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September 21 2018

Commentary by Eoin Treacy

Commodities Set for Best Week Since April, Fueled by Copper, Oil

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

After a months-long rout, commodities are starting to show signs of life.

The Bloomberg Commodities Index has climbed 2.1 percent this week, on track for the best performance since April. Copper, oil, soybeans and silver are all poised set to end the week higher, helped by a combination of tight supplies, speculation that recent losses are overdone and a weaker dollar.

The gains are small, but it’s clear that the selloff that started in May has dissipated and sentiment is turning bullish. Barclays Plc said in a report today that copper has bottomed. Commodity bull Goldman Sachs Group Inc. predicted gains in raw materials through the end of the year.

“The two main factors behind commodities rising are the end of the dollar strength, with the dollar seeming to have peaked, and risk appetite rising,” said Carsten Fritsch, commodity analyst at Commerzbank AG.

It’s a shift from earlier this year, when the Bloomberg Commodities Index plunged about 10 percent over three months. Copper entered a bear market in August, and assets like arabica coffee and platinum are still near decade-lows.

Eoin Treacy's view -

The Continuous Commodity index has been ranging between 400 and 450 since early 2016. Its failed upside break out in May is a good example of a rule of thumb from The Chart Seminar; when the dynamic of the failure is greater than the dynamic of the breakout, the chances are it will go back down and test the lower side of the range.



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September 21 2018

Commentary by Eoin Treacy

India Stock Market Rocked by Sudden Plunge in Financial Shares

This article by Santanu Chakraborty, Abhishek Vishnoi and Nupur Acharya for Bloomberg may be of interest to subscribers.

Some investors are speculating that the Reserve Bank of India may tighten rules for housing finance firms after a long legacy of shoddy lending that’s resulted in ballooning bad debts. This comes after the central bank said Yes Bank’s chief executive officer will have to step down at the end of January.

“Investors are speculating that more bad loans may come to light as RBI may take stricter action,” said Soumen Chatterjee, head of research at Guiness Securities. The RBI has also taken a tough line with other private-sector bank CEOs in recent months. The central bank refused to extend the tenure of Axis Bank Ltd. chief Shikha Sharma, who said she would step down at the end of 2018 despite support from
shareholders.

The IL&FS downgrade and default may have nudged investors to avoid potential collateral damage in other financial stocks. “Downgrades are a serious possibility” for non-bank financial companies, Aneesh Srivastava of IDBI Federal Life Insurance Co. said.

Eoin Treacy's view -

India’s bad loans have been a rumbling background issue for a long time and there have been announcements over the last year that the RBI was going to take a more robust approach to the problem. That issue may now be coming to the fore with the prospect of defaults rising.



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September 21 2018

Commentary by Eoin Treacy

Global Top 100 companies by market capitalisation

This report from PWC was dated March 31st but only crossed my desk this week and I thought it still worth highlighting not least because of the buyback figures for 2016 and 2017 which have been superseded this year. Here is a section:

Apple distributed $31bn to shareholders in dividends and share repurchases in 2017 - an increase from the $29bn distributed in 2016.

A total of $704bn has been distributed to shareholders by the Top 100 companies.

US companies, representing 54 of the Top 100 companies, accounted for $476bn of the total value distribution.

Unchanged from last year, companies in the Financial sector continued to return the highest total amount of $183bn (2016: $153bn) to shareholders, followed by companies in the Technology sector which returned a total of $121bn (2016: $110bn).

Share buybacks boosted the 2.2% dividend yield to an overall of 3.5% by reference to market capitalisation.

Eoin Treacy's view -

The relative attraction of cash with interest rates at 2%, and soon to be 2.25%, is now better than the dividend yield on the S&P500 which is 1.79%. However, since so many companies are buying back their shares it is arguable whether this is a fair comparison. The total return on the stock market compared to a rolled yield on money market funds highlights how much of a spread in return there is between the two asset classes and the premium investors pay for safety outside of crises.



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September 21 2018

Commentary by Eoin Treacy

September 21 2018

Commentary by Eoin Treacy

Long-term themes review August 15th 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. 



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September 21 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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September 20 2018

Commentary by Eoin Treacy

Video commentary for September 20th 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: Dow Jones Industrials hits new high, S&P 500 surges to new high, Japan and Europe firm and have cheaper valuations, smaller emerging markets have more consistent chart patterns than the large weightings in MSCI Emerging Markets, Dollar weak, Treasuries fall to test the April low, gold unchanged but platinum in the process of breaking its downtrend. 



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September 20 2018

Commentary by Eoin Treacy

S&P, Dow Hit Record Highs as Trade Fears Abate

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

China is said to be planning to cut the average tariff rate it charges on imports from the majority of its trading partners as soon as next month. On Wednesday, Premier Li Keqiang his government wouldn’t devalue the currency in order to boost its exports amid the trade war.

“When we get days where there isn’t trade and tariffs escalation, which is in the news with us every day, market participants can focus more on fundamentals, and fundamental drivers continue to paint a pretty equity picture,” Leo Grohowski, chief investment officer at BNY Mellon Wealth Management, said by phone. “We’re striking a nice balance between good economic news and not becoming concerned yet about inflation.”

Eoin Treacy's view -

The Dow Jones Industrials Average hit a new high and the Dow Jones Transportations Average is trading within striking distance of another new high. While Dow Theory does not tend to get a lot of coverage these days it would be hard to argue that we are presented with anything other than at least a short-term bullish environment.



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September 20 2018

Commentary by Eoin Treacy

Dollar Tumbles to Lowest Level Since July as Euro Surges

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

The market views a 25 basis point Fed rate hike next week as a near certainty, based on fed fund futures. Contracts on Thursday showed more than 45 basis points of total tightening by the end of 2018. Focus is increasingly shifting to the outlook for next year, with investors moving closer to the central bank’s projected path of three rate hikes for 2019.

That won’t be enough to prop up the greenback, according to Noelle Corum, an Atlanta-based portfolio manager in Invesco Ltd.’s fixed-income group. As global growth improves and market participants start to speculate about policy changes from the European Central Bank and Bank of Japan, the dollar’s support from Fed hikes and trade tensions will wear off, she said.

“Going into year-end, we would expect fundamentals will begin to drive markets again, and this will drive the dollar weaker,’’ said Corum, whose group manages $235 billion. She forecasts the greenback will depreciate to $1.20 per euro and weaken to 104 yen per dollar by year-end.

Eoin Treacy's view -

US Treasury yields popping above 3%, not least because of the dearth of demand following the front loading of pension contributions that ended on September 15th, has been a catalyst for both bond and Dollar weakness this week.



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September 20 2018

Commentary by Eoin Treacy

Best Week in Two Years Leaves Japan Stock Bulls Feeling Redeemed

This article by Min Jeong Lee and Keiko Ujikane for Bloomberg may be of interest to subscribers. Here is a section:

A deeply-rooted “misperception” that the Japanese economy will give way to deflation and lead to an eventual collapse of local equities has been a drag, keeping investors blind to positive developments, according to Musha. Most recently, belief that Japan will be crushed in the escalating trade conflict between the U.S. and China has propelled bearish views, he said.

Japan’s economy grew at the fastest pace in more than two years during the second quarter, as companies cranked up capital spending to meet global demand and cope with a severe labor shortage. Growth is expected to slow during the second half but remain steady well into 2019, when a sales-tax increase slated for October will pose a challenge to consumers.

The better than expected 11 percent jump in July core machinery orders helped highlight that robust capital expenditure is Japan’s driving growth, according to Jonathan Allum, a strategist at SMBC Nikko Capital Markets Ltd. In London. This is one factor that stock bears may have been missing and could prove to be a catalyst for a rebound, he said.

Eoin Treacy's view -

There are three points that are worth keeping mind with regard to the Japanese market. The first is the Bank of Japan is still engaged in quantitative easing and is actively buying stocks. The second is the economy is doing well with low unemployment and a high participation rate. The third is valuations are not demanding and compare favourably with both Wall Street and Europe.



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September 19 2018

Commentary by Eoin Treacy

September 19 2018

Commentary by Eoin Treacy

The End of the Incessant U.S. Big?

This article by Kevin Muir at East West Bank may be of interest to subscribers. Here is a section:

According to Bloomberg’s Brian Chappatta, Friday was the last day U.S. corporations could deduct pension contributions at the 2017 corporate tax rate of 35 percent and will now only be eligible for the new 21 percent rate.

There has been considerable debate amongst the fixed-income community regarding the amount of curve flattening that has been the direct result of corporations accelerating their pension contributions. In fact, Brian’s article is named, “The Yield Curve’s Day of Reckoning is Overblown”and is mostly a rebuke of the idea that this factor has been the driving force to the recent flattening.

I don’t agree with all of Brian’s conclusions - but hey - that’s what makes a market!

The U.S. has been flattening at a vicious pace, while most other major bond market curves have been treading water.

Eoin Treacy's view -

The yield curve spread has widened from 20 basis points to 26 over the last week. That is not enough to break the downtrend but it does suggest a moderation in the trend of curve flattening. The transition from being able to write down 35% of pension contributions to 21% is a significant evolution for corporations and it makes sense that they would accelerated contributions to plans ahead of the move. The biggest question is how many people were buying treasuries in sympathy with the view that pension contributions were supporting the market?



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September 19 2018

Commentary by Eoin Treacy

India's Gen Z Voters Have a Simple Message for Politicians

This article by Vrishti Beniwal and Bibhudatta Pradhan for Bloomberg may be of interest to subscribers. Here is a section:

India’s Gen Z, a key swing constituency in the 2019 general elections, has a simple message for politicians: more jobs, please.

As many as 130 million first-time voters -- more than the population of Japan -- will go to the polls due by May. A key issue for this electorate is Prime Minister Narendra Modi’s failure to deliver on his promise of creating 10 million jobs a year -- a pledge that won him the hearts of India’s youth in the 2014 election.

Yet with barely eight months to go to national polls, voters who believe job creation is Modi’s biggest failure have risen to 29 percent from 22 percent in January 2018, the Mood of the Nation survey by India Today found.

"The youth will certainly be a key demographic,” said Harsh Pant, professor of International Relations at King’s College in London. "While the issue of jobs may hurt Modi in the coming elections, it is also a reality he remains hugely popular with the youth compared to any other politician."

Eoin Treacy's view -

India has the potential for a massive demographic dividend considering half the population of over 1 billion is younger than 25 years old. However, in order to reap that benefit it needs to get busy with infrastructure development and manufacturing.



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September 19 2018

Commentary by Eoin Treacy

Bezos Unbound: Exclusive Interview With The Amazon Founder On What He Plans To Conquer Next

This article by Randall Lane for Forbes.com may be of interest to subscribers. Here is a section:

Nevertheless, during the morning he spent with Forbes outlining how he channels innovation and chooses where to expand, a road map for Amazon's future emerged. Given Amazon's size, it moves both vertically and horizontally, each direction portending a lot more disruption. Even five years ago, Bezos seemed content merely to try to sell everything to everybody, becoming the bane mostly of retailers and wholesalers. But this master innovation artist now has the ultimate palette: any industry he chooses.

For this unconstrained era, the most important word at Amazon is yes. Bezos explains, correctly, the traditional corporate hierarchy: "Let's say a junior executive comes up with a new idea that they want to try. They have to convince their boss, their boss's boss, their boss's boss's boss and so on—any 'no' in that chain can kill the whole idea." That's why nimble startups so easily slaughter hidebound dinosaurs: Even if 19 venture capitalists say no, it just takes a 20th to say yes to get a disruptive idea into business.

Accordingly, Bezos has structured Amazon around what he calls "multiple paths to yes," particularly regarding "two-way doors": decisions that are often based on incremental improvements and can be reversed if they prove unwise. Hundreds of executives can green-light an idea, which employees can shop around internally. "He knows and we know that you can't invent or experiment without some failure," says Jeff Wilke, the long-time Bezos lieutenant who runs Amazon's consumer and retail operations. "Those we sort of celebrate. In fact, we want them to occur all over the place. Jeff doesn't need to review those. I don't need to review those."

Eoin Treacy's view -

The bigger Amazon gets and the more industries it disrupts the greater the potential there is for antitrust advocates to gain traction. Amazon currently accounts for about half of all ecommerce traffic in the USA so it is no exaggeration to state that if you are not selling on Amazon you are leaving half the population untapped. That position lends the company enormous power and the EU is currently investigating how much advantage it gets from knowing product segments its third-party sellers are succeeding in. 



