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December 13 2017

Commentary by Eoin Treacy

Video commentary for December 13th 2017

Eoin Treacy's view -

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

Some of the topics discussed include: stock markets steady, Fed hikes, corporate profits improving, Pound steady following mutiny in UK parliament, Dollar weakens, precious metals rebound from short-term oversold conditions. discussion of mania in cryptocurrencies. Japanese Banks breakout



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December 13 2017

Commentary by Eoin Treacy

Email of the day on cryptocurrencies

I believe I read somewhere that some of the big holders and speculators in Bitcoin are in China, as they want to get cash out of the country to avoid the controls in place. Have you heard the same? If so, the next big win could be to figure where they will invest once they sell bitcoin. Any ideas? 

Also, I am watching CME Group closely, and may buy. Since they trade futures, and make profits based on volume of transactions, they will do well both as Bitcoin gains and crashes as trading volume will be high. I guess they will get into other cryptocurrencies too.

Interesting opportunities are opening up as one studies this space. For the more cautious investor like me, just like the California gold-rush, the winning strategy may be to invest in the picks and shovels (Nvidia and other semi-conductor manufacturers for chips, CME Group for futures etc).

Best wishes

Eoin Treacy's view -

Thank you for this email which may be of interest to subscribers. Yes, Chinese retail investors are a major buyer of cryptocurrencies but the practise of using bitcoin to funnel money overseas has been clamped down on over the last six months, not least when bitcoin exchanges were raided back in September. In the meantime, Japan and South Korea have become significant sources of demand. For example, South Koreans are currently paying a 23% premium to buy bitcoin. 



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December 13 2017

Commentary by Eoin Treacy

A $4 Trillion Reason for China's Smaller Banks to Worry

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

But two things look clear: The WMP market's years of torrid growth have ended; and in an environment of higher risk, investors will prefer products sold by large state-owned lenders that are seen to be safer and of better quality. 

That will put pressure on smaller banks, which have limited scope to increase lending. Minsheng, China CITIC Bank Corp., Ping An Bank Co. and China Everbright Bank Co. all had loan-to- deposit ratios exceeding 90 percent as of the third quarter, according to Francis Chan of Bloomberg Intelligence -- much higher than their bigger rivals. Shares of Minsheng and CITIC Bank have fallen in Hong Kong this year, while ICBC has jumped 27 percent.  

A reckoning is approaching. As with all measures to rein in China's debt, the WMP clampdown is likely to be a stop-go process. But smaller banks will need to start looking for another source of growth, and fast.

Eoin Treacy's view -

Many of the smaller banks which have been most profligate in the use of wealth management products (WMP) are not listed. That represents a challenge in monitoring any issues they encounter using conventional stock market analysis of relative strength and leadership. 



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December 13 2017

Commentary by Eoin Treacy

Mean Reversion and other Misconceptions about Profit Margins

Thanks to a subscriber for this interesting report from the The Jerome Levy Forecasting Center on the contributing factors behind the relationship between profits, margins and profit sources. Here is a section:

When it comes to conventional wisdom about macroeconomic profit margins, investors beware.

First of all, do not expect margins to “revert to the mean”. A profit margin is not a random variable. Its behavior is complex and sometimes hard to predict, but that does not make it random. Throughout history, when the aggregate profit margin has been unusually far from its historical mean, it would have been unwise to expect it to revert. One would often have ended up waiting for many years, and sometimes for decades.

Second, looking to the future, each step of the way profit margins will depend on profits, which will depend on the profit sources. Global structural financial issues, public policy, business trends, technology, demographics, sociology, and other influences on the profit sources – and not a simple probability distribution – will determine what happens to profits and profit margins.

Third, interpreting profit margins depends a great deal on context. For example, recent years’ wide margins have accompanied by a low ratio of profits-to-equity, which is what ultimately matters to shareholders.

Fourth remember that the influences on aggregate profits margins are different from influences on the margins of individual firms. Competition can certainly compress margins within a firm or industry, but aggregate profit margins are not “competed away” in the business sector as a whole. Rather, changes in the profit sources are what increase or decrease aggregate profit margins. 

Eoin Treacy's view -

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

There has been considerable debate about the elevated level of US Corporate Profits over the last few years with some analysts predicting what would be a cataclysmic mean reversion while others have been more sanguine. This is the first report I’ve seen attempting to look through the figures to identify the factors behind corporate profits that are contributing to this condition and I commend it to subscribers. 



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December 13 2017

Commentary by Eoin Treacy

December 12 2017

Commentary by Eoin Treacy

Video commentary for December 12th 2017

Eoin Treacy's view -

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

Some of the topics discussed include: banks respond favourably to the prospect of higher interest rates, bonds still reticient to price in more than immediate potential for interest rate hikes, stock markets steady, oil does not hold move above $65 while natural gas breaks down. bitcoin steady but has definitely accelerated. 



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December 12 2017

Commentary by Eoin Treacy

Carney to Put Pen to Paper as U.K. Inflation Climbs Above 3%

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

The latest data mean Carney has to write to Chancellor of the Exchequer Philip Hammond explaining why inflation is more than 1 percentage point away from the official 2 percent target.

The letter will be published alongside the BOE’s policy decision in February, rather than this week, as the Monetary Policy Committee has already started its meetings for its Dec. 14 announcement.

Markets expect no further rate increases until late 2018, a view echoed in a survey of economists published Tuesday.

Bloomberg Economics sees the benchmark, currently at 0.5 percent, staying on hold for all of next year.

What Our Economists Say: “Inflation bounced higher in November, but only because of the extremely volatile price of flights. The Bank of England won’t lose much sleep over it. The governor was expecting to write a letter of explanation to the chancellor at some point and the story is simple. Inflation is peaking, it’s set to fall back toward the 2 percent target next year and action has been taken to help it stay there.”

While some BOE officials say they are seeing early signs of a pickup in wage growth, a report on Tuesday offered a gloomier assessment, predicting that pay increases will fall short of inflation again. Recruitment firm Korn Ferry said Britons’ real wages will drop 0.5 percent next year, lagging behind a global average of a 1.5 percent gain.

Eoin Treacy's view -

The Bank of England has not been opposed to running inflation a little hotter than headline for the last few years, not least because it helps to erode the quantity of outstanding debt. Carney has been quite vocal in stating that living standards would be impacted by the Brexit decision and the slow pace of wage growth against a background of quickening inflation is a testament to that. 



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December 12 2017

Commentary by Eoin Treacy

Email of the day on trend ending characteristics:

Thank you for all your good work, could I ask what you mean when you say trend ending characteristics?

Eoin Treacy's view -

Thank you for this question which is a major topic of conversation at The Chart Seminar. The easy way to think about it is that a consistent trend is a trend in motion and that reflects an imbalance between supply and demand. The rhythm of a trend should be easy to identify as long as it is consistent. When the consistency changes, that tells us the imbalance between supply and demand has changed. It is then we ask whether the conditions have changed enough to represent top formation characteristics. 

What follows is a cursory description but to gain a more in-depth understanding I would recommend reading my book Crowd Money and attending The Chart Seminar. Considering where we are in the market cycle I’ll focus on top formations. 



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December 12 2017

Commentary by Eoin Treacy

Cobalt: Solving for a Supply-Constrained Market

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

A section from this report is posted in the Subscriber's Area. 

Eoin Treacy's view -

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

There are at least four factories under construction in Asia that are on par with Tesla’s giga-factory with even more smaller factories also under construction. That represents a considerable quantity of potential raw materials demand lining up as battery manufacturing picks up. Since it takes time to build new mining/brine and refining capacity, a supply inelasticity meets rising demand environment is increasingly evident. 



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December 12 2017

Commentary by Eoin Treacy

Email of the day on financial engineering

Why should companies want to buy back 'relatively expensive equity' selling cheaper debt? I don't doubt they will continue doing this since companies buy high and sell low (or at least don't buy a lot when prices are low- cf. 2008 and 2009.

Eoin Treacy's view -

Thank you for this question which has three possible answers. The first for US companies focuses on tax since buybacks are not considered distributions while dividends are taxed. 



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December 12 2017

Commentary by Eoin Treacy

Email of the day on bitcoin holdings

Can I ask if you have a position in bitcoin currently as you are a client of Coinbase? I appreciate you may not wish to answer this but I’m wondering how you decide which of your positions to disclose  on this website. I would like to add that I’ve always appreciated the transparency that you and David have displayed in your personal dealings. 
Many thanks,

Eoin Treacy's view -

Thank you for this question which others may have an interest in. It has been our longstanding commitment to share our investment decisions, warts and all, with our subscribers and that will continue indefinitely. 



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December 11 2017

Commentary by Eoin Treacy

December 11 2017

Commentary by Eoin Treacy

Nikkei Climbs to 26-Year High as Global Growth Optimism Returns

This article by Min Jeong Lee and Emi Urabe for Bloomberg may be of interest to subscribers. Here it is in full:

Japanese shares rose with the Nikkei 225 Stock Average advancing to its highest since 1992 on a weaker yen, as upbeat jobs data from world’s largest economy reignited optimism over global growth.

Japan’s currency slid to a one-month low against the dollar after Labor Department figures Friday showed the U.S. added more jobs than expected in November and the unemployment rate held at an almost 17-year low. Both the Nikkei 225 and the broader Topix index advanced for a third day, with banks and machinery makers providing the biggest boost. Local equities are bouncing back to their highest levels in a quarter century following a pullback in late November on profit-taking.

“The global economic expansion isn’t over yet,” said Tatsushi Maeno, a senior strategist with Okasan Asset Management in Tokyo . As the yen heads lower “investors will anticipate upward revisions to corporate profits ahead of the earnings season in March.”

Both main stock gauges retreated briefly on Monday as technology companies slid in the wake of the sector’s recent global selloff. A measure of electronics makers finished 0.1 percent higher after slipping by as much as 0.6 percent.
“Performance for semiconductor stocks like Tokyo Electron is sluggish with investors torn over whether it’s alright to take an optimal view on the sector again,” said Hideyuki Suzuki, a general manager at SBI Securities Co.

 

Eoin Treacy's view -

The Nikkei-225 has been ranging above 22,000 since early November and closed at an incremental new high today. Upside follow through tomorrow and a sustained move above 23,000 would reassert medium-term demand dominance. The broad Topix Index has now also moved to a new 25-year closing high and importantly these indices are doing so on a much lower valuation than Wall Street. 



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December 11 2017

Commentary by Eoin Treacy

Brent Reaches Highest Since 2015 After Forties Pipeline Shutdown

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

Brent crude in London reached its highest since 2015 as a key North Sea pipeline shut down.

The Forties Pipeline System, one of the most important oil conduits in the world, is to be fully halted after a crack was discovered, the link’s operator Ineos said. The announcement boosted pricing that had been largely muted over the last week following an OPEC-led agreement by major producers to extend output curbs through the end of 2018. The Brent rally pulled New York futures up near $58 a barrel.

