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December 07 2022

Commentary by Eoin Treacy

Video commentary for December 7th 2022

Eoin Treacy's view -

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

Some of the topics discussed include: China pandemic surge inevitable as quarantines and testing ease, oil lower, gold stronger, Dollar weak, Chinese shares rolling over, Treasury yields lower as deflation priced in, Nasdaq-100 easing back from 200-day MA. overbought instruments susceptible to weakness. 



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December 07 2022

Commentary by Eoin Treacy

China Considers GDP Target of About 5% in Pro-Growth Shift

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

The Politburo on Wednesday signaled more stimulus could be on the cards next year, saying fiscal policy will be kept active with a focus on improving its efficiency, while monetary steps will be “targeted and forceful.” China will “push for overall improvement of the economy,” the official Xinhua News Agency said in a readout of the meeting. 

Larry Hu, head of China economics at Macquarie Group Ltd., said the message from the Politburo meeting was “loud and clear: Zero-Covid is behind us, and growth would be the top priority for next year.” The signals suggest policymakers want to bring next year’s growth rate back to its potential of above 5%, he said.

The growth outlook for next year remains highly uncertain, given a likely surge in coronavirus infections and further disruption expected to the economy. The global economy is also at risk of falling into recession, and a recovery in China’s property market remains elusive.

Eoin Treacy's view -

China has built permanent plague hospitals in several of the largest cities. That is in preparation for a significant rise in the number of COVID infections. Now that the restrictions on movement and the draconian testing regime are being relaxed, the number of cases is likely to surge. 



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December 07 2022

Commentary by Eoin Treacy

Wall Street Managers Are Learning to Love Treasury Bonds Again

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

Morgan Stanley projects that a multi-asset income fund can now find some of the best investing opportunities in nearly two decades in dollar-denominated securities, including inflation-linked debt and high-grade corporate obligations. The interest payments on regular 10-year Treasuries, for example, has hit 4.125%, the highest since the global financial crisis.

Meanwhile Pacific Investment Management Co. reckons long-dated securities, the biggest losers in this era of Federal Reserve hawkishness, will bounce back as a recession ignites the bond-safety trade, with government debt acting as a reliable hedge in the 60/40 portfolio complex once more.

“People are excited, believe it or not,” said Maribel Larios, founder and CEO of Fiduciary Experts, a Murrieta, California-based registered investment advisor. “It’s all relative, as they’ve seen these fixed-income accounts pay little to nothing in the past. So, 4% — or even about 2% to 3% in some cash accounts — is relatively good now.”

Eoin Treacy's view -

Banks like Deutsche and Morgan Stanley are taking an axe to their earnings estimates for the S&P500 next year. Corporate earnings have been resilient, even as the Fed has hiked rates faster than at any time in the last 40 years. That is unlikely to persist as the lagged effects of tightening catch up.



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December 07 2022

Commentary by Eoin Treacy

India is set to become the first country ever to receive $100 billion a year in remittances

This article from Quartz maybe of interest to subscribers. Here is a section:

Inward remittances, accounting for around 3% of India’s GDP, surged 12% from 2021.

Besides a large working population of Indians living abroad, there were other reasons, too, for this increase. For instance, students are the other big constituents of the Indian diaspora. They eventually form high-income groups, with direct implications for remittances.

The depreciation of the Indian rupee has also helped. Since January, the currency has fallen 10% against the dollar. This has made sending money from South Africa to India cheaper by 26%, from Thailand by about 17%, and from Japan by 14% in the past year or so, the World Bank has said.

Eoin Treacy's view -

The dilemma for countries with high rates of emigration is they end up sending the most ambitious, adventurous, and well-educated abroad. The so-called “brain drain” is mourned by society and people lament that if these productive people could stay at home, they would better society. However, the reality is those people probably have better personal opportunities overseas and would not reach their full potential at home. The benefit is they send cash home which is a significant source of inward foreign currency.



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December 07 2022

Commentary by Eoin Treacy

December 06 2022

Commentary by Eoin Treacy

Video commentary for December 6th 2022

December 06 2022

Commentary by Eoin Treacy

Investors Overseeing $5 Trillion Are Betting That an Economic Recession Can Be Avoided

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

Professional investors are loading up on bets that an economic recession can be avoided despite all the warnings to the contrary. It’s a dangerous bet -- for a variety of reasons.

Money managers have been favoring economically sensitive equities, such as industrial companies and commodity producers, according to a study from Goldman Sachs Group Inc. on positioning by mutual funds and hedge funds with assets totaling almost $5 trillion. Shares that tend to do well during economic downturns, like utilities and consumer staples, are currently out of favor, the analysis shows.

The positions amount to wagers that the Federal Reserve can tame inflation without creating a recession, a difficult-to-achieve scenario often referred to as an economic soft landing. The precariousness of such bets was on display Friday and Monday, when strong readings on the labor market and American services sectors drove speculation the Fed will have to maintain its aggressive policies, increasing the risks of a policy error.

“Current sector tilts are consistent with positioning for a soft landing,” Goldman strategists including David Kostin wrote in a note Friday, adding that the fund industry’s thematic and factor exposures point to a similar stance. 

Eoin Treacy's view -

I am reminded of 2007 and 2008 when commodities were surging and banks beginning to roll over. At the time commodity inflation was running rampant but there was relatively little upward pressure on wages. The growing weakness in the housing sector effectively kept wage demand growth under control. Nevertheless, the spike in energy prices and overleverage in the financial system caused a significant problem.



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December 06 2022

Commentary by Eoin Treacy

US Crude Output Set to Tap Record in 2023 Amid Rising Rigs

This note from Bloomberg may be of interest. Here it is in full

U.S. crude oil production in 2023 is forecast at 12.34m b/d, an all-time high and revised up slightly from 12.31m b/d projected in November, EIA says in monthly Short-Term Energy Outlook

2022 output estimated at 11.87m b/d vs 11.83m b/d

Output to grow annually in 2023 at an average rate of 470k b/d vs prior forecast of 480k b/d

See here the forecast for US fuel demand in 2023:

Gasoline demand revised up to 8.77m b/d from 8.75m previous forecast
Distillate consumption seen at 3.94m b/d from 3.93m
Jet fuel use estimated at 1.64m b/d from 1.57m

EIA sees contraction in US economic activity in Q4 2022 and Q1 2023, though will be shorter and milder than previously forecast

Eoin Treacy's view -

The go-go days of limitless spending on securing leases and active drilling are receding into the distant past. The peak in the horizontal rig count was in 2014 at almost 1400. Since then the focus of investors and companies has turned towards sustainable profitability. Concurrently many institutional investors now also have to worry much more about environmental sustainability.



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December 06 2022

Commentary by Eoin Treacy

Amazon set to fire 20,000 employees, including top managers

This article from wionews.com may be of interest. Here is a section:

CEO Andy Jassy had earlier hinted about the layoff, however, he had not clearly specified the number of employees to be laid off. The New York Times had, in November, reported that the company was considering laying off employees.

However, a recent report now claims that the number of employees likely to be fired has now increased to 20,000 and that people at all levels are likely to be fired by the company. Recently, Amazon’s CEO announced that they would continue the process of a layoff and that the employees who will be impacted will be informed after everything is assessed by the company.

Eoin Treacy's view -

Amazon is a low margin business. The company just about breaks even on the high volume online marketplace it is synonymous with. Profits are raised first from the Web Services division and more recently from advertising. In boosting advertising and pay-to-play models, the company has taken the bet that convenience trumps quality assurance. It’s not clear that was the right move.



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December 06 2022

Commentary by Eoin Treacy

Email of the day on video playback issues

Video link does not work

And

Same from Dominican Rep...

And

still not working

And

Just like British trains over Xmas

Eoin Treacy's view -

Thank you for letting me know. This is a maddening issue because the videos play fine for me. I have been in contact with Vimeo's customer support this morning to try and get this issue resolved.

The original reason for using Vimeo was uploading videos was much faster than YouTube. That is no longer true. They are both now equally slow. 

My dilemma is I have over 3200 videos sitting on the platform and do not wish to pay for two services just so I don’t lose my archive. Nevertheless, in the interest of ensuring subscribers have access to the full content of the Service I will switch to YouTube for the time being.

 



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December 05 2022

Commentary by Eoin Treacy

Video commentary for December 5th 2022

Eoin Treacy's view -

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

Some of the topics discussed include: PMI surprises on the upside, Dollar steadies, yields rise, gold pulled back sharply, oil weak, Hong Kong firm but US Chinese stocks point to weakness tomorrow. oil weak. container demand collapsing. 



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December 05 2022

Commentary by Eoin Treacy

Correction

Correction: In the Friday email, commentary and, video I used an erroneous calculation of compound interest to draw exaggerated conclusions. This has now been corrected in the copy and a new big picture video has been posted. I want to explicitly apologise. I’ve been losing sleep at the enormity of shame I feel at such a schoolboy error and suffice to say it will not recure. It also tells me that stress comes at a cost, and I need to be more careful with my position sizing in my personal trading.

December 05 2022

Commentary by Eoin Treacy

Apollo, Oaktree Test $2.3 Trillion Frontier for Private Credit

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

“There will be geographic expansion as these markets continue to evolve along a similar trajectory with a lot of the same trends we saw in the US,” Michael Arougheti, chief executive officer of Ares Management, said of private credit in an interview on Bloomberg Television. “If we continue to demonstrate durable performance through cycles then the appetite for the asset class will continue to grow significantly.”

Yet it is not without risk. With the US economy slowing, more companies that private credit funds lend to may begin defaulting on their repayments next year as earnings decline and interest on their floating-rate loans rises.

“Private credit is a place people can go to benefit from rising rates,” Arougheti said. “The flipside of that is that as rates are going up, debt service becomes more challenging.”

An additional problem is the less stringent valuation process for private credit portfolios compared with assets in public markets, which can leave poor investments hidden for longer.

Eoin Treacy's view -

Private credit ballooned in size following the credit crisis as big banks retreated from riskier parts of the lending market and quantitative easing flooded the market with liquidity. Non-bank lenders now dominate the US mortgage markets. Companies like Citadel dominate market making in stocks. Private equity groups are now some of the largest property owners in the world. Private credit groups are now also dominating commercial credit markets. The fact they are migrating to international markets suggests the domestic US market is at capacity.



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December 05 2022

Commentary by Eoin Treacy

Musk's Last Laugh With Impossible Electric Truck

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

The first working models of the Semi were delivered last week to PepsiCo Inc., part of an order of 100 vehicles. That’s three years behind schedule, but it still happened. More sober carmakers are getting in on the act, too. Alongside Volvo, Daimler Truck Holding AG has had orders for 1,280 zero-emission trucks and buses in the first half of this year, and unveiled a prototype long-haul model in September.

What’s changed? If Tesla had made dramatic breakthroughs in battery density, Musk would be boasting about it, so that's not the answer. There’s one huge difference in 2022 compared to 2017, however: the cost of diesel.

The decline of domestic oil refining and 2022’s squeeze in energy prices have conspired to drive US truck fuel costs up to almost double what they were five years ago. Plug the current prices of Californian diesel and commercial electricity into the trucking expenditure calculator made by logistics-data company ACT Research Co., and even an electric rig that’s twice as pricey to buy as a conventional vehicle is getting 12% cost savings every mile, equivalent to nearly $17,000 a year at typical usage levels.1

That might not last as diesel prices fall back to earth, but it’s close enough to put electric trucking firmly in the game.