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September 18 2018

Commentary by Eoin Treacy

Video commentary for September 18th 2018

Eoin Treacy's view -

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

Some of the topics discussed include: stock markets rally following tariff announcement, Treasuriy yields break above 3%, gold quiet, platinum firm, oil back testing the upper side of its range, smaller market cap emerging markets turning to outperformance.



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September 18 2018

Commentary by Eoin Treacy

September 18 2018

Commentary by Eoin Treacy

Asia EM Strategy

Thanks to a subscriber for this report from Morgan Stanley. Here is a section on Malaysia:

Eoin Treacy's view -

A link to the full report and section from it are posted in the Subscriber's Area.

Governance is Everything and this is doubly true in emerging markets. The Mahathir administration has made a point of trying to recoup some of the losses due to graft, not least 1MDB, and is taking a more forthright stand against the debt trap infrastructure projects the last government signed with China. These are positive outcomes and suggest standards of governance are improving.



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September 18 2018

Commentary by Eoin Treacy

See Food: Why Robots Are Producing More of What You Eat

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

Food manufacturers have been early adopters of new technologies from canning to bread slicers, and vision automation has been used for many years for tasks such as reading bar codes and sorting packaged products. Leaders now are finding the technology valuable because robot eyes outpace the human eye at certain tasks.

For years, Tyson Foods Inc. used sensors to map chicken fillets so they could be cut to the precise specifications required by restaurant customers that need them to cook uniformly. But exposure to the high pressure, high temperature water there kept causing equipment failures.

Now technical improvements, tougher materials and declining prices mean the company can integrate vision technology in facilities including the new $300 million chicken-processing plant in Humboldt, Tenn., said Doug Foreman, who works in technology development at the Springdale, Ark.-based food company. The technology could help optimize the use of each part of the bird, he added.

Eoin Treacy's view -

Robotics, artificial intelligence and computer vision all need to work seamlessly together in order for computers to fulfil the same tasks as humans. Creating systems that work together in such a manner is a time-consuming process but progress has been underway for decades and the breadth of what is now possible has improved considerably.



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September 18 2018

Commentary by Eoin Treacy

Midpoint Danger Line Stops

Eoin Treacy's view -

At The Chart Seminar which is next due to be held in London on November 12th and 13th at the Army & Navy Club in London, one of the topics we cover is how to place stops. The Midpoint Danger Line (MDL) stop is appropriate in a staircase step sequence trend and considering how rhythmic the downtrends have been in the precious metals I thought it would be a good time review it.

In a staircase step sequence downtrend, we observe a series of ranges one below another. That rhythmic movement of distributions followed by a fresh breakdown is deleterious to sentiment. The people making money in such an environment are short sellers who are selling into rallies. When they look at the best opportunities to increase their positions they will observe that prices encounter resistance at the lower side of the overhead range so that is the most opportune time to sell.

In a downtrend most people will have stops just above the most recent lower rally high. If that level is surmounted a sharp rally can ensue on short covering. Therefore, the first signal of a change of trend is when a rally pushed back up into the overhead range. That means the strategy which worked best in the downtrend is no longer working. If the price then moves beyond the midway point of the overhead range, a failed downside break is evident.

A rule of thumb from The Chart Seminar is that in a failed downside break, when the dynamic of the failure is greater the dynamic of the breakdown, the price is likely to rally right back up to the upper side of the range. In a downtrend that is where it is reasonable to assume the majority of stops reside.

Platinum has been trending lower in a staircase sequence fashion. It rallied back up into the overhead range today but has not yet crossed in midpoint of the overhead range which is at approximately $825. A sustained move above that level would enhance potential for at least a reversionary rally back up towards the trend mean.



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September 17 2018

Commentary by Eoin Treacy

Video commentary for September 17th 2018

September 17 2018

Commentary by Eoin Treacy

Email of the day on Venezuela on the Med:

There is an increasing number of commentators in Italy that have drawn to the conclusion that the current government (still supported by a vast majority of Italians, ~60% according to latest polls) is determined to leave the Euro area and the EU. I am now convinced about this too.

Since there is no legally viable way of achieving this, the path to be followed will be that of an "accident" on the financial markets: the delivery of the promises of universal income and lower taxation, will push the fiscal deficit to "breaking point", while the ECB (unelected enemy of the people #1) will start withdrawing the bond buying program. 

With the spread uncontrollably high and seized credit (banks are also notorious enemies of the people), the only solution left (so the people will be told) will be the reintroduction of the Lira, overnight. The country will default and withdraw from international markets. Most activities nationalised. 

The motivation for doing this for those currently in power is clear: seizing unrestrained power (forget ideology, or patriotic instincts... those are facades). A country with universal income (assuming that functions) ceases to be a democracy anyway. The sponsor for all this comes from the East.

Interesting (Venezuelan) times ahead. 

The conclusion: don't touch Italian domestic names, not even with a barge pole from far away. 

Eoin Treacy's view -

Thank you for your interpretation of a potential outcome to the introduction of a populist coalition in Italy which I think we can both agree is a doomsday prediction for Italy, the ECB and the nations responsible for funding the central bank. Let’s take the argument back to first principles.



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September 17 2018

Commentary by Eoin Treacy

How an Aussie miner and American tech company plan to extract lithium quickly in Argentina

This article by Valentina Ruiz Leotaud may be of interest to subscribers. Here is a section:

What sets this partnership apart is that both the miner and the techie claim they can produce lithium carbonate or lithium chloride more rapidly and at a lower cost than others. According to Lilac, this is possible because its system eliminates the need for sprawling evaporation ponds, which are expensive to build, slow to ramp up, and vulnerable to weather fluctuations.

“Even for the world's best lithium reserves in the Atacama desert, conventional evaporation ponds take many years to ramp up and remain vulnerable to weather volatility. Lilac's projects will run at full capacity from year one of commissioning and maintain that output regardless of weather or brine chemistry. We have done benchtop testing in other brines and we saw recoveries over 95% in less than 2 hours versus 9-24 months in evaporation ponds,” the company’s CEO, Dave Snydacker, told MINING.com.

Snydacker explained that the reason why the processes run by his company are so fast is that his engineers have developed ion exchange beads that absorb lithium directly from the brine. Once they do that, the beads are then loaded into ion exchange columns and brine is flowed through such columns. As the brine contacts the beads, the beads absorb the lithium out of the brine. Once the beads are saturated with lithium, the alkali metal is recovered from them as a lithium solution, which is later on processed into battery-grade lithium carbonate or lithium hydroxide using streamlined plant designs.

Eoin Treacy's view -

I described the lithium market as an example of supply inelasticity meets rising demand as early as 2013. What is apparent today, following massive investment in additional supply, is that is no longer true. In fact, as demand for the commodity ramps up technological innovation is contributing to the ability suppliers to more than keep pace.



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September 17 2018

Commentary by Eoin Treacy

Shinzo Abe's quiet social revolution

Thanks to a subscriber for this article by Hiroshi Marutani for Nikkei may be of interest to subscribers. Here is a section: 

In his second stint as prime minister, Abe seems to have finally understood the secret to the LDP's longevity: an all-engulfing pragmatism. Reality over ideals. This has been clearest in Abe's decision to expand acceptance of foreign workers. Under Abe's administration, the number of foreign workers has almost doubled to 1.3 million. Laborers from China, Vietnam and the Philippines have poured into Japan to fill gaps in the health care, construction "With the economy performing so well, it is becoming apparent that hiring is tight," Abe told Nikkei. "Worker shortages are starting to hamper a variety of fields."

The ills of a shrinking population were hardly noticeable during the country's long deflationary spiral. But after growth returned in 2013, businesses began to shout their concerns about a smaller workforce.

"Nursing facilities, for instance, have a severe lack of hands," said Abe, whose recognition of the issue has been heavily shaped by Yoshihide Suga, his chief cabinet secretary since 2012.

Suga realized the need for more workers in nursing facilities last fall, when local caregivers raised the issue with him and requested foreign staffers. He gathered officials to look into the problem and was told that there was adequate manpower.

Eoin Treacy's view -

The number of foreigners we have encountered in Japan during two trips in the last 18 months was a surprise. The second surprise were the number of women doing jobs that require hard physical labour such as delivering beer kegs or porting luggage. These are just two anecdotal pieces of evidence that highlight how much Japan’s society has changed over the last few years under Abe.



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September 17 2018

Commentary by Eoin Treacy

A Twist in the U.S. Tariff Battle: It's Helping China Be More Competitive

This article by Liza Lin and Dan Strumpf for the Wall Street Journal may be of interest to subscribers. Here is a section:

Tony Lee’s Sintai Furniture Co. makes outdoor furniture and other products sold at Costco , Home Depot and other U.S. stores that would be subject to tariffs in the expected $200 billion round. He is moving one-fifth of production to Vietnam for his U.S. exports, and keeping production for European and other markets at his factory in Dongguan.

Mr. Lee said the company will incur higher costs in worker training and material shipment in the short term, but he expects the move will save money in the long run. “The supply chain and capability in Vietnam takes time to build,” he said. “Once it is built up, Vietnam will be cheaper than China.”

Eoin Treacy's view -

China is moving up the value chain in terms of manufacturing and the increasing automation of production lines is a trend which has been underway for a decade. Simultaneously, rising wages have had an impact on apparel and footwear exporters which have migrated to places like Vietnam, Cambodia, India, Ethiopia and Kenya.



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September 14 2018

Commentary by Eoin Treacy

September 14 2018

Commentary by Eoin Treacy

HNA's Missed Payments Show Deutsche Bank Exit Won't Be Enough

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

Despite HNA Group Co. having sold more than $17 billion in assets this year, one of its units still missed payments on a $44 million loan this week, illustrating how the once-acquisitive Chinese conglomerate will need to unload more properties and shares to overcome its liquidity challenges.

Signs abound that the selloff will continue: It’s planning to get out of Deutsche Bank AG, seeking a buyer for its container-leasing Seaco business, surrendering eight floors of office space in Hong Kong and selling stakes in various Chinese units, people familiar with the matter have said since last week. What’s more, HNA is said to be dangling billions of dollars in real estate in the U.S., London and China to prospective buyers.

All in all, the company that was once at the forefront of China’s massive global buying binge has more than $17 billion in further asset sales planned, according to a tally by Bloomberg, as HNA tries to shrink back to its aviation roots. But as the missed payments show, there’s plenty of turbulence lying ahead for the conglomerate, which is saddled with one of the biggest piles debt in corporate China.

Eoin Treacy's view -

Chinese investment in US commercial property turned negative for the first time in a decade last month not least because HNA Group is a panicky seller. The fate of the group is tied up with the program for international expansion that characterised the first portion of Xi Jinping’s rule and which has now been reversed in response to a debt load which was getting out of control. 



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September 14 2018

Commentary by Eoin Treacy

Financial panic and credit disruptions in the 2007-09 crisis

This article by Ben Bernanke for the Brookings Institute may be of interest to subscribers. Here is a section: 

Although the Balance Sheet factors do not forecast the acute phase of the economic downturn in my setup, that does not mean they were irrelevant. Of course, the bursting of the housing bubble was the spark that ignited the panic in the first place. Moreover, much other evidence (by Mian and Sufi and others) is consistent with the view that household deleveraging contributed both to the initial downturn in spending and to the slowness of the recovery. It may well be that household balance sheets evolve too slowly and smoothly for their effects to be fully accounted for in the type of analysis used in my paper, which tends to emphasize shorter-term fluctuations. But my results do suggest that, in the absence of the panic, the declines in employment, consumption and output in the early stages of the Great Recession would have been significantly less severe.

The panic of 2008 differed from the Great Depression of the 1930s in that the runs on the financial system during the recent episode were on wholesale funding, and occurred electronically, while in the 1930s retail depositors lined up in the streets.  But the overall effect was the same:  A loss of confidence in credit providers caused the supply of credit to plummet, the external finance premium to spike, and the real economy to contract rapidly.  Macroeconomic analysis and forecasting needs to take into account how disruptions to credit markets, in ordinary recessions as well as in financial panics, can damage the real economy.

Eoin Treacy's view -

The lesson policy makers are likely to have learned from the Lehman bankruptcy and the ensuing panic in credit markets is liquidity has to be made available at whatever cost early in order to avoid a worse outcome later.



