Investment Themes - General

Search all article by their themes/tags in the search area
below for example “Energy” or “Technology”.

Search Results

Found 1000 results in General
December 17 2018

Commentary by Eoin Treacy

December 17 2018

Commentary by Eoin Treacy

Email of the day on simultaneous monetary and interest rate tightening

In a mid-year commentary, which I cannot locate, you presented a strategy for coping with the customary October seasonal downturn.  Implementation of that advice will have saved subscribers many years of subscriptions.  Thank you for those invaluable comments.

More recently you have devoted much time discussing the dual impact of rising interest rates and Fed balance sheet reduction.  The attached article (a bit long) states that the US Fed, being excessively influenced by equity markets, but ignoring an already slowing real economy has tightened excessively and, because of lags in the effect of monetary policy, will not now succeed in reversing the economic downturn already underway.

Trying to second guess the Fed while anticipating an inevitable slowing economy is making portfolio management even more difficult than usual.

Eoin Treacy's view -

Thank you for this kind email and I am delighted you are getting value from the service. There are two Fullerisms I have been ruminating on recently. The first is “monetary policy beats most other factors most of the time” The second is “the Fed has killed off more bull markets than all other factors combined”.

Here is a section from the conclusion of the article you included:

The Federal Reserve has pushed monetary policy too far. It makes sense that the market is rapidly pricing out future monetary tightening. There is a high probability that if the Fed raises rates in December, this will be the last hike of the economic cycle.

Even if no rate hike occurs, balance sheet reductions will still be running in the background, reducing excess reserves, putting further strain on the banking sector and perpetuating a deceleration in economic growth.

The Federal Reserve has already pushed too far.



This section continues in the Subscriber's Area. Back to top
December 17 2018

Commentary by Eoin Treacy

The equity chief at $6.3 trillion BlackRock weighs in on the trade war, a possible recession, and offers her best investing advice for a tricky 2019 landscape

This article by Joe Ciolli and Jack Houston for Business Insider may be of interest to subscribers. Here is a section:

Moore: We think we're in the later stage of the cycle. So, let's be clear, our barbell approach doesn't mean just hold an anchor in high quality, which we think you should, and then just swing for the fences and lower quality assets that seem to be de-rated.

That would be great if we didn't have any worries about policy — both the monetary side as well as the trade policy to consider. But what we think people should be focused on are companies that have excellent balance sheets, that have business models, that are sustainable through all parts of the cycle.

That's where we're not expecting to see huge amounts of earnings volatility, even if we continue to have a sequential economic growth slowdown. Although again, still above-trend, so still pretty good.

But also think about what areas of the market, whether it's industries or assets, have really fallen out of favor, like emerging markets this year. Places where the fundamentals haven't deteriorated, and be willing to take a bet on some higher-volatility, slightly riskier assets as well. So, this barbelled approach, don't take risk entirely off. But if you need to sleep at night a little bit better, make sure that there's big quality nut to rest on.

Ciolli: We keep talking about the possibility of an economic recession, but it does not seem like it's in your base case for 2019. However, you do mention that the table may be set for something in 2020. Can you outline your recession view and what, if anything, people can do next year to prepare for that if it does transpire in 2020?

Moore: I think actually it's consensus at this point that 2019 is not the year that we have the US-led recession.

I also just want to note something here. A lot of times when we talk about recession in our outlook, and then also talk about recession in the market, it does tend to be a little US-focused. And that we need to recognize that different regions and countries and markets are at different points in their cycle. I think about this a lot as an equity person. The profit cycle is really different, region from region. And we had seen some profits recessions in non-US markets, even while the US continued to make new highs.

So, that aside, in 2020 and onwards, we think that recession probability increases for the US. Part of that is because we are just at the later stage of the cycle. We also know that it takes some time for tighter monetary policy to really play out in the economy and have an impact. It's possible that we'll see a slowdown in activity at that point, or greater inflationary pressure, frankly, from higher wages feeding through. It's not our base case at this moment, but it's a non-zero probability.

We recognize that investors need to be positioned for that eventual slowdown, well in advance. As you know, equity markets tend to price in these changes in economic growth far before we would actually get the data. We just want to have quality portfolio construction and make that a significant thing that we're focused on in 2019. So that we don't get to 2020, when the economic data starts to soften a little bit, and find ourselves flat-footed.

Eoin Treacy's view -

There has been a clear rotation out of the most aggressively priced portion of the market and into clearly defensive sectors. Talking about the clear benefits of investing in high quality balance sheets is a hard sell when growth stocks are powering ahead. However, when the lustre comes off the shiniest new economy names investors rediscover cashflows and dividend discounting.



This section continues in the Subscriber's Area. Back to top
December 17 2018

Commentary by Eoin Treacy

Europe's Retail Apocalypse Spreads to Online From Stores

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

Europe’s retail crisis is spreading from bricks-and-mortar stores to e-commerce as Asos Plc plunged the
most in 4 1/2 years after warning that Christmas shopping got off to a disastrous start.

The gloomy update from a U.K. online retailer that competes with Amazon.com Inc. and has furnished fashions to the likes of Meghan Markle shows that retail weakness is widespread in the runup to the holidays.

Asos fell as much as 43 percent Monday in London, wiping more than 1.4 billion pounds ($1.8 billion) off the market value. The news dragged down other online retailers like Boohoo Group Plc and Zalando SE, as well as store operators like Marks & Spencer Group Plc and Next Plc.

“This goes against the script,” said Stephen Lienert, a credit analyst at Jefferies. “It was supposed to be bricks and mortar that’s dying and online is the future, but that headline gets ripped up today.”

Eoin Treacy's view -

Brick and mortar and online retailers share one common factor. They both rely on consumers to be ready to buy what they are selling. That works well when the economy is doing well but Europe’s economies are under pressure at just the same time the ECB has ended its quantitative easing program.



This section continues in the Subscriber's Area. Back to top
December 14 2018

Commentary by Eoin Treacy

December 14 2018

Commentary by Eoin Treacy

What a Big Deficit You've Got There, Mr. President

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

It’s also important to note that the natural tendency in a growing economy, absent any tax changes, is for revenue to rise. Real revenue dropped in 2016, but that was because of the mini- recession that had started the year before. Revenue has risen during every other year of the current recovery. This year the economy is growing at what may turn out to be the fastest pace since the 2000s, around 3 percent, yet revenue is down. Some of that economic growth is surely due to the tax cuts and to this year’s spending increases, but it’s clear that the Tax Cuts and Jobs Act has so far displayed none of the magical revenue-increasing properties that some of its supporters claimed for it last year. If we take last year’s revenue growth of 1.1 percent as the — very conservative — baseline, it would seem instead to have so far resulted in a revenue decline of 3.5 percent, or $109 billion.

Federal spending, meanwhile, is up an inflation-adjusted 2.9 percent so far this year. That’s bigger than the revenue decrease but smaller than last year’s 3.5 percent increase. Overall, my read of the two charts above is that the overall shift since 2015 from shrinking deficits to rising ones has been mainly about rising spending, but the increase in the deficit this year has been mainly about the tax cuts.

Eoin Treacy's view -

It is generally accepted that counter cyclical policies are the most appropriate for any economy. You loosen when the going is tough and tighten when the going is good and that is expected to keep growth relatively steady with less aggressive peak to trough swings.



This section continues in the Subscriber's Area. Back to top
December 14 2018

Commentary by Eoin Treacy

Platinum price gets $6 billion shot in the arm

This article by Frik Els for Mining.com may be of interest to subscribers. Here is a section:

Korean carmaker Hyundai on Tuesday announced a $6.7 billion program to raise production of fuel cells 200-fold going from 3,000 this year to 700,000 per annum by 2030.

The hydrogen society is probably further into the future than its promoters want you to believe, and detractors are plentiful 

Toyota was the first to back the technology for passenger vehicles, launching its Mirai – "future" in Japanese – back in 2015. Honda is bringing the Clarity back to its line-up and Hyundai’s Nexo SUV is launching in North America next year. Hyundai also inked a collaboration on fuel cells with Volkswagen in June.

The hydrogen society is probably further into the future than its promoters want you to believe, and detractors are plentiful. (Elon Musk was not only talking his book when he called fuel cell cars "extremely silly".)

Alongside Hyundai's announcement, the Korean government also made a commitment to roll out a fuel cell fleet and charging stations. But Canada, for example, got its first and so far only public hydrogen fuelling station only in August and California’s years long backing for fuel cell cars have hardly moved the needle on consumer and business uptake.

Nevertheless, the impact on platinum could be enormous.

There’s a simple reason – today's fuel cell cars need a full ounce of platinum versus a 2 – 4 grams PGM loading for your average gasoline (primarily palladium) or diesel vehicle.

Eoin Treacy's view -

The automotive sector has been investing in fuel cell technology for years so one of the reactions to the collapse of demand for diesel engines has been the acceleration of commercialisation efforts. The other factor in the development of fuel cells is dependent on ready availability of hydrogen. The low natural gas price, particularly in the USA is a major enabler of that evolution.



This section continues in the Subscriber's Area. Back to top
December 14 2018

Commentary by Eoin Treacy

Behind the Brexit Chaos: A Faulty U.K. Negotiating Strategy

This article by Stephen Fidler and Laurence Norman for the Wall Street journal may be of interest to subscribers. Here is a section:

The U.K. also anticipated it could appeal to traditional allies in Northern Europe, like Sweden, Denmark and the Netherlands. Inside the EU they had together championed the values of free markets and open trade. But once the U.K. left, a different dynamic took over.

One issue the U.K. missed was that some of these governments were also faced with euroskepticism and political concerns about EU overreach.

In the turmoil immediately after the 2016 Brexit referendum, Mark Rutte, prime minister of the Netherlands, one of the most like-minded countries, said the U.K. had just “collapsed: politically, monetarily, constitutionally and economically.”

Mr. Rutte, facing the political fight of his life against the right-wing populism of Geert Wilders, had a fundamental political interest in ensuring that Brexit turned out to be an anti-model for how to handle angst about Brussels. The Dutch leader echoed that point on Thursday.

“If anyone in the Netherlands thinks Nexit is a good idea, look at England and see the huge damage it’s done,” he said.

The U.K. also missed that it would come to be seen as a rival. Some Northern European countries have many cutting-edge small exporters who worried that an U.K. outside the EU would undercut them in international markets and in the EU if Britain retained easy access to the bloc’s markets.

Mrs. May’s so-called Chequers proposal in July 2018, which aimed at keeping the U.K. in the EU’s single market for goods but able to sign free-trade agreements with the U.S. and others, was viewed on the continent as a blueprint for the U.K. becoming an EU offshore-manufacturing assembly platform.

“It’s always going to be a relationship now of tension and not just partnership, because our interests are diverging from theirs and we are seeking to derive deliberate advantage from having left,” Mr. Rogers said. “We can’t expect them not to react.”

Eoin Treacy's view -

Lord Palmerston’s “England has no eternal friends, England has no perpetual enemies, England has only eternal and perpetual interests” is as true today as ever but it does not just apply to England. The EU has displayed a better understanding of that maxim than the UK has over the last few years. If you are setting up outside the club then you can’t logically expect help from the people you are now intending to compete against. Respect, yes, but assistance, no.



This section continues in the Subscriber's Area. Back to top
December 14 2018

Commentary by Eoin Treacy

Virgin Galactic SpaceShipTwo Reaches Space for the First Time

This article by Ryan Whitwam Extreme Tech may be of interest to subscribers. Here is a section: 

Virgin first unveiled the VSS Unity in 2016 and has flown it (with the rocket engine) four times now. Each test pushed the altitude a little higher: 16.0 miles, 21.7 miles, 32.3 miles, and now 51.4 miles. Unity replaced the VSS Enterprise, which broke apart in 2014 because its “feathering” airbrake system was accidentally deployed too early. That accident killed co-pilot Michael Alsbury and injured pilot Peter Siebold. Virgin took steps to make sure the same thing can’t happen on new versions of its SpaceShipTwo design.

Safety is of higher importance than ever as Virgin Galactic nears its ultimate goal of taking passengers into space. For a mere $250,000, a person can ride up to the edge of space aboard one of Virgin’s spacecraft. The trip won’t be long, but they’ll get a few minutes of weightlessness before the craft heads back down for a landing. Virgin Galactic started pre-selling tickets several years ago and says it has sold all available seats through 2021.

