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October 15 2014

Commentary by Eoin Treacy

Lockheed Martin Pursuing Compact Nuclear Fusion Reactor Concept

This press release from Lockheed Martin is important. Here is a section:

“Our compact fusion concept combines several alternative magnetic confinement approaches, taking the best parts of each, and offers a 90 percent size reduction over previous concepts,” said Tom McGuire, compact fusion lead for the Skunk Works’ Revolutionary Technology Programs. “The smaller size will allow us to design, build and test the CFR in less than a year.”

After completing several of these design-build-test cycles, the team anticipates being able to produce a prototype in five years. As they gain confidence and progress technically with each experiment, they will also be searching for partners to help further the technology.

Eoin Treacy's view -

Expectations of when we might have the first viable fusion reactor have been in the range of 25 years away for the last 60 years. What is interesting now is the volume of literature and development in the subject is increasing exponentially and expectations of when we might have the first active reactor are shortening to the medium term. Lockheed Martin is not a pop science organisation so when they say they can do it I’m inclined to take them at their word. On a day when the market is weak, a press release such as this is likely to be ignored by the mainstream media but it is important. http://www.lockheedmartin.com/us/products/compact-fusion.html In the event that fusion is achieved it would change the global economy beyond recognition over the next 30 years. 



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October 14 2014

Commentary by Eoin Treacy

Giant Battery Unit Aims at Wind Storage Holy Grail

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

Electric-car battery prices already have fallen by 50 percent since 2010 to about $500 per kilowatt hour, and “by drawing on auto-battery technology, battery makers may also be able to supply storage batteries at a lower price,” Citigroup said in a Sept. 25 report. Tesla Chairman Elon Musk said in July that battery packs for electric cars will drop to $100 in the next 10 years. The Tehachapi batteries are supplied by LG Chem Ltd. and are the same type used in General Motors’ Volt.

The Southern California Edison project is part of a push for more wind and solar power in the state, among the sunniest in the U.S. A third of California’s electricity must come from renewable sources by 2020, and mandates also require that the three biggest investor-owned utilities store 1,325 megawatts by 2024. California already has more than 12,000 wind turbines, the most of any state, according to the American Wind Energy Association.

Eoin Treacy's view -

Many of the efficiencies claimed by battery manufacturers have been achieved via scale in manufacturing rather than technological leaps. Tesla’s gigafactory takes this process further by introducing additional economies of scale to further reduce the price of lithium batteries. So far ground breaking innovation has been more difficult to achieve than previously envisaged by companies but one benefit of building utility sized batteries is that power to weight ratios which are so important for car batteries are no longer a consideration.  

 



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September 25 2014

Commentary by Eoin Treacy

Bitcoin Economy Widens as Parents Pay Digital Allowance

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

“Bitcoin makes a lot more sense in emerging economies like Brazil and Argentina and Russia,” said Nicolas Cary, CEO of Blockchain.info, a payment service. “The number of new sign-ups we see in Latin America is increasing. You are moving beyond the people  placing bets to people seeing value.”

The pace of global adoption will depend on regulation, bitcoin’s price moves and addressing security concerns. Price volatility is a major worry because the price can be influenced by a relative small group of owners. While programmers build services such as insurance into the system, bitcoin may be less secure than more established forms of payment. Once a bitcoin changes hands, there are few means to get it back.

Meanwhile, hackers are on the prowl. Earlier this year, Japanese bitcoin exchange Mt. Gox lost 650,000 bitcoins to cyber criminals. This summer, a hacker stole 1,270 bitcoins from Androklis Polymenis, a software developer in Greece. Polymenis posted a 500-bitcoin bounty to track down the perpetrator and says the hacker returned 462 bitcoins in exchange for having the bounty lifted.

“The problem with bitcoin is security and user friendliness,” said Polymenis. “How can you expect mass adoption when I get hacked so easy?”

That’s not deterring Greg Abbott, 35, who sells fried pies from a food truck in Portland. Sure, only four or five customers a month use bitcoin. That’s not the point, he says.
     
“The disruptive nature is what I like so much about it,” Abbott said. “This is a real opportunity to look at how money systems are formed. It’s a real-world experiment of how these things work in the beginning of currencies.”

Eoin Treacy's view -

Bitcoin represents an innovation in transferring funds more than any other single factor. Its value has stabilised near $400 since the abrupt drop from its accelerated advance late last year, This stability may be lending some confidence to people seeking to use it but some considerable hurdles need to be addressed before it can be more widely adopted, not least security.



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September 22 2014

Commentary by Eoin Treacy

China Clamps Down on Web, Pinching Companies Like Google

This article by Keith Bradsher and Paul Mozur for the New York Times may be of interest to subscribers. Here is a section: 

Frustrated users have often resorted to “virtual private network,” or V.P.N., services to evade China’s Internet filters. But those services, too, have come under concerted attack from the authorities, who have interrupted service to them with increasing frequency. Many ordinary citizens cannot afford or obtain access to V.P.N.s to begin with.

In the meantime, Google’s business continues to erode. Its share of the Chinese search engine market fell to 10.9 percent in the second quarter of this year, as the stepped-up blocking began to take effect — compared with one-third in 2009, when it still had servers there.

Google’s problems extend far beyond search. Its application store, called Google Play, is only partly accessible in China.

That has led to the rise of a number of locally run application stores, which analysts say will sometimes market pirated copies of software or charge extra to promote a new application. Companies are often forced to create versions of their apps for China that are slightly different from the versions distributed to the rest of the world on Google’s app store.

“Because Google Play has low market share” in the Chinese market, “app publishers who have applications worldwide on Google Play don’t receive the proportionate share of users in China without publishing to local Android stores, even if they have localized Chinese versions,” said Bertrand Schmitt, chief executive of App Annie, a company that tracks global app distribution.

Google also hosts publicly available libraries of coding scripts and fonts on its servers, but China now blocks these libraries. The chief technology officer at the start-up said his company had resorted to creating its own libraries and hosting them on its own servers, wasting costly computing power and space.

Eoin Treacy's view -

Western companies invested heavily in Chinese expansion and accepted knowledge sharing joint ventures for the promise of access to China’s burgeoning consumer sector. The reality of profitability in China has been more disappointing than originally envisaged and companies are understandably chastened at the reception they have received. For a company such as Google with a global franchise that relies on users accessing its search and mobile apps in order to facilitate advertising, the loss of China as a potential market was priced in shortly after its withdrawal from the country. 



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September 19 2014

Commentary by Eoin Treacy

Despite the Excitement, There is Reason to Think Twice on Alibaba

This article from the New York Times may be of interest to subscribers. Here is a section: 

At $68 a share, Alibaba’s market capitalization is about $168 billion. It’s hard to find a United States company that’s directly comparable, but Professor Greenwald said eBay comes the closest. Like Alibaba, it has an auction site that benefits from a powerful network effect, it offers a vast e-commerce site and it has a pay system, PayPal. (While Alibaba spun off its payment system, Alipay, Alibaba will get a share of the proceeds from any sale or public offering of Alipay.) EBay’s market capitalization is about $65 billion.

Of course, eBay doesn’t dominate e-commerce in the United States to the degree that Alibaba does in China. But is it reasonable to assume such dominance will persist as the Chinese market matures? No one company dominates e-commerce in the United States or in Europe, and none are as large as old-economy Walmart. China may now be underserved by national brick-and-mortar chains, but that could change. Professor Greenwald said he believed that Alibaba deserved a premium to eBay — perhaps twice eBay’s market capitalization. “But three times? That’s really pushing it,” he said.

Eoin Treacy's view -

The ticker symbol, BABA, means father in Mandarin and this was certainly the mother and father of all IPOs. The share price briefly testing the $100 area today, up from the $68 agreed at the close of the offer stage. Some of the early investors in the company were able to liquidate positions early and others will have had an opportunity to sell today so it is questionable where the additional demand will come from to push prices much above today’s high in the short term.

Meanwhile this additional article from the New York Times highlights the entrepreneurial ecosystem developing in picturesque Hangzhou. The start-ups spawned by former Alibaba employees suggests the number of companies that will be seeking to IPO is likely to increase in the coming years. It remains to be seen if Alibaba’s former employees will have the same effect on Hangzhou as HP’s had on Silicon Valley. 



