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May Acknowledges Business Warning Over Brexit Cliff Edge

May Acknowledges Business Warning Over Brexit Cliff Edge

Here is the opening of this interesting article from Bloomberg:

Prime Minister Theresa May acknowledged calls from British business leaders to avoid a “cliff edge” in which the U.K. leaves the European Union before sealing a fresh trade deal, signaling she may be open to seeking a transitional agreement to bridge any gap.

"We want to get the arrangement that is going to work best for the U.K. and that will work best for business in the U.K.," May told the Confederation of British Industry’s annual conference in London on Monday. "I understand that people don’t want a cliff edge."

The CBI urged the government to clarify what happens on the day after Brexit amid concern companies could be hit by uncertainty, new regulations and tariffs if a new relationship hasn’t been arranged with the EU by then.

“Businesses are inevitably considering the cliff-edge scenario -- a sudden and overnight transformation in trading conditions,” Paul Drechsler, the president of the group, said before May spoke. “If this happens, firms could find themselves stranded in a regulatory no man’s land.”

May has said she wants to invoke Article 50 of the EU’s Lisbon Treaty by the end of March 2017, setting in motion two years of formal talks on the U.K.’s departure from the bloc. In that time, the government will have to draw up new rules for a range of economic activities currently governed by EU regulations as well as strike new trade deals. If no agreements are reached, trade between the U.K. and the EU would be governed by World Trade Organization rules.

The CBI conference precedes Chancellor of the Exchequer Philip Hammond’s Autumn Statement on the economy on Wednesday, when he will outline the government’s priorities for tax and spending.

Many business leaders favored staying in the EU. Since the June 23 vote went the other way, the CBI has led calls for the U.K. to maintain tariff-free ties to the bloc, while ensuring that British companies can continue to tap workers from the EU. May has pledged to curb immigration, a principal demand of the “Leave” campaign, but one that EU leaders have said is incompatible with continued single-market access.

David Fuller's view

Prime Minster Theresa May is not talking about a quick, hard-Brexit, although I maintain it would probably enable her to then negotiate the best free-trade post-Brexit deal for both Britain and the EU.

However, May clearly wants to keep the UK’s corporate sector on side, including important overseas investors from US banks to Japan’s automobile companies, in addition to Remainers from the Referendum, preferably without shocks.  She is also hoping to avoid a legal struggle over Article 50.  Her strategy may seem less risky but it could also be more of a feared ‘leap in the dark’ than a hard-Brexit, given political upheavals underway in the EU.

That is my conjecture since the forthcoming European election results are currently unknown, not least in terms of the winning candidates’ views towards Brexit once they are in office.  What is not in doubt is the additional cost of remaining in the EU any longer than is absolutely necessary.  Moreover, a long drawn-out Brexit will create longer-lasting uncertainty for corporations, while also being politically divisive within the UK. Let’s get out of the stalled and increasingly unpopular EU, and then build new, mutually beneficial trading relationships with not only EU countries but the rest of the world as well.

French Thatcherite Upends 2017 Race Pledging to Shrink the State

Here is the opening of this informative article from Bloomberg:

Former Prime Minister Francois Fillon, the new front-runner in France’s 2017 presidential election, is offering voters an economic-policy revolution inspired by Margaret Thatcher.

Fillon, 62, vaulted from third position in most polls to win the first round of the Republican primary by 15 percentage points from the veteran Alain Juppe on Sunday with the most free-market platform among the seven candidates. They’ll face each other again in next Sunday’s runoff and the winner will be favorite to become president in May 2017.

Lifelong politician Fillon is pledging to lengthen the work week to 39 hours from 35, to increase the retirement age to 65 and add immigration quotas. He’s vowed to eliminate half a million public-sector jobs and cut spending by 100 billion euros ($106 billion) over his five years in office. And he proposes a 40 billion-euro tax-cut for companies and a constitutional ban on planned budget deficits.

