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February 17 2017

Commentary by Eoin Treacy

Beyond The Supercycle How Technology is Reshaping Resources

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

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

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

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

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

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


Eoin Treacy's view -

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

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

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February 17 2017

Commentary by Eoin Treacy

Biotechnology rotation

Eoin Treacy's view -

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

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


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February 13 2017

Commentary by David Fuller

The Demise of Deadly Diesel

Here is the opening of this sobering article from Bloomberg:

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

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



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

Diesel Downer

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

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

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

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

David Fuller's view -

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

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February 06 2017

Commentary by Eoin Treacy

Why Hollywood As We Know It Is Already Over

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

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

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

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


Eoin Treacy's view -

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

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January 30 2017

Commentary by Eoin Treacy

The retreat of the global company

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

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

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

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

Eoin Treacy's view -

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

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

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January 30 2017

Commentary by Eoin Treacy

Tesla's Battery Revolution Just Reached Critical Mass

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

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

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

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

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

Eoin Treacy's view -

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

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


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January 27 2017

Commentary by David Fuller

US Shale Surge Stalls Weekly Oil Price Gains

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

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

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

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

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

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

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

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

David Fuller's view -

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

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

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

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

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January 25 2017

Commentary by Eoin Treacy

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

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

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

Eoin Treacy's view -

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

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

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


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January 23 2017

Commentary by Eoin Treacy

Woman dies from antibiotic-resistant bacteria when no antibiotics worked

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

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

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

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


Eoin Treacy's view -

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

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

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

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


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January 19 2017

Commentary by Eoin Treacy

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

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

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

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

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

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


Eoin Treacy's view -

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

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January 18 2017

Commentary by David Fuller

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

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

Here are five ideas:

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

This item continues in the Subscriber's Area.

David Fuller's view -

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

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

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

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

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

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January 17 2017

Commentary by Eoin Treacy

Alibaba jumps ahead of Amazon with Maersk tie-up

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

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

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

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

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


Eoin Treacy's view -

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

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January 16 2017

Commentary by Eoin Treacy

Email of the day on the secular bull market in bonds

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

Eoin Treacy's view -

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

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


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January 09 2017

Commentary by Eoin Treacy

Email of the day on India's demonetisation

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

Eoin Treacy's view -

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

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January 06 2017

Commentary by David Fuller

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

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

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

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

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

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

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

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

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

David Fuller's view -

And it all starts with carbon – amazing.

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

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

Unfortunately, E6 is not a publicly listed company.

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January 06 2017

Commentary by David Fuller

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

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

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

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

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

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

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

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

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

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

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

David Fuller's view -

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

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

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

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January 05 2017

Commentary by David Fuller

Intel Boss on the Doubling of Computer Power Every Two Years

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

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

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

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

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

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

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

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

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

David Fuller's view -

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

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

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January 05 2017

Commentary by David Fuller

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

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

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

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

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

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

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

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

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

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

David Fuller's view -

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

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

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

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

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January 05 2017

Commentary by Eoin Treacy

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

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

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

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

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

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


Eoin Treacy's view -

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

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January 04 2017

Commentary by Eoin Treacy

The Ugly Unethical Underside of Silicon Valley

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

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

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

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


Eoin Treacy's view -

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

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January 03 2017

Commentary by Eoin Treacy

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

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

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

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

Good work in the New Year!

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


Eoin Treacy's view -

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

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December 23 2016

Commentary by David Fuller

Email of the day 2

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

Dear David

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

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

Other key messages that I took away were:

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

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

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

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

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

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

Best wishes


David Fuller's view -

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

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

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December 22 2016

Commentary by Eoin Treacy

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

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

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

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

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


Eoin Treacy's view -

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

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December 15 2016

Commentary by David Fuller

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

Here is the opening of this interesting article from Bloomberg:

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

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

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

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

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

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

David Fuller's view -

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

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

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December 14 2016

Commentary by Eoin Treacy

Musings from the Oil Patch December 13th 2016

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

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

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

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

Eoin Treacy's view -

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

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

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December 09 2016

Commentary by Eoin Treacy

Ford leads automakers in patents for 2016

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

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

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

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

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


Eoin Treacy's view -

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

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

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

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


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December 08 2016

Commentary by Eoin Treacy

Browning Newsletter

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

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

Eoin Treacy's view -

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

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

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

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December 05 2016

Commentary by Eoin Treacy

New efficiency record for large perovskite solar cell

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

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

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

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

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

Eoin Treacy's view -

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

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December 02 2016

Commentary by Eoin Treacy

As Schultz Steps Down, Next Starbucks CEO Brings Tech Savvy

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

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

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

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

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

Eoin Treacy's view -

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

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December 01 2016

Commentary by Eoin Treacy

Email of the day on technology shares underperforming

Any idea why NASDAQ 100 dropped 50+ points yesterday?

Eoin Treacy's view -

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

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November 30 2016

Commentary by David Fuller

Email of the day

On Monday’s Markets Now

Iain, David

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

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

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

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

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

David Fuller's view -

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

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

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November 29 2016

Commentary by David Fuller

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

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

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

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

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

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

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

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

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

David Fuller's view -

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

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

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November 29 2016

Commentary by Eoin Treacy

Musings From the Oil Patch November 29th 2016

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

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

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

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

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

Eoin Treacy's view -

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

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

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November 28 2016

Commentary by Eoin Treacy

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

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

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

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

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

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


Eoin Treacy's view -

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

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November 23 2016

Commentary by David Fuller

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

David Fuller's view -

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

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

This item continues in the Subscriber’s Area.

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November 22 2016

Commentary by David Fuller

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

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

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

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

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

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

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

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

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

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

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

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

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

David Fuller's view -

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

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

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November 17 2016

Commentary by Eoin Treacy

Is the EV finally coming of age?

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

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

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

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

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


Eoin Treacy's view -

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

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November 16 2016

Commentary by David Fuller

Global Dollar Shock Threatens Fresh Financial Storm, Warns Watchdog

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

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

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

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

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

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

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

David Fuller's view -

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

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

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

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November 14 2016

Commentary by David Fuller

Brexit Vote Has Not Sparked a Tech Exodus

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

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

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

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

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

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

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

David Fuller's view -

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

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

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

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November 10 2016

Commentary by Eoin Treacy

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

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

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

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

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

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

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


Eoin Treacy's view -

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

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November 08 2016

Commentary by Eoin Treacy

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

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

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

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

Other notable Adobe "sneaks" include Project Stylit and CloverVR. The former is a tool for creating digital art with traditional fine art looks. The latter tackles a more-cutting edge issue, introducing new methods for editing 360-degree videos for virtual reality applications.


Eoin Treacy's view -

Online retail is in many respects the business of selling pictures since the customer has no other way of inspecting the product. By successfully implementing a subscription pricing model Adobe succeeded in making its Photoshop suite of products the industry standard. Its Maya animation and graphics package is now also on a subscription model and is one of the most widely used tools in the gaming and advertising sectors. 

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November 03 2016

Commentary by Eoin Treacy

The U.S. dollar is a crowded consensus

Thanks to a subscriber for this note by James Paulsen for Wells Fargo Asset Management. Here is a section:

Most anticipate a modest and relatively slow tightening by the Federal Reserve primarily because a consensus believes tightening efforts will lead to a much stronger U.S. dollar. However, we suspect a surprising decline in the U.S. dollar will exacerbate inflation anxieties and accelerate the pace of Fed tightening from what is currently anticipated.

Looking into 2017, we recommend investors position portfolios as a dollar contrarian. Crowded consensus trades are not often fruitful and frequently prove risky. If the consensus is surprised by a falling dollar, many portfolios will need to be adjusted. Surprising dollar weakness will benefit commodity prices and penalize high-quality bond investors. It would also favour international stocks, particularly emerging market equities.

Moreover, it would likely extend the leadership of small and mid-cap stocks evident so far this year. Finally, a weaker dollar would probably focus investors on the materials, industrials, Technology and financials sectors within the U.S. stock market.

