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Daily Intelligence Briefing – November 7, 2017

FEATURED TOPIC: Contrary to Media Reports, Digitization has Been Good for the Indian Economy

Almost a year ago from today, Indian Prime Minister Narendra Modi demonetized Rs500 (500 Rupee) and Rs1,000 currency notes, equivalent to 86% of all currency in India, forcing most large payments to go digital. The reform was targeted at “Black Money”, vast amounts of untaxed money that was fueling notorious corruption in India prior to PM Modi taking over. While the Indian government admitted that it would slow growth for a period of time, that period seems to keep extending as India is yet to see QoQ growth pick back up from its descending pace. The IMF has now revised annual GDP growth down to 6.7% for 2017-2018, falling behind China as the world’s fastest growing economy. Although some are becoming worried or impatient as the media creates a whirlwind of bad press around India, the slowdown appears to be insignificant for investors in the country.

Politically, the “cash ban” legislation has been extremely successful. Net direct tax receipts rose to Rs3.86 trillion, a 15.8% YoY jump, in the first half of TY (tax year)2017-2018, adding up to about two-fifths of the targeted direct tax collection for the full year. This is especially positive since tax collection growth usually picks up in the second half of the financial year. As a reaction to the cash ban, there has also been a 23% increase in e-filing of income tax returns in TY 2016-17 as compared to TY 2015-16. When it comes to finances, the cash-to-GDP ratio is now down to 9.7%, from 11.3% pre-8 November last year. This cash is now in the banking system which has helped swell the current accounts and savings accounts balances of banks: this will allow them to lend and invest more, and at lower rates. To complement this, the Indian finance ministry threw a lifeline on October 24 in the form of a $32.4 billion recapitalization plan to the most heavily indebted state-owned banks. The ministry has also stated that 9.1 million taxpayers have been added to the tax net as a result of actions taken by the income tax department during fiscal year 2017. Further, the ministry of finance has indicated that between Rs3 trillion and Rs4.2 trillion is “unexplained” during the cash deposit rush post-demonetization and, as a result, has sent out 1.8 million notices of assessment: apart from the one-time benefit to revenue of such “declarations”, these moves could bring significant stock and flow of incomes into the tax base.

Digital payments are not only good for collecting taxes, but also for the booming industry they create. The value of digital transactions at Rs500 billion in the month of October 2017 represents a 41% year-on-year rise. Paytm, India’s largest e-wallet company, says they may achieve the target of 500 million users on their platform by early 2019. PayPal is even getting in on the market as, just this week, the digital payments giant has begun offering domestic payment services in the country. In light of the huge success, the Indian Government is looking at giving a 2% incentive over the applicable goods and services tax rate for digital payments where the bill is up to Rs2,000, a move aimed at discouraging cash payments. One of the latest victories for the Indian economy’s digitization was jumping 30 spots to number 100 in the World Bank’s Ease of Doing Business rankings. While many saw the implementation of the new goods and services tax as the reasoning, it actually wasn’t taken into consideration at all since the deadline for acknowledging reforms by the World Bank had already passed by the time the GST was implemented in July. It was the digitization of Employees Provident Fund and simplification of corporate income tax regulations that helped India perform exceptionally well under the “Paying Taxes” category. However, it is very likely the GST could propel them even higher next year when it does fall under consideration by the World Bank.

Some have estimated that the cost of the demonetization efforts to be a one-time decline of 2% GDP. That is a relatively small price to pay to fix a broken Indian government that will now be able to invest back into its country much more effectively with projects including a $107 billion program to build tens of thousands of kilometers of road and $355 million in state grants for coastal shipping infrastructure. Inflation has been reined in below 4%, the federal deficit target is down, FDI is projected to be a record $60.1 billion for 2016-2017, and both India’s MSCI ETF (INDA) and SENSEX stock index have returned more than 26% and 32% respectively year to date. Given these trends, The prospects for investors are looking pretty good.

