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June 03 2020

Commentary by Eoin Treacy

June 03 2020

Commentary by Eoin Treacy

Global Asset Allocation: A Quiet Dollar Devaluation

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

Without much fanfare, a second global monetary easing was unleashed in May as the dollar fell without anyone appearing to notice. The fact that the greenback fell of its own volition suggests that the unprecedented risk aversion seen in March is really beginning to unwind. If so, then the US$1.2trn sitting in US money market funds since February will be itching to find a home or asset class that can hold its value (see Global Asset Allocation: Too Much Money Chasing Too Few Assets). Throughout 2019, US money markets only accumulated US$555bn.

As fears of the COVID-19 pandemic recede, the Federal Reserve is continuing to add dollars to the global monetary system at an unprecedented rate (see RHS chart). Just as importantly, US implied inflation expectations, as measured by the 10-year breakeven inflation rate, are rising after lurching into deflation. Coincidentally, this is occurring as the futures markets price in the probability of negative US rates. One of the most important turning points for the direction of equity markets is the shift into inflation (see US: Market Bottoms).

Eoin Treacy's view -

The upwelling of emotion that has poured out onto the streets of the USA, and elsewhere, is a symptom of a much larger issue. The reality is that globalisation has hollowed out the middle classes of most OECD countries. Simultaneously, the evolution of technology means we can do even more with less which is dehumanising the economy. That also concentrates the benefits of globalisation in the hands of the well-connected, wealthy and/or highly educated individuals, but also leaves millions of people behind with a degraded standard of living.



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June 03 2020

Commentary by Eoin Treacy

Email of the day on DRD gold long base formations.

Can you add DRD Gold (ADR) to the library. It is priced just under 10 $. There is overhead resistance from the early 2000s; is this still relevant 20 years on? Can you do a comparative review of the N. American, Australian and South African gold mining sector?

Eoin Treacy's view -

Thank you for this question which may be of interest. DRD’s South African and US listing are already in the library just search for DRD. The company has focused on processing South African mining tailings for the last couple of decades. It did have a brief foray into mining in Papua New Guinea but to the best of my knowledge it fell foul of resource nationalism, along with a number of other large international companies. As you point out the share has been ranging mostly below $10 for twelve years.



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June 03 2020

Commentary by Eoin Treacy

Latest Satoshi Nakamoto Candidate Buying Bitcoin No Matter What

This article by Olga Kharif for Bloomberg may be of interest to subscribes. Here is a section:

One reason is, Back believes Bitcoin will go to $300,000 from the current approximate price of $10,000 within five years -- without any additional adoption by institutional investors. Retail investors, who’ve carried the torch for the last 10-plus years, since Bitcoin’s debut, will continue to show support as institutions remain cautious, he said.

“It might not require additional institutional adoption because the current environment is causing more individuals to think about hedging,” Back said. “And retaining value when there’s a lot of money printing in the world.”

With more people working from home amid the Covid-19 epidemic, real-estate investments are more risky, he said. Bonds may be overvalued. And so some investors may be turning to Bitcoin, even though it too could see some headwinds as more people lose jobs, he said.

“It is causing people to think about the value of money and looking for ways to preserve money,” Back said. “It’s a difficult environment to get any yield.”

One reassuring sign of demand is that Grayscale Investments alone has bought more Bitcoin in the past few weeks than the amount of new coins that has been mined, Back said.

Eoin Treacy's view -

The rationale for owning bitcoin is it is a resource with limited supply. Much of that supply is held outside the market and the mining of new supply has just become twice as difficult. The price has increased substantially following previous having of the mining reward but on this occasion that has yet to happen.



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June 02 2020

Commentary by Eoin Treacy

Video commentary for June 2nd 2020

Eoin Treacy's view -

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

Some of the topics discussed include: Dollar weak, Yen weak, Euro, Pound commodity currencies rebounding, that is helping internaitonal markets recovery, Wall Street remains firm and is boosted by the currency's weakness, gold steady, oil firm, 



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June 02 2020

Commentary by Eoin Treacy

Adam Tooze on the pandemic's consequences for the world economy

This article is a month old but it raises a number of important questions which I believe are worth addressing. Here is a section: 

The worry about China is the sustainability of its debt-fuelled economic growth. The basic weaknesses of the Eurozone are that it still doesn’t have a backstop for its rickety banking system and that it lacks a shared fiscal capacity; what’s more, Italy’s finances are so weak that they continually threaten to upset European solidarity. In the US, the national institutions of economic policy actually work: they demonstrated this in 2008 and are doing so again now. The Fed and the Treasury exert a huge influence not only over the US economy but the entire global system. The question is how they stand in relation to a profoundly divided American society and how their technocratic style of policymaking is received by the know-nothing nationalist right wing of the Republican Party and its champion in the White House.

Over recent years, each of these weaknesses has at various times seized the attention of the fund managers and business leaders who direct global business, and the experts and technicians who advise them. It isn’t a secret that China’s debt bubble, Europe’s divisions and America’s irrational political culture pose a challenge to the functioning of what we know as the world economy. What caused the panic last month was the realisation that Covid-19 has exposed all three weaknesses simultaneously. Indeed, in Europe and the US the failure of government has been so severe that we now face a public health catastrophe and an economic disaster at the same time. And to make matters worse, Donald Trump appears tempted to juggle the two.

Eoin Treacy's view -

This article decries the reliance of economies on central banks largesse. I think most of us have some sympathy with the fact that the swamping of asset markets in liquidity is not the most ideal scenario because of the risk of mispricing and misallocation of resources. However, it is the reality we are dealing with.



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June 02 2020

Commentary by Eoin Treacy

Email of the day - on precious metals

Hello Eoin, if "liquidity trumps everything else" and assuming that governments worldwide will continue New Monetary Theory with massive deficit spending financed by monetization by central banks at essential cero or negative real interest rates, then this wall of liquidity should further propel the ongoing general "melt up" of stock and debt markets allowing a prolonged, demand driven risk-on rally.

In this case precious metals would lose their supposed unique "safe haven" status/advantage until such time that serious inflation or stagflation or a likely collapse or reset of the monetary system becomes visible to a large part of investors - if at all.

Until such (far-off?) day of reckoning, precious metals would neither be needed as protection against systemic crisis as "NMT would be working beautifully" nor for return purposes as stocks and other assets will be pushed up by abundant liquidity. For investors in precious metals/mining stocks the critical questions therefore is:

How long will stocks and other financial assets outperform and "unneeded" precious metals correct or even collapse? Looking back at 2011 and onwards, precious metals collapsed and stayed low until mid-2019 whilst continuing QE1- QEn (the predecessor for NMT) around the world made stock and debt markets boom for the next 9(!) years.

As this time round central banks and governments "shot before asking" by IMMEDIATELY providing unlimited liquidity and fiscal deficits instead of slowly finding and providing relief to financial markets as they did in 2008-2012 and onwards, the best part of the run-up in precious metals may be behind us and the place to invest is in stock markets without much regard to old fashioned valuation discipline.

Most of the performance of the past 10 years has been by way of a multiple expansion - why not have the S&P 500 trade at 25+ trailing earnings if real interest rates are negative and there is a worldwide "Powell/central bank put" as a guarantee against any serious losses?

My questions to you: 1. Why stay invested in PMs NOW and risk a serious corrections/collapse in PMs? 2. When will investors at large recognize - if at all (?!) - that NMT is and will be seriously debasing the currency and nominal values of all assets and that PMs are relatively better or at least, competitive investments/stores of value than say quality stocks (which pay at least a small dividend)?

Thank you for reflecting on the above and sharing your views with the collective. All the best, B

Eoin Treacy's view -

Thank you for this summary of the questions many investors are asking. The rationale behind any bubble is valuations don’t matter. The evolution of ETFs as trackers of indices is the clearest evidence anyone might wish for that this trend is already well underway. Market cap weighted indices are closet momentum strategies so tracking them turns everyone into a momentum investor.



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June 02 2020

Commentary by Eoin Treacy

India Equities Post Best Run in Seven Months on Lockdown Exit

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

India’s phased loosening of restrictions will see malls, restaurants and places of worship reopening as of June 8 after the world’s toughest stay-at-home curbs to stem the Covid-19 pandemic muted economic growth.

“The gradual easing of the lockdown has boosted sentiment,” Ajit Mishra, vice president of research at Religare Broking Ltd., wrote in a note Monday. “The recent surge indicates markets are focusing more on the optimistic side and anticipating a favorable scenario.”

Still, Moody’s Investors Service on Monday reduced the country’s sovereign rating by a notch to the lowest investment grade, which may undermine India’s efforts to attract foreign capital into its debt market to fund a ballooning fiscal gap and avoid the first economic contraction in more than four decades.

Eoin Treacy's view -

With the RBI easing and stimulative measures from the government, the biggest uncertainty has been about the impact the coronavirus would have on the Indian economy. The lockdown is now easing and the country’s youthful demographics has helped it weather the storm better than many. That is helping investors look beyond the downgrade of sovereign debt. 



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June 02 2020

Commentary by Eoin Treacy

June 01 2020

Commentary by Eoin Treacy

Video commentary for June 1st 2020

Eoin Treacy's view -

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

Some of the topics discussed include: wide gap between main street and wall street may be primed to close, Europe and Japan recovering, dollar weak, oil, gold, silver, platinum, copper, nickel steady, emerging markets steadying on a weaker Dollar



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June 01 2020

Commentary by Eoin Treacy

Protests Hammer U.S. Cities Still Recovering From Lockdown

This article by Amanda Albright, Eric Martin, Elizabeth Campbell and Christopher Palmeri for Bloomberg may be of interest to subscribers. Here is a section:

Violence erupted in dozens of cities following the death of George Floyd, a black Minneapolis man who died after a white police officer pressed a knee into his neck for more than eight minutes. Some demonstrators broke off to rampage through shopping districts, including Rodeo Drive in Beverly Hills and Michigan Avenue in Chicago, and set fire to police cars and municipal buildings.

The chaos, amid otherwise peaceful protests, struck as the economy struggles to emerge from its coronavirus-enforced hibernation. After the Covid-19 deaths of more than 104,000 Americans, unprecedented government intervention and massive disruptions to business and everyday life, the scenes of unrest were a bleak contrast to the recent optimism of the markets. A 36% rally in the S&P 500 since March has pushed valuations to the highest in 20 years.

“I think people are coming to the realization that their jobs may not be coming back or coming back quickly. This is all conflating with the racial tensions and completely boiling over,” said Mark Zandi, chief economist at Moody’s Analytics. “This highlights the depth of despair in America,” he added, citing 20% unemployment and 50 million workers who’ve lost their jobs or had pay cuts.

Eoin Treacy's view -

"Ranges are explosions waiting to happen" has been an adage at The Chart Seminar for decades. It is equally true of periods of political and social calm where an undercurrent of tension is already palpable. The divergence between the haves and the have nots has seldom been so wide. 

For highly educated well-positioned people, working from home is an option and they have even seen savings rise. For the unemployable, illegal immigrants and nearly 40 million new unemployed conditions are dire and anger at the lack of progress is clearly evident. 



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June 01 2020

Commentary by Eoin Treacy

Email of the day - on silver tracking funds

Thank you for your great service and your prescient commentaries.

I am interested in a non-leveraged silver fund structured along the lines of the PMGOLD ETF.

I would very much appreciate your views/suggestions.

Many thanks. R

Eoin Treacy's view -

Thank you for this email, your kind words and I am delighted you are enjoying the service. PM GOLD is an Australia listed covered call-backed exchange traded note. The closest thing I could find to it is the ETFS Physical Silver ETN (ETPMAG AU) which is denominated in Australian Dollars.



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June 01 2020

Commentary by Eoin Treacy

Hong Kong Stocks Rally After Trump Holds Fire on Retaliation

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

While the U.S. President Donald Trump’s speech Friday was heated in rhetoric, it lacked specifics around measures that would directly impact the city. He announced the U.S. would begin the process of stripping some of Hong Kong’s privileged trade status without detailing how quickly any changes would take effect and how many exemptions would apply.

“Trump’s comments gave no immediate measures on Hong Kong and leave room for negotiations with Beijing,” said Castor Pang, head of research at Core Pacific-Yamaichi International. “Trump’s comments have eased investors’ concern about the impact of potential sanctions on the Hong Kong economy.”

Eoin Treacy's view -

With significant domestic challenges the Trump administration has probably concluded that now is not the best time to further escalate tensions with China to the point where they are irredeemable. That has helped to support the Chinese markets.



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June 01 2020

Commentary by Eoin Treacy

Japan Inc.'s Cash Stash Grew to 89% of GDP Before Emergency

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

Corporate retained earnings rose to ¥484 trillion, roughly 89% of the nation’s gross domestic product (GDP) in the three months to the end of March, according to finance ministry data published today.