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September 14 2018

Commentary by Eoin Treacy

More and More, New Drugs Clear the FDA With 'Accelerated Approval'

This article by Abigail Fagan & Mark Kaufman for Undark may be of interest to subscribers. Here is a section:

Today, the FDA is increasingly proactive in bringing drugs to market short of full approval and uses accelerated approval to get new drugs to people suffering from devastating diseases. Since 2003, more than 16 percent (66 of 404) of all new drugs were approved through the Accelerated Approval Program, and it seems to be a more popular option. Between 2003 and 2013, about three drugs were approved each year through this expedited route. But during each of the last three years (through 2016), that number has increased to more than seven drugs per year.

The FDA is candid about its commitment to expedited approval programs — in part to speed up what is often characterized as a notoriously drawn-out and bureaucratic approval process. The agency’s former head, Hamburg, wrote about the FDA’s intention of getting new drugs to people as “quickly” as possible, and the FDA’s new leader, doctor and cancer survivor Scott Gottlieb, bemoans the FDA’s slow-moving approval process. While a fellow at the conservative American Enterprise Institute in 2012, Gottlieb lamented the “increasingly unreasonable hunger for statistical certainty on the part of the FDA.” And at Gottlieb’s confirmation hearing last May, he rejected the idea that speeding up drug approvals would compromise their safety, calling it a “false dichotomy that it all boils down to a choice between speed and safety.”

But the increasing reliance on accelerated approval and other means of expediting drug approval have many critics worried — particularly given that the interests most readily served by fast-track approvals are those of the pharmaceutical industry. David Gortler, an associate professor of pharmacology at Georgetown University and a former FDA medical officer, is one such critic. He fears that the drive to get drugs out faster with weaker scientific evidence is already taking a toll — not just on consumers who are taking drugs that should never have been approved, but also on the agency’s credibility.

Eoin Treacy's view -

Pharmaceutical companies benefitted from the declining burden of proof required before a drug can be marketed as well as the reduction in political scrutiny under the Trump administration.



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September 13 2018

Commentary by Eoin Treacy

Video commentary for September 13th 2018

September 13 2018

Commentary by Eoin Treacy

Lira Surges as Turkish Rate Hike Caps Day of Chaos for Erdogan

This article by Benjamin Harvey and Ercan Ersoy for Bloomberg may be of interest to subscribers. Here is a section:

“This massive rate hike is going to stabilize the Turkish lira,” said Bernd Berg, a strategist at Woodman Asset Management AG in Zug, Switzerland. “With a central bank that has gained in credibility by showing its independence, Turkish assets are poised to recover in the short-term.”

The Borsa Istanbul 100 Index rebounded, rising as much as 1.8 percent led by Turkiye Garanti Bankasi AS and Akbank TAS, the nation’s largest listed lenders. But the rally offered little comfort to thousands of businesses now struggling to come to grips with the snap restrictions on foreign currencies, which his government has yet to explain.

‘Total Chaos’
Erdogan’s decree makes the lira the only currency that can be used in most contracts concluded between Turkish entities for any kind of product or service. Many of his own government’s largest contracts, including for building motorways and operating turnpikes, bridges and airports, are currently priced in dollars or euros.

Some agreements will be exempt from the new rules under conditions to be specified by ministries, according to the decree, which didn’t elaborate. All others that are either priced in or indexed to foreign currencies will have to be amended within 30 days.

That decree will create “total chaos" and be impossible to implement in the given time frame, said Hulusi Belgu, head of the national organization of shopping malls. His members have about $15 billion in collective debt and price about 70 percent of all their rent contracts in a foreign currency. “How will this debt be repaid if contracts are converted to liras?" Belgu asked by telephone.

Eoin Treacy's view -

Erdogan reiterated his view today that interest rates are a “tool of exploitation”. One is tempted to ask of whom? Of course, when Erdogan makes these statements he is not speaking to the community of international investors to whom Turkey owes hundreds of billions of Dollars and Euro but to the demographic of Islamist leaning people who are leery of usury.



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September 13 2018

Commentary by Eoin Treacy

The United States is now the largest global crude oil producer

This article from the EIA by Candice Dunn and Tim Hess may be of interest to subscribers. Here is a section:

The United States likely surpassed Russia and Saudi Arabia to become the world’s largest crude oil producer earlier this year, based on preliminary estimates in EIA’s Short-Term Energy Outlook (STEO). In February, U.S. crude oil production exceeded that of Saudi Arabia for the first time in more than two decades. In June and August, the United States surpassed Russia in crude oil production for the first time since February 1999.

Although EIA does not publish crude oil production forecasts for Russia and Saudi Arabia in STEO, EIA expects that U.S. crude oil production will continue to exceed Russian and Saudi Arabian crude oil production for the remaining months of 2018 and through 2019.

U.S. crude oil production, particularly from light sweet crude oil grades, has rapidly increased since 2011. Much of the recent growth has occurred in areas such as the Permian region in western Texas and eastern New Mexico, the Federal Offshore Gulf of Mexico, and the Bakken region in North Dakota and Montana.

Eoin Treacy's view -

The embedded charts in this article tell an important story of renewal in the US onshore domestic supply market versus the relatively stagnant supply growth in both Russia and Saudi Arabia. 



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September 13 2018

Commentary by Eoin Treacy

How Amazon Plans To Use Its E-Commerce Dominance To Transform Healthcare

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

The pharmaceutical supply chain in the US is convoluted, filled with middlemen and confusing business models. For example, more than three entities are involved in bringing a drug from manufacturer to patient, and each party takes a percentage of 2 the profit along the way.

Amazon has the opportunity to simplify the supply chain and improve the experience/cost matters for patients, payers, and manufacturers. The company has made significant headway into the pharmaceutical distribution space with its ~$1B acquisition of mail-order pharmacy PillPack. With this purchase, Amazon gained a $100M revenue runrate business, a built-out pharmacy supply, and pharmacy licenses in all 50 states.

PillPack is a good fit for Amazon. The company is loved by its customers, claiming an NPS score of 80 compared to the pharmacy average of 26. Customer demand also helped the company re-establish its partnership with pharmacy benefits giant Express Scripts after a public falling out.

Eoin Treacy's view -

Amazon’s march through previously ringfenced sectors remains a powerful disruptive influence that has the potential to streamline supply chains and deliver better value to end customers. At the same time this is going to represent a significant challenge for the middlemen that characterise the healthcare, commercial and industrial sectors today.  



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September 13 2018

Commentary by Eoin Treacy

The 5G Race: China and U.S. Battle to Control World's Fastest Wireless Internet

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

The new networks are expected to enable the steering of driverless cars and doctors to perform complex surgeries remotely. They could power connected appliances in the so-called Internet of Things, and virtual and augmented reality. Towers would beam high-speed internet to devices, reducing reliance on cables and Wi-Fi.

At the Shenzhen headquarters of Huawei Technologies Co., executives and researchers gathered in July to celebrate one of its technologies being named a critical part of 5G. The man who invented it, Turkish scientist Erdal Arikan, was greeted with thunderous applause. The win meant a stream of future royalties and leverage for the company—and it marked a milestone in China’s quest to dominate the technology.

At a Verizon Communications Inc. lab in Bedminster, N.J., recently, computer screens showed engineers how glare-resistant window coatings can interfere with delivering 5G’s superfast internet into homes. A model of a head known as Mrs. Head tested the audio quality of new wireless devices. Verizon began experimenting with 5G in 11 markets last year.

Nearby, in Murray Hill, N.J., Nokia Corp. engineers are testing a 5G-compatible sleeve that factory workers could wear like an arm brace during their shifts to steer drones or monitor their vital signs. The company began its 5G-related research in 2007.

Eoin Treacy's view -

You might remember a great deal of enthusiasm about the internet of things or the internet of everything a few years ago. Everything has gone quiet on that front of late not least because in order to reach commercial utility the billions of connected devices planned to enter service are going to need to be able to connect to the internet on a constant basis and current networks are incapable of handling the load. That means a whole new architecture is required to enable the next iteration of connected devices and 5G is the answer. 



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September 12 2018

Commentary by Eoin Treacy

Video commentary for September 12th 2018

Eoin Treacy's view -

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

Some of the topics discussed include: gold steadies, Brent crude tests $80, chipmakers rebound from their lows, Dow Jones doesn't hold its rally, copper steadies, Bonds firm from 3%, ruminations on the relationship between populism and the end of the bond bull market. 



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September 12 2018

Commentary by Eoin Treacy

Ray Dalio Spells Out America's Worst Nightmare

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

“We have to sell a lot of Treasury bonds, and we as Americans won’t be able to buy all those Treasury bonds,” Dalio said. That means foreign investors will have to step up. And they probably would, as long as the dollar remains strong.

Otherwise, Treasury’s dollar-denominated interest payments to buyers in China, Europe and Japan will be worth less and less.

But, to Dalio, that’s not going to happen. “The Federal Reserve at that point will have to print more money to make up for the deficit, have to monetize more and that’ll cause a depreciation in the value of the dollar,” he said. Pressed by interviewer Erik Schatzker, he said “you easily could have a 30 percent depreciation in the dollar through that period of time.” For context, the Bloomberg Dollar Spot Index fell 8.5 percent in 2017, and that was considered massive.

It all leads up to this critique of how the U.S. has gone on a borrowing binge in recent years. Remember, the $15.3 trillion Treasury market was the $4.9 trillion Treasury market a decade ago.

“We have the privileged position of being able to borrow in our own currency because we have the world's leading reserve currency. We are risking that by our finances — in other words, borrowing too much.”

Eoin Treacy's view -

Unfunded liabilities are not only a US problem but are something that governments right across the OECD will need to eventually address. Ray Dalio’s view that the rise in populism we are seeing today is a symptom of a wider problem gels with my own. Considering we are seeing this disaffection with the status quo during an economic expansion where unemployment is low, it is likely that the jump to the fringes of the political spectrum will only intensify during a recession.  



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September 12 2018

Commentary by Eoin Treacy

Asian Stocks Are Caught in the Longest Sell-off in 16 Years

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

“We see that light at the end of the tunnel, but we’re still kind of in the darkness ourselves,” Citi’s Peng said. Investors need more concrete catalysts before they step in to buy stocks. “So that’s the challenge for money managers.”

“We are looking to be more constructive on Asian equities in the next quarter, if the current correction continues. Valuations will be more attractive and worth a look then,” said Jason Low, senior investment strategist at DBS Bank Holdings Ltd.

“The good news is that valuations are looking more attractive now and technicals are oversold, which suggest that Asian stocks could be poised for a rebound in the next few months,” Jasslyn Yeo global market strategist as JPMorgan Asset Management.

Eoin Treacy's view -

Among the top 18 holdings in the iShares MSCI Emerging Markets ETF, 9 are from China. The addition, first of overseas Chinese companies and Hong Kong listed companies followed by mainland listed shares has represented a significant reweighting of the basket over the last decade. Since so many commodity producers rely on Chinese demand growth for exports the country’s influence is even greater than might initially be apparent.



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September 12 2018

Commentary by Eoin Treacy

FDA Threatens to Pull E-Cigarettes to Fight Rise of Youth Vaping �

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

“There is no question that a lot of the youth use is being driven by Juul,” Gottlieb said.

Produced by San Francisco-based Juul Labs Inc., Juul devices resemble a USB thumb drive and have become popular among students. The company has more than two-thirds of the U.S. e- cigarette market, according to Nielsen data. The FDA is currently developing a survey to determine what percentage of youth vapers are using Juul products, Gottlieb said.

A nationwide sting operation from June through August resulted in more than 1,300 warning letters and fines to retailers who sold Juul products and other e-cigarettes to kids.

It was “the largest coordinated enforcement effort in the FDA’s history,” according to the agency.

Gottlieb recently began to ask whether the use of Juul and other similar products by kids is overshadowing any benefit to adult smokers using the devices to help them quit cigarettes. He said in June tobacco companies “better step up and step up soon” but he didn’t divulge what consequences the industry could face -- until now.

In July 2017, the FDA said it was considering lowering nicotine levels in traditional cigarettes. In addition, the agency pushed back until 2022 a deadline for electronic- cigarette companies to submit applications to the FDA. Gottlieb said at the time he was trying to ease the regulatory pathway for products that are potentially less harmful sources of nicotine than smoking. Critics of pushing back the deadline raised concern that more kids would take up vaping.

Congress gave the FDA the authority to regulate tobacco products in 2009. The agency extended that reach to other tobacco products, including e-cigarettes, in August 2016 and allowed those products that were already on the market to continue sales while preparing an application for FDA clearance.