Eoin Treacy's view -

Space tourism looks likely to be a significant growth sector in future but it is another example of an industry that exists today because we have had a decade of incredibly low interest rates which has made funding available for just anything anyone could imagine.



This section continues in the Subscriber's Area. Back to top
December 14 2018

Commentary by Eoin Treacy

December 13 2018

Commentary by Eoin Treacy

December 13 2018

Commentary by Eoin Treacy

Markets Conclude U.S. Is Riskier Than China

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

They would be pricing in various economic realities: the slowing rate of U.S. economic growth, the U.S. government's exploding debt, the diminished Treasury revenue caused by the 2017 tax cuts, and the Fed's pursuit of a monetary policy keeping rates well above their average for the decade.

Investors see growth slowing, and it shows. Extreme fluctuations in the stock and bond markets the past month reflect investor anxiety over the transition from a brightening economy to the creeping sense that the best of this cycle has come and gone.

U.S. government debt is also moving in the wrong direction. Since 2016, when the federal budget deficit as a percentage of gross domestic product declined to a decade-low of 2.2 percent from more than 10 percent in 2009, the deficit nearly doubled to almost 4 percent. GDP increased to a record $19.39 trillion at the end of 2017 as the annual rate climbed to 2.2 percent from 1.8 percent in 2007. But U.S. growth will deteriorate to an annualized 1.9 percent by 2020, according to economists surveyed by Bloomberg, putting more pressure on the widening deficit. Revenue isn't stepping in to close that gap. The Trump tax cuts are estimated to increase these deficits by $1 trillion during the next 10 years.

Eoin Treacy's view -

China can borrow at cheaper rates than the USA right now. Is that a big contrary indicator or is it the shape of things to come?



This section continues in the Subscriber's Area. Back to top
December 13 2018

Commentary by Eoin Treacy

Uranium price: best performer of 2018 set for more gains

This article by Frik Els for Mining.com may be of interest to subscribers. Here is a section: 

Struggling French nuclear giant Areva (rebranded as Orano this year) slashed production more than a year ago. In August Paladin put its Langer Heinrich mine in Namibia on care and maintenance, although this week the Sydney-based miner said it's working on a possible restart of operations with vanadium as a byproduct (vanadium is trading at record highs and the only metal outperforming uranium).

In a research note on Kazatomprom, BMO Capital Markets says the production discipline from top miners will break the trend of rising global uranium inventories following the Fukushima nuclear disaster in Japan in 2011 and prompt the first production deficit in more than a decade.

And

China has 42 operating nuclear reactors, 16 reactors under construction and a further 43 planned. At the end of November, the country's national uranium corporation bought control of the Rossing uranium mine in Namibia. China is also behind the only sizeable uranium mine to come into production in the past few years, the Husab mine in Namibia, although ramp there has been slow.

Eoin Treacy's view -

Japan is steadily firing up its shuttered nuclear plants and considering China’s demand for clean energy it is unlikely to be deterred from continuing its construction program. Meanwhile when the world’s major producers find it more cost effective to buy in the spot market than produce the metal themselves then we know prices are depressed.



This section continues in the Subscriber's Area. Back to top
December 13 2018

Commentary by Eoin Treacy

Bank of France Trims Growth Forecasts as Protests Drag

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

Still, the central bank said 1.5 percent growth was a level that would help the country close a gap with euro-area peers. It expects consumers to drive growth next year thanks to a rise in spending power, supported by tax cuts.

“French growth should remain above its average of recent years: That is still a rather favorable economic situation,” Villeroy said.

The central bank’s forecasts do not take into account Macron’s planned tax cuts. But it said the measures could also support consumer spending next year.

In the Les Echos interview, Villeroy also commented on the European Central Bank’s decision to end its net asset purchases. He said a “gradual normalization” of policy is justified by euro-area figures, but the central bank remains flexible in uncertain times and has powerful instruments available.

Eoin Treacy's view -

Countries on the periphery of the EU got the message loud and clear that the EU has one set of rules for large countries and quite another for small countries when depositors were bailed-in during Cyprus’s troubles but were rescued when Banca di Monte Paschi di Siena was going under.



This section continues in the Subscriber's Area. Back to top
December 13 2018

Commentary by Eoin Treacy

Review of recession lead indicators

Eoin Treacy's view -

The yield curve spread has been in the news lately and with good reason considering how much of a move we have seen in the last week and because it has such an impressive record as a lead indicator for future recessions. With volatility on stock market increasing and perhaps more importantly some stress becoming evident in the credit markets I think it is timely to spend some time to do a thorough review of lead indicators for future recessions.



This section continues in the Subscriber's Area. Back to top
December 12 2018

Commentary by Eoin Treacy

Video commentary for December 12th 2018

Eoin Treacy's view -

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: Theresa May survives, Pound bounces, Wall Street steadies but not dynamically, precious metals firm, Dollar eases, oil weak, uranium outperforming, Bonds likely to unwind short-term overbought condition. 



This section continues in the Subscriber's Area. Back to top
December 12 2018

Commentary by Eoin Treacy

DoubleLine Webcast

I tuned into Jeff Gundlach’s webcast yesterday afternoon and as usual he had a number of interesting charts and observations.

Eoin Treacy's view -

The first observation I drew is that he was keen to point out the lead indicators for future recessions he employs and how many of them are positive versus negative. Of course, some of these have longer lead-times to a signal than others which is not a point he made. The clear conclusion was that there are certainly challenges emerging and that quantitative tightening is a headwindf for stock markets. The clear message here is that if the Federal Reserve continues to remove liquidity and the ECB holds to its commitment to end purchases that is likely to continue to represent a headwind for asset prices.



This section continues in the Subscriber's Area. Back to top
December 12 2018

Commentary by Eoin Treacy

The Fed and monetary Policy

Thanks to a subscriber for this note by Leon Tuey which may be of interest. Here is a section:

Few months ago, Jerome Powell, the Fed Chairman expressed the desire to smooth out past wild swings in the economy by fine-tuning its monetary policy.  Those are not mere words, but the Fed is already putting it into practice.  Note the statements made by the various Fed members. 

In the past, after the election, the Fed would slam the brakes to clean out the excesses.  After the Mid-term election, it would start to stimulate the economy.  Hence, the “Four-Year Cycle”.  The Fed has been tapping on the brakes instead of slamming them.  Hence, the slowing in the economy.  Many, however, are jumping to the conclusion that a recession will take place next year.

The Fed’s new goal is not easy to achieve, but if successful, the U.S. will experience a period of unparallel prosperity and the stock market will continue to climb to heights no one ever believe possible.

Despite its importance, few paid attention to Powell’s announcement.

Eoin Treacy's view -

One of David’s clearest lessons is monetary policy beats most other factors most of the time. Last year I was writing about the fact that the Fed was asking for trouble by planning to reduce the size of the balance sheet and raise interest rates concurrently. They have delivered a medium-term correction in stocks the big question now is what’s next?



This section continues in the Subscriber's Area. Back to top
December 12 2018

Commentary by Eoin Treacy

2019 Precious Metals Outlook: Fundamentals matter

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

Eoin Treacy's view -

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

Rather than ask whether fundamentals matter of what the outlook is, perhaps it is better to ask whether precious metals are an uncorrelated asset? The answer to the first group of questions is obvious yes, fundamentals do matter and the relative cost of production coupled with demand profiles are important to the market. However, the relative cheapness of the precious metals, excluding palladium, makes them attractive for investors seeking to hedge exposure to increasing volatility in other asset classes.



This section continues in the Subscriber's Area. Back to top
December 11 2018

Commentary by Eoin Treacy

December 11 2018

Commentary by Eoin Treacy

Will UK economy be turbocharged by sterling fall?

Thanks to a subscriber for this article by Chris Giles for the FT may be of interest to subscribers. Here is a section:

The impact of sterling’s depreciation has been underwhelming for a few reasons. For one thing, firms are locked into global supply chains and rely heavily on foreign inputs. Half the components in a “British-made” car come from abroad. If exports rise, so do imports.

The economy is also highly geared towards high-value-added stuff like pharmaceuticals. Buyers of these goods and services are insensitive to price changes. Not all industries fit this mould, notably tourism. Dollars buy more rides on the London Eye than before. In June visits by foreigners (including businesspeople) were up by 7% year on year. Yet visitors seem to be economising: their overall spending in real terms is no higher than before.

Optimists maintain that the benefits of a depreciation take a long time to filter through. Firms need to get finance together and seek out new markets to exploit their new competitive advantage.

The case of Dr Fox’s ice-cream industry, however, suggests that exporters are in no rush. Though export revenues have risen, this largely reflects the fact that with a weaker pound a given quantity of foreign-currency sales leads to higher sterling revenues. In the first half of 2017 firms exported about the same quantity of ice cream (600m scoops, by our reckoning) as in the same period the year before. Firms seem to be using sterling’s weakness simply to bank bigger profits, rather than to move into new markets.

It is a similar story across the private sector. Profitability is near record highs yet investment is stalling. Last year non-financial firms stuck an extra £74bn ($96bn) in their bank accounts, by far the largest figure on record. Firms’ tentative behaviour should be a wake-up call for ministers, who expect them to lead the charge of a reorientation of British trade away from the EU after Brexit.

Eoin Treacy's view -

All other factors being equal a depreciating currency boosts the prospects for exporters because they gain competitiveness. The bigger the domestic export sector the more immediate the boost. In the UK’s case the domestic manufacturing sector has been in decline for decades, so not only will it take time to rebuild confidence enough so that entrepreneurs become more ambitious but the devaluation would need to persist.



This section continues in the Subscriber's Area. Back to top
December 11 2018

Commentary by Eoin Treacy

Top India Official Who Oversaw Cash Ban Is New RBI Chief

This article by Siddhartha Singh and Anirban Nag for Bloomberg may be of interest to subscribers. Here is a section:

India named a former bureaucrat who oversaw Prime Minister Narendra Modi’s controversial cash ban program as its new central bank chief, a day after Urjit Patel abruptly quit following disagreements with the government.

Shaktikanta Das, 63, who often sought a cut in interest rates during his time at the Finance Ministry, was appointed for a three-year tenure, according to a statement on Tuesday from the Personnel Ministry. He will be the 25th governor of the 83-year-old monetary authority.

And

Das will take charge of the six-member monetary policy committee, which left interest rates unchanged last week after two hikes earlier this year. With inflation undershooting the central bank’s forecasts, there are growing expectations that the RBI will shift to a neutral policy stance from its current tightening bias, which could set the stage for a rate cut.

“There was a disconnect between the government and the central bank and the market now expects a less hawkish stance under the new regime,” said Aashish Sommaiyaa, chief executive officer at Motilal Oswal Asset Management Co. in Mumbai.

Eoin Treacy's view -

The RBI has been rather aggressively targeting the bad loans in some of the India banks, most particularly those in private hands rather than the politically connected state-owned institutions. The decline in oil prices has been a meaningful event for India and that will be used as an argument for adopting a more dovish monetary policy.



This section continues in the Subscriber's Area. Back to top
December 11 2018

Commentary by Eoin Treacy

Leveraged Loans Take a Much-Needed Breather

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

It’s crucial for the long-term health of leveraged loans, which have already surpassed junk bonds in magnitude, to allow investors to be more discerning. One of the most appealing parts of loans is that they’re supposed to have priority over traditional securities. But as Bloomberg News’s Sally Bakewell and Kelsey Butler wrote last week, heavily levered companies have been tapping the loan market over and over again, securing $100 billion of so-called incremental debt this year because money managers were willing to acquiesce to almost all issuers’ demands. On top of that, a larger share of companies have loans as their only form of debt, which doesn’t do lenders any good if they go under.

It’s pretty obvious that this sort of behavior won’t end well. That’s why it might be a blessing in disguise that the market has taken a breather. “There’s no need to chase new issues,” Michael Nechamkin, co-chief investment officer at Octagon Credit Investors, told Butler and Jeannine Amodeo. The ones who pull back, they note, are those that aren’t desperate for financing but were hoping to lock in cheap borrowing costs in the once-hot market. As for those who can’t afford to drop out? They pay up — restoring some balance between buyers and sellers.

