Bitcoin’s intraday rebound failed to hold and is returned to test the $26,000 area. It remains in need of a bullish catalyst but is holding up well in the face of tightening global liquidity.

The supercomputer, designed to handle massive amounts of data in training driving systems, may put Tesla at “an asymmetric advantage” in a market potentially worth $10 trillion, said Jonas, and could make software and services the biggest value driver for Tesla from here onward. 

The next version of Tesla’s full self-driving system, expected by year-end, and the company’s potential Artificial Intelligence Day in 2024 are worth watching, he added. Tesla has not formally announced an AI Day for next year. 

It looks like Tesla is finally getting some credit for its AI expertise. The company is further along in providing autonomous driving than any other company. Quite whether the final product launch will depend on the individual computing power of the car and its sensors and/or instant connectivity with a supercomputer remains to be seen. 

China also was one of the highlights of Apple’s results last quarter, helping offset a generally sluggish period. The company is preparing to unveil its latest iPhones next week, setting the stage for a holiday quarter that is invariably its biggest sales period of the year. 

I had the great pleasure of spending several days last week with David Brown talking about the drug discovery process, how artificial intelligence can be harnessed to speed it up, and how that all fits into the discussion around the evolution of a 3rd (some say 4th) industrial revolution. I discussed some of my updated thoughts on the subject in the Friday Big Picture audio/video. Here are some more; hopefully in a clearer format.

Before digging into the weeds, there is an important question to answer. Can you have a secular bull market without an industrial revolution? Of course the answer is yes. Industrial revolutions evolve over decades and can last a century. In that time there will be several long-term bull and bear market cycles through various asset classes.

For example, the evolution of China’s economy over the last 30 years was about the adoption of capitalistic economic policies and harnessing the labour of a billion people. That was a political decision to deploy lessons already learned elsewhere rather than new thinking. Secular bull markets in commodities develop because demand leaps higher before supply can adjust.

The upbeat outlook is a vindication for Chief Executive Officer Tufan Erginbilgic, who is in the middle of an extensive turnaround after calling the prime UK manufacturer a “burning platform” shortly after taking over at the start of the year.

The company, which primarily makes engines for widebody jets that connect long-haul destinations, saw demand wiped out at the height of the pandemic when airlines were forced to ground fleets amid travel restrictions and quarantines. 

“Better profit and cash generation reflects greater productivity, efficiency and improved commercial outcomes,” Erginbilgic said in the statement. “Despite a challenging external environment, notably supply chain constraints, we are starting to see the early impact of our transformation in all our divisions.”

The reason we see conflicting signs of both economic strength and weakness in the global economy is mostly likely because of changing consumption patterns. Consumers have curtailed everyday spending but are still willing to splurge on special occasions. That helps to explain why see declining used car prices at the same time as fans of Taylor Swift are splurging on tickets and demand for summer travel is high. That’s a reflection of how consumers deal with the reality of inflation. They make cuts where they can but are willing to spoil themselves to ensure they can have a feeling on an undiminished living standard.

Investors are scrutinizing the first set of results presented by Chief Executive Officer Hein Schumacher for hints of his strategy to revive Unilever’s sluggish performance. The new CEO, weeks into the job, raised the full-year forecast slightly, predicting revenue growth of more than 5% this year. The guidance may be conservative, as analysts are forecasting 6.1%.

The company chose an external CEO to help fix its bureaucratic culture and deal with critiques that it had become too focused with the so-called “social purpose” of the consumer products it sells. 

Schumacher, the former boss of Dutch dairy cooperative Royal FrieslandCampina, is expected to revisit the debate over splitting food brands like Hellmann’s mayonnaise from the faster-growing personal care, beauty, and wellbeing units.

The job of a corporation is to ensure it looks after its shareholders. When we rely on repeat business that tends to mean ensuring you have happy customers who think well of your company and its products.

The challenge in the age of social media is there is a vocal minority who are motivated by the desire to be as contentious as possible. Companies are finally beginning to realise the loudest part of the mob does not reflect the majority of consumers. In their desire to appeal to the mob on social media they hopefully temporarily forgot who their customers are. It unfortunately has taken some high profile boycotts to get the attention of company boards.

2. Why is Meta launching a Twitter alternative?

Meta is clear about wanting to poach Twitter’s users. Meta Chief Product Officer Chris Cox described Threads as “our response to Twitter” at a companywide meeting in June reported by The Verge. “We’ve been hearing from creators and public figures who are interested in having a platform that is sanely run,” he said. That’s a pointed reference to how Musk has been running the company since he purchased it for $44 billion in October 2022. 

When a social media company is as large as Meta Platforms, there are only two ways to grow. The first is how they got so big in the first place. That means capturing a demographic and holding on to them. Facebook users tend to be middle aged; Instagram users are millennials and younger, TikTok has generation Z and Roblox purports to have an even younger generation. Predicting which app today’s children will use most prolifically is a near impossible task but the aforementioned have at least demonstrated staying power.

The best, most innovative, and flexible companies continue to grow and erode the competitive edge of their less significant rivals. Those that cannot compete go into long relative and eventually absolute declines.

When the FANGMAN acronym was first created it did not include Tesla. Then Tesla became so significant it was added in. Now Netflix has failed to keep pace with the appreciation in the fortunes of the largest companies so the group is back to seven constituents. That reordered group now occupies more than half the Nasdaq-100.  

 A lot has to go right for companies to be granted high valuations. It’s not only a story, but there also has to be a fundamental basis too. For Apple, navigating the Chinese market, where they manufacture and sell without falling foul of the government censor is one of the most significant diplomatic success stories in history. For Microsoft, the embrace of subscriptions was a landmark event. Amazon’s foresight in dominating the datacentre market and disintermediating the reseller market were equally impressive. Tesla has mastered the art of regulatory arbitrage. Carbon taxes its competitors buy, help pay for the company’s factories.

Airbus secured the biggest aircraft order in aviation history, notching a 500-plane deal with India’s dominant airline, IndiGo. The mammoth accord for Airbus’s top-selling A320 family of single-aisle jets brings IndiGo’s order backlog to close to 1,000 planes as extends its lead in the world’s fastest-growing large market for aviation.

“No one has ever ordered an order of this magnitude,” IndiGo Chief Executive Officer Pieter Elbers said from the podium. “It speaks to the potential of Indian aviation and the ambitions which Indigo is having.”

An Indian airline placing the world’s largest airplane order is not something most investors would have predicted a decade ago. It is a clear vote of confidence in Indian consumers’ appetite and ability to pay for domestic and international travel. Greater access to travel will also enhance the ease of doing business and help to spread opportunity to more regions of the country. 

Biogen stock bounded higher Wednesday after the Food and Drug Administration posted "relatively benign" documents, suggesting the agency likely plans to approve the company's Alzheimer's treatment.

A panel of advisors to the FDA will meet Friday to discuss the drug, Leqembi, which won accelerated approval in January. Now, the FDA will consider converting that to a traditional approval based on the results of a confirmatory study called Clarity-AD.

"Overall, the briefing documents appear relatively benign, and we think the most likely outcome is a positive vote, followed by full approval," Wedbush analyst Laura Chico said in a note to clients.

On the stock market today, Biogen stock rose 1.7% to close at 304.90. Shares bounced off their 50-day moving average, according to MarketSmith.com.

Biogen and its partner, Eisai, have a long and storied history in Alzheimer's treatment, and analysts were quick to make comparisons to the companies' first approved drug, Aduhelm.

Alzheimer's disease is one of the biggest chronic conditions that does not have a clear clinical treatment plan. As tests for early indications of developing the disease improve the case for early action in prescribing anything that could slow the onset are clear. 

The Treasury market briefly restored the full pricing of Federal Reserve tightening by July, which would be the last interest-rate hike in 2023.

The latest shift in expectations for Fed policy was accompanied by a slide bonds, with the yields on five-year Treasuries up at least 11 basis points. Selling picked up after the Bank of Canada cited stubborn inflation pressures for delivering a quarter-point hike Wednesday. 

The rate on swap contracts linked to the July gathering climbed to a peak of 5.33% on Wednesday, or 25 basis points above the current effective fed funds rate of 5.08%, before easing back late in New York. The June swap showed eight basis points of tightening ahead of next week’s Fed meeting, suggesting that traders are leaning in favor of a tightening pause.

The cost of servicing an average mortgage has jumped from $1500 to $3000 since 2020. Where is the average family going to come up with that extra $1500 a month? That’s one of the primary drivers of inflation and it is far from the only one. Insurance costs have also been rising by double digits over the last couple of years. 

3M has agreed to a tentative settlement of "at least" $10B to resolve water pollution claims tied to PFAS "forever chemicals,' people familiar with the proposed pact tell Bloomberg's Jef Feeley. The potential deal would require board approval, the report noted.

There have been several examples of the last few years of storied companies falling foul of massive lawsuits. Bayer underestimated the cost of settling Monsanto’s glyphosate suit and the share crated as a result. That’s not something that is accurately reflected in the raw fundamentals because of the time lag between news breaking and earnings updates. 

Anheuser-Busch InBev ADRs fall as much as 2.5% ahead of the bell after the latest Nielsen data shows accelerating volume and sales declines for its Bud Light beer. Shares dropped as much as 1.9% in Europe.

Nielsen data through May 20 show that Bud Light volume declines accelerated to -27.2% vs -25.0% in the week ended May 13, while sales worsened to down 24.3% from down 21.6%, writes Citi analyst Simon Hales

The broader InBev beer portfolio also continues to see weakness, while Molson Coors’ Coors Light beer continues to see market share gains accelerate, he says.

The culture wars are ramping up a year ahead of the US Presidential election. “Protect the children” is developing as the counter point to the rollback of abortion rights earlier this year. It is reasonable to expect continued efforts to deepen the gulf between the parties as centrists are increasingly forced to pick a side. Taking the bi-partisan agreement to raise the debt ceiling as a sign that partisanship is ebbing would seem to be rather naive. 

“It doesn’t happen often to see a $700 billion company move 25% in one day — I’ve never seen anything like it,” said Richard Windsor, founder of independent researcher Radio Free Mobile based in Abu Dhabi. For as long as the AI craze persists, “Nvidia is in a good position.”

A trillion dollars of data center infrastructure will be upgraded to handle so-called accelerated computing, Chief Executive Officer and co-founder Jensen Huang told analysts, letting them run generative AI tools such as ChatGPT. Huang said the firm saw “incredible orders.”

Nvidia’s outlook was so strong that Morgan Stanley analyst Joseph Moore said the numbers match what they had in mind for 2025. “The transformational surge in AI spending is paying off much earlier than expected,” he wrote in a note.

There is no arguing with the size of the sales beat by Nvidia. It is truly impressive. Of course, it begs the question who is buying? The company announced in late March they have altered the best-selling H800 chip, so it will comply with prohibitions on selling high tech to China. The upshot is a Chinese company will need more of these chips to achieve the same efficiency. That’s likely to have been a significant factor in the jump in Nvidia’s sales. 

Confidence in that view has now been dented, however, with attendees at a luxury conference in Paris organized by Morgan Stanley flagging a “relatively more subdued” performance in the US, according to Edouard Aubin, an analyst at the investment bank. That reflects “weakness in the aspirational consumer in particular.”

That was counterbalanced by more buoyant demand elsewhere, according to Morgan Stanley. “Overall, we found corporate commentary resilient, pointing to an ongoing soft landing in the US largely offset by strength in other markets.”

Both Asia and the US are important markets for European luxury companies. Asia excluding Japan accounted for 30% of LVMH’s sales in 2022, while the US made up 27%, according to the company’s annual report. 

Deutsche Bank AG analysts have also said that a slowdown in the US is now a growing concern. While the rebound in Chinese demand has been among the key drivers of strong sales, investors are likely to be picky from here on, they added.

Hermes doubled in less than a year. For a “limited supply” champion that’s an impressive performance. The share’s trend has been supported by the low float and its status as a vehicle for playing China’s post pandemic consumer rebound, without in fact investing in China.  

Codelco’s production is down by about a fifth from only six years ago. After a double-digit-percentage drop in 2022, it’s expected to fall as much as 7% this year, to 1.35 million metric tons.

Ore quality is deteriorating around the world as existing deposits are depleted and new ones are more difficult and costly to develop. “There’s no easy mining left—not in Chile nor the rest of the world,” said Sougarret at a shareholders meeting on May 2.

