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Small, Steady Growth For Europe's Economy

Small, Steady Growth For Europe's Economy

Small, Steady Growth For Europe's Economy - This is an encouraging report by the International New York Times (subscription registration may be required for the full article; a PDF is in the Subscriber's Area). Here is the opening:

PARIS - Europe's fragile recovery remains alive, according to the results of a closely watched corporate survey released on Thursday.

The composite purchasing managers index compiled by Markit Economics, a data and analysis firm, came in at 51.5 in October, above the 50.0 mark that signals expansion. While that is a slight deceleration from September's 52.2 showing, it was the fourth consecutive month in positive territory.

The growth trend is a "modest" one, Chris Williamson, Markit's chief economist, noted, but "the expansion is reassuringly broad-based across the region, reflecting signs of economic recoveries becoming more entrenched in the periphery as well as ongoing expansion in Germany and stabilization in France."

The report was the latest to reinforce the message that after lurching from the Lehman Brothers crisis five years ago to its own sovereign debt problems, Europe appears to be struggling to its feet. The euro zone officially exited recession in the second quarter with a small upturn. On Wednesday, the Spanish government said the country's economy pulled out of a two-year recession in the third quarter with a modest expansion.

More positive news arrived from Spain on Thursday, as the National Statistics Institute said in Madrid that the jobless rate dipped to 26 percent in the third quarter from 26.3 percent in the second quarter. While joblessness in Spain remains at depression levels, and that of the overall euro zone is elevated at 12.0 percent, both appear to have reached a plateau.

Daimler, the maker of Mercedes cars, underscored that outlook on Thursday, reporting that car demand has "stabilized at a low level in Western Europe, and a gradual improvement of the market situation is to be anticipated in the rest of the year." The German automaker also announced a third-quarter net profit of 1.9 billion euros, or $2.6 billion, up 53 percent from a year earlier.

My view - I attribute this to the economic savvy and tactical diplomacy of ECB president Mario Draghi - an exceptional central banker. Daimler and most other European corporate Autonomies have also benefited from good management and the somewhat stronger global economy.

Europe's gradual economic improvement and Euro STOXX 50's retesting of previous resistance just over 3000, are further evidence that extreme pessimism following a global stock market crash, while a reoccurring aspect of investor sentiment, is invariably wrong.

Tim Price: Where she stops nobody knows -
My thanks to the author for his ever-interesting and highly individual report. It is posted in the Subscriber's Area but here is the opening paragraph:

The last week has seen a confluence of events that suggests we may be reaching the terminal point of the financial markets merry-go-round - that point just before the ride stops suddenly and unexpectedly and the passengers are thrown from their seats. Having waited with increasing concern to see what might transpire from the gridlocked US political system, the market was rewarded with a few more months' grace before the next agonising debate about raising the US debt ceiling. There was widespread relief, if not outright jubilation. Stock markets rose, in some cases to all-time highs. But let there be no misunderstanding on this point: the US administration is hopelessly bankrupt. (As are those of the UK, most of western Europe, and Japan.) The market preferred to sit tight on the ride, for the time being. Three professors were awarded what was widely misreported as 'the Nobel prize in economics' for mutually contradictory research. What they actually received was the 'Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel', which is not quite the same thing. But then economics is not a science, and Eugene Fama's 'efficient market hypothesis' is not just empirically wrong, but dangerously so. History, it would seem, is clearing the decks. Perhaps the most intriguing development of the week was the news that Neil Woodford would soon be retiring from his role managing £33 billion of other people's money at Invesco Perpetual to start up his own business. It was widely reported that Mr. Woodford nursed growing frustration at the short-termism of the financial services industry. We will return to this theme.

This item continues in the Subscriber's Area.

Are Those White Elephants In The Water? -
This is an excellent column by Matt Ridley for The Times (UK) (may require subscription registration but a PDF is posted in the Subscriber's Area). Here is the opening:

Here's a short quiz. Question One: which source of energy is allowed to charge the highest price for its electricity? Question Two: which source of energy is expected to receive the greatest capital expenditure over the next seven years? The answer to both questions is offshore wind.

Offshore wind farms are the elephant in the energy debate. Today, the energy department estimates that electricity prices are 17 per cent higher as the result of green policies and that this will rise to 33 per cent by 2020 or 44 per cent if gas prices fall, as many expect. Offshore wind is the single biggest contributor to that rise. Of the £15 billion a year that the Renewable Energy Foundation thinks consumers are going to be paying in total green imposts by 2020, the bulk will go to support offshore wind.

Britain is a proud leader in offshore wind. "The UK has more offshore wind installed than the rest of the world combined and we have ambitious plans for the future," says Ed Davey, the Energy Secretary. I wonder why that is. Could it be that other countries have looked at the technology and decided that it's far too costly? George Osborne says he does not want Britain out ahead on
green energy. He should take a long hard look at why we are so far out ahead on this extravagant folly.

Currently we get under 3 per cent of our electricity from offshore wind, or less than 0.5 per cent of our total energy. If Mr Davey's ambitions are realised and 20 per cent of our electricity comes from offshore wind in 2020, then we will need 20 gigawatts of capacity because wind turbines, even at sea, operate at less than 40 per cent of capacity. That's about six times what we have today and the cost of building it would be greater than the investment in nuclear energy over the period.