The other factor supporting the Semi right now is that it’s not trying to offer full-spectrum competition to long-haul trucks. Its range is only half what a Class 8 can do between refueling stops. It’s telling, too, that one of its first customers will be a Frito-Lays plant. If you’re worried about the challenges of hauling heavy loads as well as your massive batteries, few types of cargo will be more forgiving than feather-light pallets of potato chips.

Eoin Treacy's view -

The first thing that comes to mind is virtue signalling. Putting a few hundred or thousand large electric haulage vehicles on the road will help reduce emissions inside cities. They will be visible to large numbers of people and everyone will feel good about “helping” the environment. Meanwhile the heavy lifting of haulage will continue to depend on diesel.



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December 05 2022

Commentary by Eoin Treacy

Amazon's Biggest Revenue Driver AWS Falls Prey To Macro Slowdown

This article from Benzinga may be of interest. Here is a section:

Amazon is aware of the macro challenges, and hence AWS employees are reaching out to clients to see how it can help optimize spending, said David Brown, AWS' vice president.

"If you're looking to tighten your belt, the cloud is the place to do it," AWS CEO Adam Selipsky said during his keynote presentation.

However, an investment firm Andreessen Horowitz analysis last year, painted a different picture. It showed that a company could trim its computing costs by half or more by bringing workloads from the cloud back to on-premises data centers.

Amazon is also offering a cheaper alternative, Graviton computing instances based on energy-efficient Arm-based chips alternative to standard Advanced Micro Devices, Inc (NASDAQ:AMD) and Intel Corp (NASDAQ: INTC) processors.

"We do see some customers who are doing some belt-tightening now," Selipsky told CNBC. Expedia Group, Inc (NASDAQ: EXPE) CEO Peter Kern sees the cloud as an area where his company can reduce its fixed costs.

Eoin Treacy's view -

The point I have been making for at least the last year is large companies offering cloud services saved startups time in scaling up. Instead of buying servers and hiring teams or engineers to create a data base, they outsourced that to companies like Amazon, Microsoft and Google/Alphabet. As the fountain of money supporting the startup scene ebbs, that will inevitably hit spending on outsourced data infrastructure. The subscription business model only works when you have subscribers.



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December 02 2022

Commentary by Eoin Treacy

December 02 2022

Commentary by Eoin Treacy

Cash as an asset

I posted this piece on Friday discussing the merits of shorter-term bonds versus long-term bonds. The calculations I posted are incorrect because the stated yield is annualised. Therefore the compounding chart I posted is completely erroneous. I really should remember that anything which seems too good to be true usually is. I don’t know what I was thinking and can only apologise. Nevertheless, my conclusions about gold, the dollar and the outlook for stocks remains unchanged. I’ve amended the copy below to make more sense.

Eoin Treacy's view -

During the decade of zero interest rates, savers were sacrificed in the interests of reviving animal spirits among speculators. Rates were held at both low absolute and negative real levels for years.

That forced conservative investors, like pensions, endowments and regular consumers into much riskier assets. Performance in the fixed income markets was driven by price momentum rather than yield which left the sector exposed to the current round of interest rate hikes.



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December 02 2022

Commentary by Eoin Treacy

December 02 2022

Commentary by Eoin Treacy

Housing Tumbles Down Under as Soaring Borrowing Costs Take Toll

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

In Australia, where the pace of housing declines has eased, the outlook for mortgagees is similarly tough: borrowing capacity has fallen and monthly repayments have surged. In addition, a large chunk of loans that were fixed at record-low rates during the pandemic are due to roll over in 2023 at a much higher rate. 

With the full impact of past hikes yet to be felt, rates still rising and the economy set to weaken, there’s likely still some way to go before prices bottom, said Shane Oliver, chief economist at AMP Capital Markets in Sydney. 

Given expectations that rates will rise higher in both countries, some economists see home values dropping more than 20% from their peaks. 

Eoin Treacy's view -

Rolling fixes is likely to be a major topic of conversation in Australia, Canada, and the UK in 2023. The impending step higher in mortgage payments for millions of consumers is the central dilemma for their respective central banks. They need to raise rates to try and tackle inflationary pressures but every hike makes the problem of consumer debt sustainability worse.



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December 02 2022

Commentary by Eoin Treacy

Cannabis banking bill and retirement package both could actually pass Congress by year's end, analysts say

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

Lame-duck session might result in OKs for 'SAFE Banking Plus' and 'Secure Act 2.0'

It has been a long road for Washington's cannabis banking bill and an unrelated measure targeting the U.S retirement system.

Now both legislative packages have decent or even strong chances of becoming reality by year's end, according to analysts.

The bill that aims to protect financial institutions that work with the marijuana industry (MSOS)(MJ) is known as "SAFE Banking Plus," with the "Plus" referring to its expected inclusion of some criminal-justice reform provisions.

The cannabis banking bill has a roughly 70% chance of passing by the end of December, reckons Ben Koltun, director of research at Beacon Policy Advisors.

"There's a lot of positive momentum. It's just can they come to agreement over some of the details that are outstanding?" Kolton told MarketWatch.

Cowen Washington Research Group is also bullish on the measure, putting its chances at 75% -- up from 60% in October.

"We are increasingly optimistic that Congress will enact the SAFE Act on cannabis banking by the year-end. We now set a 75% probability for passage based on the election outcome, the passage of a cannabis research bill, and the broader progress the Senate made over the last 2 weeks on other bills," said Cowen analyst Jaret Seiberg in a note on Monday.

Eoin Treacy's view -

I feel very conflicted by the cannabis sector. On the one hand my libertarian leanings support the view that individuals have a right to do whatever they want with their own bodies and everyone’s lived experience is their own to do with as they will. On the other, I hate the smell of cannabis smoke in public areas and the trend of licentiousness is not a positive development for the cohesion and security of society at large.



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December 01 2022

Commentary by Eoin Treacy

Video commentary for December 1st 2022

December 01 2022

Commentary by Eoin Treacy

Gold Climbs to Highest Since August as Inflation Misses Estimate

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

The Personal Consumption Expenditure Deflator, a measure of inflation based on changes in personal consumption, rose 0.3% in October from the month before, below economists’ median forecast. It follows two other inflation gauges that indicated price pressures were easing, boosting bets on a slowdown in monetary tightening. 

Rate hikes to curb inflation have weighed on non-interest bearing gold throughout the year by pushing up bond yields and the dollar. Bets on a slowdown and China’s Covid loosening saw bullion rise 8% in November as the greenback retreated the most since 2009.

Other data showed the jobs market gradually cooling, a welcome sign for the Fed as it tries to tame inflation. Wage gains driven by labor tightness have been a major driver of price increases.

Eoin Treacy's view -

The swift pace of Fed tightening was a major tailwind for the US Dollar. Now that the Fed is slowing the pace of hiking it reduces that tailwind and the Dollar is now trending lower. That’s a significant tailwind for gold.



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December 01 2022

Commentary by Eoin Treacy

Credit Suisse Slump Takes Shares Near Rights Offer Price

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

The threshold of 2.52 francs is “the ‘hard underwriting’ price for the consortium of 19 banks,” JPMorgan & Co. analysts said in a research note. If Credit Suisse’s shares keep trading above that level until “the last day of rights trading on Dec. 6, 2022, we can assume at that point the capital raise was most likely a success.”

Having a large number of underwriters makes it easier to find buyers and reduces the risk for the investment banks to get stuck holding a large amount of the shares. As part of the lender’s capital raise plans, Saudi National Bank to invest up to 1.5 billion francs in the lender, becoming a top shareholder. 

Credit Suisse Chairman Axel Lehmann, speaking at a conference in London on Thursday, said that the stock would stabilize after the rights issue is completed and that investors should expect volatility until then. The new shares are due to start trading on Dec. 9. 

“I cannot predict where the share price is going,” Lehmann said. Until the end of the capital raise process, “we will have a little bit of volatility, but then I think it will start to somewhat stabilize and bottom out, and then we go from there.”

Eoin Treacy's view -

Credit Suisse’s share price continues to accelerate lower. A catalogue of management errors has seen the share lose close to 90% of its value since 2013. Tightening global liquidity is a proximate cause of stress, but the bank also needs to address many of the internal controls that led to this condition too.



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December 01 2022

Commentary by Eoin Treacy

US Seeks Halt to Oil-Reserve Sales to Refill Depleted Stockpiles

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

The Biden administration is seeking to stop sales from the Strategic Petroleum Reserve mandated by Congress so it can refill the emergency reserve, a move that could impact the release of 147 million barrels of crude oil.

The Energy Department is seeking to cancel or delay sales mandated by Congress in fiscal years 2024 through 2027 so that it can move forward with a White House plan to refill the oil reserve when crude prices reach around $70 a barrel, an agency official told a Senate committee Thursday. Congress has mandated the sale of 147 million barrels of oil to pay for unrelated legislative initiatives during that time frame, including 35 million barrels in fiscal 2024, according to data compiled by research firm ClearView Energy Partners. 

“It doesn’t make sense for us to be releasing oil while we’re trying to refill the SPR,” Doug MacIntyre, the department’s Deputy Director for the Office of Petroleum Reserves, said in testimony before the Energy and Natural Resources Committee. “We can’t fill and release from the same site at the same time.”

Eoin Treacy's view -

It would be easy to conclude the US government had never heard the maxim “buy low, sell high” when they decided to put the floor for purchases at $70. Of course, if we instead think of the USA as a major energy producer, with an administration that is attempting to force a migration away from dependence on oil, higher prices for longer make sense.



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December 01 2022

Commentary by Eoin Treacy

November 30 2022

Commentary by Eoin Treacy

Video commentary for November 30th 2022

Eoin Treacy's view -

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

Some of the topics discussed include: Powell pleases markets, Wall Street rebounds led by Nasdaq, dollar weak, gold firm, emerging markets and Europe rebound, bonds yields contract. yield curve still inverted and deeply so. Recession is still likely in 2023. 



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November 30 2022

Commentary by Eoin Treacy

Email of the day on the big turn:

Since returning from the Chart seminar in London I have spoken to several people who work in the Israeli high-tech industry, They all tell me that about 10% of their colleagues have lost their jobs recently. Today you referred to your MIIN index. How can we invest in these countries?

Eoin Treacy's view -

Thank you for this additional insight. The market for big ideas ballooned with the delivery of free money. Suddenly, no idea was too grand, or time to delivery/commercialization too long. That trend was looking tired in 2019, as the Federal Reserve’s quantitative tightening was siphoning liquidity from the global economy.



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November 30 2022

Commentary by Eoin Treacy

EU Is Hooked on Russia LNG and Paying Billions to Keep It Coming

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

“Russian LNG has to continue to flow,” said Anne-Sophie Corbeau, a researcher at Columbia University’s Center on Global Energy Policy. “We need that on the global LNG balance: it is already tight enough as it is. I think most European countries are indeed happy to turn a blind eye on this.”

Among European nations, only the UK and Baltic states have stopped buying Russian LNG. By contrast, Russian oil has been widely shunned by buyers across the region, and an EU ban is set to come into force on Dec. 5.
 
A complete embargo on Russian gas has never been seriously considered, given the scarcity of global supply and the potential for an even tighter market next year. Yet the EU has made efforts to find alternative supplies. In March, the bloc pledged to replace almost two-thirds of its gas imports from Russia this year, with most of the new volumes coming in the form of global LNG.

