Kuka Robots Invade China as Wage Gains Put Machines Over Workers - This is an informative article by Richard Weiss of Bloomberg on what I feel is a hugely important subject. Here is the opening:

Kuka AG (KU2), Europe's largest maker of industrial robots, is creating a regional hub in China to tap surging sales in the world's most populous country, where rising wages are lifting demand for automated factory gear.

The German company will boost assembly capacity in China to 5,000 units this year, from less than 1,000 two years ago, Chief Executive Officer Till Reuter said. China will become a center for procurement, production of components and assembly for the entire Asian region, while research, development, and most production will remain in Germany, he said.

"China alone bought 15,000 robots last year, and we expect that number to rise to about 20,000 this year," Reuter said in an interview. A company target for an operating margin of 10 percent at the robot unit "is within reach," after standing at 9 percent in the fourth quarter, he said.

Rising wages, a push for quality, and demands for faster production are prompting China's manufacturing industry to buy more robots, helping European companies including Kuka and ABB Ltd. (ABBN) return lagging businesses into profit centers. Kuka's robots have become twice as profitable as the company's larger systems unit, and ABB turned its robot unit around in 2010.

At Kuka, robotics revenue jumped 84 percent between 2009 and 2011, as customers include Volkswagen AG (VOW3) and Daimler AG (DAI) bought equipment for new factories and China became the world's largest auto market. The company had record order intake, sales, and operating profit last year.

Automobile Demand

While demand from China so far was driven by automobile production, Kuka now seeks more business with customers in other industries. Manufacturers of semiconductors, electronic devices, food products and beverages are among the largest buyers of industrial robots, according data by the International Federation of Robotics, based in Frankfurt.

My view - Industrial robots have been with us for a long time but the sales figures in this article confirm that growth is now exponential. This trend is driven by intense competition among manufacturers who need to keep costs down, plus the accelerated pace of technological innovation which is now producing machines for factories which previously existed only in science fiction.

There is no limit to the potential for industrial robots. If we think about it, there are very few routine jobs that that machines will not be able to do more efficiently than humans, if not now then within a few decades. If there is a cost saving involved companies and other organisations will opt for the machines, which can work 24-7, over humans.

Kuka AG, mentioned above is not yet in the Library but you can see from the Bloomberg chart that the market is not yet impressed with its earnings potential from the China project mentioned above. It does not pay a dividend. ABB Ltd is also a non yielding underperformer.

Japan's Fanuc is far more impressive being a strong relative performer despite a yield of only 0.75%. In contrast, Yaskawa Electric Corp has been largely rangebound since July 2009 although the pattern has shown some upward dynamics since the October 2011 low. It yields 1.35%.

If I were to buy any of these shares it would be Fanuc. It is not cheap at a current PER of 21, estimated 20, but it certainly has growth potential. Otherwise, companies with top engineers and which use the best industrial robots are likely to be the better performers

Email of the day (1) - On company and share populations:

"Your service has been a game changer for me, and I wholeheartedly recommend TCS to anyone who invests.

"I have some questions regarding the supply of individual stocks and shares available for investment in the U.S. In the late 90's I recall at least 7000 companies were available for investment when you combined the NYSE, AMEX, and NASDAQ. I believe that total is now less than 6000 due to delisting, consolidation, and a paucity of new issuance. Meanwhile, total shares have been, in my mind, under pressure for that same reason as well as the fact that companies are buying back shares at a great rate. In your opinion does a scarcity of shares have an impact on prices overall, and can you account as to why we have not had any major stock split announcements despite the fact that many leading company shares trade over $100 (not to mention $600)?"

My comment - Thank you for your kind words and recommendations. As you probably realize, Fullermoney neither advertises, nor accepts advertisements, and we do not have any sales reps. Most of our subscribers and delegates have joined because of subscribers' recommendations, and we thank all of you for your interest and support.

Regarding your interesting questions, many in the Collective will know more about this than I do but I have a few thoughts. Since share price moves are a function of supply and demand, I assume that any significant reduction in supply can only make it easier for shares to rise when demand for them does increase.

Inevitably, there are significant fashion trends in the investment world and I am delighted that analysts and companies are no longer saying that "dividends are an inefficient use of capital." I always felt that was a disingenuous, self-serving mantra. However, via buybacks companies can increase earnings per share and reduce the cost of increased dividend payments. This is a timely fashion change because investors are ill-served by current government bond yields in the OECD countries, unless one is willing to accept the risk of troubled European sovereign debt. I see no need to take that risk when we can buy high-yielding equities with strong balance sheets.

