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May 26 2016

Commentary by Eoin Treacy

Miner Sees Silver Price Surging Ninefold as Global Gadgets Boom

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

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

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

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

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

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

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

 

Eoin Treacy's view -

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



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May 24 2016

Commentary by David Fuller

Saudi Arabian New Oil Plan Makes OPEC Redundant

Here is the opening of this informative article from Bloomberg:

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

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

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

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

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

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

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

David Fuller's view -

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

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

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

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



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May 23 2016

Commentary by David Fuller

Why China Is Having So Many Problems Ramping Up Wind Power

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

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

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

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

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

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

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

David Fuller's view -

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

This item continues in the Subscriber’s Area.



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May 23 2016

Commentary by Eoin Treacy

China and the world: New Frontiers, Fresh Connections

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

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

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

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

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

Eoin Treacy's view -

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

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



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May 23 2016

Commentary by Eoin Treacy

Monsanto Trading Below Bayer Bid Shows Regulatory Risk Concerns

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

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

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

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

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

 

Eoin Treacy's view -

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



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May 19 2016

Commentary by David Fuller

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

David Fuller's view -

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

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

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



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May 19 2016

Commentary by David Fuller

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

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

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

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

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

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

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

David Fuller's view -

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

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

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



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May 17 2016

Commentary by Eoin Treacy

Global Lenders on Edge as Cyber Attacks Embroil More Banks

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

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

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

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

 

Eoin Treacy's view -

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



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May 09 2016

Commentary by Eoin Treacy

Lithium 101

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

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

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

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

 

Eoin Treacy's view -

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

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



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May 09 2016

Commentary by Eoin Treacy

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

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

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

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

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

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

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

 

Eoin Treacy's view -

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



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May 06 2016

Commentary by David Fuller

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

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

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

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

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

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

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

David Fuller's view -

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

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

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

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



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May 06 2016

Commentary by Eoin Treacy

IBM brings quantum computing to the masses

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

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

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

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

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

 

Eoin Treacy's view -

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



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May 04 2016

Commentary by Eoin Treacy

China Rolls Up Welcome Mat

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

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

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

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

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

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

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

 

Eoin Treacy's view -

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

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



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May 03 2016

Commentary by David Fuller

Why Robots Are Coming For US Service Jobs

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

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

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

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

David Fuller's view -

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

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



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May 03 2016

Commentary by Eoin Treacy

Musings from the Oil Patch May 3rd 2016

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

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

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

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

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

Eoin Treacy's view -

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

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



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April 28 2016

Commentary by David Fuller

The Biggest Windmills Now Make Jumbo Jets Look Tiny

Here is the opening of this informative article from Bloomberg:

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

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

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

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

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

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

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

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

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

David Fuller's view -

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



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April 27 2016

Commentary by David Fuller

Email of the day

On Markets Now presentations:

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

David Fuller's view -

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

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



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April 26 2016

Commentary by Eoin Treacy

Genetic Superheroes?

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

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

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

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

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

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

 

Eoin Treacy's view -

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



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April 25 2016

Commentary by Eoin Treacy

Cloudy with a chance of monetization

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

US colleagues Karl Keirstead and Ross Sandler describe public cloud services as "the biggest and most disruptive trend impacting the Technology industry." DB estimates the total addressable market for cloud to be USD500b. Cloud service providers have captured only a low-single-digit piece of this TAM. In China, the opportunity is even younger and less penetrated. AliCloud is the clear hometown favorite, with 65% of DB survey respondents using its solutions. Alibaba is our preferred play on cloud over Tencent and Baidu, which have much smaller cloud businesses that should also grow appreciably.

China: catching the “growth story” even earlier on; both public and private
The value proposition of the public cloud is simple: enabling deep cost savings and freeing up resources for enterprises to pursue more core business activities. While public cloud revenues at AliCloud and others continue to grow in the triple digits, China is also seeing strong growth in private cloud, as government bureaus, SOE’s and large private companies heed government exhortations to reform their hidebound IT regimes behind its “Internet+” initiative. Before the introduction of the cloud, about 70-80% of companies’ IT budgets and time were spent on low-value-added areas such as infrastructure maintenance, upgrades and integration. With external cloud operators taking over these burdens, management is able to concentrate on growth-centered initiatives, with cloud assisting in saving time and expense. Some 72% of respondents to our survey indicate that they are reducing significantly their IT spend through the use of cloud computing services. Alibaba Research Institute, for instance, estimates that 70% of computing costs can be saved.

China's CIO speaks: results of DB proprietary survey
As part of our overview of China's nascent cloud industry, we surveyed more than 50 CIO's, CTO’s, Directors and VPs of IT. Results revealed cloud computing to be the #1 priority this year, followed by security services at #2, and IT infrastructure and datacenters at #3. These companies expect to spend approximately 27% and 30% on cloud computing services in 2016 and 2017, respectively, compared to 20% in 2015. Over 50% of the respondents stated that they were able to save up to 40% of their IT spending thanks to cloud computing. 

Eoin Treacy's view -

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

Making the state owned sector more nimble is a primary policy objective of the Chinese administration. Under Xi Jinping, the desire to have an all-encompassing database, with greater visibility over the affairs of various agencies has reached new heights and the expansion of cloud services gels with that ambition. That’s is likely to fuel growth in both the private and public sectors.  



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April 22 2016

Commentary by David Fuller

The Markets Now

Monday 25th April at London’s East India Club

David Fuller's view -

Iain Little, guest speaker Charles Elliott and I look forward to discussing these interesting and challenging markets with subscribers and their friends.  Both Iain and I will have plenty to say about precious metals.  Charles will talking about promising UK Technology shares. 

If our mainly UK delegates at Markets Now are interested in a general discussion of Brexit, we will allow some time for this before heading for additional conversations at East India Club’s excellent cash bar.  Do stay on and join us, if you have the time.

Here is the brochure.



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April 21 2016

Commentary by David Fuller

The Markets Now

Monday 25th April at London’s East India Club

David Fuller's view -

Iain Little, guest speaker Charles Elliott and I look forward to discussing these interesting and challenging markets with subscribers and their friends.  Both Iain and I will have plenty to say about precious metals.  Charles will talking about promising UK Technology shares. 

If our mainly UK delegates at Markets Now are interested in a general discussion of Brexit, we will allow some time for this before heading for additional conversations at East India Club’s excellent cash bar.  Do stay on and join us, if you have the time.

Here is the current brochure.



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April 20 2016

Commentary by David Fuller

The Markets Now

Monday 25th April at London’s East India Club

 
David Fuller's view -

Iain Little, guest speaker Charles Elliott and I look forward to discussing these interesting and challenging markets with subscribers and their friends.  Both Iain and I will have plenty to say about precious metals.  Charles will talking about promising UK Technology shares. 

If our mainly UK delegates at Markets Now are interested in a general discussion of Brexit, we will allow some time for this before heading for additional conversations at East India Club’s excellent cash bar.  Do stay on and join us, if you have the time.

Here is the current brochure.



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April 20 2016

Commentary by Eoin Treacy

China's Stocks Tumble Most in Seven Weeks to Break Trading Calm

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

China’s stocks sank the most in almost two months, pushing a gauge of volatility up from its lowest level this year as turnover surged.

The Shanghai Composite Index dropped as much as 4.5 percent, the biggest loss since Feb. 29, before paring declines to 2.3 percent at the close. Industrial and Technology companies led losses, while 13 stocks fell for each that rose. The Hang Seng China Enterprises Index retreated from a three-month high in Hong Kong.

Traders struggled to explain the reason behind the sudden selloff, which isn’t an unusual occurrence in a market dominated by individual investors. Interest in mainland equities has been fading this month after March’s 12 percent surge amid concern that improving economic data will prevent the government from adding stimulus. Wei Wei, an analyst at Huaxi Securities Co. in Shanghai, says the slump is triggering concern that the panic seen at the start of the year, when the equity gauge sank 23 percent in the space of a month, could return.

Eoin Treacy's view -

The Chinese market has been relatively inert for the last few months as the Authorities have attempted to quell speculation following what was a particularly volatile environment last year. An overextension relative to the trend mean has mostly been unwound so some profit taking is now taking place as investors begin to ask what next?



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April 19 2016

Commentary by David Fuller

Saudis Are Going for the Kill But the Oil Market Is Turning Anyway.

The collapse of OPEC talks with Russia over the weekend makes absolutely no difference to the balance of supply and demand in the global oil markets. The putative freeze in crude output was political eyewash.

Hardly any country in the OPEC cartel is capable of producing more oil. Several are failed states, or sliding into political crises. 

Russia is milking a final burst of production before the depleting pre-Soviet wells of Western Siberia go into slow run-off. Sanctions have stymied its efforts to develop new fields or kick-start shale fracking in the Bazhenov basin.  

Saudi Arabia’s hard-nosed decision to break ranks with its Gulf allies at the meeting in Doha - and with every other OPEC country  - punctures any remaining illusion that there is still a regulating structure in global oil industry. It told us that the cartel no longer exists in any meaningful sense. Beyond that it was irrelevant.

Hedge funds were clearly caught off guard by the outcome since net ‘long’ positions on the futures markets were trading at a record high going into the meeting. Brent crude plunged 7pc to $41 a barrel in early Asian trading, but what is more revealing is how quickly prices recovered.

Market dynamics are changing fast. Output is slipping all over the place: in China, Latin America, Kazakhstan, Algeria, the North Sea. The US shale industry has rolled over, though it has taken far longer than the Saudis expected when they first flooded the market in November 2014. The US Energy Department expects total US output to drop to 8.6m barrels per day (b/d) this year from 9.4m last year.