Eoin Treacy's view -

With over $7 trillion in negative yielding debt investors have been willing to forgo covenants to capture yield. That has been most acutely evident in the leveraged loan market where corporations have been binging on debt in order to fund buybacks and pay dividends. The logic goes that will reduce the weighted average cost of capital and therefore strengthen the balance sheet. However, that only works as long as business is going well. In times of stress dividends can be cancelled but loans need to be paid back which can be a problem when liquidity is tight.  



This section continues in the Subscriber's Area. Back to top
December 10 2018

Commentary by Eoin Treacy

December 10 2018

Commentary by Eoin Treacy

U.K. Assets Roiled as Delay on Brexit Vote Sparks No-Deal Fears

This article by Charlotte Ryan, John Ainger and Shoko Oda for Bloomberg may be of interest to subscribers. Here is a section:

The delay in the vote means an EU summit later in the week will be the next focus for markets. Traders had been planning to stay late at the office Tuesday in anticipation of significant price swings on the vote. May said she would try to address concerns over the Irish border and step up preparations for a no-deal scenario.

“This is very strong risk-off move,” said John Wraith, head of U.K. macro rates at UBS Group AG. “The market clearly believes she will not get anything material enough from the EU to turn that scale of opposition around, so even if the vote is delayed it’s going to end in the same way -- with a big defeat for the government, and the end of the Withdrawal Agreement -- but now it will happen even closer to the date of the cliff edge.”

Eoin Treacy's view -

The EU has said they have nothing left to offer and will not negotiate further. However, that is not exactly true. If the UK does in fact leave the EU without a deal, then negotiations on a trade deal will probably begin immediately. For the UK, that will probably only be one of many deals it will need to negotiate.  

The last thing the EU needs is a major economy, like the UK, on its doorstep with a devalued currency and an incentive to be as competitive as possible. Quite whether those in power in the UK realise that is another story.



This section continues in the Subscriber's Area. Back to top
December 10 2018

Commentary by Eoin Treacy

Yield Curve Inversion Is Inconclusive. Our 2650-2800 Range Holds

Thanks to a subscriber for this report by Mike Wilson at Morgan Stanley. Here is a section:

Eoin Treacy's view -

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

As the above report highlights the yield curve has not yet inverted but at 13 basis points it is very close to inverting. There is definitely some chatter about the near inversion in 1994 and how that presaged the evolution of the bubble in the late 1990s.



This section continues in the Subscriber's Area. Back to top
December 10 2018

Commentary by Eoin Treacy

The IPO Race for Uber and Lyft Isn't Against Each Other

This article by Shira Ovide for Bloomberg may be of interest to subscribers. Here is a section

After a relative tech IPO dry spell of 2015 and 2016, there’s less of a stock feeding frenzy around each new tech listing now. Snapchat’s valuation has moved from outlandish at its IPO to tame.(1) Most other tech companies that went public in the last couple of years also trade relatively in line with their older peers. That shows investors have grown more discriminating about when to pay a rich price for fast-growing companies. I think that temperance will carry over to IPOs for Lyft and Uber. 

Ultimately, though, Uber and Lyft have more to worry about than IPO order. Uber in particular has yet to prove its basic business model makes sense after 10 years of history. Economic and market conditions are deteriorating. In the U.S., people are openly talking about the “R-Word” — recession. Those are all good reasons to hurry and go public. But Uber and Lyft shouldn’t overthink the advantages of hitting the stock market first.  

Eoin Treacy's view -

At The Chart Seminar we ask this question; when is the best time to sell your company? The answer is simple when you think about it. When you can get more for it than you think it is worth. The founders and early investors in multi-billion Dollar unicorns have a clear incentive to diversify exposure by seeking to sell when the going is good, because it will obviously be a more difficult prospect when the going is bad.



This section continues in the Subscriber's Area. Back to top
December 07 2018

Commentary by Eoin Treacy

December 07 2018

Commentary by Eoin Treacy

One Fed official suggested on Friday delaying a December rate hike, the first to do so

This note by Thomas Franck for CNBC may be of interest to subscribers. Here is a section: 

St. Louis Federal Reserve President James Bullard reportedly said on Friday that the central bank could consider postponing its widely anticipated December rate hike because of an inverted yield curve.

“The current level of the policy rate is about right,” Bullard said in a prepared presentation to the Indiana Banker’s Association, according to Reuters.

Bullard is the first member of the Fed to speak publicly about a delay in December. The Fed president — while not a Federal Open Market Committee voter in 2018 — will be able to participate in rate hike decisions in 2019.

Eoin Treacy's view -

10-year Treasury yields dropped below the trend mean this week and despite a short-term overbought condition on the futures, a meaningful catalyst is now likely required to check the rally.



This section continues in the Subscriber's Area. Back to top
December 07 2018

Commentary by Eoin Treacy

The U.S. Just Became a Net Oil Exporter for the First Time in 75 Years

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

The shift to net exports is the dramatic result of an unprecedented boom in American oil production, with thousands of wells pumping from the Permian region of Texas and New Mexico to the Bakken in North Dakota to the Marcellus in Pennsylvania.

While the country has been heading in that direction for years, this week’s dramatic shift came as data showed a sharp drop in imports and a jump in exports to a record high. Given the volatility in weekly data, the U.S. will likely remain a small net importer most of the time.

“We are becoming the dominant energy power in the world,” said Michael Lynch, president of Strategic Energy & Economic Research. “But, because the change is gradual over time, I don’t think it’s going to cause a huge revolution, but you do have to think that OPEC is going to have to take that into account when they think about cutting.”

 

Eoin Treacy's view -

It feels like yesterday when we first started talking about unconventional gas, and later oil, as being gamechangers for the energy sector. Looking back at the archives it was 12 years ago. The shift in US production from what looked like terminal decline to virtual energy independence is something the market is still coming to terms with.



This section continues in the Subscriber's Area. Back to top
December 07 2018

Commentary by Eoin Treacy

2019: More thematic instability

Thanks to a subscriber for this currency focused report from ANZ 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. 

Australia and New Zealand are in an awkward bind. The deteriorating relationship between one of their biggest allies and the buyer of a large proportion of their exports is weighing on sentiment. The one redeeming quality is China doesn’t have a ready supply of iron-ore, coking coal or natural gas that is in such close proximity but it’s slowing economy is shifting perceptions of demand growth.



This section continues in the Subscriber's Area. Back to top
December 06 2018

Commentary by Eoin Treacy

Video commentary for November 6th 2018

December 06 2018

Commentary by Eoin Treacy

Email of the day on Crowd Money, late cycle moves and credit

As you have repeatedly mentioned in recent audios, we are at a very interesting time in markets. The coming weeks may potentially offer us a guide as to whether markets are pricing in a recession in late 2019/2020 or whether this maybe further delayed by the Fed and the US administration setting a looser policy tone sooner rather than later.

As David has always urged “don’t fight the Fed”.

Being away from my desk enjoying the delights of the Caribbean, I have taken the time to re-read your most illuminating book Crowd Money which you published back in 2013 and I read back in 2014 (again in the Sunny Caribbean).

I have to mention that a good many of your observations have come to pass and my holdings in a number of Autonomies who are also Dividend Aristocrats have been a core holding of my balanced personal portfolio. I have noted with interest the recent late cycle outperformance of these holdings compared to previously sexy growth stocks.

I would recommend to the collective to take the opportunity to read or re-read Crowd Money at a time when market strategy is in flux.

You have also made reference to the possibility of GE corporate debt being downgraded to junk. I attach a link to the UK Investment Manager M&G ‘Bond Vigilantes’ website and their comments relating to the US corporate debt market and with specific reference to GE’s strategy to deleverage and preserve their IG status.

Hope this is of interest.

Eoin Treacy's view -

Thanks for the link your kind words and I agree there is nothing quite like a good dose of sun in December. It is enormously gratifying that you are enjoying Crowd Money. I’m working on another book to try and put the emerging state of flux in context but it’s a hard slog. I’m reviewing late cycle phenomena in the following piece so I would like to focus on the credit market.

Here is a section from the article:

The Fallen Angel figure, of course, could balloon if one of these Angels happens to be a company with a large capital structure. One of the businesses that has lost its public single-A rating lately is US industrial giant General Electric – the 87th biggest company within the S&P 500 index, holding c. $50bn of notional debt – the majority of which could enter the HY market if multiple notches of downgrades occur. How immediate is this risk for investors?

GE downgrade fears are still speculative. The company is trying to shore up its cashflow and balance sheet, and may well retain its IG badge after all. Since liquidity, usually investors’ No. 1 concern, seems ample, the company is now focusing on improving its free cash flow and balance sheet structure. Companies at the lower end of the IG spectrum are indeed strongly incentivized to retain their credit ratings as a cut in long-term ratings from BBB- to BB+ materially lifts borrowing costs as some investors are prevented from holding Non-Investment Grade companies.

GE, however, still holds a BBB+ rating with stable outlooks from all three major credit rating agencies, leaving this flagship industrial group still a long way from junk. What will matter over the coming quarters is GE’s new CEO delivering on a promise of accelerated deleveraging, alongside turning around the structurally challenged power division. All of this amidst a backdrop of ongoing Department of Justice and SEC investigations, as well as some shareholder litigation.



This section continues in the Subscriber's Area. Back to top
December 06 2018

Commentary by Eoin Treacy

Riding in Waymo One, The Google Spinoff's First Self-Driving Taxi Service

This article by Andrew Hawkins for the Verge may be of interest to subscribers. Here is a section:

Over the course of three separate trips in Chandler, the trained drivers in my Waymo vehicles never take control. I’ve ridden in a Waymo vehicle without a human being in the driver’s seat once before, but it was not on public roads. I was fully prepared to experience a fully driverless ride while in Chandler, but, alas, Waymo rejected my request.

The rides are uneventful, but it is exciting to experience the little flourishes that have been added for ride-hailing customers. The minivans still smell new, or at least recently cleaned. The screen on the back of the driver’s headrest features a large blue “start” button that I could press to initiate the ride. (There’s also a physical button in the headliner of the vehicle that performs the same task.) After pressing the button, a musical chime sounds and a robotic-sounding woman’s voice says, “Here we go.”

As I said, I’m an experienced Waymo rider — three trips and counting — but this one feels more mature. Before, it felt like you were being driven by your half-blind grandmother, but now, riding feels… mostly normal. The car slows down for speed bumps, accelerates for lane changes, and handles a number of difficult maneuvers like unprotected left turns. And it even surprises me a couple of times, like when it ended up braking too far into the crosswalk at an intersection, and then reversed back a few inches to make room for pedestrians. Of course, it probably shouldn’t have stopped so abruptly in the first place, but it is still comforting to see the car correct its mistakes in real time.

Eoin Treacy's view -

This is perhaps the biggest news this week, even though the arrest of Huawei’s CFO and the tightening of liquidity are what are making global headlines.

Waymo are going slow on rolling out autonomy because they are very aware of the damage road deaths by semiautonomous vehicles have caused to companies like Uber and Tesla. However, the important point is riders are reporting the cars are delivering smoother rides and fewer unexpected stops where the car has to pause and figure out what to do next.



This section continues in the Subscriber's Area. Back to top
December 05 2018

Commentary by Eoin Treacy

Video commentary for December 5th 2018

Eoin Treacy's view -

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: discussion of the failure of social democracy it's effect on the rise of populism in europe and elsewhere, China's relative quiet, emerging markets gaining a position of relative strength, gold and oil steady, Bunds ease.



This section continues in the Subscriber's Area. Back to top
December 05 2018

Commentary by Eoin Treacy

France Tops OECD Table as Most Taxed Country

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

Economists say such consumption taxes that reduce pollution and other harmful effects are an efficient way for the government to raise revenue. But the planned move sparked the worst riots to hit Paris in decades on Saturday, leaving the city’s shopping and tourist center dotted with burning cars and damaged storefronts. Protesters vandalized the Arc de Triomphe, rattling Mr. Macron’s administration and the country.

The rise in French tax revenues was in line with a longstanding trend across wealthy countries. The average tax take across the organization’s members edged up to 34.2% of GDP in 2017 from 34% in 2016 and 33.8% in 2000 as governments continued efforts to narrow their budget gaps and limit the rise in their debts that followed the global financial crisis.

