Investment Themes - General

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

Search Results

Found 1000 results in General
April 23 2018

Commentary by Eoin Treacy

Video commentary for April 23rd 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: Dollar experiencing a broad based rebound, Treasury yields testing the upper side of their seven-year range, high yield ETFs rolling over, FANGs under pressure, commodities pull back, emerging markets susceptible to mean reversion.



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

Commentary by Eoin Treacy

Email of the day on what to own in the latter stages of a bull market

Hello Eoin, Whatever age you happen to be, it is always salutary to lose a parent. A constant pillar in one's life has gone and no more questions can be asked. It brings into relief one's own fragility and mortality in a way that few, if any, other deaths will do. I hope your mother's passing was a comfortable one. My condolences to you and your family.

While it is probably improper to revert immediately to business, I am sure you will want to re-immerse yourself in the observation and interpretation of markets without delay. On this basis, I have a question:

Given that we believe we are heading for monetary contraction, a rise in interest rates and accelerating inflation how should we be positioning portfolios? Banks and resources should be well bid for the time being and Japan should benefit from inflation.

But how about India, China and the other economies of North and South East Asia? What sectors and markets are best avoided? At what point does one accumulate cash? Gold is much talked about as an inflation hedge but that will be a shooting star - it might soar in the near future but it will then weaken once more. It is to be regarded as a hedge or a trade, not as an investment - at least that's my view.

In my own portfolio, I've trimmed China and India, reduced or eliminated high flying 'big-tech' stocks (but not touched PCT), increased my Japan weighting and increased cash. I'm probably underweight gold. I plan to accumulate more cash but at this stage, I've no idea what holdings I shall reduce or sell over the coming months. Providing one is not losing money, investment is fun but over the next two or three years, I suspect there will be plenty of opportunities to lose money which we should try to avoid. It's a tough time for you and you have plenty on your plate but if you care to comment on these musings it would be much appreciated. All best.

Eoin Treacy's view -

Thank you for your condolences. The outpouring of warmth and compassion from subscribers has been enormously gratifying for my whole family and I. My mother’s passing leaves a hole in the wider family, since she was the matriarch in no uncertain terms, but it has also encouraged us all to work harder at communicating.

This is a detailed question and there is no one simple answer. I’ll attempt to more fully explore these issues over the course of the next few days and weeks but here are some of my current thoughts.



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

Commentary by Eoin Treacy

Is there any venom left in the FANGs?

Eoin Treacy's view -

This is the kind of market where it feels like everything can change in a day, not to mind being absent for three days. I won’t be buying another Apple phone until my current version dies. I suspect the vast majority of people are of the same opinion. Sometimes, what you have is good enough, when the upgrade costs somewhere in the region of $700.



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

Commentary by Eoin Treacy

Trade War and its effects on commodities

Thanks to a subscriber for this report by Barnabas Gan from OCBC which may be of interest. Here is a section:  

Eoin Treacy's view -

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

Fears about trade wars are ebbing and flowing with optimism a détente will be reached one week superseded by fears tit-for-tat measures will deteriorate further the next. The banning of ZTE from selling phones in the USA is an escalation while the potential for Mnuchin to visit China is seen as a positive. What this suggests, at least to me, is this is an ongoing situation which is still some way from a resolution. If that is the correct assumption then it is not ideal for investor sentiment.
 



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

Commentary by Eoin Treacy

Long-term themes review April 10th 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.

Here is a summary of my view at present:



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

Commentary by Eoin Treacy

Eoin's personal portfolio April 11th 2018

April 17 2018

Commentary by Eoin Treacy

April 17 2018

Commentary by Eoin Treacy

April 17 2018

Commentary by Eoin Treacy

April 17 2018

Commentary by Eoin Treacy

April 17 2018

Commentary by Eoin Treacy

Email of the day on the underperformance of the Topix 2nd Section Index

I have noticed re the Japanese charts that the Topix second section now seems to be leading on the downside having broken through the 7000 level. Should this be a concern?

Eoin Treacy's view -

The Topix 2nd Section was a topic of conversation at The Chart Seminar over the last few days.

It has been a reliable lead indicator for the market for as long as I can remember and it will need to bounce soon to confirm support in the region of the trend mean.



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

Commentary by Eoin Treacy

The de-dollarization in China

This article by Giancarlo Elia Valori for ModernDiplomacy.eu may be of interest to subscribers. Here is a section:

As further sanction, the United States has removed Iran from the SWIFT network, the well-known world interbank transfer system, which is also a private company.

Iran, however, has immediately joined the Chinese CIPS, a recent network, similar to SWIFT, with which it is already fully connected.

Basically China’s idea is to create an international currency based on the IMF’s Special Drawing Rights and freely expendable on world markets, in lieu of the US dollar, so as to avoid “the dangerous fluctuations stemming from the US currency and the uncertainties on its real value “- just to quote the Governor of the Chinese central bank, Zhou Xiaochuan, who will soon be replaced by Yi Gang.

In the meantime, Russia and China are acquiring significant amounts of gold.

In recent years China has bought gold to the tune of at least 1842.6 tons, but the international index could be distorted, as many transactions on the Shanghai Gold Exchange are Over the Counter (OTC) and hence are not reported.

Again according to official data, so far Russia is supposed to have reached 1857.7 tons.

Both countries have so far bought 10% of the gold available in the world.

Meanwhile, Saudi Arabia has already accepted payments in yuan for the oil sold to China, which is its largest customer. This is a turning point. If Saudi Arabia gives in, sooner or later all OPEC countries will follow suit.

Eoin Treacy's view -

I find these arguments about the petrodollar to be very interesting. The establishment of the Dollar’s dominance in global trade was a masterstroke of diplomacy when the Saudi Arabians agreed to exchange Dollars for investment opportunities and military security. However, that was also at a time when the importance of oil to the global economy was growing.



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

Commentary by Eoin Treacy

April 16 2018

Commentary by Eoin Treacy

Netflix Tops Estimates for Quarter, Projects Continued Gains

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

Netflix Inc. posted its strongest start to a year since the company went public 16 years ago, thanks to strong growth in markets across Latin America and Europe.

The company added 7.41 million subscribers in the first quarter of the year, according to a company statement Monday, easily topping analysts’ projections of 6.35 million. Netflix now has 125 million paying customers, the most of any online TV network.

The company, the best-performing stock in the S&P 500 this year, is proving one quarter at a time that investors’ confidence in its online TV service has been justified. Netflix is using its growing subscriber base and deep pockets to poach talent from the biggest program suppliers and build a Hollywood studio for the internet age.

Shares of Netflix rose as much as 8.3 percent to $333.21 in extended trading after the results were announced. The stock fell 1.2 percent to $307.78 at the close in New York and is up 60 percent this year.

Netflix said first-quarter profit rose to 64 cents a share, up from 40 cents a year earlier and meeting analysts’ projections of 64 cents. Sales for the quarter grew 40 percent to $3.70 billion, compared with Wall Street projections of $3.69 billion.

 For the current quarter, Netflix is predicting earnings of 79 cents and revenue of $3.93 billion. That compares with analysts’ estimates of 65 cents a share in profit and sales of $3.89 billion.

Eoin Treacy's view -

Netflix came out with earnings immediately after the close and successfully added more subscribers than it was forecasting while earnings were as expected. The company has also made clear it intends to fund additional growth with debt and cashflows will be negative for the foreseeable future.  

 



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

Commentary by Eoin Treacy

Seeking Value in Cryptocurrencies

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

April 16 2018

Commentary by Eoin Treacy

Historical charts of gold

History is not repeated but it does tend to rhyme. One of the biggest factors behind gold’s advance from the early 2000s was because of a lack on faith in the ability of fiat currencies to hold their value. The growth of markets like China and India then contributed an additional demand driver.

I am intrigued by the similarity in the saucering base formations gold put in during the early 2000s and what it is doing now. History need not repeat itself but these charts are certainly evidence that this is not the first-time gold has put in a lengthy period of ranging.

Smaller gold miners like St Barbara, Evolution Mining are outperforming at present as production ramps up and costs are kept under control.

April 13 2018

Commentary by Eoin Treacy

April 13 2018

Commentary by Eoin Treacy

The Great Cycle Debate

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

Eoin Treacy's view -

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

A section from the full report is also posted in the Subcsriber's area. 

Everyone was conditioned to expect crashes. The one thing everyone in the financial community, who has been around for more than a decade at least, has vowed is not to be caught on the wrong side of a crash again. That contributed to a lot of trading in and out of position in the aftermath of the credit crisis. That’s the first psychological perception stage of the market: disbelief.

More recently the argument that it is impossible to beat the market and that the only way to participate is with ETFs has been gaining ground. That coincides with the evolving psychological condition to accept the bullish hypothesis and to just stay long, in other words buy and hold. That’s the second psychological perception stage of the market: acceptance.

Then the market accelerated into the January peaks as people extrapolated the trend and felt they needed to buy in order to avoid losing out later. That has contributed to the corrective phase the market is now in because so much good news was priced in there wasn’t much left over. That’s the third psychological perception stage: euphoria.

This will form a major part of the conversation at The Chart Seminar in Melbourne on Monday and Tuesday next week.

So what next?



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

Commentary by Eoin Treacy

Chinese fans of banned parody app find each other offline using secret codes

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

Now that a popular parody and meme app in China called “Neihan Duanzi” has been shut down and its social media account on WeChat got deleted, fans of the app are gathering in solidarity offline in subtle protest.

Drivers are honking at each other in code to indicate that they’re fans, The New York Timesreports. A coded message might be a car honk, followed by a pause, and two more honks.

This week, while in the US Congress was slowly grilling Facebook CEO Mark Zuckerberg, in China, regulators brought down swift bans on offending news apps and social media apps. On Monday, China banned several big news apps including Jinri Toutiao, owned by Beijing-based Bytedance Technology. Then, the following day, authorities shut down Neihan Duanzi, a platform for users to share parody skits, citing vulgar content on the platform that “triggered strong resentment from internet users.”

Toutiao’s CEO, Zhang Yiming, issued an apology letter soon after for “publishing a product that collided with core socialist values.” While Toutiao is expected to return online by April 30th, Duanzi has been permanently shut down, according to an April 10th statement from its site. China had previously banned video spoofs and parodies in a March directive, a lot of which appeared on Duanzi.

Eoin Treacy's view -

Here is a link to a YouTube video showing the numbers of cars honking out tunes on Chang’an avenue (Beijing’s equivalent of the Champs Elysees leading up to Tiananmen Square) over the last couple of nights.



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

Commentary by Eoin Treacy

Banks Delivered on Earnings. So What Gives, Investors?

