Saturday 31 December 2016

Weekend Update 31/12/2016 – 2016 An Interesting Year

To all our readers, a safe, healthy, happy and prosperous 2017.

May you live in interesting times, goes an old Chinese adage, and 2016 lived up to interesting times. 

Unfortunately, 2017 promises more of the same, but on steroids. Brexit, serial European elections, President Trump, OPEC oil production cuts, the never ending EUSSR banking crisis.

Below, the end of the year of 2016.

U.S. Stocks Pare Yearly Gain as Dollar, Oil Slip: Markets Wrap

by Jeremy Herron and Rita Nazareth
U.S. stocks completed the fourth annual gain since 2011 on the longest losing streak since the election, while oil and gold posted the best yearly advances since at least that time. The dollar rose for a fourth straight year.

The S&P 500 Index cut its advance this year to 9.3 percent as a three-day slide left it at the lowest level since Dec. 6. The Dow Jones Industrial Average finished the year more than 250 points below 20,000 after climbing within 30 of the mark this week. Trading volume was at least 29 percent below the 30-day average. Treasuries retreated, with the 10-year yield adding 17 basis points in 2016. A measure of the dollar fell a second day, trimming its annual gain to below 3 percent. Gold jumped 8.2 percent for its first yearly climb since 2012. Oil futures added 45 percent in New York

The heady advances in multiple assets came after the year began on a sour note, with the MSCI World gauge tumbling 2 percent on the first day and U.S. equities notching the worst-ever start to a year. China-fueled turmoil sent stock markets from Tokyo to India into bear markets in the first two months of 2016. Oil reached a 13-year low while the dollar slid to its weakest level in a year -- all before June. The second half of the year saw that action reverse, as financial markets powered past the Brexit shock while Donald Trump’s presidential victory provided an unexpected boost to riskier assets..

European Stocks Trim 2016 Decline as FTSE 100 Closes at Record

by Namitha Jagadeesh
European stocks rose on the last trading day of the year, trimming their first annual decline since the peak of the sovereign-debt crisis in 2011.

The Stoxx Europe 600 Index added 0.3 percent at the close, with trading volume about 60 percent lower than the 30-day average. Real estate firms climbed the most, helping the measure reverse losses of as much as 0.4 percent. The U.K.’s FTSE 100 Index rose 0.3 percent to end the year at a fresh record.

Europe’s benchmark gauge never fully recovered from losses at the start of the year spurred by concern about a slowdown in China. Then came investor concerns about the region’s economy, political uncertainty and Italy’s banking crisis.

The Stoxx 600 traded in a range of fewer than 50 points for most of the year, before picking up momentum in the final quarter. That’s when the U.S. presidential election spurred bets for stronger global growth and the European Central Bank broadened its bond-buying program. The gauge has rallied 5.7 percent in December, the most in more than a year, as the euro slumped.

·  The FTSE 100 capped one of the best performances among western-European markets in 2016, up 14 percent thanks to a slumping pound that boosted its exporters and a rally in commodity producers.

·  Benchmarks of Italy, Portugal and Denmark were the biggest losers of the year among developed markets, down at least 10 percent.

·  The Swiss Market Index has lost 6.8 percent in 2016, hurt by a rotation out of defensive sectors and into cyclical shares seen benefiting from economic growth. The equity measure has a heavy weighting of consumer staples and health-care firms.

But trouble still lies ahead in the dying, wealth and jobs destroying EUSSR. And trouble in spades lies ahead in Asia.

ECB’s Monte Paschi Capital Bar Would Trip Up 10 Other EU Banks

by Boris Groendahl
Deutsche Bank AG, UniCredit SpA and eight other European Union banks would fall short of the European Central Bank’s capital demands on Banca Monte dei Paschi di Siena SpA based on stress-test results, highlighting potential objections to the plan.

The ECB told Monte Paschi it needed enough capital to push its common equity Tier 1 ratio to 8 percent of risk-weighted assets in the adverse scenario of the stress test, the Bank of Italy said in a statement late on Dec. 29. That’s well above the legal minimum of 4.5 percent. This year’s health check had no pass mark, but in 2014 lenders were held to a CET1 ratio of 5.5 percent.