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September 19 2014

Commentary by Eoin Treacy

Robust demand and disciplined supply for metal casings

Thanks to a subscriber for this report from Deutsche Bank focusing on the metal casings sector for hand held devices. Here is a section:  

We hold an optimistic view on the metal casings industry. On the demand side, we are confident about its robust shipment momentum within the next three years due to (a) the design trend toward ultra-slim and lighter form-factor, and larger panel-screens on mobile devices (NBs, smartphones and tablets), (b) Apple’s preference for using metal casings (its adoption rate at 86%, Figure 19) for iPhone, iPad and Macbook products, and (c) the increasing adoption rate from other smartphone and tablet brand vendors. On the supply side, the disciplined procurement of CNC (Computer Numerical Control) machines by major casing suppliers in Asia (hence controlled supply increase) and the higher entry barriers in metal casings manufacturing and surface treatment solution can help ease the Street’s concerns about the industry’s oversupply risks.

Eoin Treacy's view -

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

It is easy to become desensitised to photos of long lines of people sleeping outside Apple stores in order to be among the first to own the next new product. However these people represent the loyal customer base that is the envy of every other consumer electronics company. News last week that privately held, discount smart phone manufacturer Xiaomi would be moving to metal cases exemplifies the trend of Apple imitators, not least in the build quality end users have come to expect.



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September 09 2014

Commentary by Eoin Treacy

Apple Unveils Watch, Bigger-Screen IPhones in Product Blitz

This article by Adam Satariano and Tim Higgins for Bloomberg may be of interest to subscribers. Here is a section: 

“Apple Watch is the most personal device we have ever created,” Cook said at the event. “We set out to create the best watch in the world.”

Cook unveiled the watch after earlier introducing Apple Pay, the mobile payments system. Apple is partnering with credit-card companies including American Express Co., MasterCard Inc. and Visa Inc. for the service, which will be offered in the U.S. starting next month.

In introducing a mobile-payments service, Apple squarely took aim at existing payments services. “Our vision is to replace this and we’re going to start by focusing on payments,” Cook said as a picture of an old wallet was flashed on screen.

The company also posted an image of a leather billfold on its website with a message saying, “Wallet, your days are numbered.”

Apple Pay will work with services including mobile car- booking application Uber Technologies Inc., restaurant reservation system OpenTable and daily deals company Groupon Inc., the company said.

 

Eoin Treacy's view -

I watched the Apple presentation this morning and I want an Apple Watch for the fitness tracking apps but I’m not sure I need one when I already have a FitBit Flex and an iPhone. The share had rallied to a new high over the last month on expectations of big news in the product line up. The watch is a new product but it is open to question whether it is meaningfully better than the Samsung products already in the market. That would suggest that it will be up to Apple to demonstrate that the apps are better and the ecosystem more attractive than other product stables. 



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August 20 2014

Commentary by Eoin Treacy

Apple Rises to Record on Optimism Over New Batch of Products

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

The stock’s rise shows investors are buying into the strategy outlined by Chief Executive Officer Tim Cook, who has been prodded to introduce bigger iPhones, give more money back to stockholders and introduce new devices.

Those shareholders are now getting what they want. In addition to the larger iPhones, Cook has vowed that Apple will enter a new product category this year. The company is said to be developing a smartwatch, and Morgan Stanley’s Katy Huberty has said Apple may sell as many as 60 million of the new wearable device in its first year on the market, adding up to $9 billion in revenue for fiscal 2015. Apple hasn’t commented on the prospect of larger iPhones or a possible smartwatch.

Cook also has been more open than Jobs was to using the company’s cash hoard to return money to shareholders. Apple is in the midst of a program to give back $130 billion through buybacks and dividends. He’s also been more active in acquisitions, including spending $3 billion to buy Beats Electronics LLC, the company’s biggest-ever purchase.

Eoin Treacy's view -

Is Apple hitting a new all-time high because investors are enthused about a beefed up product line or because they wish to benefit from the $130 billion in buybacks and dividend increases promised by the company? The first is rather ephemeral until the products are in fact launched but share buybacks are very real.



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August 04 2014

Commentary by Eoin Treacy

Tesla and Panasonic sign agreement on battery-making Gigafactory

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

As mentioned in our previous article, Tesla plans for the Gigafactory to produce 500,000 batteries per year by 2020, with expected battery cell output of 35 GWh/yr and battery pack output of 50 GWh/yr. Current global battery output, from a variety of manufacturers, sits at just under 35 GWh/yr.

According to yesterday's announcement, "Tesla will prepare, provide and manage the land, buildings and utilities [while] Panasonic will manufacture and supply cylindrical lithium-ion cells and invest in the associated equipment, machinery, and other manufacturing tools based on their mutual approval."

The factory will be located somewhere in the US and managed by Tesla, with Panasonic occupying about half of the manufacturing space and taking the role of principal partner. Although the cells will be made by Panasonic, Tesla will be incorporating them into battery modules and packs that it will be assembling.

Along with lowering the price of batteries by making them in large numbers, Tesla and Panasonic also plan on reducing costs by manufacturing cells tailored specifically to EVs, locating materials suppliers on-site, and implementing measures to lower the utility and operating expenses of the factory.

Eoin Treacy's view -

Developing batteries that are both highly efficient and cheap, has proven to be a much more difficult challenge than people initially expected five years ago. Lithium, despite its propensity to self-combust, remains the standard technology for batteries for everything from mobile phones to electric cars. The anticipated gigafactory aims to produce batteries that are marginally more efficient but considerably cheaper in the assumption that this lower cost will help fuel demand. They might be right. 



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July 24 2014

Commentary by Eoin Treacy

Facebook Shares Surge to Record as Mobile Ads Fuel Gains

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

Facebook’s revenue gain follows Google Inc.’s results last week, when the Web-search company posted sales that exceeded analysts’ estimates, largely based on the strength of online ads. Yet while Google reported a 6 percent decline in the average price of its ads, which was offset by a higher volume of promotions, Facebook has been able to charge more for fewer ads.

Facebook and Google are taking share from other Internet companies such as Yahoo! Inc., which last week reported a decline in quarterly sales and missed analysts’ projections.

In total, Facebook accounted for 5.8 percent of worldwide digital ad revenue in 2013, up from 4.1 percent in 2012, according to EMarketer Inc. Digital ad spending worldwide rose 14.8 percent to $120 billion last year and is projected to reach $140 billion this year.

 

Eoin Treacy's view -

Earnings really do matter which helps to explain Facebook’s outperformance relative to most of the other social media companies. The social media sector is highly varied both in terms of the products offered and the revenue generation models employed. 



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July 22 2014

Commentary by Eoin Treacy

Hasbro saddles up 3D-printed My Little Pony figurines designed by fans

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

While fan-created My Little Ponies may be something of a niche, such forward-thinking ventures highlight the potential of 3D printing. The technology has opened up all kinds of possibilities, but one very real implication is the issue of intellectual property theft. So much so, research firm Gartner predicts that by 2018, 3D printing will result in the loss of more than US$100 billion in intellectual property each year.

Collaborative efforts like SuperFanArt, where consumers are empowered and enticed by an element of authenticity, rather than the convenience of reproducing their own knock-offs, could see established brands such as Hasbro get the jump on the Pirate Bays of tomorrow.

The first line of My Little Ponies designs will be on show at Comic-Con San Diego from July 24 to 27. You can check out the designs in the gallery and find out more about becoming a SuperFanArt featured artist via the source link below.

Half of Europe’s Jobs Threatened by Machines in U.S. Risk Echo – This article by Simon Kennedy for Bloomberg may be of interest to subscribers. Here is a section: 

Eoin Treacy's view -

In much the same way that intellectual property is threatened by the ability of people to download music, videos and books from the internet, the evolution of 3-D printing represents a similar threat to product designers and products. Music companies and publishers have changed their business models to permit downloads and adjusted their pricing to lower the barrier to entry. It is conceivable that 3-D products will go the same way. 



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July 18 2014

Commentary by Eoin Treacy

The next industrial revolution: Moving from B-R-I-C-K-S to B-I-T-S

Thanks to a subscriber for this report from Goldman Sachs exploring the industrial applications of the Internet of Things (IoT). Here is a section: 

While IoT spans a variety of industrial sectors, the focus of this report is on Home Automation. Previous reports in this series addressed the applications of IoT to CommTech, Semiconductors and Software. In this report, we address the impact of the IoT on the industrials space, with a deeper dive into Home Automation within the Building Automation opportunity below. We expect a series of follow-up reports touching the following topics.

Building Automation focuses on improving energy efficiency and occupant comfort/utility within the home or commercial building. Key advantages include improved security, remote monitoring of devices, and energy management.

Manufacturing applications of IoT could help facilities to reduce downtime through predictive maintenance, have better visibility into inventory and energy management, and improve operational efficiencies overall.

Resources could benefit from real-time equipment monitoring, energy efficiency (smart meters), and fuel reduction (O&G).