The extent to which firms tap into this cash hoard will likely be in the spotlight again as the current crisis unfolds, especially for companies that lay off workers.

Policymakers have been doubling down on their support for the economy. Since Abe called a national emergency in early April, his government has put together record stimulus packages worth ¥234 trillion or about 43% of GDP. The Bank of Japan’s special measures total ¥75 trillion.

With Covid-19 threatening jobs and businesses, economy minister Yasutoshi Nishimura in March urged companies to spend their cash savings to cope with the pandemic.

Japanese firms have taken a more cautious stance on spending their income since the global financial crisis with many of them looking to shore up their finances in case of future economic shocks. This conservative stance has drawn criticism from policymakers, namely finance minister Taro Aso, as not being aggressive enough to boost growth through higher wages and investment.

Eoin Treacy's view -

This record of retained earnings stands in sharp contrast to the kind of activity that has been prevalent on Wall Street over the last decade where companies have returned almost all of their net cashflow in the form of dividends and share buybacks. That has left them particularly exposed to the lockdown-induced recession. Generally speaking, Japanese companies are much more conservatively run. That means they don’t take the kinds of big risks technology pioneers do but they do tend to have solid margins.



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June 01 2020

Commentary by Eoin Treacy

Eoin's personal portfolio - Last updated March 27th

Eoin Treacy's view -

One of the most commonly asked questions by subscribers is how to find details of my open traders. In an effort to make it easier I will simply repost the latest summary daily until there is a change. I'll change the title to the date of publication of new details so you will know when the information was provided.



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May 29 2020

Commentary by Eoin Treacy

May 29 2020

Commentary by Eoin Treacy

Email of the day on risks versus liquidity

The trillions of US dollars / Euros / Yens etc. given to us by central banks and governments are like painkillers leading us to feel better than we should feel. The SP500 back at over 3.000 point. Stock markets look one year ahead, right? But aren’t we too optimistic? Consumers in the US are either without a job and or savings or they are saving more than usual, which is a serious headwind. Forty percent of people with a lower income have lost their jobs. As if all those SP500 companies do not need any customers, really? If large companies cut costs there is less income for other smaller companies. This domino effect is just starting, meaning even more people will be without job soon. Maybe I’m too negative, I really hope I’m wrong. Back to the stock market. To avoid a subjective vision on the stock market I’m looking for indices to give me an objective warning signal of a top. There are four indices I selected: ND100, Fang, VIX and AD/DE. I would like to hear your opinion and suggestions about this please. Looking forward to Friday’s big picture video. Have a nice weekend.

Eoin Treacy's view -

Thank you for this question which I believe just about everyone has an interest in. I will distil it down to the simple question of whether liquidity provision trumps all other factors combined? It’s a big topic but the evidence over the last 12 years supports the view that the primary result of quantitative easing is to inflate asset prices. With interest rate suppression actively underway nothing has really happened to challenge that conclusion. Nevertheless, prices do not go up in a straight line indefinitely and someone is going to have to pay for the largesse eventually.



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May 29 2020

Commentary by Eoin Treacy

US Economic Outlook & Implications of Current Policies for Inflation, Gold and Bitcoin

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

Gold prices are well above their long-term inflation-adjusted averages. Over time gold has barely outperformed inflation with a real return of 1.0% before cost of storage and insurance, compared to 2.7% for 10-year US Treasuries.

The fascination with gold has existed since the Egyptians first used gold bars as money as early as 4000 BC. The opening paragraph of the late Peter Bernstein’s book, The Power of Gold: The History of an Obsession, captures the sentiment: At the end of the 19th Century, John Ruskin told the story of a man who boarded a ship carrying his entire wealth in a large bag of gold coins. A terrible storm came up a few days into the voyage and the alarm went off to abandon ship. Strapping the bag around his waist, the man went up on deck, jumped overboard, and promptly sank to the bottom of the sea. Asks Ruskin: ‘Now, as he was sinking, had he the gold? Or had the gold him?’

And

Even during shorter windows when inflation has been above 6%, gold only outperformed equities between January 1970 and June 1970, and then again between August 1973 and July 1982.

In other periods, when inflation has been less than 6%, equities have outperformed gold.

Eoin Treacy's view -

This report recaps some of the most common negative arguments for investing in gold and they are relevant at some points in the broad market cycle. However, there is a cyclicality to gold’s turns at outperformance and the broad machinations of the global economy are currently at least as bullish as they were in the early 2000s.



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May 29 2020

Commentary by Eoin Treacy

An Investment Only A Mother Could Love: The Tactical Case

Thanks to a subscriber for this report by Lucas White and Jeremy Grantham for GMO may be of interest to subscribers. Here is a section:

Eoin Treacy's view -

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

The resources sector has been somewhat challenged by the decline in some commodity prices, particularly oil, over the last months. However, they represent a hedge against potential future inflation. They also have growth opportunities from an inevitable infrastructure global growth cycle; fuelled by a desire to support growth in the aftermath of the coronavirus.



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May 29 2020

Commentary by Eoin Treacy

May 28 2020

Commentary by Eoin Treacy

Video commentary for May 28th 2020

Eoin Treacy's view -

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

Some of the topics discussed include: money supply has surged and the potential for further Eurozone cohesion is supporting equities and the Euro, geopolitical tensions with China are a wild card threat, gold and oil steady, bitcoin consolidating. 



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May 28 2020

Commentary by Eoin Treacy

Europe's Stimulus Package Sparks "Mother of All" Market Dreams

This article by Cecile Gutscher and Ksenia Galouchko for Bloomberg may be of interest to subscribers. Here is a section:

There’s no sign yet that the stimulus package is anything more than a one-off response to an unprecedented crisis. Even so, investors are viewing it with a bullish lens. “It’s completely new territory for the European Union,” Michael Strobaek, global chief investment officer at Credit Suisse Group AG, said in a Bloomberg TV interview. “And that would make the European Union as an investment much more attractive for global investors.”

That would represent a shift for European markets, which have been unpopular compared with the U.S. For example, European equity funds suffered from outflows more than any other major region this year, losing about $31 billion, according to data from EPFR Global and Bank of America Corp.

Bond Buyers Toast EU Ambition in Moment They Were Waiting for Gary Kirk, a money manager at TwentyFour Asset Management in London, which oversees 17.8 billion pounds ($22 billion), is sticking with his U.S. bias. “It’s a bit early to get overly excited,” said Kirk, who’s waiting to see how the details are hammered out and whether it will pass muster with more austere governments in north Europe.

Eoin Treacy's view -

The Eurozone’s so-called sovereign wealth crisis arose because investments creditor nations’ pension funds made in private enterprises in the Eurozone’s periphery went bad. That was blamed on lax regulation and egregious behaviour with the result respective governments were forced to absorb private sector debts. That blew out sovereign debt ratios and caused a crisis. The response to the coronavirus could not be more different. Coupled with a willingness to loosen fiscal constraints, there is now also willingness to break the taboo of direct transfers to weaker nations. That is significant development even if it proves transitory in the near term.



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May 28 2020

Commentary by Eoin Treacy

New York Gold Traders Are Drowning in a Glut They Helped Create

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

The seeds of the current glut were sown when the coronavirus shut down commercial flights earlier this year and forced some gold refineries to close. The shutdowns strangled the supply routes that allow physical bullion to move around the globe, and prompted banks to step back from arbitraging between the London and New York markets. At the same time, demand for gold as a haven grew amid fears of the pandemic’s economic toll.

The premium for New York futures over London surged as traders rushed to avoid delivering in April, instead buying back contracts they had sold short.

Traders trying to capture that premium were able to arrange physical delivery, swelling inventories. Key refining hub Switzerland shipped a record amount of gold to the U.S. in April, according to figures dating back to 2012. Australia’s Perth mint also ramped up production last month and shipped bars to the Comex.

“It is a seller’s market because of the premium and the buyers are stuck right now,” Peter Thomas, a senior vice president at Chicago-based broker Zaner Group, said in a telephone interview. “Do you want to deliver now, or do you want to deliver into the back, where the premium is high?”

Eoin Treacy's view -

There was an acute shortage of physical gold in New York for a few weeks in April. That resulted in the spread between the London spot rate and Comex futures surging to $70. That encouraged suppliers from around the world to charter planes to ship inventory to New York to capture the arbitrage. Now that the supply deficit has been eliminated the spread has come back down to more normal levels. However, there is now also a surfeit of physical gold in New York looking for a home.



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May 28 2020

Commentary by Eoin Treacy

It's Not The Virus: Mexico's Broken Hospitals Become Killers, Too

This article by Natalie Kitroeff and Paulina Villegas for New York Times may be of interest to subscribers. Here is a section:

Years of neglect had already hobbled Mexico’s health care system, leaving it dangerously short of doctors, nurses and equipment to fight a virus that has overwhelmed far richer nations.

Now, the pandemic is making matters much worse, sickening more than 11,000 Mexican health workers — one of the highest rates in the world — and depleting the already thin ranks in hospitals. Some hospitals have lost half their staff to illness and absenteeism. Others are running low on basic equipment, like heart monitors.

The shortages have had devastating consequences for patients, according to interviews with health workers across the country. Several doctors and nurses recounted dozens of preventable deaths in hospitals — the result of neglect or mistakes that never should have happened.

“We have had many of what we call ‘dumb deaths,’” said Pablo Villaseñor, a doctor at the General Hospital in Tijuana, the center of an outbreak. “It’s not the virus that is killing them. It’s the lack of proper care.”

Eoin Treacy's view -

The coronavirus has ripped through the perception of government effectiveness. That is particularly true of governments where lax standards of governance have been a systemic issue for decades. That makes dealing with a threat like the coronavirus all the more difficult because it is not something that can easily be overridden by false paperwork.



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May 27 2020

Commentary by Eoin Treacy

Video commentary for May 27th 2020

May 27 2020

Commentary by Eoin Treacy

U.S. Says Hong Kong's Autonomy Is Gone, Sowing China Trade Doubt

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

Under the U.S.-Hong Kong Policy Act of 1992, Washington agreed to treat Hong Kong as fully autonomous for trade and economic matters even after China took control. That meant Hong Kong was exempt from Trump’s punitive tariffs on China, can import certain sensitive technologies and enjoys U.S. support for its participation in international bodies like the World Trade Organization.

But the law enacted last year gives the administration broad authority to impose sanctions or other punishments. The administration can also revoke Hong Kong’s special trading status if it chooses.

Such a decision, however, would have far-reaching consequences and jeopardize Hong Kong’s role as one of the world’s leading trade and banking hubs, so the Trump administration may start with smaller steps targeting Chinese Communist Party officials rather than moves that would have far-reaching economic consequences, particularly during the coronavirus pandemic.

 

Eoin Treacy's view -

Is Hong Kong fated to become just another Chinese city or can it survive as a centre for commerce in the 21st century. That question is more relevant today than it has been since the handover in 1997. Xi Jinping’s administration is intent on pushing the one-country, two systems solution to its limits and that is going to have significant repercussions for how international finance is conducted.



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May 27 2020

Commentary by Eoin Treacy

Email of the day on the potential for a second wave of infections

Dear Eoin, thank you for the excellent insights into market dynamics. There is one thing which you state from time to time - viz that you do not believe there will be a second wave of the virus in the Autumn. What leads you to believe that - we don't seem to know that much about the virus. So how can you know that there will not be a second wave in the Autumn? Although I definitely agree with you that authorities will do everything in their power to avoid more lock-downs. Many thanks, A

Eoin Treacy's view -

Thank you for this question which may also be of interest to other subscribers. Coincidence does not imply causation even though as humans we are hardwired to recognize patterns. In fact, we are so desperate to make sense of inscrutable situations that our minds will latch onto anything that provides a sense of security. However, the coronavirus is the not the 1917/18 influenza.



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May 27 2020

Commentary by Eoin Treacy

ECB Says Euro-Area Economy Is Headed for Worst-Case Slump

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

“We’ll have a better sense in a few days as we publish our numbers in early June, but it’s likely we will be in between the medium and severe scenarios,” Lagarde said when asked about the outlook in an online question-and-answer session.

The ECB is set to update its official projections for growth and inflation next, when the Governing Council also decides on policy. The central bank launched a 750-billion-euro emergency asset-purchase program in March, and economists are increasingly predicting it’ll be boosted at the June 4 session.

The asset-buying has helped rein in borrowing costs and made it easier for governments to fund stimulus.

And

“All countries around the world had to respond, and as a result of that had to increase their debt,” she said. In the face of the pandemic, “use of debt is not only recommended, it’s the way to go.”

Eoin Treacy's view -

Eurozone countries are being encouraged to break the fiscal strait jacket like never before, and now they have the perfect justification for spending. A decade of austerity has not resulted in debt ratio harmonisation as was hoped.



