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June 18 2021

Commentary by Eoin Treacy

As good as it gets, for now

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

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area. 

The beginning of any new bull market creates a wide dispersion of views about future potential. The most important are between the cyclical versus secular camps. Cycle bull markets are powerful but short lived while secular bull markets surprise in their persistence over years.

There is likely to be a lot more dispersion in the commodity complex on this occasion that there was at the beginning of the big bull market that began in the early 2000s. The biggest difference is there is no secular shortage of oil.



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June 17 2021

Commentary by Eoin Treacy

Seaborg plans to rapidly mass-produce cheap, floating nuclear reactors

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

Seaborg's solution is to use another molten salt – sodium hydroxide – as a liquid moderator. Thus, the core design places the fuel salt tube inside a larger tube filled with sodium hydroxide, creating a first-of-its-kind all-liquid reactor that's remarkably compact. But sodium hydroxide itself is a powerfully caustic base, often used as oven cleaner or drain cleaner; the Seaborg design has to deal with this added corrosive agent too.

And on top of all that, there's the freaky phenomenon of "grain-boundary corrosion" to boot, caused by the presence of tellurium as a fission by-product in the fuel salt stream. Tellurium atoms can merrily penetrate through metals, and swap positions with other elements, leading to embrittlement of the metals at their weakest points.

The company is well aware of its key challenges here. "Seaborg’s core IP is based on corrosion control in the moderator salt, and applying the lessons learned since the 1950s," says Pettersen. "But it is not just a question of corrosion, it is also how easy it is to put these things together. Hands-on experience is important. They need to be welded, tested, inspected, maintained. We are working towards having perhaps 20 or 30 test loops in Copenhagen, with the experiments designed, set up and executed. The conceptual design is already done; we are now working on the basic design and in that way we are working up towards a full-scale prototype."

Eoin Treacy's view -

Here is a link to the presentation Seaborg’s CEO gave at the Singapore Week of Innovation & Technology earlier this year. 

To my mind creating a nuclear energy solution that accepts that accidents do happen as the primary starting point is a significant development. The primary attraction of molten salt is it does not present a massive dispersion or bomb threat. After that everything else comes down to economies of scale.



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June 16 2021

Commentary by Eoin Treacy

Top Oil Traders Say Emissions Market Could Challenge Crude

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

Oil traders including Vitol and Trafigura, as well as a host of hedge funds have been building up trading desks to profit from one of the hottest commodities trades of the year. Traders are bracing for tighter supplies as the European Union is preparing for the markets biggest reform to date to align emissions trading with a stricter climate goal for the next decade.

“Carbon is already the largest commodity in the world, with the potential to be 10 times the size of the global crude markets,” Hauman said the FT Commodities Global Summit on Wednesday. “We see a massive potential here.”

Eoin Treacy's view -

Carbon emissions are a growing market as the willingness to enact legislation to tax fossil fuel usage goes global. That is limiting the supply response of large companies because they are unwilling to make the investments necessary to replace reserves. The global economic recovery and OPEC+’s supply discipline continue to support oil prices as a result.



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June 15 2021

Commentary by Eoin Treacy

Copper's Supercharged Rally Creaks on Signs of Softer Demand

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

“We’re at a point where a lot of the cyclical tailwinds, if they haven’t blown themselves out, are past their peak,” Colin Hamilton, managing director for commodities research at BMO Capital Markets, said by phone. “That fear that things are just going to go higher and higher and higher -- that’s come out of the market now.”

Copper has been one of the standout performers in a year-long rally seen across commodities markets as a surge in demand coincided with bottlenecks that have wreaked havoc on global supply chains. The key questions for investors across asset classes are whether the rally would prove transitory, and whether the inflationary impact on consumers would prove short-lived.

 

Eoin Treacy's view -

China wants lower commodity prices because of the upward trend of prices at the factory gate. They have a lot more ability to manipulate copper prices because they have such large stockpiles. That's not quite the same for metallurgical coal or iron ore.



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June 10 2021

Commentary by Eoin Treacy

Green Aviation - A Primer

This report from Bank of America may be of interest to subscribers. Here is a section:

Eoin Treacy's view -

A link to the full report is posted in the Subcsriber's Area. 

Electric plane designs are being commercialised for hopper flights but medium to long-range aspirations depend on innovations in battery technology which have not yet been solved. Hydrogen is a promising potential alternative for jet fuel but it requires a total redesign of aircraft. Both these solutions depend on massive investment in new infrastructure and supply chains. They will also depend on high carbon trading costs to drive the transition for at least the next decade.



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June 10 2021

Commentary by Eoin Treacy

'U' got the love - upgrading our uranium price deck

This report from Canaccord Genuity may be of interest to subscribers. Here is a section:

Government policy support has improved dramatically...Growth from non-OECD nations has always been the bedrock of our positive demand outlook, and this view has only strengthened following the release of China's 14th Five-Year Plan, which called for an ~40% expansion in its nuclear fleet to 70GWe by 2025, with an additional 50GWe under construction. Adding to this is a more constructive view around North American and European demand in the wake of (1) bipartisan support for nuclear energy in the US for the first time in 48 years, the US rejoining the Paris Agreement, and clear support for nuclear energy in the "American Jobs Plan" and (2) the European Commission announcing that it will potentially include nuclear energy in the European Union's sustainable financing taxonomy.

...and we have upgraded our demand forecasts accordingly. The acknowledgement of nuclear's critical role in providing cost-effective emissions-free baseload power has been slow in coming, but has now gained momentum. This has reduced the risk of accelerated plant closures in OECD nations and continues to drive growth in developing nations. Accordingly, we increase our demand growth to 2.6%pa to 2035 (2.3% prior), a forecast which excludes any potential positive impact from small modular reactors (>300MW), which are garnering increased attention globally.

Mine closures and unscheduled curtailments. Primary supply remains under significant pressure, a situation which has only been compounded by the shutdown of Ranger in January (produced 3.5Mlb in 2020) and Cominak in April (approximate capacity 3.9Mlb). While the re-start of Cigar Lake (18Mlb) should provide some welcome near-term relief, we continue to expect a supply deficit of ~25Mlb in the 2021 uranium market, which follows on from a 25Mlb deficit in 2020 (CGe). We estimate that over the last five years mine capacity has been reduced by ~45Mlb/year, and this is before any consideration of COVID-19 related disruptions.    

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

Nuclear energy is a proven reliable zero-carbon producer of electricity. The one thing that every zero-carbon solution being proposed today shares is a significant increase in demand for electricity. Against that background there is room for the nuclear industry to continue to provide base load power in a wide number of jurisdictions.



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June 09 2021

Commentary by Eoin Treacy

Inflation: The defining macro story of this decade

This is a thought-provoking report from Deutsche Bank’s new What’s in the tails? series of reports. Here is a section:

The Fed’s move away from pre-emptive action in its new policy framework is the most important factor raising the risk that it will fall well behind the curve and be too late to deal effectively with an inflation problem without a major disruption to activity. Monetary policy operates with long and variable lags, and as we have noted, it will also take time to recognize that inflation has actually overshot excessively and persistently. As inflation rises sustainably above target, forward looking expectations are likely to become unanchored and drift higher, adding momentum to the process.

By this point, the Fed will likely be moved to act, and when it does the impact will be highly disruptive to the markets and the economy. In the past, the Fed has not been able to reverse a sustained run-up in inflation without causing a recession and potentially large increase in unemployment. Being behind the curve when it starts will make the event that much more painful. Rising interest rates will also cause havoc in a debt-heavy world, leading to financial crises especially in emerging markets. If the Fed lets up and reverses rate increases in response to rising unemployment and other economic pain as occurred during the 1970s, inflation could back up again, leading to a repeat of the stop-go economic cycles that occurred during that period.

Depending on the timing of this potential inflation scenario, the 2022 midterm elections could be crucial. A surprisingly strong showing on the Democratic side could even pave the way for modifying the Federal Reserve Act to raise the inflation objective. This discussion has been brewing in academic circles for some time, not the least as a way to enhance the Fed’s power to move interest rates into negative territory when needed. But such a move could damage the Fed’s inflation fighting credibility. It could also lead to still higher inflation over time and ultimately intensifying the kind of boom-bust cycle experienced during the 1970s.

In brief, the easy policy decisions of the disinflationary 1980-2020 period appear to be behind us.

Eoin Treacy's view -

A link to the full report is posted in the Subcsriber's Area.

The response to the credit crisis resulted in massive asset price inflation which exacerbated inequality across society in most countries. The response to the pandemic is aimed at reversing that trend and providing greater opportunity to the people left behind by the last recovery. That implies massive money printing, spending and social programs.



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June 04 2021

Commentary by Eoin Treacy

Secular Themes Review June 4th 2021

Eoin Treacy's view -

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on May 7th. These reviews can be found via the search bar using the term “Secular Themes Review”.

The pandemic panic is now one year in the rear-view mirror. It seems to have lost its ability to scare us so that begs the question what happens next? That’s the big conundrum

Some still believe that technology will solve all our problems and that the largest companies in the world will continue get even larger. Others believe that the inflation genie has been releases so it is inevitable that bonds will collapse in value. Others believe that we are in for a long grind of subpar growth because the debt is so large, it will sap the will to live out of every speculative asset. Others believe we are in a stock, commodity and property market bubble that could pop at any moment. Still other believe that cryptocurrencies are the solution, though no one is exactly sure what the problem is. So how do we make sense of these divergent views?

Personally, I have a strong feeling of déjà vu. In late 1999 and early 2000 I was selling Optus cable connections door to door in Melbourne. When I tired of backpacking, I went to London and within three weeks had started at Bloomberg. I was amazed at the speed of the Royal Mail. I saw an ad in The Times on a Wednesday for European sales people. I posted my CV that afternoon and had a reply back from Bloomberg delivered the next day. I had an interview on Monday and started on Tuesday. To say they were desperate for sales people is a gross understatement. I was in Belgium, visiting private banks, 10 days later. That was the top of the market and it was evidence of a true mania in the TMT (Telecoms, Media and Technology) sectors.

By the end of the Nasdaq bear market in 2003 the number of Bloomberg terminals being sold to mortgage bankers was surging. I was even offered a job by one. The Dollar was pulling back, there were fears about financial repression, China’s demand for commodities was only beginning, emerging markets were breaking out and gold was completing its base formation. A year later oil broke out.



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June 03 2021

Commentary by Eoin Treacy

Global Food Prices Surge to Near Decade High, UN Says

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

Drought in key Brazilian growing regions is crippling crops from corn to coffee, and vegetable oil production growth has slowed in Southeast Asia. That’s boosting costs for livestock producers and risks further straining global grain stockpiles that have been depleted by soaring Chinese demand. The surge has stirred memories of 2008 and 2011, when price spikes led to food riots in more than 30 nations.

“We have very little room for any production shock. We have very little room for any unexpected surge in demand in any country,” Abdolreza Abbassian, senior economist at the UN’s Food and Agriculture Organization, said by phone. “Any of those things could push prices up further than they are now, and then we could start getting worried.”

The prolonged gains across the staple commodities are trickling through to store shelves, with countries from Kenya to Mexico reporting higher food costs. The pain could be particularly pronounced in some of the poorest import-dependent nations, which have limited purchasing power and social safety nets as they grapple with the pandemic.

The UN’s index is treading at its highest since September 2011, with last month’s gain of 4.8% being the biggest in more than 10 years. All five components of the index rose during the month, with the advance led by pricier vegetable oils, grain and sugar.

Eoin Treacy's view -

Farmers that survive the pandemic disruptions will want to plant as much acreage as possible for their next growing season in every agricultural zone in the world. High prices are all the incentive they need. That’s particularly true for the grains and beans where production is possible in multiple different geographically diverse regions.



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June 02 2021

Commentary by Eoin Treacy

Australia's Economy Powers On, Recouping Pandemic Losses

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

Australia’s rapid rebound has been underpinned by its ability to limit Covid-19 outbreaks, boosting consumer and business confidence. A massive fiscal-monetary injection strengthened the financial position of households and firms during the lockdown, and consumers are spending and companies hiring.

“Australia is in rare company here -- only five other countries can boast an economy that’s larger now than before the pandemic,” said Kristian Kolding, a partner at Deloitte Access Economics. “Maintaining this trajectory is now the task at hand -- the lockdowns in Victoria are a stark reminder that the pandemic is far from over.”

Deloitte noted that on average, economies in the Organisation for Economic Cooperation and Development are 2.7% smaller than they were before the pandemic. The U.K. is almost 9% smaller, the European Union is 5% smaller and the U.S. has shrunk 1%, it said.

Yet a potential risk to the outlook is the sluggish rollout of a Covid vaccine. This has been magnified by a renewed outbreak of the virus in Melbourne that prompted a lockdown in the nation’s second-largest city, and has now been extended for another week.

Eoin Treacy's view -

Victoria is back in lockdown but the number of cases is comparatively low and the rest of the country is reasonably unaffected. Investors are taking the news in their stride. After more than a decade of liquidity infusions the reality remains liquidity beats most other factors most of the time. Central bankers also understand that logic and must feel vindicated in their actions. Every time there is a problem, they boost money supply and act to depress yields and the economy rebounds. They are unlikely to do anything different until that policy stops working.



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May 28 2021

Commentary by Eoin Treacy

First named storm of hurricane season comes early because of warming seas

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

"The system is considered a subtropical cyclone rather than a tropical cyclone since it is still entangled with an upper-level low as evident in water vapor satellite images, but it does have some tropical characteristics as well," according to the National Hurricane Center.

There have been pre-season named storms in the past six years, but Ana’s addition to the group is distinct for another reason. Storms in May normally form near the eastern Gulf of Mexico, the western Caribbean Sea or the Southeastern coast of the United States, CNN reported. But subtropical storm Ana is distinct because it formed in the Atlantic. 

The National Oceanic and Atmospheric Administration (NOAA) recorded a record-breaking 30 named storms in 2020. NOAA reported that 2020 was the fifth consecutive year with an “above-normal” hurricane season. There have been 18 “above-normal” seasons out of the last 26. 

“As we correctly predicted, an interrelated set of atmospheric and oceanic conditions linked to the warm AMO were again present this year. These included warmer-than-average Atlantic sea surface temperatures and a stronger west African monsoon, along with much weaker vertical wind shear and wind patterns coming off of Africa that were more favorable for storm development. These conditions, combined with La Nina, helped make this record-breaking, extremely active hurricane season possible,” said Gerry Bell, lead seasonal hurricane forecaster at NOAA’s Climate Prediction Center. 

Eoin Treacy's view -

La Nina has dissipated and we are now in the lull before a new El Nino forms. How long that takes is likely to have an impact on how storms form over the summer months. Seven years in a row for an early hurricane season is not an aberration but looks more like a trend.



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May 26 2021

Commentary by Eoin Treacy

Email of the day on emissions trading

Eoin Hope you are well and settled in your new home. In your comments, you refer to companies having to purchase carbon credits and how Tesla has profited at the expense of others. Could you kindly share some more color on this or direct us to articles you may have posted. Also, could you please shed some light on carbon futures, and where they trade? Thanks much and stay safe Regards

Eoin Treacy's view -

Thank you for this timely email. Royal Dutch Shell’s failure to avoid censure in the Netherlands brings the issue of how emissions are priced into sharper focus.

Here is a section from a relevant article:

“Companies have an independent responsibility, aside from what states do,” Alwin said in her decision. “Even if states do nothing or only a little, companies have the responsibility to respect human rights.”