Of the 34 countries for which 2017 figures are available, 19 saw a rise in tax revenues relative to the size of their economy, with Israel reporting the largest increase. Mexico continued to record the lowest tax take at 16.2% of GDP, down from 16.6% in 2016.

Eoin Treacy's view -

Social democracy is broken when a non-progressive tax like putting duty on fuel is considered a good idea by an administration that is made up of ex-socialists. Transportation is as much a necessity for the majority of people as clothing and food so why should it be singled out for oppressive taxes? The powers that be, will argue it is aimed at cutting pollution but the reality for most people is simply less money left over at the end of every month. Meanwhile, the well-off, who have luxury of having to commute less or can afford electric vehicles don’t pay the tax.



This section continues in the Subscriber's Area. Back to top
December 05 2018

Commentary by Eoin Treacy

Email of the day on trillion Dollar valuations and tops

Do you remember how I asked you in June or July about the prospects of Apple reaching $1 trillion capitalisation and you told a story of a US Customs officer asking you in April who, in you view, would reach $1 trillion first, Apple or Amazon?

At that time, it struck me since it looked like a bubble signal, a story in the vein of a classic legend of a Wall Street financier and a shoe cleaning boy, asking the former for investment advice ahead of the market crash in October 1929. Truly, it took another six-months for the market and especially Apple to begin to deflate, and before that both it and Amazon had reached $1 trillion mark. And probably Apple stock isn’t a bubble per se, but since October 3 peak it fell 23.9% while Nasdaq Composite, just 10.8%.

As we all know, it’s almost impossible to catch the ultimate peak or trough in the market, but your customs officer story seems to be another interesting story in behavioural finance and a warning of troubles ahead, isn’t it?

Eoin Treacy's view -

Thank you for this email and, yes, I remember the discussion. Here is a link to Comment of the Day on June 7th



This section continues in the Subscriber's Area. Back to top
December 05 2018

Commentary by Eoin Treacy

China's State Media Offers Some Clarity on U.S. Trade Deal

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

There’s still no official statement from Beijing that the deal reached Saturday to not raise tariffs is only for a 90-day period and is dependent on the outcome of talks. China’s government has been slow to formulate its response to the summit as senior officials were still out of the country with Xi,
Bloomberg News reported.

The Global Times is affiliated with the state-run People’s Daily, and published a separate Chinese-language editorial on Tuesday noting that the U.S. had made no mention of Beijing’s “Made in China 2025” plan in any statements after the Xi-Trump meeting, nor criticized China’s industrial policy. China’s government has yet to issue official comment on those details.

The day after Xi and Trump met, the WeChat account of the People’s Daily’s overseas edition published an article detailing some of what was discussed at their talks. The article was by Mei Xinyu -- a researcher at a think tank under the Ministry of Commerce -- and cited a White House statement.

It explained that China and the U.S. had agreed to work together on issues including widening market access, protecting intellectual property rights, avoiding forced technology transfers and jointly fighting against cyber theft.

The China Daily also published a commentary on Tuesday noting the 90-day period, explaining it was a truce and saying the U.S. would likely escalate the trade war if no permanent deal was achieved.

Eoin Treacy's view -

If we look at history, all emerging economies have engaged in some form of industrial espionage. China is bigger than other emerging market in terms of both population and market scope and likewise its concerted effort to acquire know-how by any means necessary has been epic in scale. A true signal China has all it needs in terms of technology expertise, as well as having the confidence that it can innovate on its own quickly, would be if did in fact start to uphold intellectual property rights. Quite whether that would be good or bad news is something I suspect has not yet been debated in government circles.



This section continues in the Subscriber's Area. Back to top
December 04 2018

Commentary by Eoin Treacy

Video commentary for December 4th 2018

Eoin Treacy's view -

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: yield curve spread continues to contract, golds steady, Wall Street and other stock markets pull back from previous areas of resistance to unwind short-term overbought conditions. oil eases, copper weak, palladium at a new all-time high. Dollar steady against the Euro but emerging market currencies strengthening. 



This section continues in the Subscriber's Area. Back to top
December 04 2018

Commentary by Eoin Treacy

2020 Rate Cuts, Unimaginable Last Month, Show Up in Bond Market

This article by Liz Capo McCormick and Edward Bolingbroke for Bloomberg may be of interest to subscribers. Here is a section:

 

“What is the most striking aspect of this move is the extent of it in just two days and how the acceleration came out of nowhere right after a supposed amicable meeting between the U.S. and China,” Peter Boockvar, chief investment officer of Bleakley Financial Group, said in a note. “It’s almost as if the bond market screamed out, ‘It’s too late, the growth slowdown underway can’t be reversed.”’

The curve is flattening because even though cuts have moved on to traders’ radar screen the year after next, the Fed is still expected to lift rates this month and tighten further next year. Inversion has preceded every U.S. recession for the past 60 years.

Eoin Treacy's view -

The spread between the 10-year and the 2-year contracted by another 3 basis points today to take the measure down to 11 basis points. This compression is being delivered by a substantial move in the 10-year and the relative inert trading in the 2-year.



This section continues in the Subscriber's Area. Back to top
December 04 2018

Commentary by Eoin Treacy

May's Brexit Agreement Is a Betrayal of Britain

This article by former Bank of England governor, Mervyn King, may be of interest to subscribers. Here is a section:

 

Leaving the EU is not the end of the world, any more than it will deliver the promised land. Nonetheless the country is entitled to expect something better than a muddled commitment to perpetual subordination from which the U.K. cannot withdraw without the agreement of the EU. 

Many MPs will argue that “we are where we are,” that it’s too late to change course, and that May’s deal is the only deal available. But remember, this is a political not an economic crisis. If Blair and Johnson, from opposing political viewpoints, can see the fatal weaknesses of this proposed deal, politicians of all hues should try to do the same. This deal will not end the divisiveness of the debate about Britain’s relationship with the EU. The Remain camp will continue to argue, correctly, that to align the country indefinitely with laws over which it has no influence is madness, and a second referendum is vital to escape from this continuing nightmare.

And the Leave camp will argue, also correctly, that it is intolerable for the fifth largest economy in the world to continue indefinitely as a fiefdom.

If this deal is not abandoned, I believe that the U.K. will end up abrogating it unilaterally — regardless of the grave damage that would do to Britain’s reputation and standing. Vassal states do not go gently into that good night. They rage. If this parliament bequeaths to its successors the choice between a humiliating submission and the abrogation of a binding international treaty, it will not be forgiven — and will not deserve to be.

Eoin Treacy's view -

It’s hard to see how Theresa May’s minority government is going to survive the Brexit vote on December 11th. Without the DUP and the unity of her party she is going to need a mass defection from the opposition which is unlikely if that event would shore up her government. Being forced by Parliament today to release the details of the legality of the deal is a further sign of her weak position.



This section continues in the Subscriber's Area. Back to top
December 04 2018

Commentary by Eoin Treacy

Palladium Sets Fresh Record as Metal Clashes With Gold

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

Palladium jumped for a second day as it tussled with gold for designation as the most valuable metal.
Parity between the two last happened in 2002. Palladium has surged in the past four months on speculation there isn’t sufficient supply to meet increasing demand for the metal used in vehicle pollution-control devices.

Drivers

Holdings of exchange-traded products backed by palladium are at their lowest since February 2009 as investors pull the metal and offer the commodity for lease to users scrambling for supply. The cost to borrow palladium for a month surged to a record 22%, more than seven times higher than the 10-year Treasury yield.

While palladium keeps rising, it’s a different story for platinum. Palladium’s premium to its sister metal is at the biggest since 2001. Platinum is used mostly in autocatalysts for diesel vehicles, where demand has slipped. The outlook for gold remains positive with Goldman Sachs expecting inflows to gold ETFs next year as investors seek an alternative portfolio diversifier.

Prices

Palladium futures for March delivery +1.3% to settle at $1,180.20/oz at 1:01pm on Nymex in N.Y. Spot palladium +2.4% to $1,234.29/oz; earlier climbed as high as $1,240.01/oz, a fresh record. Gold rises as much as 0.9% to $1,241.97/oz, highest price intraday since Oct. 26

Market Commentary

“Palladium continues to steal the show from all other precious metals,” say Commerzbank analysts including Daniel Briesemann“ The high price premium on palladium is not justified in our opinion because car sales have been fairly weak on all key markets of late” Gold prices are supported “as the U.S. dollar index has backed off,” Jim Wyckoff, senior analyst at Kitco Metals, says in note to clients.

Eoin Treacy's view -

Palladium has surged higher since the August low and a short-term overbought condition is now evident. However, a break in the sequence of higher reaction lows, currently near $1100, would be required to question momentum beyond a pause.



This section continues in the Subscriber's Area. Back to top
December 03 2018

Commentary by Eoin Treacy

Video commentary for December 3rd 2018

Eoin Treacy's view -

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: predictable outcome to the G-20 meeting, stock markets initially bounce but need to hold the move amid short-term overbought conditions, oil steadies, dollar steady, yield curve tightens sharply, Treasuries testing the region of the trend mean, 



This section continues in the Subscriber's Area. Back to top
December 03 2018

Commentary by Eoin Treacy

G-20 Gives Markets a Short-Term Respite

This article by Mohamed A. El-Erian for Bloomberg may be of interest to subscribers. Here is a section:

For the economic reasons discussed here, the most likely outcome was in the middle of that range: a cease-fire with a pathway to a more decisive de-escalation of tensions – or, to use a recent historical parallel, an agreement similar to the one that followed the White House visit of EU President Jean-Claude Juncker in July. And that is what materialized, with the important addition of a three-month deadline for progress.

At the end of almost three hours of what the White House called “highly successful” discussions, the U.S. agreed to refrain for 90 days from implementing additional tariffs on $200 billion of imports from China. In return, China promised to use the time to make progress in three areas of concern to the U.S. and other countries: relaxing an array of nontariff barriers, including joint-venture requirements, that result in forced transfers of technology, operational models and other proprietary information and business practices; combatting intellectual property theft and other cyber interferences; and reducing the bilateral trade surplus by importing “very substantial” quantities of certain goods from the U.S.

Eoin Treacy's view -

The G-20 ended as expected with smiles all round but with not a great deal to report other than a hiatus in the trade war and commitment to go back to talks. There is a little chance of China making anywhere close to the concessions demanded of the USA so it is quite likely the market will be back on tenterhooks by the time late January comes around.



This section continues in the Subscriber's Area. Back to top
December 03 2018

Commentary by Eoin Treacy

Email of the day on my central bank total assets chart:

You have mentioned that the graph showing central bank assets is one of the most important. Consequently, I wondered how the fact that they are reducing this tied in with your moderately optimistic views on the stock market. Do you think the US Fed Reserve will continue to reduce its balance sheet given recent market turmoil?

Eoin Treacy's view -

Thank you for this question which I believe is of general interest and is something I have also been pondering. There are two reasons the chart has been contracting since March. The first is because the Federal Reserve is reducing the size of its balance sheet and other central banks are reducing infusions. The second is the strength of the Dollar has flattered the contraction by reducing the relative value of other currencies held on global central bank balance sheets.



This section continues in the Subscriber's Area. Back to top
December 03 2018

Commentary by Eoin Treacy

Oil Jumps Most Since June on Saudi-Russian Pact, Trade War

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

“There’s going to be a cut, I think it’s going to be more than people expected, and I think the market realized that today,” said Bob Iaccino, chief market strategist at Chicago-based Path Trading Partners.

For a time, oil pared gains on Monday after an OPEC advisory panel was said to make no recommendation for action and people familiar with negotiations said Russia and the Saudis still haven’t agreed on details of a cut. Iranian OPEC Governor Hossein Kazempour Ardebili, meanwhile, raised doubts about whether producers can reach unanimity in Vienna.

 

Eoin Treacy's view -

The big news from the oil market has been the decision by Alberta to reduce supply by 385000 barrels a day. That’s a direct response to the plummet in Western Canada Select from a peak near $60 to $13 last week. This also highlights how it is marginal suppliers reliant on high prices for profitability are most at stress in the evolving secular bear market.