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

Now interest rates are rising and the money should be rolling in. But the story isn't playing out like the bank executives said it would, and investors are taking notice. The banks don't seem to be getting the benefit from higher interest rates that investors once imagined they would. Yes, interest income rose more than 10 percent in the quarter for JPMorgan and Citigroup, but interest expenses were up in the 50 percent range.

Investors can point to three reasons for disappointment. The first is loan growth, or rather the lack of it. Low unemployment and a continued rising economy and stock market, especially in an expansion as long as this one, should produce a surge of lending. The tax cut was supposed to amplify that jump. Instead, lending at the largest bank, JPMorgan, rose just 0.2 percent in the first quarter from the previous three months. Wells Fargo's loans dropped by 1 percent, though some of that can be attributed to the bank's particular problems. Citigroup's lending was up 1 percent, but that stemmed largely from a push to expand its credit card business, which hasn't been going so well. In the first quarter, the bank had to increase its provision for losses in it retail-branded cards by 16 percent. Yes, analysts were predicting that lending would be relatively weak, but it was even weaker than many forecast.

Eoin Treacy's view -

The banking sector is a liquidity provider and tends to do well in a bull market because demand for liquidity increases. However, it was also the epicentre of risk in the last crisis so the liquidity provision function has been impaired during this recovery not least because wages have not kept pace with asset prices.



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

Commentary by Eoin Treacy

April 12 2018

Commentary by Eoin Treacy

Metal Matters

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

Funds turn buyers again on Comex
The net long fund position (NLFP) has up until recently been declining, but this has mainly been a result of stale long liquidation, as seen by the drop in the black line in the chart above. But, while the longs have cut exposure (until recently); shorts have not been getting bearish, as seen by the declining red line. This has suggested longs have grown impatient as Gold prices have failed to break higher, but lack of upside has not encouraged bears to increase exposure. More recently, fund longs have started to increase exposure again. The gross long fund position has climbed to 259,032 contracts as of 27th March, from a recent low of 223,882 contracts. The NLFP has returned to 203,354 contracts from a low of 148,731 contracts on 20th March. This latest change was driven by 35,150 contracts of fresh buying and 19,473 contracts of short-covering.

Investors increase exposure to ETFs
Holdings in Gold ETFs are edging higher with investors adding 18.5 tonnes in March. Holdings now stand at 2,162 tonnes, up some 39 tonnes so far this year. Holdings averaged 2,068 tonnes in 2017. Given the lukewarm investor interest in Gold ETFs, it may be that the market is waiting for prices to break higher above the $1,366-$1,388/oz resistance area before increasing exposure.

Eoin Treacy's view -

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

ETF Holdings of Gold have shown surprising resolve over the last 18 months. The fact that all those long positions, opened when gold rallied to break its downtrend in 2016, hung around until now, and are adding to the total outstanding long position, is a testament to the bullish interest in the metal. Considering how volatile the price has been over the same period this is a particularly noteworthy development.



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

Commentary by Eoin Treacy

Email of the day on guest publications and lithium miners

What are your current views on lithium and lithium miners?

I continue to enjoy your tour de force reporting and analysis. Nothing stops you, not even airline travel. Amazing.

Eoin Treacy's view -

Thanks for this question which I’m sure will be of interest to other subscribers. It’s been a busy few weeks, what with an enjoyable and educative trip to Japan last week and the upcoming flight to Melbourne for The Chart Seminar and another conference next week, where I’m looking forward to chatting with Marc Faber.

Sometimes I look back with a sense of yearning on the days when David could still take a month off in August to cycle from Land’s End to John O’Groats and back again. In fact, part of the reason he brought me onboard in 2003 was to ensure the service could move to a seamless daily publication schedule.

I’m beginning to think about how to arrange taking a holiday over the summer. David used to invite guest writers to contribute copy to the site when he was away and I would like to do the same thing while I am away for perhaps two weeks in July or August. If any subscribers are interested in submitting an article during that time please let me know and I would be happy to discuss the conditions under which that might be appropriate.

Now let’s turn to lithium miners.



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

Commentary by Eoin Treacy

Pound Holds Four-Day Gain Amid Seasonal Flows: Inside U.K.

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

“The pound is performing well and holding its own” amid factors including seasonal flows and a broadly weak dollar, Mizuho’s head of hedge-fund sales Neil Jones said in emailed comments. “Meanwhile, the latest news flow suggests a possible swing toward a softer Brexit”

Some U.K. government officials think quitting the customs union in order to strike free trade deals with countries outside Europe may not be the best strategy, according to a new analysis

Eoin Treacy's view -

There is an increasing chance that the “deal” which the May administration will deliver to Parliament is going to give the EU the vast majority of what it wants. That means continued oversight by the European Country of Justice, participation in the Customs Union and continued contributions to the EU coffers with little leeway to negotiate trade agreements with the rest of the world, all while giving up the ability to influence EU policy. The UK will probably get greater control over its borders and perhaps agriculture and fisheries policy as well as continued access for its financial services sector, which is essential for the City.



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

Commentary by Eoin Treacy

April 11 2018

Commentary by Eoin Treacy

Trump Warns Russia to `Get Ready' as Syria Missiles Coming

This article by Daniel Flatley, Gregory Viscusi and Donna Abu-Nasr for Bloomberg may be of interest to subscribers. Here is a section:

President Donald Trump said relations with Russia have never been worse and warned Moscow to “get ready” for a U.S. missile strike on Syria over a suspected chemical weapons attack.

“Russia vows to shoot down any and all missiles fired at Syria. Get ready Russia, because they will be coming, nice and new and “smart!,” Trump wrote on Twitter. “You shouldn’t be partners with a Gas Killing Animal who kills his people and enjoys it!”

Trump’s remarks weighed on investors already concerned about war. Oil prices surged to the highest level in more than three years in New York. Turkey, which has troops in Syria, saw its currency weaken to a record, while the Borsa Istanbul 100 Index for stocks reversed gains to drop 1.3 percent. Saudi Arabia’s main stock index also extended its decline.

Eoin Treacy's view -

Syria hosts Russia’s only Mediterranean naval base. That is a piece of real estate the country will do everything it can to protect which is why it has been such an active supporter of the Assad regime.

The Obama administration’s so-called red lines were shown to mean nothing and that may have emboldened protagonists in the region to employ even more aggressive tactics since it increased the perception of impunity.



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

Commentary by Eoin Treacy

Email of the day on inflationary expectations

I'm starting to think more and more that we are likely heading into an environment of inflation and slow growth - Stagflation. I emailed you back on February on this topic. Thought you would enjoy this interesting note attached from Ben Hunt’s “Epsilon Theory”.

Eoin Treacy's view -

Thank you for this edition of Ben Hunt’s letter which is always an entertaining read. Here is a section I found educational:

The inflation narrative hit markets in force after the January jobs report of February 2, where wage inflation came in “hot”. It subsided with the “Goldilocks” jobs report of March 9, where wage inflation was “contained”, and the jobs report of April 6 did little to reignite the inflation narrative. But here’s the thing. The wage inflation numbers for the past two months are wrong, crucially flawed by random differences in work-week hours from last year to this year (for more, read “The Icarus Moment”). On an apples-to-apples basis (average weekly earnings, not average hourly earnings), wage inflation in February was 2.9%, not the reported 2.6%, and wage inflation in March was 3.3%, not the reported 2.7%.

My view: the inflation narrative will surge again, as wage inflation is, in truth, not contained at all.



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

Commentary by Eoin Treacy

High-Flying Tiny Satellites Could Get Boost From FCC

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

New FCC rules could entice small satellite operators, such as Planet Labs Inc. and Pumpkin Inc., to expand the use of their devices and attract more customers and investors. They could also prompt other industries to consider using less-expensive satellites to comb the planet for profit-boosting opportunities—from insurers busting fraudsters to farmers tracking crop changes.

The interest in small satellites—which can range in size from postage stamp to small refrigerator—has grown rapidly in recent years. There were 335 small satellites launched in 2017, six times the total in 2012, according to a 2018 report from consultancy Bryce Space and Technology. Small satellites typically hitch a ride on rockets with other items, and their stints in space are short.

“More satellites mean more regulatory reviews. Hence the problem: our current regulations weren’t designed with these smaller satellites in mind,” FCC Chairman Ajit Pai wrote in a March 26 blog post.

The agency’s proposal also raises the question of space junk, a term that refers to millions of used fragments of rockets and satellites that crowd earth orbits. Loosening rules to allow more satellites, even small ones, could heighten such concerns.

The FCC, in its deliberations, will address “limiting orbital debris,” Pai said in the blog.

The measure is “reflecting the state of the industry—it’s changing,” Lisa Ruth Rand, a technology historian who researches space debris, told Bloomberg Law.

Regulators should keep in mind that extremely small satellites—too small for tracking technology to detect—can endanger other satellites and cause crashes, Rand said. “Hopefully these regulations will acknowledge the fact that, very literally, the landscape of outer space is changing,” she said.

Eoin Treacy's view -

The evolution of nanosatellite technology represents a significant enabler for data accumulation, monitoring, under developed countries to skip whole stages of development and for global technology companies to gain access to markets they are currently blocked from.

 



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

Commentary by Eoin Treacy

3 Days until the Melbourne Chart Seminar

Eoin Treacy's view -

The first venue for The Chart Seminar in 2018 will be:

Melbourne on April 16th and 17th. .  

I will also hold an online seminar, probably in May over the course of three or four days.

There will be another Seminar in London in November and I am 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 [email protected]  

The full rate for The Chart Seminar is £1799 + VAT. (Please note US, Australian and Asian delegates, as non EU residents are not liable for VAT). 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.



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

Commentary by Eoin Treacy

April 10 2018

Commentary by Eoin Treacy

Xi Warns Against Returning to a 'Cold War Mentality'

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

“Human society is facing a major choice to open or close, to go forward or backward,” Xi told hundreds of investors gathered on the resort island of Hainan, in a speech that didn’t mention Trump’s name. “In today’s world, the trend of peace and cooperation is moving forward and the Cold War mentality and zero-sum-game thinking are outdated.”

Trade talks between the world’s biggest economies broke down last week after the Trump administration demanded that China take steps to curtail support for high-technology industries, a person familiar with the situation said. The conciliatory tone of Xi’s speech helped bring risk appetite back to Asian markets as shares from Sydney to Hong Kong rose alongside oil and metals and Treasuries extended declines with gold and the yen.

Eoin Treacy's view -

As soon as Mrs. Treacy’s old school friends have children she gets a friends request on WeChat. They begin planning at birth to send their child abroad to be educated. Only last week she was approached to be a guardian for one child about to enter high school and to help arrange a scouting trip for another family whose son is now five.



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

Commentary by Eoin Treacy

Saudi Arabia Is Said to Signal Ambition for $80 Oil Price

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

Saudi Oil Minister Khalid Al-Falih has also sounded increasingly hawkish in public, suggesting that OPEC should keep tightening the oil market even through the cartel is close to meeting its goal of cutting crude inventories in industrialized countries back to their five-year average.