There are currently 1,800 lawsuits related to climate change being fought in courtrooms around the world, according to the climatecasechart.com database. The Shell verdict could have a powerful ripple effect, not least among its European peers including BP Plc and Total SE. Those companies have set similar emissions targets, which have also been criticized by campaigners for not going far enough.

Court Wins
The courts have become an increasingly successful arena for campaigners to hold governments and countries to account over pollution and climate change. This is the second time in quick succession that a Dutch court has ruled that Shell’s parent company in The Hague is liable for environmental damages in other jurisdictions.

In January, a court of appeals said that Hague-headquartered Shell had a duty of care to prevent leaks in Nigeria. The German government fell foul of a judge over its climate targets when its top court ruled that Chancellor Angela Merkel’s climate-protection efforts were falling short in April.

“Urgent action is needed on climate change which is why we have accelerated our efforts to become a net-zero emissions energy company by 2050,” a Shell spokesperson said. “We are investing billions of dollars in low-carbon energy, including electric vehicle charging, hydrogen, renewables and biofuels.”



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May 24 2021

Commentary by Eoin Treacy

Solar Power's Decade of Falling Costs Is Thrown Into Reverse

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

For the solar industry, the timing couldn’t be worse. Renewable energy finally has a champion in the White House and ambitious climate goals have been announced across Europe and Asia.

At the center of the crisis is polysilicon, an ultra-refined form of silicon, one of the most abundant materials on Earth that’s commonly found in beach sand. As the solar industry geared up to meet an expected surge in demand for modules, makers of polysilicon were unable to keep up. Prices for the purified metalloid have touched $25.88 a kilogram, from $6.19 less than a year ago, according to PVInsights.

Polysilicon prices are expected to remain strong through the end of 2022, according to Roth Capital Partners analysts including Philip Shen. 

And the problem isn’t limited to polysilicon. The solar industry is facing “pervasive upstream supply-chain cost challenges,” panel manufacturer Maxeon Solar Technologies Ltd. said in April.

Eoin Treacy's view -

This is just one more sector facing medium-term supply disruption. The clear conclusion is when we look around the world there is too much money chasing too many goods and services. The big question is how long will it take for this inflationary bias to become anchored in the minds of consumers?



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May 23 2021

Commentary by Eoin Treacy

Net Zero by 2050 A Roadmap for the Global Energy Sector

The IEA was always a politically motivated organisation but this report highlights just how far they have adopted the renewable consensus. Here is a section:

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area. 

The one thing the market teaches us is the consensus is seldom correct. What happens when we spend until trillions on energy diversification only to learn that it does nothing to arrest a warming trend? Will we then lament not moving sooner on risk mitigation strategies like building higher seawalls or developing additional food supplies? The one thing I can be sure of is the vilification of opposition is a key symptom of mania.



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May 19 2021

Commentary by Eoin Treacy

Want To Understand Carbon Credits? Read This

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

An untouched stand of trees in Oregon – as in our compliance market example above – generates one big benefit – the carbon sequestered in the living trees themselves. However, voluntary development projects may offer other social or environmental benefits in addition to lowering GHG emissions, such as poverty reduction, habitat preservation, and increases to local living standards.

These are all benefits that support U.N. Sustainable Development Goals, so a company able to tout participation in programs with co-benefits scores valuable PR wins for its shareholders.

For example, one of Bluesource’s founders helped start a venture named the Paradigm Project to subsidize highly efficient wood-burning stoves and easy to use water filtration units to rural families in Kenya. In Kenya, as is true for other less developed rural areas, a lot of deforestation is brought about by families cutting wood to boil water and cook.

Through projects developed by the Paradigm Project, organizations are able to invest in carbon credits generated by verified emission reductions from rural households’ reduced burning of wood for fuel.

Proceeds from the sale of those carbon credits are ploughed into to the operations of a company that employs local people to build stoves and filters and distributes these products to their rural neighbors. The filters help cut the amount of firewood needed for boiling water and the stoves are much more efficient at converting wood fuel into usable energy.

Eoin Treacy's view -

This article highlights the virtuous circle argument for carbon credits when low emitting companies voluntarily redeploy money devoted to public good to socially acceptable carbon offset strategies. 



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May 18 2021

Commentary by Eoin Treacy

Averting Climate Crisis Means No New Oil or Gas Fields, IEA Says

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

Reducing emissions to net zero -- the point at which greenhouse gases are removed from the atmosphere as quickly as they’re added -- is considered vital to limit the increase in average global temperatures to no more than 1.5 degrees Celsius. That’s seen as the critical threshold if the world is to avoid disastrous climate change.

But it’s a path that few are following. Government pledges to cut carbon emissions are insufficient to hit “net zero” in the next three decades and would result in an increase of 2.1 degrees Celsius by the end of the century, the IEA said.

“This gap between rhetoric and action needs to close if we are to have a fighting chance of reaching net zero by 2050,” the agency said. Only an “unprecedented transformation” of the world’s energy system can achieve the 1.5 degrees Celsius target.

The IEA’s road map appears to be at odds with climate plans laid out by Europe’s top three oil companies -- BP Plc, Royal Dutch Shell Plc and Total SA. They all have targets for net-zero emissions by 2050, but intend to keep on seeking out and developing new oil and gas fields for many years to come.

“No new oil and natural gas fields are needed in our pathway,” the IEA said. If the world were to follow that trajectory, oil prices would dwindle to just $25 a barrel by mid-century, from almost $70 now.

Eoin Treacy's view -

Many of the oil majors have significantly reduced plans for additional new supply already. That decision was as much about the price structure as it was about appeasing the increasingly powerful green lobby. Today, the European oil companies in particular are attempting to reorient towards becoming utilities to boost their green credentials.



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May 12 2021

Commentary by Eoin Treacy

The Days of Low Treasury Yields Are Numbered

This article by Bill Dudley may be of interest to subscribers. Here is a section:

Today, there’s ample reason to expect a positive term premium to return. For one, the Fed has a new, more patient monetary policy stance. As a result, inflation will be higher and more variable — a risk that must be compensated with higher long-term yields. Also, keeping inflation in check will require a higher peak fed funds rate, reducing the risk that the Fed will again get pinned at the zero lower bound. Beyond that, deficit financing is expanding the supply of government bonds: Treasury debt outstanding has quadrupled since 2007, and the Biden administration is seeking to add several trillion dollars more. Meanwhile, one big source of demand for the bonds is set to dwindle as the Fed phases out its asset purchases, most likely next year.

Putting the pieces together, one can expect a 10-year Treasury yield of at least 3%: The 2.5% floor set by the federal funds rate, plus a term premium of 0.5% or more. But that’s not all. The Fed says it wants inflation to exceed its 2% target for some time, to make up for previous shortfalls. This, in turn, could stoke inflationary fears and lead markets to expect a higher path for future short-term rates. As a result, the 10-year Treasury yield could more than double from the current 1.6%. And if persistent deficit financing prompts concern about growing U.S. debt, the yield could go to 4% or higher.

Anyone who has been in finance for less than a decade has rarely seen 10-year Treasury note yields above 3%. So what’s coming could, for many, be quite a shock. The secular bond bull market that began nearly 40 years ago is finally ending.

Eoin Treacy's view -

US job openings now far exceed the pre-pandemic peak. At the same time credit card balances are declining even as debt loads are increasing. Meanwhile the unemployment rate is holding at 6%.

The conclusion is simple. Households are buying capital goods like houses and cars, that do not require credit cards, because they are flush with cash. Companies are desperate for workers, but unemployed people are in no hurry to take up offers. The reality is the stimulus enacted in the first quarter was overly generous and has created economic disincentives. It exacerbated bottlenecks and enhanced consumer perceptions of rampant inflationary pressures.



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May 07 2021

Commentary by Eoin Treacy

Secular Themes Review May 7th 2021

Eoin Treacy's view -

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on March 5th. These reviews can be found via the search bar using the term “Secular Themes Review”.

After a crash everyone is wary. We all seek to learn lessons from our most recent experience because it is the only way to help us emotionally move past the trauma. Coming out of the pandemic most investors wished they had sold everything at the first sight of virus news in early 2020 and bought everything back again following the crash. Today they are worried that there is another big shock waiting around the corner that will cause a repeat of pandemic panic.

The challenge for investors is less to learn from the most recent mistake but rather to know when to deploy the lessons learned. The best time to be wary about a massive decline is when no one is worried about it. The time to take precautionary action is when it seems like a waste of time and when you are most afraid of giving up on the potential for even better gains. That’s the best time to remember the experience of the crash but the interval of time and the positive reinforcement of experience in an uptrend make it difficult.



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April 29 2021

Commentary by Eoin Treacy

Shale CEO Sees Producers Staying Disciplined at $70 Crude Oil

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

America’s shale producers will keep output in check even as global crude oil prices near $70 a barrel, Ovintiv Inc. Chief Executive Officer Doug Suttles said in an interview with Bloomberg Television.
Explorers are focused on low growth, strong operating performance and returning cash to shareholders, Suttles said. Ovintiv is prioritizing paying down debt and maintaining its dividend, he said.

Private operators’ ability to weigh on oil prices by ramping up production is limited after recent tie-ups with publicly traded companies, Suttles said. While closely held producers have more influence on the natural gas market, “it’s a little bit of a concern, not a big one,” he said.

Eoin Treacy's view -

European natural gas prices have bounced impressively from the region of the trend mean and are quickly approaching the highs of the last decade. That is likely to encourage more sea-borne gas into the market which is contributing the US prices bouncing impressively from the trend mean.



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April 27 2021

Commentary by Eoin Treacy

OPEC+ Confirms Plan to Gently Hike Supply as Demand Recovers

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

The global oil market “is on the one hand positive, we see a recovery of demand and higher global GDP estimates,” Russia’s Deputy Prime Minister Alexander Novak told Rossiya 24 television after the OPEC+ committee’s conference call. Nevertheless, the group must keep monitoring the coronavirus situation across many regions, including Asia, he added.

“We see that some countries record higher coronavirus numbers, like in India and Latin America, which raises some concerns about further growth of demand,” Novak said.

Crude futures held gains after the OPEC+ gathering, trading 0.4% higher at almost $66 a barrel in London.

Strong Demand

It was the OPEC+ Joint Ministerial Monitoring Committee that initially recommended sticking to their planned output increase. Ministers from the panel then asked other OPEC+ members to cancel the full meeting scheduled for Wednesday, and instead they drafted Tuesday’s statement by exchanging diplomatic messages.

Eoin Treacy's view -

There is no shortage of oil and there is no mystery about where to find more if it is needed. The drop off in domestic US drilling and the combined efforts of OPEC+ to curtail supply have shaved at least 7 million barrels a day from the market. That has been instrumental in the rebound for oil prices.



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April 16 2021

Commentary by Eoin Treacy

Porsche's Electric Taycan Sales on Course to Eclipse Iconic 911

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

“Established models have supported this excellent result along with the latest additions to our product range, above all the new model variants of the all-electric Taycan,” Porsche sales chief Detlev von Platen said of the brand’s 36% first-quarter surge. “We can look back on a very positive start to the year.”

The Taycan, which Porsche recently flanked with a more spacious version, is a litmus test for the carmaker’s costly shift to electric vehicles. Boosting EV sales with Porsche will be key to maintaining healthy margins as the division is VW group’s biggest profit contributor by far.

Porsche’s total global deliveries rose to 71,986 vehicles in the first quarter, driven mainly by demand in China, its largest market. The compact Macan SUV was the brand’s best-selling model, ahead of the larger Cayenne. Porsche will launch a battery-powered version of the Macan next year that’s underpinned by a new platform for upscale electric cars co-developed with sister brand Audi.

Porsche remains optimistic about business prospects this year even as a global shortage of semiconductor parts disrupts production plans across the industry. Order books “continue to develop very well,” Von Platen said.

Eoin Treacy's view -

Introducing new technology at a high price point before filtering it down to cheaper models in subsequent years has been the go-to model for automakers. Nothing has changed. The positive reception the Taycan has received will fortify the mood at Volkswagen that they have made the correct decision to bet on electric vehicles.



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April 16 2021

Commentary by Eoin Treacy

U.S. Infrastructure Plan May Lift These Three Brazilian Stocks

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

Two weeks ago, Biden unveiled a $2.25 trillion plan to overhaul the country’s physical and technological infrastructure. He has said the plan needs to go far beyond bridges and roads and has called for investment in electric vehicles, renewable power and the electric grid.

Shares of Gerdau and Tupy are up 27% and 15% this year, respectively, while the benchmark Ibovespa index is down 0.6% and Weg is little changed.

“Limited geographical diversification puts a cap on Brazilian companies seizing this moment, but we can see some clear winners,” the analysts said. “Although we believe they have not gone unnoticed by the market, recent performance indicates that the impact is likely larger than what is currently priced in.”

Eoin Treacy's view -

Brazil is currently dealing with the challenge of rising pandemic case numbers and deaths. That’s a near-term challenge for the economic recovery and it might be a few months before the worst is over. 



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April 12 2021

Commentary by Eoin Treacy

Impatience

Eoin Treacy's view -

There is one theme that seems to be running through every asset class at present. Perhaps it is because we have been locked up for a year, and literally can’t wait until it is all over, but there is a distinct air of impatience in every circle of life. The pandemic has accelerated the decision-making process for everyone in every facet of our lives.

Mrs. Treacy and I have been discussing moving from Los Angeles for two years but there was never a push big enough to stir us into action. We looked at Las Vegas suburbs in 2019 and toured schools but my eldest daughter was accepted into one of the most prestigious high schools in Los Angeles, so we decided to linger.

The experience of living in Los Angeles during the lockdowns, from schooling to public safety, made us impatient for a change. Like many others we decided to move and have only been delayed by reapplying to schools for our daughters and finding a suitable home.



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April 07 2021

Commentary by Eoin Treacy

Hydrogen could be the future of energy - but there's one big road block

This article from reneweconomy.com.au may be of interest to subscribers. Here is a section:

The hydrogen embrittlement challenge is a highly complex materials and engineering problem. There are many aspects that still need to be understood before tangible solutions can be proposed.

For example, what are the conditions for hydrogen entry into different metals? Can this be controlled? Is it possible to completely stop hydrogen entry in metals using coatings or other surface treatments? What if these coatings get a scratch? If the hydrogen does get in, under what conditions will it cause failure of the metal? How much hydrogen is too much? How quickly will it accumulate? Can we design new engineering alloys that can better resist hydrogen embrittlement for the global hydrogen economy? If so, will the new alloys be economically feasible?

These questions can only be answered through collaboration between researchers and engineers who have a deep understanding of hydrogen embrittlement.

Eoin Treacy's view -

An economy powered by liquid hydrogen is the end point of all renewable energy arguments. It is the only way that the energy by volume arguments can be overcome. The question is how to do get there from where technological solutions stand today?



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April 01 2021

Commentary by Eoin Treacy

Secular Themes Review April 1st 2021

Eoin Treacy's view -

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on March 5th. These reviews can be found via the search bar using the term “Secular Themes Review”.

The pandemic has been an accelerant. The full ramifications of what that means are becoming increasingly clear.

The pandemic took trends that have been in evidence for a while and exaggerated them. At the same time, it introduced new challenges which require new solutions.

Corporations operating without the safety net of cash on the balance sheet has been a feature of the markets for decades too. They continue to be bailed out when they get into trouble. There is no evidence that the trend of using all available means to buy back shares has ended. In fact, buybacks are back at pre-pandemic levels. Companies were touting “resiliency” last summer. It appears to have been just talk. Buybacks represent a powerful tailwind for stock markets that were absent for much of 2020 but are now back in force. 