 

Eoin Treacy's view -

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

The frivolity of much of the social media space has led some to believe that future productivity gains will be limited. However, the increasing application of new technologies to the industrial sector almost certainly insures that this assumption will prove false. Rapid prototyping, embedded sensors, processors and transmitters are driving efficiencies that are transforming the industrial sector. This is important because productivity growth is a necessary component in the evolution of a secular bull market. It is for this reason that veteran subscribers will be familiar with our continued emphasis, particularly in the Friday audio, that we are in a technological golden age more commonly referred to as the Third Industrial Revolution. 



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July 17 2014

Commentary by Eoin Treacy

US Dividend Contenders

Eoin Treacy's view -

Following on from yesterday’s addition of a section for the US Dividend Champions to the Chart Library, I created a section for the US Dividend Contenders today. Unlike the Dividend Aristocrats which demand 25 years of consecutive increases as well as a market cap and liquidity provision, the Champions and Contenders only look at records of increasing dividends. In the case of the Champions this is at least 25 consecutive years and between 7 and 24 years for the Contenders. 

The US Dividend Contenders represent an interesting universe of companies where banks, utilities, insurance, MLPs and REITS dominate. This list also highlights the increasingly large number of technology companies that have maintained solid records of dividend increases over the last decade. 

 



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July 15 2014

Commentary by Eoin Treacy

Big Plan by Google to Race Amazon to Your Door

This is an informative article by Jason Del Rey for Recode.net and may be of interest to subscribers. Here is a section: 

Big retailers, however, are clearly taking these partnerships seriously. Instead of sending mid-level business development executives to strike deals with Google, some are negotiating at the top. Costco’s CEO, for instance, flew out to Google’s Mountain View, Calif., campus to meet with Google CEO Larry Page before agreeing to participate in the Google Shopping Express program. Costco CFO Richard Galanti also met with execs at Google on a separate trip. Galanti said it’s important for Costco to consider new sales channels as more shoppers make purchases online.

“Why wouldn’t Google just eliminate the merchant from the middle?” Faisal Masud, e-commerce chief at Staples

“We’re pretty good at knowing what we know how to do and what we don’t,” Galanti said.

“We’re not arrogant about it.”

What’s keeping some retail bosses awake at night, however, is the ongoing suspicion that Google could eventually build an Amazon-like marketplace in which the search giant sells products directly to shoppers and cuts out brick-and-mortar retailers altogether. Even some current Google Shopping Express partners see the potential for such an approach.

Fallows, for his part, was adamant that Google will not pursue this strategy.

“Very firmly no,” he said. “Google is a platform and partnership business. We can’t say that strongly enough.”

Another fear among some retailers, according to RetailNet Group’s Anderson, is that as long as the purchases keep running through Google instead of the retailer’s site, Google will start to collect more and more valuable information on who buys what. Google could then use that data to attract more money from brands looking to promote their own product through Shopping Express no matter which retail store it comes from. Some of that marketing money, Anderson believes, could in turn be shifted away from funds these brands typically allocate to retail stores to promote individual products.

“Google may be in a position to go to Procter & Gamble and say, ‘Why would you give [marketing] dollars to Target when you can just give them to us and we’ll promote the brand whether the shopper decided to buy from Target or another retailer?’” Anderson said.

Despite these concerns, Google has assembled a respectable group of partners to the program. Several of them say participating in the Google Shopping Express program gives them a way to evaluate whether it’s more cost effective to offer same-day and next-day delivery themselves, through a partner or whether they should at all.

 

Eoin Treacy's view -

The retail sector is in a constant state of transformative development. This is particularly true in the USA where penetration of online shopping is higher than elsewhere. Since moving to Los Angeles, it is apparent that there is no shortage of retail space in West LA. Whether this is as a result of online eating into high street market share, the slow recovery of consumer appetites, high rents or the dominance of big box stores and malls is debatable. What seems clear is that the survivors on the high street are service oriented or tailor to a very specific niche. 

The entry of Amazon and Google into the grocery market is a fresh interesting development. Since realising that we could do our Costco shopping online so that we could outsource the porting of heavy bulk items such as gallons of washing detergent etc. to someone else we’ve concentrated on pleasure shopping for fruit, veg and meat at Bristol Farms and Whole Foods. Both Amazon and Google’s delivery trucks are regular sights around our neighbourhood. 

 



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July 07 2014

Commentary by Eoin Treacy

Foxconn recruitment spree shows automation plan setback

This article for Want China Times may be of interest to subscribers. Here is a section: 

Foxconn chairman Terry Gou announced in 2011 that the company planned to manufacture 300,000 robots at a rate of 1,000 units a day and hoped to have 1 million robotic arms in 2014 for the benefit of the first batch of fully automated factories in five to ten years.

A vendor supplying equipment for automated production said that technically it is not a major problem for Foxconn to replace human workers with robots. However, using robots on the production line is only cost-effective for making homogeneous products and cuts cannot realistically be made in making mobile phones and tablet devices which have a more complicated manufacturing process, the vendor stated.

"The labor-intensive industry, such as OEM, can no longer sustain the company's growth," Gou said at a shareholder meeting on June 25. He further said that the company has been seeking a transformation of its business model in the past few years, which is expected to be crucial for Foxconn's continued growth in the next decade.

Eoin Treacy's view -

Factory automation represents an inexorable trend as companies attempt to contain costs and labour uncertainties. As the evolution of robotics proceeds, companies are becoming increasingly knowledgeable about what can and cannot be outsourced to automation. However robots have an important advantage relative to a human labour force. As pieces of technology, they are subject to Moore’s law and humanity is not. Therefore we can anticipate that as robotics continues to develop and innovation accelerates, robots will both displace humans and also develop products human hands are incapable of. 



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July 03 2014

Commentary by Eoin Treacy

Vascular network bio-printing brings 3D-printed organs one step closer

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

According to the University of Sydney study, the technique demonstrated better cell survival, differentiation and proliferation compared to cells that received no nutrient supply. In addition, Bertassoni says that it provides the ability to create large, life-supporting three-dimensional, micro-vascular channels quickly and with the precision required for application to different individuals.

"While recreating little parts of tissues in the lab is something that we have already been able to do, the possibility of printing three-dimensional tissues with functional blood capillaries in the blink of an eye is a game changer," he says.

Bertassoni explains that the ultimate aim of the research is for patients to be able to walk into a hospital and have a full organ printed with all the cells, proteins and blood vessels in the right place.

"We are still far away from that, but our research is addressing exactly that," he says. "Our finding is an important new step towards achieving these goals. At the moment, we are pretty much printing 'prototypes' that, as we improve, will eventually be used to change the way we treat patients worldwide."

Eoin Treacy's view -

3-D printing of living tissue that is fit to be transplanted into a human host would represent a game changer for the healthcare sector not least because it represents a technology that would become progressively cheaper overtime. It would also represent a bridge before genetics has developed to such a stage that our internal chemistry can be manipulated without the need for surgery except in emergency cases.



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July 02 2014

Commentary by Eoin Treacy

3D Systems Surges With Rivals After Canceling at Conference

This article by Sarah Rabil and Caitlin McCabe for Bloomberg may be of interest to subscribers. Here is a section

The cancellation may be stoking takeover speculation, said Angelo Zino, an equity analyst from S&P Capital IQ in New York.

“We’re definitely viewing them as more of a potential takeover than we have in a long time,” Zino said in a phone interview.

Makers of 3-D printers, which layer materials to create objects, have been frequently speculated as takeover targets since Stratasys Ltd. bought startup MakerBot Industries LLC for about $400 million last year. The printers are gaining in popularity as they become more affordable, and the market is expanding after generating as much as $2.9 billion in revenue worldwide last year.

And 

Wamsi Mohan, an analyst with Bank of America Corp., said 3D System’s rally over the last two weeks has been driven by high short interest “compounded by extremely limited borrow resulting in very high borrowing costs driving a de-risking rally.” Mohan still recommends selling the shares.

The stock has risen 30 percent since June 12. Almost 19 percent of 3D Systems’ shares outstanding were sold short as of June 30, according to data compiled by Markit Securities Ltd.

3D Systems is still likely to pursue more takeovers this year, Mohan wrote in a research note today.

 

Eoin Treacy's view -

The 3-D printing sector has experienced a great deal of consolidation in the last few years as the major participants embarked on an aggressive acquisition campaign. Following powerful accelerations the respective shares pulled back sharply as the challenge of absorbing technologies and alien company structures took its toll on productivity. Despite the fact that they have lost consistency, the fact remains that additive manufacturing and rapid prototyping represent a growth industry which is likely to play an increasingly important role in the industrial sector. 



