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June 06 2023

Commentary by Eoin Treacy

June 06 2023

Commentary by Eoin Treacy

Weak market being obscured by megacap gains

This article by Martin Pelletier may be of interest. Here is a section: 

It's understandable to assign higher revenue multiples to smaller and highly disruptive companies with exponential growth potential. However, the combined market capitalization of these seven companies now exceeds US$10 trillion, so how can they deliver such growth while defying the laws of diminishing returns, especially when they were unable to do so when they were smaller, more innovative and capital was next to free with interest rates hovering around zero per cent? Over the past decade, Nvidia's revenue has grown sixfold and yet the market is now giving it a 38 times multiple. Microsoft has grown revenue by 2.7 times with a current 12 times multiple, and Apple's revenue has grown 2.2 times and yet it has a seven times multiple.

It isn't as if this hasn't happened before. Take Sun Microsystems Inc., which traded at more than 10 times its revenue prior to the bursting of the 2000 tech bubble. In 2002, chief executive Scott McNealy responded to the aftermath with a thought-provoking quote.

"At 10 times revenues, to provide a 10-year payback, I would have to distribute 100 per cent of our revenues to shareholders for 10 consecutive years in the form of dividends. This assumption assumes that I can achieve such an arrangement with our shareholders, that we have no cost of goods sold (which is highly unlikely for a computer company), that we have zero expenses (difficult with 39,000 employees), that we pay no taxes (also challenging), and that you, as shareholders, pay no taxes on the dividends received (which is illegal)," he said.

"Additionally, this assumption presumes that, with no investment in research and development for the next 10 years, we can maintain the current revenue rate. Considering these unrealistic assumptions, would any of you be interested in purchasing our stock at US$64? Can you fathom the absurdity of these basic assumptions? We don't need any transparency or footnotes to recognize their implausibility. What were you thinking?" In a seemingly repetitive cycle, we wonder if we will eventually be questioning ourselves again with a "what were you thinking?" moment. If you are tempted to say "this time it's different," we checked with ChatGPT and will leave you with its answer.

…"It's prudent to exercise caution, diversify portfolios and focus on fundamental principles rather than getting carried away by the idea that the current situation is entirely unprecedented."

Eoin Treacy's view -

I created a chart today to demonstrate the dominance of mega-caps in the Nasdaq-100. The eight FANGMANT shares represent 61.86% of the Index’s market cap. Those companies are Apple, Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, Netflix and Tesla.



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June 06 2023

Commentary by Eoin Treacy

Gold Wavers as Traders Assess Fed Rate Path After Australia Hike

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

Gold swung between gains and losses as traders mulled the Federal Reserve’s interest-rate path after a surprise hike by Australia’s central bank.

The Reserve Bank of Australia unexpectedly raised its key rate and kept the door open to further hikes. Treasury yields rose alongside a strengthening dollar, keeping bullion’s upside in check. Traders have been increasingly betting the US central bank will hold rates steady at its June meeting, while keeping the option for hikes later open.

“After many traders were surprised by the hawkish rate rise by the RBA, fears are growing that the Fed might need to do a lot more tightening,” said Ed Moya, senior market analyst at Oanda.

Eoin Treacy's view -

The RBA’s willingness to continue raising rates is being shaped by concerns inflation is stickier than they hoped. The jump in the minimum wage is worrisome since it puts upward pressure on wage demands across the spectrum and that tends to also be sticky. 



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June 06 2023

Commentary by Eoin Treacy

Major dam breached in southern Ukraine, unleashing floodwaters

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

The dam, 30 metres (yards) tall and 3.2 km (2 miles) long and which holds water equal to the Great Salt Lake in the U.S. state of Utah, was built in 1956 on the Dnipro river as part of the Kakhovka hydroelectric power plant.

It also supplies water to the Crimean peninsula, annexed by Russia in 2014, and to the Zaporizhzhia nuclear plant, which is also under Russian control and which gets cooling water from the reservoir.

The International Atomic Energy Agency (IAEA) said there was no immediate nuclear safety risk at the plant due to the dam failure but that it was monitoring the situation closely. The head of the plant also said there was no current threat to the station.

Eoin Treacy's view -

The destruction of the Kakhovka is an obvious response to the beginning of the Ukrainian counter offensive. Back in February there were several stories about how Russia had opened the sluice gates at the dam to drain the reservoir. That action puzzled commentators at the time but the intention is now clear. 



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June 05 2023

Commentary by Eoin Treacy

Video commentary for June 5th 2023

June 05 2023

Commentary by Eoin Treacy

Here's What Morgan Stanley to Goldman Say About Saudi Cut

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

RBC Capital Markets
While some will focus on Saudi Arabia not acting in concert with the rest of OPEC+, the fact that the kingdom is willing to shoulder the curbs alone adds to the credibility of the cut and signals real barrels coming off the market, analysts Helima Croft and Christopher Louney wrote in a note. Saudi Arabia has a track record of delivering on material cuts, they said.

ANZ Group Holdings Ltd
.“The move by Saudi Arabia is likely to come as a surprise, considering the most recent change to quotas had only been in effect for a month,” analysts Brian Martin and Daniel Hynes wrote in a note. “The oil market now looks like it will be even tighter in the second half of the year.”

UBS Group AG
“There has been some anticipation of a production cut, that is why the reaction this morning was a bit more muted,” Strategist Giovanni Staunovo said in a Bloomberg television interview. Still, “the market will react further when the cut is implemented in one month’s time, as soon as inventory dynamics show a drop or exports fall from Saudi Arabia.”

Eoin Treacy's view -

$80.90 is apparently the magic number for Saudi Arabia’s budget. With so many ambitious projects in the works and a large young population, the kingdom needs to ensure its finances are in order. If that means enduring some short-term pain to support prices, that appears to be a price they are willing to pay. 



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June 05 2023

Commentary by Eoin Treacy

China gas demand becomes more feasible at low LNG prices but challenges persist

Thanks to a subscriber for this article from S&P Global focusing on Chinese LNG demand. Here is a section: 

China's Shenzhen Energy closed a buy tender on May 30 seeking an August-delivery cargo,and the tender was awarded in the low $9s/MMBtu,according to several sources.

Prior to this, China's Guanghui Energy was heard to have partially awarded a buy tender for certain cargoes delivering from July 2023 to January 2024,S&PGlobal Commodity Insights reported earlier.

The prices of pipeline gas in China, which reflect crude prices 9-12 months ago, have been rising this year, with the average net import price above $8.5/MMBtu in April, showed calculations based on customs data

This means that the price advantage of pipeline gas over spot LNG is fading, which is expected to stimulate buying interest from importers who do not have sufficient long-term contracts in hand, market sources said.

"Rising prices of domestic pipeline gas in China could provide some incentive for downstream industries to switch to LNG," a Chinese importer said, adding that the current LNG prices were quite competitive and second-tier buyers could be more likely to come out to buy spot cargoes.

Eoin Treacy's view -

I was not previously aware of the look back relationship between current Chinese pipeline gas prices and the crude oil price a year ago. That suggests pipeline gas prices will begin to fall over the coming month since crude oil rolled over in June of 2022. 



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June 05 2023

Commentary by Eoin Treacy

Bitcoin Coders Feud Over Whether to Crush $1 Billion Meme Frenzy

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

Others defend the software innovation, called Ordinals, that allows Bitcoin’s blockchain to host large numbers of memecoins and nonfungible tokens — digital collectibles — for the first time, arguing it can have wider applications.

Developer Casey Rodarmor created Ordinals to enable users to inscribe digital content like videos, images and text on satoshis, the smallest unit of Bitcoin. There are 100 million satoshis in one Bitcoin. 

Rodarmor’s innovation took off this year and was seized on by pseudonymous blockchain analyst Domo to develop the Bitcoin Request for Comment — or BRC-20 — standard, which led to the explosion of memecoins.

There are now about 25,000 meme tokens on the Bitcoin blockchain with a market value of roughly $475 million, according to website brc-20.io. The figure had soared past $1 billion in early May.

Jameson Lopp, co-founder of crypto storage solutions provider Casa, said the Bitcoin network is meant to be an “auction market for the block space” — the place where data is stored — and Ordinals merely stoked demand for it.

Eoin Treacy's view -

This story is another version of the network capacity teething pains bitcoin has been going through since inception. The promise of peer to peer currency exchange is that it avoids banking fees and delays of days. The reality is it is complicated for the uninitiated and is a long way from instantaneous. When prices of the underlying move around a lot that does not help to build confidence. 



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June 05 2023

Commentary by Eoin Treacy

June 02 2023

Commentary by Eoin Treacy

June 02 2023

Commentary by Eoin Treacy

China Mulls New Property Support Package to Boost Economy

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

A mountain of developer debt — equal to about 12% of China’s GDP — is at risk of default and poses a threat to financial stability, according to Bloomberg Economics. That’s despite a slew of existing support measures for the industry, which include: 

Lower mortgage rates for first-home buyers if newly constructed house prices drop for three consecutive months
A nationwide cap on real estate commissions to boost demand
Allowing private equity funds to raise money for residential property developments
Pledging 200 billion yuan ($28 billion) in special loans to ensure stalled housing projects are delivered
A 16-point plan unveiled in November that ranged from addressing the liquidity crisis to loosening down-payment requirements for homebuyers

Speculation about further policy support helped propel a gauge of Chinese property developers to a more than 6% gain on Friday before the Bloomberg report, the most since December. In the coastal city of Qingdao, the government this week lowered the down payment ratio for first- and second-time home buyers in areas not subject to purchase restrictions, local media reported earlier on Friday.

Eoin Treacy's view -

Everyone can agree that moral hazard is a problem for economists. Create an incentive and resisting regulation ensure it will be exploited to the greatest extent possible by any and all means possible. Unbridled debt issuance is a hallmark of speculative activity in China. That’s been a clear feature of the housing/infrastructure boom. It was equally evident in the pace with which loans were made to foreign governments and projects as part of the Belt and Road Initiative. 



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June 02 2023

Commentary by Eoin Treacy

3M agrees to tentative PFAS settlement of 'at least' $10B

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

3M has agreed to a tentative settlement of "at least" $10B to resolve water pollution claims tied to PFAS "forever chemicals,' people familiar with the proposed pact tell Bloomberg's Jef Feeley. The potential deal would require board approval, the report noted.

Eoin Treacy's view -

There have been several examples of the last few years of storied companies falling foul of massive lawsuits. Bayer underestimated the cost of settling Monsanto’s glyphosate suit and the share crated as a result. That’s not something that is accurately reflected in the raw fundamentals because of the time lag between news breaking and earnings updates. 



