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December 07 2018

Commentary by Eoin Treacy

December 07 2018

Commentary by Eoin Treacy

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

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

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

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

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

Eoin Treacy's view -

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



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December 07 2018

Commentary by Eoin Treacy

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

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

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

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

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

 

Eoin Treacy's view -

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



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December 07 2018

Commentary by Eoin Treacy

2019: More thematic instability

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

Eoin Treacy's view -

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

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



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December 06 2018

Commentary by Eoin Treacy

Video commentary for November 6th 2018

December 06 2018

Commentary by Eoin Treacy

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

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

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

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

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

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

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

Hope this is of interest.

Eoin Treacy's view -

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

Here is a section from the article:

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

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

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



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December 06 2018

Commentary by Eoin Treacy

Review of recession lead indicators

Eoin Treacy's view -

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



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December 06 2018

Commentary by Eoin Treacy

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

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

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

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

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

Eoin Treacy's view -

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

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



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December 05 2018

Commentary by Eoin Treacy

Video commentary for December 5th 2018

Eoin Treacy's view -

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

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



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December 05 2018

Commentary by Eoin Treacy

France Tops OECD Table as Most Taxed Country

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

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

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

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

Eoin Treacy's view -

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



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December 05 2018

Commentary by Eoin Treacy

Email of the day on trillion Dollar valuations and tops

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

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

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

Eoin Treacy's view -

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



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December 05 2018

Commentary by Eoin Treacy

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

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

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

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

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

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

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

Eoin Treacy's view -

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



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December 04 2018

Commentary by Eoin Treacy

Video commentary for December 4th 2018

Eoin Treacy's view -

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

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



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December 04 2018

Commentary by Eoin Treacy

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

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

 

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

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

Eoin Treacy's view -

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



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December 04 2018

Commentary by Eoin Treacy

May's Brexit Agreement Is a Betrayal of Britain

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

 

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

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

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

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

Eoin Treacy's view -

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



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December 04 2018

Commentary by Eoin Treacy

Palladium Sets Fresh Record as Metal Clashes With Gold

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

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

Drivers

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

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

Prices

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

Market Commentary

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

Eoin Treacy's view -

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



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December 03 2018

Commentary by Eoin Treacy

Video commentary for December 3rd 2018

Eoin Treacy's view -

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

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



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December 03 2018

Commentary by Eoin Treacy

G-20 Gives Markets a Short-Term Respite

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

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

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

Eoin Treacy's view -

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



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December 03 2018

Commentary by Eoin Treacy

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

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

Eoin Treacy's view -

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



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December 03 2018

Commentary by Eoin Treacy

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

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

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

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

 

Eoin Treacy's view -

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



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November 30 2018

Commentary by Eoin Treacy

November 30 2018

Commentary by Eoin Treacy

The Big Picture

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

Eoin Treacy's view -

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

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

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



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November 30 2018

Commentary by Eoin Treacy

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

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

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

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

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

Eoin Treacy's view -

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



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November 30 2018

Commentary by Eoin Treacy

India Seeks to Ease Biggest Hurdle for Factories With New Policy

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

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

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

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

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

Eoin Treacy's view -

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



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November 29 2018

Commentary by Eoin Treacy

Video commentary for November 29th 2018

Eoin Treacy's view -

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

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



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November 29 2018

Commentary by Eoin Treacy

Morning Tack November 29th 2018

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

Eoin Treacy's view -

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

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



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November 29 2018

Commentary by Eoin Treacy

2019 Outlook - Late Cycle Blues

Thanks to a subscriber for this report from Barclays focusing on European markets which may be of interest to subscribers. Here is a section:

Eoin Treacy's view -

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

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



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November 29 2018

Commentary by Eoin Treacy

Emerging Markets Retake the Lead

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

Eoin Treacy's view -

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

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



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November 29 2018

Commentary by Eoin Treacy

Long-term themes review October 29th 2018

Eoin Treacy's view -

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

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

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

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



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November 28 2018

Commentary by Eoin Treacy

Video commentary for November 28th 2018

November 28 2018

Commentary by Eoin Treacy

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

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

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

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

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

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

Eoin Treacy's view -

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



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November 28 2018

Commentary by Eoin Treacy

Money in a digital age: 10 thoughts

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

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

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

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

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

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

Eoin Treacy's view -

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



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November 28 2018

Commentary by Eoin Treacy

Salesforce Helps Drive Software Index on Revenue Forecast

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

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

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

Eoin Treacy's view -

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



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November 27 2018

Commentary by Eoin Treacy

Video commentary for November 27th 2018

November 27 2018

Commentary by Eoin Treacy

The Weekly View November 27th 2018

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

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

Eoin Treacy's view -

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



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November 27 2018

Commentary by Eoin Treacy

Iron ore price craters 8%

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

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

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

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

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

Eoin Treacy's view -

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



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November 27 2018

Commentary by Eoin Treacy

Email of the day on Europe and the UK

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

Two things that might interest you.

First, from a John Mauldin letter:

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

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

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

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

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

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

Have a great Christmas.

Eoin Treacy's view -

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



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November 26 2018

Commentary by Eoin Treacy

Video commentary for November 26th 2018

November 26 2018

Commentary by Eoin Treacy

RBC Wealth Management 2019 Investment Stance

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

Eoin Treacy's view -

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

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



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November 26 2018

Commentary by Eoin Treacy

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

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

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

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

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

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

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

Eoin Treacy's view -

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



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November 26 2018

Commentary by Eoin Treacy

The frontier market that top rival managers agree on

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

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

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

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

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

Eoin Treacy's view -

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



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November 23 2018

Commentary by Eoin Treacy

November 23 2018

Commentary by Eoin Treacy

2019 US Equity Outlook: The Return of Risk

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

Eoin Treacy's view -

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

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



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November 23 2018

Commentary by Eoin Treacy

BP Starts Production at Massive North Sea Oil Development

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

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

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

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

Eoin Treacy's view -

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



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November 23 2018

Commentary by Eoin Treacy

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

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

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

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

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

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

Eoin Treacy's view -

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



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November 23 2018

Commentary by Eoin Treacy

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

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

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

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

Eoin Treacy's view -

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



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November 22 2018

Commentary by Eoin Treacy

Video commentary for November 22nd 2018

November 22 2018

Commentary by Eoin Treacy

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

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

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

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

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

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

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

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

Eoin Treacy's view -

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

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

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



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November 22 2018

Commentary by Eoin Treacy

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

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

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

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

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

Eoin Treacy's view -

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

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



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November 22 2018

Commentary by Eoin Treacy

Email of the day on central bank balances sheets

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

Eoin Treacy's view -

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



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November 21 2018

Commentary by Eoin Treacy

Video commentary for November 21st 2018

Eoin Treacy's view -

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

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



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November 21 2018

Commentary by Eoin Treacy

Stock Market Is Even Worse Than You Think It Is

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

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

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

Eoin Treacy's view -

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

 



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November 21 2018

Commentary by Eoin Treacy

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

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

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

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

Eoin Treacy's view -

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



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November 21 2018

Commentary by Eoin Treacy

India Capital Fund Letter

Thanks to a subscriber for this report from which includes a great deal of data which may be of interest. Here is a section:

Eoin Treacy's view -

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

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



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November 20 2018

Commentary by Eoin Treacy

Video commentary for November 20th 2018

Eoin Treacy's view -

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

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



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November 20 2018

Commentary by Eoin Treacy

Ray Dalio Discusses Major Financial Crises (Podcast)

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

Eoin Treacy's view -

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



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November 20 2018

Commentary by Eoin Treacy

The end of the beginning

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

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

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

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

Eoin Treacy's view -

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



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November 20 2018

Commentary by Eoin Treacy

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

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

 