HERE in the meantime are the latest articles on India (the stories are summarized in the ECONOMICS & TRADE Section):

  • India – Demonetisation anniversary: Opportunity to leverage digital commerce beckons India 
  • India – India’s top digital payments service challenges WhatsApp with new feature
  • India – PayPal ‘cashing’ in on Indian start-ups
  • India – India mulls national e-commerce policy

CHART: SENSEX (^BSESN) vs India ETF (INDA) vs S&P 500 (SPY)


  • Markets: 
    • Vol – Short-Volatility Funds Are Being Flooded With Cash 
    • Cryptocurrencies – Donors Use Bitcoin for Tax Benefits and to Keep Tabs on Spending 
  • Economics and Trade: 
    • NAFTA – Mexico prepares for potential loss of Nafta
  • Politics and Policy: 
    • Saudi Crackdown – Saudi Arabia ‘at a crossroads’: What the arrests of several princes means for the kingdom’s future  
    • Defense – Trump Urges Japan to Buy More U.S. Military Equipment 
  • Services: 
    • E-commerce – China’s ecommerce titans prepare for Singles Day battle 
    • Retail Apocalypse – Amazon reportedly slashing Marketplace prices
    • Retail Apocalypse – Online Retailers Are Desperate to Stem a Surging Tide of Returns’
  • Technology: 
    • Video Games – Southeast Asia’s PC online and mobile game revenue hits $2.2 billion in 2017 
    • Blockchain – BP, Shell lead plan for blockchain-based energy trading platform 
    • AI – Building A.I. That Can Build A.I. 
    • Semiconductors – Broadcom Proposes to Acquire Qualcomm for Over $100 Billion 
    • Blockchain – A new layer of blockchain tech is emerging: inter-chain mediators
  • Transportation:  
    • Trucking – U.S. truck firms accelerate into the merging lane 
    • EVs – Gas Stations Get Ready for the Electric Future 
  • Commodities: 
    • Lumber – US finalizes Canadian softwood lumber tariffs 
    • LNG – LNG Prices Climbing As China Scrambles To Secure Supply 
    • Lithium – Lithium Mining – Understanding The Emerging Supply Landscape 
    • Oil – There may be a ‘Game of Thrones’ in Saudi Arabia now and that has big implications for oil 
    • Oil – OPEC Is Already Thinking About $70 Oil 
  • Energy & Environment:
    • Renewables – London Mayor Sadiq Khan Confirms Ultra-Low Emission Zone Will Start 2019  
  • Endnote: 
    • CHART: Bitcoin and US Semiconductor Equities



  Autos  (S)

  India  (L)

  TIPS  (L) / Short-Dated UST (S)

  Defense  (L)

  Industrials & Materials (L)

  U.S. Financials & Regional Banks (L)

  Emerging Markets (L)

  Oil & U.S. Energy  (L)

  U.S. Homebuilders & Construction (L)

  France  (L)

  Palladium  (L)

  U.S. Healthcare Providers & Pharma (S)

  Gold & Gold Miners (L)

  Robotics & Automation (S)

  Video Gaming (L)

  Lithium (L)

  Steel  (L)

  Value over Growth  (L)

About the DIBs: MRP focuses on identifying transformational change in the global economy and offering an investment thesis whenever an opportunity arises that has not yet been recognized by the market. The DIBs are MRP’s compilation of articles and data from multiple sources on subjects reflecting disruptive change that have potential investment implications for an industry or group of securities. We share these with our clients who may already have or may be considering exposure in the industries affected. The subjects change daily and constitute an excellent update on featured topics. 



  • United States, TD Ameritrade IMX, MoM, OCT: 7.40 from prior 7.14
  • Czech Republic, Industrial Production, YoY, SEP: 4.4% from prior 5.8%
  • Switzerland, Inflation Rate, YoY, OCT: 0.7% from prior 0.7%
  • Sweden, Industrial Production, YoY, SEP: 4.5% from prior 7.5%
  • Euro Area, PPI, YoY, SEP: 2.9% from prior 2.5%
  • Tunisia, Inflation Rate, YoY, OCT: 5.8% from prior 5.5%
  • Ireland, Industrial Production, YoY, SEP: -3.2% from prior 1.1%



Vol – Short-Volatility Funds Are Being Flooded With Cash  

Exchange-trade products betting that volatility will sink lower have never been more popular. Even as the CBOE Volatility Index plunges to its lowest on record and U.S. stocks march to fresh highs, investors have continued to give the short-volatility trade their vote of confidence this year. With $2.4 billion in assets, short volatility exchange-traded funds are backed by the most cash on record, according to data compiled by Bloomberg.