China is filling up the new sites of its strategic petroleum reserves at a record pace. Its oil imports have jumped to 8m b/d this year from 6.7m in 2015, soaking up a large part of the global glut.  Some is rotating back out again as diesel: most is being consumed in China.

Goldman Sachs says the twin effect of rising demand and supply disruptions across the world is bringing the market back into balance, leading  to a “sustainable deficit” as soon as the third quarter. The inflexion point could come sooner than almost anybody expects if a strike this week in Kuwait drags on as oil workers fight pay cuts. The outage is already costing 1.6m b/d.

Kuwait’s woes are the first taste of how difficult it will be for the petro-sheikhdoms to impose austerity measures or threaten the cradle-to-grave social contracts that keep a lid on dissent across the Gulf.

David Fuller's view -

 

While I had seen this article in The Telegraph and was planning to use it, I also received this email from a subscriber today:

I am sure you have read the above. He is saying precisely what you said many moons ago, but the conclusion is I think somewhat different.

Thanks, and yes, he does have a different conclusion which I will comment on below but first here is the article’s headline from the printed edition:

Saudi Arabia’s strategy has killed Opec – the cartel is now irrelevant

OPEC was rapidly losing control, thanks to Technology.  However, the Saudis have hastened this process by flooding the market.  This was always going to be a Pyrrhic victory at best and it cut every oil producers’ revenue much more quickly than was necessary.  They could have kept prices at least $30 to $40 higher for the lengthy medium term by making some marginal supply cutbacks, rather than flooding the markets with oil. 

That opportunity was lost, so what happens next?

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



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April 19 2016

Commentary by David Fuller

The Markets Now

Monday 25th April at London’s East India Club

David Fuller's view -

Iain Little, guest speaker Charles Elliott and I look forward to discussing these interesting and challenging markets with subscribers and their friends.  Both Iain and I will have plenty to say about precious metals.  Charles will talking about promising UK Technology shares. 

If our mainly UK delegates at Markets Now are interested in a general discussion of Brexit, we will allow some time for this before heading for additional conversations at East India Club’s excellent cash bar.  Do stay on and join us, if you have the time.

Here is the current brochure.



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April 19 2016

Commentary by Eoin Treacy

Musings From the Oil Patch April 19th 2016

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

In light of that view, a critical question is whether a real economic transformation can be performed. An earlier attempt was made in 2000 following the late 1990s oil price downturn and the expensive Saudi-financed war to oust Saddam Hussein’s troops from neighboring Kuwait. The financial pain of that experience was washed away by the rebound in oil prices that ended that transition effort. That experience leads Saudis to expect something to bail them out from having to make hard economic and social decisions.  

Critical to this transition effort will be the mindset of the young Saudis who dominate the country’s population. By 2030, the youth group will add 4.5 million new Saudis to the labor force, nearly doubling its current size to 10 million workers. If the female labor force participation rate increases the number could be larger. This population demographic will force the economy to have to create three times the number of jobs for Saudis than it did during the oil boom of 2003-2013, which seems highly unlikely to occur. 

There are a number of social impediments to making this transition occur, including Saudi reluctance to take blue-collar jobs that are thought to be menial. Saudi workers enjoy the slow pace and shorter working hours of government jobs. There is also a problem associated with tapping the young females in the country who are constrained by the social stigmas of not being able to drive and not earning enough to employ a car and driver. Here is where modern Technology is helping as Uber helps liberate some of these females. More females are taking white-collar jobs in the private sector. Instead of becoming teachers, many are become lawyers and professionals. The challenge is that many of them are willing to trade down to government jobs with shorter hours when they have children. There are also social and employment issues involved with marriage when a woman’s father prefers that a prospective husband have the security of a government job. 

Probably the greatest challenge for Saudi Arabia is that both the rulers and the ruled have been satisfied with the social compact that underlies the nation. The populace trades loyalty and obedience to the government in exchange for prosperity, which costs the government substantially. The new social compact will demand greater self-reliance from the people in exchange for their prosperity. Whether the populous understands how precarious their position is in continuing to depend on the government’s continuing largess because of the current and future market for oil. 

Eoin Treacy's view -

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

Governance is Everything has been a idiom at this Service for decades and Saudi Arabia has a long way to go before it can be considered that governance is improving regardless of how low the base is. 



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April 18 2016

Commentary by David Fuller

The Markets Now

Monday 25th April at London’s East India Club

 
David Fuller's view -

Iain Little, guest speaker Charles Elliott and I look forward to discussing these interesting and challenging markets with subscribers and their friends.  Both Iain and I will have plenty to say about precious metals.  Charles will talking about promising UK Technology shares. 

If our mainly UK delegates at Markets Now are interested in a general discussion of Brexit, we will allow some time for this before heading for additional conversations at East India Club’s excellent cash bar.  Do stay on and join us, if you have the time.

Here is the current brochure.



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April 12 2016

Commentary by David Fuller

April 11 2016

Commentary by David Fuller

April 11 2016

Commentary by Eoin Treacy

How retail stores are using virtual reality to make shopping more fun

This article by Shan Li for The Los Angeles Times may be of interest to subscribers. Here is a section:

Virtual reality is also being used to add an experiential aspect to in-store shopping, unrelated to the actual buying of products. Retailers are dabbling in virtual reality for the same reason they are adding other conveniences like curbside pickup — to lure people back into stores. They figure that the sci-fi aspect of VR is a form of entertainment that can't be replicated from behind a computer screen.

"Retailers have been down for so long, they have got to differentiate themselves to get people to shop," said Ron Friedman, a retail expert at advisory and accounting firm Marcum in Los Angeles.

Toms, which started as a shoe company before branching into eyewear and coffee, put virtual reality headsets from Samsung into more than 100 stores around the world last year. The video shown depicts a trip to Peru as part of the company's popular one-for-one campaign, in which it donates a pair of shoes for every pair it sells; viewers can see a video with panoramic views of a schoolyard as children are handed boxes of shoes.

On a recent weekday, Tyler Costin, 32, slipped on a Samsung Gear VR headset while shopping at the Toms store on Abbot Kinney Boulevard in Venice.

"That's amazing," he said, swiveling in his chair to take in the 360-degree views. At one point, Costin lifted his hand to greet the students before quickly putting it back down. "You want to wave back," he said sheepishly.

The Westwood producer, who had never used a VR headset before, said the experience was "pretty incredible."

"It's like you're there," Costin said, joking that "Peru was lovely that time of the year."

That kind of immediacy is why virtual reality trumps photographs and traditional videos, Toms founder Blake Mycoskie said.

"It just touches more of your senses," Mycoskie said. "It gives you a more immersive experience — you really get the feel of motion."

Sensory drama doesn't come cheap. Filming was about $250,000, and outfitting each store costs about $1,000 each, Mycoskie said. The biggest expense was training at least one employee per shop to operate the equipment and walk shoppers through the process.

 

Eoin Treacy's view -

Virtual Reality is launching now and the availability of content on the main platforms is expanding rapidly. The cost of new Technology is almost always high but the speed with which this is rolling out and the potential for a company to differentiate its offering by reaching customers, in a wholly new way, means there will be ample supply of VR content not least advertising. The major growth trend is dependent the total cost of ownership coming down and people investing in domestic systems. 



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April 01 2016

Commentary by Eoin Treacy

March 31 2016

Commentary by David Fuller

The End of an Era at Walmart

Here is the opening of this article from Bloomberg Gadfly:

Not every milestone is worth celebrating. 

For the first time ever -- or at least since the company went public some 45 years ago -- Walmart's revenues shrank from the year before, according to its annual financial filing released Wednesday.

Walmart is clearly having trouble adapting its gigantic stores to the Internet age. To be sure, it is a retail juggernaut that brings in half a trillion dollars (yes, that's right, trillion) in sales every year. And with more than 11,500 stores in 28 countries, there's no way it will disappear anytime soon. 

Still, Walmart might have just hit its growth limit. 

A New Low For Walmart

Walmart's annual sales in 2015 shrank for the first time since it went public 45 years ago.

And the sales dip comes despite the fact that Walmart spent $11.5 billion (roughly matching what J.C. Penney made in sales last year) to build more than 400 new stores, remodel old locations, and revamp its website and other Technology to better serve its customers. 

Though Walmart shares were a safe haven in the rocky start of 2016, investors are pricing in more weakness. The stock has fallen behind retail competitors and the broader market. 

In February, Walmart lowered its annual net sales growth forecast to "relatively flat," from earlier guidance that called for an increase of as much as 4 percent (the company has pointed out that previous guidance didn't account for currency changes, which have stung the global retailer).

 

David Fuller's view -

Personally, I don’t like huge stores.  They remind me of casinos in that it can be difficult to find your way out. 

However, Walmart’s 45 years before a downturn in sales is amazing in the incredibly competitive retail sector.  All of Walmart’s management skills will be required, I suspect, to prevent further downturns in this not only competitive but also disruptive environment led by Amazon. 

I do not doubt that Walmart will maintain a competitive online system, but will most of their customers be comfortable shopping online?  Also, will active online shoppers turn to Walmart?

 

Note: for additional market comments please listen to the Audio.

 



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March 31 2016

Commentary by David Fuller

Thomas L Friedman: When the Necessary Is Impossible

Here is the opening of this sobering column by Friedman, published by The New York Times:

Sulaimaniya, Iraq — Being back in Iraq after two years’ absence has helped me to put my finger on the central question bedeviling U.S. foreign policy in the Middle East today: What do you do when the necessary is impossible, but the impossible is impossible to ignore — and your key allies are also impossible?