Because Codelco is the world’s biggest copper supplier, its production wobbles have greater impact on a market where warehouse inventories are near their lowest levels in 18 years. The company’s travails also have tremendous impact on Chile’s economy: Copper accounts for more than half of the country’s exports and a significant share of the government’s income. President Gabriel Boric’s administration is budgeting a 40% drop in tax revenue from Codelco in 2023 at a time when it’s trying to boost social spending.

When the world is having difficulty sustaining production of a key commodity, it is reasonable to expect prices to rise. That’s generally the best way to attract the risk capital required to bring new supply online. It will not have escaped the notice of traders that copper prices are falling. That suggests one should be more concerned with demand than supply. 

But it's not unfair to say that Google, which in April, according to data from SimilarWeb, hosted roughly 91 percent of all search traffic, is somewhat synonymous with, well, the internet. And the internet isn't just some ethereal, predetermined thing, as natural water or air. The internet is a marketplace, and Google is its kingmaker.

As such, the demo raises an extremely important question for the future of the already-ravaged journalism industry: if Google's AI is going to mulch up original work and provide a distilled version of it to users at scale, without ever connecting them to the original work, how will publishers continue to monetize their work?

Google has unveiled its vision for how it will incorporate AI into search," tweeted The Verge's James Vincent. "The quick answer: it's going to gobble up the open web and then summarize/rewrite/regurgitate it (pick the adjective that reflects your level of disquiet) in a shiny Google UI."

Google announced it would pay the New York Times $100 million over three years this week. That results from years of litigation that Google was giving away content that should have been paid for.

The advent of advanced large language models means computer programs can scour Twitter for titbits and write journalistic synopses just like most journalists. Several services like Buzzfeed and CNET have tried and failed to use AI for unsupervised article writing. 

The huge commitment to Boeing’s largest 737 variant marks an important endorsement from one of the US manufacturer’s most loyal customers and highlights how carriers are willing to splurge on fleet upgrades again as air travel rebounds. Ryanair said the deal —  the largest order ever placed by an Irish company for US manufactured goods — was more expensive than its current crop of 737 deliveries. 

“We paid more per seat but we’re still incredibly happy with the deal we’ve done,” Chief Executive Officer Michael O’Leary said at a news conference. “We think the extra seats give us the revenue-earning potential.”

Deliveries will start in 2027 and run through 2033. Ryanair said discussions surrounding the purchase started in January, and half the order is earmarked for replacement of older 737NG models while the other half is reserved for growth.

From Boeing’s perspective this is a big vote of confidence in the 737 Max. Considering several of the aircraft have fallen out of the sky, there was understandable reticence among customers to buy them.  Boeing is obviously hoping this order will mark a recovery for commercial aircraft sales. 

Eli Lilly is at the forefront of two of the pharmaceutical industry’s hottest fields, and it’s paying off for the Indianapolis company’s investors.

Over the past year, Lilly’s valuation has climbed nearly 50% to exceed $400 billion, a few percentage points’ swing away from eclipsing Johnson & Johnson as the world’s largest drugmaker by market capitalization. It’s worth nearly as much as Pfizer, Bristol Myers Squibb and Moderna combined, despite earning less than one-third as much revenue as J&J or Pfizer in 2022.

Lilly’s skyrocketing stock price is largely due to two drugs: the diabetes and weight loss treatment Mounjaro, and the experimental Alzheimer’s treatment donanemab. Investors and Wall Street analysts expect both to become blockbusters in large markets with few established competitors.

On Wednesday, results from a large clinical trial of donanemab in people with mild Alzheimer’s showed treatment slowed cognitive and physical decline by 35% versus a placebo, sending Lilly shares higher by nearly 7%. 

The best markets for pharmaceuticals are in chronic conditions. Two of the fastest growing, with unmet need, are obesity and Alzheimer’s. Both are a product of modern living with longer lives and easier access to high calorie intake. 

The outlook depends largely on the resiliency of the job market. Low unemployment and persistent wage gains have so far allowed consumers to weather high inflation and keep spending.

The personal consumption expenditures price index grew at an 4.2% annualized pace in the January to March period. Excluding food and energy, the index rose 4.9%, faster than forecast and the most in a year. March data will be released Friday. Services inflation remained hot while prices of non-durable goods accelerated.

The inflation and consumer spending figures likely keep the Fed on track to raise interest rates by a quarter percentage point next week. First Republic Bank’s continuing struggles, however, do raise the possibility that the central bank could pause.

Consumer demand surged in the early part of the first quarter and eased back in the later part of the quarter. At the same time economic growth eased and inflation increased. 

When I see/read that Glaxo's shares have been ranging for 20 years, I can't help but be reminded by your service's maxim that, ranges are explosions waiting to happen." After 20 years, one must wonder when and in what direction will we see the explosion?

Thank you for this topical question. Glaxo has been a highly innovative company and yet the share has been locked in a lengthy and volatile range for decades. That suggests the innovations that drove the original bull market and funded the M&A activity that created GlaxoSmithKline are priced in.

Psychiatric medications are a crucial part of treatment for many mental health conditions, helping to ease symptoms and boost mental well-being. But there are some more commonly prescribed.

Mental health conditions are complex. Just one medication will help in some cases. Other times, you might try a few different medications before finding the right one or even need more than one medication.

Psychiatric medications are an important part of many people’s treatment plans, including therapy and other strategies. While they can’t cure your mental health condition, they can help manage your symptoms.

The pharmaceutical industry thrives on chronic conditions. That’s why some of the most successful companies cater to diabetes or why Viagra was such a big hit. The pandemic has seen an explosion in the number of people seeking mental health solutions. It is now much more socially acceptable to talk about mental health and to a certain extent is faddish on social media. That suggests a growth market. I took the list of medications in the above article and traced down the parent companies. 

China’s Contemporary Amperex Technology Co. Ltd., known as CATL, unveiled its strongest battery to date Wednesday, saying that it could one day be used to power electric aircraft.  

The battery, which loads more power into a smaller package, has an energy density of 500 watt-hours per kilogram, CATL’s Chief Scientist Wu Kai said during a presentation at the Shanghai auto show. CATL’s most recent battery, called Qilin, has an energy density of 255 Wh/kg and can power an electric vehicle for 1,000 kilometers (620 miles) on one charge. 

The technology, which CATL calls a condensed state battery, is potentially a breakthrough that will help electrify sectors wed to fossil fuels because existing batteries are either too heavy or unsafe. Still, questions remain about the materials it will use, its cost and ultimate market impact.
 

CATL has a strong record of leading the way in both scale of manufacturing batteries and innovating on design. The Qilin battery sounded too good to be true when it was announced eighteen months ago but it is going into mass production this year. If China successfully puts a battery in the market with the promised characteristics of a solid state battery it would be a significant technological coup akin to the impact of the iPhone on legacy mobile phone manufacturers. 

LVMH, Europe’s largest company by market value, has now made it to the world’s top 10.

A first-quarter sales beat sparked a 5% increase in the share price Thursday, giving the luxury powerhouse a 29% rally for the year. That, along with a gain in the euro against the dollar, lifted LVMH’s market capitalization to $486 billion, briefly ranking it as the world’s 10th-biggest company. Should it reach $500 billion, it would become the first European company to achieve that milestone.

Luxury goods represent an interesting paradox which must be among the marketing profession’s greatest triumphs. They have created an aura of desirability, mystique and aspiration for items that are not in limited supply. Of course, companies like Hermes ensure their most desirable bags are very hard to purchase, but the entire sector rides on the coattails of that limited supply argument. 

It shouldn’t have taken more deaths for Prime Minister Narendra Modi’s administration to act. The red flags have been there for years. What’s lacking is political will, and transparency. The FDA publishes different reviews of new drug applications on its website, along with detailed notes. The European Medical Agency gives similarly expansive information. There is no such openness in India.

As Thakur explained to me, the pharmaceutical industry is India’s manufacturing success story, providing a major source of foreign exchange and soft power. Any criticism is seen through the lens of nationalism, he said, and framed as defaming the industry. So why does contamination with such deadly substances occur so regularly? “The simple answer is that Indian pharmaceutical companies quite often fail to test either the raw materials or the final formulation before shipping it to market,” Thakur said.

India relies on the weak oversight of developing countries that make up the bulk of its exports — that’s how it can continue to push substandard and often deadly medicines there. As a paper on the Gambia poisonings published in March by the CDC noted, “inadequate regulatory structures make the sale of medications from international markets an especially high-risk activity in low-resource settings.” But what about countries with supposedly strong regulatory systems, like the US? This latest scare should prompt further reform of the FDA’s overseas inspections regime.

In the absence of a global framework for pharmaceutical safety, what can be done to make the generic drugs that consumers around the world have come to rely on safer and effective? For a start, the WHO’s prequalification program, which facilitates the purchase of billions of dollars’ worth of medicines through international agencies such as Unicef, must be overhauled. Then there’s the question of holding these companies to account for the harm they cause inside and outside India via legal avenues and victim’s compensation.

Any headline where children are dying is a headwind to public confidence in any company’s products. There is absolutely no doubt tighter safety controls are highly desirable and movement on that front would greatly improve outcomes. However, it is also true that having a friendly domestic regulator, in what is a low margin, high volume business, is also highly desirable from a business perspective. There is also a significant difference between the largest, most successful companies, and smaller less well capitalized businesses. 

China is willing to maintain close communication with Airbus and help it deepen its China presence, Zheng Shanjie, head of the National Development and Reform Commission, told Airbus Chief Executive Guillaume Faury during a meeting in Beijing, according to an NDRC statement.

China will provide broad opportunities for Airbus and other multinational companies to develop in the country: Zheng.

Separately, Civil Aviation Administration of China chief Song Zhiyong also met with Faury in Beijing, according to a statement.

They exchanged in-depth views on Airbus’ business development in China and strengthening cooperation in aviation safety, airworthiness certification, green development, digital transformation.

Vladimir Putin incorrectly concluded European countries could be bullied into submission. They should really have paid attention to China, who long ago concluded it was much easier to buy European cooperation. It remains to be seen how much longer that policy will be successful.  

LVMH shares rise to a record high, contributing most to gains in the French and European indexes on Friday as analysts upgrade their estimates for the French luxury behemoth. Peer Hermes International also hits an all-time peak.

News that foot traffic is ramping up in Macau is clearly positive news for the luxury goods sector as Chinese consumers hit the shops after a lengthy hiatus. 

Hi, I don't understand when you say that you are "reweighting" the Autonomies portfolio.

Is this an investment fund managed by you?

Thanks in advance.

Thank you for this question which may be of interest to the Collective. Chris Moore at WM Capital Management approached me following the publication of Crowd Money and asked if I would be interested in setting up a fund. It was launched in 2015. He is listed as the fund manager but I do the stock selection.

Here is a link to the FT’s information page for the fund. The basic premise is to hold 100 of the 169 Autonomies on an equal weighted basis. Reweights are every quarter. Favour is given to oversold positions relative to the MA and overbought positions are downsized at the reweighting. 

I am reweighting the Autonomies portfolio as we are approaching the end of the quarter. It’s a tumultuous three months with banks and several retailers experiencing steep selling pressure. Meanwhile several luxury goods companies are at new highs. Technology companies have staged impressive rebounds and commodity stocks are very steady. The biggest surprise for me is how varied the performance of the financial sector is. That clearly suggests there will be big winners and losers from the unfolding market environment. 

Dear Eoin, When you started the Corporate Autonomies Fund it was based on the correct hypothesis that globalisation was the future trend and therefore it was wise to invest in companies that had, or would have, a global footprint. Now it seems that there is a trend away from globalisation and towards the repatriation of national production. What does this mean for the fund and for our investment strategy?

And

Thanks for consequential audio Friday in both content and timing. Overlaying today with 2007-09 is key at this time.

Your focus on the 1980 - 2022 bull market in bonds I found spot on and would like a little more commentary on that. The bubbles of housing (2007) and technology (2000) have been put away but Japan (1990) has not. We've punctured a rather big bubble. How do you see this playing out moving forward as far as global U.S. Treasury ownership is concerned in scope (range in long rates) and timing (years to repair damage) considering how many bonds are and will stay underwater if not sold? It took U.S. stocks 25 years to unwind the 1929 bubble and Japan is 33 and counting.