The FDA is investigating whether some products on the market were introduced after the 2016 date and may need to halt sales, though didn’t name which ones may be violating the law.

Eoin Treacy's view -

I had a discussion with my children about addiction and the cashflow seepage from their savings that would occur were they to take up vaping. We also looked at the cashflow of tobacco companies and talked about how much money they make from addiction. I’ve found it is not much use talking to children about their long-term health because it is no relatable. However, talking to them about not being able to afford a squishy or computer game because of an addiction gets a lot more traction. This conversation resulted from the fact that many of the videos they have encountered on YouTube or iFunny highlight children and young teenagers engaging in vaping.



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September 11 2018

Commentary by Eoin Treacy

September 11 2018

Commentary by Eoin Treacy

On Target September 11th 2018

Thanks to Martin Spring for this edition of his informative report. Here is a section on India:

Eoin Treacy's view -

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

India is at the beginning of a digital revolution. While analogies between China and India often do not make sense, I believe in this case there are some clear parallels. In December 2013 China introduced 4G and that represented the gateway to the growth of online shopping, delivery systems, online banking, mobile payments, the cashless society, social media apps, gaming etc. Reliance Industries introduced a country wide cheap 4G network at the end of 2015 in India and it is gaining increasing traction with consumers.



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September 11 2018

Commentary by Eoin Treacy

How Should China Respond to Changing U.S. Attitudes?

This article by Fu Ying, vice chairperson of the Foreign Affairs Committee of China's National People's Congress, and of the Academic Committee of China's Institute of International Strategy at the Chinese Academy of Social Sciences may be of interest to subscribers not least because it appeared on Bloomberg and appears to speak directly to investors. Here is a section:

In fact, changes in U.S.-China relations may help to push China’s own desired reforms. Some requests raised by U.S. companies, such as increased market access, dovetail with recommendations from China’s leaders. The government is, in fact, opening up: Eight out of the 11 market-opening measures announced by President Xi Jinping in April have been put in place, covering banking, securities, insurance, credit rating, credit investigation and payment, and so on. The government is also working harder to improve the business environment and strengthen intellectual property protections for both Chinese and foreign enterprises. Chinese reformers can turn outside pressure to their advantage, using it to bust through internal
resistance to necessary changes.

But make no mistake: The Chinese people will stand firm against U.S. bullying over trade. There is talk about China’s economy “sliding down” as a result of the trade war. Some expect China to succumb soon. I can tell you that this is wishful thinking.

Yes, China is in the process of deleveraging, which is uncomfortable and painful. But it is a price worth paying for sustaining healthy development. It’s worth remembering that China adopted a stimulus program to help overcome the global recession triggered by the 2008 financial tsunami in the U.S. And it’s worth noting that the trade war may slow the necessary process of deleveraging.

Eoin Treacy's view -

China is now the self-appointed champion of free markets and international trade not least because is has most to lose from any change to the global market equilibrium. The opening up of protected sectors within the Chinese economy are focused on the most heavily overleveraged sectors, where a desire from fresh capital and risk sharing is a priority. There is no sign that the higher growth areas of the economy are suddenly going to become open for foreign investment or that China’s domestic champions are ready for international competition in their home market.



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September 11 2018

Commentary by Eoin Treacy

Riverfront The Weekly View

This note by Chris Konstantious may be of interest to subscribers. Here is a section:

Eoin Treacy's view -

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

The USA has transitioned from monetary to fiscal stimulus which is not something other countries have been willing to do. Additionally, the change to the tax code which favoured companies by lowering tax rates and reducing the penalty to bring cash home has resulted in fresh demand for the Dollar while also reducing demand for other countries’ currencies because of the fall off in corporate debt issuance.



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September 10 2018

Commentary by Eoin Treacy

Video commentary for September 10th 2018

Eoin Treacy's view -

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

Some of the topics discussed include: continued weakness in Chinese assets, India at risk of a reversion to the mean, Dollar eases, Pound firm, gold quiet, platinum fails to hold its rally, basic resourecs under pressure, Wall Street continues to pause. 



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September 10 2018

Commentary by Eoin Treacy

Cotton, Hog Futures Jump as Florence Heads for East Coast

This article by Mario Parker, Megan Durisin and Shruti Date Singh for Bloomberg may be of interest to subscribers. Here is a section:

Cotton, corn and soybean fields along with massive hog and poultry facilities lie in the projected path for Hurricane Florence.

The storm’s U.S. landfall could come Friday between Charleston, South Carolina and Norfolk, Virginia, the Hurricane Center said. As much as 15 inches (38 centimeters) of rain could flood cotton fields in parts of North Carolina, according to AccuWeather Inc. The state is also home to several pork- processing plants from major producer Smithfield Foods Inc.

Florence will likely bring “wind and flood damage” for corn and soybeans in the region, Commodity Weather Group said in a report Monday.

“Cotton is one of the largest commodities that can be affected by Florence,” Terry Reilly, senior commodity analyst for grain and oilseeds at Futures International in Chicago, said in an email. “Too much rain is never a good thing for any crop, unless it’s rice.”

Eoin Treacy's view -

This has been a very quiet hurricane season particularly compared to last year but that is about to change with Hurricane Florence due to make landfall later this week. This article from NOAA raises some important questions from what we might expect from hurricanes in future. Here is a section: 

Our regional model projects that Atlantic hurricane and tropical storms are substantially reduced in number, for the average 21st century climate change projected by current models, but have higher rainfall rates, particularly near the storm center. The average intensity of the storms that do occur increases by a few percent (Figure 6), in general agreement with previous studies using other relatively high resolution models, as well as with hurricane potential intensity theory (Emanuel 1987).



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September 10 2018

Commentary by Eoin Treacy

September 10 2018

Commentary by Eoin Treacy

Sweden Wades Into Unknown Without Clear Path to Viable Coalition

This article by Amanda Billner and Rafaela Lindeberg for Bloomberg may be of interest to subscribers. Here is a section:

Sweden’s political establishment contained a nationalist surge. Now it may need to throw away the old rules to form a viable government.

Both of Sweden’s traditional blocs, one led by the Social Democrats and one by the conservative Moderates, claimed victory after Sunday’s election that’s still too close to call. The nationalist Sweden Democrats surged to about 17.6 percent, but fell short of some polls showing it could emerge as the biggest amid a groundswell of anti-immigrant sentiment.

Sweden likely faces days, if not weeks, of tense discussions. Prime Minister Stefan Lofven has refused calls to resign, putting pressure on the opposition Alliance led by Moderate Party leader Ulf Kristersson. The Alliance is meeting to find common ground, but must also convince the nationalist Sweden Democrats to give it the necessary backing to rule.

At least one bank in Sweden took a look at the tight results and concluded that a failure to bridge differences can’t be ruled out. “A highly protracted government formation process, or even another election, can’t be ruled out,” Anders Bergvall, a senior economist at Svenska Handelsbanken, said in a note.

Lofven has tried through the campaign to shave off the two smaller alliance parties, the Center Party and the Liberals, from the center-right coalition. That has so far proved fruitless, but success will be key for him if he wants to survive a potential no confidence vote as soon as Sept. 25.

Eoin Treacy's view -

Back in 2000 Rage Against the Machine released the song Testify to protest at the lack of choice in the US presidential election, highlighting how small the difference was between opposing sides when centrist parties face off against each other in elections.

Photos last week of former Presidents Obama, Bush and Clinton sitting together at John McCain’s funeral and the absence of President Trump from the same event highlight just how much centrism has given way to the fringes of political views since the Financial Crisis.



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September 10 2018

Commentary by Eoin Treacy

Q2 2018 Market Review & Outlook

Thanks to a subscriber for this report from Morgan Creek Capital. Here is a section on blockchain:

With that kind of volatility being the norm in the current Bitcoin environment, we repeat what we wrote in January (and have tweeted very often) that it is important “to remember about Bitcoin is that the daily price is not really important, what is important is gaining ownership of the network as it develops. Think of it like an iPhone; when there was only one, the network had no value; two phones, still no value; a million phones, meaningful value; ten billion phones, huge value. The same applies to the network value of Bitcoin.” Most importantly, as millions of global users continue to buy into the Bitcoin network over time (remember U.S. is only 10% of the activity), the network value will continue to grow toward the logarithmic non-linear regression model target. New technological advances like the Lightning Network could speed adoption rates and raise the slope of the curve, but the Parabolic Growth Model points to network values of “$22k by the end of 2018, $41k by the end of 2019, $75k by the end of 2020 and $100k by the middle of 2021.” Last year we said that we could see Bitcoin reach “Gold Equivalence” (market cap of $8.4 trillion) within a decade and that would take the BTC price to $400k. Reviewing the network value model, we have since revised the forecast a bit and can see $250k by the middle of 2022 and $500k by the end of 2024. We tweeted this timetable in April and there was a little commotion about the shift, but we recently spoke with a crypto writer for the Street.com and they did an article on the entire model and thesis for the price movements that has gone a little viral and was even translated into many languages around the world (my favorite has been seeing it in Polish and knowing that would have made my Grandma Dombroski proud).

One thing to be very clear on here is that we are not making any absolute predictions about Bitcoin and we are definitely not making any promises to do something rash like Mr. McAfee has done (saying he will eat a sensitive body part live on the internet if BTC doesn’t hit $1 million by a certain date), but rather pointing out some very sound mathematics for how a network grows and how the value of that network could rise as user adoption increases.

Eoin Treacy's view -

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

There are three things you can see on a chart. What you want to see, what you think you are going to see and what is there. If we ignore price, then we are setting ourselves up for a fall into ideology or self-delusion, both of which can be deleterious to one’s wealth. The price contains all the information that is important to people right now.



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September 07 2018

Commentary by Eoin Treacy

September 07 2018

Commentary by Eoin Treacy

Wage Growth is breaking out

September 07 2018

Commentary by Eoin Treacy

MIT study sees nuclear power as integral to a low-carbon future

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

Much of this is a matter of intense debate, but one big problem is that if the world is to invest in a policy of deep decarbonatization by the year 2050, there is a real chance it can only be done at either massive expense or the price of much less electricity being available at higher costs, lower standards of living in both the developed and developing world, and even a shrinking global economy.

To prevent this from happening, the MIT study says that nuclear power with its zero-carbon emissions must play a much larger role in electricity generation on a global scale. Today, the total share of global nuclear power as a primary energy source is a mere five percent, with very little growth in the West and some countries actually abandoning the technology.

Eoin Treacy's view -

If we wish to cut down on carbon emissions then renewables are certainly a way to do it but they do not get around the questions of sustaining base load when the wind does not blow or the sun does not shine. That means we need to have a lot more industrial sized batteries to store energy for the proverbial “rainy day” or we need additional back up conventional generators. Nuclear is carbon neutral but is also prone to massive cost overruns and accidents, however rare, tend to influence public opinion for decades.



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September 07 2018

Commentary by Eoin Treacy

Sweden's Far Right Rises in a Campaign Defined by Immigration

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

Today, over a fifth of Sweden’s 10 million people have foreign roots and the migrant community is often poorly integrated.

Unemployment is around 4% among native Swedes but exceeds 16% among the foreign born, and 23% for non-European immigrants, despite generous subsidies for companies that hire migrants, said Tino Sanandaji, an economist who wrote an acclaimed book on immigration policy.

Concerns about immigration have boosted support for the Sweden Democrats and pushed parties that have supported immigration to harden their rhetoric. Ulf Kristersson, leader of the center-right opposition, said its past immigration policy has been “very unsuccessful.”

Eoin Treacy's view -

The revolt against the status quo has been variously described as populist, xenophobic, anti-immigrant and racist. However, the harsh reality is multiculturalism is too often a veil for racist tendencies that contribute to ghettos forming where immigrants have little hope of finding training or employment. That represents an existential challenge for the centrism that has prevailed in most liberal democracies over the last 40 years and it is not going to be corrected any time soon.



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September 07 2018

Commentary by Eoin Treacy

September 06 2018

Commentary by Eoin Treacy

Video commentary for September 6th 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: FANGs losing commonality, China remains under pressure, Argentine Peso and Turkish Lira pause near lows, Europe remains weak with Germany testing an important area of potential support, gold steady, oil eases, Lumber limit down, 



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September 06 2018

Commentary by Eoin Treacy

Italy's Populists Begin Their Big Betrayal

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

The trouble is that Di Maio and Salvini’s comments run against pretty much anything they’ve promised voters. In May, they signed a coalition agreement that earmarked nearly 125 billion euros ($145bn) in tax cuts and new spending commitments, according to an independent estimate. True, they’ve always said this would be done over time. But it’s hard to see how this government will make good on anything but symbolic promises if it really means to stick to restraint.