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

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

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

Eoin Treacy's view -

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



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November 19 2018

Commentary by Eoin Treacy

November 19 2018

Commentary by Eoin Treacy

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

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

Eoin Treacy's view -

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

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

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



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November 19 2018

Commentary by Eoin Treacy

Technology Megatrends Leading to the Disruption of Transportation 2020-2030

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

Eoin Treacy's view -

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



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November 19 2018

Commentary by Eoin Treacy

Bid to Topple May Falters as Tory Lawmaker Revolt Struggles

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

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

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

Eoin Treacy's view -

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



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November 19 2018

Commentary by Eoin Treacy

India and Its Central Bank Signal Truce After Marathon Meet

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

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

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

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

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

Eoin Treacy's view -

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



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November 16 2018

Commentary by Eoin Treacy

November 16 2018

Commentary by Eoin Treacy

Brexit scenarios

Eoin Treacy's view -

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

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



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November 16 2018

Commentary by Eoin Treacy

China Is Giving the World's Carmakers an Electric Ultimatum

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

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

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

Eoin Treacy's view -

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



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November 16 2018

Commentary by Eoin Treacy

Nvidia Targets Slashed, Outlook Sparks Worst Day in a Decade

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

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

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

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

Eoin Treacy's view -

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



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November 16 2018

Commentary by Eoin Treacy

Email of the day on US real estate

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

Eoin Treacy's view -

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



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November 15 2018

Commentary by Eoin Treacy

Video commentary for November 15th 2018

November 15 2018

Commentary by Eoin Treacy

2019 Markets Outlook: Something wicked this way comes?

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

Eoin Treacy's view -

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

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



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November 15 2018

Commentary by Eoin Treacy

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

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

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

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

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

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

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

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

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

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

Eoin Treacy's view -

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

 



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November 15 2018

Commentary by Eoin Treacy

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

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

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

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

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

Eoin Treacy's view -

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



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November 14 2018

Commentary by Eoin Treacy

Video commentary for November 14th 2018

November 14 2018

Commentary by Eoin Treacy

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

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

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

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

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

Eoin Treacy's view -

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



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November 14 2018

Commentary by Eoin Treacy

Email of the day on tobacco stocks and accelerating trends:

As you rightly point out defensive stocks tend to outperform towards the end of the cycle, especially those that consistently pay a high dividend. I, like I suspect others in the collective hold BATs shares. Yesterday the price got hammered on a rumour that the FDA is proposing to ban menthol cigarettes. Wonder if you have any thoughts on what has happened ? Any crumbs of comfort to be had ?

Eoin Treacy's view -

Thank you for this question and I suspect you are not alone in holding a share that has accelerated lower of late. At The Chart Seminar yesterday for example we had a discussion about British America Tobacco exhibit is accelerating downtrends. As you will remember acceleration is a trend ending characteristic;, albeit of unknown duration.



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November 14 2018

Commentary by Eoin Treacy

GE Surges on $4 Billion Plan to Speed Cut to Baker Hughes Stake

This article by Brendan Case and David Wethe for Bloomberg may be of interest to subscribers. Here is a section:

“We like seeing GE’s new CEO Larry Culp hasten the pace of the company’s portfolio breakup to generate sale proceeds to de-lever the balance sheet,” Deane Dray, an analyst at RBC Capital Markets, said in a note to clients. “This is consistent with GE’s messaging that it has roughly $60 billion of potential sources of liquidity.”

Culp took over six weeks ago from John Flannery, who succeeded Immelt in August 2017.

GE was among Bridgewater’s new buys in the third quarter

GE advanced 7.8 percent to $8.61 at the close in New York, the biggest gain in more than four months. The shares had tumbled 54 percent this year through Monday, the third-biggest drop on the S&P 500 Index.

Eoin Treacy's view -

General Electric has been accelerating lower and that also means that the issues assailing the company are becoming progressively better understood. The yield of the 5% junior subordinated perpetual bond have surged higher over the last week to 15%. That is a very accelerated decline so a lot of bad news has already been priced in. 



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November 14 2018

Commentary by Eoin Treacy

Biogen CEO Sees Room to Pursue Two Similar Alzheimer's Hopefuls

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

Both compounds target beta amyloid, a protein consistently found in clumps in the brains of people with Alzheimer’s disease. Both are being tested in patients with very early signs of the disease, following a hypothesis that drugs might work best before Alzheimer’s advances. The companies are still talking with regulators about how to proceed, the CEO said.

Vounatsos, like others researching ways to fight the disease, said it may become necessary to combine different treatments, or give one after the other. “Alzheimer’s disease is so complex that a single silver
bullet will not solve the complexity of the disease for all patient types during the continuum of the evolution of the disease,” he said.