In an interview in New York last month, he said today’s price near $70 a barrel hadn’t been sufficient to stimulate investment in the industry, which remains significantly below levels seen before 2014’s price crash.

"That tells me that the pricing signals that have come out of the recovery haven’t been sufficient," he said, without giving a target for prices.

The Saudi Ministry of Energy didn’t immediately respond to a request for comment.

Domestic Policy
Riyadh’s desire for higher prices is driven by domestic policy imperatives. Although Saudi Arabia’s budget deficit has narrowed sharply as oil has recovered, Prince Mohammed has set out an ambitious and expensive economic and social reform program. He also needs to pay for the kingdom’s increasingly drawn-out military entanglement in Yemen.

While there’s little indication the Saudis are prepared to deepen their oil cuts to achieve $80, at the very least the aspiration suggests they’ll keep with the current measures until the price goal is closer. Riyadh is counting on declining Venezuelan oil production, the likely imposition of new U.S. sanctions on Iran, and continued demand growth to absorb U.S. shale production.

Eoin Treacy's view -

In addition to sanctions on Iran, the deteriorating relationship Europe and the US have with Russia is exerting an influence on oil prices which closed above $70 today and in dynamic fashion. That is going to act as an incentive to increase supply among various higher cost producers such as shale properties, tar sands and deep water, though that supply is going to take time to come to market.

 



This section continues in the Subscriber's Area. Back to top
April 09 2018

Commentary by Eoin Treacy

Video commentary for April 9th 2018

Eoin Treacy's view -

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

Here are some of the topics discussed: the sheer number of new news items, some major emerging market currencies breaking down, Wall Street fails to hold its initial rally, many markets in the region of their trend means, Megacap tech under pressure, agriculturals with base formations, 



This section continues in the Subscriber's Area. Back to top
April 09 2018

Commentary by Eoin Treacy

Two major crop scourges are hybridizing to produce a new mega-pest

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

Helicoverpa armigera, commonly known as the cotton bollworm, and Helicoverpa zea, the corn earworm, are two types of very hungry caterpillar that cause billions of dollars of damage to crops every year. Corn, cotton, tomato and soybean are just some of the many crops these pests can attack, with the cotton bollworm having developed resistance to all pesticides targeted at it.

In 2017, an eight-year project that mapped the entire genome of both caterpillars was completed. The study was designed to help researchers identify specific genes that cause the pests to become resistant to pesticides. A new paper has now been published showing evidence that the two moths are clearly hybridizing in a variety of novel ways.

"No two hybrids were the same suggesting a 'hybrid swarm' where multiple versions of different hybrids can be present within one population," says one of the researchers on the study, Tom Walsh.

Eoin Treacy's view -

A plague of locusts, let alone moths, is not currently a problem. However new varieties of insects that are immune to the most commonly used pesticides represents a threat to supply. That’s an important consideration for crop prices particularly since oversupply has resulted in the sector underperforming the broader commodity complex over the last few years.



This section continues in the Subscriber's Area. Back to top
April 09 2018

Commentary by Eoin Treacy

China Is Said to Study Yuan Devaluation Amid U.S. Trade Spat

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

The analysis doesn’t mean officials will carry out a devaluation, which would require approval from top leaders, the people said, asking not to be named as the information is private.

“It seems as if Beijing is showing the full extent of policies they could deploy,” said Viraj Patel, a strategist at ING Bank NV in London.

The yuan weakened as much as 0.2 percent to 6.3186 per dollar in onshore trading on Monday, before trading little changed as of 5:49 p.m. local time. China’s central bank didn’t immediately respond to a faxed request for comment.

While Trump regularly bashed China on the campaign trail for keeping its currency artificially weak, the yuan has gained about 9 percent against the greenback since he took office and has been steady in recent weeks despite an escalation of trade tensions between the world’s two largest economies. The Chinese currency touched the strongest level since August 2015 last month.

Eoin Treacy's view -

Anyone who has been to China will not be surprised to learn that bargaining is part of the culture. I’m never prouder of Mrs. Treacy when I see her in full flight laughing and joking with sellers while also getting the best possible price and the feeling that an equitable deal has been struck by the end of negotiations. It is only by succeeding in negotiations with factories that she has been able to achieve the lowest price on Amazon for her bestselling products. The point I am aiming to make is that in China the art of the deal is engrained in the culture and in order to succeed the US negotiating team is going to need to have a very clearly defined set to objectives and what it is willing to give up.



This section continues in the Subscriber's Area. Back to top
April 09 2018

Commentary by Eoin Treacy

Britons Back Holding a Vote on May's Brexit Deal

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

Those saying the public should have the final say on whether to accept the Brexit deal or remain in the European Union exceeded opponents by 8 percentage points, according to the poll results released on Monday by the group, whose funders include billionaire investor George Soros. Respondents said they would opt to remain in the bloc if given a second referendum.

The survey results pose a dilemma for May, who in December was forced into conceding a vote on her Brexit deal to lawmakers following a rebellion by members of her own Conservative Party. But after previous polls showed there was no appetite for a second referendum on Brexit, she’s been able to fend off demands for a new vote amid tricky divorce talks with her EU counterparts.

“The possibility of Brexit is sharpening the British public’s minds, and now there is a decisive majority in favor of a final say for the people of our country on the terms of Brexit,” said Best for Britain Chief Executive Officer Eloise Todd.

Eoin Treacy's view -

I know if I was living in the UK I would want a second vote. After all the initial question was “Should the UK remain a member of the European Union or leave the European Union”. That is a very polarising question and the answer from the public was 51.9% in favour which of course means 48.1% did not get what they wanted.

That has resulted in what can generously be described as a fudge. When the question is so black and white and the Party in power has a rather tenuous grip then they have to try and please everyone which is going to result in anything but a conclusive deal. The UK has already conceded on its so-called red lines and could realistically come back with a deal that ensures it is a rule taker from the EU far into the future while also paying into its coffers.



This section continues in the Subscriber's Area. Back to top
April 09 2018

Commentary by Eoin Treacy

If you traded crypto on Coinbase, the IRS might be coming for you

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

Shockingly, the IRS has not updated its policies on crypto taxes since they were written in 2014. The following year, only 804 Americans declared taxes on crypto gains—despite an estimated 500,000 to 1.2 million people owning bitcoin that year. Add another three years of taxes, and that’s a lot of money that is owed.

Many people currently wrestling with their returns don’t know that they’re meant to declare their bitcoin earnings. And there’s no one to tell you: When filing taxes online through US websites like TurboTax or H&R Block, there isn’t a checkbox that asks if you sold cryptocurrency that year. And as cryptocurrency is written on top of blockchain technologies, which is an immutable public ledger, it’s likely that tax fraud will become harder to get around in a future dominated by crypto.

So let this be a warning: Declare all your wallets, even the ones the IRS can’t yet see.

Eoin Treacy's view -

Bitcoin remains in a bear market but is likely to continue to remain under pressure for at least the next week as investors weigh how to account for the bumper return bitcoin posted in 2017. The price peaked in December and quickly fell from $19,511 to $10,775 but it started the year at $994.



This section continues in the Subscriber's Area. Back to top
April 09 2018

Commentary by Eoin Treacy

Long-term themes review March 23rd 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.

Here is a summary of my view at present, particularly in view of the events that have transpired this week:



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

Commentary by Eoin Treacy

April 06 2018

Commentary by Eoin Treacy

April 06 2018

Commentary by Eoin Treacy

Japan Trip Report

Eoin Treacy's view -

My daughters love visiting Japan. They adore anime and manga, and no they are nor the same thing, I’ve been reminded more than once. They love the cutsie culture coupled with the storytelling and fact that a lot of the topics covered are more mature in nature than they would be conventionally exposed to at home.

In my 10-year old’s class there are two things that every child, regardless of background, intelligence or wit loves; slime and squishes. Slime has turned every girl in the nation into a chemist and our house is full of the products my daughter has concocted from mixing varying quantities of Elmer’s glue and borax and lotion. I’m really hoping that one is a phase, the stuff is gross to my eyes. The other thing they love are Squishies. These are what many of us might think of as stress balls. The most popular are Japanese because they are of higher quality and return to their shape slowly. If you can bare it simply plug Squishies into YouTube.

Squishies, anime and manga, robotics and a range of other genres highlight the fact that Japan is still capable of capturing the imagination of popular culture. Against that insight more than a few people told me that the country is managed for old people. It is a common sight to see nonagenarians being wheeled around by their sexagenarian offspring. Massage and pain treatment for backs, necks and knees are some of the most common store fronts. Something politicians and the general public are only beginning to get grips with in Europe and North America is that older people are reliable voters and are jealous of their pensions and senior perks.



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

Commentary by Eoin Treacy

April 05 2018

Commentary by Eoin Treacy

Digital 49'ers: A look into the state of cryptoasset mining

Thanks to a subscriber for this report from Canaccord which I found to be one of the more comprehensive educative pieces I have read. Here is a section:

Regarding the future outlook of bitcoin miners generally speaking, our analyses above and conversations with multiple mining-focused companies indicate that as miners continue to enter the market and raise competition levels for block rewards and transaction fees, margins will as a result compress for all participants in the mining ecosystem. While this will allow the most efficient miners in bitcoin’s network to continue to operate at relatively healthy profitability levels, less efficient mining companies are likely to face considerable pressure in this future setting of higher mining difficulty and hashrates. As a result, our expectation is that we will see the less-efficient mining companies begin to diversify their businesses sooner rather than later in one of several ways. In particular, we expect that some miners will diversify their portfolio of cryptoassets that they mine to altcoins beyond bitcoin, while others will pursue different lines of businesses altogether, e.g., cryptoasset exchanges or advisory services. 

Eoin Treacy's view -

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

Bitcoin remains one of the most volatile assets in the world, digital or otherwise. It has been in a bear market since late last year and it is as yet uncertain whether the lows are in. The wild jumps and collapses in cryptocurrency prices have been chastening to many investors who must now be asking whether there is a better way of making money from what is a rapidly evolving sector where there are likely going to be more losers than winners.