Considering the bond bubble is arguably the mother of all bubbles this side of 1929 and 1980 I would find it helpful to at least make a run at how it ranks in the standings.

Thank you for these topical questions which should be of interest to other subscribers. The basis for the bull trend, which the Autonomies benefit from, was based on a confluence of factors. The assumptions we made were:

1. The rise of the global consumer, driven by economic growth, adoption of capitalism and demographic sweet spots would boost demand for just about everything.

2. The shale revolution would allow the USA to become energy independent and a lengthy contraction in energy prices would boost demand and economic potential.

3. The march of technological innovation would create efficiencies that drive profitability for both creators and consumers.

4. The best hedge against inflation is companies that have growing business and solid competitive edges.

The list of Autonomies was compiled with these characteristics in mind and picked only the most attractive companies from each sector that offered exposure to these themes. In many respects it is a list compiled of oligarchies which dominate specific niche businesses.

Let’s consider the main questions everyone is considering today. 

Volkswagen’s China joint venture with SAIC Motor is offering 3.7 billion yuan ($540 million) in cash subsidies to boost sales, according to a statement on the company’s Wechat account, making the German automaker the latest participant in the ongoing price war. 

The venture will provide a subsidy of between 15,000 yuan and 50,000 yuan on any model in its lineup until April 30, which includes brands like Teramont, Lavida, Lamando, Tiguan, Passat, Touran, and the all-electric ID. series

Other incentives include short-tern interest-free loans, lifelong service packages, upgraded components and buy-back guarantees.

It’s been a busy week for Volkswagen. They are attempting to compete on price in China. The company revealed the design of a compact electric vehicle slated for mass production and costing around €25,000. Then they are also talking about direct investments in mining companies to boost access to resources. That all sounds expensive. 

"There is good performance improvement opportunity in this business in all the divisions, especially in civil aerospace and power systems," he told reporters. "And that is ongoing and then strategic review will create the clarity."

He said he would focus on reducing its debt, which stood at 3.25 billion pounds at year-end, to obtain an investment grade, before resuming payouts to shareholders.

Rolls, which also has defence and power systems divisions, posted operating profit of 652 million pounds for 2022, up 57% and beating an analyst forecast of 478 million pounds.

It guided to underlying operating profit of 0.8-1.0 billion pounds and free cash flow of 0.6-0.8 billion pounds this year, based on a forecast for its engines to fly 80-90% of 2019's level.

Rolls Royce has three divisions. These are Civil Aerospace, Defence and Power Systems. Within each of those units it has maintenance contracts. Aftermarket service represents about 55% of all revenue. That means the company is highly leveraged to the 

The White House was the first to announce the deal with Boeing, releasing a statement from president Joe Biden describing the deal as evidence of a strong economic partnership between the US and India. According to the statement, all the Boeing planes will be made in America and will create over one million jobs across 44 states.

The purchase was also welcomed by Indian prime minister Narendra Modi, who said it was evidence of “the successes and aspirations of the civil aviation sector in India.”

Air India was privatized in 2022 after a long run as India’s national airline. Currently, it only has a fleet of around 100 jets, most of them leased. The first batch of planes from Airbus is expected to arrive later this year. Boeing has yet to release a timeline for production.

Freedom to travel quickly, both within and outside one’s country, is a major part of entering the middle classes for many families. The investment in widebody jets may be focused on the diaspora but rising living standards within India also promise to create a large population of tourists. India is investing $11 billion through 2025 to build 21 new airports. 8 have already been completed. Here is a section from a related article. 

Development plans are also underway for small, underserved and remote airports as the subsidized Regional Connectivity Scheme expands. With 400 regional routes, another 600 are planned to connect to 156 airports. 

PDD Holdings Inc.’s service, which like Shein has gained a reputation for cut-rate pricing and fast delivery, ran two 30-second spots featuring a trendy shopper twirling and dancing to phrases like “Cha-ching! I feel so rich, oh yeah.” PDD, formerly known as Pinduoduo, said it’s also giving away a total of $10 million to users via online sweepstakes.

Temu launched in September and rapidly scaled Apple’s US app store. It’s now considered a serious competitor to Shein, the fast-fashion phenomenon that’s also fired up American shoppers. But PDD, which plans to launch Temu in Canada as soon as this month, offers a broader range of goods from pet supplies to groceries. 

A decade ago I was impressed by the speed with which China’s fast fashion domestic brands could get new inventory into stores every day. Inditex is coming close to approximating that pace today but it is heavily reliant on the integrity of the global supply chain. 

One key component for the United States and its global military commitments is its fleet of transport planes, including the Lockheed Martin C-5 Galaxy and the Boeing C-17 Globemaster III. These provide the US Air Force with the ability to deliver soldiers and their equipment anywhere in the world in short order and keep them supplied indefinitely.

However, it is an extremely expensive capability to achieve and maintain, and it often means sending air crews into dangerous areas where they may encounter hostile anti-aircraft weaponry. It also requires a large number of pilots, who do not come cheap and are invariably in short supply.

To counter this, the Air Force has hired Reliable Robotics to look into automating existing cargo aircraft. The idea isn't new, but adapting the technology to large multi-engine jet transports flying military supply missions adds another level of complexity.

At a Superbowl party last night I had an educative chat with a senior manager at Intel. He mentioned two snippets of information I thought were worth considering.

The first is that he said in talking with pilots, there is a major difference between flying a Boeing and an Airbus. You get paid less for flying an Airbus because they are much more automated. They basically fly themselves so pilot skill is less important. Therefore most pilots train on both, so they can command higher salaries.

 

The scrutiny comes as the battle to build the most accurate and effective search engine is escalating. On Monday, Google introduced Bard, whose underlying technology will eventually be built into Google.com. The next day, Microsoft Corp. said it was integrating a cousin of ChatGPT into Bing. On Wednesday, Google hosted a news conference in Paris where it shared more details about the company’s progress integrating artificial intelligence into search.

“The general sentiment is that ChatGPT and the Microsoft Bing announcement have created a narrative that Google’s search business model is under threat,” said Mark Riedl, a professor at the Georgia Institute of Technology.

The market reaction to Bard’s inadequacies was both swift and severe. The downward dynamic experienced by Google shares demonstrates how fickle the mob can be during a momentum move driven by hope rather than earnings. 

“To fight the Chinese, we will have to have comparable cost structures,” Stellantis NV CEO Carlos Tavares said on Dec. 19, speaking to reporters at a powertrain plant in Tremery in northern France. “Alternatively, Europe will have to decide to close its borders at least partially to Chinese rivals. If Europe doesn’t want to put itself in this position, we need to work harder on the competitiveness of what we do.”

And

The growth in the supply chain in China has also kept pace with car manufacturing. Domestic companies now make almost all parts, including those they used to import until about a decade ago, such as high-strength steel and reinforced fiberglass. As a result, China ran a trade surplus in vehicles and vehicle parts for the first time in 2021. The assembly lines still depend on advanced machines from Japan and Germany, though.

“There seems to have been a step change,” Dyer says. “The long-term trend is for increasing sales of Chinese brands around the world.”

A decade ago it was obvious China was moving up the value chain in manufacturing. It might have not have reached heights of 3nm chip production but planes and automobile parity is now a reality. That’s as much of challenge for Airbus and Boeing as it is for Toyota, Hyundai, Volkswagen and GM. 

Microsoft’s total revenue increased by 2% year over year in that quarter ending Dec. 31, the slowest rate since 2016, according to a statement. Net income fell to $16.43 billion from $18.77 billion in the year-ago quarter. The company took a $1.2 billion charge in the quarter in connection with its decision to cut 10,000 employees, revise its hardware lineup and consolidate leases.

Revenue in Microsoft’s Intelligent Cloud segment amounted to $21.51 billion, up 18% and slightly above the $21.44 billion consensus among analysts polled by StreetAccount. The unit includes the Azure public cloud, Windows Server, SQL Server, Nuance and Enterprise Services. Revenue from Azure and other public cloud services, which Microsoft does not report in dollars, grew by 31%, slightly above the estimate of almost 31% that analysts polled by CNBC and StreetAccount had expected. In the previous quarter, the category grew 35%.

Cloud computing helped to save Microsoft’s quarter since compute, which includes computer games declined by 19%.

Cloud computing is not about to disappear but the days of every cloud company doing well are over. There is not clear scope for consolidation and middle market players will either be acquired or out competed over the coming couple of years. 

"I spend all my time reading about how automation and AI is going to take all our jobs, and here I am," one fired MSN staffer told The Guardian at the time. "AI has taken my job."

That anonymous staffer imparted a prescient warning: that though the human team had employed close editorial guidelines to vet the material that appeared on MSN's site, the new automated system would likely struggle to bring the same level of nuance and skepticism.

MSN makes lofty promises that there's still "human oversight" over the stories it syndicates, but given the desultory deluge of fake nonsense it appears to run constantly, it seems very unlikely that the site's remaining skeleton crew is accomplishing much at all.

And with its dwindling human staff, fewer still are left to hear readers' concerns, effectively erecting a brick wall that imposes a worrying opacity. Requests for comments go unanswered, and MSN publishes more bogus stories all the time.

The media coverage of ChatGP has been nothing short of euphoric. I’ve even heard it compared to a sputnik moment for artificial intelligence. That might even be true but it does not mean AI is ready to take over editorial roles.

Turquoise Hill Resources Ltd. shareholders endorsed a C$4.24 billion ($3.1 billion) takeover offer by Rio Tinto Group, paving the way for the London-based miner to gain control of one of the world’s largest copper mines.

About 60.5% of Turquoise Hill’s minority investors voted in favor of Rio’s C$43-a-share cash offer, the Canadian company said following a shareholders’ meeting in Montreal on Friday. The result clears the way for Rio Tinto to take over Turquoise Hill and gain majority ownership in its massive Oyu Tolgoi project in Mongolia, which is expected to become the world’s fourth-largest copper mine.

Shares of Turquoise Hill rose 0.9% to C$42.93 at 2:43 p.m. in Toronto. Rio shares closed almost 1% higher in London before the vote results were announced.

“This transaction will deliver significant benefits for all shareholders, and allow us to progress the Oyu Tolgoi project in partnership with the government of Mongolia with a simpler and more efficient governance and ownership structure,” Rio’s copper head Bold Baatar said in a statement.

This acquisition is a testament to how rare new truly world-class copper mines are. The fact Mongolia is sandwiched between Russia and China is a handy geographical accident that means supply will be a buyer regardless of what else happens.

China’s Contemporary Amperex Technology, the world’s biggest maker of electric-car batteries, signs a global partnership agreement with Honda Motor, according to an exchange filing to Shenzhen Stock Exchange.

China has worked hard to capture the market for EV batteries and that is now paying dividends. Traditional car companies all now want to be EV companies but are years behind in building their own factories and supply chains. That is most especially true for batteries. China has a dominant position in mining and processing the respective raw materials. The implication is clear, there is no way for car companies to achieve their EV goals without outsourcing at least part of the process to Chinese companies.

Since returning from the Chart seminar in London I have spoken to several people who work in the Israeli high-tech industry, They all tell me that about 10% of their colleagues have lost their jobs recently. Today you referred to your MIIN index. How can we invest in these countries?

Thank you for this additional insight. The market for big ideas ballooned with the delivery of free money. Suddenly, no idea was too grand, or time to delivery/commercialization too long. That trend was looking tired in 2019, as the Federal Reserve’s quantitative tightening was siphoning liquidity from the global economy.

That was a terrible idea. As I’ve written before on this subject, people just aren’t meant to talk to one another this much. They shouldn’t have that much to say, they shouldn’t expect to receive such a large audience for that expression, and they shouldn’t suppose a right to comment or rejoinder for every thought or notion either. From being asked to review every product you buy to believing that every tweet or Instagram image warrants likes or comments or follows, social media produced a positively unhinged, sociopathic rendition of human sociality. That’s no surprise, I guess, given that the model was forged in the fires of Big Tech companies such as Facebook, where sociopathy is a design philosophy.

Dancing on the grave of social media has begun but it seems to me that the rumours of the sector’s death are greatly exaggerated. There is no doubt social media has issues that range from content moderation to promoting social anxiety and depression among teenagers. However, that does not detract from the reality billions of people spend several hours a day perusing social media forums.