This section continues in the Subscriber's Area. Back to top
November 30 2018

Commentary by Eoin Treacy

November 30 2018

Commentary by Eoin Treacy

The Big Picture

Thanks to a subscriber for this report from Societe Generale 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. 

By this stage subscribers much be wondering why I am posting so many reports that express a bearish view. The simple fact of the matter is I am reposting these reports in an effort to highlight the fact that the last time my inbox was so filled with bearish reports was in the immediate aftermath of the credit crisis.

It seems that the one thing every analyst has learned from the credit crisis is to be hyper alert to any sign of trouble lest they miss out on calling the next big decline. It occurs to me that the investment community is falling into the trap of fighting the last war all over again, even though we are now in uncharted territory in terms of both monetary policy and the quantity of debt outstanding.



This section continues in the Subscriber's Area. Back to top
November 30 2018

Commentary by Eoin Treacy

One Section of the U.S. Yield Curve May Invert as Soon as Today

This article by Katherine Greifeld and Emily Barrett for Bloomberg may be of interest to subscribers. Here is a section:

While a December rate increase is still seen as a done-deal, Fed Chairman Jerome Powell’s comments that interest rates are “just below” the so-called neutral range changed the 2019 outlook. The spread between December 2018 and December 2019 eurodollar futures -- a measure of how much tightening traders expect next year -- is currently just 23 basis points, the equivalent of less than one Fed hike.

The 3-year to 5-year spread is not the only one nearing inversion. The gap between 2-year and 5-year Treasury yields fell to an 11-year low of 1.9 basis points on Friday as 5-year Treasuries added to their weekly gain.

To be sure, the richness of the 5-year sector on the curve has enticed sellers, who Thursday carried out a series of futures block trades betting the sector will cheapen relative to the 10- and 30-year points.

Eoin Treacy's view -

We tend to pay attention to the 10-year – 2-year spread as one of the primary arbiters of tightness in the monetary system. The basic rationale is banks make money by borrowing short-term and lending long-term. When the spread is inverted it reflects a time when that trade no longer works so banks restrict lending which tightens credit conditions in addition to the tightening which is already underway from the Fed.  I can see the rationale for using a longer-dated spread like the 3-month to 30-year as Jeffrey Saut recommends, but why would anyone look at the 3 to 5-year spread?



This section continues in the Subscriber's Area. Back to top
November 30 2018

Commentary by Eoin Treacy

India Seeks to Ease Biggest Hurdle for Factories With New Policy

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

Under the new plan, a company need not purchase land or equipment but could lease them on long-contract basis helping lower costs and cut down time on setting up operations, secretary to the Department of Industrial Policy and Promotion Ramesh Abhishek said in an interview. Units located in
industrial clusters may be able to share infrastructure.

“We have to be competitive,” said Abhishek, who’s ministry has been working on the plan for over a year. “For this we need to upgrade our technology, lower costs, improve logistics, skill our labor. The industrial policy will bring all things together and will come out with recommendations on what needs to be done.”

Prime Minister Modi’s administration has been struggling to fulfill one of his key campaign pledge -- creating 10 million jobs a year-- that propelled him to power in 2014 elections. As the country heads to poll due early 2019, the main opposition Congress party is moving to cash in on the disenchantment over unemployment and rising social tensions.

The reform measure, likely to be one of the last few before the Modi seeks re-election, attempts to attract over $100 billion in investments into the country and kick start the economy. Quarterly growth is expected to have slowed in the three months ended September even as a liquidity crunch at its banks hurts business sentiment before state elections.

Eoin Treacy's view -

I’ve often made the point that China has what India needs and vice versa. At a time when the rest of the world is facing demographic decline India stands out as the one remaining mega-population centre that has yet to industrialise. India has long had a vibrant domestic economy and its companies are already competing effectively internationally. It also has a solid-knowledge based economy focusing on the healthcare and outsourcing sectors. 



This section continues in the Subscriber's Area. Back to top
November 29 2018

Commentary by Eoin Treacy

Video commentary for November 29th 2018

Eoin Treacy's view -

A link to today's video is posted in the Subscriber's Area. 

Some of the topics covered include: Wall street holds its bounce, Brazil, Indonesia, India breaking US Dollar denominated downtrends, US Dollar eases, China weak, Chinese tech shares among weakest on Nasdaq, Santa Claus rally appears to be getting underway. 



This section continues in the Subscriber's Area. Back to top
November 29 2018

Commentary by Eoin Treacy

Morning Tack November 29th 2018

Thanks to a subscriber for this report from Raymond James 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. 

How neutral is neutral is the question Fed watchers are asking this morning. If the ephemeral neutral level is between 2.75% and 3.5% then the middle of the band is over 3% but the lower end of the band is not far from where the rate is set right now and will be even closer after the December hike. That leaves the Fed with the scope to declare “job done” or not as circumstances dictate.



This section continues in the Subscriber's Area. Back to top
November 29 2018

Commentary by Eoin Treacy

2019 Outlook - Late Cycle Blues

Thanks to a subscriber for this report from Barclays focusing on European markets 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. 

As if the Fed’s quantitative tightening were not enough, the Chinese economy which is the destination for a good proportion of Europe’s exports has been slowing. That’s before we even begin to think about the threat represented by the Italian populists or the ongoing Brexit saga. With the ECB ending its quantitative easing program is it any wonder European markets have been underperforming.



This section continues in the Subscriber's Area. Back to top
November 29 2018

Commentary by Eoin Treacy

Emerging Markets Retake the Lead

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

Eoin Treacy's view -

A link to the full report and a section from it is posted in the Subscrober's Area. 

Emerging markets have been under the most acute pressure from quantitative tightening not least because of the quantity of US Dollar loans outstanding. The US Dollar has been the key variable in the lack of appetite for emerging market assets. Therefore, any sign of waning demand for the Dollar or increased supply, stemming from a slowing pace of balance sheet run-off would be welcomed by emerging markets. 



This section continues in the Subscriber's Area. Back to top
November 29 2018

Commentary by Eoin Treacy

Long-term themes review October 29th 2018

Eoin Treacy's view -

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Let me first set up the background; I believe we are in a secular bull market that will not peak for at least another decade and potentially twice that. However, it also worth considering that secular bull markets are occasionally punctuated by recessions and medium-term corrections which generally represent buying opportunities.

2018 has represented a loss of uptrend consistency for the S&P500 following a particularly impressive and persistent advance in 2016 and 2017. Many people are therefore asking whether this is a medium-term correction or a top. There is perhaps no more important question so let’s just focus on that for the moment.



This section continues in the Subscriber's Area. Back to top
November 28 2018

Commentary by Eoin Treacy

Video commentary for November 28th 2018

November 28 2018

Commentary by Eoin Treacy

Powell Sees Solid Economic Outlook as Rates 'Just Below' Neutral

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

Federal Reserve Chairman Jerome Powell said interest rates are “just below” the so-called neutral range, softening previous comments that seemed to suggest a greater distance and spurring speculation central bankers are increasingly open to pausing their series of hikes next year.

Treasuries and stocks rose, as Powell’s “just below” comment tempered remarks he made last month that markets had interpreted to mean that a larger amount of tightening was likely. Speaking at an event on Oct. 3, Powell said that “we may go past neutral. But we’re a long way from neutral at this point, probably.”

In his speech Wednesday to the Economic Club of New York, Powell said the Fed’s benchmark interest rate was “just below the broad range of estimates of the level that would be neutral for the economy -- that is, neither speeding up nor slowing down growth.”

If rates are closer to what policy makers ultimately judge is the neutral level, that could signal the Fed will tighten monetary policy less than previously projected. Eurodollar futures pricing reacted to Powell’s comments, reflecting even firmer expectations that the Fed will hike only once next year.

Eoin Treacy's view -

Investors are on tenterhooks at the prospect of central bank balance sheet unwinding persisting indefinitely. Therefore, they are highly alert to any sign the Fed’s appetite for additional tightening is waning.



This section continues in the Subscriber's Area. Back to top
November 28 2018

Commentary by Eoin Treacy

Money in a digital age: 10 thoughts

Thanks to a subscriber for this interesting transcript of a speech delivered by Agustin Carstens from the Bank of International Settlements. Here is a section:

Another problem is that even those transactions that have seemingly entered the ledger can be retroactively voided. In technical terms, cryptocurrencies such as bitcoin cannot guarantee the finality of individual payments. Although a user can verify that her transaction has been included in the ledger, unbeknownst to her an adversary trying to double-spend coins can create rival versions of that ledger. Since which one of the two ultimately survives is uncertain, the finality of payments is never assured. And because mining, contrary to the decentralised idea, has become an oligopolistic industry, this is a likely threat.

Transaction rollbacks can also occur due to so-called “forking”, when cryptocurrencies split into subnetworks of users, as has happened several thousand times in the course of the last 12 months (Graph 4). Again, this means that finality will forever remain uncertain.

2. Cryptocurrencies are unstable, including so-called “stable coins”
Remember that money is supposed to act as a unit of account, a means of payment and a store of value. I have just explained how cryptocurrencies fall short of the first two of those goals, and they are just as weak regarding the third.

Generating any confidence in a cryptocurrency’s value requires that its supply is predetermined by a protocol. Otherwise, it would be supplied elastically and debase quickly. Therefore, any fluctuation in demand translates into changes in valuation. The valuations of cryptocurrencies are subject to extreme volatility, as shown in Graph 5. This inherent instability is unlikely to be fully overcome by better protocols or financial engineering, as exemplified by many failed so-called “stable coins” – including, most recently, Tether, which saw a marked loss of confidence and substantial deviations from its targeted one-to-one peg to the US dollar. 

This outcome is not coincidental. Keeping the supply of the means of payment in line with transaction demand requires a central authority, typically the central bank, which can expand or contract its balance sheet. The authority needs to be willing at times to trade against the market, even if this means taking risk on its balance sheet and absorbing a loss. In a decentralised network of cryptocurrency users, there is no central agent with either the obligation or the incentive to stabilise the value: whenever demand for the cryptocurrency decreases, so does its price.

Eoin Treacy's view -

The scaling issues with bitcoin are well known and represent the foundation of the many hard forks which have taken place. The simple fact is that the first cryptocurrency, bitcoin, is unwieldy and was never truly designed to an alternative to the global monetary system. That is a major argument for why bitcoin will not survive over the long term as the preeminent vehicle for speculation on the blockchain sector. I have been comparing Bitcoin to Netscape for the last year and I continue to think that is the most appropriate historical comparison.



This section continues in the Subscriber's Area. Back to top
November 28 2018

Commentary by Eoin Treacy

Salesforce Helps Drive Software Index on Revenue Forecast

This article by Nancy Moran and Nico Grant for Bloomberg may be of interest to subscribers. Here it is in full:

Salesforce.com Inc. climbed as much as 9.5 percent on an intraday basis Wednesday, helping to drive a third session of gains in the S&P 500 Software & Services Index, after
issuing a revenue forecast that topped analysts’ estimates.

Sales may reach as much as $3.56 billion in the fiscal fourth quarter, the San Francisco-based maker of cloud-based applications software said in a statement Tuesday. Analysts on average estimated $3.53 billion, according to data compiled by Bloomberg.

Eoin Treacy's view -

I chose Salesforce as one of the original cast of Autonomies back in 2012 when I was writing Crowd Money because it was a leader in the cloud computing sector. In doing so I was betting that it would grow its international revenues to become a truly global company. In the last decade revenues have grown 10-fold but the international spread has remained above the same with about 70% of revenue from the USA.



This section continues in the Subscriber's Area. Back to top
November 27 2018

Commentary by Eoin Treacy

Video commentary for November 27th 2018

November 27 2018

Commentary by Eoin Treacy

The Weekly View November 27th 2018

This note from Rod Smyth at Riverfront may be of interest to subscribers. Here is a section:

Global stocks are reflecting slowing economic date in Europe, Japan and China, and are anticipating the same for the US as the stimulus wears off and higher interest rates start to slow demand for housing and autos. The chart pattern also suggests to us that investors are building in an increased probability of a global recession. We are more positive and believe that there is a good chance that global stocks will bottom around these levels as value investors are likely able to find what the see as bargains at current levels. We too are looking for opportunities where we believe investors have become too pessimistic.