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July 01 2014

Commentary by Eoin Treacy

Technology Catch-Up plays

Eoin Treacy's view -

The Nasdaq-100 is within striking distance of a new all-time high following a market leading performance from the 2009 lows. As the psychological 4000 level is approached I thought it might be instructive to look at some of the more established technology companies with reasonably robust dividend policies that may play catch-up. 



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June 16 2014

Commentary by Eoin Treacy

Email of the day on European solar ETFs

Hello, I was wondering if you could analyse the solar power sector, in Europe there are no funds or ETFs to invest in this sector. In the US I found the Guggenheim Solar ETF. I notice that this ETF is very correlated with the heaviest weighted stock, First solar, so I will probably buy this as being in Europe we are fiscally punished if we buy us ETFs which are not compliant with UCITS regulations. Anyway First Solar seems to have a very interesting chart could you please comment thanks

Eoin Treacy's view -

Thank you for this question and following a search on Bloomberg I did not find a dedicated solar fund listed in Europe. I’ve reviewed solar companies on a number of occasions over the last year not least because they were rallying from deeply depressed levels and because the technological advances seen in the sector hold out the potential for a truly game changing innovation in the energy sector globally. Here is a link to the Tag for solar comments. 



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June 11 2014

Commentary by Eoin Treacy

The coming digital anarchy

Thanks to a subscriber for this interesting article by Matthew Sparkes for The Daily Telegraph. Here is a section: 

The clever part is how the network reaches a consensus on what should be written in it. Otherwise there could be thousands of different blockchains, all disagreeing over who owns what.

The idea is that each and every transaction is broadcast by the person initiating it. Rather than telling the bank we want to spend £3, we tell the world. That transaction is bundled up with thousands of others and cryptographically bound into a “block” by “miners”.

Technically, anyone with a computer can be a miner – they just need to install a small piece of software. But it’s not easy to do: far from it.

Bitcoin “miners” are so called because gold miners traditionally have to put in a lot of work before they see any reward in the shape of precious metal. In the world of Bitcoin, miners have to crack an extremely difficult cryptographic problem before they are rewarded with some newly minted Bitcoins. That “block” is then added to the end of the blockchain and shared around the world.

To quote the wiki dictionary maintained by “the Bitcoin community” – perhaps the nearest you can get to an official explanation – “mining is intentionally designed to be resource-intensive and difficult so that the number of blocks found each day by miners remains steady … The primary purpose of mining is to allow Bitcoin nodes to reach a secure, tamper-resistant consensus.”

In other words, the blockchain remains both public and infallible. It’s a totally reliable and trustworthy record of who owns what, but also who owned what back through time, all the way to the creation of Bitcoin.

Eoin Treacy's view -

To describe bitcoin as a currency is to miss the point somewhat with regard to what the development of cryptocurrencies means. The blockchain is a facilitator of transactions whether financial, services oriented or communications. In essence it is a ledger anyone can access where anything can be recorded and archived.



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May 30 2014

Commentary by Eoin Treacy

Blackstone Unit Foreshadows Google Path to Power Company

This article by Ehren Goossens, Mark Chediak and Jim Polson for Bloomberg may be of interest to subscribers. Here is a section: 

Meanwhile, Comcast, the cable giant, is in a pilot project with NRG in Pennsylvania that adds electricity to its cable, phone and Internet packages. AT&T last year entered the home automation and security business in 15 markets; while not yet planning power sales, it has introduced a smart thermostat that puts it solidly in the home energy-management business. It could do what Comcast and Vivint are doing.

Google’s $3.2 billion acquisition of smart-home startup Nest in February “ought to give utility officials a sinking feeling in the pit of their stomachs” since it makes clear the Technarians have begun to seriously eye at least the periphery of utility business if not its core, said Adrian Tuck, CEO of Tendril Networks Inc. a Boulder, Colorado-based energy-services management company.

Google Energy
While coy about its ultimate energy ambitions, Google is already a power generator through more than $1.4 billion in clean energy investments and holds a wholesale power license.

Last month it contributed $100 million to a program to promote rooftop solar power with SunPower Corp.

Nest, maker of the Learning Thermostat that memorizes and adjusts to users’ preferences, gives Google a leap-ahead presence in the burgeoning smart-home market at the precise time that power in the U.S. has begun to flow both ways with the rise of rooftop solar and other forms of decentralized, home-grown energy, collectively called distributed generation.

Though Tuck said he has no special insight into Google’s thinking, he believes that its Nest acquisition may well be a “Trojan horse” that gives Google a back door into the utility industry with the ability to leverage its smart thermostats into massive quantities of salable demand response even as it begins to compete directly with utilities with its own green-power projects.

Google spokesman Tim Drinan declined to comment on Tuck’s speculation.
Tuck’s company Tendril is also doing a brisk business in advising regional cable, home-security and home-automation companies how to exploit this opening. He said the utilities he talks to feel constrained by tradition, phobia or regulatory uncertainties from wading in -- a mistake he likens to Eastman Kodak Co. being slow to join the digital camera revolution.

 

Eoin Treacy's view -

As a society we need cheap abundant energy if we are to generate the type of productivity growth that can fuel a secular bull market. We don’t have it yet but the advent of unconventional oil and gas coupled with technological innovation across a whole host of sectors increases the likelihood that energy price inflation will be much less of a factor in the next decades than it was in the last one. 



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May 20 2014

Commentary by Eoin Treacy

Patient receives 3D printed titanium hip

Thanks to a subscriber for this article from theengineer.co.uk which may be of interest. Here is a section: 

‘The benefits to the patient through this pioneering procedure are numerous,’ said Douglas Dunlop, consultant orthopaedic surgeon who conducted the operation at Southampton General Hospital. The titanium used to make the hip is more durable and has been printed to match the patient’s exact measurements – this should improve fit and could recue the risk of having to have another surgery. The bone graft material that has been used has excellent biocompatibility and strength and will fill the defect behind the bone well, fusing it all together.’

Over the past decade Dunlop and Prof Richard Oreffo, at Southampton University, have developed a translational research programme to drive bone formation using patient skeletal stem cells in orthopaedics.

The graft used in the operation is made up of a bone scaffold that allows blood to flow through it. Stem cells from the bone marrow will attach to the material and grow new bone, which will support the 3D printed hip implant.

In a statement, Prof Oreffo said: ‘The 3D printing of the implant in titanium, from CT scans of the patient and stem cell graft is cutting edge and offers the possibility of improved outcomes for patients.

Eoin Treacy's view -

The cost of customised manufacturing continues to decline as 3-D printing evolves from the lab to the mainstream. This has particularly exciting applications in the healthcare sector. Right now artificial joints can be printed to ensure a perfect fit. The first human bladder was 3-D printed last year. A working 3-D printed kidney has been embedded in a rat. It might take some time to gain approval for human testing but these developments suggest the long waiting lists for donor organs may become a thing of the past. The future holds even greater potential. For example think of the potential when customised DNA sequences can be 3-D printed. 



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May 20 2014

Commentary by Eoin Treacy

Can crowdfunding give us safe fusion power by 2020?

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

According to LPP Fusion chief scientist Eric Lerner, the vast majority of the financial resources have been allocated to ITER's approach to fusion power, while other avenues, such as the one being pursued by his team, have been largely neglected, despite being much cheaper. Using an approach he calls "focus fusion," Lerner says his team can obtain a crucial electrode for $200,000, demonstrate net power gain with $1 million, and solve the final engineering problems, leading to a functioning fusion reactor with just $50 million in funding.

Eoin Treacy's view -

Fusion has been described as the holy grail of the energy sector for decades and always seems to be about thirty years away. Part of the reason for this is because the government sector which originally funded nuclear research was more interested in weapons development than cheap, clean energy. The ITER project has been plagued by lack of funding, political struggles and a need to make one bet on a developing technology which has not yet been proven.

This project has clear parallels with Craig Venter’s success in sequencing the human genome. His company achieved the feat faster and more cost effectively than the government funded Human Genome Project. It remains to be seen whether the above privately funded initiative will be fruitful, but it seldom pays to bet against humanity’s capacity for innovation.



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May 16 2014

Commentary by Eoin Treacy

Graphene and carbon nanotubes combined to create flexible, wearable supercapacitor

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

"The fiber supercapacitor continues to work without performance loss, even after ending hundreds of times," said researcher Dingshan Yu. So, when this supercapacitor material does become commercially viable, its ability to be bent continuously out of shape while maintaining its charge and structural integrity could lead to it being woven into clothing, backpacks, shoes, and other items to produce a wearable power system.

In turn, these could then power devices such as medical monitors, GPS devices or any of the other myriad accoutrements to our technological life that would allow us even more mobile freedom. It could also be woven into textiles for use by the military to power soldiers’ equipment, incorporated into other materials to form the case of a device that is also its power supply, or even double as the cover and the battery for an eReader.

