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

    Email of the day on cash holdings and the Wall Street leash effect

    I'm a returning subscriber from the 2005-2014 timeframe. Just listened to today's commentary. I'm well positioned in commodities and emerging markets (especially Indonesia and SE Asia). When the big tech stocks and dollar do finally rollover, won't that take down everything, including what I'm holding? In effect, is it better to sit and wait where I am -- or move to cash now and buy back into commodities/emerging markets when the current bull market in tech and the dollar ends? Would be grateful for any comment or guidance you might have. Thanks.

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    Overview of Digital Assets and Blockchain

    Thanks to a subscriber for this report from Goldman Sachs which may be of interest. Here is a section quoting Visa’s CEO: 

    “And I would say that this [crypto] is a space that we are leaning into in a very, very big way and I think are extremely well positioned…So converting a digital currency to a fiat on a Visa credential, which then makes those funds available for shopping at any 1 of the 70 million Visa merchants and gives immediate utility to the digital currency. And we're the clear leader here. We've got over 35 digital currency platforms and wallets that have chosen to work with us. Coinbase, Crypto.com, BlockFi, Fold, Bitpanda are just some examples”

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    Gundlach Sees 'Rough Waters' for Market as Fed Pursues Taper

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

    Gundlach, 62, said the reason why Fed Chair Jerome Powell characterizes the economy as strong, but not strong enough to allow for a rate hike at this point, is that the underlying condition is in fact weak -- artificially propped up by an unprecedented degree of stimulus.

    Here are some other takeaways from Gundlach’s remarks:
    He focused heavily on inflation, saying the annual pace of gains in the consumer price index could hit 7% in the next month or two. He ran through numerous inflation measures and pointed out that shelter costs have climbed significantly. He also said it’s possible that the CPI inflation gauge won’t drop below 4% throughout 2022.

    Markets could face more volatility now that the Fed has said it might quicken its tapering program.

    Gundlach reiterated that he bought European stocks for the first time in 12 years, which he disclosed a few months ago. He still owns some of those and they’ve done just OK until recently. He didn’t own emerging-markets equities, though he envisioned a scenario when they might outperform U.S. firms. “We’re looking for major opportunities” and emerging markets could be one over the next few years, he said.

    The dollar has been in structural decline since 1985, he said, reiterating that the twin-deficit problem (that’s the current-account gap and the federal budget deficit) will cause the greenback to fall over time, which bodes well for emerging markets.

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    Record exports sharply narrow U.S. trade deficit

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

    The trade gap plunged 17.6% to a six-month low of $67.1 billion. That was the biggest percentage drop since April 2015, reflecting an increase in the flow of goods and services following disruptions caused by the COVID-19 pandemic.

    Economists polled by Reuters had forecast a $66.8 billion deficit. Exports accelerated 8.1% to an all-time high of $223.6 billion. The surge was led by goods exports, which soared 11.1% to $158.7 billion, also a record high.

    Exports of industrial supplies and materials increased $6.4 billion, with shipments of crude oil advancing $1.2 billion.

    Petroleum exports were the highest on record.

    Capital goods exports increased $3.1 billion, boosted by other industrial machines as well as civilian aircraft. Food exports rose by $2.1 billion, with soybeans increasing $1.8 billion. Exports of consumer goods jumped $1.6 billion, lifted by increases in shipments of gem diamonds as well as motor vehicles, parts and engines.

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    Vodafone Shares Jump After Betaville 'Uncooked Alert'

    This note from Bloomberg may be of interest to subscribers. Here it is in full: 

    Vodafone shares rose as much as 3.3% following a so-called “uncooked” mention in a Betaville report regarding potential private equity interest in the telecom operator. Shares pared gain to 1.8% as of 4:18 p.m.

    Representatives for Vodafone were not immediately available to comment when contacted by Bloomberg via phone and email
    Betaville says there is speculation that one of Europe’s largest private equity firms is looking at all of some of Vodafone, citing people following the situation
    NOTE: The speculation is described as “uncooked,” a term the Betaville blog often uses to refer to market gossip
    NOTE: Vodafone shares have declined 5.9% YTD vs Stoxx Telecoms Index’s 9.5% gain
    READ: Private Equity Rummages in the Telco Bargain Bin: Chris Hughes

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    It's official: 96 container ships are waiting to dock at SoCal ports

    This article from freightwaves.com. Here is a section:

    The Marine Exchange has just unveiled its new methodology for counting container ships waiting outside the 40-mile “in port” zone.

    A new queuing system has been in place since mid-November that encourages container ships to wait outside of a specially designated Safety and Air Quality Area (SAQA) that extends 150 miles to the west of the ports and 50 miles to the north and south.

    This has sharply reduced the number of ships closer to shore, leading to suggestions that efforts to tackle port congestion are cutting into the offshore queue — a misconception that should be dispelled by the Marine Exchange’s new counting method.

    In addition to the 96 ships waiting offshore on Friday, there were 31 container ships at terminal berths, bringing the grand total to 127, at or near an all-time high. The total number of container ships either at berths or waiting offshore continues to rise: It is up 25% from the beginning of November, 41% from the beginning of October and 79% from the beginning of September.

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    Email of the day on Brazil and copper miners

    In today's commentary you talked about Brazilian copper miners. Vale's chart seems to suggest a bottoming pattern. It is primarily an iron ore producer but it does have a copper interest. This may be a medium to long term level.

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    Why India Beats China Hollow On Consistent Compounding

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

    Why has corporate profitability not polarised in China?

    Focusing on the second question, one possibility that exists is that in China economic growth has been so broad-based that smaller companies have grown faster than the top 20 PAT generators. However, we don’t have in-depth knowledge about the Chinese economy to be able to address this issue in a competent manner.

    Focusing on a), the rise in corporate profitability of India’s top 20 PAT generators has been underpinned by the drivers of polarisation, which are rippling through the Indian economy. For example, over the past ten years, the length of roads in India has increased from 3.3 million kilometres to 5.9 million kilometres (CAGR of 6%). The number of mobile phone subscribers has increased over the same period from 392 million to 1161 million (CAGR of 12%). The number of broadband users has increased from 6 million to 563 million (CAGR of 57%). A decade ago, around 44 million Indians were taking flights each year. Now 3x as many Indians are flying each year (CAGR of 13%). 15 years ago, only 1 in 3 Indian families had a bank account; now nearly all Indian families have a bank account.

    As a result of this networking of the Indian economy, efficient companies with strong distribution systems have pulled away from regional and local players. For example, as the economy gets integrated, lending, which was once dominated by regional players is now seeing the emergence of a few national leviathans like HDFC Bank and HDFC with both lenders entering the list of top 20 PAT generators over the last 10 years.

    The global dynamic is the rise of affordable, easy-to-use enterprise technology which if implemented increases profit margins, reduces working capital cycles, and increases asset turnover. India’s best compounders are using such technology to create wealth for their shareholders.

    Implications For Investors
    Our research suggests that whilst China is the only other emerging market to rival India in producing consistent compounders, India’s consistent compounders mightily outgun their Chinese counterparts—both on fundamentals and on share prices—due to their ability to use the changes taking place in India to build dominant positions in the Indian market.

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