“We see that light at the end of the tunnel, but we’re still kind of in the darkness ourselves,” Citi’s Peng said. Investors need more concrete catalysts before they step in to buy stocks. “So that’s the challenge for money managers.”

“We are looking to be more constructive on Asian equities in the next quarter, if the current correction continues. Valuations will be more attractive and worth a look then,” said Jason Low, senior investment strategist at DBS Bank Holdings Ltd.

“The good news is that valuations are looking more attractive now and technicals are oversold, which suggest that Asian stocks could be poised for a rebound in the next few months,” Jasslyn Yeo global market strategist as JPMorgan Asset Management.

Among the top 18 holdings in the iShares MSCI Emerging Markets ETF, 9 are from China. The addition, first of overseas Chinese companies and Hong Kong listed companies followed by mainland listed shares has represented a significant reweighting of the basket over the last decade. Since so many commodity producers rely on Chinese demand growth for exports the country’s influence is even greater than might initially be apparent.

“There is no question that a lot of the youth use is being driven by Juul,” Gottlieb said.

Produced by San Francisco-based Juul Labs Inc., Juul devices resemble a USB thumb drive and have become popular among students. The company has more than two-thirds of the U.S. e- cigarette market, according to Nielsen data. The FDA is currently developing a survey to determine what percentage of youth vapers are using Juul products, Gottlieb said.

A nationwide sting operation from June through August resulted in more than 1,300 warning letters and fines to retailers who sold Juul products and other e-cigarettes to kids.

It was “the largest coordinated enforcement effort in the FDA’s history,” according to the agency.

Gottlieb recently began to ask whether the use of Juul and other similar products by kids is overshadowing any benefit to adult smokers using the devices to help them quit cigarettes. He said in June tobacco companies “better step up and step up soon” but he didn’t divulge what consequences the industry could face -- until now.

In July 2017, the FDA said it was considering lowering nicotine levels in traditional cigarettes. In addition, the agency pushed back until 2022 a deadline for electronic- cigarette companies to submit applications to the FDA. Gottlieb said at the time he was trying to ease the regulatory pathway for products that are potentially less harmful sources of nicotine than smoking. Critics of pushing back the deadline raised concern that more kids would take up vaping.

Congress gave the FDA the authority to regulate tobacco products in 2009. The agency extended that reach to other tobacco products, including e-cigarettes, in August 2016 and allowed those products that were already on the market to continue sales while preparing an application for FDA clearance.

The FDA is investigating whether some products on the market were introduced after the 2016 date and may need to halt sales, though didn’t name which ones may be violating the law.

I had a discussion with my children about addiction and the cashflow seepage from their savings that would occur were they to take up vaping. We also looked at the cashflow of tobacco companies and talked about how much money they make from addiction. I’ve found it is not much use talking to children about their long-term health because it is no relatable. However, talking to them about not being able to afford a squishy or computer game because of an addiction gets a lot more traction. This conversation resulted from the fact that many of the videos they have encountered on YouTube or iFunny highlight children and young teenagers engaging in vaping.

Apple had completed $200 billion in share buy-backs since 2012. Apple’s cash hoard is so monstrous that six out of the 10 biggest share buy-backs in U.S. history were done by Apple. The $200 billion they’ve bought since 2012 is enough cash to buy all of Verizon, Coca-Cola, or Boeing. Chew on that for a minute.

Now, contemplate this: U.S. companies announced $201.3 billion in stock buybacks and cash takeovers in May 2018 alone. That’s a record monthly amount. Apple represents nearly half of that! Apple recently said it would buy back $100 billion more of its own stock. They didn’t specify when or how long that would take, but that’s about 10% of the market cap, currently at $1 trillion, the first trillion-dollar stock.

The buy-back announcements keep coming:
Broadcom (AVGO) pledged a $12 billion buy-back.
Micron (MU) pledged a $10 billion buy-back.
Facebook (FB) pledged a $9 billion buy-back.
T-Mobile (TMUS) pledged a $7.5 billion buy-back.
Qualcomm (QCOM) just upped the ante on their previous announcement to buy back $8.8 billion. On July 25th, 2018 QCOM said they would buy back $30 billion, more than 30% of the float!

Social media companies led an early pullback on the Nasdaq today as Facebook, Twitter and Alphabet were grilled in Washington. The questions being asked of these companies with regard to how they police their forums and the nature of the advertising being served to consumers/voters is understandably weighing on their performance. It is also leading to headlines along the lines of “technology stocks collapse” which if we look at the Nasdaq is clearly a case of hyperbole.

But a British company that launched in April is already marketing itself as an alternative to human models. Irmaz Models calls itself an “Imagined Reality Modeling Agency.” The company’s website says its designers can “make faces to fit” any marketing campaign. Another advantage: Digital models “never argue, need to eat, throw tantrums or get tired,” the company notes.

“Brands can specify the look they’re exactly after, down to the race, gender and hairstyle,” Philip Jay, a former Playboy photographer who founded Irmaz Models with Irma Zucker, told CNN.

Kelvin Boon, the owner of Boon Models, an agency with branches in New York and the District, said he sifts through a daily stream of modeling portfolios in search of “quality models.” Aspiring models don’t always resemble their photos, he said, and those that do often require training before they’re ready for professional work.

If credible-looking digital models emerge, he said, “it’s going to affect the industry a lot.” Why, he asked, would a brand spend thousand of dollars to hire models and photographers for a single photo shoot when you can hire an artist to create images for far less?

This is a very emotive topic and the headline above is what my daughters refer to as clickbait. People love their heroes so brands will always be on the lookout for someone they think can epitomise their image. However, there is a lot of work that is oriented towards the online market where photos are routinely doctored anyway that is ripe for digitisation. 

“Health problems associated with food and nutrition have become a big issue,” said Kozo Takaoka, head of the company’s business in Japan, in an interview in Tokyo. “Nestle must address that on a global basis and make it our mission for the 21st century.” He said the wellness segment could eventually account for half of Nestle’s sales in Japan.

The investments come with the burgeoning interest in so- called nutraceuticals -- food-derived ingredients that are processed and packaged as medicine or wellness aids -- among consumers that are increasingly skeptical about mass products.

Nestle employs more than a hundred scientists in areas including cell biology, gastrointestinal medicine and genomics at the Nestle Institute of Health Sciences and has been developing tools to analyze and measure people’s nutrient levels.

“Decades in the future, all companies will probably have to be doing it,” said Jon Cox, an analyst at Kepler Cheuvreux. “The industry has probably had a setback as consumers also want natural and less processed products while adding supplements is seen as artificial or creating Frankenstein food.”

Some nutritionists are skeptical that tailored diet plans based around supplements are useful and that they may have more of a psychological effect than a medical one.

“Nestle’s program is designed to personalize diets in ways unlikely to be necessary,” said Marion Nestle, a nutrition professor at New York University who isn’t linked to the KitKat maker. “If we think something will make us healthier, we are likely to feel healthier.”

I had my 23andMe results analysed by DNAFit and their conclusion was that I process carbohydrates rather efficiently so I should eat less of them. They also pointed out something I have noticed myself which is that when I commit to a training regime I progress quickly, but when I stop I go backwards faster than most people.

I also tend to accumulate cholesterol, so I have to be very careful with what kinds of fats I consume if I want to maintain healthy levels i.e. more nuts and avocados with fewer shrimps and chicken thighs.

I have been particularly interested in the range of new products offering genetic profiling of our individual microbiomes but my conclusion is these are still very developmental in the range of insights they can offer. With that as a background I expect I am exactly who Nestle will be targeting their products at when they expand beyond Japan.

Morgan Stanley just became the biggest Amazon.com Inc. and Alphabet Inc. bull on Wall Street.

The bank upped its price targets for the tech giants’ stocks by 35 percent and 14 percent respectively on Wednesday, to levels higher than any other of the analysts surveyed by Bloomberg.

Amazon’s high-margin revenue from advertising, cloud and subscription services like Prime are growing at such a rapid pace that the Seattle-based firm’s profits should increase even further, analyst Brian Nowak wrote in a note to clients.

Meanwhile, Google parent Alphabet is still only in the early stages of monetizing the seven platforms it owns that have more than a billion users, according to New York-based Nowak.

The launch of a ride-hailing service by Alphabet’s self-driving technology unit Waymo could also spur further share gains, he said.

Both companies had already garnered a slew of price target increases after surpassing expectations for second-quarter earnings last month, and not a single analyst tracked by Bloomberg recommends selling either stock.

Amazon’s stock price has doubled over the past 12 months, trailing only Netflix Inc. and Align Technology Inc., the maker of Invisalign orthodontics equipment, in terms of percentage gains for a Nasdaq 100 index member. Alphabet has rallied about 34 percent, a bit ahead of the benchmark

One of the hallmarks of the third psychological perception stage of a bull market is analysts competing to be the biggest bull. The way to make a name for yourself when prices are rising is to come out with a forecast that is well above the consensus and send it to as many journalists as possible, arrange interviews on financial TV channels and have the entire sales force talk about it with clients.

Meanwhile, Indian-managed companies like Ambani’s Reliance Retail Ltd. will be free to control and improve their supply chains while building a fearsome online presence in partnership with his mobile operator, Reliance Jio Infocomm Ltd.

That’s not the only onerous aspect of the policy. The draft speaks of a two-year period after which data generated in India – on social media (Facebook Inc.), via search engines (Alphabet Inc.’s Google), or e-commerce (Amazon) – will have to be stored on local servers. As the Wall Street Journal noted this week, the move is bound to push up costs for Western firms.

This new restriction will probably make it to the final law. The Indian central bank is already directing all payment firms like Visa Inc., Mastercard Inc. and PayPal Holdings Inc. to keep their Indian data exclusively in the country by October, so there’s little reason to expect that rules for e-commerce data will be much less stringent.

Besides, similar laws already exist in China. Amazon sold its Chinese servers and some other cloud assets to a local partner to comply with Beijing’s local storage rules. Alphabet, which has no data centers in China, is also looking for a local partner to bring its Google Drive and Google Docs to that country, Bloomberg News reported recently.

Other aspects of the policy may die without Bezos needing to move a muscle. Indian privacy activists will balk at the idea of a “social credit database,” to be set up — in a very Chinese fashion — by mixing state and non-state citizen data. While the goal of the database is to promote digital lending, there’s no guarantee it won’t be used to stifle dissent. 

A more problematic suggestion in the draft is that the Indian government would have access to the data stored in India, “subject to rules related to privacy, consent etc.” A proposed Indian data-privacy law is yet to be passed by parliament, and whatever makes it onto the books will in turn be shaped by the Indian apex court’s verdict in a case challenging the constitutional validity of a biometric identification system that the government has rolled out to 1.2 billion Indians.

India is on the cusp of digital revolution following the roll out of 4G at the beginning of 2016. It has been transformative for Reliance Industries’ shares but the broader impact of taking shopping, banking, music, books and just about everything else we take for granted online is likely to be a major catalyst for growth in the Indian economy. The clearest comparison is that India’s digital market is where China’s was approximately 5 years ago.

The average large-cap mutual fund holds 1.3% of its portfolio in Facebook, 0.2 percentage points less than its benchmark; 2% in Amazon, compared with the benchmark’s 2.4%; and 0.3% in Netflix, versus the benchmark’s 0.5%. The funds are overweight only in Alphabet, by 0.19 percentage points.

Those slim allocations helped shield the funds from the recent losses suffered by Facebook and Netflix that bled over into the broader tech sector and S&P 500. Large-cap growth funds have outperformed the broad stock market index over the past month and year to date, rising 3.9% and 11% over those periods, according to Morningstar. That’s versus gains of 3.3% and 6.6%, respectively, for the S&P 500.

I get the sensation that there is a lot of schadenfreude in the actively managed segment of the market because they sidestepped the recent setbacks in Facebook and Netflix. No mention is being made of how much they underperformed over the last three years because they were so underweight the so-called FANGs.

Many people are worried that Facebook collapse may have wider implications for not only the tech sector but also by contagion the broader market. What do you make of FB and its future and effect on tech / broader market? This is an important question as you know.,,,tech has been a cycle leader many thanks for your continuing good service

Thank you for this question which as you say is something a lot of people are ruminating on. Leaders tend to lead in both directions has been an adage at this service for decades so Facebook’s large downside weekly key reversal is a significant development. Equally Apple reaching a $1 trillion market cap today is an important development not least because it closed on the high of the day.

This was another highly enjoyable and educative trip to China for the Treacy family. One of the reasons we love visiting Guangzhou is because it is close to the factories Mrs. Treacy deals with but is also the gastronomic capital of China. The city is replete with wonderful dining options and the quality of food on offer is of a high standard. I’ll write a separate review of restaurants on another occasion.

This poster is in just about every public space from railway stations to the tube, to the barriers around building sites in Guangzhou. The first question I asked myself is why it needs to be in English as well as Chinese. Internet searches using English language terms do not return results even if one is using Baidu or other Chinese search engines and the vast majority of the domestic population does not read English. Therefore, the message is meant for a wider audience or the use of English is intended as a form of legitimisation of the ideals expressed.

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

I realise this summary at 4600 words is getting rather lengthy which is why I decided to right another book to more fully explore the issues represented by the rise of populism and what that means for markets and the global economic order. I’ve agreed an August/September deadline so hopefully it will be available this year.

Thank you for your superb service. Can you please advise your views on how vulnerable do you think the pharmacy shares are in the US after Amazon's entry to the field? Thank you in advance.

There are obvious fears that the introduction of Amazon’s business model to the pharmacy sector will have the same effect it had on the big retailers. However, I suspect the most profound effect will be felt among the smaller independent pharmacies that command about half the total US market. Here is a section from an article by bizjournals.com that may be of interest:

There are currently about 22,500 independent pharmacies in the United States, and these pharmacies dispense nearly half of the nation's retail prescription medicines, Norton says.

All told, independent pharmacies are an $81.4 billion marketplace annually. They fill 1.38 billion prescriptions a year — about 201 a day, per pharmacy — and employ 314,000 people on a full- or part-time basis.