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June 02 2023

Commentary by Eoin Treacy

Hubert's Peak Is Here

Thanks to a subscriber for this report from Goehring & Rozencwajg. Here is a section on shale oil production growth: 

Conventional wisdom believed the industry had improved its drilling and completion of shale wells. The ability to stay in the zone, the choice, and the volume of proppant and fluid were all said to have resulted in sharply higher drilling productivity. Wall Street and the energy industry both promoted a consistent narrative. We felt there were several unanswered questions and undertook a study to consider what was driving surging well productivity. If the industry had radically improved drilling techniques, it would ultimately be bearish for the sector. A previous low-quality Tier 2 location could now be transformed, through enhanced drilling and completion techniques, into a top-quality Tier 1 well. As a result, the inventory of best wells would explode, and the shale basins would continue to thrive for years to come. Modeling well performance is hugely complex. Shale basins are highly nonlinear with high degrees of variable inter-dependence. As a result, traditional statistical techniques, such as the linear regressions used by most analysts, fall short. We turned to advanced methods, including machine learning and neural networks, and achieved surprising results. Instead of improved drilling techniques, we concluded that two-thirds of the improved productivity between 2013-2018 came from favoring the best drilling locations. In 2013, 22% of Midland wells were Tier 1. By 2018, Tier 1 represented 50% of all wells. Since a Tier 1 well is nearly twice as productive as a Tier 2 well, the migration from lower to higher quality areas drove a massive amount of the improved well productivity.

Eoin Treacy's view -

There is significant difficulty in assessing the production profile of shale fields because constant drilling is required to both grow and sustain production. If the shale drillers have been following the energy sector’s equivalent of “rich veining”, then it would be reasonable to expect they will be reluctant to invest in additional new supply until prices are higher enough to secure their margins. 



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June 02 2023

Commentary by Eoin Treacy

June 01 2023

Commentary by Eoin Treacy

Video commentary for June 1st 2023

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 extends rebound on weaker Dollar, yield curve inversion deepens, copper and uranium firm, Apple testing previous peak on potential new product enthusiasm, AI shares rebound from initial weakness. 



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June 01 2023

Commentary by Eoin Treacy

GDP Surprises Up - Tailwinds Are Here to Stay

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

India’s GDP growth increased to 6.1% year on year in January-March, from an upwardly revised 4.5% in the final quarter of last year. The reading exceeded even our forecast of 5.7% — the highest in a Bloomberg News survey — and was 1.1 percentage points higher than the consensus estimate.

For fiscal 2022, which ended March 31, that translates into GDP growth of 7.2%, higher than the government’s second advance estimate of 7%. This was in line with our forecast, but 0.2 ppt higher than the consensus estimate.

Key drivers behind the positive data surprise included government subsidies that are energizing the electronics sector, multinationals shifting back-office business to India to reduce costs, and stronger real credit growth.

The Reserve Bank of India’s cumulative 250 basis points of repo rate increases in this cycle didn’t appear to have any meaningful impact. The construction sector, which is most sensitive to interest rates, also recorded higher growth in 1Q.

Eoin Treacy's view -

India’s Manufacturing PMI is in expansion territory and continues to trend higher. That is in sharp contrast to the negative readings in both China and the USA. Manufacturing capacity has been migrating for much of the last decade as China’s wage bill trended higher. The low end garment industry is now well established in places like Bangladesh, Pakistan, and Ethiopia for example. 



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June 01 2023

Commentary by Eoin Treacy

EPW Committee Advances Risch, Crapo Nuclear Energy Bill

Here are some of the key details of the nuclear bill passed today. 

Develop and Deploy New Nuclear Technologies

The bill reduces regulatory costs for companies seeking to license advanced nuclear reactor technologies.
The bill creates a prize to incentivize the successful deployment of next-generation nuclear reactor technologies.
The bill requires the NRC to develop a pathway to enable the timely licensing of nuclear facilities at brownfield sites.

Preserve Existing Nuclear Energy

The bill modernizes outdated rules that restrict international investment.
The bill extends a long-established, indemnification policy necessary to enable the continued operation of today’s reactors and give certainty for capital investments in building new reactors.

Strengthen America’s Nuclear Fuel Cycle and Supply Chain Infrastructure

The bill directs the NRC to establish an initiative to enhance preparedness to qualify and license advanced nuclear fuels.
The bill identifies modern manufacturing techniques to build nuclear reactors better, faster, cheaper and smarter.

Authorize funds for Environmental Cleanup Programs

The bill authorizes funding to assist in cleaning up legacy abandoned mining sites on Tribal lands.

Improve Commission Efficiency

The bill provides flexibility for the NRC to budget and manage organizational support activities to ensure the NRC is prepared to address NRC staff issues associated with an aging workforce.
The bill provides the NRC Chair the tools to hire and retain highly-specialized staff and exceptionally well-qualified individuals to successfully and safely review and approve advanced nuclear reactor licenses.
The bill requires the NRC to periodically review and assess performance metrics and milestone schedules to ensure licensing can be completed on an efficient schedule.

Eoin Treacy's view -

The cost of building new nuclear facilities is the most common counter argument for expanding the sector. Two of the biggest cost centres are the regulatory morass that needs to be traversed to get a new project permitted and the fact that many reactors are unique designs. Adjusting regulations to take technological innovations into account and building reactors on assembly lines could greatly reduce the cost of construction. 



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June 01 2023

Commentary by Eoin Treacy

Why Apple's headset could succeed where every similar product has failed

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

Around the same time, Apple started buying several companies focused on specific technologies that could end up in a headset.

In 2013 it bought Primesense, whose 3D camera sensor eventually ended up being part of the basis for FaceID, the company’s facial recognition system for iPhones, and influenced the company’s current depth-sensing cameras.
In 2015, it bought Metaio , which made AR software for mobile devices.
In 2016, it bought Flyby Media, which worked on computer vision technology.
In 2017, it bought SensoMotoric Instruments, which developed eye tracking, a core VR technology, as well as Vrvrana, which developed a VR headset.
In 2018, it bought Akonia Holographics, which developed transparent lenses for AR glasses
It bought NextVR, which filmed video content for virtual reality, including sports.

Apple also started releasing developer’s kits for augmented reality, including one called ARKit which could use the iPhone’s hardware to create limited AR experiences on the phone, like interacting with a virtual pet or trying out digital furniture in a living room.

Apple now has an entire library of software to perform difficult tasks that the headset will need to be able to do to integrate the real world and a virtual world seamlessly.

Eoin Treacy's view -

The thing I will be paying most attention to when Apple releases its mixed reality product will be whether they have come close to fixing the eye strain issues current VR systems incur. I do wonder if Microsoft’s Hololens suffered from the same issues.

I can only speak for myself but using the Oculus Quest gives me eye strain after half an hour and it takes about 3 hours to subside. Repeated use in 24 hours gives me eye strain for several days. Additionally, playing Beat Saber or boxing games is fun but the headset is also sweaty and that makes taking turns with family or friends unappealing.



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May 31 2023

Commentary by Eoin Treacy

May 31 2023

Commentary by Eoin Treacy

Exclusive Interview with Zoltan Pozsar: Adapting to the New World Order

Thanks to a subscriber for this interview from Ronald Stöferle and Niko Jilch. Here is a section:

These topics are becoming more mainstream. When I talk to the most sophisticated macro hedge funds and investors, the common refrain that comes back is they’ve never seen an environment as complicated as this. There is consensus around gold; it’s a safe bet, and everything else is very uncertain. This is a very unique environment. I think we need to take a very, very broad perspective to actively reimagine and rethink our understanding of the world, because things are changing fast. The dollar and the renminbi and gold and money and commodities. I think they are all going to get caught up.

Eoin Treacy's view -

There are a lot of moving parts in the global macro environment. The introduction of AI and the race for dominance is a wholly new development for example. The challenge with making big long-term predictions is that other events can happen before the prediction comes to fruition. 



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May 31 2023

Commentary by Eoin Treacy

Wells Fargo CEO Says 'There Will Be Losses' From US Office Loans

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

Wells Fargo & Co. Chief Executive Office Charlie Scharf said there are significant risks to segments of the US office sector and that his bank will see losses stemming from real estate loans.

“We look city by city, we look property by property to look at our exposures, and I would say there’s no question that there will be losses,” Scharf said Wednesday at a conference hosted by AllianceBernstein Holding LP. The San Francisco-based bank is proactively managing its loan portfolio and working with borrowers to restructure terms with the goal of helping clients and minimizing risk, he said. 

Many office owners are struggling amid the rise in remote work and the surge in borrowing costs, which has made financing more difficult. Landlords such as Columbia Property Trust, owned by funds managed by Pacific Investment Management Co., have defaulted on office debt, often in a bid to renegotiate terms with lenders. Brookfield Corp. recently handed over control of a building in downtown Los Angeles to a receiver after it stopped payments on the office tower.

“If you’re reserving conservatively, then you’ve derisked the financial impact to the company,” Scharf said, noting that Wells Fargo has a little less than 6% reserve coverage in its office portfolio. “In the context of the overall portfolio and the overall size of our loan portfolio in the company, we’re not overly concentrated in office.”

Eoin Treacy's view -

I was speaking with a friend in San Francisco recently who related the story of a major landmark office building. The building had leased at $1000 a square foot before the pandemic. Today it is vacant despite rates having fallen to $200 and there is speculation it will eventually lease for $100. The cost of retrofitting the building to make it residential is $750 and the cost to knock it and completely rebuild is also $750. That’s a white elephant project no one is going to touch and it is only one example. 



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May 31 2023

Commentary by Eoin Treacy

Britain Comes to Terms With Its New Water Poor Reality

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

By 2050, the UK’s Environment Agency expects the gap between available water and what’s needed by homes and businesses to reach 4 billion liters per day in England — enough to fill 1,600 Olympic size swimming pools. Leaks are part of the picture, but so is a neglected network, some of which was built more than 150 years ago, that doesn’t store enough for times of drought, and water consumption that outstrips many other parts of Europe.

The crisis has become a national obsession. The public is furious with a privatized English water industry that has paid out millions to executives and shareholders while failing to keep pace with population growth and climate pressures, and the government and regulators that have allowed it to happen. As well as the threat of water shortages, underdeveloped pipes and treatment plants mean raw sewage is frequently dumped in rivers and the sea, causing environmental damage.

Now, after years of delays, the UK is racing to fix its broken water system before it’s too late. “The worst risk has not materialized yet,” says Jim Hall, a professor of climate and environmental risk at Oxford University and a member of the government’s official infrastructure adviser. “There is some sense until now that we’ve got away with it,” he says, but “a severe and prolonged drought could materialize at any time.”

Eoin Treacy's view -

The population of Greater London declined between the 1950s and early 1980s but then jumped around 50% over the last forty years. There was no incentive to invest in water infrastructure during a time of declining population growth and it takes a long time for institutional mindsets to change. Today, there is urgency to the investment case because urgent remedial action in both storage and usage are necessary. 



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May 30 2023

Commentary by Eoin Treacy

Video commentary for May 30th 2023

May 30 2023

Commentary by Eoin Treacy

Treasuries Gain as Investors Assess Debt-Ceiling Accord Impact

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

Mounting rate-hike expectations have pushed short-term yields up relative to longer-term ones, flattening the Treasury curve. The flattening continued Tuesday as yields declined, briefly pushing 30-year yields below the five-year for the first time since March.

The trend has temporary support from Wednesday’s month-end bond index rebalancing, which may create demand for the long-maturity Treasuries created during the month in quarterly auctions. 

Later this week, Friday’s release of US labor market data for May has the potential to alter expectations for Fed policy. Job creation exceeded economists’ median estimate in April and each of the previous 12 months. However Fed officials in their public comments have been divided on how to balance an anti-inflationary stance with the possibility that the central bank’s 10 rate increases totaling 5 percentage points in the past 14 months warrant a pause in June.

Eoin Treacy's view -

The deal announced over the weekend relies on capping spending and growing defense spending below the rate of inflation. The headline impact will be to grow the national debt less quickly. That is supporting Treasury prices today. 