As impressive as this year’s updates are, IBM is looking to next year as the real turning point. The company’s roadmap says that next year’s quantum processor, the Condor, will boast a stunning 1,121 qubits. Also on the cards is a modular processor called the Heron, which can stack multiple 133-qubit units together to make more powerful quantum processors.

And finally, the IBM Quantum System Two will be released towards the end of 2023. This modular system will form the framework of the company’s quantum supercomputers, housing multiple processors with communication links between them. These are all stepping stones on the path towards IBM’s plans of building a quantum system with over 4,000 qubits by 2025.

Alphabet’s Hartmut Neven, claimed a few years ago was that quantum computing was progressing at a double exponent pace. To put that in context an exponential pace is 1,2,4,8,16,32. An exponential exponential pace is 1.2,4,16, 256, 65,536.  

The EV maker Lucid turned in respectable third-quarter earnings and stuck with its forecast for vehicle shipments this year, but the stock is dropping. Reservations are the issue.

Tuesday evening, Lucid (ticker: LCID) reported a per-share loss of 40 cents from $195 million in sales. Wall Street was looking for a 31-cent loss from $209 million in sales., but earnings and sales don't matter much at this point.

The company is just ramping up production of its first model, the Lucid Air. Importantly, the company didn't change its full-year guidance for vehicle shipments from the 6,000 to 7,000 cars it told investors to expect back in August. The prior guidance, given in May, was for 12,000 to 14,000 units.

What seems to be raising investors' eyebrows is that management says Lucid has 34,000 reservations for its vehicles. The number given in August was 37,000.

Shares were down 3% in after-hours trading.

Lucid delivered 1,398 vehicles in the third quarter, up from 679 in the second quarter of 2022. Lucid produced 2,282 vehicles in the third quarter, which was more than triple the second-quarter production, according to the company.

The company also ended the quarter with almost $4 billion in cash.

Management scheduled a conference call for 5:30 p.m. Eastern time to discuss the results. Investors and analysts will be interested in the reservation number and whatever management has to say about demand for Lucid vehicles.

Through Tuesday trading, Lucid stock was off more than 60% so far this year, while the S&P 500 and Dow Jones Industrial Average had dropped about 20% and 9%, respectively.

Lucid stock has been hit harder than most. The cut to the forecast for deliveries didn't help. Rising interest rates, which reduce the current, discounted value of earnings expected to arrive in coming years, are an additional problem.

Flashy ads and attentional grabbing statistics, like the longest range and best battery, encouraged consumers to pay trivial down payments to secure a spot in delivery queues. Now, the question whether one does in fact have the resources to spend six figures on a car are more pressing. For Lucid it represents a significant issue because they are quite a ways from delivering a more affordable model. The share continues to trend lower.

As the hosts point out, the best time to buy bonds is when yields are high and inflation is peaking. The higher yield offers a margin for error even if it takes time for the macro details to work themselves out.

So most investors, whether they own stocks or bonds, should have plenty of opportunities to harvest losses between now and the end of the year. And that means there will be more selling pressure ahead.

"There will be pretty high tax loss selling I would think. I even got a white paper from somebody saying this was the greatest tax loss selling opportunity of a generation. I would say it might be two generations," Gundlach said.

Tax-loss selling is a tax optimization strategy that investors and financial advisors often take advantage of in taxable accounts heading into year-end. The strategy involves realizing losses by selling out of losing positions, and then buying back those portfolio positions 31 days later to avoid the tax wash-sale rule.

The strategy allows investors to realize losses that can offset future realized gains, ultimately helping reduce tax liabilities in the long term.

In a year where most people were unprepared for the severity of declines in popular shares like the mega-caps and the innovation sector, investors will be eager to preserve what benefit they can. Realising a loss reduces the tax payable on gains and stores up losses to write off on gains in the future too.

Jefferies (buy, PT $200)
There are “no signs of expense discipline,” and this is “going against what investors want”

Vital Knowledge
The expense outlook is “the big negative” of the report; “investors were hoping for mgmt. to aggressively slash costs, but it doesn’t seem like that’s happening”

The results and outlook “weren’t great, but neither was any worse than SNAP or GOOGL”

Truist Securities (buy, PT $240)
The revenue outlook is “still decent all things considered,” but the guidance for total expenses is “materially higher than our estimate”

There is only so much money available to be spent on advertising. Over the last decade, the number of companies seeking to suckle on the ad spend of the corporate sector has grown considerably. The net effect today is many new companies are basing their business models on offering advertising space.

The result was “solid” and leaves Mexico’s economic growth at a pace of 2.2% for the year, according to Alberto Ramos, Goldman Sachs Group Inc.’s chief Latin America economist. 

“The economy still has room to grow, and we expect it to expand in coming quarters supported by firm terms of trade and further normalization of activity among a number of still lagging sectors, particularly services,” he wrote in a research note Friday. 

Not only is China slowing down, but its relationship with the biggest buyers of its exports is deteriorating. Large global companies are not making decisions about how much manufacturing they want to do in China. Within the next decade, manufacturing in China by foreigner will focus on the domestic market while exports are likely to face greater competition from other economies.

“We’re delivering on our commitments and affirming our full-year guidance despite a challenging environment because demand continues to be strong for GM products and we are actively managing the headwinds we face,” GM Chief Executive Officer Mary Barra said in a letter to shareholders.

Shares of the carmaker rose 2% to $36.45 as of 9:35 a.m. in New York. The stock is down about 38% this year. 

GM reported adjusted profit of $2.25 a share on Tuesday, surpassing analysts’ projection for $1.89 a share. It also maintained guidance for full-year adjusted earnings before interest and taxes of $13 billion to $15 billion, or $6.50 to $7.50 a share. 

“GM yet again affirmed the strong and until now mostly disbelieved full-year total company EBIT outlook it has maintained since introduction in February,” J.P. Morgan analyst Ryan Brinkman said in a research note. “GM is now well on the path to achieving its full year goals, despite the tougher consumer and cost backdrop.”

Auto manufacturers talk a good game of expanding EV production with stated expectations of massive increases in the number of electric vehicles manufactured. However, they continue to sell SUVs and pickup trucks. Companies like GM and Ford don’t sell large numbers of sedans so the commitment to selling EVs is moot.

A rally in the S&P 500 faded after Philadelphia Fed President Patrick Harker said officials are likely to raise interest rates to “well above” 4% this year and hold them at restrictive levels to combat inflation, while leaving the door open to doing more if needed.

Traders also sifted through a mixed bag of corporate earnings, with Tesla Inc.’s sales disappointing and International Business Machines Corp. surging on a bullish forecast. Several market observers remarked that the bar has been lowered quite a bit ahead of the current earnings season, boosting the odds of upside surprises. It’s also worth pointing out that there’s been no shortage of warning signals about the economy when it comes to corporate outlooks.

Alcoa Corp. -- which is a dependable barometer of US economic health across industries including construction, automotive, aerospace and consumer packaging -- said demand for the world’s heavy industries is falling. Union Pacific Corp., the largest US freight railroad, cut its forecast for volume growth to reflect a “challenging year.”

As traders wade through corporate results, “with an extra eye on guidance, expect volatility to remain elevated,” said Mike Loewengart at Morgan Stanley Global Investment Office

Earnings are holding up but guidance is being lowered. CEOs are at their most bearish in years but investors have cash to burn and are eager to salvage a dire year for their performance. Appetite for buying the dip following upside key day reversals for mega-cap stocks last week is still evident.

European Central Bank Governing Council member Pierre Wunsch said interest rates may eventually have to top 3% to get record inflation under control. 

“My bet would be it’s going to be over 2%, and I would not be surprised if we have to go to above 3% at some point,” Wunsch told CNBC in an interview in Washington. 

Wunsch also said:

The ECB’s deposit rate, currently 0.75%, will “most probably” need to exceed 2% year-end

“Frankly on the basis of our base case, which is now more or less a technical recession in Europe, I think we are going to have to go real positive somewhere”

“We’ve been claiming that what happens in Europe is different from the U.K., from the U.S. But over the last six months basically the direction we’ve been taking was not that different”

The ECB’s rate peaked at 4.25% in 2008. That suggests the anticipated peak of hiking, at 3%, will be well below that 2008 peak. That’s only relevant because the Fed Funds rate could exceed its 2007 peak at 5.25% before this hiking cycle has ended. That raises the question why is the Euro rebounding?

Dear Eoin, In the 1960s and 1970s subscribers to the David Fuller Chart Service received a booklet containing hundreds of charts each week or each month. I used to come into the office at 6a.m. and complete the point and figure charts each day. Thanks to this work, I gained a reputation among my colleagues for being the first one to spot changes in the long-term trends of both overall markets, sectors and individual shares. As of this morning, I am getting up one hour earlier and I will start by looking at all the daily charts of the Autonomies in the Chart Library. Let's hope that this will produce the same result. This morning's work show very small blue upward marks in almost every chart. These are tiny upward movements in the year-long major decline in all these share prices. This "summer's swallow" has not yet started chirping. Regards,

Thank you for this account. David was still having chartbooks printed in 2003, when we began working together. By that stage they were a very niche product that had become obsolete with the development of charting software. Nevertheless, the practice of looking at lots of charts is as useful today as it has ever been.

In following your program of activity, I would suggest taking one day to look at point and figure charts. They will give you clear confirmation of a change of trend.

Many thanks for the latest weekly video, which sets out the bearish case for investment at the moment. In today's FT there is an article about Apple's latest iPhone. The author claims that sales projections for the latest Pro version of the iPhone suggest that the company will earn record -breaking revenues from its sales , which account for 50% of its business. In addition, it suggests that there might be a future monthly package that combines the iPhone, Apple Music and iCloud. Could Apple stand out against the overall bear market?

Thank you for this topical question which may also be of interest to other subscribers. Just ask yourself how often you change your phone? For me at least, it is when the battery starts losing charging capacity. That’s usually every 3 years.

The new iPhone 14 costs $999 and the Pro version costs $1099. If amortised over 2 years, it works out at around $45 a month which can be lowered further if you have an old phone to trade in. So, for many people it will be a question of whether the new phone has sufficiently enhanced features to justify the added monthly expense.

Brookfield is looking to multiply its current 4 GW renewable portfolio by 3 to four times in India within the next decade in generation as well as help corporates make the transition to decarbonise and invest in building large scale supply chain in the country, said a top executive.

The renewables current assets under management is approximately $1 billion.

Earlier this year, Brookfield Asset Management announced that it raised a record $15 billion for its inaugural Global Transition Fund. This marks the world's largest private fund dedicated to the net zero transition, signaling that investors are still committed to establishing cleaner portfolios. Brookfield is the single largest sponsor of the fund having deployed $2 billion itself.

Brookfield deals with state utilities but sees incremental green power demand coming from corporates who are increasingly becoming bulk consumers. For example, as part of its road map to achieve 100 per cent dependence on renewable energy by 2025. Amazon on Wednesday announced its first utility-scale projects in India — three solar farms located in Rajasthan. These include a 210-megawatt (Mw) project to be developed by India-based developer ReNew Power, a 100 Mw project to be developed by local  developer Amp Energy India, and a 110 Mw project to be developed by Brookfield Renewable Partners.

Brookfield is the name that comes up in almost every conversation I have with investors. The name is treated reverentially because the team so artfully plotted a route through the Global Financial Crisis and the subsequent boom.

My theory is that the breaking of these superbubbles takes multiple stages. First, the bubble forms; second, a setback occurs, as it just did in the first half of this year, when some wrinkle in the economic or political environment causes investors to realize that perfection will, after all, not last forever, and valuations take a half-step back. Then there is what we have just seen – the bear market rally. Fourth and finally, fundamentals deteriorate and the market declines to a low.

Let’s return to where we are in this process today. Bear market rallies in superbubbles are easier and faster than any other rallies. Investors surmise, this stock sold for $100 6 months ago, so now at $50, or $60, or $70, it must be cheap. Outside of the late stage of a superbubble, new highs are slow and nervous as investors realize that no one has ever bought this stock at this price before: so it is four steps forward, three steps back, gingerly exploring terra incognita. Bear market rallies are the opposite: it sold at $100 before, maybe it could sell at $100 again.