The U.K.’s medical cannabis industry is getting another boost, with cigarette maker Imperial Brands Plc investing in a British startup that’s developing treatments derived from the marijuana plant.

Imperial Brands Ventures Ltd. and rapper Snoop Dogg’s Casa Verde Capital have invested in Oxford Cannabinoid Technologies, or OCT, which focuses on researching, developing and licensing compounds and therapies based on the plant. The total investment is approaching $10 million, with pain, inflammation, cancer and gastrointestinal diseases among areas of focus, Casa Verde Capital managing partner Karan Wadhera said in a Bloomberg TV interview.

“Cannabinoid products have significant potential and our investment enables Imperial to support OCT’s important research while building a deeper understanding of the medical cannabis market,” Bristol, England-based Imperial Brands said on its website Thursday.

Belief in the potential of medical cannabis is gaining steam with the U.S. Food and Drug Administration’s approval this week of Cambridge, England-based GW Pharmaceuticals Plc’s Epidiolex epilepsy treatment. The liquid is made from a compound in the marijuana plant called cannabidiol, a different chemical from tetrahydrocannabinol, or THC, which gets users high.

The investment in OCT comes as tobacco companies look for new business lines amid slowing sales and tightening regulations for cigarettes. Imperial Brands’ stake in OCT is “the most significant move among the global tobacco players in the cannabis industry to date,” Cowen analyst Vivien Azer wrote in a note Thursday. “We continue to expect to see more activity in cannabis from both global tobacco and global alcohol.”

Simon Langelier, who had a 30-year career with Philip Morris International Inc., joined the board of Imperial Brands as non-executive director in June 2017. He is chairman of PharmaCielo Ltd., a supplier of medicinal-grade cannabis oil extracts.

Here is a link to a CNBC interview of Karan Wadhera of Casa Verde Capital discussing the medium-term outlook for cannabis. Even when I worked in Amsterdam I never had any interest in smoking cannabis so I cannot speak from personal experience about the sector. However, it is hard to argue with people who suffer from chronic pain conditions who attest to the easing of symptoms they experience when consuming cannabis products over the highly addictive and often unsatisfactory results they get from consuming opioid painkillers.

“Many states will pick up on those details and incorporate them into their own regulatory regimes,” said Eric Citron, an attorney who represented South Dakota. He said he expected nearly every state with a sales tax to move legislation or regulations to enforce collections. “Complete compliance will become the norm within the next year or two,” he said.

Amazon originally set up its business model to avoid state sales taxes, limiting its physical presence to a handful of warehouses. But it changed strategy to build more warehouses closer to consumers as it has relied more on its Prime two-day shipping offer—and started charging sales tax on items it sells directly.

Amazon hasn’t collected the taxes for most independent merchants who sell on its platform. About $200 billion in sales originated with independent merchants selling on Amazon world-wide last year, according to Factset analyst estimates, compared with about $116 billion in direct sales by Amazon. The company declined to comment on the ruling.

The cost of compliance is rising in just about every sector. Since the credit crisis the burden of regulatory compliance has been a significant headwind for the banking sector and it has changed the nature of how they do business. The UK’s Retail Distribution Initiative resulted in the cost of doing business rising for financial advisors. The EU’s drive to introduce GDPR has seen some company email lists drop from hundreds of thousands to the tens of thousands. Asking online retailers to monitor how much and how often they sell into each state will increase compliance costs regardless of whether tax is then due.

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Here is a summary of my view at present:

That would mean scrapping the EU’s 10% tax on auto imports from the U.S. and other countries and the 2.5% duty on auto imports in the U.S. As a prerequisite, the Europeans want Mr. Trump’s threat of imposing a 25% border tax on European auto imports off the table.

Over the past few weeks, Mr. Grenell has held closed-door meetings with the chiefs of all major German automotive companies, including bilateral meetings with the CEOs of Daimler AG , BMW AG and Volkswagen AG , which operate plants in the U.S. Overall, Germany’s auto makers and suppliers provide 116,500 jobs in the U.S., according to the Association of German Automotive Manufacturers.

During these talks, which the ambassador initiated, the managers said they would back the scrapping of all import tariffs on trans-Atlantic trade in automotive products as the keystone of a broader deal covering industrial goods. The German government is on board and Mr. Grenell promised to support the idea, according to U.S. and German officials.

Trade tensions are ebbing and flowing on almost a daily basis. Efforts led by the German auto manufacturers to defray risks to their US business obviously highlight how seriously companies are taking the threat of trade friction and what it could mean for their businesses. That is particularly true in the aftermath of the diesel cheating scandal which continue to make headlines.

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

The footprint of ecommerce is only likely to expand if for no other reason than it is easy to shop and browse online. That doesn’t mean people will stop going to malls. We are after all a social species but the nature of shopping with definitely change.

The new Westfield mall that opened up the street from me a couple of months ago is focusing on food offerings with Eataly, Ding Tai Fung and Meizhou DongPo as well as upper middle class/luxury brands. That might be a function of its location sandwiched between the affluent neighbourhoods of Beverly Hills and Holmby Hills but equally speaks to the spending habits of Chinese shoppers.  

The shares jumped as much as 17 percent to $119.60 in New York trading, an all-time intraday high and the biggest one-day leap in almost a decade.

The overhaul started by Chief Executive Officer Alessandro Bogliolo consolidated a rebound under way when he took over last year, with revenue growth last quarter at the highest since 2012. The former Diesel executive aims to woo a younger clientele with refreshed jewelry lines and generate hype for the 181-year-old brand. The revitalization attempt includes redesigned stores and back-end improvements in procurement and technology operations.

“We are particularly encouraged by the breadth of sales growth across most regions and all product categories,” Bogliolo said in a statement.

Global same-store sales climbed 7 percent, in the quarter ended April 30 when holding currency constant, compared with the 2.6 percent growth projected by analysts, according to Consensus Metrix.

On that basis, sales rose 9 percent in North America, Asia- Pacific and Japan, all beating analysts’ predictions. Asia was particularly strong in China and Korea. The weak spot was Europe, which saw a 9 percent decline due to reduced spending by overseas tourists, the New York-based company said.

There has been a high degree of commonality in the luxury goods sector this year as the Trump tax cuts unleashed some pent-up consumer demand. Front loading purchases of goods likely to rise in value in anticipation of inflation has also been a factor in the outperformance of the sector. Additionally, luxury goods manufacturers have been at pains to try and appeal to a younger demographic.

Moody’s Investors Service said it may cut Campbell Soup Co.’s credit rating after the company posted a steep drop in profitability and its chief executive officer suddenly stepped down.

All of the company’s ratings are under review, including its Baa2 senior unsecured rating, Moody’s said in a report Monday. That’s only two steps above speculative-grade. Moody’s did not say how many levels the downgrade could amount to.

Campbell Soup has short- and long-term debt of $9.84 billion and its leverage as measured by debt-to-Ebitda -- earnings before interest, tax, depreciation and amortization -- was about five times at the March closing of the Snyder’s-Lance Inc. acquisition. Moody’s says it’s now doubting that the company can meet its expectations to reduce that metric to below four times within two years via cash flow and cost savings.

“The sharp and unexpected decline in profitability in the third quarter casts serious doubt that Campbell will be able to meet its deleveraging plans following the Snyder’s-Lance acquisition,” Moody’s analyst Brian Weddington said in the report. “Additionally, the departure of the CEO adds further uncertainty about whether the company will respond successfully to its operating challenges in the near term.”

Campbell Foods is not a dividend aristocrat because there have been occasions in the last 30 years when it cut the dividend. On each of those occasions it stopped raising the payout before the decision to cut. That is at least part of the reason that the share has been falling over the last year but does not explain the fall from the peak in 2016.

Thanks for your comments which are very interesting, especially your focus on technology and its potential to alter radically the investment landscape.

I have 2 points of my own to make. Using gold as the standard of value for stocks is interesting but I would think valuation metrics are more useful. As you know the Shiller PE, derived by comparing the S&P to the 10-year moving average of real corporate earnings- GAAP (not adjusted)- is at the highest level since the TMT bubble popped in 2000. The ratio of market value (the Wilshire 5000+) to GDP was at all-time highs in January. We have lived through a decade of extraordinary monetary policy (almost zero interest rates and QE), which is now being reversed. I think S&P market value to S&P sales may also be at all-time highs, but I may be wrong about that.

So the starting point is pretty rich. The PE is at 25 times 4 quarter GAAP earnings, implying a 4% earnings yield. The Moody's Baa 20-year bond yield is around 4.6% so the equity premium has been negative the last 5-6 years for the first time since 1961 when the Bloomberg series started. On average equity holders over this period have earned a premium of 1.62% to reward them for investing in the riskier part of the capital structure, but now they must pay for the privilege.

However, this does not address your major point about the enormous earning potential of companies involved in future technology. Now a standard criticism of your point is that competition between businesses will reduce the excess profits to "normal profits". What economists call "consumer surplus" consists of the extra value that is transferred from businesses to consumers for free due to the operation of the competitive market which eliminates excess profits.

This flows from the ideal world of independent competitive enterprises. Anti-trust laws in the USA have been around since 1890 (Sherman Anti-Trust Act) and were designed to cause real world behaviour to better approximate the theoretical. 

What I have found interesting is that Anti-Trust is no longer as big a deal as it was when I was a student. In fact, when Mark Zuckerberg testified he named 5 or 6 tech companies that are competitors of Facebook's. In this list he mentioned WhatsApp and another company (Telegram?) that he has already bought and perhaps one or two others. He also mentioned Skype, which Microsoft has bought. The big tech companies have the where with all to buy smaller rapidly growing companies and maintain tight oligopolies and thus earn outsize profits. I doubt whether many of these purchases would have passed muster from the Department of Justice's Anti-Trust division one or two generations ago.

So the key may be to watch politics and see whether the populists at some point turn their attention to Anti-Trust.

Thank you for this detailed email which has given me much food for thought. As you point out there is a tendency among the producers of widgets to encounter competition which reduces the price to often unprofitable levels. At that point some of the weaker producers go out of business and a process of consolidation unfolds. The competitive Amazon marketplaces is a good example of this where producers of widgets compete on price to gain market share only for many to disappear after a relatively short time to be replaced by lower cost producers.

In your 30th April response to my email, you say as follows "The only problem I have with comparing the current environment to that which prevailed from the early 1960s is that the market spent 13 years ranging from 2000 to 2013 so it would be unusual to begin another similar range so soon after the last one ended"

My response:  Yes, it is true that it would be unusual to "commence a similar such range so soon after the last one ended."  However, in this circumstance, there are a range of other very unusual related circumstances.

In the last 10 years, we have had a unique period of historically extreme money printing with very little consumer prices inflation as measured by the official CPI number, but this extreme period of money printing has caused very high asset price inflation - pushing many sectors back up into fairly extreme valuations as measured by historical norms.

We can also look at this phenomena from another. If we look at Professor Robert Shiller’s cyclically adjusted price/earnings ratio series commencing 1880, we can see that secular bear markets have typically ended with a single digit CAPE - at the end of a secular bear market, the cyclically adjusted P/E has been in the range of 5-7 in 1982 and 1921.

By contrast, the January 2018 peak in the US cyclically adjusted P/E of 33 was the second highest instance since 1880 - only being surpassed by the dot com peak in 2000 but surpassing the 1929 peak by a small margin.

So, by this (Shiller CAPE) normally fairly reliable valuation measure, the US share market on broad averages is at a fairly extreme level. I think it is fair to say that if you buy expensive assets, you should expect poor to bad average real returns over the following 10 years or so.

One last point to you 30th April comments, to the section where you say "The stock market is a better hedge against inflation than bonds because companies have the ability to raise prices and therefore dividends while bond coupons are fixed."  In a period of rapidly rising inflation like the 1970s, all listed securities including shares and bonds tend to do poorly because of the rapidly rising discount that needs to be applied when valuing such assets. By contrast, in Australia at least, during the 1970s, cash and hard assets like gold and commercial property were better investments. 

Thank you for this riposte to my answer to your original question posted in Comment of the Day on April 30th.

Over the next 30 years, air-conditioning could increase global demand for electricity by the entire capacity of the US, the EU and Japan combined, unless there are significant improvements in the efficiency of the equipment, the IEA warned.

In a report released on Tuesday, the agency urged governments to use regulations and incentives to improve the efficiency of air-conditioning units, to avoid a surge in demand that could put strains on energy supplies and increase greenhouse gas emissions.

Fatih Birol, the IEA's executive director, said: “This is one of the most critical blind spots in international energy policy.”

Air-conditioning has had an enormous effect on the quality of life in hot regions, but its use is unevenly distributed around the world. About 90 per cent of homes in the US and Japan have air-conditioning, compared with about 7 per cent in Indonesia and 5 per cent in India.

Electricity used for cooling in the US is almost as great as the entire demand for power in Africa.

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

There was a story a few years ago where world leaders were asked what the greatest invention of the 20th century was. Some said the electrical grid but the Prime Minister of Singapore said air conditioning. He opined that without it most people in the country would still be seeking shelter from the heat under the nearest tree.

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Here is a summary of my view at present:

In your 10/April long-term themes review, you said: "So, the big question many people have is if we accept the bullish hypothesis how do we justify the second half of this bull market based on valuations where they are today? ..... However, the answer is also going to have to include inflation. "

My thoughts, not in any particular order:

If we look at Robert Shiller's research ~1870-now, on the US share market, his studies show that historically, extreme valuations in the US share market (as assessed by cyclically adjusted P/E ratio) have always been followed by poor average real return over the following 10-20 years."
You point to inflation as to how a secular bull market (in nominal terms implied) can now occur for the US share market (by implications I think you are reflecting on the US share market) over say the next 10-15 years (say).  You use the experience of Argentina and Venezuela as justification for your argument - where from memory, there was hyperinflation in the periods to which you refer.