Low government bond yields have reduced the risk, often expressed by analysts over the last decade or more, that aging 'baby boomers' would sell their equities to buy "safer" (sic) government bonds. While government bond yields remain low the money flow is more likely to be the other way around, in my opinion, as I have said before.

I think there have been fewer new listings in the US and Europe because it is harder for companies to obtain financing in our current environment of slower economic growth and tougher bank regulation, including higher reserve requirements.

As for the decline in stock splits, I can only guess. While these were once favoured to attract more investors and create an illusory feel good factor, they presumably increased registrar costs. Interestingly, Google announced that it would split its share yesterday. As I understand it, they will now have three categories of shares: 1) A-shares, untraded, held by the founders and which have 10 proxy votes per share; 2) B-shares that anyone can hold and which carry 1 proxy vote per share; 3) C-shares, which are new and have no proxy vote. Google's founders are ensuring that they have firm control over the company.

Lastly, I missed this email above when it came in last week and apologised to the subscriber when it was resent. He replied:

"No worries. One of the strengths of your service is how the degree of personalization makes me feel as though I am a member of a very small group when that is not exactly the case."

I am glad you feel that way. Eoin and I believe that we all learn from an interactive service that discusses items of general interest. It is part of our Empowerment Through Knowledge theme. We know that subscribers empower us with their questions, comments, articles and reports, and we hope to empower subscribers with this service.

Email of the day (2) - On an Autonomies fund:

If you think it's appropriate, would you mind listing a few funds that you think are an interesting way of participating in the 'Autonomies' theme.

My comment - I think it is very appropriate for the longer term and I know many other subscribers share your interest.

I would welcome a fund for global Autonomies, provided its fee structure did not heavily penalise investor returns as is the case with most funds these days. My preference would be for an investment trust and I hope some like-minded institutional investment managers within the Collective launch an Autonomies fund within the not too distant future.

Meanwhile, having seen Eoin's frequent reviews of Autonomies, you can always aim to cherry pick within the sector on a timely basis. Otherwise, the closest alternative would be Dividend Aristocrat funds because a number of Autonomies qualify. However, Dividend Aristocrats will also include national and regional companies which are not Autonomies - utilities, for instance. You will find a list of Dividend Aristocrat funds in the Library - just Search under Aristo.

Note: in considering any of these funds, please conduct your own due diligence, particularly regarding costs. Most of these funds and shares are currently consolidating temporarily overextended gains relative to their 200-day MA.

Chart of the day: Apple - It has been a while since Apple (weekly & daily) fell for 4 consecutive days. It is losing momentum and as you have seen on so many occasions, persistent accelerations above the 200-day MA always end badly. Quantum leap price forecasts for markets that have already dazzled with their gains are usually contrary indicators. Gene Munster, a research analyst at Piper Jaffray in Minneapolis who built his career on being bullish of Apple, recently forecast a price of $1000 by 2014. He may be right but not without first seeing a mean reversion correction to the MA.

Email of the day (3) - On inflation:

"Baum is one of Russell's Favorites and is very smart and get's it. These policies are very precious metals friendly, and one of these days (you pick the day) the Market will 'Get It'"

My comment - Thanks for this important column by Caroline Baum for Bloomberg: Inflation Lurks as Stealth Tax on Top of Form 1040. I commend it to all subscribers.

Ben Bernanke was appointed to the US Federal Reserve because he was an acknowledged expert on deflation and promised that the Fed would not allow the US to follow Japan's path of the last two decades and counting. So far so good on holding deflation at bay, and the Fed is focussing on the employment half of his dual mandate.

In the economic equivalent of the question: which came first, the chicken or the egg, we are all guessing which comes first: a self-sustaining recovery or inflation? No one knows. All we can be certain of is that Mr Bernanke will be a hero if a recovery worthy of the name comes first, and without the need for further QE steroids. In that event he will gradually raise rates to head off the inflation which is presumably in the pipeline.

If inflation comes first, and many people would correctly say that it already has in terms of most goods and services which we have to pay for, from food to education, then Mr Bernanke's achievements will be more controversial. Currently, inflation is not reflected by US government bond yields, but primarily because the Fed is the main buyer of this debt, as is the BoJ in Japan, the BoE in the UK and now the ECB via the banks which it is supporting.