Crushing the Islamic State, or ISIS, is necessary for stabilizing Iraq and Syria, but it is impossible as long as Shiites and Sunnis there refuse to truly share power, and yet ignoring the ISIS cancer and its ability to metastasize is impossible as well. See: Belgium.

And if all that isn’t impossible enough, our trying to make Iraq safe for democracy is requiring us to turn a blind eye to the fact that our most important NATO “ally” in the region, Turkey, is being converted from a democracy into a dictatorship by its president, Recep Tayyip Erdogan, who should now be called “Sultan Erdogan” for the way he is closing opposition newspapers and putting journalists on trial. But because we need Turkey’s air bases and cooperation to foster a modicum of democracy in Iraq tomorrow, we are silent on Erdogan destroying democracy in Turkey today. Go figure.

And to think that in America we have all these people competing to become president to get a chance to take responsibility for this problem! Has no one told them this is absolutely the worst time in 70 years to be managing U.S. foreign policy?

Obama has my sympathies. If you think there is a simple answer to this problem, you ought to come out here for a week. Just trying to figure out the differences among the Kurdish parties and militias in Syria and Iraq — the Y.P.G., P.Y.D., P.U.K., K.D.P. and P.K.K. — took me a day.

Let’s go back to the future of Iraq. “The problem in Iraq is not ISIS,” Najmaldin Karim, the wise governor of Kirkuk Province, which is partly occupied by ISIS, remarked to me. “ISIS is the symptom of mismanagement and sectarianism.” So even if ISIS is evicted from its stronghold in Mosul, he noted, if the infighting and mismanagement in Baghdad and sectarian tensions between Shiites and Sunnis are not diffused, “the situation in Iraq could be even worse after” ISIS is toppled.

David Fuller's view -

Thank heavens for Technology which is greatly diminishing our dependence on Middle Eastern oil.  Much of this troubled region is destroying itself and if it had happened a little more than a decade earlier, the potential consequences for the global economy would have been much worse.  



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March 30 2016

Commentary by David Fuller

Eight Things Chinese Money Is Buying in America Right Now

Here is the opening of this informative article from Bloomberg:

Chinese companies, driven by favorable government policies and a desire to gain overseas assets, are on an unprecedented acquisition spree in the U.S. They've announced a record $40.5 billion of U.S. deals this year, already nearly double the amount for all of 2015. Here's a sample of what Chinese money is buying. 

Strategic Hotels & Resorts Inc.'s portfolio includes Four Seasons properties in Austin and Silicon Valley, as well as the Intercontinental Miami and Chicago. China's Anbang Insurance Group Co. is paying about $6.5 billion to buy the hotel group from Blackstone Group LP—just three months after the New York-based private equity firm acquired it.

Anbang is also currently the lead bidder for Starwood Hotels & Resorts Worldwide Inc., after twice topping Marriott International Inc.'s bid. Starwood owns real estate valued at about $4 billion, including the St. Regis in New York. Anbang's latest offer values Starwood at about $14 billion.

General Electric Co. agreed to sell its appliances business to China's Haier Group Co. for $5.4 billion in January—$2 billion more than Electrolux AB had agreed to pay for the business before the deal collapsed amid opposition from the U.S. Justice Department. Haier will need antitrust approval from authorities in the U.S., Mexico, Canada, and Colombia.

Zoomlion Heavy Industry Science & Technology Co., a Chinese industrial machinery manufacturer, is pursuing Westport, Conn.-based cranemaker Terex Corp. After Terex agreed to a merger with Finnish competitor Konecranes Oyj, Zoomlion made an unsolicited counter-bid in January; last week it upped the offer to $31 a share.

China's richest man agreed in January to buy Legendary Entertainment LLC, producer of Godzilla and the Dark Knight trilogy and co-producer of Jurassic World, for as much as $3.5 billion. Wang Jianlin is set to become the first Chinese person to control a Hollywood film company.

David Fuller's view -

 

This is not a repeat of earlier efforts by China’s government, using companies it controlled, to controversially attempt to acquire strategic US assets, from energy to important high-tech businesses.  Instead, apparently independent Chinese companies and exceptionally wealthy individuals are moving a record $40.5 billion into the US during the first quarter of 2016 alone, by paying over the odds for mostly consumer-related businesses. This looks like the latest effort in China’s difficult transition from a heavy manufacturing economy to one that is driven primarily by consumer demand.   



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March 22 2016

Commentary by David Fuller

The Weekly View: A Letter to Investors, Volatility Versus Value

My thanks to Rod Smyth for his ever-interesting letter, published by RiverFront.  Here is a brief sample:

Volatility has picked up in the last nine months.  In our Weekly Chart below, the history of the daily range of the S&P 500 is shown in the bottom panel.  Since 1982, when markets have been calm, the range between the low and the high on a given day is around 1%.  During bear markets, bubbles, and crashes, the daily range spikes to around 3.5%, especially towards the latter stages.  In the Weekly Chart

Below, the blue lines denote the low and high daily ranges outside the spikes.  This data supports our view that investors are most fearful near the bottom and complacent during steady gains.  In 1987 and 2008, the daily range was very briefly above 5%.  We would describe the current level of just under 2% as the higher end of normal (denoted by the red line in the Weekly Chart below), and yet the feedback we get from our boomer and retiree clients is that it feels abnormally high.

David Fuller's view -

Investors can see The Weekly View’s interesting chart in the Subscriber’s area. 

In the Volatility Versus Value assessment, it may take a wise and experienced forensic accountant to confirm value or more importantly, the lack of it – consider the Valeant Pharmaceuticals International, Inc. fiasco.  Also, the fundamental analytical process is inefficient in terms of time.  For this reason, I am surprised that many analysts spend more effort number crunching than focussing on the relative quality of the products or services provided, not to mention the calibre of management.  Genius and obsessional effort may be rare but it provides the clearest evidence of value – consider Jeff Bezos of Amazon or Steve Jobs of Apple, and his successor Tim Cook is no slouch either.     

Moreover, even when genuine value is determined, a share can continue to underperform for lengthy periods before the crowd of investors takes notice – consider Cisco and Microsoft over the last decade. 

Lastly, fashion is hugely important in terms of market performance and that is the province of common sense technical analysis.  Monitor momentum and be careful when a share or index loses trend consistency, let alone becomes very overextended relative to the 200-day (40-week) moving average – consider the Nasdaq BioTechnology Index.   



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March 17 2016

Commentary by David Fuller

Google Puts Boston Dynamics Up for Sale in Robotics Retreat

Here is the opening of this interesting article from Bloomberg:

The video, published to YouTube on Feb. 23, was awe-inspiring and scary. A two-legged humanoid robot trudges through the snow, somehow maintaining its balance. Another robot with two arms and pads for hands crouches down and lifts a brown box and delicately places it on a shelf -- then somehow stays upright while a human tries to push it over with a hockey stick. A third robot topples over and clambers back to its feet with ease.

Tens of millions of people viewed the video over the next few weeks. Google and the division responsible for the video, Boston Dynamics, were seemingly pushing the frontier in robot Technology.

But behind the scenes a more pedestrian drama was playing out. Executives at Google parent Alphabet Inc., absorbed with making sure all the various companies under its corporate umbrella have plans to generate real revenue, concluded that Boston Dynamics isn’t likely to produce a marketable product in the next few years and have put the unit up for sale, according to two people familiar with the company’s plans.

Possible acquirers include the Toyota Research Institute, a division of Toyota Motor Corp., and Amazon.com Inc., which makes robots for its fulfillment centers, according to one person. Google and Toyota declined to comment, and Amazon didn’t respond to requests for comment.

Google acquired Boston Dynamics in late 2013 as part of a spree of acquisitions in the field of robotics. The deals were spearheaded by Andy Rubin, former chief of the Android division, and brought about 300 robotics engineers into Google. Rubin left the company in October 2014. Over the following year, the robot initiative, dubbed Replicant, was plagued by leadership changes, failures to collaborate between companies and an unsuccessful effort to recruit a new leader.

At the heart of Replicant’s trouble, said a person familiar with the group, was a reluctance by Boston Dynamics executives to work with Google’s other robot engineers in California and Tokyo and the unit’s failure to come up with products that could be released in the near term.

David Fuller's view -

I am sorry to see this because Boston Dynamics had plenty of talent and Google supplied development cash for their projects.  However, the problem appears to be one of management.  Why was Boston Dynamics making machines which could replicate human or animal movement? They were too much like scary terminator machines, fortunately without the weapons, and too reminiscent of Star Wars’ cute machines.  In other words, they were expensive toys, impressive but with limited practical value.

We seldom see the most useful robotics, which are often intelligent software in the remarkable machines which many of us use every day, from smart phones to laptops and automobiles.  Industrial robots made by Fanuc and several other companies have no humanoid characteristics, but they can be programmed for the assembly line production of automobiles and other complex, mass produced machines.  In comparison, Boston Dynamics appears not to have found or been assigned its commercial niche.       



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March 17 2016

Commentary by David Fuller

How GE Exorcised the Ghost of Jack Welch to Become a 124-Year-Old Startup

It’s part of a much larger transformation at GE orchestrated by Jeff Immelt, Welch’s successor as chief executive officer. Most notably, GE is moving its headquarters from suburban Fairfield, Conn., land of golf and bonuses, where it’s been since 1974, to Boston, the Athens of America. The company is selling off its division that makes refrigerators and microwave ovens. Now it’s focused on electric power generators, jet engines, locomotives, and oil-refining gear. And it’s made a significant bet on developing software to connect these devices to the Internet. There’s a term for this trend of adding network connections to hardware not usually considered computers: the Internet of Things. GE believes its opportunity lies in what it calls the Internet of Really Big Things.