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May 30 2023

Commentary by Eoin Treacy

World's Largest Solar Manufacturer Is Fueling a Price War

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

Chinese company Longi Green Energy Technology Co. cut wafer prices by as much as 31% on Monday. Wafers are silicon squares that are wired up and pieced together to form solar panels. 

The reduction comes after solar silicon prices have plunged by almost half since early February. A slew of new factories have ramped up production, ending a shortage of the material that disrupted the industry’s supply chain last year. 

Longi President Li Zhenguo warned last week that aggressive expansion in the solar supply chain could lead to excess capacity that forces more than half the companies in the industry out of business in the next few years. 

Eoin Treacy's view -

China is the global heavyweight in solar panel manufacturing and not least because several provinces have the same ambition of dominating the sector. If they have decided to embark on a price war to drive the weakest domestic manufacturers out of business, that is near-term positive for consumers but is a significant challenge for global competitors who will not be spared from dumping of excess supply. 



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May 30 2023

Commentary by Eoin Treacy

AB InBev Falls as Data Shows Accelerating Bud Light Declines

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

Anheuser-Busch InBev ADRs fall as much as 2.5% ahead of the bell after the latest Nielsen data shows accelerating volume and sales declines for its Bud Light beer. Shares dropped as much as 1.9% in Europe.

Nielsen data through May 20 show that Bud Light volume declines accelerated to -27.2% vs -25.0% in the week ended May 13, while sales worsened to down 24.3% from down 21.6%, writes Citi analyst Simon Hales

The broader InBev beer portfolio also continues to see weakness, while Molson Coors’ Coors Light beer continues to see market share gains accelerate, he says.

Eoin Treacy's view -

The culture wars are ramping up a year ahead of the US Presidential election. “Protect the children” is developing as the counter point to the rollback of abortion rights earlier this year. It is reasonable to expect continued efforts to deepen the gulf between the parties as centrists are increasingly forced to pick a side. Taking the bi-partisan agreement to raise the debt ceiling as a sign that partisanship is ebbing would seem to be rather naive. 



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May 26 2023

Commentary by Eoin Treacy

May 26 2023

Commentary by Eoin Treacy

May 26 2023

Commentary by Eoin Treacy

Soaring Real Yields Suggest Fed's Inflation Battle Isn't Over

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

But the latest swing higher in real yields shows that in spite of fraught debt-ceiling negotiations, the world’s biggest bond market senses another jolt of policy tightening and an extended period of staying on hold may be warranted. A similar outlook is being echoed in the swaps market, with traders almost fully pricing in a quarter-point hike within the next two policy meetings.

That view has found support in recent data pointing to a resilient US economy and sticky inflation. A report on Friday showed the inflation rate for US personal spending on items excluding food and energy running firmer than forecast at an annual pace of 4.7% in April. That comes amid upside surprises in UK and European inflation numbers, reminders that central banks may have more work to do and bond yields may keep climbing. 
 

Eoin Treacy's view -

PCE inflation, the trimmed kind followed by economists who don’t like volatile real life data, surprised on the upside today. That is a mirror of the UK result earlier this week. It suggests the primary sources of inflation are now services and shelter. The sources of inflation which can be influenced by interest rates are already subsiding. For example food prices are now contracting. 



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May 26 2023

Commentary by Eoin Treacy

Amazon's stock is misunderstood for these 3 reasons, according to an analyst

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

"First, we believe the current growth rate is depressed by the overall softness in consumer discretionary spend," Mahaney wrote of Amazon's retail business, which he expected will grow revenue by 10% this year, compared with 13% last year. An improvement in macroeconomic trends "should enable an acceleration in North American Retail revenue growth."

Further, Amazon could see big revenue benefits as it continues making its shipping times ever speedier. As Mahaney wrote, "the faster the shipping, the greater the demand."

On the cloud-computing side of the business, Mahaney saw the potential for an even more dramatic slowdown in the near term. Revenue there could increase by only 10% or 11% in the second quarter and 16% for the whole of 2023, by his estimates, versus 29% in 2022.

But he also saw room for Amazon to drive a growth inflection after the second quarter of this year, driven by easier comparisons, traction for artificial-intelligence workloads and a relaxation of "optimization" efforts like discounts and bundled renewals.

Eoin Treacy's view -

The reason Amazon is rebounding is because investors are betting its AWS data centres will be used for AI computing resources. There is logic to that assumption since AI requires a multiple of the computing power devoted to cloud or search. 



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May 26 2023

Commentary by Eoin Treacy

When Delivery Costs More Than the Food You Ordered

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

Delivery companies as publicly listed entities are under pressure to churn out profits. And there’s very little competition. Consolidation, particularly since that start of the pandemic, has left three dominant players in the US. DoorDash had 65% of food delivery sales as of April, including those from its Caviar unit, according to Bloomberg Second Measure, a provider of transaction data analytics. Uber Eats has a 25% share, aided by its 2020 acquisition of Postmates. Grubhub Inc. — which has over the years absorbed Seamless, Eat24, and Tapingo before being acquired by Just Eat Takeaway.com — has 9%. 

Eoin Treacy's view -

Delivery apps are a vestige of the success stories that characterised the pandemic living experience. The market is not big enough to accommodate all the companies vying for dominance so the best capitalised are most likely to gain markets share as the weaker companies disappear. 



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May 25 2023

Commentary by Eoin Treacy

Video commentary for May 25th 2023

May 25 2023

Commentary by Eoin Treacy

Nvidia Eyes the $1 Trillion Club as AI Outlook Sparks Rally

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

“It doesn’t happen often to see a $700 billion company move 25% in one day — I’ve never seen anything like it,” said Richard Windsor, founder of independent researcher Radio Free Mobile based in Abu Dhabi. For as long as the AI craze persists, “Nvidia is in a good position.”

A trillion dollars of data center infrastructure will be upgraded to handle so-called accelerated computing, Chief Executive Officer and co-founder Jensen Huang told analysts, letting them run generative AI tools such as ChatGPT. Huang said the firm saw “incredible orders.”

Nvidia’s outlook was so strong that Morgan Stanley analyst Joseph Moore said the numbers match what they had in mind for 2025. “The transformational surge in AI spending is paying off much earlier than expected,” he wrote in a note.

Eoin Treacy's view -

There is no arguing with the size of the sales beat by Nvidia. It is truly impressive. Of course, it begs the question who is buying? The company announced in late March they have altered the best-selling H800 chip, so it will comply with prohibitions on selling high tech to China. The upshot is a Chinese company will need more of these chips to achieve the same efficiency. That’s likely to have been a significant factor in the jump in Nvidia’s sales. 



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May 25 2023

Commentary by Eoin Treacy

South Africa Rate Hike Fails to Stop Rand Slumping to Record Low

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

“The health of the local economy is now the primary concern,” said Brendan McKenna, an emerging-markets strategist at Wells Fargo Securities in New York. “It’s difficult to make a really compelling case to deploy capital toward South Africa and the rand at the moment. The rand has been an EM currency that has underperformed for most of this year, and given the commentary from the SARB today, that underperformance is likely to continue.”

Bloomberg’s forecast model based on prices of options to buy and sell the rand shows a 53% chance of the currency breaching 20 per dollar within the next week. That compares with a probability of just 6.8% before Thursday’s rate decision.

All of the monetary policy committee’s five members voted for the half-point increase, the first such unanimous decision since September 2021. There have been a cumulative 475 basis points of interest-rate hikes since November 2021, the most aggressive tightening cycle in at least two decades.

“The rand should strengthen after an interest rate hike, but given the poor reaction in the currency, the market seems to think that this is a potential policy mistake,” said Michelle Wohlberg, a fixed-income analyst at Rand Merchant Bank in Johannesburg. “The yield curve has steepened aggressively post the rate hike as fiscal fears start playing in investors’ minds on the back of poor growth prospects.”

Eoin Treacy's view -

When the former CEO of Eskom writes a book called Truth to Power and refers to the company as South Africa’s largest organised crime network, it is not exactly good for the country’s international reputation. The cholera outbreak north of Pretoria, which has killed 17 people so far, is an additional sign that South Africa’s water infrastructure is also in need to remedial care. 



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May 25 2023

Commentary by Eoin Treacy

Great Wall Motor, BYD Sink After Chinese Auto Giants Clash on Car Emissions Tests

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

BYD’s Qin Plus DM-i and Song Plus DM-i models use normal-pressure fuel tanks and therefore purportedly fail to meet the country’s vehicle emissions standards, Great Wall Motors said today, citing the filing it made to the Ministry of Ecology and Environment, State Administration for Market Regulation and the Ministry of Industry and Information Technology on April 11.

Great Wall Motors is paying close attention to the case to see if legal action will be taken, the Beijing-based carmaker said. Environmental protection authorities need to conduct a probe and legal proceedings must be started should the results show any irregularities, it added.

BYD retorted that it reserves the right to carry out legal action of its own and is firmly against any form of unfair competition. All of the Shenzhen-based company’s autos conform with national standards and they have all passed verification by the country’s authorities.

Great Wall Motor bought the two cars and sent them to the China Automotive Technology & Research Center for testing, BYD said. They were not tested according to national-level standards, it said.

Eoin Treacy's view -

In normal times this kind of backbiting might be considered part of normal competition. However, the share prices of Chinese automotive companies suggest a scramble is one for market share amid slowing demand. 



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May 25 2023

Commentary by Eoin Treacy

Email of the day on demand for EV charging

One must also consider that a healthy percentage of ev owners charge at home. The business model for gasoline retailers would be very different if the same percentage of ice owners had gas pumps at home.

Eoin Treacy's view -

Thank you for this important point. 68% of people live in single family homes in the USA. People earning more than $100,000 buy around 57% of EVs. It is reasonable to assume many people earning that sum also own a house. The challenge with mass adoption is EVs are expensive and if you are one of the people who does not own a home, finding a charger is an inconvenience. 



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May 25 2023

Commentary by Eoin Treacy

May 24 2023

Commentary by Eoin Treacy

Video commentary for May 24th 2023

May 24 2023

Commentary by Eoin Treacy

UK Price Shock Sends Bond Yields to Levels Last Seen Under Truss

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

UK bond yields are back to where they were when Liz Truss was in No. 10 after a shocking inflation report prompted traders to bet on more rate hikes from the Bank of England.

The inflation rate came in higher than all economists forecast — sending wagers on future interest-rate hikes soaring and lifting yields to levels last seen when the former Prime Minister rattled markets with her unvetted mini-budget. 

The rate on 10-year securities now pays a premium of more than 50 basis points over equivalent US notes, around the biggest seen in more than a decade. A key part of the curve inverted the most since February, a sign bond traders are positioning for short-term borrowing costs to remain elevated for longer. 

“It’s a terrible inflation print that really sets the UK apart from other major developed economies,” said Derek Halpenny, head of research, global markets EMEA & international securities at MUFG Bank. “The scale of divergence on the inflation path risks undermining policy credibility.”

Eoin Treacy's view -

The whole point of creating an ex-food and energy inflation measure was to reduce the impression inflation is out of control. We have rather the opposite condition at present because the core figure is breaking out to new highs while the broad measure is contracting. That’s not good news because the core measure is centred on shelter and services and only a steep recession is likely to have a meaningful effect on the price of either. 