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May 26 2020

Commentary by Eoin Treacy

May 26 2020

Commentary by Eoin Treacy

Italy Says 96% of Virus Fatalities Suffered From Other Illnesses

This article by Tommaso Ebhardt and Marco Bertacche for Bloomberg may be of interest to subscribers. Here is a section:

The coronavirus outbreak in Italy has struck overwhelmingly among the nation’s older population and those with preexisting medical conditions, according to the national health authority.

Almost 96% of the country’s virus fatalities had previous medical conditions, data from Italy’s ISS health institute show. The ISS, which publishes a range of studies on the outbreak including a detailed weekly report, confirms a trend seen since the beginning of the emergency, with the average age of Italians who’ve died from the virus at around 80.

“The latest numbers show that new cases and fatalities have a common profile: mostly elderly people with previous illnesses,” ISS chief Silvio Brusaferro said at a news conference Friday.

Eoin Treacy's view -

The coronavirus pandemic forces us to engage in some grizzly calculus to try and figure out how markets are likely to respond to unfolding events. The reality of aging is we develop chronic conditions, one of which is likely to eventually kill us. Whether that is high blood pressure, heart disease, cancer or diabetes, aging contributes to the ill effects of all these ailments.



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May 26 2020

Commentary by Eoin Treacy

Swiss National Bank Investments in Gold and Silver Mining Stocks

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

The Swiss National bank recently published their schedule of public investments for the most recent quarter ending in March: https://www.sec.gov/Archives/edgar/data/1582202/000158220220000002/xslForm13F_X01/InfoTable_Q12020.xml.

After examining their portfolio mix, just about 4% of the portfolio is invested in the Materials segment, which encompasses 175 positions totaling USD $4.5B. Of this, 24 positions are in gold mining stocks totaling USD $1.216B and 9 are in silver stocks totaling USD $26M.

Eoin Treacy's view -

The Swiss National Bank has followed an iconoclastic policy of investing directly in companies for much of the last decade. That makes a lot of sense since it helps to accrue positions in income producing real world assets which either pay dividends or retain income for further growth. They made significant purchases of US tech stocks about a decade ago and positions in gold mining shares today signal an appreciation for both value and thematic investing.



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May 26 2020

Commentary by Eoin Treacy

Elon Musk's SpaceX Readies First Astronaut Launch by Private Firm

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

SpaceX’s efforts to launch astronauts into orbit have suffered various delays, totaling about four years, including two catastrophic explosions of its Falcon 9 rocket and nagging safety concerns about the Dragon capsule riding on top.

Having a reliable American system would mean NASA astronauts no longer need to piggyback on Russian rockets and spacecraft, as they have since the aging U.S. space-shuttle fleet was retired nine years ago. Looking ahead, NASA and White House officials envision emphasizing deep-space exploration as part of a commitment to relying on similar corporate-government teams. Those would include company-led endeavors, with relatively limited federal oversight, taking astronauts to the moon as soon as 2024 and later to Mars or beyond.

Along those lines, Mr. Musk’s team has proposed a mammoth rocket carrying a companion deep-space craft—partly stainless steel and reaching some 40 stories together—intended to eventually transport large numbers of passengers. So far, NASA has committed $135 million to help develop the portion that could serve as a lunar lander.

Some longtime NASA watchers see the current mission as a crucial steppingstone, perhaps as significant in some ways as the Gemini missions of the mid-1960s that paved the way for the Apollo moon landings. But this time, making the government “a customer rather than operator is as astonishing as it is bold for NASA,” said Mark Albrecht, a former White House space adviser and retired senior industry executive. “NASA will take the blame for failure and allow SpaceX to receive most of the glory of success.”

Eoin Treacy's view -

Elon Musk will probably be remembered as the father of electric vehicles and simultaneously the father of interplanetary travel. However, while he is an engineering genius, his expertise in getting other people to pay for his aspirational dreams is truly worthy of praise. Tesla might be a battery company, but it would not exist without carbon credits where its competitors fund its expansion.



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May 22 2020

Commentary by Eoin Treacy

May 22 2020

Commentary by Eoin Treacy

May 22 2020

Commentary by Eoin Treacy

China Abandons Hard Growth Target, Shifts Stimulus Focus to Jobs

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

With more than $500 billion in infrastructure bonds to be issued this year and more monetary easing on the horizon, China is trying to cement a fragile domestic recovery without indulging in the kind of debt blowouts seen in the U.S. and Europe. The world’s largest exporter is therefore still reliant on other countries reining in the pandemic and on a reboot of global trade.

“We have not set a specific target for economic growth this year,” Li said, speaking in the Great Hall of the People. “This is because our country will face some factors that are difficult to predict in its development due to the great uncertainty regarding the Covid-19 pandemic and the world economic and trade environment.”

Shifting away from a hard target for output growth breaks with decades of Communist Party planning habits and is an admission of the deep rupture the pandemic has caused. Economists surveyed by Bloomberg expect China’s economy to expand just 1.8% this year, its worst performance since the 1970s.

At the same time, Li gave a precise figure for the targeted budget deficit, widening it to more than 3.6% of gross domestic product. Including the issuance of special bonds, that brings a broader measure of the deficit to more than 8%, according to Bloomberg Economics.

Eoin Treacy's view -

China’s growth rate has been decelerating for much of the last decade. At the same time the growth which has been achieved has been funded by increasing the debt load. From that perspective abandoning the growth target makes sense and not least because of the current recession.



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May 22 2020

Commentary by Eoin Treacy

Poor Americans Hit Hardest by Job Losses Amid Lockdowns, Fed Says

This article by Jeanna Smialek for the New York Times may be of interest to subscribers. Here is a section:

One in five people who were working in February reported losing a job or being furloughed in March or the beginning of April, the data showed, and that pain was highly concentrated among low earners. Fully 39 percent of former workers living in a household earning $40,000 or less lost work, compared with 13 percent in those making more than $100,000, a Fed official said.

The U.S. economy began slowing in March as state and local governments instituted stay-at-home orders to tame the coronavirus’ rapid spread. That has most likely caused the steepest growth decline in the United States’ postwar history. Consumer spending has plummeted as stores and restaurants closed, and mass layoffs have become a feature of everyday life. Nearly three million people filed for unemployment benefits last week, pushing the two-month tally over 36 million.

And

While about 53 percent of those with jobs worked from home at the end of March, that was a highly educated group. More than 60 percent of workers with at least a bachelor’s degree worked completely from home, versus 20 percent of those with a high school degree or less.

Among those who had lost hours or jobs amid the pandemic, 48 percent were “finding it difficult to get by” or “just getting by,” according to the survey. Just 64 percent of those who had taken an employment hit felt that they would be able to pay their bills in April, compared with 85 percent of those without a work disruption.

Those challenges came as a large swath of Americans took pay cuts. About 23 percent of all adults, and 70 percent of those who had lost their jobs or their hours reduced, said their income was lower in March than in February.

Eoin Treacy's view -

“We’re All In This Together” has been the rallying cry of media outlets during lockdowns. However, that is no exactly true. Some people are doing fine working from home while others are in dire straits. For people who went into the lockdowns with little to now savings, they are likely to come with even less. That represents a challenge for societies everywhere because the issues of inequality that have been such a cause celebré for populists are going to be magnified going forward. 



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May 22 2020

Commentary by Eoin Treacy

Email of the day - on rare earth metals

Many governments are looking at how they can reduce their countries' dependence on China for strategic items. One of these are the rare metals. How can we invest in rare metal miners outside China?

Eoin Treacy's view -

Thank you for this question which may be of interest to subscribers. The moniker “rare earth metal” is not exactly accurate because there are deposits of the metals spread all over the world. What is rare is a willingness to permit mining operations because they are so frequently located in close proximity to uranium and thorium. Additionally, the permitting of refining operations to separate the metals from radioactive materials is rate outside of China.



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May 22 2020

Commentary by Eoin Treacy

China ore bust? Fortescue's record week

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

And FMG had a pretty good week this week: its share price hit a record high of $13.28 amid growth in Chinese production, an inflated iron ore price of about US$90, and a supply shock in Brazil, which is in the grip of the coronavirus and still recovering from that deadly Brumadinho dam disaster in January last year.

Nor did the decision later in the week by China to tighten inspections on iron ore imports dampen sentiment. Will FMG’s price continue to soar? It has a steely balance sheet, good projects in train, a healthy dividend payout, and chief executive Elizabeth Gaines is adamant Chinese demand for imports remains despite the Middle Kingdom’s ore stockpiles.

But can the iron ore price keep going? Morningstar director Mathew Hodge isn’t so sure. In fact, he expects it to halve over the next few years as China’s demand moderates and Brazil recovers. His fair value estimate for FMG is $6.80, which means it’s overvalued by about 100 per cent.

“Fortescue now trades at a premium to our $12.00 bull-case valuation,” Hodge says. “Our bull case incorporates an average iron ore price to 2024 of US$74 per tonne and US$60 per tonne from 2025 onwards. This compares with our base case assumptions of US$58 to end 2024 and US$43 from 2025 onwards.”

Eoin Treacy's view -

China is ramping up its steel production because they know the only way to reinvigorate the economy is through infrastructure development. That is going to have a major technology component which is likely to require significantly more power generation capacity which is positive for steel and cement demand.



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May 22 2020

Commentary by Eoin Treacy

Where Should Metals For The Green Transition Come From

This whitepaper may be of interest to subscribers. Here is a section:   

Novel techniques, efficiency innovations, or alternate raw-material sources can create step-function changes in industry outcomes. Seafloor nodules may present such an opportunity; a very large supply of EV battery metals lies in a relatively small area of the ocean floor.

Ocean minerals come in several forms: seafloor massive sulfides (SMSs—similar to land sulfides), cobalt crusts, and polymetallic nodules. In this report, we focus only on polymetallic nodules sitting unattached on the ocean floor in an area of the South Pacific Ocean known as the Clarion-Clipperton Zone (CCZ) (see Figure 13). The metal composition of this ocean resource is uniquely aligned with the base metal needs of the EV industry; polymetallic nodules contain nickel, cobalt, and manganese required for EV batteries, and copper required for battery-current collectors and electric harnesses. The ratio of nickel to cobalt closely matches the ratio of NMC 811 battery chemistry (see Table 2). The size of the resource is substantial, with CCZ nodules containing enough metal to electrify the global EV fleet four times over.

Unlike land-based ore bodies that fall under the jurisdiction of sovereign nation-states, the CCZ polymetallic nodules are located in international waters and are deemed to be part of the “common heritage of mankind.” According to international law, the development of this resource needs to be undertaken in a manner that benefits both developed and developing nations. The use of this resource is regulated by the International Seabed Authority (ISA), an intergovernmental body established in 1994 by the United Nations Convention on the Law of the Sea. The ISA has so far issued 16 exploration contracts, with the stated goal of having regulations in place by 2020 to allow prompt commencement of commercial production.

The development of the polymetallic nodule resource has been greeted with opposition from several ocean conservation-focused NGOs, including Greenpeace and DOSI.71 The main objection is centered around impacts on deep-sea wildlife: removing nodules will mean removing a feature of the habitat that is critical for several life functions of nodule-dwelling marine animals.

Eoin Treacy's view -

There is no getting around the fact the mining is damaging to the environment or that renewable energy solutions are very metal intensive. Everyone wants a cleaner environment but there is a lot of resistance to siting the infrastructure to deliver the raw materials or generating capacity anywhere near civilisation. That is the main point being made by Michael Moore’s new movie



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May 22 2020

Commentary by Eoin Treacy

May 21 2020

Commentary by Eoin Treacy

Video commentary for May 21st 2020

Eoin Treacy's view -

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

Some of the topics discussed include: US/China tensions rising, gold and precious metals consolidating, more UK bonds move into negative yields, liquidity remains the biggest tailwind for stocks but there is room for profit taking ahead of the holiday weekend. 



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May 21 2020

Commentary by Eoin Treacy

China's Got a New Plan to Overtake the U.S. in Tech

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

In the masterplan backed by President Xi Jinping himself, China will invest an estimated $1.4 trillion over six years to 2025, calling on urban governments and private tech giants like Huawei Technologies Co. to lay fifth generation wireless networks, install cameras and sensors, and develop AI software that will underpin autonomous driving to automated factories and mass surveillance.

The new infrastructure initiative is expected to drive mainly local giants from Alibaba and Huawei
to SenseTime Group Ltd. at the expense of U.S. companies. As tech nationalism mounts, the investment drive will reduce China’s dependence on foreign technology, echoing objectives set forth previously in the Made in China 2025 program. Such initiatives have already drawn fierce criticism from the Trump administration, resulting in moves to block the rise of Chinese tech companies such as Huawei.