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March 29 2021

Commentary by Eoin Treacy

The Giant Ship Blocking the Suez Canal Is Finally Freed

 This article by Jack Wittels and Ann Koh for Bloomberg may be of interest to subscribers. Here is a section:

Egyptian authorities were desperate to get traffic flowing again through the waterway that’s a conduit for about 12% of world trade and about 1 million barrels of oil a day. This has been the canal’s longest closure since it was shut for eight years following the 1967 Six Day War.

Firms including A.P. Moller-Maersk A/S and Hapag-Lloyd AG were forced to reroute their ships via the southern tip of Africa, which can add two weeks on to a journey between Europe
and Asia.

Shipping experts anticipate that the disruption will last for months because of schedules being upturned and the uneven wave of cargo that will hit ports down the line.

While the hit of the canal’s $10-billion-per-day closure will likely be small given that global merchandise trade amounts to $18 trillion a year, the prospect of hundreds of ships being thrown off schedule will ensure cargo delays in the weeks if not months ahead. The dozen or so container carriers that control most of the world’s ocean freight capacity are already charging record-high rates on some routes, and shortages of everything from chemicals and lumber to dockside labor already abound.

Eoin Treacy's view -

It seldom pays to bet against small well-funded teams who are presented with a gargantuan task. The freeing up of the Suez Canal after a week is just such an example, and the snarl in the global supply chain will be smoothed out in a week or so. That’s good news but the whole episode is representative of the stress the global supply chain is under. Everyone is exhausted after a year of strife and disruption and that raises the risk that accidents will happen.



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March 25 2021

Commentary by Eoin Treacy

Shipping Giants Look at Arduous Reroute to Avoid Blocked Suez

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

Loadings scheduled from Qatar’s Ras Laffan export terminal may experience “considerable delays” if the situation doesn’t improve by the end of this week, according to Rebecca Chia, an analyst at market information group Kepler.

The congestion is also hitting bulk carriers that ship products from wheat to iron ore. There’s a long queue of bulk ships at the moment -- just shy of 40 vessels -- according to Peter Sand, chief shipping analyst at trade group BIMCO.

“Unless the situation is resolved very quickly we will soon see ships sailing south of Africa,” Sand said. “Oil tanker rates are terribly low at the moment so that’s where there’s most upside. Then some upside for dry bulk.”

Eoin Treacy's view -

The global supply chain has a number of chokepoints. Panama has invested heavily in providing additional capacity for its canal. Egypt has been much less proactive in planning for the future. The current blockage of the canal is a headache and has the capacity to cause short-term disruption.

Some estimates are stretching the solution time to weeks rather than days. Considering how essential the shortcut is to the global economy every effort will be made to ensure the delay is a short as possible. Generally speaking, teams can perform the impossible in short periods of time provided they are given the resources required so I doubt this is an issue we will be worrying about in a few weeks.



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March 22 2021

Commentary by Eoin Treacy

Germany to Sell Record Debt of Up to $576 Billion in 2021

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

The final decision on next year’s budget will be taken by the government that takes charge of Europe’s biggest economy after Chancellor Angela Merkel steps aside following the election.

Merkel’s conservative CDU/CSU bloc is on track to lead the next administration and favors a return to frugality once the coronavirus recedes, while Scholz’s struggling SPD and the surging Greens have pledged to invest billions in technology and tackling climate change.

As things stand, Merkel’s bloc could form a coalition with the Greens, though the outcome is far from certain with discontent increasing among citizens weary of virus restrictions and unhappy with the slow pace of Germany’s Covid-19 vaccine rollout.

With the contagion rate on the rise again, Merkel is holding talks with cabinet ministers and regional leaders later on Monday to decide the next steps in the government’s pandemic strategy.

Eoin Treacy's view -

Generally speaking, the junior member of a coalition government comes out worse off after entering government. That’s because voters had faith in them to deliver on their promises, but the sacrifices they have to make to enter power mean their primary goals are unrealisable. At the same time the senior partner takes credit for any successes.



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March 18 2021

Commentary by Eoin Treacy

CTA, Money Manager Unwinds Could Be Behind Oil Drop

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

Crude oil has fallen the most in nearly three months, sliding as much as 4.75% today, and on its way to a test of the March 4 low at $60.52 per barrel. The move is probably linked to some unwinding of long positions from CTAs as daily price gains or losses of more than 3% can often trigger this account group to quickly unload. Watch for this unwind to continue if price action maintains this pace in the days ahead.

Beyond that, money managers could be unwinding longs. This group’s crude holdings are the longest in more than two years, according to the most recent CFTC data. Let’s not forget Iran is swamping China with oil. Also, quarter-end window dressing can also get in the way of an otherwise nice trend.

Eoin Treacy's view -

There is no shortage of oil. OPEC is deliberately restricting supply. The shale properties massively reduced drilling activity in response to low prices and rising borrowing costs have inhibited a swift recovery. However, it is not as if the world has to spend hundreds of billions to find new sources of supply. Everyone knows where the oil is. The question is only at what price it will be produced. The higher prices move the greater the sensitivity to supply gains.



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March 16 2021

Commentary by Eoin Treacy

Email of the on solar power, desertification, and profitability

This video is very interesting. It is hard to comprehend the scale of this project.  It is part of China's ''ending poverty'' project.

Whilst the US has been engaged in adventurism in the M-E and elsewhere (right up till today) resulting in heavy losses, both financial and human cost, China has been powering ahead in leaps and bounds, spreading their sphere of influence far and wide. Interesting times.

 

Eoin Treacy's view -

Thank you for this interesting video which is both information and raises some important questions. The point they seek to get across is that solar panel power plants can create clean energy, reverse desertification, and create lucrative income streams for local populations. 

The video at no point discusses the efficiency of the solar panels, the sustainability of using the precious water resource to regularly clean them, the cost/efficiency of power lines to get the electricity to where it is needed or the desire for energy self-sufficiency.



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March 12 2021

Commentary by Eoin Treacy

Platinum Quarterly

This report from the World Platinum Investment Council may be of interest to subscribers. Here is a section:

In 2020 the platinum market was in a deficit of -932 koz, the largest annual deficit on record albeit below the -1,202 koz deficit forecast in November 2020. This difference was due to Anglo American Platinum Converter Plant (ACP) Phase A being restarted in December 2020, three weeks earlier than expected. However, over the year, as a whole, lower supply due to COVID-19-related mine closures, ACP outages and reduced recycling far outweighed the pandemic-driven fall in demand from the automotive, jewellery and industrial sectors, which fall was partially offset by increased investment demand.

For 2021 the platinum market is forecast to remain in a deficit for the third consecutive year. The modest deficit of -60 koz results from a 17% increase in total supply and a 3% increase in total demand. Interestingly, total supply in 2021 will still be 3% lower than in 2019, with industrial, jewellery and automotive demand levels all above their respective levels in 2019.

Total platinum demand in 2020 was 7,738 koz, 7% (-569 koz) lower than in 2019. Automotive demand reduced by 17% (-474 koz) year-on-year, largely due to lower vehicle sales in the first half of the year, as measures to control the spread of COVID-19 resulted in vehicle factory and showroom closures. However, platinum automotive demand losses were cushioned by the impact of higher metal loadings on catalysts to meet tighter emissions regulations. Jewellery demand was similarly impacted in 2020, with volumes 13% (-279 koz) lower on a full-year basis despite quarter four demand returning to pre-pandemic levels. Industrial demand was 5% (-111 koz) lower, with strong glass sector demand largely compensating for weakness in all other industrial demand segments.

In 2020, weakness in automotive, jewellery and industrial demand was partly offset by strong investment demand, from bars and coins and ETFs, collectively up 24% (+295 koz) year-on-year. Heightened global risk drove investor demand for hard assets such as platinum during the first half of the year, further encouraged by the weak platinum price. Investment demand increased in line with the improving economic outlook in the second half of 2020 and was bolstered by NYMEX futures exchange physical metal stocks, that increased significantly to address the disconnect between the price of platinum futures and platinum. However, as the year progressed bar and coin demand moderated somewhat as the platinum price increased and stock shortages in North America were addressed. ETF holdings increased strongly over the year with growth in North America, Europe and Japan far exceeding declines in South Africa.

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

Platinum is more of an industrial metal than an investment vehicle. The demise of diesel engines resulted in a crash because catalytic converter demand evaporated.

That is exactly what happened to silver when digital cameras eroded demand for photographic film. The price of silver halved between 1989 and 1991 as the first digital cameras arrived on the market. Without that major source of demand, the price drifted in a range for more than a decade. It did not breakout until a new source of demand appeared. It broke out in 2003 as emerging market investment demand heated up and Western investors worried about financial repression in the aftermath of the tech bust.



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March 11 2021

Commentary by Eoin Treacy

Shell Plans to Take Virtual Power Plant to the Next Level

This article by Nelson Nsitem for Bloomberg may be of interest to subscribers. Here it is in full:

Royal Dutch Shell Plc agreed to buy Next Kraftwerke, the operator of a virtual power plant that brings together clean-energy capacity across Europe to sell the electricity into the market.

Next Kraftwerke remotely connects and manages more than 10,000 off-grid units -- including solar, hydropower and bioenergy facilities -- across eight countries, the Hamburg-based company said Thursday in a statement. The deal expands Shell’s footprint in low-carbon technologies as the Anglo-Dutch oil major seeks to slash its emissions.

“The acquisition of Next Kraftwerke will accelerate Shell’s strategy to grow by adding smaller renewable assets to our portfolio,” David Wells, vice president of Shell Energy Europe, said in the statement. The terms of the deal, which is expected to complete in the second quarter of this year, were not disclosed.

Power is a key part of Shell’s ambition to become a “net-zero” company by 2050 and one of the world’s largest providers of green electricity. Shell aims to double electricity sales to 560 terawatt-hours by 2030.

Eoin Treacy's view -

European oil majors have been delivered a clear message to evolve or die. The political tide of support for green energy and decarbonisation continues to favour reduced emphasis on fossil fuels. Royal Dutch Shell is at the forefront of that regional energy transition.



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March 09 2021

Commentary by Eoin Treacy

Email of the day on oil prices

Oil price is in the news and as a holder of a leveraged position I was very happy with the price spike. Here's an article that is arguing it's a sellers’ market, will remain so, and that shale production will not drive prices back down. What are your thoughts.

Eoin Treacy's view -

Thank you for this article. Here is a section: 

The big players are consolidating the shale field now. And if you think that they want to pump barrels of oil at a loss, then you’ve got another think coming. They don’t have to do that. And once the land grab ends and the conservation of capital game begins, suddenly everyone is Opec.

The shale guys would be quite happy to see oil sustainably higher than it is now, especially given that competition within that area is now calming down. Everyone can make a profit as long as no one gets too greedy. That’s not going to upset them.

On top of that, Saudi Arabia has US president Joe Biden backing its hunches on this one. The president’s focus on “green” policies could make it tougher to develop shale fields and so it’ll be tougher to expand supply and so prices will go up. It’s another illustration of how regulation very often is exactly what any big incumbent player in a market wants. It keeps the competition at bay.

​The low return on invested capital has been a major challenge for the oil and gas sector over the last few years. Unconventional supply is extremely capital intensive. With prices below $60 large portions of the market are not economically viable. That reality led to the lower for longer mantra gaining traction. The lack of additional investment created the conditions for the current rebound and the massive decline in drilling during the pandemic exaggerated the effect.



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March 05 2021

Commentary by Eoin Treacy

Secular Bull Market Investment Candidates Review March 2021

Eoin Treacy's view -

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on January 8th. These reviews can be found via the search bar using the term “Secular Themes Review”.

The rollout of vaccines to COVID-19 continues to accelerate and that will continue through the balance of the year and 2022. There is encouraging news about the number of different vaccines which have been approved and their success against variants. By the end of the year, the world will be inundated with doses which will provide at least some protection from the virus for anyone who wants it. That’s all the rationale any government needs for reopening the economy.

On Valentine’s Day 2020 Mrs Treacy and I went out for dinner with another couple. We talked about the news of a virus threat from China and how it could potentially cause ructions further afield. We told them we had stocked up on rice, meat, protein bars and batteries just in case. They thought we were crazy crackpots jumping at shadows.

It was hard to imagine then just how disruptive the decision to lockdown was going to be. A similar condition exists today. After a year of being confined to our immediate vicinity it is tempting to think this is how it will always be. The reality, however, is we are going to see a surge back to normalcy much quicker than most believe possible.

Humans are social animals and we yearn for social contact. We’ve been starved of that basic need for a year and we’ll overdose on it when we are able. That suggests we are looking at a boom in consumer activity over the coming couple of years.



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March 04 2021

Commentary by Eoin Treacy

OPEC+ Keeps Tight Squeeze on Output, Sending Prices Soaring

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

restraints. It leaves the world facing a significant supply squeeze, higher energy costs and the risk of inflation, just as widespread vaccination allows economies to start emerging from the downturn caused by the pandemic.

“OPEC+ definitely risks over-tightening the oil market,” said Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd. in London.

Brent has already rallied almost 30% this year to above $67 a barrel as OPEC+ kept production below demand in order to drain the glut that built up during the worst of the Covid-19 lockdowns. Without additional supply, that deficit will widen significantly in April, according to the cartel’s internal estimates.

Eoin Treacy's view -

The oil price has been rebounding in part because of a renewed demand outlook as the global economy reflates and also because supply growth has been both intentionally and unintentionally constrained.

The brief but traumatic trip below zero last year was a catalyst for OPEC members to be more amenable to supply discipline. They want to ensure prices stay at economic levels and that means somewhere in the region of $60 to $80.



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March 01 2021

Commentary by Eoin Treacy

Ignoring Energy Transition Realities

Thanks to a subscriber for this report from the team at Goehring & Rozencwajg which was released a couple of months ago. Here is a section:

Electric vehicles also involve energy intensive lithium-ion batteries. Few realize how much energy is embedded in an electric vehicle before it is ever plugged in. Over the life of a typical EV, nearly 40% of the total energy goes into manufacturing the battery. The IEA expects electric vehicles will represent nearly 15% of total transportation energy by 2040. We calculate this equates to approximately 850 mm EVs and nearly 65 terawatt hours of batteries. This is a staggering amount considering global lithium-ion manufacturing capacity is currently less than 0.4 terawatt hours per year. These batteries will require an incredible 2 billion tonnes of oil equivalent to build. We will shortly release a detailed podcast that goes into these figures in great depth.

Unfortunately, few people realize how energy intensive the “green transition” will be. As a result, much (if not all) of the carbon savings will be undone by generating the power in the first place. The IEA’s proposal assumes wind and solar make up nearly 50% of all electricity by 2040 and that some 850 mm electric vehicles will be on the road. These initiatives are expected to reduce CO2 by 55% or 18 bn tonnes per year. While this may sound impressive, simply moving away from coal towards much-cleaner natural gas would itself save nearly 14 bn tonnes of CO2 per year. When analyzed through this perspective, renewables would save an incremental 4 bn tonnes compared with the next cleanest option.

Eoin Treacy's view -

The views expressed in this report elaborates on many of the points made by other analysts. There is no getting around the fact that renewables are dependent on access to metals like copper, lithium, cobalt and nickel. That’s in addition to the significant additional quantities of rare earth metals required. These are all extractive industries. A lot of renewable infrastructure is also placed in very remote, ecologically pristine areas.