Before companies can engineer combinations, they need to find one that works. Biogen won’t disclose when it expects the final-stage study for its potential blockbuster aducanumab to finish, but it enrolled the last patient over the summer. The trial is planned to be about 18 months long.

Eoin Treacy's view -

As the number of people living into their dotage increases, the need to contain the cost of healthcare is increasingly urgent. Alzheimer’s is a scourge for any family afflicted by its long slow ebb of critical faculties so any progress is developing a cure or even a partial treatment are to be welcomed. Progress is being made in early diagnosis but so far there is nothing that resembles a cure. Therefore the first company to come up with a solution, however effective, is likely to benefit considerably since doctors currently have nothing they can prescribe.



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November 13 2018

Commentary by Eoin Treacy

November 13 2018

Commentary by Eoin Treacy

US Equity Strategy

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

The Rolling Bear Market took out the last holdouts - Tech, Discretionary, and Growth Stocks - in October. The Rolling Bear Market has morphed into a Chopping Bear Market and we think the rest of 2018 will be a bumpy ride.

We prefer Value over Growth; Value outperformed Growth in October’s sell off. We think that was the beginning of a longer lasting leadership change. 

Third quarter earnings results have been strong; we think this quarter will likely represent a peak in year over year earnings growth. The fourth quarter will get much harder as we lap numbers that received a boost from hurricane and tax reform related spending.

Eoin Treacy's view -

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

The rotation out of highly interest rate sensitive sectors and into dividend growth companies remains a significant factor in this market. The underperformance of the extended FANG sector is a significant issue because just about all of its constituents have lost uptrend consistency and, as a group, they represent significant weightings in the major stock market indices.



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November 13 2018

Commentary by Eoin Treacy

Midterm Results Point to a New Divide in Politics: Education

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

When Bill Clinton entered the White House a quarter-century ago, the parties evenly divided the top 30 districts. Republicans since then have gained in working-class and rural areas, and among white voters without bachelor’s degrees.

The result is an America divided in a new way. “The new cultural divide is education,” says Bill McInturff, a Republican pollster.

Education helps explain some of Tuesday’s results that might seem like outliers in solid-Republican states.

In South Carolina, voters last sent a Democrat to Congress from the Charleston, S.C., area in 1979. In Georgia, a Democrat raised $30 million last year to compete in an Atlanta-area district—and lost. On Tuesday, the party carried both seats.

Both those districts—South Carolina’s 1st and Georgia’s 6th—are in the top half among all House districts for educational attainment. Both also have some of the largest shares of college-educated adults in their states.

Eoin Treacy's view -

There is one view that people who have been to university have more experience of life and the world, so they are better placed to arbitrate between arguments and are therefore more rational than people with less formal education. That’s a very nice narrative which will lead a lot of people to think that if they vote a certain way then you must be smart.



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November 13 2018

Commentary by Eoin Treacy

Microsoft President Warns Of '1984' Facial Recognition Future

This article by Dan Robitzski for Futurism.com may be of interest to subscribers. Here is a section:

“For the first time, the world is on the threshold of technology that would give a government the ability to follow anyone anywhere, and everyone everywhere. It could know exactly where you are going, where you have been and where you were yesterday as well. And this has profound potential ramifications for even just the fundamental civil liberties on which democratic societies rely. Before we wake up and find that the year 2024 looks like the book ‘1984,’ let’s figure out what kind of world we want to create, and what are the safeguards and what are the limitations of both companies and governments for the use of this technology.”

Eoin Treacy's view -

It is already possible to track a person’s movements with their phone. Governments can track spending habits from credit card statements and companies already tailor marketing to the way in which we use the internet. In order to follow a person around a city with cameras, a lot more are going to need to be installed but one has to question whether that will even be necessary. 



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November 12 2018

Commentary by Eoin Treacy

Big Picture Long Term Audio November 9th 2018

Eoin Treacy's view -

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

Some of the topics covered include: Apple breaks below $200, Banks underperforming, Semiconductors continue to have completing top formation characteristics. Defensives continue to break out, Dollar strong, oil weak, gold weak, copper off its lows



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November 12 2018

Commentary by Eoin Treacy

Presidential Cycle today?