Russian gas now makes up less than 10% of the region’s supply of the fuel, down from more than a third last year, but the share of LNG in Russia’s deliveries is close to half.

 

Eoin Treacy's view -

There is a great deal of discussion about the prospect of a price cap on Russian oil and gas exports. This is the alternative to a full embargo on Russia imports which are slated to go into effect next week. Since Europe still relies on Russia for 10% of its gas, the “price cap” is a virtual necessity to keep economic activity moving even if it is impossible to enforce effectively. That suggests a deal will be reached in coming days.



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November 30 2022

Commentary by Eoin Treacy

Powell Signals Downshift Likely Next Month, More Hikes to Come

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

“The time for moderating the pace of rate increases may come as soon as the December meeting,” Powell said in the text of his speech. “Given our progress in tightening policy, the timing of that moderation is far less significant than the questions of how much further we will need to raise rates to control inflation, and the length of time it will be necessary to hold policy at a restrictive level.”

Policy-sensitive 2-year Treasury yields fell on Powell’s remarks, erasing increases on the day, and the S&P 500 index reversed losses to trade higher. The dollar slipped in value against major rivals on foreign-exchange markets.

The Fed’s actions -- the most aggressive since the 1980s -- have lifted the target range of their benchmark rate to 3.75% to 4% from nearly zero in March. Powell said rates are likely to reach a “somewhat higher” level than officials estimated in September, when the median projection was for 4.6% next year. Those projections will be updated at the December meeting.

Eoin Treacy's view -

Jerome Powell confirmed today that the pace of Fed hikes will moderate; not reverse or pause. Nevertheless, cashed-up traders are more than willing to take anything less than outright hawkishness as good news.



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November 29 2022

Commentary by Eoin Treacy

Video commentary for November 29th 2022

November 29 2022

Commentary by Eoin Treacy

China Uses Police, Censors, Covid Easing to Stem Protests

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

The softer tone followed unrest over the weekend that was triggered by a deadly fire in the city of Urumqi last week. The protests sputtered Monday night, after Beijing deployed a heavy police presence to clamp down on gatherings. Cities including Shanghai, Hangzhou, Nanjing and elsewhere also saw fewer demonstrations, while censorship of protest-related discussions ramped up across the social media platforms that had been used to vent public anger.

Some concessions have quietly emerged. People who stay home don’t need frequent Covid tests, the state news agency said on Tuesday, a retrenchment from the previous reliance on mass testing to track the virus. The elderly and students taking online classes were exempted from daily tests in Guangzhou.

Government restrictions imposed in Beijing to trace the source of Covid or identify those infected generally must not exceed 24 hours, officials said.
 

Eoin Treacy's view -

China’s government is adopting a carrot-and-stick approach to containing the recent outpouring of emotion on the streets. Vaccinating large numbers of elderly people and quietly circulating information that the Omicron variant is less deadly have been two policies deployed over the last 48 hours. At the same time, the streets have been flooded with police and protestors are being made aware, both publicly and privately that there are costs to challenging the status quo.



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November 29 2022

Commentary by Eoin Treacy

Email of the day on reorienting globalisation

I see a third question more related to the protests, not COVID, and I apologize in advance for the potential false equivalency. When comparing Europe's energy situation and the global supply chain / China sourcing situation how will each unfold in future years? Certainly both are heading directions (reversing) that will not turn. Are Europe's hooks deeper into the Russian supply habit or is the global supply chain China habit even deeper?

I am most interested in the impact similarities these two withdrawal themes may have on the West, and the length of time change will take. I have long thought North America "has it all" when you look at materials, labor, and markets.

Eoin Treacy's view -

Thank you for this question which raises some important points. The conclusion that Europe is in a more difficult position than North America is clear but nothing is ever so simple.

Europe relied on Russia to supply much of its energy and much of the money spent on imports was recycled through European countries. That is over. Europe now needs to mirror the USA’s success in becoming energy-independent.



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November 29 2022

Commentary by Eoin Treacy

India's Free-Market Oasis Aims to Take On Singapore and Dubai

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

Another product has migrated to the financial center: a popular derivative based on a benchmark gauge of Indian stocks that was traded on the Singapore Stock Exchange. In 2022 the National Stock Exchange of India opened a cross-­border trading link with Singapore—similar to the Hong Kong-Shanghai connect—to allow global investors to trade stock derivatives listed on the Indian market without needing to set up shop in India.

Trading volumes have increased since a single regulator, the IFSC Authority, was created by the Indian government in 2020 to streamline approvals and oversight in the special economic zone. In October, average daily turnover on the two stock exchanges in the financial center climbed to $14.6 billion, from $3.4 billion two years before, cumulative derivative transactions by banks jumped to $466 billion, from $22 billion, and cumulative banking transactions rose to $303 billion, from $45 billion.

“Beyond the shores of India, in some of those centers where India-centric business developed, they are able to notice that something is happening, and things may not be the same in the future,” says Injeti Srinivas, the IFSC Authority’s chairman. “Business is gravitating toward IFSC.”

A new international bullion exchange will let qualified jewelers directly import gold to India through GIFT City, a change from current rules permitting only some banks and nominated agencies approved by the central bank to do so. That loosening of restrictions is set to widen the importer base in India, the world’s second-biggest consumer. An aircraft leasing and financing business is operating in GIFT City to tap into the demand of one of the world’s hottest aviation markets for new-plane orders. Ship leasing will start soon.

Eoin Treacy's view -

Bull markets thrive on liquidity and so do economies. India has a burgeoning young population. The biggest challenge the government has is growing the economy quickly enough to absorb the productive capacity of that many people. Setting up special economic and financial zones is a vital step in attracting sufficient inward investment to make a difference.



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November 29 2022

Commentary by Eoin Treacy

Eoin's personal portfolio: hedge short profits taken, trading short losses taken, investment positions initiated November 10th 2022

November 28 2022

Commentary by Eoin Treacy

November 28 2022

Commentary by Eoin Treacy

China Protests Fuel Some Bets for an Earlier Covid Zero Exit

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

Swelling protests against China’s virus-induced curbs may end up supporting asset prices by encouraging President Xi Jinping to accelerate the nation’s exit from Covid Zero, according to some market watchers.

“I don’t expect Xi to publicly admit error or show weakness, but this wave of protests could cause the leadership to decide privately that the exit needs to proceed more quickly than previously planned,” said Gabriel Wildau, managing director at advisory firm Teneo Holdings LLC in New York.

Most risk assets slid in early Asian trade Monday on concern the unrest in China, coupled with surging daily infections, may convince the authorities to introduce further Covid restrictions. At the same time, the country’s focus after last month’s Communist Party congress has been on supporting the economy on a wide array of issues from reopening and the property crisis to relations with the US.

Eoin Treacy's view -

There are two big questions at the heart of the Chinese protests against COVID-zero. The first is how long they will be tolerated for before remedial action is taken. The second is how swiftly the COVID-zero mechanism will be dismantled.



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November 28 2022

Commentary by Eoin Treacy

Chiang Kai-shek's Great-Grandson Claims Key Taiwan Poll Win

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

According to Central Election Commission, KMT won 13 out of 21 cities and counties, while DPP only managed to secure five cities in the southern part of Taiwan, the least since its founding in 1986. KMT candidates took 50% of votes in the contests, versus 41.6% for the DPP, 11.39 million votes counted as of 11:53 pm in Taipei, according to the official election website.

That prompted President Tsai Ing-wen to step down as party leader, saying in televised remarks: “In the face of these results, there are many areas where we need to engage in self-reflection.”

The elections represented the last major test of Tsai’s DPP before her second and final term draws to a close and Taiwan picks a successor in early 2024. The KMT, or Nationalist Party, hopes the gains in local races will help it mount a comeback after defeats in presidential elections in 2016 and 2020.

The results will be closely watched in Washington and Beijing, since the DPP’s rise to power has prompted China to cut off communications with Taiwan and ramp up diplomatic and military pressure on the island. The KMT, which favors eventual unification with China, had previously overseen a historic expansion of ties with Beijing, easing travel, trade and investment across the Taiwan Strait. 

Eoin Treacy's view -

The Tsai administration has actively escalated tensions with China and the electorate does not want to be in a war with China. That does not mean they want to be part of China but not do they wish to do anything to antagonise China. Taiwan’s citizens are very much aware of the fine balance that needs to be maintained when squeezed between two great powers.



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November 28 2022

Commentary by Eoin Treacy

Mark Mobius Sees Bitcoin Down at $10,000 in 'Dangerous' Crypto Market

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

“But crypto is here to stay as there are several investors who still have faith in it,” said Mobius, who spent more than three decades at Franklin Templeton Investments. “It’s amazing how Bitcoin prices have held up” despite the FTX fallout, he added.

Eoin Treacy's view -

Even though may die-hard investors will never sell their cryptocurrency regardless of what happens to the price, that does not negate the fact it is a highly cyclical asset.



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November 25 2022

Commentary by Eoin Treacy

November 25 2022

Commentary by Eoin Treacy

J.P.Morgan sees global bond yields dipping in 2023

This article from Reuters may be of interest. Here is a section:

Global bond yields will likely fall slightly in 2023 as the balance between demand and supply will improve by $1 trillion, strategists at J.P. Morgan said in a note.

There will be a $700 billion contraction in global bond demand next year compared to 2022, while bond supply will likely drop by $1.6 trillion, J.P. Morgan strategists, led by Nikolaos Panigirtzoglou, estimated in the note issued on Thursday.

"Based on the historical relationship between annual changes in excess supply and the Global Aggregate bond index yield, a $1 trillion improvement in the demand/supply balance would imply downward pressure on Global Aggregate yields of around 40 basis points," the Wall Street bank said.

J.P. Morgan said that while major central banks trimming their balance sheets in 2022 was the single largest contributor to deterioration in bond demand, sell-offs by commercial banks and retail investors were also much higher than estimates.

Eoin Treacy's view -

There is a strong likelihood inflationary pressures will fall next year. There are three major reasons for believing that.



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November 25 2022

Commentary by Eoin Treacy

HSBC Gold Special

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

We believe the likelihood that the USD has peaked and expected further strong official sector and coin & bar and jewellery demand present compelling arguments for higher gold prices in 2023 and beyond. That said, until the end of the Fed’s rate hike cycle is complete, and institutional demand for gold increases, prices may be constrained. This leads us to look for weakish prices in early 2023 with increases more likely as the year unfolds.

Eoin Treacy's view -

Generally speaking gold requires a series of catalysts to spur a significant uptrend. The first is negative real interest rates. That’s when interest rates are deliberately held below inflation for a prolonged period to denude savers of the opportunity to profit from conservative investments. That policy also inflates asset prices and decreases the purchasing power of cash. However, negative real rates are not a sufficient catalyst for outsized performance by gold.



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November 25 2022

Commentary by Eoin Treacy

World's Best Shot at Fusion Power Shows Cracks in Silver Lining

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

At issue are two South Korean-made components: thermal shields built by SFA Engineering Corp. and vacuum vessel sectors made by Hyundai Heavy Industries Co. Neither company responded to Bloomberg requests for comment outside of business hours. 

The thermal shield, which is lined with 5 tons of pure silver and designed to contain heat 10 times hotter than the sun, showed cracks along cooling pipes, ITER reported. The vacuum vessel sectors, each weighing the equivalent of 300 cars and as tall as a telephone pole, show slight differences in manufacturing that complicates the welding process used to put them together. 