The proof of the pudding is the speed and scale of these bear market rallies.
1. From the November low in 1929 to the April 1930 high, the market rallied 46% – a 55% recovery of the loss from the peak.
2. In 1973, the summer rally after the initial decline recovered 59% of the S&P 500's total loss from the high.
3. In 2000, the NASDAQ (which had been the main event of the tech bubble) recovered 60% of its initial losses in just 2 months.
4. In 2022, at the intraday peak on August 16th, the S&P had made back 58% of its losses since its June low. Thus we could say the current event, so far, is looking eerily similar to these other historic superbubbles.

Have we seen the secular peak in this market? That’s the only real question investors need to concern themselves with. The above statistics are certainly compelling, but the size of the rebounds should also be considered relative to the size of the initial declines from the peaks. Let’s round out that data.

1. The Dow Jones Industrials Average accelerated to the peak on September 3rd 1929. It fell 47.87% to the initial low on November 13th
2. The peak in 1973 was a failed upside break from a range that had been forming since 1966; with the Dow failing at the psychological 1000 on several occasions. That failed upside break resulted in a deeper pullback than any (25% & 36%) posted during the ranging phase. The failed downside break in 1974 resulted in a 75% rebound. It was another six years before a breakout to new highs was sustained.
3. Between March 10th and May 26th 2000 the Nasdaq Composite fell 40.72%.
4. Between January 7th and the low on June 17th the S&P500 declined 24.52%.

“Restoring price stability will likely require maintaining a restrictive policy stance for some time,” Powell said Friday in remarks at the Kansas City Fed’s annual policy forum in Jackson Hole, Wyoming. “The historical record cautions strongly against prematurely loosening policy.”

He said restoring inflation to the 2% target is the central bank’s “overarching focus right now” even though consumers and businesses will feel economic pain. He reiterated that another “unusually large” increase in the benchmark lending rate could be appropriate when officials gather next month, though he stopped short of committing to one.

“Our decision at the September meeting will depend on the totality of the incoming data and the evolving outlook,” he said.

In very simple terms, the Fed has two mandates, price stability and full employment. Right now, they have full employment and robust business capital investments. They don’t have price stability or anything approaching it. That’s a recipe for tighter monetary conditions and higher rates until downward pressure on employment becomes problematic. 

More broadly, the three “moments” of reckoning we discussed above mean that global supply chains, whether they produce military or civilian goods, are facing a Minsky Moment – a Real Minsky Moment. Paul McCulley’s term referred to the implosion of the long -intermediation chains of the shadow banking system that marked the onset of the Great Financial Crisis. Today, we are witnessing the implosion of the long -intermediation chains of the globalized world order: masks, baby formula, chips, missiles, and artillery shells, for now. The triggers aren’t a lack of liquidity and capital in the banking and shadow banking systems, but a lack of inventory and protection in the globalized production system, in which we design at home and manage from home, but source, produce, and ship everything from abroad, where commodities, factories, and fleets of ships are dominated by states – Russia and China – that are in conflict with the West.

Inventory for supply chains is what liquidity is for banks. In 2007 -08, big banks ran on “just -in -time” liquidity: the dominant form of liquidity was market liquidity, for which you could always sell assets into a deep market without moving prices, so you did not have to have liquidity reserves at the central bank. Similarly, big corporations today run “just -in -time” supply chains for which they assume that they can always source what they need without moving the price. But not really: the U.S. military has to wait a little bit as Raytheon “will take a little while”; Taiwan and Saudi Arabia have to wait as well until the conflict in Ukraine is over; and if your washing machine broke recently, you’ll have to wait a bit too until defense contractors are done buying them up to rip chips out to make missiles.

In propagating the Belt and Road Initiative, China has long complained that the USA’s policy towards it is one of containment. That has become more much overt since 2016. Sanctions on chip manufacturing capacity are an escalation. The rationale for such moves is obvious. The USA and Europe need time to rebuild domestic manufacturing capacity.

Researchers from Switzerland's SPF Institute for Solar Technology have been studying aluminum redox cycles for many years now, and with funding from the EU's Horizon Europe program and the Swiss government, they've just kicked off a research project called Reveal, drawing in nine different partners from seven European countries, to develop what looks like a very promising idea.

As a 2020 report from the SPF team states, a single, one cubic meter (35.3 cu ft) block of aluminum can chemically store a remarkable amount of energy – some 23.5 megawatt-hours, more than 50 times what a good lithium-ion setup can do, or roughly enough to power the average US home for 2.2 years, on 2020 figures. That's by volume – going by weight, aluminum holds a specific energy of 8.7 kWh per kilogram, or about 33 times more than the batteries Tesla uses in its Model 3.

Big fat blocks like that aren't exactly practical to work with, though, so the Reveal team proposes using 1-mm (0.04 in)-diameter balls of aluminum instead. Naturally, you lose some volumetric density here, but you're still coming out over 15 MWh per cubic meter.

Redox flow batteries where the electrolyte transports free electrons during the reduction and oxidation reactions have been in the works for years without gaining critical mass.

Q: Are we in a bear or a bull?

Thank you for voicing the question I believe everyone is asking. The short answer is yes, the long answer is more nuanced. Let’s frame this discussion in terms of the yield curve spread. The 10-year – 2-year is sharply negative. The 10-year – 3-month and the 10-year – Fed Funds Rate have both accelerated lower but are not yet negative. All three point toward significant monetary tightening. That is before the impending acceleration in the contraction of the Fed’s balance sheet is 

Presently, the US is decreasing its artillery ammunition stockpiles. In 2020, artillery ammunition purchases decreased by 36% to $425 million. In 2022, the plan is to reduce expenditure on 155mm artillery rounds to $174 million. This is equivalent to 75,357 M795 basic ‘dumb’ rounds for regular artillery, 1,400 XM1113 rounds for the M777, and 1,046 XM1113 rounds for Extended Round Artillery Cannons. Finally, there are $75 million dedicated for Excalibur precision-guided munitions that costs $176K per round, thus totaling 426 rounds. In short, US annual artillery production would at best only last for 10 days to two weeks of combat in Ukraine. If the initial estimate of Russian shells fired is over by 50%, it would only extend the artillery supplied for three weeks.

And

The war in Ukraine demonstrates that war between peer or near-peer adversaries demands the existence of a technically advanced, mass scale, industrial-age production capability. The Russian onslaught consumes ammunition at rates that massively exceed US forecasts and ammunition production. For the US to act as the arsenal of democracy in defence of Ukraine, there must be a major look at the manner and the scale at which the US organises its industrial base. This situation is especially critical because behind the Russian invasion stands the world’s manufacturing capital – China. As the US begins to expend more and more of its stockpiles to keep Ukraine in the war, China has yet to provide any meaningful military assistance to Russia. The West must assume that China will not allow Russia to be defeated, especially due to a lack of ammunition. If competition between autocracies and democracies has really entered a military phase, then the arsenal of democracy must first radically improve its approach to the production of materiel in wartime.

China’s stated aim is to “reunite” with Taiwan politically by whatever means are necessary. This article from Taiwan News, focusing on the Koumintang’s (pro-unity party) recent stated pro-US stance may be of interest. 

Which firms have monopoly - pricing power?

Thank you for this question which may be of interest to the Collective. David and I pondered this same issue a decade ago. Globalisation was flourishing, the shale revolution promised US energy independence and companies were expanding enthusiastically to capture market share among the new vibrant emerging market middle classes. We also worried about inflation because central bank money printing money was so prolific.

A Chinese fast-fashion company without a global network of physical stores of its own is seeking a valuation that could be more than the combined worth of high-street staples Hennes & Mauritz AB and Inditex SA’s Zara.

Shein, an online-only retailer of inexpensive clothes, beauty and lifestyle products that pumps out over 6,000 new items daily, is in talks with potential investors including General Atlantic for a funding round that could value the company at about $100 billion, Bloomberg News reported Sunday.

Should Shein succeed with the round, it would make the decade-old brand about twice as valuable as Tokyo-based Fast Retailing Co. -- the owner of Uniqlo -- which last year had more than 2,300 outlets in 25 countries and regions. It would also make Shein the world’s most-valuable startup after ByteDance Ltd. and SpaceX, according to data provider CB Insights.

I wrote about the success of direct-to-consumer Chinese fashion brands in my 2015 China trip report. Back then I was impressed by the speed with which new SKUs were churned out. The injection of capital and internet marketing savvy has grown that business model to the point where every other fast fashion brand is struggling to compete.

The evolution of natural language programming is a significant trend. It holds out the promise of broadening the spectrum of people who can use innovative tools to create useful products and services. At present this is still in relative infancy, but the pace of development is sufficiently fast to suggest real world applications within the next couple of years. It might be while (decades?) before we get to Star Trek levels of voice commands but it’s not impossible.

Today, there is an unusual discrepancy between GDX (-1.43%) and GDXJ (-0.27%), usually it is the other way around. Gold futures are up 0.64%.

Is there something the "big money" (presumably in GDX) knows about upcoming developments in Gold or miners?

You have not talked about your position in RR? Just keeping indefinitely?

Thank you for this email which may be of interest to subscribers. Gold continues to pause around the psychological $1900 level. In any range the bullish and bearish arguments return to equilibrium.

At present the competing arguments are that gold should do well because central banks have been backed into a corner by rampant money printing and will be unable to raise rates enough to fix the inflation issue. The competing negative view is gold faces an increasing headwind for rising yields.

In 2020 I began a series of reviews of longer-term themes which will be updated going forward on the first Friday or Monday of every month. These reviews can be found via the search bar using the term “Secular Themes Review”.

“Play along to get along” has been the default strategy for global peace over the past thirty years. The default proposition was that if we concentrate on commerce, and all grow wealthy together, there was no real need to focus on our political differences. Under that system globalization flourished.

A just in time global supply chain allowed components to be made in a host of different countries, assembled in China and exported to the world. The demise of subsidy regimes allowed commodities, particularly agriculture products, to be produced in the lowest cost regions and exported to the globe. The internet has allowed the dissemination of know-how and services like never before.

In attacking Ukraine, Russia expressed a willingness to risk being cut off from much of the global economy. Regardless, of any other motive, Russia’s invasion of Ukraine is a gamechanger for the global order. With evidence of war crimes emerging, the chances of Russia being welcomed back into the global trading community are growing progressively more distant. We are back in an “Us versus them” global environment.

Market-based expectations for how the Fed moves its target fed funds rate have also broken out. The shift in expectations has come with breathtaking swiftness. The following chart shows implicit expectations for rates after each of the next seven meetings as they stood on Dec. 31, where they had moved by the day the tanks entered Ukraine, and where they are now:

Bear in mind that as the year began, CPI had already topped 7% for the first time in four decades. It’s remarkable both how long it took for investors to come around to expecting a sharp monetary tightening, and how swiftly that realization has now taken root.

What does this imply for asset allocation? Higher bond yields tend to be bad news for stocks if they are part of a Fed tightening, and make high stock valuations harder to justify. However, expectations of a more aggressive Fed are even worse for bonds. The mathematics of the bond market on this point is
inexorable. If rates and yields are going up, then bond prices have to come down.

And, indeed, just as those who’ve been saying There Is No Alternative (to stocks) would have predicted, this news has been far worse for bonds than stocks, meaning that the returns for those who are long in stocks relative to bonds have surged to yet another new high:
 

There is a significant anomaly developing in the bond markets. 2-year and 10-year yields are ramping higher on the expectation of future inflation and much higher rates. 3-month bills are also rising but at a much more sedate pace. The rate is currently at 0.5% which approximates the Fed Funds rate. That’s an oddity because investors are increasingly convinced a 50-basis point in May is a certainty.

Lead times -- the lag between when a chip is ordered and delivered -- increased by three days to 26.2 weeks last month, according to research by Susquehanna Financial Group. In January, the group reported that delays were getting shorter, the first sign of improvement since 2019.

Though the lag times have now increased again, they aren’t growing quite as quickly as during much of 2021. But certain sectors were hit worse than others. Delivery times for microcontrollers reached a high of 35.7 weeks in February, according to Susquehanna’s research. Lead times also increased by a week and a half for power-management components. Both are essential parts of many electronics, including car components.

The global shortage of semiconductors began in the first half of 2020, driven by pandemic-fueled demand for consumer technology and vehicles. The scarcity of chips has held back production of everything from smartphones to pickup trucks, leading to billions in lost revenue and contributing to inflation by raising costs.

