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

    Jeffrey Gundlach Says We're Getting Closer to a Recession

    Thanks to a subscriber for this interview of Jeff Gundlach which appeared in Barron’s and may be of interest. Here is a section:

    We are getting closer to a recession. When the curve goes flat from the two-year Treasury to the 10-year [meaning that the yields are identical], the recession risk is at least a year away. Recently, that spread was 28 basis points [hundredths of a percentage point], which is pretty close to being flat. It is flashing yellow. It needs to be respected. The other reason to think 2019 might be more problematic is that quantitative tightening has just started. The Fed has started to let bonds roll off its balance sheet [the central bank isn’t buying new bonds when many current holdings mature]. Several billion dollars of bonds per month are coming due, but by October the amount will be up to $50 billion per month.

    At the same time, the Fed has said it intends to keep raising interest rates, probably twice more this year. That, together with the signal from the yield curve and perhaps $600 billion of quantitative tightening, and a budget deficit that is growing, is an issue. The strangest thing is that Congress passed a $280 billion tax cut and spending increases so late in the cycle, and with interest rates rising. It’s like a death wish. The U.S. is taking on hundreds of billions of dollars of debt while raising rates, which means our debt-service payments are going to be under serious pressure to the upside.

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    Global Strategy Q3 2018

    Thanks to a subscriber for this report from Erste Group which may be of interest. Here is a section on the Eurozone:

    We expect GDP growth in the euro zone to stabilize in the second half in range of around +0.4% to +0.5% q/q. The recent weakness in the euro should support export growth, even though the trade dispute is certain to weigh on foreign trade. A sustained steady uptrend in credit growth in the household and corporate sectors should support growth in domestic demand and investment spending in H2. We are forecasting GDP growth of +2.3% for the euro zone in 2018. 

    We expect consumer price inflation in rise moderately in 2018 to an average of +1.6%. Considerable uncertainty remains regarding the extent to which the ongoing recovery will be reflected in higher core inflation rates. The trend in core inflation was at times below expectations, inter alia due to the regional fragmentation of the labor market.

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    Trump Says U.S. to Compete With Russia for Europe Gas Market

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

    But Europe may have difficulty attracting gas cargoes from overseas, given higher prices in Asia. The WGI spot LNG assessment for Northeast Asia was $10.30 per million British thermal units on July 9, while U.K.’s National Balancing Point gas futures traded at $7.50 on Monday.

    Longer term, gas export project developers in the lower 48 states may face delays as they wait for regulatory approval. Sefcovic called the U.S. approval process “redundant” and said it needed to be revamped.

    Gazprom is Europe’s largest gas supplier and provides more than a third of the region’s needs in the fuel. Its chief executive officer, Alexey Miller, confirmed in June its plan to start laying the pipes in the next couple of months and to open the Nord Stream 2 link by late-2019. The project would cut Russia’s dependence on Ukraine and help meet additional demand for the fuel in the EU in next two decades as local production falls.

    Meanwhile, Russia is unperturbed by the prospect of American LNG supplies to Europe. They “will never catch up with and will never surpass” Russian gas exports to the region, Miller said in June.

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    Vacation 2018

    I will be taking two weeks off at the end of July, leaving for China on July 18th and back in action on August 1st. If anyone in the Collective would like to submit a guest article for publication between those dates please get in contact. 

    I also received this email

    No idea why this popped into my head whilst watching the World Cup !

    You need content for the two weeks that you are off. You have a collective whom are educated people. Why don’t you invite everyone to email you the following which you will post:

    Current investment positions and why
    Best ever investment
    Worst ever investment

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    Global Crude Oil Supply-demand

    Thanks to a subscriber for this report from Nomura which may be of interest. Here is a section:

    The IEA forecasts that US crude oil production will increase 1,720,000bbl/day in 2018 and 1,190,000bbl/day in 2019. In the Permian region, which has been driving growth in output, the lack of pipeline capacity is likely to persist until 2019. Because of this, Midland oil prices are some USD14/bbl lower than the WTI price. With issues including rising production costs and a lack of engineers, too, we think US shale oil output is unlikely to substantially exceed current forecasts even if tightening supply-demand causes oil prices to rise. See our 11 July 2018 Global research report US crude oil output - Sharp slowdown in pace of increase in 2019.  We estimate that US production forecasts are predicated on WTI price assumptions of USD55-60/bbl for 2018 and USD60-65/bbl for 2019. We estimate WTI of around USD70-75/bbl were the aforementioned short supply to be made up with increased output in the US.

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    The "Big Bang" of Alzheimer's: Breakthrough study uncovers genesis of the disease

    This article by Rich hardy for New Atlas may be of interest to subscribers. Here is a section:

    Much modern Alzheimer's research concentrates on a specific protein called amyloid beta, and the clumping of that protein is suspected as being the primary pathological cause of the disease's symptoms. But, after a long series of clinical trial failures in drugs designed to target those amyloid beta plaques, some scientists are turning their research attentions elsewhere.

    This new research focuses on a different protein, called tau. These tau proteins have been found to form abnormal clumps in the brain, called neurofibrillary tangles, which can accumulate and kill neurons. Some researchers hypothesize that this is actually the primary causative source of Alzheimer's disease.

    Until now it was not known how, or when, these tau proteins began to accumulate into tangles in the brain. It was previously believed that isolated tau proteins didn't have a distinctly harmful shape until they began to aggregate with other tau proteins. But the new research has revealed that a toxic tau protein actually presents itself as misfolded, exposing parts that are usually folded inside, before it begins to aggregate. It is these exposed parts of the protein that enable aggregation, forming the larger toxic tangles.

    "We think of this as the 'Big Bang' of tau pathology," says Diamond. "This is a way of peering to the very beginning of the disease process. It moves us backward to a very discreet point where we see the appearance of the first molecular change that leads to neurodegeneration in Alzheimer's."

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