So far, ITER’s governing board has taken the setbacks in its stride. At an extraordinary meeting convened this month, it ordered Barabaschi to come up with a new budget and time line to be presented next year. 

“What was remarkable at the ITER council was the lack of finger pointing,” ITER spokesman Laban Coblentz said Friday in an interview. “It has been a very solutions-oriented discussion.”

 And

“Companies have been learning enormously from this first-of-its kind project,” said ITER’s Coblentz, dismissing suggestions that the delays could dampen enthusiasm. “The goal here isn’t to build just a single machine but to show that fusion power is feasible and to make that happen.”

Eoin Treacy's view -

The quantity of money being poured into fusion continues to grow. Companies hope to repeat the success of private companies in beating the Human Genome Project to the prize of completing the first sequence of the human genome. The primary technology innovation is the shrinking of superconductors which means new reactor designs can be much smaller and therefore cheaper. The range of challenges that still need to be overcome is still quite high so while this is an exceptionally interesting sector, it is not going to provide the abundant cheap energy we require for quite some time.

Meanwhile the 5 tons of silver required for the ITER experiment suggests a new source of demand for the metal in future designs too. 



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November 24 2022

Commentary by Eoin Treacy

Video commentary for November 24th 2022

Eoin Treacy's view -

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

Some of the topics discussed include: Gold rebounds, silver failed downside break, Dollar rolling over, if this continues non US assets will outperform, European and Australian banks steadying, China property boosted by almost $1 trillion in stimulus. 



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November 24 2022

Commentary by Eoin Treacy

ICBC Leads State Banks to Offer $129 Billion to China Builders

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

China’s mega banks, led by Industrial & Commercial Bank Ltd., pledged financing support of at least 925 billion yuan ($129 billion) to property developers as part of a push to ease turmoil in the nation’s real estate market. 

ICBC, the world’s largest bank by assets, on Thursday said it would provide 655 billion yuan in credit lines to 12 developers, including Country Garden Holdings Co. That came after Bank of China Ltd.Bank of Communications Co., Postal Savings Bank of China Ltd. and Agricultural Bank of China Ltd. also disclosed they would also extend credit lines. 

 

Eoin Treacy's view -

The fix is in. With almost $1 trillion in additional credit provided to the struggling property developers sector, no further bankruptcies are likely. With COVID cases at a record high, this action suggests the government’s efforts to squeeze leverage out of the property sector have run their course.



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November 24 2022

Commentary by Eoin Treacy

Gold Gains After Fed Officials Back Slower Interest-Rate Hikes

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

old rose for a third day as the dollar continued to decline, with the Federal Reserve’s latest meeting minutes showing officials support moderating the pace of interest-rate increases. 

A “substantial majority” of policymakers believe slowing the pace of rate hikes will probably soon be appropriate, the minutes show. Investors now expect the Fed to opt for a 50-basis-point increase next month, instead of the super-sized increases seen at previous meetings.

Aggressive monetary tightening by the US central bank has weighed on bullion throughout the year by pushing up the dollar and bond yields. The metal has recovered about 8% this month, driven by bets on a slowdown in rate hikes following two cooler-than-expected inflation prints.

Eoin Treacy's view -

The willingness of the Federal Reserve to hike rates faster than just about every other major central bank has been the primary support for the US Dollar. As the persistency of that hiking policy is now in doubt, the Dollar Index has been rolling over.



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November 24 2022

Commentary by Eoin Treacy

Equinor Says EU Price Cap Unlikely to Limit Natural Gas Exports

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

Equinor ASA, Norway’s biggest energy company, said a European Union proposal to cap natural gas prices is unlikely to dampen exports of the fuel to the region.

“The intention behind the proposed mechanism is to avoid episodes of excessively high gas prices and not to implement a permanent intervention in market mechanisms,” Equinor spokesperson Magnus Frantzen Eidsvold said in an email Wednesday. “Our immediate assessment is that this will not have substantial consequences for our exports.”

Norway is Europe’s biggest supplier of natural gas, after Russian flows were slashed following the invasion of Ukraine. Norwegian Oil and Energy Minister Terje Aasland said in October that the country expects to sell about 8% more gas this year than it did in 2021, much of it to continental Europe.

After months discussing how to prevent gas from skyrocketing again, the European Commission on Tuesday proposed an emergency brake on prices. However, the cap is only triggered when benchmark Dutch futures exceed €275 per megawatt-hour for two weeks and the gap between TTF and liquefied natural gas prices is greater than €58 for 10 trading days.

Eoin Treacy's view -

Dutch futures are currently trading at €130 which is a fraction of the peak values over €300 in August. The big question going forward is whether the price cap will be enforceable in the event of a fresh energy crisis. Additionally, the reliable suppliers like Norway would also be penalized through no fault of their own.



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November 23 2022

Commentary by Eoin Treacy

November 23 2022

Commentary by Eoin Treacy

US Business Activity Contracts for a Fifth-Straight Month

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

The manufacturing PMI sank nearly 3 points to 47.6 this month. And when excluding the early months of the pandemic, the production and orders measures both retreated at the steepest rates since 2009.

On a more comforting note, the composite measure of input prices eased for a sixth-straight month, though it remains historically elevated. The prices-received gauge fell for a seventh month.

Output expectations over the next year picked up, the report showed, in part reflecting more stability in supply chains. The index, however, remains softer than it was a year ago.

“November even saw increasing numbers of suppliers, factories and service providers offering discounts to help boost flagging sales,” Williamson said. 

“In this environment, inflationary pressures should continue to cool in the months ahead, potentially markedly, but the economy meanwhile continues to head deeper into a likely recession,” he said.

Eoin Treacy's view -

Today’s PMI figure was S&P’s estimate. The University of Michigan figure is due out on December 1st. The one thing PMI figures are useful for is a reading below 50 is a necessary condition for a US recession. That doesn’t mean every reading below 50 leads to a recession but there has never been a recession with a reading below 50.



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November 23 2022

Commentary by Eoin Treacy

Oil Sinks as EU Discusses a Softer Russian Price Cap at $65-$70

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

Oil stumbled as traders assessed a higher-than-expected price cap on Russian crude between $65 and $70 a barrel and a surprising build in US products.

The European Union’s proposed range would be well above Russia’s cost of production and higher than some countries have been paying for its oil. As Russia is already selling its crude at discounts of $20 a barrel in recent months, a high cap may have minimal impact on trading, keeping the nation’s supplies flowing into the global market.

West Texas Intermediate traded around $77 a barrel as investors digested rising US product stockpiles, accelerating a selloff in thin trading. Gasoline stockpiles rose by 3 million barrels, the largest build since July, with demand plunging by the most in nearly two months heading into the Thanksgiving holiday.  

“The effectiveness of price caps as a mechanism to tighten the screws on Russia remains a big question for the market,” said Michael Tran, an analyst at RBC Capital Markets. “What such policy measures does do is raise the degree of positioning paralysis for oil traders that are already grappling with an anti-risk taking period of low liquidity.”

Russia has previously said that it won’t sell crude to nations that use the cap, which is designed to punish Moscow for its invasion of Ukraine while keeping the nation’s oil flowing. 

EU ambassadors are meeting on Wednesday with the aim of approving the cap mechanism and a proposed price level. On Tuesday, the EU already watered down its latest sanctions proposal by delaying its full implementation and softening key shipping provisions.

Crude prices have suffered several sharp downturns in recent days. Demand in China, the world’s largest importer, remains weak as the country presses on with Covid-Zero curbs. Beijing asked residents not to leave the city unless necessary, to stem the spread of the virus.

As the oil market has softened in recent days, both Brent and WTI have at times traded in a bearish contango structure for the first time in months. WTI’s nearest timespread flipped back into contango once again. 

Eoin Treacy's view -

The EU disputing what they are willing to pay for Russian oil seems to be an example of rebellion of a wish to tell the world how reality should be versus the unconvertible reality. The wish is to pay only $70 but how is that going to be enforced?



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November 23 2022

Commentary by Eoin Treacy

Violent Protests Erupt at Apple's Main IPhone Plant in China

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

In one video, irate workers surrounded a silent, downcast manager in a conference room to voice grievances and question their Covid test results. It wasn’t clear when the meeting took place.

“I’m really scared about this place, we all could be Covid positive now,” a male worker said. “You are sending us to death,” another person said.

The Zhengzhou campus was operating normally as of Wednesday evening, a Foxconn spokesperson said. The violence had erupted after a portion of recently arrived employees raised complaints about “work subsidies” -- bonuses or payments on top of usual wages, Foxconn said in a statement. But the company stressed that it handles all such compensation in strict accordance with its contractual obligations. 

“With regards to the violence, we are continuing to communicate with workers and the government, to avoid a recurrence,” the company said without elaborating.

Eoin Treacy's view -

The challenge of COVID is behind most governments internationally but ahead of the Chinese government. The success of domestic quarantine versus the acceptance of mass infections virtually everywhere else suggests China has to accept that it is impossible to avoid the spread of the virus eventually.



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November 22 2022

Commentary by Eoin Treacy

November 22 2022

Commentary by Eoin Treacy

Feedback on Our Tactical Views and 2023 Outlook

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

Technicals over Fundamentals for now…our tactically bullish call was always more about the technicals than the fundamentals. Today, we provide an update to those factors, some of which no longer justify higher prices although they provide support at current levels. The deciding factor is market breadth, which has improved greatly over the past month and argues for us to remain bullish into year end before the fundamentals take us to lower lows next year. Feedback on our call for the S&P 500 to reach a price trough of 3,000-3,300 in Q1 '23…we've gotten a fair amount of pushback on that our forecast on this front is too aggressive both from a magnitude and timing standpoint. While directionally bearish, many investors struggle to see even a retest of 3,500. In our view, what was priced at the October lows was peak Fed hawkishness, not material earnings downside. If we were forecasting a modest 5% forward EPS decline and a reacceleration off of those levels, we'd concede that the earnings risk is probably priced, but we're modeling a much more significant 15-20% forward earnings downdraft, which should demand a more recessionary type 13.5-15x multiple on materially lower EPS.

Eoin Treacy's view -

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

This coincides with my view. The US yield curve is heavily inverted and the pace of tightening has been surprisingly quick. That suggests it is not unusual for the corporate profits to have been immune because there is a significant lag between tightening and when it shows up in the economy.



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November 22 2022

Commentary by Eoin Treacy

Inside a Crypto Nemesis' Campaign to Rein In the Industry

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

“There were a lot of entrepreneurs that grew up in this field and chose to be noncompliant,” Mr. Gensler said in an interview last month at the S.E.C. headquarters in Washington. “We will be a cop on the beat.”

Mr. Gensler’s central claim is simple: For all their novel attributes, most cryptocurrencies are securities, like stocks or other investment products. That means the developers who issue cryptocurrencies must register with the U.S. government and disclose information about their plans. In Mr. Gensler’s view, exchanges like Coinbase and FTX, where customers buy and sell digital coins, should also have to obtain S.E.C. licenses, which come with increased legal scrutiny and disclosure obligations.

The crypto industry has fought the government’s efforts to classify digital assets as securities, arguing that the legal requirements are overly burdensome. Even before FTX’s collapse, the debate was reaching an inflection point: A federal judge is expected to rule in the coming months in a lawsuit brought by the S.E.C. that charges the cryptocurrency issuer Ripple with offering unregistered securities. A victory for the government would strengthen Mr. Gensler’s hand, establishing a precedent that could pave the way for more lawsuits against crypto companies.

