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

    Email of the day on palladium's acceleration

    I hope you are well. What on earth is going on with Palladium? It goes higher every day but yet surely it is correlated to industrial activity which should be going down with the CV? Please could you elaborate. Many thanks,

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    China's Coffers Are Depleted Just as Virus Spurs Spending

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

    China’s top leaders have kept their official deficit target below 3%, partly through belt-tightening, as a gesture to deter excessive borrowing as the nation fights debt on multiple fronts. Yet it has also given way to all types of off-balance sheet borrowing, a problem S&P Global Ratings said may re-emerge this year.

    Signs of more proactive fiscal policy have already appeared. The Ministry of Finance allowed local governments to sell more than 1.8 trillion yuan ($258 billion) of debt before the annual budget has been approved. The ministry has also announced targeted tax cuts to help companies and households hit by the virus, partially waived social security premiums or delayed taxes.

    “Fiscal policy ought to be counter-cyclical, and the tension between revenue and expenditure shouldn’t be a reason to constrain it,” said Xu Gao, chief economist at BOCI Securities Ltd. in Beijing. “The government should increase the fiscal deficit to cope with the virus, and ease spending pressure by selling more debt.”


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    U.K. Fires Broadside at EU Before Future-Ties Talks Even Begin

    This article by Ian Wishart for Bloomberg may be of interest to subscribers. Here is a section:

    The EU says any agreement hinges on the U.K. signing up to commitments to prevent it undercutting the European economy. But  the U.K. says sticking to the EU’s rules -- known as the “level
    playing field” because it would force Britain to accept EU standards in areas such as public subsidies, environmental rules, and labor conditions -- is unfair and goes beyond the conditions the EU imposed in other trade deals.

    “It is central to our vision that we must have the ability to set laws that suit us -- to claim the right that every other non-EU country in the world has,” Frost said. “To think that we might accept EU supervision on so called level playing field issues simply fails to see the point of what we are doing. It isn’t a simple negotiating position which might move under pressure -- it is the point of the whole project.”

    Under Johnson, the U.K. is taking a less conciliatory approach to its EU negotiations than under his predecessor Theresa May. Frost’s outlining of Britain’s strategy in public contrasts sharply with the secretive way the government conducted talks from 2017-2019 on the country’s withdrawal.

    The EU is still concluding its own position on the negotiations, with a series of internal discussions by diplomats scheduled to end on Wednesday. The bloc is considering demanding the U.K. stick to EU rules -- and, in some cases, make them tougher if the EU does -- in a whole host of areas from food hygiene to data protection to labor law.

    In a signal of where a compromise might eventually come, Frost said the U.K wants “open and fair competition provisions” based on precedents in other free trade deals.

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    Aureus Fund Plc Factsheet

    Thanks to a subscriber for this factsheet which may be of interest.

    The Aureus Fund (Ireland) plc. is an accumulating fund under Irish Law. The physical allocated gold investment will at all times between 51% and 60% of the Net Assets. Although the focus is on Gold, the Aureus Fund aims to invest in physical precious metals (Silver, Platinum and Palladium) to diversify risk. As an ancillary investment policy the investment manager has the option to invest in gold derivates for hedging and gold mining funds.

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    Email of the day on gold's upside potential

    The long run outlook for gold is very encouraging. Even in the short run, competitive devaluations by CBs are supportive.  Coronavirus is also supportive.  Do you think that investing in a gold ETF is a reasonable hedge against a short-term correction on the S&P500? Are frightened investors likely to seek the security of gold or are they more likely to flock to cash?


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    Email of the day on personal hygiene habits as a best defence against viral infection:

    Play Your Game

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

    Today, we see the global capital markets through a different lens — one that is certainly less rose colored than the ones we were wearing last year. Indeed, unlike last January, we now think that the U.S. stock market has already priced in a robust economic recovery in the first half of 2020. By comparison, our predictive earnings model (Exhibit 4) suggests only a modest recovery occurring by the second half of this year. We also think that there may not be enough political risk priced into the U.S. market at current valuations, and believe the private growth markets still need to unwind further.

    However, unlike the slowdowns of 2008, 2012, and 2016, credit conditions did not unravel during the recent economic turbulence that occurred in the second half of 2019 (when we essentially had a global manufacturing recession). In fact, during this period global central banks not only supplied ample liquidity to the market again but also expanded their balance sheets. These initiatives have, in turn, helped to suppress bond yields and support credit, leaving financial conditions today as favorable as they have been since the beginning of the prior decade, according to the investment bank Goldman Sachs. Renewed financial easing is an important input in our thinking because it ought to be a net positive both for economic growth and risk asset performance in the near-term.

    So, what are investors to do? Despite mounting headwinds, our call is certainly not to head to the sidelines and wait for a major pullback. As we show in Exhibits 7 and 8, we forecast global liquidity to continue to improve consistently in 2020 at a time when our research shows that many individual investors and endowments are not yet at their target risk levels. Central bank balance sheets too should increase again (Exhibits 9 and 10). Moreover, while the cycle is running long in duration, the risk premium relative to the risk-free rate on quite a few asset classes, including Equities, is still attractive in many areas of the global markets. One can see this in Exhibit 75, which shows that the current earnings yield on U.S. stocks is just only now back to the historical average relative to the current yield on the 10-year U.S. Treasury.

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