At the same time, the U.A.E.’s energy minister said Monday the group may draft a strategy in June to end the curbs if the market is no longer oversupplied. Brent, the global benchmark, rose as high as $64.71 a barrel while West Texas Intermediate climbed to as high as $57.86 a barrel.

“Brent is ripping,” said Bob Yawger, director of futures at Mizuho Securities USA Inc. in New York. “You really don’t have a lot of spare barrels before the supply situation becomes a problem.”

In addition, the WTI-Brent spread will “widen and encourage U.S. exports,” he said.

The pipeline system feeds crude to the Hound Point export terminal near Edinburgh in Scotland. At over 400,000 barrels a day, the supplies that flow through the link are the single largest constituent part of the Dated Brent grade that helps to settle more than half the world’s physical oil prices.

 

Eoin Treacy's view -

The Forties pipeline has more of an effect on pricing than its size merits because Brent is such an important benchmark for the global oil industry. The big question is how long it will take the leak to be sourced, fixed and whether they will then use this opportunity to run other maintenance. 



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December 11 2017

Commentary by Eoin Treacy

Please invest responsibly an important message from the Coinbase team

I received this email from the team at Coinbase ahead of the opening of futures trading. Here is a section:

We also wanted to remind customers of some of the risks associated with trading digital currency. Digital currencies are volatile and the prices can go up and down. Due to the rapidly changing price of digital currencies, some customers may not have sell limits that are sufficient relative to the value of total digital currency they are storing on Coinbase. Sell limits are one of the many measures Coinbase takes to protect client accounts and assets.

Eoin Treacy's view -

At the time of writing the price of bitcoin was $16,614 while the January future was trading at $18,030. That suggests at least a $1400 time premium over spot which is not overly ambitious considering what bitcoin is capable of. So far, the number of contracts traded has been quite small and the circuit breakers were triggered early as the market priced in the time premium on the market. What I found particularly interesting is that an exchange like Coinbase would advise its clients to introduce stops. 



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December 11 2017

Commentary by Eoin Treacy

Home Depot just showed who will gain the most from corporate tax cuts

This article by David J. Lynch for the Washington Post may be of interest to subscribers. Here is a section:

Several companies already have indicated that they will use excess funds to pay off debt, increase dividend payments or repurchase their own shares rather than create new jobs or raise wages. On Wall Street, the consensus is that workers will be last in line behind shareholders, creditors and investment bankers when the extra corporate cash is distributed.
“If they’ve got good growth prospects for something, they’re already throwing money at that. I don’t think the world changes because of lower taxes,” said Tim Ghriskey, who manages $1.5 billion in assets as chief investment officer at Solaris Asset Management. “There’s clearly going to be a lot of share buybacks.”

 

Eoin Treacy's view -

With interest rates low and the footprint of online sales continuing to grow the majority companies are likely to continue to proceed on the path of financial engineering they have pursued for much of the last decade. They have every incentive to optimize their weighted average cost of capital by buying back relatively expensive equity, often by substituting it for cheaper debt. 



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December 08 2017

Commentary by Eoin Treacy

December 08 2017

Commentary by Eoin Treacy

Stronger for Longer

Thanks to a subscriber for this report from Morgan Stanley focusing on the outlook for 2018. Here is a section on Japan:

A section from the report is posted in the Subscriber's Area. 

Eoin Treacy's view -

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

Japan has been fighting deflation for so long very few believe it will ever overcome the challenges it faces. However, Japan is now one of the only countries running both easy monetary and fiscal stimulus. The only thing we can definitely credit quantitative easing with in the USA is asset price inflation and that should be equally true of Japan. 



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December 08 2017

Commentary by Eoin Treacy

Musings From the Oil Patch December 5th 2017

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

A section from the report is posted in the Subscriber's Area.

Eoin Treacy's view -

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

Tesla’s high profile makes it a target for just about every other automotive company regardless of the fact it does not make a profit on its vehicles. The fact General Motors loses as much as $9000 per electric vehicle is also a testament to the fact that battery technology and manufacturing capacity is still an evolving theme. 



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December 08 2017

Commentary by Eoin Treacy

Email of the day on bitcoin and manias

One more question about bitcoin, if you please (honestly, I am a bit tired of the subject - is it another sign of a bubble?).
Interestingly, but in the past bubbles had been initiated by professional traders, many of whom stayed in the market till the crash and suffered losses, while individuals piled in at later and final stages (think of tulipmania, 1929, dotcom, etc.). So, when you saw a lot of individuals and inexperienced investors in the asset in question, with their enthusiasm turning into euphoria, and professionals talking the asset up, you knew that the end was in sight. 

And with bitcoin we have quite the opposite. Just consider this abstract from recent Wall Street Journal article, "At the Asia Securities Industry & Financial Markets Association’s annual conference in Hong Kong on Wednesday, only two of about 150 professional investors raised their hands when asked if they had invested during a session on cryptocurrencies. “It’s incredible that we’re [seeing this] at a finance event, but it’s actually very common,” said the panelist Henri Arslanian, PwC’s China and Hong Kong leader for finch. Mr. Arslanian, who also teaches a fintech course at the University of Hong Kong, said when he asks his students that same question, usually about 30% of them say they own virtual currencies.
So, what can it possibly tell us about the nature of this market and its prospects?

PS. This WSJ story, published on November 29, had beautiful chart (please find attached). I just think that they are wrong to begin bitcoin bubble this year. I looked at bitcoin chart at FTM library and think that it is finishing its second bubble year, since in 2016 it rose more than 100%, from about $430 to $1,000, and began really buzzing last year, with the current one bringing euphoria.

 

Eoin Treacy's view -

Thank you for this thought provoking question. I remember back in the early 2000s, when I was a salesman at Bloomberg, going to see private banks in Belgium and Luxembourg. There were a lot of young bankers a little older than myself. They had been hired in because the older generation needed young people who knew something about this “new economy”, that all the clients wanted to invest in. Simply by virtue of being young they knew more about the internet than their older peers. 

If cryptocurrencies were exchange traded, I believe the same thing would have happened on this occasion. However, because they are completely outside the realm of what is regulated as a financial instrument it is not possible for institutions to currently open trading desks. That is the primary reason behind the rush to open futures trading. It will give financial institutions the opportunity to offer products both long and short.     



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December 08 2017

Commentary by Eoin Treacy

Modi May Face a Photo Finish in Crucial State Election

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

Most observers expect Modi to win the Gujarat election when votes are counted on Dec. 18. But the narrowed lead is surprising for a bastion of BJP support such as Gujarat, as well as for Modi, whose party has swept to power in most state elections since he took national office in 2014. 

Capping days of relentless campaigning, Modi said in a rally in Surat that people of Gujarat would vote for the BJP. “My single aim is to ensure development and improve the lives of the poor,” he said on Thursday.

Anything other than a comfortable victory for Modi would surprise investors betting on a clear win in Gujarat, as well as five more years of Modi’s government on the other side of 2019. "Market assumptions so far have been of a comfortable BJP victory in Gujarat, and that the momentum continues till 2019," wrote Mumbai-based Credit Suisse analysts Neelkanth Mishra and Prateek Singh in a Dec. 5 note.

 

Eoin Treacy's view -

Elections have been catalysts for volatility, both up and down, in India over much of the last couple of decades. Modi led the BJP to victory for the first time in 14 years in Uttar Pradesh last July and that buoyed sentiment that he would carry over his majority into the 2019 general elections. The result was that the Nifty Index’s rally picked up, before pausing in August near the psychological 10,000. 



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December 08 2017

Commentary by Eoin Treacy

Email of the day on the Boring Company and tunnel safety

Actually, tunnels are among the safest locations during earthquakes. Counter-intuitive, but true. Many miles of tunnels in earthquake-prone Japan. See this link. I live in the Los Angeles area, and cannot wait for the tunnels ah, earthquake shelters!

Eoin Treacy's view -

Thank you for this insightful comment which was educative at least for me. Given LA’s traffic we’ve pretty much designed our life so it is contained within a 10-block radius. Our family drives less than 5000 miles a year without using public transport and including occasional day and weekend trips but anything that could reduce the gridlock between 4 and 7pm would be a gift for most Angelenos. 



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December 07 2017

Commentary by Eoin Treacy

Video commentary for December 7th 2017

December 07 2017

Commentary by Eoin Treacy

Bitcoin's Future Is All Mapped Out

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

And, in fairness, there's a game attempt to stop this being completely off-the-scale Wild West stuff. It's a cash-settled futures contract in U.S. dollars, with no actual delivery of Bitcoin required. The exchange will impose a minimum initial margin -- the deposit required to trade a specified amount of futures contracts -- of 35 percent. That's seven times more than for trading oil or mini-S&P equity futures. There will be a twice-daily requirement to make sure the 35 percent buffer is intact, given Bitcoin's constant swings. Clearing members can impose a higher limit if they want. Two-minute trading breaks will kick in if the daily price moves 7 percent away from the previous day's settlement price, then again at 13 percent and a hard limit at 20 percent when all trading will cease unless trading can restart within that band. There are no stated plans to offer options on the futures, until the contract is fully established. That would be too much rocket fuel.

Eoin Treacy's view -

Anticipation about the wall of money that could hit the bitcoin market with the introduction of futures is propelling speculation in the original cryptocurrency. This is an acceleration which is close to the ferocity of the move in 2013 when the price first managed to reach $1000 despite the fact it is multiples that level today.  



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December 07 2017

Commentary by Eoin Treacy

China's Banks Need More Capital After Credit Boom, IMF Says

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

President Xi Jinping has highlighted financial stability as a top priority. People’s Bank of China Governor Zhou Xiaochuan warned in October about the risk of a ‘Minsky moment,’ or a sudden collapse of asset values. Financial watchdogs last month promised to overhaul regulation of asset-management products, which hold about $15 trillion and are seen as a key threat to stability.

Speaking to media on Thursday on a video call, the IMF’s deputy director of monetary and capital markets, Ratna Sahay, said China’s financial system held three main risks. She pointed to an increase in credit that in other countries has been linked to financial distress. An increasingly complex and opaque financial system makes it hard to identify risks, and implicit guarantees encourage excessive risk-taking, she said.

Credit growth needs to slow, guarantees should be gradually removed, and banks need more capital during that process, Sahay said. “Banks need to have some buffers in order to protect against any possible distress that might happen,’’ she said.

 

Eoin Treacy's view -

Financial stability is a priority for every country and just about everywhere has its own version of implicit guarantees. We can only imagine what would happen in the USA if the now explicit guarantee behind Fannie Mae and Freddie Mac were removed. What state would the financial sector be in now if the EU and UK had not stepped in to backstop it during what was dubbed a sovereign debt crisis but was in fact a cross border banking sector calamity?  