Eoin Treacy's view -

The tech sector has an aspiration to “move fast and break things”. In practice that means ignoring regulations until sufficient scale has been achieved to shape them. For example, that is exactly what Uber did in ignoring taxi laws. China’s ANT Financial was allowed to prosper in a very grey area of banking regulation until it was eventually neutered by the government.



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November 22 2022

Commentary by Eoin Treacy

Housing Hotbed Offers Rest of World a Correction-or-Crash Test

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

By March, it will be a year since the Bank of Canada began raising interest rates — meaning ever more of the record number of people who took out short-term or floating-rate mortgages at historically low rates will find themselves fully exposed to the roughly fourfold jump in borrowing costs since then, a potentially catastrophic shock to their personal finances.

The fate of Canada’s housing market will depend on whether or not they can hold on. And just as the country was a leader in the years-long global real estate frenzy, how its downturn plays out — a relatively orderly correction, or a brutal crash — may be a harbinger for what awaits the rest of the world.

Housing markets around the globe are wobbling under the weight of central bank rate-hike campaigns, with a handful of frothy countries joining Canada in already seeing precipitous price declines. More than a dozen developed economies, from Australia to Sweden to the US, are in the midst of downturns — defined as two consecutive quarters of falling prices — or will be by the beginning of next year, according to Oxford Economics. If those slumps prove worse or more widespread than expected, it would deepen a potential global recession. 

 

Eoin Treacy's view -

The Canadian 10-year yield appears to have reached a near-term peak in the region of 3.5%. The rate is coming back towards the trend mean so this will be a significant region to test whether demand dominance has returned beyond short-term steadying.

 



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November 21 2022

Commentary by Eoin Treacy

November 21 2022

Commentary by Eoin Treacy

Saudis Deny Report of Discussion About OPEC+ Oil-Output Hike

This article from Bloomberg may be of interest to subscribers. Here it is in full:

Saudi Arabia denied a report that it is discussing an oil-production increase for the OPEC+ meeting next month, and said it stands ready to make further cuts if needed. 

Crude futures pared earlier losses, trading 1.8% lower at $86.04 a barrel as of 5:18 p.m. in London. 

“The current cut of 2 million barrels per day by OPEC+ continues until the end of 2023,” Saudi Energy Minister Prince Abdulaziz bin Salman said in a statement via the Saudi Press Agency. “If there is a need to take further measures by reducing production to balance supply and demand, we always remain ready to intervene.”

Oil futures earlier dropped as much as 6.1%, dipping below $85 a barrel for the first time since September, after the Wall Street Journal reported that the kingdom and other members of the group were considering raising output by as much as 500,000 barrels a day. 

That would have been a major reversal after the Organization of Petroleum Exporting Countries and its allies decided in October to cut production by 2 million barrels a day. US President Joe Biden has slammed the move, saying it endangers the global economy and aids fellow OPEC+ member Russia in its war in Ukraine.

After an initial rally following the cuts agreement, crude prices have declined as the economic outlook deteriorates and China continues to grapple with Covid-19 outbreaks. OPEC twice reduced its forecasts for global oil demand, and Prince Abdulaziz has said the group will remain cautious due to “uncertainties” about the health of the global economy. 

Saudi Arabia has already cut oil exports sharply this month to deliver on the OPEC+ agreement, according to data from energy analytics firm Kpler Ltd. The cartel’s next meeting is scheduled for Dec. 4.

Eoin Treacy's view -

The oil market is very finely balanced so it is unlikely there will be a unanimous agreement to cut or increase supply. The global economy is slowing and China will be grappling with the coronavirus for at least the next 18 months. At the same time, European sanctions on Russian oil are due to go into effect in the next coupe of weeks and that is likely to be a significant source of volatility.



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November 21 2022

Commentary by Eoin Treacy

Gold, Copper Slip as Traders Favor Dollar on China Covid Worries Bloomberg

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

Gold fell to the lowest in over a week as the dollar advanced amid concern China may reverse its lighter-touch approach to the coronavirus. Copper also fell.

Worsening Covid-19 outbreaks across China and the first deaths in Beijing for six months are stoking concerns that authorities may again resort to harsh restrictions. That would be bearish for the copper market, where a squeeze in global supplies just appears to be easing. US equities declined, while the dollar rose on haven buying, pressuring gold and copper as they’re priced in the greenback. 

Commodities have been pressured in recent months by the Federal Reserve’s aggressive monetary tightening to fight inflation, with a gauge of the raw materials recording two consecutive quarterly losses by the end of the third quarter. 

Traders are now waiting for fresh clues about the Fed’s interest-rate hiking path from the central bank’s minutes due on Wednesday. 

San Francisco Fed President Mary Daly said that officials will need to be mindful of the lags with which monetary policy work, while repeating that she sees interest rates rising to at least 5%. Her counterpart at the Cleveland Fed, Loretta Mester, said she has no problem with slowing down the central bank’s rapid rate increases when officials meet next month.

Spot gold slipped 0.7% to $1,739.10 an ounce as of 4:06 p.m. in New York. Copper for three-month delivery on the London Metal Exchange fell 2.4% to settle at $7,880.50 a metric ton. All other main LME metals declined. The Bloomberg Dollar Spot Index gained 0.7%. Silver and palladium spot prices dropped, while platinum gained.

Eoin Treacy's view -

The big question circling about China is how willing they are to tolerate deaths from COVID. The government has successfully instilled a deep sense of caution in the population about the threat represented by COVID and easing up on quarantine rules may not result in a large increase in mobility. As cases and deaths rise, the potential for a significantly slower return to economic activity is a base case scenario.



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November 21 2022

Commentary by Eoin Treacy

2023 Outlook: Bear with it

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

Eoin Treacy's view -

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

The big question for investors is whether this is a cyclical or structural bear market. The exogenous shocks that come to mind are COVID, the response to it, and the Russian invasion of Ukraine. The private sector leverage is not focused in the consumer sector, but there has been extensive use of leverage in private investment, crypto and institutional investment areas not least in pensions and endowments.



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November 18 2022

Commentary by Eoin Treacy

November 18 2022

Commentary by Eoin Treacy

Euro-Zone Banks Return 296 Billion in Cheap ECB Funding

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

Banks will return €296.3 billion ($308 billion) of cheap loans to the European Central Bank after their terms were toughened to help the battle against record inflation. 

The repayment represents just under 15% of the total outstanding amount of so-called TLTRO loans, which were used during the pandemic to keep credit flowing to households and businesses. The median forecast in a Bloomberg poll this month was for €600 billion to be given back. The projections ranged from €200 billion to €1.5 trillion.

German two-year bonds erased losses and outperformed equivalent interest-rate swaps after the data. The spread between yields and swap rates widened two basis points to around 84 basis points.

Eoin Treacy's view -

Christine Lagarde was very clear in stating today that the ECB is recommitting to their sole official mandate of getting inflation back to target and avoiding “secondary effects”. The threat of inflation becoming entrenched is non-trivial because the solutions to the region’s energy crisis all imply paying more than before the crisis. That means killing demand is the only way to get inflation under control and it is not yet clear the ECB has the stomach for that kind of action.



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November 18 2022

Commentary by Eoin Treacy

Old Tankers Get a Second Life at Russian Ports as Sanctions Near

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

Traders are increasingly turning to near-obsolete oil tankers to transport cargoes of Russian crude as sanctions targeting the nation’s petroleum revenues draw ever closer.

Since June, a total 17 crude cargoes have been collected from Russian ports by tankers that are at least 20 years old.

That’s an age when they reach the end of their normal working lives and owners consider selling them for scrap. It’s more than double the number of such shipments during the same period in 2021, according to data compiled by Bloomberg from Vortexa Ltd. The market is preparing for sanctions from Dec. 5 that will make shipping Russian crude trickier for owners, and insurance harder to obtain. There has been uncertainty about how the country will get its barrels to market, with an increase in
second-hand vessel transactions thought to be earmarked for the trade.
 

Eoin Treacy's view -

The retirement plan for old tankers always means scraping them because the metal was often worth more than the ship. Today retirement means be sold to a Russian friendly company and extending the life of the vessel past its serviceable date.



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November 18 2022

Commentary by Eoin Treacy

FTX Latest: Bitcoin Weathers Gloom; Bankman-Fried Faces Grilling

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

Bitcoin is up about 3% this week, topping global stocks and bucking the chaos sparked by FTX’s chaotic bankruptcy.  

Democratic lawmakers who received millions of dollars in campaign donations from Sam Bankman-Fried say they will be ready to grill the former FTX CEO about the exchange’s collapse. 

Liquidators appointed by a Bahamian court to take over FTX Digital Markets Ltd.’s affairs said there’s “significant” concern that FTX management lacked authority to put the crypto businesses into bankruptcy in the US.

The embattled cryptocurrency mogul and two other top FTX executives received massive loans from affiliated trading arm, Alameda Research. Advisers overseeing the bankruptcy of FTX Group are struggling to locate the company’s cash and crypto, citing poor internal controls and record keeping. 

Eoin Treacy's view -

The collapse of FTX is revealing a web of activity that will eventually be made into a movie. However the broader point is the collapse of this crypto exchange is a symptom of the broader tightening of liquidity in the international capital markets.



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November 18 2022

Commentary by Eoin Treacy

The Chart Seminar London November 21st and 22nd 2022

Eoin Treacy's view -

We are living through fast moving markets so the next venue for The Chart Seminar will be November 21st and 22nd this year in London.

In the meantime, if you have any questions, would like to attend, or have a suggestion for another venue please feel to reach out to Sarah at [email protected] 

The full rate for The Chart Seminar is £1799 + VAT. (Please note US, Australian and Asian delegates, as non-EU residents are not liable for VAT). Annual subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.



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November 17 2022

Commentary by Eoin Treacy

Video commentary for November 17th 2022

Eoin Treacy's view -

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

Some of the topics covered include: Chinese stocks reverse declines, Vietnam follows through on the upside, Brazilian Real pulls back, UK budget supports bonds, weighs on Pound, US retail sales positive but oil, copper and nickel continue to pullback. Rail worker's strike could be seriously inflationary so worth monitoring. 



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November 17 2022

Commentary by Eoin Treacy

Autumn Statement: What the UK's New Budget Means for Your Money

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

On the income side, if you earn more than £100,000, you really should be looking at how to put as much of your salary as you can above that amount into a pension via salary sacrifice. Why’s that? Because contrary to what you might think, you’re not paying a 40% marginal tax rate. As the team at tax advisors Blick Rothenberg point out, your marginal tax rate is in fact closer to 60%, because £100,000 is the point at which your personal allowance starts to get whittled away. (This is also why the 45% rate was cut to £125,140 rather than £125,000 — so that it aligns with the point at which your personal allowance is all gone.)

As a result, any money you can shield from this rate is doing a great deal more work than any other pound you save. That said, given that your mortgage is probably going up, and your heating bill is through the roof, it’s quite possible that you are already doing as much as you can on that front without causing a major liquidity crisis in your household.

On the investment side, falling squarely into the “be thankful for small mercies” category, at least the chancellor didn’t mess around with the annual allowances for tax-efficient “wrappers” — you can still put up to £20,000 a year into an individual savings account, and up to £40,000 a year into a pension (assuming you earn that much each year). The latter of course is still subject to the (frozen) lifetime allowance, so do be careful if you’re in danger of breaching that £1.073 million lifetime cap.  