Of course, the devil’s in the detail. Neither leader has clarified what budget deficit the government will target for 2019. Italy is expected to run a deficit of 0.8 percent next year, but this seems out of the question. Giovanni Tria, the technocratic finance minister, is said to favor staying below 2 percent, while some in Five Star and the League probably have something closer to 3 percent in mind. Expect months of wrangling – within government, and with the European Commission – to decide where exactly the line will be drawn.

Yet the political U-turn is clear. The League promised a “flat tax” throughout its electoral campaign to boost the economy. The coalition deal with Five Star had already watered this down into a tax system with two brackets. Now the budget is expected to deliver only minor tax cuts, most likely for the self-employed.

As for Five Star, it had championed a “citizens’ income” to help the unemployed and poorly paid. This will now probably be an extension of the existing income-support scheme passed by Paolo Gentiloni’s former center-left government. On pensions too, the two parties will have to cut back on earlier proposals to slash the retirement age.

Eoin Treacy's view -

The only possible way to hold onto the animus of a revolutionary movement is to sustain momentum. Whatever about one’s attitude towards Donald Trump he probably understands that basic premise more than any populist leader and is delivering, after a fashion, on his election promises. Combining left-wing and right-wing radicals in Italy appears to have resulted in them cancelling one another out and if they fail to deliver on their promises both parties are likely to be eviscerated at the next election.



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September 06 2018

Commentary by Eoin Treacy

Everybody Wants to Take a Bite Out of Big Tech

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

There are also signs that political backlash is contributing to shifting consumer sentiment about at least some of the U.S. internet powers. Pew Research Center in June said the vast majority of survey respondents who identify as Republicans or right-leaning independents believe social networks censor political speech that the companies find objectionable. (A majority of Democrats and left-leaning independents believed this, too.) The dominant belief that the internet powers are politically motivated censors is a dangerous phenomenon for tech companies.

In another worrisome sign, Pew this week released a survey of U.S. Facebook users that found 42 percent had taken a break from the social network for several weeks or more during the last year. Pew said that Republicans and Democrats were equally likely to have restricted their Facebook activity in some fashion. It’s one thing on which a divided nation can agree: Americans want to pull back from Facebook. 

Eoin Treacy's view -

Facebook, Alphabet, Twitter and Apple have volunteered to police their forums not least because they understandably wish to blunt accusations they influenced the result of the US Presidential election or the UK’s Brexit vote. However, the way in which this has been conducted has led to clear signs the companies are looking to curry political favour by silencing who they consider to be rabble rousing polemics.   



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September 06 2018

Commentary by Eoin Treacy

China's $29 Trillion Ball of Money Rolls to a Long-Ignored Haven

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

Bank deposits, shunned for years by the nation’s return-hungry masses, are suddenly looking attractive again as higher-yielding investments prove riskier than many had anticipated. China’s household deposits rose in July at the fastest annual rate in a year -- an influx that analysts say may accelerate after the nation’s stock market sank at the quickest pace worldwide, hundreds of peer-to-peer lending platforms shuttered and companies defaulted on their debt at an unprecedented rate.

“People around me are all asking the same question: Where is the safe place to put our hard-earned savings?’’ said Anna Teng, a 30-year-old marketing manager in Shanghai who’s been shifting her assets into deposits after losing about 20 percent on her equity investments since May and falling victim to a fraudulent P2P lending platform.

Eoin Treacy's view -

Chinese banks, particularly the mid-size and regional segment, need deposits so retail investors pulling out of high yield or high leverage instruments is good news on that front. However, the banks will also miss out on the fees they were collecting from those products and will therefore need to figure how to boost revenues somewhere else. Just how they are going to be able to do that when risk appetite is waning is rather a challenge.



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September 05 2018

Commentary by Eoin Treacy

Video commentary for September 5th 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 eases back but some overbought conditions look ripe for reversions to the mean, emerging markets remain under pressure. China remains a weak link and Europe is at risk of contagion selling, Dollar eases, commodities steady.



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September 05 2018

Commentary by Eoin Treacy

Honey, I shrunk the stock market

This report from Navallier Calculated Investing is a promotional piece but it contains a number of interesting charts and statistics relating to share buybacks. Here is a section:  

Apple had completed $200 billion in share buy-backs since 2012. Apple’s cash hoard is so monstrous that six out of the 10 biggest share buy-backs in U.S. history were done by Apple. The $200 billion they’ve bought since 2012 is enough cash to buy all of Verizon, Coca-Cola, or Boeing. Chew on that for a minute.

Now, contemplate this: U.S. companies announced $201.3 billion in stock buybacks and cash takeovers in May 2018 alone. That’s a record monthly amount. Apple represents nearly half of that! Apple recently said it would buy back $100 billion more of its own stock. They didn’t specify when or how long that would take, but that’s about 10% of the market cap, currently at $1 trillion, the first trillion-dollar stock.

The buy-back announcements keep coming:
Broadcom (AVGO) pledged a $12 billion buy-back.
Micron (MU) pledged a $10 billion buy-back.
Facebook (FB) pledged a $9 billion buy-back.
T-Mobile (TMUS) pledged a $7.5 billion buy-back.
Qualcomm (QCOM) just upped the ante on their previous announcement to buy back $8.8 billion. On July 25th, 2018 QCOM said they would buy back $30 billion, more than 30% of the float!

Eoin Treacy's view -

Social media companies led an early pullback on the Nasdaq today as Facebook, Twitter and Alphabet were grilled in Washington. The questions being asked of these companies with regard to how they police their forums and the nature of the advertising being served to consumers/voters is understandably weighing on their performance. It is also leading to headlines along the lines of “technology stocks collapse” which if we look at the Nasdaq is clearly a case of hyperbole.



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September 05 2018

Commentary by Eoin Treacy

JPMorgan, BlackRock Warn of Contagion Pummeling Emerging Markets

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

Some investors have seen the selloff as an opportunity to buy on the basis of stronger fundamentals, such as easing inflation, trade surpluses and widening growth differentials between emerging and developed markets.

"One of the interesting things contagion sets up is a selloff in the weak and the strong," said Arjun Jayaraman, who helps oversee $4.8 billion at Causeway Capital Management LLC in Los Angeles. "That’s when you have to step up and buy the strong currencies, the exporting, current-account surplus countries."

Stocks from India, South Korea and Taiwan look attractive in this environment, according to Jayaraman. Amoroso said investors will eventually want to step into local debt, while Goldberg said he would prefer hard-currency sovereign debt if trade concerns ease.

That may not be on the horizon yet. Pressure on emerging markets will probably persist for now, with Turkey, Argentina, South Africa, Pakistan, Brazil and India among the weakest links, Wolfe Research strategists including Chris Senyek wrote in a note to clients. The New York-based firm said default probabilities in Asia, interbank lending markets in Europe and credit-default swap spreads from individual banks show some similarities with the 1997 emerging-market crisis, suggesting broader fragility in the asset class.

"Our EM ‘blow-up’ monitor suggests that weakness is spreading across the most vulnerable EM countries," Senyek said.

Eoin Treacy's view -

One of the reasons emerging markets are popular among global investors is because they hold out the potential to benefit from simultaneous capital and currency market appreciation as well as scope for higher yields to boost total return. However, when emerging market currencies decline they erode profit potential for these markets and foreign investors sell.



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September 05 2018

Commentary by Eoin Treacy

UN holds emergency meeting as swine fever spreads in China

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

While ASF is not a direct threat to human health it is a highly contagious viral disease that can devastate pig populations in regions where it has never before spread, including Asia. 

China has seen six outbreaks of the disease stretching from the first discovered in the country’s northeast at the beginning of August down to the province of Zhejiang, just south of Shanghai. The FAO said officials in China, which produces half the world’s pigs annually, had culled as many as 40,000 pigs so far in an attempt to control the disease.

“It’s critical that this region be ready for the very real possibility that ASF could jump the border into other countries,” said Wantanee Kalpravidh, regional manager in Asia for the FAO Emergency Centre for Transboundary Animal Diseases. “That’s why this emergency meeting has been convened – to assess where we are now – and to determine how we can work together in a coordinated, regional response”.

Eoin Treacy's view -

In an industry the size of China’s 40,000 pigs is not a large number but the virulence of the disease and the geographic spread of cases suggest that this is a situation that has the potential to represent a significant challenge for animal health authorities, particularly if it continues to spread.



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September 04 2018

Commentary by Eoin Treacy

Video commentary for September 4th 2018

Eoin Treacy's view -

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

Some of the topics discussed include: emerging market currency sell off continues with some evidence of contagion, precious metals fall in sympathy, crude oil hit a peak of near-term significance, Wall Street relative strength remains intact. bonds ease back.



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September 04 2018

Commentary by Eoin Treacy

Musings From The Oil Patch September 4th 2018

We listened to Catherine Wood, founder and CEO of ARK Investment Management, LLC, expound to CNBC anchors why her firm was adamantly opposed to Elon Musk’s proposal to take Tesla, Inc. (TSLA-Nasdaq) private.  Her argument was that ARK’s research showed that by 2023 annual electric vehicle (EV) sales would be 17 million units per year worldwide.  Tesla, because of its focus on software, its ability to collect the driving mileage of its vehicle purchasers, and its vision about Mobility-as-a-Service (MaaS), coupled with its ability to create a fleet of four million EV taxis, would be worth nearly $1 trillion, in less than five years, earning shareholders a 17-fold return from the current share price.  

The day following this interview, Mr. Musk announced he was dropping the idea of taking Tesla private.  He stated that he changed his mind because his shareholders told him that they didn’t want him to make such a move.  Was Ms. Wood one of those shareholders Mr. Musk decided to listen to?  He had spent an incredible amount of time and energy since his tweet about privatizing Tesla in preparing for the move, as well as defending himself from a Securities and Exchange Commission (SEC) investigation about possible investment fraud.  That inquiry will not go away as easily as merely changing his mind, and we have yet to hear from the plaintiffs’ attorneys.  

Eoin Treacy's view -

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

The emissions cheating scandal and the increasing utility of electric vehicles means established auto manufacturers have to spend very large sums to retool and get electric vehicles to market. Audi announced yesterday it has started production of its electric SUV and Daimler said today that it is going to spend more than €10 billion to develop its electric vehicle fleet.



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September 04 2018

Commentary by Eoin Treacy

Soon, the most beautiful people in the world may no longer be human

This article by Peter Holley for the Washington Post may be of interest to subscribers. Here is a section:

But a British company that launched in April is already marketing itself as an alternative to human models. Irmaz Models calls itself an “Imagined Reality Modeling Agency.” The company’s website says its designers can “make faces to fit” any marketing campaign. Another advantage: Digital models “never argue, need to eat, throw tantrums or get tired,” the company notes.

“Brands can specify the look they’re exactly after, down to the race, gender and hairstyle,” Philip Jay, a former Playboy photographer who founded Irmaz Models with Irma Zucker, told CNN.

Kelvin Boon, the owner of Boon Models, an agency with branches in New York and the District, said he sifts through a daily stream of modeling portfolios in search of “quality models.” Aspiring models don’t always resemble their photos, he said, and those that do often require training before they’re ready for professional work.

If credible-looking digital models emerge, he said, “it’s going to affect the industry a lot.” Why, he asked, would a brand spend thousand of dollars to hire models and photographers for a single photo shoot when you can hire an artist to create images for far less?

Eoin Treacy's view -

This is a very emotive topic and the headline above is what my daughters refer to as clickbait. People love their heroes so brands will always be on the lookout for someone they think can epitomise their image. However, there is a lot of work that is oriented towards the online market where photos are routinely doctored anyway that is ripe for digitisation. 



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September 04 2018

Commentary by Eoin Treacy

Email of the day on chasing momentum:

“I am following your comments every day with great pleasure, your summaries give me an excellent picture what is going on, thanks. Question: I missed completely all the new technology shares - google, apple etc. frustrating. you highlighted “momentum shares” - would it be too aggressive to start to invest in these tech shares NOW? please advise without responsibility on your side, off course, or what are you doing now with liquidity - I sold real estate here in Switzerland and enjoy liquidity on the account. all the best”

Eoin Treacy's view -

Thank you for your kind words and congratulations on your successful property transaction. The question of whether to chase momentum at this stage in the cycle is the same as subscribing to the greater fool theory. The other side of that argument is in the latter stages of a bull market there are plenty of fools.