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December 07 2017

Commentary by Eoin Treacy

Stock Wobble No Help to Gold as Market Bets on U.S. Rate Hike

This note by Eddie van der Walt for Bloomberg may be of interest to subscribers. Here it is in full:

Falling stock prices and geopolitical risks haven’t done much to support gold amid expectations of tighter U.S. monetary policy.

Metal for immediate delivery fell to the lowest in four months at $1,252.44 an ounce in London, having dropped every day this week as traders factor in an increase in interest rates this month as a near certainty. Prices declined despite growing volatility in equity markets, with the S&P 500 Index losing ground in four of the last five sessions.

“The rate hike is now looming and people are suddenly realizing that gold may not be the most attractive long position at the moment,” said David Govett, head of precious metals trading at Marex Spectron in London.

Bullion is heading for the the first back-to-back annual advance since 2012, but traders recently have dented those gains. Higher rates and a change in leadership at the Fed have outweighed deepening geopolitical risks, including the threat of war on the Korean peninsula and a third intifada in Israel.

“People’s memories are short and their pockets not so deep,” Govett said.

 

Eoin Treacy's view -

Gold does best when inflation is rising faster than central banks are willing to raise interest rates. That is when its credentials as a store of value really shine. Alternatively, it also does well in a supply inelasticity meets rising demand environment such as we saw in the last major bull advance that peaked in 2011. Right now, we are somewhere in between with expectations for future inflation outpacing the reality represented by official statistics so gold remains largely rangebound, albeit with a downward bias as of today. 



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December 07 2017

Commentary by Eoin Treacy

EU Says Talks to Go All Night as Irish Deal Close

Here is the latest update on the UK’s negotiations with the EU on the status of the Irish border at the time of writing:

Talks will go through the night as the U.K. and European Union seek a deal on the status of the Irish border so that Brexit talks can finally move on to crucial trade negotiations.

"We are making progress but not yet fully there. Talks are continuing through the night,” chief EU spokesman Margaritis Schinas said in a Twitter post.

EU Commission President Jean-Claude Juncker has spoken to Irish Prime Minister Leo Varadkar and U.K. Prime Minister Theresa May by phone. EU Council President Donald Tusk is due to speak to reporters at dawn in Brussels on Friday.
The U.K. isn’t confirming that a deal has been done, nor whether May will head to Brussels.

If a breakthrough on the sensitive issue of the Irish border is reached -- and the Northern Irish kingmakers in the DUP accept it -- then the three key divorce issues will have been settled, allowing talks to move on to the future relationship and the transition deal that businesses are desperate to get in place. The pound rose 0.5 percent.

 

Eoin Treacy's view -

British business wants a deal. The City of London, which represents a significant proportion of the economy, wants a deal. Therefore, despite sound arguments about the independence of Parliament and wish to have trade deals which are more positive for the UK, a deal remains likely as does a transition agreement which could be potentially lengthy. 



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December 07 2017

Commentary by Eoin Treacy

December 06 2017

Commentary by Eoin Treacy

Video commentary for December 6th 2017

Eoin Treacy's view -

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

Some of the topics covered include: Outlook for Japan on the short and medium-term, Tencent correction and impact on the Hang Seng, discussion of the impact of passive investing on the evolution of the 3rd psychological perception stage of a bull market. 



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December 06 2017

Commentary by Eoin Treacy

BlackRock and Vanguard Are Less Than a Decade Away From Managing $20 Trillion

This article by Rachel Evans, Sabrina Willmer, Nick Baker, and Brandon Kochkodin for Bloomberg may be of interest to subscribers. Here is a section:

It’s closer than you think. BlackRock Inc. and Vanguard Group — already the world’s largest money managers — are less than a decade from managing a total of $20 trillion, according to Bloomberg News calculations. Amassing that sum will likely upend the asset management industry, intensify their ownership of the largest U.S. companies and test the twin pillars of market efficiency and corporate governance.

None other than Vanguard founder Jack Bogle, widely regarded as the father of the index fund, is raising the prospect that too much money is in too few hands, with BlackRock, Vanguard and State Street Corp. together owning significant stakes in the biggest U.S. companies.

"That’s about 20 percent owned by this oligopoly of three," Bogle said at a Nov. 28 appearance at the Council on Foreign Relations in New York. "It is too bad that there aren’t more people in the index-fund business.”

 

Eoin Treacy's view -

ETFs are cost effective and offer access to market performance, with a mild underperformance, for an increasingly wide number of countries, sectors, currencies, commodities, bonds and real estate. 

For ETF providers the most expensive fund to launch is the first one. Every one after that is simply an iteration of the first based on a different basket. Therefore, they have an incentive to create as many as possible in the hope that a few will capture the imaginations of investors and be wildly successful at accruing assets. 

 



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December 06 2017

Commentary by Eoin Treacy

Tencent Seen Doubling by Stock-Picker Already Up 6,000%

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

Fueled by fast-growing sales, Tencent and Alibaba have almost doubled in share price this year, and both have market caps above $400 billion even after slipping recently. Their parallel climb explains in part why Leverenz’s fund has returned 31 percent in 2017, on track for its best year since 2009.

The stocks come with political risks. The Chinese government in September made creators of online message groups responsible for managing information within their forums, a move that chilled users of WeChat, Tencent’s popular social network.

“If you are an investor in Tencent you are basically betting on management’s ability to adjust to policies,” Duncan Clark, chairman of technology consulting firm BDA China Ltd., told Bloomberg News at the time.

 

Eoin Treacy's view -

Privately held companies will be tolerated and even prosper in China provided they accept the role of ensuring the permanence of Communist Party rule and toe the Party line. Jack Ma saying today that China benefits from the stability of a single party system can be viewed in that vein. “Private” companies are increasingly organs of central propaganda and are expected to assist both in monitoring and influencing the public. 



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December 06 2017

Commentary by Eoin Treacy

The Future of Nickel: A class act

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

A section from this report is posted in the Subscriber's Area. 

Eoin Treacy's view -

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

The LME signaled a couple of months ago that it is assessing whether to split the nickel contract in two. The decision will hinge on whether they believe battery demand will in fact ramp higher as many of us expect. The demands from the emerging battery sector are much more stringent in terms of delivery specifications than are currently the norm for LME warehouses so there is a compelling argument for the creation of a new contract.



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December 06 2017

Commentary by Eoin Treacy

Elon Musk's Boring Company shares potential map of LA tunnel network

This article by Nick Lavars for Newatlas many be of interest to subscribers. Here is a section:

These tunnels would essentially function as fast freeways, where vehicles and passenger pods latch onto electric skates and get shuttled along at up to 150 mph (241 km/h). There would on and off ramps every mile or so, each with a dedicated side tunnel to avoid logjams. These tunnels could also form part of a Hyperloop system over larger distances between cities.

While all of that remains a ways off, the company is making progress on its proof-of-concept tunnel. Photos shared by Musk in October showed a fully concreted tunnel complete with tracks and cables that he said at the time measured 500 ft (152.4 m) and within three of four months would stretch to around 2 mi (3.2 km).

 

Eoin Treacy's view -

I have to admit that my first reaction to the Boring Company’s announcement of tunnels for the LA area was something to akin “Has anyone told Elon Musk that Los Angeles is prone to earthquakes?” After all the idea of tunnels is all well and good until they turn into coffins. 

The rejoinder today would be that tunnels are immune to wildfires. Less that 8 miles from where I live the mountain between here and the Valley is on fire, which makes me glad I work from home and on flat ground. A lot of the people who pay city taxes in Los Angeles live in the areas currently burning, suggesting the Boring Company may get a leg up from the fires regardless of the safety concerns inherent in its plan. 

 



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December 05 2017

Commentary by Eoin Treacy

Video commentary for December 5th 2017

Eoin Treacy's view -

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

Some of the topics discussed include: precious metals pull back with gold testing the lower side of a two-month range. Wall Street pauses, Pound closes off its low on potential for the Brexit agreement to be concluded, commodities weak but oil continues to hold the $60 area. 



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December 05 2017

Commentary by Eoin Treacy

"Taxes Again"

Thanks to a subscriber for this report by Andrew Adams for Raymond James which may be of interest to subscribers. Here is a section:

A section from the report is posted in the Subscriber's Area.

Eoin Treacy's view -

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

Fiscal stimulus at a time of almost full employment and close to record low corporate spreads is a recipe for a boom. That is what the vast majority of people are focused on right now especially with the fact that corporations are likely to be the largest beneficiaries. For consumers the final text of the bill that is approved by the House and Senate will be a mix of the data in the below table but the net effect is a tax cut for many people which is likely to boost sentiment. 



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December 05 2017

Commentary by Eoin Treacy

Copper Falls to 2-Month Low on Worries of Slowing China Demand

This article by Yuliya Fedorinova for Bloomberg may be of interest to subscribers. Here it is in full: 

“Industrial metals prices will consolidate due to a marked slowdown in China’s metals consumption growth,” BMI Research wrote in an emailed note.

China’s frenzied construction of roads, bridges and subways is set for a major slowdown, adding a headwind to economic growth in 2018. Fixed-asset investment in infrastructure will grow 12 percent next year, according to the median estimate in a Bloomberg survey, down from almost 20 percent in the first ten months this year.

All 18 economists in the survey anticipated a moderation, adding to reports by Morgan Stanley, Goldman Sachs Group Inc. and UBS Group AG predicting a similar trend.

Adding to the selloff is speculation that metals prices have overshot fundamentals in the recent run up. Nickel has retreated 13 percent since early November, giving up some gains from earlier in the year.

"The recent rally in nickel was mostly due to expectations of increased use of the metal in batteries, which will definitely realize some day, but right now stainless steel, not EVs, is still major consumer of nickel and its market driver," Boris Krasnojenov, an analyst at Alfa Bank in Moscow, said by phone.

 

Eoin Treacy's view -

China has infrastructure on par with many developed countries and has more spare steel capacity, for example, than the entire industries of Japan, South Korea and Taiwan combined. At some point there will be a rationalization of that industry. However the big question is what will replace it? 



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December 05 2017

Commentary by Eoin Treacy

Bitcoin: UK and EU plan crackdown amid crime and tax evasion fears

The UK and other EU governments are planning a crackdown on bitcoin amid growing concerns that the digital currency is being used for money laundering and tax evasion.

The Treasury plans to regulate bitcoin and other cryptocurrencies to bring them in line with anti-money laundering and counter-terrorism financial legislation. Traders will be forced to disclose their identities, ending the anonymity that has made the currency attractive for drug dealing and other illegal activities.

Under the EU-wide plan, online platforms where bitcoins are traded will be required to carry out due diligence on customers and report suspicious transactions. The UK government is negotiating amendments to the anti-money-laundering directive to ensure firms’ activities are overseen by national authorities.

The Treasury said: “We are working to address concerns about the use of cryptocurrencies by negotiating to bring virtual currency exchange platforms and some wallet providers within anti-money laundering and counter-terrorist financing regulation.”

