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Six Reasons Why Post-Brexit Britain Can be Like Others That Thrive Outside the Single Market

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Six Reasons Why Post-Brexit Britain Can be Like Others That Thrive Outside the Single Market

Here is the opening of another informative column by Roger Bootle for The Telegraph:

So much of the current discussion about our future relationship with the EU is about access to the single market. If we could have all the benefits of belonging to the single market without being obliged to obey its rules, be able to make our own laws, control our own borders, abolish the EU’s tariffs on our imports, make no contributions to the EU budget and make our own trade deals around the world, then I would support being a member. But such a package is unobtainable.
Of the realistic options, some people have argued that we should seek a deal like Norway’s or Switzerland’s. We should want neither of these. Rather, we should seek to be like all other countries in the world, that is to say, outside the single market but trading extensively with it. In realising this vision, our officials and ministers need to bear in mind six key points.
Single market membership is not the be-all and end-all
First, contrary to the propaganda, membership of the single market is not of overwhelming importance. If it were, how would it be possible for non-member countries from all around the world to sell to it so successfully, and why would its members be doing so badly? Why haven’t single market member countries been carried forward on a wave of prosperity created by the mutual recognition of standards and the absence of border checks?
The benefits of the single market have been sufficiently small that they have been outweighed by other factors: the macroeconomic disaster that is the euro and the micro-economic disaster that is the web of regulations, laws and interferences that reduce market efficiency across the union.
Tariffs might be a price worth paying
Second, tariffs are not a big issue. By all means, let’s try to get a deal under which our exports to the EU face no tariffs. But this is not worth paying much for – or enduring much of a delay for. If our exporters end up having to pay the EU’s common external tariff this would not be a killer blow. The average tariff on manufactured goods is about 4pc.
If it comes to it, even the 10pc tariff on cars would be more than compensated by the lower exchange rate for the pound. And if the City loses passporting rights, that isn’t a killer blow either. The key requirement is to be outside the EU’s icy regulatory embrace. In the long term, securing this would be well worth enduring some short-term loss.



David Fuller's view
Roger Bootle’s analysis make sense to me.  However, we can expect international banks and many other City firms to take a somewhat different view.  They may only be lobbying in their perceived best interests, but we hear plenty of talk about partial moves to various regions of the EU.  Some of that may be inevitable but Mrs May’s Government will need to remain diplomatic and in close contact with these firms, while also holding its line on a reasonably swift and complete exit from the EU.
A PDF of this article is posted in the Subscriber's Area.



Parliament Calls for Carbon Capture to Revive British Industry and Slash Climate Costs
Here is the opening of this interesting article by Ambrose Evans-Pritchard of The Telegraph:

A high-level Parliamentary inquiry has called for a massive national investment in carbon capture to revive depressed regions of the North and exploit Britain's perfectly-placed network of offshore pipelines and depleted wells.
Lord Oxburgh's cross-party report to the Government has concluded that the cheapest way to lower CO2 emissions from heavy industries and heating is to extract the carbon with filters and store it in the North Sea oil.
The advisory group said the technology for carbon capture and storage (CCS) is ready to go immediately and should cut costs below £85 per megawatt hour by the late 2020s if launched with sufficient conviction and on a large scale, below the strike price for the Hinkley Point nuclear project.
It could be fitted on to existing gas plants or be purpose-built in new projects, and could ultimately save up £5bn a year compared to other strategies. Unlike other renewables CCS does not alter with the weather or suffer from intermittency. It can be “dispatched” at any time, helping to balance peaks and troughs in power demand.
“I have been surprised myself at the absolutely central role that CCS has to play across the UK economy,” said Lord Oxburgh, a former chairman of Shell Transport and Trading.
“We can dramatically reduce our CO2 emissions, create tens of thousands of jobs, and give our domestic industry a great stimulus by making use of technologies which are now well understood and fully proved,” he said.
No other country is likely to take the plunge first since few have the magic mix of industrial hubs, teams of offshore service specialists, and cheap, well-mapped, sea storage sites all so close together. “CCS technology and its supply chain are fit for purpose. There is no justification for delay,” says the report, to be released today.
Lord Oxburgh said the state must take the lead and establish the basic infrastructure in the early years.
The report called for a government delivery company modelled on Crossrail, or the Olympics Authority, taking advantage of rock-bottom borrowing costs. It could be privatised later once the CCS has come of age.
The captured CO2 is potentially valuable. Some could be used for market gardening in greenhouses, to produce biofuels, or for industrial needs.
Most CCS in North America is commercially exploited to extract crude through enhanced oil recovery by pumping CO2 into old wells, a technology that could give a new lease of life to Britain’s depleted offshore fields. “We could keep North Sea production going for another hundred years,” said Prof Jon Gibbins from Sheffield University.



David Fuller's view
In this exciting new, varied and fast changing era of energy, tech-savvy nations should way outperform over the longer term.  What energy systems will they have?
This item continues in the Subscriber’s Area, where a PDF of the article is also posted.