Eoin Treacy's view -

China is deadly serious about becoming the global hegemon. The rest of the world has been happy to play along to get along for the last twenty years because forced technology transfer was deemed an acceptable price for the promise of benefitting from the world’s largest consumer market. The freezing out of technology companies from the Chinese market more than a decade ago should have raised red flags. Fortunately, the world is finally waking up to the fact it is dealing with a dictatorial regime intent on turning us into a series of vassal states.



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May 21 2020

Commentary by Eoin Treacy

The Big Cycles Over The Last 500 Years

This article by Ray Dalio may be of interest to subscribers. Here is a section:

In brief, after the creation of a new set of rules establishes the new world order, there is typically a peaceful and prosperous period.  As people get used to this they increasingly bet on the prosperity continuing, and they increasingly borrow money to do that, which eventually leads to a bubble.  As the prosperity increases the wealth gap grows.  Eventually the debt bubble bursts, which leads to the printing of money and credit and increased internal conflict, which leads to some sort of wealth redistribution revolution that can be peaceful or violent.  Typically, at that time late in the cycle the leading empire that won the last economic and geopolitical war is less powerful relative to rival powers that prospered during the prosperous period, and with the bad economic conditions and the disagreements between powers there is typically some kind of war.  Out of these debt, economic, domestic, and world-order breakdowns that take the forms of revolutions and wars come new winners and losers.  Then the winners get together to create the new domestic and world orders.  

That is what has repeatedly happened through time.  The lines in the chart signify the relative powers of the 11 most powerful empires over the last 500 years.  In the chart below you can see where the US and China are currently in their cycles.  As you can see the United States is now the most powerful empire by not much, it is in relative decline, Chinese power is rapidly rising, and no other powers come close.  

Eoin Treacy's view -

There is a clear message here. Empires rise and fall. Empires rise because of a competitive advantage. Success breeds hubris which sows the seeds of decay. Success also breeds decadence with societies spending beyond their means. All the while competitors learn to emulate the competitive advantage and iterate upon it. As a result, they gain strength, confidence and a willingness to challenge the status quo.



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May 21 2020

Commentary by Eoin Treacy

Gold Retreats Amid Profit-Taking Before Long Weekend

This article by Justina Vasquez and Elena Mazneva for Bloomberg may be of interest to subscribers. Here is a section:

“Looking at the U.S. weekly jobless claim data, it is clear that things are not dire as they were but the upward movement in the gold price confirms that investors are wary about the continuous claim data,” Naeem Aslam, chief market analyst at Ava Trade, says in an email

“There is no doubt we have seen a bottom in the macro data”

“Many appear keen to start taking profit on gold as it heads toward $1,750,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. “We have not seen any inclinations on interest rates to move significantly lower, while the dollar looks to have broadly stabilized”

The gold market is long and is taking some profits ahead of a long weekend, according to David Govett, head of precious metals trading at Marex Spectron Investors are “probably a bit disappointed that it couldn’t make new highs yesterday”

Eoin Treacy's view -

The Monday holiday in the USA and UK ensures two of the world’s largest capital markets are closed for business. It is not all that surprising that some money is being taken off the table in overextended markets ahead of that event.



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May 20 2020

Commentary by Eoin Treacy

Video commentary for May 20th 2020

May 20 2020

Commentary by Eoin Treacy

Bailey Says BOE Is Not Ruling Out Negative Interest Rates

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

The Bank of England is keeping the lower bound for interest rates under active review amid the coronavirus crisis and isn’t ruling out taking borrowing costs below zero, according to Governor Andrew Bailey.

When asked about the prospect of negative rates by U.K. lawmakers, Bailey said the BOE wasn’t in the habit of ruling out any policy, but wouldn’t rule them in either. The key rate is currently at just 0.1%, and policy makers have previously indicated their lower bound for rates was close to zero.

Andrew Bailey

“Given what we’ve done in past few weeks, it should come as no surprise to learn that of course, we’re keeping the tools under active review in the current situation,” Bailey said.

Bailey added the BOE was keen to observe the impact of its previous U.K. rate cuts, bearing in mind arguments that they become less effective the closely to zero they are. It’s also examining the experience of other central banks who have cut below zero, he said, adding the financial system in an economy, and officials’ communication, are both important.

“We do not rule things out as a matter of principle. That would be a foolish thing to do,” he said. “That doesn’t mean we rule things in either.”

Eoin Treacy's view -

The UK borrowed at a negative rate for the first time today. A number of the better capitalised Eurozone countries have been doing that for a few years already. It must be a nice feeling, that investors are willing to pay you to take their money. Against that background, it is understandable that Andrew Bailey would refuse to rule out negative rates for the UK



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May 20 2020

Commentary by Eoin Treacy

What Kind of Regime Does China Have?

This article by Francis Fukuyama for the American Interest may be of interest to subscribers. Here is a section:

Xi’s China is thus not the inevitable culmination of prior Chinese history. When he was elevated to head of the Party in 2012, many Chinese elites hoped that he would deal with mounting corruption—which he did, in a highly authoritarian fashion—but also lay the ground for a more liberal China that would permit more freedom to talk, think, interact, and even criticize their government. They were bitterly disappointed when he moved in the opposite direction, placing priority above all not on the welfare of the nation as a whole, but on the survival of the Chinese Communist Party. Why he did this was the result of his personal quirks and history; another leader may have gone in a very different direction. There was no historical inevitability to the present outcome.

The dangers of a regime that seeks totalitarian control were laid bare in the early days of the COVID-19 crisis, when speaking honestly about the unfolding epidemic, as Dr. Li Wenliang did, was severely punished. For all we know, the flow of misinformation is continuing today. It is wrong to hold up the CCP’s totalitarian approach in dealing with the virus as a model to be emulated by other countries. Nearby South Korea and Taiwan, both healthy liberal democracies, achieved even better results in the pandemic without the draconian methods used by China. One of the great dangers today is that the world looks to Xi’s totalitarian model, rather than a broader East Asian model that combines strong state capacity with technocratic competence, as the winning formula in facing future crises.

How then should the United States and other Western democracies deal with Xi’s China? The starting point is to recognize that we are dealing with an aspiring totalitarian country like the mid-20th century Soviet Union, and not with some kind of generic “authoritarian capitalist” regime. There is no true private sector in China. Although there are quasi-property rights and ambitious entrepreneurs there, the state can reach into and control any one of its supposedly “private sector” firms like Tencent or Alibaba at any point. Although the Trump administration’s campaign against Huawei has been clumsy and in many respects self-defeating, the goal is essentially correct: It would be crazy for any liberal democracy to allow this firm to build its basic information infrastructure, given the way it can be controlled by the Chinese state.

Eoin Treacy's view -

That word, resiliency, just popped up again. The one lesson we have learned from the coronavirus is how fragile the global supply chain. The simple fact is we are wholly dependent on an increasing antagonistic country for essential products. That is something that is going to change in the coming few years as the theatres of great power competition expand significantly. 



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May 20 2020

Commentary by Eoin Treacy

Musings from the Oil Patch May 2020

Thanks to subscriber for this report by Allen Brooks for PPHB which may be of interest. Here is a section on battery metals supply:

The potential for a change in battery chemistry from lithium-ion to lithium-sulfur could help.  A massive switch does not appear to be underway.  The big change in EV battery technology – a move to solid state lithium batteries – appears to have been pushed out to 2030 or beyond, versus the prior expectation that it would arrive in the early 2020s.  Now, battery research firms are focusing on how EV manufacturers may need to become involved in the procurement of battery raw materials, as well as completely revamping their supply chains to lower their cost.  

 The real challenge will be in the battery raw material procurement.  A chart from Benchmark’s webinar shows what the limitation is for EVs.  It is raw materials.  In the firm’s forecast for 34 million EVs in 2030, it is expected that there will be sufficient lithium-ion battery manufacturing capacity to produce 43 million EVs.  The challenge is that lithium supply will only meet the needs of 19 million EVs, while cobalt will only be able to supply 17.9 million EVs.  Those limitations equate to roughly a 45% supply shortage.  

One can certainly ask many questions about how investors will perceive EV manufacturers getting involved in mining operations to ensure adequate availability of raw materials for batteries.  Or, will the EV manufacturers figure they will just leave this endeavor to battery suppliers?  Who has the capital available for such new ventures?  What are the geopolitical risks, depending on where new supply sources are found?  Will the new supplies improve, or complicate the existing raw materials supply chains?  Will we be held hostage to foreign suppliers?  What are the ESG issues associated with mining rare earth minerals?  There is the possibility of another potential supply source, that being recycling old EV batteries, although such efforts are currently uneconomic.  

Eoin Treacy's view -

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

A number of the newest battery chemistries do not use cobalt. That is particularly true of the batteries Tesla is producing for its Chinese manufactured cars. The bubble in cobalt prices which peaked in 2018 alerted all manufacturers to the risk represented by supply inelasticity. The technological edge they have since developed means the metal will no longer be required to manufacture batteries or the use case will be substantially reduced. It’s a great example of the adage from the commodity markets that “the cure for high prices is high prices”.



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May 20 2020

Commentary by Eoin Treacy

Central Bank Leans on QE to Anchor Rupiah

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

Bank Indonesia is using bond purchases to support the rupiah and help fund the government’s Covid-19 response. Too much quantitative easing, though, could backfire and fuel worries about the accommodation of unfettered government spending.

Critical for reassuring investors, in our view, is that the central bank stick to its pledge to cap bond purchases in the primary market at 25% and intervene only as a last resort. If these promises are broken, QE could weigh on the rupiah like a pair of cement shoes.

Emerging market central banks embarking on QE might already be skating on thinner ice than peers in developed markets. Bank Indonesia, for one, has a shorter track record for demonstrating independence from political interference.

Eoin Treacy's view -

The relative strength of the Rupiah is a standout relative in Asia and is mirrored by the stability of the Philippine Peso. Both countries have deployed quantitative easing to support their respective bond markets and short up their currencies.



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May 19 2020

Commentary by Eoin Treacy

Video commentary for May 19th 2020

Eoin Treacy's view -

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

Some of the topics discussed include: silver and platinum starting to play catch up with gold. European indices remain weak, isolated strength in emerging markets, Wall Street susceptible to conslidation, oil at first area of resistance. 



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May 19 2020

Commentary by Eoin Treacy

Chips and Geopolitics

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

First, while we learned in 2016 that technology was inseparable from domestic politics, the lesson in 2020 should be that technology is inseparable from geopolitics. It is chips that gave Silicon Valley its name, and everything about this chip decision is about geopolitics, not economics.

Second, at some point every tech company is going to have to make a choice between the U.S. and China. It is tempting to blame the tension between the two countries on Trump, but the truth is that China, particularly under Xi Jinping, has been significantly hardening its rhetoric and actions since before Trump was elected, and has been committed to not just catching but surpassing the U.S. in technology for years. There is a fundamental clash of values between the West and China, and it is clear that China is interested in exporting theirs. At some point everyone will be stuck in the middle, like TSMC, and Switzerland won’t be an option.

Third, Intel, much like Compaq, is an allegory for where the U.S. seems to have lost its way. Locked in an endless pursuit of efficiency and shareholder value, the U.S. gave up its flexibility and resiliency in favor of top-end performance. Intel is one of the most advanced chip makers in the world, but it turns out that capability is far too constrained to its own needs to be of general applicability. Worse, to the extent Intel was willing to become a contract manufacturer, it wanted the federal government to pay for it, the better to satisfy shareholders. The government, rightly, in my mind, chose an operator that was actually used to operating in the world as it is, not once was.

At the same time, TSMC’s justifiable carefulness in building a U.S. fab gives Intel an opportunity. Back in 2013, in one of the first Stratechery articles, I urged the company to embrace manufacturing and give up its integration, margins be damned. Intel specifically, and the U.S. generally, would be in far better shape had they acted then. As the saying goes, though, the second best time to start is now — and that applies not only to Intel, which should spend the money to get into contract manufacturing on its own, but also to the U.S. The world has changed, and it’s time to act accordingly.

Eoin Treacy's view -

Resiliency is likely to be the buzz word of the 2020s. Rising geopolitical tensions have been a factor for a few years already but did not have a great deal of urgency attached to them. The lockdowns and collapse of global supply chains highlighted the fragility of the global trade network, Meanwhile, the increasingly ambivalent tone of US/China relations are unlikely to get better any time soon.



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May 19 2020

Commentary by Eoin Treacy

Europe's Breakthrough Recovery Plan Faces Immediate Obstacles

This article by Richard Bravo, Marek Strzelecki and Rafaela Lindeberg for Bloomberg may be of interest to subscribers. Here is a section:  

Less than 24 hours after Angela Merkel and Emmanuel Macronlaid out a radical plan that would see the European Union collectively finance its response to a virus-induced recession, countries were already expressing disapproval, threatening to doom the nascent proposal.