Eoin Treacy's view -

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

The Dollar Index has been largely rangebound since early 2015 and pulled back this week from the region of the upper side of the congestion area. With such a clear downward dynamic it is now for the bulls to prove their case by posting at least an equally impressive upward dynamic to retake the initiative as the short-term overbought condition is quickly unwound. 


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October 28 2016

Commentary by Eoin Treacy

Chip Makers Cut Deals as Cars Get Smarter

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

Ford Motor Co.,  BMW AG and others have said they would have self-driving cars on the road in the next few years, while Tesla Motors has a semiautonomous system already on the road. Tesla last week began shipping vehicles that include hardware that could one day be empowered by software, which must be validated and approved by regulators, to operate in a fully autonomous mode. Tesla Chief Executive Officer Elon Musk aims to demonstrate fully autonomous cross-country drive by the end of next year.

Analog Devices Inc. cited auto applications as a key motivation in a deal announced in July to buy Linear Technology Corp. in a cash-and-stock deal valued at $14.8 billion. NXP became the top auto chip supplier by striking a deal valued at nearly $12 billion last year to buy Freescale Semiconductor Inc.

But the market for years has been fragmented among many suppliers with different specialties competing on price. Where an iPhone has one central chip to power its computing functions, many parts of cars have long used separate chips—a situation that could become even more complex as car makers add more features for safety and other purposes.

“Those will all require more processing capability and likely will be supplied by different suppliers who are not exactly working together,” said Dave Sullivan, an automotive industry analyst at AutoPacific, in an interview.

The push toward autonomous driving is a countervailing force, requiring more powerful chips and software that can analyze feeds from cameras, radar and other sensors using technologies such as deep learning. Tesla Motors Inc. has moved toward a central computing system, announcing last week it had picked chip maker Nvidia Corp. as part of the self-driving hardware it has vowed to include in all its new vehicles.


Eoin Treacy's view -

There is not going to be a single day when someone turns a switch and the global vehicle fleet becomes autonomous. Rather it is going to happen in a piecemeal fashion and regulators will hopefully pay attention to what is happening in other parts of the world to come up with an idea of best practice. 

If we set aside the timeline for when cars are likely to be fully autonomous for a moment, the big question for auto manufacturers is still how to make new cars attractive enough to encourage people to pay up but not so attractive that they will cannibalise next year’s sales. The answer would appear to offer more added extras in the form of electronics and connectivity regardless of whether cars are autonomous. 


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October 26 2016

Commentary by David Fuller

Email of the day

More on EU Brexit anger (note, emails are usually posted anonymously but this is an important follow-up from Dr David Brown’s online email posted yesterday, where subscribers who post emails are also named.  

I thought subscribers might be 'amused' by the article copied below which was published recently. The author is a British lady, hailing from the Plymouth area, and she worked for a while in the hi-tech cluster around Cambridge before moving to Brussels. If one is looking for evidence of the 'anger and fear' of the first stage mentioned above, well here it is.

One can sympathise with her angst as she sees her apparently secure career potentially undermined after Brexit, if not before. But one can only wonder how she thinks this hysterical writing will help her gain employment back in the UK. 'Throwing toys out of the pram' comes to mind.

Her prospects apart, I can only assume her text reflects the mood in Brussels. If any subscriber has direct contact with Theresa May they may wish to forward it to her!

In the Brexshit, by Claire Skentelbery, Secretary General of the European BioTechnology Network.

Her comment on the impact on UK science and our universities does need answering. It is far from the black and white she suggests. Generally 5 of our universities rank in the top 10 in the world, with the remainder of Europe struggling to make the top 20.  It is often asserted that the UK's leadership depends on EU funding - if so why have other countries not kept up with the UK? It is also often asserted that the UK has received a higher percentage of funding from the EU for science than other EU countries. Our universities were strongly in favour of 'remaining' and Cambridge, where I live, was one of few cities returning a majority for 'remain', along with London.