Eoin Treacy's view -

I’ve been thinking a lot recently about where we are in the stock market cycle and I’m not alone in that. After a significant loss of momentum this year and two aggressive stabs on the downside there are a lot of people asking questions about the market’s condition.
 
The bond market has been grudgingly nudging yields higher for the last few years as the Fed has persisted in raising rates. At 2.92% right now that is pricing an average of 2 and a bit more interest rate hikes by November 2020. Since the next one is due in a month that’s not a terribly ambitious forecast which suggests fixed income investors do not believe the Fed can continue indefinitely on this current path. It occurred to me over the weekend that something which has not gotten a lot of mention recently is the US Presidential Cycle.



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November 12 2018

Commentary by Eoin Treacy

Pressure Mounts on Theresa May to Abandon Brexit Proposal

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

Getting any divorce deal through a bitterly divided Parliament was always going to be May’s biggest challenge. But as the various factions who oppose May’s approach step up their warnings, it’s looking even trickier than her whips may have calculated.

Pro-Brexit Conservative lawmakers joined forces on Sunday with the Northern Irish party that props up May’s minority government. They threatened to reject the deal she’s working on, even if she persuades the Cabinet to approve it in the coming
days.

“If the government makes the historic mistake of prioritizing placating the EU over establishing an independent and whole U.K., then regrettably we must vote against the deal,” Steve Baker, a former Conservative minister, and Sammy Wilson, Brexit spokesman for the Democratic Unionist Party, wrote in the Sunday Telegraph.

Eoin Treacy's view -

Did the chances of a Brexit people thought they were voting for end when Theresa May went into government with the DUP?

The easy answer to the customs union is to cut Northern Ireland loose. However politically untenable that solution was before May lost her majority, it is virtually impossible when a loyalist Northern Irish party holds the balance of power in her administration.



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November 12 2018

Commentary by Eoin Treacy

A Fifth of China's Housing Is Empty. That's 50 Million Homes

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

Soon-to-be-published research will show roughly 22 percent of China’s urban housing stock is unoccupied, according to Professor Gan Li, who runs the main nationwide study. That adds up to more than 50 million empty homes, he said.

The nightmare scenario for policy makers is that owners of unoccupied dwellings rush to sell if cracks start appearing in the property market, causing prices to spiral. The latest data, from a survey in 2017, also suggests Beijing’s efforts to curb property speculation -- considered by leaders a key threat to
financial and social stability -- are coming up short.

“There’s no other single country with such a high vacancy rate,” said Gan, of Chengdu’s Southwestern University of Finance and Economics. “Should any crack emerge in the property market, the homes to be offloaded will hit China like a flood.”

Eoin Treacy's view -

China does not have a property tax so the cost of speculating on property is almost zero. The vast majority of residential units are delivered as empty shells because developers know consumers will want to fit out the apartment to their own specifications. However, that also means there are large numbers of apartment buildings that are vacant and are left to rot because investors are holding them for appreciation purposes rather than ever intending for anyone to live in them.



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November 12 2018

Commentary by Eoin Treacy

The 49th year of The Chart Seminar

Eoin Treacy's view -

The next Chart Seminar will be held on 12 and 13 November 2018 at The Army and Navy Club in London.

If you have an interest in attending an online Chart Seminar please contact Sarah and we will arrange times based on the time zones of those who wish to attend.

I am also in initial discussions with a potential partner about organising a New York Seminar.

If you would like to attend or have a suggestion for another venue please feel to reach out to Sarah at sarah@fullertreacymoney.com.  

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



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November 09 2018

Commentary by Eoin Treacy

November 09 2018

Commentary by Eoin Treacy

November 09 2018

Commentary by Eoin Treacy

China Has More Distressed Corporate Debt Than All Other EMs

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

China’s debt, both distressed and otherwise, account for a quarter of all securities included in the gauge, which tracks about 660 dollar notes with a par value of at least $500 million. The Asian nation is home to the developing world’s biggest bond market.

The jump in China’s distressed bonds helped fuel an increase in borrowing costs for emerging-market companies to the highest level in more than two years. The impact of the trade war on the Asian nation has compounded pressure on developing assets, already reeling under the strain of higher U.S. interest rates and Treasury yields.