Ukraine is a major supplier of neon gas. It’s an essential component for the production of semiconductors. The war in Ukraine is therefore contributing to the shortfall in supply. At the same time, the increased demand for all sources, including military are inhibiting the balancing out of the market.

The market of protein foods is witnessing two key developments. The first is the efficiency drive, through new technology, among existing producers of animal protein food, such as milk, meat, fish or eggs. Better efficiency comes with smaller carbon footprint; indeed, the top 10% best performing farming businesses reduce theirs by double digits by adopting new innovative solutions.

Even more good news for companies: because most of the innovations work alongside existing production systems, their implementation will not require additional capital expenditure. There are also some products that target specific issues, such as cows belching methane – a greenhouse gas more potent in causing global warming than carbon dioxide. We now have a remarkable innovative food supplement that can suppress the production of methane by 30% in dairy cattle, and up to 90% in beef.

The second type of innovations is about finding new sources of non-animal proteins. Everything from using canola to single cell proteins. Recent study reported that “considerable progress has been made towards the development and production of meat alternatives, including cultured meat, plant-based meat alternatives, microbial protein, edible fungi, microalgae, and insect protein.”

We expect a combination of advanced scientific expertise and investment will be required in the years to come not only to develop new sources of proteins but also test how safe they are for human health and well-being. In the meantime, the diet is not the only factor that impacts our climate and other sustainability factors, it is also the operation of the supply chains themselves.

Arguably, the ESG movement found its first target in Nestle. For years activists lobbied the public to stop consuming Nestle products because of labour and business practices they found distasteful and often with good reason. Today’s the carbon footprint of the food sector is under scrutiny and the ESG model is part of every corporate communication.

Chinese tech giants like Alibaba Group Holding Ltd. and Tencent Holdings Ltd. in the past year. Beijing’s clampdown on private enterprise appeared to intensify in recent weeks after authorities required food delivery platforms to cut fees they charge restaurants and warned of risks in investing in products
linked to the metaverse.

Since its February 2021 peak, the China tech gauge has slumped nearly 60%. Adding to the fragile sentiment are concerns about a potential interest rate hike from the U.S. Federal Reserve next week and elevated commodity prices fueled by the war in Ukraine.
 
“Investors may be looking to sell growth names into the brief rallies to reduce their risk exposure, given multiple headwinds including Russia and the upcoming rate hikes,” said Vey-Sern Ling, a senior analyst at Union Bancaire Privee.

JD.com reported strong 2021 earnings but guidance was the share’s downfall today. This is a trend which troubled many US growth companies during earnings season as well. Keeping up pandemic era growth when liquidity is less available, and the real world is competing for attention versus screens, is a tall order. JD.com broke lower on the news.

In 2020 I began a series of reviews of longer-term themes which will be updated going forward on the first Friday of every month. These reviews can be found via the search bar using the term “Secular Themes Review”.

When Wall Street indices were breaking out to new highs in 2012/13 the world looked to be on the cusp of a golden era of globalisation, co-operation, and the inevitable rise of the middle class. Higher living standards would breed a more tolerant society with greater respect for the environment and for our fellow global citizens.

In predicting a secular bull market, we were correct about the market call. Wall Street and the FANGMANT stocks have outperformed global indices by a wide margin over the last decade. It was also correct to expect oil to underperform because of the bounty arising from shale oil and gas. Predicting a decade ago that the USA would become energy independent was seen as maverick. Today it’s a fact.

The social upheaval that began with the monetary and regulatory response to the credit crisis represents a significant threat to the utopian ideal of the everyman. Exporting job security in return for cheap products has hollowed out the middle class in most developed countries. The evolution of the subscription business model has also reduced individuals to cash flows; where ownership of hard assets is marketed as an outdated concept. This has contributed to significant social upheaval and the response to the coronavirus pandemic amplified it.  

At the same time, the trend of geopolitical tension continues to rise. The concentration of wealth in the hands of a small number of people, companies and countries is creating greater competition. China is much more active in staking its claim to global trade than in the past and Russia’s current invasion of Ukraine is reflective of a desperate need for both security and relevance in a world that is actively working to use less of its primary export; oil.

Appendix 3: Seriously, what are you talking about? My search results are perfect.

If you think your search results are perfect (without appending reddit), then you're probably right. If every single person agreed that Google search results were trash, then Google would already be bankrupt.

Perhaps it is more likely that 80% of people think Google is good enough, and 20% think Google sucks.

I do suspect that the 20% will be growing in number though.

Appendix 4: *Yawn*, this is the 87th time someone has claimed that Google search is dying in the last 20 years. This is a big meme in the SEO world.

"The reports of my death are greatly exaggerated" - Google, probably

You're right, there's been a new article bashing Google every few months for the last 20 years straight. It's probably nothing.

Still, it is a bit interesting that this short and simple post is now one of the most upvoted things of all time on Hacker News. There must be a lot of people who resonate with it this time around.

Hard to tell if something significant has changed.

Appendix 5: Random redditor explains it succinctly

u/a_latvian_potato:

I think I understand what this article is trying to say. It's not saying that Google's search technology is worse or that people don't use Google to search. It's saying that people trust less of the results Google shows compared to seeing discussions of it on Reddit.

For instance, if I'm looking to see reviews of the Honda Civic 2022 or whatever, I do find myself typing "Honda Civic review reddit" instead of "Honda Civic review". This is because I want to see what real people and enthusiasts (on r/cars or whatever) are talking about the car, rather than the top results at Google which are basically just paid reviews advertising the car anyway.

Even though I kinda know people in Reddit are just as capable of spouting BS that are completely wrong, I find the discussions more authentic anyway than the corporate speak the "big websites" have on their articles that Google shows me.

I have also noticed the quality of search results on Google has deteriorated. A great deal of scrolling is required to get past ads. That’s particularly true for commercial search terms.

A bad back currently prevents me golfing, walking the dog, or driving the car and, in my opinion justifiably, I am feeling a grumpy.

So here are a few gripes for you:

First gold:
For several years you taught us that the gold price follows an approximate 35-year cycle between highs, although the gold price could outpace stock indexes for short periods in between those highs. We’ve not heard too much about the 35-year cycle for a while, the message now being that it is not unusual for gold to trade in a boring range for up to 18 months or so before breaking out conclusively up or down. You believe it will break to the upside taking out previous highs (which runs contrary to your 35-year cycle theory). I hold a fair chunk of gold and silver miners in ETFs but regard the holding as a hedge rather than representing a belief that gold will imminently break to the upside. It might and it would be nice if it did but I doubt it. As David said, investment options are similar to a beauty parade and for the foreseeable future, many options are likely to look superior to gold.

Second India v China:
You are very hard on China and its political system. Having lived most of my life in Asia I take a less severe view. Like most observers I was disappointed to see that XI, the reformer, had no intention of political reform but on reflection, I think he’s probably right to opt for political stability at a time when China is still struggling to bring modernity to all its people and regions; when lightening-speed technological change is taking place across the globe and when it finds itself in an inevitable struggle to assert what it regards as its rightful influence on global institutions and practices. On a smaller scale in Singapore Lee Kuan Yew did much the same thing and while there is now a little more political tolerance in Singapore than there was, the Government – and most of its people – believe that full-throated democracy would lead to economic and societal break-down. That would be Xi’s worst nightmare.

My grouse is not so much with your view on China but with your uncritical view of India. I agree with you that India should do well given its demographic advantage and talents of its people. However, I think the Modi government is quite repugnant in its covert – and not so covert – support of extremist Hindu nationalism represented by terrorisation of the Muslim and Christian communities, and by its appalling failure to do much about the abuse of women, also fuelled by Hindu extremists. In the medium term, I fear this, together with over-dependence on coal, will limit India’s investment appeal and therefore its economic potential.

To declare my investment positions, I have reduced my exposure to India and wait for an opportunity to reinvest in China. My favourite Asian market currently is Vietnam.

Third, the purpose of your ‘service’:
Under David’s direction, Fuller Money provided objective macro oversights together with some trading suggestions/recommendations and some investment suggestions/recommendations. He often put his money where his mouth was and invested in his recommendations. Towards the end of his career, he stopped publishing his investment portfolio which I regarded as a pity. Under your direction, Fuller-Treacy Money continues to provide objective (if sometimes convoluted and long-winded) macro oversights, but I find it difficult to work out whether beyond that you are offering trading hints or investment hints. I use the word ‘hints’ rather than ‘suggestions’ because in this aspect you are far more non-committal on specifics than was David. The details you provide of your own investment activities suggest that you are a trader with long(ish) term investments in gold bullion, gold miners and Rolls Royce. I made several profitable purchases based on David’s recommendations but so far have identified none under your watch.

Fourth Daily Audio and Video:
From emails you have referred to from other subscribers, I am confident that I am not alone in being irritated by several of your constant refrains. Three which particularly annoy me are ‘The big question is ….’ (to which we never get an answer); ‘[Gold (for example) has a lot of work to do’ (which is a nonsense, better to identify factors which might influence buying/selling decisions) and; ‘I can’t talk and chew gum at the same time’ (which sounds quite catchy heard for the first time, but grates increasingly after many repetitions).

So, getting that off my chest makes me feel slightly less out of sorts. I shall be renewing my subscription in March. It’s been part of my routine for too long.

Thank you for this detailed email, your long-term support and I hope you back feels better soon. If it is muscular, rather than a herniation, I strongly recommend Yunnan Baiyao. I’ve pulled muscles in my lower back on several occasions either playing tennis or lifting. If it is taken quickly after injury, it provides a powerful, quick solution with no side effects I have experienced. 

I began questioning the wisdom of relying on the Dow/Gold ratio during the early stages of the pandemic. Here is a link to Comment of the Day on April 24th 2020. It includes a large number of long-term ratios and concluded that the Dow Jones Industrials Average is no longer the best way to look at the long-term ratio, confirmed concentration of attention in the growth sector, predicted the recovery in oil prices, higher wages, and the return of inflation.

In 2020 I began a series of reviews of longer-term themes which will be updated going forward on the first Friday of every month. These reviews can be found via the search bar using the term “Secular Themes Review”.

The biggest trend in the world isn’t bitcoin or the FANGMAN stocks. It’s bonds. Yields peaked in 1980 and the cost of borrowing has done nothing but decline since.

That’s enabled the steady rise of leverage, debt accumulation, asset price appreciation, speculation in all manner of public and private assets and every other bull market too.

The exact mix of where the debts have accumulated most is different in each country. For the USA, fiscal excess and unfunded liabilities are the biggest debt issue. The large number of companies surviving with no profits is the second biggest debt issue.

In Australia, Canada and the UK, consumer debt ratios, household debt and property debt are the pain points. The Reserve Bank of Australia’s reluctance to raise rates, despite inflation, is a symptom of the economy’s reliance on property prices.

For China, the accumulation of debt in the property sector has been epic. The sector represents 30% of GDP. At least in Japan, the massive quantity of debt is held domestically but it is a significant hurdle to raising rates.

This quarter’s sales forecast also disappointed Wall Street and Chief Executive Officer Mark Zuckerberg, who saw his personal wealth potentially plummet about $24 billion, acknowledged that Meta is facing serious competition for user time and attention, particularly from viral video-sharing app TikTok.
 
The dour outlook and stalled user momentum mark a dramatic turnaround for a company that has posted share gains in every year but one since its 2012 IPO, stoking concern that Meta Platforms flagship product and core advertising moneymaker has plateaued after years of consistent gains. 

“These cuts run deep,” wrote Michael Nathanson, an analyst at brokerage Moffett Nathanson, who titled his note “Facebook: The Beginning of the End?” The results were “a headline grabber
and not in a good way.”  Zuckerberg said Meta’s rival to TikTok, Reels, is growing quickly, but monetization has been slow. He asked investors for patience as the product ramps up.

“Over time we think that there is potential for a tremendous amount of overall engagement growth” with Reels, he said on a conference call Wednesday. “We think it’s definitely the right thing to lean into this and push as hard to grow Reels as quickly as possible and not hold on the brakes at all, even though it may create some near-term slower growth than we would have wanted.”

 

Does anyone remember Vine? It was the big short form video app of the early social media age and folded because it could not think of a way to make money. Musical.ly and later TikTok slid into that niche and effectively captured the generation Z demographic.