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May 24 2023

Commentary by Eoin Treacy

Big Oil veteran Exxon wants to become part of Big Shovel

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

And Exxon Mobil’s new bet on lithium gives it exposure, with all the potential upside in revenue and profits, to the red-hot market for electric vehicles and batteries.

Global demand for lithium is expected to surge in the coming years, far outstripping supply as the world shifts towards renewable energy systems. These require batteries to store electricity for later use, given the variable nature of wind and solar. By 2050, according to an estimate from the International Energy Agency, the world will need to mine 26 times more lithium than it did in 2021.

Lithium-ion batteries are currently the most widely used type of battery, the supply chain for which is dominated by China. Chinese battery giants are also investing heavily in developing sodium-ion batteries, which could potentially offer an alternative to lithium-based ones.

Eoin Treacy's view -

The lithium carbonate price peaked at the end of last year at CNY/tonne of 600,00. and hit a low at the end of April at around CNY177,000. A rebound is now underway which confirms a low in the region of the 2016 and 2018 peaks. It is reasonable to expect a great deal of volatility in lithium prices but the evidence of a higher plateau is now more convincing. 



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May 24 2023

Commentary by Eoin Treacy

Debt-Ceiling Fears Drive Early June T-Bill Yields Above 7%

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

Treasury-bill yields slated to mature early next month surged, driving them above 7% amid building concern that talks in Washington will fail to resolve the debt-ceiling crisis and the US might default.

The rate on the June 1 and June 6 maturities soared more than a percentage point on the day, while others for early June also climbed sharply. By comparison, the earliest June tenors yield around 4 percentage points above the May 30 issue. 

Eoin Treacy's view -

The Fed minutes reflected a split decision between hiking and holding rates. They are not talking about cutting rates but they seldom do until they are actually doing it. The next question is how quickly a deal on the debt ceiling will be made. 



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May 23 2023

Commentary by Eoin Treacy

May 23 2023

Commentary by Eoin Treacy

Mexico's Foreign Investment Surges 48% as Nearshoring Booms

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

Aside from the capital, no state received more money than Nuevo Leon’s $2.3 billion. Jalisco received $1.2 billion, while Puebla and Mexico State followed with $0.9 billion each. The majority of the investment growth came from companies that expanded existing operations in Mexico.

“The greatest part of the foreign direct investment was reinvestment in utilities, which is related to the increase in the capacity of plants already installed by companies, and explained by the long-term perspective on export growth,” said Gabriela Siller, director of economic analysis at Banco Base.

The movement of companies from other parts of the world to just south of the US — a practice known as nearshoring — has generated buzz around Mexico’s production possibilities. Nearly $10 billion of the investment went to the manufacturing sector, while $6 billion went into financial services.

If the current pace continues, total investment for the year could reach $43 billion, Siller said. That would represent a 51% gain in total foreign direct investment from 2022 after $6.9 billion from the media merger and Aeromexico restructuring is excluded.

Eoin Treacy's view -

https://en.wikipedia.org/wiki/Isthmus_of_TehuantepecMexico’s GDP is around $1.27 trillion so inward investment approaching $100 billion in a year moves the needle for economic growth. At present Mexico is growing at around the pre-pandemic trend rate of 4%, and inflation (6.25%) continues to trend lower. Fiscal constraint has been a hallmark of AMLO’s presidency and that has helped to support the peso. In turn that has improved the perception of upside potential for foreign investors in the stock market.  



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May 23 2023

Commentary by Eoin Treacy

LVMH, Hermes Spark $30 Billion Luxury Stocks Rout on US Slowdown

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

Confidence in that view has now been dented, however, with attendees at a luxury conference in Paris organized by Morgan Stanley flagging a “relatively more subdued” performance in the US, according to Edouard Aubin, an analyst at the investment bank. That reflects “weakness in the aspirational consumer in particular.”

That was counterbalanced by more buoyant demand elsewhere, according to Morgan Stanley. “Overall, we found corporate commentary resilient, pointing to an ongoing soft landing in the US largely offset by strength in other markets.”

Both Asia and the US are important markets for European luxury companies. Asia excluding Japan accounted for 30% of LVMH’s sales in 2022, while the US made up 27%, according to the company’s annual report. 

Deutsche Bank AG analysts have also said that a slowdown in the US is now a growing concern. While the rebound in Chinese demand has been among the key drivers of strong sales, investors are likely to be picky from here on, they added.

Eoin Treacy's view -

Hermes doubled in less than a year. For a “limited supply” champion that’s an impressive performance. The share’s trend has been supported by the low float and its status as a vehicle for playing China’s post pandemic consumer rebound, without in fact investing in China.  



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May 23 2023

Commentary by Eoin Treacy

Technology Was Supposed to Transform Insurance Pricing. It Hasn't.

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

At first, the insurance pricing process -- heavily reliant on algorithms and mathematical modeling -- seemed ripe for upending, thanks to advances in the sheer amount and variety of data digitally-native companies could suddenly collect on customers.

But the Silicon Valley axiom to move-fast-and-break-things hasn't been enough to transform an industry built on centuries of observed human behavior, massive marketing budgets and a savvy grasp of the regulatory environment.

Founded in 2015, Lemonade initially aimed to sell renters and homeowners insurance. It was worth $9.87 billion at its peak in 2021; it's now worth $1.23 billion. Root Insurance, also founded in 2015, began with the idea of using telematics -- or in-car data -- to offer personalized auto insurance based on how people drive. In 2020, it was worth roughly $6.8 billion, and has since swooned to about $67 million. Property and casualty insurance startup Hippo went public at a $5 billion valuation in 2021. It is now worth around $425 million.

So far, the insurtechs have been slow to gather and contextualize enough data to actually build better models. Regulations have restricted the use of some of their data and differentiated pricing. And it has been difficult to chip away market share from established industry giants.

Eoin Treacy's view -

I have been a beneficiary of the insurtech market, so perhaps I am more positively disposed towards the sector than others. As a user of MyFitnessPal, I was provided with a life insurance policy (at my peak pre-pandemic fitness point) at a rate that was far below anything available elsewhere. The home insurance premium I pay Lemonade is half what other companies have quoted. The big question is whether these companies can achieve profitability before they run out of money. 



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May 23 2023

Commentary by Eoin Treacy

May 22 2023

Commentary by Eoin Treacy

May 22 2023

Commentary by Eoin Treacy

China's $23 Trillion Local Debt Mess Is About to Get a Lot Worse

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

“Many cities will become like Hegang in a few years’ time,” said Houze Song, an economist at US think tank MacroPolo, noting that China’s aging and shrinking population means many cities don’t have the workforce to sustain faster economic growth and tax revenue.
 
“The central government may be able to keep things stable in the short term by asking banks to roll over local governments’ debt,” Song said. Without loan extensions, he added, “the reality is that over two thirds of the localities won’t be able to repay their debt on time.” 

In Heilongjiang province, where Hegang is located, bond investors are already wary of the risks. The province’s outstanding seven-year bond had an average yield of 3.53%, 18.8 basis points higher than the average nationwide, ranking it among the top four most expensive.

Eoin Treacy's view -

The big question for everyone is just how much pain is the Chinese government willing to tolerate? The modest official debt to gdp ratio posted by the government does not include the debt owed by states, counties, or cities; all of which have a quasi-guarantee from the central government. When those debts are included China has one of the highest debt burdens of any major economy. 



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May 22 2023

Commentary by Eoin Treacy

New type of quasiparticle emerges to tame quantum computing errors

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

The Quantinuum group, meanwhile, made non-Abelian anyons in a different way. Using the Honeywell 32-qubit H2 quantum processor, which holds ytterbium ions in an electromagnetic trap and alters their quantum states using lasers, they created a quasi-one-dimensional chain of interacting trapped-ion qubits.

Here, the anyons correspond to natural excitations of the ground state of the qubit system – which technically means they are not quasiparticles, since quasiparticles must be excited states. “The Majorana zero modes at the end of superconducting wires in the Microsoft experiment and the lattice defects in the Google experiment are non-Abelian defects,” emphasizes Ashvin Vishwanath of Harvard University, who collaborated with the Quantinuum team. “Unlike our experiment, they are not realized on top of true non-Abelian topological order.”

Eoin Treacy's view -

There is no doubt excitement in the market around what are bleeding edge technologies is heating up. Commentary on quantum computing’s growth rate several years ago was the first time I heard the term exponential exponential growth. Conventional exponential growth is explained as a doubling; 2,4,8,16,32…. Growing by exponents implies 2,4,16,256,65536… I’m not sure reality has kept up with those lofty goals but the pace of innovation is certainly impressive.
 



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May 22 2023

Commentary by Eoin Treacy

Why So Many Electric Car Chargers in America Don't Work

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

There isn’t a single reason for EV charger failures. Some of the problems, particularly with older machines, can be chalked up to a new technology going through the usual learning curve of improvements, all while sitting outside, exposed to the weather. There have been cycles of needed upgrades, such as replacing modems to deal with 5G wireless internet service. The myriad networks, retail outlets and garage owners who own the machines don’t always stay on top of maintenance. And chargers must communicate with a rapidly expanding variety of cars. 

To that end, the precise scope of the problem isn’t known. EV drivers face a complex landscape of competing charging companies, each with its own stations and app, and there is no central repository of data on station performance. One widely cited 2022 study of fast-charging stations in the San Francisco Bay Area (excluding Tesla Inc.’s Superchargers), found that about 25% of the 657 plugs weren’t working. While J.D. Power doesn’t disclose reliability rankings, Gruber said the worst-performing charging company leaves drivers unable to plug in about 39% of the time. 

“With public charging, it’s a bit of the wild, wild West,” he said.

Tesla proved that reliable charging is possible. The all-electric automaker runs a global network of 45,000 Superchargers, which can add up to 200 miles of range in just 15 minutes. Tesla consistently gets the highest customer-satisfaction marks of any charging company in J.D. Power’s surveys, Gruber said. Its drivers report charger downtime of just 3%.

But Tesla has the advantage of keeping everything in-house. Until recently, Superchargers could only be used by Tesla cars, and didn’t need to work with the growing array of other EVs and batteries. Tesla also owns its Supercharger network, whereas many of the public chargers installed over the past decade are owned by whoever owns the parking lot where they’re located. Such property owners, Gruber said, don’t have as strong an incentive to maintain their machines.

Eoin Treacy's view -

The challenge with developing a profitable EV market is margins are thin and the market is highly competitive. That suggests not every business model is likely to be successful. Constructing a charging network is capital intensive and the pay back is uncertain until the total penetration of EVs is known.



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May 19 2023

Commentary by Eoin Treacy

May 19 2023

Commentary by Eoin Treacy

'In a lot of the world, the clock has hit midnight': China is calling in loans to dozens of countries from Pakistan to Kenya

This fascinating article by Bernard Condon for The Associated Press may be of interest. Here is a section:  

As Parks dug into the details of the loans, he found something alarming: Clauses mandating that borrowing countries deposit U.S. dollars or other foreign currency in secret escrow accounts that Beijing could raid if those countries stopped paying interest on their loans.

In effect, China had jumped to the front of the line to get paid without other lenders knowing.