Meanwhile, the Continuous Commodity Index (Old CRB) (historic, weekly & daily) remains in an overall downward trend, evidenced by the progression of lower rally highs and declining 200-day MA. It is also approaching an important low established in December. That low is significant because it was followed by the best rally since the peak nearly a year ago. The current retreat from 600 has lasted for seven weeks so CCI is somewhat overextended relative to its MA. If it were to encounter good support above its December low, and there is obviously no evidence of this as yet, it would suggest that a basing phase was underway prior to a more significant rally. Conversely, a sustained break beneath last year's low would reaffirm the medium-term downtrend.

I can think of three reasons why CCI is falling: 1) less user demand; 2) increased production of most commodities; 3) less long side speculation and more shorting. I assume it is a combination of all three. Whatever, Mr Bernanke will be pleased with the ranging downward trend because it shows that overall commodity price inflation is currently in retreat, albeit from a very high level. However, since this Index is unweighted, it does not reflect the economic headwind that crude oil prices have provided over the last year. While relieved that inflationary pressures are not worse, Mr Bernanke will be concerned by the slower GDP growth implications of CCI's retreat. It suggests that a steroid (QE) free self-sustaining economic recovery remains elusive.

(See also yesterday's item on "Some consequences of current monetary policy.")

Email of the day (4) - On gold:

"every day since the beginning of march gold has failed to close above its 50 ema on the daily chart. on commodities i consider the 50 ema to be the grand daddy so unless and until it closes above i personally won't be long of this metal."

My comment - Thanks for sharing your methodology. I have never met a successful trader who did not have his or her own favourite guidelines, presumably established by observation, experimentation and results.

Here is a daily chart of gold with a 50-day MA. It remains very much rangebound and this is likely to continue for a while.

( See also my comments on gold in yesterday's item - "Some consequences of current monetary policy", also referred to at the end of Email 3.)

Post-Apple - My thanks to a subscriber for this fun item.

Quote of the week - On dividends:

"Do you know the only thing that gives me pleasure? It's to see my dividends coming in."
John D Rockefeller

Eoin's USA Schedule for April - Don't miss these events if you are in or near the San Francisco, San Diego, Los Angeles or New York City area.

The Chart Seminar 2012: only 5 places left in New York in April - Following a sell-out tour to Singapore and Australia last year, The Chart Seminar will be held in San Francisco, New York and London this year.

We are still taking bookings for our San Francisco and New York dates in April, as well as London seminars in May and November. Anyone interested in securing a place at any of our events should contact Sarah Barnes at: sbarnes@fullermoney.com.

The date and venues for Eoin's public TCS workshops for 2012 are:

San Francisco - April 16th &17th 2012 Nikko Hotel

New York - April 23rd & 24th 2012 at The Manhattan Club (above Rosie O'Grady's) at 800 7th Avenue

London - May 25th & 25th 2012 at the Radisson Edwardian Hampshire

London - November 22nd & 23rd 2012 at the Radisson Edwardian Hampshire

The full rate is £950 + VAT. (Please note US delegates, as non EU residents are not liable for VAT). The early booking rate of £875 for non-subscribers expires on January 30th for the US seminars. Paid-up Fullermoney 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.

Speaking engagements in the USA - Eoin has accepted invitations to speak to a number of associations and groups while in the USA for his two-day workshop: The Chart Seminar. Here are the details:

"To Hoard or to Horde: risks and opportunities from participating with the crowd." This will be the topic of his presentations to both the San Diego and Los Angeles chapters of the Market Technicians Association (MTA).

San Diego MTA chapter on April 3rd between 4 and 5pm: the mostly likely venue depending on numbers will be the UBS offices in Del Mar/Carmel Valley.

Los Angeles MTA chapter on April 11th with a meet-and-greet from 5:30, buffet dinner from 6:30 and his presentation from 7pm at the Long Beach Marriott 4700 Airport Plaza Drive, Long Beach 90815.

CFA Institute San Francisco April 12th 3-5pm. The venue will be at the CFA's classroom at 300 Montgomery Street, 11th Floor. The topic will be "Differing patterns of development, comparing the USA & UK with China & India." Non-members are welcome to attend and can expect to pay a fee of between $20 and $30.

The TSAA-San Francisco April 13th. The venue will be Golden Gate University 536 Mission Street: venue, room 5207 on the fifth floor from 3pm to 5pm. The title is "Fire or Ice: Will inflation or deflation win the race?" Non-members are welcome to attend and can expect to pay a fee of $20.

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