Eoin Treacy's view -

I don’t tend to look at the MSCI World very often because it is heavily skewed towards the performance of the largest companies with a clear overweight in the USA, followed by China. However, it is a global benchmark for many asset managers and therefore its performance represents a significant input into their thinking.



This section continues in the Subscriber's Area. Back to top
November 27 2018

Commentary by Eoin Treacy

Iron ore price craters 8%

This article by Frik Els for Mining.com may be of interest to subscribers. Here is a section:

According to data released by the World Steel Association on Friday, Chinese output, which exceeds that of the rest of the world combined, in October rose 9% from the year before to a record 82.5m tonnes for the month. For the first 10 months Chinese furnaces pumped out 7.6% more steel. Numbers from China's National Bureau of Statistics have production jumping 14% compared to last year.

The ramp up comes ahead of winter production cuts mandated by Chinese authorities and healthy margins for the country's steelmakers, which have now evaporated.

In a note released before the recent pullback Capital Economics chief commodity strategist Caroline Bain, predicted more pain for iron ore prices ahead thanks to rising supply, sluggish demand from the property sector and a shift to electric arc furnaces as scrap availability inside China continues to expand.

Capital Economics believes the price of iron ore had risen to levels not supported by supply and demand and is forecasting end-2019 level of $55 per tonne. One bright spot is the substantial premium paid for higher grade ore from top producers Brazil and Australia as Chinese steelmakers continue to reduce pollution.

Eoin Treacy's view -

Iron-ore demand has turned into a very seasonal business because of China’s desire to moderate emissions during the winter season when the country has been habitually blanketed in thick smog. That forces steel producers to stuff as much production into the 9 months outside the winter season as possible and contributes to less demand for iron-ore during that time. The economic slowdown and uncertainty about the property sector have been additional headwinds for the sector.



This section continues in the Subscriber's Area. Back to top
November 27 2018

Commentary by Eoin Treacy

Email of the day on Europe and the UK

Glad you had a good meeting in London the week before last. Would have been there, but still recovering from breaking a femur in June.

Two things that might interest you.

First, from a John Mauldin letter:

Quick anecdote from my time in Frankfurt. I spoke for fund manager Lupus Alpha to approximately 250 pension fund managers, representing most of Germany’s retirement monies. I asked for a show of hands on whether they liked being part of the European Union. Almost everyone raised their hands. I then asked if they thought participating in the euro was a good thing. Probably 80% raised their hands. When asked who doesn’t like the euro, maybe 10% of the hands went up.

Then the money question. I asked if they would be willing to take Italy’s debt and all the debt of every eurozone member and put it on the European Central Bank balance sheet, with caveats about controlling national budgets. Fewer than 20% of the hands went up.

I then engaged the audience further, saying, the last two questions were essentially the same. If you want to keep the euro, you’ll have to do something about the imbalances between the countries and debts. No monetary union in history has ever survived without becoming a fiscal union as well. Even reminding them that failure to do this might cause the euro to break up and bring back the Deutschmark didn’t seem to change many opinions. I reminded them that a Deutschmark would mean a serious recession/depression in Germany as it would raise the price of all German exports by at least 50%. Mercedes and BMWs are expensive enough for Germany’s customers, let alone at a 50% price hike.

This audience should have easily accepted the argument for putting all European debt on the ECB balance sheet. Imagine if I asked the typical German voter, especially those in rural areas. That tells me Europe could have a bumpier future than I thought.

Second, a piece from the FT (as an attachment) about whether property is still a long-term bet for retirement. Conclusion: it's not.

Thanks for all great recent pieces. I really liked the Ray Dalio discussion.

Have a great Christmas.

Eoin Treacy's view -

Thank you for this informative email and I am delighted you are enjoying the Service. The simplest way to summarise the contradiction at the heart of the Eurozone question is “you can’t be half pregnant” The EU is heading towards federalism or it will break up. The status quo is already being challenged and it will continue to be challenged as a long as millions of people endure lower standards of living.



This section continues in the Subscriber's Area. Back to top
November 26 2018

Commentary by Eoin Treacy

Video commentary for November 26th 2018

November 26 2018

Commentary by Eoin Treacy

RBC Wealth Management 2019 Investment Stance

Thanks to a subscriber for this report 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.

US Corporate Profits spent about four years ranging between 2012 and the end of 2016 and then broke out on the upside. The measure is reported in arrears with a one quarter lag so we will not have another reading until the end of this year and that will reflect the third quarter.



This section continues in the Subscriber's Area. Back to top
November 26 2018

Commentary by Eoin Treacy

The Chinese scientist who claims he made CRISPR babies is under investigation

This article by Antonio Regalado for the MIT Technology Review may be of interest to subscribers. Here is a section:

He said the girls had been conceived using IVF but that his team had added “a little protein and some information” to the fertilized eggs. That was a reference to the ingredients of CRISPR, the gene-editing technology he apparently employed to delete a gene called CCR5.

The claim set off a wave of criticism in China and abroad from experts who said the experiment created unacceptable risks for a questionable medical purpose. Feng Zhang, one of the inventors of CRISPR, called for a moratorium on its use in editing embryos for IVF procedures.

Documents connected to the trial named the study’s sponsors as He along with Jinzhou Qin and said it was approved by the ethics committee of HarMoniCare Shenzhen Women and Children’s Hospital.

On Sunday, the Shenzhen City Medical Ethics Expert Board said it would begin an investigation of He’s research and released a statement saying that HarMoniCare “according to our findings … never conducted the appropriate reporting according to requirements.” The former medical director of the private hospital, Jiang Su-Qi,  told Southern Capital News he had no recollection of approving He’s research while he was on its ethics committee.

“These two children are the guinea pigs. They will go through their whole maturing process having not understood the risks ahead of time,” said Liu Ying of Peking University’s Institute of Molecular Medicine.

Eoin Treacy's view -

Has He been suspended because he went ahead with live human experiments of CRISPR gene editing or because he went public with the news? I have never doubted that China would be the first country to embrace a no-holes-barred approach to genetic editing, including in humans.



This section continues in the Subscriber's Area. Back to top
November 26 2018

Commentary by Eoin Treacy

The frontier market that top rival managers agree on

This article by Sam Benstead for CityWire may be of interest to subscribers. Here is a section:

Bannan agreed and said the current macro environment is very strong, with high rates of GDP growth, low inflation and a large trade surplus.

‘The government has undertaken a lot of reforms over the last decade to open up the economy and encourage investment in vital infrastructure.

'This has allowed Vietnam to industrialise and attract huge amounts of FDI with a lot of production relocating from Northern Asia to Vietnam,’ said Bannan.

'As the Vietnamese move from virtually subsistence existence in rural areas, where 65% of the population still live, to work at these FDI invested factories there is a monumental shift in household wealth. I have experienced these developments first hand, having spent 5 years living in Saigon.'

Eoin Treacy's view -

Vietnam is a beneficiary of reshoring from China regardless of the outlook for deteriorating trade relationships with the USA because wages are so much cheaper there. The nation’s Communist Party is more akin to China’s thirty years ago than the organisation today and with a large young population Vietnam is hungry for growth.



This section continues in the Subscriber's Area. Back to top
November 23 2018

Commentary by Eoin Treacy

November 23 2018

Commentary by Eoin Treacy

2019 US Equity Outlook: The Return of Risk

Thanks to a subscriber for this report for Goldman Sachs 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.

At The Chart Seminar we talk about how the majority of people predict markets. The simple answer is we tend to predict what we see. Over the course of the last eight weeks a very notable rotation into higher quality companies has been underway. Interest rate sensitive businesses have been the big decliners while those angled towards the consumer, with long records of dividend increases have been the clearest outperformers. Since that is what has been working it is the easiest prognostication to think it will persist.



This section continues in the Subscriber's Area. Back to top
November 23 2018

Commentary by Eoin Treacy

BP Starts Production at Massive North Sea Oil Development

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

Clair Ridge is expected to reach a production plateau at a peak of 120,000 barrels of oil a day and is designed to run for 40 years. The companies are currently evaluating the potential for a third project within the field to expand output even further.

It’s BP’s sixth new project to start production this year, the latest marker of the company’s return to growth after years of retrenchment in the wake of its fatal blowout in the Gulf of Mexico. To pay for the 2010 disaster, which killed 11 people and caused the worst offshore oil spill in U.S. history, BP was forced to sell off billions of dollars of assets, shrinking its production.

But a string of new developments that started up over the past two years is reversing that trend, and BP is closing in on its ambition to regain its former size. The company’s production averaged 3.6 million barrels a day in the first nine months of the year, up nearly 3% compared with the same period in 2017. Output will receive a further boost from its recent $10.5 billion acquisition of BHP Billiton Ltd’s shale assets.

Eoin Treacy's view -

Saudi Arabia pumping at capacity is one factor in the decline of oil prices and speculation is rife whether that is a quid pro quo for President Trump’s assistance in Khashoggi assassination scandal.



This section continues in the Subscriber's Area. Back to top
November 23 2018

Commentary by Eoin Treacy

An Evolve-or-Die Moment for the World's Great Investors

This article by Adam Seessel for Fortune.com may be of interest to subscribers. Here is a section:

As these platform companies create billions in value, they are simultaneously undermining the postwar ecosystem that Buffett has understood and profited from. Entire swaths of the economy are now at risk, and investors would do well not only to consider Value 3.0 prospectively but also to give some thought to what might be vulnerable in their Value 2.0 portfolios.

Some of these risks, such as those facing retail, are obvious (RIP, Sears). More important, what might be called the Media-­Consumer Products Industrial Complex is slowly but surely withering away. As recently as 20 years ago, big brands could use network television to reach millions of Americans who tuned in simultaneously to watch shows like Friends and Home Improvement. Then came specialized cable networks, which turned broadcasting into narrowcasting. Now Google and Facebook can target advertising to a single individual, which means that in a little more than a generation we have gone from broadcasting to narrowcasting to mono-casting.

As a result, the network effects of the TV ecosystem are largely defunct. This has dangerous implications not only for legacy media companies but also for all the brands that thrived in it. Millennials, now the largest demographic in the U.S., are tuning out both ad-based television and megabrands. Johnson & Johnson’s baby products, for example, including its iconic No More Tears shampoo, have lost more than 10 points of market share in the last five years—an astonishingly sharp shift in a once terrarium-like category. Meanwhile, Amazon and other Internet retailers have introduced price transparency and frictionless choice. Americans are also becoming more health conscious and more locally oriented, trends that favor niche brands. Even Narragansett beer is making a comeback. With volume growth, pricing power, and, above all, the hold these brands once had on us all in doubt, it’s appropriate to ask: What’s the fair price for a consumer “franchise”?

To be sure, some of the digital-disruption rhetoric is overdone. Cryptocurrency replacing the bank system? Not likely. David Einhorn’s bearish calls on Tesla and Netflix may well be right, not because the stocks are expensive but because they face rising competition. And for all the hype about autonomous vehicles, they’re not anywhere close to being here—yet. But a lot can change in half a generation. If you google “Easter Day Parade, New York City 1900” and then “Easter Day Parade, New York City 1913” and look at the pictures that appear, you will see that the former has nearly 100% horse-drawn carriages while the latter has nearly 100% horseless carriages—i.e., automobiles. And when driverless cars do arrive, what happens to the auto industry? What happens to the auto-insurance industry—that cuddly, capital-intensive commodity business that value investors love to talk about at cocktail parties?

Eoin Treacy's view -

The bane of value investors lives are value traps. A company that looks cheap on paper may be about to go under because its market is disappearing. Hanesbrands is the classic example because it is still cash generative but its products are so easy to copy and new digital sales channels so accessible that it is facing an uphill battle to compete.



This section continues in the Subscriber's Area. Back to top
November 23 2018

Commentary by Eoin Treacy

Japan's Inflation Stalls at 1% as Risks to Price Gains Gather

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

Slow but steady improvement in Japan’s core inflation gauge has come to a halt as a host of forces gather that could see price gains begin to slow.

Consumer prices excluding fresh food rose 1 percent in October from a year earlier, as expected by economists. That’s just half way to the Bank of Japan’s 2 percent target with the prospect of falling energy costs and lower charges from mobile-phone carriers pointing to weaker price growth ahead.