In Uganda, Parks revealed a loan to expand the main airport included an escrow account that could hold more than $15 million. A legislative probe blasted the finance minister for agreeing to such terms, with the lead investigator saying he should be prosecuted and jailed.

Parks is not sure how many such accounts have been set up, but governments insisting on any kind of collateral, much less collateral in the form of hard cash, is rare in sovereign lending. And their very existence has rattled non-Chinese banks, bond investors and other lenders and made them unwilling to accept less than they’re owed.

“The other creditors are saying, ‘We’re not going to offer anything if China is, in effect, at the head of the repayment line,’” Parks said. “It leads to paralysis. Everyone is sizing each other up and saying, ‘Am I going to be a chump here?’”

Loans as ‘currency exchanges’
Meanwhile, Beijing has taken on a new kind of hidden lending that has added to the confusion and distrust. Parks and others found that China’s central bank has effectively been lending tens of billions of dollars through what appear as ordinary foreign currency exchanges.

Foreign currency exchanges, called swaps, allow countries to essentially borrow more widely used currencies like the U.S. dollar to plug temporary shortages in foreign reserves. They are intended for liquidity purposes, not to build things, and last for only a few months.

But China’s swaps mimic loans by lasting years and charging higher-than-normal interest rates. And importantly, they don’t show up on the books as loans that would add to a country’s debt total.

Mongolia has taken out $1.8 billion annually in such swaps for years, an amount equivalent to 14% of its annual economic output. Pakistan has taken out nearly $3.6 billion annually for years and Laos $300 million.

The swaps can help stave off default by replenishing currency reserves, but they pile more loans on top of old ones and can make a collapse much worse, akin to what happened in the runup to 2009 financial crisis when U.S. banks kept offering ever-bigger mortgages to homeowners who couldn’t afford the first one.

Some poor countries struggling to repay China now find themselves stuck in a kind of loan limbo: China won’t budge in taking losses, and the IMF won’t offer low-interest loans if the money is just going to pay interest on Chinese debt.

For Chad and Ethiopia, it’s been more than a year since IMF rescue packages were approved in so-called staff-level agreements, but nearly all the money has been withheld as negotiations among its creditors drag on.

Eoin Treacy's view -

The G-7 meeting starts today in Japan and the BRICS Summit will be in August in South Africa. On one side we have the major developed countries getting together to talk about cooperation and how to counter Russia and China. On the other, are the world’s major population centres, where growth will be concentrated over the coming decades. They are suspicious of G7 motives and not least since the confiscation of Russia’s sovereign reserves and are also seeking cooperation but with one another. A major PR exercise is now underway to win hearts and minds in the emerging markets as geopolitical battles lines are drawn. 



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May 19 2023

Commentary by Eoin Treacy

This Equities Rally Is Running on Hope and a Story

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

For the first, virtually all of the S&P 500’s gain for the year (barring this week’s surge) can be traced to the 7.5% rally from March 13 to April 13, which took it from 3,856 to 4,146. This coincided with the creation and growth of the BTFP as well as an expansion of the Fed’s balance sheet in response to the collapse of SVB and Signature Bank. Whatever the official interest rates, money was available. As money is also fungible, it had a way of finding where it could make the best return. The Fed’s balance sheet grew roughly $400 billion to $8.73 trillion between March 1 and March 22 as it tried to contain the crisis. It currently stands at around $8.50 trillion.

For the second, there was a slide in the expected federal funds rate on the anticipation that the Fed would pivot (since largely reversed). As the rally started, the projected rate after next month’s Federal Open Market Committee meeting had just dropped from about 5.5% to about 4.7%. Coinciding with this was a “defrosting of credit markets” that saw investment-grade corporate spreads compressing almost 30 basis points from this year’s peak of 163 on March 15 — again a phenomenon that was likely helped by the BTFP and increased liquidity.

Eoin Treacy's view -

Liquidity is both global and mobile. It flows to the most attractive assets and has been the driving force behind the bull market since the Global Financial Crisis 15 years ago. $87 billion has been drawn down in the Fed’s Bank Term Funding Program. That’s mostly been from regional banks requiring supplementary capital. They are still sitting on losses with long-dated bond portfolios and that situation is not improving as yields remain stubbornly high.



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May 19 2023

Commentary by Eoin Treacy

Wildfires Rage On in Western Canada, Shutting More Energy Output

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

Companies including Chevron Corp., Paramount Resources Ltd. and Crescent Point Energy Corp. also have announced shutdowns, and consultant Rystad Energy estimates that the equivalent of about 240,000 barrels of daily production — and perhaps more than 300,000 barrels — has been shut due to the fires. 

So far, the blazes have mostly struck the gas-producing region of western Alberta. But ConocoPhillips said on Wednesday that it evacuated and then returned non-essential workers to the Surmont oil-sands site because of a wildfire nearby. Surmont produced about 143,000 barrels a day in March. 

Conditions are expected to worsen heading into the weekend, raising the possibility of even more blazes, Christie Tucker, a spokeswoman for Alberta Wildfire, said during a media briefing Wednesday. 

“It will get hotter and drier as we head to the weekend, and as we’ve seen, that can lead to more active wildfire behavior,” she said.
 

Eoin Treacy's view -

The breaking of California’s drought has overshadowed the very dry conditions in much of the centre of the North American continent. This is very early in the season for wildfires to be such a problem in Alberta, and hard winter wheat is withering in states like Kansas. 



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May 18 2023

Commentary by Eoin Treacy

Video commentary for May 18th 2023

May 18 2023

Commentary by Eoin Treacy

BT Plans to Cut Up to 55,000 Jobs Following Fiber Rollout

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

BT Group Plc said it plans to cut its workforce by as many as 55,000 people by the end of the decade, after the UK’s biggest network operator completes its nationwide fiber-optic rollout. 

The company’s workforce will drop to 75,000 to 90,000 people by the fiscal year ending in March 2030 from about 130,000 currently, counting employees and contractors, the company said in its full-year earnings statement on Thursday. That’s a decline of about 42%.

Chief Executive Officer Philip Jansen is slashing costs at BT, fighting an industrywide slump as telecom carriers spend heavily on networks to keep up with surging data demand without a corresponding rise in revenues. On Tuesday, British rival Vodafone Group Plc announced plans to reduce headcount by 11,000 over the next three years. Jansen has pledged to cut expenses by £3 billion ($3.7 billion) a year by 2025 against 2020 levels, and has been weighing more dramatic job cuts since at least 2019. 

Eoin Treacy's view -

The build out of the fibre network is a medium-term labour intensive project. The significant volatility in headcount begs the question why BT did not outsource the work to begin with. Nevertheless, almost halving the number of workers is a significant cost saving at the same time as income is likely to flow from the higher value network. 



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May 18 2023

Commentary by Eoin Treacy

Dynatrace Rises on Strong Results and Forecast

This note following Dynatrace’s earnings may be of interest. Here is a section:

Dynatrace shares are up 5.9% in premarket trading, after the infrastructure-software company reported fourth-quarter results that beat expectations and gave a full-year forecast that is ahead of the analyst consensus.

Barclays (equal weight, PT $41)
Profitability metrics were “all nicely above consensus,” while the outlook seems conservative
“The results and guide provide ammunition for the bulls, suggesting stronger product/[go-to-market] execution and/or improving macro conditions”

Eoin Treacy's view -

The market environment has changed from worrying about a recession to the fervent belief that AI will both solve all of humanity's problems and ultimately result in our annihilation. The reality is any model is only as good as the data it is trained on. That gives a clear advantage to the data repositories.  



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May 18 2023

Commentary by Eoin Treacy

African Central Banks Poised to Hold Rates as Inflation Softens

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

A temporary slowdown in inflation may give Egypt’s MPC room to pause, especially after Governor Hassan Abdalla signaled higher interest rates are doing little to cool prices.

The central bank “is likely to remain data-led, and will see declining global commodity prices and a reduction in domestic inflation as supportive of their current monetary stance,” said Farouk Soussa, an economist at Goldman Sachs Group Inc. The monetary authority sees inflationary pressures stoked mainly by supply issues, “reducing the rationale for a further hike in the medium term,” he said.

Eoin Treacy's view -

Emerging markets have no choice but to aggressively hike rates when inflation surges. They don’t have deep domestic capital markets and rely on offering a real rate of return to attract inward investment. Egypt’s year over year inflation has probably peaked at around 30% but with overnight rates closer to 18%, there are still sharply negative real rates. That’s the primary reason for the downtrend in the Egyptian Pound. 



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May 18 2023

Commentary by Eoin Treacy

May 17 2023

Commentary by Eoin Treacy

May 17 2023

Commentary by Eoin Treacy

Biden 'Confident' on Reaching Debt Deal as GOP Bashes Japan Trip

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

President Joe Biden expressed confidence that negotiators would reach an agreement to avoid a catastrophic default, even as House Speaker Kevin McCarthy criticized his decision to travel to Japan for an international summit.

“I’m confident that we’ll get the agreement on the budget and that America will not default,” Biden said Wednesday at the White House, shortly before departing to Hiroshima, Japan for a Group of Seven leaders summit.

On Capitol Hill, McCarthy and other Republican lawmakers criticized Biden for his decision to travel, with the House speaker labeling the president “a big obstacle” to an agreement.

“Mr. President, stop hiding, stop traveling,” McCarthy said.

On Tuesday, Biden and congressional leaders agreed to a new narrower round of staff-level talks with hopes of reaching a bipartisan deal to avoid an unprecedented US default. The US president also announced he was canceling planned stops in Australia and Papua New Guinea, and would return to Washington by the beginning of next week for continued negotiations.

Eoin Treacy's view -

The decision to attend the G7 meeting is a clear signal there are more important issues at stake than the inward facing decision about how spending and taxing priorities are apportioned. Holding the sovereign debt market to ransom is not the most productive use of anyone’s time but at least it ensures there is a discussion about the trajectory and sustainability of the national debt and obligations. 



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May 17 2023

Commentary by Eoin Treacy

Automakers Speeding Platinum Substitution Push Market to Deficit

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

Automakers are accelerating the substitution of platinum for pricier palladium in catalytic converters,
putting the market for the metal on track for a deficit for the first time in two years, according to Johnson Matthey Plc.

Demand from automakers will exceed 3 million ounces for the first time since 2018 as platinum is increasingly preferred over palladium, which will continue to see its usage decline, the firm wrote in a report on Monday. Both precious metals are used to cut emissions from car exhausts.

The car industry’s switch has taken years, but is finally having a sizeable impact on the fundamentals of platinum group metals. While palladium has traded at a premium to platinum since 2017, the gap has narrowed to near the smallest in more than four years.

“Just as substitution benefits platinum, it disadvantages palladium,” said Rupen Raithatha, market research director at Johnson Matthey. “These are all incremental trends.”

Investors are increasingly eyeing risks to platinum supplies from South Africa, the world’s top miner, as power blackouts threaten to cripple its output. So far, the country’s miners have limited the impact by idling processing plants, allowing mining to continue, though more severe outages could hit overall production, according to Johnson Matthey.

The firm sees platinum in a small deficit of 128,000 ounces in 2023, following two years of large surpluses. That compares to the record shortfall forecast by the World Platinum Investment Council.
 

Eoin Treacy's view -

Platinum took a leg lower as the diesel cheating scandal broke. That destroyed a major demand driver for the metal. In a normal environment, the massive disparity between palladium and platinum would have encouraged automakers to retool years ago. The reason that did not happen is they are devoting all their energy to building electric vehicle production capacity and do not envisage using as many catalytic converters in future.  