Viterra is already the world’s largest wheat trader, thanks to its investments in major exporting regions including Canada, Australia, Argentina, and the former Soviet Union. If Gavilon in the U.S. is added to that impressive portfolio, it will be the kind of concentration — and power — that governments worry about. Indeed, Beijing may be even more concerned about the deal than Washington. China, which is spending billions of dollars to build its own state-owned agricultural trading house, is unlikely to welcome further consolidation in an industry it relies on to feed more than one billion people.

Regulatory concerns aside, the deal is a steal. Glencore, founded by the late U.S. fugitive Marc Rich in the 1970s, built its agribusiness through acquisitions. In 2012, it beat out ADM and purchased Canadian grain trader Viterra Inc. for 6.1 billion Canadian Dollars ($4.8 billion). Today, Glencore controls just under 50% of the enlarged Viterra business, with 49% owned by two Canadian pension funds and a residual percentage controlled by the staff.

Most investment banks closed their commodity trading desks during the 2011-2016 bear market. They sold their ships and warehouses too so getting back to dominant positions is not going to be easy or cheap. That handed control of market making to private trading houses which now control the market regardless of whether Glencore’s bit for Gavilon is successful.

Microsoft Corp. shares rose in early trading on Wednesday after the software giant gave a forecast that reassured investors the company’s Azure cloud-computing business still has potential to drive growth.  The company predicted Azure’s revenue growth rate would pick up in the fiscal third quarter from the second, excluding the impact of currency fluctuations. The stock gained about 5% in premarket trading in New York. “This will help calm Street tech growth worries,” said Dan Ives, an analyst at Wedbush. 

Microsoft’s fiscal second-quarter earnings report on Tuesday showed sales that topped $50 billion for the first time and profit that exceeded analysts’ estimates, fueled by cloud, gaming and Windows software. But Azure revenue, up 46% in the period, decelerated from recent quarters and missed analysts’ rosiest estimates, sending the stock tumbling before executives issued a more optimistic forecast for the business later in the afternoon.

When I was recording the audio last night Microsoft was down in after hours trading. Shortly afterwards, the company released a more upbeat opinion of what they think the next quarters will look like so the share rebounded. Nevertheless, growth in demand for cloud services is moderating which is to be expected following the mass adoption event that accompanied the pandemic.

There are times in the market when a comparison between two assets classes serves to highlight a disparity that has become so wide that it inspires a sense of wonder, confusion and questioning

In December 2020 there was a news headline to the effect that Tesla’s market cap was greater than that of the next 9 largest car companies combined. There are two ways of thinking about that statistic. The first is enthusiasm for Tesla shares was running at fever pitch. The second was that the other auto companies were cheap by comparison.

Treasury yields rose a second day, with five-year rates hitting the highest since before the pandemic took hold in the U.S., amid increasing conviction that the Federal Reserve will raise rates at least three times beginning in May.

The five-year Treasury note’s yield climbed as much as 3.8 basis points to 1.392%, the highest since Feb. 20, 2020, while 30-year yields bumped up toward their 200-day moving average.

Yields across the curve are rising for a second straight day, after Monday’s selloff lifted the 10-year note’s yield by nearly 12 basis points in its worst start to a year since 2009. The two-year yield topped 0.80% for the first time since March 2020.

That move rippled through markets from Australia to the U.K., where bond trading resumed after a holiday on Monday. Australian 10-year yields jumped as much as 15 basis points to 1.82%, the highest since Nov. 26. Yields on the same U.K. tenor surged as much as 10 basis points to 1.07%, the highest since Nov. 3.

At 1.38% the 5-year yield has fully unwound the pandemic panic compression of early 2020.  In that time total debt outstanding has increased by $5.7 trillion or 24.6%. That’s an eyewatering figure.  Why the market did not flip out about it is a question which flummoxed investors in 2021.

Yesterday, Apple became the first $3 trillion company after rising some 40% in the past year. Meanwhile Bitcoin rose just 38% in that same time frame, but with a lot more volatility. That puts Bitcoin -- the granddaddy of the crypto market -- in an uncomfortable position. It offers all the volatility downside risks of cryptocurrencies but smaller returns than its peers.

Gains in this latest Bitcoin halving cycle have been much reduced. The pace of Bitcoin issuance declines by half every four years in what is known as a “halving”. And that increased scarcity is a large part of the cryptocurrency’s appeal. But, as my colleague Joe Weisenthal just pointed out, Bitcoin has appreciated about 250% in this past cycle, whereas in the 2013 to 2017 halving the gains were 1600% and a gargantuan 2,000,000% in the first halving cycle from 2009 to 2003. And in 2021, the rise in Ether, the second most-valuable cryptocurrency, far outpaced Bitcoin, buoyed by its use in decentralized finance and the NFT market.

So Bitcoin is a very volatile asset, with two drawdowns over 30% in 2021 alone, while still underperforming even Apple, the world’s largest company and one of the most liquid equity securities.

On the other hand, if you’re looking for big returns, you’re not looking at Bitcoin either. Not only did Ether outperform Bitcoin by a large margin but the ‘altcoin’ Binance Coin, the next largest cryptocurrency, outperformed both with a 1300% gain.

And now Ether is worth $455 million to Bitcoin’s market cap just shy of $900 million. Maybe 2022 will be the year Bitcoin loses its crown as the largest cryptocurrency.

$3 trillion is a still a lot of money, even in today’s world where that number is thrown around with abandon. A few years ago, it was possible to make the argument Apple was a value stock. That’s harder to say today with a price to sales ratio of 8, up from 3 in early 2019.

Electricite de France SA said last week it will halt four reactors accounting for 10% of the nation’s nuclear capacity, straining power grids already faced with the prospect of a spell of cold weather. At the beginning of January, almost 30% of France’s nuclear capacity will be offline, increasing the country’s reliance on gas, coal and even oil.

“If we have a very, very cold day, it could be problematic, especially if we have to import and our neighbors have problems as well,” said Paris-based Anne-Sophie Corbeau, a research scholar at the Center on Global Energy Policy at Columbia University. “This is the domino effect we need to fear. But electricity will be expensive, there’s going to be a cost to pay.”

German power for next year jumped to a high of 335 euros a megawatt-hour, following a 25% rally on Tuesday, before slipping back. The French equivalent rose as much as 2.5% to record of 408 euros. Prices gained amid thin holiday trading even as gas declines. There was also speculation some traders may be closing short positions due to rising capital requirements from exchanges.

“The strength in the French market has been the main engine -- aside from gas prices -- of strength in neighboring markets, including Germany, in recent days,” said Glenn Rickson, head of European power analysis at S&P Global Platts.

“I also suspect that any big moves ahead of the run-up to Christmas have as much to do with the thinness of the market and traders needing to close short positions ahead of shutting down for the holidays as anything else.”

Soaring gas and power prices have already forced European utility giants from RWE AG to Uniper SE to boost liquidity requirements. Many smaller suppliers didn’t have the same option, with more than 20 going out of business in the U.K. alone.

Half of the UK’s energy traders/providers have gone out of business since the spike in natural gas prices began. The survivors will be the best capitalised companies that can ride out this volatility. They will also benefit in future from capturing market share during this tumultuous period. 

Elon Musk has disposed of enough shares to reach a target of reducing his stake in Tesla Inc. by 10%, the head of the electric-car leader said in an interview. 

“I sold stock that should roughly make my total Tesla share sale roughly 10%,” he told satirical website Babylon Bee. 

Musk has been offloading Tesla stock since asking his Twitter followers in November whether he should sell some of his stake. The move is part of a plan to generate cash to cover an estimated tax bill of more than $10 billion on stock options Musk is due to exercise.

Elon Musk’s personal holding of Tesla shares represents a significant source of supply. His sales soaked up a lot of demand over the last six weeks and contributed to an almost complete unwinding of the overbought condition relative to the trend mean.

Cultivated meat has the potential to not just match but surpass the taste and texture of conventional meat, as well as to introduce novel products. If consumers take to these products, the market for cultivated meat could reach $25 billion by 2030 (Exhibit 3). Currently, the world primarily eats the meat of animals that are the easiest to farm industrially, but cultivated meat won’t face those constraints. Instead, the industry could select cell lines from specific animals with the best traits, such as Wagyu beef or wild salmon, and replicate them at the same cost as, say, beef patties or tilapia.

Cultivated meat can also go one step further and select cell lines from animals that are not widely eaten because of their low meat content, long growing time, or lack of availability. For example, ostrich meat, a product that has challenged many ranchers, could be cultivated and become a trendy low-fat, red-meat alternative. There could even be room for highly creative product innovation: the industry’s imaginative take on dodo poultry could make a better nugget than chicken, or a burger made of what research chefs think mammoth might have tasted like could be a mouthwatering new concept.

While most start-ups are focusing first on more popular species and breeds, Eat Just’s GOOD Meat and the company Orbillion Bio are exploring Wagyu, and the company Vow is working to explore more exotic options, such as kangaroo and alpaca.

In the nearer term, companies may choose to focus on a single area and mix plant protein and other flavors into their products to achieve the desired taste and texture. Eat Just’s chicken product sold in Singapore, for example, is more than 70 percent cultivated cells, with a small amount of plant protein added in for structure, while Future Meat in Israel mixes cultivated fat with plant protein. It’s too early to tell if blended options are merely an interim fix or if they present a sufficiently compelling option for long-term adoption.

At a dinner party a few years ago a successful restauranteur held forth on what was required to be successful in the business. She said one had to realise there are only three products groups; Fat, sugar, and salt. You need the correct blend of each to ensure consumers keep coming back. At the same time, if you want to make money, the food had better be salty because then people drink more alcohol which is where margins are widest. That basic rationale is why fast-food outlets focus on all three groups. They keep people coming back for more.

A rout in some of the world’s biggest technology companies dragged down the broader equity market, outweighing gains in companies that stand to benefit the most from an economic rebound.

The S&P 500 fell after earlier climbing on bets that central banks can move toward tighter policies to fight inflation without derailing the economy. The Nasdaq 100 tumbled, led by losses in giants like Apple Inc. and Tesla Inc. Commodity, financial and industrial shares rose. European equities jumped as the region’s policy makers unveiled a gradual pullback of pandemic stimulus, while the pound gained as the Bank of England unexpectedly raised rates. Bitcoin slumped.

Central banks are weighing measures to fight price pressures while balancing risks to growth amid coronavirus challenges. European Central Bank President Christine Lagarde unveiled forecasts showing a strong economic rebound along with an outlook for faster inflation. The Federal Reserve said Wednesday it will accelerate the pace at which it tapers bond purchases, and projected rate hikes through 2024.

This is a very whippy environment for trading. No sooner do we see a rebound than most of its is given up. This is attributable to the divergence between central bank pronouncements about their expected rate hikes and what the market believes is possible. Short-dated bond yields contracted today to reflect the expectation that if the Fed were in fact to raise rates three times, there will be economic consequences.

A year ago, I began a series of reviews of longer-term themes which will be updated going forward on the first Monday every month. The last was on October 1st. These reviews can be found via the search bar using the term “Secular Themes Review”.

One of the most basic truisms in the financial markets is it is easier to make money in a bull market. The bull market that began in late 2008 and early 2009 has been liquidity fuelled. That was not obvious to everyone a decade ago but now everyone gets the message. Money printing inflates asset prices. As long as central banks are printing, we will have bull markets and the most speculative assets will perform best.

Apple Inc. shares dropped after the iPhone maker was said to tell suppliers that demand for its flagship product has slowed, taking the shine off their recent record high.

Apple announced last month that it was having difficulty sourcing sufficient chips to meet demand. Today’s announcement suggests they may be under less pressure going forward as supply and demand come back into balance.

“The Communist Party is celebrating its 100th year — so is JPMorgan,” the bank’s chief executive officer, Jamie Dimon, said Tuesday at a panel discussion at the Boston College Chief Executives Club. “I’d make a bet we last longer,” reported Bloomberg News. 

And

In China, business dealings often come down to narrative. One day, a foreign bank is welcome, and its presence is seen as helping China improve its financial industry. The next day, the same enterprise could be painted as a predatory vulture. Words matter, and harmless intent or humor can be misconstrued in translation. Jamie Dimon has every right to tell a joke, but it always helps to know your audience.