 

Eoin Treacy's view -

In markets with well-developed corporate bond markets we can come to some estimation of what to expect from the default rate. It’s going to be based on history and may or may not be accurate but at least there is some historical context. China is a country with no history of defaults because everyone always got bailed out.



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November 09 2018

Commentary by Eoin Treacy

The Dollar Is a Haven in Sea of Uncertainty

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

Trump has the upper hand since the U.S., the primary buyer in a world of ample supply, has the advantage over the seller, China. Besides, where else could China sell $534 billion in products it sent to the U.S. last year? The pragmatic Chinese will no doubt import more U.S. products, demand less technology transfers as the price American firms pay for operating in China and steal fewer U.S. trade secrets.

That will reduce the chronic U.S. trade and current-account deficits. The $500 billion current-account deficit is the number of dollars the U.S. pumps into foreign hands. Some 87 percent of all global transactions involve the U.S. dollar. So a lower deficit will result in a global dollar shortage and a higher value for the greenback will no doubt result.

Meanwhile, the Federal Reserve is shrinking its balance sheet assets at an accelerating pace. One byproduct of the Fed’s decision to cut its holdings of Treasuries and government-related securities is that it absorbs dollars from domestic and foreign investors, further reducing the supply of greenbacks.

Eoin Treacy's view -

One of David’s maxims that is most memorable in this currency market environment is “No country wants a strong currency, but some need a weak one more than others” President Trump has made no secret of his desire to have a weaker currency but Europe and China need weaker currencies more.



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November 09 2018

Commentary by Eoin Treacy

Taimide Tech Jumps on Expectations of Foldable Phones Boost

This note by Cindy Wang may be of interest to subscribers.

Taimide Tech jumps as much as 9.9% on market expectations that company may benefit from trend of foldable phones after Samsung Electronics showed off a new model, according to Concord Securities.
Market speculates that the polyimide film maker could supply its products to manufacturers of foldable phones, Concord Securities assistant vice president Allan Lin says, adding that polyimide film is a key component for such phones

Eoin Treacy's view -

Phones are getting bigger because so much of what we use them for has northing to do with speaking to another person. The problem today is that phones are becoming so large that they are becoming unwieldy to put in one’s pocket. Samsung’s solution is to design folding phone.



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November 08 2018

Commentary by Eoin Treacy

November 08 2018

Commentary by Eoin Treacy

OPEC Considers 2019 Oil Production Cuts in Yet Another U-Turn

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

Earlier in the summer, prices began to surge as the risk of production shortfalls from sanctions on Iran and Venezuela’s economic collapse rattled the market. Losses from those two OPEC members threatened the biggest supply disruption since the start of the decade and Brent crude eventually peaked above $86 a barrel last month.

Since then, big things have happened on the other side of the supply equation. OPEC has been in “produce as much as you can mode” to reassure consumers, according to Saudi Energy Minister Khalid Al-Falih. The kingdom has lifted output close to record levels, while Libya is pumping the most in five years. Unexpected waivers for buyers of Iranian crude have blunted the impact of U.S. sanctions.

Then there’s the small matter of American production growing at the fastest rate in a century, just as fuel demand is at risk from the slowdown in emerging economies and the U.S.-China trade war.

Eoin Treacy's view -

The Brent Crude price trended higher in a consistent manner for more than half of 2017 with each $5 range being one above another. Then the price pulled back by $10 in 2018 before rallying $20 from the low, pulled back by $10 and if consistent would have been expected to rally $20. However, the rally did not quite manage to extend its breakout by that much and has now experienced a much larger reaction. Additionally, the price is back below the trend mean. A deep short-term oversold condition is now evident but a clear upward dynamic will be required to check supply dominance.



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November 08 2018

Commentary by Eoin Treacy

'Fed Is in Denial': How a $4 Trillion Dilemma Could Get Ugly

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

The trouble is, post-crisis rules enacted to curb risk-taking, like Dodd-Frank and Basel III, have prompted banks to use much of those same reserves -- upwards of $2 trillion worth -- to meet the more stringent requirements. It’s those forces that are, in effect, creating the scarcity of reserves that has banks -- mainly the smaller ones at this point -- scrambling for short-term dollar funding. Since the Fed started shrinking its assets, reserves have fallen by more than a half-trillion dollars, according to Fed data from Barclays.