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February 24 2021

Commentary by Eoin Treacy

Email of the day on paying up for commodities

Thanks again for your very calm analysis of these volatile times. I appreciate it a lot. I enjoyed very much your comments about the tendency of remembering the end of the events/experiences. There is a very good experiment on this done by Daniel Kahnemann. On a different note; you seem to be very bullish on copper, but it seems not enough to invest on that theme yet. Are you planning to invest? Otherwise, what would be a good instrument to invest for the medium/long term on that theme. Thanks in advance

Eoin Treacy's view -

Thank you for this email which may be of interest to subscribers. I have been conditioned through the decades to refuse to pay up for commodities. It’s a volatile sector that tends to have outsized moves in both directions. I am very bullish on industrial commodities overall and copper in particular.

Seeing outsized new sources of demand emerge for a commodity is a once in a couple of decades event. It will require a massive supply response to bring the market back into equilibrium. At present commodities are rallying because investors are pricing in an epic rebound in economic activity as fear about the pandemic subsides and people embrace fun and joie de vivre.



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February 19 2021

Commentary by Eoin Treacy

Email of the day on silver's relative strength

Silver price appears to be holding up much better vs. gold price. Any idea why?

Eoin Treacy's view -

Thank you for this question which I have been pondering over for the last few days. The easy answer is that silver has more industrial uses than gold. As industrial metals continue to price in additional infrastructure growth and new use cases in transportation and electricity generation they may be lending some support to silver versus gold.



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February 16 2021

Commentary by Eoin Treacy

Blackouts Cascade Beyond Texas in Deepening Power Crisis

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

Blackouts triggered by frigid weather have spread to more than four million homes and businesses across the central U.S. and extended into Mexico in a deepening energy crisis that’s already crippled the Texas power grid.

After millions in Texas lost electricity, the operator of the grid spanning 14 states from North Dakota to Oklahoma ordered utilities to start rotating outages to protect the system from failing amid surging demand for electricity.

“In our history as a grid operator, this is an unprecedented event,” the Southwest Power Pool said in a statement Monday.

The brutal cold striking Texas -- the capital of the U.S. energy industry and home of some of the world’s largest oil and gas companies -- is emblematic of a world facing more unpredictable weather due to the rising impact of climate change. The outages also underscore the growing vulnerability of the grid as the globe moves away from fossil fuels to an all-electrified system increasingly reliant on renewable energy.

Eoin Treacy's view -

The big argument about renewables has been always been cost and reliability. The cost argument has been removed from the discussion over the last couple of years. Economies of scale mean that many wind and solar projects are now viable without relying on subsidies. Unfortunately, there hasn’t been any progress how to ensure base load when the turbines stop turning or the sun isn’t shining.

Temperatures significantly below zero (Celsius) freeze the turbines. That’s why there are rolling blackouts across Texas today and yesterday. They rely on wind to produce a significant proportion of electricity and were in no way prepared for the freezing weather to move this far south.

I arrived in Dallas yesterday evening. The car rental place was inundated and understaffed with about four inches of snow on the ground. The restaurants are not getting deliveries so most are closed. The super markets are all also closed. It’s a good thing the weather is expected to improve by the weekend or there will be a lot of hungry people as well as being cold.



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February 12 2021

Commentary by Eoin Treacy

Vestas reveals offshore turbine with world's largest sweep

This article by Paul Ridden for NewAtlas.com may be of interest to subscribers. Here is a section: 

Each turbine is expected to deliver around 80 GWh of energy per year, depending on site-specific conditions, which is said to work out as being enough to power 20,000 European homes.

The V236-15.0 MW also offers the potential to reduce the number of turbines deployed at offshore windfarm level – with Vestas calculating that the "offshore turbine offers 65 percent higher annual energy production than the V173-9.5 MW, and for a 900-MW wind park it boosts production by five percent with 34 fewer turbines."

The company expects the first V236-15.0 MW prototype to be built in 2022, with serial production following two years later. It has a design lifetime of 25 years.

“With the V236-15.0 MW, we raise the bar in terms of technological innovation and industrialization in the wind energy industry, in favor of building scale," says Anders Nielsen, Vestas CTO. "By leveraging Vestas’ extensive proven technology, the new platform combines innovation with certainty to offer industry-leading performance while reaping the benefits of building on the supply chain of our entire product portfolio. The new offshore platform forms a solid foundation for future products and upgrades.”

Eoin Treacy's view -

Boosting production and needing to build fewer towers suggests there should be cost savings in construction. The big change in renewable energy occurred in late 2019 when economies of scale improved enough that the wind and solar sectors could survive without subsidies. That has led to a complete reappraisal of the rationale for investing in the sector. More recently it has allowed the renewable energy sector focus on the subsidies provided to fossil fuel companies across the energy supply chain.



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February 11 2021

Commentary by Eoin Treacy

Lithium | 2021 supercharge?

Thanks to a subscriber for this report from Canaccord Genuity. Here is a section:

We estimate 2020 supply lifted 11% YoY to 340kt, noting lower capacity utilisation as largely a function of bottom-of-the-cycle pricing through 2020. We anticipate that a majority of the ~460kt of cumulative potential capacity that was delayed/deferred over the last ~18 months could remain suspended pending a recovery in pricing to higher levels. Recent consolidation among concentrate operations (i.e. Altura>Pilbara, Wodgina>Albemarle) now sees control of large scale, marginal cost production lies with a small number of established producers who, in our view, lack incentive to switch on large volumes of new supply.

We further note that long lead times to delivering new capacity means that the +US $4.4bn in new equity raised by lithium companies since the start of 2020 is unlikely to lead to a meaningful supply response until the mid-2020s, by which point we expect the market to move into deficit. Our revised market balance forecasts now call for more modest market surpluses (5-7% over 2021-23), with our higher rates of demand growth now expected to outpace supply growth out to 2025. Beyond 2025, we continue to forecast significant market deficits, noting a ~7x increase in supply (i.e. ~240ktpa average increase in capacity) is required to meet our 2030 demand forecast.

Eoin Treacy's view -

A link to the full report is posed in the Subscriber's Area. 

Supply Inelasticity Meets Rising Demand is the foundation of commodity bull markets. Lithium has been through one big boom and bust cycle already and perhaps the major producers have learned their lesson. The initial mining investment boom occurred almost a decade ago. That resulted in a lot of new supply hitting the market which depressed prices. It has taken significant growth in demand for electric vehicles to soak up that surfeit.



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February 09 2021

Commentary by Eoin Treacy

Hong Kong Interesting Charts

Eoin Treacy's view -

There are two parts to most markets at present. There are the strong trends which have been in evidence for years and continue to perform. The new IPOs and SPACs also fall into this category because many of these companies have seen their values trend higher for years before they sought listings.

The other category are the catch-up plays which are only now just breaking out of their respective bases.



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February 05 2021

Commentary by Eoin Treacy

Secular Bull Market Investment Candidates Review February 2021

Eoin Treacy's view -

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on January 8th. These reviews can be found via the search bar using the term “secular themes review”. 

Highlighting secular themes has been a hallmark of this service for as long as I have been a part of it. I first met David Fuller in Amsterdam in 2003. He was giving a talk to Bloomberg’s clients and we went out for dinner that evening. His way of looking at markets, with a focus on suspending ego to see what the market tapestry is telling us, answered all of the questions I had about how to interpret
markets. I felt honoured when he asked me to come work with him a few months later.

The easy way to find secular themes to is to look at long-term ranges. Prices can so sideways for a long time, sometimes decades, and the whole asset class can be forgotten by investors. These kinds of markets need a catalyst to reignite demand. Once that new theme gathers enough pace, prices break on the upside because the supply side is not capable to responding in a timely manner to the new phenomenon. Sometimes that’s because they don’t believe in the new trend, or it may be because they simply do not have the financial wherewithal to expand. As the power of the new catalyst gathers, it takes time for supply to respond and the market will proceed higher until there is a robust supply response. That can take a long time because demand continues to grow as the new theme increases its dominance of investor attention.



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February 02 2021

Commentary by Eoin Treacy

U.S. nuclear: delayed closures could add 26Mlbs to 2021-30 global uranium demand

Thanks to a subscriber for this report from BoA Securities. Here is a section:

Eoin Treacy's view -

A link to the full report is posted in the  Subscriber's Area. 

The uranium sector has had a number of false dawns over the last decades. The reason for an inability to reach escape trajectory from the lengthy base formations was KazAtom’s policy of flooding the market and driving high-cost producers out of business.



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January 18 2021

Commentary by Eoin Treacy

Email of the day - on the early stages of a secular bull market.

Until the beginning of last year you often spoke on the theme of the early stages of a secular bull market. David had begun speaking about it as long as 4 years ago. But with the onset of the pandemic, you have been largely silent about it. Has it stalled or, in your view, already peaked?

Eoin Treacy's view -

Thank you for this important question. In October 2008, I remember sitting at my desk and looking at the calculation that the S&P500 was sitting on the widest overextension relative to the 200-day ever. Acceleration is always a trend ending and the crash signalled the beginning of the bottoming process. By the time Wall Street reached its nadir in March 2009 many instruments were well off their lows and by the end of the year the leaders were making new highs.

Gold, commodities, ASEAN and technology took off. Of these, technology is the only one which had uninterrupted staying power all the way through the bull market to date.  

I started writing Crowd Money in 2011. At the time a host of big international companies, with global franchises, that dominate their niches were breaking out of long-term ranges. It was a clear signal that a new secular bull market was underway. By the time the book was published in 2013, it was still a minority view that a new bull market was underway.



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January 15 2021

Commentary by Eoin Treacy

Carry Trades

Eoin Treacy's view -

There is nothing in the financial markets that can’t be made better with leverage. That’s the foundation most trading operations are based on. One of the most common trade patterns is to source cheap funding in a currency which is depreciating in value. That way when it comes to paying back the loan, you get to keep the profit on the currency trade as well as any gain from the assets you invested in.

Japan’s zero interest rates made it an ideal candidate for carry trades but the propensity for the Yen to strengthen meant that short yen carry trades tended to be rather volatile. It was common in the decade up to the introduction of Abenomics in early 2012 for unwinding of carry trades to contribute to profit taking across global markets.

As interest rates have trended towards zero across the world the opportunity to access cheap funding in a wide array of currencies has never been greater. The challenge today is to find the currency most likely to decline versus assets with high growth and yield potential.



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January 13 2021

Commentary by Eoin Treacy

EV makers' battery choices raise questions about future cobalt demand -

This article from S&P Global Platts was written in November but includes some useful information about the outlook for battery chemistries. Here is a section:

In May, Volkswagen acquired a stake in Chinese battery supplier Gotion-High Tech, one of the country's largest suppliers of LFP batteries. However, Volkswagen told Platts by e-mail that it currently does not plan to use LFP in its cars, although the company is "verifying that technology and its opportunities."

Another German automaker, BMW, recently expanded its battery plant in Tiexi, China, but reportedly to produce nickel-cobalt-manganese (NCM) batteries for the iX3 model. The company's primary goal at the moment is to increase driving range, but lowering costs will be a priority in the future, BMW told Platts by e-mail.

"In this conflict of objectives between range and cost, it is more important than ever to completely penetrate all actuators, starting with raw materials, cell chemistry, cell and module construction, and optimizing their entire interactions," BMW said, without dismissing any specific kind of cathode chemistry.

Some western market participants still argue that LFP should be restricted in the future to Chinese low-range city cars, as well as energy storage systems. Most of the investment is still flowing into NCM technology, which will maintain cobalt's relevance, sources said.

Even Tesla, despite committing to completely move away from cobalt and employing LFP in its Chinese-made Model 3 Standard Range, still uses NCM 811 (8 parts nickel, 1 part each cobalt and manganese), supplied by LG Chem, in the Model 3 Long Range version produced in Shanghai.

Eoin Treacy's view -

Every battery manufacturer is chasing economies of scale so there is a great deal of investment flowing into battery production. At the same time there is a lot of competition to come up with the most effect chemistries. Some are better for short haul city cars but long-range vehicles need different batteries.

On top of that complication there is the promise of completely new products disrupting the market. An increasing number of companies believe they have what it takes to commercialise solid state batteries. Toyota’s concept vehicle will be released this year and Quantum Scape went public on the promise of delivering a product by 2025. That suggest picking the one battery manufacturer that will break the mould is likely to be quite difficult but there are other ways to play the theme.



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January 11 2021

Commentary by Eoin Treacy

Musings From the Oil Patch December 29th 2020

Thanks to a subscriber for this report by Allen Brooks for PPHB. Here is a section:

What is most interesting is the impact of the JKM price rise on the global LNG market and its implications for the U.S. LNG industry. The sharp JKM price increase has diverted LNG cargoes away from Europe and toward Asia. This means Europe is drawing down on its record gas inventories. With JKM trading at the highest premium to the Dutch and U.K. gas benchmarks since 2014, this shift in cargoes will continue. That will help boost European gas imports during 2021, meaning there is less risk of another gas glut developing that would force Gulf Coast cargo cancellations. It also means the expansion of the domestic LNG business will be supported, leading to ‘final investment decisions” on several of the new terminals under development.

On December 7th, Cheniere Energy announced that its Train 3 at the firm’s Corpus Christi terminal had loaded its initial commissioning cargo. This will add about 700 million cubic feet per day to the LNG gas feed rate, the amount of domestic gas flowing from producing wells to LNG terminals, pushing the total to more than 11 billion cubic feet per day (Bcf/d). The EIA’s Short-Term Energy Outlook for December estimated that November dry gas production in the U.S. was 89.6/Bcf/d. It also estimates that net LNG exports were running at a 9.2/Bcf/d rate, or slightly over 10% of domestic supply. Assume that gas production remains at this level, lifting the feed gas flow to 11/Bcf/d will push LNG’s share of domestic gas output above 12%, which will likely grow further. That prospect was captured in a chart from a gas market report by Grand View Research. Under their outlook, growth will steadily increase, driven primarily by increased use of gas in power generation. As the world’s energy system decarbonizes, coal will be displaced by natural gas.

Eoin Treacy's view -

There is an abundance of natural gas and the price is also cheap. Together that creates an incentive to use more of the commodity. The fact that natural gas is less polluting than coal for power generation is at least a medium-term stop gap measure until the presumed utopia of carbon free power is achieved.  



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January 05 2021

Commentary by Eoin Treacy

Saudis Surprise Oil Market With Big Unilateral Output Cut

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

The de-facto leaders of the group have different priorities, with Saudi Arabia preferring to sacrifice volume in exchange for higher prices, while Russia wants to boost production before rival suppliers can fill the gap.

Russian Deputy Prime Minister Alexander Novak welcomed Saudi Arabia’s move, telling reporters that “it’s a great New Year present for the whole oil industry.” It’s an especially sweet gift for U.S. shale drillers, said RBC analyst Helima Croft.

The agreement means the global market will get far less supply than traders had been expecting prior to this week. The OPEC+ meeting opened on Monday with a proposal from Russia for a 500,000 barrel a day output hike next month, which was opposed by most other members. The alliance had been scheduled to discuss similar-sized increases in March and April, but that plan has been superseded by the latest accord.
 

Eoin Treacy's view -

This agreement is the necessary catalyst to inject a sense of urgency into the oil markets. Many shares have been priced as if demand for oil is going to evaporate in the short term. The reality is that even if the most bullish EV estimates are realised oil will remain the primary transportation fuel for at least another decade.