But more than this, the low mass, high volumetric density of a graphene and carbon nanotube supercapacitor is so great that it may well provide a solution to a more pressing problem for electric vehicles: weight. At a mere fraction of the bulk of storage batteries, and capable of being charged and discharged for more than 10,000 cycles (less than 1,000 is the norm for rechargeable batteries), this type of superlight power storage could prove to be the answer to the electrical motor industry's prayers.

 

Eoin Treacy's view -

With rumours that endowment funds are beginning to treat investments in fossil fuel companies in the same manner as tobacco companies, demand for renewable energy technologies is likely to increase. One of the most persistent issues people have with renewable energy is how to ensure they can meet the base load requirements of utilities. 
 

 



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May 07 2014

Commentary by Eoin Treacy

Chinese Giant Alibaba Will Go Public, Listing in U.S.

This article by Vindu Goel, Michael J. De La Merced and Neil Gough for the New York Times may be of interest to subscribers. Here is a section: 

In the filing, Alibaba said it intended to raise $1 billion in an initial public offering — a figure used to calculate its registration fee. But the company is expected ultimately to raise $15 billion to $20 billion, which would make it the biggest American I.P.O. since Facebook’s $16 billion offering in May 2012.

When it makes its debut on the New York Stock Exchange or the Nasdaq market, Alibaba is also expected to have a share price that could value the company at roughly $200 billion — more than the market value of Facebook, Amazon.com or eBay, although still trailing that of Google or Apple.

The immense size of the offering means that Alibaba shares will probably find a home in a broad swath of mutual funds and pension funds — and thus indirectly in the portfolios of small investors around the world.

Wall Street has been eagerly awaiting the Alibaba I.P.O., seeing it as perhaps the best chance yet to buy into China’s growth. Online shopping there is expected to grow at an annual rate of 27 percent, according to the iResearch Consulting Group, and Alibaba is the leader in that area.

 

Eoin Treacy's view -

While Alibaba is best known as a facilitator for wholesalers, factories and as an online retail mall, the company’s foray into deposit taking is less remarked upon. 

Alibaba is currently enjoying a legal loophole which allows its Alipay arm to take deposits and pay a highly competitive yield in excess of 6%. Due to regulations on deposit rates traditional banks have so far been unable to compete. Liberalising the deposit rate is a key policy objective announced at the recent Party Congress but it may be two years before it is enacted. 

 



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May 02 2014

Commentary by Eoin Treacy

Email of the day on Energy, Bank Capital & Cars

Have you noticed US oil producers are having trouble capitalising on these higher global Oil prices.  We both agree the world needs a cheap energy.  I think it is unlikely that cheap energy source will be conventional or unconventional Oil and Gas.  My concern is that cheap energy solution may take another 10 years to materialise.

I still think European banking looks like Zombie banking.  We know European banks have capital deficiencies.  I think these banks are holding back a broad recovery in the European economy.  My sources continue to tell me European banks are still trying to shrink balance sheets.  I believe the ECB needs to be more proactive in solving this problem.  I see ECB is talking of QE - I am not sure this idea is the solution more likely the problem.   However the bank capital dilemma needs to be addressed quickly otherwise Europe faces a possible Japanese situation of low growth for decades.

Like you I am a strong believer in the big European global business brands and product solutions.  However the availability of credit is stifling growth in Europe's smaller companies and businesses.   From what I observe VW increasingly looks like it is going to dominate the global car industry.  Unless Toyota can catch up in this technology race they will lose their cherished Crown of the dominate global car producer.  As for old world car companies Ford , GM etc. sadly they look like a great short to me.  Every time I hire rental car in the US I come away with the thought how do US car companies do it so badly and remain in business.  I don't expect US cars to handle like my Porsche but US cars are just plain scary to drive.

Please keep up the good service.

Eoin Treacy's view -

Thank you for sharing your perspective on a range of topics. The revolution in unconventional supply of oil and gas can be viewed in terms of a supply response to high prices. At the beginning of the last decade $40 was considered the highest price possible for oil with the result that a great deal of additional supply was simply uneconomic.

Canadian bitumen becomes economic in the region of $40. Generally speaking more established offshore oil fields, such as the North Sea, have a breakeven in the region of $20-$25 while newer offshore such as Brazil’s pre salt ultra-deep water fields comes in closer to $45. A number of the unconventional plays have breakevens closer to the $50-60 area. As a result, we can conclude that price is the determining factor in which sources of potential supply are ultimately moved into production. 



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March 28 2014

Commentary by Eoin Treacy

Insights in 140 words

Thanks to a subscriber for this interesting note from Deutsche Bank by a former editor of the Financial Times’ Lex column. Here is a section on biotech:

Biotechnology - The Nasdaq biotech index has quadrupled in five years but is down 14 per cent in less than five weeks. Is a bubble popping? There are reasons to worry but beware the chatter about excessive valuations. Who cares if the 800 biotech deals this millennium were priced, for example, at 30 times net income on average? Such ratios are meaningless given early development-stage companies accounted for 350 of these acquisitions. Biotech is mostly a probability game before a commercial one. Investors are better off pondering, therefore, whether the decline in FDA approvals of new molecular entities from 39 in 2012 to 27 last year is significant. Or whether even if approvals accelerate will the crowding into, say, oncology research result in a deluge of similar new drugs that dulls returns? Biotech’s fate cannot be analysed in spreadsheets just yet.

Eoin Treacy's view -

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

There is a never a better time to seek funding for a capital intensive project than when interest rates are low and liquidity abundant. Biotech shares broke out of long-term bases late in 2010 and have since soared as an increasing number of projects reach commercial viability. 

This has fostered the acceptance of optimistic growth forecasts and improved perceptions of future potential. Considering just how quickly the pace of technological innovation is occurring, it is reasonable to be enthusiastic about the potential for future medical enhancements. However the price charts act as a reality check.

 

 



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March 21 2014

Commentary by Eoin Treacy

Obama administration looks to chop back market exclusivity for biologics

This article from Fierce Biotech dated March 6th may be of interest to subscribers. Here is a section: 

But the Obama administration never favored that portion of the law, which was backed by a bipartisan coalition of lawmakers in Congress. And once again the administration is proposing to greatly scale down the exclusivity period, chopping the protection period from 12 years to 7 years.

The administration tackles the provision on page 64 of its summary version of the fiscal 2015 budget, noting that it will once again try to scale back exclusivity while preventing any extensions based on formulation changes. And if they succeed, the administration is claiming that they can carve $4 billion out of the Medicare budget over 10 years.

 

Eoin Treacy's view -

Gilead Sciences was today asked to explain its $84,000 price tag for Hepatitis-C medication which might be construed as an escalation of the government’s efforts to reduce the costs in its medical programs. Biotech has been among the better performing segments of the health sector over the last three years not least as grounding breaking research has reached commercial viability. 

 

 



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March 11 2014

Commentary by Eoin Treacy

Some thoughts on the S&P

Eoin Treacy's view -

The lacklustre year-to-date performance of stock markets is in line with our view that 2014 is going to be a more difficult year for investors than 2013. At the time of writing, the S&P 500 was up 1.05%, while the majority of European and Asian indices are in negative territory. Therefore while the USA is still a relative outperformer, the absolute performance is far from impressive. Volatility on the other hand has increased with some large swings in the last two months.



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February 21 2014

Commentary by Eoin Treacy

Facebook WhatApp Deal Preceded by Rakuten Viber Buy

This article by Patrick Frater for Variety may be of interest to subscribers. Here is a section

Investors were more cautious. They marked Rakuten’s shares down by 14% to JPY 1,499 on Monday, the first trading session after the announcement, and the shares continued to sink to JPY1,462 in Thursday trading after the Facebook announcement. At that price Rakuten has a market capitalization of some $18.9 billion (JPY1.93 trillion), compared with Facebook’s $173 billion.

Rakuten will pay cash for the deal, largely financed by its own reserves and bank borrowings. The deal is expected to close in March. The company also announced 2013 profits of $208 million (JPY21.1 billion).

Rakuten aims to integrate Viber with the other online services in its ‘Rakuten ecosystem’ which currently includes 200 million users, especially to expand the linkage between messaging and transactions. A Rakuten motto is “shopping is fun.”

In doing so it will step up the rivalry with other messaging services such as Naver, WeChat and WhatsApp, and give it a social media edge currently to compete with other e-commerce giants such as Amazon, China’s Alibaba and Korea’s CJ. (eBay previously owned VoiP service Skype, but sold it to Microsoft in 2011.) Other firms are trying to turn social media and messaging into gaming, and gaming platforms into transactional marketplaces.