Eoin Treacy's view -

This article from TheStreet concerning the USA’s IRS tax treatment of bitcoin profits may also be of interest. 



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December 04 2017

Commentary by Eoin Treacy

Video commentary for December 4th 2017

Eoin Treacy's view -

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

Some of the topics covered include: rotation underway in response to the passing of tax cuts in the USA. Technology overbought conditions being unwound, domestically oriented sectors breaking out, gold steady, Rupee firm, oil pulls back from $65, 5-year bond yield tests the upper side of its range. 



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December 04 2017

Commentary by Eoin Treacy

Juncker and May fail to reach Brexit deal amid DUP doubts over Irish border

This article by Daniel Boffey and Lisa O’Carroll for the Guardian may be of interest to subscribers. Here is a section:  

The text of the agreement has to be discussed in 27 national capitals, if EU leaders are to sign it off at a summit on 14-15 December. “The less time we have before the European council, the more difficult it becomes to run the text through 27 national administrations and get an agreement,” said one. “It is [the UK’s] decision to leave it to the last minute and it is [the UK’s] risk.”

Juncker and May attempted to put a brave face on the spectacular collapse of their plans in press statements at the end of the day. The commission president praised May for being a “tough negotiator” who was energetically fighting for Britain’s interests.

May insisted that progress was in sight and that the negotiators would reassemble by the end of the week, with Wednesday evening now sketched into officials diaries. “On many of the issues there is a common understanding and crucially it is clear we want to move forward together”, May told reporters. “There are a couple of issues, some differences do remain, which require further negotiation and consultation. And those will continue but we will reconvene before the end of the week and I am also confident we will conclude this positively.”

Government sources made clear that there were two key sticking points yet to be solved in the negotiations with the EU27 - the role of the European Court of Justice when it came to citizen rights and the Irish border.

 

Eoin Treacy's view -

The Democratic Unionists (DUP) must be thanking their lucky stars that Theresa May needs their help to keep her government afloat. She has little choice than to consider their interests in the negotiations. As I see it there are five potential options for the question of the Irish border to be resolved. 



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December 04 2017

Commentary by Eoin Treacy

December 04 2017

Commentary by Eoin Treacy

December 04 2017

Commentary by Eoin Treacy

Russian Ships Near Data Cables Are Too Close for U.S. Comfort

Thanks to a subscriber for this article by David E.Sanger and Eric Schmitt for the New York Times. Here is a section: 

The issue goes beyond old worries during the Cold War that the Russians would tap into the cables — a task American intelligence agencies also mastered decades ago. The alarm today is deeper: The ultimate Russian hack on the United States could involve severing the fiber-optic cables at some of their hardest-to-access locations to halt the instant communications on which the West’s governments, economies and citizens have grown dependent.

While there is no evidence yet of any cable cutting, the concern is part of a growing wariness among senior American and allied military and intelligence officials over the accelerated activity by Russian armed forces around the globe. At the same time, the internal debate in Washington illustrates how the United States is increasingly viewing every Russian move through a lens of deep distrust, reminiscent of relations during the Cold War.

 

Eoin Treacy's view -

The USA is now the world’s largest oil producer, and its economy is not as dependent on energy as other major producers. At the other end of the spectrum Russia and Saudi Arabia are also major producers but their economies are close to totally dependent on energy. Just how much of a gamechanger unconventional oil and gas supply is cannot be underestimated as the geopolitical implications continue to unfold. 



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December 04 2017

Commentary by Eoin Treacy

December 04 2017

Commentary by Eoin Treacy

December 04 2017

Commentary by Eoin Treacy

Mars and beyond: Modular nuclear reactors set to power next wave of deep space exploration

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

Rated at 10 kilowatts, the Kilopower reactor puts out enough power to support two average American homes and can run continuously for ten years without refueling. Instead of plutonium, it uses a solid, cast uranium 235 reactor core 6 inches (15 cm) in diameter. This is surrounded by a beryllium oxide reflector with a mechanism at one end for removing and inserting a single rod of boron carbide. This rod starts and stops the reactor while the reflector catches escaping neutrons and bounces them back into the core, improving the efficiency of the self-regulating fission reaction. Until activated, the core is only mildly radioactive.

And

The design is modular, so the self-contained reactor units can be hooked together to provide as much power as and where it's needed, whether it's a deep space probe or a Martian outpost. According to Lee Mason, STMD's principal technologist for Power and Energy Storage at NASA Headquarters, the technology is "agnostic" to its environment, allowing it a wide range of applications.

 

Eoin Treacy's view -

Small, modular and safe reactors, that can be produced in factories and transported to their destination via regular roads represent perhaps the only feasible future for the nuclear industry. The fact NASA is moving ahead with such designs, for its own purposes, increases the potential similar programs will find utility in the wider economy. 



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December 01 2017

Commentary by Eoin Treacy

December 01 2017

Commentary by Eoin Treacy

December 01 2017

Commentary by Eoin Treacy

How the Flynn Charges Box In Trump

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

The content of the Flynn-Kislyak conversations deepens the narrative that special counsel Robert Mueller has been building: Earlier guilty pleas revealed Russian efforts to connect with the Trump campaign; this one reveals official contacts between the Trump team and Russia after the election -- contact significant enough for Flynn to lie to the FBI about.

The fact that the lies concern Russia makes it politically harder for Trump to fire Mueller or to pardon Flynn than if the charge had involved Flynn's other legal woes over his unreported lobbying for Turkey.

 

Eoin Treacy's view -

The Mueller investigation of ties between the Russian government and the Trump administration represents a potential powder keg for the political arena which could potentially bleed into the markets. It is looking increasingly likely that the tax legislation will get passed ahead of the release of whatever conclusions the investigation reaches but it is a wild card that could contribute to volatility. 

A section from a note by Russell Napier is posted in the Subscriber's Area.

 



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December 01 2017

Commentary by Eoin Treacy

U.S. regulator says it will allow CME Group, CBOE to list bitcoin futures

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

The announcement by the Commodity Futures Trading Commission (CFTC) paves the way for CME and CBOE to become the first traditional U.S. regulated exchanges to launch trading in bitcoin-related financial contracts, in a watershed moment for the cryptocurrency that should lead to greater regulatory scrutiny.

Trading in the CME and CBOE bitcoin futures contracts, which will be priced against and settled in the cash bitcoin market, should begin by year end, a CFTC official said.

Bitcoin soared above $11,000 for the first time this week, up 10-fold year-to-date and prompting multiple warnings of a bubble.

To guard against volatility, CME and CBOE will put in place stricter than usual risk-management safeguards, including initial margin requirements of between 35 percent and 40 percent.

The exchanges have also agreed to enter into information sharing agreements and to send the CFTC data on the settlement process so the regulator can conduct its own surveillance.    

 

Eoin Treacy's view -

When I have traded bitcoin via spread-bets over the last year the minimum margin requirement has been somewhere in the region of 20% and increases to over 30% depending on the size of the position. For futures contracts where the positions are generally larger, the margin requirement of 35-40% is in line with bitcoin’s volatility since 30% drawdowns are not at all uncommon. What that also means is that the ROI of trading bitcoin is quite high, in other words the quantity required in the pay to play environment is quite high relative to other assets. 



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November 30 2017

Commentary by Eoin Treacy

Video commentary for November 30th 2017

November 30 2017

Commentary by Eoin Treacy

U.S. Stocks Gain on Tax Outlook as Treasuries Drop: Markets Wrap

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

An up-or-down vote on the Senate’s tax bill could happen before the end of this week. While McCain’s support helped bring the measure one step closer to passing, Republican Senator Susan Collins of Maine said it “would be very difficult” for her to support the proposal in its current form. The party can only afford to lose two of its 52 members to pass the bill without Democratic support. Bob Corker of Tennessee, Jeff Flake of Arizona, James Lankford of Oklahoma and Ron Johnson of Wisconsin are all seen as potential “no” votes.

Data showed U.S. consumer spending settled back in October to a still-decent pace after the biggest increase since 2009, as a post-storm surge in auto sales cooled. Incomes remained robust and inflation showed progress toward the Federal Reserve’s goal. Treasuries sank, driving the benchmark 10-year yield to the highest in a month.

Eoin Treacy's view -

The most dominant strategy evident in the US equity market this year has been an automated process to buy the dips. What has become obvious over the last few months is that what is considered a dip is getting progressively smaller. 



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November 30 2017

Commentary by Eoin Treacy

OPEC and Russia Ready to Extend Oil-Supply Cuts Through 2018

This article by Elena Mazneva, Laura Hurst and Javier Blas for Bloomberg may be of interest to subscribers. Here is a section:

OPEC and Russia are ready to extend their oil production cuts until the end of next year to ensure global stockpiles keep falling and prices maintain recent gains.

All OPEC members and Russia, the biggest producer outside the group to join the deal, agree the cuts should last until the end of 2018, according to delegates in Vienna to attend Thursday’s meeting. On Wednesday, a committee charged with overseeing the agreement on behalf of the whole group also recommended extending until the end of next year, two delegates said.

"Everybody’s working toward that nine-month extension,” Nigerian Petroleum Minister Emmanuel Kachikwu said in a Bloomberg television interview.

Eoin Treacy's view -

OPEC’s strategy to restrict supply in order to raise prices took more than a year to reduce excess inventories and improving global growth has certainly helped to achieve that goal. Surging supply from domestic onshore US sources continues to represent a challenge and not least as exports pick up. That has ensured the run-up in prices has not been more aggressive. 



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November 30 2017

Commentary by Eoin Treacy

Inside Adidas' Robot-Powered, On-Demand Sneaker Factory

This article by for Wired.com may be of interest to subscribers. Here is as section: 

Some economists are bullish on ideas like Speedfactory and see it as the start of a much larger trend. “We are finally escaping from the manufacturing trap that we’ve been in for the last 20 years,” says Michael Mandel, chief economic strategist at the Progressive Policy Institute in Washington, DC, referring to the mass offshoring of production to Asia.

Improvements in automation can now finally substitute for cheap foreign labor, which will naturally push factories closer to where the consumers are. As manufacturing shifts from offshore mass production to customized, local fabrication, new jobs will open up for human workers, some of which have yet to reveal themselves. “We used to have distribution built around manufacturing,” Mandel says, referencing the centrality of offshore factories, “and now I think that manufacturing is going to be built around distribution.”

Eoin Treacy's view -

The growing role of automation in the garment and shoe sector has been a topic I’ve written about extensively over the last few years. Textiles remain one of the most labour intensive of all industries and has also played a pivotal role as a first step on the road to development for many developing countries. 