In the past five years, GE has hired hundreds of software developers, created its own operating system, and fashioned dozens of applications that it says will make planes fly more efficiently, extend the life of power generators, and allow trains to run faster. GE’s plan is to sell this software to other manufacturers of Really Big Industrial Things, and to be a top 10 software company by 2020. That would put it in the same category as Microsoft, IBM, and Oracle, an ambition that some have difficulty swallowing. “Top 10? No way,” says David Linthicum, senior vice president of Cloud Technology Partners, a consulting firm in Boston.

And:

Inevitably, an activist took an interest in the struggling conglomerate. Last October, Nelson Peltz’s Trian Partners revealed that it had purchased $2.5 billion in GE shares, becoming its ninth-largest investor. In an 81-page analysis, Trian said GE had previously been an unfocused, overly bureaucratic muddle. But rather than call for a breakup of the company as Peltz has done in the past with DuPont and PepsiCo, he instead endorsed Immelt’s strategy.

A year earlier, this would have been hard to believe, but by last fall, Immelt’s program was beginning to succeed. He had announced a plan to shed $200 billion of GE’s problematic financial assets, which have weighed down its share price. The company says it had software sales of $5 billion in 2015, a sign that the Internet-of-really-big-things approach must be taken seriously. And, by all accounts, Immelt’s campaign to remake the company’s intrinsically rigid culture is working. In the past year, GE’s stock has outperformed the Standard & Poor’s 500-stock index. “A lot of people didn’t think this management team would drive an aggressive transformation of the business,” says Steven Winoker, an analyst at Sanford C. Bernstein & Co. “But that’s exactly what’s happening.”

David Fuller's view -

Jeff Immelt is ambitious and creative but what he and many other CEOs lack is that incisive business brain which a long-term activist such as Nelson Peltz of Trian Partners can provide.  He is probably the best activist investor in the business and for sentimental reasons I would like to see this sole surviving original Dow Jones component flourish with its comparatively new business plan.

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March 11 2016

Commentary by David Fuller

Wall Street Oldie But Goodie

David Fuller's view -

If you conclude that Wall Street is still in its bull market, and S&P Capital IQ and WSJ.com, believe so, then it is the third longest bull market, presumably in modern history.  Of course many commentators disagree and it has certainly not felt like a bull market since at least mid-2015.  The Dow Jones industrial Average has fallen 21.69%, the Dow Jones Transport Average by 21.69%, the Russell 2000 fell 27.25% and the Nasdaq 100 Index just qualifies for the arbitrary 20% bear market with a decline of 20.01%.  However, the Nasdaq Composite Index has only fallen 19.54% while the S&P 500 Index is comparatively resilient having only lost 15.21% at its January and February lows. 

Well, apologies for sounding like a stats wonk, but to me what we have seen is more bearish than 2011 when the S&P fell just below 20% on an intraday basis, as I recall.  Moreover, this time iconic Apple and the previously sector-leading Nasdaq BioTechnology Index has fallen back from the sky.  

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March 09 2016

Commentary by David Fuller

Email of the day 1

On China’s economy:

Hi David, Regarding your comment on iron ore prices from March 7th and China's reduced demand due to migrating from importing industrial metals to consumer-led growth. Can you please explain, what is the tipping point for a country to make this transition? What forces the change; what does the transition actually mean in real terms? "Consumer-led growth" is a broad term; what does this specifically mean in Chinese terms? Why does China even need to change?

David Fuller's view -

Aspiration - is the main answer in a single word.  Over two hundred years ago, and for centuries before that, China was often one of the leading countries of the world.  However, invasions, warring factions, climate problems and appalling governance ended China’s eminence.  It became a seriously impoverished third world country under Chairman Mao’s reign.   

Deng Xiaoping put China on a recovery path commencing in 1978 and it soon became the fastest growing developing economy in history.  Today, many of China’s citizens are much more highly educated and it has a large middleclass, estimated at well over 300 million people.  They do not want to remain metal bashers.

China is currently engaged in that challenging transformation between a developing and a developed economy.  Not every country with potential succeeds in doing this – Brazil, for instance, due mainly to governance problems and overdependence on natural resources. 

I believe China is succeeding, and its middleclass consumer-led growth helps it to develop higher-end, more profitable products which can also be exported to other countries.  This is more lucrative and less polluting than manufacturing and selling steel and other building materials.  In other words, China would rather build a railroad or nuclear power station for its own use, and then export this Technology, rather than import it.  



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March 09 2016

Commentary by Eoin Treacy

US agency reaches 'holy grail' of battery storage sought by Elon Musk and Gates

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

But the biggest breakthrough is in the area of energy storage. “I think that’s one area where we have delivered big time,” Williams told the Guardian.

The battery storage systems developed with Arpa-E’s support are on the verge of transforming America’s electrical grid, a transformation that could unfold within the next five to 10 years, Williams said.

The most promising developments are in the realm of large-scale energy storage systems, which electricity companies need to put in place to bring more solar and wind power on to the grid.

She said projects funded by Arpa-E had the potential to transform utility-scale storage, and expand the use of micro-grids by the military and for disaster relief. Projects were also developing faster and more efficient super conductors, and relying on new materials beyond current lithium-ion batteries.

The companies incubated at Arpa-E have developed new designs for batteries, and new chemistries, which are rapidly bringing down the costs of energy storage, she said.
“Our battery teams have developed new approaches to grid-scale batteries and moved them out,” Williams said. Three companies now have batteries on the market, selling grid-scale and back-up batteries. Half a dozen other companies are developing new batteries, she added.

 

Eoin Treacy's view -

Battery Technology is the missing link in the supply chain between generating electricity via wind and solar and meeting requirements for base load. Until the last decade investment in batteries was puny compared to what has gone into other sectors. However the high oil price environment created an incentive to develop more efficient ways of generating and storing energy. Some of that is now coming to fruition and it is likely to have a transformative effect on electricity costs and the potential for electric cars. 



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March 07 2016

Commentary by David Fuller

Iron Ore Jumps Most on Record as Market Goes Berserk

Here is the opening of this interesting article on another recovering commodity, from Bloomberg:

Iron ore soared the most ever after Chinese policy makers signaled their willingness to buttress economic growth, boosting the outlook for steel consumption in the top user and igniting speculation that some investors who’d bet against the market had been caught out.

Ore with 62 percent content delivered to Qingdao jumped 19 percent to $63.74 a dry metric ton, Metal Bulletin Ltd. data show. That’s the biggest gain in daily data going back to 2009 and the highest price since June. The surge was preceded in Asia by a rally in futures, with the most-active contract on Singapore Exchange Ltd. climbing 21 percent to $60 and prices on the Dalian Commodity Exchange rising by the daily limit.

“The iron ore and steel markets have gone berserk -- they’ve departed from fundamentals and are heavily driven by sentiment,” Zhao Chaoyue, an analyst at China Merchants Futures Co. in Shenzhen, said before the Metal Bulletin price was published. “Investors are expecting further monetary easing by the Chinese government to boost steel demand.”

Australia’s Fortescue Metals Group Ltd. jumped 24 percent in Sydney trading, where Rio Tinto Group and BHP Billiton Ltd. also climbed after futures prices jumped. Gains in London were muted. Rio, the second-biggest mining company, rebounded from an earlier decline in London trading and was up 2 percent by 1:04 p.m. local time, while BHP rose 1.1 percent.

U.S. producer Cliffs Natural Resources Inc. climbed 21 percent in pre-market trade by 9:11 a.m. in New York. Vale SA gained 6.7 percent in Brazil trading.

And:

Recent gains in iron ore probably won’t last, Goldman Sachs Group Inc. said in a report received on Monday, forecasting a drop back to $35 a ton in the final quarter. This year’s rally has been driven by rising steel prices in China, a reversal of the normal relationship seen between the raw material and the manufactured product, Goldman said.

‘Short-lived’

“We expect the current rally to be short-lived,” analysts Christian Lelong and Amber Cai said in the note, which was dated March 6, predicting further growth in iron ore supply in the quarters ahead. “The causality will revert sooner rather than later, and steel raw materials will one again drive steel prices rather than the other way around.”

David Fuller's view -

One does not discount a Goldman Sachs forecast lightly, especially when they are participants in the market in question.  However, iron ore is doing what we are also seeing in most other industrial commodities.  The big miners geared up production several years ago because they were experiencing a post-2008 boom in prices on strong demand from China, which they mistakenly assumed would persist indefinitely.  Moreover, the efficiency of mining had improved dramatically, thanks to an unprecedented leap in mining Technology

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March 07 2016

Commentary by Eoin Treacy

In JPMorgan Fintech Bunker, Coders Are Too Focused for Foosball

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

The bank has overhauled its website -- an unveiling is planned for Wednesday -- to make it easier and more intuitive to use. It consolidates about 300 pages from the old site so a visitor doesn’t have to hunt around to get things done. It also features a newsfeed with articles about personal finance. JPMorgan is slowly adding users to the new platform to gauge their reactions. It expects to add the rest starting this month and later release a new small-business banking website.

Tech competitors such as LendingClub Corp., On Deck Capital Inc. and Wealthfront Inc. threaten to disrupt banks’ relationships with clients by making transactions easier or cheaper. Traditional financial firms are responding by building their own Technology in-house, including robo-advisers that give automated investment advice, partnering with the financial Technology companies or purchasing them outright. New York-based JPMorgan will spend $3 billion on Technology investments this year.

“All the startups, all the fintech guys are pushing very hard because they see opportunity,” said Parsey. “We have to take the banking world up to the same level as the rest of the digital industry. Beyond that, there are exciting ways to innovate how people feel about their finances.”