“The current backdrop is one that is dominated by the regulatory landscape,” said Jonathan Cohn, the head of interest-rate trading strategy at Credit Suisse. He estimates excess high-quality liquid assets (which include reserves) at the eight U.S. globally systemically important banks have fallen by more than 15 percent since the Fed began its unwind. “Banks are in a decent position right now, but over time this will begin to weigh” on them.

Eoin Treacy's view -

The pace of the Fed’s balance sheet unwind is picking up and that is beginning to make considerations of what that means for related markets more urgent.  A balance of $900 billion before the credit crisis is the base line but if we add the $2 trillion of bank reserves to that figure, we get close to $3 trillion. The Fed’s balance sheet is now $4.13 trillion and trending lower. That is not a particularly large buffer particularly when a good proportion of the remaining part of the balance sheet is comprised of mortgage bonds with questionable liquidity.



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November 08 2018

Commentary by Eoin Treacy

Volvo Cars Rips Up Production Plans, Citing U.S.-China Trade War

This article by Keith Naughton and Gabrielle Coppola for Bloomberg may be of interest to subscribers.

Volvo Cars is shaking up production plans for much of its lineup in an effort to dodge tariffs the U.S. and China have slapped on auto imports.

The Swedish automaker owned by China’s Zhejiang Geely Holding Group Co.has canceled plans to export S60 sedans from its first U.S. plant to China, just months after starting production. Volvo also will stop importing XC60 sport utility vehicles and dramatically reduce shipments of S90 sedans from China to the U.S.

Volvo will pivot to mostly exporting S60s from its factory near Charleston, South Carolina, to focus mostly on supplying the American market, according to Anders Gustafsson, the president of the carmaker’s U.S. unit.

“We’ll go at this change not with a smile, but we know what we need to do,” Gustafsson said. “We have a global manufacturing structure that helps us maneuver in these tough waters.”

Eoin Treacy's view -

Volvo is a Chinese company so the next step will be to deprioritise investment in US based production and to make big decisions about which models to sell where. The automotive industry has long depended on the ease of access to a global supply chain and the ability to manufacture cars in one country and sell them somewhere else. The prospect of the trade war persisting is likely to shape corporate decisions well into the medium term.



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November 08 2018

Commentary by Eoin Treacy

Glencore's radioactive news may help give cobalt its buzz back

This article appeared in mining.com and may be of interest to subscribers. Here is a section:

Glencore plans to stockpile cobalt supplies until the middle of next year, while it builds a special plant to remove radioactivity. Caspar Rawles, an analyst at Benchmark Minerals, described the timing of the announcement as "opportunistic" because Glencore is currently negotiating 2019 supply deals.

Glencore-controlled Katanga Mining Ltd. would have produced about 30,000 tons of cobalt next year, roughly 25 percent of global supply, according to RBC Capital Markets. Holding this off the market should tighten supplies and support Glencore’s other mine in Congo, which also produces cobalt.

“Assuming there are no uranium issues that this uncovers elsewhere, this production will benefit from any positive price impact,” RBC said.

Katanga boasts one of Congo’s biggest reserves of copper and cobalt, but the mine has underperformed for decades. In 2015, Glencore suspended operations to address the problems and upgrade the facilities. Production restarted in December and the mine is scheduled to hit 300,000 tons of copper next year, when it will account for about a fifth of Glencore’s global production.

Eoin Treacy's view -

Cobalt went up in a straight line until its peak in the summer and has since experienced a significant correction. The metal is essential in the designs of all batteries currently in the market but the demand growth argument is predicated on that condition persisting. Considering how insecure global supplies of cobalt are, a race is on to use less of it, substitute it and to develop additional sources of supply from less politically insecure areas.