Eoin Treacy's view -

The decline in oil prices is a significant benefit for consuming nations like Japan, India and China. In that regard it is disinflationary rather than an outright drag on the economy. Nevertheless, Japan needs inflation so companies can regain pricing power and promote more dynamism in the economy.



This section continues in the Subscriber's Area. Back to top
November 22 2018

Commentary by Eoin Treacy

Video commentary for November 22nd 2018

November 22 2018

Commentary by Eoin Treacy

The Brexit Declaration on Future Ties: A Guide to What It Says

There is a great deal of commentary at the moment about Brexit so let’s look at what has been proposed in the draft agreement. Here is a section:

Customs
The declaration opens up the prospect of adopting technological solutions to facilitate "the ease of legitimate trade" - including across the Irish border - calling for the
use of "all available facilitative arrangements and technologies".

"Facilitative arrangements and technologies will be considered in developing any alternative arrangements for ensuring the absence of a hard border on the island of Ireland on a permanent footing," it says.

It envisages "a spectrum of different outcomes" in terms of the practical implementation of checks and controls on  movements across borders.

Financial services
The declaration calls on both sides to start assessing  one another's regulatory frameworks as soon as possible after Brexit, with a view to being able to declare them "equivalent" before the end of June 2020.

Freedom of movement
The principle of freedom of movement of people between  the EU and the UK will no longer apply. The two sides will aim to provide through their domestic laws for visa-free travel for
"short-term visits".

They will also consider future conditions for entry and stay for purposes such as research, study, training and youth exchanges.

Eoin Treacy's view -

The title of an article by Matt Chorley for The Times “It is time to shoot the Brexit unicorns” reflects the UK government’s attempts to convince ideological purists that this is the only option available to them.

It’s only a matter of time before someone starts quoting the Rolling Stones. You can't always get what you want

You can't always get what you want
You can't always get what you want
But if you try sometimes you just might find
You just might find
You get what you need, oh yeah



This section continues in the Subscriber's Area. Back to top
November 22 2018

Commentary by Eoin Treacy

Beijing to Judge Every Resident Based on Behavior by End of 2020

Thanks to a subscriber for this article from Bloomberg news which may be of interest to subscribers. Here is a section:

China’s plan to judge each of its 1.3 billion people based on their social behavior is moving a step closer to reality, with Beijing set to adopt a lifelong points program by 2021 that assigns personalized ratings for each resident.

The capital city will pool data from several departments to reward and punish some 22 million citizens based on their actions and reputations by the end of 2020, according to a plan posted on the Beijing municipal government’s website on Monday. Those with better so-called social credit will get “green channel” benefits while those who violate laws will find life more difficult.

The Beijing project will improve blacklist systems so that those deemed untrustworthy will be “unable to move even a single step,” according to the government’s plan. Xinhua reported on the proposal Tuesday, while the report posted on the municipal government’s website is dated July 18.

Eoin Treacy's view -

Anyone who has ever attempted to teach anything to anyone will be familiar with the experience that what you think of as important may not gel with what your presumed student thinks. As a teacher you never really know if you are getting your point across.

I was thinking about that while in Singapore last month. The country has had unparalleled success in turning a backwater into a private banking powerhouse through a commitment to improving standards of governance and rule of law. However, Singapore has also been the subject of much criticism for the strict social control policies they pursued on the way to prosperity. China has long regarded Singapore as a case study so what did they learn?



This section continues in the Subscriber's Area. Back to top
November 22 2018

Commentary by Eoin Treacy

Email of the day on central bank balances sheets

On the Morgan Stanley research document, you posted on Monday, there was "the most important chart in the world" as you describe it (QE globally). The "6-month rate of change" scale on LHS caught my attention. Recently, this QE tightening "rate of change" has moved upwards. Is this an early sign that CBs are starting to shy away from their QE tightening? If so, this is bullish for an equity market discounting future tightening. Maybe the tea leaves are not clear, but they must be monitored.

Eoin Treacy's view -

Thanks for this email which as you highlight raises the very important question of whether central banks have had enough of tightening after taking $1.5 trillion out of circulation since March.



This section continues in the Subscriber's Area. Back to top
November 21 2018

Commentary by Eoin Treacy

Video commentary for November 21st 2018

Eoin Treacy's view -

A link to today's video is posted in the Subscriber's Area. 

Some of the topics discussed include: Wall Street continues to test its lows, credit spreads are widening faster in China than the USA but they are all widening, change of leadership in tech and the wider stock market is the driver behind this correction, oil prices steady but not enough to matter yet, gold steady, Japan steadies.



This section continues in the Subscriber's Area. Back to top
November 21 2018

Commentary by Eoin Treacy

Stock Market Is Even Worse Than You Think It Is

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

The good news is that drops in valuations tend not to last long, especially big ones like the one this year. In a report last week, UBS strategist Keith Parker pointed out that on average the market has returned 16 percent in the year after one in which P/E ratios have dropped significantly. In fact, going back to World War II, there have been only two years in which the market has dropped after a more than 1 percentage point drop in valuations the year before. Parker predicts that the S&P 500 will rise to 3,200, or more than 20 percent, by the end of 2019.

On top of the valuation drop, he points to a high consumer savings rate, a rebound in companies investing in the U.S. and rising productivity as reasons the market will climb next year. But there are also reasons to believe the traditional rebound won’t materialize this time. First of all, while down, the absolute level of stock market valuations are not that low. For instance, the P/E ratio dropped to 12.8 in late 2008 before the market rebounded the next year. The P/E ended at a lower point than it is now in six of the 10 years in which there were big valuation drops.

Eoin Treacy's view -

This is another example of an extremely bearish article which, despite highlighting the tendency of markets to rise after big declines, goes on to conclude “So, no, you’re not wrong that the market is looking shaky. The bad news is that it could still get worse.”

 



This section continues in the Subscriber's Area. Back to top
November 21 2018

Commentary by Eoin Treacy

Natural Gas Climbs as Record Cold Seen Draining U.S. Stockpiles

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

Gas volatility has soared this month as bulls betting on winter supply constraints clash with bears expecting record production to overwhelm demand for the fuel. Prices soared more than 20 percent on Wednesday before tumbling the most on record the following day. Though output from shale basins is at an all-time high, exports have climbed as domestic consumption rises, leaving stored supplies at a 15-year seasonal low.

“We haven’t had this kind of weather in a long time where it gets cold right out of the block in November,” said Tom Saal, senior vice president of energy trading at INTL FCStone Financial Inc. in Miami. “That puts the industry on notice that we are going to need a lot of gas this winter. We could see a lot volatility.”

Eoin Treacy's view -

The question is not whether there is enough gas to go around but rather how much of it can get to market in a timely manner. That points to a lack of pipeline infrastructure rather than a lack of basic resources.



This section continues in the Subscriber's Area. Back to top
November 21 2018

Commentary by Eoin Treacy

India Capital Fund Letter

Thanks to a subscriber for this report from which includes a great deal of data 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.

It occurs to me that the rise of the global consumer is predicated on the rising standards of living of billions of people who have never experienced that condition before. Most people think about China when we talk about the rise of the global consumer but China’s consumers are already middle class; or most of them are. India is the world’s most populous nation and its drive towards improving sanitation, access to electricity, the introduction of the digital economy and growing the manufacturing base are tomorrow’s story and therefore should command our attention today.



This section continues in the Subscriber's Area. Back to top
November 20 2018

Commentary by Eoin Treacy

Video commentary for November 20th 2018

Eoin Treacy's view -

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics covered included: Interest rate sensitive sectors (technology and credit) remain under pressure but are very oversold. oil prices accelerating lower, Dollar firms, gold stable, Brazil steady, Wall Street testing its sequence of higher reaction lows. A lot of bearishness being expressed by analysts.



This section continues in the Subscriber's Area. Back to top
November 20 2018

Commentary by Eoin Treacy

Ray Dalio Discusses Major Financial Crises (Podcast)

I found this interview of Ray Dalio to be very educational and recommend it to subscribers.

Eoin Treacy's view -

Veteran subscribers who have been listening to the Long-Term audios/video over the last 18 months will be familiar with my refrain that the rise of populism is not an isolated incident but a symptom of a much wider global change where the centre is breaking.
 
That challenge to the status quo is resulting in demand for an alternative which is leading to an exploring of legitimacy by what once would have been considered fringe elements. The very fact people still consider this a battle between the left and right is a testimonial to how engrained centrism has become in the public discourse and how useless it is today as a narrative for evolving socio-economic conditions.
 
Three points Dalio makes are that he believes the closest parallel to today is 1937, the long-term debt cycle is in its 7th (of 8) innings and that expectations for future returns should be very low going forward. That begs the question what did the market do in 1937 and in the decade subsequently.
 
Incidentally, his Principles for Navigating Big Debt Cycles is available for free download here: https://www.principles.com/big-debt-crises/



This section continues in the Subscriber's Area. Back to top
November 20 2018

Commentary by Eoin Treacy

The end of the beginning

This presentation by Benedict Evans on what to expect from technology over the coming decade may be of interest. Here is a section from the summary:

Close to three quarters of all the adults on earth now have a smartphone, and most of the rest will get one in the next few years. However, the use of this connectivity is still only just beginning. Ecommerce is still only a small fraction of retail spending, and many other areas that will be transformed by software and the internet in the next decade or two have barely been touched. Global retail is perhaps $25 trillion dollars, after all.

Meanwhile, as companies address more and more of this with software and the internet, they do it in new ways. We began with models that presumed low internet penetration, low speeds, little consumer readiness and little capital. Now all of those are inverted. So, we used to do apartment listings and now Opendoor will buy your home; we used to do restaurant reviews and now you can get a hot meal delivered to your door. Tech is building different kinds of businesses, and so will take different shares of that opportunity, but more importantly change what those industries look like. Tesla isn’t interesting because of what it does to gasoline, but because of what it does to the car. Netflix changes TV, but so does Twitch.

Finally, as we think about the next decade or two, we have some new fundamental building blocks. The internet began as an open, ‘permissionless’, decentralized network, but then we got (and indeed needed) new centralised networks on top, and so we’ve spent a lot of the past decade talking about search and social. Machine learning and crypto give new and often decentralized, permissionless fundamental layers for looking at meaning, intent and preference, and for attaching value to those.

Eoin Treacy's view -

Uber is now offering a service to retailers so that they can have customers picked up and ferried to stores to make purchases. At the same time it is also reaching out to restaurants and telling them what other meals they can produce which are in demand from takeout customers at its UberEats service.



This section continues in the Subscriber's Area. Back to top
November 20 2018

Commentary by Eoin Treacy

Oil Legend Andy Hall Weighs Crude's Chance of Recovery on OPEC

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

 

“The balance of risk at this point favors some sort of recovery,” the trader once known as ‘God’ in the industry due to his lucrative trades, said in a phone interview Friday. “It’s quite likely OPEC will come through with some sort of cut in the next month or two.”

Demand has taken a downturn probably because of a stronger dollar against emerging market currencies, or on concern the trade war between the U.S. and China is beginning to curb economic growth, according to Hall. West Texas Intermediate crude is in a bear market after plunging from a four-year high in October and is trading near $57 a barrel following the biggest gain in U.S. stockpiles in 21 months.

“When you know you’ve got prices in 2020 and beyond for WTI down below $60 a barrel, almost down to the mid-$50s further along the curve, I think that is essentially at the bottom,” said Hall.

Eoin Treacy's view -

Brent crude oil prices have been unable to sustain a rally of more than $3 since early October. Seven consecutive weeks on the downside have unwound the commodity’s entire advance for the year and in the process a deep short-term oversold condition has evolved. That suggests potential to a bounce and reversionary rally back towards the mean is improving.



This section continues in the Subscriber's Area. Back to top
November 19 2018

Commentary by Eoin Treacy

November 19 2018

Commentary by Eoin Treacy

Don't Trade a Bear Like a Bull; Reality Check for Earnings is Good

Thanks to a subscriber for this report from Micheal Wilson for 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. 

​Leverage is quickly being squeezed out of the “new economy” shares which were among the best performers over the last 18 months. That is certainly going to lead to earnings revisions for the companies like Nvidia, Align Technologies and Netflix.

It also holds out the prospect of a lengthier period of underperformance for the segment of the technology sector which has been most aggressively bought by investors over the last few years.