The German and French leaders on Monday threw their weight behind a plan to allow the EU’s executive arm issue 500 billion euros ($548 billion) of bonds, with the proceeds going to help member states affected most by the pandemic. Controversially, recipients of the funds won’t need to pay the EU back and the securities would be financed collectively. That means richer countries, like Germany, would be bankrolling poorer ones.

Angela Merkel arrives to address a joint press conference with Emmanuel Macron, attending via video link, in Berlin, on May 18.The plan represents a remarkable about-face for Germany, and the proposal, which needs unanimous approval by all 27 members of the EU, faces stiff headwinds from the bloc’s more frugal members.

“We still have to convince other member states, four in particular: Austria, Denmark, Sweden and the Netherlands,” French Finance Minister Bruno Le Mairesaid on Tuesday. “And we mustn’t hide the fact that it will be difficult.”

Austrian Chancellor Sebastian Kurz immediately threw cold water on the Franco-German plan, saying that he had consulted with his Danish, Dutch and Swedish counterparts, and that they remained opposed to any money being given to fellow countries in the form of grants. Any funds would have to be repaid by the beneficiaries, he said.

Eoin Treacy's view -

Europe needs to come up with a clear vision for its existence or it will not survive. The founding rationale for the EEC was to put age-old animosities aside and to concentrate on trade. Everyone making money and delivering improving standards of living would help to foster peace. That was successful enough to encourage further cohesion.



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May 19 2020

Commentary by Eoin Treacy

On Target May 2020

Thanks to Martin Spring for this edition of his ever-interesting letter. He quotes me in this one but don’t hold that against him. Here is a section on the lockdowns:

Rather than destroy $4 trillion of economic activity via lockdowns it would have made much more sense to spend much less – say $25 billion to start with – on Medicare/Medicaid and state public health agencies “to zero-in on protecting, isolating and treating nursing home residents.” Rather than trying to force all Americans into a one-size-fits-all regime of state control, policy ought to have been divided into three categories according to age:

The Kids Nation of those younger than 15, where to April 28 there were only five deaths where Covid-19 was involved. By comparison, children suffered 44,000 deaths from all causes last year. “In no sane world would it be a reason for shutting down the schools.”

The Parents/Workers Nation of those aged 15 to 64. They account for the overwhelming share of commerce, jobs and economic activity. They experienced just 8,267 Covid-linked deaths. Their normal mortality rate – annual deaths from all causes – is 335 per 100,000. The Covid rate to date has been just 3.6. “So, we are talking about shutting down the entire economy owing to a death rate to date which amounts to 1.1 per cent of normal mortality.”

The Grandparents/Great Grandparents Nation of 52 million. They accounted for 32,000 or nearly 80 per cent of all Covid-associated deaths, with 15,000 of them being among those 85 years and older. Their Covid mortality rate has been 61 per 100,000 to date. It has not taken “a catastrophic experiment with Lockdown Nation” to figure out that their risk of death from Covid-19 has been 7,600 times greater for them than for children; 29,000 times greater for the several million great-grandparents afflicted with severe comorbidity, and probably in the care of a nursing home. These realities were already known from China and the history of other coronaviruses. Although Stockman’s analysis is limited to America, it is clear that much of it applies to other countries. Policies could have been focused almost exclusively on the shielding and treating the elderly.

Eoin Treacy's view -

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

The lack of knowledge about the coronavirus has been the biggest impediment to common sense approaches to quarantine and lockdown. Any new pathogen has the potential to create mass hysteria but the coronavirus has succeeded in creating a level of fear unlike anything in a century.



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May 19 2020

Commentary by Eoin Treacy

China Considers More Economic Pain for Australia on Virus Spat

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

The office of Australian Trade Minister Simon Birmingham declined to comment. When asked about the list, China’s foreign ministry didn’t address the specifics but said the government “has always sought to find common ground while putting differences aside, cooperate to achieve win-win results and will not harm others to benefit oneself.”

“We hope the Australian and Chinese side can meet in the middle, take more measures to improve bilateral relations and deepen mutual trust, and provide favorable conditions and atmosphere for practical cooperation in various areas,” the ministry said.

Australia’s China Addiction Leaves It Vulnerable to Trade Spat

Speaking earlier at a briefing in Beijing on Tuesday, Chinese foreign ministry spokesman Zhao Lijian said China would back a resolution at the World Health Assembly later Tuesday that calls for a “comprehensive assessment” of the pandemic that differs from “Australia’s earlier proposal of a so-called independent global review.”

“We suggest the Australia side to go through the text carefully,” Zhao said. “If Australia is willing to change its course and give up the political manipulation of the pandemic, we will welcome that.”

Eoin Treacy's view -

Asking for an independent review of the origins of a virus which has ravaged the global economy is reasonable. That’s particularly true when it comes to trying to figure out where the next pathogen is likely to arise from and acting to prevent it. China has already razed and sanitised the wet market in Wuhan. That was completed in February so they have no intention of allowing an investigation.



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May 18 2020

Commentary by Eoin Treacy

Video commentary for May 18th 2020

May 18 2020

Commentary by Eoin Treacy

Vaccine From Moderna Shows Early Signs of Immune Response

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

“This is a very good sign that we make an antibody that can stop the virus from replicating,” Moderna Chief Executive Officer Stephane Bancel said in an interview. The data “couldn’t have been better,” he said.

And

By contrast, the mRNA technology being used by Moderna and several others relies on the body’s own cells to produce viral proteins. Once injected into the body, the RNA slips into human cells and tells them to make virus-like proteins, in this case the “spike” protein on the surface of the coronavirus. If the vaccine works, those proteins then trigger the body to generate protective antibodies.


While the technology is new and hasn’t been used in an approved vaccine before, it allows researchers to move fast into trials. Moderna started working on its Covid-19 vaccine as soon as Chinese scientists put out the gene sequence for the virus in January. By late February, Moderna’s scientists had already delivered the first batch of candidate vaccines to researchers at the U.S. National Institutes of Health. In mid-March, the first healthy volunteer received a dose in the government-sponsored safety trial.

Eoin Treacy's view -

The coronavirus is a gift for the emerging one-shot genetic solutions field. Vaccines are a perfect testing ground for the technology because the virus demands a quick effective solution where one or two doses give immunity.



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May 18 2020

Commentary by Eoin Treacy

Doordash and Pizza Arbitrage

This article by Ranjan Roy for themargins is a wonderful story of life imitating art. Here is a section:

But he brought up another problem - the prices were off. He was frustrated that customers were seeing incorrectly low prices. A pizza that he charged $24 for was listed as $16 by Doordash.

My first thought: I wondered if Doordash is artificially lowering prices for customer acquisition purposes.

My second thought: I knew Doordash scraped restaurant websites. After we discussed it more, it was clear that the way his menu was set up on his website, Doordash had mistakenly taken the price for a plain cheese pizza and applied it to a 'specialty' pizza with a bunch of toppings.

My third thought: Cue the Wall Street trader in me…..ARBITRAGE!!!!

If someone could pay Doordash $16 a pizza, and Doordash would pay his restaurant $24 a pizza, then he should clearly just order pizzas himself via Doordash, all day long. You'd net a clean $8 profit per pizza [insert nerdy economics joke about there is such a thing as a free lunch].

He thought this was a stupid idea. "A business as successful a Doordash and worth billions of dollars would clearly not just give away money like this." But I pushed back that, given their recent obscene fundraise, they would weirdly enough be happy to lose that money. Some regional director would be able to show top-line revenue growth while some accounting line-item, somewhere, would not match up, but the company was already losing hundreds of millions of dollars. I imagined their systems might even be built to discourage catching these mistakes because it would detract, or at a minimum distract, from top-line revenue.

So we put in the first order for 10 pizzas.

Eoin Treacy's view -

I had to smile when I read this article because it is almost the exact plot line from an episode of HBO’s Silicon Valley Mrs. Treacy and I watched over the weekend but from two years ago. Start-ups lighting money on fire is about as clear a sign of bubbly activity one might wish for.



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May 18 2020

Commentary by Eoin Treacy

Justice Department, State Attorneys General Likely to Bring Antitrust Lawsuits Against Google

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

Both the Justice Department and a group of state attorneys general are likely to file antitrust lawsuits against Alphabet Inc.’s Google—and are well into planning for litigation, according to people familiar with the matter.

The Justice Department is moving toward bringing a case as soon as this summer, some of the people said. At least some state attorneys general—led by Texas Attorney General Ken Paxton, a Republican—are likely to file a case, probably in the fall, people familiar with the matter said.

Much of the states’ investigation has focused on Google’s online advertising business. The company owns the dominant tool at every link in the complex chain between online publishers and advertisers. The Justice Department likewise is making Google’s ad technology one of its points of emphasis. But it is also focusing more broadly on concerns that Google uses its dominant search business to stifle competition, people familiar with the matter said.

Eoin Treacy's view -

The issue of Google abusing its power to give preferential treatment to some advertisers over others has been brewing for some time. The additional charge that the company actively censures free speech and anyone who does not agree with their view of the world is an additional challenge which will be tackled eventually.



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May 18 2020

Commentary by Eoin Treacy

Email of the day on what we can deduce from Warren Buffett's actions

I would like to ask Mr Treacy the following question:

Warren Buffet is currently holding relatively high proportion of Berkshire Hathaway holdings in cash. At the last shareholder meeting he cited the reason for not investing at this level as “The range of possibilities on the economic side are still extraordinarily wide,”

Would you consider his comments (and more importantly actions - high cash position) confirming the fact that overall market is still very far off lows that it will eventually reach? Or he holds high proportion of cash in large part due his business model - funding investments with funds generated through insurance (which potentially have high payouts coming due to downturn)? Or perhaps that he plays mainly in private equity hence the investment objectives are not very closely related to indices such as S&P 500 and Nasdaq?

I would very much appreciate your thoughts on this topic. 

Eoin Treacy's view -

Thank you for this question which others may also be asking. The facts are Buffett has sold positions in airlines and greatly reduced positions in banks like Goldman Sachs and JPMorgan, insurance companies like Travelers and energy stocks like Philips 66. He boosted his position in PNC Financial Services Group. 



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May 15 2020

Commentary by Eoin Treacy

May 15 2020

Commentary by Eoin Treacy

The Case for Deeply Negative Interest Rates

This article by Kenneth Rogoff for Project Syndicate may be of interest to subscribers. Here is a section:

Now, imagine that, rather than shoring up markets solely via guarantees, the Fed could push most short-term interest rates across the economy to near or below zero. Europe and Japan already have tiptoed into negative rate territory. Suppose central banks pushed back against today’s flight into government debt by going further, cutting short-term policy rates to, say -3% or lower…

,,,A number of important steps are required to make deep negative rates feasible and effective. The most important, which no central bank (including the ECB) has yet taken, is to preclude large-scale hoarding of cash by financial firms, pension funds, and insurance companies. Various combinations of regulation, a time-varying fee for large-scale re-deposits of cash at the central bank, and phasing out large-denomination banknotes should do the trick.

Eoin Treacy's view -

This is the economic equivalent of “use it, or lose it” when applied to money. The idea of forcing banks, pensions and insurance companies to invest is fine on paper but takes no account of the credit worthiness of the assets being purchased. The time to institute this kind of policy is after a major decline when bankruptcies have washed away high leverage and investors need an incentive to speculate. At today’s valuations, where asset prices have already been rising for 12 years, forcing speculation is a recipe for an asset bubble of epic proportions.



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May 15 2020

Commentary by Eoin Treacy

Gold Climbs After 'Bleak' U.S. Data Muddy Economic Prospects

This article by Justina Vasquez and Elena Mazneva for Bloomberg may be of interest to subscribers. Here is a section:

Silver also got a stronger bid, rallying to the highest in two months. The two precious metals have been lifted after U.S. Federal Reserve Chairman Jerome Powell warned earlier this week that the pandemic will take a heavy toll on the economy. Fears intensified on gloomy American unemployment data Thursday, and as President Donald Trump said he doesn’t want to talk to his Chinese counterpart right now.

Nations that enjoyed success quelling the virus, including South Korea and China, now face a rising number of infections. In the U.S., Texas saw its deadliest day and its biggest jump in new cases since the start of the outbreak. That comes two weeks after controversial moves to reopen the state’s economy.

“There are fears over everything from political leadership through the health outlook overall and associated economic financial and political risk,” said Rhona O’Connell, head of market analysis for EMEA and Asia at INTL FCStone. Prices are having a long-awaited breakout moment as market anxiety mounts, she said.

Eoin Treacy's view -

The Nasdaq-100 has had a V-shaped recovery. The Russell 2000, just about all of Europe, Japan and emerging markets have not. There is a lot of discussion in the media about the mismatch between Wall Street and Main Street. The fact that it doesn’t matter what governments tries to do, all they seem to succeed in is inflating asset prices and devaluing the purchasing power of their currencies.