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November 30 2017

Commentary by Eoin Treacy

New nanomaterial, quantum encryption system could be ultimate defenses against hackers

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

A new low-cost nanomaterial developed by New York University Tandon School of Engineering researchers can be tuned to act as a secure authentication key to encrypt computer hardware and data. The layered molybdenum disulfide (MoS2) nanomaterial cannot be physically cloned (duplicated) — replacing programming, which can be hacked.

In a paper published in the journal ACS Nano, the researchers explain that the new nanomaterial has the highest possible level of structural randomness, making it physically unclonable. It achieves this with randomly occurring regions that alternately emit or do not emit light. When exposed to light, this pattern can be used to create a one-of-a-kind binary cryptographic authentication key that could secure hardware components at minimal cost.

The research team envisions a future in which similar nanomaterials can be inexpensively produced at scale and applied to a chip or other hardware component. “No metal contacts are required, and production could take place independently of the chip fabrication process,” Shahrjerdi said. “It’s maximum security with minimal investment.”

Eoin Treacy's view -

Cybersecurity is a major evolving problem both from the perspective of consumers and corporations but also nations because the barrier to entry by competing regimes is falling all the time. 



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November 29 2017

Commentary by Eoin Treacy

November 29 2017

Commentary by Eoin Treacy

Bitcoin Surges Past $11,000 as Bubble Warnings Can't Cool Market

This article by Julie Verhage  and Eric Lam for Bloomberg may be of interest to subscribers. Here is a section:

Bitcoin is on a tear in 2017, a 10-fold surge that took off even more after CME Chief Executive Officer Terrence Duffy announced in October that the company would offer futures trading by the end of the year. The move is considered key to Wall Street’s broader embrace of the crypotcurrency, likely enabling increased speculation and -- perhaps some day -- products such as exchange-traded funds.

Still, bitcoin’s jump has been met with caution in some circles, and outright dismissal in others. Vanguard Group Inc. founder John Bogle advised investors on Tuesday to avoid the virtual currency “like the plague,” while JPMorgan Chase & Co. CEO Jamie Dimon has called it an asset bubble and a fraud.

Under U.S. law, exchanges like CME, which profit from increased trading volumes, can approve new futures contracts themselves. The process, which is used in most cases, is known as self-certification and involves sending a written confirmation to the CFTC that the contract complies with relevant rules. Often, agency officials will engage in a back-and-forth with a company.

Eoin Treacy's view -

Bitcoin has doubled since November 12th and the pace of the advance has definitely picked up since the introduction of futures and options became more likely in August.  



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November 29 2017

Commentary by Eoin Treacy

The Tax Bill Is Hurting Tech Stocks

This article by Sarah Ponczek and  Elena Popina for Bloomberg may be of interest to subscribers. Here is a section: 

“It’s the tax bill hurting tech,” said Frank Ingarra, head trader at Greenwich, Connecticut-based NorthCoast Asset Management LLC, which oversees $1.8 billion. “When you have something that’s got so extended and done so well, and people start thinking about these things, of course you’re going to have profit taking.”

Equities were caught in another violent rotation Wednesday, with financial stocks poised for the best two-day rally in more than a year and tech shares their worst rout since last August’s meltdown. Companies from Nvidia Corp. and Facebook Inc., up more than 50 percent in 2017, are nursing losses of 3 percent or more Wednesday. Their effective tax rates are 6.5 percent and 10.1 percent, respectively, data compiled by Bloomberg show.

Eoin Treacy's view -

The technology sector has delivered some of the most impressive performance of any sector this year with the result that a considerable number of wide overextensions relative to the trend mean are now evident. Mean reversion is therefore an increasingly likely possibility. 



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November 29 2017

Commentary by Eoin Treacy

Email of the day on gold and the demise of retail

Really enjoying the service and the big picture videos.

The scenario of US physical retail imploding over the next couple of years is a plausible potential scenario. In this instance, where consumer sentiment could decrease, how would this affect gold do you think? I note that gold is approaching the $1,300 mark which could be an interesting buy should it break through.

Eoin Treacy's view -

Thank you for this question of general interest and I’m delighted you are enjoying the service.

 



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November 29 2017

Commentary by Eoin Treacy

China racing for AI military edge over U.S.: report

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

The competition was one of many examples cited in a report by a U.S.-based think tank about how China’s military might leverage its country’s rapid advances in artificial intelligence to modernize its armed forces and, potentially, seek advantages against the United States.

“China is no longer in a position of technological inferiority relative to the United States but rather has become a true peer (competitor) that may have the capability to overtake the United States in AI,” said the report, written by Elsa Kania at the Center for a New American Security (CNAS) and due to be released on Tuesday.

Future U.S.-China competition in AI, Kania wrote, “could alter future economic and military balances of power.”

Alphabet Inc’s Executive Chairman Eric Schmidt, who heads a Pentagon advisory board, delivered a similar warning about China’s potential at a recent gathering in Washington.

Schmidt noted that China’s national plan for the future of artificial intelligence, announced in July, calls for catching up to the United States in the coming years and eventually becoming the world’s primary AI innovation center.

Eoin Treacy's view -

Developing hardware is technically difficult and requires highly specialized machinery which a relatively small number of countries control the manufacture of. That has precluded China from developing a domestic semiconductor business despite the fact it is a major assembler of computing products. Software is not subject to those kinds of limitations.



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November 28 2017

Commentary by Eoin Treacy

Video commentary for November 28th 2017

November 28 2017

Commentary by Eoin Treacy

UK bows to EU demands with breakthrough offer on Brexit bill

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

Negotiators are working on how to present the settlement as a net estimate, with the UK side pressing for an implied figure of between €40-45bn once UK receipts and other deductions are taken into account. “They have promised to cover it all, we don’t care what they say their estimate is,” said one senior EU diplomat. “We’re happy to help them present it.”

Eoin Treacy's view -

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

It has been my view for some time that the resolution to the Brexit negotiations would be that there will be a deal. As the above quote highlights the UK government remains concerned about how to frame the concession to a hostile UK public. However, the harsh reality is that UK business wants a deal, the City, which represents a significant proportion of the UK’s economy, needs a deal and therefore a deal will be struck. 



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November 28 2017

Commentary by Eoin Treacy

Powell Is Willing to Search for More Heat in U.S. Labor Market

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

Jerome Powell, appearing before the Senate panel weighing his nomination to be Federal Reserve chairman, aligned himself with a more dovish wing of the U.S. central bank that believes the labor market can get even stronger without creating inflation worries.

President Donald Trump’s nominee said the current jobless rate of 4.1 percent is at or below many estimates of full employment, and then pointed to other measures that suggest remaining slack like historically low participation rates.

“There’s no sense of an overheating economy or a particularly tight labor market,” Powell said in response to a question from Senator Jack Reed, a Rhode Island Democrat. “There may be more slack, more people that can come back to work. I think we are looking at an economy that is going to go under 4 percent unemployment.”

His comments suggest he shares current Fed Chair Janet Yellen’s view that there are still pools of potential workers who can be drawn into the labor force, giving the Fed scope to continue its go-slow approach to raising interest rates.

Eoin Treacy's view -

I believe it is safe to assume President Trump wants a strong economy and is more than happy to use procyclical policies to achieve it. Having a dove at the Fed is a big part of achieving his ambitions and Powell is very close to Yellen in his views. That suggests the Fed is less likely to compete with fiscal stimulus by raising rates aggressively under a Powell governorship. 



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November 28 2017

Commentary by Eoin Treacy

November 28 2017

Commentary by Eoin Treacy

Smooth 2H likely, but for the noise about "profiteering"

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

MSCI India consumer staples P/E shows downside potential … The MSCI India consumer staples’ P/E with respect to the MSCI India P/E chart shows that the sector-relative P/E is still high at +1 STDEV. This would seem to indicate potential for de-rating. Over the past 12 months, the Consumer index has delivered 36% absolute return (outperformed the Sensex by 6ppt).

… and we recommend investors use DBCMI Consumer sector valuations are still expensive as per DB Consumer Momentum Indicator (“DBCMI”, key to our sector top-down view – Figure 4). We believe the DBCMI is a good reflection of relative valuations (22-year backtested lead indicator), as it considers relative earnings momentum. According to DBCMI, the sector could relatively correct 12% to be in line with relative earnings, in our view (or relative earnings need ~13% upgrade).

Eoin Treacy's view -

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

The India consumer is benefitting both from improving standards of governance and the introduction of 4G late last year. Economic growth coming in above inflation coupled with a stable currency have all contributed to a steady environment for both consumers and investors with the stock market continue to march higher in a reasonably consistent manner.

 



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November 27 2017

Commentary by Eoin Treacy

Video commentary for November 27th 2017

November 27 2017

Commentary by Eoin Treacy

Bitcoin Guns for $10,000 as Cryptocurrency Mania Defies Skeptics

This article by Julie Verhage, Eric Lam and Todd White for Bloomberg may be of interest to subscribers. Here is a section:

Bitcoin blew past $9,700 just a week after topping $8,000 and approached its closest ever to five figures, gaining mainstream market attention as it defies bubble warnings.

The biggest price jump since August consolidated during Japanese trading hours and vaulted the largest cryptocurrency’s value in circulation above the market caps of all but about 30 of the S&P 500 index members. The increase also buoyed its 10-day volatility to more than 15 times the level of the euro-dollar, the most traded currency pair.

Eoin Treacy's view -

What I find interesting about the bitcoin market is how fervent the bulls are and how skeptical the bears are. It represents a perfect example of the sharp discrimination evident in a crowd as the polarization in performance between the winners and losers grows progressively wider. 



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November 27 2017

Commentary by Eoin Treacy

Email of the day on the digital economy:

Another dynamite audio last weekend - much appreciated, and thank you.

I came across this report from Huawei and Oxford Economics the other day. I'm still reading but it really ups the argument about the effect of digital technology using what it calls the spill-over effect within and across industries.

Some of the report’s key findings are:

The true size of the 2016 digital economy is US $11.5 trillion globally, or 15.5% of global GDP. This is roughly 3 times larger than traditional measurements. The base digital assets comprise 1/3 or $3.8 trillion, while digital spillover effects account for the remaining 2/3 or $7.5 trillion

The digital economy is 18.4% of GDP in advanced economies, ranging in size from 35% to 10%. The US has the largest digital economy at 35% of GDP.

The global digital economy has almost doubled between 2000 and 2016, growing 2.5 times faster than global GDP over this period. China’s share has tripled from 4% of GDP in 2000 to 13% in 2016.

Over the past three decades, every dollar invested in digital technologies added $20 to GDP on average, 6.7 times higher than non-digital investments which added $3 for every dollar invested.

Assuming current growth rates of digital investments over the next 10 years, the report estimates that by 2025 the digital economy will be US $23 trillion globally, or 24.3% of global GDP, up from 15.5% in 2016.

 If you download, I found the graph on 9.17, Fig 3 particularly interesting and unexpected.

Eoin Treacy's view -

Thank you for your kind words and I’m delighted you are enjoying the big picture long-term videos. If the viewer numbers on Vimeo are anything to go by they are the most popular feature on the site apart from the Chart Library.