My view - I have long been an opponent of wind farms because they are the most expensive and least reliable source of renewable energy. They are also a monstrous blot on the countryside and for sea views, taking up far more space than any other sources of energy, and for less output. They are murderous cuisinarts for birds and we are only beginning to understand the extent to which they adversely affect sleeping patterns for anyone living within approximately a mile of these towering, noisy eyesores.

The UK Government has been incredibly naïve about wind farms, and apparently no one more so than the Prime Minister. The current Energy Secretary mentioned above appears to have learned nothing and is little more than a cheerleader for a bad policy which he temporarily oversees. This incompetence has jeopardised Britain's energy security and increased prices far more than would have been necessary with sensible policies, starting with fracking for shale oil and gas.

(There are 26 Archived articles and comments on this subject which you can access via the 'Search' facility shown upper-left, fourth item down. Click on that and it will open a window; type in wind farms and then click on the blue Search button to the right of the window.)

My personal portfolio: a new position opened -
This item is in the Subscriber's Area.

Additional commentary by Eoin Treacy

DNB Monthly report Short Term Bearish Thanks to a subscriber for this edition of Torbjorn Kjus' ever informative chartbook for DNB. The charts of Texas, North Dakota, Oklahoma and New Mexico oil production starting from page 95 are particularly noteworthy as are the depictions of increased outages due to civil unrest in the Middle East. The full report is posted in the Subscriber's Area but here is a section:

The global supply-demand balance is weakening and peak refinery maintenance has not been able to lift refinery margins to secure profit for the weakest refiners. Oil production growth in the US continues to massively outperform demand growth, oil demand in Japan continues to fall despite Abenomics and China posted negative oil demand growth for September. Brent prices are kept above 100 $/b on large unplanned outages, but Iraq/Sudan will soon be producing a lot more and Iran could be back in the fold by the end of 2014. On top of this the North Sea loading program for November is the largest we have seen for a long time and up 330 kbd from October. Support is however still coming from expectations of postponed tapering of QE3 by the FED (exacerbated by the weak US payrolls data posted this week), a weaker dollar and rising equity values. All told however we see more bearish than bullish factors ahead for the Brent market, both for the short- and the longer-term.

My view The positive of increasing US production has to an extent been overshadowed by unrest in the Middle East which has contributed to a loss of supply. The net effect has been a largely rangebound environment for Brent Crude since early 2011. It encountered resistance towards the upper side of this medium-term congestion area from September and continues to fall back towards the lower boundary near the psychological $100.

This section continues in the Subscriber's Area.

Tale of Two Obamacares as Some States Bypass U.S. Site
This article by Shannon Pettypiece, Freeman Klopott & Margaret Newkirk for Bloomberg may be of interest to subscribers. Here is a section:

The delays that have plagued the federal website may be improving, according to Jodi Ray, a project director in the Tampa office of Covering Kids and Families , a nonprofit working to expand coverage. Florida residents must rely on the federal exchange.

Community groups helping to enroll the uninsured are seeing much better results on over the past week, said Ray, who heads a group of 10 navigator organizations for Florida. Until this week, the navigators were forced to rely mostly on the government's call-in line and paper applications to sign up people. This week, they're using the website more often.

They're definitely seeing improvement, Ray said. They have been able to get people all the way through to making a plan choice, if they want to go that far, or at least examining their options.

My view Obamacare has been a bonanza for health insurance companies since hospitals have previously had to absorb the costs of uninsured people presenting at A&E which pushed up premiums. The advent of the Affordable Care Act ensures that not only do the companies have more customers, but the implied cost of covering costs for the uninsured should decline. In addition the introduction of the law has also offered an opportunity to increase premiums; protecting or increasing margins.

This section continues in the Subscriber's Area.

Goldcorp Defers Work at Argentina Mine Project After Costs Soar
This article by Liezel Hill for Bloomberg may be of interest to subscribers. Here is a section:

The company's average cost to produce and sell gold, after profiting from sales of silver and other metals, was $551 an ounce, compared with $220 an ounce in the third quarter of 2012 and the $554 average of seven estimates compiled by Bloomberg.

All-in sustaining costs, a more comprehensive metric adopted this year by most producers, rose to $992 an ounce from $801.

Gold production rose to 637,100 ounces from 592,500 ounces a year earlier. The average of eight estimates was for 683,100 ounces.

Goldcorp expects 2013 output will be 2.6 million to 2.7 million ounces, at all-in sustaining costs of $1,050 to $1,100 per ounce. Its previous forecasts were for 2.55 million to 2.8 million ounces and costs of $1,000 to $1,100 per ounce.

Gold averaged $1,328 on the Comex in New York in the third quarter, 20 percent less than a year earlier and 6.3 percent lower than the second quarter.

My view Controlling costs while attempting to increase reserves has been a major challenge for gold miners that has eaten into free cash flow over the course of the last decade. It is therefore a welcome development that an increasing number of companies have developed a new found respect for cost controls.

This section continues in the Subscriber's Area.

Email of the day
on Crowd Money:

"Eoin, really enjoying your new book, it is very well written and is at the top of my recommendation list. Congrats!"


My comment Thank you for your kind email and for spreading the word. If you would like to submit a review on Amazon that would be doubly helpful. Thanks again. 

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