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May 15 2020

Commentary by Eoin Treacy

Email of the day - on adjusting charts for purchasing power parity

Thanks again for the very useful audios and comment of the days. Is there a way in the chart library to compare various commodities and/or stocks to purchasing power parity like you did for gold today? If so could you please advise how. Thanks in advance.

Eoin Treacy's view -

Thank you for this question which comes up from time to time. It is possible to adjust any US dollar denominated asset for purchasing power parity by multiplying it by the PPP Index. Here is a link to a video I created a couple of years ago illustrating how to do it. 



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May 15 2020

Commentary by Eoin Treacy

Email of the day - on contagion selling

Is the contagious selling of gold and goldminers we saw march 9-22 a phenomenon only occurring in the beginning of a crash or is there a chance it could occur again if we saw a rapid further correction to the march lows on stocks? P.S. looking forward to tomorrows long term video

Eoin Treacy's view -

Thank you for this question and I am delighted you are enjoying the audios. The big question most people is whether we have seen the lows. The answer depends on what assets you are talking about.



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May 15 2020

Commentary by Eoin Treacy

China's Cautious Economic Reboot Is a Warning for the World

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

While factory output rose for the first time since the virus struck and state investment improved, private investment remained anemic. Worryingly for manufacturers who are already battling deflation and a slump in global demand, inventories are stacking up as supply outstrips demand.

The data underscore that China’s economic recovery will be gradual, with little sign of the kind of snap-back some had expected when the crisis began. It also suggests a revival led by supply will create excess capacity and disinflation unless demand soon catches up -- both at home and abroad.

“Unlocking the economy is a more challenging and complex task than locking it down,” said Chua Hak Bin, a senior economist at Maybank Kim Eng Research Pte. in Singapore. China’s experience is sobering for governments seeking to ease virus-related curbs in the hope of offsetting the deepest recession in decades. Policy makers including Federal Reserve Chairman Jerome Powell and International Monetary Fund Managing Director Kristalina Georgieva have warned that recovery is still a way off.

Some signs of China’s recovery -- especially in production -- could be seen in a sweep of data released Friday that showed industrial output rose a better-than-expected 3.9% from a year earlier, reversing a drop of 1.1% in March and a deep slump in the first two months of the year. Fixed-asset investment decreased 10.3% in the first four months, a smaller decline than the 16.1% drop in the January-March period.

Retail sales slid 7.5% though, more than the projected 6% drop, as shoppers preferred to avoid crowds and instead move their purchases online. Restaurant and catering receipts slumped by 31.1% from a year earlier, after a 46.8% collapse in March.

Eoin Treacy's view -

China was where the first lockdowns started so it also offers a potential template for how to open back up. They have pretty much ordered factories to start producing again. That’s a “build it and they will come” strategy and there are big questions whether the rest of the world is ready to consume what China wishes to export.



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May 14 2020

Commentary by Eoin Treacy

May 14 2020

Commentary by Eoin Treacy

Email of the day on inconsistency in medium-term trends.

Eoin - appreciate your use of both the P&F and weekly chart against the moving average in your discussion of Microsoft.  When evaluating the consistency pattern of stocks (Microsoft and others), how do you "adjust" for circumstances such as COVID 19?  Clearly, Microsoft was negatively impacted like many other equities in the COVID induced meltdown, but has also rebounded more smartly than others.  Thanks, as always, for your insight and willingness to share same.

Eoin Treacy's view -

Thank you for this question which gets to the heart of a question I think most people are thinking at present. There are three important considerations when looking at market reaction. These are: where are we in the secular trend? Is liquidity expanding or contracting? What does the chart tell us about sentiment?



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May 14 2020

Commentary by Eoin Treacy

Email of the day - on gold miners

Thank you for the excellent commentary at the moment. Please could you tell me how much further the Gold Miners could appreciate, in your opinion. They have already come quite a long way this year but money still seems to be going in to the big miners such as Barrick and Newmont. Yet when the stock market suffers big pull-backs- the Gold Miners can often be whipsawed

Eoin Treacy's view -

Thank for this question which may be of interest to the Collective. The lesson commodity investors quickly learn is they are much more volatile that regular stocks. The gold mining sector went through a crushing bear market and is only now recovering. Sentiment towards miners is still fragile and has contributed to volatility.



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May 14 2020

Commentary by Eoin Treacy

Email of the day on working from home

I can only agree with you having worked from home since the early 2000s (maybe you remember my office at home when you were with Bloomberg in Luxembourg). It fits well with businesses like ours where financial data et al. are immaterial or small ones focused on selling on internet. It is more difficult for activities where in situ interpersonal relationship is more important (journalism for example).

However, the time spent in endless and useless meetings where their organization or required presence has more to do with politics than business. Undoubtedly, working from home will increase productivity and reduce cost due to less space required at offices. As for retail, this should affect office prices.

Eoin Treacy's view -

Thank you for sharing your experience. I’ve always thought of commuting as the greatest waste of human productive capacity imaginable. Spending half an hour in the morning with my head in someone’s else armpit was never my idea of fun. If remote working becomes more acceptable, it will result in a significant loss of income for cities from corporate taxes and ancillary business income declining. That is an obvious risk in cities where property prices are at historic peaks.



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May 13 2020

Commentary by Eoin Treacy

May 13 2020

Commentary by Eoin Treacy

Druckenmiller Says Risk-Reward in Stocks Is Worst He's Seen

This article by Katherine Burton and Melissa Karsh for Bloomberg may be of interest to subscribers. Here is a section:

“The consensus out there seems to be: ‘Don’t worry, the Fed has your back,’” said Druckenmiller on Tuesday during a webcast held by The Economic Club of New York. “There’s only one problem with that: our analysis says it’s not true.”

While traders think there is “massive” liquidity and that the stimulus programs are big enough to solve the problems facing the U.S., the economic effects of the coronavirus are likely to be long lasting and will lead to a slew of bankruptcies, he said.

“I pray I’m wrong on this, but I just think that the V-out is a fantasy,” the legendary hedge fund manager said, referring to a V-shaped recovery.

Druckenmiller’s remarks are among the strongest comments yet by a Wall Street heavyweight on the bleak outlook facing the U.S. They also stand in contrast to the optimism that has pushed the S&P 500 Index to rally almost 30% since its March low even as the pandemic has brought the economy to a standstill, seized up credit markets and ended the longest bull market in history.

The damage spurred the Federal Reserve to unveil a raft of emergency lending programs and Congress to unleash almost $3 trillion in stimulus funds. But those programs aren’t likely to spur future economic growth, Druckenmiller said. “It was basically a combination of transfer payments to individuals, basically paying them more not to work than to work,” he said. “And in addition to that, it was a bunch of payments to zombie companies to keep them alive.”.

Eoin Treacy's view -

Have we just seen an impressive countertrend rally in an evolving medium-term bear market, or are we on the cusp of seeing an additional down-leg which could see new lows posted? It’s a multi-trillion Dollar question but another related one is how are investors responding to Jay Powell’s statement today.



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May 13 2020

Commentary by Eoin Treacy

The European Central Bank is deluding itself over German court ruling

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

The ECB is, of course, not subject to German law. As an EU institution it answers to the European Court of Justice. But this ruling is binding on the Bundesbank. I doubt that Jens Weidmann, its president, will want to fob off the German judges with a superficial response.

The ruling only allows the Germans to take part in the asset purchase programme for another three months unless they find a way to comply. Theoretically, the ECB could proceed without Germany. But I would strongly advise against it because that could precipitate a eurozone break-up.

Since its 1993 ruling upholding the legality of the Maastricht treaty, the German constitutional court has become more radical. But it avoided outright confrontation, until last week.

I find the most troubling aspect of this ruling is the assertion that the ECJ was also transgressing its competences by approving the bond buying and has gone ultra vires, in the Latin jargon of German constitutional lawyers.

This part of the ruling raises deeply troubling issues for the relationship between the EU and its member states. The German court accepts the principle that EU law overrides national law for areas they specifically recognise lie within the EU’s competence. But they reserve the right to decide whether the EU and the ECJ are operating inside or outside their legal remits. It sets a troubling precedent.

The smartest response to this ruling would be for the EU to address the problems of the eurozone head on: lack of convergence between north and south, debt sustainability and, most important right now, the issuance of mutualised debt to finance a recovery fund.

Eoin Treacy's view -

The emerging reality for EU member states is they gave up the essence of sovereignty when they accepted the idea of a European constitution. They can still go through the motions of national elections and get to issue their own debt but when it comes to big decisions about the fate of their economies, they now have little choice but to fall in line with the ECB.



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May 13 2020

Commentary by Eoin Treacy

Yelp's Link to Brick & Mortar Ad Base Keeps JMP on Sidelines

This note by Jeremy R. Cooke for Bloomberg may be of interest to subscribers. Here is a section:

Yelp shares are down as much as 15%, the most since late March, on a risk-off day for the market; JMP (market perform) in a note Wednesday highlights worries that the local search site will continue to suffer from social distancing and stay-at-home mandates affecting its advertising base.

Eoin Treacy's view -

This is another example of a company that has a reliance on brick and mortar businesses which is at severe risk of implosion. The experience of Tencent with outperformance in the Chinese gaming segment being counterbalanced by weakness in consumer finance is another example. Here is a segment from their quarterly report.



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May 13 2020

Commentary by Eoin Treacy

Twitter Says Employees Can Work From Home After Virus Recedes

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

“If our employees are in a role and situation that enables them to work from home and they want to continue to do so forever, we will make that happen,” Twitter said in the post. “If not, our offices will be their warm and welcoming selves, with some additional precautions, when we feel it’s safe to return.”

The company has more than 35 offices worldwide, including in Paris, New York and Toronto.

“We’ve been very thoughtful in how we’ve approached this from the time we were one of the first companies to move to a work-from-home model,” Twitter said in a statement. “We’ll continue to be, and we’ll continue to put the safety of our people and communities first.”

Eoin Treacy's view -

I’ve been working from home for 13 years. In fact, as soon we got the internet at home when I was 19 years old I decided I was going to find a job I could do from anywhere. Here are my two cents. 

If you someone is a self-starter in the office that will not change when they work from home. If a worker is a lay about in the office or relies on virtue signalling to the higher ups in the office. that is a lot more difficult to maintain when working from home.

Most workers will also quickly realise it is a lot easier to do two things at once on a video conference than it is in a conventional meeting. That runs the risk of tuning out in the event someone starts waffling. Generally, people are more willing to tolerate long rambling meetings in person than when at home.

For workers it is important to realise that you are not working from home. You now live at work. It is inevitable you will put in longer hours when working from home because there is always the temptation to “just check something”. Having a dedicated space or office for work is essential in my view. You need to be able to close the door on the inside world.

If more companies adopt work from home policies, as seems likely, demand for larger dwelling seems inevitable. My home has been fine for our needs for the last five years but now everyone is working from home. Just about every room in the house has been repurposed as an office, schoolroom, gym or studio. We are actively looking for a bigger home. That’s also something that will likely spur a migration from inner city smaller dwellings to larger suburban ones. That also will have a knock-on negative effect for central city office values.

Something everyone has had to deal with in lockdowns is we see a lot more of our children and spouses. That’s a good thing, the most precious thing in the world to me is the close relationship I have with my daughters. I have been priveleged to be with them for almost every day of their lives. However, many relationships survive on spouses only seeing each other for a few waking hours a day and on weekends. Prolonged interaction definitely raises the risk of partners getting on each other’s nerves and lockdowns certainly throw focus onto who does what around the house. I can say from experience that talking about these kinds of challenges is time well spent. Simultaneously accepting that one’s work life and home life are now the same is another major transition because both will be significantly affected.

Personally, I can’t see myself ever working in an office again. I am much more productive at home and I hate wasting time in meetings. The lockdowns will allow everyone to find out which they are best suited to and also whether their family life can support their preference.



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May 12 2020

Commentary by Eoin Treacy

May 12 2020

Commentary by Eoin Treacy

Fauci Warns Early Reopening Could 'Set You Back', Cause Deaths

This article by Laura Litvan and Justin Sink for Bloomberg may be of interest to subscribers. Here is a section:

The checkpoints that Fauci cited call for a succession of steps toward gradual reopening, including a “downward trajectory” of documented cases or positive coronavirus tests “within a 14-day period.”

The panel’s Republican chairman, Senator Lamar Alexander, opened the hearing -- with lawmakers and witnesses appearing largely by video from their homes or offices for the 3 1/2 hours of questioning -- by reaffirming his view that the administration’s efforts to increase testing capacity are “impressive but not nearly enough.”

“Before we spend too much time finger-pointing, I would like to suggest that almost all of us -— the United States and almost every country as far I could tell —- underestimated this virus,” he said. “Underestimated how contagious it would be. How it can travel silently without causing symptoms. How it can be especially deadly for certain segments of our population.”