“Who is Fillon? The classic conservative, right-wing candidate,” Bruno Cautres, a political scientist at the Sciences Po Institute in Paris, said in an interview. “He wants a deep reform of the French model: shrinking the role of the state and cutting the welfare system.”

Compared with the brash style of former boss, Nicolas Sarkozy, Fillon has a more low-key approach but he makes a virtue of telling it straight. When he took office as premier in 2007, he shocked even Sarkozy by announcing that France was a bankrupt state. Today he’s promising to reverse that, just like his role model when she became U.K. prime minister in 1979.

“Thatcher was elected after a long and worrying period of decline” in the U.K., Fillon said in a book setting out his candidacy. “When she left office, the U.K. was no longer the sick man of Europe.”

Like Thatcher, Fillon may also find an affinity with the new Republican occupant of the White House. Fillon says he’s ready to work with Donald Trump and the two men share an admiration for Russian President Vladimir Putin.

Fillon has said repeatedly that he wants France to have a closer relationship with Russia, and with Putin himself, who was prime minister during the period when Fillon ran the French government. While other European leaders have called for Putin to stop bombing Syria, Fillon described the attacks as “cold but efficient pragmatism.”

Polls, albeit six months before the vote, suggest that whoever the Republicans nominate is likely to face National Front leader Marine Le Pen and her anti-European platform in the two-way presidential run-off in May, since Socialist incumbent Francois Hollande is posting the worst approval ratings in French history.

David Fuller's view

With Holland and Sarkozy now presumably out of the running, politics in France have become more interesting. I prefer Francois Fillon but can anyone in France rightfully claim the mantle of Margaret Thatcher?  I think that would be good for France if they could but I doubt it because a majority of French workers appear to love their Luddite, closed-shop unions.

Elon Musk: Tesla Solar Roof Will Likely Cost Less Than a Normal Roof

Here is this short article from Futurism:

Tesla CEO Elon Musk said the solar roof that will be sold under a combined Tesla-SolarCity will likely cost less than a normal roof to install.

Tesla and SolarCity shareholders voted in favor of the merger, a deal worth $2 billion, Thursday. In late October, Musk unveiled a new solar roof product to show his vision for a combined company with SolarCity, but did not provide specifics on how much it would cost.

On Thursday after the shareholder vote, Musk said its solar roof will likely cost less than a normal roof:

“It’s looking quite promising that a solar roof will actually cost less than a normal roof before you even take the value of electricity into account. So the basic proposition would be, ‘Would you like a roof that looks better than a normal roof, lasts twice as long, costs less and by the way generates electricity?’ It’s like, why would you get anything else?”

Musk added the price he is speaking to factors in the cost of labor.

During a Nov. 1 conference call, SolarCity CEO Lyndon Rive said that the companies are aiming for 40 cents a Watt, which would put it in line with the competition.

Musk unveiled four solar shingle options for a solar roof at the Oct. 28 event. The solar roof will incorporate glass developed by Tesla’s new glass division.

Tesla will produce the solar cells for the roof with Panasonic at a manufacturing facility in Buffalo, New York.

David Fuller's view

Yes, solar power does not produce electricity after sunset or when you are beneath heavy clouds, but it is the most flexible and increasingly power.  Mrs Fuller and I have solar panels on our house in Devon and if the roof ever needs to be replaced, I would probably not hesitate to do so with solar roof shingles.

This item continues in the Subscriber’s Area, where two further reports are posted.

India: The Great Rupee Failure

Here is the opening of this interesting article from Bloomberg:

One week after India’s sudden declaration that 500- and 1,000-rupee notes were no longer legal tender, the economy is in chaos. And that’s perhaps because the policy was designed as much to shock and awe observers with the government’s command of the Indian economy as to control India’s “black money” problem. What seemed at first to be a masterstroke by Prime Minister Narendra Modi now looks like a grave miscalculation.