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January 04 2021

Commentary by Eoin Treacy

December Research Letter

Thanks to a subscriber for this report from Crescat Capital which contains a number of interesting charts. Here is a section:

Contributing to the supply shortage, the number of major new gold discoveries by year, i.e., greater than 2 million Troy ounces, has been in a declining secular trend for 30 years including the cyclical boost between 2000 and 2007. At Crescat, we have been building an activist portfolio of gold and silver mining exploration companies that we believe will kick off a new cyclical surge in discoveries over the next several years from today’s depressed levels.

Gold mining exploration expense industrywide, down sharply since 2012, has been one of the issues adding to the supply problems today. Crescat is providing capital to the industry to help reverse this trend.

Since 2012, there has also been a declining trend of capital expenditures toward developing new mines. From a macro standpoint, gold prices are likely to be supported by this lack of past investment until these trends are dramatically reversed over the next several years. Credit availability for gold and silver mining companies completely dried up over the last decade. Companies were forced to buckle up and apply strict capital controls to financially survive during that period. Investors demanded significant reductions in debt and equity issuances while miners had to effectively tighten up operational costs, cut back investment, and prioritize the quality of their balance sheet assets.

Eoin Treacy's view -

Supply Inelasticity Meets Rising Demand was the catch call of the commodity-led bull market between the early 2000s and 2011. Once identified it represents the beginning of a new bull market.

It takes time to convince investors there is a new bull market. By the time that happens prices have been trending higher for years already. Then it takes time to find and build new mines. That can take anything up to five years. Over that time, the firmness of prices convinces more and more people that the trend of demand dominance is irreversible so miners come under a great deal of pressure to expand capital expenditure or to buy out other operations. That generally occurs around the same time that new mines come online and contributes to a triple waterfall decline. Supply increases, debt is unmanageable and prices declines destroy valuations. Such is the cyclicality of the mining sector.



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December 30 2020

Commentary by Eoin Treacy

Email of the day on rising inflationary pressures and Ethereum

I hope you are enjoying the holidays and looking forward to a better year next year.

Here’s another one of Charles Gave's excellent articles-the oil price is on the move thus starting to bear out his fear of a 1970s-type repeat.

Secondly, regarding Ethereum, have you been able to quantify any price target and if so, what technical data/events have you chosen to use?

Eoin Treacy's view -

Thank you for this interesting report which repeats Gave’s earlier call for an inflationary boom with which I agree. However, I’m not sure we are in the same kind of bull market in oil that we had in the first decade of this century. The history of secular bull markets in oil points to rising prices lasting as long as it takes new sources of supply to reach market. That is followed by decades of ranging.



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December 29 2020

Commentary by Eoin Treacy

Email of the day - on hydrogen ETFs

Hope you have a good Xmas. Could I ask, are you aware of an ETF in which I can get exposure to Hydrogen. I live in the UK, as such, I may be restricted with my choice?

Eoin Treacy's view -

Thank you for this question which may be of interest to the Collective. To the best of my knowledge, the sector has not gained sufficient adherents, beyond the broad renewables universe, for any firm to  launch an ETF.

Here is a link to the Chart Library folder for Hydrogen companies.



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December 22 2020

Commentary by Eoin Treacy

Lidar Makers Jump After Report on Apple's Autonomous Car Plans

This article by Divya Balji and Crystal Kim for Bloomberg may be of interest to subscribers. Here it is in full:

Some lidar suppliers gained Tuesday after Reuters reported that Apple Inc. plans to build a self-driving car for consumers and is tapping outside partners for elements of the system as it develops its own battery technology.

Apple is approaching companies for some parts, including lidar sensors that provide autonomous cars with a real-time, 3-D view of the world, the report said, citing unidentified people familiar with the matter.

Lidar supplier Luminar Technologies Inc. rose as much as 12% on Tuesday, while Velodyne Lidar Inc. surged 16%. Blank-check firms that are bringing more lidar players to the market also advanced: InterPrivate Acquisition Corp. climbed 17%, while Collective Growth Corp. jumped as much as 24%.

Apple has been working on driverless car technology since 2014, but pared back its ambitions from a full-fledged vehicle in 2017, Bloomberg News has reported. Since then, Apple has been working on the underlying autonomous system. The company has been deciding whether to attach this system to its own car, or existing vehicles, or to partner with an established carmaker, Bloomberg News reported earlier this month.

Eoin Treacy's view -

Apple enjoys an almost 40% gross margin on its iPhones and tablets. Porsche has about a 47% gross margin on the 911 and Ferrari has a more than 50% gross margin on its cars. Tesla’s is 16.5%. Toyota’s is 18% and Volkswagen’s is 19.5%. No mass market producer has been able to achieve margins on the scale technology companies are accustomed to.



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December 18 2020

Commentary by Eoin Treacy

Norway Is Seen Leading the Way in Post-Covid Interest Rate Hikes

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

Norway has never cut rates below zero or experimented with quantitative easing, in part because most of its stimulus has been fiscal.

The krone, meanwhile, will end 2020 as the worst performing of the world’s 10 most-traded currencies, in part due to the economy’s reliance on oil. That exchange-rate weakness has helped push inflation above the central bank’s 2% target, with underlying annual consumer prices hitting 2.9% in November.

The central bank signaled that significant uncertainty remains, as the pandemic tightens its grip across Europe.

“The sharp economic downturn and considerable uncertainty surrounding the outlook suggest keeping the policy rate on hold until there are clear signs that economic conditions are normalizing,” Governor Oystein Olsen said in a statement.

Eoin Treacy's view -

Norway is one of the wealthiest countries in the world so it has ample room to support the economy through fiscal measures. As the oil price continues to rebound it will further improve domestic economic conditions and raise the spectre of rising inflation. A stronger currency, particularly when it is coming off a low base helps to keep inflationary pressures in check. That may be the clearest rationale for any country considering raising interest rates. The challenge will be that it will become a magnet for investment flows.



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December 17 2020

Commentary by Eoin Treacy

Chinese EV Makers Trade at High Valuations, Helped by Tesla and National EV Targets

This note from Dow Jones may be of interest to subscribers. Here is a section:

NIO, BYD and Xpeng are examples of Chinese electric-vehicle makers that have surged in value, buttressed by national targets regarding electric vehicles on the road and investors' search for the next EV titans. The American depositary receipts in these companies have surged this year and the meteoric rises put their valuations in line with large traditional car makers, such as General Motors and Ford Motor. To help cut carbon emissions, China aims for EVs to make up 20% of car sales by 2025, and 50% by 2035. Tesla's success this year has also fueled investor appetite for the technology. Investors should be aware though that most Chinese upstarts are unprofitable, The Wall Street Journal reported, and they are also selling far fewer vehicles than major automobile groups.

Eoin Treacy's view -

Tesla’s success in attracting capital has set off a global gold rush in copycats seeking to cash in on investor demand for renewable investments. Anything that has a battery in the description is doing well and a lack of income was not seen as a barrier to entry when discount rates are zero and the world is swimming in cash.

The evolution of the SPAC market has been a gateway for a pace of IPOs to rival that of the late 1990s. The number in 2020 alone has exceeded the total for all other years combined. The result is new companies have been popping up on the stock market at a dizzying pace. Advice to pursue growth at all costs, capture market share and not to worry about profits carry heavy reminiscences of the tech bubble in the late 1990s.



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December 15 2020

Commentary by Eoin Treacy

Biden Plots Cuba Reset in Rebuke of Trump's Sanctions

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

That strategy includes reducing restrictions on travel, investment and remittances for the island nation that are perceived to disproportionately hurt Americans and ordinary Cubans, said the people, who requested anonymity because the new administration is still coming together. Other measures that target Cuba for human rights abuses would remain in place, the people said.

The prospect of a détente between Washington and Havana rekindles memories of the thaw that Biden helped champion during the Obama administration, when the two nations restored diplomatic ties that had been broken for decades following Fidel Castro’s rise to power.

But the president-elect is returning to an even messier scene: the Cuban economy is suffering its worst crisis since the collapse of the Soviet Union amid fallout from Covid-19 and U.S. sanctions. At the same time, Cuban intelligence officers have helped prop up Nicolas Maduro in Venezuela, allowing his regime to consolidate its grip on power in defiance of demands for free and fair elections.

Eoin Treacy's view -

It looks increasingly likely that outside of the China question, the USA is likely to migrate back to many of the foreign policies championed during the Obama administration. There may also be a quid pro quo in the offing. Perhaps some assistance on the Venezuela question will be provided in return for easing sanctions.



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December 07 2020

Commentary by Eoin Treacy

Uranium Stocks Rise on U.S. Defense Bill

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

Uranium stocks outperformed as House and Senate lawmakers revealed a compromise version of the annual National Defense Authorization Act. Meanwhile, industrial metals continued their rally with the global equity markets.

S&P Global reported that the bill effectively provides for the military to continue a policy under President-elect Joe Biden that classifies the domestic supplies of certain minerals such as uranium, graphite and lithium as vital to national security

Eoin Treacy's view -

Ensuring ready demand for North American supply is an important support for the uranium mining sector. Many miners have been producing uranium at a loss because of significant oversupply and the price war Kazatomprom imposed. It’s been years in the making but the big question is whether the excess supply has been worked off.



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December 04 2020

Commentary by Eoin Treacy

Secular Bull Market Investment Candidates Review

Eoin Treacy's view -

On November 24th I posted a review of candidates I believe likely to prosper in the emerging post-pandemic market. It was well received by subscribers so I will post an update on my views on the first Friday of the month going forward. That way subscribers can have an expectation that long-term themes will be covered in a systematic manner and will have a point of reference to look back on.

Media hysteria about the 2nd or 3rd waves has not led to new highs in the number of deaths. The success of biotech companies in deploying vaccines means there is going to be a substantial recovery in the economic activity in 2021 and going forward.

The stay-at-home champions saw their sales growth surge in 2020. It will be impossible to sustain that growth rate in 2021. That’s particularly true for mega-caps. One-way bets on the sector are likely to work less well in the FAANGs going forward.



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November 23 2020

Commentary by Eoin Treacy

Email of the day - on the politicisation of monetary policy

I hope life for you in California is more fun than it is here in England. But let's hope we really are past the low point as far as the virus is concerned. I had thought that would be true for economies too, but this latest move by President Trump (summarised in the article by Ambrose Evans Pritchard) does raise questions. With this move, which asset classes do you think will benefit and which will lose on a 3-6 month timescale?

Best wishes to you and family. 

Eoin Treacy's view -

Thanks for the well wishes and this article which may be of interest to the Collective. All is well with us since the streets were blessedly free of protestors following the election. I guess they got the result they wished for. Here is a section from the article:

He instructed Fed chairman Jerome Powell to return the unused portion of a $454bn (£342bn) account approved by Congress during the market meltdown in March. This seed money gave the Fed $4.5 trillion extra lending power under a policy of 10:1 leverage and had an electrifying effect on market confidence, helping avoid the errors made in 2008.

Krishna Guha from Evercore ISI said the Fed’s market stabilisation policy had been politicised. Congressman Bharat Ramamurti, a member of the House oversight committee on stimulus, called Mr Mnuchin’s move an unjustified and ideological decision by the treasury department.

The Fed retains its monetary policy powers and can purchase further US treasury bonds but that is a blunt tool at this juncture unless it is married to aggressive fiscal expansion, which the Republican Senate has vowed to block.

The Fed is concerned that more QE will chiefly inflate asset prices without doing much to help the real economy, exacerbating social inequality.

Congress stripped the Fed of its discretionary powers under Article 13 after the Lehman crisis. The Fed now needs permission from the treasury to go beyond its normal mandate. This was granted immediately during the panic in late March.



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November 19 2020

Commentary by Eoin Treacy

A New UN Push Aims to Feed the World's Rabid Hunger for Carbon Credits

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

It’s a tricky proposition, though. Offset programs are notoriously difficult to execute with confidence. REDD+, launched in 2007 to much fanfare among developing nations and UN climate negotiators, but has rarely lived up to its original excitement as developed nations failed to install carbon-pricing policies that succeed in guaranteeing demand. 

Global demand for offsets may outstrip supply by 2025, according to a September analysis by Fitch Ratings. Many companies, including Microsoft Corp, The Walt Disney Co, and Royal Dutch Shell Plc, have already begun either buying or planning to buy offsets. Amazon.com Inc. founder Jeff Bezos this week announced $791 million in funding for 16 environmental groups, including $100 million each to organizations with strong forestry or offsets programs—EDF, World Resources Institute, and World Wildlife Fund.

Navigating the challenges to come may require groups like Emergent to continue to act as market-making entities. Or, if markets get the boost they need from the Green Gigaton Challenge and other initiatives, “we'd be thrilled to turn off the lights, close the door,” Bloomgarden said. “Impact achieved.”

Eoin Treacy's view -

I was part of team that put together a proposal for a group in Alaska who were seeking to raise investment capital for a welfare/education program for their community. They were in line to sell a significant asset but instead were able to hold the asset and sell carbon credits on a stand of forest on the community’s property. That delivered a long-term cashflow, they got to keep their assets and they had no plans to sell or cut the trees in any case.



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November 18 2020

Commentary by Eoin Treacy

Panasonic Is the Latest Company Betting on Electric Vehicles, Powering Past Its Tesla Partnership to Explore a Venture in Norway

This article by Jack Denton for Barrons may be of interest to subscribers. Here is a section:

Europe is one of the fastest-moving spaces in the race to dominate an expected boom in electric vehicles, with at least 12 countries planning a ban on internal combustion engine vehicles in coming years. U.K. Prime Minister Boris Johnson announced on Wednesday a ban on the sale of new gasoline and diesel cars, to come into effect by 2030.

Tesla is building a gigafactory in Germany and is reportedly planning one in the U.K., while one of its key rivals, Northvolt, is building a gigafactory in Sweden. Established European car makers like Daimler, Volkswagen, and BMW are racing to build electric vehicles on their own or through partnerships, and Panasonic has previously supplied batteries to Volkswagen and Peugeot.

Eoin Treacy's view -

At its recent battery day Tesla announced they plan on ditching outside help in producing batteries over the coming few years. That’s one of the primary ways they aim to achieve lower production costs. It obviously represents a business risk for Panasonic and this agreement appears to be a first step toward diversifying.



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November 17 2020

Commentary by Eoin Treacy

Batteries of the Future Are Weightless and Invisible

This article by Daniel Oberhaus for Wired.com may be of interest to subscribers. Here is a section:

Unlike the carbon-fiber and lithium-ion sheets being developed by Asp and Greenhalgh, Kotov and his students created a zinc-air structural battery for their automatons. This cell chemistry is able to store much more energy than conventional Li-ion cells. It consists of a zinc anode, a carbon cloth cathode, and a semi-rigid electrolyte made from polymer-based nanofibers that is nanoengineered to mimic cartilage. The energy carriers in this type of battery are hydroxide ions that are produced when oxygen from the air interacts with the zinc.

While structural batteries for vehicles are highly rigid, the cell developed by Kotov’s team is meant to be pliable to cope with the movements of the robots. They’re also incredibly energy-dense. As Kotov and his team detailed in a paper published earlier this year, their structural batteries have 72 times the energy capacity of a conventional lithium-ion cell of the same volume. For now, their batteries are being used to power robotic toys and small drones as a proof of concept. But Kotov says he expects they’ll be used in midsize robots as well as larger hobby drones in the not-so-distant future. “Drones and medium-size robots need to have new solutions for energy storage,” Kotov says. “I can guarantee you that structural batteries will be a part of that.”