The funds’ meteoric rise is to some degree a bet that the U.S. stock market will keep rising, since the VIX and S&P 500 move in opposite directions about 80 percent of the time. With the S&P 500 up 16 percent and at its highest on record, the $1.1 billion VelocityShare Daily Inverse VIX ETN has surged 141 percent, heading toward its best yearly performance in five years. For now, the volatility bears have the momentum. B    



Cryptocurrencies – Donors Use Bitcoin for Tax Benefits and to Keep Tabs on Spending 

Few people are donating to the Red Cross with Bitcoin, with the group receiving just $2,000 worth of the currency in 2017, but the numbers are rising elsewhere. Fidelity Charitable, a $16 billion donor-advised fund, has received $13.5 million in Bitcoin donations this year, up from the $4.1 million it received from November 2015, when the fund started accepting the cryptocurrency, to December 2016.

Why would someone donate with Bitcoin over dollars? There are two reasons: It can be tax advantageous, and the technology the currency is built on could make it easier to see how a donation is being used, forcing charities to become more transparent. NYT



India – Demonetisation anniversary: Opportunity to leverage digital commerce beckons India

With all the efforts put in by the industry in driving digital payments deeper and wider across the country over the past year, India has emerged as one of the fastest adopters of digital forms of payment ever. With over 800 million debit cards and over 30 million credit cards in the market, almost every household in India now has access to a digital form of payment. Even more heartening is the emergence of the humble debit card as a preferred form of payment over the past year. At 3X growth in payment volumes and over 3.5X growth in transactions, consumers are beginning to enjoy the benefits of the debit card beyond its use as an ATM cash withdrawal instrument. Non-discretionary spending categories such as fuel and groceries have emerged among the largest spending categories, indicating digital adoption across the mass market.

Since the start of the year, the industry has added over 1 million new acceptance points, increasing the number to 2.8 million across the country. The trend continues across e-commerce platforms too, with more consumers preferring to transact using digital forms of payments. Notwithstanding the significant progress we have made over the past year alone, there is a lot more work to be done. At a modest 11%, the country’s electronic Personal Consumption Expenditure (ePCE) rate is a far cry from some leading economies around the world with ePCE rates upwards of 60%. By expanding the acceptance infrastructure, energising innovative methods of payments, and bolstering financial participation through stronger, open collaboration, we can continue to move up this value chain in the future. LMint

India – India’s top digital payments service challenges WhatsApp with new feature

In September of this year, Google announced the launch of Tez, a mobile wallet offering for the Indian market. Paytm is still the top payments app in the country, and on November 2nd launched a feature that could make WhatsApp nervous.

Ahead of the introduction of the new feature, Paytm – which is backed by Alibaba and SoftBank among others – debuted an update of its service, which now includes a chat feature called Inbox. In a statement, the company said that the platform has end-to-end encryption, and private and group chats are also available. Users can carry out financial transactions with friends, family and businesses as well as having regular conversations. Inbox also has a feature much like the one WhatsApp recently announced, which allows users to recall messages sent by accident.

Like Tez, WhatsApp’s service will likely be limited to transferring funds from one person’s bank account to another’s, whereas Paytm handles credit and debit card payments, electronic transfers on the government system, and digital wallet transactions. SR

India – PayPal ‘cashing’ in on Indian start-ups

PayPal, which runs an incubator at its technology centre in Chennai, said that having a foothold in the Indian start-up environment was helping the company to spurt innovation internally and also contribute back to the start-up ecosystem.