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

Commentary by Eoin Treacy

Laying Down the Groundwork for a Knowledge-Led Society: Policy and Practice

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

Africa is increasingly becoming a generator of knowledge, innovation, creativity and technology, rather than being solely an adapter of trends produced elsewhere in the world - like it was mostly the case in the past. There is no doubt that this trend must not only be encouraged by African Governments, but it must also be accelerated with the implementation of specific proposed public policies. Why? Because the knowledge and creativity-based development model renders obsolete all other models of development as it has a unique feature that none of the other models does: its entire bedrock rests on bringing self-sufficiency, independence and self-generating mechanisms of well-being gains enshrined in each domestic economy, and that is for the entire African continent. The knowledge-based development model can charter new territory for Africa – a territory where it has never succeeded in going before - a territory where an extremely knowledgeable, creative, skilled and educated young and dynamic African population combined with the implementation of science/evidence-based public policies by African leaders, finally brings societal well-being, that is well-being to every single citizen, on the continent. The knowledge-based development model can do so in two specific ways: 1) it can ensure the continent’s self-sufficiency, independence and self-generating mechanisms of well-being gains for all segments of its population rather than depending on outside help, and 2) it can, once and for all, lift all African countries out of the natural resources curse2 or the Dutch disease or the paradox of the plenty by ushering them into an era where endowment in two new kinds of natural resources – namely knowledge and creativity -- is more closely correlated with societal well-being compared to endowment in oil and other natural resources.

Eoin Treacy's view -

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

Africa is often considered as a whole but is a continent replete with different languages, cultures and traditions that are as valuable and varied as anywhere else. There are obviously countries that are more successful than others and the record of improving standards of governance is patchy at best. I look forward to a time when any mention of the Africa does not require a preamble.



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

Commentary by Eoin Treacy

Email of the day on programming errors in autonomous vehicles

Now here's a thought from your friendly local software expert: Microsoft Windows has approximately 50 million lines of code and 1 defect per 2,000 lines of production code (as reported by Sogeti Labs). Industry production code is often reported to have 15-50 defects per 1,000 lines of code (Kloc). My head says Windows therefore has 25,000 defects. Not all defects can be tested out. Not all defects get "seen", because they are in rarely-executed code. Not all "seen" defects cause the blue screen of death, of course. But some do. ("The blue screen of death" is when a computer freezes up completely - on Windows machines, a blue screen is displayed with basic information intended to help an expert determine what went wrong.)

According to The Visual Capitalist, the autonomous control software in a self-driving car has about 100 million lines of code (and growing), so if a self-driving car has the same software quality as Windows, it should only have about 50,000 defects. Not all defects get "seen", because they are in rarely-executed code. Not all "seen" defects cause the blue screen of death, of course. But some do.

Oh, but but but the pointy-hair guy (the non software engineer) proclaims loudly, surely Tesla does a much better job of testing than Microsoft (with a LOT less engineers than Microsoft, maybe just to mention). And of course the other companies building similar software will also do a much better job of testing. Wow, maybe 10x better. So that self-driving car which will be hurtling you down the crowded freeway at 75 mph should only have 5,000 defects. (If you believe you can get 10x better testing results without spending a lot more than 10x the $, I have a really cool virtual bridge to sell you.) Not all defects get "seen", because they are in rarely-executed code. Not all "seen" defects cause the blue screen of death, of course. But some do...

Microsoft actually does a good job of testing. 10x better quality is really hard, and doing it with less resources, maybe not so doable. The space shuttle is the only large piece of production code that I know of where defect density was driven to near-zero - it cost many thousands of dollars per line to get that result, and the system was only 400,000 lines of code.

Hop in, let's let the car take us for a spin.

Eoin Treacy's view -

Thank you for this account which highlights the enormity of the challenge in getting self- driving cars on the road. There appears to be a “you can’t make an omelette without breaking some eggs” attitude surrounding the sector right now. However, with the number of fatalities mounting from both Tesla’s semi-autonomous features and now Uber’s killing of a pedestrian the focus of attention is likely to be turned towards the safety of these products.



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

Commentary by Eoin Treacy

April 04 2018

Commentary by Eoin Treacy

China's Rejoinder Shows No One Wants a Trade War, Really

This article by David Fickling and Shuli Ren for Bloomberg may be of interest to subscribers. Here is a section:

Is the phony trade war over?

With its plans to levy 25 percent tariffs on $50 billion of U.S. products including soybeans, cars and aircraft, China looks to have stepped the simmering trans-Pacific economic battle up a gear.

The initial parries between Washington and Beijing resulted in little more than flesh wounds. There were a series of levies on steel and aluminum exports to the U.S., which largely excluded the countries that export steel and aluminum to the U.S.; an impost on China's infinitesimal imports of U.S. pork, and on a scrap trade that Beijing is already trying to stamp out; and then Tuesday's heftier $50 billion tariff list from Washington, which was nonetheless carefully crafted to be almost invisible to Joe Sixpack.

Pick apart Beijing's latest list of countervailing duties and you'll see that in many areas there's once again less than meets the eye.

To be sure, the list deals a few headline-grabbing blows to select political constituencies. There's a special levy on cranberries, which these days are mainly grown in Wisconsin, the home state of House of Representatives Speaker Paul Ryan.

Another hits the whiskey industry associated with Senate Majority Leader Mitch McConnell's base of Kentucky, borrowing a move from the European Union's tit-for-tat trade war game plan.

And let's not forget those levies on fresh orange juice, calculated to hit growers in the electorally pivotal state of Florida.

Beneath that, though, many of the details suggest a more moderate approach. The duties on aircraft exclude all planes with an operating empty weight above 45 metric tons, a provision that looks to spare every aircraft that matters to Boeing Co. -- and, in any case, aerospace companies can get around tariffs by deferring orders to China and bringing forward deliveries to lessors elsewhere in the world.

Seven of the trade categories affected relate to beef, which China resumed importing from the U.S. only last year -- in minute quantities -- after a 14-year ban due to fears of mad cow disease. New 25 percent duties on wheat and corn won't do much additional damage to a trade that's minimal given the 65 percent import tariffs that China already charges on those crops.

Eoin Treacy's view -

The big question for investors is how much of Trump’s trade tariffs are appeals to his voter base ahead of the mid-term elections in November and how much are aimed at truly disrupting the international trade web that has been such a powerful force for greater flows over the last forty years.



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

Commentary by Eoin Treacy

The Bank of Japan Steps Up With Record Buys of Local Stocks

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

"If it hadn’t been for the BOJ’s ETF buying, the Nikkei 225 would have breached 20,000," said Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank Ltd in Tokyo. "For investors, March was a month to reduce exposure to Japanese equities."

The BOJ bought 1.9 trillion in ETFs in the first quarter, which is 32 percent of its annual purchase goal. To be sure, Kuroda has said that the target isn’t set in stone at exactly 6 trillion per year, and annual purchases don’t necessarily have to be measured from January to December. On Tuesday, Kuroda said the central bank is discussing how to eventually exit from its massive monetary stimulus but that it’s still too early to reveal details.

Not that long ago, many investors expected the BOJ to join the global trend toward stimulus tapering by reducing ETF buying this year. That came after the Topix and the Nikkei 225 soared to their highest levels in a quarter century. But then the market slumped, and the situation changed.

Foreigners have muddied the picture, dumping Japanese equities as the yen gained to a 16-month high against the dollar. They yanked almost 8 trillion yen from cash equities and futures in the first quarter alone, according to data through March 23. Suddenly, not many people are expecting a BOJ taper anytime soon.

Tatsuya Oguchi, chief executive officer and president of Franklin Templeton Investments in Japan, says the BOJ won’t rush to alter its ETF purchases.

"Obviously, the BOJ has to stop buying at some point," Oguchi said. But "I think we have to wait until the Tokyo Olympics” in 2020, he said. “The BOJ won’t change their policy at least for another two three years."

Kiyoshi Ishigane, chief strategist at Mitsubishi UFJ Kokusai Asset Management Co. in Tokyo, agreed. “Of course, they won’t cut back," Ishigane said. Like the others, he doesn’t expect the bank to increase the target, either. "The BOJ would buy more if they could stop the market from falling, but it knows that it can’t."

Eoin Treacy's view -

Bank of Japan buying of stocks represents a powerful tailwind for the market. Both the Bank of Japan and the Swiss National Bank have been actively buying shares, in addition to bonds, in an effort to promote inflation. This policy has the added benefit of the central bank gaining interests in tangible assets with no fixed maturity dates. Dividend growth potential then offers at least a partial inflation hedge to central banks they might not otherwise have had.



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

Commentary by Eoin Treacy

Homebuilder ETFs Jump on Lennar Earnings Beat

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

Homebuilders strengthened after Lennar Corp revealed adjusted earnings of $1.11 per share, compared to expected 77 cents per share from analysts polled by Thomson Reuters, MarketWatch Opens a New Window.reports. Revenue increased 28% to $2.98 billion, compared to expectations of $2.65 billion.

"We continue to remain positive on the outlook of the housing industry in general," CEO Stuart Miller said in prepared remarks. "Although interest rates have ticked up, unemployment remains low, the labor participation rate has been increasing, and wages have been moving modestly higher, though we think, even higher than the data the government captures. Feedback from our new home consultants indicates that our customer base feels confident in both job security and compensation levels in spite of the political noise that abounds."

Eoin Treacy's view -

This attestation from the CEO of a homebuilder that he is seeing strong consumer confidence gels with the results of what we refer to in our home as the Treacy indicator.



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

Commentary by Eoin Treacy

Video commentary for April 3rd 2018

April 03 2018

Commentary by Eoin Treacy

Goldman Sachs: 20 Years Left of Mineable Gold

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

"The combination of very low concentrations of metals in the Earth’s crust, and very few high-quality deposits, means some things are truly scarce." He wrote in the report.

King notes that the intention behind the report was to highlight the areas of scarcity, and demonstrate how scarcity is the ultimate driver of value and investment.

"Perhaps unsurprisingly, these are the so-called precious metals (and diamonds), and that their value is derived from the fact they are rare." He writes, "Gold has been used as a measure of wealth for more than 4,000 years, as the ancient Egyptians soon worked out that gold was not only shiny and heavy, but rare."

He adds that the relative scarcity of the commodity, and "the market’s belief that new discoveries will be limited, is what drives the price of these super-rare commodities."

King’s report falls in line with the forecast made last year, estimating that 2015 will be the year when gold production would reach its peak in the mining industry, a concept known as Peak Gold.

Eoin Treacy's view -

Mineral discoveries are a function of geology, technology and price. Shale oil was known about for over a century but was completely uneconomic until technology improved and that changed the pricing structure of the gas, and later the oil markets, beyond recognition.



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

Commentary by Eoin Treacy

On Target April 3rd 2018

Thanks to Martin Spring for this edition of his letter which reproduces my answer to the question of differences in standards of governance between China and India. Here is a section on North Korea:

Eoin Treacy's view -

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

Kim’s trip to China last week was no doubt aimed at squaring any plans he has for talks with South Korea and the USA with China. There is no chance that China would tolerate a reunification of the peninsula on the USA’s terms so the best case scenario for the talks is for a normalisation of relations between North Korea and the USA and that would represent a significant victory for both Kim and Trump.