First, I do not think you are suggesting hyperinflation for the USA .... mismatch 1.
For Argentina and Venezuela, I think their currencies also crashed. I do not think you are suggesting the US dollar is going to crash. Possible mismatch 2.
Rather than a comparison with Venezuela and Argentina, perhaps a better analogy is to the period in the USA following the late 1960s, when US share markets where at quite high valuations (though not nearly as expensive as now on a CAPE basis). Following the peak valuations of the late 1960s, the US share market went sideways (with some large dips) over the next 16 years or so.

In summary, I am not sure that your argument is particularly robust.  Yes, the technological revolution is a critically important new phase which will have a huge impact over the next 10 and 20 years..... and there may well be a secular bull market in that sector ... but does that really mean that the technology sector by itself will take the whole S&P500 with it in a secular bull market for the next 10 or 20 years?

Your thoughts?

Thank you for this question which gave me plenty of room for thought. My first reflection is that one of the benefits of this service is the Socratic dialectical method unfolds in real time as these big topics offer endless room for discussion and revision. I spent a good deal of time talking about long-term cycles in the Big Picture Video on the 27th which you may find of interest. 

President Donald Trump renewed his long- running assault on Amazon.com Inc. with an early morning tweet Thursday. But what measures can he actually take against the online retail giant?

He could push for probes of consumer protection, privacy and antitrust issues. He could also step up his support for allowing states to collect sales tax on third-party purchases from Amazon, or seek to have the Postal Service charge more to deliver packages. And he could thwart Amazon’s aspirations to win a multibillion dollar Pentagon contract for cloud services.

Even with those powers, Trump’s ability to act has limits. Inquiries by the Justice Department or the Federal Trade Commission could take years and bear a high burden of proof. The FTC and other enforcement agencies guard their independence, as does the board of governors of the Postal Service. Changes to the tax law would require cooperation from Congress, which just passed a tax overhaul and may have limited appetite to reopen negotiations.

The feud pits the world’s most powerful man against one of the world’s biggest corporations -- a global titan with $684 billion in market capitalization and more than half a million employees. At stake is its reputation, revenue and, potentially, ability to continue to disrupt markets as it reshapes retailing.

Capitalism trends towards consolidation, as the strong eventually consume the weak and further dominate their respective sectors. That has created a comparatively small number of companies that we refer to as Autonomies which are truly global in scale and exert considerable sway both over their national indices but the global sectors in which they reside.

A link to the full report and section from it are posted in the Subscriber's Area.

This is a very measured report which I think is underplaying the short-term volatility tariffs are likely to provoke. Bilateral trade between the USA and China is substantial and US companies have invested considerable resources in developing customer bases in China. They are far from immune from Chinese retaliatory measures which over the course of the medium-term will likely be ironed out but probably not before there is some pain felt on both sides.

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Here is a brief summary of my view at present.

Trust you and your tribe are well.

Just a quick question. I don’t seem to have heard the phrase ‘mid-point danger line’ (MDL)for quite a while. Is the MDL irrelevant these days?

Thank you for your kind words and yes, the whole tribe are thriving. Thanks also for this question which remains a topic of conversation at The Chart Seminar. Incidentally, it has been a bit of a challenge to secure a venue for next month’s Chart Seminar in Melbourne, but we finally signed a contract with the Mercure in Treasury Gardens today. I’m really looking forward to revisiting my old stomping ground, having a coffee on a Lygon Street and, most of all, spending some quality time with subscribers.

Subscribers who have attended The Chart Seminar will be familiar with the fact that a failed upside break leads us to the conclusion that the vacuum of supply has not formed above the range.

Bond traders have to contend with both larger auction sizes and a condensed schedule when the U.S. Treasury sells $28 billion of three-year notes and $21 billion of 10-year notes on March 12. To JPMorgan Chase & Co. strategists, that combination signals a weak reception. Last month’s offerings, the first since 2009 to increase in size, priced at yields higher than the market was indicating heading into the sales. The 3- and 10-year auctions are usually spaced out over two days, but when they came on the same day in December, yields also missed higher.

Bull markets don’t often end because demand evaporates. They usually end because the surge in prices encourages supply into the market and that eventually overwhelms demand. There is no shortage of new supply, in fact the USA’s decision to double its deficit is the latest in a long line of issuers who have been locking in low rates. The fact that one of the biggest buyers, the Fed, is now a net seller, should be giving investors pause when thinking about the value represented by bonds at close to 3%.

Autodesk continues to show steady progress in shifting to a subscription model, which has boosted its recurring sales. Subscriber additions continued to be aided by its discounting and other promotions for converting legacy license users to subscription offerings. The company has bundled its products to boost annual recurring revenue (ARR) and average revenue per subscriber (ARPS). While upsell of subscription products to its maintenance subscribers is aiding sales momentum, new cloud products are unlikely to be a growth driver in the near term.

Subscription business models have been growing in popularity among technology companies since Adobe first explored the concept about five years ago. Historically technology has been a highly cyclical business with each new iteration of the product or software resulting in a surge in sales which subsequently led to declines as sales growth tapered off while support costs rose. The cycle would be repeated with each new product offering and this also put a lot of pressure on companies to come up with a new iteration that was measurably better than the last to justify the additional outlay.

You mention lead indicators, could you explain those you prefer?

At FullerTreacyMoney we look at two different types of lead indicator. The first is what one might think of as individual to the animating theme behind a trend, the others are broad market indicators.

Your recent assessments of the markets appear to be that a period of ranging is likely to be followed by markets going up again. Of course, whilst no one knows what the future will be, I wonder why you don't see the greater likelihood of markets turning down after some consolidation. With the amount of US debt increasing, interest rates increasing, and stock market levels already high by historical standards, are you not more concerned that markets, being forwards looking, might be more likely to head down than up? Esp. since markets struggle when interest rates go above 3%? I appreciate your talk of share rotation, but a rising tide lifts all boats and surely the opposite is true when markets tank?

Thank you for these questions which I think everyone asks from time to time. For someone in our position of attempting to forecast the outlook for markets the most important thing we have to remember is that markets rise for longer than they fall but when they fall they often do so quite quickly. However, they do not fall without first exhibiting topping characteristics. 

At the same time, Walmart Chief Executive Officer Doug McMillon is trying to convert the company’s brick-and-mortar shoppers into online customers, who spend almost twice as much overall and seek out higher-priced items.

At Walmart’s e-commerce unit, sales rose 23 percent last quarter. That’s less than half the pace of previous periods. The Bentonville, Arkansas-based company had been getting a tailwind from its acquisition of Jet.com, an online upstart that it bought in 2016. Still, the company maintained its full-year forecast for online sales growth of about 40 percent.

The company needs to widen its e-commerce base, especially among younger and professional demographics, said Neil Saunders, managing director of research firm GlobalData Retail.

Wal-Mart is spending a lot of money on its ecommerce platform but the cold reality is that its backend is antiquated compared to that offered by Amazon, eBay or Etsy. Maybe it is focusing on selling its own products over those of third party sellers but if that is the case one has to question why it has been marketing to Amazon sellers so aggressively. 
 

In an effort to sharpen Reckitt Benckiser’s focus on brands such as Strepsils and Mucinex cold remedies, Kapoor has moved to separate the company’s home-care and health businesses. Reckitt also became a leader in infant nutrition with the acquisition of Mead Johnson Nutrition Co. last year.

On Monday, it increased its forecast for synergies from the deal to about $300 million from $250 million. This year’s savings will only “slightly exceed” additional infrastructure expenses associated with the new health and home-and-hygiene business units, the company said.

Morgan Stanley analysts led by Richard Taylor described the company’s outlook as conservative.

A question someone asked of Charlie Munger at last week’s Daily Journal AGM stuck with me over the weekend. It was how he thought the established brands would fare with increased competition from the likes of Costco and Amazon who are pioneering their own products often in direct competition. His answer was that white- labelling and own-brand selling would have an effect, but if one were to take a long-term view the established brands would still have value. 

content machine, dominating the majority of phones worldwide. Now “what’s on your mind?”

Four hundred hours of video are uploaded to YouTube every minute, which means that Google has more video content than any other entity on earth. It also controls the operating system on two billion Android devices. But AT&T needs to divest Adult Swim?

Perhaps Trump is right that the merger of AT&T and Time Warner is unreasonable, but if so, then we should have broken up the Four ten years ago. Each of the Four, after all, wields a harmful monopolistic power that leverages market dominance to restrain trade. But where is the Department of Justice? Where are the furious Trump tweets? Convinced that the guys on the other side of the door are Christlike innovators, come to save humanity with technology, we’ve allowed our government to fall asleep at the wheel.

Capitalism trends towards concentration as the large and strong consume the weak. Despite claims to the contrary, it in the interests of company executives to ensure the company they work for comes out on top by whatever means necessary. It is rare in the extreme that fines levied, after the fact, match the benefit from ensuring a competitor’s demise. Therefore, large companies, that dominate their respective niches, tend to persist for as long as they retain the hunger to dominate. 

South Korea’s surprisingly weak economic performance in the last three months of 2017 isn’t cause for concern but does support the case for a cautious stance on central bank policy, according to economists and bank officials.

The economy ended its streak of outperforming expectations in the last quarter by recording its first quarter-on-quarter contraction since the global financial crisis.

That resulted in growth for the year—at 3.1%—coming in just below the government’s 3.2% target, but above 2016’s expansion of 2.8%. Markets on Thursday brushed aside the result, with the Kospi jumping 1% to reach record highs.

Still, the result will temper recent optimism about the economic outlook, while likely dispelling any idea at the Bank of Korea about raising rates until much later in the year. In November, the central bank raised rates for the first time in more than six years.

South Korea is the world’s 11th largest economy and it did not grow in the last quarter of 2017. This was explained by the surge in investment in the early part of year that eased back in the latter part of year but the failure to growth was an anomaly amid strong numbers for the rest of the global economy. Domestic consumption is expected to pick up this year and the Olympics may add some tourist revenue so a recession may be avoided but it bears monitoring nonetheless 

Snap Inc.’s first earnings beat as a public company, prompted at least five upgrades from analysts after the social-media company reported fourth-quarter revenue and daily active users ahead of estimates. The results blindsided short sellers who prompted upgrades from at least five analysts, and garnered a Street-high price target of $24 from Bank of America Merrill Lynch.

Analysts lauded the reacceleration of daily active user growth and advertising revenue growth, better-than-expected average revenue per user and the impact of the app redesign.

Still, some remained skeptical, with Morgan Stanley noting the potential that revenue trends could slow in 2018, while Susquehanna downgraded the stock amid competitive pressures from Facebook Inc.’s Instagram.

Snap climbed as much as 33 percent at 9:45 a.m. in New York, trading above its $17-per share IPO price for the first time since July. Here’s a roundup of what analysts are saying about Snap’s results.

Snap is used primarily by teens and tweens so it has appeal as a portal to the social interactions and advertising models of young people. Meanwhile Instagram is battling the company as it attempts to copy some of the Snap’s features while trying to appeal to the younger generation. 

“The super cycle is dead,” Steven Milunovich, an analyst at UBS, wrote in a note to investors on Friday. Apple shares slipped 2.9 percent to $163 at 12:18 p.m. in New York, leaving the stock down 3.7 percent so far, this year.

To adjust, Apple is now focusing on its huge installed base of devices and how to make more money from that -- rather than selling a lot more phones each year, Milunovich added.

Indeed, Chief Executive Officer Tim Cook highlighted late Thursday that Apple has 1.3 billion devices in use now, an increase of 30 percent in two years. The company is trying to sell more services through these devices, along with more accessories and related gadgets. Apple services revenue jumped 18 percent in the fourth quarter, while sales of other products, like the Watch and AirPods, jumped 36 percent.

Milunovich and other analysts quizzed Apple executives on the slowing phone upgrade cycle, during a conference call late Thursday.

“You have an installed base that’s 20 percent-plus higher, and a unit growth that’s relatively flat, which would suggest that your upgrade rate is going down, or your replacement cycle is elongating. And I’m wondering whether you agree with that,” said Toni Sacconaghi, an analyst at Sanford C. Bernstein.

Cook advised against looking at 90 days of sales. “The far bigger thing is to look over a longer period of time and customer satisfaction and engagement and number of active devices are all a part of that.”

Everyone on earth is going to have at least mobile device at some point in the next couple of decades. However, they are not all going to be paying $1000 for the handset. That privilege is reserved for the fashion conscious and those with deep pockets mostly in the OECD and China. For more than half the global population much cheaper handsets, often running Android, will prevail.

Three points agitated investors on the 30th and contributed the largest decline on the stock market seen in months. Amazon, JPMorgan and Berkshire Hathaway announcing a plan to reduce healthcare costs for their employees hit the healthcare sector, there were fears that President Trump’s State of the Union address would focus on trade, the Dollar and China but the speech was noticeably light on these topics. Meanwhile any investment manager looking to sustain a 60/40 split in bonds to equities had until today’s close rebalance some of their overweight equities into bonds. 

A section from this memo is posted in the Subscriber's Area. 

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

Veteran subscribers will be familiar with my refrain from the Big Picture Long-Term videos, since at least September, that we are in the 3rd Psychological Perception Stage of this impressive almost decade-long cyclical bull market. 

Deemed repatriation is significantly less fictional than remeasurement of deferred tax assets. Under the old tax system, U.S. companies were taxed on all of the income they earned everywhere, but only when they brought it back to the U.S.; they could defer taxes on foreign income by keeping it offshore. The new tax system is mostly territorial -- U.S. companies pay U.S. taxes on U.S. income and foreign taxes on foreign income -- but there is a one-time "toll tax" on foreign income previously earned abroad. That tax is at a much lower rate than the old (or new) corporate tax rate -- 8 or 15.5 percent instead of 35 (or 21) percent -- but it has to be paid over the next eight years, whether or not the money is actually brought back onshore. So, for companies that were planning to keep their foreign profits offshore forever, this is an actual new cost. (For companies like Apple Inc. that had already accounted for the cost of bringing the money back at 35 percent, though, it creates an accounting profit.) American Express really will have to pay that $2 billion of taxes over the next eight years. Perhaps it would have ended up paying more than that anyway under the old regime, if it had brought the money back, but it will definitely pay that much under the new regime. So, it needs to find $2 billion, and that is money that it cannot pay out to shareholders.