However, the facts are not so clear. A House of Lords report published in April before the referendum states "Despite many assertions that the UK performs very well in terms of EU funding for science and research, it has proved challenging to define unambiguously the level of EU spending on R&D in the UK and how this compares with other Member States." That blows one huge hole in the statement made by Claire Skentelbery.

And the universities themselves are beginning to change their tune. The Russel 20 group is the 'trade body' for the UK's top 20 universities. Its chairman Sir David Greenaway has this week argued that a world where the UK is no longer part of the EU will give universities the freedom they need to exceed expectations.

Another blow for her article is the unmentioned fact that a country does not need to be a member of the EU to access research funding. The House of Lords report states: "Access to many research infrastructures is available to non-EU Member States in continental Europe as well as to countries outside Europe. We found there to be occasional confusion with regards to which infrastructures are EU-managed and which are European in nature." Matt Rigby has written and presented extensively on this misconception which continues to be perpetuated by remainers.

The House of Lords report also states:

"While the UK science community was enthusiastic about EU membership, we have uncovered some qualifications. We heard mixed views on the impact of EU regulations. The benefits of harmonisation were widely recognized but some specific areas, such as genetic modification and clinical trials, were highlighted as causing UK business and research to be disadvantaged compared to competitors outside the EU."

In my own field of research, some EU regulations have been highly damaging to the UK's science base. Problems were highlighted by this article published by the FT 3 years ago: Drug test rules ‘would eliminate bioTechnology sector in UK’.

Professor John Bell of Oxford University recently pointed to other damage the EU has done to UK science in an article published by the FT in which he explained the destruction of the UK's leadership in human clinical trials of new drugs. 

He writes about Brexit:

The opportunities in this new world extend well beyond funding issues. The cultural, ethical and philosophical environment that supports science is in many ways fundamentally different in the UK compared to many European countries. Britain is more inclined towards a relatively liberal risk-based regulatory environment that allows fields to move quickly — to reflect on ethical issues but not to over-regulate.

The EU, by contrast, has a record of deep regulatory conservatism, attempting to legislate and control many aspects of science that are not deemed here in the UK to present a significant danger. Consider clinical trials. In the early 1990s Britain was recognised as one of the best places in the world to test new drugs on patients. Decisions were quick and bureaucratic obstacles were few.

The introduction of the European Clinical Trials Directive in 2004 ended all this.

Needless regulatory hurdles associated with huge inefficiencies and delays in effect killed off the clinical trial industry in the UK, where it declined to just 2 per cent of global trials.

Maybe now we can regain our leadership in clinical research.

Finally, to address the issue of movement of scientists into the UK after Brexit, it beggars belief to think that skilled scientists would be denied entry. That seems highly unlikely to me.

In summary, there are gains and losses for UK science from EU membership. As you know, I voted 'remain' but only just, it was a close call. Brexit is certainly not 'all loss' as portrayed in Skentelbery's emotional and uninformed article. I am sure that UK science can thrive outside the EU once emotion fades and transitional issues are resolved.


David Fuller's view -

Thank you so much David.  On behalf of all subscribers you have generously offered a valuable service in speaking out on this issue.  I hope readers will repost or forward this email to anyone who may be interested in it, from politicians, including the Prime Minister, to university professors, Brexiteers and also Remainers.      

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October 26 2016

Commentary by Eoin Treacy

Email of the day on virtual reality and augmented reality

The Gartner curve you posted indicates that Augmented Reality and VR are approaching or in 'payback' phase. If so this ETF could be a good investment vehicle. Purefunds Video Game Technology ETF (GAMR) Can you please add it to the Chart Library. Grateful thanks

Eoin Treacy's view -

Thank you for this suggestion and I agree that the video gaming sector is a growth engine quite apart from the evolution of virtual and augmented reality gaming. The question is no longer about whether people will play games, regardless of gender, age or ethnicity, but rather which will be the most effective platforms to deliver the media. Right now mobile apps are by far the most popular because everyone has a phone. 