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November 07 2018

Commentary by Eoin Treacy

Video commentary for November 7th 2018

November 07 2018

Commentary by Eoin Treacy

Email of the day on the bearish perspective

I have been a subscriber for almost a decade and enjoy listening to your video presentations and reading the comments. No hurry, but would be great if you can spare your time to offer your thoughts on Dr. John Hussman's comment, link here: 
 

Eoin Treacy's view -

Thank you for your support and for this article which may be of interest to the Collective. Here is a section:  

It’s important to recognize that despite its discomfort, the market decline we observed in October is only a drop in the bucket toward normalizing valuations. I’ll say this again, because it is important. Over the completion of the current market cycle, I fully expect the S&P 500 to lose close to two-thirds of its value from the recent peak. We don’t require this outcome as a precondition for adopting a bullish market stance, as an improvement in market internals alone would encourage a neutral or even constructive market outlook (though with a safety-net given present market extremes). The problem is that there is no market cycle in history, even at the 2002 low, that ended at market valuations greater than half the level they established at the recent peak.

This is clearly not a favorable outlook for passive investors. While investors have embraced passive strategies as a result of strong backward-looking returns, this popularity represents little but performance-chasing at the most extreme valuations in history. At the recent market peak on September 20, we estimate that the prospective 12-year total return from a conventional passive asset mix invested 60% in the S&P 500, 30% in Treasury bonds, and 10% in Treasury bills reached a low of just 0.48%. There is only one instance in history when these estimates were lower, which was in the 3 weeks immediately surrounding the 1929 market peak. Given that most pension funds assume future returns in the range of 7% annually, it implies that the coming years are likely to include a rather widespread pension crisis.

Shorter-term, remember that bear markets regularly include scorching advances from oversold conditions, each time prompting dip-buyers to exclaim “New highs, here we come. Am I a genius or what?” and encouraging long-term investors to breathe “Phew, I’m glad that’s over.” A typical bear market includes several waterfall declines, along with multiple interim recoveries approaching even 10-20%.



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November 07 2018

Commentary by Eoin Treacy

Hermes shakes off China worries with sales rise

This article by Harriet Agnew for the Financial Times may be of interest to subscribers. Here is a section:

On a call with reporters, Hermès executive chairman Axel Dumas dismissed fears about a slowdown in China, which analysts and investors are concerned may come from a trade war with the US. “We are still strong all across the board in China,” said Mr Dumas. “We don’t see any change of pace at this stage.” Comparing the slightly slower third-quarter performance of Asia-Pacific to the overall figures for the region in the first nine months of the year, he said that “the differences for me are not material.”

Earlier this month luxury rival LVMH said that Chinese border authorities are stepping up searches on travellers, looking for luxury items brought back from cities like London and Paris. Mr Dumas said he believes that fluctuations in the euro have a greater impact on Chinese tourists shopping in Europe than fears about tighter border controls.

This month Hermès followed in the footsteps of Louis Vuitton and Gucci by launching its own ecommerce website in China, as the group seeks to increase its exposure to the world’s largest and fastest-growing market for luxury sales.

Eoin Treacy's view -

It is interesting that the company has reported it is seeing now lack of demand for its products in China but the price fell anyway. That is a clear example of the market being a discounting mechanism since what investors probably wanted to hear was that demand was growing strongly.



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November 07 2018

Commentary by Eoin Treacy

Trump's Trade War a Win for Fertilizer If Farmers Seed More Corn

This article by Jen Skerritt and Isis Almeida for Bloomberg may be of interest to subscribers. Here is a section:

The feud between the U.S. and China that’s withered sales for American soybeans will probably result in farmers shifting acres to corn, said Chuck Magro, chief executive officer of Nutrien Ltd., the world’s top crop-nutrient supplier. Corn acres require about twice the amount of fertilizer and crop chemicals than soybeans, he said.

“The corn acres are worth more to companies like us,” Magro said in a telephone interview. “This could be actually a short- term win for us. It depends on what actually gets planted next year.”

The last time the U.S. saw a dramatic surge in corn acres was a decade ago after Congress approved the Renewable Fuels Standard, which expanded the mandate to blend ethanol into gasoline. That season, the corn area rose by more than 15 million acres, according to U.S. Department of Agriculture data.

Eoin Treacy's view -

The trade war is having a number of knock-on effects for a whole host of markets from iron-ore demand to copper and fertilisers. Since China is a major consumer of just about all commodities the outlook for its economy has a significant impact on demand. The potential for more corn plantings because reduced soy planting is a potentially an important catalyst for agricultural shares which have until recently been quite depressed.



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