Apple has decided to bring its money home so it will pay the tax on it and is hoping to boost its domestic image by hiring more people and building a new campus much as Amazon is doing. For Citigroup the tax code change is an accounting fillip but nothing more, while for companies like Amex it is rather meaningful.
 

Taxes drove much of the gains. Financials were strong after Bank of America Corp. beat estimates and indicated that it could benefit from the U.S. tax overhaul by reducing pressure to cut future costs. And Apple Inc. climbed after saying it will bring hundreds of billions of dollars back to the U.S. from overseas to invest in jobs and facilities.

“We’re all really trying to figure out the real impact off tax reform on some of the major sectors,” said Jamie Cox, a managing partner for Harris Financial Group in Richmond, Virginia. “Financials in particular have been in the news because you’ve seen some weird things with some of their deferred tax assets being reported in earnings. I think a lot of people misunderstood and don’t understand how the deferred tax assets work, and so they’re seeing these massive charges that the banks are taking as a result of tax reform and they can’t see too clearly into the future about how much the impact on tax reform is going to have on their bottom line three quarters from now.”

And

“A lot of the move that we’ve been seeing has been just the beginning,” said John Stoltzfus, chief market strategist at Oppenheimer & Co. “It’s hard to quantify, but we see some evidence of bull market bears as well as skeptics of this bull market finally beginning to capitulate. And when that capitulation starts, it’s a process.”

Buy and the dip strategies have been programmed into algorithmic systems so that every time the VIX index rallies more than 2 points the flow of funds moves back into equities and out of bonds. This is a very short-term example of how risk parity strategies are maneuvering in the current environment. 

Here comes another sign that the few remaining bears are finally giving up.

Investment flows going into stock funds worldwide jumped to $24 billion in the week to Jan. 10 - the sixth largest weekly inflows ever - while $13 billion went into corporate and emerging markets bonds, according to strategists at Bank of America Merrill Lynch, who said the data show the market is reaching “maximum bullish” levels.

“Peak positioning on its way, but we expect asset prices to overshoot first,” the strategists led by Michael Hartnett wrote in a note, saying that to get a proper “sell signal,” they still need to see fund managers’ cash levels falling below 4.3 percent in their next monthly survey, as well as further inflows into high-yield bonds, emerging market equities and emerging market debt in the coming weeks.

Among recent signals that stocks are overheating: the proportion of bullish participants in the American Association of Individual Investors hit a seven-year high earlier this month, most major equity benchmarks around the world trade at overbought levels, and the S&P 500 has reached its most expensive level since 2002.

Among many investors there is a realization that we are in the latter stages of an expansion although there is little evidence of top just yet, much less any sign of recession. 

The new system is codenamed Tangle Lake, a reference to an Alaskan lake chain and the tangled state of the electrons themselves. Quantum computers are extremely different from standard (classical) computers, and can tackle problems modern classical machines can’t handle. The reason increasing the number of qubits in the system is important is because it also allows for a significant amount of additional work to be done and for more complex problems to be considered. And according to Intel, the gap between where we are today and where the company thinks we need to be for commercialization of quantum computing is enormous.

“In the quest to deliver a commercially viable quantum computing system, it’s anyone’s game,” said Mike Mayberry, corporate vice president and managing director of Intel Labs. “We expect it will be five to seven years before the industry gets to tackling engineering-scale problems, and it will likely require 1 million or more qubits to achieve commercial relevance.”

Intel is also investigating another type of qubit, spin qubits, to see if they can be implemented in silicon. Spin qubits are much smaller and can potentially be implemented in CMOS and Intel has invented a spin qubit fabrication flow on “300mm process technology.” This is oddly phrased, but seems to indicate Intel is building these chips on its 300mm wafers as opposed to some new process node.

The fallout from the exposure of vulnerabilities in the vast majority of chips currently in computers all over the world is going to necessitate a rethink of how to deliver the best possible processing speeds at an attractive price. For too long the semiconductor business has paid scant attention to the threat of hacking but with the increasing digitization of the global economy it is an issue that can no longer be simply ignored. 

Just eight companies -- Facebook Inc., Apple, Amazon.com Inc., Netflix Inc., Alphabet Inc., Baidu Inc., Alibaba Group Holding and Tencent -- have increased by $1.4 trillion in market cap in 2017, a sum roughly equivalent to the combined annual GDP of Spain and Portugal.

Tech giants' powerful user networks, large cash piles and access to consumer data have led many investors to expect the big will only get bigger.

"You need critical mass to support continuing innovation," said Christopher Dyer, director of global equity at Eaton Vance. While there are exceptions, "China and the U.S. would be natural destinations for incremental dollar investment within tech," he said.

The return to outperformance of emerging markets has been a major topic of conversation for investors this year but it is worth highlighting that Tencent Holdings, Alibaba, Samsung and Taiwan Semiconductor represent 17% of the MSCI Emerging Markets Index.

It is always a pleasure to meet subscribers but doubly so when we get to spend two days together discussing the outlook for psychological makeup of the market, where we are in the big cycles and which sectors are leading and which are showing relative strength. I had three big takeaways from last week’s seminar in London.

As anyone who has attended the seminar will know, I do not have examples but offer delegates the opportunity to dictate the direction of the conversation. That ensures the subject matter is relevant to what they are interested in and also highlights the fact that subject matter is applicable to all markets where an imbalance between supply and demand exists. The second benefit of allowing delegates to pick the subject matter is that it is offers a window into what is popular in markets right now and what might be getting overlooked. 

Microtransactions have been hotly debated since they began debuting in mobile games almost ten years ago. While they’d been used sporadically in various games for years, the rise of mobile games and their extremely low-to-free pricing made them a functional necessity for developers working in Android or iOS. The AAA PC gaming industry quickly took notice of this, and began offering games with microtransaction options. There’s been a great deal of pushback from the community at various points (Dead Space 3 got hosed for it, as did Bethesda and its horse armor), but microtransactions are clearly here to say. Ubisoft just reported that it took in more money in microtransaction sales than it did in game sales for the first time ever.

Over the past few years, Ubisoft has seen a notable shift in its earnings for various titles, SeekingAlpha reports. Game sales were buoyed this year by South Park: The Fractured But Whole and Assassin’s Creed: Origins, but microtransactions shot up even further, growing 1.83x in 12 months compared to 1.57x for game sales. Ubisoft also got a boost from the Switch, but even with Nintendo’s new platform, microtransactions brought home the bacon.

 

Once upon a time you bought a computer game and it included everything you would ever need to play that game. I started playing Diablo 2 as a teenager and the game is still available online with access to the Battlenet server, so players can join and play with or against others. It’s still free after more than 20 years. The updated version of the game, Diablo 3, has downloadable content (DLC as my daughters refer to it), and additional characters you can pay for. Overwatch, Activision Blizzard’s newest hit game releases animated shorts to build interest in characters, has built in loot boxes for extra gear and additional outfits for your favourite characters all of which represent additional revenue streams. 

I’m going to use 3M to illustrate the following points. 

1. Equities as an asset class is often perceived as riskier than others but there is one sector within equities that I will argue is safer than everything else including fixed income and real estate. 

2. If you invest in a world class, global scale company that is from this sector, you are already fully diversified, hedged and all the macro economic issues and challenges taken care of. 

3. This sector is resilient in the face of even a global financial crisis because frequently, these companies do not have high financial leverage. (Caveat: In recent years, it has become less true in the US and Europe) 

What is 3M really? It is a deep physics, chemistry and material science company. Everything they do is about manipulating the atoms and molecules of nature to create functional materials that we can use in our daily lives.  

With each passing year, 3M piles on more patents, a bigger library of chemicals and processes, more knowhow. All this knowledge is cumulative. The company is now 115 years old. All that accumulated intellectual property is practically unassailable. There will never be another company like 3M anywhere else in the world. Certain segments of their business can be separately attacked but there will never be another company that can challenge 3M on most fronts simultaneously.  

This is the nature of science and intellectual property. The strength is cumulative over time. In contrast, for real estate companies and banks, big or small has no bearing on vulnerability to debt crisis storms, as we all learnt in 2008. The underlying strength is not cumulative over time, not the way it is for a science and intellectual property company.

 

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

When I click through the constituents of the Autonomies section of the Chart Library 3M always comes out first because they are listed in alphabetical order. However, the reason the company is included in the list of Autonomies is because it fulfils every qualification for membership. It is a truly global company with operations everywhere and generates 60% of revenue from outside its home market. 

The $1,000 price tag on Apple Inc.’s new iPhone X didn’t deter throngs of enthusiasts around the world who waited—sometimes overnight—in long lines with no guarantee they would walk out of the store with one of the coveted devices.

Apple briefly became the U.S.’s first $900 billion company on the day the new smartphone went on sale.

 

Consumers have understandably been delaying purchases until the X was launched. After all why fork over $700 for a second-rate version when the feature laden anniversary edition is only six weeks away. Glass on front and back and rumours that the augmented reality has been toned down to speed up production are unlikely to deter initial enthusiasm for the device not least as the new emoticons are designed to appeal to the young hip crowd. 

Lawmakers are focused on whether there was any overlap between the Trump campaign and the massive Russian effort to flood Americans’ social media feeds with fake news and fake ads.

Facebook plans to tell lawmakers that 80,000 posts came from 470 fake Russian accounts and that it closed 5.8 million fake accounts from all sources in October 2016 alone. Fake Russian accounts on Facebook’s Instagram posted an additional 120,000 pieces of content, the company will tell lawmakers.

At the same hearing, Twitter Inc. will say it has suspended 2,752 Russian-linked accounts, far more than it previously disclosed, according to testimony obtained by Bloomberg News. Alphabet Inc.’s Google plans to say the impact on its sites was much smaller, with $4,700 worth of Russian-linked ads, compared to the $100,000 Facebook disclosed.

 

There is no doubt that foreign interference in the electoral process of another country is almost universally going to be greeted with hostility and not least when it is so openly pursued. Russia was probably betting that it could pursue its geopolitical goals with less interference from a Trump administration than a Clinton one but that was a risky strategy when it must have known what the political blowback would be when it actions were discovered. 

Analysts have speculated that Amazon could soon enter the business of selling prescription drugs, threatening to disrupt retail drugstores, drug wholesalers, and the pharmacy-benefits management business. While Amazon has never publicly commented on what its plans may be, CNBC reported this month that the Internet giant could make a decision about selling drugs online by Thanksgiving. The network didn’t name its sources.

McKesson slid 5.2 percent at 4 p.m. in New York, while AmerisourceBergen shares fell 4.2 percent and Express Scripts sank 3.7 percent following the report on Amazon’s state licenses by the St. Louis Post-Dispatch.

Bloomberg News confirmed that Amazon had obtained wholesale-pharmacy licenses in at least 13 states, including Nevada, Idaho, Arizona, North Dakota, Oregon, Alabama, Louisiana, New Jersey, Michigan, Connecticut, New Hampshire, Utah and Iowa. An application is pending in Maine. Some of the licenses were obtained late last year and some this year.

 

Amazon doesn’t make money from shipping products in the USA and makes a loss on doing the same elsewhere which helps to explain why it can continue to grow market share at the expense of conventional companies. It depends on its webservices business to provide profits even though the online retail business accounts for the vast majority of turnover. However, it is the fact that Amazon has leeched earnings from other sectors to feed its revenue growth which is what investors are betting on which has contributed to the consistency of the advance since 2015. 

Gaming data points available today point to an industry facing challenges: The number of physical games sold in the US has declined every year for the better part of the last decade, the install base of consoles is well below the prior cycle peak, and the physical attach rate of software is below where it was in the last two console cycles. However, this is the old way of analyzing this business and in the new “Digital Era” of video games, the business has shifted from one that is hit-driven and reliant on physical retail to an industry that is largely online (over 60% digital and could arguably shift completely online longer term), more recurring and predictable, more monetize-able, and significantly more profitable. 

When we consider that the number of games sold as digital copies continues to grow at 20- 30% each year, notably the market for console software is actually growing – albeit at a single-digit rate. Add to that, the install base of hardware continues to progress towards 100mn+ HD units and, while the physical attach rate of software is below where it was in the last two console cycles, the focus on deeper engagement and higher player monetization through digital content appears to be largely offsetting the impact of fewer game sales. We remain optimistic that newer hardware including Nintendo’s Switch and Microsoft’s Xbox One X can re-invigorate the market for games and are encouraged by some early trends. US retail sales are tracking up mid-single digits year over year in 2017 and, adjusting for sales of digital games, it appears that the number of games sold each year in the US is stable y/y. 

In the Digital Era, gaming content will always be available and players will have access to games in more ways than ever. The industry will become far more global and fragmented across devices than before, which will increase the potential audience for gaming content substantially. We are cautiously optimistic on the potential for traditional video game publishers to further penetrate the rapidly-growing markets in China and on Mobile, however, and we remain on the sidelines regarding the emerging interest in eSports and VR. Nonetheless, we still believe the value proposition of games remains very high relative to other forms of media and we are encouraged that the new revenue TAM in the Digital Era is dictated only by the amount of time players have to engage with games, rather than by the number of consoles in their hands.

 

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

Gaming is evolving into a much larger industry than movies. Audiences at theatres continue to decline, not least because of the lackluster “cookie-cutter” nature of many movies but also because audiences have more to do and have both online games and content available 24/7. That represents a significant migration within the media sector which is easily observable in the performance of respective shares. 

Amazon has developed its own brands in part because they fill gaps in its inventory. If customers are searching for a certain type of shoe or skirt, and don’t see much of a selection from established brands, Amazon wants to be able to offer its own options. Oftentimes, shoppers may not realize that the names -- such as Scout + Ro and North Eleven -- are owned by Amazon.

This also sends a message to brands reluctant to sell their full inventory on Amazon. If shoppers can’t find your products on the site, Amazon will make its own substitutes and become your competitor.

For suppliers like Eclat, forging alliances with e-commerce companies reflects shifting demand from consumers, Chiu said in a note.

“Online apparel sales accounted for 19 percent of all apparel sales in 2016, up from 11 percent in 2011,” Chiu said.