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

Commentary by Eoin Treacy

Musings From the Oil Patch April 3rd 2018

Thanks to a subscriber for this edition of Allen Brooks’ everinteresting report for PPHB. Here is a section on autonomous vehicles:

Eoin Treacy's view -

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

Google’s Waymo is obviously the leader based on the above statistics in what is likely to be a transformational technology; once commercialised. Nevertheless, this is still an emerging technology that, despite its potential, needs further innovation to reach the point where drivers are optional.



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

Commentary by Eoin Treacy

March 29 2018

Commentary by Eoin Treacy

March 29 2018

Commentary by Eoin Treacy

Amazon in Trump's Crosshairs: Here's What the President Could Do

This article by Ben Brody, Todd Shields and David McLaughlin for Bloomberg may be of interest to subscribers. Here is a section:

President Donald Trump renewed his long- running assault on Amazon.com Inc. with an early morning tweet Thursday. But what measures can he actually take against the online retail giant?

He could push for probes of consumer protection, privacy and antitrust issues. He could also step up his support for allowing states to collect sales tax on third-party purchases from Amazon, or seek to have the Postal Service charge more to deliver packages. And he could thwart Amazon’s aspirations to win a multibillion dollar Pentagon contract for cloud services.

Even with those powers, Trump’s ability to act has limits. Inquiries by the Justice Department or the Federal Trade Commission could take years and bear a high burden of proof. The FTC and other enforcement agencies guard their independence, as does the board of governors of the Postal Service. Changes to the tax law would require cooperation from Congress, which just passed a tax overhaul and may have limited appetite to reopen negotiations.

The feud pits the world’s most powerful man against one of the world’s biggest corporations -- a global titan with $684 billion in market capitalization and more than half a million employees. At stake is its reputation, revenue and, potentially, ability to continue to disrupt markets as it reshapes retailing.

Eoin Treacy's view -

Capitalism trends towards consolidation, as the strong eventually consume the weak and further dominate their respective sectors. That has created a comparatively small number of companies that we refer to as Autonomies which are truly global in scale and exert considerable sway both over their national indices but the global sectors in which they reside.



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

Commentary by Eoin Treacy

King of the (Bond) World: Terry Duffy Makes His Biggest Trade

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

“Man, that’s a lot of power the CME now has in the U.S. Treasury market,” said Jim Greco, who co-founded the former Treasuries trading platform Direct Match Holdings Inc. “You have to be a little worried about the pricing power of the CME in the most critical asset class in the world.”

Bond traders have reason to cheer the deal. NEX, also known by its old name ICAP, comes to the table with about 80 percent of trading volumes between dealers in the $14.7 trillion market for cash Treasuries. CME is the main destination for Treasury futures trading. Instead of coughing up margins to trade in two places as they do now, customers of cash Treasuries and futures could potentially save costs by having the complementary products under the roof of one combined powerhouse.

In its essence the consolidation of some of these business and the centralization of them to a single clearer makes sense,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets. “There is the economies of scale to be taken advantage of and collateral and posting type issues that will be easier to manage.”

Eoin Treacy's view -

At their roots exchanges are flow businesses and there have been concurrent stock and bond bull markets. That’s good for turnover. At the same time technological innovation has increased the speed of trading creating fees from colocation of servers. That opened up a whole new business for the sector and has helped to drive consolidation as companies compete to dominate in this new environment.



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

Commentary by Eoin Treacy

Anti-Corruption Crusader Is Eyeing Brazil Presidential Bid, Sources Say

This article by Simone Preissler Iglesias and Samy Adghirni for Bloomberg may be of interest to subscribers. Here is a section:

Barbosa, a 63 year-old black man raised in poverty, became a household name in Brazil during the Supreme Court’s handling of the so-called "mensalao" corruption scandal in the government of President Luiz Inacio Lula da Silva. Of all the potential candidates for October’s presidential elections, Barbosa has one of the lowest rejection ratings, at just 14 percent, according to Datafolha polling company. That compares with 60 percent for President Michel Temer and 40 percent for Lula.

The former judge is a presidential candidate "with potentially the best profile in the field," according to a note published by Eurasia Group on March 29, adding that he has a good mix of experience, anti-corruption credentials, and credibility on social issues.

"It’s a huge movement on the electoral chess board," said Richard Back, a political analyst at XP Investimentos.

Eoin Treacy's view -

The Brazilian iBovespa Index has been the best performing major market globally over the first quarter. It has been assisted by improving perceptions that the crusade against institutional and political corruption is gaining traction and the relative stability of the Real over the same period.



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

Commentary by Eoin Treacy

March 28 2018

Commentary by Eoin Treacy

How Bad Could It Get, Counting the Cost of a Global Trade War

This report from Bloomberg Economics may be of interest to subscribers. Here is a section on the factors that led to the current tensions on trade and tariffs:

There were also losers:

U.S. labor groups, it turns out, were right to be suspicious of China’s arrival in the global market. Taken together with a shift toward more capital—intensive production, the result was stagnant wage growth. Between 2001 and 2016, real income for the bottom 20% of U.S. households didn’t rise at all, and wages for the middle 20% managed only a 4% increase.

Mercantilist policies in China (combined with an irresponsible approach to financial regulation and mortgage lending in the U.S.) resulted in a buildup of major global imbalances. China’s current account surplus ballooned to 9.9% of GDP in 2007 from 1.3% in 2001. U.S. current account deficit peaked at 5.8% of GDP in 2006. The recycling of China’s surplus back into U.S. Treasuries kept U.S. borrowing costs too low for too long, an important background condition for the real estate bubble and financial crisis.

For foreign policy hawks, the strategic benefits were outweighed by the costs. China didn’t democratize, in fact it doubled down on its single—party model. Worse still from Washington’s point of view, China’s rise means it now jostles with the U.S. for global influence, and on straight—line projections may overtake in terms of economic size in the next decade.

Eoin Treacy's view -

Taken in the context of the total trade between China and the USA and indeed the USA and everywhere else, the total amount announced as tariffs is comparatively small but the knock-on effect to sentiment has been severe and quick.



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

Commentary by Eoin Treacy

Hedge Funds Short Dollar-Yen Stare Down Fiscal Year Squeeze

This article by Michael G. Wilson and Chikako Mogi for Bloomberg may be of interest to subscribers. Here is a section:

Just as hedge funds pile into wagers betting on dollar-yen weakness, signs are emerging that the pair is poised for a resurgence in Japan’s new fiscal year.


The greenback’s failure to break below 104.50, seen by major Japanese banks as a key barrier amid a congestion of buy orders, is pointing to a potential bottom for the widely traded cross. That’s bad news for speculators that suddenly turned bearish for the first time in almost a year this month as an escalation in global trade tension and a domestic political scandal spurred demand for Japan’s haven currency.


The culmination of the country’s fiscal year this week -- which has historically capped dollar strength amid repatriation flows -- month-end fund rebalancing and easing trade tensions are creating the conditions for a dollar bounce against the yen, according to traders and strategists. The rebound looks to have already begun, with the pair climbing as high as 106.41 Wednesday as Japanese importers were seen selling the domestic currency.


“With Japan’s new fiscal year starting shortly, I expect a certain degree of yen selling flows to emerge,” said Tohru Sasaki, head of Japan markets research of JPMorgan Chase & Co. Flows related to the start of the fiscal year could push dollar- yen upward toward the 111 to 112 area, he added.

Eoin Treacy's view -

The Dollar has been among the weakest currencies in the world so far this year, amid widespread angst about the implications of fiscally profligate policy on the value of the currency. However, the USA is also raising interest rates and that interest rate differential is beginning to be meaningful, particularly as LIBOR rates for short-term paper advance.



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

Commentary by Eoin Treacy

Cobalt price: Automakers 'waking up too late' as China takes control

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

The Democratic Republic of the Congo today has six of the top 10 cobalt mines globally. Due primarily to Chinese investment, by 2022, the central African nation will host the nine largest cobalt producers. Congo also holds half the world’s reserves.

Not only is primary production highly concentrated, but the downstream industry is beginning to resemble a monopsony. China, despite having no cobalt resources of its own, is responsible for 80% of the world’s cobalt chemical production, which overtook metal production around four years ago.

Glasenberg told FT Chinese refiners and processors "will have most of the offtake of cobalt":

They’re not going to sell batteries to the world, more than likely they’ll produce batteries in China and sell electric vehicles to the world,” Mr Glasenberg told the conference. 

Eoin Treacy's view -

Despite the fact cobalt prices have surged there is no such thing as a cobalt mine. It is almost exclusively a by-product of copper and nickel mining. The Congo/Zambian copper belt therefore is the primary source of cobalt while it is a by-product of other mining operations all over the world.



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

Commentary by Eoin Treacy

Video commentary for March 27th 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 bounces at the MA, Euro bounces but less impressively and is still below its MA, Gold and oil pause at the upper side of thier ranges, Japanese banks bounce from the lower side of its range. Treasuries look likely to unwind their oversold condition. 



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

Commentary by Eoin Treacy

Security In an Unsecure World

Thanks to a subscriber for this transcript of a talk given by Benjamin Graham in the 1960s. Here is a section but it is well worth taking the time to read in full:

They are returning to the idea that for the smart investor the question of stock market fluctuations does not have to be considered to any great extent. There is a two-fold emphasis here, which slurs over the reality of stock market fluctuations. The first is the general conviction that the market can be counted on to advance so emphatically through the years that whatever declines take place are comparatively unimportant; hence if you have the true investor’s attitude you don’t have to concern yourself with them.

And

As I see it, the real truth is exactly the opposite, for the higher the stock market advance the more reason there is to mistrust its future action if you are going to consider only the market’s internal behavior. We all know that for many decades the typical history of the stock market has been a succession of large rises, in good part speculative followed inevitably by substantial falls. Consequently, the substantial upsweeps of the past have always carried with them warning signals of unhappy consequences to come. It does not necessarily follow that a large rise in the price an individual stock or in the market average must be followed by a decline; but the only reason to view with confidence the future price of a security that has already advanced substantially in the presence of external reasons, other than the actual price movement itself, which would justify such confidence. Hence a large advance in the stock market is basically a sign for caution and not a reason for confidence.

Eoin Treacy's view -

One of the benefits of being locked in a metal cylinder for 14 hours is I get to catch up on my reading. The first thing that occurred to me on reading this paper is how little things change. We might have different names for popular financial products but the basic psychology of investors does not change.



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

Commentary by Eoin Treacy

Electric Cars May Be Cheaper Than Gas Guzzlers in Seven Years

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

Electric cars may be cheaper than their petroleum counterparts by 2025 if the cost of lithium-ion batteries continues to fall.

Some models will cost the same as combustion engines as soon as 2024 and become cheaper the following year, according to a report by Bloomberg New Energy Finance. For that to happen, battery pack prices need to fall even as demand for the metals that go into the units continues to rise, the London-based researcher said on Thursday.