This section continues in the Subscriber's Area. Back to top
November 19 2018

Commentary by Eoin Treacy

Technology Megatrends Leading to the Disruption of Transportation 2020-2030

Thanks to a subscriber for this presentation by Tony Seba which may be of interest.

Eoin Treacy's view -

Perhaps the most interesting part of the discussion focuses on the rate at which the cost of producing batteries is accelerating to almost 20% per annum.
 
That holds out the prospect of batteries becoming commoditised in the same way as solar cells when production comes on lines. For the shares of battery producers that is likely to represent a challenge but not quite yet considering the supply inelasticity argument that still prevails within the market.



This section continues in the Subscriber's Area. Back to top
November 19 2018

Commentary by Eoin Treacy

Bid to Topple May Falters as Tory Lawmaker Revolt Struggles

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

“My expectation is that the number will be reached and there will be a vote at some point,” Crispin Blunt said in an interview in his House of Commons office under a full-size union flag. “One could argue that it would be better that that vote comes after the vote on the deal. If one were to sequence this properly: one would wait until we had the vote on the deal and then have the vote on the prime minister’s position as leader of the Conservative Party.”

Parliament is due to debate May’s Brexit deal in early December, and politicians across the chamber say they will vote it down.
 

Eoin Treacy's view -

Theresa May is surviving for the moment for the simple reason no one else is willing to take the job with so much uncertainty still outstanding. It is politically much more expedient to have May in place so that blame can be heaped on her administration so that whoever takes over will get a chance to start afresh. Therefore, it is very likely that once the bill has been debated in Parliament, and there is greater visibility on which two of the myriad options are most likely to be the outcome, that pressure on May’s ouster will prevail.



This section continues in the Subscriber's Area. Back to top
November 19 2018

Commentary by Eoin Treacy

India and Its Central Bank Signal Truce After Marathon Meet

This article by Shruti Srivastava and Anirban Nag for Bloomberg may be of interest to subscribers. Here is a section:
 

India’s central bank signaled a compromise with the government by agreeing to study a demand for sharing a part of its capital -- an issue that had triggered a public spat between the monetary policy makers and their political bosses.

The Reserve Bank of India will form a panel to consider the funds transfer to the government, the central bank said in a statement after the board meeting that lasted a little over nine hours. It, however, did not immediately yield to demands for easing lending norms for weak banks while retaining capital buffers for banks at 9 percent.

“Both the RBI governor and the finance ministry walked the extra mile,” Sachin Chaturvedi, a member of the board said in an interview to Bloomberg. “They were flexible on several issues.”

The government and the RBI have been sparring over how much capital the central bank needs and how tough its lending rules should be. For a nation that relies on imported capital to fund investment, the reaching of a middle ground is key to retaining investor confidence in the world’s fastest-growing major economy.

Eoin Treacy's view -

The RBI has been attempting to rein in overly aggressive lending practices in the banking sector. While necessary to tackle the bad loans issue, it has set up conflict with the government who are keen to see credit growth to boost the economy particularly with an election next year.



This section continues in the Subscriber's Area. Back to top
November 16 2018

Commentary by Eoin Treacy

November 16 2018

Commentary by Eoin Treacy

Brexit scenarios

Eoin Treacy's view -

It’s good to be home, back at my desk and assessing the markets. The Chart Seminar this week in London was as much an educative experience for me as I hope it was for the delegates. One of the clearest impressions I got from people in the UK is just how sick they are of discussions of Brexit and just wish it was all over. Unfortunately, that prospect is unlikely to be in sight anytime soon.

Let us set aside for a moment who will be prime minister next week because the potential choices available will be no different even if there is an election. However, an election is likely, because without the DUP Theresa May does not have a majority without relying on the good graces of the Labour Party who mush surely smell blood in the water.



This section continues in the Subscriber's Area. Back to top
November 16 2018

Commentary by Eoin Treacy

China Is Giving the World's Carmakers an Electric Ultimatum

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

The world’s biggest market for electric vehicles wants to get even bigger, so it’s giving automakers what amounts to an ultimatum. Starting in January, all major manufacturers operating in China—from global giants Toyota Motor and General Motors to domestic players BYD and BAIC Motor—have to meet minimum requirements there for producing new-energy vehicles, or NEVs (plug-in hybrids, pure-battery electrics, and fuel-cell autos). A complex government equation requires that a sizable portion of their production or imports must be green in 2019, with escalating goals thereafter.

The regime resembles the cap-and-trade systems being deployed worldwide for carbon emissions: Carmakers that don’t meet the quota themselves can purchase credits from rivals that exceed it. But if they can’t buy enough credits, they face government fines or, in a worst-case scenario, having their assembly lines shut down.

Eoin Treacy's view -

China is the world’s largest market for automobiles so what they decide is permissible within their market is likely to shape the plans of manufacturers for the globe. One of the primary reasons companies have been announcing plans for lots more electric and hybrid vehicles over the coming years is because of the Chinese mandates. That is the primary driver behind the capacity build in the battery sector which needs to ramp up substantially if the demand growth profile is to be reached.



This section continues in the Subscriber's Area. Back to top
November 16 2018

Commentary by Eoin Treacy

Nvidia Targets Slashed, Outlook Sparks Worst Day in a Decade

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

Goldman removed Nvidia from its conviction list, writing that it had underestimated both a channel inventory build and a correction in the company’s gaming division.

“While we view the inventory correction in Gaming as a one-time reset as opposed to a change in the long-term growth profile, we believe it could take a few quarters before the market regains confidence in the growth trajectory of the business, especially given the weak economic backdrop.”

Goldman maintains its buy rating, writing that Nvidia still “has access to one of the best growth opportunity sets in Semis,” along with a “sustainable competitive lead.” but cuts its price target to $200 from $283. The average price target is around $239, according to data compiled by Bloomberg.

Eoin Treacy's view -

Nvidia was the best performing share on the Nasdaq in both 2016 and 2017 but the impressively steep trend began to lose consistency at the beginning of this year when breaks failed to be sustained. That suggested the vacuum of supply above the range, necessary for breakouts to occur, was not forming. The break below the trend mean ended the medium-term uptrend and the decline has been unrelenting since.



This section continues in the Subscriber's Area. Back to top
November 16 2018

Commentary by Eoin Treacy

Email of the day on US real estate

I have noticed that you had not shared any insight into the US real estate sector. Will you mind sharing into this sector from the macro angle and the stocks outlook

Eoin Treacy's view -

Thank you for this suggestion which other subscribers may have an interest in. Real estate is a major asset class which has been the subject of price appreciation as a result of quantitative easing just like bonds, equities and art. However, property’s immovable qualities will always mean location and local supply will be essential features to valuations.



This section continues in the Subscriber's Area. Back to top
November 15 2018

Commentary by Eoin Treacy

Video commentary for November 15th 2018

November 15 2018

Commentary by Eoin Treacy

2019 Markets Outlook: Something wicked this way comes?

Thanks to a subscriber for this report from UBS 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. 

The big question at The Chart Seminar this week was whether the condition that has developed on the stock market in 2018 is a medium-term correction in a secular bull market or whether this is the end of the bull market that began in 2009 on Wall Street.



This section continues in the Subscriber's Area. Back to top
November 15 2018

Commentary by Eoin Treacy

After the Fork: How Competing Bitcoin Cash Blockchains Might Wage War

This article by Rachel Rose O'Leary for Coindesk may be of interest to subscribers. Here is a section:

In effect, Wright sees the upcoming split in terms of bitcoin’s longest chain rule – the underlying bitcoin consensus mechanism that defaults to the longest chain in the event of multiple blocks being found simultaneously.

When applied to a blockchain split, what this means essentially means is a fight to the death between the competing chains, where the last one standing would be considered the “true” bitcoin cash by nodes.

For example, both implementations have declined to add so-called “replay protection,” or code that allows funds to be safely spent when a split occurs.

“Neither Bitcoin SV nor Bitcoin ABC have implemented transaction replay protection, as the intention is for only one chain to survive,” nChain, the software company behind Bitcoin SV, wrote in a press release published earlier this month.

This means that without special precautions, users could lose funds while transacting on a split chain. Similarly, hackers can exploit the vulnerability to extract funds from exchanges.

“Users potentially stand to lose money because of this decision,” Chris Pacia, a developer for OpenBazaar, told CoinDesk, adding: “Not adding replay protection is a dick move.”

And there are other ways that the two blockchains could continue to wage war following the fork – especially if one camp continues to dominate the hash power.

At the time of writing, the prevailing hash rate is showing a preference for the SV side. If the preference continues, there’s a host of ways that Bitcoin SV could try to keep ABC from operating.

Eoin Treacy's view -

I’m not going to pretend I have a clear understanding of what is being discussed in the above article. I certainly could not explain it to a dispassionate third party. However, there is one clear conclusion we can reach, an attack is underway on the confidence people have in bitcoin and that is being reflected in the price.

 



This section continues in the Subscriber's Area. Back to top
November 15 2018

Commentary by Eoin Treacy

China's Growth Engines Lose $32 Million a Minute as Markets Sink

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

Nonstate companies have lost at least $992 billion in market value since mid-June, or about $32 million for every minute of trading, according to data compiled by Bloomberg and WisdomTree Investments Inc. In October their shares tumbled at the fastest pace in more than three years relative to companies with government ownership. Local corporate borrowers, almost all of them privately owned, defaulted on a record $6.6 billion of debt in the third quarter. At least 57 nonstate businesses have accepted government bailouts in 2018. Such a wave of quasi nationalizations would have been unthinkable just a few years ago.

The pain has been felt at companies large and small—from internet behemoth Tencent Holdings Ltd. to Jiaxing Linglingjiu Electric Lighting, a producer of thermal bulbs whose owner is weighing whether to ditch the business to go farm a plot of land in China’s rural northeast. “When we meet with fellow factory owners, we don’t ask, ‘How’s business?’ like in previous years,” says Xu Xihong, who started Jiaxing Linglingjiu in 2009 after moving into a factory abandoned by a bankrupt state-run manufacturer of electric fans. “Now it’s ‘Do you think you will make it through the year?’ and ‘When are you going to get evicted?’ ”

Donald Trump’s tariffs and the Federal Reserve’s interest-rate hikes have played a role, but the biggest triggers have been local. By far the most important: the Chinese government’s almost two-year campaign to rein in the country’s $9 trillion shadow banking industry—financial companies that aren’t regulated like traditional lenders. While the clampdown was designed to make China’s financial system safer and more transparent, it’s crimped a key funding channel for private-sector companies that lack access to state-run banks. Faced with a drying up of credit and the country’s weakest economic expansion since 2009, more small businesses are defaulting on debt or liquidating.

Eoin Treacy's view -

The availability of credit and how it is disbursed throughout the economy has been a point of contention in China for decades. The simple fact is that the government and banks do not make enough available but then impose tough growth targets on the regions to meet which encourages credit expansion by any means necessary.



This section continues in the Subscriber's Area. Back to top
November 14 2018

Commentary by Eoin Treacy

Video commentary for November 14th 2018

November 14 2018

Commentary by Eoin Treacy

EU Unveils No-Deal Brexit Plans to Avert Financial-Market Chaos

This article by Silla Brush and Alexander Weber for Bloomberg may be of interest to subscribers. Here is a section:

The EU executive also responded to industry warnings about Brexit’s threat to data flows between the EU and the U.K. A “broad toolbox for data transfers to third countries” is available under existing regulations, such as securing explicit consent from clients, so the commission said it’s not planning to issue the kind of “adequacy decision” that British lawmakers have called for.

No contingency measures will be needed for non-cleared “over-the-counter” derivative contracts or insurance policies, the commission said. U.K. regulators have been warning for more than a year that a disorderly Brexit with no transition period could put such financial contracts at risk.

The commission promised to issue an equivalence decision covering U.K. central security depositories, which settle trades in equities. Ireland has relied on a U.K.-based firm called Crest to settle trades since the 1990s.

Eoin Treacy's view -

The timing of the EU announcing its willingness to deploy contingency plans in the event of the UK leaving the EU without an contingency agreement, the same day that they released the jointly agreed text, is a testament to the risk that the May government will fail in getting it through parliament.  



This section continues in the Subscriber's Area. Back to top