This is a very welcome contribution to the debate on how much the digital economy contributes to productivity growth. Some are still arguing that the productivity gains from the internet peaked more than a decade ago and use that to explain why growth has been less than impressive since. However, as the complementary evolution of artificial intelligence, automation, cloud computing, social media, 4G connectivity and Internet of Things advance they all contribute to productivity gains when viewed from a wider digitisation theme. 



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November 27 2017

Commentary by Eoin Treacy

China Shares Resume Decline as Year's Top Performers Take a Hit

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

The CSI 300 Index of large-cap stocks closed down 1.3 percent, with ZTE Corp. and BYD Co. both falling the 10 percent limit in Shenzhen, while BOE Technology Group Co. slid 9.7 percent. Shanghai-listed liquor giant Kweichow Moutai Co. couldn’t maintain its brief foray into positive territory and closed down 1.4 percent, its seventh straight loss since state media warned it was climbing too fast. The stock has slumped 14 percent since Nov. 16.

“Institutional investors are choosing to cash in toward year-end as valuations are near historic highs and market sentiment deteriorated after official media targeted Moutai,” said Shen Zhengyang, Shanghai-based analyst at Northeast Securities Co. He said the market “lacks steam” for further gains.

Eoin Treacy's view -

The pace of the CSI300’s advance has picked up over the last six months and has outperformed the bank-heavy Shanghai A-Share Index. The institutional memory of the bubbly activity which contributed to the surge and collapse of the market in 2015 is still relatively fresh and the government does not want to see a repeat. That suggests some pressure may be coming to bear on the highest-flying shares, to instil some discipline among investors. 



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November 24 2017

Commentary by Eoin Treacy

November 24 2017

Commentary by Eoin Treacy

After Sudden Rout, China Stock Traders Question Beijing Put

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

For Sun Jianbo, president of China Vision Capital Management Co. in Beijing, valuations among large-cap shares are too expensive for state-backed funds to intervene.

The CSI 300 traded at its highest level relative to the broader Shanghai Composite Index in at least 12 years at the start of this week as investors flocked to large caps such as Moutai and Ping An Insurance (Group) Co.

"There’s no need to prop up the market yet," Sun said. "A lot of big caps are still expensive and it would do more harm than good to state-backed funds if they buy now."

The divergence between large-cap shares and the rest of the market may be one reason why the government took aim at Moutai. Before Xinhua warned last week that gains in the liquor maker were excessive, the stock had more than doubled this year.

Eoin Treacy's view -

Following the botched introduction of options trading in 2015 the Chinese administration introduced new rules on disclosures and selling by company principles. It also banned short selling for a time. Through steady purchases by various state-owned vehicles, they manufactured the slow and steady pace of the stock market’s advance since the low in early 2016. 



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November 24 2017

Commentary by Eoin Treacy

U.S. online sales surge, shoppers throng stores on Thanksgiving evening

This article by Richa Naidu, Nandita Bose for Reuters may be of interest to subscribers. Here is a section:

Crowds at stores in many locations around the country were reported to be strong, according to analysts and retail consultants monitoring shopper traffic across the U.S.

“The turnout is clearly better than the last couple of years,” said Craig Johnson, president of Customer Growth Partners. “The parking lots are full and the outlet malls are busy.”

The retail consultancy has 20 members studying customer traffic in different parts of the country.

Moody’s retail analyst Charlie O’ Shea, who was in Bucks County, Pennsylvania, reported healthy traffic at local stores including consumer electronics chain Best Buy, clothing store Old Navy and retailer Kohl’s Corp.

Eoin Treacy's view -

I definitely get the sense that deals on Black Friday are somewhat more aggressively priced this year. $50 back from Apple on a $400 iPad mini with free engraving, fully loaded Dell XPS laptops for $500 off on Costco, which is considerably cheaper than the Dell website, and a slew of additional deals all point to a retail sector eager to overcome the slump of the last few years. 



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November 24 2017

Commentary by Eoin Treacy

Platinum industry expects supply deficit in 2018

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

In its latest Platinum Quarterly report, the World Platinum Investment Council predicts a deficit of 275 koz of the precious metal for 2018 caused by an increase in jewellery and industrial demand.

Overall supply is probably going to drop by 1% next year “due in part to a 2% reduction in South African mine supply compounded by closures in the second half of 2017,” the report states.

In the third quarter of 2017, production from Zimbabwe declined to 95 koz owing to furnace maintenance work, while Russian supply fell to 185 koz, which is lower than the 205 koz produced in Q2’17. “Overall, global refined production for Q3’17 is estimated at 1,495 koz, which is a 4% reduction from Q2’17 and an 8% fall year-on-year.”

When it comes to next year’s overall demand, the WPIC says it is going to grow by 2% when compared to 2017. In particular, platinum jewellery demand will rise by 3%, which would represent its first spike since 2014. Behind this recovery is the double-digit growth in the rapidly expanding Indian market.

Eoin Treacy's view -

Platinum is trading at a significant discount to both gold and palladium which is a rather odd circumstance for a metal which is the used in all of the most expensive jewelry. However, the revolt against diesel engines, prompted by the Volkswagen cheating scandal, has cast a pall over the sector which has confined prices to a reasonably tight range over the last year. 



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November 23 2017

Commentary by Eoin Treacy

November 23 2017

Commentary by Eoin Treacy

If you invested $1,000 in stocks like Amazon and Netflix 10 years ago, here's what you'd have now

Thanks to a subscriber for this article from CNBC. Here is a section:

But there are cautionary tales to be seen in the chart, too, since any individual stock can either over- or under-perform. That's why so many experts suggest that, to get started in the stock market, you consider index funds, which hold every stock in an index such as the S&P 500, including big-name companies such as Apple, Microsoft and Google, and offer low turnover rates, so the attendant fees and tax bills tend to be low as well. Warren Buffett, Mark Cuban and Tony Robbins all agree index funds are a safe bet, especially for new investors, since they fluctuate with the market, stay pretty constant and eliminate the risk of picking individual stocks.

Eoin Treacy's view -

The subtext of this statement, quoting some of the most venerable investors in the business, is that owning Index trackers is risk free. I’m sure that is not what the likes of Warren Buffett and Mark Cuban mean but both are on the record as saying that ordinary investors have no hope of achieved the same results they have. The article implies you need to own the Index because you have no hope of picking the big winners. 



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November 23 2017

Commentary by Eoin Treacy

Mine Shutdown Heats Up Uranium Prices

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

Cameco (ticker: CCJ), which provides roughly 17% of the world’s uranium production, announced on Nov. 8 that it will temporarily suspend production at its McArthur River mining and Key Lake milling operations in Canada by the end of January. It blamed weakness in uranium prices, which it said had fallen by more than 70% since the Fukushima accident in March 2011. McArthur River is the world’s largest high-grade uranium mine.

The news sent weekly spot prices for uranium up by nearly $3, to $23 a pound, on Nov. 13, according to nuclear-fuel consultancy Ux Consulting. Weekly prices stood at $20.25 a pound on Nov. 6, ahead of the announcement, holding in the tight range of $19.25 and $20.75 they had traded at from late May. January uranium futures traded on Globex settled at $24.40 on Thursday. “This is the last gasp of the uranium bear market,” says Christopher Ecclestone, a mining strategist at investment bank and research firm Hallgarten & Co., adding that the market is likely to “perk up” from here

Eoin Treacy's view -

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

Uranium prices have stabilized near $20 following news of a supply disruption. The fact that closure was voluntary helps to highlight just how much stress the sector is under. The Fukushima disaster has set back the cause of uranium by at least a decade despite the reliability and abundance of the power it provides and the inherent safety of generation IV reactors.



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November 23 2017

Commentary by Eoin Treacy

Tech Rally Goes Global, Powering Major Stock Indexes to Fresh Records

This article by Riva Gold for FoxBusiness is an example of common theme in the media to highlight tech’s outperformance. Here is a section: 

Just eight companies -- Facebook Inc., Apple, Amazon.com Inc., Netflix Inc., Alphabet Inc., Baidu Inc., Alibaba Group Holding and Tencent -- have increased by $1.4 trillion in market cap in 2017, a sum roughly equivalent to the combined annual GDP of Spain and Portugal.

Tech giants' powerful user networks, large cash piles and access to consumer data have led many investors to expect the big will only get bigger.

"You need critical mass to support continuing innovation," said Christopher Dyer, director of global equity at Eaton Vance. While there are exceptions, "China and the U.S. would be natural destinations for incremental dollar investment within tech," he said.

Eoin Treacy's view -

The return to outperformance of emerging markets has been a major topic of conversation for investors this year but it is worth highlighting that Tencent Holdings, Alibaba, Samsung and Taiwan Semiconductor represent 17% of the MSCI Emerging Markets Index.



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November 22 2017

Commentary by Eoin Treacy

November 22 2017

Commentary by Eoin Treacy

Budget 2017: Hammond pledges to fix UK's housing market

This article by Chris Giles, Gavin Jackson and George Parker for the Financial Times may be of interest to subscribers. Here is a section:

He presented the Budget as a set of measures to tackle the long-term problems in the British economy, including a dysfunctional housing market, low productivity growth and geographic inequality. Mr Hammond said “money, planning reform and intervention” would be needed to solve the housing crisis. Apart from the stamp duty cut for first time buyers, the government will give local authorities the power to charge double the amount of council tax on empty properties.

And

The government will introduce a £1.5bn package to smooth the implementation of universal credit by removing waiting times for families to receive their payment. The so-called national living wage, a higher minimum wage for those aged over 25, will increase from £7.50 to £7.83 in April. The tax-free personal allowance for income tax will rise to £11,850 and the higher rate threshold for income tax to £46,350. Both increases are in line with inflation at 3 per cent. Spending on the NHS will increase by £1.6bn next year and £350m this winter.

Eoin Treacy's view -

The UK faces unusual challenges in negotiating its exit from the EU and with a tenuous grip on power the Chancellor had little choice than but to pitch his budget at where some of the greatest threats to the administration lie. 



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November 22 2017

Commentary by Eoin Treacy

Here's what we learned from ordering 213 curries at Wetherspoons

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

The UK on-trade looks not dissimilar to the UK grocery sector, which too has a few dominant operators that take share from a weak underbelly of independents and supplier-tied franchises. The big grocers resemble the big pub chains inasmuch as they are all about buying power, efficient logistics, wage capping, centralised cost savings and economies of scale. It might also be noted that Wetherspoon’s 4m square feet of productive floor space is about equal to the whole Tesco Express estate. And while Wetherspoon’s revenue of £450 per square foot or thereabouts is half the level expected from a big-four grocer, its 7.7 per cent operating margin compares pretty well to Tesco’s 1.8 per cent at group level last year.

