and yet the market is pricing in disaster levels in Canada?  Is the energy sector forever dead or is this a tremendous buying opportunity?   Thanks as always. Hope you and your family are well.

Thank you for a question sure to be of interest to the Collective. My family are all in rude health thank you. The oil sector has a lot of moving parts so let’s try to pick it apart. 

Saudi Arabia is pumping oil like it is going out of fashion and in a sense it is. The evolution of solar in particular, but also other renewables, batteries, electric cars, hydrogen fuel cells and the migration of work onto the cloud mean that oil now has challengers both as a transport fuel and for heating.