The clamor to roll out electric vehicles has grown louder as countries and companies race to clean up smog in their cities and hit ambitious climate goals set by the Paris Agreement. U.K. lawmakers started an inquiry into the market in September, probing the necessary infrastructure and trying to determine whether to bring forward the 2040 deadline to end the sale of gasoline and diesel cars.

Eoin Treacy's view -

Tesla has one major undeniable achievement to its name. It made electric cars sexy. Before Elon Musk delivered his roadster, electric vehicles were a hard sell, plagued by perceptions of inconvenience. However, in little more than a decade, they have become so desirable that just about every car company is planning on investing billions in manufacturing capacity.



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

Commentary by Eoin Treacy

Berlusconi Says League Plotting Government With Five Star

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

The accusation threatens to shatter the parliamentary group that won the most seats in the inconclusive March 4 general election. Both Matteo Salvini of the League and Luigi Di Maio of Five Star have claimed the premiership although they are short of a majority.

Lawmakers in each house of parliament started voting Friday to elect speakers, a clue to possible new alliances in the search for a government with a working majority.

Forza Italia had selected former minister Paolo Romani as its candidate for the Senate job, but Salvini’s senators voted against him. Salvini’s decision is seen by Forza Italia as yielding to Five Star, which had ruled out backing Romani or any candidate with a judicial conviction. Romani has been convicted of embezzlement, an offense he denies.

Salvini said the League’s choice was “a courageous and generous help to the coalition” to break a political deadlock, in remarks quoted by newswire Ansa.

Salvini and Di Maio have taken the lead in attempts to broker a deal over the speakers. The ballots could run until early next week after several rounds of voting on Friday produced no result.

Eoin Treacy's view -

These two maps of Italy, one with the income dispersion, the other with the geographical support for the various parities give us two clear conclusions. The first is that the poor people voted for the Five Star Movement. The other is by arranging a coalition between the centre right and the Five Start Movement just about the whole country is represented. Quite whether the revolutionary party is willing to share power, and therefore become more conventional, is still open to question.



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

Commentary by Eoin Treacy

Video commentary for March 26th 2018

Eoin Treacy's view -

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

Some of the topics covered include: Asian markets find at least near-term support, Europe under pressure as Euro strengthens, oil eases, gold firm, bonds steady, Facebook and Tesla breaking down but subscription oriented shares offer relative strength.



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

Commentary by Eoin Treacy

Higher Libor-OIS Is New Normal But Don't Fret, Says CS' Pozsar

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

“BEAT is forcing foreign banks to substitute FX swaps with unsecured funding and also leads to temporary overfunding on the margin,” he wrote. “BEAT explains why cross-currency bases are tighter while Libor-OIS is wider, and also introduces upside risks” to the forward Libor-OIS spread, he wrote.

The gauge measuring where Libor-OIS is seen moving in coming months -- the June FRA/OIS spread -- reached about 54 basis points this month, from around 18 at the end of last year. It retreated to 44 basis points Friday.

The impact is strongest in foreign-exchange swaps because the shift is creating excess funding for those headquarters.

That cash is being lent into the foreign-exchange swaps market, preventing the basis from narrowing for now, wrote Pozsar.

Total excess funding that may build up at headquarters of European, Japanese and Canadian banks with branches and broker- deal affiliates in the U.S. could tally as much as $450 billion, he estimates. To the extent that this money had been raised in FX swaps at headquarters, the change may reduce demand for dollars via the basis swaps market, he says.

Even without the tax effect, Libor has been rising amid a deluge of Treasury-bill issuance since the U.S. debt ceiling was raised in February, which has helped drive bill rates to the highest since 2008. The increase has forced banks to boost commercial paper rates to lure buyers.

“BEAT is redistributing pressures from the cross-currency basis to the Libor-OIS basis,” Pozsar wrote. “The pressures we should be seeing in cross-currency bases from bill issuance are showing up in the Libor-OIS basis instead. This suggests Libor- OIS could widen more from here.”

Eoin Treacy's view -

The pop is overnight index swap spreads since the beginning of the year has a lot of people thinking about what this all means. The most visceral memory everyone has of the LIBOR-OIS, or the FRA/OIS spread which is the equivalent, is the surge in unsecured paper funding costs that were associated with the credit crisis back in 2008. So, the big question is whether that is relevant today?



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

Commentary by Eoin Treacy

Fear of trade war between US and China

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

Eoin Treacy's view -

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

ETF Holdings of gold has been remarkably steady since the initial surge in 2016 suggesting investors were willing to continue to hold gold despite a lengthy period of consolidation. Holdings are now hitting new recovery highs and a clear move below 70 million ounces would be required to question the return to demand dominance.



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

Commentary by Eoin Treacy

As Trump Takes On China, Another Trade Challenge Looms in Asia

This article by Connor Cislo and Jiyeun Lee for Bloomberg may be of interest to subscribers. Here is a section:

But at the same time, there’s been a spike in sales to China of precision metal working machines and equipment for making chips from firms like Japan’s Yaskawa Electric Corp. With a Chinese state-backed fund gearing up to pour as much as $31.5 billion into homegrown semiconductor manufacturing, there’s potential for trade flows to start to shift.

China’s ambitions, set out in its sweeping Made in China 2025 plan, go much further than semiconductors and would see its technical prowess advance in a host of areas, ranging from bio- medicine and artificial intelligence to new-energy vehicles and aircraft. The challenge to Japan, Korea and Taiwan also applies to European exporters like Germany, and comes on top of the risks to global trade from the Trump administration’s embrace of tariffs.

"The bits of the global supply chain that are currently the preserve of Korea, Japan, Taiwan, the U.S., and Germany, are the bits of the supply chain that China has a decade-long industrial strategy to move into," said Tom Orlik, Bloomberg’s chief Asia economist. He said it’s only a matter of time before many components for electronic products are made domestically and the country is on track to become a car exporter. Eventually, it will be selling airplanes, said Orlik.

Eoin Treacy's view -

China is moving up the value chain in just about all industries. It’s policies in achieving that goal are openly mercantilist. It has unabashedly supported domestic industry by whatever means necessary, closed off the mainland market to global competitors, engaged in industrial espionage on a grand scale and none of these actions are without precedent.



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

Commentary by Eoin Treacy

March 22 2018

Commentary by Eoin Treacy

March 22 2018

Commentary by Eoin Treacy

Protectionism Risks? What's Next?

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

Eoin Treacy's view -

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

This is a very measured report which I think is underplaying the short-term volatility tariffs are likely to provoke. Bilateral trade between the USA and China is substantial and US companies have invested considerable resources in developing customer bases in China. They are far from immune from Chinese retaliatory measures which over the course of the medium-term will likely be ironed out but probably not before there is some pain felt on both sides.



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

Commentary by Eoin Treacy

Tencent Drops After Warning Spending to Weigh on Profit Margins

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

Tencent’s business revolves largely around its vast social networks WeChat and QQ, the twin platforms through which more than a billion people consume games, news and online entertainment while paying for a plethora of real-world services. Chief Executive Officer Ma Huateng is now angling to grab a larger slice of an advertising pie dominated by Alibaba Group Holding Ltd., while investing in new areas such as financial, retail and computing services.

“Tencent needs to invest in new business, it would help the company build a better ecosystem infrastructure to support growth, but it will hurt margins in the short term,” said Benjamin Wu, an analyst at Shanghai-based consultancy Pacific Epoch.

Analysts at Credit Suisse Group AG and Citigroup Inc. lowered their earnings estimates for Tencent after the results.

Tencent’s quarterly profit included gains in the quarter of 7.9 billion-yuan thanks mainly to the initial public offerings of Sea Ltd., Sogou Inc. and Yixin Group Ltd. Those are just three of the 600 companies the company has invested in.

Eoin Treacy's view -

I don’t know a Chinese person, either by birth or heritage, that does not use WeChat. That fact alone means it is going to be more expensive to gain new customers.



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

Commentary by Eoin Treacy

A Dangerous Cyberattack On A Petrochemical Plant Could Be The First Of Many

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

You probably didn’t hear about it at the time, but in August 2017, there was an attack on a petrochemical plant in Saudi Arabia. It was meant to cause a cascading explosion, experts determined. The only reason it didn’t (and that you didn’t already hear about it) is because there was a mistake in the assailant’s code.

This may feel far away, but such an attack could have easily happened more locally. Russians are hacking the U.S. electric grid. The greatest fear is that they are able to access American nuclear plants, which could wreak devastation rarely seen on some of the country’s most populated areas.

A new kind of attack has made its way into the world. And, frankly, it’s terrifying.

Experts are learning a lot from this foiled attack in Saudi Arabia. The New York Times reports that the attack required a level of sophistication that shows the attackers had government backing, though the individual hackers and the country backing them are still unknown.

Eoin Treacy's view -

This attack failed because of a typo. That’s not a comforting thought. The introduction of cyberattacks into the arsenal of sovereign states represents a major issue from the perspective of investors. That is particularly true because they are close to the perfect weapon. They have the ability to strike at the heart of an enemy’s domestic architecture, require no loss of munitions or personnel, are comparatively cheap to deploy and for the most part are anonymous.



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

Commentary by Eoin Treacy

Eoin's personal portfolio update March 21st 2018

March 22 2018

Commentary by Eoin Treacy

Long-term themes review March 7th 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.

Here is a brief summary of my view at present.



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

Commentary by Eoin Treacy

March 21 2018

Commentary by Eoin Treacy

Fed Lifts Rates, Steepens Path Through 2020 For More Hikes

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

In another change to the statement, the Fed said inflation on an annual basis is “expected to move up in coming months,” after saying “move up this year” in the January statement. Price gains are still expected to stabilize around the Fed’s 2 percent target over the medium term, the FOMC said.

The central bank’s preferred price gauge rose 1.7 percent in the 12 months through January and officials projected it to rise to 2 percent in 2019 and hit 2.1 percent the following year, the latest estimates showed. The estimates for inflation excluding food and energy, which officials see as a better way to gauge underlying price trends, rose to 2.1 percent in 2019 and 2020 from 2 percent seen in December.

“Job gains have been strong in recent months, and the unemployment rate has stayed low,” the FOMC said. The statement said that household spending and business investment “have moderated” from strong fourth-quarter readings.

Eoin Treacy's view -

A dovish rate hike is what the market was hoping for and that’s what it got which eases concerns that the new Fed chair is anything other than market friendly. There had been some concern that the Fed might raise rates four times this year but that is now looking less likely. However, the upshot of the statement is that four rates hikes in 2019 is a realistic possibility and a significant negative impact would be required to stop the run-off of the balance sheet. Therefore, the outlook is not quite as liquidity friendly as might have appeared on first blush.