One of the successful companies incubated by PayPal is Ftcash, a Mumbai-based financial service firm. Vaibhav Lodha, co-founder of Ftcash, said that apart from introductions to venture capitalists and angel investors, the incubator enabled the company to form a strategic partnership with PayPal. This allowed PayPal transactions to be processed through the Ftcash platform. Ftcash said India had more than 60 million micro-merchants and less than 4% of these merchants had access to digital payments and institutional capital. The company aims to empower these small businesses with digital payments and loans, only using a bank account and a feature phone. It aggregates all payment methods like net banking, mobile wallets, payment cards and PayPal to create an open platform for merchants and initiate digital payments.

India’s digital payments will grow 10 times to touch $500 billion and contribute 15% of the gross domestic product (GDP), according to a joint report by Google and Boston Consulting Group. It said that non-cash transactions will exceed cash transactions by 2023. To capture this opportunity, Google released its own payment app Tez in September. Facebook-owned WhatsApp is gearing to start its payment service in the country. Players such as Paytm, Flipkart-owned Phonepe and Amazon Pay are also jostling for a bigger market share. Hindu

India – India mulls national e-commerce policy

India is considering drafting a comprehensive national e-commerce policy to develop an ecosystem that would support exports and protect consumer interests, said a senior government official.

Addressing an interactive session on ‘e-commerce, digital infrastructure, trade rules and WTO,’ organised by industry body FICCI and Centre for WTO Studies, Sudhanshu Pandey, Joint Secretary, Ministry of Commerce and Industry, said several countries were enthusiastic about negotiating multilateral rules to govern international trade through e-commerce. However, such rules could hurt the interests of most developing countries, including India, he said, adding India needed time to study whether it was prepared to take on obligations that would bind its stakeholders to an international policy in a sector like e-commerce, which was still evolving.

Global e-commerce market was estimated at $25 trillion of which trans-border component was a minuscule 5% — meaning the remaining 95% was domestic e-commerce trade, he said. The size of the Indian e-commerce market was just $30 billion. The national rule-making for e-commerce was also a daunting task as there were many issues which were overlapping. Thus, the varied arms of the Centre were trying to address the issues pertaining to their domain to help in formulating an overarching national policy for e-commerce. Hindu

NAFTA – Mexico prepares for potential loss of Nafta 

Mexico is increasing efforts to diversify its markets and introduce new investor protections as it prepares for the possibility that negotiations over the future of the North American Free Trade Agreement could break down. Negotiators are increasingly concerned that they will not be able to bridge gulfs between the US and Mexico in the talks. Sticking points include Washington’s proposed “sunset clause” that would kill off the pact unless it is renegotiated every five years, and its demands for higher US content in regionally-made cars. 

While the country is heavily dependent on the US for both imports and exports, it has imported more yellow corn from Brazil and Argentina in September than in the whole of 2016. Spanish bank Santander believes the economy could contract 2.6 per cent if Nafta died and the US went to a full trade war rather than reverting to World Trade Organization tariff rules. Moody’s Investors Service says the economy could shrink as much as 4 per cent.  FT



Saudi Crackdown – Saudi Arabia ‘at a crossroads’: What the arrests of several princes means for the kingdom’s future  

It was billed as a crackdown on corruption. But the astonishing arrests of nearly a dozen members of Saudi Arabia’s royal family were intended to send a clear message that the young heir to the throne is serious about modernizing the Kingdom of Saudi Arabia. The detentions were also meant to show that senior princes are no longer untouchable.

The moves that continued on Monday sidelined at least 11 princes and scores of current and former ministers and business officials. While the exact charges against them remain unknown, they came just hours after Crown Prince Mohammed bin Salman established a committee to combat corruption. And the shakeup solidifies Prince Mohammed’s role as the most important man in the kingdom, clearing the way for him to press ahead with social and economic reforms, while elevating the cold war between Saudi Arabia and regional rival Iran.

But the crown prince continues to face critics in some foreign circles for his agenda outside the country’s border. Prince Mohammed has accelerated the Saudi war in neighbouring Yemen, where a bloody conflict with Iranian-backed Houthi rebels has raged since 2015. CBC

Defense – Trump Urges Japan to Buy More U.S. Military Equipment 

President Donald Trump pushed for Japan to buy “massive” amounts of military equipment from the U.S., saying that it would help the country shoot down missiles like the pair that nearby North Korea has fired overhead in recent months. Mr. Abe, in turn, anticipated buying more military equipment from the U.S., and mentioned plans for more advanced fighter jets and upgrades to existing missile-defense systems. Still, there were clear differences between the two, particularly on trade.