The battery has always been an addendum, a limiting factor, and a parasite. Today it’s vanishing before our eyes, melting into the fabric of our electrified world. In the future, everything will be a battery, and stand-alone energy storage will seem as quaint as landline telephones and portable CD players. It’s a disappearing act worthy of a great magician: Now you see it—and soon you won’t.

Eoin Treacy's view -

Dematerialisation is the process through which many of the locations and products we have previously physically interacted with have disappeared onto the internet. The disappearance first of the record player and then the record store is a clear example of that trend.



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November 12 2020

Commentary by Eoin Treacy

World Energy Outlook 2020

This summary report from the IEA may be of interest to subscribers. Here is a section:

Renewables grow rapidly in all our scenarios, with solar at the centre of this new constellation of electricity generation technologies. Supportive policies and maturing technologies are enabling very cheap access to capital in leading markets. With sharp cost reductions over the past decade, solar PV is consistently cheaper than new coal- or gasfired power plants in most countries, and solar projects now offer some of the lowest cost electricity ever seen. In the STEPS, renewables meet 80% of the growth in global electricity demand to 2030. Hydropower remains the largest renewable source of electricity, but solar is the main driver of growth as it sets new records for deployment each year after 2022, followed by onshore and offshore wind. The advance of renewable sources of generation, and of solar in particular, as well as the contribution of nuclear power, is much stronger in the SDS and NZE2050. The pace of change in the electricity sector puts an additional premium on robust grids and other sources of flexibility, as well as reliable supplies of the critical minerals and metals that are vital to its secure transformation. Storage plays an increasingly vital role in ensuring the flexible operation of power systems, with India becoming the largest market for utility-scale battery storage.

…but the downturn creates risks for the backbone of today’s power systems
Electricity grids could prove to be the weak link in the transformation of the power sector, with implications for the reliability and security of electricity supply. The projected requirement for new transmission and distribution lines worldwide in the STEPS is 80% greater over the next decade than the expansion seen over the last ten years. The importance of electricity networks rises even more in faster energy transitions. However, the financial health of many utilities, especially in developing economies, has worsened as a result of the crisis. There is a disparity in many countries between the spending required for smart, digital and flexible electricity networks and the revenues available to grid operators, creating a risk to the adequacy of investment under today’s regulatory structures.

Eoin Treacy's view -

The electrical grid was never designed to tackle the needs of the transportation sector. Not only do supercharging networks demand much greater loads but getting electricity to where it is needed requires a lot of infrastructure. The planning process is the primary obstacle to putting in more power lines or running high volatile cables. It is arguable whether green arguments can quickly overcome NIMBY concerns.



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November 11 2020

Commentary by Eoin Treacy

Email of the day on hydrogen investments

Given hydrogen powered energy is an emerging trend I would be grateful! Mr. Treacy could mention the name of related ETFs or any other tradable security that would provide exposure to this trend.

Eoin Treacy's view -

Thank you for this question which may be of interest to the Collective. I’ve been anticipating a new use case for natural gas since the price collapsed with the introduction of unconventional supply. It was simply inevitable that with so much supply and low prices for a vital commodity that someone would find something to do with it. The hydrogen market is almost completely dependent on supply from natural gas at present. Efforts to produce green hydrogen are underway but are uncertain and will take years to build.



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November 09 2020

Commentary by Eoin Treacy

Pfizer Soars After Vaccine Prevents 90% of Covid Cases in Study

This article by Robert Langreth, Naomi Kresge and Riley Griffin for Bloomberg may be of interest to subscribers. Here is a section:
 

However, the strong reading from the first large-scale trial to post efficacy results bodes well for other experimental vaccines, in particular one being developed by Moderna Inc. that uses similar technology. Its big trial could generate efficacy and safety results in weeks. If that study succeeds as well, there could be two vaccines available in the U.S. by around year-end.

Pfizer expects to get two months of safety follow-up data, a key metric required by U.S. regulators before an emergency authorization is granted, in the third week in November. If those findings raise no problems, Pfizer could apply for an authorization in the U.S. this month. A rolling review is in process in Europe.

So far, the trial’s data monitoring committee has identified no serious safety concerns, Pfizer and BioNTech said.

Leading the Race
The positive preliminary data mean the U.S. pharma giant and its German partner are on track to be first with a vaccine, after signing advance deals with governments worldwide for hundreds of thousands of doses. The companies have said they should be able to produce 1.3 billion doses -- enough to vaccinate 650 million people -- by the end of 2021. About 50 million doses are expected to be available in 2020.

“It shows that Covid-19 can be controlled,” BioNTech Chief Executive Officer Ugur Sahin said in an interview. “At the end of the day, it’s really a victory of science.”

Eoin Treacy's view -

This news is the foundation of the argument for removing social distancing guidelines by the end of the second quarter at the latest.

It no longer matters whether one agrees with wearing a mask, practising social distancing, vacating offices, opening or closing schools or the potential for overloading the healthcare system. The question of whether this was necessary or not is now irrelevant. The introduction of vaccines will render the argument mute.



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November 03 2020

Commentary by Eoin Treacy

Correction Here. Now What?

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

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area. 

Manufacturing activity figures have rebounded impressively over the last month on a global basis. That’s reflective of the snapback in activity following the contraction in the 2nd quarter and will probably moderate over coming months. Nonetheless, it is supportive of the view that this will be have been a short sharp recession.



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October 30 2020

Commentary by Eoin Treacy

China's Fifth Plenum: Reading the Initial Tea Leaves

This article from the Center for Strategic & International Studies may be of interest to subscribers. Here is a section:

As expected, the plenum declared that China had met the critical political goal of becoming a “moderately prosperous society” in 2020. By the end of the year, China’s GDP is expected to reach nearly 100 trillion yuan (RMB)—equivalent to $14.3 trillion—a figure higher than the plan’s forecast of RMB 92.7 trillion, which makes China’s economy in nominal terms about 66.7 percent the size of that of the United States in 2019 ($21.4 trillion), up from 40.6 percent the size of the United States in 2010. China reportedly lifted 55.75 million people out of poverty and created 60 million jobs in urban areas over the past half-decade. By the end of 2020, there will be basic medical insurance coverage for 1.3 billion and basic pension support for nearly 1 billion citizens.

Looking ahead, the plenum emphasized that the 14th Five-Year Plan will build on the 13th Five-Year Plan’s principles of innovation, regional coordination, green development, international openness, and social equity. That said, there was a distinct emphasis on strengthening the domestic economy. There was no mention of a growth rate target; instead, the country will focus on improving quality and raising productivity. The plan will highlight China’s need to gain technological independence; become a powerhouse in manufacturing, cyber, and the digital economy; and raise China’s international competitiveness. At the same time, China will need to expand domestic consumption as a share of the economy, which will be dependent on raising wages, building a more complete social safety net, and expanding economic opportunities in rural China.

Eoin Treacy's view -

The middle-income trap has been escaped by only a handful of countries. South Korea, Singapore and Taiwan spring to mind. They have mustered the wherewithal to evolve their governance structure to become more efficient and successfully transitioned to high-end manufacturing and services. Relatively small populations relative to the scale of their exports has been a significant aid in achieving those goals.



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October 27 2020

Commentary by Eoin Treacy

Email of the day - on solar/wind power to generate hydrogen

The Australian government just approved fast tracking the Asian Renewable Energy Hub (asianrehub.com) proposed to be built in the Pilbara. It will generate green hydrogen from water using solar and wind energy that can produce clean ammonia to power ships, generate power and be used as a feed-stock for industrial processes. They say it will be the world's biggest power station at 26,000MW, covering 6500 square kilometers of land. It will start exporting in 2028.

Eoin Treacy's view -

Thank you for this informative email. Among the challenges faced by renewables is the distance of the primary locations wind and solar are available from the primary consumption markets. The only way to bridge that gap is to transport the energy produced to where it is needed. Producing green hydrogen and ammonia is a solution to that challenge and both are valued added commodities with a ready evolving market.



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October 22 2020

Commentary by Eoin Treacy

The Race to Hydrogen Goes Beyond Brexit With Italy-U.K. Deal

This article by Chiara Albanese and Alberto Brambilla for Bloomberg may be of interest to subscribers. Here is a section:

Italy’s Snam SpA will brush aside Brexit and invest 33 million euros ($39 million) in ITM Power Plc, which produces electrolyzers, a crucial component in the hydrogen technology.

The investment is part of a 150-million pound ($197 million) capital increase by ITM. The accord is part of Snam’s expansion in the technology after the European Union put hydrogen at the heart of its measures to cut greenhouse gases and become climate neutral by 2050. Hydrogen, if made with renewables, could replace coal, oil, and eventually natural gas, and help eliminate about a third of emissions from industries like steel and cement by mid-century, according to BloombergNEF.

“The hydrogen sector is like the internet before the dot com boom,” Marco Alvera, chief executive officer of Snam, said in an interview. “What matters now is to unlock potential technology and to find the right positioning.”

Eoin Treacy's view -

The EU is going to spend €2 trillion on a green new deal. China is at least talking about going carbon neutral within the next thirty years. That’s a lot of money chasing an energy transition.



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October 20 2020

Commentary by Eoin Treacy

Belt up for the coming 'Global Super Cycle' and a $100 trillion World by 2023

Thanks to a subscriber for this note from EM Capital Advisors. Here is a section:

The Emerging Market (EM) share of world output in the last 20 years doubled from 19% to 38% with the EM world growing at about double the rate of the Developed world (DM). This kept the total world growth at a 3-3.5% range over the last decade despite every region in the world growing a little slower than in the previous decade.

The implications of the swings in the global deflator and the FX on businesses and global incomes was much larger than most imagined which is visible in Fig 1 above. It breaks down the nominal world output and its components showing that the world in real terms grew at a pretty even rate of 3-3.5% through most of the last twenty years, with the swing in the ‘Deflator+FX component’ creating the big booms or bust feel in the world.

We are entering another such ‘Supercycle’ which was born about a quarter ago. Our definition of a supercycle is nominal World Output growing at 8-10% for a few years lifting most boats globally. Our view on the components of this global Supercycle are essentially building in a few key assumptions –

1. The World growth in real terms continues in the 3% +/- 1% range after normalizing to pre Covid levels in real terms by 2022. This is line with the IMF and many other estimates.

2. We expect the Global deflator to stay elevated in the 2-4% range for the next few years driven by stimulative fiscal and monetary policy by most large world economies. This would be aided by a weaker US$ and concurrent to it.

3. The US$ weakens 3-4% per annum for the next few years with rising deficits, with the Chinese Yuan doing the heavy lifting on the other side. The Yuan weakness in the previous few years had prevented this from playing out earlier. This paves the way for a strong Asian and EM FX basket which together account for about half of the world output. This is in a way similar to what happened in 2003-2005.

Eoin Treacy's view -

A link to the full note is posted in the Subscriber's Area.

Thanks for this interesting missive which may be of value to subscribers. Here is an additional note from the sender:



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October 14 2020

Commentary by Eoin Treacy

NIO, BYD Shares Hit Record on Wall Street Vote of Confidence

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

Chinese electric carmaker NIO Inc. received confidence votes from at least two Wall Street analysts on Wednesday, after JPMorgan and Citi both upgraded their ratings on the stock.

While JPMorgan’s action was based on the expectation that the use of new-energy vehicles in China will quadruple by 2025 from last year’s levels, Citi pointed to multiple factors, including a very strong order backlog during the country’s Golden Week national holiday, an increase in NIO’s market share and a drop in battery costs.

JPMorgan analyst Nick Lai expects the penetration of new- energy vehicles in China to accelerate, jumping to 20% of the market by 2025 from less than 5% in 2019. Shifting customer preferences will help drive the trend, along with an expected drop in the cost of electric-car and battery production, the
analyst wrote in a note.
 

Eoin Treacy's view -

300 miles of ranges appears to be good enough for most investors. Whether that is the case for consumers is another question entirely. The practicality of daily life means 300 miles is probably enough 99% of the time but it also depends on ready access to charging facilities.



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October 08 2020

Commentary by Eoin Treacy

Tesla Lithium Foray Is Sign of Robust Demand, Top Producer Says

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

Rather than a threat to existing producers, Tesla Inc.’s push into lithium mining is a sign of future demand strength, according to the largest producer of the key ingredient in batteries for electric vehicles.

“They’re kicking the industry in the pants,” Eric Norris, head of lithium at Albemarle Corp., said in an interview. “The market interpreted it as a strong signal of value erosion, but I view it differently. It’s a sign of what needs to come to drive the vision they have for 2030.”

Tesla’s foray into mining is at the center of the carmaker’s plan to cut battery costs and deliver on a promise to bring a $25,000 electric vehicle to market. Elon Musk told investors last month that Tesla has secured access to 10,000 acres of lithium-rich clay deposits in Nevada and planned to use a new, “very sustainable way” of extracting the metal. That news helped send lithium-producer shares tumbling, with Albemarle falling 16%, the the most on record.

Eoin Treacy's view -

Tesla has set an ambitious target of compressing battery manufacturing costs faster than any of its competitors. That means sourcing materials cheaply, redesigning the bed of the vehicles and taking over responsibility for manufacturing its own cells. It’s a couple of year project and represents the same kind of scale and expense as building the original Gigafactory did.



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October 06 2020

Commentary by Eoin Treacy

U.S. Boosts Crude Sales to China, Forcing Saudis to Find Other Markets

This article from Dow Jones Newswire may be of interest to subscribers. Here is a section:

Earlier this year, China agreed to buy U.S. crude as part of a broader deal meant to ease rising trade tensions between the two world powers. The Trump administration agreed to cut some tariffs on Chinese goods in exchange for purchases of American farm, energy and manufacturing exports. ~

China's buying so far is a long way from fulfilling commitments made in that deal, and to some extent it is simply restoring crude flows that were cut off amid the earlier U.S.-China trade tensions. As part of a deal, Beijing agreed in January to buy $52.4 billion worth of oil and liquefied-natural-gas from the U.S. by the end of 2021. The buying was delayed by the outbreak of the Covid-19 pandemic, but has ratcheted up more recently.

“The Chinese had to catch up," said Petro-Logistics Chief Executive Daniel Gerber. That is now upending traditional oil-trade routes world-wide and further depressing some prices. Global prices have been hammered by falling demand caused by the pandemic.

Amid the new U.S. shipments to China, Saudi Arabia recently cut prices for its crude for buyers in Asia, a move that could make that oil more attractive to other regional buyers. It is also now resorting to storing unsold oil at home and overseas, including at depots in Egypt, Singapore and China. Saudi Arabia's domestic crude-oil inventories rose 7% to 81 million barrels in the two weeks to Sept. 20, a level not seen since June, said Paris-based commodities-analysis company Kayrros.

Eoin Treacy's view -

China has a significant energy deficit and that is not about to change in the next few years. In fact, assuming continued economic recovery it may widen significantly. At the other end of the spectrum the USA, Russia and Saudi Arabia has large quantities of oil and gas available for export. That pretty much ensures competition for end markets will remain active and explains why Russia and the USA remain at odds on a wide number of issues. 



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October 01 2020

Commentary by Eoin Treacy

Oil Drops in Wake of Stimulus Uncertainty and OPEC Supply Fears

This article by Andres Guerra Luz and Alex Longley for Bloomberg may be of interest to subscribers. Here is a section:

Oil slid to a two-week low as conflicting signals over the prospect of U.S. fiscal relief added to concerns over rising supply from major global producers.