 

Eoin Treacy's view -

Facebook’s purchase of WhatsApp caught my attention because while I know of the app I don’t use it. I much prefer Viber for communicating with family not least when overseas. The relatively unremarked sale of Viber last week to Rakuten is noteworthy not least because the price was $900 million compared to the $19 billion paid for WhatsApp. 
 



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January 24 2014

Commentary by Eoin Treacy

Six ratios say this market is very overbought

Thanks to a subscriber for this timely article by Mark Hulbert for MarketWatch, highlighting a number of points we have discussed over the last months relating to valuations. Here is a section: 

2. Cyclically adjusted P/E ratio. This is the version of the P/E championed by Yale University Professor Robert Shiller, the recent Nobel laureate in economics. It is calculated by dividing a company’s stock price by the average of its inflation-adjusted earnings of the preceding decade. For the S&P 500, this ratio currently stands at 25.6, which is higher than what prevailed at 29 of the 35 tops since 1900.

3. Dividend yield. This is the percentage of a company’s stock price that is represented by its total annual dividends. Since this yield tends to fall as prices rise, and vice versa, the market should register some of its lowest readings near its tops. The S&P 500’s yield currently stands at 2.0%, which is lower than the comparable yields that prevailed at all but five of the bull-market tops since 1900.

4. Price/sales ratio. This is calculated by dividing a company’s stock price by its per-share sales. Though it is lesser known, it still is championed by many investors because it is based on data that are less susceptible to manipulation than earnings. For the S&P 500, the price/sales ratio currently stands at 1.6, which is higher than the comparable readings that prevailed at all but two of the bull market tops since 1955, which is how far back data are available.

5. Price/book ratio. This is another lesser-known valuation indicator, calculated by dividing a company’s stock price by its per-share book value¡ªan accounting measure of net worth. For the S&P 500, this ratio currently stands at 2.7, which is higher than all but five of the 28 bull-market tops since the mid-1920s, which is how far back data are available.

6. Q-ratio. This indicator is based on research conducted by the late James Tobin, the 1981 Nobel laureate in economics. It is similar to the price/book ratio, except that book value is substituted by the replacement cost of assets.

Eoin Treacy's view -

We have described the cyclical  bull market as liquid fuelled since at least 2009. This was in recognition of the fact that central banks were making unprecedented quantities of liquidity available and this was having the desired effect of inflating asset prices, not least stock markets.

Corporations took advantage of this situation to optimise their weighted average cost of capital and issued new debt to redeem older issues, buy back shares and increase dividends; all of which act as a tailwind for the stock market. As perceptions of economic recovery potential evolve and central banks change course to normalise policy we can logically expect some adjustment in investor behaviour.

Let’s looks at some other indicators of investor appetite for risk assets.



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January 20 2014

Commentary by Eoin Treacy

Email of the day on the global macro outlook

Liked your weekly commentary today especially the summary on Gold.  I have made money on gold and I don't wish to chase that market again.  

Now you keep talking regulary about innovation and technology.   As you are probably aware you are in conflict with the Harvard University Economic academic's view of technology and innovation.  They hold we are well past the big innovation gains from technology especially IT technology.  In fact these bunch of academics seem to beleive these innovation benefits ended at the turn of the last century i.e. 2000.  There message appears to be that the last decade has simply delivered fancy hardware / software toys that have offered business no productivity tools.   Mums and dads may like these toys but for business they are just staff time wasters.

I do beleive medical science has much to offer mankind in the future.  However that picture is a bit cloudy also.   Utilizing any new innovations seems to be determined by price.   My son Keith (has a PhD in genetics worked for Merrill Lynch) now works for a medical services company running the cancer treatment businesses.  He is some what cautious on medical innovation.  He sees government unwilling to embrace new technology unless their is a demonstrated cost saving to the government.  As he points out this is not always easy to demonstrate.

We all know US medical Insurance companies are also capping not premiums but the medical services they will offer to their insured patients.   We also here in Australia see lots of pressure from government to cap the more expensive medical procedures.  This must ultimately slow innovation in medical science.   The largest shareholder in the company Keith works for is no other than KKR who own a bit over 50% of the business.

Fridays profit warning from Royal Dutch Shell seems to suggest at least some of the dumb money must now be looking closely at getting out of the "Fracking" business.  Let's see if the other big dumb money provider in BHP also throws in the towel on what I see as a very stupid business.  I am not environmentalist this is just about a reasonable return on capital.

I listened to a Economist speaking on oil on Bloomberg the other night. He had a cautious view on Oil prices saying its always priced at the marginal producers cost structure I.e the fractures cost as we all know.  The dumb money frackers must be getting increasingly sick of this profit-less business.  I know Iraq, Iran, Saudi Arabia etc, etc are not going ignore 1,000 years of hating and killing one another.  The Libyan oil fields now producing 200,000 to 300,000 barrels a day are not going to revert overnight to again produce 1.8 million barrels a day.  Try talking to an oil geologists how hard it is to get an oil well flowing again.  This is an extremelly challenging task.  Lastly the US embraces Iran nuclear industry and all is forgiven about the Bush Evil Empire statement.  Somehow I don't think it's that easy.   The oil business is challenging. 

You are right the RBA is on the sell side of the AUD.  As to the future level of the AUD local economists are very worried.  They fear when we shortly become a very large energy exporter the AUD will come under pressure to rise.  This will make most other local export industries uneconomic.  There was a comment on Bloomberg the other night from a US oil company that said the oil business is now too expensive and costly.   That LNG is the go and forget the US, go straight to Australia where it is cheaper and easier.  True I am not making this up.

Perhaps we can talk more about these big picture matters at the Sydney conference.

Eoin Treacy's view -

Thank you for this thought provoking email which touches on a number of the issues I anticipate discussing with delegates at the upcoming Chart Seminar and Global Strategy session in Sydney. With only two weeks left before these events please contact Sarah Barnes sarah@ftmoney.com to secure you place.

From what I have read of the Harvard Economics team’s research, they tend to focus on the significant challenge of increasing processor speed as “gates” approach the width of a silicon atom. An acceptance of this limit helps to explain the urgency with which companies are investigating the potential of carbon nanotubes, graphene and other substances for the production of future generations of microchips.

 



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January 17 2014

Commentary by Eoin Treacy

Saxo Banks Fat Tail Predictions for 2014

Thanks to a subscriber for this interesting compilation of contrarian opinions which may be of interest to subscribers. Here is a section on a number of high flying technology companies:

The US information technology sector is trading about 15 percent below the current S&P 500 valuation, which is in sharp contrast to the historical premium of approximately 160 percent during the dotcom bubble. We like technology stocks in general as they are the main driver of the necessary productivity growth the economy needs to create long-term increases in wealth per capita.

However, a small group of technology stocks trade at a huge premium of about 700 percent above market valuation, almost defying the “Newtonian laws” of financial markets. These stocks are what we call the “Fat Five” of the technology sector” Amazon, Netflix, Twitter, Pandora Media and Yelp. These stocks have very inflated valuations based on a skewed valuation premium on growth that has evolved in the aftermath of the financial crisis. Investors have trouble finding good growth scenarios, so when some suddenly drop by the neighbourhood, they get bid up to levels that present very poor risk/reward ratios. It is like a new bubble within an old bubble.

Facebook’s USD 3 billion cash offer for Snapchat, declined by its 23-year-old founder, is the ultimate display of hubris that shows how exuberance has grown to new levels in this part of the technology sector. Snapchat has zero revenue and does not have a business model, so the acquisition value is not determined by incremental cash flow to Facebook, but from the potential destruction value to Facebook based on assumptions about wider adoption of Snapchat.

This creative destruction is exactly the “dark matter” that should make investors cautious about the huge valuation premium that is currently being put on this small group within the information technology sector. To trade this, we would create a synthetic equal-weighted index of the Fat Five, starting at 100 on the last trading day of 2013. Our Outrageous Prediction is that this index will go to 50 during 2014.

Eoin Treacy's view -

The full report quoted above is posted in the Subscriber's Area. 

Earnings matter. Many forgot that during the Nasdaq bubble and some appear to have forgotten that simple fact again when looking for growth opportunities in the social media space. 

 



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January 09 2014

Commentary by Eoin Treacy

Email of the day on technological innovation

Saw your clip about 3D scanners. Thanks for this. The data issue is one that I have not thought of.

Then I got this link about "deep learning" which may be of further interest to you.