While Mr. Abe said they agreed to step up negotiations on bilateral trade issues, he also hinted at his hope that the Trans-Pacific Partnership or something like it could be revived under U.S. and Japanese leadership. WSJ



E-commerce – China’s ecommerce titans prepare for Singles Day battle 

Alibaba and are taking the battle for shoppers’ wallets to everything from the seasonal delicacy hairy crabs to luxury labels as China’s ecommerce titans prepare to face off on Singles Day. The brainchild of Alibaba, Singles Day turned the anti-Valentine’s Day on November 11 into the biggest frenzy of consumption in the retail calendar. It worked: last year consumers spent $18bn, triple the $5.9bn spent on Black Friday, Cyber Monday and Thanksgiving combined in the US.

The day is one of the biggest engines in China’s economy. Shoppers spent $750bn online last year, roughly equivalent to the annual economic output of the Netherlands. Goldman Sachs reckons that will double to $1.7tn by 2020. Chinese consumers are responsible for almost half of all online shopping, according to research consultancy eMarketer. has sought to counter rival Alibaba’s superior clout — with more than 500m shoppers it has roughly double’s 258m — by stitching up data-sharing deals with some of China’s biggest tech groups. FT 


Retail Apocalypse – Amazon reportedly slashing Marketplace prices

Amazon has entered the brewing price war, slashing prices as much as 9% on its marketplace. The discounts appear to be applied to Marketplace from sellers using the “fulfillment by Amazon” option. To assuage its third-party sellers, which the WSJ says weren’t notified of the action, Amazon is making up the difference in price itself, noting that a tag on the discounts reads: “This item is sold by a third-party seller. The discount is provided by Amazon.”

Despite that, the move complicates things for those sellers by encouraging sales and depleting inventory and by forcing them to lower prices themselves on other marketplaces they participate in. Some sellers have signed parity agreements with Walmart and others promising to offer the same prices they offer on Amazon.  RDive

Retail Apocalypse – Online Retailers Are Desperate to Stem a Surging Tide of Returns’

Online sales are growing at about three times the rate of those from brick-and-mortar stores, in part because of the popularity of free shipping. But that’s led to a big problem: an explosion of online returns. Almost a third of web orders end up being sent back, vs. 9% of purchases at physical stores. The expense of processing and shipping boomeranged items can range from 20% to 65% of an e-tailer’s cost of goods sold, says United Parcel Service Inc.

A full 75% of online shoppers returned merchandise this year by shipping goods back to the merchant. But merchants prefer consumers to return goods to a physical store. That’s because 66% who return online orders to a physical store make a new purchase during that visit, according to the UPS study. 

Some e-tailers let partners help with returns. Kohl’s will start accepting free returns of Amazon merchandise at 82 Kohl’s stores. And startup Happy Returns accepts returns for several online retailers at counters inside malls or neighborhood boutiques. B



Video Games – Southeast Asia’s PC online and mobile game revenue hits $2.2 billion in 2017 

Southeast Asia’s PC online and mobile game revenue is projected to reach $2.2 billion by the end of 2017, and it could rise to $4.4 billion by 2021, according to a new report by market researcher Niko Partners. This year’s forecast is higher than in the past, mainly on the strength of esports and new hit international games entering the Southeast Asia market. The numbers make Southeast Asia the world’s fastest-growing region for all online games revenue (PC and mobile). 