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

Commentary by Eoin Treacy

BOE's May Rate Increase Seen Locked In as Wage Growth Picks Up

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

Prime Minister Theresa May’s government lifted the cap on pay for more than a million National Health Service workers on Thursday. They will get a 6.5 percent pay rise over the next three years -- spelling an end of the longstanding limit on public-sector raises -- while a 4.4 percent increase in the minimum wage is also due to come into effect in April.

BOE officials, who raised rates for the first time in more than a decade in November, are preparing to unveil their latest policy decision in London on Thursday. Markets had started to price in further tightening at the next meeting in May even before the positive upturn in wage growth, while a second hike this year is also seen as probable.

“In BOE speak, higher wages point to upside risks to domestically generated inflation and improving jobs numbers point to further erosion of slack,” said Scotiabank economist Alan Clarke. “In other words, this supports the case for a May rate hike.”

Eoin Treacy's view -

The collapse of the Pound in the aftermath of the Brexit vote in 2016 shielded the UK economy from what might otherwise have been a rather difficult period. However, the currency’s weakness made just about all imports more expensive. While the high street is just getting around to passing on higher import costs, the price of oil is 50% higher today than it was in July 2016. That might not be taken into account by official figures but it’s something all consumers have to deal with on a daily basis. With the NHS scoring a substantial pay increase, we can expect teachers, police and regular civil servants to make similar claims and that is before the private sector starts demand pay rises. That all points towards inflation.



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

Commentary by Eoin Treacy

Features of a Bitcoin Bear Market

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

Eoin Treacy's view -

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

The argument proposed by hard cryptocurrency advocates is that profits accumulated in the cryptocurrency world should be simply left in the system and only reinvested in other tokens or altcoins. The basis for eschewing fiat currency entirely is that the cryptocurrency market is evolving so quickly that it is only a matter of time before digital assets have widespread real-world utility and at that point the declining value of fiat currencies can be foregone completely in favour of accumulating real assets.



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

Commentary by Eoin Treacy

Policy focus shifted to sustainability from stability

Thanks to a subscriber for this note from Deutsche Bank which may be of interest. Here is a section:

March 20 2018

Commentary by Eoin Treacy

March 20 2018

Commentary by Eoin Treacy

Musings From the Oil Patch March 20th 2018

Thanks to a subscriber for this edition of Allen Brooks’ ever interesting report for PPHB which may be of interest. Here is a section:

Eoin Treacy's view -

Both a section from the report and a link to a pdf are posted in the Subscriber's Area.

Shale oil is typically of the light variety which is used for gasoline production rather than diesel. Europe has favoured diesel for a long time and the aftermath of the Volkswagen cheating scandal suggests it will be using less in future. A lot of the new supply that has become economic over the course of the last 15 years has been of the heavy variety but that is now changing with the evolution of US domestic onshore tight resources. That represents a significant retooling risk for European refineries while the US sector will also need to evolve to cater to the prolific supply coming on line domestically.



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

Commentary by Eoin Treacy

Labor 2030: The Collision of Demographics, Automation and Inequality

This report from Bain & Co. by Karen Harris, Austin Kimson and Andrew Schwedel may be of interest to subscribers. Here is a section:

We expect the magnitude of workforce change in the 2020s to match that of the automation of agriculture from 1900 to 1940. However, the transition of farm workers into the industrial sector was spread out over four decades. In the case of the automation of manufacturing, the impact was over a shorter time period (roughly 20 years), but the share of labor force in manufacturing jobs was relatively small in the US. Investment in automation is likely to proceed moderately faster than agricultural automation or manufacturing automation unless other forces act to impede its progress, and it will affect a larger percentage of the total workforce.

The tension between the push to offset slowing labor force growth with automation and the pull to slow automation's rollout to prevent massive disruption will play out over the next 10 to 20 years. But once the first companies begin deploying new forms of automation, others are likely to follow suit rapidly to stay competitive.

The base-case scenario
Based on the magnitude and speed of change, our base-case scenario could result in about 2.5 million jobs per year lost or not created because of automation. Previous transformations provide an interesting comparison. The automation of agriculture transformed national economies and disrupted labor markets, culminating in the Great Depression. But if that event occurred today, scaled to the current population and labor force, it would displace 1.2 million workers per year. The rate of reabsorption from the automation of agriculture was about 700,000 workers a year.

Eoin Treacy's view -

Technology is disruptive and inherently deflationary. The rise of the robot represents a significant secular theme and for the millions of workers who are going to be affected their only resource is likely to be at the ballot box.



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

Commentary by Eoin Treacy

China Pledges Action on Tech Transfer as Trump Plans Tariffs

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

“Businesses are very much in a position that they want to see China take action, and talking about it isn’t sufficient any more,” John Frisbie, president of the U.S.-China Business Council, said of Li’s speech. “And it has to be tangible actions that matter.”

The administration is said to be considering wide-ranging tariffs on everything from consumer electronics to shoes and clothing made in China, as well as restrictions on Chinese investments in the U.S., according to people briefed on the matter.

That’s one of the administration’s lines of attack to deal with the lopsided bilateral trade account, which according to U.S. data, the trade deficit with China reached a record $375 billion last year, with China’s accounting considerably lower.

“A large deficit is not something we want to see,” Li said. “We want to see balanced trade. Otherwise this kind of trade would not be sustainable.”

Eoin Treacy's view -

The last thing China wants is a trade war particularly since its domestic companies are primed to take a more dominant position on the international stage selling everything from smartphones to cars. However one of the reasons they are now able to compete internationally is because of the technology sharing China insisted on over the course of the last twenty years. If China is now willing to give up on that demand we can conclude the administration believes the economy has progressed to a stage where it is no longer essential to development. The pace of R&D spending and patent lodging would support that view. 



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

Commentary by Eoin Treacy

March 19 2018

Commentary by Eoin Treacy

Facebook Plunges as Pressure Mounts on Zuckerberg Over Data

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

Politicians on both sides of the Atlantic are calling on Chief Executive Officer Mark Zuckerberg to appear before lawmakers to explain how U.K.-based Cambridge Analytica, the data-analysis firm that helped Donald Trump win the U.S. presidency, was able to harvest the personal information.

Facebook has already testified about how its platform was used by Russian propagandists ahead of the 2016 election, but the company never put Zuckerberg himself in the spotlight with government leaders. The pressure may also foreshadow tougher regulation for the social network.

U.S. Senators Amy Klobuchar, a Democrat from Minnesota and John Kennedy, a Republican from Louisiana, have called on the chairman of the Judiciary Committee to bring in technology company CEOs, including from Twitter Inc. and Alphabet Inc.’s Google, for public questioning.

Eoin Treacy's view -

The status quo was shaken by the election of Donald Trump and the rise of populist causes right across Europe and parts of Asia. Whether this is as a result of Russian propaganda or demographic/personality profiling is missing the point. A deep vein of discontent has been tapped by emotional rhetoric which is a symptom of political change regardless of the avenue through which it is delivered. That is contributing to polarity in political views which is likely to intensify until a new reform agenda has been implemented and it could take a decade of political disfunction to achieve it.



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

Commentary by Eoin Treacy

Understanding China's Rise Under Xi Jinping

This speech delivered by Kevin Rudd at West Point earlier this month represents an excellent summary of the machinations of political power in China which I found very interesting. Here is a section:

However, militating against any of the above, and the “tipping points” which each could represent, is Xi Jinping’s seemingly absolute command of the security and intelligence apparatus of the Chinese Communist Party and the state. Xi Jinping loyalists have been placed in command of all sensitive positions across the security establishment. The People’s Armed Police have now been placed firmly under party control rather than under the control of the state. And then there is the new technological sophistication of the domestic security apparatus right across the country—an apparatus which now employs more people than the PLA.

We should never forget that the Chinese Communist Party is a revolutionary party which makes no bones about the fact that it obtained power through the barrel of a gun and will sustain power through the barrel of a gun if necessary. We should not have any dewy-eyed sentimentality about any of this. It’s a simple fact that this is what the Chinese system is like.

And

Many scholars failed to pay attention to the internal debates within the Party in the late 1990s, where internal consideration was indeed given to the long-term transformation of the Communist Party into a Western-style social democratic party as part of a more pluralist political system. The Chinese were mindful of what happened with the collapse of the Soviet Union. They also saw the political transformations that unfolded across Eastern and Central Europe. Study groups were commissioned. Intense discussions held. They even included certain trusted foreigners at the time. I remember participating in some of them myself. Just as I remember my Chinese colleagues telling me in 2001-2 that China had concluded this debate, there would be no systemic change, and China would continue to be a one-party state. It would certainly be a less authoritarian state than the sort of totalitarianism we had seen during the rule of Mao Zedong. But the revolutionary party would remain. 

Eoin Treacy's view -

China is going to stay authoritarian and is in the process of implementing an internal security apparatus that is more sophisticated than anything the world has seen before. The nexus of artificial intelligence, cameras, local monitoring, real name social media enforcement, social scorecards are all designed to ensure the long-term sustainability of single party rule.



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

Commentary by Eoin Treacy

Businesses Respond Positively to Transition Deal

This article by Ian Wishart and Tim Ross for Bloomberg may be of interest to subscribers. Here is a section:

“Business leaders will welcome the announcement of a provisional agreement on an implementation period and congratulate the U.K. government for heeding the call of business and making it a priority early on,” Allie Renison, head of Europe and trade policy at the Institute of Directors, says in statement. “We are, however, concerned that not enough attention is being given now to the finer details and practical implications of transition.”

But the British Chambers of Commerce was more positive. “While some companies would have liked to see copper-bottomed legal guarantees around the transition, the political agreement reached in Brussels is sufficient for most businesses to plan ahead with a greater degree of confidence,” BCC director general Adam Marshall says in a statement.

It’s also noticeable that the pound has risen significantly against the dollar.

Eoin Treacy's view -

The GBP/EUR exchange rate is the clearest barometer for the market’s perception of whether the Brexit negotiations will be advantageous or not for the UK in the short term. Every time the tide of opinion turns bullish on a negotiated settlement the Pound rallies and vice versa.



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

Commentary by Eoin Treacy

March 16 2018

Commentary by Eoin Treacy

Precious Metals Review

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

Capital allocation: We are nearing 5 years since the significant gold price (~$1,600/oz down to $1,360/oz) correction in early April 2013. The period since has largely been characterized by cost cutting, capex reduction and de-leveraging of Balance Sheets. With an average ND/2018E EBITDA ratio of 0.5x for Precious stocks under coverage, companies are largely finished with debt reduction and must now decide on the right mix of project capex (brownfield and greenfield) /exploration /dividends/buybacks/further debt reduction/M&A opportunities. Management decisions to define companies will likely diverge over the coming years and we believe this is a key consideration for investors, particularly for a sector that does not have a good record of deploying capital. In terms of dividends, companies will need to define policies that are both sustainable but also representative of variation in cash flow through the cycle, e.g., a base dividend with a supplementary dividend is most likely.