Modi is beginning to sound like he may agree. His recent speeches on the subject have been frankly bizarre. In one, he seemed to laugh at those inconvenienced by the ban; in another, he broke down while speaking of the “sacrifices” he'd made for India, and warned that he might be assassinated by “forces” desperate to protect their “loot."

What’s changed in a week? Well, for one, it’s become clear that the government was simply too cavalier in its planning. Now that 86 percent of India’s currency is no longer valid, the central bank has struggled to print replacement denominations -- and the new notes are the wrong size for existing ATMs. Modi’s asked people to be patient for 50 days, but the process could take as long as four months.

You have to wonder if Modi truly sought expert advice, or relied once again on a small and trusted set of politicians to determine policy. India’s simply too big and complex for shock and awe. Large parts of the rural economy use cash for 80 percent of transactions and have been hard-hit. In seafood-mad West Bengal, for example, the fishing industry is in a state of near-collapse; in the wheat-growing states of the northwest, farmers halfway through the sowing season have run out of cash to buy seeds.

Few villagers have access to an ATM. Most have to trek to a bank branch to change their cash, which means losing out on crucial days of labor. Many Indians, particularly women, still don’t have an active bank account. Finance Minister Arun Jaitley wondered aloud how many poor people would even have 1,000-rupee notes -- probably a rhetorical question, but surely it shouldn’t have been. Someone should've sought the answer before shutting down India’s financial system.

Among India’s middle class, Modi’s “surgical strike on black money” still appears to be popular. It’s the old “vegan fallacy” -- if something tastes terrible, it must be good for you. Enough Indians are suffering that they believe it must be in a greater cause. It’s a moral project, not an economic one. Stand in line, we’re told, and you honor our brave soldiers at the border.

But will that support last? The government’s plan is likely to be ineffective in the long term. Economists agree it will have no effect on the generation of black money through corruption.

David Fuller's view

This incident has undermined confidence in both Modi and India’s economy for the medium-term.   India’s Mumbai Sensex Index is prone to volatility and the bank note debacle has occurred as resistance was beginning to be encountered near the early-2015 peak.  Medium-term uptrend consistency was interrupted with that first weekly downward dynamic in late September.

Global investors are looking at charts of what had been their favourite emerging market and seeing a double top, with a break in the 200-day (40-week) MA which has now turned downwards.  While a short-term oversold condition has now occurred following the recent persistent decline, a sharp rally back above the MA is required to check downward momentum beyond the short term.  That may be a challenge in this environment.  While I have liked India for the long term since 2002, here is what I said in the conclusion to my comment in the lead article on 24th October:

I do have some concerns over the short to medium term.  This year’s upward trend by the Mumbai Index shown above has lost consistency in the region of its 2015 peak.  This may lead to a further ranging consolidation phase, or a more significant medium-term setback if the rising 200-day (40-week) moving average turns downwards.  Nevertheless, I would regard any significant setback as a buying opportunity.    

This item continues in the Subscriber’s Area.

The Markets Now

Here is the brochure for the next event on Monday evening 28th November, at London’s Caledonian Club.

David Fuller's view

The shock US Presidential result is known but what can we expect from Trump’s regime, and how might it affect the markets?

Here is another important, far reaching development worth discussing at Markets Now – the US Dollar Index.  A number of government bond yields bottomed in July, including US 10-Yr Treasuries.  I don’t expect to see those lows again… ever.

Groupthink pundits are saying nothing much will change but that is a contrary indicator.

This is a great time to have an exciting new speaker in Clive Burstow.  Come along and participate in the discussion of market opportunities – the last session for 2016.

I look forward to another lively session at The Markets Now seminar, attended by highly experienced international investors, led by our long-term subscribers.  Iain Little has more interesting material, including his popular “Trusts In Focus” programme.  Iain also introduced Clive Burstow of Barings, a specialist in the analysis and management of mining stocks – a hot topic this year. 

I can’t wait and it is always fun to chat with delegates at the cash bar following the three presentations.


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