“Online sales are primed for strong growth.” Eclat expects new clients to contribute as much as 12 percent of 2018 sales, she said. The shipments to Amazon began in August, according to Chiu. “The contribution this year will be small, but the potential is high,” she said.

Amazon has a wealth of data about what people search for and can also cross reference that with what people in fact end up purchasing and returning. That puts it in an enviable position to design product lines around what people want rather than guessing what the next fashion forward idea is going to be. 

Disintermediation was the buzzword of the internet during the 1990s but the trend on cutting out the middle man continues as the number of hands touching an item between the manufacturer and the end consumer continues to shrink. 

If a homeowner installs a charging station in his garage, there may not be much impact on the grid.  However, if all his neighbors do the same thing, there could be a problem.  Transformers are necessary to regulate the power flowing into a home, and they usually service multiple homes, generally four at a time.  A problem is that utility companies do not know exactly how much power is being used by a particular home relative to its neighbors until a transformer fails.  Upgrading transformers can be expensive and limited by weight limits for units mounted on power poles.  One estimate suggests moving from a 50KVA pad-mounted transformer serving four homes to a 75KVA unit costs about $3,000.   

For underground power installations, upgrading the transformer units may be easier, but not necessarily less costly.  One study by the Institute of Electrical and Electronics Engineers says that the problem is at the local level.  If multiple Level 2 chargers that fully recharge a car in 2-3 hours, are plugged in at the same time at night, they may prevent transformers from cooling as they are designed.  Sustained excess current will eventually ‘cook’ a transformer’s copper windings, causing a short and blacking out of the homes attached to the device.  This problem was observed from a study of the habits of EV owners in an Austin, Texas suburb.  Over a two-month period, the residents tended to recharge their EVs at the same time – when returning from work – that coincided with air conditioning loads increasing along with the use of other appliances. 

A similar study was conducted in the UK, which conducted an 18month study of resident habits when 100% were using EVs.  The study’s result show that at least a third of the UK’s power grid will need to be upgraded to support an EV sales rate of 40% of new car sales by 2023.  That doesn’t address the load issue if 40% of the entire UK vehicle fleet were plug-in EVs. 

 

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

The rollout of electric vehicles, which is anticipated to ramp up as manufacturing capacity for both batteries and cars comes on line in the next few years, is going to put strain on the electrical grid both from a generating and traffic perspective. While it can be argued how much additional supply with be required, the introduction of charging stations to the residential environment will certainly increase the consumption of electricity at individual homes. 

Stock investors love it, of course. Why wouldn't they? Apple is the third-biggest dividend payer in the U.S. behind Fannie Mae and Exxon Mobil Corp., which is music to any investor's ears when bonds are paying historically little. And debt investors seem to be just fine with forking their money over to the company; they've eagerly bought up multiple debt offerings from Apple so far this year, with the seventh 2017 bond sale on track to get the company's usual warm reception. 

This raises longer-term risks and threats to the company that aren't highlighted often, if ever.

As long as Apple keeps churning out loads and loads of cash, all this is fine. Apple generates more cash than any other public U.S. company, and it's spending its money both to invest in its business and to return money to stockholders. Apple's spending on research and development has also increased sharply in recent years, as have its capital expenditures on things like manufacturing equipment, computer centers and its retail stores. In short, Apple produces enough cash to do everything a business is supposed to do: reward its owners, support its existing products and plan for the future.

Apple has mastered the art of milking its legions of fans by bringing out new products on a predictable schedule that iterate on previous offerings by being just better enough to justify the outlay.

Additionally, it is among an increasing number of companies that have employed an innovative strategy to bring its money home from overseas by issuing debt so that it can be returned to investors without paying corporate taxes. As the above article highlights, that policy will be fine as long as revenues remain robust. 

Over the past three years, the 10 largest packaged-food companies have seen about $16 billion in revenue evaporate as consumers change how they eat and shop. Shoppers are seeking out more natural and organic food, shifting away from the staples that have dominated supermarket shelves for decades.

Whole Foods Deal
Amazon.com Inc.’s deal to buy Whole Foods also has fueled pessimism about packaged-food giants, with analysts predicting that the e-commerce titan will favor private-label products and squeeze the profit margins of its suppliers. In June, when that deal was announced, the 10 largest U.S. food companies lost almost $8 billion in market value combined.

In a bid to add more natural products, Campbell agreed to buy Pacific Foods of Oregon, a maker of organic soup and broth, for $700 million in June. Campbell also acquired Bolthouse -- a producer of carrots, juices and salad dressings -- for $1.55 billion in 2012. That business, now part of the Campbell Fresh unit, has struggled with poor harvests and a drink recall.

 

Leaner and fitter isn’t just a maxim for personal health but is increasingly being foisted upon consumer goods companies as the supermarket sector comes under pressures from low cost new entrants willing to compete on razor thin margins. Amazon’s focus on Whole Foods’ own brands coupled with Aldi and Lidl’s low cost own- brand focus represent challenges for other supermarket chains which are inevitably going to be passed on to their suppliers. 

Many eyes are now on Apple’s 10th anniversary event for the iPhone, which is expected to be held next month. There, Apple is set to introduce major upgrades for the next iPhones, which could stoke our appetites again for the gadget. Or not.

Chief among the changes for the new iPhones: refreshed versions, including a premium model priced at around $999, according to people briefed on the product, who asked to remain anonymous because they were not authorized to speak publicly. Apple made room for a bigger screen on that model by reducing the size of the bezel — or the forehead and the chin — on the face of the device. Other new features include facial recognition for unlocking the device, along with the ability to charge it with magnetic induction, the people said.

Here’s a look back at the last 10 years of why the iPhone still has us in its grip — so much that people keep coming back for more.

Rather than think of the iPhone as a product iteration it is probably better to describe it as an ecosystem. The phone itself represents a hefty initial outlay but the AppStore, while generating considerably less revenue, acts as an anchor for the brand because apps are transferrable between phones of the same brand but push up the cost of switching. 

The company said it will begin slashing prices on a broad cross section of Whole Foods groceries Monday -- the same day the $13.7 billion deal is set to close. That will start with items such as chicken, eggs, some vegetables, and some types of organic fish. Amazon reeled off a long list of other plans to combine its leading e-commerce and delivery assets with the physical locations of Whole Foods stores.

"This is a pretty impressive array of bold moves on the first day of an acquisition -- unprecedented, we would say," said Carol Levenson, an analyst at Gimme Credit.

The moves by Amazon inflame an already raging price war in U.S. groceries -- a sector known for razor-thin profit margins.

German discount grocers like Lidl and Aldi are expanding in the U.S. and Wal-Mart Stores Inc. has been investing in more discounts too. Low prices are familiar terrain for Amazon, which has operated with little profitability for more than a decade. Shares of grocery-store chains fell on the announcements.

Kroger Co. declined as much as 2.4 percent while Sprouts Farmers Market Inc. sank 2.5 percent. Wal-Mart Stores Inc., which sells the most groceries in the U.S., also dropped 0.8 percent.

Amazon will also begin selling Whole Foods branded products, including those that are part of the 365 brand, via its website, and through fast delivery services like AmazonFresh, PrimeNow, and Prime Pantry, the company said.

Beyond price cuts and increased distribution, Amazon Prime will become Whole Foods’ customer rewards program, allowing shoppers to rack up Amazon rewards when they purchase pasture-raised eggs, organic milk and kombucha.

 

Amazon Prime is no longer the cheapest venue for goods but is among the most convenient. That turn to mild profitability has allowed the share to perform admirably over the last 18 months. The decision to embark on a price war following its acquisition of Whole Foods, which has historically been among the most expensive vendors, is a threat to established stores that have never had to compete on price with a company possessing Whole Foods’ cache. 

“By turbocharging supply and depressing demand, automation risks exacerbating China’s reliance on export-driven growth – threatening hopes for a more balanced domestic and global economy,” BI economists Tom Orlik and Fielding Chen wrote.
Pay gains are intact. Domestic manufacturing workers with a high-school education saw wages rise 53 percent from 2010 to 2014, according to China Household Finance Survey data cited by BI. 

“Increasing use of robots should be bad news for medium-skilled workers, especially those in sectors where routine work means scope for automation,” Orlik and Chen said. “Yet wage growth in China remains rapid, and if anything, medium-skilled workers conducting routine work are doing better than average.”

 

Technological innovation has led to the pace of development speeding up. It will not have escaped the attention of investors that the original Tiger economies were able to evolve economically much faster than the Europe or North America during the Industrial Revolution. More recently China has come from relative obscurity to be the world’s second largest economy. What used to take generations now takes decades and the pace of development is speeding up so that we may witness multiple iterations in our lifetimes. As much youngest daughter delights in telling me, she was born the same year as the iPhone. 

“Teens and tweens remaining on Facebook seem to be less engaged –- logging in less frequently and spending less time on the platform,” Orozco said. “At the same time, we now have Facebook-nevers, many children aging into the tween demographic that appear to be overlooking Facebook altogether, yet still engaging with Facebook-owned Instagram.”

A year ago my now 11-year old wanted to text her friends, but I had no intention of giving her a phone. Ever resourceful, she gave her friends my number with the result being, she co-opted use of my phone because her class’ group chat was constantly buzzing. As a compromise, I cloned my phone, so now I have two sim cards and two handsets. All messages arrive on both phones simultaneously. She gets use of a phone and I have real-time oversight.  

Movie studios are considering whether to ignore the objections of cinema chains and forge ahead with a plan to offer digital rentals of films mere weeks after they appear in theaters, according to people familiar with the matter.

Some of the biggest proponents, including Warner Bros. and Universal Pictures, are pressing on in talks with Apple Inc. and Comcast Corp. on ways to push ahead with the project even without theater chains, the people said. After months of negotiations, the two sides have been unable to arrive at a mutually beneficial way to create a $30 to $50 premium movie-download product.

The leading Hollywood studios, except for Walt Disney Co., are eager to introduce a new product to make up for declining sales of DVDs and other home entertainment in the age of Netflix. They have discussed sharing a split of the revenue from premium video on demand, or PVOD, with the cinema chains if they give their blessing to the concept. But the exhibitors have sought a long-term commitment of as much as 10 years for that revenue split, which the studios have rejected, the people said.

 

Movie theatres are in real danger of being disrupted in the much the same way as big box retail because many people would prefer to watch movies at home, studios would have to wait less time to monetise the movie and it would combat piracy. It seems to be only a matter of time before streaming replaces movie theatres in their current format. 

With a shrinking working population, Japan has record low levels of unemployment and the economy is poised to receive a boost once this lack of supply filters down to wage growth. But there are equities which can profit from the tight labour market according to Weindling; he invests in recruitment firms that provide permanent and temporary workers.

Suppliers Immune from Domestic Threats
While the population is ageing, Weindling points out that a Japanese company does not need a Japanese customer base to thrive.

“There is no reason why Japan should not continue to make things. Factory automation and robotics are not a threat to Japanese industrials in the way that they are to US companies – they are the solution to a dwindling workforce,” he says. “More automation is a good thing, and the larger industrials will continue to take market share. It is a multi-year, structural shift.”

That does not mean he backs the exporters of old, however. The international names which have long been synonymous with Japan are electronics firms and auto-makers; Toyota, Canon, Mitsubishi and even Sony are no-go areas for Weindling.

“No one buys cameras anymore, so why would I buy Canon,” he says. “We don’t own any of those household names. Their prospects are considerably lessened. Japan’s export market is no longer about cars and electronics, it is about condoms, baby milk, skin cream, medicine. Japan is known across Asia for high-quality products, reliability and high safety standards. These are the companies you want to be invested in.”

 

Japan is an increasingly popular tourist destination for Asian, particularly Chinese, tourists who come with well-defined shopping lists from WeChat personalities that tell them exactly what and what not to purchase. On my family’s visit to Japan in April there were a number of consumer items Mrs. Treacy was very eager to try based on reviews she had seen in Chinese social media. 

Why, after two years on the block, is FCA apparently drawing interest from at least one potential Chinese buyer now?
The answer: FCA's global network and product — specifically Jeep and Ram — fit the requirements the Chinese government has set for attractive acquisitions.

Quality gap
Chinese automakers have openly dreamed of cracking lucrative North America for a decade, spending millions to display their vehicles at high-profile U.S. auto shows. Early efforts showed that Chinese automakers had a long way to go before they were ready to compete here.

But in more recent years — through knowledge and expertise gained via joint ventures with the world's largest and most successful automakers — Chinese companies have closed the quality gap.

And the automakers feel like they finally have closed that gap enough to start selling their products in the U.S., said Michael Dunne, president of Dunne Automotive, a Hong Kong investment advisory company and an expert on the Chinese auto industry.

They also are under pressure from the government to expand beyond China, Dunne said. A government directive dubbed China Outbound pushes Chinese businesses to acquire international assets from their industries and operate them "to make their mark," much as Geely has done since acquiring Volvo in 2010. Bloomberg reported last week that Chinese companies plan to spend $1.5 trillion acquiring overseas companies over the next decade — a 70 percent increase from current levels.

 

Germanys auto sector has been garnering all the wrong sorts of attention lately with increasingly evidence that the major manufacturers may have colluded in hoodwinking the globe into believing diesel engines are clean. On the other hand, China’s auto manufacturers have been among the best performers this year as they have increasingly focused on partnerships with international brands. 

The downdraft for the equity market comes amid rising geopolitical tensions, after a North Korean army commander said “sound dialogue” isn’t possible with U.S. President Donald Trump and “only absolute force can work on him,” according to state media. North Korea also laid out detailed plans of how it would launch a missile strike on U.S. military bases in Guam.

The recent testy exchange underlines mounting tensions between Pyongyang and Washington that Wall Street investors are fretting could risk an all-out nuclear war between the nations.

Against that backdrop, the VIX has been steadily rising over the past three sessions coinciding with a pullback in stocks and a jump in demand for assets perceived as havens including gold GCZ7, +1.03%   which was trading around a two-month high and 10-year benchmark Treasurys TMUBMUSD10Y, -0.47%, which were hovering at yearly yield lows around 2.22%. Bond prices move inversely to yields.