 

Eoin Treacy's view -

Consumers are no longer willing to take their lunch break or precious after work time to go to the bank, or other such mundane chores that could so easily be accomplished online. That represents a major challenge for companies reliant on bricks and mortar locations to conduct their business. The Millennial generation overtook Baby Boomers as the largest US demographic last year. It will be an increasing priority for companies to aim products directly at this group not least as they enter their prime earning years. 



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March 04 2016

Commentary by David Fuller

Payrolls in U.S. Surge While Wages Drop in Mixed Jobs Report

Here is the opening of this topical report from Bloomberg:

Employers added more workers in February than projected but wages unexpectedly declined, dashing hopes that reduced slack in the labor market was starting to benefit all Americans.

The 242,000 gain followed a 172,000 rise in January that was larger than previously estimated, a Labor Department report showed Friday. The jobless rate held at 4.9 percent as people entered the labor force and found work. Average hourly earnings dropped, the first monthly decline in more than a year, and workers put in fewer hours.

A job market in good health will reinforce job security and encourage Americans to spend, buffering the U.S. from the ill-effects of global economic weakness. At the same time, stronger wage growth, which will play a role in deciding the race for the White House, would help move inflation closer to the Federal Reserve’s goal.

“It indicates the resilience of the economy,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. “The labor market doesn’t appear to be hurt by financial market volatility. Wages were a bit disappointing.”

The median forecast in a Bloomberg survey called for a 195,000 advance. Estimates of 92 economists ranged from gains of 70,000 to 245,000. January was initially reported as a 151,000 increase. Revisions to prior reports added a total of 30,000 jobs to payrolls in the previous two months.

The unemployment rate, which is derived from a separate Labor Department survey of households, showed that the labor force expanded by more than a half million people and almost all found work. Joblessness was projected to hold at 4.9 percent, an eight-year low, according to the survey median.

The Election

The labor market is coming off its best two years for job growth since 1998-1999. While leading Democratic presidential candidate Hillary Clinton can point to economic progress under her party’s leadership, Republican front-runner Donald Trump may steer voters to focus on limited wage growth and companies moving operations overseas because of high corporate tax rates.

David Fuller's view -

The US economy is gradually improving, led by Technology and lower gas prices which are a byproduct of technological innovation.  There is also a gradual improvement in depressed commodity prices and this has lessened deflationary recession fears. 

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March 04 2016

Commentary by David Fuller

Oil Companies Turn to Solar

Here is a latter section of this interesting and informative article by Nick Hodge of Outsider Club:

But perhaps the most convincing evidence that solar is here and it's competitive is that oil companies are now using it to make oil extraction cheaper and cleaner.

Late last year news began coming out that the oil industry was turning to solar to help it pump crude.

Royal Dutch Shell (NYSE: RDS), Total (NYSE: TOT), the Kuwait State Oil Company, and Oman's sovereign wealth fund have teamed up to create a solar company called GlassPoint.

It is building a massive solar installation in the Oman desert to create steam to help pump oil. That one project will save more carbon than all electric cars sold so far by Tesla (NASDAQ: TSLA) and Toyota (NYSE: TM) combined.

What's more, using solar to help power an oilfield makes total economic sense. Up to 60% of the operating expenses at heavy oil fields are for fuel purchases.

So at a time when oil companies are cutting costs — curtailing exploration and laying off tens of thousands of workers — they are still interested in spending for projects that can reduce costs.

And that means solar.

Petroleum Development Oman, which is partly backing GlassPoint, accounts for 70% of the nation's oil production and 100% of its gas supply.

It is highly indicative that it is turning to solar to complement its fossil fuel operations.

This is only going to continue through 2030, as solar continues its march toward becoming the world's dominant source of electricity.

As that happens, the companies that improve solar Technology and reduce its costs are going to be the biggest winners for investors.

 

David Fuller's view -

Fuller Treacy Money has long maintained that solar power would dominate not only renewable energy but also prove to be more successful than any fossil fuel, due to its unique advantages.

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March 04 2016

Commentary by Eoin Treacy

Tesla's Getting More Rivals as VW Scandal Clouds Diesel Outlook

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

Volkswagen, meanwhile, has made electric vehicles a linchpin of its plan for recovering from the crisis, accelerating a push to add 20 additional plug-in hybrid and battery-powered cars to its lineup by 2020. That includes the first battery-powered vehicle for the Porsche sports-car brand as well as an electric Audi crossover. And it’s promising new leaps in Technology, including ranges of more than 500 kilometers (310 miles) by the end of the decade.

“Charging will only take as long as a coffee break,” instead of hours, Volkswagen CEO Matthias Mueller said in Geneva. “And in the long term, an electric car will cost less than a car with an internal combustion engine.”

Such Technology advances will help electric cars eventually. But in the meantime, demand is tepid, with the clean-running vehicles accounting for just 0.68 percent of sales in western Europe, according to Automotive Industry Data Ltd. Much of that demand comes from Norway, where electric cars enjoy generous perks such as tax exemptions and free charging. In Germany, where there are limited benefits, just over 30,000 have been sold to date. Cheap oil prices provide little incentive for consumers to take the leap.

Eoin Treacy's view -

Tesla, more than any other company, has succeeded in making electric vehicles desirable. I personally have very little interest in cars but I have to admit that their marketing is having an effect on me and there is no denying I see a lot more Tesla’s on the road today than a year ago. News last week that Tesla is outselling other luxury cars in the USA is a wake-up call for its German competitors. This lends additional support for the argument that companies need to compete in the electric vehicle sector.  



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March 01 2016

Commentary by Eoin Treacy

Experts predict robots will take over 30% of our jobs by 2025

You might remember this article from May last year quoting a Gartner report predicting a large number of jobs will be lost to machines by 2025. Here is a section:

There's a BakeBot robot whipping up fresh cookies at MIT; hospitals are now employing medical robots to assist their doctors; and a robot named Baxter can beat any human at the popular logic game Connect Four, among many other tasks.

"Historically what we thought was that robots would do things that were the three D's: dangerous, dirty, and dull," explains Ryan Calo, professor at University of Washington School of Law with an expertise in robotics. "Over time, the range of things that robots can do has extended."

Their abilities will only continue to expand. Ray Kurzweil, director of engineering at Google, anticipates that by 2029 robots will have reached human levels of intelligence.

Many people fear a jobless future — and their anxiety is not unwarranted: Gartner, an information Technology research and advisory firm, predicts that one-third of jobs will be replaced by software, robots, and smart machines by 2025.

 

Eoin Treacy's view -

I am referring to it now because I had the pleasure of speaking with the CEO of Softwear, HP Reddy, on Friday. I first saw mention of the company when they broke out of Georgia Tech to commericalise the operation and wrote about it most recently last July in the context of how many jobs could potentially be displaced by their sewbots. Softwear produces the first suite of robots that can displace humans in the manufacturing of clothing.  



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February 26 2016

Commentary by David Fuller

Energy Price War Spreads to Gas as US Shale Storms Global Market, Stalks Russia

The US has exported its first shipment of natural gas in a historic move that shifts the balance of power in the global energy market and kicks off a struggle with Russia for market share. 

Surging US supply over the next five years threatens to break the Kremlin's dominance over Europe's gas market, and is already provoking talk of a "Saudi-style" counter attack by Moscow to drive US shale gas frackers out of business before they gain a footing.

At the very least, it sharpens a global price war as liquefied natural gas (LNG) bursts onto the scene, and closes the chapter on the 20th century system of pipeline monopolies. Gas is starting to resemble the spot market for crude oil, with the same wild swings in prices and boom-bust cycles.

A seven-year, $11.5bn project by Cheniere Energy finally came to fruition this week as the first LNG cargo left Sabine Pass in Louisiana - in a special molybdenum-hulled ship at -160 degrees Centigrade - destined for Petrobras in Brazil. "It is a big day for our natural gas revolution," said Ernest Moniz, the US energy secretary.

Speaking at the IHS CERAWeek summit in Texas, he said the emergence of the US as a gas superpower is a geopolitical earthquake, though he has always been coy about the exact intention. "It is a change in the energy security picture," he said.

The US is ramping up LNG exports to almost 130bn cubic metres a day (BCM) by the end of the decade, roughly equal to Russia's gas exports to Europe. This may rise to 200 BCM and possibly beyond as the shale industry keeps finding once unthinkable volumes of gas.

Mr Moniz said the world had been expecting the US to be a huge importer of LNG before the shale shock. The mere fact that this is no longer the case turns the market upside-down, and is a key reason why LNG prices have been in free-fall across the world.

The shift to net exports is something that almost nobody expected. Mr Moniz predicted that the US will match Qatar, and possibly exceed it to become the world's biggest exporter of LNG by 2020. 

The US is still a net importer of natural gas but that is because Canadian pipelines supply New York and Detroit. However, it does not alter the overall picture.

Martin Houston, chairman of Parallax Energy, said the US may account for a quarter of the world's LNG market within a decade, and is so efficient that it can deliver gas to Europe for as little as $5 per million British thermal unit (Btu) despite the high cost of liquefaction and shipping.

David Fuller's view -

This article is well worth reading in full because it is about a monumental development – cheap energy forever – at a time when investors are agonising over China, the EU and negative interest rates.  That is not a misprint; I did say cheap energy forever, thanks to Technology

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February 25 2016

Commentary by David Fuller

Modi and Rajan: Unlikely Allies Battling Indian Oligarchy

Here is the opening of this interesting article from Bloomberg:

In the months after Prime Minister Narendra Modi’s landslide 2014 victory, speculation swirled of a rift with central bank Governor Raghuram Rajan.