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May 17 2023

Commentary by Eoin Treacy

Scottish Mortgage Writes Down Private Company Holdings by 28%

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

 “An important influence over the last year has been the closing of the IPO market,” Burns said in the statement. “We had fourteen companies go public in 2021 but as the IPO market closed in 2022 companies postponed their plans with no private holdings going public.” 

During the year the fund invested £281 million into private companies for follow-on investments as well as two new investments in UPSIDE Foods and Climeworks, Burns said. Private holdings made up 28.6% of the portfolio at March 31.

“We will continue to closely monitor the proportion of the company invested in private companies throughout the year recognising that the proportion can be volatile,” he added.

Eoin Treacy's view -

Scottish Mortgage is not the only fund to have to write down investments in private assets. The low interest rate, low inflation and abundant credit of the last decade allowed long duration assets like high growth, zero profit companies to expand rapidly. The right investment decision was to bet big on the private assets sector. The big mistake was to think the trend was immune to tightening credit conditions. 



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May 16 2023

Commentary by Eoin Treacy

Video commentary for May 16th 2023

May 16 2023

Commentary by Eoin Treacy

Brazil's New Fiscal Proposal Becomes Stricter in Congress

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

Brazilian lawmakers introduced changes to President Luiz Inacio Lula da Silva’s proposed spending rules to include automatic penalties in case the administration is unable to meet fiscal goals set in the bill.

The government would be forced to reduce spending in case revenue comes in below its estimates, including delaying some payments, freezing the salary of public workers and halting the hiring of new ones, according to the text of the bill released on Tuesday by lawmaker Claudio Cajado, the bill’s rapporteur.

“Party leaders’ reaction to the new text is very positive,” Cajado told reporters, adding that the plan is to take the bill to a floor vote on May 24. “We made room for different opinions and I hope there will be no more changes to the bill.”

The new fiscal framework proposed by Finance Minister Fernando Haddad includes small but growing primary budget surpluses, which don’t take into account interest payments, in order to stabilize public debt. It’s part of government efforts to assuage investors worried about Brazil’s finances under Lula and to help the central bank lower interest rates, considered by the president as the main impediment to growth.

Eoin Treacy's view -

Brazil was among the first to aggressively raise rates to ensure a positive real rate would counter inflationary pressures by sucking liquidity out of the economy.  Today that positive real rate stands at 9.57%. 



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May 16 2023

Commentary by Eoin Treacy

The Green Energy Transition Has a Chilean Copper Problem

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

Codelco’s production is down by about a fifth from only six years ago. After a double-digit-percentage drop in 2022, it’s expected to fall as much as 7% this year, to 1.35 million metric tons.

Ore quality is deteriorating around the world as existing deposits are depleted and new ones are more difficult and costly to develop. “There’s no easy mining left—not in Chile nor the rest of the world,” said Sougarret at a shareholders meeting on May 2.

Because Codelco is the world’s biggest copper supplier, its production wobbles have greater impact on a market where warehouse inventories are near their lowest levels in 18 years. The company’s travails also have tremendous impact on Chile’s economy: Copper accounts for more than half of the country’s exports and a significant share of the government’s income. President Gabriel Boric’s administration is budgeting a 40% drop in tax revenue from Codelco in 2023 at a time when it’s trying to boost social spending.

Eoin Treacy's view -

When the world is having difficulty sustaining production of a key commodity, it is reasonable to expect prices to rise. That’s generally the best way to attract the risk capital required to bring new supply online. It will not have escaped the notice of traders that copper prices are falling. That suggests one should be more concerned with demand than supply. 



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May 16 2023

Commentary by Eoin Treacy

Zombie Cull Begins as Rate Hikes Take Toll

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

“One could characterize many of them as companies that have long needed to address their capital structures,” Damian Schaible, co-head of restructuring at law firm Davis Polk, said referring to the firms that filed in the last couple of days. “And there’s a bunch more on the horizon.”

Eoin Treacy's view -

The longer interest rates stay high, the greater the pressure on borrowers. That is true of both the corporate and sovereign sector. Low interest rates and abundant credit allowed a large number of highly leveraged companies to survive much longer than would have been expected under normal credit conditions. The primary question is in how well they extended maturities during the pandemic. 



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May 15 2023

Commentary by Eoin Treacy

Video commentary for May 15th 2023

May 15 2023

Commentary by Eoin Treacy

Turkey Set for Runoff as Erdogan Falls Just Short of Victory

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

Turkey will hold a runoff election, with President Recep Tayyip Erdogan just failing to secure enough votes for a first-round victory.

The 69-year-old, looking to extend his two decades in power, will face Kemal Kilicdaroglu, 74, in another vote on May 28 after doing better than polls predicted.

Turkish stocks and bonds dropped, while the cost of insuring the government’s debt against a default spiked, as the results wrong-footed investors betting on a quick end to Erodogan’s unconventional economic policies, which include keeping interest rates well below the level of inflation.

“This is a major disappointment to investors hoping for a win for opposition candidate Kilicdaroglu and the reversion to orthodox economic policy he promised,” said Hasnain Malik, a strategist at Tellimer in Dubai.

Erdogan won 49.5% of the votes, while Kilicdaroglu secured just under 45%, with nearly all the ballots counted, Turkey’s High Election Board said on Monday. Another contender, Sinan Ogan, received 5.2% and was eliminated from the race.

Eoin Treacy's view -

Turkey has a population of 85 million and a median age of 33. It’s no longer a very young country and is stuck squarely in the middle income trap. Erdogan’s domestic policy of promoting Islamic nationalism and international policy of boosting the country’s regional footprint have gained geopolitical points but has also been expensive. 



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May 15 2023

Commentary by Eoin Treacy

Thai Pro-Democracy Groups Dominate Vote in Rebuke of Military

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

Under a constitution promulgated in 2017, the military-appointed senators get to vote alongside the 500 elected lower house members to decide on the next prime minister. 

Political parties affiliated with Thaksin, 73, have won the most seats in every national vote dating back to 2001, only to be unseated from power by dissolutions or coups. 

Whether Thaksin’s planned return to Thailand in July will exacerbate tensions with the military elite is another question. The telecoms magnate has been living in self-imposed exile after fleeing to avoid prison over a corruption conviction that followed a coup that toppled his own government in 2006.

Eoin Treacy's view -

Thaksin Shinawatra’s plan to return to the land of smiles in July is certainly going to represent a flash point in democrats’ relationship with the military. Quashing the corruption charge could easily be a precondition for successful negotiation of a coalition agreement to form a civilian government. The challenge will be in how a new administration will further their aims, without running headlong into opposition from the military/royalty-aligned status quo. 



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May 15 2023

Commentary by Eoin Treacy

Sea's Path to Profit Paved With Layoffs, Single-Ply Toilet Paper

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

Li’s shock treatment paid off. In March, Sea reported the first quarterly profit in its 14-year history, $427 million in GAAP-sanctioned net income. Its stock soared 22%. Last week, it said it would hand out 5% raises to most staff. Sea has now more than doubled its market value since November.

Like so many tech startups of its generation, Sea had bled red ink for years. In fact, it lost more than $8 billion since its founding to pay for growth in its e-commerce, games and finance operations. For now at least, Sea is setting a different kind of example: It’s demonstrating that if your underlying business is sound and substantial, you can pull back on subsidies and expansions to break even.

That’s proving a challenge for rivals. Among Sea’s regional competitors, Singapore’s Grab Holdings Ltd. is still losing more than $300 million a quarter, while Indonesia’s GoTo Group’s losses exceed $250 million. Sea may also cause trouble for global tech giants like Alibaba Group Holding Ltd. and Amazon.com Inc., which are both seeking growth in emerging markets. 

“What you’re seeing is a separation of proper, monetizable business models from something that is a work-in-progress,” said Amit Kunal, managing partner of Growtheum Capital, a private equity firm in Singapore, speaking broadly about the tech industry. “Sea read the market much earlier, took appropriate steps — and delivered.”

Eoin Treacy's view -

In the Big Picture video on Friday I spent a good deal of time talking about the winnowing process currently underway in the high growth markets that dominated performance during the pandemic. Higher rates and tight credit mean tough decisions have to be made. Only the companies capable of both rising to that challenge and simultaneously making money are likely to survive. 



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May 12 2023

Commentary by Eoin Treacy

May 12 2023

Commentary by Eoin Treacy

Rand at Record Low on Fears Russia Row Will Hit US Trade Ties

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

Relations between South Africa and the US — its second-biggest trading partner after China — have soured over Pretoria’s insistence that it is taking a non-aligned stance toward Russia’s war in Ukraine. Even so, South Africa participated in naval exercises with Russia recently, while officials of the ruling African National Congress have expressed support for Russia’s invasion of Ukraine.

State Department spokesman Vedant Patel wouldn’t be drawn on whether the US would consider sanctions against South Africa should the arms claim prove true, but added during a regular State Department briefing Thursday that the US had “serious concerns” about a sanctioned Russian vessel docking in a South African port.

“The political stakes are high, with trade deals and market access all now in question,” economists at Rand Merchant Bank wrote in a client note. “This will add an additional layer of risk until the debate around this has cleared, and the rand should reflect that risk premium.”

Eoin Treacy's view -

Eskom’s challenge in keeping the lights on pales into insignificance relative to the threat of forcing countries to pick sides in the new geopolitical landscape. Selling arms to Russia is not exactly remaining unaligned. Of course South Africa could argue they are equally willing to sell arms to Ukraine. Nevertheless, from NATO’s perspective, depriving Russia of resources is essential to the path to ending the conflict so South Africa’s nonconformity is likely to be viewed very negatively. 



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May 12 2023

Commentary by Eoin Treacy

Google Unveils Plan to Demolish the Journalism Industry Using AI

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

But it's not unfair to say that Google, which in April, according to data from SimilarWeb, hosted roughly 91 percent of all search traffic, is somewhat synonymous with, well, the internet. And the internet isn't just some ethereal, predetermined thing, as natural water or air. The internet is a marketplace, and Google is its kingmaker.

As such, the demo raises an extremely important question for the future of the already-ravaged journalism industry: if Google's AI is going to mulch up original work and provide a distilled version of it to users at scale, without ever connecting them to the original work, how will publishers continue to monetize their work?

Google has unveiled its vision for how it will incorporate AI into search," tweeted The Verge's James Vincent. "The quick answer: it's going to gobble up the open web and then summarize/rewrite/regurgitate it (pick the adjective that reflects your level of disquiet) in a shiny Google UI."

Eoin Treacy's view -

Google announced it would pay the New York Times $100 million over three years this week. That results from years of litigation that Google was giving away content that should have been paid for.

The advent of advanced large language models means computer programs can scour Twitter for titbits and write journalistic synopses just like most journalists. Several services like Buzzfeed and CNET have tried and failed to use AI for unsupervised article writing. 



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May 12 2023

Commentary by Eoin Treacy

Ueda's BOJ Subtly Changes English Translation in New Era Signal

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

At Ueda’s first policy meeting last month, board members discussed “patiently” maintaining easing, according to a summary of opinions released by the central bank Thursday. 