So if you have grown a bit sloppy with your admin, and you are holding any shares outside a tax wrapper (i.e. an Individual Savings Account or a pension), then now is the time to get a handle on that and move them. At least then you’ll be shielded from dividend or capital gains taxes. If you have already exhausted these allowances, you might want to start looking at venture capital trusts or enterprise investment schemes, though those are a topic for another day. 

Eoin Treacy's view -

Government rules tend to change investor behaviour. The perversion, that is the tax system, means the incentive to make a lot of money from working is actively under attack. Instead one is being encouraged to invest as much as possible to shield assets from the tax regime. That basically means outsourcing the job of making money to companies rather than individuals. That’s not great news for hard workers, but it certainly benefits the asset management sector.



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November 17 2022

Commentary by Eoin Treacy

LNG Is Proving a Pricey Alternative to Russian Gas Supplies

This article from Bloomberg may be of interest to subscribers. Here it is in full:

The disruption to oil flows caused by Moscow’s missile attack on Ukraine underscored the need for Europe to find alternative sources of energy. But the LNG that the continent is seeking as a long-term replacement for Russian natural gas won’t come cheap.

There’s already a shortage of vessels to deliver liquefied natural gas due to a surge in demand, and a cold snap would increase global competition for tankers. Traders are paying at least 50% more to secure the ships, meaning higher costs for importing nations. Some of the newest, energy-efficient vessels are reportedly fetching up to $200,000 a day - almost double current rates.

A record 40 LNG tankers are now at sea, waiting for European prices to increase once winter sets in, according to shipowner Flex LNG Ltd. There are already bottlenecks at some ports, mainly in the UK and the Netherlands. That’s due to a limited number of facilities to handle the influx and storage tanks that remain near full with mild weather muting demand.

This congestion has caused ships to be tied up in floating storage, removing tankers from the spot market, Flex LNG Chief Executive Officer Oystein Kalleklev said.

Germany is one step closer to providing some relief for the continent. On Tuesday officials said work was complete on the first jetty for a floating terminal near Wilhelmshaven on the North Sea. Firms including energy giant Uniper SE are now doing additional construction, with the idea of having the terminal operational this winter.

Still, supply could be tight during the coming months, just when Europe needs it most. The continent has relied on the US for much of its imports, and the return of Freeport LNG facility in Texas - following an explosion in June - was set to provide some relief. Now, it looks like the facility will remain offline as repairs continue and it awaits regulatory approvals to restart.

An extended outage at an LNG complex in Malaysia could further tighten the market, increasing spot cargo demand from North Asia. Spot LNG prices in the region surged Wednesday on higher freight costs.

Eoin Treacy's view -

Replacing reliable pipelines supplies with ship borne cargoes is far from ideal but it is a necessity for most of Europe. Even if the war in Ukraine ended tomorrow, politicians have learned their lesson, overreliance on a single suppler is ill advised. That ensures LNG will be a well-supported market in Europe regardless of any other events over the next decade.



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November 17 2022

Commentary by Eoin Treacy

China Asks Banks to Report on Liquidity After Bond Slump

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

Bank of China said it would contain losses and actively pursue relatively secure investments. Industrial Bank Co. and China Zheshang Bank Co. also sent similar posts on their official WeChat accounts, encouraging investors to “buy at lows” and position for longer-term return after the sharp losses in bond market.

The PBOC injected a net 123 billion yuan ($17.3 billion) of seven-day liquidity via its open-market operations on Wednesday. The central bank said in a statement earlier this week that injections topped 1 trillion yuan this month, through a combination of short-, medium- and long-term policy tools. 

The yield on China’s one-year government bond was little changed at 2.17% on Thursday, ending a seven-day climb that took it to highest since January. The yield on the 10-year note fell 3 basis point to 2.80%, after jumping 10 basis points earlier this week in its worst drop since 2016. The CSI 300 Index of stocks fell 0.4%.

Banks’ wealth management products have drawn increased scrutiny from regulators in past few years, amid concern about a host of risks from implicit guarantees and leverage, to duration mismatches and a lack of transparency around where the money is invested.

Eoin Treacy's view -

There is nothing quite like the government telling investors to buy the dip to initiate a wave of buying. The fact that the bond market is seeing outflows because retail investors are so eager to buy stocks suggests the message has been received. It’s OK to speculate in the markets again.



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November 16 2022

Commentary by Eoin Treacy

Video commentary for November 16th 2022

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 curves continue to contract putting pressure on liquidity plays, Wall Street pauses, bonds advance, Vietnam government support, China pauses, India steady, Brazil in danger of rolling over. 



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November 16 2022

Commentary by Eoin Treacy

How Conditions Today Compare to Past Equity Market Bottoms

Thanks to a subscriber for this report from Bridgewater 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 yield curve spread is about the easiest way to monitor the progression of the bearish cycle. Whether one looks at the 10-year-2-year or the 10-year – 3-month is less important than the fact that contracting yields curves imply liquidity is becoming progressively less accommodative.



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November 16 2022

Commentary by Eoin Treacy

Vietnam strengthens local stock market following strong fluctuations

This article from Xinhua may be of interest to subscribers. Here it is in full:

Vietnam's State Securities Commission (SSC) has carried out measures to strengthen the local stock market following strong fluctuations triggered by investors' cautious sentiment and global stock market, local media reported on Wednesday.

The recent market corrections were caused by investors' cautious sentiment while facing uncertainties and less positive prospects in the world economy and politics, local newspaper Vietnam News reported.

As part of an effort to ensure a stable, sustainable and transparent development of the Vietnamese stock market, the SSC has strengthened inspection and supervision to address violations on the stock market, the newspaper said.

It has also proposed amending regulations regarding private offering and trading of corporate bonds in the domestic and international markets to improve the management mechanism for the private placement of corporate bonds.

In the short term, domestic investor sentiment is still strongly influenced by information, wrong handling of enterprises, and fluctuation in the corporate bonds market.

However, given Vietnam's long-term macroeconomic growth and the profit gains of listed companies, long-term investment opportunities will appear quite clearly, investment strategist Thai Huu Cong told local newspaper Saigon Investment.

Eoin Treacy's view -

The Dong tends to be the Vietnamese government’s first recourse in attempting to stimulate the economy. The currency has been falling all year and only began to steady over the last couple of weeks.



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November 16 2022

Commentary by Eoin Treacy

Investor-Darling Brazil Faces Key Test as Lula Optimism Dims

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

Lula said that he won’t give any details on his cabinet before returning from an international trip to attend COP27 in Egypt.

“The stakes are high in terms of fiscal uncertainty, in terms of cabinet composition, in terms of key appointments in the economic team,” said Joel Virgen Rojano, director for Latin America strategy at TD Securities. “All of that for now has a really big question mark and the markets are becoming impatient.” 

Emerging-market investors from Neuberger Berman LLC to Franklin Templeton had bet on the South American nation ahead of the election as they saw little distinction between Lula and President Jair Bolsonaro’s fiscal agenda. Neuberger wasn’t immediately available to comment on its current recommendations in Brazil.

“Markets tend to hate uncertainty,” Dina Ting, head of global index portfolio management for Franklin Templeton exchange-traded funds, wrote in an emailed response to questions. “From a long-term perspective, the fundamentals and macro factors have not changed. Brazil is still trading at a discount to historical averages and helped by both elevated commodity prices and favorable demographics, including its young workforce.”

Eoin Treacy's view -

Brazil faces many of the same issues as everywhere else. There is a clear need to enact some type of fiscal control but the population are already impatient with the pace of economic recovery. Those are two opposing perspectives and the new administration will need to tread very carefully if the currency is to remain stable.



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November 15 2022

Commentary by Eoin Treacy

Video commentary for November 15th 2022

November 15 2022

Commentary by Eoin Treacy

Email of the day on bond investing:

Interested in your investment purchase of DoubleLine Income Solutions Fund. as a long term subscriber I’ve now moved into another investment age whereby I am now an income & growth investor and the timing of your purchase appears to be potentially beneficial.

I have checked with a number of UK online investment portals and they do not appear to offer access to this closed end fund and therefore my question is whether you accessed this via a US trading platform or direct?

Any help will be appreciated.

Eoin Treacy's view -

Thank you for this question which may be of interest to the Collective. Growing up in Ireland in the last 1970s and early 1980s interest rates were very high. My grandmother used to buy national savings certs for all her grandchildren. They automatically rolled over the interest at maturity. As a teenager, I cashed them in and found they had risen by over 300%. That taught me the simple lesson. Buying bonds when rates are high and before inflation peaks is very attractive.



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November 15 2022

Commentary by Eoin Treacy

Xi's Crackdowns Drive Chinese Billionaires to Booming Singapore

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

Singapore doesn’t provide detailed statistics about where its wealthy immigrants come from. But the explosive rise in family offices are symptomatic of the attraction for Chinese tycoons. The number of these offices almost doubled to about 700 at the end of 2021 from the previous year. While China’s wealthy aren’t the only drivers of the growth, some service providers say they are by far the largest market.

Michael Marquardt, whose firm IQ-EQ Asia helps set up family offices, said the number of inquiries from Chinese clients jumped about 25% to 50% just before and after the Party Congress. Vikna Rajah, head of tax and trust at law firm Rajah and Tann Singapore LLP, said in June that more than 30% of the clients he’s helped apply for family office tax exemptions are from Greater China, including Hong Kong.

“There’s definitely been an increase in interest,” Marquardt said. “Entrepreneurs who have done well and taken their companies public are interested in parking their international wealth in a place like Singapore.”

Eoin Treacy's view -

The natural comparison is between Singapore and Hong Kong because they are both in Asia with majority Chinese populations. However, the better comparison for Singapore is with Switzerland and Luxembourg. The city state’s economy is much more focused  wealth management and the buy side than the sell side/capital markets expertise of Hong Kong.



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November 15 2022

Commentary by Eoin Treacy

British Families Are Being Hit by Stealth Taxes

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

For lower-earning families unaffected by the child benefit clawback, but perhaps struggling even more, it is usually possible to transfer £1,260 of a non-working spouse’s personal income tax allowance to the working partner. This can potentially save £252 a year. Again though, this is not automatic, it must be claimed.

And these are far from the only tax anomalies. Since 2009, those earning more than £100,000 a year have had their personal income tax allowances clawed back at the rate of £1 for every £2 earned above the threshold. Worse still, the threshold has been unchanged for more than 13 years. Anyone earning £125,140 or more loses the entirety of their personal income tax allowance. 

Here again, making additional pension contributions is a good option for reducing your taxable income — and for those earning more than £100,000, it might be a more realistic option. The sweetener is that the effective tax relief for those affected can be up to 60%. For these people, the government effectively contributes £60 for every £40 they pay into their pensions.

Stealth taxes make things more complicated for everyone. Many lower-earners end up paying far more tax than necessary, or not receiving a benefit to which they might otherwise be entitled, often both.

Unfortunately, especially during periods of rapid inflation, such tax strategies are the gift that keeps on giving for governments, raising additional revenue without having to increase tax rates. .

As an old ad for Morgan Stanley once claimed, “You must pay taxes. But there’s no law that says you have to leave a tip.”

Eoin Treacy's view -

I saw this chart from Eurostat yesterday and it surprised me that the European aggregate tax haul had risen so much ahead of the pandemic.

With the overwhelming spending patterns of the pandemic and the resulting inflation, there is clear need to fiscal consolidation. At present that is focusing on tax hikes but the ultimate nettle that needs to be grasped is spending cuts. That’s not just true of the UK, it’s an issue most European countries and the USA have to deal with eventually.