Members of Modi’s party saw Rajan, a former International Monetary Fund chief economist, as a loyalist of the ousted Congress-led government that appointed him to run the Reserve Bank of India eight months earlier. One even called for him to be fired if he didn’t cut interest rates.

Yet when the pair joined together in Mumbai last April to celebrate the central bank’s 80th anniversary, Modi lavished praise on Rajan. The prime minister called him “the best teacher" thanks to his ability to simply explain complex ideas, adding: “He makes me understand them so perfectly that I don’t need to question anything."

The positive working relationship -- featuring moves to control inflation, narrow the fiscal deficit and boost foreign reserves -- is helping counter the narrative of disappointment since Modi took office. While investors remain frustrated with failures including a delayed tax overhaul, India isn’t currently gripped by the sense of panic that struck in 2013, when emerging markets last came under pressure.

‘Fundamental Reset’

And while joint efforts to clean up banks, end power shortages and curtail corruption face substantial obstacles, they have the potential to upend a growth model that funnels wealth to a small elite. In the process, that would empower a younger generation with lower business costs and a more level playing field.

“Modi and Rajan as attackers of vested interests -- and Technology as a tool for a new generation of entrepreneurs to change the system -- is creating a fundamental reset on how India works," said Saurabh Mukherjea, chief executive officer of institutional equities at Ambit Capital Pvt. in Mumbai. “I don’t think foreign investors have fully understood the scale of how dramatically India has been changed by these three forces.”

David Fuller's view -

 

India’s promising GDP growth rate but fiendishly bureaucratic political system are recipes for stock market volatility, which we have certainly seen.  Nevertheless, if you agree with the mantra - Governance is everything – Prime Minister Narendra Modi and Central Bank Governor Raghuram Rajan are a powerful and capable combination.

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February 25 2016

Commentary by Eoin Treacy

JPMorgan Quietly Tests Blockchain With 2,200 Clients

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

Mr. Dimon has been increasingly vocal on Technology. Last year, he warned in his annual shareholder letter that “Silicon Valley is coming,” with “hundreds of startups with a lot of brains and money working on various alternatives to traditional banking.”

Later last year, he said at an investor conference that while bitcoin probably doesn’t have much of a future, the blockchain Technology that supports it “might very well be very useful” in tracking ownership of some securities and cutting down the time it takes to transfer a loan.

In its new blockchain plan, J.P. Morgan plans to expand its testing to real trades as soon as the third quarter for certain corporate and investment bank clients including some hedge funds, said Sanoke Viswanathan, chief administrative officer at J.P. Morgan’s corporate and investment bank. That also requires regulatory approvals, which could take months.

J.P. Morgan is also participating in several industry groups that are focused on developing blockchain as a way to improve efficiency in lending and trading, among other things. Those groups include R3, the nonprofit Linux Foundation and Digital Asset Holdings, which is led by former J.P. Morgan executive Blythe Masters.

 

Eoin Treacy's view -

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

It isn’t just start-ups in Silicon Valley that are looking on banking as a sector ripe for disruption. Fees are high, service is slow and the online experience provided by most banks leaves a lot to be desired. For too long banks have relied on rules and regulations they helped to create a shroud of protection that stifled competition. 



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February 25 2016

Commentary by Eoin Treacy

Lloyds Soars on Dividend Bump as Bank Signals End for PPI

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

Chief Executive Officer Antonio Horta-Osorio, 52, is making a virtue of the bank’s focus on lending to U.K. consumers and businesses, as other major European lenders are pruning investment banking operations amid concern over global economic growth and market volatility. He increased the dividend to 2.25 pence a share from 0.75 pence, added a 0.5 pence special payment, and set a higher target for the bank’s lending margins this year.

“This is real, it’s a clean story,” said Joseph Dickerson, an analyst at Jefferies International Ltd. in London with a buy rating on shares. “We don’t see any earnings downgrades which are going to be a theme for western-world banks globally. One of the major headwinds for this company has been PPI. That drag is now removed in our opinion.”

Horta-Osorio is eliminating jobs, closing branches and investing in Technology as he says the firm can respond to persistently low interest rates and a potential slowdown in the British economy. The bank’s cost ratio improved in 2015, and the company forecast its loan impairments will remain muted this year.

“Our low risk, U.K.-focused business model continues to be a source of competitive advantage,” he said on a call with reporters. “The future of Lloyds and the future of the U.K. economy are inextricably linked.”

Eoin Treacy's view -

Payment Protection fines have been a major headwind for UK banks and the removal of this issue represents a powerful bullish factor. The contraction of Lloyd’s valuation from an historic P/E of 45 to an Estimated P/E of 9.42 brings it in line with that of some of the better capitalised US banks such as JPMorgan, Bank of America and Citigroup. 



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February 25 2016

Commentary by Eoin Treacy

Email of the day on cyanobacteria and biofuel

Have you' received any comments on developments with Cyanobacteria? The website of Joule Unlimited is intriguing. There is a short video which is worth watching. It is early days with this Technology but I wonder if any of your subscribers have any realistic ideas about the potential

Eoin Treacy's view -

Thank you for this question which I suspect is of general interest to the Collective. If subscribers have any additional information we would be glad to see it.

You might remember Exxon Mobil invested about $600 billion in algae experiments in 2009 only to lose interest after a couple of years, as fears about peak oil faded. Using algae as the catalyst for producing biofuels was a popular idea almost a decade ago but the problem for companies like Joule is their process is only efficient when oil is above $50. That is just not low enough for widespread roll out in the current environment. 



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February 23 2016

Commentary by David Fuller

Sea Levels Are Rising Faster Than They Have in 2,800 Years

Sea levels on Earth are rising several times faster than they have in the past 2,800 years and are accelerating because of human-caused global warming, according to new studies.

An international team of scientists dug into two dozen locations across the globe, including a salt marsh and coastal wetland in Newfoundland, to chart gently rising and falling seas over centuries and millennia. Until the 1880s and the world's industrialization, the fastest seas rose was about three to four centimetres (1 to 1.5 inches) a century, plus or minus a bit. During that time global sea level really didn't get much higher or lower than eight centimetres (three inches)  above or below the 2,000-year average.

But in the 20th century the world's seas rose 14 centimetres (5.5 inches). Since 1993 the rate has soared to 30 centimetres (a foot) per century. And two different studies published Monday in the journal Proceedings of the National Academy of Sciences, said by 2100 that the world's oceans will rise between 28 to 131 centimetres (11 to 52 inches), depending on how much heat-trapping gas Earth's industries and vehicles expel.

David Fuller's view -

Most of us do not want to believe this because it is too frightening.  However, it makes sense to me that the climate is warming and I see more evidence to confirm rather than refute this view.  I hope I am wrong or that Technology provides a solution, because the long-term economic consequences of rising sea levels are appalling.   

(See also: Bill Gates Q&A on Climate Change: ‘We Need a Miracle’ – This is an excellent article and video, in my opinion.)



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February 23 2016

Commentary by Eoin Treacy

Inside the New Microsoft, Where Lie Detection Is a Killer App

This article by Dina Bass for Bloomberg may be of interest to subscribers,. Here is a section:

Microsoft truly embraced the Technology when it started Bing in an attempt to catch up with Google. Satya Nadella ran engineering and technical strategy for the search division before becoming chief executive officer two years ago and has been sprinkling machine learning like fairy dust on everything his company touches. "Microsoft is now in this place where they have machine learning very deeply embedded," Domingos says. "They’re investing a lot in making machine learning less Wild West."

Like Google and Amazon, which have both used the Technology to improve their own products, Microsoft is weaving machine learning into its own operations. This isn't simply about helping the company save money and function better; the more Microsoft uses the Technology itself, the easier it is to explain and sell. "Customers are confused," says Joseph Sirosh, lured from Amazon in 2013 to oversee engineering for Microsoft’s machine learning efforts. "Cutting through that noise has been a bit of a challenge. It has been also hard for our own field and sales people to go talk to customers and educate them about all the use cases."

CFO Amy Hood’s finance department has come to rely on algorithms—using them to help forecast sales and how many licenses the company will sell in a given period. "It turns out to be very, very accurate for that application," Sirosh says. "Amy Hood is a big fan of this. She can sleep nicer knowing that a machine learning model predicted her quarter."

 

Eoin Treacy's view -

Major Technology companies are investing heavily in machine learning with the aim of answering questions we have not yet learning how to ask. It’s hard to take the ego out of decision making. Strong personalities generally tend to get their way not because what they want is the most appropriate course of action but because they can shout loudest, have the best connections or the most persuasive argument. Machine learning holds out the promise of creating data driven business models with reduced influence of big personalities. We might someday hope that governments adopt the same data driven methods.



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February 22 2016

Commentary by David Fuller

How Technology Could Unwind a Decade-Long Trend in Global Trade

Here is the opening of this informative article from Bloomberg:

Two of the biggest forces influencing global economic activity over the past three decades—globalization and automation—have had polar-opposite effects on workers in emerging markets.

The former pushed multinationals to move production to countries with cheaper labor costs than advanced economies, while the latter effectively substitutes capital for labor in the production process.

In a note to clients, analysts at the Goldman Sachs Group Inc. led by Senior Asia Economist Goohoon Kwon discuss how these trends have affected the global trade picture.

To the extent that robots become a less expensive input than labor in the production process, multinationals will be encouraged to "onshore" output to move it closer to their customer bases. This would mark an unwind of the long-standing trade formula, which had the growth of global supply chains at its heart, and it is a net negative for global trade that would have far-reaching consequences.