Betting on persistently low volatility has been among the best performing trades this year with stock markets continuing to advance while leveraged short VIX ETFs surged higher. Whether that strategy is likely to continue to perform is now being questioned.

“There is some relief from the fear of a significant pause before the 10th anniversary iPhone refresh,” said Michael Obuchowski, chief investment officer at Merlin Capital LLC in Boston, which holds Apple stock. “I’m beginning to think it won’t matter if the new iPhones aren’t that exciting.”

Apple is likely to introduce three new handsets this year: a revamped top model, known for now as the iPhone 8, and upgrades to the existing iPhone 7 and iPhone 7 Plus, people familiar with the plans have told Bloomberg News. The high-end iPhone will include an organic light-emitting diode screen, and inadequate OLED supplies mean that it will not be as readily available as the cheaper handsets at launch, the people said.

Cook said reporting about the new versions of the iPhone “has created a pause” in consumer buying “that is likely larger than previously.” Apple’s stock has soared on expectations that the new high- end smartphone, which will also include a front-facing three- dimensional sensor to enable facial recognition, will spur a resurgence in demand that will carry into the holiday quarter and beyond. Sales growth of the company’s flagship product has slowed over the past two years as the market has become increasingly saturated and competitors have offered cheaper products with similar capabilities.

New Technologies
Slowing smartphone sales have prompted Apple to invest more heavily in developing new technologies. It’s working on smart glasses, an autonomous driving system, improved health and fitness offerings, and its own semiconductor technology.

Research and development spending jumped 15 percent to $2.9 billion in the most recent quarter. Apple unveiled the early fruits of its spending on augmented reality technology in June, releasing a set of tools which let developers build AR software for the iPhone and iPad when the next operating system for those devices is rolled out later this year. Cook has over the past 18 months repeatedly said how excited he is about the prospects for AR.

Cook is preparing to release Apple’s first new hardware category since 2015. The HomePod, the smart speaker that will go on sale in December, is the company’s response to Amazon.com Inc.’s Echo and Alphabet Inc.’s Google Home speakers. The company is hoping that advanced acoustic capabilities will encourage consumers to pay $349 for the device -- almost three times as much as the Google Home.

 

Apple faces stiff competition in the smartphone market but comes with two distinct advantages. The size and breadth of the app store is a considerable benefit for the company and acts as an anchor for customers. The second is Apple’s followers are among the most devoted fans of any brand and represent a latent source of demand for new products. 

Retail’s “shifting sands and macro headwinds will make near-term earnings beats challenging” for PepsiCo, Wells Fargo analyst Bonnie Herzog said in a note to clients. Still, PepsiCo gets a large proportion of revenue from snacks, which are easier to sell online than beverages, she said. That means the company is better positioned to adapt than some of its peers.

PepsiCo’s comments were similar to those made by Coca-Cola CEO James Quincey, who told Bloomberg in May that when shoppers skip trips to the local mall and shop online, they also forgo buying Coke at a vending machine or food court. Coca-Cola investors will be watching to see how that may hurt second-quarter results on July 26.

Nooyi’s remarks were “an acknowledgement to the intensifying competitive environment that will likely get more so with Amazon involved,” Bloomberg Intelligence analyst Ken Shea wrote in an email. Still, some consumer products companies will be more vulnerable than others to change, and PepsiCo’s “huge distribution reach and agility arguably make it less vulnerable” to changing shopper behavior than its peers, he said.

 

Amazon Prime Day was the firm’s highest grossing ever, with its discounted Echo speaker being the top seller yesterday. The company sells just about everything and is now offering try-before-you-buy on fashion, same day delivery and investigating how to sell pharmaceuticals and auto parts. It is logical that even companies which reside squarely in the consumer staples sector but also get part of their income from discretionary products would be affected by the demise of the shopping mall. 

The hack quickly spread from Russia and the Ukraine, through Europe and into the U.S. A.P. Moller-Maersk, operator of the world’s largest container line, said its customers can’t use online booking tools and its internal systems are down. The attack is affecting multiple sites and units, which include a major port operator and an oil and gas producer, spokeswoman Concepcion Boo Arias said by phone.

APM Terminals, owned by Maersk, is experiencing system issues at multiple terminals, including the Port of New York and New Jersey, the largest port on the U.S. East Coast, and Rotterdam in The Netherlands, Europe’s largest harbor. APM Terminals at the Port of New York and New Jersey will be closed for the rest of the day “due to the extent of the system impact,” the Port said.

Cie de Saint-Gobain, a French manufacturer, said its systems had also been infected, though a spokeswoman declined to elaborate, and the French national railway system, the SNCF, was also affected, according to Le Parisien. Mondelez International Inc. said it was also experiencing a global IT outage and was looking into the cause. Merck & Co. Inc., based in Kenilworth, New Jersey, reported that its computer network was compromised due to the hack.

 

The Wannacry cyberattack occurred in May and hit a number of hospitals and transportation networks. The first conclusion we can draw from the new but similar Petya virus is that it has taken hackers less than a month to iron out the bugs with their first attempt. The next iteration of the attack will likely be even more sophisticated.  

“The L’Oréal stake could be divested via an exchange offer for Nestle shares that would accelerate efforts to optimize its capital return policies, immediately enhance the company’s return on equity, and meaningfully increase its share value in the long run,” said Third Point, which retained former Sara Lee Corp. Executive Chairman Jan Bennink to advise on the investment.

A L’Oréal spokeswoman declined to comment.
Consumer companies have become popular targets for activist shareholders. In 2015, billionaire hedge fund manager Bill Ackman amassed a $5.6 billion stake in snack giant Mondelez International Inc. and called for management to improve the company’s performance, leading to cost cuts. Procter & Gamble Co. attracted Nelson Peltz’s Trian Fund Management LP, which revealed its position in the consumer-products maker in February and has since amassed a stake valued at about $3.3 billion, according to its latest regulatory filing.

Loeb is aiming high with Nestle as activist investors enjoy a resurgence of client inflows and returns. Third Point’s flagship fund gained almost 10 percent in the first five months of 2017, part of an industrywide rebound that saw event-driven funds return 5.6 percent on an asset-weighted basis, the most among the main strategies tracked by Hedge Fund Research Inc.

 

Nestle has a large number of businesses and, in order to remain competitive, needs to reorient itself towards growth sectors in its largest developed markets. It is interesting however that the thrust of the activism is towards highlighting the significant cross ownership Nestle has in other European companies. 

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

There has been a great deal of media coverage of Amazon’s foray into brick and mortar grocery stores, albeit at the high end side of the market. Kroger and Target extended downtrends on the news amid widespread speculation that the middle of the market is being hollowed out and that is an argument I have sympathy with as German discounters Aldi and Lidl expand in the US. 

In Japan, which has one of the world’s most rapidly ageing populations, retirement can begin at 60. This could result in a retirement of over 45 years for those who will live to the current life expectancy of 1071 (see Figure 2). What is the impact of a population that will spend 20%-25% more time in retirement than they did in the workforce? How do we rethink our retirement systems that were designed to support a retirement of 10-15 years to prepare for this seismic shift? 

One obvious implication of living longer is that we are going to have to spend longer working. The expectation that retirement will start early- to mid-60s is likely to be a thing of the past, or a privilege of the very wealthy.  

Absent any change to retirement ages, or expected birth rates, the global dependency ratio (the ratio of those in the workforce to those in retirement) will plummet from 8:1 today to 4:1 by 2050. The global economy simply can't bear this burden. Inevitably retirement ages will rise, but by how much and how quickly demands urgent consideration from policy-makers. 

Given the rise in longevity and the declining dependency ratio, policy-makers must immediately consider how to foster a functioning labour market for older workers to extend working careers as much as possible. Employers also have a key role to play in helping workers reskill and adapt their work styles to support a longer working career. 

This paper focuses on the sustainability and affordability of our current retirement systems. To protect against poverty in old age, we believe that retirement systems should be designed to provide a level playing field and equal opportunity for all individuals. A well-designed system needs to be affordable for today’s workers and sustainable for future generations to ensure that all financial promises are met. 

Healthy pension systems contribute positively towards creating a stable and prosperous economy. Ensuring that the public has confidence in the system, and that promised benefits will be met, allows individuals to continue to consume and spend through their working and retired years. If this hard-earned confidence is lost, there is a significant risk that retirees will moderate their spending habits and consumption patterns. Such moderation would have a negative impact on the overall economy, particularly in countries where the size of the retired population continues to grow. 

Action is needed to realign our existing systems with the challenges of an ageing population. Those who take proactive steps will be better equipped in the years ahead.

Here is a link to the full report.

I’m 40 so according to this report I have a 50% chance of living to 94. The Chart Seminar is in its 48th year in 2017 so you never know I might manage to get it to the century because we are all going to be working a lot longer. It’s a good thing I’m doing something I enjoy and perhaps that is the best advice. You are going to be working for an awfully long time so be prepared to change jobs, adapt and enjoy what you do. 

But making those rules public does have a downside: It means companies know precisely how to cheat. Here’s how the Jacobs School describes the situation:

During emissions standards tests, cars are placed on a chassis equipped with a dynamometer, which measures the power output of the engine. The vehicle follows a precisely defined speed profile that tries to mimic real driving on an urban route with frequent stops. The conditions of the test are both standardized and public. This essentially makes it possible for manufacturers to intentionally alter the behavior of their vehicles during the test cycle. The code found in Volkswagen vehicles checks for a number of conditions associated with a driving test, such as distance, speed and even the position of the wheel. If the conditions are met, the code directs the onboard computer to activate emissions curbing mechanism when those conditions were met.

But VW didn’t stop there. The researchers who examined Volkswagen’s work pulled 964 separate versions of the Engine Control Unit (ECU)’s code from various makes and models of Volkswagens. In 400 of those cases, the ECU was programmed with defeat devices.

Now, you might be thinking that a single code model couldn’t possibly compare all the variables in play between various test facilities, and that some cars should have shown a fault simply due to random chance. But VW was aware of that possibility and took steps to prevent it. Their defeat device had ten separate profiles to allow it to detect various permutations in test scenarios.

Not all the defeat devices were sophisticated. The Fiat 500X (not manufactured by VW) has a much simpler defeat device. The vehicle’s emission control system runs for 26 minutes and 40 seconds after you first start the car, period. That’s long enough to pass most emission tests, and it doesn’t try to detect if the vehicle is being tested. But VW’s work was extremely sophisticated, it evolved over time, and the company’s claims that this was all instituted by a few rogue engineers are more farcical than ever.

The fact that it has taken this long to figure out just how the diesel defeat mechanisms function highlights the fact that Volkswagen and Bosch have not been entirely forthcoming with investigators. The emerging reality is that defeating emissions testing was a long-term highly orchestrated endeavour that must have required the efforts of teams of engineers and years of work to achieve such impressive results. 

The S&P500 broke out to new highs today to reassert its medium-term uptrend. A clear downward dynamic would now be required to question potential for additional upside. 

The online retail giant is making a major push into furniture and appliances, including building at least four massive warehouses focused on fulfilling and delivering bulky items, according to people familiar with Amazon’s plans.

With that move, the Seattle-based retailer is taking on the two companies that dominate online furniture sales— Wayfair Inc. W -5.95% and Pottery Barn owner Williams-Sonoma Inc. Furniture is one of the fastest-growing segments of U.S. online retail, growing 18% in 2015, second only to groceries, according to Barclays. About 15% of the $70 billion U.S. furniture market has moved online, researcher IBISWorld says.

But even the biggest players in online furniture are struggling to get the market right. Unlike established categories such as books and music or even apparel, retailers are still hammering out basic concepts like how much variety to offer on their sites and the most efficient ways to deliver couches and dining sets to customers’ homes.

While Amazon has been selling furniture for years, it has lately decided to tackle the sector more forcefully.

“Furniture is one of the fastest-growing retail categories here at Amazon,” said Veenu Taneja, furniture general manager at Amazon, in a statement. He said the company is expanding its selection of products, with offerings including Ashley Furniture sofas and Jonathan Adler home décor, and it is adding custom-furniture design services. Amazon is also speeding up delivery to one or two days in some cities, he adde

Free returns and secure transactions make online shopping risk free and painless from the perspective of consumers. Amazon is employing that strategy in an increasing number of sectors but most particularly in furniture and fashion. The number of brands Amazon now carries as well as sporting its own designs represent not only a direct threat to Williams Sonoma but to departments stores generally. 

The Kospi index dropped the most since March as North Korea reiterating its pledge to push forward with another nuclear test showed Moon Jae-in, the victor in Tuesday’s presidential vote, is unlikely to get a honeymoon. While Citigroup Inc. to Morgan Stanley are betting on further upside for South Korea’s record- setting stocks, analysts and investors are seeking more from Moon, who ran on a platform of corporate reform and rapprochement with North Korea.

“Markets will take this on the chin,” said James Soutter, who helps manage the equivalent of about $500 million at K2 Asset Management in Melbourne, referring to the election.
“Rumblings out of North Korea on further nuclear tests should have a bigger influence on markets than the election.”

While Korean technology shares rallied on bets Moon will bolster the sector as a way of delivering more jobs, the Kospi spiked lower, declining 1 percent Wednesday -- the most since March 3 -- as utilities and banks paced losses. Markets in Seoul were closed for the election Tuesday, so the drop came after a 2.3 percent surge in the Kospi on Monday, its best day since September 2015

The South Korean Kospi Index has been ranging for six years but broke out ahead of the election to new all-time highs. Increased tensions with North Korea coinciding with a short-term overbought condition suggest there is scope for some consolidation of the recent run-up. However a sustained move below the trend mean would be required to question medium-term scope for additional upside. 