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September 04 2018

Commentary by Eoin Treacy

Email of the day on the yield curve spread chart

Does the chart library provide a yield curve item? If not, can you please recommend an alternative source? Many thanks

Eoin Treacy's view -

Thank you for this question which comes up from time to time. The most expedient way of creating the yield curve spread in the Chart Library is to save the spread as a Preset template. That way any time you wish to view the spread all you need do is look at the Chart of the US 10yr Treasury yield and click on your yield curve spread template from the Chart: drop down menu. Here is a video explaining how to create the chart.



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September 04 2018

Commentary by Eoin Treacy

September 03 2018

Commentary by Eoin Treacy

September 03 2018

Commentary by Eoin Treacy

We May Be Facing a Textbook Emerging-Market Crisis

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

Total emerging-market borrowing increased from $21 trillion (or 145 percent of GDP) in 2007 to $63 trillion (210 percent of GDP) in 2017. Borrowings by non-financial corporations and households have jumped. Since 2007, the foreign-currency debt – in dollars, euros and yen – of these countries doubled to around $9 trillion. China, India, Indonesia, Malaysia, South Africa, Mexico, Chile, Brazil and some Eastern European countries have foreign-currency debt between 20 percent and 50 percent of GDP.

In all, EM borrowers need to repay or refinance around $1.5 trillion in debt in 2019 and again in 2020. Many are not earning enough to meet these commitments.

Turkey and Argentina have twin deficits (combined budget and current-account gaps as a percentage of GDP) of 8.7 percent and 10.4 percent, respectively, that require financing. Pakistan has a twin deficit well above 10 percent. Brazil, India, Indonesia, South Africa and Ukraine are at or above 5 percent on that basis. In India, if state governments are included the number approaches double figures. Those gauges are rising in China, Malaysia, Mexico, Colombia, Chile and Poland.

Then look at reserve coverage – foreign-exchange holdings divided by 12-month funding needs for the current account, short-term debt maturities and amortization of long-term debt – which measures the capacity to meet immediate foreign-currency obligations. Turkey and Argentina score 0.4 and 0.6 respectively, meaning they can’t cover their needs without new borrowings. Pakistan, Ecuador, Poland, Indonesia, Malaysia and South Africa have reserve coverage of less than 1. Chile, Hungary, Colombia, Mexico and India have coverage of less than 2. Brazil and China come in at 2.5 and 3.1 times, respectively.

Even where reserve coverage appears adequate, caution is warranted. Long-term debt becomes short term with the passage of time or an acceleration event. Forex holdings may not be readily accessible. Much of China’s $3 trillion of reserves is committed to the Belt and Road infrastructure initiative. The ability to turn U.S. Treasury bonds and other foreign assets into cash is limited by liquidity, price and currency effects. Reserve positions are notoriously opaque: In 1997, the Bank of Thailand was found to have grossly overstated available currency holdings.

Eoin Treacy's view -

Capital is both global and mobile. Quantitative easing programs did not just help to inflate asset prices in the regions the funds originated, but globally. When yields drop in region yield hungry investors are forced to look further afield for returns and emerging markets were a logical choice. That looked like a genius move until the Federal Reserve embarked on quantitative tightening which has reduced the supply of Dollars used to repay that debt.  



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September 03 2018

Commentary by Eoin Treacy

Italy Leaders Whipsaw Markets With Vows of Defiance, Reassurance

This article by Jerrold Colten and Kevin Costelloe for Bloomberg may be of interest to subscribers. Here is a section:

The coalition government’s fiscal plans have been an investor focus all summer, with bond yields pushed higher in response to the coalition government’s expensive election promises. On Friday, Fitch Ratings cited budget concerns as it changed its outlook on Italy to negative from stable -- the overall grade remains two notches above junk.

Salvini said Monday afternoon that the budget would lower taxes and respect “all the rules,” toning down his earlier rhetoric challenging the European Union’s restrictions. The Italian 10-year bond immediately rose, sending yields down about 5 basis points to 3.18 percent. That compares with 2.7 percent on June 1 when the government was sworn in.

Finance Minister Giovanni Tria is fighting to contain public spending and he said in an interview with La Repubblica that bonds will rise further when investors see the details of the 2019 budget.

“Budget stability will be respected,” he said. Tria, an economics professor drafted at a late stage of the coalition negotiations, is trying to rein in the ambitions of Salvini and Luigi Di Maio of the anti-establishment Five Star Movement, though he lacks the political muscle of the two populist party leaders. The government is due to set new public- finance and economic-growth targets by Sept. 27 and submit a draft budget to the European Commission by Oct. 15.

Eoin Treacy's view -

I can’t help but think of the exchanges going on in Italy between the leaders of the two populist parties and their finance minister as the equivalent of a British Christmas pantomime. “Oh yes, we will” to which the only riposte is “oh no you won’t.”



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September 03 2018

Commentary by Eoin Treacy

Stock Rally in India Faces Hurdles Despite World-Beating Growth

This article by Ravil Shirodkar and Nupur Acharya for Bloomberg may be of interest to subscribers. Here is a section:

About three-fourths of 50 Nifty members reported results that either beat or met earnings estimates in the June quarter, the highest proportion in at least three quarters, according to calculations by Bloomberg Quint. The “upcycle could be quite significant, a contrast to most parts of the world” as the share of corporate profits in India’s GDP is close to all-time lows, according to Morgan Stanley. For now, the rally has outpaced the outlook for profit growth, with UBS saying consensus earnings for Nifty are likely to be cut 7-8 percent.

Premium Soars
While Indian equities have traditionally traded at a premium to Asian peers because of the nation’s potential for faster economic growth, the valuation gap between MSCI India Index and MSCI Emerging Markets Index has widened to the highest in a decade, Citigroup Inc. said in an Aug. 20 note. Global uncertainties and rich valuations before a general election next year are “enough reasons to be cautious in equities,” the bank said.

Eoin Treacy's view -

India is a high growth market with a well-established domestic consumer market and is in the middle of a digital revolution following the rollout of 4G mobile internet. However, that does not mean it is immune from the occasional bout of volatility.



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August 31 2018

Commentary by Eoin Treacy

August 31 2018

Commentary by Eoin Treacy

Apple, Oracle Dump Bonds and Create $300 Billion Hole in Market

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

That wave of money, the directional change of fund flows hasn’t really kicked into gear yet,” said Saperstein, who helps manage about $10 billion, most of which is invested in corporate debt maturing in less than three years. “If the flow of money accelerates further and there isn’t enough absorption, spreads will widen.”

The cash-rich tech giants parked an increasing amount of their wealth into corporate debt in recent years as yields on safer investments like Treasuries shriveled -- a byproduct of central banks’ unprecedented efforts to keep rates low after the global financial crisis. Apple alone held more than $150 billion in corporates, exceeding some of the world’s biggest debt funds.

That started changing earlier this year after a Republican- led tax overhaul in the U.S. offered companies a break on the taxes they’d need to pay to repatriate their overseas profits.

Within the first three months, companies had already brought back a record $306 billion of dividends received from abroad, according to the Bureau of Economic Analysis. The total could reach $700 billion by year-end, according to Strategas Securities.

Eoin Treacy's view -

Removing a major source of demand from the market for anything is likely to have a knock-on effect for prices. The short-term corporate bond market is no exception and the repatriation of overseas profits is a significant issue for issuers who had been relying on big tech companies to buy their paper.



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August 31 2018

Commentary by Eoin Treacy

CIO Insights Reflections: A deeper look, demystifying Distributed Ledger Technology

Thanks to a subscriber for this report from Deutsche Bank focusing on Blockchain. Here is a section:

Blockchains and connected cryptocurrencies are probably the inventions with the most disruptive potential for the finance sector and the public since the invention of the internet.

Blockchains could revolutionize industries from the bottom-up and create new business models around a peer-to-peer community.

Bitcoin, Ethereum et al are only the first pioneer projects, whose success or failure depends on several factors like technical security, regulations and also their political impact.

As a new asset class, and one which is getting a lot of attention nowadays, Crypto Assets could be an interesting alternative to diversify portfolios. But there is an appreciable risk of major losses. Crypto Assets are in our opinion a highly speculative investment.

Economists have long been interested in the origins and uses of money, from Adam Smith, through Ludwig von Mises and on to the present day: they will now need to explore new aspects of it.

If blockchain can win trust in professional services, then it could sharply reduce the need for lawyers, accountants and so on in these traditional public or private sector functions: in other words, artificial intelligence is not the only threat to white-collar jobs.

Eoin Treacy's view -

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

I was chatting with a successful patent lawyer last week who had worked on some of the suits Samsung brought against Apple for using the finger pinch technology it developed to zoom in on photos without permission. He also related how he had spent a great deal of time working with computer game companies comparing lengthy lines of code to decipher whether a new game was patentable.

The law profession is full of this kind of grunt work that commands very high fees and which could be completed by a computer in no time at all. Additionally, when we think about the scope of what could be outsourced to the blockchain in terms of contracts and agreements then the only logical conclusion is the law profession is ripe for further disruption.



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August 31 2018

Commentary by Eoin Treacy

Can China's Government Really Limit How Long Kids Play Games?

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

Now the government wants to break up the party. The Ministry of Education is leading a plan to curtail the number of online games in the country and limit the amount of time children play games. Parents are supposed to stop their kids from spending more than an hour a day on their electronics for non-educational purposes.

But how? That’s the question for parents everywhere there are game-addicted children. The Education Ministry doesn’t offer specific ideas about techniques for stopping kids from hopping onto a computer or smartphone. Chinese parents seem likely to be just as incapable of regulating game use as parents in other countries.

“Gamers always find a way to spend more time or money than allowed,” says Serkan Toto, founder of Tokyo-based game consultancy Kantan Games Inc.

The ministry offered the game guidelines as part of a broad plan to address the growing incidence of myopia among children.

The push, personally championed by Xi, is aimed primarily at reducing nearsightedness in children and teenagers by at least 0.5 percentage point a year till 2023, according to a statement posted on the ministry’s website.

Still, the move seemed as much an admission of widespread game addiction as an assertion of policy goals. The ministry encouraged parents to send their children outside to play -- without electronics.

Eoin Treacy's view -

Some people will always worry about how much time we spend in front of devices. Whether it is watching TV or listening to music via headphones. Netflix will now ask you after a few hours if you are still watching or have fallen into a catatonic state from binge watching.



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August 30 2018

Commentary by Eoin Treacy

August 30 2018

Commentary by Eoin Treacy

Email of the day on cash on the side lines

Your mention in today’s commentary re the third psychological perception stage of the market jogged my memory about an anecdotal comment you made some time ago, probably going back at least 2-3 years. Given the time the has passed since, the exact details are a bit vague, however I recall you mentioning that you had been talking some trustees of, I think, University endowment funds, or some similar funds, and that they were at the time sitting on large amounts of cash, and were not heavily invested in the market. The implication was that despite a number of years of good returns in the stock market since the bottom in 2009, people were still nervous about returning. I wonder if you have any indication as to the current state of affairs and whether such funds have become more invested in the market or whether there is still a sizable amount of cash on the side lines. Thanks

Eoin Treacy's view -

Thank you for this question which may also be of interest to other subscribers. That meeting was approximately 1 year ago and due to the pace of bureaucratic change that particular endowment is only now getting around to progressing with changing its investment mix from 100% cash to a more balanced portfolio. 

This topic of an unloved bull market also popped in Jeffrey Saut’s missive this morning. Here is a section:



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August 30 2018

Commentary by Eoin Treacy

China's biotech revolution

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 as well as a section from it are posted in the Subscriber's Area 

China’s toxic air and rapidly aging population mean it has a higher incidence of cancer than most other countries. At the same time the country has an underdeveloped medical infrastructure, particularly beyond the tier-1 cities. There is every reason to believe China will approach the challenges of its healthcare system by co-opting the success it has had with its digitalisation so telemedicine and artificial intelligence will form part of the diagnostic process. Meanwhile the streamlining of the clinical trial system will ensure a lot more drugs make it to market. The big question for innovative teams will be how they can protect their intellectual property.