There are nascent signs that this process may be in the works, as emerging market nations in Asia have seen export volumes nose-dive despite continued growth among their major trading partners:

David Fuller's view -

This is a hugely important development, and one that this service has discussed occasionally over the years.  Briefly, developed economies suffered during the earlier years of globalisation because their labour costs and currencies were too high, relative to developing economies.  This hollowed out industries in developed countries, as jobs and production facilities were moved overseas, with the Asia Pacific region being the biggest beneficiary. 

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February 19 2016

Commentary by Eoin Treacy

NYSE Embarks on High-Stakes Technology Shift for its Exchanges

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

NYSE will take its time to move all its markets on to Pillar. NYSE Arca begins the migration on Monday, a delay from the original launch date in the third quarter of 2015. The other markets owned by NYSE Group Inc., including the New York Stock Exchange, won’t get the Technology until much later with the final market probably adopting Pillar in 2017.

The slow approach shows the firm’s caution after it had to halt trading on NYSE for more than three hours last July. A botched Technology upgrade was responsible for that outage.

“It will take a while to put everything on Pillar,” ICE’s chief executive officer, Jeff Sprecher, said on the company’s fourth-quarter earnings call. “We’re going to be relatively slow and deliberate.”

NYSE needs the upgrade to work. Its equity exchanges each run on different systems, unlike its main competitors -- Bats Global Markets Inc. and Nasdaq Inc. -- which use a single platform for all of their venues.

 

Eoin Treacy's view -

The shutdown of the NYSE in July jolted investor confidence in the Technology they require to execute trades and the breakdown of BNY Mellon’s ETF pricing engine in August resulted in a massive dislocation which acted as the catalyst for the ongoing correction in stocks. NYSE Arca, a major trading venue for NYSE and Nasdaq shares as well as a considerable number of options migrate on Monday. 



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February 12 2016

Commentary by Eoin Treacy

China Could Have a Meltdown-Proof Nuclear Reactor Next Year

This article by Richard Martin for the MIT Technology Review may be of interest to subscribers. Here is a section:

Construction of the plant is nearly complete, and the next 18 months will be spent installing the reactor components, running tests, and loading the fuel before the reactors go critical in November 2017, said Zhang Zuoyi, director of the Institute of Nuclear and New Energy Technology, a division of Tsinghua University that has developed the Technology over the last decade and a half, in an interview at the institute’s campus 30 miles south of Beijing. If it’s successful, Shandong plant would generate a total of 210 megawatts and will be followed by a 600-megawatt facility in Jiangxi province. Beyond that, China plans to sell these reactors internationally; in January, Chinese president Xi Jinping signed an agreement with King Salman bin Abdulaziz to construct a high-temperature gas-cooled reactor in Saudi Arabia.

“This Technology is going to be on the world market within the next five years,” Zhang predicts. “We are developing these reactors to belong to the world.”

Pebble-bed reactors that use helium gas as the heat transfer medium and run at very high temperatures—up to 950 °C—have been in development for decades. The Chinese reactor is based on a design originally developed in Germany, and the German company SGL Group is supplying the billiard-ball-size graphite spheres that encase thousands of tiny “pebbles” of uranium fuel. Seven high-temperature gas-cooled reactors have been built, but only two units remain in operation, both relatively small: an experimental 10-megawatt pebble-bed reactor at the Tsinghua Institute campus, which reached full power in 2003, and a similar reactor in Japan.

Eoin Treacy's view -

Regardless of the cost, China needs to import fossil fuels. From a national security perspective that’s a problem. Despite the fact the pace of growth is moderating the requirement the country is going to have for energy means they have little choice but to fund any and every potential Technology to supply their market. Nuclear is a big part of that and China is now the largest test bed for new reactor designs in the world. They will inevitably seek to capitalise on that investment and China is going to be a major competitor in the construction of nuclear reactors globally. 



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February 10 2016

Commentary by Eoin Treacy

Musings From the Oil Patch February 10th 2016

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

One aspect of the presentation we found interesting as a sign of Saudi Arabia’s thinking about the long-term outlook for the oil business was a discussion of research efforts underway at the company’s newest research center located in Detroit. That facility was opened last November. Its focus is fuel Technology and improved engines, but also strategic transport analysis. The latter effort involves scenario analysis of future transportation markets including ultimately issuing white papers on the topic.

With respect to their core Technology focus, they are targeting passenger and commercial fuels and engine technologies. From descriptions of some of their research efforts, it seems they are focused on autonomous vehicle development, although that term was never used. Mr. Al-Tahini said that the over-arching research goal is to produce the most fuel-efficient vehicle with the lowest emissions.

Our take-away from that part of the presentation was that at some point in the past, Saudi Arabian officials began considering the forces at work reshaping the transportation business, a market dominated by crude oil. One broad trend impacting that market is demographics, but there is little Saudi Arabia can do to change the impact. Understanding these trends and their impact on the market is critical for long-term planning.

In recent years, the environmental movement has aggressively targeted the fossil fuel industry, which has resulted in a tightening of fuel-efficiency and carbon emission standards, the elimination of fuel subsidies in a growing number of countries around the world, and a strong push to urbanize the population and increase transportation alternatives. All of these forces will impact the growth of the transportation fuels market.
Given those forces, we have concluded that Saudi Arabia believes that oil demand may be closer to a peak than previously thought. This does not mean that the oil industry is going out of business anytime soon, but rather that its growth will slow in the future. Market share growth for Saudi Arabia will need to come from someone else’s share, which means increased price competition. It also means trying to slow the development of alternative energy sources. Knocking out future oil sands and deepwater oil output as well as marginally shrinking shale oil opportunities will all benefit Saudi Arabia’s long-term market potential. Any negative impact on the oil output of other significant producers such as Russia, Iran and Iraq, coupled with boosting demand would all help Saudi Arabia. Lastly, technological developments that enable Saudi Arabia to reduce the cost and extend the life of its oil fields would also help the kingdom’s future. While none of this is new to our thinking, Mr. Al-Tahini’s presentation provided confirmation of what we think is motivating Saudi Arabia’s actions.

 

Eoin Treacy's view -

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

How Saudi Arabia views the market for its products matters. If they truly believe that the peak in demand growth has been reached that would help to explain the beggar thy neighbour approach that has been adopted over the last year. Major oil companies have responded by shelving expansion plans, Alberta put off its desire for more royalties from its producers and we can expect to hear a lot more about refracking in the unconventional supply sector. 



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February 10 2016

Commentary by Eoin Treacy

Powering the EV growth

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

Promising outlook for lithium; initiating coverage on Tianqi with a Buy
Rapid commercial EV sales in China triggered the lithium carbonate price to jump 160% in the past six months. We believe the momentum of strong EV sales, especially commercial EV, will continue driving lithium demand in the coming years. In the EV/battery supply chain, we believe lithium is in a sweet spot, enjoying a tight demand/supply balance and favorable industry structure with the top four suppliers controlling c.86% of global supply. Tianqi is global No.3 lithium supplier and will likely be the major beneficiary of the favourable trend. We thus initiate coverage of Tianqi with a Buy.

Strong EV sales will to drive demand for lithium batteries 
In 2015, China sold 172,641 units of commercial EV, implying six-fold growth. We believe double-digit growth for commercial EV in China will likely continue as: 1) subsidies remain meaningful in absolute terms, 2) the subsidy policy now covers the whole country and more types of commercial EVs, and 3) the EV penetration for public buses has reached the critical scale to pull the sales momentum. We believe passenger EVs’ growth will also be strong in the coming five years, due to the government’s supportive policies. We believe overall Chinese EV sales (commercial plus passengers) will grow at 42% in 2016 and 30% in the next two years, and will drive lithium demand to post a 7-8% CAGR in the coming years.

Lithium as the upstream of EV/battery supply chain might be a sweet spot
Our investigation into the EV/battery supply chain suggests that lithium should be the sweet spot of the whole supply chain. Mid-stream producers might be facing technological uncertainty and aggressive capacity expansion. Downstream producers will need to continue to cut the cost of batteries and EVs to ensure greater end-customer adoptions. Only upstream lithium producers will fully benefit from this trend, regardless of Technology options. Meanwhile, the supply increase process of upstream players has been very slow. We also see c. 86% of market supply controlled by the top four suppliers as a major positive for lithium producers. Market concentration should sustain the lithium up cycle longer.

 

Eoin Treacy's view -

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

From early in the last decade David characterised the developing bullish case for commodities as Supply Inelasticity Meets Rising Demand. The emergence of China onto the global market was creating outsized demand growth for industrial resources and companies were inhibited in their ability to increase supply following a generational long bear market. They invested hundreds of billions in increasing supply while China’s demand growth has tapered off leading to prices falling back to earth.

Lithium prices are not liquid but they have been inert for three years suggesting the relatively high price environment has not acted as a headwind for demand. With so much of global supply concentrated in the hands of only five companies their decisions on when to increase supply are likely to have a significant influence on the supply inelasticity argument as it pertains to lithium.  



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February 08 2016

Commentary by David Fuller

Let There Be Light in U.S. Markets

Here is the opening of this topical editorial from Bloomberg:

Renewed volatility in the U.S. stock market raises a question: If a freak event like the 2010 “flash crash” occurred again, would regulators have a better view of what was happening than they did back then?

Not really. And therein lies a crucial challenge for the Securities and Exchange Commission.

Periodic market glitches show how far the speed and complexity of trading has outpaced regulators’ capacity to monitor it. Over the past decade and a half, the daily volume of trade-related electronic messages has increased dramatically -- by one estimate, 500-fold. Meanwhile, regulators still rely on an outdated patchwork of surveillance systems lacking even basic information, such as reliable time stamps and customer identification.