Cost pressure starting to come back: A number of companies on recent conference calls mentioned cost pressure that is entering the industry either through macro factors or through mining sector specific areas.

Examples include the increase in energy costs (mainly due to higher diesel/gas prices), some currency moves, consumables, equipment and contracting. It does not appear to be significant at this stage but the opportunities for cost-cutting initiatives seem to have largely ended (with the potential exception of technology impacts, e.g., Barrick's initiatives medium- to long-term). As an example of cost pressure, Barrick's nearterm All-In Sustaining Costs (AISC) are expected to be ~$765-815/oz for 2018, ~$50/oz higher than previous guidance of $740-760/oz. Longer term, Barrick has alluded to the fact that its target of $700/oz is going to be more difficult to achieve.

Eoin Treacy's view -

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

The Gold/NYSE Arca Gold BUGS Index ratio hit an important peak near 10 in late 2015 which presaged the recovery rally in the metal price which broke the five-year downtrend. That undervaluation of the miners relative to the gold price represented a period of deep stress for the sector as companies scrambled to pay down debt and to keep their operations afloat. However, as the gold price rallied the miners exhibited high beta characteristics which saw them double relative to the gold price.



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

Commentary by Eoin Treacy

Email of the day on the MidPoint Danger Line

Trust you and your tribe are well.

Just a quick question. I don’t seem to have heard the phrase ‘mid-point danger line’ (MDL)for quite a while. Is the MDL irrelevant these days?

Eoin Treacy's view -

Thank you for your kind words and yes, the whole tribe are thriving. Thanks also for this question which remains a topic of conversation at The Chart Seminar. Incidentally, it has been a bit of a challenge to secure a venue for next month’s Chart Seminar in Melbourne, but we finally signed a contract with the Mercure in Treasury Gardens today. I’m really looking forward to revisiting my old stomping ground, having a coffee on a Lygon Street and, most of all, spending some quality time with subscribers.



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

Commentary by Eoin Treacy

New study rips into cobalt, lithium price bulls

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

Prominent commodities research house Wood Mackenzie this week released a report on battery materials that forecasts a decline in the price of cobalt and lithium this year which would turn into a rout from 2019 onwards.

Woodmac is not lowballing demand growth for lithium and the authors expect demand to grow from 233 kilotonnes (kt) in 2017 to 330kt of lithium carbonate equivalent in 2020 and 405kt in 2022, but:

… the supply response is under way. Yet it will take some time for this new capacity to materialise as battery-grade chemicals. As such, we expect relatively high price levels to be maintained over 2018. However, for 2019 and beyond, supply will start to outpace demand more aggressively and price levels will decline in turn.

According to Woodmac data, spot lithium carbonate prices on the domestic market in China are already down 6% from December levels to around $24,500 a tonne while international market prices have remained robust rising to $16,000 at the end of February.

Eoin Treacy's view -

Lithium and cobalt represent the freshest iterations of the supply inelasticity meets rising demand condition that contributes to the cyclicality of mining ventures. Batteries are now big business and with Volkswagen saying this week that it is willing to outspend Tesla on batteries by the early 2020s the demand portion of the market is well affirmed.



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

Commentary by Eoin Treacy

Video commentary for March 15th 2018

Eoin Treacy's view -

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

Some of the topics discussed include: Japan and Europe steady, Australian banks under pressure, China steady, Nasdaq quiet but continues to hold the move above 7000, gold eases, dollar firms, oil inert for the moment. Bond yields close above 2.8%.



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

Commentary by Eoin Treacy

Deep Thaw Below Arctic Circle Risks $30 Billion Nordic Industry

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

The forest floors below the Arctic Circle are usually frozen solid this time of year, hard enough to support the giant timber machines needed to harvest their wood.

But that’s changing, according to the foresters who work the land in Finland and Sweden. Unusually mild winters are turning once icy grounds into thick layers of mud capable of swallowing up the 25-ton vehicles used to gather the materials that go into pulp, paper and packaging.

“We will see more and more of these difficult conditions,”

Uno Brinnen, head of forestry at Sweden’s BillerudKorsnas AB, said in an interview. “It will always shift between warm and cold winters, but the long-term trend seems clear.”

Temperatures across large swathes of Sweden were as much as 3 degrees Celsius (5.4 degrees Fahrenheit) higher than normal in December and January, according to the Swedish Meteorological and Hydrological Institute. That warming forms part of a trend that’s likely to persist, according to SMHI, whose scientists expect temperatures to continue rising over the next six decades because of climate change.

The travails increasingly experienced by Nordic foresters underscore the economic impacts of climate change. Even as warming temperatures in and around the Arctic Circle frees waterways and reveals new paths to exploit natural resources, countries and companies in the region are being forced to adopt new ways of conducting traditional business.

Eoin Treacy's view -

Lumber prices have pulled back over the course of the last month but are still holding the breakout from a 25-year range. The renegotiation of NAFTA rules on trading lumber across the US/Canadian border, the long-term impact of mountain pine beetle infestations, which are themselves a result of milder winters, coupled with warmer weather in Scandinavia and stronger economic growth are driving a supply inelasticity bull market in lumber.



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

Commentary by Eoin Treacy

Pipeline Stocks Sink as FERC Kills Key Income-Tax Allowance

This article by Stephen Cunningham, Tim Loh and Jim Polson for Bloomberg may be of interest to subscribers. Here is a section:

Wells Fargo & Co. analyst Michael Blum said the broad selling was an overreaction, because the effects would be felt only on partnerships with a large amount of interstate pipelines.

"It’s definitely a negative, but it’s not Armageddon for MLPs," Jay Hatfield, a New York-based portfolio manager at the InfraCap MLP exchange-traded fund, said by telephone. "And it’s not as if it affects every asset in every single MLP."

Even among interstate pipelines, it’s unclear how much the ruling will impact different assets, Selman Akyol, an analyst at Stifel Nicolaus & Co. wrote in a note Thursday. That’s because these pipelines can charge rates based on a different agreements -- there are "cost of service" rates, which will be affected, as well as market-based rates or negotiated ones, which won’t be impacted. What’s more, "cost of service" rates are partly built on aspects that have nothing to do with taxes -- including maintenance and depreciation costs for the pipeline.

"This adds a layer of uncertainty to the group, and we do not expect it to be cleared soon," Akyol said in the note. “We anticipate companies will provide disclosures around cost of service exposure and potential impact to cash flow.”

The decision could further the trend of MLPs converting into corporations -- or simply selling interstate pipelines affected by this change in policy to existing corporations such as Kinder Morgan Inc., Hatfield said.

Eoin Treacy's view -

Master Limited Partnerships are generally highly leveraged because taking out debt to fund the construction of pipelines is feasible considering the reliability of the cashflows that arise from it once it moves into service. However as with any leveraged balance sheet how it is treated for tax is a thorny issue which has resulted in a sharp sell-off today as the investors concluded it was better to sell first and ask questions later.



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

Commentary by Eoin Treacy

Pimco Sells Australia Banks, Property Bonds as Risks Climb

This article by Ruth Carson and Andreea Papuc for Bloomberg market be of interest to subscribers. Here is a section:

Risk assets are vulnerable to a correction as valuations approach fair value, Thakur and John Dwyer, vice president and credit research analyst, wrote in a report.

“This risk becomes more important as we transition to a period of gradual tightening of monetary policy by global central banks,” according to the report. Asset prices offer little buffer to the risk of possible shocks resulting from negative growth surprises or higher-than-expected inflation, they said.

Eoin Treacy's view -

Australian government yields share a high degree of commonality with those of other developed market nations. The 10-year has been ranging below 3% since 2015 and over the course of the last month has pulled back to test the region of the trend mean. With inflationary pressures being more of a fear than a reality at present there is scope for some further steadying in the market.



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

Commentary by Eoin Treacy

Video commentary for March 14th 2018

Eoin Treacy's view -

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

Some of the topics discussed include: FANG continued outperformance but looking overstretched, Dow Jones Industrials underperforming, gold and oil steady, Japan steady, Australian shares underperforming with Aussie Dollar bouncing.

 
FANG continued outperformance but looking overstretched, Dow Jones Industrials underperforming, gold and oil steady, Japan steady, Australian shares underperforming with Aussie Dollar bouncing,
 
FANG continued outperformance but looking overstretched, Dow Jones Industrials underperforming, gold and oil steady, Japan steady, Australian shares underperforming with Aussie Dollar bouncing,
 
FANG continued outperformance but looking overstretched, Dow Jones Industrials underperforming, gold and oil steady, Japan steady, Australian shares underperforming with Aussie Dollar bouncing,


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

Commentary by Eoin Treacy

Gundlach Disagrees with Mnuchin and Powell

Thanks to a subscriber for this article by Robert Huebsche for Advisor Perspectives summarizing Jeff Gundlach’s talk for DoubleLine clients yesterday. Here is a section:

He said that deficits have historically shrunk in non-recessionary periods and risen during recessions. “We are late in the economic cycle,” he said, “and it is unusual that the deficit is expanding.” He said that this is driven by political reasons, and noted that the fact that we are adding stimulus “has never happened before.”

Deficit problems will move to the forefront by the end of this year, he said. The deficit is getting a lot worse and there will be “a lot of bonds supplied to the market,” he said. The supply of bonds was about $650 to $700 billion in 2017, he said. It will be $1.2 to $1.3 trillion in 2018, in addition to quantitative tightening (QT) as the Fed contracts its balance sheet, according to Gundlach. There could be another $600 billion in tightening, he added.

If there is a recession the deficit will get worse, he said, but QT will stop. Either way, investors should expect $2 trillion in supply.

”If quantitative easing (QE) was a tailwind for financial assets, then QT must necessarily be a headwind,” he said.

The unique conditions that prevailed in 2017 are over, Gundlach said. The VIX is above 17, he said, which is higher than at any time in 2017. “We have lived the entire last month and a half at VIX levels higher than in 2017,” Gundlach said. As a result, the markets turned in the greatest Sharpe ratio ever in 2017, but he said that has flipped in 2018.

“We’ve gone from an easy to a very tough investing environment,” Gundlach said.

Gundlach predicted that the S&P 500 will have a negative rate-of-return this year. “My conviction is high,” he said, “higher than that the 10-year yield will break to the upside.

Eoin Treacy's view -

A link to the full deck of Gundlach’s slides is posted in the Subscriber's Area.

The S&P500 is currently up 2.88% this year but it hit at least a near-term and potentially medium-term peak in January following a brief acceleration of the two-year uptrend.



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