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

    US-China War Would Be Economic Disaster for Both

    Thanks to a subscriber for this article by Niall Ferguson. Here is a section:

    It is impossible to say how far the Chinese would prepare for a full-scale war with the US in the scenario of a blockade. It’s estimated by Western experts that that it would need a minimum of four months to be ready for prime time. The dilemma for Chinese strategists is that, if there is to be a war with the US, they would be better off striking the first blow, probably by attacking American naval assets in the Indo-Pacific, exploiting the classic vulnerability of ships in port.

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    Secret Behind Zero-Day Options Boom: a $1,000 Stock Bet Costs $1

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

    The best way to observe the phenomenon is in the difference between how much investors are actually spending on 0DTE and the notional value of those options — that is, how much exposure they are getting to the underlying asset via the contracts.

    On the latter, the notional trading volume of 0DTE for the S&P 500 currently averages a beefy $516 billion a day, according to data compiled by Cboe Global Markets. Yet the actual amount of money paid out for them, or the premium, is only $520 million.

    Put another way, traders are getting $1,000 of stock exposure for every dollar they spend on 0DTE. They would need to spend 10 times that to get the same equity position using derivatives with a longer lifespan, a Bloomberg analysis on Cboe’s data shows.

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    Rio Tinto CEO Says Chinese Steel Demand Is Close to Peaking

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    “We are foreseeing that the peak steel demand in China is about to be reached,” he said during an interview at Bloomberg headquarters in New York. “Not because the Chinese economy is not growing, but just because of the maturity it has reached.”

    The notion that China’s steel market is poised to contract this decade — after many years of breakneck growth — is widely held across the industry. Rio’s rival BHP Group reckons annual output has reached a plateau just above a billion tons each year that will stretch into 2024. Analysts at Capital Economics Ltd.
    said demand and supply probably peaked in 2020.

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    Bunds Slide as Traders Mull Higher-for-Longer

    This note may be of interest. Here is a section:

    As evidence of economic stagnation increases the market is turning its attention to “how long the ECB will be able to keep rates steady,” said Mauro Valle, head of fixed income at Generali Investments. “It cannot be ruled out that the reversal of the monetary cycle may occur sooner than expected.”

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    Email of the day on Mexico

    “The following is the text of a message from a businessman from Monterrey Mexico I met recently in Austria. His business (offshoring) is based in Mexico generating USDs.

    “He is obviously pessimistic and believes there will be a new President next year.

    “Thank you for your valuable service.

    “Nice to have met you.  Following up on our conversation around the strong Mexican peso I mentioned that I think it is 4 things that are impacting, and some might not be sustainable, mind you I am not an economist or politician, just a small businessman."


    “The artificially high official interest rates the Mexican central bank is paying, around 11 or 12 percent which is generating purely short-term financial investments from foreigners that can leave as fast as they came. 

    “At the same time Mexican companies cost of capital is extremely high as they mostly take loans in pesos The surprisingly high level of “remesas” which is the money that Mexican workers in the US send back home to Mexio, have grown from $20 billion us dollar annually to over $60 billion, story goes most of the BBC increase is related to the drug trade.

    “Nearshoring which is direct investment by American, European (or Chinese companies trying to avoid getting caught in the middle of a trade war) and being close to US markets due to supply chain mgmt., which could be really sustainable.

    Finally, the fiscal “discipline” of our government is more due to their lack of the most basic investments in schools, education, hospitals, medicine, highways, ports, infrastructure, and energy.  Once new govt takes over and realizes the major hole there, they will have to start the debt race again and the peso will probably lose value.

    I believe only the third point could be sustainable in the mid-term. 

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    Private-Equity Giant Blackstone Joins Coveted S&P 500 Club

    This article from the Wall Street Journal may be of interest. Here is a section: 

    Earlier this month, analysts at Goldman Sachs estimated that Blackstone could attain a 0.19% weighting, implying about $15 billion of demand from index-tracking funds. Some of that buying may have already taken place: Blackstone stock has risen 9% since its inclusion was announced on Sept. 5.

    Blackstone is joining after S&P Dow Jones Indices in April relented on a previous ban for new index entrants with multiple share classes.

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