Best wishes

 

Eoin Treacy's view -

Thank you for your well wishes and this interesting article. While one might be bemused at how many videos of cats there are on the internet, there is no denying the digital age has ushered in an acceleration in the pace of innovation. The fact that discoveries can then be communicated to a wide audience virtually instantly further boosts the pace of data creation. Here is a section from the article you mentioned:

When Google adopted deep-learning-based speech recognition in its Android smartphone operating system, it achieved a 25% reduction in word errors. ¡°That's the kind of drop you expect to take ten years to achieve,¡± says Hinton "a reflection of just how difficult it has been to make progress in this area. "That's like ten breakthroughs all together."

Meanwhile, Ng had convinced Google to let him use its data and computers on what became Google Brain. The project's ability to spot cats was a compelling (but not, on its own, commercially viable) demonstration of unsupervised learning a the most difficult learning task, because the input comes without any explanatory information such as names, titles or categories. But Ng soon became troubled that few researchers outside Google had the tools to work on deep learning. "After many of my talks,¡± he says, "depressed graduate students would come up to me and say: 'I don't have 1,000 computers lying around, can I even research this?"

So back at Stanford, Ng started developing bigger, cheaper deep-learning networks using graphics processing units (GPUs) the super-fast chips developed for home-computer gaming. Others were doing the same. ¡°For about US$100,000 in hardware, we can build an 11-billion-connection network, with 64 GPUs,¡± says Ng. 

 



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January 08 2014

Commentary by Eoin Treacy

3D Systems targets families with sub-$1,000 3D printer

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

The company is emphasizing the Cube 3's appeal as a 3D printer for the family home, its website stating the device is recommended for children over eight years of age. This is complimented by the companion smartphone app (iOS, Android and Windows compatible), which lets users browse through other people's designs or connect to the Cubify online platform that features dozens of pre-designed objects, such as bottle-openers, dinosaur fossils and NBA figurines, and then print them remotely via the printer's built-in Wi-Fi 802.11b/g.

3D Systems also announced its high-end 3D printing solution, the Cube Pro. Geared toward the more professional end of the market, the device is capable of printing objects a considerable 10.75 x 10.75 x 9.5 in (27.3 x 27.3 x 24.1 cm) in size and three colors simultaneously.

Eoin Treacy's view -

This additional article highlighting Stratasys’ newest models may also be of interest. 

Since a 3-D printer is only as good as the 3-D data that it receives, the advances being made in optics and scanning are no less important than the printing technology detailed in the above articles. This article focusing on 3-D Systems’ scanner plug-in for the iPad caught my attention.

When I first began looking at 3-D printers a few years ago, they cost in the region of $25000. Since then the products on offer have improved significantly, become considerably more user friendly and the prices have collapsed so that printers are on the cusp of entering the consumer market. The revolution in 3-D scanners has led this advance with the X-Box gaming system giving widespread access to a swathe of new developers which has helped push the boundaries of innovation.

While 3-D printing is an exciting sector on its own, the confluence of advances in materials science, nanotechnology, biotechnology and genetics is where the capacity of innovation fuelling innovation takes on a truly exponential growth curve. At present 3-D printing is concerned mostly with additive manufacturing of industrial products and customised consumer goods such as jewellery. However, it is conceivable that as the technology advances, we are entering a phase where customised genetic sequences will be printed which opens up potential in limb replacement, vaccines and weapons.

While it is easy to be apprehensive at the potential of new technology to displace jobs, the future appears to be one where the limits on imagination becoming reality are progressively being broken down, so that human creativity can be unleashed as never before. From an investor’s perspective, this represents massive future productivity growth potential, but our focus must remain rooted in the present, the consistency of trends and the influence of monetary policy. These factors are worth remembering as we access the overextended but still intact uptrends of 3-D printing shares.  



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January 02 2014

Commentary by Eoin Treacy

Email of the day on robotics, Crowd Money and The Chart Seminar

As Robotics is a theme mentioned with some frequency on FT Money I wanted to enquire whether you are aware of a relatively new Robotics ETF, with the Nasdaq ticker ROBO, and which was listed on 22 October 2013. I would appreciate if ROBO can be added to the chart library, as I believe it is the first purely robotics ETF of its kind and mirrors the performance of the world's top robotics companies, from the US, Japan, Taiwan, Korea and Europe. Following is the link to the Robo-Stox website, listing the fund's holdings, its prospectus and an updated report, as well as other useful insight into the global robotics industry. http://www.robostoxetfs.com/fund-holdings.aspx  

The October report was of particular interest as it provides details of holdings by company by country. The link is: http://www.robostoxetfs.com/Data/Sites/16/docs/fp0008959_ETC-RoboStox_Semi-Annual_2013_FINAL_web.pdf  

As this is a theme of personal interest, I would appreciate David or Eoin's insight as to whether this represents a reasonable method to participate in the robotics story without taking on single-company risk, and given Nasdaq's current overextension relative to its 200 day MA, whether ROBO's more international exposure would provide some insulation should the Nasdaq correct and revert to its mean. Thank you for your service.

I have almost finished reading "Crowd Money", and even though I have been a long term FT Money subscriber since the hard-copy days of the 80's, I must admit that I am guilty of regularly committing every single costly mistake Eoin identifies as typifying mass investor psychology. Consequently I feel that the only logical next step for me is to sign up for the Chart Seminar and Global Strategy Session next month in Sydney! I will be in touch with Sarah shortly. Best wishes to you and your family for healthy and successful 2014. Kind regards.

Eoin Treacy's view -

Thank you for this informative email and I'm delighted you enjoyed Crowd Money. With only six weeks to the Sydney Chart Seminar and Global Strategy Session, I'm busy preparing the course material and greatly look forward to discussing themes such as robotics and other future focused topics with delegates. 

While some worry about the role of robotics in contributing to high unemployment figures, there is no denying that they represent a major source of productivity growth and value creation for the companies that use them. While companies that manufacture robots have considerable growth potential, the companies that make the greatest use of these machines are likely to also be some of the greatest beneficiaries of this trend in technological innovation. 

 



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December 11 2013

Commentary by David Fuller

Fracking Boom Pushes U.S. Oil Output to 25-Year High

Here is the opening of this informative article from Bloomberg:

U.S. crude production rose to the highest level in a quarter-century as a shale drilling boom in states such as Texas and North Dakota cut the need for foreign oil and pushed the country closer to energy independence.

The U.S. pumped 8.075 million barrels a day in the week ended Dec. 6, a gain of 0.8 percent, or 64,000 barrels a day, the Energy Information Administration said today. It’s the most since October 1988.

“You can’t swing a cat without hitting a barrel of oil in North America,” saidStephen Schork, president of the Schork Group Inc., an energy consulting firm in Villanova, Pennsylvania. “It’s amazing how quickly things can change.”

U.S. oil output grew 18 percent in the past 12 months, the fastest pace on record, boosting fuel exports and reducing reliance on imports, according to the EIA. The boom will make the country the world’s largest producer by 2015, five years sooner than last year’s forecast, the International Energy Agency in Paris said last month.

 

David Fuller's view -

Remember growing up with all those stories about how we were going to run out of oil, to the point of being impoverished and sitting in the dark?  They persisted right into the 21st Century.  People are still inventing reasons to avoid tapping their natural resources, and paying much higher prices for their energy.  Who benefits from that?

 Technology is everything.  It improves our livelihoods, as most of us know.  We have only begun to see how it can reduce pollution, because that challenge was not sufficiently prioritised previously.     



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December 03 2013

Commentary by David Fuller

Shell to GE Lured by Gas-Fueled Ships on Record Supply

Here is the opening and a latter section of this informative article from Bloomberg:

Royal Dutch Shell Plc (RDSA), General Electric Co. (GE) and a company co-founded by T. Boone Pickens are planning investments in natural-gas-powered shipping as record U.S. output spurs the merchant fleet to use a new fuel. 

Clean Energy Fuels Corp., which Pickens helped start, will begin construction next year on the country¡¯s first fuel station for cargo ships running on liquefied natural gas in Jacksonville, Florida. Shell said in March it¡¯s planning LNG plants for the Great Lakes and Gulf Coast. GE, evaluating five locations, says the U.S. will need 50 to 100 small-scale plants for ships, trains, mining and trucks by 2025, each costing $50 million to $150 million.

And:

Ship owners started switching to lower-sulfur diesel from bunker in northwest Europe and North America because of national and international anti-pollution rules phased in since 2005. LNG cuts sulfur emissions by 90 percent to 95 percent and also releases less carbon dioxide and nitrogen oxide, according to DNV GL. Alternatives include burning low-sulfur diesel or installing equipment called scrubbers that clean exhaust.

Rising demand could drive fuel costs higher. While U.S. natural gas futures plunged 74 percent to $3.960 per million British thermal units from the record reached in 2005, prices will average $4 in 2015 and $4.25 in the longer term, Morgan Stanley estimates.