An Allocation Only a Mother Could Love
Here is the opening of this topical article by Ben Carlson for A Wealth of Common Sense:

GMO’s Jeremy Grantham and Lucas White came out with a report entitled An Investment Only a Mother Could Love this past week laying out the prospects for natural resource equities. Here’s the executive summary of their findings and thoughts:
• We believe the prices of many commodities will rise in the decades to come due to growing demand and the finite supply of cheap resources.
• Public equities are a great way to invest in commodities and allow investors to:
o Gain commodity exposure in a cheap, liquid manner
o Harvest the equity risk premium
o Avoid negative yields associated with rolling some futures contracts
• Resource equities provide diversification relative to the broad equity market, and the diversification benefits increase over longer time horizons.
• Resource equities have not only protected against inflation historically, but have actually significantly increased purchasing power in most inflationary periods.
• Due to the uncertainty surrounding, and the volatility of, commodity prices, many investors avoid resource equities. Hence, commodity producers tend to trade at a discount, and they have outperformed the broad market historically.
The team from GMO makes some good points here. If you’re looking to gain long-term exposure to commodities, it rarely makes sense to invest directly in the commodities themselves. You’ll get cash-like returns with stock-like volatility.
I wanted to look back at the performance history of these stocks to check out their other claims. The longest running fund I could find is the Vanguard Precious Metals & Mining Fund (VGPMX). It may not be a perfect match with what GMO is doing but it has a performance history going back to 1985.



David Fuller's view
I have long held Jeremy Grantham in high regard and I maintain that we have only seen this year’s initial recovery for industrial commodities and precious metals.  However, I question this opening bullet point:
We believe the prices of many commodities will rise in the decades to come due to growing demand and the finite supply of cheap resources.
This item continues in the Subscriber’s Area.



What Samsung's Disastrous Galaxy Note 7 Recall Means for Apple
This article by Chris Nolter for TheStreet may be of interest to subscribers. Here is a section:

The announcement of the iPhone 7 and 7 Plus was "lackluster," in the view of Gartner analyst Tuong Nguyen, who expressed skepticism that the problems with Samsung's flagship smart phone will lead to an outflowing of customers to Apple.

"We've chosen our battlegrounds already," Nguyen said, suggesting that U.S. users are mostly either in the Android an iOS camps. Shifting from one to the other is "at the least annoying" and involves relearning the quirks of a new platform and accounting for apps that have been bought or downloaded.

"I feel it's more likely that the Samsung incident will push people towards other Android makers like LG more so than towards Apple," Nguyen said. Shifts to a new platform could be more pronounced in emerging markets with burgeoning middle classes who may not have been able to afford iPhones before.



Eoin Treacy's view
The app ecosystem of various platforms represents a significant hurdle to moving from an iOS based phone to Android. That represents a major incentive for companies like Apple and Google to encourage as many programmers as possible to develop apps for their respective languages. Google’s announcement in July that it plans to fund education for up to 2 million programmers in India is a direct reflection of that theme.



Thailand




Eoin Treacy's view
The majority of ASEAN markets have benefitted from increasing international investor flows over the last few months and Thailand is no exception. It has received net inflows of nearly $16 billion year-to-date but this has done little to support the stock market in currency adjusted terms. Just about every Asian market pulled back today but Thailand has been leading on the downside.

 

 



N.Z.â's Key Says Don't Break Out Champagne for Parity Party Yet
This note by Matthew Brockett for Bloomberg may be of interest to subscribers. Here it is in full:
New Zealand Prime Minister John Key speaks at post-cabinet press conference in Wellington on Monday.

Says NZ dollar’s recent gains generally reflect economic fundamentals of New Zealand
On prospect of NZD reaching parity with Australian dollar,     says “just before people break out the champagne for a parity party, we’ve been there many times before and not quite got over the finishing line”

Most New Zealanders would prefer NZD “was a little bit lower”

“With dairy prices recovering, that’s the thing I think that’s actually underpinning the exchange rate now”: Key says his view on currency intervention is it’s “not a terribly effective tool”



Eoin Treacy's view
The New Zealand Dollar has not traded above parity against the Australian Dollar in at least 30 years so it represents a psychological Rubicon for investors and a potent threat to the competitiveness of Kiwi exports to its largest neighbour. The rate has contracted steadily over the last month and a break in the short-term progression of lower rally highs, currently near NZ$1.04, will be required to signal Australian Dollar demand is returning to dominance.
 

 



Eoin's personal portfolio: commodity long increased




Eoin Treacy's view
Details of this trade are posted in the Subscriber's Area.



The Chart Seminar 2016
We are pleased to confirm two venues for The Chart Seminar in 2016.




Eoin Treacy's view
We are pleased to confirm two venues for The Chart Seminar in 2016.

The first will be in London on November 24th and 25th. We will be working with a partner to co-promote the event and expect a full house (we cap the event at 50). The Radisson Blu Edwardian Vanderbilt on Cromwell Road will be the venue for the seminar. 

If you are interested in securing your place please contact Sarah Barnes at [email protected]

The full rate for The Chart Seminar is £1799 + VAT. (Please note US, Australian and Asian delegates, as non EU residents are not liable for VAT). Subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.
 






 

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