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

    Speculative Fervor in U.S. Stocks Surges to 'Stunning' Levels

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

    At the heart of the speculative activity are smaller investors, according to Sundial. Small trader call buying made up more than 50% of total volume last week, the highest since 2000, it said.

    Past instances when bullish small trader positions made up 45% or more of volume preceded a median loss for U.S. stocks of about 3% in two months time and 15% in a year, according to the note.

    “Small traders are pushing their luck in a major way,” said Goepfert. “It seems increasingly risky to try to chase this rally along with traders who have traditionally been extremely reliable contrary indicators.”

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    Shell's CEO Worries About a Disorderly Energy Transition: Q&A

    This interview of Shell CEO Ben van Beurden for Bloomberg may be of interest. Here is a section:

    Assuming you don’t get government support to advance research in hydrogen production and carbon capture and storage, what will you have to do to make those viable?

    Stay with the program a little bit longer. That’s exactly what we’re doing. You could take a negative view and say we knew that hydrogen was a good thing and we knew that CCS [carbon capture and storage] was needed, but it hasn’t happened. I’m not signing up for that approach. We need a lot of hydrogen in the mix. We need significant CCS. My prediction is that in the next few years you will see CCS projects come off the ground. You will see very large-scale hydrogen projects come off the ground as well. And I hope we will be associated and involved in each and every one of them.

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    Email of the day - on the role of AI in politics:

    1968 Was a Horrendous Year But 2020 May Be Worse

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

    As a white, middle-aged, upper-middle-class immigrant, I’m hardly the person to speak to the politics of race in America.  So I turned to an African-American friend, the economist Roland Fryer, whom I’ve known since we were colleagues at Harvard.

    In 2016, he published a brilliant but controversial paper which argued that the police did not disproportionately use lethal violence against black people, though they were more likely to use non-lethal force against them. (A paper published last year in the Proceedings of the National Academy of Sciences lent strong support to Fryer’s thesis.) He has a new, unpublished paper that looks at a perverse effect of investigations into police shootings. I asked Fryer to walk me through the argument.

    “If you have a police shooting that goes viral online but isn’t investigated,” he explained, “then nothing changes — levels of police activity and crime are about the same. But if you have a viral shooting that is investigated, then police activity plummets, and crime goes up dramatically.” In just five cities – Baltimore; Chicago; Cincinnati; Ferguson, Missouri; and Riverside, California -- this led to excess homicides of almost 900 people in the subsequent 24 months, 80% them black, with an average age of 28. It's a dangerous Catch-22: You're damned if you don't investigate “viral” incidents, and in even worse shape if you do.

    How does Fryer interpret the current protests? “People are fed up,” he told me. “They are frustrated by the disparities they see in educational outcomes. Frustrated by the disparities they see in criminal justice. Frustrated by racial disparities in life expectancy. We are all to blame — this happened on our watch.” And when you add to that the fact that Covid-19 disproportionately affected the black community: “Folks have had enough. People are very much on edge.”

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    Email of the day - on the potential for inflation to surprise on the upside or the downside

    Greetings Eoin. Firstly, thank you for the daily commentary and Big Picture Long Term view. They remain the highlight of my weekend and are greatly appreciated. I’m interested in your comments regarding future expectations of inflation.

    I hope I’m summarising you accurately, but in essence the thinking runs that the provision of vast amounts of monetary liquidity from Central Banks, combined with Government fiscal spending will at some point come home to roost, and drive up inflation.

    If so, why then did we not see an inflation spike following the 2007/08 GFC, where massive (at the time) injections of liquidity and fiscal spending should have delivered the same result?

    One view is that we did get inflation following the GFC, just that it showed up in asset prices, not in consumer prices. Equities, bonds, property, luxury goods, art and even later on precious metal prices all benefited from the increased liquidity following 2008. As you have previously highlighted, massive advances in technology, changes to the way we work and live, outsourcing of jobs to lower wage economies, and historically low interest rates have all combined to keep consumer inflation in check over the same period.

    Are we to assume that this time is different, and we should expect consumer price inflation at some point, or is it safer to expect history to rhyme and that inflation will again show up in asset prices? If so, should we presume the liquidity will chase better returns and lower P/E multiples of Europe and Emerging Economies this time around? And finally, when investing I’m always conscious of the wise words from the famous British Economist, John Maynard Keynes “The market can stay irrational longer than you can stay solvent”. Spoken nearly a century ago, and never more relevant than today! Many thanks for your time

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    Email of the day - on gold

    Here is a screenshot with some key indicators on gold shown in USD – all seem to be near their historical lows.

    Considering that in non-USD currency like the EUR, gold has fallen another 5% over the past 2 weeks, one COULD argue that gold should be finishing its correction which has been much more pronounced than shown by  the price in USD alone ( the equivalent of another loss of 5% x USD 1750 = USD 80….)

    Deducting USD 80 from today’s final cash price of approx.. USD 1685, the resulting USD 1605 gets us near the USD 1580 which approx.. is the 200d ma.

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    Email of the day on the continued spread of COVID-19

    I think US authorities should be very worried about a second coronavirus spike in about two weeks’ time. The reason being the thousands of protesters spilling onto the streets in big cities. By definition these people are stressed. It is a scientific fact that respiratory infections spread much more rapidly under stressful conditions.

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    A Million-Mile Battery From China Could Power Your Electric Car

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

    CATL struck a two-year contract in February to supply batteries to Tesla, a major boon for the Chinese company as the U.S. electric-car leader has thus far mainly worked with Japan’s Panasonic Corp. and South Korea’s LG Chem Ltd. The deal followed months of negotiations, with Tesla Chief Executive Officer Elon Musk traveling to Shanghai to meet with Zeng.

    The CATL batteries are set to go into Model 3 sedans produced at Tesla’s massive new factory near Shanghai, which started deliveries around the beginning of this year. Batteries are the costliest part of an EV, meaning suppliers of those components have a chance to reap a lion’s share of the industry’s profits.

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