The longevity and persistence of the Party are not topics of conversation in China. Jamie Dimon may as well have been using cartoons of the Prophet Mohammed in his PowerPoint. That’s the closest parallel for the gaffe committed yesterday. It is reasonable to expect JPMorgan’s prospective Chinese private banking clients to think twice before the starting a relationship. Retribution may not happen immediately but it will come.

Eoin, on the weekend big picture you were talking up the prospects of the Fangman, sounding more positive on the names then I can recall. One trading day later, you have shorted the Nasdaq. The message is mixed at best. Please can you help me/us understand this

Thank you for this question which may be of interest to the Collective. The Big Picture Long-Term video was conceived as a way of talking about how the events of the week fit into the broader tapestry of the global macro environment. Therefore, what I try to talk about is what would need to happen for the big trends to be reversed or for new ones to begin. 

Staples Center is getting a new name. Starting Christmas Day, it will be Crypto.com Arena.

The downtown Los Angeles home of the NBA's Lakers and Clippers, the NHL's Kings and the WNBA's Sparks will change its name after 22 years of operation, arena owner AEG announced Tuesday night.

Crypto.com is paying $700 million, according to multiple reports, over 20 years to rename the building. The parties aren't publicly announcing the financial terms of what's believed to be the richest naming rights deal in sports history.

The 20,000-seat arena has been Staples Center since it opened in October 1999, with the naming rights owned by the American office-supplies retail company under a 20-year agreement. The name will change when the Lakers host the Brooklyn Nets in the NBA's annual Christmas showcase.

Staples was an enormous 1990s success story. The share opened at $0.89 in the 1989 IPO and peaked in 1999 at $23.95. It briefly regained that peak in 2006 and was taken private in 2017. Back in 1999 it must have felt like the world was the company’s oyster. Today it represents a diminishing position in the office supplies and services market.

“We haven’t seen, I’ll say, any more resistance to our price increases than we’ve seen historically.” -- McDonald’s Corp. CFO Kevin Ozan, Oct. 27 earnings call

“Looking at Q4, we expect our selling price actions to continue to gain traction, as we work to mitigate the raw material and logistics inflationary pressures we have experienced throughout the year.” -- 3M Co. CFO Monish Patolawala, Oct. 26 earnings call

“We feel very comfortable that any inflation that is affecting our margin today, we have the ability to offset it.” - Chipotle Mexican Grill Inc. CFO John Hartung, Oct. 21 earnings
call

“We have now announced pricing in nine out of ten categories, so very broad based.” -- Procter & Gamble Co. CFO Andre Schulten, Oct. 19 earnings call

While most CPI categories rose, the cost of airfares declined for a fourth month and apparel prices were unchanged. Wages have strengthened markedly in recent months -- with some measures rising by the most on record -- but higher consumer prices are eroding Americans’ buying power. 

Inflation-adjusted average hourly earnings fell 1.2% in October from a year earlier, separate data showed Wednesday.
 

The ability of companies to pass on inflation is a good reason why the stock market generally does well in the early portion of an inflationary cycle. The big question therefore is not whether they can successfully pass on one price increase but whether they can continue to pass on price increases should inflationary pressures trend higher.

The company, now called Meta Platforms Inc., argues that millions of users are ready to adopt virtual reality technology — like its own headset — and live their lives in immersive online environments. That could mean attending a work meeting in a virtual boardroom, touring a digital factory or hanging out with far-flung friends in a simulated saloon. “The metaverse is the next frontier,” Chief Executive Officer Mark Zuckerberg declared.

For now, few people even have VR gear, and the metaverse concept would have to overcome concerns about privacy and — for some — a certain creepiness. But it has a big believer in one key corner: the largest maker of video-game chips, which says the metaverse is closer than we think and potentially the next gold mine for technology. 

The video-game boom set Nvidia Corp. on a path to become the world’s most richly valued chip company — overtaking the likes of Intel Corp. — and now it’s ready to remake the internet as a three-dimensional place. Rather than using the web to look at electronic pages, there will be a set of connected virtual worlds, according to Richard Kerris, an executive at the chipmaker whose career has included stints at Apple Inc. and Lucasfilm.

“You might not think you’ll be in the metaverse, but I promise in the next five years all of us will be in one way or another,” he said.

The metaverse has captured the imagination of the mob over the last week. The fact it twins with the evolving trend of recreating the supply inelasticity of land in the virtual world through the issuance of non-fungible tokens and crypto tokens has helped fuel enthusiasm. 

It’s last call for cheap beer. Rising input costs are soaring across the globe, fueled by withering barley supplies and surging aluminum costs, plus the same labor and transport bottlenecks plaguing every other industry. In North America, dry weather scorched fields, which typically produce enough barley to account for about 20% of global commercial beer production. In the U.S., American farmers reaped the smallest crop since 1934, just after Prohibition ended, while in Canada - - the fifth-largest producer -- barley output shrunk 34% to the second-smallest harvest since 1968

The cost of both barley and aluminium might be rising but there is increasing evidence that brewers are using this as an opportunity to raise prices. Many consumers have been couped up at home for more than a year and they are probably more willing to accept a price increase now than before the pandemic if they can get some semblance of their normal social life back.

Facebook, Apple, Netflix, Google, Microsoft, Amazon and NVidia are the most significant shares in the US market and occupy approximately 20% of the market cap of the total market. Owning these seven shares contributed to massive outperformance following the credit crisis crash.

The cars will be delivered over the next 14 months, and Tesla’s Model 3 sedans will be available to rent at Hertz locations in major U.S. markets and parts of Europe starting in early November, the rental company said in a statement. Customers will have access to Tesla’s network of superchargers, and Hertz is also building its own charging infrastructure.

It’s the single-largest purchase ever for electric vehicles, or EVs, and represents about $4.2 billion of revenue for Tesla, according to people familiar with the matter who declined to be identified because the information is private. While car-rental companies typically demand big discounts from automakers, the size of the order implies that Hertz is paying close to list prices.

“How do we democratize access to electric vehicles? That’s a very important part of our strategy,” Mark Fields, who joined Hertz as interim chief executive officer earlier this month, said in an interview. “Tesla is the only manufacturer that can produce EVs at scale.”

The electrification plan, which eventually will encompass almost all of Hertz’s half-million cars and trucks worldwide, is the company’s first big initiative since emerging from bankruptcy in June. And it signals that Hertz’s new owners, Knighthead Capital Management and Certares Management, are intent on shaking up an industry dominated by a handful of large players who are typically slow to change.

This is a win/win situation for Hertz and Tesla. Anyone wishing to rent a vehicle will take a look at Hertz if only for novelty value. For Tesla, it represents a strong try before you buy marketing campaign, they don’t have to pay for. I had both Toyota and Hyundai SUVs when I was house-hunting in Dallas earlier this year and my opinion of both brands was much improved following the experience. For many consumers looking at a minimum of five months wait time for a new Tesla, the chance to drive one on a temporary basis will be a tempting prospect.

The White House plan has the cooperation of the International Longshore and Warehouse Union, whose leaders and port officials were expected to meet with Biden's top officials on Wednesday. The ILWU says its members are willing to work extra shifts to ease the crisis.

Six companies are part of the plan -- Walmart, FedEx, UPS, Target, Home Depot and Samsung.

"Across these six companies over 3,500 additional containers per week will move at night through the end of the year," the White House said in a statement.

The administration said it's also trying to assist in a truck driver shortage by supporting state motor vehicle departments.

"In 2021, an average of 50,000 commercial drivers licenses and learner's permits have been issued each month, 60% higher than the 2020 numbers," a senior administration official said. "The supply chain is essentially in the hands of the private sector, so we need the private sector to up to help solve problems."

To say that the supply chain is in the hands of the private sector is a gross misrepresentation of the power unions hold over how speedily goods move through the most significant ports in the USA.

Foxconn is among the technology companies targeting EVs as a source of growth beyond low-margin electronics assembly. The Ohio deal is a boon for Foxconn, giving it assembly capacity, equipment and talent, Citigroup analyst Carrie Liu wrote in a recent note. The company is close to deciding the location for a car plant in Europe, Liu said.

The Apple car would be the ultimate prize for every aspiring EV manufacturer. Working in Foxconn’s favor is its strong relationship with the U.S. consumer-electronics giant. The years-long partnership has expanded as Apple has added product categories, and the company now accounts for about 50% of Foxconn’s annual sales.

Any Apple automobile is still years away and the company has suffered setbacks including the recent departure of the head of its car project to Ford Motor Co. An Apple car has for years been somewhat of a paradox -- it’s one of its most hotly anticipated products yet the company has publicly said almost nothing about it.

Foxconn has yet to start sales of any vehicle following the debut of its EV platform last year. It plans to start mass production of Lordstown’s Endurance electric pickup in Ohio in April, according to a person familiar with its schedule.

Even if Apple is not going to produce a car, we are in a new era for the automotive sector. The evolution of the battery drive fuel cycle has lowered the barrier to entry and enables third manufacturing business models.

While GACW is initially targeting the OTR sector, which includes mining, the global tire market is much bigger, and the company has plans to enter that too. That said, the initial focus on mining could raise in excess of $20 million in revenue per mine site given the significant numbers of vehicles involved in each mining project.

And while the company may have competitors in the mid-sized market, it does not have any competitors in the global OTR sector.

In addition to this market, the ASW technology can be applied to all vehicles currently using traditional rubber tires, a $322 billion estimated value in 2022.

So far, the company has raised $3 million and has 4 patents with 13 others pending. It is also currently testing its ASW products with mining partners with an evaluation period of between 6 and 12 months. From 2022, it intends to ramp up its production of the ASW product with full commercialization expected in 2023.

“At this point, our plan is to expand our distribution network and really start taking the tire industry by storm,” the company said.

Mining costs are heavily dependent on energy and transportation prices and the cost of complying with increasingly stringent environmental regulations. As those costs rise, the incentive for companies to find alternatives where possible becomes progressively more urgent. Finding a cheaper alternative for a major cost centre, while also mitigating environmental liability represents an attractive sales pitch; if it works. Here is a link to Global Air Cylinder Wheels’ website. 

Under terms of the transaction, Lordstown Motors will sell the Lordstown factory to Foxconn for about $230 million after buying it from GM for just $20 million two years ago. The maker of Apple Inc.’s iPhone will buy $50 million worth of common stock in its new partner and will assemble the Lordstown Endurance electric pickup truck. The deal is contingent on the two sides reaching an agreement on manufacturing the vehicle. Foxconn plans to start mass production in April, according to a person familiar with its schedule. 

Lordstown shares jumped as much as 12% in late New York trading Thursday. During regular trading hours, the stock rose 8.4%, closing at $7.98 after Bloomberg had earlier reported a deal was in the works. It’s still down 60% for the year.

The accord gives both companies something they badly need. Lordstown Motors gets a partner that will hasten the startup’s move into large-scale production, which will help lower the high costs required to make EVs. Foxconn gets a plant in North America where it can build its open-source electric vehicle platform and do contract manufacturing for partners like Fisker Inc.

Perhaps another way of thinking about this deal is Foxconn will get some valuable experience in building electric vehicles. It will have time to work through the kinks of producing large products at scale.

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on May 7th. These reviews can be found via the search bar using the term “Secular Themes Review”

Supply Inelasticity Meets Rising Demand was the phrase David coined to explain the last commodity-led bull market. After decades of underinvestment in commodity supply infrastructure, the market was not prepared for the massive swell of new demand from China; as it leaped from economic obscurity into one of the largest economies in the world. A decade of investment in new production was needed to supply China and that crested ahead of the credit crisis in 2008.

Today, we also have extreme example of supply inelasticity, and demand is breaking records for all manner of goods and services. The factors contributing to these trends are quite different from a decade though. Some will be resolved relatively quickly. Others will take years.

Dear Eoin, could you kindly update us on Rolls Royce, e.g.: Worth buying more on this surge? Sell and buy back on inevitable dip after rumours regarding nuclear reactor subside? Thank you very much, very best, 

Thank you for this question which may be of interest to other subscribers. Rolls Royce is a potential beneficiary from the UK’s decision to exclude Chinese companies from its nuclear sector. That’s been a bullish factor for the share recently, not least as uranium investments have broken out. The additional news that it has sold ITP Aero unit for £1.5 billion also helped to support the share.