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

    What We Know About the Virus Variant Rocking Markets

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

    6. How worrisome is this variant?
    It’s too early to say. The World Health Organization said there are fewer than 100 whole genomic sequences of the new strain available, which could add to the time it takes to study how it compares to previous strains and its impact on Covid therapies and vaccines. Viruses mutate all the time, with the
    changes sometimes making the virus weaker or sometimes making it more adept at evading antibodies and infecting humans. Covid vaccines have shown they are effective against previous variants and pills being developed by Merck & Co. and Pfizer Inc. may also provide new treatments. 

    7. What should we look out for next?
    In the U.S., which recently lifted a year-long ban on tourism from much of the world, top medical adviser Anthony Fauci said he wants to see more data. The European Centre for Disease Prevention and Control assigned the variant -- first detected in South Africa and Botswana -- the category “Variant of Concern.” BioNTech expects the first data from laboratory tests about how it interacts with its vaccine within two weeks.

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    Email of the day on ETF gold holdings

    In the last few days, the chart for Total known ETF holdings of gold has turned up after a period of steady decline. Might this be a straw in the wind for better times regarding the gold price

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    The EU economy after COVID-19: Implications for economic governance

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

    Public finances have taken a considerable hit and fiscal divergence between Member States has increased. Deficit and debt ratios have soared in all Member States (Figure 3). High debt ratios are expected to persist, remaining above pre-pandemic levels over the next decade (Figure 4).

    Investment needs are pressing. The additional investment needed to achieve our climate and digital goals amounts to €650 billion per year over the next decade (public and private combined).

    The COVID-19 crisis has aggravated a number of pre-existing vulnerabilities. Internal imbalances related to high government and private debt have increased, driven by the recession and measures taken to address the COVID-19 crisis. Pre-pandemic dynamic house price trends persisted and mortgage debt continued to grow significantly in some countries. Current account deficits widened in countries dependent on tourism revenues and the correction of current account surpluses has stalled. Moving forward, new risks may emerge as a result of structural transformations accelerated by the COVID-19 crisis.

    The challenge of boosting socioeconomic resilience has become more apparent. Less-resilient Member States, territories and sectors found it harder to withstand and respond to the crisis. Differences in resilience across the EU have a bearing on social, economic and territorial cohesion, as well as convergence within the euro area and the effectiveness of the single monetary policy.

    Addressing these challenges offers transformative opportunities but requires major investment and reforms. The €2 trillion firepower of the new Multi-annual Financial Framework and Next Generation EU, in particular the RRF, will support the recovery, while making our economies and societies more resilient. Good policies are also needed to strengthen resilience: effective and well-designed active labour market policies and social protection systems; investment in education and skills; and sound public finances.

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    Australia Firms Ramp Up Spending Plans Signaling Strong Recovery

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

    The result is likely to boost the Reserve Bank of Australia’s confidence in the economy’s prospects as the board prepares to review the A$4 billion weekly pace of its bond-buying program in February. Su-Lin Ong at Royal Bank of Canada put the odds of quantitative easing ending at that meeting at 30%.

    The capex data is “likely to see markets continue to price in multiple hikes over the year ahead,” said Ong, head of Australian economic and fixed-income strategy at RBC. Money markets are wagering the RBA will start its policy tightening cycle with a 15 basis point hike to 0.25% by May 2022.

    Today’s report showed the Covid lockdowns weighed on outlays, with total capital expenditure slipping 2.2% in the three months through September from the prior quarter. Spending on equipment, plant and machinery fell 4.1%, suggesting it will detract from economic growth in the period. 

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    Hochschild says key mines to continue operations as Peru eases stance

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

    Hochschild Mining Plc jumped as much as 26% after Peru’s government appeared to back away from a plan to withhold further permitting extensions at its two most important mines

    “We are pleased that our Inmaculada and Pallancata mines can continue to operate without further uncertainty and, furthermore, we reaffirm our goal to increasing our resources and extending our mine lives, in accordance with current legislation,” Hochschild Chief Executive Officer Ignacio Bustamante said Thursday in a statement.

    The company’s London listed stock rose as high as 153.4 pence, before trading 15% higher as of 8:16 a.m. local time.

    Hochschild lost a third of its value on Monday as investors reacted to news that the company may be forced by the government to close two silver mines in the country. That followed an announcement by Prime Minister Mirtha Vasquez on Friday that four mines in the Andean region of Ayacucho wouldn’t be allowed extensions. Vasquez’s comments sent shock waves through the local mining industry.  

    Those concerns now seem to easing. Vasquez said yesterday that there will be no “unilateral shutdowns.” 

    Investors have been nervous about Peru’s mining sector since the April elections were won by Pedro Castillo, a former rural union activist from a Marxist party who had vowed to nationalize assets, block projects and take a bigger share of the mineral windfall to fight poverty. 

    Peru is one of the world’s biggest copper producers, with operators including BHP Group, Anglo American Plc and Freeport-McMoRan Inc.

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    The Winds of Change

    Thanks to a subscriber for this memo from Howard Marks which covers a number of topical points. Here is a section on the Nifty 50:

    One of the biggest changes that did take place in the 1960s was the emergence of “growth investing” via fast-growing companies, many of which were quite new. The “Nifty Fifty” I talk about so much ruled the stock market in the late 1960s: this group included office equipment manufacturers IBM and Xerox, photography titans Kodak and Polaroid, drug companies like Merck and Eli Lilly, tech companies including Hewlett Packard and Texas Instruments, and advanced marketing/consumer goods companies such as Coca-Cola and Avon.

    These companies’ stocks carried very high price/earnings ratios, reaching up to 80 and 90. Obviously, investors should only pay multiples like these (if ever) if they’re sure the companies will be preeminent for decades to come. And investors were sure. In fact, it was widely believed that nothing bad could happen to these companies and they could never be disrupted. This was one of post-war America’s first major brushes with newness and – in a good example of illogicality – investors embraced these companies, with their revolutionary newness, but somehow assumed that a newer and better new thing could never come along to displace them.

    Of course, those investors were riding for a fall. If you bought the stocks of “the greatest companies in America” when I started working in 1969, and held them steadfastly for five years, you lost almost all your money. The first reason is that the multiples in the late 1960s were far too high, and they were gutted in the subsequent market correction. But, perhaps more importantly, many of these “forever” companies turned out to be vulnerable to change.

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