“Patiently” implies waiting for a condition to be fulfilled and contrasts with the previous wording of “persistently” keeping up with easing, a word that was used up until the March meeting, when the BOJ was still led by Ueda’s predecessor Haruhiko Kuroda.

Given that the original Japanese word remained unchanged, the change in English doesn’t suggest a major shift. It does however hint at Ueda’s intention of signaling a gradual move away from the Kuroda era. Some economists suggest that the change acknowledges a shift in Japan’s economic reality. 

Eoin Treacy's view -

Now that Japan has successfully got the inflation pressures they have chased for so long, they are not about to squander the opportunity to break the deflationary culture. The only way to end the deflationary spiral will be to force people to accelerate purchases by instilling fear they will end up paying more later. That’s not a quick process. 



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May 11 2023

Commentary by Eoin Treacy

Video commentary for May 11th 2023

May 11 2023

Commentary by Eoin Treacy

PacWest Reports Decline in Deposits, Western Alliance's Grow

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

PacWest Bancorp reported a drop in deposits and Western Alliance Bancorp said its deposits grew, with investors continuing to scrutinize the levels amid tumult in the regional-banking industry.

Beverly Hills-based PacWest said in a regulatory filing Thursday that deposits fell 9.5% last week after Bloomberg News reported that the lender was in talks with potential investors. The bank didn’t specify its total deposit levels after the decline, but said it had total deposits of $28.2 billion as of March 31, and that it had immediately available liquidity of $15 billion as of May 10, exceeding uninsured deposits of $5.2 billion. Hours after the Bloomberg report last week, PacWest confirmed it was in talks with several potential investors.

Eoin Treacy's view -

An inverted yield forces banks to offer higher deposit rates because of competition from money markets funds. The current situation is somewhat different because many banks are sitting on big losses on their bond portfolios and are technically insolvent. Hoarding deposits is the only way they can ensure they keep their leverage ratios in check. That’s an expensive source of funding for banks when long-term rates are so low. 



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May 11 2023

Commentary by Eoin Treacy

China's Weak Inflation, Borrowing Show Economic Recovery Waning

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

Separately, data from the People’s Bank of China showed credit and new loans were much worse than expected in April as consumers and businesses curbed their borrowing.

“China’s credit data came in well below estimates, reinforcing the concerns over the sustainability of post-Covid recovery,” said Zhou Hao, chief economist at Guotai Junan International Holdings Ltd. Overall growth momentum “has been slowing significantly,” he said. 

Expectations of policy easing has been growing, and a “policy rate cut looks imminent in the second quarter,” he added.

China’s economic growth accelerated to a one-year high in the first quarter after pandemic restrictions were dropped, led by stronger consumers spending on travel and shopping. Recent data has been more mixed though, with manufacturing activity contracting in April and imports plunging.

Eoin Treacy's view -

China did not engage in the same pandemic spending as many western governments. That ensures inflation was kept under control. Instead they decided to use the pandemic as a means to curtail speculation in the housing sector which was the exact opposite of what happened in other countries. That has helped to keep government bond yields contained and the trend is still lower. 



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May 11 2023

Commentary by Eoin Treacy

Dollar on Pace for Best Day in Nearly Two Months

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

The US dollar is on pace for its biggest rise in nearly two months as concerns about a slowing US economy, hawkish policy messaging, a US debt-ceiling standoff and the solvency of regional banks supported havens. The pound fell after the Bank of England lifted its policy rate 25 basis points and indicated more hikes may be required to slow inflation.

Eoin Treacy's view -

The dollar firmed today as more of risk-off move than any other factor. When investors seek the haven of cash they end up holding dollars. Bond yields also compressed as some of that cash was redeployed in the expectation that during a recession, inflationary pressures are likely to go into reverse. 



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May 10 2023

Commentary by Eoin Treacy

May 10 2023

Commentary by Eoin Treacy

Brookfield Cuts Value of Property Holdings Amid Market Swoon

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

“Unfortunately, the negative sentiment is dragging down the real estate sector more broadly,” the firm’s president, Connor Teskey, told investors during an earnings call Wednesday. “We think that’s completely unfair.” 

The Brookfield group is one of the world’s largest owners of prime office properties, with a portfolio that includes New York’s Manhattan West and London’s Canary Wharf. Office landlords in major cities around the world are being squeezed by a combination of higher borrowing costs and lower occupancy, as many companies continue to allow employees to work from home at least part of the time. 

Brookfield Asset’s parent company has defaulted on mortgages covering more than a dozen office buildings, mostly in Los Angeles and around Washington.

The property market is “bifurcated” as high-quality assets perform well and lower-quality assets struggle, Teskey said on the call. 

 

Eoin Treacy's view -

The durability of the work from home phenomenon will be tested by the upcoming recession. I’ve been working from home since 2007 and I can attest the better description is you live at work. However, the experience of entrepreneurial people versus those simply marking time is very different.  Flexible time arrangements are not appropriate for every position. Efficiency metrics will quickly be developed to decide whether the cost of a large office building is outweighed by the productivity gain for happier more flexible workers. 



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May 10 2023

Commentary by Eoin Treacy

Australia Pledges $1.4 Billion in Bid to Be Hydrogen Superpower

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

As countries compete for capital, investors and developers have said aggressive subsidies like the US Inflation Reduction Act — which provides $374 billion in funding for clean energy — will be needed to attract the vast investment required.

The new measures are a “great first step,” Fortescue Metals Group Ltd. said in a statement on Wednesday. The Australian iron ore miner has ambitions to become one of the world’s biggest green hydrogen producers and plans to reach final investment decisions on five projects around the world this year.  

Eoin Treacy's view -

The announcement of significant investment in the green hydrogen sector comes hot on the heels of opening the Northern Territory to natural gas development. Regardless of how the global energy sector evolves Australia looks likely to be significant beneficiary. That also applies to coal exports for both steel and electricity generation. 



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May 10 2023

Commentary by Eoin Treacy

Salesforce Introduces the Next Generation of Tableau, Bringing Generative AI for Data and Analytics to Everyone

This news release from Salesforce may be of interest. Here is a section: 

Significance: The generative AI revolution will transform how work gets done, making it exponentially easier for everyone to tap into immense troves of trusted data to do their jobs more efficiently. Nearly 80% of senior IT leaders believe generative AI will help their organization make better use of data — which business leaders agree is critical for decision-making. However, 41% say they can’t understand their data because it is too complex or not accessible enough, and one-third cite inability to generate insights from data as an issue for their organizations. 

Tableau GPT can generate visualizations for sales leaders based on natural language prompts that display real-time progress against their quota, along with recommendations for helping them meet goals. If average order value is decreasing, Tableau GPT can generate visuals for commerce leaders that provide insights as to why, alongside suggested solutions to resolve the problem. Or Tableau GPT can automatically create visualizations for service leaders that display changes in their teams’ CSAT scores, identify potential causes — such as a high-level of active tickets and longer response time — and offer up solutions.

What’s new: By bringing the power of generative AI to analytics, and combining it with unified, real-time data from Data Cloud, Tableau is empowering everyone to make smarter, faster, data-driven decisions.

Tableau GPT is a reimagining of Tableau and makes it easier for everyone to tap into generative AI to better understand and interact with their data in a trusted and secure way. Users can surface insights in a conversational way by simply asking questions within the console, which helps power smarter data experiences for analysts, consumers, admins, developers, and more.  

Eoin Treacy's view -

The productivity app sector is sensitive to the evolution of generative AI and large language models because they are most liable to be competed with my evolving chatbot technology. That’s certainly the ambition of newer AI companies like Pi. 



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May 09 2023

Commentary by Eoin Treacy

May 09 2023

Commentary by Eoin Treacy

AMD To Showcase Next-Generation Data Center And AI Technology At June 13 Livestream Event

This newswire may be of interest.

Today, AMD (NASDAQ:AMD) announced the "AMD Data Center and AI Technology Premiere," an in-person and livestreamed event to showcase the company's growth strategy and expanding product portfolio and capabilities for data center and AI. AMD Chair and CEO Dr. Lisa Su will be joined by other AMD executives and key customers to detail new products, and momentum across data center, AI, adaptive and high-performance computing solutions.  

Eoin Treacy's view -

Since the GPT chatbot reveal a few months ago Nvidia has been the go-to investment destination for traders looking for an AI proxy. The company is the leader in developing the kind of graphics cards required to parse image data for the AI sector. That has fuelled both a rebound in the semiconductor sector and a rush by companies to compete. 



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May 09 2023

Commentary by Eoin Treacy

Boeing Wins $40 Billion Ryanair Order for 737 Max Jets

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

The huge commitment to Boeing’s largest 737 variant marks an important endorsement from one of the US manufacturer’s most loyal customers and highlights how carriers are willing to splurge on fleet upgrades again as air travel rebounds. Ryanair said the deal —  the largest order ever placed by an Irish company for US manufactured goods — was more expensive than its current crop of 737 deliveries. 

“We paid more per seat but we’re still incredibly happy with the deal we’ve done,” Chief Executive Officer Michael O’Leary said at a news conference. “We think the extra seats give us the revenue-earning potential.”

Deliveries will start in 2027 and run through 2033. Ryanair said discussions surrounding the purchase started in January, and half the order is earmarked for replacement of older 737NG models while the other half is reserved for growth.

Eoin Treacy's view -

From Boeing’s perspective this is a big vote of confidence in the 737 Max. Considering several of the aircraft have fallen out of the sky, there was understandable reticence among customers to buy them.  Boeing is obviously hoping this order will mark a recovery for commercial aircraft sales. 



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May 09 2023

Commentary by Eoin Treacy

Fire on 'Shadow' Tanker off Malaysia is Extinguished, Search Continues

This article from Maritime-Executive.com may be of interest. Here is a section: 

During a press briefing in Malaysia, the Russian captain of the vessel described the situation saying that he had discovered a fire amidship early afternoon on Monday. The initial discovery of smoke was followed by one or more loud explosions which he said shook the vessel, broke the windows, and rendered most of the communications systems inoperable.

“The fire on the upper deck destroyed our aerial, none of the communication equipment was functioning,” the captain told NST TV in Malaysia. “I had to use the walkie talkie …I finally got in touch with our engineer via the walkie talkie but by then all our safety boats were destroyed.” 

The captain said the desperate crew had gone into the water in their life jackets and luckily two ships were in the immediate area to assist with the rescue. He said in the confusion with the crew going in all directions it had been impossible for him to get a head count. He said the fire was also being spread by windy conditions.

Eoin Treacy's view -

The tankers carrying Russia oil around the world can’t be insured. That means the only ships anyone is willing to send on those journeys are decrepit and old. Most are probably on the verge of being scrapped. It is only a matter of time before one of these vessels sinks, with a full cargo onboard. That will create an international incident where no one will take responsibility and there will be no insurance cover. 



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May 08 2023

Commentary by Eoin Treacy

Video commentary for May 8th 2023

Eoin Treacy's view -

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

Soime of the topics discussed include: bitcion pulls back on Binance woes, gold and oil steady, robusta coffee breaks out, sugar pausing, cocoa pressuring the upper side of a long-term range, China banks surge, platinum firms on South Africa electricity fears. 