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August 30 2018

Commentary by Eoin Treacy

Nestle Wants Your DNA and Foodie Pics to Sell You Supplements

This article by Lisa Du, Corinne Gretler and Maiko Takahashi for Bloomberg may be of interest to subscribers. Here is a section:

“Health problems associated with food and nutrition have become a big issue,” said Kozo Takaoka, head of the company’s business in Japan, in an interview in Tokyo. “Nestle must address that on a global basis and make it our mission for the 21st century.” He said the wellness segment could eventually account for half of Nestle’s sales in Japan.

The investments come with the burgeoning interest in so- called nutraceuticals -- food-derived ingredients that are processed and packaged as medicine or wellness aids -- among consumers that are increasingly skeptical about mass products.

Nestle employs more than a hundred scientists in areas including cell biology, gastrointestinal medicine and genomics at the Nestle Institute of Health Sciences and has been developing tools to analyze and measure people’s nutrient levels.

“Decades in the future, all companies will probably have to be doing it,” said Jon Cox, an analyst at Kepler Cheuvreux. “The industry has probably had a setback as consumers also want natural and less processed products while adding supplements is seen as artificial or creating Frankenstein food.”

Some nutritionists are skeptical that tailored diet plans based around supplements are useful and that they may have more of a psychological effect than a medical one.

“Nestle’s program is designed to personalize diets in ways unlikely to be necessary,” said Marion Nestle, a nutrition professor at New York University who isn’t linked to the KitKat maker. “If we think something will make us healthier, we are likely to feel healthier.”

Eoin Treacy's view -

I had my 23andMe results analysed by DNAFit and their conclusion was that I process carbohydrates rather efficiently so I should eat less of them. They also pointed out something I have noticed myself which is that when I commit to a training regime I progress quickly, but when I stop I go backwards faster than most people.

I also tend to accumulate cholesterol, so I have to be very careful with what kinds of fats I consume if I want to maintain healthy levels i.e. more nuts and avocados with fewer shrimps and chicken thighs.

I have been particularly interested in the range of new products offering genetic profiling of our individual microbiomes but my conclusion is these are still very developmental in the range of insights they can offer. With that as a background I expect I am exactly who Nestle will be targeting their products at when they expand beyond Japan.



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August 29 2018

Commentary by Eoin Treacy

Video commentary for August 29th 2018

August 29 2018

Commentary by Eoin Treacy

Amazon and Alphabet Have a New Number One Fan on Wall Street

This article by Joe Easton for Bloomberg may be of interest to subscribers.

Morgan Stanley just became the biggest Amazon.com Inc. and Alphabet Inc. bull on Wall Street.

The bank upped its price targets for the tech giants’ stocks by 35 percent and 14 percent respectively on Wednesday, to levels higher than any other of the analysts surveyed by Bloomberg.

Amazon’s high-margin revenue from advertising, cloud and subscription services like Prime are growing at such a rapid pace that the Seattle-based firm’s profits should increase even further, analyst Brian Nowak wrote in a note to clients.

Meanwhile, Google parent Alphabet is still only in the early stages of monetizing the seven platforms it owns that have more than a billion users, according to New York-based Nowak.

The launch of a ride-hailing service by Alphabet’s self-driving technology unit Waymo could also spur further share gains, he said.

Both companies had already garnered a slew of price target increases after surpassing expectations for second-quarter earnings last month, and not a single analyst tracked by Bloomberg recommends selling either stock.

Amazon’s stock price has doubled over the past 12 months, trailing only Netflix Inc. and Align Technology Inc., the maker of Invisalign orthodontics equipment, in terms of percentage gains for a Nasdaq 100 index member. Alphabet has rallied about 34 percent, a bit ahead of the benchmark

Eoin Treacy's view -

One of the hallmarks of the third psychological perception stage of a bull market is analysts competing to be the biggest bull. The way to make a name for yourself when prices are rising is to come out with a forecast that is well above the consensus and send it to as many journalists as possible, arrange interviews on financial TV channels and have the entire sales force talk about it with clients.



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August 29 2018

Commentary by Eoin Treacy

The Earnings Boom Isn't Just About Lower Taxes

This article by Justin Fox for Bloomberg may be of interest to subscribers.

In the first quarter of this year, after-tax U.S. corporate profits as measured by the Bureau of Economic Analysis went up a lot (at an 8.2 percent annualized rate over the previous quarter), but pretax profits only went up a little (1.2 percent). That raised questions of whether all those great first-quarter earnings reports were mainly just the result of a one-time boost from the big corporate tax cut Congress passed in December. A lot of solid second-quarter earnings reports seemed to indicate that there was more to it than just tax cuts, and today we have the official if far from final answer from the BEA: Corporate profits are on a genuine roll.

The corporate tax bill even went up a bit in the second quarter, with pretax profits rising at a 3.3 percent annualized pace and after-tax profits at 2.4 percent. This is good news for the economic outlook — downturns and slowdowns are often preceded by dips in corporate profits — and also a sign that the corporate part of the Tax Cuts and Jobs Act may to at least a modest extent be delivering as advertised. A lot has been written about the corporate tax cuts’ failure to boost wages, which is fair given that the White House Council of Economic Advisers did promise a $4,000-per-household pay hike, but a bit premature. The tax cuts do, however, already seem to be delivering or at least coinciding with an increase in corporate profits and investment.

A longer-term view of corporate profits tells another interesting story: As a share of national income — which, unlike gross domestic product, includes income from overseas just as the corporate profits data does — pretax corporate profits are high but not as high as they were at times in the 1950s and 1960s.

After-tax profits' share of national income, meanwhile, is at a level never seen before 2010 (the BEA has annual data going back to 1929) and seemingly headed toward a new record. Leaving aside questions of who actually pays corporate taxes in the end, this shrinking of the corporate tax burden does seem at least superficially to have been a tremendous gift to shareholders over the past few decades. Wonder how long it can keep giving.

Eoin Treacy's view -

News today that corporate profits hit a new high in the 2nd quarter is further confirmation that companies continue to benefit from both the corporate tax cuts as well as the fiscal stimulus which is boosting spending.



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August 29 2018

Commentary by Eoin Treacy

What is behind the Bank of Japan's ETF buying surprise?

This article by Leo Lewis for the financial Times may be of interest to subscribers. Here is a section:

As well as its day-to-day predictability, the programme invited running assessments of how much the BoJ might spend month to month. Since its target for the year was clearly stated, it was possible to calculate how far ahead or behind the implied pace it was. In early July, for example, analysts noted that over the first 124 trading days of the 245-day trading year, the BoJ had bought ETFs that annualised at a pace of ¥7tn — or ¥1tn ahead of target.

Because of that, Travis Lundy, an analyst who publishes research on Smartkarma, said that given the extent to which the BoJ had adjusted its buying patterns over the past seven years, it was premature to arrive at the conclusion about stealth tapering after the results of just a few August sessions.

“While there is a little bit of stretch in what has often been deemed a trigger, for the moment the BoJ is still buying at a ¥5.7tn-yen-a-year pace, which is the stated policy aim,” he said.

Eoin Treacy's view -

The size of the Bank of Japan’s balance sheet continues to expand but the pace of the expansion has moderated over the last year. It is that slowing in the pace of balance sheet expansion which has given rise to the contention the central bank is engaged in a stealth taper.



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August 29 2018

Commentary by Eoin Treacy

Pound Climbs to Three-Week High as Barnier Pledges Unique Deal

This article by Charlotte Ryan, Elizabeth Howcroft and Anooja Debnath for Bloomberg may be of interest to subscribers. Here is a section:

Following Barnier’s comments, markets also moved to bet on a slightly faster pace of tightening from the Bank of England, fully pricing in an interest-rate rise in November 2019. BOE Governor Mark Carney has previously said that the central bank’s future path will be dependent on the outcome of Brexit.

With talks at a virtual impasse for weeks, the two sides are rushing to try to reach a deal on the terms of the U.K.’s withdrawal by October, although Brexit Secretary Dominic Raab said Tuesday there was some flexibility on that deadline. Raab is due to head back to Brussels for negotiations on Friday.

“Traders have become very concerned about negotiations in recent months, particularly the increased talk of no deal Brexit and these comments will at least start to alleviate those concerns,” said OANDA Europe Ltd. analyst Craig Erlam. “It does suggest that more constructive conversations can happen to find a workable solution that suits both sides, should one exist.”

Eoin Treacy's view -

The tone of commentary focusing on Brexit has been to highlight the brinksmanship the UK administration has been engaged in and that may have paid off with the EU starting to edge towards compromise.



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August 28 2018

Commentary by Eoin Treacy

August 28 2018

Commentary by Eoin Treacy

Email of the day on gold and overextensions relative to the trend mean

While trying to figure out if silver and gold have finished their current decline I decided to assess the size of the drawdown relative to 200-day SMA. Silver has a consistent pattern, in the last three years the difference between the price at the trough during the largest drawdowns and the reading of MA the same day was about $2. The current one even has a bit larger difference of $2.1 with the low of $14.33 and MA of $16.43.

Gold's pattern is less consistent, from $105 (in late 2015) to $153 (in late 2016) in the last four years, with the latest drawdown of $133: the price of $1140 at the trough with 200-day MA at about $1293 the same day.

In your opinion, do these calculations have any relevance? I just thought they can show the "size" of patience (or impatience) of investors before they begin to leave the market (sellers), enter it (buyers) or reverse their short positions into longs.

Your thoughts will be very much appreciated.

Eoin Treacy's view -

I received this email from a subscriber on the 17th which was very prescient but it turned up in my junk folder so I’m afraid I missed it. However, I believe it is well worth publishing now nonetheless.



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August 28 2018

Commentary by Eoin Treacy

Today's interesting charts August 28th 2018

Eoin Treacy's view -

Finland’s HEX Index remains in a consistent medium-term uptrend and bounced impressively from the region of the trend mean two weeks ago to test its May peak today. While somewhat overbought in the short-term a sustained move below the trend mean would be required to question medium-term uptrend consistency.



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August 28 2018

Commentary by Eoin Treacy

Facebook and Google Chase a New $1 Trillion Payments Market

This article by Saritha Rai and Anto Antony for Bloomberg may be of interest to subscribers. Here is a section:

Surendrasingh Sucharia always has a few thousand rupees in his pocket, but can’t recall the last time he used cash. The 29-year-old product manager in Bangalore uses a string of smartphone apps including ones from Google and India’s Paytm to pay for everything from $40 bags of groceries to street food that costs pennies.

A bewildering array of digital payment businesses from global names like Facebook Inc.’s WhatsApp to Google are in a slugfest to win Indian users. Warren Buffett’s Berkshire Hathaway Inc. is acquiring a stake in the company behind payments leader Paytm.

Meanwhile, a string of other big-name players are also expanding in the country’s digital payments market including its banks, its postal service, and its richest man, Mukesh Ambani.

India saw a brief spurt in digital payments two years ago when Prime Minister Narendra Modi’s government banned most of the nation’s existing bank notes, although the spike petered out as new bills were printed. But over the past year, a string of new apps have made payments increasingly easy, and the discounts and cash bonuses they offer are proving irresistible to young, urban users like Sucharia.

Credit Suisse Group AG now estimates that the Indian digital payments market will touch $1 trillion by 2023 from about $200 billion currently. Cash still accounts for 70 percent of all Indian transactions by value, according to Credit Suisse, and neighboring China is far more advanced with a mobile payments market worth more than $5 trillion.

But local players have a stranglehold on China’s digital payments space. Modi’s administration, meanwhile, has welcomed foreign firms in order to expand financial services across India.

“This kind of a promising market exists nowhere else,” said Vivek Belgavi, a Mumbai-based partner at consultancy PwC India with an expertise in financial technology.

Eoin Treacy's view -

4G is the gateway to online payments, video streaming, mobile gaming, local ads, delivery services and it is a comparatively new development for India. While it would be rash to conclude India is completely open to foreign control of its nascent online payments network, it is also more willing to accept competition than China.



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August 28 2018

Commentary by Eoin Treacy

Chinese Banks Turn to New Tool to Win Customers

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

Structured deposits offer higher returns than regular savings accounts and are tied to bets on assets from currencies to gold. They have been around for years, but the sums outstanding have soared recently. In July they stood at a record 9.71 trillion yuan ($1.42 trillion), up 52% in a year, according to data provider Wind.

Banks aren’t competing only with one another for funds, which they need to extend more loans; savers also are switching to more attractive options, such as high-yielding wealth-management products, and to money-market funds, of which the largest is Ant’s Yu’E Bao. Growth in regular deposits fell to an annual pace of 8.5% in July from double-digit rates in previous years.