It’s a comparison endorsed by Tim Martin, Wetherspoon’s founder and chairman, who is often found astride his hobby horse that supermarkets and pubs should be taxed equally. Mr Martin has been less vocal on whether pubs and supermarkets should be regulated equally.

Because here’s the thing with supermarkets: they can’t engage in local price wars. Every single UK branch of Tesco Express has to charge the same. That’s because since 2002, the supermarkets have been bound by a code of practice drawn up in response to a Competition Commission review a couple of years before. 

Eoin Treacy's view -

If the performance of Wetherspoons compared to Tesco is any guide the difference in competitive pricing laws has a considerable effect on performance. Meanwhile there is also a clear difference between what are the higher overall margins on discretionary spending and staple spending at supermarkets where competition is increasingly aggressive.  



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November 22 2017

Commentary by Eoin Treacy

One in three Chinese children faces an education apocalypse. An ambitious experiment hopes to save them

This article by Dennis Normile for Sciencemag.com may be of interest to subscribers. Here is a section:

One in three Chinese children faces an education apocalypse. An ambitious experiment hopes to save them – This article by Dennis Normile for Sciencemag.com may be of interest to subscribers. Here is a section:

The result is a widening gap between urban and rural educational achievement in China, Rozelle says. Many urbanites fit the stereotype of "tiger" parents, pushing kids to excel in school. After hours, their schedules are packed with music and English lessons and sessions at cram schools, which prepare them for notoriously competitive university entrance exams. More than 90% of urban students finish high school.

But only one-quarter of China's children grow up in the relatively prosperous cities. Rural moms have high hopes for their children; Rozelle's surveys have found that 75% say they want their newborns to go to college, and 17% hope their child gets a Ph.D. The statistics belie those hopes: Just 24% of China's working population completes high school.

Rozelle believes such numbers bode ill for China's hopes of joining the ranks of high-income countries. Over the past 70 years, he explains, only 15 countries have managed to climb from middle- to high-income status, among them South Korea and Taiwan. In all those success stories, three-quarters or more of the working population had completed high school while the country was still in the middle-income bracket. These workforces "had the skills to support a high-income economy," Rozelle says. In contrast, in the 79 current middle-income countries, only a third or less of the workforce has finished high school. And China is at the bottom of the pack. School dropouts don't have the skills needed to thrive in a high-income economy, Rozelle says. And, worryingly, the factory jobs that now provide a decent living for those with minimal training are moving from China to lower-wage countries.

Rozelle thinks a lack of opportunity isn't the only factor holding back China's rural children. Physically and mentally, they are also at an increasing disadvantage, hampering their performance in school and their prospects in life.

Eoin Treacy's view -

You might remember last year the OECD’s Pisa rankings of schools was released and China featured particularly highly. That is because the data only looked at Beijing, Shanghai, Guangdong and Jiangsu where the best of the country’s education resources are concentrated. As the above article highlights the real story is of a country that still has a long way to go in equipping its population with the tools necessary to succeed in the 21st century. 



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November 22 2017

Commentary by Eoin Treacy

Global Gold Outlook

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

A closer look at the assumptions of the theory
The obvious conclusion for gold investors would be to celebrate the coming era of skyrocketing gold prices, as supply dwindles, and the greatest gold rush of all time ensues in the markets. Such a scenario sounds very enticing. However, instead of taking the news at face value, it is worth examining the matter in more detail and understanding what the decline in production actually means for gold in the mid- and long-term. 

One of the main problems with most peak gold analyses and projections is that they are based on estimates of known mineable reserves of gold.  However, the number of known reserves increases over time as new discoveries are made thanks to technological and scientific advances. Even as the currently operational mines might be slowly exhausting their reserves, new projects and potential discoveries remain untapped.

In this context, “peak gold” can be seen as the gradual depletion of the current, relatively easily accessible deposits. Once these are completely mined, the industry would be forced to move on to new locations that are currently not preferred, because they either involve higher production costs or present other challenges. Nevertheless, higher gold prices would motivate miners to seek out and explore new discoveries and deposits, as well as invest in research and new technologies.

Furthermore, one must bear in mind that the gold market is extensive and quite complex. Currently, the precious metal is being mined in every continent except Antarctica. However, as gold traditionally holds its value and does not corrode, it also has a strong recycling industry, refining and re-smelting the metal, which accounts for 1/3 of the total supply on average.

Therefore, “peak gold” can be viewed as a temporary supply restriction, which would trigger gold price increases in the mid-term. But it also has a much more important aspect to it: over the long term, the depletion of mines currently in operation translates to a “gap-up” of the gold price, as the production costs for new discoveries are drastically lifted. In other words, “peak gold” might not mean the end of our gold supply, but it could introduce a whole new average price range and “price floor” for gold.

Eoin Treacy's view -

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

The price of any commodity tends to fluctuate mostly above the marginal cost of production. Oil experienced a step up in production costs over the last decade with the $40 area representing a new floor whereas it had previously been a ceiling. The big question for gold is where the marginal cost of production now rests 



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November 22 2017

Commentary by Eoin Treacy

November 21 2017

Commentary by Eoin Treacy

November 21 2017

Commentary by Eoin Treacy

November 21 2017

Commentary by Eoin Treacy

Email of the day on the next crash

Dear Eoin, could you comment on Niall Ferguson's market prediction in the Sunday Times: 

Eoin Treacy's view -

Thank you for this article which may be of interest to subscribers. It is always a useful exercise to contemplate the end of the financial world but in the full knowledge it doesn’t happen all that often. Niall Ferguson does a good job of articulating the potential causes of future problems in this article which is sure to garner attention for his new book. 



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November 21 2017

Commentary by Eoin Treacy

Musings From The Oil Patch November 21st 2017

Thanks to a subscriber for this edition of Allen Brooks’ ever interesting, and occasionally controversial, report for PPHB. Here is a section: 

Between 2010 and 2016, coal’s share of U.S. energy fell from 23% to 15.8%, while renewables’ share climbed from 1.7% to 3.7%.  In the EU, coal’s share fell from 16% to 14.5%, and renewables more than doubled its share, going from 3.9% to 8.3%.  This emissions and economic progress by the EU is in jeopardy following the election of President Trump who is determined to boost U.S. oil, natural gas and coal industries, and push back on green mandates and subsidies.  The EU’s response has been to isolate the United States for its climate position.  Their strategy for overcoming high energy costs and exposure to energy disruptions is to make people choose expensive renewable energy in the guise of it being the only logical choice when confronted with the alternative of a disastrous environmental outcome if we continue burning fossil fuels.  

As the EU’s strategy seems not to be working as well as planned, it has become more radical with governments seeking to ban internal combustion engine cars.  This, its leaders believe, will force American auto companies to compete in the marketplace of zero-emission vehicles.  Little is mentioned about the fact that the carbon emissions legacy associated with building electric cars requires years of driving them before it is neutralized.  Electric car promoters also never mention the environmental and social costs of mining the rare earth minerals required in rechargeable batteries.  If fairly presented, people might question whether there are other alternative solutions that are less-costly and do more to mitigate the environmental hazards of electric batteries and renewable energy sources.  

While the goal to level the economic playing field with respect to energy’s cost in manufacturing remains an EU objective, the path to achieving that goal has changed.  The choice presented is impending environmental disaster with continued use of fossil fuels versus feeling good about saving the planet with high cost renewables and zero-emission electric vehicles.  Expect more of rhetoric as we move forward.  Maybe President Trump understands that the climate change movement is really an economic war in the guise of climate change.

Eoin Treacy's view -

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

The simple fact is the EU imports a lot of its energy and the USA is close to being energy independent. Quite whether the EU is so cynical in its attempts to pioneer high cost power is questionable, but if everyone were to adopt the same cost base for energy production it would certainly create a more level playing field for a lot of important industries and help European competitiveness.  



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November 21 2017

Commentary by Eoin Treacy

ASEAN: The infrastructure push

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

Infrastructure plays a crucial role in the region’s economic, social and environmental development, including boosting regional connectivity. Greater connectivity of the transport infrastructure enhances logistical efficiency and supports the growth of investment, trade and commerce while reducing business costs. While countries have invested in infrastructure to varying extents over the years, development has been gaining momentum, with more than US$275bn key pipeline projects across ASEAN, as we detail in this report.

Singapore: To fulfil Singapore’s 6.9mn population target (+25% from the current size) by 2030, the government is steering infrastructure development towards greater public network connectivity, usage of personal mobility devices, as well as usage of digitalisation to transform the city state into a Smart Nation. These infra developments, amounting to US$44bn will help Singapore cope with population increase and prevent traffic congestion.

Malaysia: In the 10th Malaysia Plan (2011-2015), the government highlighted its commitment to infrastructure development. One focus is on building railways (MRT 2, MRT 3, LRT 3) to alleviate traffic congestion. Another focus is on connecting rural areas to urban clusters to ensure equitable development through the Pan Borneo Highway. Infrastructure growth is driven by China, having committed US$34bn (RM144bn) to infrastructure projects such as the East Coast Rail Link, Kuantan Industrial Park and Melaka Gateway. 

Indonesia: In the post-Suharto era, infrastructure development stalled and has not been able to keep up with economic growth amid the commodities boom. The inefficient transport network has resulted in acute distribution bottlenecks, driving up logistics cost. When President Jokowi took office, he diverted a portion of the energy subsidies to infrastructure development. Through priority infrastructure projects totalling US$41bn, the government seeks to boost connectivity in the archipelago to increase business competitiveness.   

Eoin Treacy's view -

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

In a period of synchronised economic expansion it is natural for emerging markets to engage in infrastructure development since credit is generally still accommodative and the need remains compelling. That will also help to lay the foundation for future growth as the region evolves economically amid a trend of generally improving standards of governance. 



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November 20 2017

Commentary by Eoin Treacy

Video commentary for November 20th 2017

November 20 2017

Commentary by Eoin Treacy

The Chart Seminar

Eoin Treacy's view -

It is always a pleasure to meet subscribers but doubly so when we get to spend two days together discussing the outlook for psychological makeup of the market, where we are in the big cycles and which sectors are leading and which are showing relative strength. I had three big takeaways from last week’s seminar in London.

As anyone who has attended the seminar will know, I do not have examples but offer delegates the opportunity to dictate the direction of the conversation. That ensures the subject matter is relevant to what they are interested in and also highlights the fact that subject matter is applicable to all markets where an imbalance between supply and demand exists. The second benefit of allowing delegates to pick the subject matter is that it is offers a window into what is popular in markets right now and what might be getting overlooked. 



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November 20 2017

Commentary by Eoin Treacy

Merkel Says She Prefers New Elections Over Minority Government

This article by Birgit Jennen and Rainer Buergin for Bloomberg may be of interest to subscribers. Here it is in full:

German Chancellor Angela Merkel said she would prefer to go ahead with new federal elections rather than try to form a minority government, as Europe’s most powerful leader weighs her options after the collapse of four-party coalition talks late Sunday.

