David Fuller and Eoin Treacy's Comment of the Day
Category - General

    Treasuries Soar Most Since Post-Brexit as Market Volatility Hits

    This article by Brian Chappatta and Edward Bolingbroke for Bloomberg may be of interest to subscribers. Here is a section:

    Treasuries extended gains across the curve, driving down benchmark yields by the most since the days after the June Brexit vote, as traders across financial markets backed away from crowded bets.

    The benchmark 10-year U.S. yield plunged about eight basis points to 2.36 percent at 12:15 p.m. in New York, touching the lowest level since Dec. 8, according to Bloomberg Bond Trader data. It’s on pace for the biggest decline since June 27. The 10-year break-even rate, a market measure of inflation expectations, fell from close to the highest level since 2014.

    Across financial markets, trends snapped Thursday as investors weighed the risk of a lackluster payrolls report Friday and the prospect that trades based on Donald Trump’s impending presidency had gone too far. Data from the ADP Research Institute on Thursday indicated companies added fewer jobs in December than forecast. The figures come a day before the Labor Department releases its monthly payrolls report. 

    “A bunch of the widely predicted trades for this year are all being broken at the same time, with oil going lower, investment-grade corporates widening out, TIPS break-evens tightening, and then rates rallying as a result,” said Mike Lorizio, a Boston-based senior trader at Manulife Asset Management, which oversees about $343 billion. “Some key levels being broken just inspired further buying.”  

     

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    Email of the day on separate video and audio files

    The VIMEO software for the new subscriber’s audio demands lots of download capacity. I am fixing this issue with my phone company. Is it possible to include a separate Audio file with the combined Video & Audio? If I am away from the house I like the choice to just to listen to the audio. If this is too difficult don't worry I like the new Video and Audio format. Eoin see you in Singapore in April.

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    Harvard Academic Sees Debt Rout Worse Than 1994 Bond Massacre

    Here is the opening of this interesting article from Bloomberg

    If you thought you had already read the gloomiest possible prognosis for bonds, wait until you read this one.

    Paul Schmelzing, a PhD candidate at Harvard University and a visiting scholar at the Bank of England, said if the latest bond market bubble bursts, it will be worse than in 1994 when global government bonds suffered the biggest annual loss on record.

    “Looking back over eight centuries of data, I find that the 2016 bull market was indeed one of the largest ever recorded,” wrote Schmelzing in an article posted on Bank Underground, which is a blog run by Bank of England staff. “History suggests this reversal will be driven by inflation fundamentals, and leave investors worse off than the 1994 ‘bond massacre’”.

    Schmelzing, whose research focuses on the history of international financial systems, divided modern-day bond bear markets into three major types: inflation reversal of 1967-1971, the sharp reversal of 1994, and the value at risk shock in Japan in 2003.

    The Bank of America Merrill Lynch Global Government Index of bonds fell 3.1 percent in its worst-ever annual loss in 1994 as then-Fed Chairman Alan Greenspan surprised investors by almost doubling the benchmark rate. Treasury 10-year yields surged from 5.6 percent in January to 8 percent in November.

    The current bond market is facing the “perfect storm” of potential steepening of the bond yield curve, monetary policy tightening, and a multi-year period of sustained losses due to a “structural” return of inflation resembling that of 1967, he said. Last quarter was the worst for government bonds since 1987, according to data compiled by Bloomberg.

    Global inflation expectations, as measured by the yield difference between nominal and index-linked bonds, have risen to the highest since May 2015 after falling to a record low in February last year.

    “By historical standards, this implies sustained double-digit losses on bond holdings, subpar growth in developed markets, and balance sheet risks for banking systems with a large home bias,” Schmelzing said.

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    Sir Tim Barrow Appointed as UK Ambassador to the EU

    Theresa May has appointed Sir Tim Barrow, a career diplomat, as the new British ambassador to the EU in Brussels, replacing Sir Ivan Rogers, who quit on Tuesday.

    Her decision means she has ignored calls from within the Tory party to appoint a wholehearted Brexiter – possibly from outside of the civil service – to the job.

    Rogers, the head of UKRep – in effect the UK embassy in Brussels – resigned in frustration on Tuesday urging his fellow civil servants to provide impartial advice, and stand up to muddled thinking. He also made clear he thought that the UK government not only lacked an agreed exit strategy, but also a coherent exit negotiating team.