While lenders still sell their own wealth-management products, they are no longer allowed to guarantee buyers’ principal or interest payments. But they can promise to protect a customer’s outlay on a structured deposit.

Eoin Treacy's view -

Chinese banks are no longer able to issue US Dollar debt and they have seen their access to credit markets cut off at every turn. This is not so much of an issue for the large systemically important banks but it is a significant issue for smaller regional lenders. Their solution has been to encourage deposits by selling structured products which carry all the same risks as those sold in places like the USA and Italy ahead of the credit crisis.



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August 27 2018

Commentary by Eoin Treacy

August 27 2018

Commentary by Eoin Treacy

Morning Tack "Leon Tuey Speaks!"

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. 

The classic yield curve referred to in the above segment is the difference between the 30-year and the 3-month yields. The more popular measure is the 10year – 2-year spread. If we compare the two measures the former tends to be less volatile and the exact timing of when they invert also tends to be somewhat different with the longer-term spread being later. However, they are both reliable lead indicators of future recessions.



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August 27 2018

Commentary by Eoin Treacy

Battle for Azeroth Smashes Launch Records as Players Return to the World of Warcraft

This article by Joel Hruska for Gizmag may be of interest to subscribers. Here is a section: 

There’s one substantial difference between Battle for Azeroth and the trajectory previous expansions have followed, however. In the past, getting into World of Warcraft meant buying the base game and paying a monthly fee. The monthly fee is still in place — WoW hasn’t gone F2P — but the only expansion you need to pay for is the latest one. If you want to play through the base game, up to and through the Legion expansion, it’s just $15 per month.

One possible reason for the change is that Blizzard might be trying to woo players into coming back and trying content they missed without requiring them to pony up a lot of cash up front. Two players recently returned to my guild for this reason — once Battle for Azeroth went live and Legion became free, they signed up to play through the expansions they’d missed and experience the content. Granted, it’s not exactly the same content as it used to be — repeated “stat squishes” to keep player HP and damage under control, combined with repeated tweaks to accelerate the leveling experience, give areas a different feel than they had the first time around, even when you’re ostensibly playing through the same content. In some ways, it’s a much better game — World of Warcraft today is far more respectful of your time than it was 10 years ago — but now that I’m leveling an alt for the first time in many years, there are moments when I miss the older game and its slower but more dangerous pacing. The lack of difficulty spikes makes for fewer teeth-clenching rage spasms, but it also makes the game easier to predict.

The 3.4M sales that Blizzard is claiming set a launch record for BfA were impressive, but not much larger than previous cycles. Both Legion and Warlords of Draenor reportedly sold 3.3 million copies in their first 24 hours. This suggests initial launch sales don’t have much prediction power when it comes to how much of the player base will stick around and for how long — Legion, which was easily WoW’s strongest expansion in years, seemed to do a good job retaining players based on how many old friends I saw show back up and stick around for years, if not the entire expansion. We’ll see if the Battle for Azeroth holds players’ interest the same way.

Eoin Treacy's view -

The free to play model for computer games is challenging legacy subscription model games like World of Warcraft where you paid a steady monthly rate for hours of running around with friends completing various tasks.



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August 27 2018

Commentary by Eoin Treacy

2030 Energy Mix: Key Regional Trends Marching Towards A Cleaner Future

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

As can be seen from the table above, the trend of energy efficiency improvements or declines in energy intensity is not uniform across time periods for various country groups or for individual countries. For developed or high-income countries, the trend is most secular with improving efficiency in every time period as we move forward in time. However, for middle and low-income countries, periods of high growth may be associated with high energy intensity, which could slow down the overall improvement rate. This is most apparent for China in the 2000-2010 timeframe, where very high GDP growth rates coincided with lower focus on energy efficiency. Energy efficiency has now picked up again in the current decade, where Chinese GDP growth has moderated and a focus on environment friendly energy practices has evolved. Move over to low-income countries like India, and it seems that improvements in energy efficiency are lower in the current decade owing to higher economic growth. Thus, the Chinese pattern could repeat for emerging countries like India, which will likely moderate the pace of energy efficiency improvements to an extent as we move toward 2030.

Eoin Treacy's view -

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

It is easy to conclude high income countries are more efficient because they are more technologically sophisticated than developing economies. The secular trend toward greater energy efficiency in high income countries and the corresponding evolution of technology is supportive of that conclusion.



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August 24 2018

Commentary by Eoin Treacy

August 24 2018

Commentary by Eoin Treacy

Powell's Speech Title Mirrors 1998 Paper Reflecting Same

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

That means sometime next year, they will raise rates above their estimates of the so-called neutral interest rate which neither boosts nor restricts economic growth -- most Fed officials believe it’s somewhere between 2.5 and 3 percent. That makes sense because, according to their models, unemployment is below their estimate of the so-called natural rate of unemployment which would keep inflation stable. In June, they believed that rate was 4.5 percent.

But the problem facing Fed officials is that even though unemployment is at the lowest levels in nearly 20 years, inflation isn’t showing many signs of a pickup.

One of the most common explanations is that policy makers’ views of the natural rate of unemployment may be too high. The error bands around those estimates are “two percentage points on either side,” Chicago Fed President Charles Evans said Aug. 9.

Eoin Treacy's view -

The big question for central bankers is not so much about headline inflation being a concern right now, but just how much of a distorting influence has quantitative easing had on asset prices, valuation models, risk metrics and the reliability of lead indicators.



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August 24 2018

Commentary by Eoin Treacy

PBOC Joins Forces With Powell to Hit the Brakes on Dollar Rally

This article by Katherine Greifeld for Bloomberg may be of interest. Here is a section:

China’s fixing adjustment in tandem with Powell’s dovish tone on price pressures fueled a decline of as much as 0.7 percent for the greenback Friday. The PBOC move to inject stability into the dollar-yuan rate will reverberate across the emerging-market currency landscape, slowing further greenback gains, according to Brad Bechtel, a managing director at Jefferies Group LLC.

“Any dollar-yuan rallies will be a lot less punchy and a lot more gradual, so it will have a dampening effect,” Bechtel said. “It provides stability to the entire Asian-EM complex. It does help cap the rally in the dollar, or at least stall it.”

The yuan has slid more than 6 percent against the greenback since mid-June as the two countries square off in a protracted trade war, helping fuel broad dollar gains and stoking the ire of U.S. President Donald Trump. The PBOC last introduced a counter-cyclical factor to the yuan’s fixing in May 2017, helping spark a 3.5 percent decline in the dollar over the remainder of the year.

Beijing had suspended use of the factor in January, a move interpreted to mean that policy makers had grown more comfortable with the yuan’s trajectory after several months of gains against the dollar.

Eoin Treacy's view -

China’s renminbi has been among the weakest currencies in the world this year and as it approached the region of the lows posted in 2016, the question many Chinese people have been asking is do they need to move money abroad?



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August 24 2018

Commentary by Eoin Treacy

Populist Wave Ousts Australia's Turnbull

This article by Michael Heath, Ruth Pollard and Enda Curran for Bloomberg may be of interest to subscribers. Here is a section:

Even in Australia, which escaped the ravages of the global financial crisis, the political center is proving to be fragile ground.

A decade of easy money since the collapse of Lehman Brothers Holdings Inc. fueled a borrowing binge that’s left Australian households among the world’s most indebted. Combined with flat wages, surging home prices and swelling immigration that’s clogged roads in major cities, many voters feel worse off even though the economy just completed its 27th recession-free year.

Those forces have spurred voter discontent with Australia’s major parties and prompted a leakage of support to fringes of the political spectrum. That helps explain how an insurgency, driven by a small group of conservative former ministers, was this week able to bring down political centrist and former Goldman Sachs banker Malcolm Turnbull as prime minister.

Their goal was to install Peter Dutton, a tough-talking ex- policeman who advocated a right-wing populism in the same vein as Brexit and the rise of U.S. President Donald Trump. He pledged to slash immigration and wind back tax reforms in order to cut electricity bills.

Morrison Wins
In the end, they failed by the narrowest of margins. Turnbull, realizing his own support had crumbled, played for time and demanded Dutton show him a signed petition from a majority of his party’s members before he would call a vote.

That gave time for one of his allies, Treasurer Scott Morrison, to work the phones and eventually win the ballot 45 votes to 40.

“Australia is yet another case of anti-establishment sentiments bubbling up politically around the world over the past few years,” said Sean Kenji Starrs, an associate professor in the Department of Asian and International Studies at City University of Hong Kong. “While Australia’s economy has fared better than many others in the OECD, like elsewhere this growth has not lifted all boats.”

Eoin Treacy's view -

When in Melbourne last April, apart from the highly enjoyable repartee with subscribers at The Chart Seminar, two encounters stuck with me. The first was with some of my cousins who run a successful property maintenance company. The eldest son has returned from spending some time overseas with his new wife and they are not yet on the property ladder. Even for people who are well to do by any standards the challenge of affording property in anything that approaches a desirable neighbourhood is a source of angst. When it is difficult for local people to afford housing that is unquestionably going to feed into discontent and populism.



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August 23 2018

Commentary by Eoin Treacy

August 23 2018

Commentary by Eoin Treacy

Global Macro Forecast - A diverging world

Thanks to a subscriber for this report from Handelsbanken 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 one certainty we have is that there are a large number of people who are not going to be happy with the result of the Brexit negotiations. The big challenge for the UK and a point which I have not seen discussed at length is that the role of manufacturing remains in a secular downtrend and the primary employment growth in the economy has been from the service sector. However, the service sector is an amorphous term which includes everything from lawyers to hairdressers and hotel cleaners.



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August 23 2018

Commentary by Eoin Treacy

Gold caught in the Trump Trade War crossfire; Stress-testing producers at $1,100/oz

Thanks to a subscriber for this report from Canaccord Genuity 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 US Dollar Index trended lower for most of 2017 and over the course of the last few months has unwound about half that decline. However, the Dollar’s relative strength against some of the most liquid emerging market currencies such as the Turkish Lira, Argentinean Peso, Venezuelan Bolivar, Brazilian Real, Chinese Renminbi is what is animating investors right now. That story is more about the weakness of their respective economies and their exposure to US Dollar denominated debt that the particular strength of the US Dollar.



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August 23 2018

Commentary by Eoin Treacy

Alibaba's Sales Surge as Jack Ma's Free Spending Bears Fruit

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

Alibaba’s been busy expanding its Hema supermarket chain and now operates 35 of those stores -- a mix of sit-down dining and groceries plus delivery hub. Much cash also is flowing into China’s $1.3 trillion food retail and services industry, where it’s trying to hold its own against delivery giant and super-app Meituan. Alibaba said Thursday it’s teaming with SoftBank to put more than $3 billion into Ele.me. Alibaba now intends to merge Ele.me with Koubei, another unit focused on connecting restaurants to the internet.

Ma is also spearheading an expensive foray into the $4 trillion retail sector. Alibaba acquired a department store chain with 29 stores and 17 shopping malls last year and also bought a slice of China’s largest hypermarket chain. It’s been shelling out on content for its Youku video-streaming service to stay abreast of Tencent and Baidu Inc. And heavy investment in datacenters for its cloud computing arm helped almost double revenue in that division to 4.7 billion yuan.

However, those burgeoning businesses may be helping mask a slowdown in Alibaba’s bread-and-butter business, said Steven Zhu, an analyst with Pacific Epoch.

Customer management revenue -- the lucrative fees it charges for helping merchants with marketing -- grew just 26 percent in the quarter, from 35 percent in the previous three months. That reflects how rivals such as JD.com Inc. and Pinduoduo Inc. are siphoning off Alibaba’s merchants and may affect the bottom line in coming quarters, Zhu said.

“This is probably the slowest growth ever,” he said. “They are swapping high-quality revenue with low-quality revenue.”

Eoin Treacy's view -

Amazon bought a supermarket chain so Alibaba bought a supermarket chain. The USA has Grubhub so Alibaba bought ele.me and is also getting into the broader retail sector through the purchase of a department store chain. There is no denying that these are more conventional businesses than the high growth online expansion that fuelled Alibaba’s initial growth spurt. The fact the company is also talking about primarily focusing on the Chinese domestic market raises questions about its commitment to overseas expansion.



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August 22 2018

Commentary by Eoin Treacy

Video commentary for August 22nd 2018