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The Market Corner: The Month in Review


By: Filippo Lecchini,  PhillipCapital

Solar


After OPEC finally decided to curb production, along with non-OPEC members as well, Oil has been trading over $50. Without trying to address who wins and who loses in this new scenario, it might be worth thinking about the alternatives and how, from the point of view of business and markets, they are becoming far more viable. Solar power in particular is taking up a whole new relevance in public spending and policy as well as consumer decisions all over the world.


So far the entire issue has been relegated to individual preferences and values: historically some people cared about preserving the environment, others had different priorities. Now there are two new aspects to take into consideration and they are somehow a lot more measurable. The first is health: in metropolitan areas with elevated levels of pollution people get sick and experience unpleasant living conditions. As we all know, healthcare is not free. In fact it’s becoming a big cost, and not an insurable one. The risk cannot be pooled if every participant is potentially affected. The second is simply cost: if solar power is cheaper and more easily available than the alternatives, there are no reasons to choose other options.


With respect to health, China has been taking decisive steps to move toward solar: pollution has become a relevant problem in urban areas where the toxic smokes are causing living conditions to deteriorate. As per capita income increases, people become more willing to purchase “well-being”.


A different and interesting case is Saudi Arabia: in the Kingdom, power is produced utilizing historically abundant fossil fuels so turning to solar would free up lots of oil that can be sold abroad. The conversion is obviously not free but is evidently believed to be advantageous.


In both cases the government involvement guarantees a level of demand and commitment that allows for investments and faster progress toward cheaper and effective implementation, since solar technology is mostly developed in the private sector (kind of like infrastructure spending).


In the US, a noticeable case is the merger between sister companies Tesla and Solar City which showed that the same technologies can be developed to serve a number of purposes. Energy can be stored to power a house or a car.


As 2017 approaches it’s worth taking a moment to think about how the world is changing and where the opportunities lie ahead, in different markets and products. Solar is no longer an environmental dream but rather a fast growing industry.


Rates


Done, finally: the FED increased rates by 25 basis points and upgraded the forecast to 3 hikes in 2017 from 2.


Nothing was really a surprise but it may be true that while a change in monetary policy was expected, it seems now particularly fitting based on the result of the US Election. The next administration announced early on planning on infrastructure spending and with a reflationary fiscal policy on the way a monetary policy that shifts the focus from growth and employment toward inflation might be welcomed as a reasonable balancing act.


Looking ahead:


The Presidential inauguration is on January 20th and will be shortly followed by President Trump’s first State of the Union Address that will shed some light on the first 100 days for the next administration which in turn will influence where the markets are heading around the world


 

RISK DISCLAIMER: Trading in futures products entails significant risks of loss which must be understood prior to trading and may not be appropriate for all investors. Past performance of actual trades or strategies cited herein is not necessarily indicative of future performance. The information contained herein is provided to you for information only and believed to be drawn from reliable sources but cannot be guaranteed; Phillip Capital Inc. assumes no responsibility for errors or omissions. The views and opinions expressed in this letter are those of the author and do not reflect the views of Phillip Capital Inc. or its staff.