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November 14 2022

Commentary by Eoin Treacy

Video commentary for November 14th 2022

November 14 2022

Commentary by Eoin Treacy

Cryptocurrencies Stem Losses on Binance's Recovery Fund Plan

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

Even though markets gained on Zhao’s tweet, such a fund may not be best for the industry, said Quantum Economics founder and Chief Executive Officer Mati Greenspan. Binance already has too much control in a decentralized market, he said.

“That sort of concentration of power makes me uncomfortable,” said Greenspan. “It’s the kind of thing crypto was designed to avoid and one of the lessons we should have learned from last week.”

Meanwhile, Elon Musk’s tweet that Bitcoin “will make it” also gave crypto markets a boost, said Greenspan. Dogecoin, a token the Tesla CEO has touted in the past, gained as much as 7.9%.

Eoin Treacy's view -

This is yet another example of the paradox of decentralized finance. It’s appealing in theory but the benefits of centralized control become evident during crises. A truly decentralized system does not have a buffer against bank runs. It is looking likely Binance will come through this crisis with a dominant position in the “decentralized” finance market.



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November 14 2022

Commentary by Eoin Treacy

Email of the day on Chinese property developer US Dollar bonds

Thanks a lot for another very informative Friday video. Could you please kindly comment on the Chinese Construction Companies’ default situation. How serious and general are the defaults of their international bonds. Thanks in advance.

Eoin Treacy's view -

Thank you for this topical question which may be of interest to the Collective. This Reuters article, dated September 2nd, included a table of the biggest bond defaults up to that point in 2022.
 



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November 14 2022

Commentary by Eoin Treacy

The Age of Social Media Is Ending

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

That was a terrible idea. As I’ve written before on this subject, people just aren’t meant to talk to one another this much. They shouldn’t have that much to say, they shouldn’t expect to receive such a large audience for that expression, and they shouldn’t suppose a right to comment or rejoinder for every thought or notion either. From being asked to review every product you buy to believing that every tweet or Instagram image warrants likes or comments or follows, social media produced a positively unhinged, sociopathic rendition of human sociality. That’s no surprise, I guess, given that the model was forged in the fires of Big Tech companies such as Facebook, where sociopathy is a design philosophy.

Eoin Treacy's view -

Dancing on the grave of social media has begun but it seems to me that the rumours of the sector’s death are greatly exaggerated. There is no doubt social media has issues that range from content moderation to promoting social anxiety and depression among teenagers. However, that does not detract from the reality billions of people spend several hours a day perusing social media forums.



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November 11 2022

Commentary by Eoin Treacy

November 11 2022

Commentary by Eoin Treacy

Euphoria Sweeps China Stocks as Signs of Covid Zero Pivot Emerge

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

Traders who have for long been seeking clear signals of a pivot away from the staunch Covid Zero policy cheered the slew of changes announced on Friday, which included a cut in the amount of time travelers and close contacts must spend in quarantine, and a pullback on testing. The decisions by the National Health Commission followed a meeting by the nation’s top leaders on Thursday, where a more targeted approach was encouraged to tackle outbreaks.

“This is a huge positive for the market,” said Wang Yugang, a fund manager at Beijing Axe Asset Management Co. “Of course how much efficacy these measures have for the economy we will need to observe.”

In a display of broad market optimism, every stock on the 50-member Hang Sang China gauge was up on Friday. On the mainland, the CSI 300 Index ended 2.8% higher.

Eoin Treacy's view -

The Chinese government is wrestling with the opposing challenges of rising cases and the slowdown in the economy. The reality is quarantines cannot stop the spread, only slow it down, when COVID is endemic everywhere else. At some stage China will have to grasp the nettle and tolerate higher numbers of infections for longer. How willing they will be to tolerate millions of cases a day remains an open question. Of course the answer, supplied by India’s experience, would be to simply stop counting.



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November 11 2022

Commentary by Eoin Treacy

Binance Reserves Show Almost Half of Holdings Are Its Own Tokens

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

Binance holds $74.7 billion worth of tokens of which around 40% are in its own stablecoin and native coin, according data shared by Nansen.  

The world’s largest exchange released the information after its co-founder Changpeng Zhao announced earlier this week that Binance would provide proof-of-reserves to be more transparent.

The demise of Sam Bankman-Fried’s FTX.com, has raised concerns over the opacity of exchange balance sheets and is prompting companies increase disclosures. Crypto.com has also publicly shared its reserves pool on Friday.

Of the $74.6 billion termed as net worth, about $23 billion was in its own stablecoin BUSD and $6.4 billion in its Binance Coin, according to Nansen. 

The exchange has also allocated 10.5% of its holdings in Bitcoin and 9.8% in Ether, Nansen data shows. 

Binance is the first unlisted crypto exchange to come out with the details, since FTX collapsed, the latest in a series of crypto businesses to go bust this year. Crypto exchanges including OKX, KuCoin, Poloniex, Huobi this week vowed to increase transparency and provide greater clarity on their holdings. 

Eoin Treacy's view -

The promise of the fintech revolution is decentralized finance. That implies no further need for intermediaries. The ambition is consumers, businesses, creditors, and borrowers will be able to transact with one another over the network at will. That will be facilitated by whatever token is relevant to the network as a medium of exchange.



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November 11 2022

Commentary by Eoin Treacy

ASML Shrugs Off China Chip Curbs Amid Strong Demand Elsewhere

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

ASML hasn’t been able to sell its most advanced extreme ultraviolet lithography machines to China as the Dutch government refused to give it a license to do so, but the company has been able to sell its other machinery to the country. The Dutch company sees the total indirect impact from the new US measures to be about 5% of its backlog, it said on a call with investors in October. 

Meanwhile, major governments around the world have come up with subsidies and incentives to expand chip production capacities at home to avoid another round of semiconductor shortages that shaved off hundreds of billions from their economies during the pandemic. 

Even though the global chip industry is now facing a severe downturn, countries including the US and Japan have not slowed their pace in readying new plants to prepare for the next boom cycle. Taiwan Semiconductor Manufacturing Co. is even considering adding another advanced facility next to a $12 billion dollar plant that’s under construction in the US state of Arizona. 

Efforts by governments to build chip plants at home have just started and will accelerate, Wennink said Friday. “The drive for technological sovereignty is going to be very important driver for our business going forward.”

Eoin Treacy's view -

The one thing everyone learned during the pandemic is the global supply chain is lot more fragile than previously believed. That is truer of the semiconductor sector than anything else and not least because many countries gave up domestic manufacturing capacity in favour of cheaper overseas production. Reversing that trend is both expensive and time consuming.



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November 10 2022

Commentary by Eoin Treacy

Video commentary for November 10th 2022

Eoin Treacy's view -

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

Some of the topics discussed include: 10yr-3-month spread sharply inverts on lower inflation, stocks, gold, copper, bonds rebound emphatically to break near-term downtrends. Dollar rolls over which should boost emerging markets tomorrow, last hurrah rally now beginning before a recession next year. 



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November 10 2022

Commentary by Eoin Treacy

US Inflation Finally Offers Relief, But There's a Long Way to Go

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

A cooling in US consumer prices offered cheer to households, investors and Federal Reserve officials, but there’s still a long way before high inflation becomes history. 

At 7.7%, annual inflation in October was the slowest since January -- before the start of Russia’s war in Ukraine that triggered a worldwide surge in commodities and pump prices. Even more importantly for the Fed, a closely watched measure that excludes food and energy decelerated by more than economists anticipated.

With slowdowns across categories including food, apparel and used cars, the report suggests that the fastest price increases in decades may finally be starting to ebb in the world’s largest economy. And it probably gives the US central bank enough assurance to moderate its aggressive interest-rate hikes if the trend is sustained.

Eoin Treacy's view -

Inflation is rolling over as predicted and it will continue to do so. The pace of tightening this year has been historic in nature and most particularly, the peak in money supply growth was in February 2021. There is a significant lag between money supply growth and tightening conditions and when they show up in the economy. That is now at hand.



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November 10 2022

Commentary by Eoin Treacy

Treasury Yields Plunge as Traders Run With 'Good News' on CPI

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

Yields in the world’s biggest bond market spiraled downward as traders slashed their outlook for just how high the Federal Reserve will need to hoist its policy rate after consumer-price pressures slowed more than estimated last month.

Swaps traders downgraded the odds of another three-quarter-point rate increase in December almost to nil, while continuing to price in a half-point hike. On the prospect of a slower tightening trajectory the five-year yield tumbled as much as 31 basis points, putting it on track for its biggest one-day drop since 2009. The benchmark 10-year yield fell as much as 27 basis points to 3.82%. US stocks soared and the Bloomberg dollar index plunged.

The so-called terminal rate, or the expected peak for the Fed’s policy rate, was cut to under 4.9%, sometime around May. Before the latest CPI readings the peak rate in swaps referencing the central bank’s policy meetings was around 5.09%.

“Markets are reacting aggressively to the CPI release,” said Gregory Faranello, head of US rates trading and strategy at AmeriVet Securities. “After a year like we’ve had, people are very anxious for some good news.”

Eoin Treacy's view -

The convexity of bonds (their sensitivity to interest rates) declines the higher yields move. The reason yields surged earlier this year was because prices were high, yields were low and the market was especially sensitive to interest rates hikes. The higher yields go, the more attractive they become. Obviously 4% is more attractive than 0.5% and compounds at a much more impressive rate.



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November 10 2022

Commentary by Eoin Treacy

IBM releases Osprey, the world's most powerful quantum computer

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

As impressive as this year’s updates are, IBM is looking to next year as the real turning point. The company’s roadmap says that next year’s quantum processor, the Condor, will boast a stunning 1,121 qubits. Also on the cards is a modular processor called the Heron, which can stack multiple 133-qubit units together to make more powerful quantum processors.

And finally, the IBM Quantum System Two will be released towards the end of 2023. This modular system will form the framework of the company’s quantum supercomputers, housing multiple processors with communication links between them. These are all stepping stones on the path towards IBM’s plans of building a quantum system with over 4,000 qubits by 2025.

Eoin Treacy's view -

Alphabet’s Hartmut Neven, claimed a few years ago was that quantum computing was progressing at a double exponent pace. To put that in context an exponential pace is 1,2,4,8,16,32. An exponential exponential pace is 1.2,4,16, 256, 65,536.  



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November 09 2022

Commentary by Eoin Treacy

Video commentary for November 9th 2022

November 09 2022

Commentary by Eoin Treacy

Lucid Stock Is Falling as Reservations for Cars Drop

This article from Barron’s may be of interest to subscribers. Here it is in full:

The EV maker Lucid turned in respectable third-quarter earnings and stuck with its forecast for vehicle shipments this year, but the stock is dropping. Reservations are the issue.

Tuesday evening, Lucid (ticker: LCID) reported a per-share loss of 40 cents from $195 million in sales. Wall Street was looking for a 31-cent loss from $209 million in sales., but earnings and sales don't matter much at this point.

The company is just ramping up production of its first model, the Lucid Air. Importantly, the company didn't change its full-year guidance for vehicle shipments from the 6,000 to 7,000 cars it told investors to expect back in August. The prior guidance, given in May, was for 12,000 to 14,000 units.

What seems to be raising investors' eyebrows is that management says Lucid has 34,000 reservations for its vehicles. The number given in August was 37,000.

Shares were down 3% in after-hours trading.