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October 25 2016

Commentary by Eoin Treacy

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

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

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

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

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

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

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


Eoin Treacy's view -

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

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October 21 2016

Commentary by David Fuller

The Only Thing on Autopilot at Tesla Is the Hype Machine

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

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

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

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

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

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

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

David Fuller's view -

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

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

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

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October 21 2016

Commentary by David Fuller

Why Corporate America Debt Is a Major Risk

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

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

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

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

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

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

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

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

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

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

David Fuller's view -

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

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


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October 21 2016

Commentary by Eoin Treacy

MIT EmTech Conference

Eoin Treacy's view -

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

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


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October 18 2016

Commentary by David Fuller

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

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

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

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

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

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

David Fuller's view -

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

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

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

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October 17 2016

Commentary by David Fuller

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

Here is the opening of this interesting article from Bloomberg:

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

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

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

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

David Fuller's view -

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

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October 14 2016

Commentary by Eoin Treacy

Google and 3D Printing Buildings

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

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

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

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

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

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


Eoin Treacy's view -

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

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October 13 2016

Commentary by Eoin Treacy

Email of the day on medical innovation

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

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


Eoin Treacy's view -

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

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


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October 12 2016

Commentary by Eoin Treacy

Baidu is bringing AI chatbots to healthcare

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

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

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

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

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

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


Eoin Treacy's view -

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

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October 11 2016

Commentary by Eoin Treacy

Illumina Dives as Quarterly Revenue Falls Short of Forecast

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

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

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

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


Eoin Treacy's view -

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

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October 10 2016

Commentary by Eoin Treacy

Email of the day on blockchain and healthcare

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

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

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

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


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

Eoin Treacy's view -

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

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

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October 07 2016

Commentary by David Fuller

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

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

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

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

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

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

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

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

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

David Fuller's view -

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

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

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

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October 07 2016

Commentary by Eoin Treacy

Follow Your Nose

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

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

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

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

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


Eoin Treacy's view -

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

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

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October 07 2016

Commentary by Eoin Treacy

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

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

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

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

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

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

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

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

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


Eoin Treacy's view -

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

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October 07 2016

Commentary by Eoin Treacy

Blockchain: In Search of a business Case

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

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

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

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


Eoin Treacy's view -

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

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

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September 30 2016

Commentary by Eoin Treacy

Ultra-Easy Money: Digging the Hole Deeper?

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

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

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


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

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


Eoin Treacy's view -

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

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

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September 29 2016

Commentary by David Fuller

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

Here is a section of this topical article from Bloomberg:

Saudi Arabia has ended its flirtation with free oil markets.

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

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

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


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

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

David Fuller's view -

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

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

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

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

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

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September 29 2016

Commentary by David Fuller

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

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

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

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

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

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

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

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

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

David Fuller's view -

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

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

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September 29 2016

Commentary by Eoin Treacy

D-Wave Systems previews 2000-qubit quantum processor

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

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

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

Eoin Treacy's view -

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

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September 27 2016

Commentary by Eoin Treacy

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

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

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

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

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

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

Eoin Treacy's view -

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

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September 26 2016

Commentary by Eoin Treacy

Musings from the Oil Patch September 20th 2016

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

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

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

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

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

Eoin Treacy's view -

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

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

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September 21 2016

Commentary by Eoin Treacy

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

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

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

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

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


Eoin Treacy's view -

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

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

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September 20 2016

Commentary by David Fuller

How Women Won a Leading Role in China Venture Capital Industry

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

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

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

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

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

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

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

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

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

David Fuller's view -

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

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

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

How will China resolve its current economic problems?

This item continues in the Subscriber’s Area.   