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May 08 2023

Commentary by Eoin Treacy

Chinese Bank Stocks Soar, Adding $166 Billion in Trading Frenzy

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

With China’s reopening trade stalled, Chinese investors are betting on a pledge by Beijing to let state-owned firms have access to more capital and play a bigger role. New guidelines on bond sales by SOEs is seen as another step in the reform as President Xi Jinping reshapes the economy. The frenzied trading has also been attributed to moves by three nationwide lenders to cut deposit rates to boost profit margins. 

It’s a “valuation system with Chinese characteristics” story, said Willer Chen, a senior analyst at Forsyth Barr Asia Ltd. Some investors are also “seeing value in bank stocks because their valuation is cheap and dividend yields are attractive, despite the shrinking net interest margins and weak
Q1 results.”

For now, much of the gains may be driven by sentiment, rather than fundamentals. Chinese lenders posted a tepid set of first-quarter earnings as they faced deeper margin woes despite being sheltered from the recent global banking jitters. Analysts say the pressure may persist through the year as lending rates are lowered to revive the economy.

 

Eoin Treacy's view -

This is very defensive action from Chinese investors. The primary rationale for overweighting banks is the assumption that the government, through the state-owned enterprises (SOEs), is going to take a much more dominant position in the economy. That’s positive short-term but raises important questions about the welcome private enterprise will receive in China over coming years. 



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May 08 2023

Commentary by Eoin Treacy

Bitcoin Based-Memecoin Surge Seen Driving Binance Anxiety

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

These Bitcoin-based tokens are queuing up along with regular Bitcoin transactions to be processed by miners. One of the most popular such coins, which are also known as BRC 20 tokens, is Ordi. Its market capitalization has reached more than $500 million since its recent introduction. 

“The high network fees have been caused by the en-masse minting of BRC-20 token,” said Jaime Baeza, founder and managing partner at digital asset hedge fund ANB Investments.  Until recently, memecoins and NFT collections such as Bored Apes and CryptoPunks were predominately based on Ethereum and served as a catalyst that helped to make that platform the world’s most commercially important blockchain.

Eoin Treacy's view -

The introduction of the Lightning network last year was supposed to speed up transactions. It was also the innovation that enabled the creation of bitcoin offshoots which has boosted traffic across the bitcoin network over the last six months.

The creators of the add-on network obviously did not rely on their experience of meme popularity to build sufficient capacity. One of the biggest challenges to the claim bitcoin will eventually be a major vehicle of exchange is the inadequacy of the network capacity. The Lightning network was hailed as a solution to that problem and it is obviously not working. 



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May 08 2023

Commentary by Eoin Treacy

Platinum investors are finally taking note of South Africa's power problems

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

Platinum ETFs saw heavy buying at the end of April from South Africa based funds. Year-to-date regional inflows into platinum funds in South Africa (+333 koz) are the standout when compared to the US (-107 koz), the UK (-18 koz) and Switzerland (-17 koz). Net flows have been positive every month this year so far, as South African investors are more acutely aware of the electricity supply issues being faced by PGM producers. Total global holdings stand at 3.3 moz, up from 3.0 moz at the beginning of the year, although that was down 1 moz from the peak level of holdings in July 2021.

These investors bought into the recent price rally and hope for more. The platinum price had risen more than 20% since late February before the recent correction. Supply issues in South Africa (~75% of mined supply) are well documented. The regularity and severity of load-shedding in 2022 was unparalleled, with the situation unlikely to improve significantly during 2023. Load-shedding resulted in the build-up of above-ground stocks of unrefined PGMs last year and could lead to an estimated loss of ~250 koz of platinum production this year as the Southern Hemisphere winter begins to bite. Available first-quarter results of major South African PGM miners all cite load-shedding as impacting refined output to some degree.

Eoin Treacy's view -

Platinum prices went vertical during the last South African power cuts. That acceleration also marked the peak of the decade-long bull market as the global economy headed into the financial crisis in 2008.

At the time there was a lot of talk about platinum miners investing in their own generating capacity. The subsequent crash meant very few completed that work. The big decline in platinum prices following the diesel cheating scandal drove several platinum miners into bankruptcy. The recent issues with Eskom have revitalized talk of building solar and wind farms so operations can be independent of the utility. 



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May 06 2023

Commentary by Eoin Treacy

May 06 2023

Commentary by Eoin Treacy

Copper Mine Flashes Warning of 'Huge Crisis' for World Supply

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

Take not just Chile, with its revisions to fiscal policies for miners, but Peru, a country long considered crucial to the next wave of copper production, where the mining sector has been battered during lengthy social unrest. Rio in late March agreed to sell a controlling stake in its Peruvian mine La Granja to First Quantum.

“What the market never predicted was how difficult South America would become,” said Radclyffe. “The uncertainty out of both Chile and now ongoing in Peru, that’s just added an extra level of complexity that the market never expected, and that hasn’t really been resolved.”

Eoin Treacy's view -

The classic basis for a big bull market in commodities is supply inelasticity meets rising demand.

The promise of a big bull market in copper is heavy on the supply inelasticity argument. I think everyone understands, there is limited supply and sufficient increases to meet the expected demand from renewables is not feasible. 



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May 06 2023

Commentary by Eoin Treacy

Bolivian Bonds Jump After Senate Approves Bill to Monetize Gold

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

The country has burned most of its international reserves and recently faced difficulties to pay for fuel imports. The central bank stopped publishing reserves data in early February, when they stood at about $3.5 billion, out of which $2.6 billion was gold, suggesting only the precious metal is left.

While the Arce administration says the ability to operate with its gold in markets will halt the “low liquidity” Bolivia is going through, opposition lawmakers criticized the bill by saying it’s not a structural solution to the current economic crisis.

Senator Silvia Salame called it a “patch” to allow Arce’s administration to stabilize the country’s situation until the 2025 presidential elections.

Finance Minister Marcelo Montenegro said the gold reserves will be replenished by buying the commodity from local producers
in bolivianos.

Eoin Treacy's view -

Bolivia is not a big holder of gold so that is unlikely to be behind today’s weakness. Instead the prospect of continued rises in the Fed Funds Rate, in response to a stronger than expected jobs report, takes that mantle. 



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May 06 2023

Commentary by Eoin Treacy

Lilly's fortunes rise on back-to-back success for Alzheimer's, obesity drugs

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

Eli Lilly is at the forefront of two of the pharmaceutical industry’s hottest fields, and it’s paying off for the Indianapolis company’s investors.

Over the past year, Lilly’s valuation has climbed nearly 50% to exceed $400 billion, a few percentage points’ swing away from eclipsing Johnson & Johnson as the world’s largest drugmaker by market capitalization. It’s worth nearly as much as Pfizer, Bristol Myers Squibb and Moderna combined, despite earning less than one-third as much revenue as J&J or Pfizer in 2022.

Lilly’s skyrocketing stock price is largely due to two drugs: the diabetes and weight loss treatment Mounjaro, and the experimental Alzheimer’s treatment donanemab. Investors and Wall Street analysts expect both to become blockbusters in large markets with few established competitors.

On Wednesday, results from a large clinical trial of donanemab in people with mild Alzheimer’s showed treatment slowed cognitive and physical decline by 35% versus a placebo, sending Lilly shares higher by nearly 7%. 

Eoin Treacy's view -

The best markets for pharmaceuticals are in chronic conditions. Two of the fastest growing, with unmet need, are obesity and Alzheimer’s. Both are a product of modern living with longer lives and easier access to high calorie intake. 



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May 04 2023

Commentary by Eoin Treacy

May 04 2023

Commentary by Eoin Treacy

Bank Rout Rages On With Fed Cut Wagers Mounting

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

In such a stressful scenario, some lenders have been trying to assuage investors — with little to no avail.

PacWest Bancorp tumbled 43% even after saying core deposits have increased since March and confirming it’s in talks with several potential investors. Western Alliance also pared losses, but was down 31% despite its denial that the firm is exploring strategic options including a possible sale of all or part of its business.

“Obviously a rough day today — we’re having the latest flare-up in what is slowly becoming a crisis of confidence in the regional-banking sector here in the United States,” said Jim Smigiel, chief investment officer at SEI. “We have recommended additional cash allocations out of equities for our clients.”

That said, Smigiel and a myriad of market observers don’t see the parallels being made in what we’re going through today versus the 2008 financial crisis.

“Some of the differences are obvious — that was a credit crisis, this is not a credit crisis,” he noted. “This is more of an asset-ability-management issue and, of course, some of the ancillary effects of hiking interest rates 500 basis points in a very, very short period of time. But it doesn’t take away from the fact that this is the market testing the weakest hands in the sector and really continuing to do that as we’re seeing today.”

Eoin Treacy's view -

Jay Powell’s statement yesterday, that he sees a line being drawn under the banking crisis, sounds tone deaf today. The mismatches between the draw-down in “safe” assets versus the pressure from tightening credit conditions, and the future of higher loan loss provisions, continue to plague the banking sector. 



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May 04 2023

Commentary by Eoin Treacy

Money isn't Enough: getting Serious About Precious Munitions

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

Finally, the Department of Defense should, as Julia van der Colff argued in these pages, consider rapidly fielding “second tier” precision munitions that take advantage of existing technologies to provide large quantities of minimum-capability weapons at reduced costs. Next-generation stealth, sensor, and precision capabilities are key to competing with China in the long run, but these simpler munitions could be more easily (and cheaply) produced in the volumes necessitated by great-power conflict. Combined with unmanned munitions carriers and teamed with manned strike platforms, second-tier weapons could be essential to providing the volume of effects required by these other concepts. As Russia’s use of Iranian drones in Ukraine has shown, not every target requires an exquisite precision munition. Unlike ventilators during the COVID-19 pandemic, the Department of Defense should not wait until a crisis to explore and test these designs.

Eoin Treacy's view -

The large-scale war in Ukraine has completely upended the procurement calculus for NATO. The “less is more” focus on high tech precision strikes is giving way to the acceptance that sometimes dumb weapons just need to hit in the vicinity of a target. 



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May 04 2023

Commentary by Eoin Treacy

Molson Coors' bigger bets on marketing pay off as sales grow

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

Molson Coors cited marketing initiatives as one reason for its strong Q1 results in a company blog post. A strong premionization program is named as another highlight.

The alcohol company’s Q1 sales grew 5.9%, its eighth consecutive quarter of growth, for a total of $2.35 billion. On a call with analysts, executives said the company will increase marketing investments this year compared to 2022 to support further growth.

Core brands Coors Light and Miller Lite each saw double-digit revenue growth in the first quarter, with executives saying that the brands benefited from a Super Bowl ad campaign, the company’s first in 30 years. Independent research shows the positive sales trend for these brands is accelerating in Q2 while a major competitor, Bud Light, takes a big sales hit.

Eoin Treacy's view -

The controversy around Bud Light’s marketing campaign hit earnings by 1% in less than three weeks and the company is in full damage control mode. On my trip to London last week, I saw at least three different locations giving Bud Light away for free. The share posted an upside key reversal today to confirm near-term support, which suggests investors don’t see lasting damage from the negative reception of its ad campaign.  



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May 03 2023

Commentary by Eoin Treacy

Video commentary for May 3rd 2023

Eoin Treacy's view -

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

Some of the topics discussed include: Fed lifts rates and possibly paused but not cuts soon. Treasury yields decline, stocks and dollar weak, gold firm, oil extends decline, AI discussion on technological acceleration versus the interest rate cycle. 



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