But Senator Patty Murray, the panel’s ranking Democrat, said “the Trump administration’s response to this public health emergency so far has been a disaster all on its own.”

Eoin Treacy's view -

The rest of the world is quickly coming to the same realisation China did. Lockdowns cannot persist indefinitely. The economic pain is too dire. Unless cases are accelerating higher, the argument for loosening lockdowns will continue to be made. That will be particularly true of cities, states and countries which have experienced the mildest outbreaks. That’s the reward for moving early to cut off exponential growth where every day matters.



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May 12 2020

Commentary by Eoin Treacy

Email of the day - on when to use point and figure charts

Thanks for your very clear and objective commentaries at moment. It is good that you are looking beyond the current crisis and thinking about what investments are likely to do best over the longer term. I notice that you have been referring to point and figure charts more recently. Under what circumstances do you find it best to use these, rather than a 'standard' daily / weekly price chart? Also, what do you recommend using for box size / reversal as an unleveraged investor, taking a medium / long term view?

Eoin Treacy's view -

Thank you for this question. It was pointed out to me at the last Chart Seminar that it had historically always been conducted using point and figure charts and that David had been known as a point and figure analyst so what caused the change.

David’s Chart Craft business produced chartbooks because they were the only way to get good charts before the internet changed everything. Point and figure allows one to look at a vast amount of history in a very condensed area and since the patterns do not change all that often, they were ideal for a monthly publication. When I started to work with David in 2003, just as we transitioned to a fully online service, the only time I saw David use p&f was at The Chart Seminar.

P&F is best in my opinion for investors rather than traders. We have always used closing prices, a 3-box reversal and the system defaults to a 2% box size. However, p&f charts need to be tailored and that is why a custom box size option is available.

I think p&f charts are most useful for clearly depicting how a trend’s consistency has broken down.



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May 12 2020

Commentary by Eoin Treacy

Email of the day - on my personal portfolio

Eoin, does it continue to be the case that these are your most recent trades? Having been through virtually unprecedented volatility over the last 6 weeks since these trades were made, I would have expected that you might have been fairly active in the market. If these are your last trades, does that imply that you are very much an "investor" rather than a "trader". I am relatively new to the platform, and less familiar with your personal approach to investing.

Eoin Treacy's view -

Thank you for this question which other new subscribers may also have an interest in. There are times when I am more active and there are times when I don’t have any positions. The benefit of only trading for myself is I don’t have to be active. The older I get the less pressure I feel to trade. I have tried to discipline myself to only participate in the most obvious opportunities, where the odds are clearly in my favour. A casual observer might ask “isn’t that what everyone does?” but practice is very different to theory.



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May 12 2020

Commentary by Eoin Treacy

Email of the day - on chasing outperformers

With respect to the second note, and knowing your own preference to stay with the "winners" and cut the "losers", at what point do you look to valuations and question the sky-high prices people are willing to pay for these "winners"? I personally have a tough time chasing stocks that have already run, but for now at least, they just keep going, proving highly frustrating!

Eoin Treacy's view -

Thank you for this question which others may also have an interest in. The best time to buy is following a significant pullback. The next best opportunity is following the first reaction from an important low. The next will be when a breakout to new highs occur.



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May 12 2020

Commentary by Eoin Treacy

Email of the day on Japanese stocks and 6G:

I hope you and the family are handling the new normal? You certainly seem to, as there has been no decline in your daily's, in fact if anything they are like a good wine, getting better with age/experience.

I have recently checked all the Topix industrial indexes. Virtually all of them look like the majority of most world stock market indexes, except for two,

The Topix Telecommunication Index and the Topix Pharmaceutical Index.

They both compare more to the NASDAQ and one or two other stronger US indexes.

If you remember, late last year I sent you a list of Japanese 5G related companies, some of these are what my portfolio has consisted of most of this year. Many are performing in line with the NASDAQ, but when markets were selling off during March and April I added KDDI and DOCOMO to my list. I came across a DOCOMO white paper confirming their research into 6G!

Unfortunately, I do not have very much experience of the Pharma sector, except for the big names. So, if your collective could offer any ideas it would be much appreciated.

Thanking you in advance.

Eoin Treacy's view -

Thank you for your kind words and for highlighting the above sectors. This report from Sandvine highlights the fact 80% of all internet traffic is occupied by video streaming, gaming and social media. YouTube alone represents 15% while Netflix is 11%.



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May 11 2020

Commentary by Eoin Treacy

May 11 2020

Commentary by Eoin Treacy

Bet on the V; ERP on Track; Inflation Coming?

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

Eoin Treacy's view -

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

Gold’s relative strength over the last year, coupled with a tight labour market were already starting to raise interest in inflation hedges a year ago. Then came the truce in the trade war, the halting of the Fed’s rate hikes, the repo liquidity crisis and finally the coronavirus recession. That has once again raised the spectre of deflation.



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May 11 2020

Commentary by Eoin Treacy

Japan Stocks Rise on Optimism Over Restart of Economic Activity

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

“We can’t let our guards down, but the numbers of new infection cases are falling, allowing people to formulate some sort of outlook, which is being welcomed by the market,” said Naoki Fujiwara, chief fund manager at Shinkin Asset Management Co. “The market is moving based on a scenario that the June quarter will be a bottom for the economy, followed by a recovery from the September quarter.”

Optimism that economic stimulus measures will help cushion the blow from the virus also buoyed sentiment. The government and the ruling party aim to finalize plans for a second supplementary budget for fiscal 2020 during the current Diet session, the Yomiuri reported.

“The 2 trillion yen being touted is sizable and the government is taking action faster than expected,” said Shoji Hirakawa, chief global strategist at Tokai Tokyo Research Institute.

 

Eoin Treacy's view -

The easing of lockdowns will allow the economies of the world to get off their knees and hopefully will allow some rationality to come back into public discourse. That’s not a guarantee by any means considering the emotionality in how coverage of the coronavirus is being reported. The equivalent of $200 billion in government supports is not all that large relative to what has been provided by other countries but it is supportive for asset prices.



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May 11 2020

Commentary by Eoin Treacy

Sudden Bitcoin Crash Sparks Serious Coinbase Warning

This article by Billy Bambrough for Forbes may be of interest to subscribers. Here is a section:

The bitcoin price lost more than 10% in a matter of minutes yesterday evening, dropping to lows of $8,100 on the Luxembourg-based Bitstamp exchange before rebounding to settle around $8,600.

However, an outage on major U.S. bitcoin and crypto exchange Coinbase just after bitcoin's price plummet left many users unable to trade—the second time in less than a month Coinbase has buckled under stress.

"How many times do we have to say take your bitcoin off of Coinbase if you want to have access to it," Rachel Siegel, a bitcoin and cryptocurrency content creator, warned via Twitter, adding, "this is not the first time Coinbase has gone down and it surely will not be the last."

"Coinbase acting like the NYSE circuit breaking," joked Jason Williams, cofounder and partner at bitcoin and crypto hedge fund Morgan Creek Digital, suggesting that Coinbase outages could dampen spikes and dips in the bitcoin price.

Eoin Treacy's view -

The challenge in an illiquid market is it is often much easier to buy than sell. That is particularly true when it comes to the cryptocurrency markets because transactions times are slow at the best of times. During a high-volume selling event exchanges are not equipped to deal with the volume. That’s not a bug, it’s a feature of the market.



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May 07 2020

Commentary by Eoin Treacy

May 07 2020

Commentary by Eoin Treacy

May 07 2020

Commentary by Eoin Treacy

Market Keeps Distancing Itself From Economy

This article by Mohamed A. El-Erian for Bloomberg echoes a common sentiment among institutional investors. Here is a section:

The rate of labor force dislocation, albeit distressing, appears to be moderating. The weekly 3 million jobless claims number is the lowest in the last seven weeks and less than half the worst level.

The report highlights the urgent and important policy priorities of dealing both with the implications of such a terrible shock to jobs and with ensuring that short-term problems don’t become long-term ones that are much harder to solve.

With markets focusing on the improvement in the “second derivative,” that is a reduction in the rate of labor force dislocation, U.S. stocks rose. This widens an already considerable decoupling from the real economy and will fuel the debates on Wall Street versus Main Street, companies versus people and the well-off versus the marginalized. 

Eoin Treacy's view -

Didi’s CEO was quoted today stating the company has recovered to about 70% of the number of rides taken before the Chinese lockdown began. That’s an impressive rebound, particularly as we look at what the trajectory of recovery will be for countries only beginning to ease lockdowns today.



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May 07 2020

Commentary by Eoin Treacy

The Changing Value of Money

This article by Ray Dalio may be of interest to subscribers. Here is a section:

Then came World War I when warring countries ran enormous deficits that were funded by central banks’ printing and lending of money.  During the war years gold was international money as international credit was lacking because trust was lacking.  Then the war ended, and a new monetary order was created with gold and the winning countries’ currencies, which were tied to it, at the center of that new monetary order. 

Still, in 1919-22 the printing of money and devaluations of several European currencies were required as an extension of the debt crises of those most indebted, especially those that lost World War I.  As shown this led to the total extinction of the German mark and German mark debt in the 1920-23 period and big devaluations in other countries’ currencies including the winners of the war that also had debts that had to be devalued to create a new start.

With the debt, domestic political, and international geopolitical restructurings done, the 1920s was a boom period, which became a bubble that burst in 1929.

In 1930-45, 1) when the debt bubble burst that required central banks to print money and devalue it, and then 2) when the war debts had to increase to fund the war that required more printing of money and more devaluations. 

At the end of the war, in 1944-45, the new monetary system that linked the dollar to gold and other currencies to the dollar was created, and the currencies and debts of Germany, Japan, Italy, and China (and a number of other countries) were quickly and totally destroyed while those of most winners of the war were slowly but still substantially depreciated.  That monetary system stayed in place until the late 1960s. 

Eoin Treacy's view -

The purchasing power of fiat currencies is rapidly being debased. That is helping to support the nominal prices of stocks, property, gold and bonds. The $4 trillion surge in the total assets of central banks over the last couple of months has supported prices for just about all asset classes. The best performing assets have been those that have historically benefitted from deploying free abundant capital to fuel growth since 2009.



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May 07 2020

Commentary by Eoin Treacy

Email of the day on the need for lockdowns

This is an interesting review of Neil Ferguson's pandemic model.  If true, it obviously raises some interesting questions about UK strategy. But the biggest issue for me is the way it exposes the gulf between technology specialists and political judgement. Our politicians may be ill-equipped to make good decisions in a world when so much is dependent on good data. 

Thanks for great audios recently - much appreciated.

Eoin Treacy's view -

Thank you for this educative article and I am delighted you are enjoying the service. For the many new subscribers who have joined our ranks over the last month, the daily audio/video and the Big Picture Friday version are the most expedient ways of accessing where my current thinking is residing.

 

Debate about the efficacy of the lockdowns is predictably ramping up. That’s to be expected. The pressure on businesses, personal finances and cabin fever lend credibility to anyone who wishes to defy quarantine. For example, Mrs. Treacy’s tennis circle have been discussing how to break lockdown orders to go and view the bioluminescence at the local beaches. https://www.ecowatch.com/bioluminescent-waves-california-2645933919.html?rebelltitem=3#rebelltitem3 Cabin fever is clearly taking a toll on everyone. Here is a particularly relevant section from the article:

 

 

Conclusions. All papers based on this code should be retracted immediately. Imperial’s modelling efforts should be reset with a new team that isn’t under Professor Ferguson, and which has a commitment to replicable results with published code from day one. 

On a personal level, I’d go further and suggest that all academic epidemiology be defunded. This sort of work is best done by the insurance sector. Insurers employ modellers and data scientists, but also employ managers whose job is to decide whether a model is accurate enough for real world usage and professional software engineers to ensure model software is properly tested, understandable and so on. Academic efforts don’t have these people, and the results speak for themselves.

My identity. Sue Denim isn’t a real person (read it out). I’ve chosen to remain anonymous partly because of the intense fighting that surrounds lockdown, but there’s also a deeper reason. This situation has come about due to rampant credentialism and I’m tired of it. As the widespread dismay by programmers demonstrates, if anyone in SAGE or the Government had shown the code to a working software engineer, they happened to know, alarm bells would have been rung immediately. Instead, the Government is dominated by academics who apparently felt unable to question anything done by a fellow professor. Meanwhile, average citizens like myself are told we should never question “expertise”. Although I’ve proven my Google employment to Toby, this mentality is damaging and needs to end: please, evaluate the claims I’ve made for yourself, or ask a programmer you know and trust to evaluate them for you.