Futures in New York tumbled as much as 6.5% on Thursday as the dollar moved off session lows. The U.S. benchmark fell below its 100-day moving average and if futures close below the key technical level, it will signal further selling pressure ahead.

Chances for a much needed boost for demand remains uncertain, with U.S. House Speaker Nancy Pelosi saying there are still major differences to be bridged in the negotiations over a fiscal stimulus package. Meanwhile, investors are also concerned with the unexpected return of Libyan output and higher oil exports from Saudi Arabia and Iraq. Russian exports are also expected to increase.

Eoin Treacy's view -

$40 is not a high enough price to cover the costs of most oil producing nations. The ensures many OPEC members will continue to cheat on production goals and countries outside OPEC have an incentive to pump as much as possible too.



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September 30 2020

Commentary by Eoin Treacy

After underperforming the stock market for years, alternative energy is red hot

This article by Debbie Carlson for Market Watch may be of interest to subscribers. Here is a section:

Energy-market watchers say what makes today different than 10 years ago, when interest in clean tech also was hot, is that these power sources are now economically viable as subsidies fall away.

Peter McNally, global lead for industrials, materials and energy at research firm Third Bridge, says aggressive investment by utilities in renewable energy has lowered the cost of clean tech and showed it was viable at scale. Just as utilities invested in natural gas 20 years ago at the expense of coal, they are now doing the same with alternative energy.

"Clean-tech businesses are starting to stand on their own, and I think they got a big boost from the utilities," he says.

Eoin Treacy's view -

Even though Joe Biden disavowed support for the green new deal in last night’s debate, that did nothing to hamper enthusiasm for the sector today. Part of the reason for that is its success is less dependent on political whim than it was a decade ago.



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September 25 2020

Commentary by Eoin Treacy

September 23 2020

Commentary by Eoin Treacy

Tesla unveils battery puzzle pieces of smart material science, design, and manufacturing innovation

This article by Fred Lambert may be of interest to subscribers. Here is a section:

“Over the last few years, Tesla has been making a lot of moves related to batteries.

We are talking about buying companies like Maxwell and Hibar, and applying for patents on new technology, like a tabless battery cell and a cell to pack design.

While all these moves were mostly evaluated on their own merits, it wasn’t clear how all those things would fit together.

That’s exactly what Tesla demonstrated at its Battery Day.

Tesla explained how they have made major improvements in five key aspects of batteries:

Cell design, specifically form factor.
Battery cell factory design with manufacturing innovations
New anode materials
New cathode materials
New battery pack design

And then, by combining all these things together, Tesla achieves a battery cost breakthrough with a 56% reduction in cost per kWh:

What is most impressive is how all those innovations work together. Each result in an incremental improvement to battery technology, but if you combine them together, you get breakthrough-level performance and cost:

Eoin Treacy's view -

Tesla has the ambition to become a truly globally significant car company. The much-hyped battery day supplied a long list of potential solutions to achieve that goal. The challenge is what is being suggested is complicated to begin with and that is before the manufacturing headaches have been fully appreciated. Above all else building out cell manufacturing capacity to the scale suggested is going to be expensive.



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September 17 2020

Commentary by Eoin Treacy

Australia Unemployment Drops as Half of Jobs Lost Recovered

This article by Michael Heath may be of interest to subscribers. Here is a section:

The data’s strength was surprising because the period spanned Melbourne’s shift to Stage 4 restrictions and a curfew to contain a rapidly spreading outbreak, as well as nervousness in neighboring New South Wales that it was headed down the same path. The labor market’s ability to absorb this weakness and maintain its recovery is testament to the government’s signature JobKeeper employment subsidy -- that will extend into 2021 -- and central bank stimulus.

Self-employed workers drove the monthly jobs increase. As part-time jobs returned at twice the pace of full-time, the ubiquitous food delivery services, with its riders pedaling the streets of Australia’s cities, are expected to be responsible for much of this rise.

“The upshot is that the unemployment rate is now unlikely to climb to 8.5% over the coming months as we had anticipated, let alone the 10% predicted by the RBA and the Treasury,” said Marcel Thieliant, senior economist for Australia at Capital Economics. “Indeed, with restrictions in Victoria set to be loosened toward year-end, employment should continue to rise.”

The Reserve Bank of Australia, which has kept its benchmark interest rate near zero since March, when it began buying government bonds to ensure the yield on three-year remained around 0.25%, had predicted the jobless rate would climb to around 10% later this year.

Eoin Treacy's view -

Australia has successfully contained the coronavirus outbreak in Melbourne but the whole economy benefits from the monetary and fiscal stimulus to aid Victoria. With the RBA’s cash target rate at 0.25% Australia’s higher growth sectors that can benefit from access to abundant liquidity should continue to prosper.



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September 16 2020

Commentary by Eoin Treacy

12 frightful slides before Halloween: Stocks boil and bubble, investors toil and trouble

Thanks to a subscriber for this report from Stifel which contains a number of insightful charts and may be of interest. Here is a section:

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area. 

The long-term charts contained in this report are helpful from the perspective of an investor either looking to monitor the potential for a bubble to evolve in the tech sector or the potential for cycles to rebound from depressed levels as a global recovery takes hold.



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September 16 2020

Commentary by Eoin Treacy

Bull Case for Chinese Commodities Enhanced by Stronger Yuan

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

Elsewhere, Shanghai is taking steps to promote hydrogen vehicles, with a plan to get 10,000 cars on the road by 2023. Just this week, Sinopec has flagged its intention to include hydrogen in retail fuel stations, while top vehicle-maker SAIC Motor said it’s accelerating its push into the alternative energy source.

And also in the news, Cargill has bought a new soy-processing plant in China as the nation’s pig herd recovers from the ravages of swine fever. Hog numbers expanded for the seventh consecutive month in August, signaling growing confidence among breeders, according to the farm ministry.

Eoin Treacy's view -

Hydrogen is the market which has long been promised but never really made it into commercial reality. The question today is whether all the good will in terms of investment in renewables and technological innovation can translate into reducing the cost of production to economic levels. The low price of natural gas is a big enabler but the green lobby won’t be happy until the process is fossil fuel free.

This report from Jeffries may be of interest. Here is a section:
 



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September 10 2020

Commentary by Eoin Treacy

Desert Mountain Energy Announces Significant Helium Percentages in Two New Wells In Arizona

This press release may be of interest to subscribers. Here is a section: 

Based on normal accepted industry operation procedures, the company at this time and prior to further engineering and flow testing, would entertain a possible daily flow rate of between 4,100 and 5,600 MCFGPD based on aggregated production from both wells. The Company has compared these wells to the closest established and documented helium production located approximately 35 miles NE in the Pinta Dome Field.  Note: Desert Mountain Energy’s wells have been completed in members of the Pennsylvanian-aged Formations which are lower in depth than the helium productive Permian-aged Coconino Formation found at Pinta Dome (AZOGCC archives).  Production comparisons with a number of wells from the prolific Pinta Dome Field, specifically the Kerr-McGee Barfoot State#1, clearly shows that large artificial formation stimulation was not required to exceed the original projected calculated reserves by over 500%, over a 13-year production life (Olukoga 2016, AZOGCC Barfoot #1 well files).

Eoin Treacy's view -

There have been a number of articles over the last couple of years about the lack of new supply for helium, against a background of continued strong demand growth. Here is a link to an article from Forbes, dated April 2019, making a number of points about supply inelasticity meets rising demand. 



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September 04 2020

Commentary by Eoin Treacy

Tenth Annual Energy Paper

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

We expect some of the “base” decline from existing shale wells to be replaced by new wells; the harder question is by how much. Operating and development costs have declined, well productivity has improved and there are large sunk costs in Appalachia (i.e., lease agreement options) that may compel many producers to keep drilling irrespective of lifecycle economics. Furthermore, if the onshore shale boom fades, we might see a revival of US offshore oil & gas production in the Gulf of Mexico. US oil production is also very sensitive to price: $55-$65 oil prices could add 1-3 mm bpd to US production when compared with JP Morgan’s $40 base case WTI price forecast. Even so, the US may now be close to peak oil and natural gas production and peak energy independence given financial pressures on the shale industry, and environmental pressures discussed next.

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area. 

This report is laden with interesting graphics and statistics which highlight the challenges of developing renewable as well conventional and unconventional energy solutions. The correlation between renewable stocks and oil prices broke down late last year. That was a meaningful event and suggested the market has moved on from thinking of renewables solely in terms of cost competition with oil. That implies an alternative set of metrics is now be used to value the sector.



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September 02 2020

Commentary by Eoin Treacy

Email of the day on uranium pricing

Your ticker UXA1 COMB Comdty has not refreshed for a few days. Could you please look into this? Thanks

Eoin Treacy's view -

Thank you for this question. Here is the response I received from Bloomberg because it was not updating on their system either.

“There is no open interest on the current active contract, UXAU0 Comdty. The exchange only provides a daily settle price if there is open interest. Once there is a trade for the September contract, it will have open interest, and it will receive a daily settlement price.”

Reliable uranium pricing data is difficult to find. The 4th month continuation contract traded two contracts in September so far. I’m not going to change the ticker to address this because it would mess with the back history. The original uranium price ticker from Metals Bulletin, which had history back to 1996, stopped updating in 2017. That’s when I introduced the futures traded price. No other measure is reliable or up to date either because it is an extremely illiquid market.



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August 28 2020

Commentary by Eoin Treacy

Wind Turbine Behemoth Plans for Future by Getting Into Hydrogen

This article by William Mathis and Laura Millan Lombrana for Bloomberg may be of interest to subscribers. Here is a section:

It could be a compelling model. Danish utility Orsted A/S is already exploring a number of hydrogen projects for its wind farms and Royal Dutch Shell Plc plans to produce the gas from a park it’s going to build off the Dutch coast. Making and selling hydrogen could provide a new source of revenue for wind projects that would offset the risk in the sometimes volatile electricity market.

No one before has used wind power alone, without a grid connection, to produce hydrogen, Nauen said. It’s a project that will provide insight that could be crucial to scaling up the technology to much larger turbines and wind farms both on land and at sea.

Earlier this year, Siemens Gamesa announced plans to build a 14-megawatt offshore turbine with a rotor diameter of 222 meters (728 feet), a few meters larger than the previous record.

The company expects to conduct testing at the hydrogen pilot from October to December and then start hydrogen production in January. A Danish hydrogen fuel company called Everfuel will distribute the gas for vehicles including taxis and buses to use in Copenhagen.

European governments aim to spend billions of dollars to help nurture domestic industries to produce hydrogen. The funding could help scale production and bring down costs.

Eoin Treacy's view -

Europe and Japan’s legacy automotive sector has been developing hydrogen fuel cells for decades with little to show for the investment. There was never a catalyst to spur the change from reliable internal combustion engines. The clean diesel scandal and competition from battery-driven alternatives has forced these companies to do something; anything. They don’t have experience with battery innovation but they have been developing hydrogen for a long time.



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August 26 2020

Commentary by Eoin Treacy

Email of the day on electric vehicles.

I really love your audio comments every day and I think they are very useful. Commenting on the EV mania that is on lately...I don't understand why people are so crazy about tesla enc... at the moment the batteries don't last for a long time and when an EV car catches fire, this fire is unstoppable, a safety problem where nobody ever talks about. On top of that, the power grid of older city centers are not equipped to charge an EV... so where is the point in buying one?

Eoin Treacy's view -

Thank you for this email and I am delighted you are enjoying the audios. The charging question is a big one in cities. I called around yesterday to get quotes to install a charging station. They ranged from $700 to $985 before labour. The majority of US houses run on 110 volts and an EV needs 220V to charge in a timely manner. That requires an additional breaker at the fuse box and running cables to where you wish to charge the vehicle. Besides the cost, that is not an option for people who live in apartments. It would require a big expensive communal decision to install chargers in an apartment building.



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August 26 2020

Commentary by Eoin Treacy

Email of the day on a layman's description of nuclear batteries.

I suddenly seem to be bombarding you with communications, after years in the wilderness.    Don't worry, this will only be a brief interlude, I am sure.

   I just wanted to comment on the extract on "nano-diamond self-charging batteries" that you publish today.

I read Loz Blain's whole article, and it seems a very important development indeed.   But in keeping with all articles on technology for the "layman", the story doesn't start at the beginning, but begins a bit down the down the road, and soon focusses on the applications alone.    This applies even more to your extract.

I feel that this patronises the reader unnecessarily.    The average reader should be able to understand a brief well-structured explanation that starts from the beginning.   (This objection applies even more to articles on Covid-19 -- but that is another story.   In that case, I don't believe any politicians, or even some of their scientific advisers, have any real grasp of the subject.)

Re. the batteries, we have to start from the energy source.   There are only 3 (or maybe 4) energy sources:-    Radiation (sunlight), Chemical energy (in fossil fuels, wood etc.) and Nuclear energy (stored in the nuclei of all atoms, and released from the unstable ones).    The 4th source would be Gravitational (hydro-electric power, tidal, possibly wave).
 

The source in nano-diamond is nuclear, but the products (nitrogen gas) are harmless, and the beta radiation is contained (or so they claim).    The beta radiation (carrying the nuclear energy as kinetic energy) then transfers its energy to electrons, and creates the voltage.

The prefix nano is jargon which could be avoided - it simply means "using minute quantities of material", or possibly "operating with minute quantities of material at a time (i.e. on a very small scale), within a larger structure".    (This is what is happening in living things, and thus in the cells of our bodies, 24/7.     Man has only just caught up with this technology, in a rudimentary manner.)
 

"Self-charging" is superfluous and confusing.     I suppose it means that electricity is being continually formed from the nuclear energy store.    But this is equally true of a conventional battery;  the energy in that case is chemical, and there is far less than in the carbon-14 nuclei in nano-diamond batteries.

The carbon-14 is nuclear waste - from the used graphite (graphite is a form of carbon) "moderator" blocks from the cores of nuclear power stations, of which there is a huge store apparently.

Well it seems to me that if just 10 or so lines from what I have given above were used, that would be understandable to the average reader, and give them a good working knowledge.     (You may be interested to know, or probably already suspected, that I tutor A level physics and chemistry.   My great passion is communicating these matters clearly.   Granted, it is a great help if the reader has some facility in handling spatial ideas, but that applies to so many technical areas.)

Eoin Treacy's view -

Thank you for this informative explanation which I’m sure will be of interest to the Collective. I’m sure your students benefit greatly from the clarity your provide.



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August 25 2020

Commentary by Eoin Treacy

Nano-diamond self-charging batteries could disrupt energy as we know it

This article by Loz Blain for NewAtlast.com may be of interest to subscribers. Here is a section:

And it can scale up to electric vehicle sizes and beyond, offering superb power density in a battery pack that is projected to last as long as 90 years in that application – something that could be pulled out of your old car and put into a new one. If part of a cell fails, the active nano diamond part can be recycled into another cell, and once they reach the end of their lifespan – which could be up to 28,000 years for a low-powered sensor that might, for example, be used on a satellite – they leave nothing but "harmless by-products."

In the words of Dr. John Shawe-Taylor, UNESCO Chair and University College London Professor: “NDB has the potential to solve the major global issue of carbon emissions in one stroke without the expensive infrastructure
projects, energy transportation costs, or negative environmental impacts associated with alternate solutions such as carbon capture at fossil fuel power stations, hydroelectric plants, turbines, or nuclear power stations. Their technology’s ability to deliver energy over very long periods of time without the need for recharging, refueling, or servicing puts them in an ideal position to tackle the world’s energy requirements through a distributed solution with close to zero environmental impact and energy transportation costs.”