Monte Paschi was the worst performer in the stress test’s adverse scenario with a CET1 ratio of minus 2.4 percent, followed by Allied Irish Banks Plc with 4.3 percent. The Italian government is planning a bailout of Monte Paschi. Under European Union law, state aid can be given to solvent banks to cover a stress-test shortfall, but the absence of a hurdle means the size of the gap could be disputed when Italy seeks approval for the rescue from the European Commission.

“There’s a lot more to be explained,” said John Raymond, senior European bank analyst at CreditSights. “They just say, ‘Oh, this is needed to get to 8 percent,’ as if we all knew the number was 8 percent, when in fact that’s a completely new number.”

The government in Rome is planning a so-called precautionary recapitalization for Monte Paschi. The Bank of Italy said the ECB’s demands for an 8 percent CET1 ratio and a total capital ratio of 11.5 percent translate to a shortfall of 8.8 billion euros ($9.3 billion).

Closing the CET1 gap requires 6.3 billion euros of high-quality capital, 4.2 billion euros of which will come from converting subordinated debt to equity, with the remainder provided by the government, according to the Bank of Italy. Another 2.5 billion euros will be needed to offset capital lost in the debt-to-equity conversion to reach the 11.5 percent total ratio.

A person familiar with the matter said the CET1 premium of 3.5 percentage points above the legal minimum is intended to restore market confidence.

In the stress test, Deutsche Bank emerged with a CET1 ratio of 7.8 percent, while UniCredit had 7.1 percent. The CET1 ratios of Barclays Plc and Societe Generale SA were 7.3 percent and 7.5 percent, respectively.

Sat Dec 31, 2016 | 12:27am EST

China considering strong measures to contain Taiwan - sources

China's military has become alarmed by what it sees as U.S. President-elect Donald Trump's support of Taiwan and is considering strong measures to prevent the island from moving toward independence, sources with ties to senior military officers said.

Three sources said one possibility being considered was conducting war games near the self-ruled island that China considers as a breakaway province. Another was a series of economic measures to cripple Taiwan.
It was not clear whether any decisions had been taken, but the sources, who spoke on condition of anonymity, said the Taiwan issue had become a hot topic within the upper echelons of China's People's Liberation Army (PLA) in recent weeks.

Trump, due to take office on Jan 20, angered Beijing this month by speaking to Taiwan's president by telephone, breaking decades of precedent and casting doubt on his incoming administration's commitment to Beijing's "one China" policy. Beijing fears this could embolden supporters of independence in Taiwan.

"If Trump challenges 'one China' after becoming president, this would cross our red line," said another source, who has ties to China's leadership.

China's defense ministry declined to comment. An official at the ministry's news department said China's position was clearly laid out in the 2005 Anti-Secession Law, which authorizes the use of force against Taiwan in the event China judges it to have seceded.

Asked about any possible aggressive moves from China, Taiwan

defense ministry spokesman Chen Chung-shi said: "We are fully
prepared, and plan for the worst while preparing for the best."

China claims self-ruled Taiwan as its sacred and inviolable territory and is deeply suspicious of President Tsai Ing-wen, whose ruling Democratic Progressive Party espouses the island's independence. Tsai, who took power this year, says she wants to maintain peace with China, but China is unconvinced.

And so on in three weeks to President Trump.

We close for the year with technology. Coming soon to a street light near you.

The Dark Side of LEDs

December 30, 2016 By Carl Weinschenk
LEDs’ benefits outweigh the potential problems. That doesn’t mean, however, that challenges don’t exist.
At this point, the issues are most obvious in street light deployments. At its website, Chicago radio station WEBZ yesterday reported that 270,000 streetlights will be replaced with the LEDs during the next four years. There are issues, according to the piece, related to the brightness of the lights and whether or not shielding is necessary to limit the light to where it is intended. The potential problems are serious:

A growing body of research links blue light exposure at night to sleep disruption and health problems. This research led the American Medical Association to issue a report this summer on LED streetlights, warning of potential problems with glare and damage to human health and the environment. It further recommended that cities choose lights with shields and a color temperature of 3000 Kelvins or less. Chicago’s proposal, so far, complies with the latter.

The LEDs seem to be becoming something of a political football. While the city is complying with the 3,000 Kelvins limit, it maintains that the shields are unnecessary.