Seeking her fourth term, Merkel is “skeptical” about a minority government as it may not bring about necessary stability and is open to another so-called grand coalition with the Social Democratic party, she said in an interview with ARD television. In the absence of an agreement to secure a majority in Germany’s Bundestag, “I’m certain that new elections are the better way,” she said.

Disputes among parties over migration and other issues led the Free Democrats to walk out of the talks. German President Frank-Walter Steinmeier urged the country’s political parties to return to the negotiating table, saying “those who seek political responsibility in elections must not be allowed to shy away from it when they hold it in their hands.”

Eoin Treacy's view -

Small parties face difficult choices when they enter government. If they are to ever have a chance of achieving the change they seek, they have no choice but to enter a coalition. However, they seldom get everything they wanted and are often seen by their voters as sellouts when they fail to achieve lofty goals. Therefore, the fate of small parties is often to taste power but to have their support evaporate at the following election. That is as true of the Liberal Democrats in the UK as it is of many small parities in the Eurozone. 



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November 20 2017

Commentary by Eoin Treacy

Goldman Sachs Sees Four 2018 Fed Rate Hikes as U.S. Growth Gains

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

The U.S. jobless rate, which was 4.1 percent in October, may reach 3.5 percent in late 2019, Goldman predicted. That would be the lowest level since the late-1960s.

“Our projections would imply an evolution over the current cycle from the weakest labor market in postwar U.S. history to one of the tightest,” the economists said in a summary of their report. “We expect that a tight labor market and a more normal inflation picture will lead the Fed to deliver four hikes next year.”

That’s one more rate increase than the median forecast of Fed officials, and more than financial markets are currently pricing in. One of the reasons why Goldman Sachs economists said they disagree with market expectations is “we see little evidence that soft inflation is structural in nature.”

Eoin Treacy's view -

The USA’s economic expansion might be modest by historical standards but it is still one of the longest in history. The prospect of adding a fiscal stimulus when growth is already mature and unemployment low is the epitome of procyclical policy and increases the likelihood that inflation will increase. 



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November 16 2017

Commentary by Eoin Treacy

November 16 2017

Commentary by Eoin Treacy

Stronger enforcement, improving cashflow

Thanks to a subscriber for this report from Deutsche Bank focusing on the Chinese Environmental sector. Here is a section:

The sector’s valuation looks attractive at current levels compared with its own trading history and also with the index. The P/Es of most stocks are below/close to their average minus one standard deviation since 2015, in terms of both their own PE and also relative PE to MSCI China. We think that the sector’s current valuation offers decent safety margins to buy into most stocks.

China usually strengthens environmental enforcement during the last three years of Five-Year Plan periods as the country gets closer to assessment deadlines. We expect the same to take place from 2018, especially as the CPC's 19th National Congress recently mentioned that China plans to set up a "National Natural Resources and Ecology Administration" soon. We expect these factors to benefit this laggard sector, together with improving cashflow profile/earnings quality with selective companies over the next few years

 

Eoin Treacy's view -

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

By all accounts New Delhi’s pollution is quickly catching up with Beijing’s but China is further along on its development track that India. The thick soup of smog that clings to Northern China during the winter is a political liability as the middle class evolves and demands better conditions. The closing down of inefficient production facilities and fabricators is driven both by a desire to cut back on overcapacity and to tackle nonperforming loans. Improving the environment at the same time is a bonus.



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November 16 2017

Commentary by Eoin Treacy

Russell Napier: Debt Deflation Worries Are Starting to Rise Again

Thanks to a subscriber for this article from Financial Sense which may be of interest to subscribers. Here is a section on the Velocity of Money: 

Though there is an overall tendency for velocity of money to fall over time, Napier noted, the accelerated decline we’ve seen in recent years is due to the nature of the money that is being created. This money primarily takes the form of bank reserves, which are not inherently fungible and are now stuck in the banking system.

Banks have chosen not to increase the size of their balance sheets and create deposits, which is the money that circulates in the actual economy, as opposed to the asset economy. This is why Napier thinks the velocity of money has fallen.
“There’s a form of money there that is stuck in the ‘asset ghetto,’ if you like, and not yet spreading out to normal GDP,” he said.

This plays in part into the assumption most people make that the world is awash in money. While there is a lot of money in the asset markets, the reality is that M2 growth in the United States is 5 percent, which is one of the lowest levels recorded in the past 30 years, Napier noted. Apart from the 2008 to 2009 crisis, we’re back to very low levels of total money creation.
This is true of other countries, as well. China is close to a new record low in the growth of its money supply. India is also showing levels of growth in its money supply not seen since 1963.

 

Eoin Treacy's view -

The Velocity of M2 is at a record low based on the last update of September 30th. If Russell Napier’s contention the Index has plumbed new depths since 2010 because of stranded reserves at banks then the reduction of the Fed’s balance sheet could have a positive effect by pushing responsibility for credit creation onto the banking sector.  



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November 16 2017

Commentary by Eoin Treacy

Surprising Airbnb Adoption Slowdown in US/EU, and What It Means for Hotels and OTAs

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

Two Reasons Adoption Is Slowing... First, the benefits of growing awareness among online consumers in the US/Europe are slowing/topping out, as Airbnb awareness among our survey respondents increased by only 800bps to 80% in '17 (vs. a 2,000bps increase in '16). We see awareness as a smaller driver going forward. Second privacy/safety are material and growing barriers to adoption, as the percent of non Airbnb users citing these factors to not use it increased by ~700bps/400bps, and the absolute number of people concerned about these issues increased by 10%/25% Y/Y. This, in our view, could speak to two potential truths: 1) How Airbnb/sharing lodging could be more niche than previously expected, and 2) How the lobbyists/opponents of Airbnb may be gaining traction.

...Causing Us to Lower Our Airbnb Forecast...This slowing adoption causes us to reduce our forward user/room night forecast for the US/Europe, now expecting ~12% '16-'20 room night growth, vs 29% previously. We now model Airbnb to grow to 6% of lodging demand across US/Europe by '20, vs. 9% previously.

...Making Us Incrementally More Bullish on the Lodging Space... While surveyed hotel cannibalization inched up slightly to 51% from 49% (and expected to be 54% in '18), a slowing user adoption curve suggests Airbnb is less of a threat to hotels. We estimate that Airbnb had a 50bps impact to '17 RevPAR growth across US/Europe, down from our prior estimate of 90bps. We now forecast it will have another 50bps impact on '18 RevPAR growth, down from our prior 80bps impact. As such, we expect US RevPAR to be relatively stable at +2.3% and +1.6% growth in '18 and '19, respectively.

 

Eoin Treacy's view -

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

The travel sector is likely to get a boost from the expansion in the number of airlines, signalled by impressive sales at the Dubai Air Show. That should be positive for hotels and particularly so if AirBnb’s penetration is peaking. Personally my experience with AirBnb has been mixed and I suspect many people have had similar experiences. 



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November 16 2017

Commentary by Eoin Treacy

November 16 2017

Commentary by Eoin Treacy

House Passes Tax Bill in First Step Toward Historic Overhaul

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

The Senate plan also departs from the House bill by delaying the corporate tax-rate cut by one year. And it includes a proposal to repeal a key provision of the Obamacare law -- saving the government $318 billion over 10 years to help pay for the tax cuts, but leaving 13 million Americans uninsured by 2027, according to official estimates.

Many of the Senate provisions are designed to cut the bill’s cost and meet budget rules that will allow GOP leaders to pass a bill with only Republican votes. Differences between the House and Senate legislation will have to be worked out between the chambers -- and then both the House and Senate will have to approve the final result.

House Ways and Means Chairman Kevin Brady said he’s going to focus on preparing for a conference committee with the Senate. He added that lawmakers were working to improve provisions related to international taxation, address specific industries’ concerns and try to work with lawmakers from high- tax states.

“This is certainly not the last step in our tax reform journey,” Brady said after the vote. But he pledged lawmakers will “make this better every step of the way.”

 

Eoin Treacy's view -

Optimism about the prospect of tax cuts has been flagging over the last 10 days so today’s vote was greeted with enthusiasm by markets with the major Wall Street indices all finishing in positive territory and the VIX index pulling back from the 14 area. 



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November 16 2017

Commentary by Eoin Treacy

November 16 2017

Commentary by Eoin Treacy

World's Biggest Wealth Fund Wants Out of Oil and Gas

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

 

Norway, which relies on oil and gas for about a fifth of economic output, would be less vulnerable to declining crude prices without its fund investing in the industry, the central bank said Thursday. The divestment would mark the second major step in scrubbing the world’s biggest wealth fund of climate risk, after it sold most of its coal stocks.

“Our perspective here is to spread the risks for the state’s wealth,” Egil Matsen, the deputy central bank governor overseeing the fund, said in an interview in Oslo. “We can do that better by not adding oil-price risk.”

The plan would entail the fund, which controls about 1.5 percent of global stocks, dumping as much as $40 billion of shares in international giants such as Exxon Mobil Corp. and Royal Dutch Shell Plc. The Finance Ministry said it will study the proposal and decide what to do in “fall of 2018” at the earliest.

Eoin Treacy's view -

Norway’s proposal to diversify its exposure to the oil sector makes sense but the timing of the decision, ahead of the proposed Saudi Aramco IPO and after the successful sale of Abu Dhabi’s Adnoc retail gasoline stations’ business says more about the trauma of the crash lower from above $100 than the state of the sector at present. 



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November 16 2017

Commentary by Eoin Treacy

Russia used Twitter bots and trolls "to disrupt" Brexit vote

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

Most of the tweets seen by this newspaper encouraged people to vote for Brexit, an outcome which Russia would have regarded as destabilising for the European Union. A number were pro-Remain, however, suggesting that the Russian goal may have been simply to sow division. “This is the most significant evidence yet of interference by Russian-backed social media accounts around the Brexit referendum,” said Damian Collins, the Tory MP who chairs the digital, culture, media and sport select committee. “The content published and promoted by these accounts is clearly designed to increase tensions throughout the country and undermine our democratic process. I fear that this may well be just the tip of the iceberg.”

On Monday Theresa May accused Moscow of using fake news to “sow discord” and of meddling directly in elections. President Trump has said that he believes Mr Putin’s denial that Russia interfered in the American presidential race.

The Swansea and Berkeley paper says that a “massive number of Russian-related tweets was created a few days before the voting day, reached its peak during the voting and the result and then dropped immediately afterwards”. Tho Pham, one of the paper’s authors, said that “the main conclusion is that bots were used on purpose and had influence”.

 

Eoin Treacy's view -

Russia and China invest significant sums in attempting to influence Western public opinion whether it is to co-opt university professors, fund socialist/communist/reactionary/militant organisations, create so-called Confucius Institutes and more recently Twitter and Facebook posts. 



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