    Barrow was the UK ambassador to Moscow until 2015 and in March 2016 succeeded Sir Simon Gass as political director at the Foreign Office. He has extensive European experience and acted as first secretary at UKRep. His appointment is also a victory for the Foreign Office, which lost the UKRep post to former Treasury officials in 2012.

    May is due to trigger article 50, to formally start EU talks, in March, requiring her to urgently recruit someone committed to delivering Brexit, but also knowledgeable about how the labyrinthine EU works.

    Barrow said: “I am honoured to be appointed as the UK’s permanent representative to the EU at this crucial time. I look forward to joining the strong leadership team at the Department for Exiting the EU and working with them and the talented staff at UKRep to ensure we get the right outcome for the United Kingdom as we leave the EU.”

    A Downing Street spokesperson called Barrow “a seasoned and tough negotiator, with extensive experience of securing UK objectives in Brussels”. They added: “He will bring his trademark energy and creativity to this job, working alongside other senior officials and ministers to make a success of Brexit.”

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    The Ugly Unethical Underside of Silicon Valley

    This article by Erin Griffith for Fortune may be of interest to subscribers. Here is a section:

    No industry is immune to fraud, and the hotter the business, the more hucksters flock to it. But Silicon Valley has always seen itself as the virtuous outlier, a place where altruistic nerds tolerate capitalism in order to make the world a better place. Suddenly the Valley looks as crooked and greedy as the rest of the business world. And the growing roster of scandal-tainted startups share a theme. Faking it, from marketing exaggerations to outright fraud, feels more prevalent than ever—so much so that it’s time to ask whether startup culture itself is becoming a problem.

    Fraud is not new in tech, of course. Longtime investors remember when MiniScribe shipped actual bricks inside its hard-disk boxes in an inventory accounting scam in the 1980s. The ’90s and early aughts brought WorldCom, Enron, and the dot-bombs. But today more money is sloshing around ($73 billion in venture capital invested in U.S. startups in 2016, compared with $45 billion at the peak of the dotcom boom, according to PitchBook), there’s less transparency as companies stay private longer (174 private companies are each worth $1 billion or more), and there’s an endless supply of legal gray areas to exploit as technology invades every sector, from fintech and med-tech to auto-tech and ed-tech.

    The drama has some investors predicting more disasters. “What if Theranos is the canary in the coal mine?” says Roger McNamee, a 40-year VC veteran and managing director at Elevation Partners. “Everyone is looking at Theranos as an outlier. We may discover it’s not an outlier at all.” That would be bad news, because without trust, the tech industry’s intertwined ecosystem of money, products, and people can’t function. Investors may find the full version of the old proverb is more accurate: “One bad apple spoils the whole barrel.”

     

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    China Said to Consider Options to Back Yuan, Curb Outflows

    This article from Bloomberg News may be of interest to subscribers. Here is a section:

    China’s currency stockpile has probably shrunk further after hitting a five-year low of $3.05 trillion in November, according to the median estimate in a Bloomberg survey before data due as early as this week.

    Capital outflows from China accelerated in recent months as the yuan suffered its worst year of losses against the U.S. dollar since 1994, declining 6.5 percent. About $760 billion left the country in the first 11 months of 2016, according to a Bloomberg Intelligence gauge. The yuan will decline 2.7 percent the rest of this year, according to the median estimate in a Bloomberg survey.

    “The policies, if implemented, can help increase foreign-exchange supply in the onshore market, and hence help defend the yuan in the short term,” said Carol Pang, vice president for fixed income, currency and commodities at Zhongtai International Holdings Ltd. in Hong Kong. “However, it won’t change market expectation of further depreciation.”

     

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    Lithium producers can't expand fast enough to meet demand: An interview with Orocobre CEO Richard Seville

    This article from Mining.com may be of interest to subscribers. Here is a section:

    So the project was one of those moments when you look back on it where we did the hard analytical work, drew a conclusion, acted on our judgement, and it worked and went according to expectations.

    I don’t mean picking a certain price I just mean a general trend. I’m quite proud of that actually and sometimes the detail work is really valuable. We’ve redone it recently to understand the hard rock sector and the conversion plant capacity in China. Although that’s harder than what we did in Chile I think we got a pretty good understanding.

    That again supports the view that supply growth is being over estimated and over simplified and that it will take longer—just like we did—and there will be delays because of complications in China and offtake and everything will slip because it always does.

    So when you look at the supply/demand curve, our view is that it (lithium market) goes very tight for a number of years. And the first relief, if it is relief, will really be that period around 2020.

     

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