The video worked exceedingly well. In August, Wal-Mart Stores Inc. announced it would acquire Jet.com for $3.3 billion in cash and stock. It was an extraordinary sum for a 15-month-old, purple-hued website that was struggling to retain customers and is still far from making a profit. Even more astonishing, Lore and his management team in Hoboken, N.J., were put in charge of Wal-Mart’s entire domestic e-commerce operation, overseeing more than 15,000 employees in Silicon Valley, Boston, Omaha, and its home office in Arkansas. They were assigned perhaps the most urgent rescue mission in business today: Repurpose Wal-Mart’s historically underachieving internet operation to compete in the age of Amazon. “Amazon has run away with it, and Wal-Mart has not executed well,” says Scot Wingo, chief executive officer of Channel Advisor Corp., which advises brands and merchants on how to sell online. “That’s what Marc Lore has inherited.”

Lore’s ascendancy at Wal-Mart adds bitter personal drama that wouldn’t seem out of place on Real Housewives of New Jersey to a battle between two of the most disruptive forces in the history of retail. In 2010, Wal-Mart tried to buy Lore’s first online retail company, Quidsi Inc., which operated websites such as Diapers.com for parents and Wag.com for pet owners. But it moved too slowly and lost out to a higher bid from Amazon.com Inc. Lore then toiled at Amazon for over two years before quitting, in part out of disappointment with its refusal to invest more in Quidsi and to integrate his team into the company, according to two people close to him.

 

You get a lot with your Amazon Prime membership from free 2-day shipping to photo storage and Amazon TV but you do not get the cheapest price on the majority of goods and Prime is not free. It costs $99 a year so you really need to shop, archive and watch Amazon to get your money’s worth and for many people that works out since it has built its subscriber base to 80 million people from 40. 

If driverless deliveries prove faster, cheaper, safer, and more accurate, they would likely be adopted quickly and affect all parts of the country. Truck driving is much less concentrated in particular areas than, say, coal mining or steel making.

In 2016, there were 1.7 million heavy and tractor-trailer truck drivers, with a median annual wage of $43,590; 859 hundred thousand light-truck and delivery workers, who earned $34,700; and 426 hundred thousand driver/sales workers, who earned $28,449. So a rough estimate would be that driverless deliveries would put at least 2.5 million drivers out of work, not counting drivers’ helpers and a substantial number of workers in truck stops and roadside services patronized by truckers. Truck drivers drink a lot of coffee.

Like many lost manufacturing jobs, truck driving requires skill, some special training, hard work, and fortitude, but not much formal education. If you did not go beyond high school, but are a reliable, safe driver—especially if you are willing to work the demanding schedules of long-haul truckers—you can support a family and have decent benefits by driving a truck.

The transition to driverless deliveries would also create some new jobs, many of them technical jobs involving software development and programming that would command relatively high wages. Vehicle maintenance jobs would still be necessary, and would likely require enhanced electronic skills with higher pay than current truck maintenance jobs. Expanded demand for the cheaper delivered products would likely create additional jobs in the transportation sector. It is impossible to predict the ultimate effects of any major technological change, but in the short run it is a good bet that a lot of former drivers would be looking for work and finding their skills and experience ill-suited to available jobs at comparable wages.

The one question I get wherever I go to talk is what am I going to do when the robots take my job? It’s a big question but over the last year it has really moved into the public consciousness. The prospect of machines driving down our roads with no human behind the wheel has lent a sense of reality to the debate that was not present in years past. 

There’s plenty of talk about the retail industry dying, with malls closing and the slump stressing iconic chains like Sears Holdings Corp. and J. Crew, but healthier big-box giants such as Wal-Mart Stores Inc. and Costco Wholesale Corp. are still chronically in need of employees, at least for now. The number of U.S. retail jobs was about the same last year compared with 2015, according to the Bureau of Labor Statistics. What’s really bedeviling retailers is annual turnover -- at 65 percent, it’s the highest since before the Great Recession -- making it necessary to keep hiring. The chains are so hungry for good help they’re poaching workers from fast-food restaurants.

“Those jobs tend to be more transitional, they tend to be more fluid, and as a result there tends to be higher turnover,” said Michael Harms of Dallas-based researcher TDn2K. “Even though you hear headlines like retail is dying and the robots are coming, there’s still a lot of things that need human touch points. It’s a dogfight over good employees.”

What interested me most about this story was not so much the fact big box stores need more workers as their share of the retail market increases, but the effect this is having on restaurant wages. 

For the first time since 2010, the global economy is enjoying a synchronous recovery (see chart). The developed markets’ (DM) private sector is exiting deleveraging after several years of slow growth due to a focus on balance sheet repair and, after four years of adjustment, the emerging markets are in a recovery mode. These trends create a positive feedback loop. Indeed, the DM economies account for 60% of emerging market (EM) exports, so as their real import growth accelerates, EM exports are rebounding. What’s more, an improving EM outlook reduces DM disinflationary pressures. 

How sustainable is this recovery? Typically business cycles end with macrostability risks (price, external and financial) spiking, forcing policymakers to tighten monetary and/or fiscal policy. In this cycle, considering that emerging markets inflation and current account balances are moving toward their central banks’ comfort zones, it is unlikely that macrostability risks will surface soon. Moreover, the emerging markets now have high levels of real rate differentials vis-àvis the US, providing adequate buffers against normalization of the Federal 

DEVELOPED MARKET RISK. In our view, the key risk to the global cycle is apt to come from the developed markets— most likely the US, considering that it is most advanced in the business cycle. Moreover, the US tends to have an outsized influence on the global cycle, particularly the emerging markets. While price stability features prominently in debating the monetary policy stance of any central bank, financial stability is clearly emerging as an equally important factor.

How will it play it out? For insight, we can look at history. The late ’60s saw fiscal expansion at a time of strong growth and low unemployment. In the mid ’80s, the US pursued expansionary fiscal and protectionist policies in an improving economy. We look at similarities and differences versus today, analyzing asset class performance by fiscal deficit and unemployment quartiles.

To that end, private-sector leverage has picked up modestly in the US. In fact, the household-sector balance sheet, which was the epicenter of the credit crisis, had been deleveraging until 2016’s third quarter. Moreover, the regulatory environment has been relatively credit-restrictive. Hence, we see moderate risk to financial stability. However, risks could rise, considering that monetary policy is still accommodative, and particularly so if the administration eases financial regulations. Price stability is a critical risk, too—especially since the core Personal Consumption Expenditures Index inflation rate is close to the Fed’s target and US unemployment is around the rate below which inflation could accelerate. Reflecting this, we expect the Fed to hike rates six times by year-end 2018 (see page 3). We expect other major DM central banks to take a less dovish/more hawkish stance

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

The MSCI World Index broke out to new all-time highs in March and continues to extend that breakout. There is no denying that the Index is heavily weighted by the USA but it has been a generally firm period for global stock markets as economic growth figures pick up against a background where interest rates are still relatively accommodative. 

Although initial mobile payment developments were geared toward driving adoption and acceptance, focus has shifted to improving monetization. We believe Pay with Venmo remains a significant opportunity and conservatively estimate potential contribution to revenue growth in FY20 of ~3.5pts and given the higher transaction margins driven by cheaper funding sources (ACH, Balance), estimate potential EPS contribution of $0.28 in FY20. In addition, working capital loans to merchants and/or installment plans provided by PayPal, Square, and Alipay leveraging Big data offer high margin revenue opportunities. Providers are also emphasizing efforts on channels where adoption is easier as well as use cases which offer differentiated value propositions. Accordingly, we believe in-app and inbrowser will dominate mobile payments while in-store mobile payments will be predominantly focused on differentiated value propositions such as omni-channel support, order ahead, and offer/coupon redemption. 

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

One of the big questions for every online business is how to make it easier to take people’s money. Impatience, number of clicks, creating urgency, ensuring security and insuring purchases represent important considerations that have in many respects been solved by the various providers, with software and encryption getting better all the time. 

Industrial end-markets are still at the beginning of their digitalization journey
The Industrial Internet is about optimizing entire manufacturing systems, including products, processes, supply chains and business models. We estimate digitized solutions could generate c.15% annual opex savings in industrial markets by making assets more efficient. This could reduce the addressable market size for traditional manufacturers of big iron machines. However, this should translate in a market opportunity of c.$200bn for IIoT suppliers in areas like predictive maintenance or operation optimization.

IIoT strategies are as much defensive as they are offensive 
Industrial companies will have to be good at software to remain successful as an increasing share of the manufacturing value chain could shift to providers of sensors, data analytics and industrial cloud architectures. For example, a key risk for the manufacturers of large pieces of equipment requiring maintenance/retrofit is that software companies specializing in analytics or 3D printing might take a growing share of the lucrative service business pie.

3 building blocks for success: Siemens and Schneider well placed
We believe successful companies in an IIoT world will combine an integrated platform of digital solutions; deep domain know-how to give context to data analytics and automation/control activities to in real-time the insights from data analysis on manufacturing processes. Siemens stands out for its comprehensive portfolio of automation and software tools but, the group faces significant digital disruption risks on servicing of its installed base. We rank Schneider and ABB highly. Both have relatively similar IIoT competencies but in different end-markets. We also estimate Schneider is running 5 years ahead of ABB in implementation of its group-wide digital platform and strategy.

 

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

China’s labour costs have been on an upward trajectory for some time and they have already lost many low cost manufacturing jobs to even cheaper locales. With more than a billion people they have an interest in enhancing productivity to ensure they retain the moniker of “workshop of the world”. 

“My business model right now … for Blue Origin is I sell about $1 billion of Amazon stock a year and I use it to invest in Blue Origin," said Bezos, the chief executive of Amazon.com Inc (AMZN.O) and also the owner of The Washington Post newspaper.

Ultimately, the plan is for Blue Origin to become a profitable, self-sustaining enterprise, with a long-term goal to cut the cost of space flight so that millions of people can live and work off Earth, Bezos said.

Bezos is Amazon's largest shareholder, with 80.9 million shares, according to Thomson Reuters data. At Wednesday's closing share price of $909.28, Bezos would have to sell 1,099,771 shares to meet his pledge of selling $1 billion worth of Amazon stock. Bezos' total Amazon holdings, representing a 16.95 percent stake in the company, are worth $73.54 billion at Wednesday's closing price.

For now, Kent, Washington-based Blue Origin is working toward far shorter hops - 11 minute space rides that are not fast enough to put a spaceship into orbit around Earth.

 

Amazon is a behemoth which has benefitted enormously from Bezos’ stewardship over the last two decades. However it must raise the eyebrows of investors when they hear he is willing to dispense with a $1 billion in stock per annum to fund what is an interesting, potentially worthwhile but ultimately an expensive vanity project. 

Republicans in Senate and then House did the opposite this past week, voting along party lines to reverse the consumer protections. Comcast, AT&T, Verizon, and other companies have long wished to leverage personal data, seeing Google and Facebook making billions from it through customized advertising revenue. Most web sites, including Bloomberg.com, track Web use in order to deliver relevant advertisements to users.

The ISP’s could not win a policy argument before the FCC, but Congress was willing to act quickly amid the flurry of big issues confronting the public in the first 100 days of the new administration.

Once President Trump signs this bill into law, as he has pledged to do as part of his assault on Obama-era regulation regardless of their value, these telecommunication companies will be able to monitor all sorts of data use and cross-reference it with a user’s location, the time of day, and even the concentration of other service users. As more commerce occurs through phones, these companies could launch payment applications that muscle out similar services from Apple or Google. That kind of consumer data is especially valuable. Then, telecommunication companies could sell ads on the locked or home screen of a phone -- something even Google and Facebook can’t do.

Beyond that, Congress is also removing regulations that made telecommunication companies responsible for the leads of valuable -- and possibly dangerous -- private information through security breaches.

 

I can imagine that many US citizens are not particularly happy with the move to allow internet service providers to sell our household’s browsing history. Nevertheless, if this does in fact pass into law it will afford a number of, what are otherwise considered rather staid, companies the opportunity to compete for ad revenue with the likes of Google and Facebook. 

Nike Inc. tumbled the most in 19 months after third-quarter sales missed estimates, renewing concern that the long-dominant athletic brand is losing market share to Adidas AG and Under Armour Inc.

Revenue rose 5 percent to $8.43 billion, the Beaverton, Oregon-based company said after the market closed on Tuesday. Analysts estimated $8.47 billion, on average.

Under Armour and a resurgent Adidas have been grabbing market share from Nike, especially in the U.S. That’s led investors to sour on the stock, which had its first annual decline in eight years last year. And last quarter’s results only reinforced Nike’s woes as North American sales rose just 3 percent. Executives on a conference call didn’t provide much reason for optimism, either. Worldwide futures orders, excluding the effects of currency fluctuations, fell 1 percent, the first drop since 2009. Analysts had predicted a 3.4 percent gain.

 

Nike produces great products and has a dominant position in the apparel sector which makes it a target. With Adidas moving to a fast fashion model, Nike is under pressure to innovate and most particularly by moving to an online presence. Under Armor might be grabbing market share but it has also struggled to boost its online offering and as a customer of all three, I personally find the online shopping experience far from compelling with all their sites. 

Inditex put greater emphasis on online expansion last year, cutting its target for new brick-and-mortar stores. The retailer is also making changes to some of its brands to gain market share, with the most recent example being February’s foray into men’s clothing by the Stradivarius brand, which has focused on women.

After starting online sales in Singapore and Malaysia this month, the company plans to add such services in Thailand and Vietnam in the next few weeks and also in India this year.

“India is a very attractive market for us,” Isla said on a conference call with analysts. This year Zara will open a 5,000 square-meter flagship store in Mumbai, which will be its largest store in the country. Inditex has 21 stores in that market.

 

Fast fashion is a major business but is also highly competitive and gaining access to consumers is the key to unlocking growth potential. Moving into high population countries with expanding middle classes is one solution to that challenge and expanding online is another. Creating multiple product lines in a short period of time and getting them to market instantaneously is what has allowed companies like Inditex, H&M and more recently Primark to expand globally but it’s a ruthless sector with clear winners and losers.  

Hope you are keeping well.

We are getting loads of orders for Vape labels at the moment and talking to other guys in our industry they are all getting the same - we are talking millions of labels. The industry is seriously expanding, at this time it appears to be multi small to medium players but there must be some serious money to be made somewhere!