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May 06 2020

Commentary by Eoin Treacy

May 06 2020

Commentary by Eoin Treacy

Fund Manager's Diary May 2020

Thanks to Iain Little for these two editions of his letter. The first is a somewhat tongue-in-cheek look at fat targets for future UK taxes. The second contains a fitting reminder of David's contribution to the field of behavioural analysis and a short summary of my thinking on markets over the last while. Here is a section from the former:

This Corona Lockdown has cost the UK government a whole chunk of change, about GBP 300bn.  The cupboard’s going to be pretty bare for a dose of pre-electoral stimulus in 2023.  The Resolution Foundation says that job subsidies could cost GBP 40bn a quarter; that’s GBP 160bn a year.  But there’s a simple solution and it’ll come with a cheer from the voters that really matter to you: the working class, pro-Brexit, patriotic northerners you won over to the Tory cause in 2019.  They’re the ones you need to win the 2024 General Election.

The key is the 2 million owners of UK second homes, worth GBP 1 trillion.  They’re in the Top 5% by income and wealth, and they’ve benefitted from the second mortgage, second home boom of the last 30 years.  That’s one trillion quid to be harvested and it simply can’t be moved.  OK, wealth tax is unknown in the UK, but people have gotten pretty used to it here on the Continent.

How about a patriotic 5% “special Corona” wealth tax on second homes?  That’ll earn you about GBP 50bn.  Then, as we move towards election time, a second home wealth tax tapering from 5% down to 3%.  That’ll scoop you another GBP 40bn a year.  Legacies from the oldest Baby Boomers will add to this taxable property pile, and you’ll be able to grab some Inheritance Tax at 40% on the way through.  You can apply the wealth tax retrospectively, to reduce tax dodges like passing title into the kids’ names, or incorporating.  (The Americans can’t do this retrospective taxation thing, as it’s prohibited by the US Constitution since the Brits tried it before 1776).

Eoin Treacy's view -

As we travel further down the road of modern monetary theory, or perhaps more correctly debt monetization, the question of how it will be paid for is becoming more urgent. Raising taxes is going to be extraordinarily unpopular, but most especially in the UK where buy to let schemes have proliferated over the last 30 years. A broad swathe of the middle class has staked their retirement on the property market.



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May 06 2020

Commentary by Eoin Treacy

Fed Embraces Libor Again and Risks Undermining Push to Kill It

This article by William Shaw and Alexandra Harris for Bloomberg may be of interest to subscribers. Here is a section:

Regulators on both sides of the Atlantic have spent the better part of three years trying to kill the
London interbank offered rate. Now, they’re looking to it once again to underpin hundreds of billions of dollars in loans as they seek to rescue their economies.

U.S. policy makers last week changed tack and turned to Libor as the benchmark for their $600 billion Main Street Lending Program, which will buy debt from potentially hundreds of companies. The move came a day after U.K. officials granted banks a six-month extension to keep issuing loans tied to the beleaguered reference rate, which is supposed to be phased out by the end of 2021.

The timetable to do away with the benchmark linked to trillions of dollars of financial assets appears increasingly at risk as central bankers lean on Libor to help expedite their massive stimulus efforts. As they lend legitimacy to the much-maligned rate, some market watchers say it’s highlighting the shortcomings of replacements, while others note it could ultimately lead to a more difficult transition down the road.

“The crisis does make it tougher and it will put a lot more time pressure on meeting the deadline,” said Darrell Duffie, a finance professor at Stanford University who has written extensively on Libor. He called the Fed’s decision, while necessary, “very unfortunate” and a missed opportunity to pivot
away from the benchmark, adding that it’s a sign that U.S. lenders “were not getting ready” for the transition. 

Eoin Treacy's view -

When I originally took regulatory exams back in 2003 there were quite a few areas of the financials markets in London that relied on gentleman’s agreements for regulation. Mergers & acquisitions, the law society, the gold and silver market and most of all LIBOR were all self-regulated markets. One of the biggest changes that followed the credit crisis was to try and exert greater control over the organs of the financial system.



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May 06 2020

Commentary by Eoin Treacy

Buchse Der Pandora

This article by Edward Ballsdon may be of interest to subscribers. Here is a section:

Eurostat reports that there was roughly €2 trillion of outstanding German government debt at year end 2019. ALL German government bills (Bubills) and bonds (Bunds) have a negative yield, which simply means that bondholders are prepared to pay the German government an annual fee to lend their money to the German Government, be it at -0.65% for very short term debt to -0.52% for 10yr debt to -0.13% for 30 year debt.
Did the yesterday’s German Constitutional Court ruling just change the risk/reward for investors in European government bonds?
 
The current 10 year Bund yield of -0.52% can be broken down into two components:

+ 0.48% Inflation Breakeven Rate.
- 1.00% Real Yield. 

Eoin Treacy's view -

The German constitutional court’s ruling that central bank purchases are potentially illegal is mostly an internal affair. The extent to which the ECB is subject to German law is highly debatable but pressing that point has political consequences for any country. There remains ample room for legal two-stepping to avoid any official censure which is why the bond market has brushed away any concerns.



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May 05 2020

Commentary by Eoin Treacy

Video commentary for May 5th 2020

Eoin Treacy's view -

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

Some of the topics discussed include: Is the ECB subject to German law? Euro weak, gold steady, oil firm, corporate profits peaking, stock markets susceptible to profit taking as they test first regions of potentila support. Bonds ease.



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May 05 2020

Commentary by Eoin Treacy

Musings From The Oil Patch May 5th 2020

Thanks to subscriber for this edition of Allen Brooks’ every interesting report for PPHB. Here is a section:

These large stock buybacks, coupled with increased debt, despite low interest rates, have contributed to a remarkable decline in corporate cash balances.  Cash balances for S&P 500 Index companies have fallen to the lowest level since 1980, while debt has soared.  Based on how volatile these two measures have become, we wonder whether, following the recession we certainly are in, cash on company balance sheets becomes a prized asset.  Likewise, will debt become toxic?  Given very low interest rates, something not likely to change anytime soon, will corporate executives adjust how they manage their balance sheets?  

Traditionally, dividends account for about 2% and share buybacks about 3% of the historical annual average stock market return of 5%.  The cessation of share buybacks would cut investor return expectations more than in half, and returns will be further reduced to the extent that dividends are eliminated and/or restricted.  That will be a huge blow to investors who sought out stock market returns to replace those lost from bonds due to low interest rates.  The neighboring chart shows that about 6% of buyback programs, representing 14% of the expected value of buybacks for energy, have been suspended so far this year.  We certainly expect these numbers to rise as the year unfolds, regardless of legal restrictions imposed by government relief payments, due to cash-preservation steps by managements following the oil price collapse.  

As Exhibit 17 shows, energy in the S&P 500 Index was the fourth lowest sector, ranked by dollars committed to share buybacks.  Not a surprise, given the oil price crash of 2014, was the sharp decline in dollars spent on share buybacks over the last five years compared to the last 10 years.  The amount of money spent on energy share buybacks for 2015-2019 was only 31% of the 10-year expenditures.  We will not be surprised to see the next 5-year period having even less money spent on stock buybacks, unless there is a miracle recovery in oil prices.  

If we consider what investor returns by sector of the S&P 500 were in the fourth quarter of 2019, energy topped the list with nearly a 10.5% yield.  That was nearly 80% greater than the yield of the S&P 500 Index.  That will change in 2020, and likely in 2021, as we expect that is how long it will take for the oil market to balance.  The unanswered question is how the risk profile for investing in energy stocks may change, as well as investing in the stock market overall?

Eoin Treacy's view -

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

Royal Dutch Shell cuts its dividend last week which was a significant departure from its long-held policy of reliable payouts. However, the move was anticipated by the significant decline in the share over the last few months and the decision did have had a measure effect on the price. The primary reason investors look at the energy sector now is because of the attractive valuations. Meanwhile, the uncertain outlook for the oil price is the reason valuations have improved.



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May 05 2020

Commentary by Eoin Treacy

Peering into the post pandemic world

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

Almost every major crisis and recession has resulted in lasting implications. The 1973 oil crisis ended the Bretton Woods system and brought about the regime of floating currencies and exchange rate volatility. September 11 permanently changed the way we travel and raised the level of security in public settings and airports. Unprecedented monetary easing after the 2008 Great Financial Crisis further propelled the unlikely continuation of the 30-year rally in government bonds and facilitated the resurgence of tech stocks and credit markets. The Global Covid-19 Crisis will also leave its permanent imprints on consumers, markets and economies. Although we are only a few months into the crisis, it is key to look forward to the next economic cycle and ask: what are the structural changes created by the Covid-19 outbreak and who will be the winners and losers?

For companies, the focus will shift to building resilience
As the virus outbreak results in demand and supply shocks unprecedented in terms of speed, depth and breadth, many companies face tremendous pressure, and this will have a lasting impact on risk perception.  Companies will turn more cautious and focus on building resilience in terms of their business strategies and balance sheets, and shareholders will expect management teams to take steps to ensure that the business is strong enough to take the next big shock.

Eoin Treacy's view -

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

Consumers are wondering about what the trajectory for their earnings are going to be. Nobody knows what the outlook for their businesses is likely to be in the aftermath of the lockdowns or how long recovery is going to take. There is a temptation to think corporations are going to be as cautious as individuals.



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May 05 2020

Commentary by Eoin Treacy

Hedge funds bet on gold as refuge from 'unfettered' currency printing

Thanks to a subscriber for this article by Laurence Fletcher and Henry Sanderson for the  Financial Times which may be of interest. Here is a section:

Paul Singer’s Elliott Management, Andrew Law’s Caxton Associates and Danny Yong’s Dymon Asia Capital are all bullish on the yellow metal, which has risen about 12 per cent this year. They are wagering that moves to loosen monetary policy and even directly finance government spending, intended to limit the economic damage from the virus, will debase fiat currencies and provide a further boost to gold.

“Gold is a hedge against unfettered fiat currency printing,” said Mr Yong, founding partner at Dymon Asia, which is up 36 per cent this year, helped by its bet on the gold price.

New York-based Elliott, which manages about $40bn in assets, told its investors last month that gold was “one of the most undervalued” assets available and that its fair value was “multiples of its current price”.

In a letter, Elliott cited the “fanatical debasement of money by all of the world’s central banks” as well as low interest rates and disruption to mining caused by coronavirus. Profits from gold positions helped the hedge fund to a gain of about 2 per cent in the first quarter.

Eoin Treacy's view -

Central banks are acting like the proverbial Dutch boy with his finger in the dyke. The assistance provided to date is a stop gap measure but is open ended. This might not be the most convenient time to think about deficits and how all this is going to be paid for, but gold investors are not hanging around. 



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May 04 2020

Commentary by Eoin Treacy

May 04 2020

Commentary by Eoin Treacy

Leave no dark corner

Thanks to a subscriber for this article by Matthew Carney for Australia’s ABC news. Here is a section:

The Party is using the system to win back some of the control it lost when China opened up to the world in the 1980s and rapid development followed.

It’s a way to silence dissent and ensure the Party’s absolute dominance.

Already, about 10 million people have been punished in the trial areas of social credit.

Liu Hu is just one of them.

Hu lost his social credit when he was charged with a speech crime and now finds himself locked out of society due to his low score.

In 2015, Hu lost a defamation case after he accused an official of extortion.

He was made to publish an apology and pay a fine but when the court demanded an additional fee, he refused.

Last year, the 43-year-old found himself blacklisted as “dishonest” under a pilot social credit scheme.

“There are a lot of people who are on the blacklist wrongly, but they can’t get off it,” says Hu.

It’s destroyed his career and isolated him, and he now fears for his family’s future.

The social credit system has closed down his travel options and kept him under effective house arrest in his hometown of Chongqing.

In an apartment above the streets of Chongqing city, Hu tries to use a phone app to book train tickets to Xi’an. The attempt is rejected.

“[The app] says it fails to make a booking and my access to high-speed rail is legally restricted,” he explains.

Hu’s social media accounts, where he published much of his investigative journalism, have also been shut down.

Hu claims his combined Wechat and Weibo accounts had two million followers at their peak but are now censored.

Eoin Treacy's view -

Safety and stability are bywords for control. Personal prestige as a means of improving one’s living standards is the tool used to ensure compliance. The confluence of social media primping is hardly a coincidence. That is not something China has a monopoly on. The difference, however, is democracy and rule of law ensures a check on the overarching ambitions of governments to exert control over their citizens.



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May 04 2020

Commentary by Eoin Treacy

Email of the day - on gold volumes

Like you, I follow the PMs, particularly gold and silver. I noticed a remarkably consistent pattern in spot gold trading volume. Going back 10 years, the volume has picked up and dropped back on alternate months. During the summer doldrums there is a hiatus, as one would expect. The alternating pattern then resumes around the end of October each year. I am very interested to hear your explanation for this.

Eoin Treacy's view -

Thanks for this question which others may have an interest in. Spot gold does not have volume data because it is an indicative price rather than a traded price. Volume data is available on futures contracts.



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