Lucid delivered 1,398 vehicles in the third quarter, up from 679 in the second quarter of 2022. Lucid produced 2,282 vehicles in the third quarter, which was more than triple the second-quarter production, according to the company.

The company also ended the quarter with almost $4 billion in cash.

Management scheduled a conference call for 5:30 p.m. Eastern time to discuss the results. Investors and analysts will be interested in the reservation number and whatever management has to say about demand for Lucid vehicles.

Through Tuesday trading, Lucid stock was off more than 60% so far this year, while the S&P 500 and Dow Jones Industrial Average had dropped about 20% and 9%, respectively.

Lucid stock has been hit harder than most. The cut to the forecast for deliveries didn't help. Rising interest rates, which reduce the current, discounted value of earnings expected to arrive in coming years, are an additional problem.

Eoin Treacy's view -

Flashy ads and attentional grabbing statistics, like the longest range and best battery, encouraged consumers to pay trivial down payments to secure a spot in delivery queues. Now, the question whether one does in fact have the resources to spend six figures on a car are more pressing. For Lucid it represents a significant issue because they are quite a ways from delivering a more affordable model. The share continues to trend lower.



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November 09 2022

Commentary by Eoin Treacy

Jeffrey Gundlach with David Rosenberg 10-11-22 Podcast

This video is a little outdated, particularly with regard to crypto, but it does highlight the fact bond investors finally have a yield they can base a total return strategy on. 

November 09 2022

Commentary by Eoin Treacy

NHS Nurses Vote for Biggest Strike in Over a Century Over Pay

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

The strikes could start before the end of this year and last until May 2023, the RCN said in a statement. The historic ballot came after nurses were unhappy when the government offered them a package in July that would see the average nurse’s pay increasing 4%.

Strikes are currently sweeping across the UK from rail to ports as the worst inflation in four decades is eroding workers’ real income and living conditions. Workers in the country’s health sector are under particular pressure as the Covid-19 pandemic enters its third year and with many hospitals struggling to cope with long waiting lists of patients needing treatment and packed Accident & Emergency departments. 

Industrial action will only take place in health-care settings that met the relevant legal requirements but the majority of NHS employers will be affected, the RCN said. 

“Anger has become action - our members are saying enough is enough,” said Pat Cullen, RCN General Secretary & Chief Executive. “Our members will no longer tolerate a financial knife-edge at home and a raw deal at work.” 

Unison is currently balloting 350,000 other NHS employees across England, Wales and Northern Ireland to strike over pay. The Royal College of Midwives and the Chartered Society of Physiotherapy are also organizing ballots for their members in November, raising the possibility of the UK facing coordinated strikes across different health unions.

Eoin Treacy's view -

Strike action from the NHS was inevitable. It’s a large worker group with strong union representation in a vital sector. That means workers are in a better position to pressure the government into concessions than other interest groups which is all the incentive required to push the issue. 



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November 09 2022

Commentary by Eoin Treacy

November 08 2022

Commentary by Eoin Treacy

Video commentary for November 8th 2022

November 08 2022

Commentary by Eoin Treacy

Gold Hits One-Month High as Dollar Slide Brings in Fresh Buying

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

“A million ounces of gold was bought in under two minutes moving the price nearly a percent - this suggests fresh buying,” said Tai Wong, a senior trader at Heraeus Precious Metals in New York. “Gold holding above the 50-day moving average for the first time since August added to the positive sentiment.”

Aggressive Federal Reserve monetary tightening aimed at cooling inflation has weighed on metal prices this year by driving up the greenback and hurting demand prospects. Higher interest rates tend to diminish the investor appeal of commodities, which bear no interest.

Traders are eyeing the upcoming US inflation reading due Thursday, after the core consumer price index rose more than forecast to a 40-year high in September. Another hot print could further curb hopes of an impending slowdown in the Fed’s monetary tightening.

Eoin Treacy's view -

It is often said that the only hard fundamental in currency markets is the interest rate differential. In raw terms, the interest rate differential between the USA and the Eurozone exceeded 250 basis points in the late 1990s. Since then, spread peaked at 250 basis points in 2006 and 2019 and is now testing the 200 basis point level. It is reasonable to question whether it is likely move much beyond the current band in this cycle as the ECB plays catch up with tightening policy.



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November 08 2022

Commentary by Eoin Treacy

401(k) Plans Now Let Workers Put Retirement Money Into Cryptocurrency

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

Retirement-plan providers have moved ahead, and some of the 24,500 401(k) plans that Fidelity Investments administers began offering bitcoin in their investment menus this fall, the company said. ForUsAll Inc., a San Francisco-based 401(k) provider that caters to small companies and has $1.4 billion in retirement-plan assets, says 50 of its 550 clients began allowing workers to invest some of their retirement savings in cryptocurrency, including bitcoin and ether, about eight weeks ago.

The 401(k) companies are launching their crypto offerings amid a bear market that has caused steep selloffs in many cryptocurrencies. Since hitting a high of more than $66,000 in November 2021, bitcoin has fallen to $20,092.

The U.S. Labor Department, which regulates company-sponsored retirement plans, earlier this year cautioned employers to "exercise extreme care before they consider adding a cryptocurrency option to a 401(k) plan's investment menu," guidance that has had a chilling effect on some employers and providers.

Fidelity, the nation's largest 401(k) plan provider -- with $3.3 trillion in the plans it administers -- declined to provide details about companies offering its cryptocurrency option. It announced the offering earlier this year, citing demand from employers and workers.

Eoin Treacy's view -

My first reaction is what could go wrong? Afterall, we are talking about what amounts to the most volatile asset class in history. Fidelity has led the market by offering custody services for cryptocurrencies. In opening up pension assets for investment in bitcoin, a significantly larger pool of potential buyers is now exposed to an exceptionally volatile asset class. It is to be hoped positions are sized accordingly, though that is seldom the case for individual investors.



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November 08 2022

Commentary by Eoin Treacy

JPMorgan, Citigroup Maintaining Some Russia Ties Due To U.S. Government Instructions

This note from Dow Jones may be of interest to subscribers.

JPMorgan Chase & Co. and Citigroup Inc. are maintaining some ties with Russian companies for strategic reasons on directives behind the scenes from the U.S. State Department and Treasury Department, Bloomberg reported on Monday. The country's biggest banks are caught between Congress, which is pushing for strict sanctions against Russia for its invasion of Ukraine, and the Biden administration, which has urged banks to continue doing business with strategic Russian companies, Bloomberg reported, citing people familiar with the situation. Nnedinma Ifudu Nweke, a lawyer at Akin Gump Strauss Hauer & Feld LLP who specializes in economic sanctions, told Bloomberg that some pockets of business are still allowed with Russia, particularly in the humanitarian space as well as facets of the financial system that would pose a systemic risk. A spokesperson from the Treasury Department told Bloomberg that it has issued guidelines to banks to assure that humanitarian aid, energy and agriculture activities continue.

Eoin Treacy's view -

This would be a news grabber on its own but when it comes in tandem with the story that the USA asked Ukraine to at least act like they are open to negotiations with Russia it is potentially even more significant. 



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November 07 2022

Commentary by Eoin Treacy

Video commentary for November 7th 2022

Eoin Treacy's view -

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

Some of the topics discussed include: global money supply contracting, Dollar at risk of breaking down, bond yields continue to march higher and stocks recovery rally remains in force, oil pauses at $100 and platinum breaks higher. 



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November 07 2022

Commentary by Eoin Treacy

Billions in Capital Calls Threaten Forced Sales of Stocks, Bonds

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

Capital calls are not the only problem for investors in private markets. Even their successes are creating headaches.

As many alternative assets outperformed public markets in recent years, institutions have broken past fixed limits on the proportion of their portfolios that can be allocated to private markets.
 
While this so-called denominator effect may be exaggerated -- because there is a lag in revaluing private assets to reflect the very latest market conditions -- it does have the potential to trigger increased selling at a time when it is least wanted.

And the sums involved could be huge. A significant amount of the easy money pumped into the financial system by central banks during the pandemic found its way into unlisted assets, which grew to $10 trillion globally by September 2021, a fivefold increase from 2007, according to figures from investment data firm Preqin.

“There’s a regime change of sorts in the macro world and in markets that we need to take hold of,” Stephen Klar, president and managing partner of Wellington Management Co., said at the Global Financial Leaders’ Investment Summit in Hong Kong on Nov. 3. “We’re working with our clients on thinking through how to really get that asset allocation back to a more diversified and rebalanced manner.”
 

Eoin Treacy's view -

There are two separate issues affecting the private asset/alternatives markets. The first is tightening liquidity. As global money supply growth contracts the weight of money argument for supporting private asset prices is much less compelling. The second is the technical issue described above.



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November 07 2022

Commentary by Eoin Treacy

Debt Limit Will Complicate Bill Supply Normalization, BofA Says

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

Treasury bill supply could rise by $1 trillion by the end of 2023, but the impending debt ceiling episode will complicate the timing, according to Bank of America strategists. 

Strategists Mark Cabana and Katie Craig estimate Treasury will issue about $193 billion of bills in 4Q 2022 and $257 billion in 1Q 2023, with particularly strong months of supply in November, February and March because they are typically heavy deficit months that require additional issuance to sustain the cash balance

However, bill supply projections and the associated market impact are complicated by uncertainty around the timing of the debt limit, another round of money-market reform and the Federal Reserve’s quantitative tightening

Positive quarters of bill supply should help cheapen bills relative to overnight index swaps, and strategists estimate spreads should narrow by 10 basis points or more

Still, the monthly path of bill issuance is “much less clear” because of the debt ceiling, which could become constraining as early as December 2022

At that point Treasury would enter a debt issuance suspension period, which would restrict their ability to issue debt -- likely cutting bills to keep coupon sizes unchanged

Strategists project the potential default, or x-date, would be in August or September 2023. After that, there would be a surge of bill supply to replenish the cash balance

Eoin Treacy's view -

The big question for anyone issuing debt is whether there is a sufficiently large pool of willing buyers to support the market. The Bank of Japan has been buying bonds for so long that it has largely crowded out the domestic market. Liquidity in the 10-yeasr is at an all time low. This condition raises important questions for the US government because $1 trillion deficits appear to be the norm.



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November 07 2022

Commentary by Eoin Treacy

China reopening playbook

Thanks to a subscriber for the report from Goldman Sachs which may be of interest. Here is a section:

The light at the end of the tunnel?
China’s Zero-Covid Policy (ZCP) has kept Covid cases at low absolute levels but at rising economic costs as the virus becomes more transmissible. Reported cases are rising but more signs of Covid policy relaxation have been made available post the Party Congress, and our economists expect China could start to reopen in 2Q23 on political and public health considerations.

China could rally 20% on (and before) reopening
Cross-country empirical analysis shows that equity markets tend to pre-trade reopening (as defined by the peak of activity disruptions) about a month in advance and the positive momentum typically lasts for 2-3 months. We estimate that a full reopening could drive 20% upside for Chinese stocks based on empirical, top-down, and historical sensitivity analyses. Importantly, equity markets usually react more positively to local policy relaxation than to international reopening, with Domestic Cyclicals and Consumer sectors outperforming.

Eoin Treacy's view -

The prospect of China opening up has enlivened risk appetites among traders who are tempted by the low absolute valuations on Chinese stocks listed in Hong Kong. The Beijing marathon went ahead as planned over the weekend and is being taken as evidence of some easing of COVID restrictions. It will be interesting to see if the Shanghai and Chengdu marathons pass off as planned later this month.  



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