A comprehensive look at the problems associated with LEDs was posted this fall by The Washington Post. The report featured a study by the American Media Association. That study, which is linked to from The Washington Post piece, says that the association supports LEDs, but advocates use of the least amount of blue light possible. The AMA says that 3,000 Kelvin should be the maximum used for outdoor installation and that the LEDs should be shielded and dimmed during off-peak hours.

The potential problems are wide ranging. The Washington Post story points to disruption of sleep patterns, increased risk of cancer and cardiovascular disease and “light pollution” that is complained about by the astronomical community.

Phoenix is another city with LED issues. AZ Central earlier this month reported that the city has agreed to a bit of a do-over. Phoenix has been installing LEDs for the past four years. However, on November 30, the city council approved a contract with Ameresco on replacing the LEDs with those that emit yellow or amber light rather than the white or blueish that have been used to date.

The story says that the original LEDs had an intensity of 4,000 Kelvin. The replacements are 2,700 Kelvin. The overall savings by 2030 is expected to be $52 million, with a net savings of $22 million when installation costs are factored in, the story says.

The small city of Clarkson, GA, is having an LED problem of a different sort. Georgia Power has replaced existing streetlights with LEDs. However, it is not passing on any of the savings to the city. The mayor, according to a report this week at WTVM, thinks that there is some “wiggle room” and some of savings should be given to Clarkson.

Municipal energy managers must, of course, pay careful attention to all the issues regarding LEDs and streetlights. It’s complicated because there are multiple issues. The good news is that corrective actions – a lower Kelvin limit and less intrusive colors – are likely to handle the problems. The important thing, of course, is to pay attention to the issue before deployment. Doing that, it seems, would have saved Phoenix a good deal of money and aggregation.

The other element to note is more cautionary. No matter how cut and dried a new technology seems, careful planning and exploration are necessary before deployment. It doesn’t seem that the precise issues that affect street light LEDs would impact those used within facilities. That is not certain, however, and health concerns should be explored. There also may be issues that are unique to indoor environments.

Finally our usual weekly update from Jason in California.  Jason and his father Paul are in London visiting hedge funds and financial houses for the next 10 days.  If any readers would like to meet up just get in touch.

U.S. President Obama & President-Elect Trump Adding Nuance to the Definition of a Peaceful Transition of Power as Russia, Israel Tensions Flare

 N. Jason Jencka      December 31st, 2016 2:25 am ET

            For a brief but notable time after the November 8th election it appeared as if the 44th and 45th American presidents and their respective cadres of friends and advisers might just get along better than expected after a contentiously hostile election. There was conciliatory and optimistic talk of an orderly and cordial transition from one administration to the next. In a particularly poignant moment as recently as December 9th, Trump told a crowd of his supporters in Baton Rouge, Louisiana that Obama had been “really doing great and was so nice”. This friendly tone elicited clear jeers from the crowd, which Trump quieted by changing subjects. Previously Trump had said November 10th that he would be relying on Obama for continued council and that he had great respect for the President whom he quipped to a reporter afterwards was “ A very good man.” following their ~90 minute meeting at the White House.

            In politics though, three weeks can be an eternity and the present state of Obama Trump relations is as frigid as the winds that blow through Vladimir Putin's Siberia. Whether in the case of this week's drama at the United Nations where the U.S broke from historical precedent in not vetoing a Security Council resolution against Israeli settlements or regarding the diplomatic tact toward Russia, the chasm  that now exists and the way in which it is fueled by a 24 hour online news cycle is profound. As the world gets ready to celebrate the passing of another year with fireworks and liquor lasting mere hours, all indications from Washington are that political fireworks will be in season for the foreseeable future. In combination with the slowly simmering process of Brexit & a persistently rather feeble Eurozone  across the Atlantic with unrest ad infinitum throughout the Middle East, these times are the far from dull.



N. Jason Jencka is presently studying Finance and Economics at Sierra Nevada College, located near the shores of Lake Tahoe on the border of California and Nevada. His interests include the interplay between world markets and the global political sphere, with a focus on developments of both sides of the Atlantic in North America and Europe. In his leisure time he enjoys connecting with those people that have an interesting story to tell and a genuine desire to make an impact in the world.