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

    Gold: 32 trading days and counting

    Thanks to a subscriber for this report which highlights increasing speculative interest in gold and growing competition to become the biggest bull. Here is a section:

    Fed Officials Weigh Earlier-Than-Expected End to Bond Portfolio Runoff

    This article by Nick Timiraos for the Wall Street Journal may be of interest to subscribers. Here is a section:

    The latest discussions indicate the runoff could end much sooner.

    The shrinking portfolio faced new scrutiny last month after some market commentators and President Trump blamed it for increasing market volatility. While many Fed officials don’t see much evidence to support those claims, the balance sheet is nevertheless getting increased attention inside the central bank.

    Some officials have contemplated whether Mr. Powell or other top officials, short of announcing a complete road map for when the portfolio wind-down would end, could provide an update.

    As officials reach agreement on their plans, “we may be able to say upfront, ‘Hey, the destination is going to be ‘X,’” said Minneapolis Fed President Neel Kashkari in a Jan. 17 interview. “Or we might say, ‘Hey, this is the plan [for how] we’re going to go to explore where that destination is.’”

    Mr. Powell will hold a press conference after next week’s meeting. Whether he provides such a road map will depend on the progress of discussions at the meeting. Mr. Powell said this month he doesn’t think the Fed’s portfolio changes are a major culprit in recent volatility but that the central bank would change its drawdown, if officials came to a different conclusion.

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    Email of the day on reliable dividend companies

    Your copy on global pay-out ride is coming back to earth is timely. The well-regarded fund manager Neil Woodford has given Imperial Brands a significant 8% asset allocation in his flagship income fund. Imperial pays a hefty dividend, growing at 10% rate. It generates good cash, but has huge BBB+ debt outstanding. It has come down quite a bit from its peak, but it’s valued at 17 times earning which may roll back to the 10 times earnings it had around 2000. Is there a case for holding Imperial Brands as primary source for dividends for the long run? I wonder if you could review some good dividend paying companies, net cash global companies with strong balance sheets, that will not get caught in the pending investment grade bond crunch. Thanks!

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    Email of the day on the Rand and governance:

    Hello Eoin, First of all I would just like to say I have no problem with the way you have organised your video commentaries. I find them very perceptive and thought provoking. I would hazard a guess that 95% of your subscribers are of the same opinion.

    On your comments on South Africa, having spent the past 16 years here, I would advise investors not to hold their breath as regards the new president Cyril Ramaphosa instituting much in the way of improved governance here. Corruption in this country is all pervasive and is now penetrating certain personnel in the judiciary. I know this from various contacts I have with regards to the Rhino poaching problem. The Zuma faction still wields huge influence within the ANC. The black economic empowerment policy has led to totally unsuitable and unqualified people being placed in key positions both in government and in the private sector. Given the current state of the world economy, I would indeed be surprised if the ZAR is not the currency to lose most in value among the emerging markets over the next year.

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    Tencent Scores Twin Game Approvals After Months-Long Freeze

    This article by Lulu Yilun Chen may be of interest to subscribers. Here is a section:

    China’s gaming industry, which generates more than $30 billion of revenue, was hammered in 2018 after regulators froze approvals for new games, preventing companies from making money off their hits. That spurred Tencent’s first profit drop in at least a decade and helped wipe about $200 billion off its market value at one point. Regulators are now working through a backlog of thousands of games that accumulated as a result -- more than 350 have been cleared since December.

    “Although the news flow on game approvals remains positive, we view the most important games in the pipeline are PUBG and Fortnite,” Mizuho analysts led by James Lee wrote. “These games are likely in the back of the queue due to political tension with Korea and the U.S.”

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