LNG ship fuel would cost about $800 a ton in the U.S., $1,000 a ton in Europe and $1,200 in Asia, according to estimates by New York-based shipbroker Poten & Partners Inc. That compares with global prices of $1,300 for an equivalent amount of diesel and $950 for fuel oil with scrubbers.

David Fuller's view -

Natural gas is certainly well on its way to becoming the world¡¯s most important fuel, because of its availability, price, and considerably lower contribution to pollution.  



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November 27 2013

Commentary by David Fuller

Email of the day

On Material Sciences and Graphene:

"Isn't Graphene an amazing sounding material - it may make that BMW plant using carbon fibre obsolete just a bit sooner than one might expect.

"I attended a Material Sciences conference on at the Royal Society some years ago and one speaker was going through the 'ages of man' - 'Stone Age' 'Iron Age' Bronze Age' etc -in his view the early part of 21st Century was going to be the 'Ceramics Age' (ceramic engines, jet engine turbines blades, valves pumps, silicon chips, replacement hips etc.all replacing metals ) and then this would be followed by the 'Polymer Age'- incredible thin ,flexible,hard wearing mouldable materials that would (almost) totally replace wood, plastics, metals - and even the 'new ceramics'.

"Beyond that - who knows! As you say in your commentaries, the pace of technological change is speeding up exponentially but also, the speed at which work in the lab moves into the workplace, is getting even quicker.

"Keep up the good work and best wishes to you all."

David Fuller's view -

Thanks for an informative email of general interest. Graphene is amazing and I am fascinated by how it may be used or is already in use. Mrs Fuller has been telling me to invest in it for years, and I agree but the best way to do this is not obvious, at least not yet to me.

I do not think that buying the first commercial producers of a miraculous product such as graphene is the best way to profit from it, at least not over the longer term given all the competition that will develop. Instead, I would prefer to own the companies which benefit most from their uses of new technologies such as graphene.



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November 22 2013

Commentary by David Fuller

Email of the day (4)

On automation:

"It was very good talking with you at the Caledonian Club last week - I was the source of the ceramics factory story. In response to the comment about the factory being profitable - well yes it is but what was noticeable was there were virtually no factory floor workers under the age of 50 and of the 350 work force the company had more people working in back office admin and only 150 approx. in the production area. As I said, robots don't pay taxes and governments find it more difficult collecting corporation tax etc. in comparison to collecting PAYE and National Insurance contributions.

"On more positive personal note - as an example of Peter Lynch's investment advice re. using "scuttlebutt", I investigated some of the technologies that were so impressive in the factory and subsequently made an investment in a company called Xaar, which is the market leader in new industrial inkjet technologies - and so far, it's proving successful. So, one lives and learns in this investment business. A good example of investing in something that one can understand and can see future growth coming, sadly at the expense of others.

"Thanks very much for publishing your Powerpoint presentation from your talk - really very useful, as was your Friday night commentary.

"Congratulations to both you and Eoin for maintaining such a consistent, insightful commentary week after week.

"As a pointer to an impending 'market top' - I use various stock screens (on Stockopedia) and recently several of the classic 'value' based screens are producing zero results - only a year ago,they would have produced lists of candidates -it's only in the 'micro cap' area that one gets results."

David Fuller's view -

Many thanks for your kind words and informative email. I would be interested to hear in a year or two whether the ceramics factory, which I assume will remain successful, has more or fewer employees. Your "scuttlebutt" approach is a sensible addition and I hope you bought Xaar in February.

I was pressed for time today but intend to use charts in some of the future Friday Audios.



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November 22 2013

Commentary by David Fuller

Email of the day (3)

On a solution to the social issue cause by the loss of jobs to automation:

"The solution to the social issue caused by the loss of jobs to automation (at a faster rate than new jobs are created) is so simple and so obvious that it is probably UNachievable. John Lennon would have said it something like this: "Imagine higher wages, and shorter hours too". Capital and enterprise could still be rewarded and we would all earn more, work less and achieve that elusive work/life balance that we keep saying we want. No QE, skyrocketing debt, charity, social security or low rates for an "extended period" required. Ayn Rand and Karl Marx could both rest easy! Problem solved - easy schmeasy! :)"

David Fuller's view -

I enjoyed your tongue-in-cheek email but what you suggest is, of course, a lefty central government plan.

For the success and profitability of a business you might run in a competitive local or multinational environment, would you rather employ more people for higher wages and shorter hours, or replace them with smart machines?



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November 19 2013

Commentary by Eoin Treacy

Tesla Falls Amid California Factory Probe

This article by Alan Ohnsman for Bloomberg may be of interest to subscribers. Here is a section

The shares are performing poorly because there is a perceived lack of near-term catalysts and so the stock is giving up momentum, said Andrea James, an equity analyst at Dougherty & Co. in Minneapolis, who rates Tesla a buy. It's not really tied to any news event.
 

Eoin Treacy's view -

Tesla has succeeded, where many car companies have failed, in producing an electric vehicle that is viewed as desirable and that people are willing to buy. However, that does not make the share immune from the laws of supply and demand.
At Fullermoney we have often said that mean reversion is the closest thing we get to a natural law of physics in the social science of markets. Tesla has fallen from a peak near $200 to test its 200-day MA and it will need to find support in this area if the medium-term bullish hypothesis is to remain credible. Once a support building phase begins, it is likely to be reasonably lengthy because confidence takes time to rebuild.



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November 18 2013

Commentary by Eoin Treacy

Email of the day (3)

on some of the key beneficiaries of the growth in ecommerce

“I saw the article on Amazon, etc. on the site today – we discussed UPS briefly the other day. The investment thesis for UPS is that it rides on the back of e-commerce, and if you look at Amazon's sales growth is pretty impressive. UPS makes good money on each Amazon sale, even if Amazon doesn't.

“Also a number of big hedge funds took positions in Fedex, and to my mind UPS is a better company (better margins on U.S. business). They're very similar and neither is cheap on the surface. “

Eoin Treacy's view -

Thank you for this insightful email which I'm sure will be of interest to subscribers. The growth of ecommerce remains on a secular upward trend supported by competitive pricing, the evolution of the retail shopping experience and of course technological innovation.

In addition to the points you make, the changing relationship between buyer and seller has affected how customers take delivery of goods and services and is reducing the requirement for cash by promoting the use of credit cards. It also has the added effect of often doubling the amount of packaging used to transport goods.



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November 14 2013

Commentary by Eoin Treacy

In Amazon and Walmarts Battle for Dominance, Who Loses Out?

This article from Knowledge@Wharton may be of interest to subscribers. Here is a section

Those who do cross swords with Amazon and founder Jeff Bezos, though, do so at their own peril — including, perhaps, Walmart. “Walmart would be stupid to try to go head-to-head too much with Bezos,” states Hoch. The problem, he notes, is that Amazon is out to increase market share and willing to forego profits to accomplish that. When this might change and what the end game is are not clear, says Hoch, who adds: “They’ve been doing this forever. I met a strategy person there in 1998 and asked her, ‘What is the business plan?’ She said GBF — Get Big Fast. And they are still following that strategy. For a while there it looked like they were going to make a little bit of money. Then they decided not to. It’s kind of weird — Jeff Bezos can just decide whether or not to make money.”

Both Amazon and Walmart are “willing to lose money in certain categories, and it’s got to be difficult for anyone in those categories,” says Wharton marketing professor David Bell, who points out that the two giants have been moving into the same space for some time — including one well-documented skirmish. In his book, The Everything Store: Jeff Bezos and the Age of Amazon, Brad Stone tells the story of how Amazon and Walmart both wooed Quidsi, the start-up behind Diapers.com. Amazon won, though not until Bezos engaged in some rather ruthless tactics. (The book, by the way, lists on Amazon.com for $17.47, a 38% discount off the publisher list price.)

But Nemer cautions against underestimating Walmart, which now has five million items for sale on its website (including Stone’s book on Bezos for $16.80, a 40% discount below cover price). “The competition between Amazon and Walmart is still not really appreciated by a lot of people,” he says. “Most folks think Amazon has a huge lead, and are not aware [that] Walmart plans to continue expanding in this area. If you ask most people how many employees Walmart has in online, they will say a number in the tens or maybe hundreds. It’s in the thousands. They are making great progress — they already have.”

Eoin Treacy's view -

With the advent of 4G telecommunications networks consumers can check the prices for items online in seconds and without going home or finding a desk top. This is likely to have a profound effect on retail establishments unaccustomed to such a high degree of competition with companies that do not need to maintain physical stores in often high rent neighbourhoods. What appears clear is that the retail sector is set for further consolidation, with those capable of dominating the online shopping experience most likely to win out.



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