At best, these systems can show only a partial picture of what happened, months after the fact. One tech executive says it’s like using bicycles to catch Ferraris.

After the flash crash, the SEC proposed a solution: Record all the activity in the stock and options markets, and have the data available for analysis fast. This “consolidated audit trail” would let regulators analyze anomalies and shed light on the causes of puzzling bursts of volatility. Better understanding could lead to better system safeguards -- and more sensible policing of the markets.

The project is complex, but not mainly because it requires the processing of 58 billion records a day. The bigger problem is the number of different organizations with a stake in the outcome -- and the fact that nobody has taken charge.

David Fuller's view -

Bloomberg’s Editorial Board has identified the problem but not the solution.  Outside regulators from the SEC or anywhere else will remain permanently behind in the learning curve, even if they employ a few people who have left the financial institutions. 

Financial regulation is unlikely to improve significantly unless a sufficient number of investment managers across the industry decide to work with each other and also with regulators, to create a level playing field.  I am not holding my breath because there is little precedent for such cooperation.

 

Note: for my comments on the bear trends for most stock markets, please listen to the Audios.   



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February 05 2016

Commentary by David Fuller

Tech Rout Caps Week of Reversals as Economy, Earnings Hit Stocks

Here is the opening of this topical report from Bloomberg:

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

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

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

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

David Fuller's view -

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

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

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



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February 05 2016

Commentary by David Fuller

The Rich Are Already Using Robo-Advisers, and That Scares Banks

Here is the opening from this informative article from Bloomberg:

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

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

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

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

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

 

David Fuller's view -

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

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February 05 2016

Commentary by David Fuller

Robot Drones Could Print Buildings and Disaster Shelters, Says Researcher

My thanks to a subscriber for this fascinating report from Imperial College London.  Here is the opening:

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

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

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

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

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

David Fuller's view -

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



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February 03 2016

Commentary by David Fuller

This Man Wants to Upend the World of High-Frequency Trading

My thanks to a subscriber for the link to this article from MarketWatch.  Here is a brief section:

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

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

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

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

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

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

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

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

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

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

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

David Fuller's view -

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



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February 01 2016

Commentary by David Fuller

China in Crisis? Another Credit Crunch in the West Is Far More Likely

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

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

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

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

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

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

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

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

David Fuller's view -

 

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



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February 01 2016

Commentary by David Fuller

Big Biotech is Still Compellingly Valued

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

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

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

Have biotech shares become overvalued?

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

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

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

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

David Fuller's view -

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

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



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January 29 2016

Commentary by Eoin Treacy

Microsoft Cloud-Fueled Revival Persists as Azure Sales Jump

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

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

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

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

 

Eoin Treacy's view -

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



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January 28 2016

Commentary by Eoin Treacy

The Agony & The Ecstasy

Thanks to a subscriber for this report from JP Morgan Asset Management which may be of interest. Here is a section:

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

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

 

Eoin Treacy's view -

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

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



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January 21 2016

Commentary by David Fuller

The World Has Discovered a $1 Trillion Ocean

Here is the opening of Bloomberg’s article by Eric Roston on this significant development:

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

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

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

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

David Fuller's view -

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

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



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January 20 2016

Commentary by Eoin Treacy

Email of the day on new nuclear

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

Eoin Treacy's view -

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



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January 19 2016

Commentary by David Fuller

Better Living Through Robots

Here is the latter section of this interesting article from Bloomberg:

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

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

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

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

David Fuller's view -

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

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

This item continues in the Subscriber’s Area.



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January 13 2016

Commentary by Eoin Treacy

Email of the day on molten salt nuclear reactors

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

Eoin Treacy's view -

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



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January 07 2016

Commentary by David Fuller

Beware Biotech Secondary Swarm

Here is the opening of this informative article from Bloomberg:

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

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

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

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

David Fuller's view -

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

This item continues in the Subscriber’s Area.



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January 05 2016

Commentary by David Fuller

Email of the day

In reply to Allister Heath’s article in The Telegraph: The Collapse in the Price of Oil is a Challenge to the Old World Order, 31st December 2015, which I posted and commented on: 

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

David Fuller's view -

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

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

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



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January 05 2016

Commentary by Eoin Treacy

The Last Innings

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

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

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

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

 

Eoin Treacy's view -

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

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



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January 05 2016

Commentary by Eoin Treacy

Gene-Editing Drugmaker Backed by Google, Gates Files for IPO

This article by Caroline Chen and Alex Barinka for Bloomberg may be of interest to subscribers. Here is a section:

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

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

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

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

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

 

Eoin Treacy's view -

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



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December 31 2015

Commentary by David Fuller

The Collapse in the Price of Oil is a Challenge to the Old World Order

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

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

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

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

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

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

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

David Fuller's view -

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

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

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



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December 31 2015

Commentary by David Fuller

General Electric to Acquire Metem in a Small, But Significant Transaction

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

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

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

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

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

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

David Fuller's view -

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

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

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



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December 29 2015

Commentary by David Fuller

Saudi Riyal in Danger as Oil War Escalates

Here is a middle section from this highly informative article by Ambrose Evans-Pritchard for the Daily Telegraph:

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

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

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

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

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

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

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

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

David Fuller's view -

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

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

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



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December 29 2015

Commentary by Eoin Treacy

Musings From The Oil Patch December 29th 2015

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

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

And   

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

 

Eoin Treacy's view -

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

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



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December 29 2015

Commentary by Eoin Treacy

Email of the day on Bitcoin

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

Eoin Treacy's view -

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



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December 28 2015

Commentary by Eoin Treacy

Hon Hai proposes deal to buy Sharp

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

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

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

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

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

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

 

Eoin Treacy's view -

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



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December 24 2015

Commentary by Eoin Treacy

Record highs predicted for bitcoin in 2016 as new supply halves

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

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

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

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

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

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

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

Eoin Treacy's view -

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

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

 



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December 23 2015

Commentary by David Fuller

OPEC Sees Demand for Its Crude Oil Falling for Rest of Decade

Here is the opening from this topical article from Bloomberg:

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

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

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

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

David Fuller's view -

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

There are two market adages which we should never forget.

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December 16 2015

Commentary by David Fuller

Kick OPEC While It Is Down

Here is the opening of this tough editorial from Bloomberg:

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

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

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

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

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

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

David Fuller's view -

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

This item continues in the Subscriber’s Area. 



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December 08 2015

Commentary by David Fuller

Email of the day

On diamond mining at the mouth of the Orange River:

Note: Aside from my Email 2 reply yesterday, I separately asked this subscriber if attempts to change the name of the Orange River, which dates back over 200 years, were ongoing. That may not be of general interest, but I suspect this gem of an email below will be.

Hi David,

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

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

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

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

I will keep the collective updated.

David Fuller's view -

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

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

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



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December 07 2015

Commentary by David Fuller

Email of the day 2

On tech from the Orange River:

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

David Fuller's view -

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

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

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



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December 07 2015

Commentary by Eoin Treacy

Cisco Midyear Security Report

This report covering a number of cybersecurity threats currently assailing corporate networks obviously focuses on Cisco’s response but may be of interest to subscribers. Here is the conclusion: 

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

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

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

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

 

Eoin Treacy's view -

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

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



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December 03 2015

Commentary by Eoin Treacy

December 01 2015

Commentary by David Fuller

COP-21 Climate Deal in Paris Spells End of the Fossil Era

Here is the opening of this informative article by Ambrose Evans-Pritchard for The Telegraph:

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

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

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

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

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

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

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

David Fuller's view -

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

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

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

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

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



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December 01 2015

Commentary by David Fuller

The Silicon Valley Idea That Is Driving Solar Use Worldwide

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

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

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

David Fuller's view -

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December 01 2015

Commentary by Eoin Treacy

The Silicon Valley Idea That's Driving Solar Use Worldwide

This article by Mark Chediak and Chris Martin for Bloomberg may be of interest to subscribers. Here is a section: 

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

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

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

 

Eoin Treacy's view -

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

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

 



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November 23 2015

Commentary by David Fuller

Email of the day

On the solar industry:

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

David Fuller's view -

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

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

This item continues in the Subscriber’s Area.



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November 19 2015

Commentary by Eoin Treacy

Time to add wind developers

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

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

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

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

 

Eoin Treacy's view -

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

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

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

 



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November 18 2015

Commentary by Eoin Treacy

Best fitness trackers of 2015: Buying guide

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

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

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

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

Eoin Treacy's view -

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

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

 



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November 16 2015

Commentary by David Fuller

This Is What Will Happen When Robots Take Over the World

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

David Fuller's view -

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

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

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



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November 13 2015

Commentary by Eoin Treacy

Autodesk's CEO of today on the machines that will be making things tomorrow

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

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

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

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

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

 

Eoin Treacy's view -

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



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November 12 2015

Commentary by David Fuller

Saudi Arabia Risks Destroying OPEC and Feeding the Isil Monster

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

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

Helima Croft, RBC Capital Markets

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

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

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

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

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

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

David Fuller's view -

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

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

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

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



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November 12 2015

Commentary by Eoin Treacy

MSCI index change massive for China markets

Thanks to a subscriber for this article by Laura Suter for fundstrategy.co.uk which may be of interest. Here is a section: 

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

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

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

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

 

Eoin Treacy's view -

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



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November 11 2015

Commentary by David Fuller

Email of the day

On the 9th November seminar presentations:

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

David Fuller's view -

My own presentation was posted on Tuesday. 

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

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

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



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November 10 2015

Commentary by Eoin Treacy

Musings from the Oil Patch November 3rd 2015

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

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

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

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

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

 

Eoin Treacy's view -

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

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



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