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September 20 2016

Commentary by David Fuller

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

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

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

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

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

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

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

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

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

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

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

David Fuller's view -

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

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

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

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

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

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September 19 2016

Commentary by David Fuller

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

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

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

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

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

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

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

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

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

David Fuller's view -

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

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

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September 15 2016

Commentary by Eoin Treacy

September 14 2016

Commentary by David Fuller

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

David Fuller's view -

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

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

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

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

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


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

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September 12 2016

Commentary by David Fuller

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

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

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

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

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

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

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

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

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

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

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

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

David Fuller's view -

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

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

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September 09 2016

Commentary by Eoin Treacy

Global Economics and Strategy Day

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

Eoin Treacy's view -

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

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

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


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September 07 2016

Commentary by David Fuller

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

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

First Look at the New iPhone 7 and iPhone 7 Plus

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

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

David Fuller's view -

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

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

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September 06 2016

Commentary by David Fuller

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

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

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

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

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

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

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

David Fuller's view -

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

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

We live in increasingly interesting times. 

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

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September 05 2016

Commentary by David Fuller

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

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

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


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

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

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

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

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

David Fuller's view -

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

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September 01 2016

Commentary by David Fuller

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

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

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

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

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

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

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

David Fuller's view -

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

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

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August 31 2016

Commentary by David Fuller

This Is Your Company on Blockchain

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

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

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

David Fuller's view -

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

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August 31 2016

Commentary by Eoin Treacy

SWIFT discloses more cyber thefts, pressures banks on security

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

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

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

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

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

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


Eoin Treacy's view -

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

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August 30 2016

Commentary by David Fuller

The City Will Win Again In Brexit Bang

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

David Fuller's view -

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

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

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

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August 30 2016

Commentary by Eoin Treacy

Ports, a Sign of Altered Supply Chains

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

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

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

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

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

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

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


Eoin Treacy's view -

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

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August 29 2016

Commentary by Eoin Treacy

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

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

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

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

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


Eoin Treacy's view -

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

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August 26 2016

Commentary by Eoin Treacy

Mylan CEO Blamed Obamacare for EpiPen Sticker Shock

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

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

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

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

Eoin Treacy's view -

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

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August 24 2016

Commentary by Eoin Treacy

Delphi, Mobileye Join Forces to Develop Self-Drive System

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

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

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

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

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


Eoin Treacy's view -

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

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August 18 2016

Commentary by David Fuller

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

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

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

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

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

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

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

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

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


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

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

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

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

David Fuller's view -

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

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

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August 18 2016

Commentary by David Fuller

Oil Prices Break Back Above $50 a Barrel

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

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

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

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

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

David Fuller's view -

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

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

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August 18 2016

Commentary by David Fuller

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

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

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

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

David Fuller's view -


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

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

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August 17 2016

Commentary by David Fuller

August 16 2016

Commentary by David Fuller

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

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

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

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

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

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

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

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

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

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

David Fuller's view -

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

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

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

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August 16 2016

Commentary by David Fuller

The Equity View: Growth Is Where the Value Is

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

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

David Fuller's view -

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

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

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August 16 2016

Commentary by Eoin Treacy

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

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

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

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

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

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


Eoin Treacy's view -

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

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August 15 2016

Commentary by David Fuller

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

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

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

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

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

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

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

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

David Fuller's view -

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

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

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

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August 15 2016

Commentary by Eoin Treacy

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

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

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

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

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

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

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

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

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

Eoin Treacy's view -

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

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August 12 2016

Commentary by Eoin Treacy

Macy's is closing another 100 stores

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

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

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

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

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

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


Eoin Treacy's view -

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

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August 11 2016

Commentary by David Fuller

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

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

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

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

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

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

And more on Hinkley Point:

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

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

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

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

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

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

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

David Fuller's view -

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

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

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

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

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August 09 2016

Commentary by David Fuller

Britain Faces a Nasty Shock When the Global Energy Cycle Turns

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

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

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

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

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

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

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

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

David Fuller's view -

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

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

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

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August 08 2016

Commentary by Eoin Treacy

Biotechnology update

Eoin Treacy's view -

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

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


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August 05 2016

Commentary by Eoin Treacy

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

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

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

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

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

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

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

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


Eoin Treacy's view -

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

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August 04 2016

Commentary by Eoin Treacy

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

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

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

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

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

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


Eoin Treacy's view -

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

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