The label, bottle, liquid etc. can't come to more than £1.50 so potential profit is there.
I know you've probably already had a look but thought I'd mention it!

 

Thank you for this insightful email. The market for e-cigarettes has been somewhat overshadowed by the hoopla surrounding the evolution of the cannabis industry in the USA. Part of the reason for this is because there has been considerable controversy about the safety of the chemicals used in the vapourising process and the fact that some of the flavours such as bubble gum appear to be directly aimed at children. That resulted in related shares initially surging but subsequently collapsing because the cost of getting new products approved by regulatory authorities surged. 

“As cars progress from assisted driving to fully autonomous, they are increasingly becoming data centers on wheels. Intel expects that by 2020, autonomous vehicles will generate 4,000 GB of data per day, which plays to Intel’s strengths in high-performance computing and network connectivity. The complexity and computing power of highly and fully autonomous cars creates large-scale opportunities for high-end Intel® Xeon® processors and high-performance EyeQ®4 and EyeQ®5 SoCs, high-performance FPGAs, memory, high-bandwidth connectivity, and computer vision technology.

Intel missed a trick when mobile phones took off. It had simply ignored the market for years, preferring instead to concentrate on desktops where it has a strong lead in what is a declining market. When mobile phone demand exploded in popularity companies like ARM Holdings and Qualcomm took the initiative and the bulk of the profits. Since the market for desktop computers is shrinking Intel can’t afford to miss out on the evolution of autonomous vehicles since it is likely to become a major destination for both chips and sensors over the next decades. 

As it stands, IBM’s largest quantum computer has five qubits. By contrast the average laptop has hundreds of millions of bits in its processors, although the two types of computers are not directly comparable. IBM hopes, however, to continue its research with the aim of building quantum computers with roughly 50 qubits. For comparison, an IBM spokesperson told Quartz, you can simulate the computational power of a 25-qubit quantum computer on a regular laptop. At about 45 qubits, you’d need the world’s fastest supercomputers, and above 50, “you couldn’t build large enough classical computing systems to simulate that size of a quantum system.”

In IBM’s vision of the future, quantum computers could be used for discovering new drugs, securing the internet, modeling the economy, or potentially even building far more powerful artificial intelligence systems—all sorts of exceedingly complicated tasks. One area the company is looking at right now is in chemistry, attempting to simulate what’s going on in a molecule. “Even for simple molecules like caffeine, the number of quantum states in the molecule can be astoundingly large,” the spokesperson said, “so large that all the conventional computing memory and processing power scientists could ever build could not handle the problem.”

When Quartz visited IBM’s quantum computing lab in Yorktown Heights in 2015, the work being done was viewed as fundamental—research for the sake of research—rather than anything tied to specific business goals. But then again, so was the research that has since led to the creation of Watson. Originally conceived of to take on the question-as-answers gameshow of Jeopardy!, which researchers saw as a “unique and compelling AI question,” Watson has become a set of machine-learning and AI services that IBM sells, and intends to invest $1 billion into.

 

IBM is still in the throes of a major transition from physical hardware manufacturing to an almost total focus on knowledge based services. Artificial intelligence (Watson), and the tools to leverage that technology (massive & fast processing power) represent the key areas of focus in what is a new era for the company. 

Comcast Corp.’s NBCUniversal invested $500 million in Snap’s initial public offering, expanding its reach into digital media by acquiring a stake in the $28 billion disappearing-photo service popular with millennials.

NBC Chief Executive Officer Steve Burke, in a memo to staff Friday, called the move a “significant milestone” in the media company’s partnership with Snap. The Comcast unit will be subject to a 12-month lockup period as part of its investment, meaning it can’t sell Snap’s shares for a year, according to a person familiar with the matter.

Snap surged 44 percent Thursday on their first day of trading, and gained another 12 percent Friday.

With the latest investment, NBC has now committed over $1.5 billion to digital businesses in the last 18 months, including two separate $200 million investments in BuzzFeed, and a $200 million investment in Vox Media, the online publisher of the Verge, Eater and Recode.

Last summer, NBC produced a Snapchat channel featuring Olympic content run by BuzzFeed, which generated over two billion views, Burke said in the memo. With the Snap investment, NBC will expand its partnership with the social-media network and BuzzFeed for the 2018 Winter Games in South Korea, and launch more shows with additional NBC brands in the coming weeks, he said.

 

Snap Inc. is another major venue for social media and particularly for the mid-teen to mid-20s demographic. One of the slides from the above report from Torsten Slok highlights the fact that the 26-year old demographic is the single largest in the USA so it is important both from a size and spending perspective which is why there is such interest in Snapchat from companies like NBC.  

The big box retailer also held meetings last week in Bentonville, Arkansas with food and consumer products vendors, including Procter & Gamble (PG.N), Unilever PLC (ULVR.L), Conagra Brands Inc (CAG.N), and demanded they reduce the cost they charge the retailer by 15 percent, sources said.

Wal-Mart also said it expects suppliers to help the company beat rivals on head-to-head pricing 80 percent of the time, these vendor sources said. The wide-ranging meeting with suppliers - where Wal-Mart discussed other topics - was also attended by Johnson & Johnson (JNJ.N) and Kraft Heinz Co (KHC.O), among others, sources told Reuters. The consumer goods companies did not respond to Reuters requests seeking comment.

These Wal-Mart moves signal a new front in the price war for U.S. shoppers, as the pioneer of everyday low pricing seeks to regain its competitive pricing advantage in traditional retailing.
For more than a year, Wal-Mart said it is investing in price while not sharing specifics. When asked by Reuters about the test and demands on grocery suppliers, Wal-Mart spokesman Lorenzo Lopez said the company is "not in a position to share our strategy for competitive reasons."

Germany-based discount grocer Aldi is one of the relatively new rivals quickly gaining market share in the hotly competitive grocery sector, which already boasts Kroger, Albertsons Cos Inc and Publix Super Markets as stiff competitors on price. A second Germany-based discount grocer, Lidl, is planning to enter the U.S. market this year, and together the German discounters pose a serious threat to Wal-Mart's U.S. grocery business.

 

Wal-Mart is investing heavily to take on Amazon in the online arena but faces attacks on its home turf of low cost retailing from interlopers like Aldi and Lidl which it has little choice but to outbid for custom. With progressively more competition in the consumer sector major producers of packaged goods are likely to come under increasing pressure to trim margins. That suggests they will invest even more heavily in technology and branding to protect their market shares. 

The buyout firm's typical playbook has been to target companies with weak margins and then slash costs like crazy to boost profitability. But even a cost-cutter extraordinaire like 3G needs to eventually find revenue growth. Sale gains at Unilever's personal-care business slowed in the most recent quarter, but that industry is certainly growing faster than the staid cereal and sandwich-spreads markets.

The bid may fail. Unilever has rejected Kraft Heinz's offer and at least one analyst is bashing the idea, calling it a "sloppy" combination with questionable logic. There may also be antitrust pushback. But it's hard to see 3G going back to hunting for slow-growth food brands after this. It clearly has its eyes on a different sort of prize. That should be a wake-up call for packaged-food investors who may have been hoping for salvation via 3G and Warren Buffett, the firm's dealmaking billionaire sidekick. 

Would-be 3G targets Kellogg, Mondelez, Campbell Soup and General Mills have all implemented some form of zero-based budgeting -- one of the buyout firm's favorite tools whereby every expense has to be justified each year -- as well as other productivity self-help efforts such as shedding lower-margin and non-core assets. Kellogg is targeting an operating margin of nearly 18 percent by 2018, while Mondelez is aiming to cut $3 billion in costs. Campbell on Friday upsized its cost-savings target to $450 million by fiscal 2020, while General Mills says its on track to drive down expenses by $880 million with its margin-management and efficiency plans. 

Interest rates are low, but rising, so the window for attractive borrowing costs with which to fund takeovers is closing. On the flip side the prospect of synchronised global fiscal stimulus is improving so there is ample scope for the market for global demand for consumer staples to continue to increase. Therefore the rationale for takeovers now, despite the relatively high price tag is still attractive. 

I would like to know your opinion on this article about Autonomies the recently appeared in The Economist

This is the second article I’ve seen the Economist run focusing on the threat to big global companies represented by protectionism so they certainly have an axe to grind. It’s funny because I was just off a long overnight flight the last time I wrote about this topic so let me try to do a better job this time after a 16-hour flight to Dubai.

Infant nutrition is a new area for Reckitt. The company’s traditional strengths were once in household products. Think stuff you put on the floor rather than stuff you pop in the mouth. Through a series of takeovers, consumer healthcare has become an important part of Reckitt’s business -- its brands include Strepsils and Nurofen. Baby formula is another new departure and will put Reckitt in head-on competition with formidable rivals like Nestle SA and Danone SA.

Believing this is a good move means believing the growth rate for infant nutrition will be much faster than Reckitt’s existing markets. Perhaps it will. While growth has stuttered in recent years, it is poised to rebound, according to estimates from Euromonitor International, a research firm.

The lack of overlap with Reckitt's businesses means cost savings are relatively low given the size of the deal – just 200 million pounds ($250 million) annually after three years. As a result, it will take as long as five years for the returns to cover the threshold 7 percent to 8 percent cost of capital.
That’s a long time to wait.

Some investors have been concerned about the amount of debt being taken on to fund this all-cash transaction: net debt will initially be about four times the companies' combined Ebitda in 2017. That concern is valid, but it shouldn't be overdone: credit ratings companies have barely blinked and leverage should fall quickly from that level.

Reckitt has done deals well in the past and probably needs one to regain momentum. Fourth-quarter sales were disappointing, with like-for-like sales growing a measly 1 percent. Guidance for growth this year is lower than analysts hoped.

 

This is not the first time one Autonomy has consumed another and is a further example of how capitalism trends towards concentration. In the other words the large consume the weak. 

In some countries, some of the people in these jobs -- such as postal employees -- are public sector workers. But government clerks who do predictable, rule-based, often mechanical work also are in danger of displacement by machines. In a recent collaboration with Deloitte U.K., Profs. Osborne and Frey estimated that about a quarter of public sector workers are employed in administrative and operative roles which have a high probability of automation. In the U.K., they estimated some 861,000 such jobs could be eliminated by 2030, creating 17 billion pounds ($21.4 billion) in savings for the taxpayer.

These would include people like underground train operators -- but mainly local government paper pushers.

This week, Reform, the London-based think tank dedicated to improving public service efficiency, published a paper on automating the public sector. It applied methodology developed by Osborne and Frey to the U.K.'s central government departments and calculated that almost 132,000 workers could be replaced by machines in the next 10 to 15 years, using currently known automation methods. Only 20 percent of government employees do strategic, cognitive work that requires human thinking -- at least for now, while artificial intelligence is as imperfect as it is. Most of the rest are what the Reform report calls the "frozen middle" -- levels of hierarchy where bureaucrats won't budge without approval from above.

Almost all British government departments have 10 employee grades or more. The department for environment, food and rural affairs has 13. Most of the middle-level tasks are routine and rigidly regulated and motivation is low: Only 38 percent of middle-level bureaucrats say they feel good about what they do.

In the U.K., the average civil servant takes 8 sick days a year, while a private sector worker takes 5. In the last two decades public sector spending rose by an average 3.1 percent a year, about 16 times faster than productivity.

 

The majority of commentary is focusing on the how, what and when of Brexit but there also needs to be some thought for how the UK is going to enhance its competitive position in a post EU world. Tax structures, trade deals and deregulation all need to be high on the agenda but so does limiting needless spending in government. 

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

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

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

 

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

Boston Dynamics was an aspiring defence contractor when it was acquired by Google. Since Google’s long held mantra is to do no evil that pretty much precluded the company from selling robots that might one day be designed to kill people. The problem is that it’s hard to design robots to displace manual labour outside of strictly controlled environments. The company is making rapid strides in that field but the primary growth avenue is in places where humans would be in danger, not least from other humans. That is at least part of the reason Alphabet is looking for a buyer for the company.   

Retail sales rose 10.9 percent in December from a year earlier, the best monthly result in 12 months. Chinese imports of Swiss watches are up after falling for seven consecutive months through July, rising 7.9 percent in November from a year earlier. Led by its best-selling Macan SUV, Porsche had a 12 percent sales increase in 2016. Tiffany on Jan. 17 reported “strong growth” in China. On Jan. 19, Luca Marotta, chief financial officer of Rémy Cointreau, said the outlook for the Chinese New Year was “very, very positive.” Xi hasn’t ended his anticorruption drive, but its chilling effect on spending is easing. “A rebound across all luxury categories is now in progress,” Bloomberg Intelligence analyst Deborah Aitken wrote on Jan. 9.

During the Lunar New Year holiday, millions of Chinese will travel and shop at home and overseas. Bookings for international air travel made in December for Chinese New Year rose 9.8 percent from the previous year, according to ForwardKeys, an analyst of tourism data. Mainland tourist arrivals in the gambling hub of Macau jumped 7.8 percent in December, the largest increase since February 2015. Chinese consumers “are still very confident,” says Amrita Banta, managing director of Agility Research & Strategy, a consulting firm focusing on the affluent.

In Macau, tourist arrivals from mainland China for the first three days of the holiday period increased 9.1 percent to 234,000 compared to Chinese New Year in 2016, the Macau Government Tourism Office reported on its website Thursday.

Yet they may not be prepared to spend as much. Rather than purchase expensive items as gifts, Chinese are buying more for personal use, says Bruno Lannes, a Bain partner in Shanghai.

The strong weakness of the Yuan might currently be offering a tailwind for luxury goods companies since consumers have an incentive to buy now rather than pay more later. Additionally the potential for stronger economic growth and the knock-on effect that would have on consumer spending may be an additional factor in the outperformance of luxury goods’ stocks. 

Remember 2015 when the F.A.N.G, stocks were all the rage and media pundits were falling over themselves to tell us how you had to own them if you were to have any chance of outperforming the major indices. 2016 was predictably a tamer year for those shares with some spending much of their time consolidating 2015’s powerful gain. However with Netflix making headlines today on successfully boosting subscribers, following an international expansion, I thought it might be worthwhile to revisit this acronym.