Indeed, the NDB battery offers an outstanding 24-hour energy proposition for off-grid living, and the NDB team is adamant that it wishes to devote a percentage of its time to providing it to needy remote communities as a charity service with the support of some of the company's business customers.

Should the company chew right through the world's full supply of carbon-14 nuclear waste – a prospect that would take some extremely serious volume – NDB says it can create its own carbon-14 raw material simply and cost-effectively.

Eoin Treacy's view -

I don’t know if the promises being made by this start-up are realisable in the two-year timeframe they anticipate. However, we do need to pay attention to these kind of technological advances because of the productivity enhancement potential they represent. Secular bull markets are driven by productivity growth. Therefore, anything that has the potential to allow us to do more with less has to be given due consideration because of the growth opportunities they offer.



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August 24 2020

Commentary by Eoin Treacy

Tesla resale values

This graphic from Bloomberg may be of interest to subscribers:


It’s early, but there are signs Tesla Inc.’s Model 3 could be as exceptional in the used market as it has been in the new-car world. The sedan has sold at volumes no other electric vehicle has come close to reaching, turning Tesla into the most valuable auto company in the world. Car-shopping websites still have small sample sizes to work with, yet so far, the Model 3s are retaining much more of their value than their small luxury-vehicle peers and they’re selling quickly once owners list them for sale -- on average just 29.3 days from March through June -- according to iSeeCars.com.

Eoin Treacy's view -

I took a test drive of a Model 3 and a Model Y on Saturday. It’s a pleasant experience. The acceleration, as reported, leaves every petrol driven car in the dust. For that reason, Tesla makes a big point of differentiating it product offering based on 0-60 times. I can’t fathom how anyone can really tell the difference between 3 and 4 seconds to 60 miles an hour in a city like Los Angeles where speeds of 30 miles an hour are the norm outside of the lockdowns.



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August 21 2020

Commentary by Eoin Treacy

Email of the day - on risk appetites and the value of a subscription.

I am a pre-subscriber (financial constraints, exacerbated since Covid-19, make it impossible for me to become a full subscriber, I'm afraid, so I may not qualify for a reply. But David did reply to me on more than one occasion;  he was always so kind, and is greatly missed).

I remember your being on the panel at a money show in the conference centre in Westminster Square (I forget the name - possible Westminster Conference Centre) - it must have been about 2009 because I remember asking a question as to whether there were any "good" banks left that might be worth investing in.
  
Anyhow, in response to a question from another attendee about companies drilling for water in Australia, (or possibly into wind power or solar or even lithium miners (if it wasn't too early) - I forget exactly which), I remember you replying that you never favoured chasing these early-stage stories, and in general you have been proved right since.   

I still tend to class hydrogen fuel and battery power for vehicles in the same category, but perhaps you feel that times have changed sufficiently now?    Since I am only a pre-subscriber, and not able to read the full article, I appreciate that you may have said more on this there, or in previous Comments of the Day.
    
It seems to me that since hydrogen when mixed with oxygen is a very explosive mix (although this could also be said to a lesser extent of petrol vapour, I suppose), it would only take one careless mistake or faulty construction to cause a serious explosion.   But perhaps the design features are so tight that this would be impossible.   

At least I would trust an electric vehicle more than a self-driving one! In fact, I am a bit nervous by nature. I would never trust a Toyota now, after that stuck accelerator pedal caused a fatality. What the last minutes of those poor occupants were like I cannot face thinking about.

Whether it is possible to reply to this or not, many thanks Eoin for the comments that I am able to read daily. They give a very sane and reassuring perspective, especially in these difficult times.

Eoin Treacy's view -

David always saw value in conducting a public discourse with subscribers because it helped to educate us as much as the Collective. It also ensures we are covering topics of interest. I agree and one of the things I enjoy most is attempting to provide satisfactory answers to subscriber’ queries. However, as someone who has been familiar with the Service for at least 11 years, might I suggest you at least take a trial subscription?

If that is too much of a financial constraint it may be time to reassess your investment/trading ambitions. Investing involves a degree of risk. If you are uncomfortable with driving a Prius because of a fault corrected more than a decade ago, it might be time to conclude investing is not for you.

The response to this email continues in the Subscriber's Area. 



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August 20 2020

Commentary by Eoin Treacy

Ballard Power Gets Stock Upgrade as Hydrogen Vehicles Gain Steam

This article by Divya Baljifor Bloomberg may be of interest to subscribers. Here is a section: 

Ballard Power, one of Canada’s best-performing stocks this year, just got an analyst upgrade as
governments and vehicle manufacturers around the world push for the development of battery and hydrogen vehicles. BLDP fell as much as 9.5% intraday Thursday in Toronto.

* Stock raised to outperform from sector perform, PT increased to C$20 from C$18 by National Bank of Canada analyst Rupert Merer

* Ballard is in discussions with potential partners in Europe and could form a joint venture with a top-tier supplier; China could have a detailed hydrogen plan come soon, targeting one million hydrogen vehicles by 2030

* Merer sees a number of positive catalysts this year and the stock is still well priced compared with its peers

* Ballard is up more than 110% this year, making it the fourth best performing Canadian stock, vs the S&P/TSX Composite Index’s 2.7% decline

* NOTE: July 29, Fuel-Cell Firm Stages Comeback 20 Years Later With Help of China

Eoin Treacy's view -

I’ve created a reasonably complete list of companies from all over the world focusing on the hydrogen/fuel cell sector in the Chart Library.

Weichai Power has been extremely active in buying up rights to use and commercialise fuel cell technology developed in Europe and North America over the last few decades. The sector has never gotten off the ground because it was not economically feasible and there was not real incentive to try it out. That is now changing.

Some of the factors combining to support the trend include:  



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August 18 2020

Commentary by Eoin Treacy

GM Shares Soar on Electric-Vehicle Spin-Off Speculation

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

GM does plan to sell more than 20 EV models around 2023. That business could be spun off for $20 billion and eventually be worth as much as $100 billion, Deutsche Bank’s Rosner said. GM’s core business selling gasoline-powered sport utility vehicles and pickup trucks is generating cash but viewed as being in long-term decline and is less exciting to investors than the company’s electric-car plans, he wrote.

Despite the share gains this week, the Detroit-based automaker’s stock is down about 17% so far this year while all-electric rival Tesla Inc.’s value is eight times that of GM. By spinning off its EV business, GM could get the kind of momentum enjoyed by Tesla and a handful of startups that have lured capital despite their having no vehicles on the market.

Battery-powered cars have caught the imagination of investors in recent weeks, sending shares of Tesla to successive record levels and boosting the value of electric startups such as Nikola Inc., Fisker Inc. and Lordstown Motors Corp., all of which took a fast track chasing public listings after being acquired by special purpose acquisition companies.

Eoin Treacy's view -

The entire automotive supply chain has concluded there is no future in internal combustion engines. Not only are battery costs coming down and efficiency improving but the regulatory environment continues to squeeze traditional manufacturers.



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August 17 2020

Commentary by Eoin Treacy

Black silicon photodetector hits record-breaking 132% efficiency

This article by Michael Irving for NewAtlas may be of interest to subscribers.

Together, these advances made for a device with 130-percent external quantum efficiency. The team even had these results independently verified by the German National Metrology Institute, Physikalisch-Technische Bundesanstalt (PTB).

The researchers say that this record efficiency could improve the performance of basically any photodetector, including solar cells and other light sensors, and that the new detectors are already being manufactured for commercial use.

Eoin Treacy's view -

The efficiency of solar cells has been improving steadily for the last forty years. The capital poured into the renewables sector following the collapse in interest rates a decade ago, has been the catalyst to greatly enhance the speed with which efficiency gains are being delivered.



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August 14 2020

Commentary by Eoin Treacy

Platinum Quarterly Presentation Q1 2020

This report carries a great deal of relevant information for the platinum market. Here is a section:

Automotive demand down only 17% (-132 koz) YoY despite a 24% fall in Q1 light global vehicle sales

Tightening global emissions standards, driving higher pgm loadings, partially counters lower auto sales/production

W. Europe diesel share decline slowed on increased diesel sales

Diesel vehicles still key for automakers to avoid or reduce heavy CO2 fines

German diesel car market share continued to recover (Q1’20 average 35%, up 1.3% over 2019 average)

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

It’s easy to think that diesel is a dead fuel but sales still continue. The damage to consumer confidence may, however, be impossible to overcome. That is creating a new market for transportation alternatives. 



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August 13 2020

Commentary by Eoin Treacy

Changes in the global value of ecosystem services

This report from Elsevier may be of interest to subscribers. Here is a section:

3. Valuation is not privatization It is a misconception to assume that valuing ecosystem services in monetary units is the same as privatizing them or commodifying them for trade in private markets (Costanza, 2006; Costanza et al., 2012; McCauley, 2006; Monbiot, 2012). Most ecosystem services are public goods (non-rival and non-excludable) or common pool resources (rival but non-excludable), which means that privatization and conventional markets work poorly, if at all. In addition, the non-market values estimated for these ecosystem services often relate more to use or non-use values rather than exchange values (Daly, 1998). Nevertheless, knowing the value of ecosystem services is helpful for their effective management, which in some cases can include economic incentives, such as those used in successful systems of payment for these services (Farley and Costanza, 2010). In addition, it is important to note that valuation is unavoidable. We already value ecosystems and their services every time we make a decision involving trade-offs concerning them. The problem is that the valuation is implicit in the decision and hidden from view. Improved transparency about the valuation of ecosystem services (while recognizing the uncertainties and limitations) can only help to make better decisions.

Eoin Treacy's view -

Assigning a value to the natural world is at once both helpful and also deeply concerning. On the one hand it helps to ascribe a value to the benefit each of us receives from the place we call home, the air we breath and the water we drink. These are often factors we take for granted, but we are increasingly being re-educated to think of the unnatural way in which these gifts have been distributed.



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August 12 2020

Commentary by Eoin Treacy

Email of the day - on returning customers

Dear Eoin and team, I would like to thank you very much for the big difference you have made to my confidence in advising my clients, since I re-joined the service. If only I could find a way of explaining the benefit to my professional contacts! All the very best

Eoin Treacy's view -

Thank you for your kind words and welcome back. The one thing I would highlight for prospective subscribers is that in the evolving global tapestry of events, some big picture perspective is likely to be beneficial.



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August 06 2020

Commentary by Eoin Treacy

Natural Resource Market Commentary

Thanks to a subscriber for this report from Geohring and Rozencwajg which takes an iconoclastic view on the outlook for oil. Here is a section:   

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

Financial discipline has been imposed on the shale drillers so they no longer have endless supplies of cash to fund expansive drilling programs. Investors have, for the last few years, only been willing to support the most lucrative of potential operations. That has resulted in the best and most accessible resources being drilled as companies sought to achieve economic costs of production.



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August 05 2020

Commentary by Eoin Treacy

Shale Driller Devon to Pay Biggest Dividend In Its History

This article by Joe Carroll and Rachel Adams-Heard for Bloomberg may be of interest to subscribers. Here is a section:

The debt buybacks will target an amount equivalent to about half of Devon’s outstanding net debt, according to data compiled by Bloomberg. Devon stock was the best performer in the S&P 500 Index, rising 7.8% to $11.95 at 9:33 a.m. in New York after earlier climbing 8.3%.

Devon’s special payout and debt-reduction targets are the most aggressive efforts yet as shale explorers grapple with a virus-induced demand collapse and tumbling energy prices.

“These shareholder-friendly initiatives demonstrate our commitment to a new E&P business model, which moderates growth, emphasizes capital efficiencies, generates free cash flow and returns increasing amounts of cash directly to our shareholders,” Devon Chief Executive Officer Dave Hager said in the statement.

Eoin Treacy's view -

Instilling financial discipline on rapacious appetite for expansion at any cost is part of the ebb and flow of a commodity bull and bear markets. The gold mining sector went through exactly the same rationalisation process and it created healthier companies.



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August 03 2020

Commentary by Eoin Treacy

The Baupost Group Letter

Thanks to a subscriber for this letter by Seth Klarman and team. Here is a section focusing on appetite for risk:

Fed policy has been magnificently successful in achieving its objectives not only of lifting securities prices but also of altering investor behavior. The Fed wanted to influence buyers of securities to be bolder in their pursuit of return. The head of a major pension fund recently authored a piece describing how the fund had responded to lofty markets and low yields on safe debt instruments. Their reaction was not to lower the fund’s currently aggressive 7% risk-adjusted return objective to a more realistic threshold, but instead to direct more assets into “lower volatility” private investments while leveraging the portfolio. Private investments, of course, have the same underlying risk and inherent volatility as public investments – though because they are not publicly traded, their intermittent and privately determined appraisals may make them appear to be less volatile. And as for the choice to leverage up, we can only note that leverage is a double-edged sword that enhances returns in good times while sinking them in down markets. If markets falter, this fund will have not solved its problems but rather have multiplied them.  

Eoin Treacy's view -

Pension funds, life insurance companies and other firms with predictable future outlays are in a difficult position. If they do not take on additional risk, they will certainly not be able to meet their obligations. Alternatively, if they do take on additional risks, they might be able to reach their goals. However, that chance at success comes with the implied understanding that the alternative is financial oblivion.



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July 30 2020

Commentary by Eoin Treacy

Conoco Plunge Shows U.S. Oil Struggling to Exit Crisis Mode

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

On the bright side, Chief Executive Officer Ryan Lance said he’s encouraged by low premiums for shale acquisitions, citing Chevron’s recent agreement to buy Noble Energy.

When asked if Conoco also looked into buying Noble, Lance said “we did look,” but he was worried that Noble’s Israel assets might have been the source of political tension, since Conoco operates in other areas of the Middle East.

“The gem is certainly the Middle Eastern gas position,” he said. “With some of the other things we’re doing in the Middle East, that creates maybe a little bit of an issue and problem for us politically.”

Conoco’s earnings miss followed reports from three shale-focused explorers on Wednesday that signaled a grim rest of 2020 for the broader U.S. oil industry. QEP Resources Inc. cut its production outlook, WPX Energy Inc. further reduced its capital spending budget, while Concho Resources Inc. stuck with plans to keep crude volumes flat from 2019 levels, ending years of growth.

Eoin Treacy's view -

Bankruptcies in the oil patch are likely to continue to trend higher because so many projects have break-evens in the $60 area. That is creating buying opportunities for the majors and the chance to rationalise the onshore domestic US production landscape. That will be necessary in order to survive because global demand will take time to recover from the virus hiatus.



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July 28 2020

Commentary by Eoin Treacy

Once-Unpopular Carbon Credits Emerge as One of the World's Best Investments

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

“It’s attracting hedge-fund speculators,” said Norbert Rücker, head of economics at Swiss private bank Julius Baer. “With this move, carbon has really come back to life this year and it’s attracted a lot of interest—we have clients reaching out to us asking about it.”

The resurgence in carbon-credit prices began in mid-2017 when EU policy makers agreed to sharply reduce the number of available credits. That has pushed up prices and allowed the carbon market to help fulfill its purpose of punishing excess polluters. With the market set up to constrict credit supply, prices should rise further still, analysts say.

Eoin Treacy's view -

The success of Tesla, in gaming the carbon credit system to its advantage, has woken the rest of the globe up to the possibilities government sponsored markets hold.



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