Niko said that the number of PC online and mobile gamers in Southeast Asia is projected to rise from 300 million by the end of 2017 to more than 400 million by 2021. Mobile game revenue is expected to surpass PC game revenue in 2018. But that doesn’t mean that the two categories are at odds with each other. Rather, Niko said that mobile games revenue is additive, not cannibalizing, when it comes to PC games usage. VB

Blockchain – BP, Shell lead plan for blockchain-based energy trading platform 

A consortium including energy companies BP and Royal Dutch Shell will develop a blockchain-based digital platform for energy commodities trading expected to start by end-2018, the group said on Monday. Other members of the consortium include Norwegian oil firm Statoil, trading houses Gunvor, Koch Supply & Trading, and Mercuria, and banks ABN Amro, ING and Societe Generale. The new venture is seeking regulatory approvals and would be run as an independent entity, the consortium said in a statement. R

AI – Building A.I. That Can Build A.I. 

They are a dream of researchers but perhaps a nightmare for highly skilled computer programmers: artificially intelligent machines that can build other artificially intelligent machines. With recent speeches in both Silicon Valley and China, Jeff Dean, one of Google’s leading engineers, spotlighted a Google project called AutoML. ML is short for machine learning, referring to computer algorithms that can learn to perform particular tasks on their own by analyzing data. AutoML, in turn, is a machine-learning algorithm that learns to build other machine-learning algorithms.

With it, Google may soon find a way to create A.I. technology that can partly take the humans out of building the A.I. systems that many believe are the future of the technology industry. The project is part of a much larger effort to bring the latest and greatest A.I. techniques to a wider collection of companies and software developers. The tech industry is promising everything from smartphone apps that can recognize faces to cars that can drive on their own.

But by some estimates, only 10,000 people worldwide have the education, experience and talent needed to build the complex and sometimes mysterious mathematical algorithms that will drive this new breed of artificial intelligence. NYT

Semiconductors – Broadcom Proposes to Acquire Qualcomm for Over $100 Billion 

Broadcom Ltd. made an unsolicited $105 billion takeover bid for Qualcomm Inc., the chip industry’s boldest bet yet that size will equal strength at a time of technological upheaval. The approach, which would mark the biggest technology takeover ever, is an opportunistic move by Broadcom Chief Executive Hock Tan to grab a rival after a year of setbacks has left Qualcomm vulnerable. It is also a recognition of the value of Qualcomm’s wireless chips and related technology at a time when cellular communications are increasingly at the center of computing. 

The Qualcomm deal is far from certain, however. Qualcomm, which said it would consider the proposal, is expected ultimately to rebuff it on the grounds that the price isn’t high enough, especially given the significant risk that regulators would block it, according to some analysts. WSJ

Blockchain – A new layer of blockchain tech is emerging: inter-chain mediators

In the beginning was Bitcoin, the only blockchain we thought we’d need. Then Ethereum came along and launched us into a multi-blockchain world. Since then we’ve seen many new blockchains emerge with their various different protocols, financed by their various different tokens. The explosion of protocol ICOs has accelerated the timetable for a new layer of innovation for the decentralized economy: Blockchain interoperability.

We’re seeing the first generation of interoperability players emerge to take on the task of intermediating between chains.  One of the key players in this cross-chain space, Polkadot, has a roadmap that puts its own genesis block in 2019. Other players include ICON which is based in Korea, Cosmos (which calls itself the “Internet of Blockchains”), new entrants Aion, Lamden, Metronome (focused on cross-blockchain currency), and the InterLedger Protocol.

If you want to get really deep on the tech side of cross-chain protocols, check out Jackson Palmer’s great explanatory video on how they work. VB

Utilities – Utilities See ‘Robust’ Spending on Grid Upgrades to Prepare for Distributed Resources 

Utilities cut way back on infrastructure investments in the 1990s, delaying tens of billions of dollars in upgrades. Those investments started to pick up again after the 2009 stimulus package and Superstorm Sandy in 2012. The more recent surge in utility-scale renewables, plus a range of distributed resources like batteries, rooftop solar, EVs and microgrids, has also spurred new grid modernization activity. The latest energy industry update from energy consulting firm ScottMadden looks at new infrastructure spending as a result of the changing grid mix.

One instance where DERs are challenging the grid is transmission infrastructure. From 2011 to 2016, spending on distribution infrastructure grew by 8.6 percent and spending on transmission infrastructure grew by 16 percent. Regulatory Research Associates expects spending on transmission and distribution to account for 45 percent of expenditures from utilities through 2018. gtm   



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